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

Good morning, everyone, and welcome to M&G's 2024 Full Year Results Presentation. Today, as usual, we'll have Andrea and Kathryn going through the results, but they will also be joined by Clive Bolton and Joseph Pinto, the CEO of our Life and Asset Management businesses, respectively. So it's going to be slightly longer than usual, but don't worry. We'll keep it still short and crisp to about 45 minutes, 50 minutes. And then after that, we'll move on to Q&A. So without further ado, Andrea?

Thank you. Good morning, and welcome to M&G's full year results. It is a pleasure to be here with you. Today, I am joined by Kathryn, who will cover our strong financial performance; and by Joseph Pinto and Clive Bolton, who run our Asset Management and Life segments, respectively. They will share more color on the progress being made and explain the contribution of our business to the growth ambition for M&G and how we are collectively delivering for our clients. But first, let me start with a review of our main achievements. In 2024, we delivered meaningful progress across our 3 strategic priorities. First, on financial strength. By generating over GBP 900 million of capital, we beat our upgraded OCG target. This allowed us to reduce debt and to increase the dividend cash spend for the first time since we listed in 2019. Given our recent achievements and our confidence in the outlook of the business, I am delighted to announce that from today, we are moving to a progressive dividend policy. Second, on Simplification. We moved at pace on our transformation efforts, delivering GBP 188 million of savings in the first 2 years of the program. Given this progress, we are upgrading our cost target again to GBP 230 million by the end of 2025. And let me be clear, we will continue to tackle costs even after we achieve this target. Our focus on cost discipline is also clear in Asset Management, where despite inflationary pressures and investments for growth, we reduced absolute costs by 2% and the cost-to-income ratio by 3 percentage points. All this while decommissioning legacy IT systems and improving client outcomes. And finally, on growth. Group operating profit was up 5% year-on-year, driven by the strong asset management result, which improved by nearly 20%. I'm very pleased that we achieved this growth while further internationalizing the business and expanding our private markets capabilities. In Life, we continued to build our presence in the BPA market and launched our new value share proposition. We increased new business volumes by 50%, reached nearly GBP 900 million of premiums and offset the runoff of the in-force book. When I started at M&G, the immediate priority was to strengthen the foundations of the business. Despite a challenging environment, we have done this. While we can always go further by fixing the fundamentals, we can now focus more on delivering sustainable growth to our shareholders. We are now ready to grow, and we will do so with discipline. First, financial discipline, maintaining a strong balance sheet. Secondly, operational discipline, continue tackling costs and improve our operating leverage. And finally, with a clear commitment to profitable growth across both asset management and life to underpin a progressive dividend. Only a couple of years ago, M&G had an asset manager with shrinking earnings, inefficient wealth operations and a legacy insurer in runoff. Now we operate an integrated, balanced and synergistic business model, one where the success in the asset manager is built in conjunction with the success of the life insurer. This business model is our competitive advantage. It is what differentiates us, what gives us confidence in the long-term prospects of M&G. Today, we combine an international active asset manager and a scaled Life business, bringing together strong investment capabilities with long-term capital. With GBP 185 billion of assets, our life operations provide scale and seed funds to the asset manager. Our asset manager then leverages this to foster innovation and expand our business with external clients and internationally. With over half of the asset manager AUM coming from third parties, of which the majority are based outside the U.K., we have already proven that this model delivers real value. It is a model not dissimilar to many U.S. alternative asset managers and our GBP 74 billion private markets franchise proves exactly that. We now have established capabilities in real estate, private credit and impact investing. And what gives us a unique advantage and will help fuel long-term growth is the With-Profit fund. Sitting with life, it is a business within a business with its own ring-fenced balance sheet and nearly GBP 6 billion of surplus capital ready to be deployed. Using this resource effectively means gathering assets and diversifying earnings without adding risk onto our balance sheet, but instead complementing the shareholder risk appetite. We have a winning business model, and we are clear about what we want to achieve. Thanks to the support in seed capital from the Life business, we will continue to grow in asset manager and expand our presence in private markets, focusing on high-value areas of structural growth. And bringing together our investment capabilities and With-Profits capital, we are developing new insurance solutions that will drive funds into the asset manager. After being in runoff for nearly a decade, we are turning our Life operations into a growth engine for the group. Combining a thriving asset manager with a thriving life insurer means