M&G plc

half-year results. Thanks a lot to those joining in the room and those following us online. We're here with Andrea Rossi, our CEO, and Catherine McLelland, CFO. As usual, we're going to go through a short presentation, briefer than a full year, and then we'll have all the time needed for Q&A. So without further ado, thank you very much, and over to you, Andrea.

So good morning, and welcome to MNG's half-year results. It is a pleasure to be here with you today. In March, we announced a new set of targets and dividend policy for the group, aligned to our long-term ambition. Today, Catherine and I will cover the operational and financial progress we have achieved since then, as we position M&G for long-term profitable growth, which is diversified across business units, products, and geographies. I'm pleased to say that we continue to drive positive momentum in both asset management and life and to deliver strong client outcomes. It's been a busy first half, so let's review the main highlights of the year so far. You notice we have three priorities for the group, financial strength, simplification and growth. and we are relentlessly focused on execution. We strengthened the balance sheet and reduced our leverage. We simplified our organizational structure and tackled costs. And now we are growing the business. In the first half of the year, we attracted 2.6 billion of net inflows in asset management. This is a strong result powered by a market-leading investment performance and the continued success of our European and Asian operations. Every day, M&G becomes a more international, resilient, and diversified business. Today, 58% of our external assets come from international clients, up from just 37% in 2019. While growing in asset management, we are also becoming more efficient and more profitable. In H1, asset management fee-related earnings increased by 14% year-on-year, reducing the cost-to-income ratio to 75%. This is the third consecutive improvement since launching our transformation program in 2023, when it stood at 79%. And while we have already made significant progress, we know there is more to do. We will remain disciplined on costs and drive top-line growth. Our new strategic partnership with Daiichi Life will support this growth by giving us a strong platform to expand in Asia and to attract flows into our private market solutions. In life, we continue to broaden the distribution of proof fund, Here in the UK, we have successfully integrated Profund onto FNZ technology, opening up digital platforms as new potential distribution channels. Tapping into this market of nearly 700 billion will further support Profund sales next year and beyond. Finally, we continue to make meaningful progress on the development of a with-profits BPA solution. which we expect to launch in the first quarter of next year. This will give us a unique proposition and a competitive advantage to win business in an increasingly crowded market. Delivering on our strategic priorities means we're also making good progress on our targets. First, the 443 million of capital generated in H1 is a good start to our new 2.7 billion three-year ambition. underpinned by an 11% increase in the underlying results. Second, the cost to income ratio improved by two percentage points year on year, and we have achieved nearly 95% of the cost savings targeted by the transformation program. On both these areas, we expect further improvements in H2. And finally, we continue to drive positive momentum in adjusted profits. The headline result is up 1% year on year, despite 16 million of unexpected headwinds, which we do not expect to recur. Without these, our growth is already in line with our targets. We expect the growth in profits to accelerate over time as we remain firmly committed to our 5% average annual target. Catherine will provide more details on this later. By continuing to generate capital, tackle costs, and grow profits, we underpin our new progressive dividend policy and deliver strong outcomes to our shareholders. MNG's integrated, balanced, and synergistic business model continues to give me confidence in MNG's future. It remains our competitive advantage to serve clients across their different investment needs, With the support of our life operations, we have built a first-class asset manager, delivering superior investment performance and consistently winning external business. And thanks to the insurance balance sheet, we continue to seed innovative investment solutions, particularly in private markets. This year, we have seen a renaissance of active asset management with a reviewed focus on Europe, This plays to our strengths and to what we do well. Our strong credentials are what has attracted leading financial institutions of the caliber of Daiichi Life to partner with us and invest in M&G shares. Every day, we're making our asset manager stronger, more profitable and more international. And by bringing together asset management and life, public and private assets, we offer clients what they need at each step of their savings journey. For UK retail customers, we're building a holistic retirement proposition with Proof Fund at its core. And for corporate clients, we continue to strengthen our BPA capabilities and offerings. Let me now tell you why I'm confident about the future of our asset manager. Our investment performance is consistently excellent. The UBS analysis on this page shows that for the third year in a row, we rank as a top performing publicly listed asset manager in Europe. Furthermore, at 2.6 billion, net flows are the highest since listing. and we continue to improve the profitability of this business. I am very pleased of how we have turned around our asset management operations. Since launching our transformation program, we have remained focused on improving the quality of our cost base. We have soared inflationary pressures, freed up resources, and reinvested them to support our growth agenda, expanding our investment and distribution capabilities. In under two years, our cost to income ratio has reduced from 79 to 75%. A meaningful improvement in a short period of time. And we are not done yet. The flow data also shows three positive trends. First, the headwinds in the UK institutional segment are gradually reducing. Defined benefit schemes continue to de-risk, but the pace at which they do so has slowed, and we are less exposed to these segments than in the past. Secondly, we're achieving strong net flows in wholesale, thanks to the outstanding investment performance we deliver to clients across both equity and public fixed income. And finally, we continue to grow at pace internationally across a number of different countries. The