M&G H1 2026 Earnings Report

M&G EPS Results

• Actual EPS: -GBX 7.10
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

M&G Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

M&G Announcement Details

• Quarter: H1 2026
• Date: 9/3/2026
• Time: Before Market Opens
• Conference Call Date: Thursday, September 3, 2026
• Conference Call Time: 4:30AM ET

M&G (LON:MNG) is a leading savings and investments business, managing investments for both individuals and for large institutional investors, such as pension funds, around the world. We have a single corporate identity, M&G plc, and two customer-facing brands: Prudential and M&G Investments. Prudential offers savings and insurance for customers in the UK and Europe and for asset management in South Africa. M&G Investments manages assets for clients globally. With roots stretching back more than 170 years, we have a long history of finding innovative solutions for our customers’ changing needs. Today, we bring together our diverse set of asset management capabilities and our insurance expertise to offer a wide range of solutions for different types of customer in 28 markets around the world. We are proud to have been serving individual savers since 1848 and our purpose remains the same today: to help millions of people to manage and grow their savings so that they can live the life they want.

M&G H1 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Operating profit rose 15% year over year to GBP 435 million, M&G’s best first-half result since its 2019 listing. Asset management profit increased 24%, while Life profit grew 9% as capital-light with-profits earnings expanded.
• Positive Sentiment: Net inflows from open business improved to GBP 2.4 billion, including GBP 2.2 billion in asset management and GBP 200 million in Life. Management highlighted GBP 1 billion of additional asset-management inflows in July, a GBP 7.8 billion private-markets capital queue, and continued international and wholesale demand.
• Positive Sentiment: The new BPA+ with-profits annuity product generated GBP 1.7 billion of sales since its February launch, with management targeting GBP 3 billion–GBP 4 billion of annual BPA volumes by 2027. M&G expects with-profits solutions to attract at least GBP 50 billion of assets and contribute at least GBP 100 million of annual operating profit by 2030.
• Positive Sentiment: Capital strength remained substantial, with a Solvency II ratio of 247% and a GBP 5 billion surplus, keeping M&G on track for its GBP 2.7 billion cumulative capital-generation target. Management said the strong balance sheet supports further investment in growth, although it indicated that near-term distributions are likely to remain aligned with current market expectations.
• Negative Sentiment: Underlying capital generation fell GBP 27 million year over year, and annuity operating profit declined 7% to GBP 105 million because of lower returns on surplus assets. Management also maintained guidance for a modest GBP 10 million annual operating-profit impact from ground-rent reforms from the end of 2028.

Presentation

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

Perfect. We are live, and welcome to M&G's 2026 Half-Year results. Welcome back after summer. It is a very good set of results. Without further ado, I will hand over to Andrea Rossi, our Group Chief Executive Officer.

[Andrea Rossi, Group CEO at M&G]

Thank you. Good morning, and welcome to M&G's 2026 half-year results. It is a pleasure to be here with you today. In the first six months of the year, we have made great progress on our strategy. Despite a volatile macro environment, we delivered good net inflows from open business and strong profit growth. I am excited to see how day by day our vision for M&G is translating into operational and financial delivery. Let me share with you the main highlights of the year so far. In 2023, we set three strategic priorities for M&G. First, we focused on financial strength and simplification to set up M&G for the long-term success. Now we are delivering growth. 2025 was a good year for us, and this strong momentum continued into 2026. Operating profit of GBP 435 million is our best half result since listing in 2019.

[Andrea Rossi, Group CEO at M&G]

It is up 15% year-on-year, thanks to a 24% increase in Asset Management and double-digit growth in PruFund. Our strategic pivot is paying off with high-quality capital-light earnings now representing 80% of total earnings. They will continue to grow thanks to the success of our With-Profits offering. Our new With-Profits BPA, called BPA+, is a prime example of this. Since its launch in February, we have completed GBP 1.7 billion of sales, already improving on last year's total annuity volumes. Whilst driving innovation in Life, we continue to deliver strong Asset Management performance with GBP 2.2 billion net inflows in high-value solutions across public and private markets. As we have grown the business, we have also improved our profitability. In the first six months of the year, our Asset Management cost-to-income ratio reduced by 2 percentage points to 73%.

[Andrea Rossi, Group CEO at M&G]

We expect further improvements in operating leverage as we continue to transform M&G. We have delivered over GBP 250 million in savings since 2023 and will go further. We continue to simplify our business and free up capacity that we reinvest in products and services supporting long-term growth. Let us now review our financial targets. Here, we continue to make steady progress as we reach the halfway point to our 2027 targets. Our commitments to shareholders is clear: to deliver strong capital generation, to improve the efficiency of our business, and to drive sustainable earnings growth. We are delivering. Capital generation is on track to achieve the GBP 2.7 billion cumulative target. Our cost-to-income ratio improved to 73%, and we achieved record operating profit of GBP 435 million, up 15% year-on-year.

[Andrea Rossi, Group CEO at M&G]

In March, I told you that 2025 was a year of foundation building for M&G as we added distribution, product, and investment capabilities. Now we are seeing the benefits come through. We are on track to deliver low double-digit profit growth this year as we continue to experience strong momentum with clients across the group. The reason that I am confident we will continue to deliver is because we have a clear strategy and the right business model to win. Our ambition is to be Europe's leading integrated asset manager. To achieve it, we will scale across both Asset Management and Life with the growth of one segment reinforcing and compounding the growth of the other. Life gives Asset Management the scale and long-term capital it needs to develop high-quality investment capabilities.

[Andrea Rossi, Group CEO at M&G]

In return, Life benefits from this expertise with access to alternative Assets that are essential to back its core propositions, including PruFund and bulk purchase annuities. The balanced and synergistic nature of this model is reinforced by the With-Profits Fund, which attracts insurance assets in a capital light way with limited shareholder balance sheet exposure, a real competitive advantage. Another important differentiator for M&G is our strategic partnership with Daiichi Life, one that builds on and leverages our business model. Like us, Daiichi also believes in the powerful combination of Asset Management and Life. Fully understanding the value of M&G, Daiichi decided to invest in our group. Over the past year, they have become our largest shareholder with a 15.7% position. I am delighted by the strength of our partnership and to announce that senior Daiichi Executive, Hitoshi Yamaguchi, has joined our Board of Directors effective today.

[Andrea Rossi, Group CEO at M&G]

He brings more than three decades of leadership experience spanning international insurance and finance. By becoming Daiichi's preferred asset manager for Europe, we have gained access to a second large balance sheet, which has already allocated over GBP 1 billion to our investment solutions. At the same time, we are actively exploring a number of joint business opportunities across Asset Management and Life, including product co-development and distribution. Having covered the group highlights, I will now move on to our segments, starting with Asset Management. I am very proud of the progress we have made in our Asset Management business. Over the last three years, assets under management have grown steadily, increasing by 17% to GBP 356 billion. We have improved our diversification, becoming less reliant on our internal client and on the U.K. market.

[Andrea Rossi, Group CEO at M&G]

Over the same period, external assets have increased by 29% to GBP 189 billion, with our international business increasing even faster by more than 40% and now accounting for nearly 60% of total external assets. We also remain disciplined on costs, translating higher volumes into better operating leverage. The cost-to-income ratio reduced to 73%, and fee-related earnings increased by 45%. The outlook is bright. New business momentum remains strong, with net inflows of GBP 1 billion in July alone. With good client demand, a GBP 7.8 billion capital queue in private markets, and new business from Daiichi, we are confident that we will continue to drive profitable growth in Asset Management. Another reason that supports my confidence is the quality of our flows. Net inflows of GBP 2.2 billion in H1 correspond to GBP 13 million in annualized net new revenues.

[Andrea Rossi, Group CEO at M&G]

This proves that our focus on high margin and high value solutions is delivering. Both our private and public markets team achieved good results. Within private markets, client appetite for structured credit remained very strong, and we saw renewed interest in real estate. Infrastructure is another priority area for our clients, where we have strengthened our leadership team. Within public markets, equities continued to outperform, thanks to great investment performance and a compelling offering across global, European, and Asian strategies. When looking at flows from a client perspective, you see a similarly positive picture. Firstly, we delivered GBP 1.1 billion of net inflows in high-margin wholesale solutions. Secondly, we achieved net inflows in the U.K. institutional market for the second consecutive period, an important milestone as we turn around this segment. While the U.K. remains a mature market, we continue to innovate.

