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

Good morning, and welcome to M&G plc's Half Year Financial Results. I will now transfer you over to Luca Gagliardi, Director of Investor Relations, to begin.

Good morning, everyone, and welcome to M&G's 2024 half year results. Thanks for those joining through the webcast and those in person here in the room. Today, we're going to go through a brief presentation with Andrea Rossi, our CEO; and Kathryn McLeland, our CFO. And after that, we'll wrap up with a question from the room. And obviously, those online can also submit their questions. So without further ado, over to Andrea. Thank you very much.

Good morning, and welcome to M&G's half year results. I am very happy to be here with you today to share the progress we have achieved so far in 2024 as we continue to deliver on our strategic priorities and to lay the foundation for sustainable business growth. Over the last 6 months, we have taken meaningful steps forward both from an operational perspective and towards all our financial targets. Despite the high rate environment, which subdued new business sales, we delivered a good performance with both operating profit and capital generation nearly matching last year's record results. And thanks to our strong investment performance, we achieved some of the best flows among active managers. With market trends improving, we are well placed to capitalize on growth opportunities. Let me now take you through the key business highlights. We began our strategic journey 18 months ago when I outlined my 3 priorities for M&G: Financial strength, simplification and growth. We continue to relentlessly focus on, and I'm proud of how much we have already achieved. So first, let me talk about financial strength. In March, I told you that deleveraging was our top priority. Today, M&G has a very strong capital position and the lowest level of debt since becoming an independent company back in 2019. Thanks to the deleveraging actions announced in June, we bought back GBP 461 million of debt, reduced ongoing interest by GBP 21 million per annum and lowered our capital restrictions to zero. Secondly, let's discuss simplification. Our transformation program is progressing well. We have increased the pace of cost reduction and already delivered GBP 121 million of savings. Looking ahead, we remain committed to absorb inflationary pressures and improve profitability across the whole business. And simplification isn't just about cost, of course. This is also about focus and making tough choices about where we deploy our capital. After a strategic review, we concluded that our competitive position in the wealth market is not sufficiently strong to ensure profitable growth without permitting significant further resources. This is why we have decided to focus and rationalize our wealth strategy. We will exit our digital platform and bring together the Wealth and Life operations under Clive Bolton's leadership. Through this change, we remain committed to the U.K. retail market, which offers a compelling growth opportunity for M&G but we will focus and coordinate our efforts, complementing PruFund with the life insurance solutions that our customers want. We will also stop non-value-adding activities, reduce duplication and improve operational efficiency. Underpinning all of this is our ongoing focus on delivering improved service. And finally, on growth. 18 months into our journey, we have successfully navigated a challenging macro environment. Despite headwinds in the U.K. the asset manager continued to expand internationally with nearly GBP 2 billion of net inflows in the first half. And we have also seen positive traction over the summer with over GBP 700 million of net inflows in July and August, we are confident about our momentum for the second half of the year. I'm also pleased with the ongoing progress in the Life segment. After re-entering the BPA market, we are now working on a number of exciting opportunities we can unlock through our With-Profits Fund. Our Life team is developing new investment and guaranteed products, which we expect will drive greater flows into the group from 2025 onwards. To do so, we will also leverage the meaningful excess capital in the With-Profits Fund. For M&G, this mean participating in the life insurance market through capital-lite solutions, a unique competitive advantage. I already mentioned a strong progress we have made across all our financial targets in just 6 months. You can see a summary of that progress on this slide. The GBP 0.5 billion operating capital delivered in H1 means that we have almost reached our 3-year cumulative target. This is why we have decided to upgrade it from GBP 2.5 billion to GBP 2.7 billion, reflecting our confidence in a continued strong operating results. Earlier, I spoke about how we tackle leverage. Considering the actions already taken and the strength of our balance sheet, we are on track to reach our targets through organic Own Funds growth. And on simplification. Given the progress of a transformation program, we are increasing the cost savings target to GBP 220 million. And this is before any additional benefit from the rationalization of Wealth. In doing this, we reaffirm the importance of a culture of responsible cost discipline across the entire organization. I also welcome the improvement in the asset management cost-to-income ratio from 79% to 77%. This is an important achievement by Joseph Pinto and his team. Thank you, Joseph. But we know we need to do more. And finally, the share of capital-lite earnings increased from 42% to 45%, thanks to the 9% improvement in the asset management results as we continue to pivot our business towards capital-lite growth. Let's now look at each priority in a bit more detail, starting with financial strength. The key message I wanted to take away is that M&G has never been in such a strong financial position. M&G's balance sheet is in great shape and well positioned to support the business. Our leverage ratio improved from 35% to 32%, and all of you that are familiar with M&G will know how conservative our definition of this metric is. Using the definition adopted by some of our peers would give us a leverage ratio of just 23%, the lowest one in our sector on a like-for-like basis. Having already reduced debt interest costs and showing the lowest leverage ratio amongst peers, we are not anticipating redeeming any sort of debt in the near term, and we expect to achieve our targets through Own Funds growth. Next, look at our second priority, simplification. In 2023, we maintained a flat cost base in spite of significant headwinds from inflation. And through strategic cost actions, we freed up resources that we then reinvested to expand our international distribution footprint and to add the capability we needed to re-enter the BPA market. This year, we have gone a step further. Despite continued inflationary pressures, we have reduced costs by 4% year-on-year. This achievement is a direct result of the commitment of all teams across the business as cost discipline and value for money are kept firmly at the top of the executive committee agenda. But let me be clear, we will deliver sustainable earnings growth over time and we will do this by growing the business but our growth focus will always be paired with strong commitment to efficiency and improve client outcomes. And if market pose headwinds to our growth, we won't hesitate to take a stronger stance on costs. Our transformation is the key enabler of this journey. We are just halfway through the program, but we have already delivered over 60% of the original target. Thanks to this strong progress, we confidently increased our cost savings ambition to GBP 220 million. And now let's talk about our third priority, growth. Here, we had clear objectives for each segment. In Asset Management, we have delivered a resilient result, outperforming most peers in challenging markets. As macro trends begin to normalize, our focus remains the same. Maintain strong investment performance, continue to expand internationally and in private markets. In the Life business, we're scaling our BPA capabilities and developing capital-lite solutions to drive more flows towards the asset manager. Delivering our first capital-lite BPA this year will be a key proof point as we expand our offering both in the U.K. and internationally. And finally, on Wealth, PruFund is still one of the U.K.'s leading retail proposition but flows were impacted by high interest rates. With many customers choosing to invest in cash or opting for annuity, we expect to see a similar trend in the second half of the year. Nonetheless, we're working hard to reduce costs and support sales, taking proactive steps to improve client access to PruFund and to complement it with guaranteed solutions created by our Life business. I will now hand over to Kathryn to take you through our financial results. And afterwards, I'll speak in more detail on the business operations before we open up to Q&A.

