M&G plc (MNG) Earnings Call Transcript & Summary

Welcome to the M&G plc Full Year 2022 Results Presentation. We will now go live to Luca Gagliardi, Director of Investor Relations.

Good morning, everyone. I'm Luca Gagliardi, Director of Investor Relations here at M&G. Welcome to our 2022 full year results. I'm joined today by Andrea Rossi. Group Chief Executive; and Kathryn McLeland, Group CFO. Today, we'll go through the presentation slides first. And after that, we'll have time for Q&A, both in the room and for those on the line, you can submit questions online. So without further ado, I'll hand it over to Andrea. And Andrea?

Thank you, Luca. Well, good morning, and welcome to M&G's 2022 Full Year Results. This is a special day for me as this is my first investor presentation as Chief Executive. Let me say, I'm very pleased to be here addressing you today. I will start by giving you clarity on my long-term ambition for the firm, what we want to be and how we're going to get them. Kathryn will then take you through the financial results, which I'm pleased to say, demonstrate once more the resilience of M&G and what has been extremely tough trading environment. But first, I'd like to the reasons why I was excited to join back in October 2022. When I look at M&G, I saw strong foundations at [indiscernible] build a compelling success story, delivering the step change in profitable growth that has been missing since listing. In our differentiated business model with the Asset Manager at the center, supported by Heritage and Wealth, we have an advantage envied by many. In PruFund, we have a generally unique proposition. We have an exceptional brand and investment capabilities. We have talented colleagues. We're financially strong, and we have long-term relationships with a wide range of clients. I'm also clear there are significant opportunities to do more and things we can do better. I have three priorities that I will keep returning to: First, financial strength, continuing to prove we're good stewards of shareholders' capital; second, simplification to deliver a more efficient and accountable organization; and third, growth, targeted profitable growth that leverages on our strengths. Our [differentiated] business model is the one main reason why I wanted to join M&G. It all starts with our clients. The only reason we exist. We have three distinct, balanced and complementary parts. We lead with the Asset Manager, the core of our business. It both serves and is supported by Heritage and Wealth, working together all [indiscernible]. The Asset Manager provides strong investor expertise to all his clients. Our Heritage business is the largest one of them. And with its permanent capital and long-term investment horizon supports much of product innovation. The resilience of the cash flows from the back book is critical. But what is often overlooked is the extent to which the asset owner drives the Asset Manager to improve on innovation, on service and more, which benefits everyone. Our Wealth business enhances our reach through strong brand and intermediary relationships. With PruFund, at its core, it is able to serve U.K. customers across the full distribution spectrum. The outcome is a differentiated and balanced business model, delivering strong shareholder returns. Our business model gives us a strong foundation that we will build on. In the Asset manager, we have excellent investment capabilities. These attributes do not appear overnight. It takes time to get your offer right and hard work to remain relevant. But we are still too UK-centric and lack scale in international markets. Our processes are too complex, which is not only expensive, but hinders growth and innovation. The simpler an organization is and the less layers it has, the closer it is to clients. For example, we made amazing progress in wholesale, simplifying our offering and improving performance. But I know we can and must do better. Within retail savings, we have two components. First, Wealth. People ask me how we will compete and what is the private space? Well, we have scale and a strong brand. But the real answer is PruFund. No one else can offer it, and it is what we believe with. However, it is too difficult for new clients to access. With the acquisitions we have already completed, we can deliver an end-to-end proposition that few others can match. But we are yet to be fully integrated into a seamless digital client journey. Our second component is Heritage. It's resilient capital generation underpins the group's leverage and the dividend, further introduces volatility in our earnings. And yet, while being reliant on the back [indiscernible], we have failed to set a long-term vision for it. Ensuring this engine continues to run is critical to the success of the group. To that end, we will be alert to opportunities to thoughtfully extend its lifetime. Finally, we want to accelerate the rollout of PruFund across Europe, broadening our reach where we are already present and finding new partners in new markets. We are a leading international savings and investment business, acting responsibly towards our many stakeholders. So guided by our purpose, what is my ambition? To deliver sustainable, profitable growth for our investors and leveraging our differentiated business combination. We will do this by prioritizing those areas that offer recurring and diversified earnings that are fee-based and capital light. How will we do this? By putting clients at the core of everything we do. We have to be nimble enough to anticipate and respond to their needs, always delivering great service and [buy]. We will lead to our Asset Manager, but continue to leverage the permanent capital of our Heritage business and the increasing scale of our Wealth distribution. To achieve our ambition, we need to win in our home markets. I'm clear on this. But we are also an international business, and this must be a profitable growth engine for the group. This will generate long-term superior shareholder returns and drive growth. Allow me to restate our priorities: financial strength, simplification and growth. I have spoken about strong foundations. The greatest one of these is our financial strength, a rigorous approach to capital management that underpins attractive returns to shareholders. This is the discipline we need to maintain. But there is no doubt that to achieve our ambition, we need to simplify and grow. The centralized structure was necessary at the merger. But now that we're well established, it's a barrier to growth. We will [have] our colleagues moving operational accountability into the business lines, close its clients. This will make decision-making more efficient and improve client outcomes. It will also enable our people to drive profitable growth, building on our strengths and are on compelling propositions. Let me now explore a little deeper into each one of these three priorities. Let's start with our first priority, financial strength. I restate our capital generation target of GBP 2.5 billion. We're 1 year in and on track to deliver. Over the coming years, we're not just looking to increase the quantum of capital generation, but also to improve its quality. Prioritizing growth in Asset Management and Wealth, diversifying our sources of income and reduced our reliance on management actions. When we think about our financial strength, we use three key metrics: solvency ratio, leverage ratio and holdco liquidity. Despite the ongoing market volatility, our solvency ratio remains very strong at 199%. At 35%, our leverage ratio is about where we would like it to be. We will reduce this to below 30% by 2025. At holdco level, we will maintain sufficient liquidity to cover any expected cash outflows. I'll now turn to capital management. Here, we want to prioritize debt reduction and thoughtful investments that align with our existing strengths. This will minimize execution risk and create long-term sustainable value for shareholders. Delivering our growth agenda will add financial flexibility to the group. This would then enable us to further improve shareholder returns and fund incremental growth opportunities. But let me be clear, throughout this, we will maintain attractive dividends covered by ongoing capital generation. Let me move now to our second priority, simplification. Grow with the top line is my primary objective. But in order to achieve it, we need to be focused on the bottom line and simplify the way we work. I want to us act faster and more efficiently. To enable this, we launched a transformation program that will generate GBP 200 million of cost savings by 2025. This is ambitious, but achievable. The savings we deliver will allow us to absorb current inflationary pressures and free up resources for growth. Our Asset Management cost-to-income ratio is too high. By 2025, we will reduce it to below 70%, but this is not the destination. Our longer-term objective is a ratio in the rate of 66% to 68%. Since I joined, we have already made good progress on execution. We have hired a new Strategy and Transformation Officer, Benoît Macé. We have launched a group transformation program. We have empowered the business unit CEOs, and we have hired Joseph Pinto as our Asset Management CEO. Transforming our business, we will empower colleagues and improve accountability, making M&G a better place to work. It will be easier to do business with, deliver better client outcomes and drive growth. At the same time, we will meet a GBP 200 million cost target by doing four things: simplify our organization, removing layers and streamlining governance, improve operational efficiency by optimizing spend and aligning teams to our growth priorities, better leverage technology using digital and data to improve client [indiscernible] and we will review our approach to contractors and our location strategy. To start progressing towards our targets, we are today announcing a voluntary redundancy program across the entire organization. Now to us third priority, growth. As I've seen throughout my career, delivering on simplification unlocks growth. Our aim is to materially grow our earnings by 2025. There will be more focus in the capital-light areas of Asset Management and Wealth. Within Asset Management, the priority is to increase third-party money and revenue. This is what I was able to achieve in my time at [indiscernible], where external funds almost tripled under my leadership and profit doubled, and we have tailwinds in our favor. Wholesale investment performance has substantially improved and is now very strong. We also have deep expertise in parts of the market that are attractive today. First, public fixed income, where rates and spreads are significantly higher than in the recent past. Secondly, in private assets, where we're seeing many of our European clients still being under allocated. And finally, sustainability and thematic investing, where client demand continues to remain high. Turning to Wealth. We have all the components we need to serve plans along the entire value chain. We have a clear focus on the mass [Appen] segment, a strong brand and scale. It is now all about execution. While growing capitalize areas, we also want to stabilize the runoff of our Heritage business, removing a structural headwind from our earnings. We will do that by continuing to develop innovative risk and investment solutions to generate additional incremental flows into the back book. I will now deep dive into each business area to better articulate our strategy, and we will start with the Asset Manager. And let me take a drink first. The Asset Manager already has a well-diversified set of capabilities with real scale in private assets. GBP 77 billion split across private fixed income, real estate and infrastructure. From this strong base, we need to push on and do better. We have a supportive internal clients, alongside a very successful external franchise, not just on the institutional side, but also in wholesale, which over the course of the year, outperformed peers in investment performance and flows continuing the turnaround starting in 2021. The U.K., our home market is our largest, but we have an established presence in Europe and Asia. It's a great base from which to build a profitable growth engine for the group. The numbers on this slide are clear evidence of us living our purpose of growing people's savings and investments. On both the institutional and wholesale side of the business, the performance has been strong in 2022, despite the market volatility. The turnaround of our wholesale performance is a credit to the hard work of the team that we have strong investment capabilities is self-evident. But as I've said earlier, we must build our international distribution and through better operational efficiency, improve our cost-to-income ratio. We are present in all the major European markets. But in many, we are below this size, I would expect. In most European markets we operate in, we should manage 10 billion of client assets or more. In Asia, Singapore aside, we are nowhere near the size we need to be. Across the region, we will focus on the countries where the regulatory environment is supportive of what we offer. Japan, South Korea, Taiwan. I know these markets well with my past experience. They can offer meaningful opportunities, and we need to play a much bigger role there. The growth I'm targeting will not require major investments in infrastructure assistance, rather the selective strengthening of the local teams. We will absorb cost inflation and free up additional resources to invest. And over time, our cost-to-income ratio will reduce meaningfully as we identify and deliver efficiency measures. [Joseph] is the right person for the job. He was our Chief Operating Officer at [indiscernible]. Together, we transformed that business, relentlessly driving third-party flows and operational efficiencies. So what's our ambition? In Asset Management, we want to be the go-to manager for European investors and for those international investors seeking exposure to European assets. As you know, we have strong capabilities in private assets. Public fixed income is a core strength, and we have responded to strong client demand for high-quality, sustainable and thematic equity funds. Let me take you through each in more detail. And let's start with our private assets franchise. As you can see, we have consistently grown over time with third-party assets more than doubling since 2015. It's an impressive achievement and a trend we will continue with a target of 100 billion AUM by 2025. Why I'm so confident? Because we have excellent capabilities, a strong track record and favorable market trends. The market is forecast to grow materially of the medium term, and the industry recognizes us as a leading player. A number of our European clients are under allocated in this area and are looking to us to help them adjust their exposure to private markets. To win, we need to be a better use of our differentiated business combination, which is our competitive advantage. The asset [indiscernible] provides us with seed capital to fund innovation and scale propositions. We use this to attract new investment capabilities. We offer seeding and international distribution to those fund managers that are looking for new partners. For our part, we attract rare talent and maximize the alignment of incentives. And we have done it already. Over the past decade, we turned an internally focused real estate capability established to support internal clients into a global franchise generating far stronger margins. We have achieved that by broadening our offering, internationally analyzing our footprint and externalizing our capabilities, focusing on attracting third-party money. We have more than doubled the size of the book from 16 billion to 33 billion, more than tripling the external assets, where we earn materially higher margins. This is the model we will look to follow in other areas. Let me now turn to public fixed income. The second area of focus. To put it simply, in the U.K., our reputation is second to none. We are clearly seen as the leaders across all the relevant subsectors of the market. And there is a very good reason for this. That is the strength of our team. One of the largest and most experienced in Europe with over 50 credit [indiscernible] and we have further expanded our capabilities, opening in North America in 2021 and in Asia in the middle of 2022. We now have a real global investment reach in this space. And again, the internal client has played a critical role in supporting the development of these capabilities, build internally, then we expand externally. Let's now move to our third area of focus, sustainable and thematic equity funds. Like private assets, this is another segment of the market where we have deep investment expertise and where we expect to see strong growth. In both the private and public side, the market has been growing exponentially over the last few years, a trend expected to continue. As the graph on the right shows, even with all the macro uncertainty we've seen in 2022, sustainable funds have continued to gather positive net flows in Europe. Through catalysts and responsibility, we already are one of the leading European investors in sustainability. And again, as evidence of the key role played by the internal clients, catalyst was set up with a 5 billion commitment from the assets open and will soon open to external clients. On the public side, we have transformed our mutual fund offering. Just 2 years ago, only 14% of our funds with Article 8 and 9 compliance. Today, that stands at 74%, a great performance and further evidence about living our purpose. We remain committed to broadening our offer as well as proactive engagement to attract positive change. Let me now turn to Wealth. Let me restate our ambition. To be a leading scaled integrated provider of wealth solutions supporting U.K. mass [indiscernible] clients across a full range of needs. To achieve it, we have three linked priorities: integrate and scale our capabilities to provide an end-to-end offer required to succeed; drive flows into our own solutions and improve the lifetime value of clients to better margins and persistency. When I compare where we were in 2020, we today, the team has made good progress. Facing a slowdown in DB2DC transfers, we have broadened our offering beyond PruFund, adding a tax wrapper and model portfolio capabilities. We also acquired a digital platform to make our products more accessible. And we have strengthened our distribution model, doubling our advice business and launching Hybrid and direct-to-consumer propositions. We have covered a lot of ground, but we are only part of the way into the journey. Today, we play at scale across the value chain with 83 billion of AUMA. Healthy growth has returned. PruFund sales are up 42% year-on-year, returning to net inflows for the first time since 2020. This confirms the strength of our diversified distribution model and the attractiveness of our proposition. As we continue our journey, we will grow further the number of our own advisers and the productivity. We will launch all PruFund solutions on platform and increase its adoption by more advisers. All this to drive the additional incremental flows into both PruFund and other M&G solutions. The primary objective for Wealth is to serve clients their way, be that channel, wrapper or adviser offering. This will drive closer to M&G solutions withdrawn our broad investment expertise. As we do so, we will attract more clients. They will stay with us for longer and trust us to look at the greater shareholder savings and investments. This will help us become more efficient and drive better returns. Lastly, I will turn to the [partner] of the group, which supports all of what we do. Heritage, and I'm going to drink again. Our aim is to develop new innovative solutions that can drive flows to support our growth. This will also expand our capital generation capacity that will continue to provide a resilient underpin to our cash flows. Over the past few years, we have delivered good capital generation. Where we need to achieve a step change in performance is in the distribution of Future+ in Europe. Our differentiated business model also means we are in a positioning to selectively play in the derisking market, supporting [indiscernible] teams and longer investment journeys. Our in-force book continues to be a reliable source of capital generation and is funding many of our recent innovations, PruFund, Future+, Catalyst and much more. We expect this book to generate some 12 billion over the long term. This is 2 billion higher at the same forecast 12 months ago, mainly due to the increase in interest rates. As I said, my first day at M&G, it is a key source of financial and strategic value to our shareholders. I also fully recognize the importance of M&G's responsibility to the millions of clients we have, serving them better every day is a key priority for me and everyone at M&G. We will generate maximum value from this book, including through management actions, but we will also drive flows in to stabilize its natural run up. And there are two ways we will do this. Let's talk first about Future+. We know it has taken time for us to launch in Europe. In 2021, we achieved regulatory approval. And in 2022, we began distribution in Italy and Ireland, seeing our first inflows of some 150 million. The next 2 years will be very important. We need to add at least one other European market. Germany, Belgium and France are all attractive options, and we are already in discussions with potential partners there. We will also prepare for the end of our exclusivity period with Banca Intesa in Italy, aiming to add distribution agreements to scale our presence there. And we will broaden the offer by launching a guaranteed version of Future+ backed by our with-profits capital. By 2025, this will be a multibillion pan-European proposition. The second way we will stabilize the back book is by capitalizing on emerging opportunities within the [indiscernible] market in the U.K. Rising interest rates and the LDI crisis last September accelerated the derisking journey that pension schemes are on. We believe that demand will outstrip supply and present an opportunity for us to create value for our shareholders. But let me be clear, we will not be a volume player. We will only consider those opportunities where client needs to precisely match our capabilities. For instance, when the DB scheme is over allocated to private assets, an area we know very well. To write business in this space, we expect to use small amounts of capital as we explore ways to leverage the good profit funds or external capital partners. In this market, we can leverage the full breadth of our brand and differentiated business combination. The asset manager expertise in private assets and fixed income, our strong balance sheet and the capital from [indiscernible]. When we are successful, all parts of our business benefits, flows into the Asset Management, higher lifetime capital generation to Heritage and value creation for with-profits clients. I hope this gives you clarity on the scale of our ambition and the priorities we have for the business. It builds our financial strength. And in simplifying the way we work, we will deliver the profitable growth that has been missing since the merger. This business has strong foundations, and I'm excited by the scale of our potential. There are significant opportunities to do more and things we can do better. And to achieve that, we will focus on execution and discipline. We have the right team in place, and I know that we will deliver. With that, I will now hand over to Kathryn, who will take you through our numbers in more detail. Kathryn?