[Andrea Rossi, Group CEO at M&G]

Later this month, we will launch our new CDI+ proposition, an innovative insurance-backed solution designed to optimize the investment and hedging strategy of DB pension schemes in run-on. Finally, we achieved net inflows with international institutional clients for a fourth year in a row. Europe has historically been the primary driver of our expansion, but now we have added new engines for growth, establishing strategic partnership with high-caliber institutions across Asia and North America as you can see on this page. As mentioned earlier, I am very pleased with the quality of the performance of our Asset Management business, which gives me real confidence in its future. Let's now move to our Life segment. Here, I want to start by reiterating why Life is now a core driver of M&G's capital-light growth. From this year, nearly all our new business in Life is being written by the With-Profits Fund.

[Andrea Rossi, Group CEO at M&G]

This means that we are gathering assets in a way that is capital-light for shareholders and that carries limited risk and balance sheet exposure. We expect to attract at least GBP 50 billion to the group by 2030 through these With-Profits solutions. The chart in the middle of this slide gives you a rough indication of the breakdown, with PruFund and the recently launched BPA+ driving the bulk of the volumes. These assets will generate at least GBP 100 million of annual operating profit by 2030, emerging across Life and Asset Management. While offering great shareholder outcomes, the With-Profits Fund also delivers superior client outcomes. Our new BPA+ has been a great success since its launch six months ago, and with good reason. Entering into a BPA transaction is the most important decision that pension trustees can make. It influences the lives of thousands of people for decades to come.

[Andrea Rossi, Group CEO at M&G]

When dealing with the With-Profits Fund, trustees know that their members are protected by one of the best capitalized insurance companies in Europe, a mutual that has put client interest at the heart of everything it does for over 175 years. They are getting a great deal, too. The low cost of capital of the With-Profits Fund makes its pricing attractive, and if the fund achieves good investment returns, it shares them with customers, declaring a bonus on top of their guaranteed income. You can see why our BPA+ has a real edge in the U.K. BPA market. We expect to scale our sales at least by 50% this year, remaining disciplined on pricing, and to achieve our target volumes of GBP 3 billion-GBP 4 billion in 2027.

[Andrea Rossi, Group CEO at M&G]

As we scale, we support our growth in Asset Management, in particular, thanks to the significant allocation of BPAs to private markets. Within Life, we are also making good progress on our retail strategy. Here we have two core objectives to drive sales. First, to improve the distribution of PruFund, and secondly, to broaden our proposition with other investment solutions. From a distribution perspective, we are pleased to have launched PruFund on Scottish Widows platform. We will add a second FNZ platform later this year. From a product perspective, last summer, we launched our retail fixed term annuity, which has generated over GBP 100 million of net inflows in the first 12 months. A good start. In February, we declared our first bonus for this product, giving customers an uplift of an extra 45 basis points to their investments on top of their guaranteed returns.

[Andrea Rossi, Group CEO at M&G]

Again, clear evidence of the value delivered by our With-Profits solutions. Our sales in the first half reflect this positive momentum. When combining PruFund and fixed term Annuities, our retail net flows improved by over GBP 500 million year-on-year. Looking ahead, we expect PruFund to deliver improved inflows in the second half and are encouraged by the positive market reaction to our launch on the Scottish Widows platform. Before handing over to Kathryn, I will briefly cover our group transformation. In March, we completed the first phase of our transformation program, achieving GBP 250 million of savings. There continue to be exciting opportunities ahead as we explore ways to make our business simpler and more scalable to deliver improved customer outcomes and long-term growth. AI plays a key role on this journey, improving personal productivity and transforming end-to-end processes.

[Andrea Rossi, Group CEO at M&G]

It changes how we serve our clients, how we operate, and how we grow. On this slide, you can see some of the initiatives we are working on. Our advisors are now spending less time on admin and more time with the customers. We are faster and more accurate when pricing BPA new business, answering RFPs from institutional clients, or addressing customer needs. Our research and asset sourcing teams have reduced their cycle times without compromising on quality. The core objective is always the same, to deliver a better customer experience, improve process efficiency, and free up resources which are redeployed on high-value activities that drive growth. To sum up, we have had a good first half with record operating profits, strong flows in Asset Management, and new product launches in Life. As we grow, we are making M&G more diversified, resilient, and capital light.

[Andrea Rossi, Group CEO at M&G]

Through cost discipline and business transformation, we are also freeing up resources to support our long-term ambition. We are delivering on our targets and are confident we will sustain this positive momentum in the second half. With that, I will hand over to Kathryn, who will take you through the financial results.

[Kathryn McLeland, CFO at M&G]

Thanks, Andrea, and good morning, everyone. I will now take you through the details of our H1 results, which show steady momentum across the group and good progress against our targets. Covering first the key highlights. We delivered GBP 2.4 billion of net flows from open business, an increase of GBP 300 million year on year. In Asset Management, we continue to grow across both our wholesale and institutional channels, despite the volatile macro environment. In Life, flows improved meaningfully on the back of higher annuities and PruFund sales. Group adjusted operating profit increased by 15% year-on-year to GBP 435 million, our best first half result since listing. Within it, Asset Management earnings increased by 24% thanks to higher recurring revenues and improved operating leverage. In Life, a higher contribution from the capital-light With-Profits business led to a 9% increase in profits.

[Kathryn McLeland, CFO at M&G]

At GBP 372 million, operating capital generation was GBP 36 million lower, largely due to movements in our capital requirements in Asset Management and the corporate center. New business drain of GBP 20 million was GBP 15 million better year-on-year, despite us delivering twice the volume of BPAs, reflecting the capital-light nature of our new With-Profits, BPA+. Thanks to this good result, we remain on track to achieve our GBP 2.7 billion capital generation cumulative target. Finally, supported by our strong operating performance, the Solvency II ratio reached 247%. Let us now turn to our flows. Closing AUMA stood at GBP 387 billion, supported by GBP 2.4 billion of net inflows from open business and GBP 13 billion of positive market movements. With GBP 2.2 billion, Asset Management accounted for the majority of net flows, equally split across our wholesale and institutional channels.

[Kathryn McLeland, CFO at M&G]

This equates to 2.4% of opening AUMA from external clients on an annualized basis. As you have heard from Andrea, we delivered another GBP 1 billion of net inflows in July with good momentum across a range of public and private strategies. While we continue to grow internationally, supported by our strategic partnership with Daiichi Life, we are very pleased with the continued turnaround of our U.K. institutional segment, where we delivered net inflows of GBP 800 million. Thanks to our business model, we are very well-placed to support U.K. pension schemes along their entire de-risking journey, leveraging the capabilities of both Asset Management and Life. Our new CDI+ solution, which Andrea just mentioned, is an example of our product innovation for these clients. In wholesale, our strong investment performance, particularly in public equities, remained a key attraction for clients.

[Kathryn McLeland, CFO at M&G]

Life net flows from open business of GBP 200 million was a GBP 700 million improvement year-on-year. This reflects GBP 500 million increase in PruFund year-on-year and continued growth in the BPA market, where we recorded GBP 600 million in sales in the first half. Activity has picked up over the summer as we completed a further GBP 1.1 billion in BPA transactions across July and August. We are very pleased with our continued positive growth in net flows across M&G, despite a volatile external environment as we deliver the products and solutions our clients want. Moving on now to profit. At GBP 435 million, our operating profit in the first six months was up 15%, with the key features being, firstly, 24% higher earnings and improving operating leverage in Asset Management, supporting a steady reduction in our cost-to-income ratio.

