Phoenix Financial Ltd ($PHOE)

Hello. This is David Alexander, Deputy CEO of Phoenix Financial. Thank you for joining us to discuss group's annual results for 2025. The call today will be led by Phoenix CEO, Eyal Ben Simon; and Deputy CEO and CFO, Eli Schwartz. The presentation for the call can be found on our website or the Tel Aviv Stock Exchange website. This presentation provides key points on the financial statements released this morning and should be read together with the full financials. At the end of the call, we'll answer questions that were discussed today on the Hebrew call. You can send any additional questions to us individually or to the e-mail address [email protected]. We'll make ourselves available to meet with investors to discuss performance, strategy or any questions you may have. We also visit here in person in New York and London roughly twice a year, and we're happy to schedule meetings in person. Please note that the call will include forward-looking statements and that the actual future results may be different. Finally, for our participants in Israel, we're currently in a safe room so that in the event of a siren, we will continue the meeting as usual, and we will not pause. First, Eyal will highlight the key results and strategic priorities going forward. Eli will then review the financial results and segment breakdown in more detail.

Hello, and thank you for joining the call today. Phoenix is the leading Israeli financial group with nearly $200 billion in assets under management and distinctive competitive advantages. We have two lines of activities. First, a multiline Insurance business, including a market-leading P&C operation, as well as significant Life and Health businesses. The second is a broad Asset Management businesses with strong growth engines and cash-generating platforms. These include the market-leading Investment House and distribution network of Brokers & Advisors, together with growing Wealth Management and Financing platforms. Both Insurance and Asset Management activities are growing, generating quality earnings and cash flows. We use these cash flows to accelerate growth, distribute dividends and execute buybacks. Israeli economy and society continue to show very strong resilience both during 2025 and now while the war with Iran. And GDP is showing a return to strong growth, and other macro indicators are also strong in recent months. Capital markets are outperforming major global indices. The Israel economy enjoys positive structural trends, and together with innovation, culture and social resilience, we expect it to continue to grow. Going forward, Phoenix is well positioned to capture the opportunities in the local market. 2025 was a strong year for Phoenix. The company executed ILS 3 billion in comprehensive income, reaching nearly ILS 3.2 billion with EPS of ILS 12.6 and return on equity of 27%. In Q4, we reached nearly ILS 900 million in income, earnings per share of ILS 3.5 and return on equity of 29%. Here, we highlight the main takeaways for the year. Phoenix continues strong strategic growth ahead of our 2028 guidance growth rate. During 2025, we saw 34% growth in comprehensive income and 16% in core income. This growth rate is faster than our guidance, which is based on 10% annual growth. Phoenix's income continues to shift towards high multiple capital-light businesses with accelerated growth in asset management of 43% year-over-year. Phoenix is disrupting Israeli financial services, and we continue to build the capabilities for the next wave of growth with integrated financial services. Some of the key elements are already in place, and some, we're still developing. Our group app, which is now our main digital platform, is growing fast with over 0.5 million users. In addition, we're moving fast on implementing AI across our businesses. We want to be the leader in AI in Israeli financial services and see ourselves as the local disruptor and attacker. We're extending capabilities also through M&As. We recently signed a deal to acquire BUYME, which is a market-leading retail digital marketing app, the #3 app brand in Israel and the leading brand in financial services. We also made an acquisition in Fidelis, a strong wealth management platform, adding to our wealth capabilities. Phoenix is committed to distributing quarterly dividends. This year, we distributed 51% of income as dividends and buybacks. For next year, we aim to increase payouts to at least 55%. Phoenix reports record performance in 2025 with continued growth in both lines of activities. Here, you can see growth trends over the years in normalized core income as well as IFRS comprehensive income. Core income for 2025 at the bottom of the slide passed ILS 2.6 billion in 2025 with core return on equity of over 22%. In orange, Asset Management platforms are going fast, reaching ILS 900 million core income in 2025, 42% growth year-over-year. In blue, Insurance is growing steadily to over ILS 1.7 billion, 6% growth year-on-year. In gray, you can see the strong investment performance generated an additional ILS 500 million in 2025. Our investments team continues to bring