Thank you, Andrea. And good morning, everyone. I'm pleased to present what I believe is a robust set of numbers given the macro challenges faced throughout 2022. Specifically, our external net flows were positive. Our operating profitability remained resilient. We're on track to achieve our GBP 2.5 billion capital generation target, and we maintained a strong Solvency II ratio at 199% after returning GBP 1 billion to shareholders. And looking forward, as you just heard from Andrea, we've set clear cost targets for the organization with a renewed focus on cost discipline, efficiency and execution. I'll now turn to the details behind these highlights. External net flows were positive at GBP 300 million, and the ongoing turnaround in Wholesale Asset Management and Wealth more than offset the pressure seen in our institutional franchise due to the mini budget in September. Adjusted operating profit of GBP 529 million held up well, given the external market environment, helped by the diversification of our business mix and supported, in particular, by strong with-profit shareholder transfers. Excluding the impact from mismatching and foreign exchange losses that did not affect our capital and cash result, AOP was GBP 701 million, only modestly down on last year. Operating capital generation of GBP 821 million represents a good start to our 3-year GBP 2.5 billion target. And this was underpinned by a strong underlying capital generation result, up 30% year-on-year. We finished the year with a solvency ratio of 199%, a strong position given where we are in the economic cycle and the GBP 1 billion we returned to shareholders via dividends and the buyback. Turning now to assets under management and flows. Adverse market movements of GBP 30 million were the main driver behind closing AUMA of GBP 342 billion. The 8% reduction represents an outperformance compared to the broader market decline. Our open business was in net inflows for the second consecutive year, despite a tough external environment. And in particular, I'd like to call out the strong performance in Wholesale, where flows improved by GBP 4.3 billion year-on-year, supported by strong investment performance. Now this gives us confidence in the sustainability of the turnaround in our Wholesale franchise. Wealth flows improved by GBP 1.9 billion, thanks to healthy improved fund sales of GBP 5.4 billion. We note that these favorable trends in both Wealth and Wholesale have continued into this year. I'd like to now turn to our institutional business, which was impacted last year by the LDI crisis. Over 2022, we experienced GBP 0.7 billion of net outflows from our institutional franchise. And as the chart on the left demonstrates, our institutional growth outflows tend to be relatively stable, averaging around GBP 5 billion for every 6 months. In the second half of last year, outflows jumped to almost GBP 9 billion, triggered by the mini budget and the subsequent volatility we saw across U.K. markets. Of the GBP 7.3 billion of exceptional client redemption requests, which were concentrated in September and October, nearly GBP 4 billion were executed before year-end. And this explains the abnormal outflow seen in the second half of last year. The remaining GBP 3.4 billion is expected to emerge of 2023, with the majority falling in the first half. This long tail comprises private assets, which have longer redemption notice periods. But despite these outflows, we are confident in our ability to win new business overall. And in particular, we believe that our business mix positions us well given the broader trends we're seeing in the market. As you heard from Andrea, we are focused on growth opportunities in international markets, and we expect to benefit from market-wide higher flows into fixed income, given our strong performance and leading market position. This is particularly true in the U.K., where clients are looking for partners to continue on their derisking journeys. And we have a good pipeline of new business in private assets with a capital queue of over GBP 6 billion, including, for example, the EUR 578 million adjust rate for our European property fund. Having covered flows, I'll now move on to adjusted operating profit, which you can see on Slide 42. And I'd like to start on the last line in the table. Here, you can see that when you adjust the accounting one-offs, the GBP 701 million AOP result was only modestly down on last year despite the market volatility. So the key AOP messages for me are, firstly, the Asset Manager showed great resilience in its performance in a very tough trading environment, thanks also to the consolidation of our South Africa JV and the acquisition of responsibility. Secondly, Wealth earnings more than doubled year-on-year to GBP 96 million as this franchise grows into an ever more important component of our business. And thirdly, and importantly, Heritage continues to provide a very meaningful and consistent underpin to group earnings as shareholder transfers from traditional with-profits policies of GBP 300 million, were up 20% year-on-year. Corporate center costs are broadly in line with the previous year, once netting off the one-off foreign exchange loss. Let's now consider the Asset Management results in a little bit more detail. As we've highlighted today, we are encouraged by the resilience shown by external flows and revenues, which were up 4% year-on-year. And you can see on this slide, the strong outcome of performance fees, which more than doubled to GBP 56 million. While the 2022 achievement was particularly positive and is unlikely to be quite so high in the short term, we nevertheless expect performance fees to play an important role in the future as we grow our private assets business and as fee structures increasingly include variable components. I'd like to spend a moment now on the increase in our cost-to-income ratio over the year. As you heard from Andrea, we have a new target of less than 70% by 2025. Looking at absolute costs, roughly half of last year's increased to GBP 763 million was due to the consolidation of the South Africa JV and responsibility, which also, of course, benefited the top line. The rest of the increase can be explained in equal parts by the addition of new capabilities and inflationary pressures. We are focused on controlling absolute costs and on delivering positive jaws in our Asset Management business. On this next slide, we show our Asset Management results by both client type and for the first time by public versus private assets. And we hope this extra granularity will help you better understand the underlying mix of the business and why we are excited about the potential of our private assets franchise. On the client side, there haven't been any material changes year-on-year. But I would highlight our continued efforts to grow our institutional franchise, despite the headwinds seen in the U.K. and pivoted towards higher-value, higher-margin solutions. And in Wholesale, as many of you will be aware, we completed the repricing of our book in 2021, so our margins there are now more resilient. Turning to analysis by asset class. You can see that private assets while being only 25% of AUMA deliver over 40% of our revenues, supported by growing margins. And looking at margins, it is worth remembering that these are a blend of internal and external mandates with the latter typically being higher value. Our renewed focus on strengthening the partnership between the assets owner and asset manager will also help generate higher third-party flows. As in previous years, we have grown the size of private assets and remain confident of our ability to continue to do so. And this is a key part of our growth strategy. I've mentioned the doubling of the Wealth AOP, which was driven by PruFund. And this improvement came from two key developments. A 27% increase in the shareholder transfer to GBP 146 million, driven by strong investment returns for our clients, as you can see from the top right-hand chart, and reduced costs and higher sales, which avoided the repeat of the expense overrun we saw in 2021 and allowed us to release a GBP 50 million provision. The returns from PruFund continue to be very positive, particularly on a relative basis. We keep delivering for our clients, which is one of the primary drivers behind the improvement inflows. With gross inflows of GBP 5.4 billion over the year, of which almost GBP 3 billion was in the second half, sales were up by over 40%, leading to our first positive net flows before the COVID pandemic. And PruFund underpins our confidence in the future financial performance of Wealth, where, as you heard from Andrea, we aim to be a leading scaled, integrated provider. And higher volumes on platform will generate sales of both PruFund and other M&G solutions driving flows into the Asset Manager. Turning now to Heritage. Traditional with-profits continues to underpin the overall retail and savings AOP with shareholder transfers up 20%, thanks to the same strong with-profits fund performance that lifted the PruFund result. The with-profits fund is not only a great asset to have when developing new products such as PruFund and Future+, it's also the foundation underpinning our financial performance, delivering strong and dependable earnings and capital generation year in and year out. Looking now at shareholder annuities AOP, which totaled GBP 363 million one stripping out the mismatching losses. Returns on excess assets and asset earning have been stable year-on-year, and we expect this to continue into the future. Longevity was particularly strong last year, but of course, this won't reoccur in 2023 due to the adoption of IFRS 17. As you know, this accounting standard will smooth any favorable impact on longevity over multiple years. Other is where most of the earnings volatility is coming from. In 2021, we had a number of positive one-offs improvement in expense assumptions, favorable short-term mortality experience and the release of legacy provisions. And this year, we have the GBP 122 million mismatching losses already mentioned. And as a reminder, these are noncash losses that did not affect our capital generation as they have been triggered by rising rates. To conclude on our group earnings, we are pleased to have delivered a resilient result with AOP of GBP 701 million, only modestly down from 2021, once reflecting the noncash items of FX and mismatching. And I'd like to turn now to capital generation. Underlying capital generation of GBP 628 million, is up 30% on the prior year, driven by items in retail and savings. Higher interest rates, which lifted the annuities results, a higher opening present value of future shareholder transfers from the with-profits fund and a change in the ongoing accounting treatment for equity hedges. This last element, while improving the underlying results by approximately GBP 90 million per annum, reduced by an equal equivalent amount to other operating capital generation, where we now include the negative impact for hedges that are running off. When we think about 2023, we would expect a similarly strong underlying capital generation result from retail and savings, given the starting position of the PBST and annuities yields. Looking at the asset manager result, one thing to call out is the GBP 22 million had increase in capital requirements that's unlikely to occur in 2023. I'll now move from underlying to operating capital generation. As you know, management actions were particularly strong in 2021 due to a large number of one-offs. The most material being some sizable real estate transactions in the annuity book. The completion of a Part 7 transfer to ROCE and a major model change. In 2022, we returned to a more typical level of activity. The work on improving our approach in longevity data and modeling resulted in a material capital lease of GBP 230 million, while adverse expense experience, together with changes to long-term assumptions, represented a small headwind. The most significant factors affecting expenses were IFRS 17 project spend and long-term assumptions on inflation. Overall, our GBP 821 million of operating capital generation is on track to achieve a GBP 2.5 billion '22 to 2024 target. Having covered the operating results, I'll now work with the other elements of the Solvency II surplus and the coverage ratio. Market movements, which were negative GBP 500 million at the half year, deteriorated by a further GBP 700 million in the second half. Here, lower real estate valuations offset tailwinds from interest rates and equities, with equities and real estate performing in line with our sensitivities. Extreme market volatility prompted us to adopt a more conservative stance on a range of economic assumptions, including property growth rates and credit, which reduced the surplus by some GBP 300 million. This same volatility also affected our solvency models, increasing the likelihood of extreme stress scenarios and reducing the surplus by another GBP 300 million in the second half. And the final GBP 100 million is explained by a combination of smaller impacts, primarily related to changes in the shape of the yield curve and some nonlinear effects of market movements. In 2022, we saw a counterintuitive impact from tax, improving the surplus, but reducing the solvency ratio, which we expect to unwind gradually over time. The large 2022 IFRS losses created a deferred tax asset that increased own funds by GBP 700 million and the solvency capital requirement by GBP 500 million. While the net impact was positive with the surplus coming in at a ratio of 140%, it was dilutive for the solvency ratio by about 10 percentage points. And of course, finally, as you know, over 2022, we returned almost GBP 1 billion to our shareholders after deploying just under GBP 300 million acquisitions. This led to a strong year-end Solvency II coverage ratio of 199%. Looking at the total quantum and composition of own funds and the SCR that underpins our solvency ratio, I wanted to call out two things. Firstly, that the reduction in own funds was mostly driven by market movements and the GBP 1 billion to shareholder returns. And secondly, that the present value of the shareholder transfer from the with-profit spend has increased to GBP 4 billion, representing a higher proportion of total own funds. This higher PBST represents a significant increase in economic value and indicates the higher cash flows that will come in the future years from the with-profits fund, which is very encouraging. We have a great track record in capital generation, and we're also now exploring ways to increase the fungibility. An obvious consequence of the reduction in own funds was the increase in our leverage ratio to 35%. The key point to emphasize here is that despite the move in the ratio, there's been no material increase in the quantum of the debt nor in the servicing costs. And we, therefore, have no concern regarding sustainability of this debt over the medium to long term. Having said that, we recognize that a 35% leverage is above where we want it to be. And as Andrea has already said, we'll take action to bring it below 30% by 2025. Assuming no moves in markets, to achieve this, we would need to go further than the bond we have callable in 2024. And of course, this would require approval from our regulator. Staying with our balance sheet, I'd like to spend a moment on the credit quality of our annuities book. Despite being at a tough moment in the economic cycle, the strength of our book remains high by all key metrics. Less than 2% of assets ranked below investment grade with the vast majority being either secured or risk free. And over the last 12 months, downgrades were in line with historic averages, and we experienced no [depots]. Before wrapping up, I want to touch briefly on our capital management framework, which as Andrea mentioned, we remain committed to. We know we need to take action on leverage, and we will. At the same time, as CFO, it's my job to ensure that any investment in the business is done with strong financial criteria and discipline to allow us to return strong returns to shareholders, supported by sustainable earnings. We recommit today to our dividend policy of paying a stable or increasing dividend per share, noting the 7% increase year-on-year, thanks to successful completion of the buyback program. So to summarize, in 2022, we delivered positive external net flows in extremely challenging markets. We achieved resilient earnings, demonstrating the strength of our diversified business model. Underlying capital generation improved by 30%, and we are on track to achieve our GBP 2.5 billion target. We end the period with a strong Solvency II ratio having returned almost GBP 1 billion to shareholders, and we support our clear growth ambitions with a renewed focus on cost discipline. And with that, I'll hand back to Andrea to conclude.