Thanks, Andrea. Good morning, everyone, and thank you for joining us today. I'm pleased to present a good set of results, which prove the resilience of M&G against the ongoing challenging macroeconomic environment. Although flows in this half are impacted by persistently high interest rates, both operating profit and capital generation proved to be very resilient, nearly matching last year's results and once again demonstrating the strength of our business model. Net client outflows of GBP 1.5 billion were mainly in the Wealth segment. And within Asset Management, our wholesale business delivered neutral flows, outperforming most peers. And while the institutional franchise is still impacted by the ongoing derisking of DB pension schemes here in the U.K., it continued to expand internationally with positive net inflows outside the U.K. Operating profit of GBP 375 million is marginally down year-on-year, which showed a 9% improved contribution from asset management and the lower PruFund and Life earnings were expected and in line with the guidance we provided at our full year results. At GBP 486 million, the operating capital generation was again very strong, reflecting a stable result from asset management, a 9% improvement in Wealth and a lower contribution from Life due to lower expected returns on surplus assets and new business streams. Management actions of GBP 189 million provided continued to support to our capital generation and were GBP 36 million higher year-on-year. On the back of this strong result and improved balance sheet efficiency, our Solvency II ratio climbed to 210%, even after accounting inflow for the final 2023 dividends and the recent deleveraging actions. Let me now deep dive into assets under management and flows. Closing AUMA of GBP 346 billion was GBP 2 billion higher than at the start of the year due to positive markets offsetting net outflows from the business. As already mentioned, a high rate environment was the headwind to flows, in particular for PruFund where many of our target customers chose alternative risk free resolutions such as cash, government bonds or individual annuities. We remain cautious on the near-term outlook for PruFund sales as rates has not yet declined meaningfully. So as Andrea noted, we are also working to grow our distribution capabilities and broaden our product offering. In Asset Management, institutional outflows narrowed meaningfully year-on-year as we continue to build our international footprint and diversify away from the U.K. and DB pension schemes. Wholesale flows were resilient with neutral flows being a good outcome in the current rate environment, driven by the quality of our proposition and our strong investment performance. In Asset Management, we are confident that we will see an improvement in the second half as we are seeing strong client demand, in particular for public and private fixed income strategies. And over the course of July and August, we have delivered over GBP 700 million of net inflows. Having covered flows, I'll now move on to adjusted operating profit and a GBP 375 million, our group operating profit was only marginally down year-on-year. And the key features of this result are firstly, a 9% increase in asset management profits, which was underpinned by both higher revenues and reduced costs as we continue to drive strong operational efficiencies. Secondly, a decline in PruFund and Traditional With-Profits mainly due to the lower CSM amortization rates that we flagged back in March. Thirdly, much improved results across Wealth's Advice platform and other business. Here, we've more than halved losses year-on-year through proactive cost actions and commercial discipline. And finally, a stable result from annuities, where despite lower expected returns on surplus assets, we had a much improved expense experience. Let's now look at the asset management results in a bit more detail. At GBP 313 billion, average AUM was up 3% compared to the same period in 2023 and this was driven mainly by favorable equity markets, more than offsetting lower fixed income and real estate valuations. The average fee margin continued to be resilient, declining by only 1 basis point year-on-year. This was primarily due to a change in business mix within our wholesale franchise where sales were concentrated in funds charging slightly lower fees. With revenues up 1%, the main driver behind the improved earnings and the lower cost-to-income ratio was the 2% reduction in cost. This is an excellent achievement and demonstrates our continued commitment to deliver positive jaws over time with strong operational discipline, supporting profitable growth. The transformation program that Andrea spoke about was the main driver behind these efficiencies. As part of that, the simplification of our private market franchise delivered over GBP 10 million in savings, with another GBP 7 million generated by the streamlining of our operating model, supplier and third-party spend. These initiatives have created capacity for us to invest in our capabilities, drive strong client outcomes and position us for growth through sustained positive operating jaws. Now moving on to Wealth and the PruFund results. PruFund continues to be a compelling proposition, consistently generating over GBP 5 billion in yearly sales and a strong track record that has consistently outperformed its benchmark for an extended period of time. Despite this, in the first half, we had softer flows continuing the trends seen in the second half of last year. And as explained earlier, this is mainly driven by the conservative profile of our target customers. And moving PruFund into our Life operations will give us an opportunity to add guaranteed solutions to our proposition and to recapture flows over time. PruFund's operating profit reduced to GBP 96 million due to a combination of factors, including increased customer persistency and a high new business strain. We expect the operating results to improve from this rebased level as higher customer persistency will support faster CSM growth and as we tackle expenses to address the new business strain. Turning now to Life. Here, the Traditional With-Profits results were 16% lower, impacted by the same increase in customer persistency that we saw improvement. And once again, while this lowers the CSM amortization rate, creating a short-term headwind to profit, it also increases the CSM growth over time and long-term value of the business. The year-on-year decline in profits was more pronounced than for PruFund as the effect of the lower amortization rate was compounded by a lower opening CSM, which is to be expected in a closed book of business. Within annuity, there were 2 main movements year-on-year broadly offsetting each other and leading to a stable result. On the one hand, we had lower expected returns on excess assets due to the more conservative allocation in our surplus and this is consistent with the guidance we provided in March. And on the other hand, we had a significant improvement in the expense experience, demonstrating again our focus on costs. Having reviewed our key profit drivers, we will now cover CSM movements on the next slide. At the end of June, the total CSM stood at GBP 5.8 billion, a 5% increase in just 6 months representing a meaningful improvement in our already large stock of future value from our insurance operations. The increase was supported by strong positive operating change of GBP 99 million and a further GBP 183 million favorable impact from markets. It's worth pointing out that the positive operating change in CSM did not benefit from any meaningful assumption change and it was rather driven by interest accretion and expected returns, which more than offset the CSM release to earnings. Positive market movements were primarily concentrated in PruFund and Traditional With-Profits and here, higher rates increased the value of future shareholder transfers together with good investment outcomes. Having covered earnings and the CSM, let's now turn to capital generation and starting with the underlying result of just under GBP 300 million. This is the result of a resilient contribution from asset management and a 9% higher contribution from Wealth. And this was once again possible, thanks to our focus on cost discipline, which drove significant improvements in the profitability of the non-PruFund components of Wealth. The GBP 60 million reduction in Life was expected and it mainly relates to 2 items. Firstly, the new business strain, the bulk annuity deal we closed early this year. As a reminder, we did not complete any deals in the first half of 2023. And secondly, the lower expected returns from surplus assets, which we've already discussed when covering the operating profit results. And it's important to remember that we have not yet reinsured any of the 3 BPAs that we've closed since re-entering the market 12 months ago. And while this has increased the level of strain, we still delivered double-digit IRRs, retaining longevity reinsurance as a potential future management action. I'll now move from underlying operating capital generation. In the first half of 2024, management actions were GBP 189 million, up GBP 36 million from the prior period and leading to a strong operating result of GBP 486 million. And there are 3 main components to our management actions. Firstly, and similar to last year with a material contribution from asset trading. Here the With-Profits investment offers trims the fund's exposure to equities and replace it with fixed income assets lowering our capital requirements. And secondly, we increased our equity hedging to proactively manage our solvency sensitivities and take advantage of the strong markets we have seen. And finally, we benefited from the With-Profits excess surplus distribution we declared earlier in the year, which led to a one-off increase in the PVST of GBP 62 million which stood at GBP 4.3 billion at the end of June, up GBP 300 million versus the year-end. And thanks to the strong results, we've now generated GBP 2.3 billion of operating capital since announcing our GBP 2.5 billion target at the beginning of 2022. Given our confidence in the group's ability to sustainably generate capital, we've upgraded this target to GBP 2.7 billion as we continue to focus on delivering value for our shareholders. I'll now walk you through the other movements in our Solvency II success. Besides our strong operating capital generation result, which led to a 13 percentage point increase in the solvency ratio, the most notable elements were the reversal of the GBP 260 million capital restriction and the nearly GBP 800 million we deployed for the 2023 final dividend and the deleveraging actions we announced in June. We also had a benefit of GBP 53 million from the impact of Solvency U.K. changes which allows for more granular credit risk modeling, and this is captured under other movements on the slide. At 210%, our solvency ratio underscores the strength of our balance sheet and our confidence in continuing to deliver on our targets in the event of potential market volatility. Before wrapping up and handing back to Andrea, I wanted to touch upon the progress we've made on our simplification agenda. As you've heard us say before, a key part of the strategy refresh we announced in 2023 is a strategic transformation program, where we have created capacity to allow us to invest in strengthening our capabilities, improving client outcomes and driving profitable growth. In spite of inflationary pressure, our cost base at June 30 was 4% lower year-on-year. And through this transformation program and the key levers you see on this slide, we continue to build a stronger, simpler and more efficient business. We've optimized our U.K. office footprint, reduced contractor spend, in-house critical change capabilities and increased and strengthened our operations in India, and we're not done yet. As today, we've increased our total cost savings target from GBP 200 million to GBP 220 million. So to summarize. Over the first 6 months of the year, we delivered resilient asset management flows, which we expect to improve in the second half. We realized GBP 370 million in operating profit benefiting from a 9% higher asset management results. We generated almost GBP 0.5 billion of operating capital, upgrading our target to GBP 2.7 billion. We increased the solvency ratio to 210% and reduced capital restrictions to zero. And finally, we continue to demonstrate our strong commitment to cost discipline. I'm therefore highly confident that we can continue to deliver on our financial targets and our operational ambitions. And with that, I'll hand back to Andrea to go through the business review.

