M&G plc

Welcome to the M&G PLC full year 2022 results presentation. We will now go live to Luca Gagliardi, Director of Investor Relations.

Hi there. Good morning, everyone. I'm Luca Gagliardi, Director of Investor Relations here at M&G. Welcome to our 2022 full year results. I'm joined today by Andrea Rossi, Group Chief Executives, and Catherine McClellan, Group CFO. Today, we'll go through the presentation slides first, and after that, we'll have time for Q&A, both in the room and for those on the line. You can submit questions online. So without further ado, I'll hand it over to Andrea. Thank you.

Well, good morning, and welcome to M&G's 2022 full-year results. This is a special day for me, as this is my first investor presentation as chief executive. let me say i'm very pleased to be here addressing you today i will start by giving you clarity on my long-term ambition for the firm what we want to be and how we're going to get there catherine will then take you through the financial results which i'm pleased to say demonstrate once more the resilience of mng in what has been an extremely tough trading environment but first I'd like to restate the reasons why I was excited to join back in October 2022. When I looked at M&G, I saw strong foundations upon which I could build a compelling success story, delivering the step change in profitable growth that has been missing since listing. In our differentiated business model, with the asset manager at the center, supported by heritage and wealth, we have an advantage envied by many. In Proof Fund, we have a genuinely unique proposition. We have an exceptional brand and investment capabilities. We have talented colleagues. We're financially strong, and we have long-term relationships with a wide range of clients. I'm also clear there are significant opportunities to do more and things we can do better. I have three priorities that I will keep returning to. First, financial strength. continuing to prove we are good stewards of shareholders' capital. Second, simplification, to deliver a more efficient and accountable organization. And third, growth, targeted, profitable growth that leverages on our strengths. Our differentiating business model is the one main reason why I wanted to join M&G. It all starts with our clients, the only reason we exist. We have three distinct yet balanced and complementary parts. We lead with the asset manager, the core of our business. It both serves and is supported by heritage and wealth. Working together, all thrive. The asset manager provides strong investment expertise to all its clients. Our heritage business is the largest one of them. and with its permanent capital and long-term investment horizon, supports much of product innovation. The resilience of the cash flows from the back book is critical, but what is often overlooked is the extent to which the asset owner drives the asset manager to improve on innovation, on service, and more, which benefits everyone. Our wealth business enhances our reach through strong brand and intermediary relationships. With Profund, at its core, it is able to serve UK customers across the full distribution spectrum. The outcome is a differentiated and balanced business model delivering strong shareholder returns. Our business model gives us a strong foundation that we will build on. In the Asset Manager, we have excellent investment capabilities. These attributes do not appear overnight. It takes time to get your offer right and hard work to remain relevant. But we are still too UK-centric and lack scale in international markets. Our processes are too complex, which is not only expensive, but hinders growth and innovation. The simpler an organization is and the less layers it has, the closer it is to clients. For example, we made amazing progress in wholesale, simplifying our offering and improving performance. But I know we can and must do better. Within retail and savings, we have two components. First, wealth. People ask me how we will compete in what is a crowded space. Well, we have scale and a strong brand. But the real answer is proof of it. No one else can offer it, and it is what we will lead with. However, it is too difficult for new clients to access. With the acquisitions we have already completed, we can deliver an end-to-end proposition that few others can match. But we are yet to fully integrate them into a seamless digital client journey. Our second component is heritage. Its resilient capital generation underpins the group's leverage and the dividend. Further, it reduces volatility in our earnings. And yet, while being reliant on the backbone, we have failed to set a long-term vision for it. Ensuring this engine continues to run is critical to the success of the group. To that end, we will be alert to opportunities to thoughtfully extend its lifetime. Finally, we want to accelerate the rollout of Proof Found across Europe, broadening our reach where we are already present and finding new partners in new markets. We are a leading international savings and investment business, acting responsibly towards our many stakeholders. So guided by our purpose, what is my ambition? to deliver sustainable, profitable growth for our investors and leveraging our differentiated business combination. We will do this by prioritizing those areas that offer recurring and diversified earnings that are fee-based and capital light. How will we do this? By putting clients at the core of everything we do. We have to be nimble enough to anticipate and respond to their needs, always delivering great service and value. We will lead with our asset manager, but continue to leverage the permanent capital of our heritage business and the increasing scale of our wealth distribution. To achieve our ambition, we need to win in our home markets. I'm clear on this. But we are also an international business, and this must be a profitable growth engine for the group. This will generate