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

Perfect. We are live. So welcome to M&G 2023 Full Year Results. I'm Luca Gagliardi, Director of Investor Relations, and we are here today with Andrea Rossi and Kathryn McLeland, CEO and CFO of the business. They're going to go through a short presentation, and then we'll have time for Q&A from the sell-side analyst present in the room. So without further ado, Andrea, over to you.

Good morning, and welcome to M&G's full year results. I am very happy to be here with you today to share the progress we have made over the course of 2023, my first full year as CEO. So much can happen in 12 months. And we have certainly achieved a lot here at M&G over that period. Last March, we laid out our 3-year ambition for the business. With a new leadership team in place, you will see we have made considerable progress on our three strategic priorities: financial strength, simplification and growth. Today, we will take you through how much we have already achieved and what we are focusing on in 2024. As usual, I will start by covering the business strategy, and Kathryn will later expand on the financial results. And this, I'm proud to say, continue to evidence strong performance with meaningful year-on-year growth in both adjusted operating profit and operating capital generation. But first, let me take you through the business highlights. I talk a lot about the strength of our unique business model, and there are good reasons for that. It is balanced, diversified and synergistic and it has delivered once again last year. In a volatile macro environment, our Life operations supported the asset manager with stable capital and fees and gave Wealth access to a truly differentiated proposition, the PruFund. With its strong investment performance and innovation, the asset manager powered the Wealth proposition and helped the Life business optimize its asset mix and confidently reenter the BPA market. The Wealth business continued to scale. And I'm proud to say that last year, it achieved the best level of PruFund sales since 2019. This is clear evidence that our strong synergistic business model drives superior client and shareholder outcomes. By leveraging it, we drive progress on our strategic priorities, which I will now cover in more detail. I am really very proud of what we have achieved together in 2023. First, on financial strength. We have become more profitable and more capital generative as well as more resilient. And we have improved our Solvency II ratio despite volatile markets. We also continue to pay an attractive dividend with a total DPS of 19.7p, and we remain focused on leverage. Secondly, on simplification. Our transformation program is progressing well with GBP 73 million of savings delivered last year. We have clear and simpler operating model with accountable leaders for each business unit. We also continue to tackle costs, having maintained them flat year-on-year. Becoming more cost effective is a core objective for us, but we are not just managing inflation. We are also improving the quality of our spend and the outcomes for both our clients and shareholders. The more we save, the more we reinvest to support client delivery and growth. Finally, on our growth ambition. I am very pleased to say that we have made strong progress across all segments. Asset Management net flows were positive at GBP 800 million. So M&G really stands out amongst our U.K. peers. PruFund Wealth Sales continued to climb, increasing by 17%. And as I mentioned earlier, achieving their highest level since 2019. And as you know, we reopened our annuity business completing two transactions in the second half of last year and one more just a few days ago. These significant achievements are helping us to reach the targets we announced last March. You can see a summary on this page. Given the strength of 2023 operating capital generation results, we are confident that we will achieve our GBP 2.5 billion target by year-end. Continuing to generate capital also helps on leverage as it builds own funds and improves our financial flexibility. On simplification, in the first year of transformation program, we have already delivered GBP 73 million worth of savings, corresponding to an exit run rate of roughly GBP 90 million. This is a really positive start to this 3-year transformation journey. In 2023, the asset management cost-to-income ratio deteriorated slightly due to adverse markets, which reduced fee earning assets. But we took a lot of actions last year, including reducing our office footprint and restructuring our private markets team. We will see the benefits from these actions coming through in 2024, while we continue to streamline costs and reinvest free capacity to support growth, particularly in international markets. Lastly, I'm also happy to report that our earnings are up by 28%, with 42% of the total coming from capital-light asset management and Wealth operations. We expect a capital-light contribution to increase mainly from asset management. So to sum up, we have a lot to be proud of in just 12 months. And given the progress on our three strategic priorities, I have great confidence in how much more we can achieve together. So what about 2024? After these strong results, we are committed to building on the positive momentum. To do this, we have clear objectives across each one of our three strategic priorities. Kathryn will cover financial strength and simplification in more detail. But let me be clear on this. We are absolutely committed to reducing leverage, controlling costs and improving the asset management cost-to-income ratio. Let me now explain what each business unit will focus on this year to drive growth. In Asset Management, it is all about maintaining strong investment performance, improving profitability through top line growth and continuing to expand our international presence. In our Life business, we want to reach GBP 1 billion to GBP 1.5 billion in BPA sales to fully offset the runoff book and increasing long-term capital generation. We also have a renewed focus on the With-Profits fund and on how to better leverage it to drive shareholder value. And finally, Wealth. Here, the first step is to redefine our strategy to make the most of this attractive market. We will focus on where we can add the most value to clients, namely scaling our advice business and delivering the right investment solutions to a broader audience. I will now go into a bit more detail about each business, and let's start with asset management. This team is fully focused on delivering superior investment performances and it's clear to see they have achieved this in 2023. Client outcomes were strong across both the institutional and the wholesale franchises with roughly 50% of our wholesale fund ranked in the top quartile on both a 3- and 5-year basis. More than that, a number of our flagship funds such as optimal income delivered top decile performance and this positions us well to continue to drive positive sales momentum. Delivering innovation is also of critical importance to this team. And last year, we expanded both the range of funds and investment vehicles that we offer. Thanks to a recently added Asia investment team, we were able to launch new Asian and global bond funds, and with our first GBP 700 million long-term investment fund, we continue to get closer to greater democratization of private assets beyond what we are already delivering with PruFund. Much improved investment performance is a key driver of the turnaround we have seen in wholesale. Delivering net inflows of GBP 2 billion over the last 2 years is an achievement we are really proud of especially considering that over the same period, the European market for Active Investment Solutions suffered net outflows of over GBP 350 billion. In the U.K., we were one of the best-selling active fund managers last year. So wholesale is back on track. But like many of our peers, we have faced headwinds in the U.K. institutional market with significant redemptions from DB pension schemes. These were triggered by the mini budget prices and broader derisking. Having absorbed this redemption, we expect the situation to normalize and flows to revert to a more stable pattern. In contrast, our international institutional business has thrived. We generated roughly GBP 16 billion of net inflows over the past 4 years, including GBP 5.5 billion in 2023 alone. With a strong performance track record and all franchises offering growth opportunities, I am confident we will achieve positive flows and improved operating jaws in 2024 leading to better levels of asset management profitability. Let me talk briefly about our international operations. As you know, this is something I have been fully focused and committed to since my first day at M&G. Since 2020, our assets under management have increased by 38% to GBP 83 billion. In 2023 alone, we had meaningful net inflows across key European and Asia Pacific markets winning business from some of the worst sophisticated investors, a testament to the quality of our capabilities. This is a great success story so far, but we are not done yet. Over the past 12 months, we strengthened and upscaled our global distribution teams. We are extremely pleased with the talent we now have in asset management and I know they will play a crucial role in continuing to drive forward our growth agenda. The opportunity