Okay. Well, so we're going to conclude and then we have Q&A. So I'm very pleased with what we have achieved in 2022. Once again, we demonstrated that our differentiated business model is working. Three distinctive balanced and complementary components, delivering an encouraging performance through exceptional volatility. The Asset Manager performance was resilient despite challenging markets. Earnings from Wealth more than doubled year-on-year to GBP 96 million. And Heritage continued to provide a solid underpin to our capital generation. And let's not forget that we recorded positive net external flows for the second year in a row. You have heard us talk today about our strategy and ambition for the business. We will get there by relentlessly focusing on three priorities: first, financial strength, continuing to prove we are good stewards of shareholders' capital; second, simplification to deliver a more efficient and accountable organization. And third, growth, targeted profitable growth that leverages on our strides. We will achieve our GBP 2.5 billion operating capital targets. And by 2025, we will bring our leverage ratio to below 30%, delivered GBP 200 million of cost savings, reducing the Asset Management cost income ratio to below 70% and grow our earnings from Asset Management and Wealth to more than 50% of the group's total. Rest assured, my focus is not just on the quantum of earnings but the quality as well. This is not about being the biggest. It is about achieving a step change in profitability that has been missing since the merger. We will maintain our financial strength. We will simplify and we will grow. Of that, I am sure. Thank you. And with that, Kathryn and I will take questions.

