Phoenix Financial Ltd. ($PHOE)

Hello. This is David Alexander, Deputy CEO of Phoenix Financial. Thank you for joining us to discuss the results for the first quarter of 2026. The call will be led by Phoenix CEO, Eyal Ben Simon; and CFO and Deputy CEO, Eli Schwartz. The presentation for the call can be found on our website or the Tel Aviv Stock Exchange website. The presentation provides key points on the financial statements released today 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 and discuss performance, strategy or any other questions you may have. We plan to be in London in June and in New York and Boston in July. Please note that this call will include forward-looking statements and that actual future results may be different. First, Eyal will highlight key results and strategic priorities. Eli will then review the financial results and segment breakdown in more detail.

Hello. Phoenix is the leading Israeli financial platform and capital allocator with $215 billion in assets under management. 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. This activity provides strong balance sheet and cash flows. The second is a broad asset management business with growth engines generating mostly fee-related and recurring earnings. Phoenix aims to create long-term value through high growth, strong performance and regular dividends. Phoenix provides scaled access to Israel's dynamic innovation economy. The market benefits from strong long-term demographic trends, productivity growth and wealth accumulation. The Israel economy continues to show good resilience this year, including during the war with Iran. Macro indicators are positive with good growth expected this year and next year. Savings pools continue to expand, supporting financial platform growth over time. Turning to Q1. Phoenix delivered another strong quarter with ILS 702 million of comprehensive income. Return on equity was 24% and total AUMs reached ILS 623 billion. There are several main takeaways for the quarter. Phoenix continues to accelerate organic growth above expected growth rates. Comprehensive income grew by 24% and core income by 13% compared to Q1 2025. Our asset management platforms continue to generate strong growth of 23% year-on-year, improving earnings mix and transitioning to more fee-based businesses. Second, Phoenix continues to disrupt Israel's financial sector. We do it with our Phoenix platform, which is an integrated capital generation and allocation platform. Some of the key elements are already in place and some were still developing. We're extending capabilities with M&As. In Q1, we completed acquisitions of the BUYME Digital platform and Fidelis Wealth Management, both strategic and synergetic to the group. We're extending our client acquisition and delivery capabilities in our group app. And we're moving first on turning AI into competitive advantages across our businesses. Phoenix is generating growing capital returns. We're distributing 57% of Q1 income in dividend and buybacks. This is aligned with our guidance of at least 55% payout in 2026. Phoenix continues to grow in core income with ILS 709 million in Q1. In orange, asset management platforms are growing fast, reaching ILS 251 million core income in Q1, 23% growth year-on-year. In blue, insurance is also growing to almost ILS 460 million, 9% growth year-on-year. Our investment team continues to manage capital allocation for both our client and corporate capital pools. Corporate account nominal annualized returns in Q1 were 3.2%, including the impact of the Iran war in March with a rebound after the end of the quarter. Phoenix is growing quarterly -- Phoenix is growing quarterly payouts with an average of roughly 5% dividend yields in the last few years. Today, we announced a dividend of ILS 1.3 per share or ILS 320 million overall for the first quarter of 2026. Together with ILS 85 million of buybacks during Q1, we're paying out 57% of quarter income. Looking forward for the rest of 2026, we expect to distribute at least 55% with at least 45% in dividends and the rest buybacks. Phoenix generates quality income, which is translated to strong cash flows. The group enjoys cash remittance from subsidiaries every quarter. Here, we see quarterly dividends from key subsidiaries with a total of ILS 484 million. We will now discuss strategy and guidance across our businesses. The opportunity we are seeing in rapid asset accumulation and value creation in Israel. On the left, we see that the Israel economy enjoys strong structural tailwinds with steady growth in population in GDP per capita and in wealth accumulation. These tailwinds contribute directly to the increase in financial assets held by public, which have more than doubled in the last 10 years. This demand drives growth in the financial services sector, including revenues and net income. On the right, we see that the market cap of Israeli Financial Services has grown from ILS 92 billion to ILS 489 billion between 2015 and 2025. And today, it is well over ILS 500 billion. However, in addition to the growth in overall value, we see that value shifting away from traditional products and