to build M&G's international presence is significant. And it is by capitalizing on it that we will lower our cost-to-income ratio and improve profitability. Having covered the priorities for the asset manager. I want to now share a couple of case studies showing why we're so confident about the growth prospects of this business. Over 2022 and 2023, our equity team delivered an impressive performance, particularly thanks to best-selling funds such as Global Listed Infrastructure and Japanese Equities. But with interest rates at or nearing their peak, many agree with us that 2024 will be the year of public fixed income. And this is a good thing for M&G. It has always been our core area of expertise. Today, we manage almost GBP 140 billion in this space and are recognized as industry leaders. We expect strong client demand over the next 12 months, and I'm confident we are very well placed to capitalize on it. We have a compelling range of funds across developed and emerging markets, government and corporate debt and we keep expanding, having now built global capabilities by adding investment teams in Singapore and Chicago. And performance is strong. On this slide, you can see our flagship funds, including optimal income, delivering returns in excess of 10% in 2023, an impressive result for public fixed income funds. With strong client demand, expanding capabilities and remarkable performance, we are sure that 2024 will be a good year for us in this segment. But public markets are only half of the story, particularly for M&G as we focus on growing our GBP 73 billion private markets capabilities. Within that, our private credit franchise accounts for GBP 29 billion. Here, assets are expected to expand strongly, especially in Europe with double-digit annual growth of the coming years. We are one of the main players in this market and expect to benefit from this positive momentum, leveraging our strong track record, both in terms of investment performance and innovation. For instance, our European loan fund, one of the largest in the sector has been delivering best-in-class performance and volatility management for over 10 years. We continue innovating and launching new funds in this space, thanks in particular to the support and seed capital from our internal clients, once again clear evidence of the benefits of our business model. So to sum up, our asset manager continues to perform strongly, overcoming significant market challenges and delivering positive net flows. It is growing internationally, further diversifying its client base and earnings mix, and it delivers strong performance with deep expertise in the asset classes clients are most focused on. As the rate environment normalizes, we are well placed to further grow this business. Let's now turn to the Life business. Here, the first priority is to expand and expand our long-term capital generation. After 7 years of inactivity, last September, we successfully reentered the BPA market, completing two deals. And just a few days ago, we closed the third one, bringing sales to almost GBP 1 billion under a year. This is a run rate level already in line with our ambition to stabilize the runoff of the annuity book. In delivering this strategic goal, we are leveraging the strength of our business model. Private assets can often be a blocker to full derisking for many pension funds. By having deep in-house asset management capabilities, we can vary our approach to clients appropriately valuing their liquid assets and accepting them as part of the premiums transferred. We have proven that we can be competitive in the BPA market, but competitiveness will not come at the expense of financial discipline. We are very clear on this. New business needs to offer attractive mid-teens IRRs. Also, given our strong capital base and the small size of the deals that we expect to write we will retain a flexible approach to longevity reinsurers. This will help us optimize capital returns. The second priority for Life is to further leverage its partnership with the With-Profits fund. With a solvency ratio of over 400% and surplus capital of more than GBP 7 billion that With-Profits fund has one of the best capitalized insurance balance sheets in Europe. The With-Profits funds need to be more than just the engine behind the PruFund. It has to be a key differentiating element as we strive to serve client needs. Given its appetite to deploy capital, it's a long-term investment horizon and independent governance, the With-Profits fund can truly be a force for good for clients. M&G is the operating and investment partner of the fund and received 10% of its economic outcomes. This translated into a contribution to group earnings of almost GBP 500 million in 2023 alone. And as operating partner, it also received a further GBP 300 million in asset management fees. Working together, the With-Profits funds and the broader group are highly effective in certain client needs and developing compelling new solutions. And these new solutions could suit both individual and corporate clients. For individuals, we are exploring ways to expand our existing PruFund range and build on our guaranteed offering. We believe this would be well received given the current interest rate environment. For corporates, we are thinking how to better help pension funds on the derisking journeys. We are once again successfully offering traditional BPAs but we believe there are more options to deliver good client outcomes. At present, we are exploring ways to enter into risk-sharing agreements with scheme sponsor or offer cash flow-driven strategies guaranteed through the With-Profits capital. We expect to be able to launch some of these innovative solutions by the year-end. And last, but not least, our Wealth business. At GBP 1.2 trillion, our target market is both large and expected to grow as an aging population needs to take greater responsibility for their financial security. Today, in the U.K., there are 12 million people seeking assistance to achieve financial security. What our clients want is accessible advice, help in planning for Life events and a diversified multi-asset exposure that can reduce the volatility of their investments. Our Wealth franchise has what it takes to serve these clients and help them realize long-term value. We have a strong brand and corporate heritage, an extensive reach through both advice and third-party distribution and a comprehensive range of multi-asset solutions, including our market-leading PruFund. Caroline joined M&G last September and her immediate priority has been to sharpen the Wealth strategy to better focus our efforts and improve profitability. It is about being clear on who our clients are, where we add most value to them and what capabilities we want to build. We know we are strong in the decumulation space, thanks to PruFund amongst retail and mass affluent clients. Where we want to build our presence is in accumulation, broadening our advice capabilities and distribution approach. We will also enhance other multi-asset solutions such as model portfolios and PruFolio. By doing this, we will also increase our appeal to affluent clients. By focusing more on what we are better at doubling down on growth opportunities, we expect to improve efficiency, client delivery and financial outcomes. We know advice plays an important role in fulfilling client needs. Having doubled in size over the past 2 years, our controlled adviser network is one of the largest and fastest-growing in the country. We will continue to build on this positive momentum. In the coming years, we expect our academy to underpin most of the increase in adviser counts, with 166 graduates currently in training, it will be an important driver of future growth. And this growth will build on the success of our investment proposition. PruFund has long been the jewel in the crown, consistently delivering strong smoothed investment returns to its clients, but we have more to offer, in particular, PruFolio, our risk-weighted range of multi-asset solutions and model portfolio services. This is a key growing segment in the Wealth markets where we have received great client feedback through a best-in-class Net Promoter Score. We have what we need to succeed in the Wealth market. And we will do that by broadening our distribution approach, expanding our offering and improving profitability. So to conclude, what I want you to take away is that I'm extremely proud of what we have delivered in 2023. Despite a challenging market environment, we achieved positive external net flows for the third year in a row, a remarkable success underpinned by great investment performance and international growth. But we're also very pleased with our progress in the U.K., where we increased PruFund sales by 17% year-on-year and successfully reentered the BPA market. By leveraging our synergistic business model, we are confident we will continue to grow M&G. And we're also becoming a more efficient business. transforming to support our growth agenda and improve client outcomes, tackling costs and improving the quality of our spend. Clearly, we are still at the beginning of our journey. But today's results show we are on the right track with adjusted operating profits and operating capital generation substantially up year-on-year. And with that, I will now hand over to Kathryn to take you through our financial results in more detail.

