Standard Life plc (SDLF) Earnings Call Transcript

Thank you, Claire, and good morning, everyone, and welcome. Thank you for those who joined in the room and also to those who've joined us on the webcam. It gives me great pleasure to be sharing Phoenix Group's 2024 full year results with you today. I'm joined on stage by Nick Nicandrou, our new group CFO, who started back in December. Like myself, Nick has worked in the industry for over 30 years, and I'm delighted to have a CFO of his caliber working alongside me. Looking at today's agenda, I'll start with a summary of the progress we've made 1 year into the 3-year strategy we announced last March. I'll hand over to Nick to take you through the 2024 financial performance, and then I will close with an overview of our priorities across 2025 and 2026. 2024 has been a year of strong financial performance. This performance, along with our increasing confidence, has driven an upgrade to a number of the targets we set back in March across our financial framework of cash, capital and earnings. From a cash perspective, we've outperformed in our key metric, Operating Cash Generation or OCG, and achieved our 2026 target of GBP 1.4 billion 2 years early, and supporting total cash generation of GBP 1.8 billion. This overdelivery of OCG and outlook has driven an upgrade to our 3-year 2024 to 2026 total cash generated from GBP 4.4 billion to GBP 5.1 billion. I will talk more about the importance of OCG shortly. In terms of capital, we're reaffirming our targets. Solvency capital coverage ratio of 172% is in the top half of our target operating range and an improvement on the half year. We remain firmly committed to achieving a 30% target leverage ratio by 2026, and I'm disappointed that it has remained flat at 36% this year despite repaying debt because own funds has been lower than I would have liked. Going forward, delivering own funds growth is a critical focus for us. Also, the increased cash target means we now have substantial excess cash, which creates the capacity to pay down debt. Deleveraging is a key priority of the group over the next 2 years, and Nick will outline our plans there. Recognizing the importance of IFRS earnings to investors, we've added earnings to our financial framework last year. It was pleasing to see a 31% year-on-year increase in IFRS adjusted operating profit to GBP 825 million. Combined with our confidence in achieving our GBP 250 million cost saving target, this has driven the increase to our 2026 target from GBP 900 million to GBP 1.1 billion. This is a key milestone for the group. And since GBP 1.1 billion of operating profit exceeds recurring uses on an IFRS basis, it will support getting upward trajectory on shareholders' equity. The strong financial performance we are delivering as we execute our strategy supports our progressive and sustainable dividend policy. And the Board has recommended a 2.6% increase in the final dividend. There are many ways to look at the financials of a life insurer, but we believe operating cash generation is the most important because it's the sustainable surplus generation in the life operating companies that's also remitted of dividends up to the holdco. Hence, it's the primary driver of shareholder dividends. The 22% year-on-year increase in OCG reflects not only the growth in our Pensions and Savings and Retirement Solutions businesses, but also a step-up in contribution from the Phoenix Asset Management team. There are 3 key messages here. The first is that our dividend is well covered and very secure, or the more so as we hedge the major financial risks to protect cash generation, and hence, the dividend. Second is that at GBP 1.4 billion OCG generates GBP 300 million of excess cash per annum to deploy in accordance with our capital allocation framework. Our immediate focus for excess cash will be deleveraging to achieve our 30% leverage ratio target. And the third is that the growth in our underlying businesses means we now expect OCG to grow at mid-single digits going forward. With free cash of over GBP 800 million generated, Phoenix is currently trading or was when we opened this morning, trading at a 17% free cash flow yield, which highlights the value opportunity. Our vision is to become the U.K.'s leading retirement savings and income business, serving customers at all stages of their life cycle from 18 plus to 80 plus. Our Pensions and Savings and Retirement Solutions businesses are focused on meeting customer needs as they save for, transition to and secure income in retirement, with innovative retirement income solutions at our core. To win in these markets, we need to offer a compelling customer experience. That means offering a full range of retirement savings and income solutions through a slick digital interface, with a range of fund investment options, supported by excellent customer service and which is sold at a competitive price that is enabled by an efficient group-wide operating model. And this will be delivered through our strategic priorities of growth, optimize and enhance. We are passionate about our purpose of helping people secure a life of possibilities. We continue to advocate for the change that will help our customers achieve the financial future they expect. There's only 1 in 7 U.K. adults that's saving enough, and only 10% are getting advice. Our market is huge, structurally growing, and each segment represents an opportunity for Phoenix to succeed in different ways. Starting on the left-hand side, the workplace pensions market is growing rapidly, driven by auto enrollment, means our primary customer acquisition vehicle. We've built a leading proposition and are poised to be a winner from the move to Master Trust schemes and from the government's plans to drive consolidation to super funds in this market. We often talk about Workplace as a flywheel business where scale is critical to driving operating leverage. So our strategy in this market is simple: to retain existing schemes,and win new schemes and, hence, maintain our top 3 position as this market grows rapidly. Moving to retail. This market is split between direct and intermediated channels. As the responsibility for retirement planning is shifted towards individuals, people are seeking an increasingly broad range of innovative retirement savings and income products. With only 1 in 10 people paying for a financial advice, we think the introduction of targeted support could be a game changer and will stimulate the retail direct market further. We're investing here to move from being a top 10 to a top 5 player by better supporting and engaging the 1 in 5 adults who are already Phoenix Group customers as they make retirement decisions to stay and consolidate with us, and to attract new customers through intermediaries by building out innovative propositions that better help them meet their clients' needs. Lastly, in annuities, we've seen higher interest rates drive resurgence in the individual annuity market as well as the continuation of a strong bulk purchase annuity market. We've been a top 5 participant in the BPA market over recent years, and I'm also particularly pleased that Tom Ground and his team have rapidly built a 12% share of the individual annuity market, having only just reentered in 2023. We continue to be disciplined in the deployment of capital annuities alongside developing propositions suited to customer needs. So let me take you through our divisions. Our Pensions and Savings propositions help customer's journey to and through retirement. This is our capital-light, fee-based business, where growing assets and expanding operating margins a key strong financial performance. Our Workplace business delivered net inflows of GBP 5.3 billion in 2024, 13% higher than prior year, as we are successfully executing our strategy of retaining existing schemes and winning new schemes. The success is driven by the leading employer proposition we built under the trusted Standard Life brand with our strong Master Trust offering, and the sustainable fund solutions with the FCA's new sustainability labeling. And the strength of our proposition is consistently recognized by industry awards. We are passionate about providing excellent customer service and offering a leading digital interface that enables members to track and engage with our pensions and promotes financial wellness. Finally, we offer competitive pricing underpinned by our ongoing migrations to a cost efficient admin platform. In Retail, new business retail flows are up 60% year-on-year, but we have more to do to really capture the opportunity here. Standard Life is a brand that has been trusted to look after people savings and retirement needs for 200 years and resonate strongly with the 1 in 5 people who are already Phoenix Group customers. Retaining customers is an important focus for our business, and we are exploring personalized engagement. Still in early days, but testing indicates this is creating improved retention and consolidation. Customer needs are changing. And I'm delighted that we are innovating in response through both the launch of new products, like the Standard Life Smoothed Managed Fund; and through the launch of new fund solutions like Future Growth Capital, a new private market's investment management joint venture. And key to success in these markets is a great digital experience, creating tools to help customers plan for and manage retirement income. For example, partnering with Raindrop to support customers consolidating lost pensions. The progress of this business has translated into really strong financial performance in 2024. This is a simple business that we run on an IFRS basis. We make money by growing assets, up 11% year-on-year and driving cost discipline, leading to margin expansion, up 5 basis points to 17 basis points, which in turn drives 66% growth in operating profit to GBP 316 million. I'm delighted with the progress Colin Williams and his team are making here. And with strong market growth, increasing our share of retail and further cost reductions, there is much more to come. Our Retirement Solutions businesses help customers secure income certainty in retirement. This is a capital utilizing spread-based business. We maintained a disciplined deployment of capital in this business to preserve a diversified balance sheet and limit shareholder credit risk. We're winning BPAs through our excellent member experience. Our digital self-service allows customers to understand their annuity position online, real time, and is supported by other communication channels with a focus on clarity of customer messaging. Our success in this market is also driven by the leading employer proposition we built with comprehensive buy-in and buyout capabilities available. Finally, we're able to offer competitive pricing driven by our asset management and balance sheet optimization capabilities, and an expanding panel of reinsurance partnerships. In individual annuities, fast, guaranteed pricing is a differentiator, as well as timely execution. I'm particularly proud that we launched our new digital quote capability this year, where over 90% of our quotations are underwritten and returned within seconds. We've also expanded our product range, including the Standard Life Guaranteed Fixed-term Income product, and underpin our offering with a great digital experience for annuity customers. This business has also performed well this year, writing similar volumes of business year-on-year despite a 1/3 reduction in capital. This is due to the improvement in the annuity capital strain to 3%. Under IFRS, we recognize a future store profits on insurance business, called Contractual Service Margin, and it was pleasing to see this grow 14% in the year. The high releases of CSM into profit contributed to the 25% year-on-year increase in operating profit. Over the last 4 years, we've invested in building strong in-house expertise in Phoenix Asset Management to deliver better outcomes for customers and enhance risk adjusted returns. We see this value creation emerge in cash and capital as recurring management actions. We put significant investment into our people capabilities under Mike Eakins' leadership, expanding the team from less than 50 colleagues in 2020 to over 400 today from investment professionals to credit risk experts. The in-house team drive all strategic asset allocation decisions and select best-in-class partners to work with in each asset class with Aberdeen, of course, remaining our key strategic growth partner. Our investment in capabilities mean that our in-house team is now managing increasing parts of the shareholder fixed income portfolio. On top of the talent developed, we've invested in leading-edge technology using platforms such as Aladdin and AWS, which support our robust credit risk management framework. So how does this benefit our business units? For Pensions and Savings, it enables us to develop new products, get better customer turns by accessing pockets of value in specialism such as private assets, and deliver fund efficiencies by negotiating asset management agreements. For Retirement Solutions, it allows us to directly source annuity-backing assets, and broaden the investable universe, enabling us to price BPA portfolios more dynamically and competitively in the market. These actions allow us to continually re-optimize the portfolio within the Matching Adjustment rules and deliver recurring management actions. Scaling these capabilities and achieving GBP 0.5 billion of recurring management actions this year has given us the confidence that this type of activity is replicable year in, year out. As firstly, the team is set up with both the technology and expertise to deliver; and secondly, the portfolio will grow as we to win business. Last March, I set out clear strategic priorities that will enable us to deliver our vision of becoming the UK's leading retirement savings and income business. We're only 1 year into our 3-year strategic journey to build a sustainably growing business. You will have seen that in 2024, we delivered excellent growth in profits in both Pensions and Savings and Retirement Solutions. We've upgraded or reaffirmed our financial targets across our financial framework of cash, capital and earnings. The target upgrades are a key unlock to further strengthen the balance sheet in 2 ways as we grow. Firstly, the upgraded OCG creates substantial excess cash, providing financial flexibility to reach our 30% leverage ratio target by 2026. Secondly, the upgraded IFRS operating profit target demonstrates a path to deliver profit in excess of recurring uses and support future growth in shareholders' equity. Delivering on our strategy supports strong shareholder returns, enabled by a progressive and sustainable dividend policy, which is well covered and secure. And with that, I'll hand over to Nick, who will cover some of his initial reflections and then talk in more detail about the financial performance. Nick?