[Kathryn McLeland, CFO at M&G]

Secondly, a 9% increase in Life profits to GBP 375 million, with double-digit growth in both PruFund and traditional With-Profits, more than offsetting an GBP 8 million reduction in annuities due to lower returns on excess assets, which we flagged in March. The Corporate Center outcome was adverse by GBP 5 million, impacted by lower investment income and slightly higher head office expenses. Our operating profit is not just growing, it is also improving in quality as we increase the diversification of our business and pivot it to capital-light sources. Today, 80% of our operating profit comes from Asset Management and With-Profits capital-light business. This proportion is up meaningfully from 73% last year, and we expect it to rise further over time as we now write the vast majority of our annuity business through the With-Profits Fund.

[Kathryn McLeland, CFO at M&G]

Let us now look at each of our businesses in turn and starting with Asset Management. Our Asset Management business delivered a strong result with Adjusted Operating Profit up 24% to GBP 159 million. This was driven by a higher asset base and resilient margins, generating much improved recurring revenues. At GBP 356 billion, assets under management were up by GBP 32 billion compared to last year, supported by sustained net inflows and favorable markets. Our average fee margin remained resilient at 32 basis points as we continue to expand our business with external clients, focusing on high-value solutions, particularly in private markets. We are very pleased with the quality of our flows, which generated GBP 13 million of annualized net new revenues. Together with a growing asset base, this contributed to revenue growth in the first six months of 10%.

[Kathryn McLeland, CFO at M&G]

Costs of GBP 470 million increased by 7% year-on-year, but remained flat compared to the second half of last year. This cost base reflects our investments to support long-term growth in Asset Management as we added distribution and investment capabilities, including our acquisition of P Capital Partners. As we grow, we continue to improve our operating leverage. In H1, the cost-income ratio reduced by 2 percentage points for the third straight year, reaching 73%. We are confident that we can continue to improve our efficiency in the second half of the year and remain firmly committed to our 70% target by the end of 2027. Fee-related earnings, which are a key metric for us, were up by an encouraging 17%. Finally, the operating profit also benefited from a GBP 13 million increase in investment income, mainly due to improved impact from FX revaluation given the stronger dollar.

[Kathryn McLeland, CFO at M&G]

Given the business momentum we are seeing, by continuing to be disciplined on costs and reinvesting capacity into growth initiatives, we are confident that we will further deliver top-line expansion and operating leverage. Let us now turn to our Life business. Here, PruFund's operating profit increased by 15% to GBP 129 million, reinforcing its role as a growth engine within the group. The main driver of this positive result was the higher opening CSM, which grew strongly in 2025, and a broadly stable amortization rate. The result of our traditional With-Profits business was up by 14% year-on-year to GBP 137 million, reflecting similar positive dynamics. We are encouraged by this performance, particularly it was achieved against the backdrop of lower expected returns and risk-free rates, which we previously highlighted.

[Kathryn McLeland, CFO at M&G]

Both PruFund and traditional With-Profits continue to provide resilient long-term earnings for the group, underpinned by a combined GBP 4.2 billion of CSM supporting the sustainability of our future profits. As you know, we switched two PruFund products to a 100/0 charges less expenses approach from the 1st of April, which will accelerate profit recognition on new business. Let's now turn to annuities. Here, annuities profit was down 7% year-on-year to GBP 105 million, reflecting the guidance given in March, specifically the lower expected returns on surplus assets, which reduced to 4.5% from 5.2% last year. These headwinds were partly offset by a higher CSM release, supported by the longevity benefit we recognized in the second half of 2025 and improved experience variances due to the non-repeat of the GBP 8 million headwind we flagged last year.

[Kathryn McLeland, CFO at M&G]

This year, all annuity business was written by the With-Profits Fund through our BPA+ solution. The With-Profit Fund retains roughly 80% of the economic interest after reinsuring around 20% to the shareholder balance sheet. In due course, as BPA+ volumes grow, we will evolve our disclosures to share more details on the different contributions from each book of business. Turning to Other Life, where we generated a profit of GBP 4 million, a turnaround on last year, primarily thanks to lower losses in our platform and advice business. Here, we continue to reduce costs and improve the efficiency of our digital platform, including the outsourcing of our back-office functions. Before moving on to capital generation, I would highlight the strength of our CSM, the details of which you can find in the appendix.

[Kathryn McLeland, CFO at M&G]

Our group CSM of GBP 7 billion was up 6% since the start of the year and represents a large and growing store of future value for our shareholders. Turning now to capital generation. In the first half, we generated GBP 392 million of operating capital before new business drain, keeping us firmly on track to achieving our three-year target of GBP 2.7 billion. Underlying capital generation of GBP 304 million was GBP 27 million lower than the prior year. Within it, Asset Management capital generation reduced by GBP 7 million, despite the higher own funds as we experienced a GBP 14 million increase in capital requirements compared to a GBP 12 million reduction last year. We experienced a similar dynamic in the corporate center, where last year we benefited from an GBP 18 million SCR reduction.

[Kathryn McLeland, CFO at M&G]

In Life, the in-force contribution reduced by GBP 10 million to GBP 314 million, driven by a GBP 15 million lower return on annuity surplus assets, which we flagged in March. Importantly, Life's new business drain improved by GBP 15 million-GBP 20 million, despite higher BPA sales, as we shifted our life new business to a capital light model. Management actions contributed GBP 68 million, primarily reflecting equity hedging activities, and we remain on track towards our annual guidance of GBP 100 million-GBP 200 million. Thanks to our good operating performance, our balance sheet continued to strengthen. The Solvency II ratio closed the period at 247% with a GBP 5 billion capital surplus. Own funds of GBP 8.4 billion include GBP 4.8 billion of PVST, the present value of future shareholder transfers from our With-Profits Fund.

[Kathryn McLeland, CFO at M&G]

This is a unique feature of M&G, reflecting the scale and profitability of our With-Profits business. The PVST is a store of future value that has grown tremendously in recent years, thanks to the success of PruFund and supportive markets. This growth has been a key driver of our improved financial performance and underpins the long-term cash earnings and capital generation of the group. We will realize this asset gradually over time and thus expect to continue to operate above our target Solvency II range over the medium term. You will also see on this page that we have updated the definition of our leverage ratio to reflect the Solvency II value of our debt instead of the nominal value. On this basis, the leverage ratio stood at 29% at the end of June.

[Kathryn McLeland, CFO at M&G]

We made this change to ensure consistency between the numerator and denominator of the metric and to better align our approach to industry standards. This is still a more conservative approach than peers, as we use shareholder-owned funds, not regulatory-owned funds. We are pleased with the continued strength of our balance sheet as it represents a key competitive advantage for M&G in what remains a volatile and uncertain macro environment. I will finish by briefly covering costs. Our managed cost base at the 30th of June of GBP 744 million reflects the investments that we made last year to support growth, which underpin the strong new business momentum we are now seeing. In Life, we built out our BPA team on pricing, focusing on pricing and commercial capabilities.

[Kathryn McLeland, CFO at M&G]

In Asset Management, we added private markets expertise, such as the acquisitions of P Capital Partners and BauMont, and scaled our distribution platform to support our international expansion. These initiatives drove a 7% increase in costs in the second half of last year. Since then, costs have stabilized, remaining flat over the last six months. Looking to the remainder of H2, we expect Asset Management costs to stay in line with the first six months of the year, while corporate center costs will be roughly GBP 10 million higher due to the seasonality of our head office expenses. Our approach to cost management remains the same. We will continue to create capacity by streamlining our operating model, re-engineering our processes, optimizing third-party spend, and better leveraging technology such as AI, as you heard earlier from Andrea.

[Kathryn McLeland, CFO at M&G]

These savings will offset inflationary pressures and free up resources to be reinvested into growth. By investing for long-term growth and remaining disciplined on costs, we will further improve our operating leverage and achieve our target cost-income ratio by the end of next year. With that, I will hand back to Andrea.

