M&G plc (LON:MNG) has announced its full year 2020 results.
John Foley, Chief Executive, said:
“In our first year as an independent company, we have delivered a strong and resilient performance in one of the most challenging operating environments ever.
“This demonstrates the value of our diversified and integrated business model, both to customers and clients, and to shareholders.
“We laid the foundations for M&G’s return to growth, including actions to fix Retail Asset Management and the creation of M&G Wealth following the acquisition of Ascentric.
“As responsible stewards of £367.2 billion in Assets Under Management and Administration (AUMA), we are also pivoting the entire company to sustainable investing – a shift which we believe will benefit customers, clients and shareholders, as well as wider society and the planet.
“Our balance sheet has remained robust throughout the COVID-19 pandemic and capital generation was strong at £995 million for the year.
“We remain committed to our ambitious three-year £2.2 billion target for total capital generation to the end of 2022 and to our current policy of a stable or increasing dividend.
“I want to thank all my colleagues for their resolve and commitment in the face of the pandemic, as they continue to serve our customers and clients from the safety of their homes.”
– Adjusted operating profit before tax of £788 million, now reflecting the first full year of listed infrastructure costs
– IFRS profit after tax up to £1,142 million
– Total capital generation of £995 million
– Shareholder Solvency II coverage ratio strengthens to 182%, its highest level since independence
– Ordinary dividend of 12.23p per share, in line with our policy of a stable or increasing dividend
– AUMA up to £367.2 billion, principally reflecting the acquisition of Ascentric in September
– Net outflows of £6.6 billion in Savings and Asset Management. Institutional Asset Management inflows of £5.1bn were offset by outflows in Retail Asset Management driven by weak investment performance
– Improvement in the investment performance of the retail fund range in the second half with 66%I of AUMA above median over six months
– Continued strong investment performance from the £143.2 billion With-Profits Fund at 6.6% p.a.ii over the past five years
– On track to achieve annual run-rate shareholder cost savings of £145 million through business transformation and modernisation in 2022
i As at December 2020
ii Based on the main life fund (OBMG) return for the 5 years to end of 2020. The return is net of 30bps p.a. approximate deduction for fees. Note that the actual return for the fund will be slightly different post hypothecation.
– Strong balance sheet of the Heritage business underpins capital generation and dividend policy
– Launch of new sustainable private assets capability, opening up further opportunities for growth
– Strong pipeline of new propositions, including PruFund Planet, a sustainable version of market-leading PruFund
|Adjusted operating profit before tax (£m)||788||1,149|
|IFRS profit after tax (£m)||1,142||1,065|
|Assets under management and administration (£bn)||367.2||351.5|
|Savings and Asset Management net client flows (£bn)||(6.6)||(1.3)|
|Total capital generation (£m)||995||1,509|
|Shareholder Solvency II coverage ratio (%)||182||176|
Notes to Editors
1. The results in this preliminary announcement are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and are based on the consolidated financial statements of M&G plc.
2. All key performance measures relate to continuing operations iii
3. The shareholder view and regulatory view of the Solvency II coverage ratio as at 31 December 2020 assumes transitional measures on technical provisions which have been recalculated using management’s estimate of the impact of operating and market conditions at the valuation date.
4. Total number of M&G plc shares in issue as at 31 December 2020 was 2,599,906,866.
5. A Q&A webcast will be hosted by John Foley (CEO) and Clare Bousfield (CFO) on Tuesday 9 March at 08:45 GMT. You can register for the Q&A and view the investor presentation here (the presentation will be available from 07:00 GMT): https://mngresults.connectid.cloud/register.
Dial in: UK freephone 0800 640 6441/ All other locations +44 203 936 2999
Participant code: 595189
6. Ordinary dividend to be paid in April 2021
|Ex-dividend date||March 18, 2021|
|Record date||March 19, 2021|
|Payment of dividend||April 28, 2021|
7. About M&G plc
M&G plc is a leading international savings and investments business, managing money for both individual savers and institutional investors in 28 markets. As at 31 December 2020, we have £367.2 billion of AUMA, around 5.3 million retail customers and more than 800 institutional clients. With a heritage dating back more than 170 years, M&G plc has a long history of innovation in savings and investments, combining asset management and insurance expertise to offer a wide range of solutions. We serve our savings and insurance customers under the Prudential brand in the UK and Europe and for asset management in South Africa, and under the M&G Investments brand for asset management clients globally.