Thank you, Andy. Good morning, everyone, and let me start by saying how pleased I am to be in the seat of CFO here at Phoenix, and to be presenting the group's 2024 full year results. As Andy mentioned, I would like to share my initial views on the business, starting by how good a job he and the team have done in strategically and operationally pivoting Phoenix from a closed book consolidator into an open book player. The business has developed real strengths in Workplace and Annuities, both of which are market segments with a phenomenal growth runway. These strengths are transferable to retail, and can be deployed to help many of our 12 million customers' journey to and through retirement. On the flip side, the balance sheet pivot has lagged the strategic pivot. As we stand here today, Phoenix is highly leveraged and is only now getting into a position where its recurring sources of funds exceed recurring uses. Finally, our business does not screen well under our IFRS 17, due in part to the intricacies of the new accounting rules, which in combination with the heading strategy mean that the reported IFRS shareholders' equity underplays the intrinsic value of the business. The best way of addressing these challenges is through repeatable operational delivery. By growing the recurring flow of capital year after year, we will in the quality and in time, the quantity of the stock of our capital. To this end, it is great to see the step up in operating performance in 2024, which creates the momentum needed to address the balance sheet picture starting with leverage. So this is an exciting time to be joining Phoenix and I can see many ways in which I can bring my experience to bear. Starting with the financial highlights. In 2024, Phoenix grew operating cash generation by 22% to GBP 1.4 billion, delivered total cash generation ahead of guidance at GBP 1.8 billion, closed the year with a shareholder to solvency cover ratio in the top half of our operating range at 172% and increased IFRS adjusted operating profit by 31% to GBP 825 million. Conversely, the solvency leverage ratio proved harder to shift remaining unchanged at 36%. IFRS loss after this was GBP 1.1 billion, and I will come back to this later. But the impact of this loss on IFRS equity was cushioned by the strong growth in CSM, up 14% to deliver IFRS adjusted shareholders' equity of GBP 3.7 billion. The strong cash, capital and operating performance of the group led the Board to recommend a 2.6% increase in the final dividend to 27.35p per share. Our confidence in sustaining this high level of performance going forward has led us to upgrade the cumulative total cash generation target from GBP 4.4 billion to GBP 5.1 billion and the 2026 IFRS operating profit target from GBP 0.9 billion to GBP 1.1 billion. The remaining targets are unchanged. As Andy has already outlined, delivering these upgraded targets would create further financial capacity, which allows us to undertake the deleveraging needed to hit our 30% goal, while continuing to support the growing dividend. The greater step-up in operational performance has through operating cash generation, which represents the recurring solvency surplus generated by our life companies in excess of our capital management policy set at 135% of SCR. OCG grew 22% year-on-year supported by 2 factors. Firstly, new business growth and cost efficiencies, which have more than offset the natural runoff of our in-force business; and secondly, the higher contribution from recurring management actions at GBP 537 million, ahead of our GBP 400 million target and the GBP 313 million posted in the prior year. The outperformance here is attributed to the in-house asset management capabilities coming on stream faster than planned. I will provide you with more color on recurring management actions on the next slide. But before doing so, I would like to make 2 further points. The first is that the capabilities that have underpinned this result, being our strong performance focus and cost discipline, are now firmly in place. And this reinforces our confidence that OCG can grow at a mid-single-digit percentage rate going forward. The second is that in 2025, we will provide you with analysis of OCG components by business. By way of an early look, I share on this slide the indicative contribution to OCG from our 2 largest businesses. Approximately GBP 0.85 billion comes from Retirement Solutions. The size of the contribution here reflects the capital intensity of this business, with large cash releases each year supported by recurring management action. Of the balance, approximately GBP 0.35 billion comes from Pensions and Savings. Lower in size due to the capital-light nature of this business. The OCG contribution here will increase as the asset base grows and as the planned cost savings are delivered. There are 3 sources of recurring management actions as set out on this slide, being annuity portfolio re-optimization, capital improvements and fund simplification. While the respective contribution from each component will vary year-on-year, we are confident that, in aggregate, recurring management actions will continue to be of this order of magnitude going forward. The largest contribution relates to portfolio re-optimization on assets backing the Retirement Solutions annuity book, and this is where we saw the greatest year-on-year increase. A key element here is sourcing assets with high yield than those assumed in the pricing over GBP 6 billion annual new annuity flows, alongside delivering value from re-optimization of the annuity back book. These actions unlock value without taking more risk, always ensuring that assets and liabilities are cash flow and duration matched. Examples include credit relative trades, where we can lock into an improved risk-adjusted spread, public credit to gilt rotation and vice versa, allowing us to take advantage of the risk-reward balance at any given time, and restructuring of private credit. Within the matching adjustment requirement, these individual actions are not of any significance and represent the summation of a steady flow of small actions to tweak the portfolio, which allow us to recognize incremental gains while always staying cash flow and duration matched. For example, in 2024, there was an average of 50-or-so actions per week, up from the 2023 levels in sync with the build-out of our capabilities. Some actions simply capture additional profit, others allow us to increase the risk-adjusted yield on our assets and capitalize this into lower liability values. By way of illustration, delivering GBP 323 million of OCG is equivalent to a yield pickup of around 70 -- sorry, of around 7 basis points on our GBP 40 billion annuity portfolio, with a 12.5 average liability duration -- 12.5-year average liability duration. So you can see that only small impacts on yield can result in meaningful contribution to management actions. The second component is capital improvements which represents a long-standing Phoenix capability of extracting recurring value from model and data improvements, primarily on our capital-heavy business. This delivered GBP 92 million of value in 2024, a similar level to the previous year. The third component relates to fund simplification, and this is another way in which the asset management team supports OCG, with Pension and Savings, the main benefactor. We interact with over 20 external asset managers, paying a total of GBP 300 million of fees annually, under 60 IMAs that are typically negotiated on 3-year cycles, covering 5,500 funds. With 2 IMAs renegotiated and 250 funds rationalized in 2024, we secured a GBP 12 million post-tax annual fee saving generating the capitalized effect shown. With further fund rationalization [in train], we are confident that there are several years of opportunity ahead. At GBP 1.4 billion, our operating cash generation now comfortably exceeds our recurring uses of dividend, debt interest and operating costs, as well as the GBP 200 million annual capital allocation to annuities. The GBP 300 million annual excess cash is available to deploy in line with our capital allocation framework, with a focus on deleveraging, more on this shortly. Moving to total cash generation. You can see on the left, the GBP 1.8 billion remitted by life companies in 2024. In addition to the OCG, this includes GBP 0.4 billion nonoperating cash generation, representing nonrecurring management actions and the remittance of a small component of life company surplus stock. On the right of the slide, we move from looking at the 1-year TCG picture to the 3-year picture covered by our targets. The OCG step-up achieved in 2024 and our confidence in growing it from here has led us to upgrade the cumulative 3-year TCG target to GBP 5.1 billion, comprising an increased operating component of GBP 4.4 billion and an unchanged nonoperating component of GBP 0.7 billion. With the upgraded GBP 5.1 