international growth of M&G is a compelling story. Since 2019, we have consistently grown at double digit rates. Having invested in and strengthened our distribution teams, our hard work is now paying off. Today, 58% of our third party assets come from clients based outside the UK, up from just 37% five years ago. We are now a leading international manager with an established footprint in Europe and growing access to attractive Asian markets. And this means that our asset manager is more resilient thanks to a broader client base and has greater access to more growth opportunities. On this page, you can see our progress country by country. The Netherlands, Germany and the Nordics are key institutional markets for us. In Italy and Spain, we have outstanding relationships with local banks and wholesale distributors. And in Asia, we have a good footprint that we will build on, also thanks to the partnership with Daiichi. We are very pleased with our international expansion so far and the opportunities ahead. This is a top priority for M&G, and we are committed to build on this strong track record. Our other priority in asset management remains private markets. After completing the acquisition of key capital partners, our private markets franchise stands at 77 billion, with an additional 6.5 billion in the capital queue. These are committed client funds that will start to generate fees as soon as they are deployed. It is a healthy pipeline that gives us confidence in the outlook of this franchise. You can see on this page the breadth of our proposition. We have a strong 20-year track record and all the key components for a holistic private markets offering. With critical mass across asset classes, we continue to broaden our fund range. Given the needs of our insurance balance sheet, we first focused on core strategies, which are on the conservative end of the risk-reward spectrum. We have since launched a number of successful high alpha strategies, as you can see on the slide, across all asset verticals and in line with client appetites. One client that is keen to allocate capital to our high alpha solutions is Daiichi Life. In May, we announced a long-term strategic partnership with them, which we expect to be a key driver of asset management growth, both in Asia and in private markets. By becoming their preferred asset manager for Europe, we expect to generate at least $6 billion of new business over the next five years, of which $3 billion will be allocated to high alpha strategies. We expect the first mandates to be awarded before the end of the year, with detailed fund level due diligence already underway. In July, I spent a week in Tokyo with the Daiichi leadership team. I returned energized and optimistic about the prospects of this partnership, which has significantly increased the profile of MNG in Japan and Asia. This collaboration proves that institutional investors are looking to increase their exposure to European assets. And when they do that, they want to partner with strong active managers like ourselves. The presence of our large insurance balance sheet is another key attraction for Daiichi, as it proves we have real skin in the game. Once more, this is clear evidence of the value of our unique business model. And as you know, Daiichi is acquiring a 15% stake in M&G, aligning our interests in making this relationship a strong success. Let me just drink a little bit because my voice is going away. Good time to move to life. RuFund flows were soft in H1, with the April events impacting retail sentiment. Nonetheless, sales rapidly improved in May, June, and July as Proof Fund continued to deliver strong outcomes and to protect customers from market volatility. This recent trend is encouraging and we expect to see continued progress. Improving Proof Fund sales is only part of the solution as we build a holistic retirement proposition around this unique product. In doing so, we're broadening both client access and our product offering. From an access perspective, we hit a major milestone this year, integrating Proof Fund on FNZ technology. This gives us better access to the large and rapidly growing digital platform market. From a new product perspective, we have launched our fixed-term retail annuity, and we remain on track to launch a lifetime retail annuity next year. Within life, we also continue to invest in our BPA capabilities. Having reentered this market two years ago, we aim to generate annual sales of 3 to 4 billion by 2027. To do that, we have been scaling our capabilities across our origination, proposition, and pricing teams, investing in the talent needed to achieve our ambition. In a short period of time, we have improved our chances of success, scaling our ability to quote deals and implementing new longevity reinsurance capabilities. And in what is becoming an increasingly competitive space, we are building a truly differentiated offering. Last year, we launched a value share BPA, an innovative solution where capital requirements and rewards are shared with our clients. Early next year, we will launch our With Profits BPA. The product development is progressing well and is on track for Q1 delivery. Benefiting from the With Profits Fund's lower cost of capital, this solution will be extremely competitive and will be a powerful tool to attract flows to the group. Having a differentiated offering also means we can remain disciplined on deal pricing and not compromise our financial returns. While market activity has been relatively subdued this year, we have closed 300 million of new business so far, with a further 200 million in exclusivity and a healthy pipeline for the remainder of the year. So, to conclude, M&G has financial strength. We continue to simplify our business and we are growing again. In the first half of the year, on the back of consistently strong investment performance, we have delivered fantastic asset management net flows of 2.6 billion. And we continue to expand internationally, improving the diversification and resilience of our business. The partnership with Daiichi will take our international journey to the next level. We also continue to broaden our proposition, both in asset management and in life, including the launch with profits BPA early next year. All this work opens up additional avenues of growth for the group. In parallel, we remain absolutely focused on simplification and we'll continue to deliver meaningful progress on the transformation program and the cost to income ratio. We have now set the group up for long-term profitable growth across products, segments, and markets. And with that, I will hand over to Catherine, who will take you through our financial results in detail. Thank you.