strong performance with 8.5% nominal returns on the corporate account in 2025. This positive trend continues in 2026 as well despite the war. Starting Q4 of 2025, we're normalizing our investment performance at 2.5% above nominal risk-free rate. This is below the historic average of 4%, creating significant upside to our core income normalization. We maintain a conservative allocation with limited exposure to private credit and software loans, in particular. We report mark-to-market, including with external evaluators selected for Israeli institutions by the Israeli regulator. Looking forward, our focus is to maximize risk-adjusted investment performance of our local pools and provide competitive risk-adjusted yields for our clients and balance sheet. Phoenix is paying growing dividends with attractive yields. We're committed to distribute dividends every quarter, and we averaged roughly 5% dividend yields in the last few years. Today, we announced a dividend of ILS 360 million for the fourth quarter of 2025. Together with the previous dividends and buybacks, the total payout from 2025 earnings was ILS 1.6 billion, 51% of comprehensive income. For 2026, we expect to distribute at least 55% with at least 45% in dividends, and the rest, buybacks. The group enjoys strong cash remittance from subsidiaries every quarter. Here, we see quarterly dividends from key subsidiaries. This cash flow machine gives us flexibility to distribute dividends, execute buybacks, perform strategic acquisition and fuel organic growth. We will now discuss strategic and guidance across our businesses. First, let's look at the market. Phoenix is facing a significant opportunity to accelerate long-term growth. On the left, we see the Israel economy enjoys very positive long-term structural trends, including growth in population, GDP per capita and wealth accumulation. In the center, we see these trends leading significant value creation in Israeli financial services. Market cap grew 5x in the last decade from ILS 90 billion to almost ILS 500 billion. I believe this trend will continue because of the long-term trends. It may even accelerate due to growing demand for more sophisticated services and products. On the right, we see a shifting mix from banks toward insurers and asset managers. This shift is just starting. Asset managers and insurers today represent only 34% of the market cap, up from 26% a decade ago, but still low compared to 64% in the U.S. The driving forces are similar, so I believe this trend will continue in upcoming years. This is a major opportunity for disruption. Phoenix today represents only 7% of this market cap, and we aim to capture a larger share even as the entire value pool grows. As a benchmark, we have roughly 15% blended market share overall in areas where we currently compete, which can still grow. So the opportunity for value creation is significant. Phoenix has built itself to capture this opportunity. In the first wave of value creation, we build broad platforms. In the second wave, the current wave, we're accelerating growth towards 2028 guidance while deepening competitive advantages and optimizing the business. In parallel, we already started building capabilities for third wave of value creation. Our next wave of value creation through the end of the decade will come from integrated financial services. We plan to continue to disrupt the local financial sector. This includes full stack services in asset management, insurance and financing, delivered in multichannel platforms to clients, personal and digital, all with the highest client experience. AI and machine models are already upgrading cross-sales, underwriting, claims management and services. To achieve this, we're upgrading digital platforms, investing in fast implementation of AI and data and pursuing M&As for additional capabilities. We believe we'll be able to scale some of these capabilities before 2028 and bring upside to guidance that we cannot yet quantify. Our proven value creation strategy is based on 4 pillars: growth, innovation and active group and capital management. In the next wave of value creation, at the bottom, we're focusing growth on high-margin, high-multiple activities towards fully integrated financial services. We're using innovation, focusing on [ cloud ] platforms and AI to create competitive advantages. We are building our talent and organization with broader opportunities for M&A, and we're maintaining flexibility to grow and increase dividends with strong capital management. Here are a few examples of the capabilities that are driving disruption that we're building or scaling. Disruptive products include digital consumer lending, data-driven underwriting with strong cross-sales to existing clients. Historically, banks dominated consumer lending with over 19% share and best-in-class international investment products, with first-tier global partners wrapped especially for the Israeli retail market. Second, we're the all -- we are the AI attacker. We're driving client-centric digitization in the Phoenix app, our integrated client platform, covering investments, savings, insurance and credit. It is