[Andrea Rossi, Group CEO at M&G]

Thank you, Kathryn. Before concluding, I want to summarize the key elements of M&G's investment case. Our message is simple. We are becoming Europe's leading integrated asset manager. Our synergistic business model underpins our growth. We operate in attractive markets with clear competitive strength, including our unique With-Profits Fund. By delivering a balanced combination of yield, growth, and quality, we offer consistently strong outcomes to our shareholders. Life underpins our attractive dividend yield. Asset Management and With-Profits drive the group's growth. As they do that, the quality of our profits improve. 2026 has been a strong year so far, with record profits and real business momentum. That reflects the hard work of colleagues across M&G, and I want to thank everyone for their contribution to these half-year results. We will build on this track record, maintain our momentum, and continue delivering for our clients and shareholders.

[Andrea Rossi, Group CEO at M&G]

I am proud of what we have achieved, and I am energized by the opportunity ahead as we enter this new phase of growth. Thank you. Now we are going to do Q&A. We have to move on. How do we. Oh, you move that one? Okay, I will take my water.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

Yeah, exactly.

[Andrea Rossi, Group CEO at M&G]

Oh, thank you, Luca. Always like to see you working. Good.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

Except for one. So thank you very much, Andrea and Kathryn. We can move to the Q&A. As usual, for those that are following us online, when you ask a question, please pull out the microphone from the seats, push down and hold down the button, state your name, the firm you are working for, and then go with your three questions or more nested into one. We will later take questions online. A couple of analysts couldn't make it in the room, but they have already submitted questions. But we will keep them for last. So Dawid, Andrew, Farooq, and Tom, in that order.

[Dawid Pych, Analyst at RBC Capital Markets]

Hi, thank you for taking my question. Dawid Pych, RBC Capital Markets. I will kick off with only two questions, actually, just for a good start. The first one on dividend and excess capital. I suppose with the shareholders solve a situation of 247%, it sits materially above the top end of your stated operating range. Just wondering, how do you think about shareholder returns going forward, especially in light of the strong capital position? Is there maybe a specific point at which you would consider a more meaningful step-up in those returns? Then second question on Asset Management. The private markets AUM continues to grow, which is very good to see. However, the blended margin stays flat, and also the private markets margin actually decreased 1 basis point year-over-year.

[Dawid Pych, Analyst at RBC Capital Markets]

Just if you could share more color on what drove the contraction there, and how do you think about the trajectory going forward? Thank you.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

Perfect. If you want, you've got a bonus question later too, if you want to come back to it. In terms of the first question, I guess there were two questions in one. One was around dividend, and one is around maybe more capital returns. I do not know, Andrea, if you want to.

[Andrea Rossi, Group CEO at M&G]

Yeah. This time, I did not show our clear capital management framework, which every time we show. I hope you remember what the four different things. As you know, we have a clear capital management framework in place, and we have been on a journey in the last three, four years. If you remember, in the beginning, we were focusing on financial strength, and we have been strengthening the balance sheet. We have been improving our leverage, improving liquidity. Then it was about making sure when the business was doing better, to actually pay out attractive dividends. We came out with a growing dividend policy 18 months ago. Let's not forget that our investors, and I meet many of them, they are very pleased with what we are doing.

[Andrea Rossi, Group CEO at M&G]

We have been returning back to our investor over GBP 4.4 billion since we listed in 2019, and also a double-digit annual total shareholder return. So our investors are very pleased with what we are doing in terms of capital returns. Now it is time for growth. We are focusing on growth. That is our focus. Those results that you see there is thanks to a relentless focus on growth and investing for growth. That is our focus, and we will do so by making sure we realize double digits IRRs above our cost of capital. So that is our focus. I do not know, Kathryn, if you want to add on something.

[Kathryn McLeland, CFO at M&G]

Well, I guess only that we also think that at 247%, today is quite an uncertain volatile time, and it is a competitive advantage to have a very strong balance sheet. One of the points I made also was we have a great asset with the PVST at GBP 4.8 billion. We have quite a unique own funds because of the strength of PruFund. This really does underpin today's results. It will flow through into earnings, cash, and capital generation over time, and we have strong financial flexibility to do the growth investments that you heard Andrea talk about. No, very comfortable where we are, and we are already delivering good returns back to our shareholders.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

Andrea, maybe do you want to tackle separately the dividend question, so in terms of the dividend trajectory?

[Andrea Rossi, Group CEO at M&G]

Yes. On the dividend question, and as you all know, dividend is a matter for the Board. If you look at our results today, obviously, we are very pleased with the AOP growth. You should not see a one-to-one relationship in the short term between AOP and DPS. There are other elements you should take into account. There is capital generation, there are the state of the business. All these things means more you should look at it from a more longer term perspective. Obviously, we are very pleased that we have a growing dividend policy, as I said before. It is a matter for the Board. It will be discussed in February next year. I feel comfortable with the market expectations in terms of DPS growth. I am sure you know what the market expectations are.

[Andrea Rossi, Group CEO at M&G]

Obviously, it is a discussion for the Board in February next year.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

Perfect. Moving on to the Asset Management point. It was around private markets. The impact on markets.

[Andrea Rossi, Group CEO at M&G]

Well, I would like to say one thing here. I am sure if you look at some of our peers, they must be very jealous about our trajectory because we have resilience on average basis points. Yes, some peers might move up, but they move up from such a low basis points that it does not really matter. Look at our average basis points at 32. That is a good average basis point. Of course, that is driven by strong flows in our wholesale solution at an average of 55 basis points. Private markets is important for us. It went down by 1 basis point, I think 37-38, but that is mix of whatever private assets we have. If you look at our private assets, the quality and our performance, it is very positive. We had GBP 1.3 billion of net inflows in the first six months.

[Andrea Rossi, Group CEO at M&G]

Of that, we had GBP 1.2 billion in private credit and structured credit, and we see good momentum here. Let us not forget, when we talk about private and structured credit, this is nearly 100% Europe. I know that there are issues with private credit. It is mainly in the U.S. We have no exposure to the U.S., no real exposure to tech and software either. So we are very pleased with what we are doing there. The interesting thing here as well is that we have a capital queue of GBP 7.8 billion in our private assets for our private asset franchise. So you should see resilience in that, I would say, for private markets. Of course, I took the institutional one. It is also fixed income in institutions. It is not only about private assets. We have fixed income mandates, buy and maintain mandates. We have equity mandates.

[Andrea Rossi, Group CEO at M&G]

It is a mixture, but you should see resilience in our average margin in terms of bps, which I think is a great result.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

Thank you very much, Andrea. Andrew Baker from Goldman Sachs. I have done the introduction for you.

[Andrew Baker, Analyst at Goldman Sachs]

Great. Thanks, Luca. Appreciate the intro. Three questions, please.

[Andrea Rossi, Group CEO at M&G]

Three questions.

[Andrew Baker, Analyst at Goldman Sachs]

First one, I guess if I look at slide 11, you are guiding, or at least soft guiding to GBP 3 billion-GBP 4 billion.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

Andrew, can you speak up a little bit? We struggle to hear you.

[Andrea Rossi, Group CEO at M&G]

I cannot hear you, sorry.

[Andrew Baker, Analyst at Goldman Sachs]

Okay. Hopefully. If I look at slide 11, it looks like you are guiding or at least soft guiding to GBP 3 billion-GBP 4 billion of BPA flows of 2027 to 2030. Given, I guess, the advantages that you have outlined vs peers, I guess post 2027, when you hit your GBP 3 billion-GBP 4 billion target, why should not we expect a material increase in flows after that? Is there any constraint to volume growth that is maybe not obvious that is stopping being a bit more aggressive there? And then secondly, just on the Asset Management underlying capital generation, are you able to give a bit more detail on the SCR increase and if there's anything we need to be thinking about going forward there? Then thirdly, hopefully a quick one on the leverage change in methodology.

[Andrew Baker, Analyst at Goldman Sachs]

Is there any change to the 30% target level? Thank you.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

So probably I'd say the first one, Andrea, if you want to take it, while the other two are for Kathryn.

[Andrea Rossi, Group CEO at M&G]

Yes. I think we have to remember where we come from. Four years ago, we were not growing in our Life business in the BPA market. We re-entered it, and when you look at our track record, we've been consistently growing by 50% on average every year. And of course, the GBP 1.7 billion that we have done the first eight months this year, for me, is very strong performance. And we have a unique feature, which is true. I said it today about the BPA+. I think the With-Profits Fund gives us a competitive advantage. You have all the, I'm not going to repeat them again, the key features here. But it gives me that confidence that we can continue to grow. We will grow, as I said, this year at least 50% year-on-year, and we will continue to grow next year.