Thanks, Andrea, and good morning, everyone. I'll now go through the details of our first half results, which I'm pleased to say reflect the continued delivery against our priorities. Covering first the key highlights, net flows from open business of 2.1 billion improved by 3.2 billion pounds year on year. This is a great result, underpinned by 2.6 billion of net inflows from external clients in our asset management business. And this achievement is particularly noteworthy given the volatile external environment we saw in the first half of this year. And it was made possible by the market leading investment performance and by the continued international expansion that Andrea talked about. In our life business, Proof Fund saw net outflows of 600 million pounds. However, we are encouraged by the improvement we've seen recently with flows turning positive in the months of June and July. Group-adjusted profit of 378 million reflects the positive momentum across our business. Asset management fee-related earnings were up 14% during the first six months of this year. While in life, growth improved on a traditional with profits more than offset lower earnings in annuities. At 408 million pounds, the operating capital generation benefited from a growing underlying result of 331 million pounds. And with both asset management and life contributing strongly, this result demonstrates once again the value of our diversified business model. And finally, management actions of 77 million pounds in the first six months of this year are in line with our guidance of one to 200 million pounds for the year. So thanks to this strong operating performance, the solvency to ratio reached 230% as at the 30th of June. Turning now to flows. Closing AUMA of 355 billion pounds was nine billion pounds higher than the opening balance supported by the 2.1 billion of net inflows from our open businesses and by 11 billion of impacts from markets and other items, which does include the 2.7 billion from the acquisition of P Capital Partners. As I mentioned, net flows from our open business improved by 3.2 billion pounds year on year. Asset management net inflows were driven by 1.9 billion from the institutional segment where continued strong international growth more than offset UK headwinds, which I'm pleased to say are gradually abating. And also contributing to the positive picture, we achieved 700 million of net inflows in our wholesale business as we continue to deliver excellent client outcomes with over 70% of our assets ranking in the top two performance quartiles. live flows remain broadly unchanged year on year. However, we are confident that there will be a stronger second half as proof on flows have gradually improved since April and as activity in the annuity market picks up after a quieter first half. At £378 million, our group operating profit was up by 1% year on year. And the key features of this result are first, higher revenues and stable costs in asset management, leading to a two percentage point reduction in the cost income ratio year on year. Secondly, an increase of 14 million pounds in pre-fund and 12 million pounds in traditional with profits, mainly driven by higher opening CSM balances. Third, reduced annuity earnings of £113 million, driven by lower returns on excess assets, as we flagged at our 2024 full year results, along with an £8 million headwind from a legacy contract. And finally, a stable corporate centre result, as lower debt interest costs offset reduced investment income, and with head office expenses remaining stable. Not on this page, but worth noting, our statutory result increased meaningfully year on year from a 56 million pound loss to a 248 million pound profit after tax. And this turnaround was driven by the strong operating result and by significant improvements in short-term investment returns and IFRS 17 mismatches. Let us now look at the asset management result in a little bit more detail. At 324 billion pounds, AUM entered the period up by 11 billion, reflecting strong flows and favorable markets and the acquisition of P capital partners. Our average fee margin continued to be resilient at 32 basis points, despite a competitive environment as we continue to focus on high value add solutions for our clients. So thanks to higher assets and stable margins, our revenues were up by 3% year on year. We also kept a tight control on costs and improved the operational efficiency of our business, leading to a two percentage point reduction in our cost income ratio to 75% or 74% when including performance fees. And I'm very pleased with the continued improvement in the cost-income ratio, as it demonstrates our relentless focus on delivering positive operating jaws. But we know we've more work to do and remain committed to maintaining strong cost discipline and to drive sustainable, profitable growth. Performance fees of seven million pounds were down six million from last year due to lower carried interest, and the five million pound loss in investment income was largely attributable to an eight million pound FX revaluation loss due to the weaker US dollar. So in summary, High-quality fee-related earnings rose by 50 million pounds year on year, offset by a lower contribution from performance fees and investment income. And this led to the stable operating result of 128 million. Let's now turn to our life business. Peru fund operating profit increased by 14% to £112 million due to higher opening CSM balance, marginally higher attrition rates and a much improved new business strain. Profits from traditional with profits were up by 11% year on year, also benefiting from the same dynamics of a higher opening CSM and attrition rates. We are pleased with this growth as it occurred despite the lower expected returns and risk-free rates that we've previously flagged at our full year results in March. We expect this new and improved level of profitability to be sustainable for the second half of this year. Let's now turn to shareholder annuities. Our annuities result was down 14% year on year, and this was driven by a lower opening level of annuity surplus assets and lower rates of expected return, which we guided to in March. This was partly offset by a higher CSM release due to higher opening balances, supported by last year's large longevity benefit. The results also include an £8 million headwind from a legacy book, excluding which the annuity results would have been broadly in line with expectations. OtherLife was a small £1 million loss compared to a £2 million profit in the previous period, impacted by sterling Euro FX headwinds and slightly higher losses in our advice business. Before turning to underlying capital generation, I wanted to remind you of the meaningful size of our CSM balances, which ended the half-year period at a strong six billion pounds. And you can find more detail on the operating change in CSM in the appendix. Our underlying capital generation in these six months of 331 million was up 11%, all 34 million, year on year. though with some SCR impacts that may not repeat. The asset management contribution was £18 million higher thanks to an improved fee-related earnings and a £12 million SCR reduction due to lower market risk requirements. Life delivered a £6 million increase to £289 million, and within it, both Proof Fund and Traditional With Profits benefited from a higher opening PVSD balance of £4.3 billion and lower new business expense overruns in Proof Fund. This more than offset the headwind from a lower rate of expected returns on their PVSD of 7.8 versus 8.2% in the prior period. Annuity's result saw a modest increase versus the prior period, thanks to a lower strain of 30 million pounds from new BPAs, which more than offset the lower return on surplus assets. Our corporate center benefited from an 18 million pound SCR release, primarily relating to lower treasury lending activities. I'll now turn to operating capital generation. Our operating capital result was a resilient £408 million, or £443 million, excluding new business strain, which is a good start to achieving our £2.7 billion cumulative target by 2027. Management actions of £77 million were lower year on year, as the first half of 2024 benefited from £62 million of one-offs from excess surplus distributions in our with-profits business. However, they are in line with our guidance for the full year. And the main components of the management actions we saw were £118 million primarily reflecting equity hedging activities, 35 million of adverse experience and assumption changes on expenses and investment management costs, and a small £6 million adverse impact from model refinements with our traditional with profits products. So thanks to this strong operating result, our solvency two ratio improved by seven percentage points to 230%, and the solvency surplus remains stable at 4.7 billion pounds, despite the payment of the final dividend for 2024 in May. Owned funds of 8.3 billion pounds, of which 4.2 billion relates to the with profits PBSD, are slightly lower than the opening balance of eight and a half billion, predominantly reflecting the dividend payment. I am pleased with the strength of our balance sheet as we continue to carefully manage our risk exposures in the volatile macroeconomic environment. I'll now cover the progress we've been making in our cost transformation program. So as at the end of June, we've achieved £213 million of savings under our transformation program, which means we've already over-delivered on the original £200 million target we set in March of 2023. And given our strong progress, we're confident that we will meet our upgraded target of 230 million by the end of the year. And I would like to reiterate that when we do achieve this target, our efforts to drive further cost transformation and simplification will continue. We will remain focused on improving the quality of our cost base, freeing up resources to invest in and grow our business. The strong progress achieved to date reflects the actions taken to create additional capacity and enhance our operational efficiency, as shown on this slide. And for example, since the start of the program, we have transformed the operating model of our private markets teams, delivering 20 million pounds of savings. And with similar levers, we've achieved another 18 million pounds of cost reductions in our life business. And we've also improved the efficiency of our tech environment by decommissioning over 500 applications and outsourcing IT services for further cost opportunities. Through these actions, we were able to fully offset inflation, invest to grow our businesses, and end the period with a cost base that was £8 million lower and of a better quality. We will continue to focus on improving our operational efficiency over the second half of this year and beyond as we transform the cost base of the group, deliver better customer outcomes, and of course, drive profitable growth. So in summary, the first half of 2025 reflects a period of disciplined execution, strategic progress, and financial resilience. We will continue to deliver for our clients and our shareholders with our diversified business model positioned for long-term success. I'm pleased with the results in the first six months of the year, which showed record net inflows in asset management and encouraging trends recently for pre-fund. strong operating profits despite nearly 16 million pounds of adverse headwinds, positive operating jaws in asset management, a resilient contribution from life with a double-digit growth improve fund, and finally, a good start on our 2.7 billion operating capital generation target. Thank you very much. Andrea and I will now take your questions.