towards scaled asset management and insurance platforms. Clients are moving away from deposits and toward digital securities, trading and alternative investments. This is true on average, but even more for younger demographics. On the bottom right, we see asset managers and insurance growing from 26% to 34% of the market cap of financial services, but this is just the beginning. In the U.S., for example, they account for 64%. Phoenix is leading this disruption, growing from 2% to 7%, but we aim to take a much larger share of this growing value. So the opportunity for value creation is significant. Phoenix has built itself to capture this opportunity. In the first wave of value creation, we scaled our business by creating broad platforms and growth engines. We're currently in the second wave, 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 will come from the Phoenix platform, which is an integrated capital generation and allocation platform. The platform includes full stack services in asset management, insurance and financing. We focus on client experience with an open architecture model and multichannel distribution. We enhanced platform capabilities with M&As, digitization and accelerated implementation of AI. AI and machine learning models are already upgrading cross-sales, underwriting, claims management and services. We believe we'll be able to scale platform capabilities before 2028 and bring upside to the guidance. Coming back to the numbers, Phoenix continues to grow faster expected toward our 2028 guidance. Phoenix targets core income of ILS 3.3 billion to ILS 3.5 billion in 2028 with annual growth rate of 10% compared to Q1, growth was 13% year-on-year. 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 balance sheet and already -- and steady cash flows. There is a potential upside to this organic guidance from M&As which are not part of the work plan, but are absolutely on our focus. For example, neither BUYME nor Fidelis are in the guidance. Additional upside can come from platform capabilities and AI, which we are building now and by investment performance above our normalization rates, our historic average is above our core income normalization. Phoenix is compounding AUMs at high double digits with a focus on high-margin activities. We see continued growth during Q1 with faster growth after the end of the quarter. Our accelerated growth in asset management fee-based platforms is demonstrated by growing EBITDA. EBITDA grew by 17% year-on-year during Q1, not including the completed acquisitions. We expect EBITDA to grow both organically and with M&As. 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. These activities are fee-based earnings, generating strong growth and cash flows. Phoenix is market leader, and we intend to continue to deepen competitive advantages to capture market share. Our digital trading platform is growing quickly, driven by very strong market demand. We have a leading employee stock option administration platform with a new app as well as a broad set of relevant wealth investment products such as alternatives and portfolio management. And we're introducing new capabilities in wealth management to expand our service and offerings. We believe that going forward, our broad client base will generate significant growth and cross-sales opportunities within our integrated platform. The Brokers and Advisors segment focuses on personal advisory, retirement planning, investment distribution, benefit administration and insurance distribution. The platform activity continues to grow with both organically and through roll-ups acquisitions. The business model relies on long-term relationships with clients and employers and generates strong recurring fee-based earnings. We see our future as being both the digital disruptor and the market-leading personal advisory network. Phoenix continues to grow our payments and financing activity while focusing on probability and risk management -- profitability and risk management. The business is based on a strong platform with a broad base of clients that provides credit card clearing, SME and consumer credit solutions. More than 50% of the business is credit card and payment solutions, generating low-risk fee-based earnings. The insurance activity provides a strong balance sheet and stable cash flows to the group. Here, we focus on growing the P&C business, which is high-margin capital-light activity while optimizing the life and health businesses. On top, P&C grew its market share from 12% to 15% in 5 years in a highly competitive market. The chart below shows that since 2020, Phoenix P&C has had both the highest growth and the highest profitability. At a 15% market share, Phoenix is the P&C leader. We aim to continue to grow based on competitive advantages across the value chain, including underwriting, distribution, services and claims. At the same time, across all our insurance businesses, we're optimizing business model and CSM, shifting to digital self-service and improving productivity. Now I'll handover that to Eli that will take it from here and review the financial results and segments in more detail. Please, Eli.