Thanks, Andrea. Good morning, everyone, and thank you for joining us today. And I'm very pleased to present what is another year of strong progress, particularly considering the ongoing external macroeconomic uncertainties. Today's results underscore our continued focus on financial and operational discipline. Asset management and Wealth flows were both net positive. Operating profitability and capital generation improved materially year-on-year. And the Solvency II ratio strengthened over 200%. All this while continuing to move forward on our transformation program, delivering operational efficiencies and maintaining our total cost base flat despite significant inflationary pressures over the year. I'll now turn to the detail behind these highlights. Net client flows were positive at over GBP 1 billion, with the key highlight being the performance of wholesale asset management. And here, despite significant client redemptions in the broader market. M&G delivered net inflows of GBP 1.5 billion, a truly outstanding result made possible, thanks to the relevance and performance of our fund range. In Institutional Asset Management, we experienced net outflows, but these were concentrated in the first part of the year, with net inflows of GBP 700 million in the second half thanks to the success of our international operations. Operating profit of GBP 797 million was up 28% year-on-year, reflecting the strength of our diversified business model. And the asset management result was resilient despite adverse market conditions, and we also benefited from improved contributions from Wealth, Life and also in the corporate center. Operating capital generation of just under GBP 1 billion was also up by 21%, with higher rates lifting the underlying result and with the strategic asset allocation decisions in the With-Profits fund and model calibrations accounting for most of the GBP 244 million of management actions. And finally, on the back of this strong operating result, our Solvency II ratio climbed to 203%, above the top end of our target operating range. Let me now deep dive into assets under management and flows. Closing AUMA of GBP 344 billion was just above last year's as net inflows into Asset Management and Wealth together with positive market movements, mostly in Q4 of GBP 6 billion more than offset expected net outflows in Life. These last 2 years have been extremely tough for the savings and investments industry with rapidly rising rates and geopolitical instability, driving money out of actively managed solutions and towards government bonds and money market funds. Here in the U.K., these headwinds were compounded by the acceleration in derisking of many DB pension schemes. Against this backdrop, the resilience of our business is to be considered a remarkable achievement. As you've heard from Andrea, we're one of the best-selling active fund managers here in the U.K. and continue to successfully build our institutional franchise internationally. And even here in the U.K. institutional market, after having absorbed significant redemptions, we are now seeing improved momentum. As industry headwinds start to abate, we look with confidence to the rest of 2024 and into 2025 and believe we are well placed to benefit from continued demand for fixed income and parts of private markets given the strengths of our franchises. Having covered flows, I'll now move on to adjusted operating profit. At just under GBP 800 million, group operating profit was up 28% year-on-year. The key features of this result firstly, a resilient asset management performance, including a slight increase in our revenue margins and very proactive cost management. Secondly, a growing contribution from Wealth with higher PruFund profits more than offsetting wider losses in the advice and platform businesses. Thirdly, a 27% increase in Life's AOP in the prior year with improvements in both annuities and traditional With-Profits benefiting in particular from high interest rates at the start of the year. And finally, higher treasury income leading to a GBP 46 million better result in our corporate center. Let's now look at the asset management results in a bit more detail and starting with asset movements. At GBP 305 billion, average assets under management were down 2% year-on-year. This was driven by higher rates, lowering fixed income asset valuations for most of the period and directly impacting fee-related revenues. Closing AUM of GBP 314 billion benefited from the rally seen in the last few weeks of the year. And this tailwind came too late to benefit 2023 financials, but does offer a good start for this year. Moving now to margins. We're very pleased with the improvement from 32 to 33 basis points as it defies the trend experienced for most of our peers and indicates our choice to focus on high-margin solutions such as private assets. And finally, revenues and costs were impacted by the acquisition of responsibility, our Swiss-based team specialized in impact investing. Normalizing for this, revenues were down 2% in line with average AUM and costs were up only 1%, well below inflation and demonstrating our continued focus on cost discipline. Market pressures meant that excluding performance fees, the cost-to-income ratio rose to 79%. Looking ahead, we remain committed to our 70% target and are determined to control costs while delivering positive operating jaws through top line growth. In 2023, we took significant action to tackle asset management costs and we're confident we can repeat this again in 2024 and are committed to keeping costs flat in the next 12 months. But as Andreas said, we're not just aiming to offset inflation. We are transforming the cost base of the organization, turning inefficiencies into investments to support our growth and the more effective we will be in reducing costs, the more capacity we will create to reinvest in priority areas particularly international distribution and private markets. Many initiatives of our transformation program do focus on asset management. Last year, we restructured our private markets team we reduced office space and also enhance the efficiency of our support functions. And this year, we will optimize our technology and data costs as well as further reducing contractor and consulting spend. Now moving to Wealth and our PruFund AOP results. The first thing I would like to point out is the GBP 6.3 billion of PruFund sales we achieved last year, which you can see on the bottom right-hand chart, this is 17% higher than '22 and 66% higher than 2021, which is a remarkable turnaround. And this year, with interest rates at or near their peak we're seeing increased competition from alternative low-risk solutions, such as cash and gilts, and so while we remain confident in the quality of PruFund, we do expect flows to be impacted by the rate environment in the first half of 2024. PruFund's contributions to earnings was up 20% year-on-year, thanks to a much improved CSM release of GBP 231 million, which benefited from a higher opening CSM. Return on excess assets also increased to GBP 34 million, driven by higher interest rates. These improvements were partly offset by a few negatives in the other category, including new business strain and the impact of a one-off transaction between the With-Profits fund and the shareholder balance sheet. Turning now to Life. Here, AOP was up 27% over the previous year to GBP 586 million. And once again, this highlights the strength of our diversified business model and the significant role the insurance operations play within the group. Of course, while higher rates tend to be a headwind in the asset management market, they typically represent a tailwind in Life insurance. So this balance allows M&G to look to the future with confidence despite ongoing interest rate uncertainties. The same driver lifting the PruFund result, a higher opening CSM due to favorable 2022 market movements also benefited traditional With-Profits where earnings grew by 32% to GBP 263 million. In annuities, the 35% improvement to GBP 326 million is primarily due to improved returns on surplus assets, driven by the higher interest rate environment, which more than offset the lower asset trading result. And finally, as you all know, under IFRS 17, new BPA deals no longer impact in-year profit, but rather drive an increase in the CSM, which is then released over time. And we'll cover this and other movements in the CSM on the next page. At the end of December, the total CSM stood at GBP 5.5 billion, showing a sizable discounted value from M&G's insurance operations, particularly the With-Profits fund and annuities. Over the course of the year, the operating change in CSM was positive at GBP 355 million as interest accretion and expected returns more than offset the CSM release to earnings. On the one hand -- on the other hand, the impact from markets was negative with the CSM of PruFund and traditional With-Profits being hit by the reduction in long-term interest rates and by investment returns that while positive, were lower than expectations. The last thing to note here is the new business, CSM, the GBP 94 million for PruFund is 5x the level experienced in 2022, thanks to both higher rates and improved sales volumes. In the annuity line, you can see the GBP 42 million that related to the two deals we closed in September. Having covered earnings and CSM movements. Let's now turn to capital generation and starting with the underlying result, where we had another strong year, delivering GBP 752 million. We're very pleased with this result as it underpins the confidence in the ongoing sustainability of our dividend. The further improved Life result was once again the main force behind the 20% increase. Compared to the previous year, the asset management contribution was stable despite slightly lower earnings as we benefited from a GBP 31 million reduction in the SCR, which is unlikely to repeat. This is due to lower risks in our seeding portfolio and a reduction in our operational risk capital. Wealth capital generation was driven by PruFund due to higher opening PVST and higher rates more than offsetting wider losses in non PruFund components. Annuities underpin the increase in Life as higher rates lifted expected returns, and we had lower capital requirements for new business. While we completed our first deals in 2023. In 2022, we'd already set aside capital for expected volumes. And this was a one-off GBP 60 million headwind which turned into a GBP 14 million tailwind in 2023, as we slightly reduced this capital budget. And finally, our Corporate Center improved by GBP 28 million, thanks to higher treasury and investment income. I'll now move from underlying for operating capital generation. OCG increased to nearly GBP 1 billion, up 21% on the previous year. And over the last 2 years, we have delivered GBP 1.8 billion of operating capital, putting us in a great position to achieve our 3-year cumulative target of GBP 2.5 billion by the end of this year. In 2023, management actions of GBP 244 million complemented the strong underlying result and we're above the top end of our guidance. The most significant contribution came from asset trading both from annuities and with profits. In the latter, the investment offers trimmed the exposure to equities and replaced it with fixed income assets. This change lowered our capital requirements and also allowed us to reduce our equity hedging while keeping stable sensitivities. Longevity had a minimal impact as we continue to take a conservative approach and we previously flagged that we did not expect the large contribution of 2022 to recur as it was driven by one-off data and modeling enhancements. Nonetheless, we improved our capital model calibrations across asset management and Life as well as took steps to limit the impact of adverse expense experience, which were a larger headwind in the past. So looking forward, we believe we have meaningful scope to continue generating shareholder value through management actions and remain committed to our target range of GBP 100 million to GBP 200 million a year. Having covered the operating results, I'll now walk through the other movements in the Solvency II surplus. Our remarkable operating result of nearly GBP 1 billion more than offset negative market movements of GBP 508 million which were primarily driven by lower-than-expected with profit returns, rate-related losses in annuity assets and then allowance for ground rent reform. In the period, we also had capital restrictions of GBP 216 million and a GBP 50 million increase in surplus from other movements. Within it, we reported GBP 136 million of restructuring costs. These were more than offset by two distinct one-offs relating to Solvency II reform that delivered a positive impact of GBP 177 million. And so once netting off dividends paid to shareholders, the combination of all capital movements led to an improvement in our solvency coverage ratio to 203%, 4 percentage points higher than the previous year and above the top end of our target operating range. The financial strength of the business gives us great confidence as we look ahead. The improvement in the solvency ratio despite over GBP 200 million of capital restrictions is particularly important as it gives us good flexibility as we think about uses of capital over the course of the year. As we have consistently flagged, deleveraging is a core priority for the management team and hence, you can expect us to put some of the capital to work here. And of course, we have a GBP 300 million call date in July. This would help tackle the leverage ratio, which on a solvency basis, is at 35% just below the half year level. Over time, we expect to continue growing the business and build own funds, we are also ready to push further on deleveraging, if necessary, to meet our 2025 target. I'd like to now move on to our simplification journey, one of our three strategic priorities. And on this page, you can see the main movements in our managed cost base over the course of 2023. So we knew inflation would have been a meaningful headwind, but we more than offset it through disciplined cost actions, maintaining a flat cost base over the year. At half year, we indicated that we expected to achieve a GBP 50 million reduction in exit run rate savings by year-end, but we exceeded this guidance, achieving GBP 73 million of in-year savings that translates into an exit run rate of GBP 90 million. So you can see we're well on track to meet our target savings by 2025. Consistent with our growth aspirations, we've reinvested some of the savings we've generated to expand our international operations and also added resources to support our reentry into the BPA market. We expect these investments to remain modest in size as we maintain a disciplined approach to costs. On the next slide, I will show some examples of how we are driving forward our simplification agenda. As we explained 12 months ago, the transformation program is delivering across four main levers, which you can see on this page. In 2023, we laid the foundations of the program and took some significant actions. For example, we reduced our U.K. office space by 15%, and we optimized our technology estate, decommissioning 180 obsolete applications. We also restructured finance activities into centers of excellence which will drive efficiencies and better outcomes, and finally, we reduced consultancy and contractor spend, replacing it with cost-effective in-house capabilities, but we are not done yet and we remain focused on further delivery in '24 and '25, and we've identified several other initiatives, many of which are already in flight. We will continue to optimize our location strategy and expand our capabilities in India. We will also further rationalize the tech estate and broaden the center of excellence model across the group. And finally, we'll continue to cut consultancy and contractor spend. The key message to take away is that we are confident in our ability to deliver the GBP 200 million of savings and to unlock positive operating jaws across the business. And every day that goes by, we will become a nimbler, more focused and more efficient organization. Before wrapping up, I want to touch on the capital management framework, which we remain committed to. Thanks to the 203% solvency ratio, we have the financial strength and flexibility needed to act on leverage, a key priority for us in 2024 and as we've discussed, our initial focus is on the call date of GBP 300 million in July. The 2023 total dividend per share of 19.7p is in line with our policy of stable or increasing dividends and is prudently covered by a well-diversified capital generation. We also continue to make targeted investments in the business, supporting our simplification and growth efforts. While delivering the transformation program, we will also explore options to add capabilities through team lift-outs or small acquisitions but if we do that, it won't require large-scale investments, but rather small and disciplined deployment of capital. And finally, we remain committed to return any excess capital over time. So to summarize, over the course of 2023, we delivered net inflows into Asset Management and Wealth despite a very challenging market. We delivered a 28% increase in AOP, demonstrating the strength of our diversified business model. Operating capital generation also improved by 21% on the back of a strong underlying result, and we ended the period with a 203% solvency ratio, offsetting capital restrictions and dividends. And through a disciplined approach, we maintained cost flat year-on-year despite inflation. And with that, I'll hand back to Andrea to wrap up.