already serving more than 500,000 users and growing quickly. We're using scale, resources, businesses' diversity and broad data to build leading AI capabilities. We're already scaling proven engines that are bringing results in underwriting, claims, service and cross sales. We have recently transitioned copilots to a client-facing AI bot in the WhatsApp chat channel and expect to do the same in the app chat and then in the call centers with full voice functionality. Third, we aim to disrupt with business systems. For example, we bring international performance culture to Israeli financial services, partnership models which didn't exist, broad equity compensation, Tier 1 partnerships and global best practices. Coming back to numbers, our annual performance is growing faster than the rate of our guidance. Phoenix targets core income of ILS 3.3 billion to ILS 3.5 billion in 2028 with annual growth rate of 10%. Asset Management is planned to grow at 20% annually towards ILS 1.3 billion to ILS 1.5 billion. Insurance is growing at single digits toward ILS 1.9 billion to ILS 2.1 billion in 2028 with strong cash flows that fund growth. But beyond the double-digit growth guidance, we see potential upside from implementing third wave capabilities, as I described before. This includes from integrated financial services and technology, from investment performance based on historical averages and from improved macro conditions compared to our conservative base case. Phoenix is compounding AUMs at high double digits with a focus on higher-margin activities. We ended 2025 with ILS 610 billion or roughly $200 billion. You can also see here, dramatic and market-leading growth in investment policies, third from the bottom. These are distinctive investment strategies with attractive insurance wrappers with tax benefits and advanced multichannel distribution. Our accelerated growth in asset management is demonstrated also in growing EBITDA. Phoenix has been growing EBITDA at roughly 30% annually or doubling EBITDA every 3 years. This means stronger margins, returns and cash flows. We're aiming for roughly ILS 2.4 billion to ILS 2.6 billion by 2028. We can now deep dive into the various Asset Management businesses. Here, we continue to grow the wealth, investments and retirement activities. 2025 shows strong results and growth. Phoenix is a market leader, and we intend to continue and use our competitive advantages to grow with the market and capture market share. Our digital brokerage and trading platform is growing quickly with over 90,000 clients. We have a leading employee stock option administration platform, as well as a broad set of relevant investment products such as alternatives and portfolio management. And we're introducing new capabilities in wealth management to expand our service and offerings. We recently took a stake in Fidelis, an Israeli wealth manager, in addition to organic teams already operating in our businesses. We believe that going forward, our broad client base with deep data sets will generate significant growth and cross-sell opportunities within an integrated service model. The Brokers & Advisors segment focuses on personal advisory, retirement planning, investment distribution, benefit administration and insurance distribution. We see our future as being both the digital disruptor and the market-leading personal advisory network. The platform activity continues to grow, passing ILS 1 billion in revenues with both organic growth and acquisitions. We increased our holdings in this business during the year are focusing on accelerating value creation. Phoenix continues to grow our financing activity while focusing on profitability and risk management. The business is based on Phoenix Gama, which is a strong platform with strong base of client that provides credit card clearing, SME and consumer credit solutions. More than 50% of the business is fee-based credit card and payment solutions, generating low-risk fee-based earnings. In the Insurance business, we are focused on growing P&C in line with our strategy to focus on high-multiple capital-light activities. We managed to increase P&C market share by roughly 1 quarter in last 4 years in a very competitive market while maintaining high margins. We're working to expand competitive advantages, mainly by investing in data and technology and sales, pricing and claims. We aim to reach ILS 6.3 billion to ILS 6.7 billion in P&C premiums by 2028. Across all our insurance businesses, we're optimizing business models and CSM, shifting to digital self-service and improving productivity. To summarize, Phoenix continues to focus on significant value creation. We see broad opportunities in the market. We're positioned to capture these opportunities with a proven strategy. We're moving towards guidance with double-digit annual growth, continued shift to asset management and growing dividends. At the same time, we see upside from what we are already doing in integrated financial services, new capabilities and M&A opportunities. Now Eli Schwartz, the CFO, will take it from here and review the financial results and segments in more detail. Please, Eli.