we will deliver more resilient and differentiated earnings both in the U.K. and internationally. Our business model also means that we can address opportunities that others cannot tackle as effectively. On this page, you can see some of the key dynamics of our industry. Clients, in particular, retail savers are still underallocated. The rate environment has changed dramatically and investors are still adjusting to it. And finally, in these uncertain times, clients want to partner with asset managers that are experts at what they do, but that also have skin in the game and are aligned to their goals. Working together, our business can capitalize on these trends. Our recent bolt-on acquisitions are a good example of this as they were enabled by the unique setup of our group. We added 2 high-quality teams that complement the asset management, private markets capabilities and fit the strategic asset allocation of the Life business. With BauMont and P Capital Partners, we can access fast-growing segments in real estate and private credit, where we will rapidly scale, also thanks to the EUR 850 million of seed capital from Life. But there is more we are doing to combine our asset management and Life capabilities. The launch of the value share BPA and our fixed-term annuities means we now have client propositions that suit any rate environment and includes guaranteed smoothed and unsmoothed solutions. It also means that here in the U.K., we can offer Defined Benefit pension schemes all the services they need across the derisking journey. And when we work with clients, they know the access to the same solutions we use ourselves. Very often, we co-invest in the same strategies, aligning our interests with theirs. This builds mutual trust and creates long-lasting partnerships. Through our business model, we are well positioned to serve clients and to grow. And with that, I will hand over to Joseph, who will outline the progress we have made in asset management.

Thank you, Andrea, and good morning, everyone. I'm delighted to be with you today and to talk about what we are doing in asset management to support the growth of the group and address our client needs. Let me start with our clear ambition, which is to be one of the leading active asset managers in Europe with strong and growing private market capabilities. This is a high-margin area of structural growth where we already have a strong presence and track record. As Andrea has already explained, M&G's business model is a key competitive advantage as we deliver on our ambition. For over 20 years, we've been developing new investment capabilities, thanks to seed capital from the Life business. Our focus is to further build on this successful partnership as we then externalize and scale the solutions that we create to serve our internal clients. This synergistic relationship drives innovation and fuels growth. On this page, we also show our priorities. Investment excellence is the core objective of any active asset manager. As we maintain our current strong performance, we are expanding both our distribution reach and investment capabilities. Growing internationally and in private assets are clear opportunities for us. But at the same time, we also need to protect our home market here in the U.K. Let me go through these points in a bit more details, starting with investment performance. So delivering excellent client outcomes is our #1 priority. Putting client needs at the core of what we do and fulfilling those needs is the very reason we exist. This is why I'm very pleased that we have achieved strong investment performance over a sustained period of time. This is true for our institutional franchise with over 75% of our assets outperforming their benchmark, but also true for wholesale, where according to UBS Research, we have delivered the best investment performance across listed European peers for more than 2 years now. Behind this strong performance, there are strong investment teams, and we continue to invest in them, and attract top talent. Andrew Chorlton and Emmanuel Deblanc have recently joined us to lead our investment teams together with Fabiana Fedeli. Their experience will support our efforts to further improve the quality of our proposition across public and private markets. So benefiting from strong investment performance, we have focused now on broadening our client reach. Our international development has been a clear success story. Over the past 4 years, despite continued market volatility, we've delivered consistently positive net inflows outside the U.K. and have grown our international assets by 50% to nearly GBP 90 billion. Today, we have an established and growing international presence with 56% of our third-party assets belonging to international clients. This gives us access to more markets and more growth opportunities. It also improves our financial resilience by diversifying our earning streams. You've heard from Andrea in the past how we have strengthened our distribution teams, particularly in Europe and in Asia. In parallel, we've also expanded our offering, making it more relevant to these clients. For example, we can now leverage our global credit platform after having added U.S. capabilities in Chicago and Asian ones in Singapore. At the same time, we also built out our Asian Equity and Asian Real Estate offerings. So with a more international distribution network and a more international product range, I'm confident we will continue to grow internationally. But growing internationally does not mean forgetting our home market, where today, we manage GBP 70 billion of third-party assets