long-term superior shareholder returns and drive growth. Allow me to restate our priorities. Financial strength, simplification, and growth. I have spoken about strong foundations. The greatest one of these is our financial strength. A rigorous approach to capital management that underpins attractive returns to shareholders. This is the discipline we need to maintain. But there is no doubt that to achieve our ambition, we need to simplify and grow. A centralized structure was necessary at the merger, but now that we are well established, it's a barrier to growth. We will empower our colleagues, moving operational accountability into the business lines, closer to clients. This will make decision-making more efficient and improve client outcomes. It will also enable our people to drive profitable growth, building on our strengths and our own compelling propositions. Let me now explore a little deeper into each one of these three priorities. Let's start with our first priority, financial strength. I restate our capital generation target of 2.5 billion. We're one year in and on track to deliver. Over the coming years, we're not just looking to increase the quantum of capital generation, but also to improve its quality. prioritizing growth in asset management and wealth, diversifying our sources of income, and reducing our reliance on management actions. When we think about our financial strength, we use three key metrics. Solvency ratio, leverage ratio, and holdco liquidity. Despite the ongoing market volatility, our solvency ratio remains very strong at 199%. At 35%, our leverage ratio is about where we would like it to be. We will reduce this to below 30% by 2025. At holdco level, we will maintain sufficient liquidity to cover any expected cash outflows. I'll now turn to capital management. Here, we want to prioritize debt reduction and thoughtful investments that align with our existing strengths. This will minimize execution risk and create long-term sustainable value for shareholders. Delivering our growth agenda will add financial flexibility to the group. This will then enable us to further improve shareholder returns and fund incremental growth opportunities. But let me be clear. Throughout this, we will maintain attractive dividends covered by ongoing capital generation. Let me move now to our second priority, simplification. Growing the top line is my primary objective. But in order to achieve it, we need to be focused on the bottom line and simplify the way we work. I want us to act faster and more efficiently. To enable this, we launched a transformation program that will generate 200 million of cost savings by 2025. This is ambitious, but achievable. The savings we'll deliver will allow us to absorb current inflationary pressures and free up resources for growth. Our asset manager cost-to-income ratio is too high. By 2025, we will reduce it to below 70%. But this is not the destination. Our longer-term objective is a ratio in the range of 66% to 68%. Since I joined, we have already made good progress on execution. We have hired a new strategy and transformation officer, Benoit Massé. We have launched a group transformation program. We have empowered the business unit CEOs. And we have hired Joseph Pinto as our asset management CEO. Transforming our business, we will empower colleagues and improve accountability, making M&G a better place to work. We will be easier to do business with, deliver better client outcomes and drive growth. At the same time, we will meet a 200 million cost target by doing four things. Simplify our organization, removing layers and streamlining governance. Improve operational efficiency by optimizing spend and aligning teams to our growth priorities. better leverage technology, using digital and data to improve client service, and we will review our approach to contractors and our location strategy. To start progressing towards our targets, we are today announcing a voluntary redundancy program across the entire organization. Now to our third priority, growth. As I've seen throughout my career, delivering on simplification unlocks growth. Our aim is to materially grow our earnings by 2025. They will be more focused in the capitalized areas of asset management and wealth. Within asset management, the priority is to increase third-party money and revenue. This is what I was able to achieve in my time at AXA-IM. where external funds almost tripled under my leadership and profit doubled. And we have tailwinds in our favor. Wholesale investment performance has substantially improved and is now very strong. We also have deep expertise in parts of the market that are attractive today. First, public fixed income, where rates and spreads are significantly higher than in the recent past. Secondly, in private assets, where we see many of our European clients still being under-allocated. And finally, sustainability and thematic investing, where client demand continues to remain high. Turning to wealth, we have all the components we need to serve clients along the entire value chain. We have a clear focus on the mass affluence segment, a strong brand, and scale. It is now all about execution. While growing capitalized areas, we also want to stabilize the runoff of our heritage business, removing a structural headwind from our earnings. We will do that by continuing to develop innovative risk and investment solutions to generate additional incremental flows into the back book. I will now deep dive into each business area to better articulate our strategy, and we will start with the asset manager. Let me take a drink first. The asset manager already has a well-diversified set of capabilities with real scaling private assets. 