[Andrea Rossi, Group CEO at M&G]

And if you look at the markets, roughly GBP 40 billion-GBP 50 billion, that means that we have, in three years, three or four years, moved from zero to 6%-8% market share, which I think is a very relevant performance. Now, beyond that, we will see what we can do, and we will see whether that can continue. Of course, we have, in my view, strong competitive advantage with the BPA+, but it is not only about BPA+, it is also about other innovation that we have brought to this market. You saw last year when we presented result, our BPA value share, where we share the economics with the scheme sponsors. Now, of course, we also launched the CDI+ for run on. So we have what it takes in order to provide a solution across whatever requirements that pension schemes are looking for.

[Andrea Rossi, Group CEO at M&G]

And last but not least, and I think this is a critical element because we see a lot of partnerships out there. We have the unique combination of having a very strong asset manager supporting our Life balance sheet. We are very strong in private assets, in private credit, and as you know, there is a significant allocation into private credit and of course, also public fixed income. So we have all the elements to grow, and that is why we are growing. Let us get to 2027, GBP 3 billion-GBP 4 billion, and then we will talk about the future growth.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

And maybe, Kathryn, on the BPA, do you want to add anything on pricing discipline and capital constraints, or lack of in the With-Profits Fund?

[Kathryn McLeland, CFO at M&G]

Yes. So obviously one of the real advantages is the lower cost of capital of the With-Profits Fund. And we are very much focused on obviously delivering these schemes and their members superior outcomes with the possibility of this bonus and the very strong backing capital ratio behind it. And we are delivering double-digit IRRs. That is what we remain very focused on. And the earnings profitability will improve over time. We are still in scale-up mode. We will get more operating leverage as we go into 2027, and the second half should also improve vs the first half. So we are very disciplined, and that is why also to Andrea's point, we are really comfortable with the guidance of GBP 3 billion-GBP 4 billion given what that means, where we will be in the market.

[Kathryn McLeland, CFO at M&G]

And obviously importantly, it delivers the AUM and fees for our Asset Management business. Shall I cover So we expected this. It does look quite unusual. Asset Management profits are up 24%, yet you have a reduction in underlying capture. Owned funds is up, obviously, so there is nothing there. We had a difficult comparator, so we had quite an unusually low impact last year. Seeding numbers were pretty low compared to normal. There was an FX element as well, and that is more normalized. It just happened to be unusually low last year, which meant we had a bigger swing in capital requirements year-on-year, and again, another FX element this year. Nothing in particular I would call out, just a notable year-on-year delta in the capital requirements of the business. I think on leverage-

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

The last question on leverage.

[Kathryn McLeland, CFO at M&G]

Yeah, so leverage. We have been wanting to do this for some time. We have now completely aligned the numerator and denominator. We have seen a movement obviously reflecting the Solvency II value of debt, and that has meant we are now at 29%. We do still have a range, a guidance range, well, not a target, guidance of around 30%, and so we are obviously at 29%, so really comfortable where we are.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

[Farooq]?

[Analyst at JPMorgan]

Yeah.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

From JPMorgan, while you pull out the microphone.

[Analyst at JPMorgan]

Thank you for the introduction. So two, three questions. Firstly, on the BPA, the GBP 3 billion-GBP 4 billion that you are writing, can you tell us a little bit about what size of scheme you are targeting and what size of scheme you are allowed to target by distribution? Is it more profitable to go for middle size or small size? Just some detail around that. Secondly, on the CDI+, can you just explain a little bit what you see as the opportunity there, the margin, how that is going to work? Is it going to be a big market run-on? Or do you think it is just a supplement? My very last question is on operating leverage. Is 70% the right number for you?

[Analyst at JPMorgan]

I know you cannot give us guidance on where you are going to be in 2028/2029/2030, but it feels like you are saying AI is generating efficiency, which you then reinvest in the business and remain efficient rather than AI is an overall cost reduction, operating leverage measure. Just want to understand qualitatively at least what you meant by that. Thank you.

[Andrea Rossi, Group CEO at M&G]

Why don't I do the cost to income ratio, and then you can do the-

[Kathryn McLeland, CFO at M&G]

Yep.

[Andrea Rossi, Group CEO at M&G]

BPA. Is 70% the right number? It is a target we have for the end of next year. When you look at our track record, remember, we were at 79% three years ago, and now we are at 73%. We have gotten there by also investing in the business. We have been investing in distribution, we have been investing in product capabilities, we have been doing some bolt-ons. All that are what I call the good costs. We have also been very disciplined on costs, because when you go and look at H2 of last year with H1 of this year in Asset Management, costs have been flat. Then there is the top line. There is market effect, but it is the quality of the flows which I think are critical. There is a number you should remember of today is the GBP 13 million of annualized net new revenues.

[Andrea Rossi, Group CEO at M&G]

This is a key KPI, because making flows with negative net new revenue, it is not that great. What you want is you want positive. So that shows that we have flows in the right higher margin investment solution, private assets, public equities, etc. Also, of course, seeing strong momentum on wholesale. So when I am looking for end of the year and 2027, we have the operating jaws in order to deliver that 70%, which is without performance fees. Remember, we do not put performance fees because of the, I would say, the volatility or lumpiness of the performance fees. Let us get to the 70% end of next year.

[Andrea Rossi, Group CEO at M&G]

I think that is a target I am confident we will deliver, given the strength of our investment capabilities, the strength of the investment performance, capital queue of GBP 7.8 billion in private assets. Also Daiichi obviously putting in more money as well. So let us get there, and then we will see after 2027 what targets we will put. But at the moment, I think 70% is a good target, and as you can see from the track record, we have been consistently improving this cost income ratio by 2 percentage points per year.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

Andrea, on AI, is it a key driver of cost reduction or cost improvement?

[Andrea Rossi, Group CEO at M&G]

AI, yeah. Well, AI is an interesting one. For those who know me a little bit, I did Six Sigma in end of the 1990s. I wish we had AI then. It would have made my life much easier, because we were transforming processes in order to improve customer outcomes. It took us four or five months to improve from Three Sigma to 3.5. With AI, all this can be done, I am not saying instantly, but it can help you substantially to improve your processes and improve, I would say, client outcomes and quality that you deliver to your clients. So it is something that we are implementing in a very smart way. We are very careful how we implement it because, as Kathryn says, we do it only if it covers our cost of capital.

[Andrea Rossi, Group CEO at M&G]

It needs to deliver double-digit IRR. But we have been doing it in several processes in our business. We have been doing it, and you can show the slide if you do not mind. In order to grow our business, for example, when we do now our BPA pricing, we utilize AI, and that has significantly improved the speed of pricing. When we do RFPs for institutional clients, the same thing. It is taking it down by a substantial number. But it is also about how we service our clients. Very important. For example, I was up in Scotland. We have a big customer service center there. Well, the way now we resolve issues or even how we do policy management has significantly reduced the time, and our operators can now work on more value-add activities.

[Andrea Rossi, Group CEO at M&G]

The good news in all this is, yes, it takes down costs or it creates efficiency and productivity, but if you are growing your business, this means that I can support my growth. So yes, there should be an improvement in the, I would say, numbers moving forward. It is a bit too early to start talking about what the returns are, but surely this will support your growth. There is no doubt about it. And it will support your growth at lower unit costs. And we are a growing business, as you can see. So this is supporting our growth. Profitable growth, I should say.

[Kathryn McLeland, CFO at M&G]

Going to the other questions around the BPA volumes that we are seeing. You have obviously seen a number of other market players give their results already. I am really pleased that we have been obviously delivering the GBP 1.7 billion above the GBP 1.5 billion for the whole of last year, and we are comfortable with our guidance of 50% up this year and next year. Over the, I guess, eight months of the year, we have seen both a small and slightly larger scheme. We have been really pleased to be able to participate at the smaller end, but also larger schemes as well. That is important for us as we clearly are a new player. We have got great credibility with the team. Kerrigan, who leads the business, is here in the room today.