Thank you very much, Kathryn. These results demonstrate the strength and diversification of our business model. And now I'd like to cover each segment in a bit more detail, starting with asset management. In wholesale asset management, we delivered net neutral flows in H1. This is in a period where most peers suffered severe outflows across Europe and in the U.K. Superior investment performance has been the main driver behind this achievement with roughly 40% of our mutual funds ranking in the top quartile for performance on both a 3- and 5-year basis. As structural headwinds now starts to abate, we are optimistic about the outlook for the second half of the year. With the market transitioning from contraction to expansion, the strength of our investment range puts us in a good position to capture flows, in particular, in public and private credit. Turning now to institutional asset management. Here, we are seeing a continuation of the same trend from last year. Structural headwinds have persisted in the U.K. due to the ongoing derisking from DB pension scheme, yet we continue to grow internationally, consistently and at scale. International net inflows of nearly GBP 2 billion in these 6 months were again a strong positive results despite including nearly GBP 700 million net outflows in South Africa, which were driven by a large one-off redemption. I'm incredibly proud of how our international franchise has developed since the merger. We have successfully grown it through internationalization and diversifying our client base. Defined Benefit pension schemes accounted for 65% of total assets back in 2019. While now they are less than 1/3. Over the same time period, international assets more than doubled from GBP 20 billion to GBP 51 billion, and we saw similar level of growth in the U.K. with local government pension schemes and insurers. And we are not done yet. We continue to drive forward our international expansion as it remains one of our key growth opportunities. The other key growth opportunity for the asset manager is private market. And as we did at full year, I'll give you a bit more color on our capabilities in this space, specifically structured credit, a GBP 7 billion franchise within our broader private and structured credit offering. As in many other parts of our GBP 73 billion private market business, we have been investors in structured credit for over 20 years, partnering with our internal clients to continuously drive innovation. Over time, we have broadened our proposition across the risk-return spectrum from investment grade to high yield solutions, starting with asset-backed securities and CLO and then adding specialty finance and significant risk transfer funds. Thanks to the partnership with internal clients, a compelling product range and a strong track record you can see on this page, we are experiencing significant interest in this asset class. On the back of this strong client demand and with EUR 100 million seeding from the Life business, our SRT Fund II is on track to hit its capital target of up to EUR 1 billion. We are very excited about the medium and long-term opportunities in private credit, which is at the heart of our private market franchise. Our compelling business model, which combines the strength of the asset owner and the asset manager is a unique competitive advantage for M&G, supporting innovation and growth. Moving now from Asset Management to Life. The first thing I'd like to do is to welcome Kerrigan Procter to M&G as Managing Director of Corporate business. He will join us in January to drive forward our growth in the U.K. corporate space. Attracting someone of his caliber is testament to the level of our ambition and the scale of the opportunity in front of us. Kerrigan's objective will be to build our presence in this attractive market by leveraging 2 balance sheets, the shareholder and the With-Profits one. Within Life, we also have individual and international team. Leading these are Anusha Mittal and Matt Robinson who are driving good operational momentum in the respective areas. In Individuals, Anusha is working to broaden our U.K. retail offering with 6 term annuities and to launch PruFund on third-party platforms. This will improve client access to this amazing proposition and support sales. We expect to see material progress on both these initiatives over the next 6 months. In International, we expect to soon launch the PruFund-like guaranteed product in the Middle East and redesign the proposition for European markets. As I already said, I'm excited about the renewed focus from this team on leveraging the potential of our With-Profits Fund as a key writer of insurance business with a solvency surplus of GBP 6.8 billion and a strong asset size deploy its financial strength, the With-Profits Fund is already partnering with each one of the 3 Life business teams to develop -- launch new proposition. Writing capital-lite insurance business is a key competitive advantage for M&G and one that we want to better leverage. This will generate additional Life insurance profits without committing a vast amount of shareholder capital. Importantly, it will also drive more flows towards the asset manager giving it greater scale and supporting investments innovation, in particular in private markets. This once again highlights the benefits of our synergistic business model. I will finish my business review with Wealth. Over the past year, Caroline and her team have delivered a more focused Wealth franchise, the better customer and adviser experience and improved business outcomes. However, given our current position and market outlook, Caroline and I have determined that the full growth opportunity for our wealth business can only be achieved with significant ongoing investments. Given our commitment to operational discipline, and better opportunities to deploy capital elsewhere across the group, we have decided to focus and rationalize our Wealth strategy. We have already taken important steps to improve profitability, tackling costs and more than halving non-PruFund losses year-on-year, but we need to do more. Having already closed our D2C offering, we intend to exit our adviser digital platform while continuing to improve our financial performance. By combining Wealth and Life, we will optimize management resources and reduce overlap. We will also continue to grow the distribution of our own solutions through restricted advice, offer a more comprehensive proposition and make it more accessible by distributing on third-party platforms. As a result of these changes, Caroline will be stepping down from her role as CEO of Wealth. She will stay with us as a strategic adviser until the end of the year, ensuring a smooth transition of our Wealth activities. I want to personally thank Caroline for her leadership and significant contribution to M&G. Since joining, she has strengthened our Wealth business and brought much needed strategic and commercial focus. After having completed the business review, I'd like to now touch upon our capital management framework. I'm very pleased with the momentum we are seeing across the business and the progress we delivered across all our 5 targets. And this also reflects in how we think about capital management. We are reporting a strong operating result and have improved our solvency and leverage position. These achievements makes us very confident in the financial strength of M&G. We have also continued to make targeted investments in the business, such as those needed to deliver the transformation program and to add capabilities in private markets. And as operational progress starts to translate into earnings growth, we can begin to shift our focus towards the dividend and how to grow it gradually over time. We will naturally review this topic with the Board ahead of our full year results. So to conclude. First, M&G is in its strongest financial position since the merger. Second, the transformation program is well on track. This is clear evidence that we are serious about customer experience, operational efficiency and, of course, cost management. Third, we continue to position the group for long-term capital-lite growth across all segments. But also, we have taken meaningful steps towards achieving all of our financial targets in a very short period of time. And we have upgraded our ambition to both capital generation and cost saving. And finally, thanks to the hard work of everyone here at M&G, we are increasing our focus on sustainable business growth. We are 18 months into our strategic journey and today's results prove once again the benefits of our synergistic business model. We keep delivering across all our strategic priorities and financial targets. We are growing internationally, and we continue to deliver stellar investment performance in those asset classes that our clients are most focused on. Looking forward, this makes me very confident in the continued progress and success of our business. Thank you.

First of all, let me apologize to those on the line because I think the sound got cut for about 2 minutes. So if you have missed anything, obviously, only 2 minutes, don't worry. So this will be recorded, will be live on our website. So if you have missed anything, please feel free to reach out to me or to watch the recording on the website later. . So let's start left, right. So we do -- Larissa was the fastest one. So let's do -- Larissa, Nasib, Mandeep, Rhea and then we move over. As usual, please state your name, your company and remember to pull out the microphone, so the ones -- if the tech works, the ones on the line can actually hear your questions.