I'm going to take my table. I'll take my water. Thank you, Catherine.

Thanks, Andrea.

Where do I stand?

Somewhere in the middle.

Always with this light ahead.

It grills my head. It's in front and screen behind you. Good. So Larissa will definitely be first because she's the fastest sender. But just as a quick reminder, when you ask, and Dom second, when you ask your question, please take out the microphone and you need to press and hold the button and please introduce yourself with name and firm you work for. So Larissa, over to you.

Thank you. And thank you, Luca, because last time he did say I could go first, this time I was last. Larissa van Deventer from Barclays. Two questions, please. The first one, congratulations on your solvency to capital ratio, extremely robust. If you could please give us some color on how would you think about the strength of the ratio versus your capital allocation preference and how you keep the strong ratio from negatively impacting ROEs, please. And then second, on your bulk annuities. We know that it's a seasonally slow start to the year, but how should we think, now that you're gaining momentum, how should we think about margin and new business strain, please? Thank you.

So for Andrew, do you want to take the first one?

Yes. Thank you for reminding everyone that we have a capital management framework. Generally, we always put it back, but this time we didn't put it in the slides. And indeed, As you all know, we have been following this capital management framework, and it's been a journey for us, really. If you remember well, our first priority was making sure of financial strength and that we strengthen our balance sheet. And we did the leveraging, and we are now in a much better place. But more importantly, we continue to deliver on our capital generation. And then at the same time, we wanted to... deliver attractive dividends to our shareholders. And we came up with a progressive dividend policy, as you know, in March this year. But to do so, we need to underpin it by a growing business in terms of profitability. And to do so, we have been doing the transformation program and we have been selectively also investing in the business to grow and also doing some selective acquisition. So What we want to focus on moving forward is making sure we deliver that sustainable, profitable growth to underpin the progressive dividend policy that we've come up with. I mean, we do not see at the moment the Solve Institute ratio as an opportunity to do any capital returns. By the way, I think that if you do capital return, you should never do it from a stock. You should do it from a business that is doing much better. So we're very much focused on improving and continuing the momentum of our business. And as you saw today, when I look at some of the underlying KPIs, the fact that our fee-related earnings in Asset Manager are improving by 14%, you saw the Operate at underlying capital generation growing by 11%. Proof fund and with profits, traditional with profits also up. All that gives me confidence that we will continue on this journey and deliver on the progressive dividend policy.

And I think your second question, Larissa, was on BPAs and strain and margins. So as we said, we've written 300 million so far this year, 200 in the first half. You can see that the capital strain we had was a modest 13 million when we delivered a margin on CSM of about 3.5%. Now, What we've said is that we always have a double-digit RR hurdle rate, which we want to do, and that's genuinely how we think about the economics for these transactions. It's very pleasing that we are participating in a lot of the transactions that come to the market, but we are going to remain very disciplined in terms of the deals that we will do. We've not used reinsurance yet. We've said we've got the capability to do that. But obviously, it makes sometimes more sense when we do it on larger transactions than smaller transactions. So we like having the flexibility to reinsure. But that's partly reflected in the economics that you can see. So we will remain very focused on delivering the double-digit IRRs. And obviously, having the ability to do BPAs now with profit fund in 2026. That's a very exciting opportunity for us. And we gave some guidance around the proportion of both with profit BPAs and the value share BPAs for 27 in March of about three quarters and one quarter. So that also gives us confidence around the ability to participate in the expected volumes in the BPA market.

So next one would be Dom, and then we've got the row here on the right.

Hi, Dom O'Mahony, BNP Paribas XM. So three, if that's all right for me. First, institutional flow is really very strong indeed. I wonder if you could give us maybe the next layer down in terms of detail on where it's going, what you're seeing in the second half. And also whether the margin on the new business coming into the book is lower, higher, or in line with the margin on the in-force. Second point, I mean, just picking up again on the very strong solvency, it's nice to see the taxman generously contribute to that. Could you think about what have you thought about using that more aggressively to take risk? So if you're not thinking, don't use it for capital return, but Could you be more aggressive about seed capital? Could you be more aggressive about underwriting risk maybe on the annuity side? I mean, why bother doing longevity reinsurance? Your thoughts on that would be very interesting. And then the third question, over the last few years, we got used to thinking through the impact of higher bond yields. But the curve has changed quite interestingly recently. What does that mean for your business? I don't really have a good feel at all actually for what that means for capital, cash and indeed earnings.

