Specialist annuity provider Partnership is set to launch a £100m bond to give it further financial flexibility as its annual results reveal profits have halved and individual annuity sales have fallen by more than 55 per cent.
Its results, published today (3 March), revealed that its total operating profit halved last year to £64m compared to £131m in 2013. Total new business premiums were £791m, two thirds of the amount achieved in 2013.
Partnership saw a 57 per cent reduction in sales of individual annuities in 2014 versus 2013. The results also confirmed that Partnership slashed its headcount by 129 roles to 427 at the end of year.
Across the market the total market for individual annuities in the nine months post Budget fell by about £4.2bn, but sales of drawdown contracts in the same period increased by only £700m.
Bosses said this indicated that rather than investing in alternative products, a significant proportion of customers are simply leaving their pension savings untouched while uncertainty remains.
The results also showed Partnership mustered £247m of bulk annuity sales for 2014, a near threefold increase on the prior year and a strong high quality pipeline going into 2015. Its main rival Just Retirement also reported last month a jump in bulk annuity sales.
Partnership also announced that it is set to launch a £100m bond . Partnership’s majority shareholder, Cinven, which owns 52 per cent of Partnership’s issued share capital, has agreed to fund the bond issue via a private placing.
In January Partnership announced it was considering issuing debt in the form of bonds to raise funds to “explore opportunities to provide the financial flexibility to invest in new initiatives”, as it continues to adapt to the changed environment ahead of new pension freedoms.
However, it then announced it was not proceeding with a bond offering “at this time”.
Steve Groves, Partnership chief executive, said the offering provides Partnership with “further financial flexibility” as to pursue its strategy to grow the business in the UK retail, defined benefit and US care markets.”
He said: “Given Partnership’s debt-free balance sheet, it was logical to explore the opportunities to diversify the group’s sources of funding, but we elected not to proceed with a transaction at that time.”
The board now believes the bond issue is in the “best interests” of all shareholders.
Mr Groves said: “By introducing a prudent amount of leverage, we have diversified and strengthened our previously entirely equity funded capital structure and remain conservatively leveraged with a gearing ratio of 17 per cent.
“At 31 December 2014, our economic capital position of 134 per cent was in excess of the board’s minimum target of 125 per cent.
“This transaction increases the proforma economic capital coverage ratio by 25 percentage points to 159 per cent, and provides a further cushion against unforeseen market stresses and allows us to pursue the growth opportunities we have identified.”
emma.hughes@ft.com, donia.o’loughlin@ft.com