Okay. Definitely a lot of questions, which is a good thing. I haven't literally seen who was the fastest one raising it. Dom, let's start from you and then, do you mind if I start from the front and moving back, there's no particular order, but we'll get to all of you, I promise.

Dominic O'Mahony from BNP Paribas. Andrea, thank you so much for outlining the strategic vision that the company has experienced in your thoughts. So I thought, I'd give further -- a couple of questions on that. First of all, on Asset Management, internationalization that are clearly a big opportunity. I just wanted to understand a bit more about why you're optimistic and convinced that M&G has the opportunity to compete well in those markets? And it sounds like you've -- you see particular opportunities. You mentioned Japan, Korea, what is it about those markets? Maybe the regulatory environment that means that European real assets are things that they need that you're positioned to deliver. Second, on Wealth and guarantees in Europe. Do you think you can go toe to toe with participating products in Europe, both in terms of returns to customers under the tax treatments? What's going to be your positioning relative to the existing product landscape? And then thirdly, on annuities and pension risk transfer, I'm really interested to hear that you're open to the opportunity there. I wonder if you might give us a little bit more of a peek into how you might use up the profit fund to support that?

Well, okay, three questions. Let's start with the Asset Management one, and you asked about why I was confident on the internationalization and more focused on that. So let's go back to, first of all, what our strengths are and then turn on capabilities. I mean when you go and look, we're strong on private assets in Europe, with strong investment income globally. And we have, I would say, very relevant strength in thematic and sustainability equity and good investment performance there also. So when you go and look -- and I think it's important because when you look at an Asset Manager, there are three things really you need to look at. You have your investment capabilities; you need to run operations well and you need to have good distribution segmented focus. We had investment capabilities. I think when you look at where we are within the markets, we're well placed there. So why would we do well internationally? Well, first of all, as you've seen, it's very selective. So we took Asia. You asked about Asia. The 5 markets we're looking at, particularly, we're looking at Japan and Korea. And Japan, Korea, it's very simple. Why do we have the right to go in Japan and Korea? Well, first of all, because they are implementing the Solvency II framework there, in the coming years. And we are very well placed to be a partner there with several of those life insurers, actually already in discussion with some of them. And I think that will very much help us to grow in those markets. So that's Korea and Japan. Clearly, when I look at our wholesale investment performance, Taiwan is a market where we can do much more in. So I believe that we will grow there, thanks to the really great improvements in terms of investment performance. And then when you go look more towards Europe, there are markets there where, I think, given where we are in terms of the macro environment and our strength in terms of investment capabilities, on the institutional side, I see France leading market I know well, and [ Joseph Hansell ], by the way, as a great opportunity for us to grow. But also in Germany, I think institutionally, we should do well. And overall, I see with some of our global financial distributors, we will see more momentum given -- and we see it already, but we see even more momentum given where we are in terms of improvement on investment performance. So I mean the focus of growth on the asset management is more on execution, both operationally to make sure we serve our clients better, but more importantly, making sure we have the right focus, the right people on the ground, which is actually easier than rebuilding your investment capabilities, and you can do it in a relatively shorter time. So that's why I'm confident that we will be able to deliver that growth. And please remember, cost-to-income ratio, it's a combination of both. Obviously, you need to grow the revenues, but we're also looking at the expenses. So that's on asset management. On wealth, and you're talking about Europe. So...

Basically in particular, the guarantees and...

The guarantee, yes, exactly, and Future+. Well, interesting enough, I always say this, when I look at retail savers, the U.K. versus European ones, the European ones are much more risk adverse, but much, much more risk averse. That's why they keep their money in the bank accounts and don't get any returns, by the way. They're starting getting returns now. So having something like Future+ with such great track record, but more importantly, having the allocation -- part of the allocation into private assets, I think, is very important because you're here talking about also the what I call the democratization of private assets for the men and the women in the street, and not only -- because realistically, private assets, if you're a high net worth, but then you can have -- you can take the liquidity. You don't need to have daily liquidity. But for someone who needs to invest EUR 50,000, they might need that money back. So they need to have daily liquidity. Well, with -- I think with Future+, we can give that. And clearly, when you look at the returns we have been delivering in the last years with the strategy, it is much, much more interesting than keeping your money in the account. And when you compare it to [ Euro for -- ] in France or [ Gaston Separate ] or in Italy, they still deliver only 2%, 2.5%. So I believe that we can do more there. Now why do we need to have a guarantee? Because it's a risk averseness of the clients. Here in the U.K., you don't need that. You don't need to have a capital guarantee. It's a different market, I mean. But for Europeans, that's very, very much important. So I think putting that, we will be able to deliver significant more growth and make it more interesting for European clients. But it also means we need to have also the right partner. And as you know, in Italy, we have a good partner. And I want to say, I mean, I gave the number GBP 150 million and maybe someone would say, well, that's not much. It took us 3 years in the U.K. to get to GBP 150 million when we launched PruFund. So in Italy and Ireland, we've done GBP 150 million in 1 year. So it's actually pretty good. It's, I would say, a good performance. But clearly, we are -- we want to achieve, as I said, a multibillion by 2025 on this. And I think we have what it takes. Third question on annuities, right? It was more on why we're looking at this. Now let's be very clear. When I think about growth, I want the growth in our capital-light businesses. So it's asset management and wealth management. The reason why we're looking at the Heritage business is the market has changed. The market has become much, much larger in the U.K. And therefore, there is an opportunity for us to play here, but I insist in a selective way, utilizing our strength, utilizing what we can give that maybe others cannot. So it's looking back at what our business combination is. For example, if DB scheme have private assets. Well, that's something where we can make a difference. But it's really utilizing, I would say, our strength on combination. So investment capabilities, clearly, operations and size of the balance sheet of the Heritage book, but also potentially With-Profits Fund. So I mean all -- that gives us an opportunity. But I really insist we're going to do this selective. We're going to do it selectively. The real growth opportunities for us are in asset management and in wealth management.