Thanks. I guess I'll take the first one and the two other ones are for the CFO. So indeed, we were very pleased with the momentum and indeed you saw the institutional flows were very, very strong, particularly international and you want to know were in which asset classes they went. And what we saw, we saw a renaissance and an interest again into Europe. There's no doubt the first half of the year, many investors have sort of allocated more into Europe. I think that also helped in our partnership with HLI because they clearly wanted to increase their allocation to Europe as well. And in particular, when you look into Europe, we have seen both in public and on the private side flows, but in particular on public equities. Yes, there are still asset managers managing public equities if they do so well. Well, thank God. I mean, it's true. And if they do so well, they get mandates and they get also flows in the wholesale side. So on the institutional side, we saw significant interest into European equities. but also Article 9 listed equities, which, of course, if you think of what is happening on the other side of the Atlantic, some American asset managers who have sort of let's say, softened their stance on ESG probably was also helpful. So we've seen a lot of momentum on equities. Japanese equities, by the way, also continue to see inflows. And then on the private asset side, there was interest in particular on real estate, given where in the cycle valuations are. And more important on the private credit and structured credit, in particular structured credit, where we have a strong franchise been in that market since a long time on, for example, SRT. And we had a significant interest from pension funds, from uh asia but also from north america in particular canada into these strategies so i would say well diversified uh and if you look at this number you think you asked me about h2 we have continued to have strong momentum of course uh we also have daichi life there were no flows from daichi life in the first half they are doing due diligence on several strategies at the moment we expect a mandate before the end of the year so that that will come but we continue to have a very strong capital A strong capital queue, as you saw, 6.5 billion, but also a strong pipeline. So, you should expect positive net flows in the second half as well, but don't take the 3.2 billion institutional number as a baseline. I think first half was rather unique in the sense that many people increased their allocation to Europe. I'm not saying that they are going to decrease, but I don't think we're going to see the same increase in the second half.

And so back to the choices around capital deployment across the group. And as you rightly said, we've got a meaningful stock of capital at 230%. We've got the capital management framework that Andrea talked about more generally. And you'll remember at the full year results, we also talked about the 2.7 billion and how we'd choose to use it. And we have the option, we want to continue to simplify the business, so investing in improving the operating leverage in the business and supporting the capabilities in life, for example. And also, there was an allocation certainly towards traditional shareholder strain, so your point around automatically reinsuring or not. No, not necessarily. We all have a view. It really is about delivering the right returns on that capital. And so being thoughtful around where we use it. But we do look at it group-wide. And we've got the tremendous 6.2 billion surplus capital also in the with-profit funds that clearly goes through very robust governance, but it's another source of capital for the with-profit BPAs. So we look at and evaluate options to deploy that capital, but it really is all around making the right choices around that capital. And you've seen the guidance we've given around how we want to use it. And it was pleasing to get a tax benefit, as you said, in the half, which is great that we've got stronger earnings and we can use the DTA in a solvency basis, which is really good. And now we did expect a question on rates and the steepening that we've seen this year. So it's about 110 basis points between very short rates and long rates over the course of the year. And obviously the numbers in our financials are for June 30. And there's been, you know, pretty big moves in parts of the curve since June 30. And one of the answers we gave actually this morning was we're lucky as a group that we do have a business model and a business mix that is successful through all interest rate cycles. And so when you think about let's start perhaps with the insurance business and you've seen our sensitivities more generally around interest rates. So we would expect obviously a benefit on the solvency ratio when rates go up. The durations that we think about in terms of the balance sheet is not right at the long end. I mean, parts of the assets might be very long duration, but in overall, because our annuities book was only reopened in the last couple of years, we do look at the 10-year part of the curve, which actually hasn't been as volatile this year. And we have seen a reduction at the short end, which I mentioned. And obviously that may have plateaued now given inflation moves that we've seen in the UK and expectations for further rates. And that was part of the reason we guided at full year around lower interest accretion and expect returns because of the one year. Generally, higher rates would benefit some of the earnings metrics for flow in the insurance business. And, of course, we monitor what it does to the statutory shareholders' equity as well. So we'd look at that. And on the asset management side, it depends on where in the curve it is, again, because a large part of our asset management duration on the fixed income side won't be super long. It will be sort of short, medium term. And so we think about impacts on AUM and the business. But again, we benefit fortunately as a group throughout different interest rate cycles.

And maybe, Dom, just to clarify for everyone's benefit, the tax impact. Clearly, you know, we pay taxes and in the IFRS results, you can see that there's the quote-unquote the tax bills there. On our capital side, it is a SCR benefit because having made statutory profit, we've got more capacity to use deferred tax assets in a stress scenario, which reduces the SCR. So it's a little bit technical, but, you know, taxes have been paid. They're there on the IFRS side of things. It's just a quirk of Solvency II in the 1 in 200 stress case. Let's go to the row left, right. So Andrew, Andrew and Mandeep. And then I think there's also Naseeb and Andy.

It's Andrew Crean. Can I ask three questions? Firstly, in terms of the BPAs, could you give us the margins on premiums as opposed to IRs for your current BPAs versus the value based ones and the with profit ones? Sure. Secondly, for clarity, I think your excess capital over 190 is about 1.4 billion. Are you absolutely clear that you will never pay that out from stock buybacks and so we'll need to go for regular buybacks from flow? And then thirdly, I think on an annualized basis, the operating capital generation impact on the SCR was minus 8%. What is that likely to be long term? Do you continue to see, as your business grows, the SCR reducing?

I think, yes, probably, Catherine.

The first question on margins, I think I mentioned that on the 200 million, we had 3.5% in terms of the CSMs on premiums. So we haven't given any guidance. And also what we've said is as we write more of these transactions and bigger ones, you will see more of the... you know, earnings or CSM margin, and also more with the capital strain around the transaction. So we've not given any more guidance. But what's quite important is that when you obviously we think about BPAs in the with profit fund, and we think about hurdle rates, it's obviously a very different capital base that's being deployed for those BPAs. We have We will have criteria around the profitability of those transactions and the sorts of risk and sorts of transactions we want to do. But it won't be the same hurdle rates as we have or cost of capital as it is on the shareholder side. And that's a really interesting piece of work that we're doing now as we get ready to write with profit BPAs in early 2026. And so, yeah, I can see you.

But I mean, given the fact you're going to try and write three to four billion a year with quite a large chunk, it does matter to us to know what kind of margins relative to that three and a half percent you're talking about.

