Chesnara shares slip as earnings tumble

29th Mar 2019 11:06

(Sharecast News) - Shares in Chesnara were on the back-foot on Friday, even as it reported a significant improvement in cash generation in its final results to £47.8m, from £28.6m in the prior year.The London-listed life insurance firm said the result benefitted from a £26.8m release of surplus from the UK with-profits funds in the year-ended 31 December, while the 2017 comparative included a one-off £55.3m negative, arising on the acquisition of Legal & General Nederland.It said it had continued to deliver "significant" cash generation, funding its dividend strategy as well as strengthening the group solvency ratio, despite a "challenging" economic backdrop in 2018.Economic value, however, was impacted by those adverse economic conditions, though the board said that was in line with sensitivities.Divisional cash generation fell to £63.9m from £86.7m year-on-year, which included the benefit of a £26.8m release of surplus from the UK's with-profits funds, while its group solvency ratio increased to 158% from 146%.Chesnara said it was "well capitalised" after allowing for the final dividend, at both a group and subsidiary level, adding that it had not used any elements of the long-term guarantee package, including transitional arrangements.It declared a 3% increase in its final dividend to 13.46p per share, which would be the 14th annual consecutive increase.The company's economic value slipped to £626.1m from £723.1m at the end of 2017, with Chesnara saying the movement included its earnings for the year, and was stated after recognising £30.4m of dividend payments and a foreign exchange loss of £5.8m during the period.Economic value earnings, net of tax, were a negative £60.9m, swinging from a positive figure of £139.5m, with the board saying the loss included £49.7m relating directly to economic market conditions, while the 2017 result included a non-recurring £65.4m gain arising on the acquisition of Legal & General Nederland.It reported an economic value new business contribution of £10.6m, down from £12.4m, with the company saying that "solid" new business profits had emerged from Movesticm with Scildon's new business operation seeing "positive" volume trends, and the board continuing to work on initiatives to further enhance margins.IFRS profit before tax totalled £27.0m, down from £89.6m, with the firm's underlying core operating profit improving to £42.5m from £38.4m.Chesnara said economic losses of £15.5m compared to a corresponding profit of £30.9m in 2017, adding that the 2017 result included a £20.3m gain arising on the acquisition of Legal & General Nederland.IFRS total comprehensive income was £23.7m, down significantly from £86.9m, with the board noting that the 2018 result included a foreign exchange loss of £0.8m, compared to a gain of £8.3m a year earlier.The 2017 result also included a £20.3m gain on the acquisition of Legal & General Nederland."It is pleasing to report that in 2018 we continued to generate cash in excess of our dividend costs and we ended the year with a strong solvency ratio of 158%," said Chesnara chief executive John Deane."This was achieved against a backdrop of adverse economic conditions, especially during the last quarter of the year."Economic value has been impacted by the market conditions in line with our sensitivities."Deane said the adverse economic conditions, primarily reduced equity and bond values and the strengthening of sterling against the Swedish krona, contributed to the reduction in total economic value.The closing value also recognised the payment of £30.4m of dividends during the year."Good progress on operational performance developments during the year has resulted in improvements in business resilience and higher new business volumes compared to 2017."The FCA investigation into the fair treatment of long standing customers in the UK was closed without further action," Deane added.He said that in the early part of 2019, markets had recovered "somewhat", but uncertainty remained as a result of political, economic and business conditions."For Chesnara, with our structure of separate subsidiary companies in each European territory, debt capacity and management capability, we remain open to the opportunities this uncertainty could bring to us as a disciplined buyer with a focus on cash generation and long term value."As at 1054 GMT, shares in Chesnara were down 1.31% at 377p.