billion, representing our expected sources of cash, this next slide illustrates the expected uses of this cash over the 3-year period covered by our targets. Working across the slide, you can see on the left that the GBP 0.7 billion nonoperating cash generation is intended to fund the GBP 0.7 billion total nonoperating investment in our strategic priorities. As you move to the middle of the slide, you see how the cumulative OCG component of GBP 4.4 billion is expected to cover cumulative recurring users, being the GBP 2 billion for dividend, operating costs and debt interest and the GBP 0.6 billion for annuity new business capital. Over this 3-year period, we now expect to generate around GBP 1.1 billion of excess cash shown on the right. In 2024, some GBP 250 million of this excess has been used to retire debt. The remaining GBP 850 million represents excess cash capacity available to be deployed in line with our capital allocation framework with a focus on deleveraging. I now want to turn to capital and cover the solvency surplus walk depicted in the chart with a corresponding Own Fund and SCR components shown in the table below the chart. I would draw your attention to the items grouped on the left of the chart, being the net recurring capital generation post-dividend of GBP 0.2 billion, equivalent to 5 points of coverage ratio; and the items grouped in the table below, being the recurring Own Funds generation of GBP 0.3 billion. These recurring amounts are at higher levels than in previous years, demonstrating the step-up in operating performance that I referenced earlier. Moving to the right-hand side of the walk, the group nonrecurring components represented a net drag in 2024 on both surplus and Own Funds. This drag will diminish going forward, with nonrecurring management actions expected to offset the remaining investment spend over the next 2 years. We closed 2024 with a capital coverage ratio of 172%. The GBP 200 million debt repayment made in February 2025 has a minus 4% pro forma impact on the coverage ratio. As a reminder, our leverage ratio represents debt divided by Solvency II regulated Own Funds. At end 2024, this ratio stood at 36%, flat year-on-year despite the GBP 250 million debt repayment. This reflects 2 offsetting effects which you can see in the chart. The first being a 2% benefit from retiring this debt, and the second being an equivalent 2% drag from the decline observed in both the shareholders' Own Funds covered in the previous slide, and the decline in with-profit funds due to the gradual runoff of the book. In the rest of the chart, I set out an illustrated path to achieving the target factoring the various moving parts. The expected GBP 850 million excess cash, I covered earlier, provides us with ample capacity to pay down debt. The drivers of the denominator, in other words, the drivers of own funds, are illustrated next in the chart. Delivering GBP 0.3 billion annual recurring shareholder Own Fund generation will reduce the ratio by 2%. And we expect the Own Funds generated by nonrecurring management actions to offset the remaining investment spend. With profits Own Fund runoff will continue to provide a small drag to the denominator. I would add that the path to 30% will not be linear as we will need to refinance part of the circa GBP 1 billion debt instruments that fall due in 2025 and 2026. Finally, as you would expect, we have modeled in our plans the interplay between debt reduction and the shareholders' solvency surplus, and are confident that we can deliver the 30% target while remaining in the top half of our solvency cover range. Let me now spend a few minutes on the objectives and importance of our hedging program, and I will cover later the known consequences on IFRS. In our business, we carry many market risks, which we regard as unrewarded risks, like interest rates, inflation, currency and equity. In downside scenarios, these risks depress both solvency surplus and cash generation. Alongside many of our peers, we hedge these risks with equities and rates being the most significant given our business mix. When it comes to hedging interest rate risk, the key question is one of reference benchmark. Phoenix has opted to hedge liabilities in SCR using swaps to lengthen asset duration so as to match the one in 200 liability duration. While the approach is both common and logical, in my view, the reference benchmark should have been managed more dynamically as rates moved up, and this is that what we can improve on going forward. Today, Phoenix hedges around 80% of the equity exposure in Own Funds and SCR through futures and other instruments. Having spent time looking at this aspect of the hedging, I'm comfortable with the approach that Phoenix has taken. My assessment is that while it is appropriate to hedge the equity risk of the closed book of business in runoff, we should not give up the benefit that comes from the growth in equity values that relates to open book of new business. So I view the 80% equity risk hedge coverage as broadly representing the proportion attributable to the runoff book, and expect this percentage to naturally drift downwards as the respective weight of the closed book declines. By hedging these risks, Phoenix protects both the solvency surplus and the annual cash generation. The sensitivities shown in the middle of the slide demonstrate how solvency surplus is cushioned against market movements, proving that the hedging is serving its intended purpose. The pie chart on the right shows the breakdown of our undiversified SCR, which incorporates the protection offered by the hedging program for unrewarded risks. These risk categories account for a relatively small percentage of our overall risk capital. While by hedging we forgo the upside, the downward protection afforded is of paramount important to us, as it provides certainty of cash, which in turn secures dividend payments. My summary assessment is that what we do here is logical, and I'm comfortable that the hedging plays in our financial framework. Aspects of the hedging can be tweaked as the business and markets evolve, and this is something that we will look at going forward. As regards the unhedged components of our SCR, I see multiple levers to improve efficiency, some of which can be executed relatively quickly, while others will take longer. Turning next to earnings. Our performance step-up is also evident in the IFRS operating profit metric, which is 31% higher at GBP 825 million. Both of our key businesses reported healthy increases with Pension and Savings result supported by growth in AUA and operating leverage, while the Retirement Solutions result improved due to higher CSM releases from strong new business flows and higher value added by asset management. Our cost efficiency program is bearing fruit with GBP 63 million run rate savings delivered in 2024. One point to note is that we have included new disclosures in our appendix slides, which show the IFRS adjusted operating profit drivers of our 2 main businesses. Turning to costs. Having spent time reviewing the cost savings program, I am content that the GBP 250 million run rate target is creditable, albeit too back-end phased, as illustrated in the chart on the left. This is one aspect of the savings program that I will continue to look at for opportunities to accelerate. Of the GBP 63 million run rate savings delivered in 2024, GBP 28 million was earned in year, primarily benefiting the Pensions and Savings business result. I can confirm that the majority of the GBP 250 million savings will come through the IFRS operating profit, while about half will benefit OCG and solvency capital. Moving to our planned investment of circa GBP 700 million post tax, some GBP 350 million was incurred last year, in line with prior guidance that the spend would be front-end loaded. The remaining spend profile is shown on the right, and you can rest assured that the appropriate rigor will be applied in ensuring that the benefits of this investment are delivered in full. Once we get beyond 2026, nonrecurring investment spend is expected to more than half from the 2026 level shown. Moving next to our key business unit performances under IFRS. Around 90% of the Pensions and Savings business is classified as IFRS 9 investment contracts, where the reported profit represents fee revenues less costs. As Andy mentioned, we are really encouraged by our trading performance last year. We saw a 13% increase in Workplace net inflows to GBP 5.3 billion, boosted by all-time high gross inflows of GBP 9.3 billion. We also saw an improved gross inflow picture from retail, up 34% to GBP 5.1 billion, reflecting our greater focus in engaging with our existing customers. Supported by market movements, AUA grew by 7% to GBP 186.5 billion. This business reported a 66% increase in operating profit, reflecting higher revenues from the 11% increase in average AUA and benefiting from expense