Thank you, Kathryn. And now to conclude, 12 months ago, we shared with you our vision for M&G. Today, we have shown you the progress we already achieved and what we are working on in 2024. And we have ambitious targets, which you can see on this slide. We are confident we will achieve them, thanks to our relentless focus on our three strategic priorities: financial strength, simplification and growth. It is thanks to the hard work of all our colleagues across M&G that today's financial results are strong results. We achieved higher earnings, operating capital and solvency ratio year-on-year. And our transformation program is delivering a more efficient business with streamlined processes and clear accountabilities leading to a better client outcomes. We also continue to evidence growth momentum with positive net client flows in both asset management and Wealth in spite of continued challenging market environment. Ultimately, these results demonstrate once again the strength of our business model. With three balanced and complementary parts, our business model gives us the diversification and resilience we need to succeed. We are building on our financial strength, we are simplifying the business, and we are delivering growth. Thank you.

Thank you very much, Andrea and Kathryn. I know there are a few analysts that are double booked with also direct lines. So if you don't mind, I'm not going to go to the fastest end, but rather to those people first. I think James you're somewhere in the room? Yes, the towards the back. So you want to go first? I don't know. I'm presuming you're having a question, but I'm not -- sorry. And as a reminder, if you could introduce yourself -- remember to press on the bottom of the mic.

James Pearse from Jefferies. First one, just on the capital generation target. Obviously, a significant portion of the way through that. So just curious as to why you feel the need to, I guess, upgrade that target from the current GBP 2.5 billion level? And second one, just on the consumer duty rules, so aware that the heritage book will fall into scope of those rules this year. So if you could kind of just give us some color in terms of the impact of those new rules and how well prepared you are for those?

Okay. I'll just start on the capital generation target. I mean as you saw, we are 72% of the target of the 66% of the time. It was actually the only target that was here when I arrived the business. So is from my predecessor. We actually added other 4 targets. So let us deliver this one until the end of the year, and then we will then give you something else by 2025. Okay. I don't think you -- you want to add something on that?

Well, I think it's probably worth just saying that we were delighted that it was just under GBP 1 billion or GBP 1.8 billion of the way there. And I think you heard in my speech that there were some tailwinds in the year that we implied certainly on the underlying results, there was around GBP 50 million coming from [indiscernible]. We had an asset management benefit on the ceding portfolio with a GBP 50 million tailwind that came through in BPAs. And then obviously, we did amazingly well in terms of management actions at GBP 244 million. So I think we're trying to encourage people to think that we're very confident in sticking with our GBP 100 million to GBP 200 million management actions target. But it was quite unusual last year and that was driven in part by the meaningful strategic asset allocation that we did within the With-Profits fund. But certainly, we're very confident on hitting the target. And I think, as Andrea said, we'll get to the target, and then we'll update the target.

Consumer duty. First of all, we are very much focused on it. And I would say we have been focused on client outcome even before consumer duty came into effect. And we have taken actions even before the consumer duty came. So for example, we reviewed our fees on our SICAV range and our OIC range in 2020 and 2021. And to the back book question that you had, we effectively canceled exit charges on the back book, both for individual and corporate pension in 2019. So we do not expect any material impact coming out of this. But obviously, we're very much focused on client outcome and consumer duty is part of that. And if I may say, I think in -- when you talk about client outcome, investment performance is also part of that. And as you have seen, we have a very, very strong investment performance.

Do you want to go next, Rhea? Just because you're also double booked, so being mindful of that.

Rhea Shah, Deutsche Bank. Two questions. So firstly, on the advice proposition, I mean, you've talked about wanting to broaden the distribution scale it up. What is the cost of doing this? And when should we see profitability in and of all the other Wealth elements of the business? And then the second question around the dividend. At what stage would you consider increasing the dividend guidance? I get that it will probably be related to the leverage ratio being achieved. But would it then be linked to how we see or how underlying capital generation is growing because it has been pretty strong in recent years?

Okay. Why don't we start with the dividend. Can you take up with the capital management framework? We can see it just to -- then I would pass over to CFO. But I mean, let's be clear on -- we have a very clear capital management framework. It's all about financial strength first. And we told you today that we're focusing on leverage in this year. It's something that we're committed to, to reduce by 2025 to below 30%. You saw that we are growing the business and we are investing also in the business to support that growth. I think -- when I look at asset management and what we want to achieve in the asset management business going forward, we would need to support that, in particular, on private assets, but also on our international expansion. Clearly, we want to pay an attractive or stable or increasing dividend. It's something that we have been doing this year. It's an attractive dividend. And obviously, the strong results is supporting that. The dividend matter, as you know, is something for the Board to review, and it's something that we will look at the end of 2024. But I don't know if you want to add something to it.