Thank you very much, Andrea. So starting from the front, we had -- let's go to Andy and then Ashik.

Andy Sinclair from Bank of America. Three for me, please. First, I'm actually going to ask the question on results. So just looking at results at Slide 74, remittances to the holding company a bit lower than I probably expected and lower than the prior year capital generation. Just looking to get a little bit more color on that. Secondly, was -- just going back to international distribution for asset management. How much of that will be partnerships versus doing it yourself? I think you used partnership about a lot -- at AXA IM. I'm just interested in that. And then third, I was just interested in the cost of delivering some of the targets that you set out today in terms of cost savings, pacing of those and also building out that international distribution, how should I think about the costs there?

Okay. Given that I have a CFO, it's -- talk about results, I think that you can probably touch on that and also probably on the cost savings. And then I'll take the question you had on internationalization and partnership.

Yes. So the first question was regarding the movements that we saw at the holding company in terms of the cash position. So we finished last year with GBP 817 million sitting at the holdco. I think one important slide I'd like you to refer back to maybe after the event is that increase in the in-force book from GBP 10 billion to GBP 12 billion that we've seen, which will generate strong capital and cash generation. So the holdco cash essentially last year was impacted by a number of one-offs, which you all know about. So we obviously had the dividend and the buyback. And quite importantly, I think something we've talked to you about before, some of the acquisitions we did also were paid for essentially by the subsidiaries. So remittances last year were GBP 391 million because some of that consideration for acquisitions came from the subsidiaries. But when you look at the overall strength of the group, when you look at the financial metrics that Andrea talked about, we remain, going back to the GBP 12 billion, a very strong cash and capital generative business. And also importantly, we have made the decision to target this production in leverage by 2025. So that will reduce the leverage ratio from the 35% that you saw at the end of the year, down to the below 30% by 2025. So I think last year was more of a one-off. When we look at the position that we start '23 year and the confidence around the balance sheet and the underlying capital generation, we feel very confident about the trajectory, both in terms of earnings, capital generation and supported by strong level still of holdco liquidity of GBP 817 million. And so costs. So the simplification priority really is key to the future success of M&G, as you heard Andrea said. This will help us to unlock growth. So what we've announced today is a GBP 200 million savings on the managed cost base which is roughly GBP 1.4 billion, GBP 1.5 billion. You can see the detailed numbers here. Andrea has taken you through the 4 levers that we've identified to make M&G much more efficient. You will get further updates on this, obviously, as we go through this transformation journey. You clearly see the asset management cost base of GBP 763 million. And you see also the head office costs. This is a group-wide transformation program. So we start today with 4 key levers. We've announced the voluntary redundancy program today that you've heard about. And very importantly also, we are going to be tracking the cost-to-income ratio in asset management, looking at both absolute costs. Obviously, we've got some confidence around the top line, given some of the investments we're making, the strength of the franchise, but really also keeping a very tight discipline on absolute costs. So we want to see positive jaws in asset management over time. So when we think about the success of the cost transformation program, you will see us absorb inflation, create capacity through the savings and invest for growth, making M&G much more efficient and set up for the scalable growth that Andrea talked to.

Sorry, just a follow-up on that. So that -- you're saying absorb inflation, does that means the GBP 200 million, is a net target?

It's a gross target. So we put it on the slide. It is the slide that was in Andrea's section. So obviously, we have a planning assumption around inflation. And depending on, obviously, if inflation is less than expected, we will still bring down costs by GBP 200 million. This is very important for us that we have a more streamlined, more efficient organization with stronger controls, set up to deliver better customer outcomes and more profitable growth.

Let me be very clear. I mean, on the cost, this is a byproduct of simplification. I mean, we want to grow this business in a profitable way. But to do so, we need to be fit for purpose. And that's why we need to look at how we organize ourselves, how we work together. And ultimately, we need to improve the client outcome. We need to serve our clients better. We need to be better in innovating quicker and the savings is a byproduct. We insist on that. I mean what really is important is making sure we transform this business so we can support the growth, the ambitious growth we want to deliver, okay? To your question on Internet -- I would say partnership...

Yes, partnership...

I mean I don't know if you -- when you mean partnership, it's not joint venture, is that what you meant? No, it's not joint ventures, right? Because this is organic. We are not looking at joint venture. But having said this, clearly, when you look at partnership, and I told you about Future+, we are going to need strong partners if you want to grow this in Europe. And there are already some, I would say, discussions with some European partners to do so. And I told you about the key markets for us looking forward. Clearly, Italy remains the key markets. Germany and France are the other ones, and we're looking at Belgium also. So clearly, that will go through partnerships. When I look elsewhere, and we are looking at Asia, we have been looking also at how we're going to grow in the Middle East. It's more about partnering up with institutions. It could be club deals, it could be co-invest. And that's a way forward for us, and particularly when we think about private assets. And as you know, we're strong on the private asset franchise. And we see significant interest from, in particular, Middle East and Asian investors to sort of enter into the European space, and we are a good partner to do so with them.

Thank you very much, Andrea. Ashik, over to you.

This is Ashik Musaddi from Morgan Stanley. 2, 3 questions. So first of all, on your capital generation now. Clearly, that GBP 10 billion undiscounted cash flow is now GBP 12 billion, which should naturally imply that underlying capital generation is going up 20%. But then on top of that, I mean interest rates are higher so that should be a bit more benefit on that. And then you will delever, that should help a bit of underlying capital generation as well. So these are a couple of levers, but you haven't upgraded the GBP 2.5 billion OCG guidance. Now how should we read that? Does it mean that there will be less management action than what you thought? Or is it just that you're not willing to depend on that, but it can still come through and we might get a surprise on that? So that's the first question. Second thing is, I guess, your messaging is a bit clear on dividend sustainable and most likely growing. But what needs to happen for that dividend cost to grow? Because your long-term cash generation numbers are going up. So how do we think about that rather than just thinking about the DPS? And third question is, how do we think about this Heritage runoff. Now clearly, it's the first time when you have discussed that you're looking to offset the runoff of Heritage business. Now you agree, it's too early, but can you give us any time line, like, okay, by next 5 years, you think that this runoff could be offset by -- well, by Future+, by your capital-light bulk annuities, et cetera. So is there any time line you can help us with? But I can -- I appreciate that it could be a bit earlier than that.

Okay. Well listen, I mean, I can start with the last one, and then I'll let you go through -- you saw that we are committing rather ambitious targets until 2025. And clearly, one of them, which I call is on growth, is to see that our capital-light businesses contributes more than 50% of our earnings by 2025, asset management and wealth management. This is not to say that the Heritage book is going. The pie is bigger, you can show the slide. So I mean that's as much as I can give in terms of going forward. I don't know, Clare, do you have a view on the Heritage, do you want to say something or add? Please stand up so they can see you.

So in terms of what we're looking to do, what we're looking to do is leverage the investment capability, particularly on the institutional and private assets, but also the fact that we've got an existing book, BPAs. And those 2 together will enable us actually to then grow that book, as Andrea says, in a very selective way, but also then leveraging some of the capital-light options in terms of what we could do with the With-Profits Fund with some market guarantees. I wouldn't -- in terms of volumes, I think if you take both the wealth book and Heritage book together, I think what we're looking to do is basically optimize the scale and the play in terms of where we're going. So I'm not -- I wouldn't expect it to shift a lot in the short term, but certainly over a period of time, you'd start to get that more even if that makes sense, Ashik.

Good. Thank you, Clare.

