M&G plc

So it looks like we're going to start on time. We'll first connect the call, and then Alan, over to Andrea. perfect we are live so welcome to mng 2023 full year results we are i'm luca gallardi director of investor relations and we are here today with andrea rossi and catherine mcleland ceo and cfo of the business they're going to go through a short presentation and then we'll have time for q a from the south side analyst present in the room so without further ado andrea over to you

Good morning and welcome to M&G's full year results.

I am very happy to be here with you today to share the progress we have made over the course of 2023, my first full year as CEO. So much can happen in 12 months, and we have certainly achieved a lot here at M&G over that period. Last March, we laid out our three year ambition for the business. With a new leadership team in place, you will see we have made considerable progress on our three strategic priorities, financial strength, simplification, and growth. Today, we will take you through how much we have already achieved and what we are focusing on in 2024. As usual, I will start by covering the business strategy and Catherine will later expand on the financial results. And these, I'm proud to say, continue to evidence strong performance with meaningful year-on-year growth in both adjusted operating profit and operating capital generation. But first, let me take you through the business highlights. I talk a lot about the strength of our unique business model, and there are good reasons for that. It is balanced, diversified and synergistic, and it has delivered once again last year. In a volatile macro environment, our life operations supported the asset manager with stable capital and fees and gave wealth access to a truly differentiated proposition, the proof fund. With its strong investment performance and innovation, the asset manager powered the wealth proposition and helped the life business optimize its asset mix and confidently re-enter the BPA market. The wealth business continued to scale, and I'm proud to say that last year it achieved the best level of proof on sales since 2019. This is clear evidence that our strong synergistic business model drives superior client and shareholder outcomes. By leveraging it, we drive progress on our strategic priorities, which I will now cover in more detail. I am really very proud of what we have achieved together in 2023. First, on financial strength. we have become more profitable and more capital generative, as well as more resilient. And we have improved our solvency to ratio despite volatile markets. We also continue to pay an attractive dividend with a total DPS of 19.7 pence, and we remain focused on leverage. Secondly, on simplification. Our transformation program is progressing well, with 73 million of savings delivered last year. We have clear and simpler operating model with accountable leaders for each business unit. We also continue to tackle costs, having maintained them flat year on year. Becoming more cost effective is a core objective for us. But we are not just managing inflation. We are also improving the quality of our spend and the outcomes for both our clients and shareholders. The more we save, the more we will reinvest to support client delivery and growth. Finally, on our growth ambition. I am very pleased to say that we have made strong progress across all segments. Asset management net flows were positive at 800 million. So MNG really stands out amongst our UK peers. True fund wealth sales continue to climb, increasing by 17%, and as I mentioned earlier, achieving their highest level since 2019. And as you know, we reopened our annuity business, completing two transactions in the second half of last year and one more just a few days ago. These significant achievements are helping us to reach the targets we announced last March. You can see a summary on this page. Given the strength of 2023 operating capital generation results, we are confident that we will achieve our 2.5 billion targets by year end. Continuing to generate capital also helps on leverage as it builds own funds and improves our financial flexibility. On simplification, in the first year of transformation program, we have already delivered 73 million worth of savings, corresponding to an exit run rate of roughly 90 million. This is a really positive start to this three year transformation journey. In 2023, the asset management cost to income ratio deteriorated slightly due to adverse markets, which reduced fee earning assets. But we took a lot of actions last year, including reducing our office footprint and restructuring our private markets team. We will see the benefits from these actions coming through in 2024 while we continue to streamline costs and reinvest free capacity to support growth, particularly in international markets. Lastly, I'm also happy to report that our earnings are up by 28%, with 42% of the total coming from capital life, asset management and wealth operations. We expect the capital life contribution to increase mainly from asset management. So to sum up, we have a lot to be proud of in just 12 months. And given the progress on our three strategic priorities, I have great confidence in how much more we can achieve together. So what about 2024? After these strong results, we are committed to building on the positive momentum. To do this, we have clear objectives across each one of our three strategic priorities. Catherine will cover financial strength and simplification in more detail. But let me be clear on this. We are absolutely committed to reducing leverage, controlling costs, and improving the asset management cost to income ratio. Let me now explain what each business unit will focus on this year to drive growth. In asset management, it is all about maintaining strong investment performance, improving profitability through top-line growth, and continuing to expand our international presence. In our live business, we want to reach 1 to 1.5 billion in BPA sales to fully offset the run-off book and increasing long-term capital generation. We also have a renewed focus on the With Profits Fund and on how to better leverage it to drive shareholder value. And finally, wealth. Here, the first step is to redefine our strategy