Yeah. And of course, Andrew, when we start writing more and we're hopeful around a better second half or an exclusivity, an additional 200. So that's about half a million so far this year. Fully appreciate we are equally focused on margins for our shareholders on shareholder capital. I mentioned about with profit and we're focused. So we think about the CSM and that's very important to us. but also around the returns on the shareholder capital that we're delivering. So absolutely, we understand that and we agree. And when we do more transactions, we'll give more color around that. So the excess capital, I think Andrea's comment around Distributions to shareholders from stock versus flow. The really critical thing for us is to drive sustainable earnings growth. And we've got strong capital, strong capital generation, strong cash generation. We want to deliver earnings growth. And then that's what will unlock any higher potential DPS growth. But we've guided to progressive. We've done 2%. So being able to increase that further will depend on sustainable, consistent earnings growth. I think it was less a comment about share buybacks, which are not on the horizon for us at the moment. And so it was more around the DPS than actual share buybacks, I think. And then on the SCR, we have called out about 30 million of one-off benefits this year. And obviously, we do continually look to improve the efficiency of our capital base and look to optimize the capital requirements. But of course, we also – and there's market impacts on that that we have at the moment, given the rate moves that we're seeing. But we also do want to deploy – business so that's hence the question earlier around strain around using capital in the business and we also benefit as you saw on the pre-fund side by some improvements and changes we made around pricing last year which reduced some of those pre-fund as well so more efficient writing that business which is great so Yes, it will depend, but we're being very disciplined around shareholder capital management and capital across the group and got sufficient budgets absolutely to write profitable business with the right margins in terms of CSM and earnings as well as capital.

Thank you for taking my questions, Andrew Baker, Goldman Sachs. So the first one, apologies, I'm going to go back to about excess capital. we're all looking at sort of solvency to shareholder ratio to form the view on excess capital. Is that the right lens? So just trying to get a sense of, is there another constraint on deployment of stock, whether that's the regulatory solvency ratio, local gap, equity, anything else that I hear you on, you're not looking to deploy it right now, but anything that could prevent you from deploying it going forward? Yeah. Secondly, just a technical one, the 8 million charge that you call out related to the legacy annuity plan and the adjusted operating profit, what is that? And then thirdly, just on the underlying capital generation, the lower treasury lending that you mentioned that gave the strong result at the centre, should we expect treasury lending to normalise going forward or are these levels sort of sustainable? Thank you.

So when we think about capital and what we're using that capital for, I go back to some of the guidance we gave with the capital management framework and then the 2.7 billion over the next few years where we talked where... In the group, we'd obviously use some of that capital that we do generate. And so we know that we've got a very strong solvency, which we do have. We also look at leverage. And that was one of the other questions I think we answered at the full year results around using that capital to buy back shares, which would impact own funds. We know our leverage is very conservative versus peers. I would also say that we've done already the deleveraging last year on the Holco debt. That's quite a meaningful amount of debt that we've redeemed. We've got a call date coming up in 2028, a dollar bond. But I also we need to think about the capital structure and the cost of it. debt is very cheap compared to you've seen where rates are at the moment. So 5.5% to 6.5% coupons for our whole code debt. So we look at the quality of the capital. We look at the ability to generate strong capital, strong cash earnings, and make sure that we've got a disciplined allocation framework with the right hurdle rates across the company. So 230% solvency is absolutely one of the metrics that we look at. In terms of the balance sheet equity, that would be another lens. We look at the whole code where I think we're at 3.3 billion in terms of shareholders' equity. We've got strong retained earnings in the subsidiaries, strong capital, strong liquidity, pretty much at the whole code of the subsidiaries. It's one thing we'll look at, and we talked before about impacts on rates, but we're very strongly positioned at the moment. But we do look at a range of things, and we value financial flexibility. And we want to have the capacity to write business. We want the capacity to deploy that capital across the group and to continue to deliver strong results for our customers and our policyholders. So in terms of the one-off annuities impact of eight million, it's just a one-off. And it's a legacy scheme. And it's really as simple as that. So it's an old scheme that we had a payment that we made. So nothing more to read into that. And then, yes, a really good question on the benefit we saw in the holding in the corporate center in terms of capital. We do have treasury activities where we can do, you know, very vanilla, but optimize the balance sheet. And so at the period end, it just happened to be lower market risk and rates and credit. And so, yeah, that could definitely normalize. It's a point in time and we're just thoughtful around, obviously, you know, the longer term expectations for that. But it's very conservative and it just happened to benefit that June 30 moment from a lower

Hi, morning, everyone.

Mandeep Chakbar, RBC Capital Markets. Three questions as well, please. First, on asset management, you've been able to keep absolute costs relatively flat over the last two and a half years, and you spoke about continued improvement in the cost-income ratio in the second half. But how should we think about the absolute growth in the cost base from here as you balance investment and growth versus operating efficiency and how much flexibility do you have there? And then on BPA, you've reopened the BPA portfolio with the aim of doing more value share and with profits BPA over time. But what are you observing in terms of the level of competition in the traditional BPA market since you wrote your first deal in 2023? And how do you expect to develop here, following some M&A in the sector? And then finally, on DC pensions, how are you accessing the structural opportunity in the DC master trust space, given M&G's wide-ranging asset management proposition, including private assets? Could it be a particularly attractive option for you to have your own master trust?

So, Andrea, I don't know if you want to... Well, probably... I guess you could go all the three of them if you want, certainly the top two.