So I'll take the other question. So I think you challenged us on why we're not giving a more optimistic capital-generating target. I think we clearly have our target of GBP 2.5 billion that we are on track for. And yes, we now have an in-force book that's grown, helped a bit by rates but from GBP 10 billion to GBP 12 billion, but that gives us a lot of confidence around the future trajectory. And in terms of the market movement, as you've seen in the results, I guess, last year, there have certainly been benefits that you would have expected from sensitivities. And there were some other elements also, some additional prudence that we took, for example, around our assumptions on credit risk and on property growth rates. So I think we finished last year in a pretty good position. But certainly, when you think about the underlying capital generation, which you asked about, you've seen that the expected return on annuity surplus assets doubled from 1.1 to 2.2 beginning of this last year. We obviously have confidence that the expected return will be higher this year, obviously, on a book that is declining, the annuities book. But we also really importantly have also got the additional contribution coming through, which gives us confidence on that GBP 641 million retail and savings number. So that higher PVST of GBP 4 billion also underpins the underlying capital generation. But really importantly, that actually goes to the next question as well, we are going to grow asset management earnings. So over the next few years, as the shape of the group evolves meaningfully towards more in asset management and wealth capital-light businesses. That's what also going to support not just the strong dividend we're paying now, but the potential to grow the DPS over time, which obviously increased by 7% last year to 19.6%, driven clearly by the buyback program. So I think for now, we see really strong underlying capital generation coming into 2023. We do expect management actions to be back in the GBP 100 million to GBP 200 million range probably for 2023 to normalize the impact done. The longevity release of GBP 230 million was quite large last year, and we don't expect a meaningful increase. But really importantly, and you've heard management say before, but really emphasized today with a strategic refresh, we are very focused on growing underlying capital generation. You've got the strong base coming through from retail and savings and now supported by growth coming in asset management and the capital-light wealth business.

And Ashik, very small point on that slide. That slide is based on economics as of 1st of January. So it's not -- there hasn't been a significant movements in the economics environment since the 1st of January. So that's quite up-to-date, so to speak. Alan, and then James.

Alan Devlin from Goldman Sachs. A couple of questions. First of all, in the PruFund performance as being exceptional. And when you did your strategic review, did you consider, well, the wealth business was actually holding back the success of PruFund in terms of distribution that actually, if you open up the distribution and you could drive much faster sales? I know, obviously, the daily pricing and the smooth fund, there's some more kind of technicalities. But could you accelerate PruFund success by opening up dealer participants in the market? And then secondly, on the BPA opportunity. I think you mentioned kind of your [ technical ] pension funds with higher allocation to private assets. Is that -- because obviously the challenge that the big pension funds have is there too much private assets that are non-Solvency II branding. The U.K. insurers don't want to touch them. Does that help? Is that going to be an area where you could focus given your PruFund and your asset managing business, you can actually take these assets easier than some of your competitors might take?

Yes. You answered the second question by yourself. So there's not much I can say there. I think realistically, when I look at our capability on private assets and I look around, I think we're much better placed than them. That's very bold, [ second to none there ]. On what you said on PruFund, I mean, first of all, this 2022, we're very pleased with how volumes went, GBP 5.4 billion gross positive net. And clearly, as you said, investment performance has been stellar. Actually, every person here in the U.K. should have PruFund. If it was for me, I will be after selling to them personally, but I can't. It needs to be sold by an adviser. So we need to make sure it works better. And that's why we're putting it. We put proof on Planet, but that's not proof on growth. We put it on the digital platform. We are committed to put all the proof of strategies now on the platform, and that will help. In the good time, we used to do GBP 10 billion, but that was when in the U.K. gross. But that was when significant transfer was from DB to DC. So probably 30% of that should have been discounted. So GBP 7 billion is probably where you want to be, at GBP 5.4 million. So I mean you can make the math by yourself. Now should you open it up on other platforms, I don't know, Clare, do you have a view on that? It is...

So it's one of the main drivers to why we bought the Ascentric platform in terms of what we've done. And I think to Andrea's point, we'll have PruFund growth on that during this year in terms of that solution. I don't think we're not open to the idea of it being on other platforms. But what we want to make sure of is, firstly, that the full value chain and that's one of the background as to why we feel the wealth business as it is. We want to make sure that we optimize that in terms of where you go. We are a massive chunk of the with-profit market in the U.K. And so almost what you want to do is increase the market, and you would do it in terms of that piece. So I think to the right distributor, we definitely open to the conversation. But right now, we've now got all the building blocks in terms of what we need.

Thank you very much, James, and then Mandeep.

James Pearse from Jefferies. Congratulations on the results this morning. So first one on DB derisking again. Just wondering how long it would take to kind of get yourselves in a position where you can essentially declare yourself open business? Do you already have the resources in place to do that, and so if you wanted to, you could actually launch very quickly? Second question, so you've indicated that you may need to give further liability management to get to your leverage target by 2025. Just wondering why you didn't buy back the debt towards the end of last year where actually the bonds were quite much cheaper?

Okay. I can pass you on the second question. But -- so you say how long? We think we would lose some transaction this year in a very selective manner, and we have been building up our capabilities since we have seen the market really, really build up. But let's not forget, we already have capabilities in place also. So we will do selective few transactions this year, but I want to insist, we don't want to -- we're not a private -- this is not -- there are several other players. We're not going to compete on price. We're going to compete where we see where we have specific capabilities in order to add value. So there will be something during the year, some transactions, but very, very selective ones. On the -- yes, on the -- I'll let...

Remember half 1 results last year also and then when the market widened getting asked around liability management exercises. So I think the reason why we haven't gone before is, obviously, with the new CEO coming in, reassessing the strategy you've heard today how we're so excited about the next few years. This is regulatory capital. It does -- it is important, it's complex. It's something we need to approach the regulators for if we want to think about calling or liability management. And so we wanted to be very thoughtful. We want to put together a very credible strategy with very clear targets, as you heard Andrea say, stretching targets. We are looking at leverage. And whilst we've got a tremendous amount, GBP 12 billion of the in-force book, which we've got huge confidence around the cash and capital generation, we do think 30% is the right number to be at. And the obvious names of making a reduction in the ratio is the GBP 300 million bond we've got callable in 2024. And if you can easily -- I'm sorry, do the math, where we to do that, and assuming no change in own funds or market, we need to go beyond the GBP 300 million. The key thing is -- and the bonds are still trading below par. Some of them -- we -- but we're not in a rush at all. This is something we're going to be very thoughtful about. This is an important metric for us to reduce our leverage. We've got the callable bond next year. And over time, there is no change in own funds, we would need to go beyond the GBP 300 million. And that you've heard this is our primary capital management target for the group in the near term, but we're not in a rush by 2025.

Mandeep, then Andrew.

Mandeep Jagpal, RBC Capital Markets. A couple of questions on asset management, please. Kathryn mentioned the GBP 6 billion capital queue for alternatives. I was just wondering over what time period you expect this to be deployed. And do you charge these on AUM committed or just once this has actually been deployed? And then another one on asset management, the cost-to-income ratio target of less than 70% by 2025. Clearly, this depend on AUM levels to then. So I was wondering if you could help us by letting us know what kind of market return assumptions you've assumed to get that target?

Okay. So on this GBP 6.2 billion capital queue that we showed to you, and that gives us, I would say, cautiously optimistic view on where we're going to see flows on the institutional side because you should not forget also after the LDI crisis, we showed you a number also. Clearly, there's a part of that GBP 7.3 billion, which are coming out in particular in the first half year. But on the capital queue, we believe we will deploy not all of it during the year. It's going to be impossible, but part of it. I mean it's difficult for me to be able to give the exact indication on it. But it is part of, let's say, my cautious optimistic view that we will deploy part of it during the year. And I insist once again, that that's a good element when you look at our institutional side business, but there are other elements that will also give us flows. And in particular, we see great interest in our fixed income franchise for several institutions. And as I said before, there are a couple of -- particularly on what we do on infra equity. We have launched a fund, which will take -- [ Fund IV ] by the summer and that's relevant size. I mean if I'm allowed to say the size, but...

We'll wait to raise the amount.

Exactly. So I mean there are several things that are in the pipeline. Okay?

And maybe the only thing on the capital queue to your question, that capital queue is committed wins. So we don't need to go out and test them. It's not pipeline, it's committed, but it's not private equity, other private assets where we earn the fees only when we deploy that asset. And we have given the number quite consistently. And every period, we draw down an element of the capital queue, but it's also important to top it up with new wins, right? So ideally, you almost would want to have the capital queue always there at the same level because it gives you comfort and confidence around the future, but you keep growing it for the right opportunity at the right time.

And the second question was on the assumptions underpinning the 70% cost-to-income ratio. And I would just reiterate, we have a longer-term ambition beyond 2025 of 66% to 68%. And so when you rightly asked a very important question because obviously, there's a lot of focus on flows. We are really pleased with the position we finished last year, and we're confident we've said around what we're seeing so far in terms of flows. But yes, the underlying market assumption is important for the revenue -- for the revenue line. And I'd say that we've got a cautious market assumption in our planning. We've seen also obviously what peers have said in terms of their assumptions and obviously, market moves year-to-date that we've seen. So it really is with a conservative planning assumption. And then obviously, the strategy you've heard around where we're looking to grow internationally in private assets. So it's a thoughtful disciplined capital plan with quite -- we've really checked the underlying market assumption.

Andrew?

It's Andrew Crean, Autonomous. A couple of 3 questions. Cost savings. You had a cost target running since 2017, which finishes 2022. I don't know clearly what happened to that. Did you actually make it and could you prove that? And your next cost target, I think you got 5% inflation, that will wipe it out in a bit more in terms of [ net ] or is that right? That's the first thing. Secondly, could you tell us a bit about the margins on PruFund in Europe. As I understand, it's a very, very different product and has very different profitability profiles to PruFund in U.K. And then thirdly, in terms of your capital spending power, which is obviously the dividend comes first. What about debt reductions, M&A? Do you need more money for M&A? You've spent quite much on wealth. Does that -- do you sort of have priority in future buybacks?

