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M&G to pay dividends totalling £410 million

M&G plc (LON:MNG) has today provided the following business update in advance of its Annual General Meeting, scheduled for 10am today.

Throughout the COVID-19 crisis, our priority has been the well-being and safety of our colleagues, the continued service to our customers and clients, and the long-term resilience of our business.

Highlights

–         M&G plc is financially strong. Our shareholder Solvency II coverage ratio has remained comfortably above our risk appetite throughout this crisis, and stood at 168% at 31 March 2020

–         Given our financial strength and the importance of dividends to investors, we will pay our dividends of £410m (comprising an ordinary dividend of 11.92 pence per share and a special demerger dividend of 3.85 pence per share) on 29 May as previously announced

–         M&G’s 6,000 colleagues will continue to serve our customers and manage their assets from their homes until it is safe for them to return to our offices. No colleague has been put on furlough and we have not taken any government financial assistance related to COVID-19

–         Total assets under management and administration (AUMA) were £323bn as at 31 March 2020, compared with £352bn at the end of 2019. The fall largely reflects the shock to markets in March from the disruption associated with the outbreak of COVID-19

–         Our Institutional Asset Management business continues to perform well through the crisis, attracting net inflows of £2.1bn during the first quarter. Similarly, in the UK, our Retail Savings franchise saw net inflows of £0.7bn. These positive movements were offset by Retail Asset Management net outflows of £5.6bn in the quarter.

–         Adjusted operating profit of £134m reflected strong underlying business performance, offset by negative mark to market impacts

–         Our Heritage segment – the Prudential UK life insurance and annuity book which is closed to new customers – continues to generate steady cashflow

–         High quality credit book: 98% of our shareholder annuity debt portfolio is investment grade

–         We continue to be sharply focused on costs, and remain committed to our target of £145m of annual shareholder cost savings by the end of 2022

–         The rating agencies Moody’s and Fitch have affirmed M&G’s insurance financial strength ratings at ‘Aa3’ and ‘AA-‘ respectively, with stable outlooks, following the assessment of coronavirus impact on UK insurers

–         Further details on our financial performance for the first quarter of the year are provided below

–         M&G also announces today an agreement with Royal London to acquire its digital wrap and wealth management platform for UK independent financial advisers, Ascentric

John Foley, Chief Executive, says:

“I’ve been through a number of financial crises, but none has been like this terrible pandemic. It is testing all of us, in many different ways.

“Fortunately, M&G is a resilient business and I am proud of how my colleagues have risen to the challenge of continuing to serve, from their homes, the millions of customers we have around the world.

“Our financial strength means we can also do the right thing by our shareholders, and make good on our announced intention to pay dividends totalling £410m. Many of our shareholders are income funds or individual savers who rely on these payments for part of their retirement income.

“While markets have recovered from their March lows, I expect volatility to continue, but as an asset owner of scale we are well positioned to acquire assets at competitive prices. In the meantime, we will continue to manage the business in a prudent way, with our usual disciplined approach to capital management.”

M&G will host a Q&A call with analysts and investors at 8.30am this morning. To listen to the call, dial +44 20 3936 2999 and use access code 863296.

Financial performance in the first quarter of 2020

M&G plc has demonstrated strength and resilience in the first quarter of 2020 despite the negative impact on global financial  markets resulting from COVID-19.

AUMA and Net client flows

–         AUMA fell by 8%, of which 7% was related to market impacts associated with the COVID 19 pandemic, and 1% to net client outflows. Despite  net outflows in the quarter, PruFund continued to see net client inflows and Institutional Asset Management also benefited from strong net client inflows.

–         Savings and Asset Management net client outflows for the quarter were £2.8bn:

–         Retail Savings continued to see net client inflows of £0.7bn in the quarter despite increased outflows in bonds and ISAs as customers needed to access their savings.

–         Institutional Asset Management flows have been strong with £2.1bn of net client inflows, in particular within our public debt and infracapital investment offerings.