Thank you, Eyal. 2025 was a record year for the Phoenix, with total comprehensive income reaching ILS 3.2 billion. We are reporting growth in both lines of business, together with the strong contribution of investment performance. In Q4, Phoenix reported strong ILS 887 million of comprehensive income. Core insurance income declined compared to Q4 last year due to actual models update and reserve adjustment in the P&C segment. Asset Management platform generates strong growth year-over-year. Strong investment performance contributed to positive nonoperating effect in the quarter. Looking at the annual contribution of comprehensive income by segment, we see a significant contribution from all lines of business. This includes core income, as well as nonoperating effect. Other equity returns were high because of strong investment performance. Looking at the breakdown of Q4, we see a stronger diversified income from across the segment. Again, other equity returns were impacted by investment performance. We see some quarter-to-quarter variance that we will go into it as we review the segment in more details. The strong balance sheet and the debt structure provides financial flexibility to the group. We maintain low LTV in the Phoenix Financial as well as subsidiaries. During 2025, we obtained AA rating for all of the subsidiaries. This enable them to increase capital resources and provide the flexibility for the group to invest in growth, M&A and distributions. Phoenix's insurance solvency for September 2025 remains high at 179% with transition measures. This strong solvency positions above the long-term target of 150% to 170%. Phoenix is working to implement a stochastic model and expect it positively affect on the solvency. Our capital position and surplus provide flexibility for growth and cash flow going forward. We will now review each segment in more details. P&C reported ILS 927 million income before tax. We are on track to meeting our guidance of working implementation project that may result in upside to planned premium and profit. In terms of business, we are benefiting from competitive advantage in underwriting, pricing and claim management and using this advantage to increase market shares. In the last 4 years, we increased share from roughly 13% to almost 16%. As we increase share, we can retain clients and [ eye to renewal ], especially in the direct channel. In the Q4 results, we see negative differences between 2025 and 2024 due to actual model update and reserve adjustment, including releases from 2024. The models are usually updated every 6 months. The total difference year-over-year was ILS 200 million. We continued to grow and to manage performance closely. In the Health segment, we see improvement in pretax income to ILS 924 million. This compared to ILS 623 million last year. This growth is due to improve the core income from underwriting and positive interest rate effect. In this segment, we are focused on capital efficiency activities with lower long-term risk. The Life segments generate ILS 413 million before tax. Improvement in underwriting profit was partially offset by nonoperating effect, mainly interest rates. Other equity returns were impacted positively by capital market and strong investment performance. The Wealth & Investments segment contributed ILS 384 million in 2025. This segment includes activities of the Phoenix Investment House, Phoenix Capital Partners and investment policies. We see strong growth in mutual funds and ETF, including synergy from the Psagot transactions. Our brokerage business continues to grow to over 90,000 accounts. We also see growth in the income from wealth and alternative as we continue to grow in business. As we continue to build and restructure the business, we see some onetime accounting effect under special items. The Retirement business contribute was ILS 166 million pretax, with significant increase in the core income year-on-year. We are focusing in this segment on efficiency and improving profitability. You can see the impact of the results. The Brokers & Advisors segment, including the Phoenix Agencies, delivered ILS 429 million income before tax. We see a strong growth year-over-year. The business shows strong organic growth as well as synergy from M&A. We continue to capture value in the fragmented market. The Payment and the Finance segments generated strong income growth to ILS 180 million before tax. This, while maintaining responsible credit portfolio with strong risk management. Here, we provide a full breakdown by activities for the first time. We can see that most of the income is fee related without credit risk. This is primarily from credit card clearing and solutions, which is growing with a low risk and volatility. Our consumer credit activity is now scaling and growing successfully.