I think that was very comprehensive. So I think we gave some guidance around OCG this year versus last year, but it's clearly still very, very strong. Our priority this year really is leverage. We already pay an attractive dividend. And I think the key thing is we want to continue growing the business. So we need to continue to create capacity through savings and make investments across the group in a very disciplined way to drive growth and drive returns.

Then your question on Wealth. First of all, I am pleased with what we have delivered so far. I mean you saw the numbers. The Wealth business increased its AOP by 14%. I think that's a great result. Secondly, we should not forget what the Wealth is within our business model. Why do we have the Wealth business. It's there to distribute our asset management solution, but also our live products, in particular PruFund, but there are also other products as well. Now we want to see this business to grow in a profitable manner. And with Caroline coming in, I have asked her to look at how we can, first of all, grow it. And how do we going to grow it. We want to grow it by broadening the advisers. You saw on the slides that we want to increase already a network of 500 advisers that makes us the fourth largest of [indiscernible] advisory in the country. They want to grow that, utilizing our Academy. So it's internal growth. So we have 166 graduates there, and we're confident we can do that. But we also want to broaden our distribution, thanks to platform. So we have a platform that we believe that we can also put our products on other platforms. So once again, it's broadening the distribution. And then it's a question about products. The proof for sure is the jewel in the crown. But we have other great products. PruFolio is one, and we would like to see more momentum on that, but also model portfolio services. So it's about also broadening the product mix out there. Clearly, we're focused also on profitability. We have an overall transformation and simplification program. It's touches all the businesses, and it's very much part of the numbers that you have seen there. We delivered GBP 90 million as a run rate of cost savings, and we're committed to deliver GBP 200 million by 2025. I don't know if there's something you want to add?

Maybe the only small thing that might have been implicit in your question when you asked how much it's going to cost to grow the advice network. I think while in the past, we did a couple of acquisitions. I hope the message came clear that what we're really focused on is drive growth organically through the Academy, which is we have really built it up very rapidly over the last couple of years, launched only 2 years ago. Last year, we had over 30 graduates coming from [indiscernible] and now we've got over 160 in training, right? So I think we see that as the main driver of the growth in that specific segment as opposed to inorganic. I think Tom Bateman, another one of the direct line crowd.

They have to leave or that...

Well, I don't know, I just want to give them the time to ask their questions and then if they need to run, they can.

Thomas Bateman from Berenberg. I guess on Slide 24, your fees are really resilient. And I just want to understand, is that just risk mix there? Or have you changed pricing at all? And how should we think about the impact potentially from public fixed income. Is that a lower or a higher margin product? And then secondly, Wealth is clearly a bigger focus of yours. I was just wondering if you have seen any impact from the regulatory changes and potentially any fallout from any of your competitors?

Okay. So I mean, when I look at this slide, obviously, it makes me very proud because when you look at most asset management, the weighted average bps goes down, and I would say we are a standout performer here looking at this. Now you rightly said, clearly, that is driven by private assets. It is true when rates are normalizing, we will see more institutions moving into public fixed income, buy and maintain strategies, et cetera. And clearly, they are not as rich in terms of bps as private assets. But when I look at the numbers, for example, of 2023, and you look at our international expansion, the GBP 5.5 billion of institutional net new money we had, GBP 1.6 billion of that was private assets, okay? GBP 3.9 billion were public assets, mainly fixed income. Obviously, I think we will see more interest in credit overall, not only public but also private. And we very much believe that we will see more momentum on private credit in particular here in Europe in 2024. So yes, we believe that average given our focus on private assets can be maintained or even go up. But I mean, I would say it's a product mix we have to see. Then of course, you have the U.K. where we saw flows being a bit more challenged due to this. But even there, the last half of the year, we had GBP 3.8 billion of redemption on institution on the first half and GBP 2.4 billion in the second half, we believe that, that is going to reduce as well while we are focusing on local authorities and insurance companies. And let's not forget about the wholesale. The wholesale there is richest d in terms of bps. We are really a positive outlier when it comes down to wholesale net new money. You saw the numbers. We have delivered GBP 2 billion of net new money in the last 2 years, whereas the market here in Europe has been GBP 350 billion of outflows -- of outflows GBP 350 billion. Why is that? Because we have exceptional investment performance, and we are in the asset classes where there is interest. Now clearly, with the market where it is today in terms of rates, a lot of retail savers keep cash and invest in gels or government bond. When rates are going to sort of normalize, we believe they're going to come back and who are they going to choose? They're going to choose the best performing active asset manager. M&G is one of them for sure. That's on asset management.

The other one was on Wealth. And I think there was regulatory change, if we have seen any impact. I guess, what's going on with some of our peers and whether that's impacting flows as well.

You are talking about adviser services review, I guess, the FCA one, which we take very seriously. But I'm glad to say that we have, once again, here since long, taken already action in the sense that our advisers need to log in the review they have on an annual basis with their clients. And we also have a control team to look at that. So I mean we I don't foresee any material impact from this. We are well placed.

And I guess not to put words in your mouth, but if you've got any view on also like volumes as opposed to purely the specifics of the regulation, was that an aspect?

It was more of a positive angle actually. Are you seeing inflows from customers that maybe have left your peers?

You mean, okay, well, listen, I showed you the -- we showed there are 12 million of households there who are looking for advice, and they need to have accessible advice. Clearly, we believe having more adviser out there will help and that potentially has a positive in terms of flows. Also, let's not forget, we've been focusing in the past very much on the decumulation phase. Now we're sort of expanding and looking also at the accumulation phase on the retail and the affluent side. So yes, that could have a positive impact. But once again, it's a mixture of having the right distribution, IFAs, broadening on platforms, but also having the right solutions. PruFund is one for sure. But as I said before, PruFolio and NPS are others.

And I think you'd possibly expect the CFO to come in with something slightly more moderating. Just in terms of the external environment, let's see anything I'd say, and we've said that, obviously, we do feel we're very well positioned overall in the industry. We're not commenting on peers. But I just think as we come into '24, I think Andrea said that the alternative products that we see with cash and savings products and government bonds and a degree of caution also that it will probably take into the second half of the year before we might see some of that benefit.

It's good to have a cautious CFO.

Exactly. I think we've done those also covering the LP. If I've forgotten any, please remind me of that. So now to everyone else, I think Andrew was the fast -- Andrew Baker was the fastest. Let's do Andrew, so we can do Baker, Crean, Sinclair and then we go to Farooq.

Great. Andrew Baker, Citi. Two for me, please. First is on leverage. So very clear this priority 2025 target looks like the GBP 300 million you flagged that. You still need own funds growth you're leaving it open, it seems like for additional leverage on top of that. I assume that's just because of the uncertain macro environment. So in a sort of base case of macro stay broadly where they are today? Would you expect owned funds growth to be enough to get you to achieving that target? And then secondly, just on the Wealth distribution, third-party platforms. What does that mean for your own platform? Does it make sense to have your own platform with that new strategy? I'm just curious sort of what led to that change in thinking in that area as well.

Okay. Let me start with the platform. We have one platform. What I told you is we want to expand and we're agnostic when it comes down to platform. Clearly, our platform delivers volumes. I think it delivered 8% of the volume, 6% to 8% of PruFund. We want to make sure PruFund also is accessible on other platforms. So it's not that we are questioning the existing platform. We just want to expand the distribution. On leverage?