to make the most of this attractive market. We will focus on where we can add the most value to clients, namely scaling our advice business and delivering the right investment solutions to a broader audience. I will now go into a bit more detail about each business, and let's start with asset management. This team is fully focused on delivering superior investment performances, and it's clear to see they have achieved this in 2023. Client outcomes were strong across both the institutional and the wholesale franchises, with roughly 50% of our wholesale funds ranked in the top quartile on both a three- and five-year basis. More than that, a number of our flagship funds, such as Optimal Income, delivered top decile performance, and this positions us well to continue to drive positive sales momentum. Delivering innovation is also of critical importance to this team, and last year we expanded both the range of funds and investment vehicles that we offer. Thanks to a recently added Asia investment team, we were able to launch new Asian and global bond funds. And with our first 700 million long-term investment fund, we continue to get closer to greater democratization of private assets beyond what we are already delivering with Proof Fund. Much improved investment performance is a key driver of the turnaround we have seen in wholesale. Delivering net inflows of 2 billion over the last two years is an achievement we are really proud of, especially considering that over the same period, the European market for active investment solutions suffered net outflows of over 350 billion. In the UK, we were one of the best selling active fund managers last year. So wholesale is back on track. But like many of our peers, we have faced headwinds in the UK institutional market with significant redemptions from DB pension schemes. These were triggered by the mini budget crisis and broader de-risking. Having absorbed this redemption, we expect the situation to normalize and flows to revert to a more stable pattern. In contrast, our international institutional business has thrived. We generated roughly 16 billion of net inflows over the past four years, including 5.5 billion in 2023 alone. With a strong performance track record and all franchises offering growth opportunities, I am confident we will achieve positive flows and improved operating jaws in 2024, leading to better levels of asset management profitability. Let me talk briefly about our international operations. As you know, this is something I have been fully focused and committed to since my first day at M&G. Since 2020, our assets under management have increased by 38% to 83 billion. In 2023 alone, we had meaningful net inflows across key European and Asia-Pacific markets. winning business from some of the worst sophisticated investors, a testament to the quality of our capabilities. This is a great success story so far, but we are not done yet. Over the past 12 months, we strengthened and upskilled our global distribution teams. We are extremely pleased with the talent we now have in asset management, and I know they will play a crucial role in continuing to drive forward our growth agenda. The opportunity to build M&G's international presence is significant, and it is by capitalizing on it that we will lower our cost to income ratio and improve profitability. Having covered the priorities for the asset manager, I want to now share a couple of case studies showing why we're so confident about the growth prospects of this business. Over 2022 and 2023, our equity team delivered an impressive performance, particularly thanks to best-selling funds such as global listed infrastructure and Japanese equities. But with interest rates at or nearing their peak, many agree with us that 2024 will be the year of public fixed income. And this is a good thing for M&G. It has always been our core area of expertise. Today, we manage almost 140 billion in this space and are recognized as industry leaders. We expect strong client demand over the next 12 months, and I'm confident we are very well placed to capitalize on it. We have a compelling range of funds across developed and emerging markets, government and corporate debt, and we keep expanding, having now built global capabilities by adding investment teams in Singapore and Chicago. And performance is strong. On this slide, you can see our flagship funds, including optimal income, delivering returns in excess of 10% in 2023, an impressive result for public fixed income funds. With strong client demand, expanding capabilities, and remarkable performance, we are sure that 2024 will be a good year for us in this segment. But public markets are only half of the story, particularly for M&G, as we focus on growing our 73 billion private markets capabilities. Within that, our private credit franchise accounts for 29 billion. Here, assets are expected to expand strongly, especially in Europe, with double digit annual growth of the coming years. We are one of the main players in this market and expect to benefit from this positive momentum leveraging our strong track record, both in terms of investment performance and innovation. For instance, our European loan fund, one of the largest in the sector, has been delivering best in class performance and volatility management for over 10 years. We continue innovating and launching new funds in this space, thanks in particular to the support and seed capital from our eternal clients. Once again, clear evidence of the benefits of our business model. So to sum up, our asset manager continues to perform strongly, overcoming significant market challenges and delivering positive net flows. It is growing internationally, further diversifying its client base and earnings mix, and it delivers strong performance with deep expertise in the asset classes clients are most focused on. As the rate environment normalizes, we are well-placed to further grow this business. Let's now turn to the light business. Here, the first priority is to extend and expand our long-term capital generation. After seven years of inactivity, last September, we successfully re-entered the BPA market, completing two deals. And just a few days ago, we closed the third one, bringing sales to almost 1 billion under a year. This is a run rate level already