8. Additional Information
M&G plc, a company incorporated in the United Kingdom, is the direct parent company of The Prudential Assurance Company Limited. The Prudential Assurance Company Limited is not affiliated in any manner with Prudential Financial, Inc., a company whose principal place of business is in the United States of America or Prudential plc, an international group incorporated in the United Kingdom.
9. Forward-Looking Statements
This announcement may contain certain ‘forward-looking statements’ with respect to M&G plc and its affiliates (the “M&G Group”), its plans, its current goals and expectations relating to its future financial condition, performance, results, operating environment, strategy and objectives. Statements that are not historical facts, including statements about M&G plc’s beliefs and expectations and including, without limitation, statements containing the words ‘may’, ‘will’, ‘should’, ‘continue’, ‘aims’, ‘estimates’, ‘projects’, ‘believes’, ‘intends’, ‘expects’, ‘plans’, ‘seeks’, ‘outlook’ and ‘anticipates’, and words of similar meaning, are forward-looking statements. These statements are based on plans, estimates and projections as at the time they are made, and therefore persons reading this announcement are cautioned against placing undue reliance on forward-looking statements.
By their nature, all forward-looking statements involve inherent assumptions, risk and uncertainty, as they generally relate to future events and circumstances that may be beyond the M&G Group’s control. A number of important factors could cause M&G plc’s actual future financial condition or performance or other indicated results to differ materially from those indicated in any forward-looking statement.
Such factors include, but are not limited to, UK domestic and global economic and business conditions (including the political, legal and economic effects of the UK’s decision to leave the European Union); market-related conditions and risk, including fluctuations in interest rates and exchange rates, the potential for a sustained low-interest rate environment, corporate liquidity risk and the future trading value of the shares of M&G plc; investment portfolio-related risks, such as the performance of financial markets generally; the policies and actions of regulatory authorities, including, for example, new government initiatives; the impact of competition, economic uncertainty, inflation and deflation; the effect on M&G plc’s business and results from, in particular, mortality and morbidity trends, longevity assumptions, lapse rates and policy renewal rates; the timing, impact and other uncertainties of future acquisitions or combinations within relevant industries; the impact of internal projects and other strategic actions, such as transformation programmes, failing to meet their objectives; the impact of operational risks, including risk associated with third party arrangements, reliance on third party distribution channels and disruption to the availability, confidentiality or integrity of M&G plc’s IT systems (or those of its suppliers); the impact of changes in capital, solvency standards, accounting standards or relevant regulatory frameworks, and tax and other legislation and regulations in the jurisdictions in which the M&G Group operates; and the impact of legal and regulatory actions, investigations and disputes. These and other important factors may, for example, result in changes to assumptions used for determining results of operations or re-estimations of reserves for future policy benefits.
Any forward-looking statements contained in this document speak only as of the date on which they are made. M&G plc expressly disclaims any obligation to update any of the forward-looking statements contained in this document or any other forward-looking statements it may make, whether as a result of future events, new information or otherwise except as required pursuant to the UK Prospectus Rules, the UK Listing Rules, the UK Disclosure and Transparency Rules, or other applicable laws and regulations. Nothing in this announcement shall be construed as a profit forecast, or an offer to sell or the solicitation of an offer to buy any securities.
iii Continuing operations in 2019 excluded our Asia insurance operations and treasury services provided to Prudential plc which are presented as discontinued operations.
Chief Executive’s review
A foundational year
In less than ideal conditions, we have achieved much in our first full year as an independent business, laying the foundations for our return to sustainable growth.
Throughout the COVID-19 pandemic, M&G continued to deliver on our commitments to customers, clients and shareholders, thanks to our diversified and integrated business model and the resolve of my colleagues.