And so on leverage, we are very confident in our ability to grow own funds, absolutely. As you know, we start with a leverage ratio that's slightly down on half one. More conservative calculation basis than all of our peers, as you know and also we look at IFRS 17 by 29%. But we are confident in generating own funds. We also have a call date subject to regulatory approval in July. And if we need to do more than GBP 300 million, and we know the math, we absolutely know what we can do in terms of holdco debt and the bonds we have outstanding.

So okay, you're kindly passing on your...

They're working together.

I'll go for 3, if that's okay. First on the sustainability of the annuity book, the GBP 1.0 billion to GBP 1.5 billion, what basis? Is that CSM, own funds, cash? How should we think about what would you mean by sustainability? And secondly just on the Advice Academy. Great to see 166 trainees that are in there at the moment. At the moment 166, that looks about 1/3 of your qualified adviser head count. So where do you expect them to go post-qualification when they graduate out of the Academy it seems quite a high rate to absorb? And third was just on asset management, international net inflows. I know a big focus for you. Good to see the pickup on 2022, but we're kind of only about back to the levels we had in 2021 in terms of net inflows from international to asset management. Should we really expect that to be ramping up? What's the time frame for that of what you expect?

Okay. I'll -- Caroline, I'm going to let you -- this is a good time for possibility also for our CEO to speak. So I don't know if you want to respond? Maybe just to introduce Caroline. You can stand up so everybody can see you. Caroline Connellan, our CEO of Wealth.

On the Advice Academy. So yes, we do have 166 in training. It takes 2 years in the Academy to become a qualified adviser and then 2 years of close supervision afterwards where you are -- what the adviser is earning at that point. Our model today is a mixture of self-employed and employed. And actually, one of the big areas that we have as an advantage over many of our competitors is the 4 million customers that sit in our heritage book. Many of them in due course, will need some kind of advice. And that has been an area where our advisers have often supported to those customers when it's appropriate to do so. So we're not just asking them to graduate and go items to the market and sort of look for new business themselves. I think this is one of the real advantages of us being part of this group and the unique model that Andrea has talked about.

So the question on -- then I'll let you, so I'll -- you said international growth. I mean, first of all, and we should not forget the challenging market environment we had in 2023. When I see what we have delivered in terms of net new money during 2023. I think that's a great achievement. And as I said before, that's a mixture between public assets at, 3.8%, exactly and 1.6% in private assets. So looking in 2024, clearly, we believe -- I mean, we believe -- I think most of us believe that there will be on the interest rates that there will be a normalization of rates probably towards the second half institutions, interesting enough, have already started to sort of look more closely, both at fixed income, but also as I said, private credit. So we see this is going to -- this is probably going to accelerate potentially later. But think given our -- both our international presence, we have hired several very, I would say, senior people in our team. We're very much focused in key countries. We have great , and I would say this is very important. The relationships or new relations we create with some institutions. The fact that we have skin in the game, very, very important one, even more important now than ever. The fact that you can come and explain the strategy and say, you know what, our insurance book has invested GBP 500 million in here or GBP 300 million, whatever it is, that is a strong competitive advantage versus many others. And of course, the investment performance, which is good. So I mean, I feel that we are in a good place. Of course, the market environment is where it is, but we should be in a good place to continue the momentum that we have. I mean, these numbers, they're all growing.

And maybe, I guess, to add on that one. You say you can make the comparison across year '21, '23, but '23 is a very tough and very different place than the past, right? So I think there's almost different specific ways to flows in different period of times. I guess, Kathryn, do you want to take BPA?

On BPAs, it's really consistent with what we said a year ago. So it's GBP 1 billion to GBP 1.5 billion of sales. We have -- we've just about done that in the 12 months. We're at now GBP 900 million. And you saw that we had obviously a contribution to the CSM. So when we think about -- and I'll start with obviously the more vanilla capital heavy ones. We obviously have a budget that we think about, and that was the GBP 46 million that we talked about in our numbers. We're very disciplined. We've not given you the day 1 strain. Obviously, our decisions around reinsuring longevity factor into that day 1 strain, but we have clear capital allocation framework, a very strict hurdle rates and have guided to the double -- mid-teens IRR for that. So we want to make sure that we deploy. We've got plentiful capital, but in a very thoughtful, very disciplined way. And so we'll look at IRRs, and we clearly know what strain. So far, we've not reinsured longevity. And what Andrea talked about in his earlier section today, which you can see here is that we've got a number of other options also for this market, and there's more than enough supply, obviously, as we've talked about, and we're going to continue to be selective. We've got really strong capabilities with our private asset capabilities. we really want to support flows into asset management, and we want to support all our clients here in the U.K. So we've talked about having a risk-sharing arrangement with DB scheme sponsors. And also, we've got over GBP 7 billion of excess profit within the With-Profits fund. And we can use that capital to when we think about potential guarantees. So there are a number of options. The vanilla BPA will be subject to very strict capital allocation framework.

Makes sense, but sorry, just to understand. So when you say it's going to be sustainable, if you write GBP 1 billion to GBP 1.5 billion, on what basis is that staying sustainable?

It's premiums. So like the 3 deals that we have done, we brought in GBP 300 million of premium each.

So assets under management?

Yes, if you want to look at it that way. Andrew?

Andrew Crean, still at Autonomous. Three questions. Firstly, you're nearly at the end of the first quarter, how have net flows been in your asset management business and in your Wealth business in the first quarter? Secondly, PruFund. I mean, the net flows are still marginally positive. Could you tell us a little bit more about your strategies in Europe that doesn't seem to really [indiscernible]? And also, I'm quite interested by these strategies on the corporate risk side. I mean what sort of volumes are you expecting over time? And then thirdly, I just wanted to ask on the capital management strategy. Yes, you're above the GBP 190 million, but you're talking about lower rates, and I think 100 basis till take 14 points of your solvency margin. So would you be happy entertaining capital returns to shareholders, given a higher than 190 solvency margin if rates remained here and you worried about them coming down.

So I might have counted more three but we'll go through all of them. Maybe Andrea, do you want to start with flows year-to-date both, I guess, asset management and Wealth?

Well, the market environment continues to be very similar to the second half of last year. As I said before, we see more interest from the institutions that are moving into credit. But I would say the retail investors are still very much still in cash and in government bonds or gilts. And I would say we probably would see that move probably after the summer, depending, of course, where rates go once again. But I would probably put more the first half more similar to the second half of last year in terms of flows on asset management. When it comes down to Wealth, even here, probably even more because the retail savers always are later than institutions, they are still really holding on to cash and to gilts. So we will see, I think, we probably will see similar H1 to, let's say, the slowdown we saw in H2 on PruFund. We had a stronger H1 last year on PruFund in terms of volumes. So yes, you should think probably H1 is similar to H2 last year in terms of flows. On PruFund in Europe, it's true. I haven't said anything on it. It's still an opportunity, I would say, even Europe and internationally. I always said that it's fundamental to have a different proposition. We need a capital guarantee on this product. We had the With-Profits, of course, surplus capital that we can utilize in order to do that. So we're working on that proposition. But you also need to have a strong partner. And with a strong partner, you need a partner that can support you in more than 1 country. And clearly, we are in discussion with some of those that's calling insurance partner just to be very clear, European ones. So I still think that this is an opportunity for us, but I would say probably more towards end of the year or 2025.

And then I guess, given that we are on this slide, if you want to comment a little bit on, I guess, solution 2 and 3, how they're different from the BPA, I don't think we want to guide to any specific more that.

Should I do it?

Well, I think we hope to make progress with some transactions towards the second half of the year and probably a year from now, we'll be able to give clearer guidance on volumes with these sorts of products. We're very excited again about what we can do with Clive as the Life CEO. And we've got great relationship with the With-Profits fund, and obviously, this really good partnership amongst all 3 businesses. So we're not going to really guide to additional volumes here, but we'll give some more color, but we're confident we'll see progress across the corporate and individual in the second half of the year.