Okay. So let me take the third question, and then I think the first 2 questions, Kathryn, I think I have to delegate to you.

Okay.

So on -- we have a very strong capital management framework in place, as you know, the 4 components. I don't know if you want to show them again. And clearly, we are -- we're sticking to that. The plan that we were presenting, it's an organic manner. And we really think we can deliver this in an organic way. I mean it's very clear we want to go for operational efficiency through simplification and we have what it takes to grow the business going forward, both in asset management and in wealth management and selectively, I would say on the Heritage business. That's organic. Now clearly, when you look at this capital framework, we are committed first to our financial strength and flexibility. And there, we have been giving very clear targets of getting to the leverage ratio below 30% by 2025. Second priority is to make sure we have stable or increasing dividends going forward. And then there's a third point. We are going to have to do some investments in order to support clearly the transformation but also potentially to support, I would say, some of our distribution efforts. But these are -- I mean these are part of the sale of just normal investments. And -- but we are not looking -- clearly, we're not looking for anything in terms of M&A. I mean this is organic. I really think when you look at our -- all our capabilities, and in particular, the combination of the business model, we have all it takes in order to deliver it. And I think the results in 2022, the resilience of the result actually is a good example of it.

And on the prior cost program, which you rightly said was launched several years ago, I think that did actually outperform. So I think it was GBP 145 million savings, and I think they did GBP 167 million and also complete -- Clare's nodding, and completed, I think, the year early. That was -- so that concluded. And that was exactly what was needed at the time of the demerger, merger and listing and it has several different elements in terms of what it was focused on. What we have now is the next chapter in M&G and really looking at these 4 levers to really strengthen the business, streamline it, improve controls, automate processes, explore allocation strategy more, reduce consulting spend. We've got the voluntary redundancy, you've heard Andrea talked about today. So it is a -- and it's led by Benoît, who's just recently joined. So it's focused on some different elements, but the organization has already delivered a prior transformation program. But this is what we now need to unlock the growth. And also, you'll be able to clearly track progress when you look at asset management costs and we'll clearly keep the market updated and informed in terms of how we are delivering those savings. On inflation, I'm not sure where in our materials, the 5% target -- the 5% assumption is. We do have an assumption over the plan that's around about that number, but every year. So not falling back to any sort of pre-normalized 2% to 3%. So we will -- we are focused on bringing down BAU operating costs. So having any out through a higher inflation number is not what we want to do. We just need to be mindful that there are certainly a lot of discussion around extended higher inflation in the U.S., the U.K. might be a different picture. But we will -- we are motivated to bring down the BAU operating cost of the group, and you will be able to track that. So -- and yes, so if inflation ends up being less, we will bring down costs. And I think the last question was about Future+ in Europe? Was it?

Yes, margins.

Margins.

Yes, margins.

And the proper signature.

Yes. So I think this is an institutional product. We are -- it's about scale.

Yes, let's ask Clare.

It's an institutional product, Andrew, and I think I've said beforehand. So think about the price as being at that sort of level. It is, as Kathryn has just about said, it is about scale in terms of how we get to that level. You'll have seen the expense reserve that we have to put up in terms of -- because we're not yet at scale in terms of the product. But absolutely, to Andrea's point, in terms of the opportunity across Europe is extensive in terms of that opportunity.

So I don't know what the institutional are.

We -- so we show you the margin in our asset management business, broken down by client type, and we've got internal, external and external institutional and wholesale split. So you can see there what type of margin we make on institutional mandate. We're not telling you that is exactly that level, but that's the type of ballpark that we can think of. Also the other thing that we've always called out in the past is that the profit signature is fundamentally different where PruFund, you get a fuller payment at the end. This is more like taking an asset management product with yearly ongoing recurring fees. And there is no reference to 5% inflation in the material. I checked that. Well, the ladies first. I'll come to you, but we've got Larissa and Rhea, I mean, first, you have been waiting for long and have been very patient. So thank you very much. Rhea?

2 questions from me. Rhea Shah, Deutsche Bank. In terms of going back to the BPA deals and selective opportunities that you're looking for, what kind of size deals are you thinking about for this year or next year? And how much capital would you look satisfied for this? And then secondly, on -- looking at the pie and how it's growing and your ambitions for 2025, for wealth specifically, is most of the growth going to come from PruFund? Or are you looking to significantly grow the rest of the wealth parts of the business as well?

Kathryn, do you want to take that?

So in terms of size of deals, I think we've been clear that this is going to be really modest, very selective, setting our capabilities and our strengths, which we have. So we think we've got a lot of the solutions that these pension funds want, and it's -- that's why it's a compelling opportunity for us. But it is really going to be very selective and with real discipline in terms of the criteria for us. In terms of the capital impact, if there was any meaningful impact in 2023, when -- as Andrea said, we'd certainly be hoping to do one, we would have guided to it. So it's modest. And as Clare said, there are also capital-light options that we can think about external providers or, of course, the With-Profit Funds. So I wouldn't guide to any meaningful capital impact in terms of 2023 numbers.

And then the other question was where the growth is going to come from, whether it's more PruFund, balanced, different component.

Clare, can we ask there?

So for us, the prefund is obviously fundamental in terms of the strength, and it always will be. But one of the things that we've been looking to do is basically broaden that. So if you look at the platform, that is predominantly non-PruFund business. So as Andrea said, we will put PruFund growth and, in fact, the full PruFund range onto the platform. But absolutely, what we want to do is then build out, for example, the model portfolio services. Portfolio, we've just done through a reprice of that, to put it much more into where the market is. So ultimately, what we'd like to do is get to a much more even balance between PruFunds and non-PruFunds, recognizing the margins on PruFund, a much stronger than on a non-PruFund proposition.

Thank you very much. Larissa?

Larissa Van Deventer from Barclays. Three quick ones, I think. You -- on the redundancy program, recognizing it's within the GBP 200 million cost savings, but can you give an indication of how many people or how much of the GBP 200 million will come from redundancy and by when you hope to conclude that program? Second one, on the longevity assumptions. You mentioned that it was GBP 230 million, and you're not expecting a meaningful increase, but does that mean that we can expect a repeat of the longevity? And the third question is back to bulks. Do you have a target asset mix on private versus public funds? And how does that impact your bulk annuity offering?

Okay. Let me take the first one, and we'll see how we -- so we launched a voluntary redundancy and said it's voluntary. So today, when you look at our simplification program, there are 4 levers, and we can show again the slide that we're trying to achieve. One is linked to the -- what we want to do in terms of organization. It's looking mainly at layers and span of control. So that's something that we have now launched in terms of transformation programs. So it's work in progress. So I mean, I think it's way too early to start thinking about the target in terms of what's going to come from the voluntary program we just launched today. And once again it's voluntary. It's -- people have to come forward. But I believe I've done this in the past. There are always some that don't want to be part of the journey going forward. And we will see how that goes. And clearly, we will update you in due time. But clearly, this is about people, and we want our people to be in a good place and work within a great environment. So we will update you in due course where we are on that. But overall, when you look at the GBP 200 million savings and you look also at where our costs are, 50% -- more than 50% of our costs are people. That doesn't mean that you have to input that number now, but that just gives you some sort of guidance.

Then Kathryn, do you want to take the question on longevity going forward?

Yes. So obviously, it would mainly come through on capital not under IFRS 17. And so you may not have had a chance to -- I know it's been a very busy morning for you. In the prelims, there's a little bit more detail around what we did in 2022 on longevity. So we did a more comprehensive assessment of our population against the broader population and the trends. We used an expert panel, an external panel. And so that was really spending much more time looking at our data, looking at the modeling, and it does not reflect COVID data like peers, I think, but so no COVID data with 0 weight to the COVID experience. And so we'll just have to see. And I think there's still quite a bit of uncertainty in terms of trends. So we wouldn't want to guide to another meaningful increase. We will just look at the data. We look at the new tables. We're still using CMI 2020, but we don't want you to think about another meaningful capital release that we saw last year.

And on the final question on. I think it's a little bit early to give you an idea of what asset mix will be looking at. As said, given that we're looking at a situation where we can add value, where some of them might be over allocated to private assets, each deal will be, I guess, a little bit its own and will depend on circumstances and being thoughtful and taking it slowly, time after time, that might vary. Probably giving you a number now would not be appropriate. Coming back towards the front and then we'll get to the back, Nasib and Andrew.

Nasib Ahmed from UBS. So first question, Andrea, you said that proof on Europe or Future+ democratizes private assets. So do you think tokenization is an opportunity here? And are you investing in that space? Secondly, on the greater than 50% asset management and wealth management target on earnings. Does that translate into OCG as well given that insurance earnings are going to change with IFRS 17? And then sorry to come back on the OCG GBP 2.5 billion announcement. If I take the GBP 821 million, and it sounds about GBP 3 billion. I'm already at GBP 2.5 billion, and you've got the tailwinds from markets, PVST being higher as well. It seems like you're going to beat that target. Anything I'm missing there?