[Kathryn McLeland, CFO at M&G]

Given our size ambitions, we are not going to be at the large end of the market that some of the bigger players who are in the market participate in. Just going back to discipline on pricing and double-digit IRRs. On CDI+, this is a product we will be launching. We have not launched it yet, and it is designed, and this is one of the benefits of our business model, because we call this an insurance-enabled product because we benefit from all the Asset Management capabilities, fixed income credit, cash flow matching, as well as the insurance balance sheet that gives the schemes who want to run-on and not yet ready to do buy-in or buy-out, the ability to manage their cash flows. They have got liquidity that is available for payouts or whenever they might need it.

[Kathryn McLeland, CFO at M&G]

Also the advantage of a strong balance sheet with strong collateral flexibility, which is a real plus for some of these schemes. So slightly better economics for them also, more flexibility, and again, it is the combination of an insurance business and an Asset management capability, which is really, really strong in the key areas for cash flow matching. We will share a little bit more on the economics. It will be fee-based when we launch the product.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

I think there was first Tom Bateman from BNP Exane, then let us go to Andrew, and we will get to you.

[Tom Bateman, Analyst at BNP Exane]

Thanks, Luca. Morning all. Could I just ask on the profitability of PAC, I think we had the numbers over the past few months. I guess the profitability on the U.K. GAAP is quite different to what you report at a group level. It looks like the equity position is still falling. Can you just help me understand that, if that's a concern at all? The second question is just on the tax outlook. Another positive one-off on capital generation. What's the outlook for full-year? Finally, I just want to understand the economics from writing all of the Life business on the With-Profits Fund balance sheet. You're gaining GBP 100 million of operating profit there, but presumably you're giving something up. Could you just help me kind of put those pieces of the puzzle together? Thank you.

[Andrea Rossi, Group CEO at M&G]

It's good, I can-

[Kathryn McLeland, CFO at M&G]

I think the first-

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

Andrea, our CFO.

[Andrea Rossi, Group CEO at M&G]

It is good.

[Kathryn McLeland, CFO at M&G]

I think the first question was on Prudential, the subsidiary profits, is that right? Yes. I think looking at, you will probably have seen the full year 2025 numbers, got the CFO in the room. They had profits, the U.K. GAAP basis, GBP 971 million. You might have seen we did a capital reserve release from Scottish Amicable Reserve into retained earnings. That is looking really, really strong. In terms of PAC, there have been, like you see in our IFRS numbers, you will have seen some moves, in terms of interest rate rises impacting statutory numbers, which affect many of our peers that you cover. That will have impacted their statutory numbers. In the first half also will have had a ground rents impact.

[Kathryn McLeland, CFO at M&G]

They would be sitting at around just under a billion pounds, in terms of balance sheet equity, which is a really strong position. Also obviously PAC makes more profits, then it also dividends up as you can see from their numbers. Again, what we look at in terms of obviously the strong capital, strong liquidity position of the group, we have got GBP 2.7 billion of equity at the holding company, GBP 2.2 billion in retained earnings. We obviously dividend up to the holdco GBP 700 million to keep that stable. It was a bit lower this year. We had a slightly higher employee share scheme payment at the holding company.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

Does that help?

[Tom Bateman, Analyst at BNP Exane]

Yeah, I think we might be talking about slightly different numbers.

[Kathryn McLeland, CFO at M&G]

Oh.

[Tom Bateman, Analyst at BNP Exane]

I can pick it up again offline.

[Kathryn McLeland, CFO at M&G]

Okay. I was giving-

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

But I think the key point is almost like think about returning equity in PAC was GBP 1 billion last year. We've done half a billion of reserves shift. So it went up to GBP 1.5 billion. Clearly in H1 you've got the impact of ground rent, but we are still sitting at around GBP 1 billion. And on a normalized basis, PAC generates more earnings than what it upstreams to the parent company. So that balance should grow naturally over time. Then obviously over the last couple of years, you've had interest rates rising, which does impact as a market movement.

[Tom Bateman, Analyst at BNP Exane]

Yeah, let's follow up because.

[Kathryn McLeland, CFO at M&G]

We can follow up.

[Tom Bateman, Analyst at BNP Exane]

I think the equity position did fall again. But I'll pick it up.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

Yeah.

[Kathryn McLeland, CFO at M&G]

Yeah.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

Sounds good.

[Kathryn McLeland, CFO at M&G]

We can go through those numbers.

[Andrea Rossi, Group CEO at M&G]

Got other questions.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

The other one said tax outlook for the full year?

[Kathryn McLeland, CFO at M&G]

Yeah, so I think it is more, again, there is another one that perhaps we can pick up offline. You have seen historically, we had obviously the benefits in the last two full year results into the tax numbers. We still have some impact coming from the loss absorbency, which impacted capital actually more than the tax numbers. So I do not think there is anything unusual in today's numbers. The statutory losses obviously have a tax impact that you see. Apart from that, there is just no major impact on the numbers and nothing that we guide to at this stage either for full year. Because obviously the dynamics that impact that depend on clearly, the IFRS results, the capital numbers that you see and the loss absorbency that we might need or have under stress when we do all our modeling.

[Kathryn McLeland, CFO at M&G]

So no, nothing unusual to call out here or nothing yet either for full year. I think the final question was on the economics.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

Economics.

[Kathryn McLeland, CFO at M&G]

Yeah. So I guess this is something that we have shown before in terms of the profitability of the products because we are clearly writing quite a different profit signature from the products that we put on the With-Profits balance sheet. So what we have said is that we will have 10 basis points-15 basis points of profit on AUM that we put on the books. When we think about where that will come from, you have got GBP 3 billion-GBP 4 billion of BPAs that we have guided to. Typically PruFund is about GBP 6 billion. We did GBP 3.3 billion gross in the first half, which is good. We are obviously writing new business from some of the other smaller individual products. So that is the sort of numbers where you get to the GBP 50 billion that you can see over the next five years.

[Kathryn McLeland, CFO at M&G]

And of course, we also have the Asset Management revenues also, which will be a similar margin that you are currently seeing in the financials on the internal AUM that we manage, which is about 20 basis points of revenue margin. So the guidance, this comes through over the years to 2030. The important point to make also is that clearly we become more profitable. We get greater operating leverage. We are really comfortable with our guidance. This is very high-quality earnings, very transparent. Alongside also this switch that we have talked about from 90/10 to 100/0 for the PruFund products, which only started on the 1st of April. So they will feature more next year and the years after.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

In terms of what are we giving up, in many ways, look, we were not in BPAs and there is a question of whether would we be big and growing as much in BPAs if we would not have the With-Profits Fund. So I would not say that portion as we are giving up something. It is generally a new stream of business from a new product that is growing very nicely. On the PruFund side, you are right that we have always been writing PruFund and we are not getting to dramatically different product volumes. We are just simply suggesting that the profit signature will change slightly.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

From a value perspective on that portion of the book, it is meant to be a zero-sum game because we do not want to take advantage of the With-Profits Fund, and the With-Profits Fund does not want to take advantage of the shareholder. It is just coming through in a more predictable, transparent, fee-based nature, which we think is helpful from a public market perspective. So we had Andrew Crean and then if I remember correctly, there was Abid.

[Andrew Crean, Analyst at Autonomous]

Great. It is Andrew Crean from Autonomous. Can we stay on that slide? I think what Tom is trying to get to is the counterfactual. You set a target of annuities of GBP 3 billion-GBP 4 billion.

[Kathryn McLeland, CFO at M&G]

Yep.

[Andrew Crean, Analyst at Autonomous]

That was before this. Clearly that GBP 3 billion-GBP 4 billion is going to be written largely out of the With-Profits Fund, 20%.

[Kathryn McLeland, CFO at M&G]

Yep.