efficiency initiatives. The overall profit is equivalent to a 17 basis point margin on AUA. Going forward, future cost efficiencies will continue to provide a strong underpin to this margin and will counteract the revenue pressures created by the runoff of the legacy book. Retirement Solutions is classified as an insurance contract business and is accounted on a spread basis under IFRS 17. New business flows remained robust despite the 1/3 reduction in capital deployed, written on attractive economics and supported by growing individual flows -- individual annuity flows, up 81% to GBP 1 billion. This segment recorded a 25% increase in operating profit, driven by the higher CSM and risk adjustment releases up 18% year-on-year, reflecting the onboarding of sizable annual vintages of profitable annuity business. It is also driven by higher investment profits, reflecting both the growth in the excess assets backing this business and increases in the contribution of the annuity portfolio re-optimization management actions that I described earlier. The increase in our future store of insurance contract value in the CSM is a lead indicator for the growth of our profitability under IFRS. The 14% increase in pretax CSM to GBP 3,257 million represents an encouraging result. New business contributed GBP 248 million to the increase with annuities accounting for GBP 203 million of this amount. A further GBP 212 million came from assumption changes, experience and economics. We have upgraded the 2026 IFRS operating profit target to GBP 1.1 billion, reflecting our improved performance and our increased confidence in the underlying drivers of IFRS profitability. The increase will be driven by underlying business growth, pushing investment contract AUA and insurance contract CSM higher by the continued leveraging of our asset management capabilities and by the contribution of the GBP 250 million of cost savings. The progression towards the 2026 target will therefore not be linear and will be broadly in line with the back-end phasing of the cost savings. We expect that over half of the increase from the 2024 levels will come through the capital-light Pension and Savings business, with the balance in the Retirement Solutions business and to a lesser extent, in reductions to corporate center costs. At the GBP 1.1 billion level, 2026 IFRS operating profitability will be sufficient to fully cover our recurring users and create an excess to fund our nonrecurring uses. The amounts illustrated on the slide under uses represent 2024 values, with debt interest reducing as we delever and amortization of acquired VIF declining as this runs off. With nonrecurring uses normalizing post 2026, the point at which the IFRS net profit ex economics turns positive, will soon follow. Our aim is for IFRS shareholders equity, excluding economics, to grow -- our aim is for that to grow in 2027. The next slide shows the movement in IFRS shareholders' equity over 2024. On the left, you can see the progress that we made last year to close the gap between recurring sources and uses down to a negative GBP 182 million, a much improved picture compared to 2023. In the center, you can see the pretax GBP 520 million of nonoperating expenses, which includes the pretax planned investment spend. You also see the GBP 1,297 million pretax loss from economic movements, driven primarily by the effects of the hedging program, specifically the negative marks associated with both the 80 basis points increase in 15-year rates and the 13% rise in equities. I will illustrate on the next slide why this represents an accounting mismatch. Our closing shareholders' equity position declined to GBP 1.2 billion, while adjusted shareholders' equity stood at GBP 3.7 billion. Let me now turn to the impact of hedging on IFRS reporting and explain why a program that serves its purpose of protecting solvency surplus so well gives rise to known accounting volatility under IFRS 17. I will do this with the help of a bridge between IFRS shareholders' equity and Solvency II surplus, which we are disclosing for the first time. The reconciling items should be familiar to many of you on the sell side from equivalent analysis produced by other firms. What this bridge shows is that the IFRS and Solvency II balance sheets are not comparable, as they treat investment contracts differently and adopt different valuation approaches for insurance contracts. For example, in relation to contracts such as annuities, the future store of value under IFRS is carried as a liability within CSM and is valued using locked-in economic assumptions. This contrasts with Solvency II, where it is treated as capital and revalued at each balance sheet date in line with the change in rates. Another example is in relation to investment contracts, where IFRS does not capture the GBP 3.6 billion future value of these contracts beyond the yet to be amortized GBP 1.3 billion of acquired value in-force, which itself is carried at cost. Again, this contrasts with Solvency II, which recognizes this component in full and marks it to market at each balance sheet date. The third example is that IFRS does not capture risk capital requirements, which are factored in the CSR under Solvency II when calculating surplus. In seeking to provide stability to our GBP 3.5 billion surplus from market volatility, the hedging program has all of the above components in scope, with a movement in the value of the hedges offsetting related value changes in these various components. However, as the work illustrates, the IFRS balance sheet does not feature many of these components and also prohibits the revaluation of annuity future profits warehoused in the CSM from movements in rates. Therefore, on the IFRS reporting basis, the hedge appears naked, hence, the GBP 0.9 billion post-tax loss recorded in 2024, which is shown above the first bar in the bridge. The hedge offset effect comes through the value movements in the remaining Own Fund components, totaling plus GBP 0.8 billion post tax in 2024, shown above the Own Fund bars in the bridge; and the value movements in the SCR, which in 2024 rounded to 0, also shown above the SCR bar in the bridge. So you can see how the IFRS loss on the left is reduced to a considerably smaller net GBP 0.1 billion loss at the solvency surplus level on the right. The sensitivities shown on the slide also bring this contrast to life with more material impacts under IFRS, but relatively modest ones under Solvency II. So in summary, having looked closely at Phoenix's approach to this, I am comfortable with the way hedging is protecting cash and capital and I am satisfied that the known consequences under IFRS give rise to no practical limitations. This includes dividend, which I will come to next. Phoenix is a highly cash-generative business, and it, therefore, rightly returns cash to shareholders through a progressive dividend. In line with what I have seen in other groups, the Board's annual dividend assessment is carried out by reference to the 3 measures shown on this slide. The first being operating cash generation, which at GBP 1.4 billion represented a healthy source of cash -- recurring cash covering recurring uses. The second being the shareholder solvency level, which at 172% represents an appropriately robust coverage ratio. And the third being the quantum of legal distributable reserves recorded in the group's holding company solo accounts, which remain healthy at GBP 5.6 billion. In 2024, these reserves were replenished by sizeable remittances from our life subsidiaries, which report under U.K. GAAP, representing a less punitive basis than IFRS 17 and one under which they generated higher net profits in 2024 than 2023 even after the effects of hedging. At end 2024, these subsidiaries maintained substantial distributable reserves. So the consolidated IFRS 17 reporting basis does not reflect the remittance capacity of the group. In this overall context and consistent with previous guidance, the Board considers that the group's consolidated IFRS shareholders' equity is not a constraint on the payment of our dividend. To conclude, we have made a positive start in executing against our 3-year strategy and financial targets and have built good momentum, which we are carrying into 2025. Specifically, we have positioned the business to generate GBP 1.4 billion of OCG, which we aim to grow at a mid-single-digit percentage rate going forward, more than covering our recurring uses. The cumulative excess cash from our upgraded targets puts us firmly in control to reduce our leverage ratio to the 30% level. And achievement of the GBP 1.1 billion IFRS operating profitability level will mean that in 2026, we will cover recurring uses on this reporting basis as well. Our performance step-up improves our ability to support the execution of our strategy and underpins our dividend. Thank you for your attention. I'll now hand you back to Andy.

