Phoenix Group (PHNX) worked hard to reduce its leverage last year, using strong cash flows to repay £601m of debt. The UK's largest closed-life fund consolidator generated £567m in cash from operations, and raised a further £390m by selling its asset management arm Ignis.
But the outlook for future cash generation - which Phoenix needs to buy up further closed life books - is cloudier. Management set its target for the current year at £200m-£250m, less than half that generated in 2014 and even further down on the £817m generated in 2013. That reflects the new regulatory regime, Solvency II, which requires Phoenix's operating companies to hold more capital - at least in the short term. "This is only a timing issue: it does not affect the value of the business," insists chief executive Clive Bannister. He points out that the target of generating £2.8bn between 2014 and 2019 remains unchanged, and that Phoenix is already a third of the way there.