Thank you, Eyal. Phoenix reports strong ILS 702 million of comprehensive income in the first quarter of 2026. We are reporting a growth in core income in both lines of business, both in asset management and insurance. Looking at the income by segment, we see significant contribution from all lines of business. We see a strong contribution from the P&C, Wealth Investment and Brokers and Advisors segments. All are strategic growth engine of the group. Here, we see a full breakdown of the CSM evolutions by segment. Growth in Life and Health segment contribute the quarterly growth in CSM. We focus on optimization of our CSM by increasing growth of new business. In addition, we are growing also in the investment policies. The strong balance sheet and the debt structure provide financial flexibility for the group. We maintain a low LTV in the Phoenix Financial as well as subsidiaries. During the first quarter, we obtained international BBB rating for the Phoenix Financial by S&P. This rating adds the international rating of the Phoenix Insurance and the local rating of all our subsidiaries. Solvency remained high at 178% with transition measure of December 2025. This strong solvency position is above long-term targets of 150% to 170%. Phoenix is working to implement a stochastic model, and we expected a positive effect on the solvency and the CSM. Our capital positions and the surplus provide flexibility for growth and cash flow going forward. We will now review each segment in more details. P&C reports ILS 261 million income before tax. Phoenix is benefiting from competitive advantage in underwriting pricing, claims management and using the increase of market share. As Eyal discussed, in the last 5 years, we increased shares from 12% to about 15%. We grew not only in the premium, but also in the number of policies with 2% growth in the first quarter. We continue to grow and manage performance closely, and we are on track to meet our guidance. In the health segment, we see improvement in the core income. This growth in the underwriting profit was partially offset by investment performance. In the segment, we are focused on capital-efficient activities with lower long-term risk like critical illness insurance, for example. The Life segment generated ILS 38 million before tax. Underwriting profit was partially offset by nonoperating effect. Here, we see offsetting negative effect of investment below normalization rate and the positive effect of interest rate. Other equity returns were impacted positively by capital market. The Wealth and Investment segment contributed ILS 125 million before tax in the quarter. This segment includes activities of the Phoenix Investment House, Phoenix Capital Partners and investment policies. We see strong growth in alternative and wealth. Our brokerage trading business continued to grow to over 90,000 accounts. The Retirement business contribute was ILS 32 million pretax in the quarter. We are focusing on efficiency and improving profitability. The Brokers and Advisors segment include delivered ILS 125 million before tax. We see a strong growth of 38% year-on-year. This includes organic growth as well as synergies from roll-up M&As. We continue to capture value in the fragmented market. The payment and the financing segment generated ILS 53 million before tax. This while maintaining a responsible credit portfolio with strong risk management. Our consumer credit activity is now scaling and growing successfully.

Thank you, Eli. For additional information and resources, you can visit our website at www.phoenixfinancial.co.il. We'll now review the questions that were discussed in the conference call today in Hebrew. First question, you continue to make acquisitions. Going forward, in which areas are you looking to acquire? And can it be meaningful for Phoenix?

Yes. As we said previously and also in the guidance that we published, eventually M&A is part of the tools that we have. It wasn't -- we didn't publish any guidance regarding M&As, except maybe in the agencies that -- or the distribution where it includes part of the M&As. But generally, M&A is on top of the guidance. And as we said previously and many times previously is that eventually, we are targeting M&As in our strategic main vectors like, I would say, P&C or asset management or other elements of strategic vectors that we want to grow faster. We believe that we know practically how to do it. We have already proved that we know. We know how to integrate, and we just announced on 2 investments that we did with BUYME that create more -- that will create more value and will integrate synergetically to what we do on the client base. And also Fidelis that fits our next generation of growth in wealth and asset management. And more than that, Phoenix is built in a way that allows us to become a very flexible company with a great liquidity but at the same time, can pay out dividend, can do buybacks and also can continue very strongly on M&As.

Next question. How will the lower interest rate that was announced this week impact Phoenix?

Following the reporting date, a correction in the capital market has been observed, which may support the improvement of the return of equity in the second quarter of this year. In addition, the Phoenix is expected to benefit from positive impact for which sensitivity disclosure have been published, indicating an effect of approximately ILS 200 million in net profit for each 50 basis point reduction.