[indiscernible] Three questions please. The first one, very impressive on the influence on the international business. Should we think about that as the focus of your growth through the near term? Or how should we think about the balance of the business as it evolves? Second question, impressive improvement in the cost-to-income ratio, does that mean that the 7% target for the end of 2025 is back into play. And then the third one. Speaking about asset class expansion, I mentioned specifically in the bulk annuity business as well, but that is traditionally a capital intense business line. How should we think about that in capital-lite annuity especially in light of the [indiscernible] published recently on funded reinsurance?

Okay. So flows, cost-to-income ratio and capital-lite, if I summarize your 3 questions right? So on flows. Yes, we're very proud of what we delivered on our international expansion with nearly GBP 2 billion of net inflows in the first half, and it's something that we have been focused on. If you remember well, when I presented the first time, I think, here, I said that our international expansion was key. And clearly, I'm very happy about that because it's an international expansion, which is very diversified. It's not one single country. It's not one single asset class. When I see where the flows have come from -- they come from Japan, they come from Australia. We had good momentum also in Singapore and Hong Kong. And if you look at Europe, we had very strong momentum, both in Germany and in the Netherlands on the institutional side, but also on the wholesale side in Italy, for example. So it's well, I would say, diversified from a regional perspective, but it's also well diversified from an asset class perspective. Clearly, we've seen interest in fixed income, it's normal, but we've seen interest also in private credit. And we start to see also interest now, again, in real estate. People are starting to think that this is the right moment to come in. So with our strong investment performance. And I would say with the relevance of our investment capabilities, I think we're well placed to expand that international expansion. But of course, we also have the U.K. market. We should not forget about the U.K. market. And we had some structural headwinds in the U.K. market. I think you saw the numbers there. On the DB schemes, we have been sort of reducing it. But the good news here is that we're not too relevant in the U.K. market. And more importantly, we're taking action. So we're having momentum with local authority pension schemes and also we are having momentum with insurers. And of course, we have reentered ourselves the BPA market, and that will drive flows as well to the asset managers. So I would say when you look at flow and you look at the momentum, you should look at it from a global perspective, and of course, I am -- I would say rather pleased with the results that we've had in July and August where we had more than GBP 700 million of net inflows. And this, of course, puts us, I would say, in a better position for the second half, and I expect that this will continue going forward for this half. So that's on flows. Second, cost-to-income ratio. But first of all, on the cost-to-income ratio, clearly, I'm very pleased with the progress we have done and we moved from 79% to 77%. And I'm very pleased that Joseph and his team had nearly -- well, they have nearly 10% increase in the profit, 9%, which is great. But of course, that cost-to-income ratio is driven both by a relentless focus on costs, which we reduced 2% year-on-year, but also revenues, which went up by 1%. You should not forget that, that cost-to-income ratio is calculated in a very conservative way. We do not take into account performance fees. We had a slide on that. You can see that performance fees can be 1, 2 points per year. So that cost-to-income ratio would have been 76%, 75%. We are very much committed to improve that cost-to-income ratio. And I think by looking at where we are, a, in the market environment, with rates progressively coming down, I believe both our fixed income book and our private assets valuation will go up. And of course, we charge fees on that, so that should help. B, of course, we see flows. As I said before, I don't need to go into that again. I think the superior investment performance that we have on our mutual funds. And this is something important because as usual, institutional, they come first. Retail investors always come later. But given our strong investment performance, I think on the retail side, our strong relationship we have with banks, we will see some momentum there as well. So flows should help. And of course, we will continue to be focused on expenses. But let me be clear, I want to grow the asset management business. I mean we have been investing in this business. We have been investing in adding private asset capabilities, in adding fixed income capabilities in Asia. So it's important also we sort of support this business going forward and make it a profitable capital-lite engine for us. . Okay. That's on cost-to-income ratio. And then you asked about capital-lite BPA. You're right. The 3 first BPAs we did were plain vanilla -- were plain vanilla one. And we want to -- I think, overall, what you should take away from is -- we want to grow our capital-lite business, a capital-lite business, not only in Life, asset management, in Wealth, PruFund, for example. But we want to do capital-lite BPAs. One way of doing it is what we are hopefully going to do before the end of the year, where we are going to share the economics with the pension scheme sponsor. This -- I'm sure you've seen that there are some scheme sponsors that are reluctant to sort of give away some of the profits to the insurers. Well, we're a newcomer here, so we can actually come in with this sort of new approach and we are going to do so by reinsuring the longevity and the credit risk to the scheme sponsors. So this is a capital-lite way of doing business. But of course, what we really want to do with them and the teams working on this is utilizing the excess capital we had in the With-Profits Fund, GBP 6.8 billion in order to sort of guarantee the outcome to the sponsors and we can go into more detail. I don't know -- if you want more detail, I can ask Clive go into this, but I hope that's fine.

I think that clearly to your -- on your question on regulations, when you reinsured with the scheme's sponsor, everything remains onshore, so...

Yes, this is not funded reinsurance and this is not what -- of course, the regulator is bit concerned about.

And obviously, this still drives flows into the asset manager. So I guess, how it's also on the other side of the business. And I think we said Nasib after Mandeep and Rhea and then I guess we'll cross over down. So let's progress left to right.

Nasib Ahmed from UBS. So firstly question on flows. You said more than GBP 700 million. Can you break that down into where that's coming from? Because I feel like wholesale is still flat. DB pension is still a headwind, wealth you said is a headwind. It seems like international institution is doing really, really well, probably more than GBP 1 million over just 2 months. And do you expect that to continue, Andrea, you kind of alluded to that already. Second question on the combination of Wealth and Life. What's the rationale? What's the benefit of doing that? I think the With-Profits Fund is already combined, Traditional and PruFund. And of course, you appointed Caroline very easily, and now you've changed that a little bit there. And then thirdly on the GBP 6.8 billion surplus in the With-Profits Fund, do you expect that to be released over time annually similar to what we did in February?

Okay. Do you want to take the last?

Yes, Let me do a kick off with that one because it's quite easy probably. So I think from the products that we're very excited about launching with Clive and his leadership team, you wouldn't expect that very meaningful surplus to reduce quickly over time. It gives us plenty of flexibility. And I think one thing that's really positive about the products that we're launching is that we're diversifying and giving customers products that are sometimes better suited to the higher rate environment. So we have got plenty there, and I think you might expect to see it reduced, but certainly not on a meaningful gradient or anytime soon.

So on flows, and I can't give too much color, but what I can tell is, clearly, we have -- it's mixture. We have -- it's GBP 700 million, it's U.K. and international. I mean it's overall. But what I can tell you is we had seen interest in fixed income, which is not a normal, in particular on the international -- in the institutional side. But we continue also to have interest on the wholesale side and what we call fixed maturity products, FMPs, which we have had particular success in Italy. So of course, we also have on the private asset side interest on the private credit. I said that already in my presentation. So I would say, it brings into the strength of our diversified and strong investment capabilities. And then, of course, it's diversified. It's not a single country. And I think you can see the resilient source in the U.K. because that number is including the U.K. So things might change a little bit in the U.K. as well.

And the third one was on the combination.

Yes, third one was on the combination of Life and Wealth. Now the first one thing here is, and I hope I made that clear in my presentation. We see the U.K. retail savings market as a great market, and we're committed to that market. So we're still here. We're still going to distribute our products in this market. We're committed to grow in this market. And I think we have a right to win in this market. Strong brand. We have the PruFund, which is a great franchise and also very strong asset management solutions. And of course, we have the With-Profits fund, we can help in this. So -- the reason why we did it is because we are effectively executing on our strategy. Now part of simplification is also making sure that we sort of put together the most efficient way of operating. And the activities remain the same. You should think about the wealth as being a distribution arm of the manufacturing of Life and also distributing the manufacturing capabilities of asset management here in the U.K. But what we want to do by bringing these things together is to broaden the access to our solutions. So for example, we are going multi-platform from one platform, we are going multi-platforms. We want the PruFund to be on every platform out there that should help PruFund sales. We also want to continue to grow our tied advisers, and we've been doing so with the Academy. And of course, we are going to focus also on the independent advisers and make sure that they get a better advisory experience. We're investing in a better digital experience and also for our clients. So that's to broaden our strategic distribution. At the same time, we're also launching new solutions out there. So we're utilizing the With-Profits excess in order to launch our fixed term annuity, but also provide guaranteed solutions out there, whether it is income or capital. So it's really to make sure that we drive the synergies by putting these 2 teams together. There will be, of course, some efficiencies as well. We will reduce certain duplications. But I mean, overall, I think this is really to put us in a better position to drive sustainable profitable growth going forward. .