[Andrew Crean, Analyst at Autonomous]

Still on the shareholder fund. That means that the shareholder annuity profits are going to be less than they were. So when we look at that GBP 100 million, you are going to get the Asset management profits anyway. That is not an additional. Then you have got the 10 basis points-15 basis points on the new With-Profits Fund, which is GBP 50 million-GBP 75 million, by 2030. What we are after is the counterfactual. Of what you lose in the annuity-

[Kathryn McLeland, CFO at M&G]

Yep.

[Andrew Crean, Analyst at Autonomous]

profits there. I think expanding the question from there, you have a very strong Solvency ratio. You say you have to invest in the business, but you are increasingly investing in the business through the With-Profits Fund as opposed to the shareholder. It does come back to this question, and it is difficult to understand why there is a slightly curmudgeonly approach around dividends and buybacks. And you say you are on a journey. At what point do you think you can come back to us with a different strategy? Then finally, the last question is, you have given us very helpfully the BPA sales in July and August. You only gave the net flows into the Asset Management business in July.

[Kathryn McLeland, CFO at M&G]

July.

[Andrew Crean, Analyst at Autonomous]

How has August gone?

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

Maybe on the last one, it is simply because BPA sales are big chunky, so you see them right away. It is hard to get them wrong. In Asset Management, it takes a few days after the period close to actually get the data. So it is purely due to the lumpiness of BPAs that allows them to identify them very easily in MI. While typically we get Asset management flows 5 days-10 days after a period end, so we do not have them yet and would be inappropriate to guide on all those Asset Management flows at this point in time. But Kathryn, on that-

[Kathryn McLeland, CFO at M&G]

Yeah, so-

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

Bigger and longer question.

[Andrea Rossi, Group CEO at M&G]

Or Kathryn.

[Kathryn McLeland, CFO at M&G]

No, on the counterfactual, on the profitability of the in-force book vs the new book, I think in terms of clearly what we are trying to do for our shareholders, and not just the shareholder balance sheet of PAC, but is to really improve the quality of the earnings. It is doing capital light business because we obviously focus on the 20% that we have in the shareholder balance sheet, which aligns interest with the With-Profits Fund and the shareholder. Over time, and it is not over time to 2030, we will deliver those profit numbers and with those volume growth, for our shareholders. So the quality is clearly coming through because it is nice and visible. It will expand in quality. We are disciplined on the capital hurdle rates that we have talked about.

[Kathryn McLeland, CFO at M&G]

The key thing is we are going to grow profits, and we have got very clear guidance out for profit growth over the next few years. You will see, given that also the scale of CSM and the profits that we already have sort of locked in that flow into profits, they are very meaningful. It is GBP 7 billion. It is not that common to see CSM up 6%, so we are very pleased. It is GBP 4.2 billion across the With-Profits Fund. So that will underpin really strong profits every year, depending on where CSM clearly finishes, some of the drivers of that, and the amortization rate. But that really will underpin a core part of our annual profits.

[Kathryn McLeland, CFO at M&G]

On top of that, we have got the new flow that is coming in, that has got the guidance we have given that will deliver this additional GBP 100 million in 2030. Obviously, with the benefit also from Asset Management revenues, with the 20 basis points margin on that.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

Again, just to repeat on the counterfactual, when we first presented the GBP 3 billion-GBP 4 billion target in terms of annuity sales, the very first time that we presented it, we also clearly stated that we were confident to getting there because we would have also launched the With-Profits Fund, which has been in the making for the last 18 months before launch. Right? We would have not put out that target without the confidence of the With-Profits Fund. On that, I totally get the counterfactual that you're asking on the profit fund side, but on the BPA volume, we would not be where we are, and we wouldn't have this ambition and this target if we wouldn't have this very distinctive and competitive proposition, which does allow us to have confidence in reaching those volumes.

[Kathryn McLeland, CFO at M&G]

The second question was around the capital ratio and distributions. Do you want to kick that off and I can

[Andrea Rossi, Group CEO at M&G]

Do it.

[Kathryn McLeland, CFO at M&G]

Yes, we're operating above our range at 247%. When Andrea talks about the capital framework, the four quadrants that we've used consistently over the last three and a half years, and given our focus is very much around investing in the business because we want to continue the growth that we're seeing. We want to continue delivering the momentum in flows and obviously hit our profit and our capital generation target. We have got a strong balance sheet at the moment in terms of the stock of CSM, GBP 7 billion. I talk about underpins earnings, the PBT of GBP 4.8 billion underpins earnings, capital, and cash generation over the next few years. We've got real financial flexibility, which is very good for us because it allows us to continue to invest in the business.

[Kathryn McLeland, CFO at M&G]

We've said we've done the GBP 4.4 billion of returns we've given back to shareholders. We only moved to a progressive dividend 18 months ago. We kept it at 2% last year despite flat earnings. Profits are up strongly this year. We've guided double digit for full year. One of the elements around what might trigger an increase in shareholder distributions would be sustainable earnings growth. We're only 18 months into progressive dividend. It's a really incredibly different strategy that we're now pursuing with great success in today's numbers. We do value absolutely delivering good returns to shareholders. For this year, we're comfortable with expectations, as Andrea said, and it's very much a decision for the board. We've also said we would expect to be at this sort of solvency range for the medium term. Shareholder returns are important to us.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

Good. Over to Abid from Panmure.

[Abid Hussain, Analyst at Panmure Gordon]

Thank you, Abid Hussain from Panmure Gordon. I've got three questions. The first one is on fees on the new mandates. Just wondering what the fee rate is on the Daiichi mandates that are coming in. On the GBP 7.8 billion private markets capital queue. The second one is on the equity release disposal. I'm not sure if I've read that right in the release. It looks like there is a disposal there. Just wondering. What was the driver behind that and what are you going to do with any capital released? The final one is on capital itself. I am still trying to understand, just following on from Andrew's question, how do you assess the excess capital position?

[Abid Hussain, Analyst at Panmure Gordon]

Is it on the regulatory balance sheet or the shareholder view of that? I think at the moment on the regulatory basis, you are running at sort of 180-181. Where do you want to operate on that basis? Just trying to triangulate where do you actually want to operate there?

[Kathryn McLeland, CFO at M&G]

Yes, sure. Do you want to start on Daiichi?

[Andrea Rossi, Group CEO at M&G]

No, I am afraid it is on fees. Well, I mean, on fees you have to talk, but Daiichi, obviously we are very pleased with the partnership. When I look at what we have been delivering since we signed the partnership in May, GBP 1.1 billion of inflows, and it has been 50/50 between public and private. I do not think we are giving out-

[Kathryn McLeland, CFO at M&G]

No.

[Andrea Rossi, Group CEO at M&G]

on fee what we do. We are obviously treating them as a large institutional client, and therefore, obviously higher fees in private assets, lower fees in fixed income. It's a partnership which for us is important, not only because access to the balance sheet. You should not forget, Daiichi co-owns Asset Management One in Japan with Mizuho, a big distribution in Japan, and we're looking to do things with them. They also are significant in Asia with a large footprint, and we're looking to see opportunities for working with them as well in Asia. So it goes beyond just access to the balance sheet.

[Andrea Rossi, Group CEO at M&G]

When you think about our model, the live balance sheet, Asset Management, and in particular private assets, we now have access to a significant second balance sheet, which by the way, today also did an acquisition in New Zealand, so their balance sheet is increasing even further. So very important partnership for us. And the commitment they had of doing $6 billion of U.S. dollar-

[Kathryn McLeland, CFO at M&G]

Yep.

[Andrea Rossi, Group CEO at M&G]

over five years. We're at GBP 1.1 billion after little more than one year. I'm confident that will grow significantly in the coming months and years. So very pleased with the relationship. And having on Board, Yamaguchi will also help to engage further and create an even stronger relationship. So more to come with Daiichi.

[Kathryn McLeland, CFO at M&G]

Obviously we've got the GBP 7.8 billion of private markets capital queue that we've talked about. We answered the question on, I think, what happened in the first half, which is a bit of a mix effect in terms of the private markets margin. So given the strength that we talk about in structured credit, some good demand in real estate, but overall, feeling really confident about the private markets interest that we've got with that size capital queue. And obviously the success of our public equities market in the wholesale channels supports the 55 basis points that you see in wholesale. And actually, I would say record revenues in wholesale in the first half as well. But obviously that's in other markets as well.