Next question. The Bank of Israel recently reported a significant increase in Israelis' exposure to investments in traded securities. Do you also see this trend? And how does it impact your business?

Yes, definitely, we see the whole market see -- we see the numbers in the market that actually reflect this trend that the Bank of Israel mentioned. So generally, the market is growing. But we're not surprised. We actually build our strategy to capture this value from growth of -- from the change of that trend. It's not unique to the Israeli market. That's what happened in many other markets. The Israel market wasn't mature probably before, but now it is maturing. And we believe that the trend would be even stronger, meaning that the next generation or the coming -- in the coming years, this trend will become stronger and will influence much more on the next growth. As I said, Phoenix -- in Phoenix, we have built the capabilities and the strategy of the group to capture this value. And more than that, we see more and more young populations or young investors open new accounts, brokerage accounts versus bank accounts. We see a trend that shifts investments from very traditional deposits and real estate to capital markets. And practically, they -- you can see it on our own app where more and more people are interested in financial solutions or financial products or investment policies or brokerage accounts or other financial solution like alternative that Phoenix is providing. And Phoenix, as we said previously, is a market leader. And more than that, we prepared ourselves or we built ourselves to capture it. And I believe that we can capture most of the next value that would be generated from that trend.

Next question. You discussed growing investments in AI. How do you measure the returns on investment? And what will be the impact on the business in the short term and the long term?

Well, when it comes to AI, it's a bit more -- we need to look at it from a bit higher perspective. Meaning when people say AI, they mean three levels of AI. They mean the previous one, which is machine learning, which is a more historical one than the GenAI. And now we have even the Agentic AI. So Phoenix started to prepare the data capabilities many years ago. And now you can see it through ML models in the pricing of P&C, claims management, other elements of using machine learning on analyzing and creating more value through our data, we already started to use it and create value. Now with GenAI, we started to invest -- and I can tell that a big part of our text messages are being replied by our [ Irony ] our Avatar [ Irony ], which answers very high ratios of those text messages. And still, the investment is much bigger than the value currently, but sooner or later, it will change. And I believe that the values will start to create by improving and increasing our sales, our SLAs with customers and so on will create more value than investment or will be benefit to the investment or to the money that we invest in AI tools.

Next question. You're reporting growth in CSM and the Life and Health segments. Are you changing your strategy to grow faster in these segments?

We didn't change our strategy. And anytime we do change, we announce it. So generally, what you see is the same growth and improvement that we have in all our segments. So we do see also in Life and Health improvement. We still take it very seriously, and we have a lot of responsibility toward long-tail products, and we run it together with -- and monitoring through risk management. But still, you see the same trend that you see overall -- in overall our business and when you see the overall of our businesses, we see the same trend of very strong -- very strong growth. And we can tell that also in Life and Health, we see the same growth, and it meets our strategy. And I believe that with time, we'll see more value definitely when we will come with our -- when our stochastic model would be improved. So we'll see a higher growth in our CSM and improvement in our profitability. But once it would be improved, we'll come up with all the needed information.

And next question. The first quarter was characterized by very broad uncertainty in the market. How do you foresee the continued uncertainty affecting Phoenix for the remainder of the year?

We're already almost 2 months after this uncertainty times. And we've seen the first quarter, we still see very strong growth above the guidance -- meaning the pace of the growth was above the guidance. So Phoenix is very strong. It's very resilient. We operate very well. Markets came back and paid back practically the losses of the -- losses of the end of the last quarter, meaning March was not that successful in return. So April and May were better. But not only in capital markets, operationally and Phoenix is functioning very strong. And we saw that, and as I said, in Q1, and we're still seeing that in April and May.

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 arrange a video call or an in-person meeting. And we plan to be meeting with investors and shareholders in London in June and then in New York and Boston in July. So please reach out if you'd like to schedule a meeting. Our e-mail address again is [email protected]. Finally, we should mention that you'll find the presentation, the other materials, the full financials, et cetera, on our website and a recording of this call that will be uploaded either tomorrow or on Sunday. Again, thank you for joining the call.