in line with our ambition to stabilize the runoff of the annuity book. In delivering this strategic goal, we are leveraging the strength of our business model. Private assets can often be a blocker to full de-risking for many pension funds. By having deep in-house asset management capabilities, we can vary our approach to clients, appropriately valuing their liquid assets and accepting them as part of the premiums transferred. We have proven that we can be competitive in the BPA market, but competitiveness will not come at the expense of financial discipline. We are very clear on this. New business needs to offer attractive mid-teens IRRs. Also, given our strong capital base and the small size of the deals that we expect to write, we will retain a flexible approach to longevity reinsurance. This will help us optimize capital returns. The second priority for LIFE is to further leverage its partnership with the With Profits Fund. With a solvency ratio of over 400% and surplus capital of more than 7 billion, the With Profits Fund has one of the best capitalized insurance balance sheets in Europe. The With Profits Fund needs to be more than just the engine behind the proof fund. It has to be a key differentiating element as we strive to serve client needs. Given its appetite to deploy capital, its long-term investment horizon and independent governance, the With Profits Fund can truly be a force for good for clients. M&G is the operating and investment partner of the fund and receives 10% of its economic outcomes. This translated into a contribution to group earnings of almost 500 million in 2023 alone. And as operating partner, it also received a further 300 million in asset management fees. Working together, the With Profits Fund and the broader group are highly effective in serving client needs and developing compelling new solutions. And these new solutions can suit both individual and corporate clients. For individuals, we are exploring ways to expand our existing proof fund range and build on our guaranteed offering. We believe this would be well received given the current interest rate environment. For corporates, we are thinking how to better help pension funds on the de-risking journeys. We are once again successfully offering traditional BPAs, but we believe there are more options to deliver good client outcomes. At present, we are exploring ways to enter into risk sharing agreements with scheme sponsor or offer cash flow driven strategies guaranteed through the with profits capital. We expect to be able to launch some of these innovative solutions by the year end. And last but not least, our wealth business. At 1.2 trillion, our target market is both large and expected to grow, as an aging population needs to take greater responsibility for their financial security. Today, in the UK, there are 12 million people seeking assistance to achieve financial security. What our clients want is accessible advice, help in planning for life events, and a diversified multi-asset exposure that can reduce the volatility of their investments. Our wealth franchise has what it takes to serve these clients and help them realize long-term value. We have a strong brand and corporate heritage, an extensive reach through both advice and third-party distribution, and a comprehensive range of multi-asset solutions, including our market-leading proof fund. Caroline joined M&G last September, and her immediate priority has been to sharpen the wealth strategy to better focus our efforts and improve profitability. It is about being clear on who our clients are, where we add most value to them, and what capabilities we want to build. We know we are strong in the decumulation space, thanks to Proof Hunt amongst retail and mass affluent clients. Where we want to build our presence is in accumulation, broadening our advice capabilities and distribution approach. We will also enhance other multi-asset solutions, such as modal portfolios and Prooffolio. By doing this, we will also increase our appeal to affluent clients. By focusing more on what we are better at, doubling down on growth opportunities, we expect to improve efficiency, client delivery, and financial outcomes. We know advice plays an important role in fulfilling client needs. Having doubled in size over the past two years, our controlled advisor network is one of the largest and fastest growing in the country. We will continue to build on this positive momentum. In the coming years, we expect our academy to underpin most of the increase in advisor count. With 166 graduates currently in training, it will be an important driver of future growth. And this growth will build on the success of our investment proposition. Proof Fund has long been the jewel in the crown, consistently delivering strong, smoothed investment returns to its clients. But we have more to offer. In particular, Prooffolio, our risk-rated range of multi-asset solutions and modal portfolio services. This is a key growing segment in the wealth market where we have received great client feedback through a best in class net promoter score. We have what we need to succeed in the wealth market, and we will do that by broadening our distribution approach, expanding our offering and improving profitability. So to conclude, What I want you to take away is that I'm extremely proud of what we have delivered in 2023. Despite a challenging market environment, we achieved positive external net flows for the third year in a row. A remarkable success, underpinned by great investment performance and international growth. But we're also very pleased with our progress in the UK, where we increased proof on sales by 17% year on year and successfully re-entered the BPA market. By leveraging our synergistic business model, we are confident we will continue to grow M&G. And we're also becoming a more efficient business, transforming to support our growth agenda and improve client outcomes, tackling costs, and improving the quality of our spend. Clearly, we're still at the beginning of our journey, but today's results show we are on the right track with adjusted operating profits and operating capital generation substantially up year on year. And with that, I will now hand over to Catherine to take you through our financial results in more detail.