So Mandeep from RBC. I'll do the intro while you take out the microphone.

Three questions from me, please. First, on surplus capital. Now you're well above the top end of your capital range of 160 to 190. You mentioned no further debt redemptions are expected and potentially some disposals in Wealth. Of course, you have to keep in mind leverage, but do you consider yourself to have excess capital? And if so, how do you expect to utilize this over the next few years? Second one is on the With-Profits experience. What's driving that higher persistency in these books? And should we expect this to revert at some point to see higher CSM amortization return? And then the final one, you kind of touched on it in the presentation on dividend growth. You chose not to increase the dividend last year and UCG, which is a key component of the dividend policy will likely be down year-on-year this year. So in what circumstances would you consider increasing the dividend in FY '24?

I think Andrea, probably the first and third go relatively well hand in hand. So maybe Kathryn, do you want to first talk about the With-Profit persistency, how to think about that and going forward? Well, customer persistency, not With-Profit persistency.

Yes. So I think that was obviously one of the elements of guidance that we gave at our full year results that it sounded like a reverse outcome, when we had an increase in persistency in 2023, lowered the amortization rate for us in 2024, and we saw that come through in the numbers. So you did see that flow through on a much more meaningful reduction on the traditional book, down about 120 basis points and the 70 basis point reduction on the PruFund side. So that has come through in terms of setting the AOP impact from the CSM release this year. What's quite encouraging when we think about the actual stock of CSM. And you've seen that increase by 5%. You've seen GBP 100-odd million of operating change in CSM and obviously, a really strong meaningful contribution coming through from that interest expense and expected returns coming through from those 2 With-Profits books. So when we think about that impact from persistency last year, obviously, it has brought down AOP as we guided to. But really importantly, it's going to help drive CSM going forward.

And Mandeep, from a modeling perspective, so to speak. We review the assumption only once a year. So when it comes to the second half of the year, we're not going to review that assumption. And obviously, last year was the first year after the implementation of IFRS 17. So it's fair to say that there was a little bit more learning. In particular, I think we noticed that at the 5-year point that for some product, it's a key point in time to churn out more customer we are seeing on which is a good thing. And so that's why we reviewed the assumption probably more materially than what you would expect going forward. Now those assumptions will always move, but I think we flagged this at full year because it was a relatively more meaningful movement than normal. And again, no change between H1 and H2. We'll review it again at year-end. And if there is a meaningful change, we'll obviously flag it.

Okay. So dividend and...

Well, basically, the first one would be Solvency II position very strong. So how do you think about your capital base? And then also, how do you think about the condition to increase the deal.

Okay. Well, first of all, I mean, I'm extremely pleased with our financial strength. I said it in my presentation. We have never been in such a strong position as we are now since 2019. We said leverage was the focus. We took action on our leverage ratio, and I'm pleased to say that we're going to get below 30% by accretion of our own Own Funds. Now if you know you have the capital management frame, we can show it, but we have a capital management framework. Now the focus is clearly on making sure we invest for business growth and grow the dividend. That's our focus. And as you know, when you think about the dividend policy, what we paid out now is mechanically calculated. It's a 1/3 of the previous one. And we will make then a decision on the second one, of course, with the Board, and you will have that decision when we meet the full year results. And to finish maybe, I mean, any excess capital return, this is not the time to deliver any excess capital returns in the market, okay? .

And maybe in one nuance of your question was about, obviously, underlying capital generation might be down year-on-year because of specific reasons. I'd say the reasons that have driven a lower underlying results are, for example, new business strain, which is something that is good over the medium to long term for the business. So I think you'd expect us not necessarily to take a mechanistic approach, both on the down or the up is rather looking through the macro trends and how the business is doing on an operational basis and look through in terms of the near to medium-term future. Rhea and then [indiscernible]

Rhea Shah, Deutsche Bank. Just 3 questions. So the first one on Asset Management. The margin dips by 1 basis point, and you said it was because of business mix. Is there more of this change in mix to come over the rest of the year and maybe next year? Or could the focus on private markets actually see that margin tick up or at least remain stable going forward? Second, on capital generation, the management actions in terms of asset derisking and what you're saying about maybe utilizing longevity reinsurance in the future as a tool for future management actions. How should we be thinking about management actions for the second half of the year? And when do you think you could use that longevity reinsurance? And then third, again, on capital generation, you've increased the guidance for '22 to '24 on OCG, the cumulative OCG. How are you thinking about post-2024 OCG or underlying cap-gen. It goes back to Mandeep's question because if you are talking about dividend growth going forward, should we be building in underlying cap-gen growth? And what kind of targets are you expecting from this?

Why don't you start with the 2 questions?

Yes. So you're right. In the first half, we had GBP 189 million of management actions, up GBP 36 million year-on-year. And we had a similar impact from the asset reallocation that we did in the With-Profits fund out of equities and into fixed income. We also took advantage of the rally in equity markets to improve our equity hedging. So we had the impact from the one-off surplus distribution. When we think about our guidance, so we have had a large number in the first half, but they're not a typical management actions as you said. So we obviously have GBP 400 million to go to hit our GBP 2.7 billion target for 2024 and you'd expect us to also review some of the key assumptions in the second half of the year, like we obviously look at longevity in the second half of the year. So I think when we clearly have confidence in hitting the revised GBP 2.7 billion, we would also just remind you and our shareholders of a typical GBP 100 million to GBP 200 million of management actions. So when we look into 2025, and we also consider what we might get to do through longevity reinsurance that can absolutely add to the management actions. And I think one thing to add to Luca's comment around underlying cap-gen and I think we did obviously highlight that we had a change in expected returns on a surplus asset in annuities because it was really unusually concentrated in very, very liquid high-quality assets. So I think you can almost think about that as a base also for us in terms of resetting, rebasing that underlying cap-gen coming through from annuities. So we've said that we want to get leverage through Own Funds growth. And actually, we have delivered an increase in asset management profits of nearly 10%, whilst it was up in terms of underlying cap-gen we lowered losses meaningfully. So we are a strongly capital-generative business and cash generative. And when we think about what the new target might be, again, it's one that like the dividend, we'll be working on in the second half and discussing with the Board at the end of the year. We've seen all our peers reset their capital management frameworks, their policies and distributions. And we always will think if there's another metric that makes more sense apart from an absolute cost OCG target and it's something we'll come back to at the end of the year. But I think the key is that we did see some one-off headwinds, I think, this year. Our management actions had a couple of meaningful outsized benefits but we're strongly capital generative. We've got a lot of management tools at our disposal. We're confident in GBP 2.7 billion. And really importantly, also, a lot of these products that we're launching in Life, as Andrea has said, do actually also benefit asset management in terms of flows.