–         Retail Asset Management net client outflows of £5.6bn were driven by global uncertainty particularly across Europe. The majority of these outflows were in March and, although some continue, the extent of such outflows has significantly reduced since then.

–         Net client outflows in the Heritage segment remained stable in line with expectation as this mature book continues to run off.

–         Savings and Asset Management adjusted operating profit of £74m consists of £84m from asset management and £18m from with-profits shareholder transfer, net of hedging, offset by negative mark to market investment returns on our seed capital investments due to the impact on markets from the COVID 19 pandemic.

–         Heritage adjusted operating profit has remained stable.

–         The operating loss from the Corporate centre is largely due to finance costs associated with subordinated debt assumed from Prudential plc on demerger and the planned establishment of our head office. In addition FX movements on USD denominated debt and other mark to market effects on corporate assets had a negative impact of £43m.

Capital generation

–         Operating capital generation for the first quarter of 2020 was £467m, mainly reflecting a series of management actions to strengthen the solvency position in response to market events, as well as expected surplus generated from in-force insurance business and adjusted operating profit from the asset management business.

–         This was offset by adverse market impacts of £(700)m and other non-operating items of £(78)m, resulting in total capital generation of £(311)m for the first quarter of 2020.

–         Despite the negative market impacts in the first quarter of 2020, M&G plc remains committed to delivering its target of  £2.2bn¹ total capital generation for the three years ended 2022.

1 Target of £2,150m corresponds to relevant remuneration plans.

Shareholder Solvency II coverage ratio²³

–         The Group’s solvency position remains resilient and comfortably above our risk appetite. The estimated and unaudited Group shareholder Solvency II coverage ratio as at 31 March 2020 was 168% (176% as at 31 December 2019), and remains at approximately that level currently. The movement over the period reflected total capital generation of £(311)m and a deduction of £410m for the ordinary dividend of 11.92 pence per share and the special demerger dividend of 3.85 pence per share due to be paid on 29 May 2020.

–         Management will continue to manage the solvency position in line with the Group’s risk appetite and limits, as events unfold.

2 The estimated and unaudited regulatory view of the Solvency II coverage ratio as at 31 March 2020 was 138% (31 December 2019: 143%).

3 The shareholder view and regulatory view of the Solvency II coverage ratio as at 31 March 2020 assume 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.

Credit portfolio shareholder annuities

–         Over 98% of the shareholder annuity debt portfolio is investment grade and only 15% is BBB. In addition 83% of the shareholder annuity portfolio is held in securities either categorised as Risk Free or Secured (including cash). The annuity portfolio has limited exposure to sectors most at risk with an aggregate of 2% held in total in oil & gas, hotel, leisure and traditional retail.

–         We experienced limited downgrades to 31 March 2020 with only 2% of bonds in the shareholder annuity portfolios subject to a downgrade which changed the letter rating.

M&G plc to acquire Ascentric from Royal London

M&G also announces today an agreement with Royal London to acquire its digital wrap and wealth management platform for UK independent financial advisers, Ascentric.

The acquisition will bring £14 billion of assets under administration to M&G, as well as relationships with more than 1,500 advisory firms acting on behalf of over 90,000 individual customers.

John Foley, Chief Executive of M&G, says: “This deal strengthens our position in the UK savings and investment market, complementing our existing offering to advisers and customers with a well-established digital wealth management platform.

“Ascentric’s platform will also accelerate our ability to provide a wider range of M&G and Prudential investment solutions to more customers, through the tax wrappers and service propositions they favour. Advisers will also benefit as we invest to grow the platform.”

The acquisition brings to M&G a capability to offer third-party discretionary fund management services, as well as Individual Savings Account (ISA), Self-Invested Personal Pension (SIPP)  and General Investment Account (GIA) wrappers on a single platform.

The deal is subject to regulatory approval.

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