And the last question was about, I guess, to an extent, your solvency ratio is actually the rates and rates might go down. But if they don't, could you entertain the thought of capital returns, right? I guess, in a summary. So it's between CEO and CFO.

So I think we've talked about the capital management framework and that we're looking to invest in the business and that we obviously are focused on leverage. Leverage is the #1 priority for this year. the rate environment, I would describe is quite uncertain. I mean the market sentiment on the back of bad news and then where the Bank of England is, obviously, with the latest inflation data being a little bit more encouraging. I would say that probably as a management team, we wanted a strong dividend. We want to continue to invest in the business. And probably there will be a preference for using excess capital at the right time once leading all of our targets to invest in the business. And obviously, we asked earlier about is there the opportunity to grow the dividend rather than potential for one-off meaningful share buyback, for example.

And let's be very clear when we talk about investing in the business, the asset management is the business we're talking most about. It doesn't mean we're not investing in the other businesses, but we clearly want to see the asset management emerge, given also its excellent investment performance and what we have in terms of momentum.

I promise it to Farooq and then Mandeep.

Farooq Hanif from JPMorgan. Just going back to regulations. One of the big themes is the thematic review on retirement income. And obviously, PruFund is an obvious product for decumulation. You talked about it, I think only about 10% of assets, the company decumulation actually go into some sort of guaranteed product. So can you talk about the engagement you've had with Pfizers and with the regulator on PruFund? Because you didn't mention it and I was quite surprised. That's question one. Question 2, back of the envelope, I may be wrong, but to get to a 70% cost income ratio, you need to grow revenue margin, grow assets and cut absolute costs. Is that a correct characterization without giving a forecast. And maybe just actually now I'll leave it to those 2 questions.

Okay. I will -- if Caroline is fine, I'll let you respond to the first question, then I'll take the second.

Yes. Like any thematic review, it's something that we look closely at and consider our business model against. What I would say is that clearly where individuals are in the U.K., they're very different requirements for income through retirement and there's often now even up to sort of 10- or 20-year transition into full retirement. Typically the focus of the regulator around sort of guaranteed income, so by lifetime annuities, et cetera, is that the less affluent end where there's really not the opportunity to take the risk that at the individual level because the minimum levels are so low, where you get into the advice and decumulation advice is where we specialize because of PruFund and we have a lot of technical support that we don't use internally, but also we take out to the 80% of the external adviser market that we distribute to is that we're absolutely considering that we're positioned in the appropriate way and that we're looking at the specific client circumstances and delivering the right advice off the back of that.

So on the cost-to-income ratio of the asset management, I mean, first of all, we remain committed to delivering 70% by the end of '23, '25. So from 79% to 70%, which is a significant improvement. But let's look at the 79% why we're there and what were the good things we did. First of all, we managed to keep costs effectively flat in 2023. And you know we were in an inflationary environment. So that means effectively that we have reduced cost, but we have also invested because we invested, I think, GBP 6 million exactly into the business. But what's really deteriorated for us was the fact that we have lower average AUM during '23. I think there's a slide on this. We can show it, in 2023. And clearly, with the rally, we are effectively at the better end of 2023. You can see here at [ GBP 314 billion ]. It depends, of course, how market goes, but average -- it's the assets earning assets that count a lot here. Plus, of course, if you can increase your business. But I think by managing costs well, which we are doing, I think we have proven that. Obviously, there will be market FX and then, of course, by growing, we believe that we will improve this cost-to-income ratio, and we're committed to the 70% next year. This year, of course, we want to see significant improvement.

And I think I was just going to add one thing, which is we did very deliberately put an asset management cost slide in and we've indicated that we expect the cost to be flat. We've got tailwinds coming through into asset management already on top of the savings that we've delivered last year, and we've guided across the group to see more opportunities coming across all 4 of those levers. And obviously, some of the benefits group-wide from the VR program we did last year will impact 2024 more than '23. So the most important thing, as Andreas said, we are creating capacity becoming a more efficient organization and an asset management. We absolutely want to make sure the business has got the opportunity to invest in growth to continue building out internationally to invest in private assets in a very disciplined way. But we have to grow the top line and that does require investments, but -- which is why we're being very disciplined on the cost base.

Dom, Mandeep and then Nasib.

Dom O'Mahony, BNP Paribas Exane. So first question, just on Slide 15, I got very excited about Slide 15 and I suppose...

What does that tell about you, Dom?

But I guess the serious point is I mean you've got clearly no solvency constraint in the With-Profits fund. It strikes me there are very interesting customer needs that are not being backed by the market. I wonder if you could go into a little bit more detail on what gaps you see in the provision of solutions, both on the retail side and the corporate side and why what you can do is different? But also talk a bit about the governance constraints around how the With-Profits bundle and engage with these products. I mean is it as simple as the IRR versus giving the cash back to investors through special bonuses? That's question one. Technical one just on the bulk business. So the GBP 60 million setup costs, which has turned into GBP 46 million. That's just a one-off. That's not a number I have to bake into my report?

Yes.

Good. Okay. Answered. And then just another question on capital management. You're probably bored of these by now, but on my math versus your solvency target, you've got about GBP 800 million of excess, and that pays for both the July note and the next one, if you wanted. So it strikes me that there isn't -- from a solvency view, there's no constraint in your ability to deliver and do that, frankly, now. And in that context, I struggle to really understand we're talking about the dividend growth. And put another way, I might have inferred that actually there's a constraint on cash beyond capital, is there a constraint on cash written beyond capital? Or actually, is it just that you want to manage your own funds and it's as simple as that?

I think we have Clive Bolton, who is our CEO of Life, to your first question.

And just to repeat it, Clive, it's about do we see -- what gaps do we see in the market, what's the governance around it with profit and potentially the keenness to address those gaps with our capital?

I'll just stand up and say hi, and then sit down so you can see the screen. And to reckon the comment of earlier, we are very excited about Slide 15, too. I think the unfilled potential of using the With-Profit fund and the shareholder fund. They're both balance sheets. They can both take Life risk on, and they have different qualities and aspirations that we find them complementary in a way they partner and I think the previous slide demonstrated a bit how that partnership works in some of the revenue transfer as the shares or as I said is, in many ways, the execution partner for the With-Profit fund, which is just a fund. It's not a business. So we go back to the Slide 15. Just on the left-hand side, one of the things we want to do is launch products with a high guaranteed element. They're still With-Profits. So we will write them through the With-Profit fund. And that speaks to Andrea's point earlier about some of the outflows improved fund, which has a high alpha. The clients they are seeking more guaranteed income, and we think we can provide that as we as I like to think of it, we broadened the PruFund franchise to cover more customer needs. So you'll see some of that activity at the back end of this year and into next year. So it'll still be With-Profits fund product. It will still have a [indiscernible] bonus but like PruFund, it will be more recognizable as a regular products that sold and traded in the market. compared to the very high bonus levels that we saw in some of the traditional With-Profit funds, with profit and downward products. And just on the right-hand side, not everybody, we think, will want to give all their surplus or their fund to an insurer, some will. Others want a capital-light solution where they maintain some control and share in some of the upside. They actually protect themselves from some of the risks. And moving on to the final side through the -- one of the things that the With-Profit fund can do is right guarantees. It's essentially in this market does 3 things. It has a great diversified portfolio and track record as we've seen from the speakers before it has the ability to smooth returns. It has the ability to write guarantees because of its strength and its long-term view. And we think all 3 of those things could be relevant to the third box in terms of being developed and these would be investment products that would sit within pension schemes and provide that guarantee and insurance with some equity upside backed by the strength of the With-Profit fund.

Thank you, at I think the answer on the budget was -- the capital budget was already answered. So maybe, let's go on the final one that was once again on the capital management framework and cash.