[Kathryn McLeland, CFO at M&G]

On the equity release mortgage transaction, which was a post balance sheet event, you will see some notes in the financial statements about that transaction, which was, actually, you might have seen one of our peers did something similar. It was just to make a more optimal balance sheet structure in our matching adjustment, delivering a superior outcome across the key financial metrics that we look at. I think we gave some disclosures around the size of the book, and there might be a little bit more at full year. It was just basically optimizing the position there. Nothing meaningful that I would call out in terms of capital or any other benefits that we get.

[Kathryn McLeland, CFO at M&G]

I guess back to the Solvency ratio, what we've said is that we have got quite a unique balance sheet because we have such a successful With-Profits Fund, and the PruFund has grown to GBP 73 billion, and the PVST asset has also grown to GBP 4.8 billion. That's driven a lot of the growth also in the ratio to 247%. We're saying that we expect to operate at about this level or above the top of our target range for some time because of the success of PruFund. Obviously, we've said that this strong financial position is giving us flexibility to continue to invest in the business, to drive growth, which is coming through in today's numbers, and continuing also to deliver good outcomes for our shareholders.

[Kathryn McLeland, CFO at M&G]

It is a high ratio reflecting the shape of our balance sheet. Very importantly, this asset, this PVST asset, underpins today's numbers that you're seeing, the great results, the answer to the earlier question around this size of earnings from our With-Profits business. It also underpins the future earnings, the future capital and cash generation. It's a great position to be in, and we're very pleased with this asset, and it just means that our Solvency ratio will be a little bit higher for the medium term.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

Kathryn, actually, there are a couple of questions online.

[Kathryn McLeland, CFO at M&G]

Yeah.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

We'll come back. We'll make sure that we ask all the questions. Alejandra Chavez Valencia from Citi asked regarding the ground rent or the Commonhold and Leasehold Reform Bill. Whether you can remind us of, is all the impact taken? I guess there's an element of one-off impact upon announcement. Then back in February, you might recall we did talk about an ongoing impact on AOP and capital generation. We quoted a number of GBP 50 million. She just wanted to understand what has taken place, what will take place, and are the numbers broadly in line?

[Kathryn McLeland, CFO at M&G]

Yep. The impact in our balance sheet and our financials from ground rents that you see today are identical to what we put out in March. It reflects the government announcement around a 40-year transition and the GBP 250 cap. There's nothing new in today's numbers. We obviously will look at the October 28 budget. We're clearly engaging, as you'd expect, with the government. We're not expecting any changes really to this position. We were prudent anyway leading up to it. We took a very conservative position on the balance sheet. I think we did guide to a modest GBP 10 million AOP impact at the end of 2028 as a result of this. That's just the key guidance, which again today, we're not changing it. It's very consistent. It's completely consistent with what we've given to the market before.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

Just for clarity, that is an impact across AOP and capital generation roughly similar. From the end of 2028 only onwards. Another question online from [Nasib] at UBS. He is asking, can you do more 100/0 products? Basically, can't you just write everything on a 100/0 basis on the With-Profits Fund? We referenced that two of our PruFund flavors are on 100/0, so I guess that's also what prompted the question.

[Kathryn McLeland, CFO at M&G]

Yeah. We will be moving the other final large product or sleeve for PruFund onto a 100/0 charges, less expenses approach, which is really transparent. It accelerates the profit recognitions. You'll see it earlier in the CSM, slightly earlier recognition also in terms of underlying cap gen. We're very comfortable that that is the right thing to do for PruFund. No changes to other products. It was really important for us also with the BPA+ to have the 20% reinsurance with the shareholders so that they are completely aligned in terms of the economics and motivations and financial metrics for BPA+. It will just be on PruFund, but all PruFund.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

Perfect. Those were the questions online. We can come back to [Farooq], JPMorgan.

[Analyst at JPMorgan]

Hi. [Farooq] from JPMorgan. I want to explore the counterfactuals type question again.

[Kathryn McLeland, CFO at M&G]

Yeah.

[Analyst at JPMorgan]

When you first talked about capital light or With-Profits, BPAs, the implication was that you would be able to accept a slightly lower hurdle rate.

[Kathryn McLeland, CFO at M&G]

That is right.

[Analyst at JPMorgan]

Than your peers. Given that you are aligned, you have this 20% share, are you actually just writing the same kind of IRRs that you would have? Associated with that, is this 20% reinsurance an annual kind of arrangement? For example, are you able to say, okay, right, we can adjust that reinsurance rate if we feel like we want to invest capital in this because either shareholders like it again, or we feel like we are getting good margins, or there is a big opportunity coming. I am just kind of wandering around the counterfactual to the counterfactual. Thank you.

[Kathryn McLeland, CFO at M&G]

I can take that perhaps. It is a really good question because we have got this new exciting product, which is definitely capital light for the shareholder. If you look at the numbers, you will spend some time, I am sure, after today's call to look at some of the detail in our disclosures. What we have said is we had GBP 20 million strain down from GBP 35 million last year. That is across the whole of the business. It does reflect a threefold increase in BPA volumes. Obviously, we have strain across the whole GBP 600 million of premiums. Also, you can look at the shareholder component. Just as a reminder, we do not reinsure longevity at point of pricing for these transactions. It remains a management tool that we can use at some point.

[Kathryn McLeland, CFO at M&G]

We have a lot of flexibility given the strength of the balance sheet and our appetite for longevity risk as well. That is an element that will impact strain. What we have talked about is obviously just making sure that we get the shareholder double-digit IRRs. That is absolutely key for us. The key benefit for trustees and clients is that we can deliver superior pricing. We can have the ability to deliver better economics. They have this bonus. You have already seen a 45 basis point bonus on fixed term annuities. It is obviously a different product, but it has got a lower cost of capital in the With-Profits Fund.

[Kathryn McLeland, CFO at M&G]

I think in a previous call, we talked about the regulations and the With-Profits Committee and how they think about profitability and what we need to do in terms of their hurdle rates for this business that Luca also covered earlier on the call. Happy to pick it up later. That means that we can speak to these trustees and the consultants, and we know that we have got, and Andrea talked about having this essentially mutual on the balance sheet. We have got the ability to be really competitive, and also with the attractive prospect of a potential bonus at some point. Those are essentially how we think about the hurdle rates. On the 20%, we are guiding to 20%. I think we said approximately 20%.

[Kathryn McLeland, CFO at M&G]

I think technically we could, of course, change and put something on the shareholder balance sheet with a greater number, but we are really comfortable at that level. I think we are encouraging people to assume that it will stay close to 20%. Again, we can be quite flexible around how and when we do that, but that is a sort of annual number.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

[Farooq], what might help on the hurdle rates is that you have to think about the transaction as a transaction between the DB pension scheme and the With-Profits Fund. The With-Profits Fund will price to achieve its IRR, and that is the transaction. After that, there is a reinsurance between the With-Profits Fund and M&G plc, and M&G plc will achieve its target IRRs. It is very transparent, but you see the outcome as one transaction, but it is really a two-step, and that is why different parties can achieve the thresholds that they are targeting. Cool. I do not see any raised hands, so I think this brings the results to an end. Thank you very much for being here with us today.

[Andrea Rossi, Group CEO at M&G]

Thank you.

[Kathryn McLeland, CFO at M&G]

Thanks.

[Andrea Rossi, Group CEO at M&G]

Thank you, everyone.

[Luca Gagliardi, Group Director of Strategy and Investor Relations at M&G]

Thank you.

Participants

Executives

• Luca Gagliardi, Group Director of Strategy and Investor Relations
• Andrea Rossi, Group CEO
• Kathryn McLeland, CFO

Analysts

• Dawid Pych, Analyst at RBC Capital Markets
• Andrew Baker, Analyst at Goldman Sachs
• Analyst at JPMorgan
• Tom Bateman, Analyst at BNP Exane
• Andrew Crean, Analyst at Autonomous
• Abid Hussain, Analyst at Panmure Gordon