Thank you, Nick. So looking ahead, I wanted to share the priorities of Phoenix over the next 2 years as we continue to execute on our strategic plan. We will grow by continuing to develop our propositions, meet more of our existing customer needs and acquire new customers. This will grow our operating cash generation at mid-single-digit percentage going forward and deliver a GBP 1.1 billion of adjusted operating profit in 2026. We will optimize our in-force business and balance sheet. Hitting our 30% target leverage ratio is the major focus here as well as improving our asset management and balance sheet efficiency capabilities to deliver recurring management actions year in, year out. And we would enhance by transforming our operating model and culture. Central to this strategic priority is the completion of our policy migrations with over 1.3 million policies migrated since January 2024. We're also on track to simplify our business to unlock GBP 250 million of annual run rate cost savings by the end of 2026. I'm conscious we've spoken a lot this morning about the underlying operating performance, our upgraded targets and the capabilities we've built. And we spent some time on our approach to hedging, our plans to redouble our efforts to delever the balance sheet and the progress we've made on the trajectory of shareholder equity before economics and how the Board does not consider this to be a constraint on the dividend. We've generated significant free cash flow year in, year out, currently delivering a free cash flow yield of 17%, as I mentioned earlier, and pay a progressive and sustainable dividend to shareholders. To sum up, we are pleased with the progress made in 2024. Our strategic priorities are clear and we are optimistic about what comes next. And with that, we move to questions.