Thank you, Eli. For additional information and resources for shareholders, you can visit our renewed website at www.phoenixfinancial.co.il. We'll now review the questions that were discussed in the conference call earlier in Hebrew. The first question. Phoenix reports record performance and strong growth year-over-year. You published guidance with 10% CAGR. Is your growth rate sustainable? And does it relate to market growth or market share growth?

I believe we can grow much more than 10% here. The market is growing, and there is a big opportunity for disruption. We provided guidance of 10% based on conservative organic assumptions. We see a shifting mix to a more attractive business profile. From an investor perspective, we're also growing dividends, which provided historically, 5% yield. As discussed, we see additional upside from integrated financial services, building AI capabilities, accelerating M&As with BUYME, for example, and Fidelis and more in the pipeline. It is still too early to quantify upside. We will revisit guidance if and when necessary.

Second question. You indicate that Phoenix is aiming to disrupt the Israeli financial sector. What do you mean by that?

Israeli financial services are still far behind the U.S., but are starting to catch up. Historically, they were dominated by traditional commercial banks. There is now a significant opportunity and strong demand for products and service. Digitization is changing the game compared to traditional branches. People are expecting easy digital services from smart platforms, and we have the scale and the resources to deliver for our clients. We bring products which do not exist in the market, digital private credit, global investments wrapped in investment policies, client platforms and technology in development. We bring global perspective into the way we manage our business. And Israeli financial customer demand fair, advanced digital services, and I believe that the company who manages to provide it will see significant value.

Next question. How do you see the ongoing war with Iran affecting your business?

We don't see significant impact. We maintain the full business continuity from the first day. Broad resilience and diversification limit the risk. Positive performance in capital markets in Q1 to date supports group performance. Of course, we're regularly monitoring the situation and adjusting in real time.

Next question. Global capital markets highlight concerns from AI disruption of traditional markets, including insurance, distribution and financial services. How do you see the situation in Israel? And what is the potential impact on Phoenix? So like in every situation of disruption, we think that companies need to be dynamic and to move very quickly. What we saw internationally -- first of all, there's still an outstanding question of how the impact will take place and when and by whom. We saw the markets reacted very quickly and sharply, but then pared back some of the losses. And there appears to be uncertainty about who will be the disruptor, where there will be B2C platforms that are general AI agents or client-specific sector platforms like insurance companies and banks and financial providers. Israel, compared to -- any way it plays out internationally, Israel is more protected because it's a smaller economy. It is not targeted by global players, so it's low priority for players like Anthropic. It's hard to enter. The local players have a big advantage. And there's a lot of local nuance, not just in the language and the writing, but also in the business culture and the client expectations. For Phoenix, we think that AI is a very big opportunity because we have the scale, we have the capabilities, we have the ability to invest. We have the very broad data platforms, very broad client relationships to be able to lead AI and financial services in Israel, and that's our goal. So we consider ourselves as the disruptor of the Israeli market. Our goal is to lead the market. We don't need to be the fastest globally together with the fastest global financial institutions, we just need to learn very quickly and to implement successful AI use cases and methodologies and tools and capabilities and be first in Israel. So we're already doing this, and we're already seeing results actually faster than expected in areas like underwriting and claims and service. And even in sales, for example, we've implemented an AI chatbot in the WhatsApp chat channel that's talking directly to clients, and this is ahead of the road map that we had planned. And we'll be implementing it also in other digital channels and then in the call center. We have dedicated teams in place, and we're moving full speed. And we're updating the road maps from time to time because they seem to be progressing faster than expected. So the bottom line is we think that Israel is more protected. And even given the uncertainty globally, we think that we can lead the disruption in Israeli market. Next question. You mentioned potential upside back in November when you published guidance and also today. What is the likelihood of upside? And do you intend to update the guidance?

