JUST GROUP PLC Annual Report and Accounts 2020
28
Business review continued
The Group’s key focus is capital self-sufficiency, resilience, and providing optionality to deploy surplus capital. As part of this commitment, in 2019, we wrote less new business in order to reduce new business capital strain. During 2020, as the first half COVID-19 related disruption subsided, we executed our business plan by selectively increasing volumes at attractive margins. Our chosen markets have proven resilient in the face of considerable challenges, as the structural growth drivers that underpin our markets are unchanged. Retirement Income sales for 2020 increased by 12% to £2,145.3m (2019: £1,918.1m). DB sales for the year were £1,507.9m, an increase of 22%. Transactions are lumpy in nature and subject to timing differences, with a number of transactions postponed due to COVID-19 disruption subsequently completing. DB sales in the second half of the year were over £1bn, a record for the Group. We completed 23 transactions during 2020 (2019: 23 transactions). The defined benefit de-risking market continues to be buoyant. We estimate that the DB market was c.£30bn in 2020, the second highest on record, after an exceptional year in 2019 (£43.8bn). In 2021, we expect to participate more fully in the deferred liabilities market, thus improving our Buy-out proposition, and to actively quote on larger case sizes including those suitable for DB partnering. 2020 GIfL sales decreased by 5% to £585.9m (2019: £615.7m). COVID-19 introduced challenges given the inherent face-to-face advice process; however, advisers responded quickly by utilising virtual means. In June, GIfL sales returned to their normal run-rate, demonstrating that disruption was only temporary. Volatile investment markets and economic uncertainty have demonstrated to customers the importance and security of a guaranteed income. Care sales were most impacted by COVID-19 disruption, but only represent 2% of Retirement Income sales. Other new business sales Lifetime Mortgage advances were £511.7m for 2020 (2019: £415.8m), an increase of 23%. 2020 includes £36m of LTM origination on behalf of a third party. The Group does not hold an economic exposure for these assets, it earns a fee for originating and administering these loans. LTM spreads were relatively stable during the year as risk-free rates fell, whereas in 2019, there was increased competition, particularly in the first half of the year, which resulted in lower volumes that year. We continue to be more selective in the mortgages we advance, with a focus on shorter duration loans to older borrowers, lower LTV business and on customers with sufficient income to service interest on their borrowings. In future, we expect to gradually taper the proportion of LTMs backing new business towards 20%. During 2019, the Flexible Pension Plan drawdown closed to new business and existing customers were migrated to a third party platform. The Group also closed its US Care unit, which had been loss making. ADJUSTED EARNINGS PER SHARE Adjusted EPS (based on adjusted operating profit after attributed tax) has increased from 17.6 pence for 2019, to 18.8 pence for 2020.
RECONCILIATION OF OPERATING PROFIT TO STATUTORY IFRS RESULTS The following tables present the Group’s results on a statutory IFRS basis.
Year ended 31 December 2020 £m
Year ended 31 December 2019 £m
Adjusted operating profit before tax Non-recurring and project expenditure Implementation of cost saving initiatives
239.3
218.6
(12.7)
(8.3)
(8.5)
(13.5)
8.5
Investment and economic profits
173.8
Interest adjustment to reflect IFRS accounting for Tier 1 notes as equity
28.1
16.8
(18.0)
Amortisation costs IFRS profit before tax
(18.8)
236.7
368.6
Non-recurring and project expenditure Non-recurring and project expenditure was £12.7m (2019: £8.3m) and includes preparations for the new insurance accounting standard, IFRS 17, the costs associated with Green Tier 2 bond/concurrent Tier 3 tender, preparations for an internal model change to incorporate the recent regulatory changes and to move PLACL from standard formula to a Group internal model, and a number of smaller project costs. It also includes a significant upgrade to our hardware systems, the roll out of which was accelerated to enable our colleagues to work remotely to support the business during the COVID-19 pandemic. The costs of on-going interaction with our regulators and the costs of implementing less significant regulatory changes are included in operating costs. Implementation of cost saving initiatives These costs are in respect of the cost savings initiated to optimise the Group’s business model and prioritise capital efficiency. During the period the Group has carried out further improvements to its business processes and management structure. This builds on improvements made during 2019. Investment and economic profits Investment and economic profits for 2020 were £8.5m (2019: £173.8m). A large gain from the fall in risk-free rates has been largely offset by a change in the long-term property growth assumption and the sale of an LTM portfolio. The decrease in risk-free rates during the first half of 2020, has led to a gain of £360m for the year as a whole. The impact of falling interest rates has been further amplified by additional interest rate hedges entered into to protect the Solvency II capital position, and which have increased the sensitivity of the IFRS balance sheet to interest rate movements relative to prior periods. There were small negatives from credit spreads and downgrades (£14m) and property growth experience (£5m). We have taken a prudent view to reduce the long-term property growth assumption by 50 basis points to 3.3% from 3.8% previously. In updating these assumptions, the Board took into consideration future macro- economic uncertainties including the effect of COVID-19 and Brexit on the UK property market. The strengthening of these assumptions has given rise to a £166m loss, which is the combination of the change in lifetime mortgage asset values and the increase to the value of insurance liabilities from the resulting reduction to the valuation interest rate. Furthermore, in December 2020, the Group sold a portfolio of lifetime mortgages with accumulated value of £540m. These LTMs were sold at a gain to the IFRS fair value, but, we have foregone the difference in investment yield with the replacement bonds, and hence incurred a £136m pre-tax loss. Over time a proportion is planned to be allocated to new illiquid assets reducing this initial impact. Further details and sensitivities to changes in property assumptions are given in notes 17 and 23 of these financial statements. There were no corporate bond defaults within our portfolio during the period (2019: no defaults).
Year ended 31 December 2020
Year ended 31 December 2019
193.8
Adjusted earnings (£m)
177.1
1,030.7
Weighted average number of shares (million)
1,007.5
18.8
Adjusted EPS (pence)
17.6
EARNINGS PER SHARE
Year ended 31 December 2020
Year ended 31 December 2019
165.5
Earnings (£m)
285.8
1,030.7
Weighted average number of shares (million)
1,007.5
16.1
EPS (pence)
28.4
Powered by FlippingBook