and which remains a core focus of the group. Defined Benefit pension schemes are the largest client segment in the U.K., but high rates meant that they have accelerated their derisking journeys, moving to buyouts or to simpler buy and maintain strategies. But while structural challenges remain, these headwinds are starting to abate for us at M&G. Today, we are less reliant on this segment than we were in the past, both because of its smaller scale and because of our successful diversification internationally and within the U.K. Also, the emergence of run-on as a potential end game strategy for larger DB schemes, it is a clear opportunity we are actively targeting. Here, we can leverage our strong fixed income expertise, combined with our life insurance capabilities. Together, we can help these schemes achieve greater certainty on their future cash flows by providing partial guarantees or underwriting key risks. Other segments of the U.K. market also offer opportunities for us. For example, most insurers and DC pension schemes want to increase their allocation to private markets, while local government pension schemes are keen to deploy capital in local investments. Our strong credentials in this space position us extremely well to win business here. Finally, the recent launches of our first LTAF vehicle and the U.K. Social Investment fund will further support our efforts in the U.K. I want now to expand on our private market capabilities. With GBP 74 billion of assets and GBP 418 million of revenues across real estate, private credit, impact investing and infrastructure, we already have one of the largest franchises in Europe built gradually over 20 years of continuous collaborations with the internal clients. This fruitful long-term partnership clearly benefits from M&G's decision to reopen the annuity book 18 months ago. This brings fresh assets into the group, assets that require allocation to private markets and support further innovation. This said, while most of our private market strategies were originally seeded by the Life business, we successfully scaled them by attracting third-party capital, which now accounts for 59% of the asset base. So consistently winning third-party business is testament to the quality of our offering. And it shows how much institutional investors value the opportunity to deploy capital alongside our internal clients. They know that we have real skin in the game and that our incentives are fully aligned with theirs. To accelerate growth in private markets, we've recently completed 2 bolt-on acquisitions. So we targeted boutiques with investment philosophies, aligned to ours and strong track records. In both cases, we pursued the opportunity in asset classes where we already have a strong presence, but where we were missing specific strategies that benefit from strong client demand and positive market trends. In real estate, we have long been experts in the so-called core strategies that typically present a lower risk return profile. BauMont, on the other hand, is a specialist in the value-add space segment, an area where we see great opportunities given the recent dislocation in real estate markets. Similarly, P Capital Partner brings an established track record in the nonsponsored lending space. This neatly complements our existing capabilities and allows us to tap into one of the fastest growing sectors within private credit. Furthermore, both firms had international sourcing capabilities, expanding our presence in Europe and supporting our efforts to attract international clients. As we have said many times before, all this was made possible by M&G's differentiated business model. These acquisitions are consistent with the strategic asset allocation of the Life business, which has committed EUR 850 million in seed funding. As I have hopefully made clear, our ability to leverage our own balance sheet to support growth and innovation remains one of our key competitive advantages. With that, let me hand over to Clive who will outline how he is driving the Life business.

Thank you, Joseph, and good morning, everybody. As Joseph has just done for Asset Management, I will now give you an overview of the Life business and the opportunities we're pursuing. Describing Life 18 months ago would have been very simple, a legacy book in runoff with only one major open product, PruFund. Since then, a lot has changed. We have reopened the annuity book, launched new solutions and are turning this business into a growth engine for the group, capable of driving more flows into the asset manager. We are doing this by developing solutions that meet real client needs, leveraging both our balance sheet and our unique With-Profit fund. And whilst we are broadening our offering through the With-Profits Fund, we're also changing our relationship with it, shifting solutions to a simpler fee-based model for M&G. On this page, you can see the markets that we are targeting. In the U.K., we operate in both the corporate and individual space. The bulk purchase annuity market continues to be attractive with new business flow is expected to remain strong over the coming years. And since our reentry in September 2023, we have already completed 6 deals worth a combined premium of GBP 1.7 billion. And not all these are traditional BPAs, the largest one with a premium of GBP 500 million is an indicative value share transaction. This is a new solution unique to M&G that has already attracted interest from many other potential clients. And we're also building a With-Profit BPA solution, which we aim to launch next year. In the retail market, PruFund remains our