Good. On margins. So I would say, first of all, our margins are resilient because you see it from a 2-year basis and in fact it's pretty flat. Yes, on the wholesale side, we have seen a decrease. And as I said in my presentation, that's due to business mix. We have seen more momentum on fixed income funds, which, of course, are charged less than multi-asset equities. But I would say even here, you should think given our very strong investment performance, now that some retail investors are coming back, yes, to come back to fixed income, but they're also going to come back to multi-assets and equity strategy when they're going to move out from either government bonds or cash. So we're well placed to take that. On the institutional side, I think we've been very resilient, and there's a business mix as well there, of course, that's fixed income mandates, you can imagine, are much lower in terms of bps than a mandate on a private assets. But in particular, on private asset, I think you have to see this. We are having momentum on private assets. When I look at the average bps on private assets, actually, it's going up and it's going up because we see momentum on some of our impact equity strategies. We have responsibility, which has had positive flows. But also when you look at some of the more sophisticated credit strategies like structured credit, et cetera, they are actually charged a bit more. So I think you will sort of counterbalance that with -- of course, it will continue to be fixed income mandates -- the plain vanilla fixed income mandates, so I think you will see some resilience on the institutional side, thanks to our private assets franchise.

And I think the final point on that is that obviously, what we flagged is that over the last 12, 18 months, we have been seeing headwinds to private asset valuations. And obviously, those are assets that come at very high margin. So those became relatively less in the average clientele mix, right? While obviously, we are at that point in which with rates coming down, you could argue that, that will work in our favor, so to speak. So definitely a very resilient margin picture. Dom O'Mahony from BNP Paribas or Exane or both.

Yes, Dominic O'Mahony, BNP Exane. So first question just on asset flows including internationals is doing great. On the U.K. DB side, there was a time when the outflows were essentially driven by response to [ LDI ] Is this a clean level? Is this something you expect to recur at this sort of level? Or is there a structural reason to think that the flows will improve? The second question is really simple one. Could you just help us understand how much the annuity -- bulk annuity strain was in H1? And then third question, clearly the underlying cap-gen was held back by the change in the asset mix and the surplus assets. Have you changed that mix during the first half? And if not, do you plan to do so? And if you do plan to do so, you are looking to get back to the same sort of returns did we get last year?

Okay. So I'll take the -- on the U.K. I mean, the minus GBP 2.4 billion. Clearly, there continues to be DB derisk in the U.K. and what we are doing in order to sort of counteract that is we are focusing on, as I said before, on insurers and also local authorities where we have. We're seeing momentum, thanks to, I would say, strength of our investment capabilities. So we see momentum there. That's one way of sort of reducing it. Of course, we have also re-entered the BPA space. I mean we should not forget about that. We have written nearly GBP 1 billion of BPA since we re-entered last year. And those are flows that goes into the asset manager. That's another way of recuperating. So when you look at that trend there, I think that we are taking actions in order to do more. And let's not forget, when you think about the BPA, what I said before, there are many scheme sponsors now that are reluctant to do BPA because they are in surplus and they don't want necessary to give away those profits to ensure, well, they can come and speak to M&G. We're very pleased to speak to them, and we hope -- before the end of the year, we will deliver on one of these BPAs. So -- now I think we -- what is important here is to say that when you look at these figures, in 2019, we were over-reliant on the U.K. Now we're much more diversified, and that's what you want. You don't want us to be in one country, one segment. You want us to be -- or one asset class. You want us to be as diversified as possible but in a focused way. And that is what Joseph and his team have been doing. And I look at these results that they have done in the first half, and I look at the outlook we have going forward, I think we are a positive outlier when you compare us to other active asset managers out there. .

And obviously, more points. So the GBP 1 billion of inflows from the BPAs, they still end up in the asset manager, but you don't see them through this number, just purely because these are at that point, the external flows comes into Life and then is an internal flow to the asset manager. So the number might also look slightly punitive because of not double counting. .

Good point.

Should I cover some of the questions on BPA. So I've not got the how is [ GBP 1 million ] of strain to give you because it's not provided in our results of just under one vanilla deal that you had about in March. And as we do more of the traditional deals, we'll give more guidance. What we said it's a double-digit IRR. Clearly, capital isn't a constraint to us given where our solvency ratio is but we've also got this flexibility to look at for those 3 deals we have done of using some longevity reinsurance should we want to. So we are very disciplined, and we've talked about being quite selective in these deals. And obviously, you'll be very familiar with the market dynamics in the first half and some of the guidance given by peers and over the second half. So I think the key focus for us is obviously launching this capital-lite BPA. I think the question around -- Andrea has answered around our DB clients here in the U.K., what I think they want is a range of products that suits their own particular circumstances, some of them are choosing to retain risk, our private assets capabilities help them value those assets as they get to the derisk -- go down the derisking journey. So we've got opportunities, I think, across both traditional, being very selective, using our private asset capabilities. and using With-Profits Fund plus also doing this risk sharing, whether economics can be split in a different way. . And so in terms of the -- so we've not provided the math -- the number also in results document. And on the -- on that impact from the much more liquid asset mix for the -- at the beginning of the year, we've not given any guidance around to whether that's become more high-yielding or change the composition of it. You'd obviously expect us to maximize the capital and returns from that. And clearly, we had a slightly different mix last year. As you know, for the 2 deals we did last year. So we're confident. I think when you think about the outlook for credit and rates and our opportunities in that market, obviously, there's an element of surplus assets run off as well. That clearly impacts that underlying cap-gen number. So to be able to top up the book as we want to and also stabilize that expected return as we increase or change the mix of those surplus assets to high yielding ones.

And again, similar to the other assumptions, the returns on surplus assets are expected and are set at the beginning of the year. So again, don't expect the change between H1 and H2, but it is rather what's going to be the mix of the portfolio on the 1st of January. And that obviously is going to be driven by what deals we close and when and what assets that we might have warehoused we push into the deal. So in a way, it's obviously important, and it's an important part of the results, but then eventually the economic returns that we realize is what we realize and what we don't realize in underlying and the actual experience will come out in market movements. So while it is optically important, I think the most important thing is to drive good outcomes and not just think about what's your mix on day 1 of the year, you know what I mean? But what you have seen this year from an asset allocation perspective is a little bit of a floor because the portfolio was fully built on the 1st of January. So you cannot make it more risk-free than that, right? So in a way, it should be a floor or enough. Andrew Sinclair from BofA then Farooq. And, yes, good to see you.

Three for me, please. First was just on continuing on BPA, fine with capital-lite stuff, I'm surprised you're not talking a little bit more about the traditional stuff, given how strong the market outlook is, pipeline there for H2 and into 2025? Second was just on PruFund, just trying to square off some of the comments about persistency -- again higher CSM, everything that you said in the answer so far. But I mean higher persistency assumptions come at a time when it looks like the flows -- outflows are quite a bit weaker for PruFund at the moment. So just trying to square the higher outflows with the better persistency assumptions, if you can just square that for me? And third was just on Slide 28, just when you were talking about the joint proposition in -- for U.K. retail customers. Just if you can tell us a little bit more about that? What's the time line we should we see more?

Okay. Let me start maybe on the last one, you take the 2 ones. So clearly, when you look at what we want to do in the U.K. in terms of new propositions, so we're really working. I mean, the individual team is working already on the fixed term annuity, more to come, I think, within the next 6 months that will be launched. And then, of course, we're working as well on the guaranteed solutions, which also are happening within the next 6 months. So that I think is good because we are going to utilize, of course, with the excess capital that we have in the With-Profits Fund. Let's not forget also that that's going to help us also in what we're doing internationally because when we are finalizing the Middle East, it's a PruFund guaranteed like product that we are doing in the Middle East with partnership with a big international insurer. So once again, we're utilizing that excess capital in order to guarantee it. So we have several fronts on that, that we're going to execute on within the next 6 months.

So on the CSM release and the lower amortization rate, which, as I mentioned before was obviously quite a bit lower in PruFund and as you rightly said, it's a different profile and dynamic and sensitivities in the traditional book. So I think, yes, we've obviously do these calculations, Luca made some comments around thinking about different sorts of cohorts of customers we have. So that has had a modest impact on the PruFund profits this year. That had a more meaningful impact on the traditional book because of, obviously, it is closed, so that CSM does reduce. The CSM also does and has benefited when rates move as well. So that's another impact on that PruFund AOP number, which has mitigated a bit some of that decline in amortization rate. So I think the impact from the persistency last year was definitely much more meaningful on the Traditional With-Profits book than on PruFund.