So we're going to start with questions in the room. [Operator Instructions] So why don't we start this side? And I can see Abid. I think the first hand up there, Abid, so you get to go first. Very quick.

I've got three questions, if I can. The first one is on -- this is Abid Hussain from Panmure Liberum, just for the others. The first question is on debt leverage. You've earmarked the remaining GBP 850 million of excess capital generation to reduce the debt leverage. I'm wondering if you could put that capital to work more effectively into the business to accelerate the Own Funds growth over the medium term. I appreciate there's a bit of a tricky tension between deleveraging and growing the Own Funds. The second question is on Workplace savings. What's the all-in margin? So that's the admin plus investment fee margin. Is it higher than the 17 bps that you quoted across the Pensions and Savings? I assume that the Workplace Pensions business is where you're seeing the operational leverage coming through. And then on the flip side, do you still need to invest more in the platform, in the apps, to improve user experience on Workplace savings? And then the final question is for Nick. So Nick I appreciate you sharing some of your initial thoughts. What's your views across the segmental operations? Where do you think more work is required than you initially thought? And what is the group better at than what you initially thought by line of business?

Okay. So I'm going to get Nick to take the first on debt leverage, and the third, obviously, specifically his thoughts there. Workplace, I will take. So what we've done in the appendix, Nick's done in the appendix is actually set out in more detail the breakdown of the P&L between the revenue and the costs. So what you can see is across Pensions and Savings, the revenue overall is 48 basis points, so the cost of 31 and that leads to the net profit of 17. We're not disclosing the breakdown of that between Workplace and Retail, but we've given materially more disclosure there today. What I'd say is that increase in margin from 12 bps to 17 bps has happened while most of the growth has come through Workplace. So that kind of gives you a sense of it. And ultimately, it's driving that improvement in operating leverage going forward. So we would expect the 48 bps margin will come down marginally over time as the mix of business changes, but we'd expect the cost in bps terms to come down by more because we're going to hold the cost -- reduce costs overall against the growing book. And hence, we would expect some expansion in that 17 bps margin going forward. Nick, do you want to take the first and third?

Okay. So on the leverage, I didn't mean to imply that the full GBP 850 million is entirely earmarked for deleveraging. We wanted to demonstrate to you that with the upgraded targets, we're firmly in control in terms of getting there. There are various moving parts, which we illustrated in the chart. Clearly, if we get some help and we can improve on the denominator effects, then we would need to use the GBP 850 million and then we'll be in a position to think about where we might deploy it next. But we are firmly committed to the GBP 30 million. We wanted to show you that we were in control, and we'll be prepared to deploy it if necessary. On the third question relating to the segmental, I mean, the segmental is ultimately a financial lens in the business. If your question is what I have been impressed -- I had impressed by -- well, firstly, the opportunity coming -- having spent 5 years in my previous role in Asia thinking that, that's the only part of the world where there is growth. Actually, I was pleasantly surprised with the opportunities that exist both in the annuity space in the U.K. and also in the retirement space. I mean the opportunities are huge and the capabilities that we have built here to access those opportunities are phenomenal. So that was -- it was a surprise to see growth opportunity and also an organization that has all the tools to access it. The second positive surprise was just how good this asset management team is. I mean you see the components that the way in which they've helped the capital generation, of course, that's feeding through IFRS, but on a more modest basis at this point, but the capability is huge. And the ability to run assets on our own now, it's fully built, and it was great to discover that Mike and the team currently run around GBP 2 billion of assets directly in the private space. The one area which we can do a much, much better job and we've started is on expenses. We should be -- we should and can and will drive the operational costs down. We're committed to that GBP 250 million. We're always looking to do better if we can. But yes, that's one area that I think the organization can do much better.

Just one very quick add, Abid, if I may, on the leverage side. So I was disappointed that Own Funds reduced over the year. In fairness, it did in all our peers that have reported so far as well or the ones I have seen. But I'm really determined -- Nick and I are really determined we grow that Own Funds. We've actually put it into our annual incentive plan, our bonus. So for Nick and I, for the whole management team, growth in the unrestricted Tier 1 Own Funds is one of the key measures there. So we are really determined to get the growth in the overall franchise feeding through to Own Funds growth, and therefore, improving the denominator in that leverage ratio at the same time. Andy? We'll go across, if that's okay for folks.

Perfect. Andy Sinclair from Bank of America. First, great to hear that we're going to get shareholders' equity growing organically from 2027 ex economics. But I just want to understand a little bit more, if we just assume that bond yields, everything economics stay exactly flat as they are today, is there any positive pull to par effect, any negative ongoing hedge costs, assuming no market moves? Just to understand what comes through that economic line if just the economics stay flat. We can see the sensitivities for moves, but is there any underlying kind of positive, negative or anything? Second, apologies staying on the nonoperating items. Nick, I think you said beyond 2026, better than half 2026's level. I mean that could still be what, GBP 70-odd million could -- it's still a decent number. I think that's about 7% of operating profits based on your guidance. How low can that go? And if we are going to see GBP 70 million recurring every year, should that not just be an operating item? How much can that be controlled down further? And third was just on the pipeline, like Workplace pensions, annuities. I haven't really said too much about the pipeline, just particularly on Workplace, Pensions, I guess, what's the pipeline look at how scheme wins, what's funding in '25, et cetera?

Okay. So I'll get Nick to take the first one. I mean just on the second, the non-op. I mean, ultimately, it could be nothing, but what you don't know is what regulatory changes coming down the track, and that's why we're just giving ourselves some leeway. Because if IFRS 18 comes along or Solvency III comes along, then we just can't legislate or predict that ourselves, but it will be that sort of thing that would drive the non-op on your second question. On the pipeline, really pleasing pipeline across the piece. So I think, Colin, safe to say we're quoting on more workplace new schemes than ever at the moment. It's a huge pipeline there. I think we've got about GBP 15 billion, Tom, that we're quoting on the BPA side at the moment. And then I'm particularly pleased with the individual annuity side as well. And we're definitely seeing a resurgence in that market with rates being higher. And also we kind of had pension freedoms maybe 10 years ago now. You get a lot of consumers get into their 70s and they think, actually, if I can lock into what is now more like a 10% per annum income in retirement from my 70s, and I start to worry a bit more about cognitive matters and so on and so forth. I think we'll see that individual annuity market grow strongly as well. So definitely feel optimistic about the trading outlook. Do you want to pick up the first one and correct me on the second if you choose to?

Okay. So on the first one, no, the type of instruments that we're using, because we're trading upside for downside protection don't involve a significant cost. So in hypothetical scenario where markets stayed flat, I wish that would be true in some way for the hedging, no, we're not going to -- you're not going to see much noise in economics below the line. On costs, yes, it's difficult to predict clearly what regulatory changes will come through. I can flag one now that we know it's coming. The ESG disclosures and regulation is driving a ton of disclosures on climate and a whole host of other environmental areas from 2027 into 2028. We're required to produce thousands of new data points and publish them and have them audited to double materiality. And I know a lot of my colleagues on the CFO -- insurance CFO forum already exercised by the amount of work that's needed. Effectively, the environmental reporting will look like our reporting, audited to double materiality. Now that's -- we're only just engaging with that. But there is a regulatory disclosure coming down the track, which we will need to spend money alongside other organizations.

This is our sweeping away regulation, right? Dom?

Dom O'Mahony, BNP Paribas Exane. Three questions. Just on the new business performance, really striking to see the phenomenal growth in individual annuities. You used to give a picture of long-term cash generation coming out of the 2 business lines. I appreciate that's not part of the disclosure now, but could you give us a directional sense of whether those numbers have gone up or down or flattish, whether the actual creation of new cash streams coming out of both Retirement and Pensions and Savings, whether that's -- where that is relative to last year? The second one, just on the sensitivity of the earnings, and I guess, the Own Funds to yields. My guess, but it's only a guess, is that when interest rates go up, you get the negative mark-to-market through the ECO variances, but then the pull to par would go through the operating profit. Does that make the IFRS earnings insensitive to yield movements in the previous year? And if so, could you give us some sense of how powerful the 80 bps move in '24 was for the earnings outlook? And then just one thing that piqued my interest. Nick, you said that you run the Pensions and Savings business on an IFRS basis. I just wanted to ask you what that meant. What that would mean you would do differently versus running on, say, a capital view and why you'd run it differently?