77 billion split across private fixed income, real estate, and infrastructure. From this strong base, we need to push on and do better. We have a supportive internal client alongside a very successful external franchise. not just on the institutional side, but also in wholesale, which over the course of the year outperformed peers in investment performance and flows, continuing the turnaround started in 2021. The UK, our home market, is our largest, but we have an established presence in Europe and Asia. It's a great base from which to build a profitable growth engine for the group. The numbers on this slide are clear evidence of us living our purpose of growing people's savings and investments. On both institutional and wholesale sides of the business, the performance has been strong in 2022 despite the market volatility. The turnaround of our wholesale performance is a credit to the hard work of the team. That we have strong investment capabilities is self-evident. But as I've said earlier, we must build our international distribution and through better operational efficiency, improve our cost of income ratio. We are present in all the major European markets, but in many, we are below the size I would expect. In most European markets we operate in, we should manage 10 billion of client assets or more. In Asia, Singapore aside, we are nowhere near the size we need to be. Across the region, we will focus on the countries where the regulatory environment is supportive of what we offer. Japan, South Korea, Taiwan. I know this market well from my past experience. They can offer meaningful opportunities, and we need to play a much bigger role there. The growth I'm targeting will not require major investments in infrastructure assistance, rather the selective strengthening of the local teams. We will absorb cost inflation and free up additional resources to invest. And over time, our cost-to-income ratio will reduce meaningfully as we identify and deliver efficiency measures. Joseph is the right person for the job. He was my chief operating officer at AXA-EM. Together, we transformed that business, relentlessly driving third-party flows and operational efficiencies. So what's our ambition? In asset management, we want to be the go-to manager for European investors and for those international investors seeking exposure to European assets. As you know, we have strong capabilities in private assets. Public fixed income is a core strength, and we have responded to strong client demand for high-quality, sustainable, and thematic equity funds. Let me take you through each in more detail, and let's start with our private assets branch lines. As you can see, we have consistently grown over time, with third-party assets more than doubling since 2015. It's an impressive achievement and a trend we will continue, with a target of 100 billion AOM by 2025. Why am I so confident? Because we have excellent capabilities, a strong track record, and favorable market trends. The market is forecast to grow materially over the medium term, and the industry recognizes us as a leading player. A number of our European clients are under-allocated in this area and are looking to us to help them adjust their exposure to private markets. To win, we need to make better use of our differentiated business combination, which is our competitive advantage. The asset over provides us with the seed capital to fund innovation, and scale propositions. We use this to attract new investment capabilities. We offer seeding and international distribution to those fund managers that are looking for new partners. For our part, we attract rare talent and maximize the alignment of incentives. And we have done it already. Over the past decade, we turned an internally focused real estate capability established to support internal clients into a global franchise, generating far stronger margins. We have achieved that by broadening our offering, internationalizing our footprint, and externalizing our capabilities, focusing on attracting third-party money. We have more than doubled the size of the book, from $16 billion to $33 billion, more than tripling the external assets, where we earn materially higher margins. This is the model we will look to follow in other areas. Let me now turn to public fixed income, the second area of focus. To put it simply, in the UK, our reputation is second to none. We are clearly seen as the leaders across all the relevant subsectors of the market. And there's a very good reason for this. That is the strength of our team. One of the largest and most experienced in Europe with over 50 credit analysts. And we have further expanded our capabilities, opening in North America in 2021 and in Asia in the middle of 2022. We now have a real global investment reach in this space. And again, The internal client has played a critical role in supporting the development of these capabilities. Build internally, then expand externally. Let's now move to our third area of focus, sustainable and thematic equity funds. Like private assets, this is another segment of the market where we have deep investment expertise and where we expect to see strong growth. In both the private and public side, the market has been growing exponentially over the last few years, a trend expected to continue. As the graph on the right shows, even with all the macro uncertainty we've seen in 2022, sustainable funds have continued to gather positive net flows in Europe. Through catalysts and responsibility, we already are one of the leading European investors in sustainability. And again, as evidence of the key role played by the internal clients, Catalyst was set up with a $5 billion commitment from the asset open and was soon open to external clients. On the public side, we have transformed our mutual fund offering. Just two years ago, only 14% of our funds were Article 8 and 9 compliant. Today, that stands at 74%. A great performance and further evidence of us living our purpose. We remain committed to broadening our offer, as well as proactive engagement to affect positive change. Let me now turn to wealth. Let me restate our ambition. To be a leading, scaled, integrated provider of wealth