We also laid the foundations for M&G’s return to growth, including fixing Retail Asset Management and the acceleration of our expansion into UK wealth management.
Above all, we are pivoting the entire business to sustainable investing, so that as the stewards of the long-term savings of millions of people, we can make an even bigger difference to people and the planet.
A strong and resilient performance
In an extremely challenging operating environment, total AUMA ended the year 4% higher at £367.2 billion.
Adjusted operating profit before tax was £788 million, a good outcome given that, as an independent company, we incurred Head Office and debt interest costs for the first full year.
Our shareholder Solvency II coverage ratio strengthened to 182%, higher than its pre-crisis levels, higher even than its level at our market listing, and well above our risk tolerance.
Despite market volatility, total capital generation was £995 million for the year.
We remain committed to our policy of a stable or increasing dividend and to our ambitious three-year total capital generation target of £2.2 billion. However, the COVID-19 pandemic is not over yet and financial markets have continued to be relatively volatile, so we need to be mindful that markets can drive large changes in capital generation in a short period of time.
Strength through diversification
This strong and resilient financial performance owes much to our diversified and integrated business model.
As asset owner, our proactive management of the Heritage business underpinned our earnings and our dividend policy.
In Asset Management, our Institutional business grew attracting £5.1 billion of net client inflows in 2020, driven by strong investment performance and continued investment innovation.
Total AUMA on behalf of external institutional clients grew 11% to £85.5 billion. Revenue margins strengthened by two basis points during the year as clients moved more assets into higher-value strategies.
The success of the Institutional business helped to partially offset another difficult year in Retail Asset Management. Redemptions increased during the year due to weak investment performance of some of our larger funds.
In Retail Savings, net client inflows into PruFund, our market-leading smoothed solution for UK savers, remained positive at £400 million, but were down on the previous year mainly due to pandemic-related restrictions on face-to-face advice. Withdrawals were stable.
The £143.2 billion With-Profits Fund, which underpins PruFund, continued to generate strong financial outcomes. Over the five years to the end of 2020, the With-Profits Fund produced net investment returns of 6.6% p.a I.
I Based on the main life fund (OBMG) return for the 5 years to end of 2020. The return is net of 30bps p.a. approximate deduction for fees. Note that the actual return for the fund will be slightly different post hypothecation.
The passion and resolve of all colleagues has been critical to our operational resilience throughout the COVID-19 pandemic. I am extremely proud of how, together, we responded to the challenge.
The new vaccines give us hope for a return to some kind of normality. In the meantime, our priority remains the well-being and safety of colleagues while they continue to serve customers and clients.
As the pandemic spread around the globe, we responded swiftly and effectively. Within two weeks in March, almost all of our circa 6,000 staff were equipped to work safely from home, wherever in the world they are based.
We put no colleague on furlough and received no financial assistance from governments.
Flexible working patterns and allowances for equipment helped our colleagues to remain productive and safe while serving our customers and clients from their homes.
We encouraged colleagues to prioritise care for dependents and help for their local communities. M&G donated more than £1.3 million to charities and non-profit groups helping those worst affected by the COVID-19 pandemic.
The Group Executive Committee and I are profoundly grateful to colleagues for their passionate commitment to customers and clients and to our business during these difficult times.
Fixing Retail Asset Management
In August, we set out what we were doing to reinvigorate our retail funds business and we have made good progress.
We have begun the revamp of the product range, refreshing some funds and consolidating others.
Our new propositions like the Climate Solutions Fund launched in November, are aimed at the growing market for sustainable savings and investment strategies.
We also cut fees across our UK retail fund range to be more competitive, while passing on the benefit of economies of scale to European clients.
To improve fund performance, we have introduced institutional investment disciplines, moved to team-oriented management and bolstered data modelling.
Performance of our mutual fund range markedly improved in the second half of 2020, with 66% of funds, weighted by size, performing above median on a 6-month basis, and 78% on a 3-month basis (as at 31 December 2020).
Over time, we are confident that these measures will help us to retain assets and return to net inflows.
