Admiral delivers solid set of results with good customer growth in the first half

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Admiral Group plc (LON:ADM) has announced its 2022 interim results highlights.

	Six months ended: 30 June 2022	Six months ended: 30 June 2021	Six months ended: 30 June 2019	*% change vs. 2021*	*% change vs. 2019*
Group profit before tax¹	£251.3m	£482.2m	£210.5m	-48%	+19%
Earnings per share¹	67.0p	132.9p	60.9p	-50%	+10%

Interim dividend per share	60.0p	115.0p	63.0p	-48%	-5%
Special dividend per share from sale of Penguin Portals comparison businesses	45.0p	46.0p	—	—	—
Return on equity^{1 2}	37%	68%	47%	-31pts	-10pts

Group turnover^{1 2}	£1.85bn	£1.75bn	£1.68bn	+6%	+10%
Group net revenue¹	£0.72bn	£0.79bn	£0.65bn	-9%	+10%
Group customers²	9.11m	8.02m	6.74m	+14%	+35%
UK Insurance customers²	6.94m	6.22m	5.32m	+12%	+30%
International Insurance customers²	1.94m	1.71m	1.36m	+13%	+43%
Gross loans balances	£786.6m	£469.4m	£437.0m	+68%	+80%

Solvency ratio (post-dividend)²	185%	209%	190%	-24pts	-5pts

1 Group profit before tax, Earnings per share, Group turnover, Net revenue and Return on equity presented on a continuing operations basis
2 Alternative Performance Measures – refer to the end of the report for definition and explanation

Around 10,000 employees each receive free shares worth up to £1,800 under the employee share scheme based on the interim 2022 results.

Comment from Milena Mondini de Focatiis, Group Chief Executive Officer

“Admiral has delivered a solid set of results and good customer growth in the first half of the year. We are happy with this progress against the backdrop of a more turbulent cycle than usual, and high levels of inflation. Although, as expected, profit has decreased against last year, the unique conditions of the pandemic years make 2019 a better comparison – with profit and customer numbers increasing by 19% and 35% respectively since then.
“We have remained disciplined, adapting our rates in response to the higher inflation environment earlier than the market and maintaining a cautious approach to reserving, as we always do. We continue to focus on good execution through the cycle. Our strong balance sheet and focus on profitability over growth puts us on a strong footing for when conditions improve.
“It is pleasing to see the majority of our growth coming from more and more customers across all of our products and geographies choosing to stay with us. We are committed to delivering great service and to support all of our customers, including those who are experiencing financial difficulty.
“We have made good progress on our diversification strategy. More than half of our customer growth came from our new products and geographies, with UK Household up 18% and Admiral Money loans balances up by almost 70% whilst the business made its first small profit. We now serve 1.9 million customers across our international businesses.
“I would like to thank all of my colleagues across the Group who make the business such a great place to work, and whose dedication and adaptability has enabled us to meet our 9 million customers’ needs during this period.”

Dividend

The Board has declared an interim dividend of 60.0 pence per share, made up of a normal dividend of 44.2 pence and a special dividend of 15.8 pence per share. The payment represents 90% of earnings per share for the first half.

The Board has also declared a further special dividend of 45.0 pence per share reflecting the final payment of the phased return to shareholders of the proceeds from the sale of the Penguin Portals comparison businesses. This payment, along with the previous two payments of 46.0 pence per share, brings the total amount returned to shareholders to just over £400 million.

The total interim dividend, including the further special dividend is 105.0 pence per share, made of a normal dividend of 44.2 pence per share and a special dividend of 60.8 pence per share.

Payment will be on 30 September 2022. The ex-dividend date is 1 September 2022 and the record date is 2 September 2022.

Management presentation

Analysts and investors will be able to access the Admiral Group management presentation which commences at 10.30 BST on Wednesday 10 August 2022 by registering at the following link for webcast at https://edge.media-server.com/mmc/p/8s7r4iut or via conference call at https://register.vevent.com/register/BI60d5a8704b4f49eaa19bd36b6abfd763. A copy of the presentation slides will be available at www.admiralgroup.co.uk

Group Highlights

The Group delivered another solid set of results in the first half of 2022 against a backdrop of challenging market conditions and an elevated inflationary environment. Following on from two outlier years of higher profits resulting from Covid and related factors, Group profits have returned to a level more comparable to pre-Covid periods whilst delivering positive change in a number of key metrics. Highlights are as follows:

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·9.1 million Group customers at the end of the first half of 2022, a 35% increase from 6.7 million at the end of the first half of 2019 and with over 1 million customers added since half year 2021

·Group pre-tax profits of £251 million, 48% lower than the exceptional first half of 2021, but 19% higher than H1 2019

·UK Insurance business year-on-year growth in both turnover (+3%) and customer numbers (+12%), despite significant rate increases in UK Motor in response to elevated claims inflation

·UK Insurance profit of £322 million, 41% lower than 2021 (£544 million) with higher current period claims and lower reserve releases and profit commission, but 26% ahead of H1 2019

·Strong performance from UK Household, with pre-tax profit of £7 million (£17 million excluding the impact of exceptional weather in the period)

·A worse overall International Insurance result (loss of £22 million v loss of £1 million in H1 2021) than recent years, primarily driven by a more significant loss in US Motor Insurance (due to much higher claims inflation) offsetting a small profit in European motor insurance

·Strong performance from Admiral Money, with a 68% increase in loans balances compared to 30 June 2021, continued favourable default experience and a first small profit for the first half of 2022

Earnings per share

Earnings per share for the first half is 67.0 pence (H1 2021: 132.9 pence). The reduction compared to 2021 is for the reasons noted above. Earnings per share is 10% ahead of H1 2019 (60.9 pence), with this increase being lower than the growth in pre-tax profits (19%) due to a higher effective tax rate in 2022 compared to 2019, primarily related to the higher loss in the US in the current period.

Return on equity

The Group’s return on equity was 37% in the first half of 2022, 31 points lower than H1 2021 and 10 points lower than the comparable period in 2019 despite the growth in profit vs 2019. This is the result of a significant growth in the average equity between H1 2019 and H1 2022. Whilst the Group pays out the majority of its post-tax profits in dividends, the higher level of profitability through 2020 and 2021 means that the quantum of profit that is retained has been at a higher than typical level, increasing net equity over these periods.

Dividends and solvency

The Group’s dividend policy is to pay 65% of post-tax profits as a normal dividend and to pay a further special dividend comprising earnings not required to be held in the Group for solvency or buffers.

The Board has declared an interim dividend of 60.0 pence per share (approximately £177 million) split as follows:

44.2 pence per share normal dividend
A special dividend of 15.8 pence per share

The 2022 interim dividend (excluding the further special dividend referred to below) reflects a pay-out ratio of 90% of earnings per share. 60.0 pence per share is 48% lower than the interim 2021 dividend (115.0 pence per share) with the movement being in line with the reduction in profit noted above.

The Board has declared a further special dividend of 45.0 pence per share reflecting the final payment of the phased return to shareholders of the proceeds from the sale of the Penguin Portals comparison businesses which completed in 2021. This payment, along with the previous two payments of 46.0 pence per share, brings the total amount returned to shareholders to just over £400 million.

The total interim dividend, including the further special dividend is 105.0 pence per share, split 44.2 pence per share normal element and 60.8 pence per share, special element.

The payment date is 30 September 2022, ex-dividend date 1 September 2022 and record date 2 September 2022.

The Group reports a strong solvency ratio of 185% post-dividend. The ratio has reduced by 24 percentage points from H1 2021 (a reduction of 10 percentage points from the end of 2021). The reduction from H1 2021 is primarily due to a reduction in own funds of approximately £170 million – arising through both the impact of widening credit spreads on the Group’s investment portfolio, and lower generation of economic capital.

Global context and inflation

Various macroeconomic and other factors (including significantly higher inflation, supply chain pressures and labour shortages) have influenced Admiral’s businesses and markets during 2022.

Elevated levels of inflation in insurance claims has been an important issue in the period, and the levels of claims frequencies have also returned near to, or to, pre-pandemic levels. The main drivers of claims inflation are higher used car prices, higher repair costs, longer repair timescales and higher expected levels of wage inflation impacting the projected costs of bodily injury claims.

Admiral Group ontinues to manage these challenges with a disciplined, long term approach to pricing and business volume and continues to take a very conservative approach to reserving for insurance claims. Admiral Money continued to cautiously grow its loans portfolio in the first half of 2022, though has further tightened underwriting criteria in response to economic conditions and outlook. Provisions for credit losses remain appropriately prudent, though no significant increase in the level of arrears and defaults has been seen to date.