So on the cost-to-income ratio, obviously we're very pleased with how we have delivered improvement over the last 18 months. Let's not forget that we moved from 79% to 75%. And this was delivered thanks to both improvement in the revenue and, of course, managing costs in inflationary terms. environment, keeping it flat. So pleased with that. But we had a target. We have a target of 70%. We are committed to that target. We will not deliver it by the end of the year. If not, we will be super people, but we're not in that sense. We're doing well. So we are committed to continue in that sense. When I look at how the business is doing and how we have momentum, both in terms of pipeline in both private assets and public assets. When I see how we have been able to keep also margin, we're probably one of the few asset managers would have kept margin flat. I always like to show this. This is rather unique. I mean, there are not too many other asset managers who can show fee margins remaining flat as we have done. That is also thanks to a mix. I talked before where we see momentum. We see momentum in equities. Equities have higher bips. We see momentum a lot in private assets, higher bips as well. So that will help. So we are committed to continue to improve that cost to income ratio. We will do so and we will continue to invest, but we will be careful also taking out costs. And you should expect that you should see a similar momentum as you have seen so far in the last two years moving forward.

And then the second one on BPA?

On BPA. So on the BPA, as you have seen, we launched a value share last year. What we wrote in the first half was plain vanilla BPAs. We've had interest in value-shared BPAs that are actually larger in terms of size. And we are in discussion with several schemes to see if we can arrive to a conclusion on them. I think what is key here is that you should look at what we can offer to schemes out there because of course we can be plain vanilla that's supported of course by a strong private assets franchise but more importantly the value share of course gives share the rewards with the pension scheme and when we'll get the with profit BPA then we will have a significant competitive advantage because we will have a lower cost of capital and once again when you look at competition as you said I'm not concerned about competition. I'm not even concerned that there are new entrants. Frankly, when I see the new entrants, they sort of have the similar business model to us because there are two alternative asset managers and they want that permanent capital side. So it is effectively playing into our strength. look at what we're doing. We re-entered this market two years ago. We have written 1.7 billion of BPA so far. We have significantly improved our capacity in order to originate, to price, to propose. And we are very much committed to the 3 to 4 billion number by 2027. I think we will do so thanks to excellent asset manager. I mean, it is performing extremely well, but more importantly, also thanks to the innovation that we bring. I mean, The with-profit BPA will be something very, very unique. And the value-share BPA still remains the only solution in the market.

And last question on UKGC and MasterTrust. Yeah.

Would you... Do you want... Yeah, can we... If you want to... Do you want to take that?

Or Joseph, I don't know who wants to... We're going to say while Clive's getting the mic, the other... The other fortunate ability we have around delivering the right returns and in the market where there are a large number of players is also just having that private assets capability internally to make sure we optimize our asset returns, which is good for us.

And you've met Clive before, but Clive is the CEO of our live business. Yes, I did.

Good morning, everybody. Just a brief word on workplace. I mean, we do have a substantial workplace business. Master Trust would be a step when we're currently under review. Also, obviously, we're in conversation with the government around their proposed legislation. We actually think if we did do it, it would be a heavily with profit sponsored and financed initiative. because it has a long view. And in actual fact, the piece that's missing in the workplace market is a convincing transition to retirement and retirement journey for those organisations. There's been a lot of really good work in the UK around accumulation, but actually some of those particularly post-auto enrolment are coming to try and use their pension, which is actually a different set of skills where we have the number one drawdown product, We're entering into guaranteed income, which is particularly relevant. And also how we have one of the largest advice businesses in the industry as well. I think that's all we'll say for now. So thank you for that.

So we've got Nazib and Andy. Thank you.

Just two questions for me, both on slide nine. You have a target of 100 billion of private assets by the end of the year, and the rates have gone up. So what's that target looking like if you allow for higher rates? Are you tracking ahead of that target today on the 77 billion already? Or do you still have a bit of catch up to do? Second question on the same slide, 6.5 billion. Does that have anything for Daiichi in it? Or is that on top? Thank you.

Okay, so I don't think we have a target of 100 billion of private assets by the end of the year.

But it was an ambition that we talked about in 2020.

I think it was an ambition that we stated, but we don't have a strong target to it. I think what is important is you look at this slide and you look at the strength of our franchise. First of all, this is one of the largest private assets player in Europe. And both real estate, private and structured credit and infrastructure have been around for a very, very long time. We haven't just entered this. This was developed thanks to the support of the balance sheet. And we have, when you look here, we have actually moved into, I would say, more and yielding strategies by doing acquisitions where we believe that we can grow significantly the business. So when we did a Beaumont, the value add real estate acquisition, this was to compliment already strong offering, but more importantly, also supported by the balance sheet. And I think that's the way we're gonna grow. We're gonna grow our existing franchises organically, and we might look at potential bought an acquisition in order to grow this business going forward. Same thing with P Capital Partners. We had a commitment of 500 million for a balance sheet to grow that business. On the capital Q, no, there is no Daiichi Life in that capital Q. Capital Q is when you have won the business, and obviously you need to... Deploy it. Maybe an important point on the capital Q, because we're showing this for the first time, I think. We used to three, four years ago. But what you just see on the capital Q is, of course, there will always be a capital Q. As a private asset manager, you always have a capital Q. Then what is important is that you need to make sure that that capital Q comes in with new flows and you deploy. What is the range? I would say the range is between five to seven. And in this case, this increase of capital Q is because we have received new uh we have one new business not because we have not been able to deploy so i think that's the positive news also you should take from here but no daichi is not in there i think i said in the presentation they're doing due diligence we expect to get a mandate from them before the end of the year and as you all know they have a commitment of six billion dollars not sterling over the first five years

Bolt-ons, on those verticals, where else would you think of adding capability?

I think one has to be careful. We have done two small bolt-ons, and I think you need to see those develop. We have always had a way of saying, okay, we utilize part of our own balance sheet, and then we grow them even further. But if I had to look, I would say I would look at private and structured credit, which still is something which we will see Europe as being a very interesting area. There are big, great opportunities. And I probably would also look potentially at some on the infrastructure side. But overall, we have what we need at the moment. I mean, we want to grow organically and we want to make sure that those two bolt-ons that we have been integrating, that they take off as well.

Thank you.