In September, we acquired the Ascentric adviser business from insurer Royal London, accelerating our expansion into the fast growing market for UK wealth management services.
Ascentric brought £15.5 billion of new AUMA, as well as 95,000 new customers and relationships with more than 4,000 advisers.
Critically, it gave us an important component for our integrated wealth business: an adviser platform on which their customers’ long-term savings can be consolidated and administered.
In the autumn, we formally combined Ascentric with our two restricted advisory arms, Prudential Financial Planning and The Advice Partnership, as well as the reinvigorated M&G direct funds business.
Together, they form M&G Wealth. With £28 billion of AUMA, we see M&G Wealth as a powerful new force in UK wealth management.
Our aim is to put PruFund, our market-leading smoothed solution for UK customers, on to the M&G Wealth platform, opening up access to the proposition to a wider group of advisers and savers.
It is our belief that a sustainably-run and well-governed company will deliver better overall outcomes for customers and clients, and stronger, more resilient returns to shareholders.
We are embedding the principles of sustainability across our business, with ambitious corporate targets on net zero carbon emissions and on diversity and inclusion.
On our client investment portfolios, we are committed to achieving net zero carbon emissions by 2050, in line with the Paris Agreement.
We see the rapid growth in sustainable investing and environmental, social and governance (ESG) strategies as a permanent, structural change in the behaviour of customers and clients.
Only active investment managers are equipped to deliver the full benefits of sustainable investing, through exclusion and the active direction of capital for impact.
M&G has a long history as a responsible steward of savers’ capital and we are well-placed to champion sustainable investing because of our combination as asset owner and asset manager.
It gives us a number of competitive advantages, including our ability as asset owner to direct capital to sustainable opportunities and its sponsorship of innovation in investment.
An example of this is the With-Profits Fund’s allocation of £5 billion to a new innovative private assets strategy which aims to make a positive contribution to society and the environment.
To implement this strategy, we formed a new global team of private asset investors called Catalyst, whose job is to identify sustainable investment opportunities among new and emerging private companies.
Catalyst is one in a series of innovations in this field, which included the launch of the Climate Solutions Fund in November.
Later this year, we will launch a sustainable version of PruFund, our market-leading smoothed solution for UK retail savers.
We continued with our five year digital transformation programme to strengthen the operations of the Heritage business, to improve outcomes for our 5.3 million retail customers, and to achieve business efficiencies.
We have now moved the accounts of more than 800,000 customers from a mix of legacy systems on to the administration platform of our strategic IT partner Diligenta, part of Tata Consultancy Services.
In addition, we increased the number of Prudential customers with online access to detailed and up-to-the-moment information on their accounts through the MyPru application, a real innovation in our digital service.
Across the IT estate, our goal is to simplify, and we remain on track to reduce the number of applications by c.50%.
Adoption of a digital-first approach to business was accelerated by the demands of the COVID-19 pandemic.
We introduced restricted financial advice via video calls to UK savers who cannot or do not wish to leave their homes. This raised the productivity of our advisers, while cutting our carbon emissions by 80% over the year.
The transformation programme remains on track to deliver annual run-rate shareholder cost savings of £145 million in 2022.
In 2020, we identified further savings from modernisation as we reshaped the business in the face of the pandemic.
In line with our priority of supporting colleague well-being during the crisis, we dropped our target for a 10% reduction in staff costs during the year.
Nonetheless, 250 colleagues took voluntary redundancy and we continue to seek to reduce costs.
Ready for growth
Our growth strategy is to leverage the asset owner and asset manager combination, while modernising our business, the targeted acquisition of new capabilities, and further innovation.
We are doing this while pivoting the entire business to the rapidly growing global market for sustainable investing.
As this report shows, we laid firm foundations for future growth by resetting parts of the business and strengthening others, while still meeting our commitments to customers, clients, colleagues and shareholders.
In Europe, we expanded our sub-advisory business. A PruFund-like proposition is operationally ready for European clients. We are working on the necessary approvals for its distribution.
International operations were strengthened with a new investment hub in Chicago and a new fixed income team. We also opened a European asset management desk to Brexit-proof our Asset Management business.