Okay. I can take the EBITDA one on the OCG before. But let me be clear. I mean I -- we cannot do everything, okay? And we have to be focused. When I look already, that we want to grow internationally, some of our capabilities and Future+ is an interesting one. We need to focus on that and make sure that this becomes a multibillion opportunity by 2025. That comes down to having the right partners, opening -- entering into new markets this year. And yes, a lot of assets management talk about tokenization. I know that. But at the end of the day, it comes down to resources and focus. And when I've listed all the different opportunities we have in terms of growth, I think it's focus. And now it's a question about executing and delivering on it. I'm sure that's what you want me and my team to do. So tokenization, yes, we will see. But I mean it's not really something at the moment we are foreseeing.

I think I missed one of your later question. One was on the operating capital target. And...

The other one was on the mix of the earnings. So this slide -- the question is this slide talks about earnings. Doesn't look significantly different from capital perspective given IFRS 17 and everything else been on.

So I can -- yes, thanks for reminding me. So I'll cover that one first. And so we obviously -- in terms of IFRS 17, you've seen the broad guidance we gave at the December update. In the prelims, there's the day 1 shareholder equity impact, which is an increase of GBP 1.5 billion. So that is good for us. It's consistent with the guidance we put out in December. And we've obviously not yet given indications regarding the earnings details, but you obviously know the profiles of how they change across the business. So clearly, you've got, as we said, good confidence around the underlying capital generation coming through and really importantly, which will obviously support earnings under the new IFRS 17 asset management earnings meaningfully growing. So that and non-PruFund wealth growth will support that change in mix because we really want -- we are very pleased to have a diversified group with the earnings and capital generation. But we want to become more diversified and even more resilient with the growth in asset management. So that's really valuable to us over the next few years. And yes. So in terms of the difference between IFRS 17 and [indiscernible], it really will be driven by that asset management growth. And on the ambition, I think someone already asked us about why we haven't upgraded our OCG target. And we are confident in the underlying capital generation. We've got good visibility around this year. I think we have said that management actions should normalize back down. I just -- I gave an answer around the longevity benefit, which we don't expect to reoccur to any significant extent like we've seen before. So we really -- we've got a strong plan. We've got clear targets. We're focused on execution. And over the next year or 2, we obviously reassess whether or not we need to extend that target beyond 2024. But I think you've seen us expand our targets today, building on that one we had before, with the very fair cost target with GBP 200 million, the asset management getting below 70% and the GBP 200 million for the simplification program and obviously, the earnings mix.

Basically, let us deliver the target and then we talk about it. Andrew?

Andrew Baker, Citi. Just 2 questions, please. On the international expansion side, just curious why South Africa wasn't included given your JV there? Is there anything to read into that? And then secondly, on PruFund performance, I think on Slide 30. Can you just help me understand the high performance? So my understanding was that PruFund returns ultimately are tied to the underlying asset returns and the sort of smoothing mechanism just changes that path to get there. So is it just the case that the benchmark that you're using? Is it just a different set of underlying assets? Or is there something else going on there?

Okay. Let me take the South African one, and then I'll pass over to Clare.

Yes. Well, I will give you the details on...

Okay. Now you're right. I didn't mention South Africa in the international expansion. And realistically, clearly, we have an asset manager there. We are in the top 10. And we believe we can grow the business over there also because there is interest now in actually investing in international assets from South African investors. So it's something that clearly we want to see. More interesting enough is that we have some rather strong investment capabilities in South Africa, in particular, for example, I didn't know this that we're one of -- actually, I think we're the #1 in African equities in terms of investment performance. And indeed, there is some interest from some of the institutional clients into this. I don't know how scalable it is because clearly, at a certain point, you have to look at it. But -- so it's part of the internationalization and actually, I'm due to go to South Africa by the end of the month. So it's good that you asked the question because they are part of the international opportunity and expansion. And more importantly, when we look at, for example, Africa and emerging markets, as you know, we have acquired a business called responsAbility. And this very much follows the philosophy of -- we're acquiring it and then we see whether we can launch new strategies together with the asset owner if it is within the strategic asset allocation. And Africa is one of the regions we're looking to see if we can also do something on the emerging debt or emerging equity in order to support either sustainable food or inclusive finance or climate finance, which we have done, of course, in Latin America and in Asia.

On the PruFund. So the benchmark that we have here is the one that we always use. So we always use this too. For PruFund, we've got PruFund growth. And you've got the strategic asset allocation in the appendix. Slide 65 shows you that it's probably, roughly speaking, 45% equities. So it falls quite neatly in the middle of that 20% to 60% shares index that we have done. I mean no benchmark is perfect. In terms of the outperformance, I think there are many elements to that, very good investment performance, very broad strategic asset allocation and allocation to private assets that no other mutual fund can really match. And that's part, if you want, of the secret sauce of PruFund. And then obviously, don't forget the smoothing mechanism which allows the underlying price to move up and down around the smoothed lines. So there might have been a situation in which the unsmoothed price was above the smoothed price, then some market movement have taken some of that away and is now below, but the smoothed line continues to run in the middle, right? So there is obviously volatility environments around that green solid line, but it's all well within the smoothing corridors, which are plus or minus 10%. Welcome back. Long time no see.

So you cannot ask a question.

Press hard the button.

It's [ Abid Zhang from Pam Mules ]. Two questions, if I can, please. Apologies for coming back on bulk annuities. I'm still wondering why the only reentering [ open annuity ] space selectively. I appreciate the capital intensity point. But in terms of demand, the demand versus supply is clearly dislocating and the demand is very strong. And I can think of a number of schemes which have a large proportion of private assets that might come to market. And I suppose if they do kind of knocking, will you write the volume? And would you write GBP 5 billion in a year? Or are you thinking much lower than that? So that's the first question. And then secondly on private assets. Clearly, a high-margin business. What sort of hurdles might you face in ramping up that business?

Okay. Listen, on the first question, and I want to be very clear on this. We want to grow in capital-light businesses. And clearly, my focus and the team's focus is on asset management and wealth management. But as you said, demand outstrip supply now in the BPA market, and that's why we're looking at it. If the market would have been 1 year ago, we've not even taking a look at it because there are players out there, established players, let them do it. Now the market is different. It's larger, and we think we can make a difference, looking at our strengths, which I don't -- I'm not going to go through them again. But it has to be selective. It has to be selective. I mean you said a number of GBP 5 billion, I mean, that's no, that's not selective. Selective is different. I don't give any number. Don't worry. So I hope that responds to you. The second question was...

On private assets...

On private assets.

And in terms of hurdles, what do you mean in terms of hurdles? Like can we be in business -- so do we win through -- do we need to add more sourcing capabilities?

No. No. No. Listen, I mean, Clare has built up the capability. It's not that we decided to do it now. We are building it up. We have what it takes. There will be a couple of people to hire.

Private assets.

Sorry, private assets, okay. I thought it was okay. Okay. Listen, on private assets, let me be very clear. When I look at our private assets franchise and look at it today, it's a very strong franchise. And in my view, when I look at the numbers and I look at where we were, and you noticed that we are committing to grow this business by 2025 to GBP 100 billion from the GBP 77 billion, I mean that's already ambitious. But it has scope to become -- go even beyond that without having to add capabilities. Now you could -- and given our model of having this vicinity, we've seen asset owner and asset manager, we could utilize which is, I would say, our strength. We could attract, for example, teams in particular strategies in Continental Europe to attracting with seed money and global distribution. And once again, that's the opportunity for us. You can look at -- and it could be a team who wants to launch GBP 0.5 billion green infrastructure whatever mid-equity or in Continental Europe, and we can see that potentially. So that's the way we can then create momentum from an external perspective, we throw our distribution. But I mean, today, it's more for us about making sure we are in the right markets where there is interest for our strategy. So in particular, for example, Japan, Korea, there is allocation to European private assets there. And I think we can play very well with what we have. So it's more of scaling up what we already have.

I think we have managed to cover all questions in the room. So thank you very much for that. Andrea, I'm wondering, do you want to...

Listen, I can -- I mean -- I know that probably -- there have been in so many meetings, but I can -- just very quickly, I mean, I think there are 3 things -- the 3 takeaway messages. The first one is 2022 results are good -- good results. And I think when we look at them, you should be pleased because we delivered those results in a rather difficult market environment. And I would focus on 2. I'm very pleased, of course, about the flows, the net flows -- positive net flows, second year, again, I think that's important, shows the resilience of the model. And then, of course, also on the capital generation because when you look at what we deliver the number GBP 821 million...

GBP 821 million...

GBP 821 million...

You know it better than me. That's part of getting that route to the GBP 2.5 billion we want to achieve in 2024. But overall, going forward, I think we have much words on clear strategic priorities. I'm not going to go through them again. You see them. But those 3 strategic priorities has also made sure that we have clear targets going forward. And I think the ones that are relevant clearly are on the financial strength, ones where we are pushing for having a leverage ratio which is below 30% by 2025. But more importantly, on the simplification, the GBP 200 million cost savings and the cost-to-income ratio below 70% by 2025. And more importantly, I think that's the key one -- more importantly, by 2025, we want to achieve growth on the capital-light businesses in order to have those businesses contribute more than 50% of the total earnings of the group. And what is important here is, it's the execution. It's the discipline. And to do so, you need to have a team, and I have the right team. I have the right team in place, and I have also the alignment of all the senior leaders. So we will maintain our financial strength. We will simplify and more importantly, we will grow. Of that, I'm totally sure. Thank you.

Thank you very much.