Okay. I'll comment first as I've got the kind of history back to those days, and let Nick comment on the second and third. So we're not giving the undiscounted long-term cash disclosure anymore because, ultimately, the market said with higher rates, we need to understand discounted numbers, not undiscounted numbers. And between all the disclosures today, I think you'd agree, we've given you plenty. The direction of travel we're going in, though, is to give operating cash generation by business unit and give you the drivers of that, and Nick started to give some sense of that. And so think about it, overall operating cash generation was up 22%, but we're guiding mid-single-digit growth going forward from here. Obviously, the growing parts of the business are going to deliver more of that versus something like with profit that's in runoff. But as the year progresses, we will enhance that OCG disclosure for you. Nick, do you want to pick up on the other two?

Yes. So you're right. Given we're extending the asset duration through the swaps to cover 1 in 200 liabilities. On the base balance sheet, we have assets duration that is longer than liability. When rates go up, the marks on the assets will be higher than the marks on the liability, which is why you've seen Own Funds be depressed. Now IFRS uses a completely different methodology to the way we calculate the discount rate. For annuities, it's a much more -- it's a top-down rather than a bottom-up methodology with kind of more flexibility as to which assets you bring into scope. I don't expect the movement in yields to adversely affect what's -- the IFRS profile, not least because a lot of that is smooth through the CSM release. In relation to why do we look at the IFRS basis for P&S, I guess it is akin to an asset management business. I said 90% of the liabilities are effectively IFRS 9. It's revenues less costs. That's a very clean picture, which is not to say the OCG is not relevant because ultimately, it's a contributor to our overall solvency. But just to give you an example, the cost saves that we've delivered this year to the extent that they've been earned and relate to P&S have come through and you've seen them very cleanly in the additional disclosures. You've seen that effectively dumping down the trajectory of our costs. Whereas in the OCG, you'll take the full year effect. You have to figure out what the -- which is what we do, what the maintenance component is and then you'd capitalize that for the duration of the book. And that's great for capital, but it doesn't -- it's interesting, but not that relevant in the way we think about the growing profitability of P&S. So that would be my answer to that question.

So I'll go to Thomas, and then we'll sort of come forward and loop around it.

Thomas Bateman from Mediobanca. Just on -- the first one is just on back book deals. Obviously, that was the investment case originally, and that seems to be moving away now. But should we expect any more of those from Phoenix? Or are they dead and you're an open book player now? Second question is just on your strategy on equities. Clearly, you thought it was best to hedge that out now in the past, now you're looking to take some exposure. Just what's changed on the strategy there? And why differentiate between the back book and the open book here? And then finally, just on the Standard Life Smoothed Investment product and what kind of traction has that got with investors, not with investors but with advisers? And what's the growth outlook...

Sure. So I'll take the first and third and pass the second to Nick. So in terms of M&A, M&A remains something we would -- we actively look at. I think the difference for us now is that we have a whole range of alternative ways we can deploy excess capital in organic growth, and therefore, we're no longer reliant on M&A the way we were a few years ago. But it remains something that we look at. We see there's significant potential value from M&A. We would still be the first port to call for anyone looking to sell a book of business and still engage regularly with other CEOs to explore what might be available out there. And the way to think about it is we've now got a business that's generating GBP 300 million per annum of excess cash. We will deploy that using a capital allocation framework against the highest return opportunities. We feel right now deleveraging is a priority focus. But if M&A deals came along that would give a higher return relative to deleveraging, then we would consider that. We would look at the highest value ways forward. I would say the bar overall is higher than it was before, given the range of ways and the organic growth options that we have as a business. In terms of Standard Life Smoothed Managed funds, so we did a soft launch of that in the middle of last year just on one platform in the market. The take-up has been good, but not sufficient to dramatically change our overall results. The opportunity will come as we now scale that across other platforms, which is what we're planning to do this year. So we get more advisers using that proposition. So we remain optimistic of the potential over time. It was always going to take a period of time to build that up as a new proposition in the market. Do you want to pick up the second one, Nick?

Yes. So no, that's a really good question and the right question. So really, the hedging of the back book is an overhang from a previous strategy when we were a closed book consolidator. At that time, we did deals. We committed to a certain IRR on these deals on the basis of the way they were funded. And in order to underpin the delivery of IRR, certain risks were hedged out in order to produce a stream of income, if you like, to repay debt and to pay interest and to refinance to repay debt and pay the providers of capital. And that was the right strategy at the time. But as we've now pivoted into being an open book player, yes, we want to deliver to the sort of deal IRRs that we committed to at the time of doing those deals. And within -- with limited possibility to deviate away from that, which is why it makes sense to continue it on the back book. But as we now pivoted the strategy to be an open book player, really, you'd want to lock in -- well, you'd want to benefit from any equity market upside on the new business that we're writing. So if you like, it's reflective of our history versus our strategy now.

So we'll go to Farooq, then Michael, then Andrew, then Larissa. We'll get there.

Farooq Hanif from JPMorgan. First -- two questions only. So what struck me first in your result was just how much your investment margin under IFRS went up compared to others. And I know like it's difficult to compare different companies based on assumptions, but what is it that you're doing that's generating this kind of higher spread versus your kind of locked in rates that you think is different? And what is it about this new investment team, particularly from your side, Nick, that is kind of bringing that, I guess, difference or a different approach from maybe what you expected delivering those gains? And obviously, this is a key part of your GBP 1.1 billion target. My second question is on deleveraging. So one of the constraints I see as well is that your Solvency II ratio obviously is built up of a lot of debt. So that GBP 850 million of surplus, what does that represent in terms of Solvency II generation in terms of points that you'll generate that will then be offset by any deleveraging you are doing? So I'm kind of asking for what is the GBP 850 million in terms of Solvency II points?

Thanks, Farooq. So I'll give an initial comment on the first one, but then pass to Nick to build on that and take up the second. So what I'd say on the first one is that I've worked in the industry over 30 years. And most of my experience has been that you have an insurance company set over here with a bunch of actuaries doing their Solvency II and matching adjustment stuff. And then you have an asset manager set over there that's primarily focused on driving external flows into the asset manager, and there just isn't that proximity of work together. The difference for us is basically, these teams work the liability side and the annuities team and the asset management team work hand in glove to the extent actually this year we're bringing them together under Mike's leadership overall. And I think that is a real differentiator for us relative to what I've seen elsewhere over the last 30 years. Because the asset managers are getting into what are the matching adjustment rules and how do they work and the liability profile and so on, so I think that definitely differentiates. I also think it's fair to say, Nick, we're more conservative in our yields we assume in the new business pricing, and therefore, that comes through over time. Add your thoughts to that and pick up the second question.