anchor proposition. It is one of the most successful products in the U.K. with GBP 64 billion in assets and continues to generate sales of over GBP 5 billion a year. But since bringing our Wealth and Life operations together, we have also focused on broadening our offering with guaranteed solutions as these are attractive in this higher interest rate environment. Just last month, we soft launched our With-Profit fixed term annuity, which aims to offer a competitive guaranteed income when compared to conventional nonprofit products, but with the potential for an additional modest bonus. And we are also working on a lifetime annuity version of this product. And finally, let's look at the international market where we continue to seek opportunities to grow using our With-Profits fund. In a few weeks' time and subject to local regulatory approval, we will launch a PruFund like guaranteed solution in the Middle East. All these new and existing propositions will drive profitable growth and funnel assets towards the asset manager, and we expect to allocate a significant proportion of them to private market solutions. We often speak about the With-Profit fund. So I wanted to explain what it is, and why it is a unique source of competitive advantage for us. First of all, it is a 177-year-old pooled investment vehicle with a great performance track record that exists to write With-profit business for the benefit of its clients and in turn, M&G. It also has unparalleled scale. With nearly GBP 128 billion of assets and nearly GBP 6 billion of surplus capital on its ring-fenced balance sheet, this size and financial strength means it can effectively differentiate its investments across a wide range of asset classes and deliver a great client outcome. Hence, there are 2 reasons why it is uniquely placed to support M&G's growth ambitions. First of all, it has significant capacity to write new insurance business and is becoming the primary underwriter for the group. Whilst With-profit Capital needs to be appropriately rewarded, it allows M&G to attract assets without adding significant risk to its shareholder balance sheet. Secondly, the large scale of the fund supports our asset manager, generating a meaningful stream of income that diversifies our earnings mix. On this page, we illustrate the relationship between the With-Profit Fund and the rest of the group. Although the With-Profit Fund has the appetite and the capital to write insurance business, it does not have any operational or investment capability of its own. Therefore, it needs partners to deliver these services. And our Life and Asset Management businesses are exactly that. The Life business manufactures, distributes and administers our With-Profit products whilst the asset manager runs most of the mandates needed to satisfy the With-Profit strategic asset allocation. In exchange, the Life business participates in the With-Profit returns on a 90:10 basis whilst the asset manager receives an annual fee for the asset it oversees. These 2 income streams are a significant component of the group's earnings and to further improve this profile, we are shifting all the new With-Profit solutions to 100:0 basis. Whilst it will take time for these volumes to become material, it means that the Life business will start to benefit from a simpler annual management fee like the Asset Management business. Our reentry to the U.K. BPA market is already becoming a material contributor to M&G's growth. I am proud of what we've achieved over the last 18 months, closing 6 deals with a total premium of GBP 1.7 billion, and this includes a GBP 200 million transaction, which we completed just last week. Over the coming years, we will gradually increase our volumes and average deal size and in a steady mature state, we expect to write between GBP 3 billion and GBP 4 billion a year. This growth will not only benefit life, but also the asset manager, offsetting headwinds it faces in the DB pension schemes transferring their liabilities from insurers. As mentioned, it's also working on a With-Profit solution, which will allow us to deploy with profit capital into the BPA market to support this growth alongside our new value share BPA, which I will cover on the next slide. Here, I want to explain how the value share mechanism works, and why it can be a compelling solution for the many schemes and sponsors. Operationally, it involves a DB pension scheme, is corporate sponsor and our Life business. First, a well-funded DB pension scheme enters into a traditional BPA transaction with M&G. Secondly, the corporate sponsor makes a one-off capital injection into a captive reinsurer. And finally, M&G transfers most of the longevity and market risk related to the deal into this captive, which reduces M&G's capital requirements. This solution can be very attractive to corporate sponsors you want to share in the potential value that the BPA transaction can generate, and M&G benefits from a reduction in its insurance risk capital strain and in addition, received 2 fee-related earnings streams. One to the life business for administering the whole annuity policy and on to the asset manager for managing the assets backing all the annuity liabilities and the surplus. This is an innovative way to broaden our client proposition, generate fee earnings for M&G, and drive flows towards the asset manager, further strengthening our synergistic business model. I hope this overview gives you a sense of the growth opportunity in the Life business and how we are working closely with Joseph and his team to drive the success of the group. I will now hand over to Kathryn.