But just following up on that. I mean on PruFund, we have got a better persistency assumption at the time. I mean we had GBP 3.1 billion of outflows in H2 last year, GBP 3.0 billion in H1 this year. That's a big step up versus what we've seen for the prior 18 months. So kind of why do we have the better persistency assumption?

I think -- so there are 2 things to that. So first, the persistency assumption was changed before the first half of this year. So in a way, I appreciate the point that you made on H1 this year, and I know that H2 last year was similar in level, but you look about at your experience not on a 6 months basis, but a rather longer time basis to try to smoothen out some of what could be one-off volatility. So that's point number one. And in terms of the big change that we had done last year, as I said earlier, it was mostly related to, if you want, of -- we have done IFRS 17 for the first time. We have looked again at the numbers. So it was more of a comprehensive review on the application of IFRS 17, and that's what called for a bigger review of the persistency assumption. It was not necessarily motivated by the short-term behavior. So look at it as we are learning by doing, and we are refining our own estimates as we go through as opposed to we have reacted to our short-term trend effectively. . Yes. And there was another question on Traditional BPA, why we haven't done more so to speak.

I think we're seeing a lot of interest maybe slightly similar dynamics around clients thinking about -- taking a little longer to proceed or progress with the deals. And certainly, our focus has been on getting this capital-lite transaction done. I think Andrea, Clive is going to add a comment here.

Clive Bolton, I am the CEO of the Life business. When we talk about capital-lite, that's from -- with -- from a shareholder perspective. So when we play in our With-Profits balance sheet, that means the shareholder capital goes further. And we can use that to write the conventional BPAs in the risk sharing between those 2 balance sheets. So we will still expect to be participating fully in the core BPA market, the winnability of BPA as Andrea said earlier, but we'll do it by actually combining our 2 balance sheets to maximize shareholders' capital and the return, there will be the execution partner. And as mentioned earlier, whether it's a capital-lite or a conventional BPA, M&G will actually manage all the assets regardless of that. We see this relationship between the With-Profits Fund and the shareholder. We call it our engine for growth because actually playing that balance sheet and so they'll end up with a With-Profits policy in that sense in basic terms is one of the things we will employ to actually generate value for the shareholder in conjunction with that balance sheet.

Andrew, Farooq a bit.

It's Andrew Crean, Bernstein Autonomous. I have three questions if I can. Can I try and nail you down on the costs? What do you think costs will grow for the full year '24 and '25 in percentage growth or decline? Secondly, could you give us a sense of the sort of platform and all those businesses, which I think lost GBP 13 million last year, when does that go to [indiscernible]? And thirdly, it's very difficult for us with all these new products, which are going to launch With-Profits Fund and where you only get 10% of the profits -- shareholders will get 10% of the profit. Where is the value creation there really in the next 5 years? Is this actually in managing the money within the Asset Management division? Or should we expect material contributions to come through from the underlying Life businesses?

So just to recap on the 3 questions that I think they all go to Kathryn this time around. The first one is what's our expectation for the cost base for full year and beyond a little bit more color on the platform and non-PruFund Wealth components when that will go to zero. And then thirdly, what's the value in the new products powered by the With-Profits Fund?

So on the cost base, obviously, the absolute total cost did come down 4% year-on-year. You saw that to GBP 703 million, which is good in this inflationary environment. And we've not given any guidance towards the total cost base for this year or next year because what's really important for us is that we are driving quite meaningful savings group-wide through this transformation program that we launched 18 months ago. We've got 4 levers that are classic strategic cost transformation levers. We talk about location strategy, operational simplifications that we've clearly done. We are looking at taking advantage of, obviously, talent that we have in India, reducing our contractor consulting spend, automating, simplifying our technology stack, but that's really importantly, allowing us to have scalable growth and to selectively invest where we do want to grow. And we've already said that we've talked about investing in asset management. We've hired on the distribution side internationally. We're hiring in private assets, a key growth area for us. And also on the With-Profits side, we're also and more broadly on BPAs looking to build our capabilities in Life. So we don't guide to an absolute cost number. We are very well advanced, GBP 121 million towards the GBP 200 million, which we're confident of increasing it to GBP 220 million and what we've also said is today's announcement around Wealth will deliver also incremental savings. So you obviously easily see the asset management cost number come through and we delivered the 2% reduction in the cost-to-income ratio. And our focus there is very much about positive jaws. So again it's not absolute cost. It's around having positive jaws in asset management where we are growing. . So we are delivering and we'll give an update at full year. We'll give you the absolute number full year, but we're not guiding to what that might be. Obviously, for us, the key objective from an efficiency perspective is making continued progress towards that 70% cost-to-income ratio in Asset Management and then driving growth in the other parts of the group. So on the GBP 28 million of losses down to GBP 13 million of losses in the platform and advice business and other outside of PruFund and Wealth, we obviously have been really pleased with that turnaround as we've been very focused on cost and on spend, and we want those losses to reduce. We've said we're exiting the platform business. We clearly need to return that to profitability. And I would say it's quite early days in terms of Clive now looking at that business, so will give a broader update at the full year. But we have been relentlessly focused on improving the efficiency of that and taking costs out. And obviously, really importantly, bringing -- increasing PruFund on other platforms and bringing in more business and more products to the group. And it's an excellent question on this, what do shareholders see from this use of the surplus assets in the With-Profits Fund. And we're very excited around this partnership that you heard Clive talk about. And again, it's one that we will love to come and talk more about it. You clearly know very well how that 9% to 10% works and how, obviously, with IFRS 17 profit signature changing, the annuity is quite easy for you to see the shareholder benefit. So there is a benefit. Clearly, day 1 from asset management, getting all the flows into asset management. We are really focused on private assets, and that's also a capability that a lot of the clients are looking for. But there is clearly PruFund outside of the U.K. It has a different profit signature, it's [indiscernible] so there is a different sharing of economics there. It's not that it's high margin necessarily but we are thinking about obviously maximizing the use of that With-Profits capital but also how it benefits shareholders? And not necessarily always day 1. That is coming through from asset management flows, but you will absolutely get -- shareholders will benefit over time as we -- as through the profit signature, shareholder transfers and we are thinking about and spending a lot of time with the With-Profits committee around this relationship between the shareholder and With-Profits Fund. So more to come.

Farooq Hanif from JPMorgan. I'd like to ask Andrew's question again in a different way on costs. So you changed a lot of targets today. You didn't change the 70% cost-to-income ratio. And I thought that was really bullish. So have you not changed that because you think we won't mind because we don't have it in our numbers anyway? Or do you really believe you can actually get there? That's question one. Question 2 is going back to the BPA capital-lite, with GBP 6.8 billion of surplus and a double-digit IRR, it feels to be like you can write a lot of BPA volume more than the GBP 1 billion to GBP 2 billion that you've kind of indicated in the 100% market. Is that statement correct? Obviously, you're not giving us flows and expectations, but is that the kind of the long-term ambition? And then the third question is what level of interest rates when you look at your data would be supportive for PruFund growth again?

Okay. Yes. Let me take the cost-to-income ratio since I want to put that target up there. I mean, obviously, first of all, I'm pleased with the progress, and this has been during, I would say, challenging market conditions. It's good to see the asset manager nearly getting 10% of earnings growth. It's a challenging target. And I want -- we are fully committed to improve that cost-to-income ratio. The way we're going to do so, and I said it before, it's going to happen, thanks to both flows that will come in. And we believe that there will be rich flows with the private assets momentum that we can see. It's going to be helped also by rates. If rates indeed goes down slowly, that will help the valuation of our fixed income book but also our private assets book. So that will obviously generate more revenues. . And we will continue to be very focused on expenses. I mean that's a reality. So we want to -- we maintain the target, but clearly, it's a challenging target from the point we are here. And let's not forget, once again, that we've been very conservative not utilizing performance fees because we are a relatively big private assets house. So yes, I mean we are progressing on that target. I'm pleased with the progress, and we want to progress further for the next half and obviously next year.