So in terms of the constraints on the group and how we think about the deployment of capital that we have. We have said that the priority is going to be on leverage. And we've got the call date. We obviously know what we might need to do on top of that and are more than comfortable that we'll be able to do it. On the -- we've said, I think, before that we have strengthened the group-wide approach in terms of subsidiary, robust capital utility management, regulated subsidiaries, and we also strengthened at the holding company. The liquidity sitting at the holding company has gone up by about GBP 170 million since the second half. It's a really simple approach in terms of the optics of the number of GBP 1 billion or GBP 830 million or whatever the number is, we know is important. But the approach to liquidity management is more sophisticated that. That's more just because we know what people see. We did upstream GBP 700 million last year, which just exactly matched outflows. And we do need to go through the governance to dividend up, but we currently have very strong capital and very strong liquidity in the subsidiaries, and we upstream as and when. So we're very comfortably positioned. We know we'll hit the leverage target and we've got own funds opportunities, but we will take action if we need to.

Mandeep?

Mandeep Jagpal, RBC Capital Markets. Three questions from me, please. First one is on net flows again. I appreciate the comments on international but Andreas also mentioned, a more stable pattern in the U.K. institutional going forward. Could you provide more color on what that could mean for the level of U.K. flows? Then 2 more on BPA. There's a GBP 42 million contribution in the CSM from written BPA. I think that implies a margin of about 7% of premiums. Is that a good run rate going forward? Or are there other elements to consider? And then just finally, on longevity risk, you have a different approach to peers retaining all of it. I think you said what's your thinking there as I understand that longevity arrangement for pricing is currently as attractive as it's ever been making it highly capital efficient to reinsure even with the reduction in the risk margin?

Thank you. Listen, I had 2 CEOs speaking. I would like our CEO of Asset Management also to speak. So Joseph, I don't know is that okay, if you answer on the U.K. question? Joseph Pinto, our CEO for Asset Management.

Everyone, nice to meet you. Joseph Pinto, CEO of Asset Management. I need to say that, I guess, for the second time. Thanks for the question. Yes. So for the U.K. institutional market effectively, the dynamic there are 4 segments in U.K. institutional, the DB pension scheme where we did software in the past, the DC segment the Life insurance one. So we target other Life insurance companies. And then what Andrea mentioned, the LGPS, the local government pension systems. We are doing very well on the LGPS ones, and we keep growing over there. we're extremely relevant for insurance companies, other insurance companies as well. We have a strong offer, and that's where we expect also to grow. And also on the discipline, thanks to the strong private assets offer we effectively push the private assets that they offer to the default option that represent, I think, 95% today of any discipline in this country, and that's our differentiating factor, knowing that usually any discipline investing into public markets, fixed income, equities, multi-asset, use passive products. So that's our differentiating factor on the DC one. All of this should offset flows, negative flows as we know in the DB segment. Still on DB, we are having also a defensive approach by having a buy and maintain fixed income strategy at Yes. indeed lower fees than what were, let's say, clients used to on the DB plans. But all in all, we will be able to stabilize, let's say, the shape on the institutional U.K. side.

So I think you could probably expect the GBP 42 billion to perhaps increase if we're doing GBP 1 billion or so in the year in terms of movement into the CSM, which we obviously include operating change in CSM. And -- but we're not giving any more guidance really than just the mid-teens. We do look at strain. And I think we mentioned in our comments that we haven't yet used the longevity reinsurance option, but we're not ruling it out. We're really aware of the economics there and what that does to our capital and our day 1 strain. We've also got with profit meaningful balance sheet as well. So we are taking a slightly different approach to peers we know, as you said, but we're not going to rule it out. And it's key for us to continue with the product development that Clive talked about. And we do see meaningful opportunities also just in the vanilla space, using some capital given what the clients are looking for and what we bring particularly with this private assets capability.

And obviously, on the GBP 42 million CSM number, I guess, having just started, I mean just written on a couple of deals. I think it's normal that, that number might be a little bit more polite on a pro rata basis versus someone that is writing GBP 10 billion a year every year, right? So obviously, that's representative of the good economics that we are delivering, but don't take it [indiscernible], particularly in these first few years.

Nasib Ahmed from UBS. So firstly, I'll start with a question on that slide. You've got GBP 46 million of budget. And if I divide it by your target volume, it's about 3.5% gain. Is that kind of the right math that I'm doing there? And is the GBP 46 million coming down from GBP 60 million because of risk margin reforms? If that gets priced away, are you going to bump back up to 60 to meet your volumes? And final question on this sub question, $46 million, is that on a 100% SCR or on your capital management? Secondly, Slide 15 again. On the right-hand side, on the corporate actions, there's enough PP out there, you're doing GBP 1 billion to GBP 1.5 billion. You can offset the run of why do the other things. It seems like you're getting distracted. I know you can do it. given that you've got the With-Profit funds, why dip into that market given you've got so much BPA volume coming through? And then finally, Slide 46, you've got GBP 14.5 billion of back book OCG coming through. Last year, it was GBP 12 billion. What's the delta? Why has that improved so much?

So maybe just on the math and the 3.5% strain. That's if you divided by GBP 1.5 billion, not if you divide it by GBP 1 billion. So otherwise, it's 4.5 strain. Like it's an indicative number about pipelines that you have by the beginning of the year, your risk-weighted and so on and support. So it's indicative don't--it's not dictating what we're actually going to do and what level of strain we're going to accept.

And so the initial GBP 60 million was before we sort of entered the market and we've put aside the capital in 2022. So we'll obviously continue -- we've got the budget available clearly for -- to meet the volumes that we want to do in the year. And we don't yet have a full picture, I think, in terms of across the whole market of how risk margin will form will impact economics and returns and everything on the business for us. You may have seen that we are a bit different from here on the final outcome around Solvency II reform because we guided to not really benefiting from the risk margin reduction because of TMTP essentially offsetting it. We did actually have a GBP 66 million benefit in our Irish subsidiary. But what delivered most of the GBP 177 million of benefit was actually the removal of the financial resources requirement, which I think, again, was a little bit more unique to us because we had the closed book for most of the time since 2016. So that was a one-off benefit. And I think we'll ignore that when we now think about the right economics and the IRRs we want to deliver for a future business in '24.

And I guess the other question is, why do we bother, so to speak, doing 2 or 3 if there's enough strong demand in one. Although I think private already partly answered by saying that not all clients want to move directly to buy out, and this is a way to still drive close to the asset manager.

Yes. I think we are being prudent. We're very excited about the opportunities. We have got the capital, as you said. It does bring assets into the group. It does top up that capital runoff profile that you saw at the back. So I think for now, we're going to stick with the initial guidance. And we've got good opportunities to write business on a selective basis with the clients and the deals that we are engaging with.

And then quickly going to Page 46. This number has gone up from GBP 12 billion -- I think it was GBP 12 billion last year, GBP 12 billion to GBP 14.5 billion. So you want to cover that?

You can cover it.

That's the fundamental drivers this interest rates and projection out. So effectively, their rates at the beginning of the year, they've not change hugely year-on-year. But obviously, we have also a projection of how rates will develop. So it probably before, we thought that the increase in rate would have been more transient and therefore, only the first year or 2 in this projection benefited from those higher rates. I mean, hopefully, we're not going to see a desire rate forever, but we have extended that a little bit, plus obviously, this factors in the in-force book. We had very strong proven sales this year. So that's something that is helping it up. The new BPA deals is again a factor. So a couple of different dynamics. But ultimately, this is something very important for us, underpins our confidence in the dividend ability to cover the debt as well. So it's an appendix slide, but it's a very important slide. Any more questions? Otherwise, I think we are good quickly checking online, but it looks like there's no question. So with that, do you want to say a couple of words?

No, no, I just want to thank everyone. I've been grilling here behind with the heat. So it's really hot. Thank you. I mean, as you saw, I mean, these are great results. And clearly, I know I come across as confident, but if you look at the progress we've done on our 3 strategic priorities, we're in a good place to continue to deliver. So thank you very much and looking forward to see you in the coming days and months. Thanks.

Thank you.