Thanks, Clive, and good morning, everyone. I'll now cover our financial [Technical Difficulty] supported by a 19% improvement in asset management and stable contributions from Life [indiscernible]. At GBP 933 million, operating capital generation remains strong. The higher asset management result and management actions offset most of the reduced contribution from Life which we flagged at the 2023 full year results. So thanks to this resilient performance, we exceeded our upgraded capital generation target of GBP 2.7 billion and lifted the solvency ratio to 223%. All this despite completing over the year, deleveraging and dividend payments worth of GBP 900 million. Net client outflows of GBP 1.9 billion were mainly due to U.K. institutional asset management and PruFund, although we are encouraged by PruFund outflows halving in the final 6 months of last year. Closing AUMA of GBP 346 billion was GBP 2 billion higher than the opening balance with markets and other movements offsetting net outflows from the business. Asset Management net outflows of GBP 900 million were entirely driven by the Institutional segment, where headwinds mostly here in the U.K. from DB schemes more than offset continued international net inflows of GBP 2.8 billion. And thanks to the strong investment performance that Joseph talked about, wholesale asset management delivered neutral flows, which is a relatively good result in the context of a tough trading environment for active asset managers. Within Life, PruFund flows remained under pressure as customers favored alternative risk-free solutions such as cash and government bonds due to the prevailing elevated interest rates. On the other hand, annuity flows continue to improve as we gradually grew our BPA volumes. This has meant that since we're entering this market, we've stabilized the runoff of the book and now expect this segment to become a positive contributor to net flows going forward in line with the guidance shared by Clive. On this slide, we show historical net flows for our core segments. Within institutional asset management, you can see 2 main trends: consistently positive net inflows internationally of over GBP 15 billion over the last 4 years, and meaningful U.K. outflows since the mini budget crisis in September of 2022. While 2024 international flows were impacted by some lumpy redemptions, including about GBP 900 million of outflows in South Africa, we are confident about the prospects for our international business, and we expect it to continue to grow and to further diversify the earnings profile of the group. Here in the U.K., institutional net outflows has continued to narrow in the second half. And over time, we expect to see further improvements, thanks to the proactive steps Joseph and his team are taking. And in relation to our wholesale franchise, you can see the strength of the business in its flows, which have been very resilient over recent years despite strong outflows in the market for active investment solutions. Turning now to Life. PruFund has been impacted over the past 18 months by high rates, resulting in lower sales at higher redemptions. That said, PruFund's value proposition remains strong with its flagship growth strategy, delivering 1 year returns of 6.6%, well in excess of the mixed assets benchmark return of 3.8%. And this relatively good performance is starting to positively impact flows with redemptions reducing and net outflows halving in H2. And finally, on annuities. You can see here how we've largely managed to stabilize flows since reentering to -- reopening to new business in September of 2023. And as you heard this morning, we expect this positive trend to continue. I'll now move on to adjusted operating profit. At GBP 837 million, our group operating profit was up 5% year-on-year. And the key features of this result are firstly a near 20% increase in asset management operating profit as we continue to successfully widen the operating jaws for this business; second, a decline in PruFund and traditional With-Profits due to the lower CSM amortization rates and lower CSM opening balances. And third, lower return on annuity excess assets as we flagged at our 2023 full year results. And finally, a strong improvement in other Life helped by proactive cost management actions. Let's now look at the asset management result in a bit more detail. At GBP 314 billion, average AUM was up nearly 3% in 2024, mainly due to favorable equity markets. Our average fee margin continued to be resilient, declining by only 1 basis point. Higher assets and resilient margins meant revenues were up 1% year-on-year. At the same time, thanks to our continued focus on efficiency, we reduced costs by 2% leading to an improvement of 3 percentage points in our cost-to-income ratio to 76% or 74%, including performance fees. The asset management result also benefited from GBP 12 million high investment income, most of which were nonrecurring FX moves and seeding gains. And all this led to a GBP 47 million increase in Asset Management operating profit to GBP 289 million. We're pleased with this strong result, and I really want to emphasize that we are committed to delivering positive operating jaws over time, maintaining rigorous operational discipline to drive profitable growth. Now moving on to the Life results. PruFund operating profit, which includes PruFund U.K. and offshore bonds, marginally reduced by GBP 10 million to GBP 226 million, largely due to the lower CSM amortization rate that we flagged previously. Profits from traditional With-Profits were also impacted by the same dynamic of a lower amortization rate, but the reduction in profit was more pronounced due to a lower opening CSM, which is to be expected given it is a closed book. It's important to stress though that lower amortization rates simply mean customers are staying with us for longer and greater customer persistency supports ongoing CSM growth. Let's now turn to shareholder annuities. Our annuities