And so in terms of the BPA volumes, we've not updated the original guidance that we gave, which was originally was around GBP 1 billion to GBP 1.5 billion setting offsetting the decline in the book. I think we've obviously, until now, just done the shareholder traditional BPAs in the shareholder balance sheet. Again, as we look to use that quite meaningful surplus and With-Profits Fund on the GBP 6.8 billion, we will refresh guidance. We don't want to update that now. So I think they're now GBP 1 billion to GBP 1.5 billion across all types of BPAs. But certainly, as you said, the opportunity is longer term, but for quite a bit of a more meaningful impact and meaningful increase across all of the products that we're launching, not just into the capital-lite BPAs using some of the surplus capital for guarantees from With-Profits Fund or, of course, shareholder balance sheet. So the volumes across the product range are likely to increase, but for now, our BPAs will stick with the original target.

And the last question was on PruFund. What level of rates would you think are conducive to PruFund business, what's the right?

So we're talking about the U.K. here. Rates are still relatively high. I think people are still buying government bonds and keeping money in cash. I believe that second half will still be some structural headwinds due to that rate. But if rates go down a bit further, which is expected, hopefully in 2025, I think there'll be interest once again for PruFund and let's not forget. We had the rates but we also had the access. As I said before, we want to put PruFund more out there in terms of distribution, whether it is on more platforms, whether it is increasing the tied, I say so. Yes, I think you should -- in your modeling, you probably look at 2025 as growing again. Second half, very similar probably to the first half in terms of PruFund sales.

[indiscernible] from Panmure Liberum. I have 2 questions. I think, both on BPAs. Just wondering if you can share any more color on what capital-lite BPAs, what that looks like? You've touched upon it, but just any more detail in terms of how does that meet the requirements for the pension schemes and if whether peers can replicate this product? It sounds like they can't because you're utilizing the With-Profits Fund. And then just the second point on this is, in the past, capital-lite has also meant fee-lite, which I think is Andrew's point. And just any more color on what the IRRs, but also the pound amount, the absolute amount of profit that you can generate? And does this actually move the dial because I think there's been a concern in the past that these products sort of longevity swaps they sound good. They transfer some risk, but actually dollar amount, pound amount, they don't really move the dial. So any more color on that, please? And then the second one is really a follow-up on the previous question, which is, overall, when you look at the picture, we can see that the balance sheet is very strong. The growth opportunity for BPAs is very strong, but you're not upgrading -- you're not upgrading your volume guidance. So just -- is it worth sort of bringing the volume guidance forward if the opportunity is so good?

I mean maybe let me answer the first -- the last one first. And I think, let us do GBP 1 billion, GBP 1.5 billion and let us launch capital-lite and then we can come back talking about the refresh guidance, right? I think it's one step at a time. We re-entered the market less than a year ago. So it is also about trying to go step by step. That is effectively the answer. Then on the capital-lite and fee-lite.

Yes, why don't you Clive, why don't you give us a little bit more color?

It's a good question. If I just go through both scenarios, then we can see how it impacts the shareholders. So the capital-lite deal with sponsors would involve reinsurance back to the sponsor, as I think we said earlier. So that would be capitalized from M&G shareholder perspective because the other risk taker would be the sponsor and their captive, which we would facilitate for them. M&G would run all the money. So for the percentage of the BPA that remains with us on our balance sheet, we would expect to earn a normal BPA type return, and you would see it is normal BPA metrics. The advantage for us I think it's twofold. Firstly, we think the market is changing, that the sophisticated sponsors who think their funds are in surplus and on some risk -- don't necessarily want to see the profit in just like a one point transaction. And therefore, we're quite happy to facilitate that. We're a new -- relatively new entrant into the market. And therefore, we're quite happy to serve the customers and where they want to be served from that perspective. We have the other advantage that although we carry the risk on the percentage, we run the money on the whole transaction, the whole BPA, if you like. And therefore, that's attractive to us and we get an advantage there. If we then move to how -- if you then move away from the other balance sheet being an internal captive of the sponsor, but the other balance sheet, the shareholder being the With-Profits Fund. Obviously, that transaction would look to the outside world just like a BPA transaction, our core BPA. So again, we have the normal metrics. And just to go through how that value share might work. So there would potentially be a PruFund like bonus, but it's likely to be small and not our focus of attention. Some of our new products that we deal outside the U.K. are GBP 100-odd million because it's simpler from that perspective. So again, we would run -- the shareholder will run the money for all of it. Secondly, it has actually invested in the BPA business, so we would rent that BPA business to the With-Profits Fund. Thirdly, it would -- it will be execution partner. So it will be paid for providing that service and the risk on that service, so there's operational risk as well as an insurance risk. And potentially, that there could be a risk share. I think what we're actually doing is flipping the idea that the customer, which in a buy-in perspective would be the trustees of the pension scheme would actually interact with the With-Profits balance sheet. And therefore, any reinsurance relationship between the With-Profits Fund and the shareholder balance sheet would not involve the sponsor or the trustee but be a relationship between the 2 parts apart from there. And here, you're beginning to see how that becomes our engine for growth as we evolve the relationship between the shareholder, execution, running the money, providing the services and sharing some of the risk, but actually the policies, if you like, being written from the With-Profits Fund from the customer perspective. There was just an earlier question about, I think, the capital-lite that we're talking about with the external sponsor about what's the regulators view that. I'd just like to say, obviously, we've kept the regulator very informed on all those stages. And it's not gone into the area of are you moving money outside the U.K.? Or are you trying to do something which isn't in the spirit of the various guidance that they've given us over the last couple of years in that subject. I hope that gives a little broader view about how we're evolving the business and getting the unique way in which M&G is set up with the With-Profits Fund and the shareholder back into growing the market in these areas that we talked about. Thank you.

Thank you very much, Clive.

So to be clear, I mean, we are going first -- before the end of the year, we are going to execute on the first solution that Clive said. Let's just do that before we start saying we're going to grow in the whole market. And then, of course, we are looking forward to utilize the With-Profits excess capital in order to do the other capital-lite solution, which, of course, has enormous opportunities for us. But let's just do step by step.

And we got one question from Steven Haywood from HSBC online. Let me read it out. What does exiting the adviser platform mean for M&G? And after launching the D2C proposition last year, you have closed this year. So what's the direction that M&G is taking in retail distribution? And how does the Ascentric platform support the group now? Yes, how do we think about distribution, the D2C and the platform which we have in part covered about.

I think we have covered that, but I -- clearly, we want to make sure that access broadens and therefore, we are going to focus on multi-platform. And from the moment you decide you're going to put your solution and particular PruFund on more platforms, there's no real need to keep your own platform. And therefore, exiting -- there are 2 things, either it's a sale or it's a wind down. So we will keep our options open there. But clearly, it's about making sure that we can make PruFund and other investment solutions of M&G as accessible as possible out there. So it's a multi-platform, but it's also increasing our tied advisers through the academy and improving also the relationship with other independent financial advisers. So a big focus on that. And of course, a big focus also on the product proposition. I mean we are launching a fixed term annuities. We are going to add guaranteed solutions to PruFund. All that should help us growing in this big market, which we are fully committed to. I mean we are just reorganizing in order to grow further.

Perfect. Thank you very much, Andrea. I don't see any more hands in the room, and we have taken the question online. So one more second. No, we're done. So thank you very much, everyone.

Thank you very much.

Thank you. .

Thank you.

Thank you for joining our [indiscernible] That conclude today's call. Please enjoy the rest of your day.