That's right, Andy. Farooq, your question was in relation to IFRS, right? So on an IFRS basis, again, simplistically, we've delivered about 120 basis points on the AUM. That's pretax. And that was made up 80 basis points on core for want of a better expression, and the 40-odd basis points coming through management actions. Actually, other 100 to 120, that's not out of line with what others are reporting. So I don't think there's anything -- I mean, clearly, yes, the management actions is -- I've already spoken about, comes from a deep capability. It's a smaller contribution than on OCG, because OCG, you have denominator effects in relation to SCR. But between 100 and 120, I don't think it's out of [sync]. Now it's higher than last year, admittedly. But that's kind of par for the course in the sense that as you get to implement a new accounting regime, you get to understand its drivers better. This is year 2 out of a -- last year, we were just into it. And then you manage the instructions that you give the team in terms of how they want to generate management actions. Yes, we want them to look like this in own funds, in surplus. And now there is an IFRS component as well. So it's -- as you introduce new bases and you figure out ways of optimizing across all dimensions. So that explains the year-on-year increase alongside the capability of the team stepping up and seeing a benefit come through IFRS in the same way as you're seeing it through OCG. On the deleveraging, okay, we're 172%. You saw us create 5 points of recurring. And so kind of roll that forward for a couple of years, we will get you to a number. The GBP 850 million is equivalent to around between 15 and 17 basis points. So we'll be up 10 and then down 15, 17. That kind of gives you a sense of the model.

Michael.

The first thing I want to say is actually, I'm really impressed you remembered my name. So thank you. I had 3 little comments. One is cost, you said, Nick, short and long term. And I wonder if you could give ideas about that. The second, I think when we spoke just outside and you mentioned it a little bit, your asset managers are directly managing GBP 2 billion, you said that would be growing. I just wondered how much more you're giving them. And then the third, you said Retail is key. I love retail. I like the idea of annuities, I'm getting there myself. Can you give us a feeling for how profitable this is? Is it GBP 1 billion or whatever? I mean just to get a feel on maybe the growth that you can see there.

Sure. So I'll take the second and third of those, and let Nick take first. So on asset management, I mean, we're really focused on building out the capability to optimize both returns we deliver to customers on the Pensions and Savings side, and then drive strong value creation and the recurring management actions, particularly on the Retirement Solutions side. And the primary focus is the strategic asset allocation layer and then having the expertise to understand each of those underlying asset classes really well to then partner with leading class asset managers in those areas. But we do now have the capability to run assets in-house. For quite a long time now, we've been doing the illiquid assets on a nondiscretionary basis. So we're basically making the investment decision. We still got an asset management partner running that. So we've got the ability to increase the amount we have in-house over time. No specific guidance on that today other than to say there's more to come here, yes. There's -- we're not -- we're far from done in terms realizing the opportunity. In terms of the annuity business, there isn't a material difference in the profitability between the BPA and the individual annuities. I mean if there was, we would do more of one and less of the other, yes? But having those different routes to market is attractive to us and allows us to balance and scale as things progress going forward. I think the first question was on cost, wasn't it? Yes.

Yes. I mean, as I said, earlier, I think the GBP 250 million is a creditable loadable target. We -- it is linked to a whole host of things, not least the completion of the migration, which is part of the reason this is back-end phase. But also kind of on the back of the pivot of the operating model, driving further simplification within the organization. I referenced also the opportunity to vastly rationalize 5,500 funds that we currently manage. We want to look to get that to a much more modest level. So no, no, a lot of work to get to that point. And as we go through, I'm sure there'll be opportunities to go further. But I'll -- rest assured if there are, we will take them, and we will update you at the appropriate point.

Can you pass to Andrew behind.

It's Andrew Crean for Autonomous. Three questions. Nick, you said something on management actions where you said the target is GBP 400 million. Then you made a comment today, Nick, where you said, of similar magnitude. The implication was that you'd be able to do more than GBP 400 million, more like the GBP 537 million you did. I don't know whether that's reading too much in. Secondly, could you give us a sense of the new business strain? I know that's come down as you've invested more. I guess what is for the new business that you wrote, what is your allocation between gilts or government bonds, investment-grade credit and direct investments? And then finally, your target of 30% debt leverage. Is 38% on the shareholder basis if you take out the regulatory capital. I know you mentioned a couple of times that your free cash flow yield was up around 17%. If you got a sense that the market was uncomfortable with that level of leverage, 38%, would you go further?

So maybe I will take the third of those and let Nick take the first two. So the reason we use the regulatory basis is that it's basically what our debt holders look at. And ultimately, the leverage ratio is very relevant to the debt holders. And of course, the -- with-profit surpluses are kind of loss absorbing in a downside scenario. So 30% on a regulatory basis is getting in line with most of our -- many of our major peers have similar levels there. Having said that, as we generate excess cash, we will deploy that against the highest return opportunities. So if we think that our cost of equity would come down materially further by deleveraging further than 30% on a regulatory basis, then we absolutely would consider that if that was going to be the highest return compared to alternative uses of that excess capital. Nick, do you want to take the first one?

Yes. I mean the only other point kind of I would add, it was interesting one before I joined to see the debate, whether it's regulatory or shareholders. The reality is we need to get that down. And that's what we're going to do. And hopefully, what we showed you today is that we're in control of that. On -- and the other -- the flip side to that argument in terms of -- is when you look at the interest that we paid and you express that as coverage to our OCG generation, actually being at 5 to 6x, not a bad place to be from that perspective. Nevertheless, it needs to come down. It's better to have permanent capital than the capital that you have to refinance every 10 years, and we will drive that number down. In relation to management actions, the GBP 400 million was the previous target. We're not renewing that target. I want us to move away from that. And really, apologies if it didn't come through clearly enough. I think we can do -- we can keep on delivering something of the order of GBP 500 million as we go forward. And candidly, as we grow the annuity book, we should do even better. If we're adding GBP 6 billion of new premiums every year and our payroll is equivalent to GBP 3.7 billion, you'd see that annuity book go up and we should be able to apply all these capabilities to those future flows as well. So GBP 500 million plus as the annuity book grows. In relation to new business strain, thank you for asking the question. We've kept the allocation of 50% private, but we've increased the allocation to yields from 10% to 25% in the way that we priced in 2024. That had an impact on strain, clearly an impact on the IRR. And it also explains why the CSM margin is marginally down. But there is another -- so that explains, if you like, the switch in allocation explains half of the drop in the new business strain. The other half comes from something structural that we didn't have before. When we merged Standard Life into Phoenix Life, with that came a whole host of tax-related losses and a deferred tax asset. And under the 1 in 200, we've been able to take it of the loss absorbing capacity in deferred tax and improve our pricing and indeed improve the IRR. So part of the half -- the other half of the new business strain comes from now having undertaken our Part VII, having merged the 2 funds, there is an ability to take credit of something in the SCR that we weren't able to do so before. It reduces margin -- sorry, reduces strain, improves the IRR. But because it's a denominator effect in the solvency, it doesn't come through the CSM margin that you see. On a Solvency II basis, just to give you one more data point, our margin is 3.9% on BPAs, up from 3.6% last year. You see a different trend in CSM because you don't have the denominator effect from the LAC DT on the SCR. Apologies, quite a technical answer.