Thanks. It's Andy Sinclair from Bank of America. First, we're just circling back to leverage. I get the points you made on leverage, that conservative methodology, et cetera. But you do have a target for under 30% leverage. We're at 33% now. I guess that target's for the end of the year. Are we saying that this might take longer? What's the thoughts on that progress to under 30%? Second is on the annuity one-off. Sorry to come back to it, but I still don't understand it, this 8 million payment. I get you're saying it's one-off, but why is this payment being made? And why should we have confidence that it is just a one-off and that there's no other schemes that this is coming through for? And third was just on the FNZ platforms for Prue Fund. How many FNZ platforms have committed to offer Prue Fund so far? Thanks.

Why don't I start with the end and then you can take the two first. So, obviously, we're pleased to have done this agreement with FNZ. As you all know, FNZ roughly covers 40% of the platform market. So, we're talking $280 billion. of AUMA and roughly 50% of the flows. So we're talking 35 billion per year here. So we're very pleased to have done this agreement. And we are in discussion with some of the platforms utilizing that technology. I would say probably it's for 2026, we will see something happening there, but obviously we're very, very excited to get there because this will substantially increase volumes on proof fund. Okay.

So if I take leverage perhaps, yes, we are not at 30%, but we also know that, as you said, we have got the most conservative. We'd be at 27%, I think, on an IFRS equity basis and 22% on using some of the approaches by some of our peers. And we obviously want to get there through own funds growth because, as I said, the whole co-debt we're comfortable with. We also think, I mean, it is... good quality, very long-term and cheap capital and funding. So we have got a call of the dollar bond in 2028, but we do still, we have no concerns on that, but we're very comfortable with it and we get no feedback either from shareholders who know that we are conservative. So we will get there, but we will get there through own funds growth, but obviously we don't think we'll get there by the end. We can do the math in terms of what's needed.

I was just going to say, with bond yields going higher, I guess that target gets a little bit harder. You're right.

So absolutely. So in the first question around rates, and obviously one of the things we saw when we did have movements in rates is we get a benefit on the PBST, which is very good, but there can be an impact, a negative impact on owned funds. So that's why the key thing for us is delivering the owned funds generation through consistent earnings growth. and be able to withstand market volatility. But yes, you're right, the increase in rates would impact owned funds as well. But I go back to just very comfortable in the leverage ratio in the stock of Holco debt. And we've got another excellent, well, we've got this opportunity in 2028, which we're mindful of. And as I said, we're very, very conservative compared to peers. Now, we have very unusually had a one-off payment to a very, very old contract that we've remedied, had zero impact on policyholders, and we've got no concerns. It's just a one-off. Answered FNZ. Yes.

Yes. OK, so I think we have taken all the questions from the analysts in the room. So with that, let's say thank you very much for being with us today. Yes, sorry. Apologies. We received. So let me read Tom from Mediobanca. He would like to know if you could elaborate on why the cost of capital is lower for with profits customer when writing with profit BPAs. So that's his first question. And then on the proof of FNZ question. is asking whether it's going to come through next year, which I think we answered. And we talked about next year and the impact. So maybe without taking that question on the cost of capital with the With Profit Fund, I don't know if, Clive, you want to say two words on the With Profit Fund and the cost of capital in the With Profit Fund, as opposed to what other peers would have in the market.

That's a problem. It's a question of different regulations and governance and environment. So on a strict level, a with-profit fund doesn't actually have to make a profit because it's written in the context of the trust. However, it does have an expectation not to write at a loss. So that's... Therefore, there would be a level of margin creation above zero. Without going into too much of the numbers, that means that there would be a lower return on capital in order to make sure, in most cases, the fund isn't writing with the expectation of a loss, but it would be nowhere near the level that A shareholder-based capital provision would be of double digits, 14%, or certainly lower than a PAE-backed organisation looking to return there. So that gives you the different quality of capital. Also, it has no dividends to pay. So it's length that it can deploy that capital before it needs it cycled back to the owner, which in this instance, the with profit estate is much longer than you might see in a normal shareholder based organization. So I hope that gives you a feel of how the different dynamics work in the with profit fund balance sheet is deployed compared to the shareholder balance sheet.

Very helpful. And Farouk from JP Morgan, he asked whether we are still expecting to ride 3 to 4 billion in this market in BPA, which I think we did address. And we are still committed to that because of the diversified proposition that we aim to launch. update on the 75% cost income ratio and ambition, which we said we remain committed to 70% is the right number, not by the end of the year. And thirdly, well, this one we haven't explicitly tackled. So if we can talk a little bit more about 60% of our AUM being international, and that's the AUM side, but what's the contribution to revenue and profits? And I think very briefly, let's say that It's all external money. So while in the UK we've got a very big internal client that tends to have a lower fee margin attached to it, so it would be less profitable. So you'd expect this international business to be slightly more profitable, both from a revenue and bottom line perspective, than what you would have in the UK. So it is good quality growth. And I think someone earlier asked, what are the margins on this business that we're winning? Is it similar or not to what we already have? And I think you say... It's brought in line with what we have. It's not money market. It's not passive. As Andres said, there's a lot of interest in equities and structured credit, real estate debt. So, you know, the margins that we're winning on this business are comparable to the stock of existing institutional business markets. And Tom submitted another one from his bank. So he's following us live. That's good. So almost why do we set the leverage target at 30% under our own calculations, given that it's so much more conservative vis-a-vis peers? I don't know, Catherine, if you want to.

We did set that target on a Solvency II basis. We evaluate what rating agencies use, what our peers use. We have to have the right one that we think is relevant for us and our business mix. But we get feedback. We always reevaluate if a metric is the right one. It was set quite some time ago. So that's not to say we'll never reconsider it, but it is the one for now. But we also obviously look at other methodologies as well. Perfect.

So I think that now we are through all the questions. So thank you very much. Thank you. Thank you very much for joining.

Thank you.

Thank you very much.