We agreed to take majority control of our South African operation, which has £12 billion of AUMA.
In Institutional, aside from winning £13 billion of new mandates, we began the repatriation of £25 billion of North American and Asian With-Profits Fund mandates from our former parent, Prudential plc.
Alongside this, we created a greater sense of One M&G among colleagues, built around shared values and collaboration.
I led a company-wide programme on culture and conduct to ensure our people live up to our values of care and integrity.
The foundational work we have undertaken over the past 12 months means that we are well-positioned to seize the structural growth opportunities in our markets.
Demand for high-value savings and investment solutions will continue to be driven for many decades by ageing populations, the widening savings gap, low interest rates and the shift to sustainable investing.
In the UK, we will complete the revamp of our retail funds offering and continue to expand M&G Wealth by adding to the range of propositions and tax wrappers.
Internationally, we will deepen our relationships with our European partners to obtain a greater share of investment wallet, while growing our investment capabilities in Singapore and the US.
Above all, we will champion sustainable investing, with a series of innovations for customers and clients, including PruFund Planet, the sustainable version of our market-leading smoothed savings solution.
Our financial focus will remain on capital generation to create long-term value for shareholders and to underpin our policy of a stable or increasing dividend.
We will also continue with the work to improve the operational efficiency of our entire business through further modernisation, while balancing this against the need to invest for growth.
As ever, there will be headwinds. But the resilience of the M&G business model has been demonstrated by the demands of the COVID-19 pandemic and I am confident we are now in a much stronger position to return to growth.
Business and financial review
Despite financial markets operating in extremely volatile and adverse conditions, our financial performance benefitted from our strong balance sheet and diversified earnings resulting from the combination of being an asset manager and an asset owner.
Adjusted operating profit before tax of £788 million (2019: £1,149 million) demonstrates our ability to deliver strong returns even in a challenging environment. Total AUMA increased to £367.2 billion (2019: £351.5 billion). The completion of the acquisition of Ascentric in the third quarter, positive market movements and strong net inflows in our Institutional Asset Management business, together outweighed the impact of net client outflows in our Retail Asset Management business. The net client inflows in our Institutional Asset Management business reflect consistently strong investment performance and the attractive range of innovative client solutions, while Retail Asset Management net client flows were impacted by market volatility and the recent underperformance of some of our larger funds.
We remain committed to achieving £145 million of annual run-rate shareholder cost savings by full-year 2022 through our five year investment in digital transformation. Recognising the headwinds we are experiencing in our Retail Asset Management business, we will continue to drive operational efficiencies to enable us to counter the margin pressure the industry is experiencing. As we do this, we’ll carefully balance savings potential with investment requirements and cost to achieve.
Throughout the year, we also demonstrated our proactive approach to capital management, with total capital generation of £995 million (2019: £1,509 million) as we coupled the stable and recurring nature of our underlying capital generation from our operating segments with management actions to protect our balance sheet. This strong performance led to an increase in our shareholder Solvency II coverage ratio to 182% (2019: 176%), after paying dividends of £562 million in the period. Whilst the economic outlook remains uncertain this result demonstrates our focus on proactively and efficiently managing our balance sheet, and our commitment to deliver our ambitious three-year cumulative total capital generation target of £2.2 billion to the end of 2022.
Parent Company liquidity remained at comfortable levels and has not been adversely affected by the global crisis, with cash and liquid assets of £1.0 billion at the end of 2020.
We paid dividends of £410 million on 29 May 2020, comprising an ordinary dividend of 11.92 pence per share and a special demerger dividend of 3.85 pence per share. In addition, we paid an interim ordinary dividend of £152 million equal to 6.00 pence per share, in line with our policy of paying one-third of the previous year total dividend, on 30 September 2020. A second interim dividend of £310 million equal to 12.23 pence per share will be paid on 28 April 2021.
The audit tender process was concluded in the last quarter and M&G announced our intention to appoint PwC as new external auditor effective for the period commencing 1 January 2022. This will allow them to review the prior year comparative data in advance of the first effective reporting period under IFRS 17 in 2023.