solutions, supporting UK mass-saccharine clients across a full range of needs. To achieve this, we have three linked priorities. Integrate and scale our capabilities to provide the end-to-end offer required to succeed. Drive flows into our own solutions and improve the lifetime value of clients to better margins and persistency. When I compare where we were in 2020 with today, the team has made good progress. Facing a slowdown in DB to DC transfers, we have broadened our offering beyond proof of it. adding a tax wrapper and model portfolio capabilities. We also acquired a digital platform to make our products more accessible. And we have strengthened our distribution model, doubling our advice business and launching hybrid and direct-to-consumer propositions. We have covered a lot of ground, but we are only part of the way into the journey. Today, we play at scale across the value chain with 83 billion of AUMA, Healthy growth has returned. Proof on sales are up 42% year on year, returning to net inflows for the first time since 2020. This confirms the strength of our diversified distribution model and the attractiveness of our proposition. As we continue our journey, we will grow further the number of our own advisors and the productivity We will launch all proof-of-fund solutions on platform and increase its adoption by more advisors. All this to drive additional incremental flows into both proof-of-fund and other M&G solutions. The primary objective for wealth is to serve clients their way, be that channel, wrapper, or advisor offer. This will drive flows into M&G solutions, which draw on our broad investment expertise. As we do so, we will attract more clients. They will stay with us for longer and trust us to look out for the greatest share of their savings and investments. This will help us become more efficient and drive better returns. Lastly, I will turn to the part of the group which supports all of what we do. Heritage. I'm going to drink again. Good try. Our aim is to develop new innovative solutions that can drive flows to support our growth. This will also extend our capital generation capacity that will continue to provide a resilient underpin for our cash flows. Over the past few years, we have delivered good capital generation. What we need to achieve a step change in performance is in the distribution of FuturePlus in Europe. Our differentiated business model also means we are in a positioning to selectively play in the de-risking market, supporting debit pension schemes along your investment journeys. Our in-force book continues to be a reliable source of capital generation and is funding many of our recent innovations. Proof Fund, Future Plus, Catalyst, and much more. We expect this book to generate some $12 billion over the long term. This is $2 billion higher than the same forecast 12 months ago. mainly due to the increase in interest rates. As I've said my first day at M&G, it is a key source of financial and strategic value to our shareholders. I also fully recognize the importance of M&G's responsibility to the millions of clients we have. Serving them better every day is a key priority for me and everyone at M&G. We will generate maximum value from this book, including through management actions. But we will also drive flows in to stabilize its natural runoff. And there are two ways we will do this. Let's talk first about FuturePlus. We know it has taken time for us to launch in Europe. In 2021, we achieved regulatory approval. And in 2022, we began distribution in Italy and Ireland, seeing our first inflows of some 150 million. The next two years will be very important. We need to add at least one other European market. Germany, Belgium and France are all attractive options, and we are already in discussions with potential partners there. We will also prepare for the end of our exclusivity period with Banca Intesa in Italy, aiming to add distribution agreements to scale our presence there. And we will broaden the offer by launching a guaranteed version of FuturePlus backed by our with-profits capital. By 2025, this will be a multi-billion pan-European proposition. The second way we will stabilize the backbook is by capitalizing on emerging opportunities within the DMA market in the U.K., Rising interest rates and the LDI crisis last September accelerated the risking journey that pension schemes are on. We believe that demand will outstrip supply and present an opportunity for us to create value for our shareholders. But let me be clear, we will not be a volume player. We will only consider those opportunities where client needs precisely match our capabilities. For instance, when the DB scheme is over-allocated to private assets, an area we know very well. To write business in this space, we expect to use small amounts of capital as we explore ways to leverage the with-profit funds or external capital partners. In this market, we can leverage the full breadth of our brand and differentiated business combination. The asset manager expertise in private assets and fixed income, our strong balance sheet, and the capital from the with-profits fund. When we are successful, all parts of our business benefit. Flows into the asset management, higher lifetime capital generation heritage, and value creation for with-profit clients. I hope this gives you clarity on the scale of our ambition and the priorities we have for the business. It builds our financial strength, and in simplifying the way we work, we will deliver the profitable growth that has been missing since the merger. This business has strong foundations, and I'm excited by the scale of our potential. There are significant opportunities to do more and things we can do better. And to achieve that, we will focus on execution and discipline. We have the right team in place, and I know that we will deliver. With that, I will now hand over to Catherine, who will take you through our numbers in more detail. Catherine.