Okay. We see next wave of value creation from integrated financial services. The vision is full stack financial services, innovative products, multichannel with best-in-class client experience, data, M&As, already making acquisitions beyond our previous plans, outperformance of investments. It is too early to fully quantify, but we will update our plans periodically and revisit our guidance as it becomes appropriate.

Next question. You highlighted several acquisitions that were conducted in 2025. Should we expect more in 2026?

Yes. Of course, as we said previously and many times, M&As are part of the strategy, both this year and going forward. Market conditions create lots of opportunities. Some acquisitions will focus on synergies, and some on both synergies and capabilities. And as we said, it's not part of a long-term plan or guidance. Mainly -- especially in most of businesses, there is a nonsignificant in the agencies. But once we do it -- and of course, as I said before, when appropriate, we'll come up with the update.

Next question. What are the main trends you see in P&C insurance? And how are they affecting Phoenix?

In the short term, we see some market price reduction in the motor property. But motor property is only 30% of the overall P&C activity. We do see growth at the last year and also the last few years with actually increasing our competitive advantage, creating or optimizing on pricing and creating better terms than the market. As we said previously, Phoenix is leading in its distribution channels, working with direct and also nondirect by third-party agents, but also digitally, very strongly to create better market share and, of course, much better retention over time. We developed over the years, kind of complementary solutions as spare parts company and so on. And we focused on that business of P&C and -- over the years. And also lately and also going forward, we intend to invest lots of efforts and lots of money, mainly in technology and creating advantages to create, of course, over time, a much profitable, much larger market share. And the last thing is that the more competitive the market becomes and the more technological or data-driven -- the more data that the market is going or the more sophisticated pricing and data usage the market is adapting, Phoenix's advantage will become bigger and bigger. And as we said before, we believe that we're just at the beginning of that journey. And over time, we'll take more market share and more profitability from the market.

Next question. What is your exposure to international private credit?

Limited exposure to private credit in general and areas that consider more risky, in particular. In our SME model of collaboration, we can be very selective in each investment decision, minimizing exposure to high-risk domains such as software. Our valuation are market-to-market done by external valuators, selected by regulator of all institutes. We are, of course, particularly in monitoring the international trends and making adjustments where necessary. But overall, the exposure is very, very small.

Next question. You report more than 90,000 accounts in your private brokerage. How do you see this business going forward? And can it grow even further?

Of course, the trend in Israel, mainly for the young generation, is opening investment accounts in nonbanks and facilitators. And this trend is going up and up. We moved from 82,000 to almost 90,000 new accounts in excellence trade. We see that trend not only in the young population, also more affluence and people that have based capabilities, and of course, wealth also opening those accounts. So we see that as kind of a market for the overall trend of moving the market toward financial services, products and solutions. And Phoenix is positioned in the perfect place to capture this value of transforming the market into more financial market or financial-oriented market.

Next question. Do you see specific investment opportunities and domains to focus on during these times of uncertainty?

As we said many times in the past, uncertainty creates opportunities. And Phoenix is positioned very well to capture opportunities, both our capabilities and, of course, our resilience, but also the liquidity and rating of Phoenix. So we work with best partners, local and global, to make it. We hope that the geopolitical -- eventually, the geopolitical situation will be resolved successfully. But anyway, this situation or this uncertainty creates a lot of opportunities.

Thank you. These were the questions. Investors are welcome to contact us directly at any time via e-mail. We'd be happy to answer questions or schedule video calls, arrange conversations and meetings. Our e-mail address is [email protected]. You're also invited to visit our new website at a new URL at www.phoenixfinancial.co.il. We'd like to mention that in this new website, you'll find the presentation, the full financials and a recording of this call that will be uploaded probably tomorrow or Sunday. Thank you again for joining the call.