result was 7% lower year-on-year, and this was largely driven by a lower opening balance of annuity surplus assets and by lower expected returns due to a more conservative asset allocation in line with the guidance we shared a year ago. This reduction was partly offset by a higher CSM release of GBP 130 million, which benefited from a GBP 244 million increase in CSM from longevity, and a GBP 25 million one-off benefit in our lifetime mortgage book. It's also worth highlighting the GBP 65 million year-on-year improvement in other Life. 2023 was impacted by a negative provision that did not reoccur. And in 2024, we also undertook proactive cost actions to reduce losses in our platform and advice businesses, and we also lowered the cost of our smaller service companies. Having reviewed our AOP, I'll now turn to CSM movements, which you can see on the following slide. At the end of December, our total CSM stood at GBP 6 billion, a 10% increase year-on-year, representing a significant increase in the stock of future profits from our Life segment. The contributions from interest accretion, expected returns and new business remains strong and more than offset the release to the operating results. And so in total, the operating change in CSM was nearly GBP 300 million. The CSM also benefited from a GBP 256 million increase from positive markets, predominantly driven by higher rates impacting the value of future With-Profit shareholder transfers. It is worth pointing out that the increase in traditional With-Profit CSM also reflects a GBP 144 million reallocation from PruFund due to a refinement of the CSM split across these 2 products. So having covered earnings and the CSM, let us now turn to capital generation and starting with the underlying result of GBP 644 million. In line with our half year results, underlying capital of GBP 644 million was 14% down year-on-year. The reduction was entirely driven by the GBP 110 million lower contribution from the Life segment as the improvement in Asset Management offset the deterioration in Corporate Center due to higher costs. Within Life, PruFund and traditional With-Profits delivered a stable combined result of nearly GBP 430 million, but annuities were impacted by the lower return on surplus asset, which we talked about when covering operating profit. And in addition, the Annuities Solvency II result also reflects a lower CSR runoff due to higher rates and the new business strain on the higher BPA volumes we transacted. And as a reminder, we've not reinsured longevity risk on any of our recent BPA deals. I'll now turn to operating capital generation. With an operating result of GBP 933 million, I'm pleased to say that we exceeded our upgraded target of GBP 2.7 billion operating capital generation over '22 to '24. For the full year 2024, management actions were GBP 289 million, up GBP 45 million over the prior period. And the main components of these management actions were GBP 53 million from the asset reallocation of the With-Profit fund, where we reduced equity exposure, lowering our capital requirements, GBP 155 million from longevity due to lower assumptions for future mortality improvements as we adopted the CMI 2022 tables, GBP 160 million from model changes with roughly 2/3 coming from a change to the With-Profits model, which feeds through to a lower shareholder risk and the remainder from a reduction in op risk. And finally, GBP 79 million from adverse persistency and expense experience, which includes investment management costs. So thanks to this strong operating result, together with supportive market movements and the removal of all capital restrictions in the first half, we ended 2024 with a Solvency II ratio of 223%, 20 percentage points higher than 12 months ago. The solvency surplus increased more moderately from GBP 4.5 billion to GBP 4.7 billion. Own funds of GBP 8.5 billion, of which GBP 4.3 billion relates to the With-Profits PVST are lower than the opening balance of GBP 8.9 billion for 3 main reasons. Firstly, the GBP 467 million cost of our ordinary dividend. Secondly, the deployment of GBP 450 million to reduce debt over the summer. And finally, higher rates that were beneficial to the coverage ratio as they lower our SCR are also the primary driver behind the GBP 281 million adverse market impact to own funds that you can see on this page. I'll now update you on our progress towards our objective of building a stronger, simpler and more efficient business. Today, we are once again upgrading the cost target for our transformation program and now expect to deliver cumulative savings of GBP 230 million by the end of this year. This does reflect the benefits from the consolidation of our Wealth segment into Life, which we announced at our half 1 results. With GBP 188 million of savings delivered to date, we're confident that we will hit our target. It is important for me to emphasize though, that when we do hit our target, our cost transformation and simplification efforts will continue. We will remain sharply focused on cost discipline and on driving further efficiencies to selectively invest to grow in our target areas and to improve our capabilities. The strong progress of our transformation program reflects the action taken across the 4 levers highlighted on this slide. For example, since the start of the program in 2023, we've reduced our U.K. office footprint by about 20% and saved around GBP 15 million with the optimization of our technology estate. We've also reduced costs across all our segments by moving a number of activities to India, where we have built a very strong operation. And lastly, we've reduced our marketing, contract and consultancy spend by nearly GBP 10 million. By using these levers in 2024, we reduced costs by GBP 104 million, which allowed us to offset inflationary pressures and invest GBP 24 million in the business to deliver better customer outcomes and, of course, drive profitable growth. And as a result, we ended the year with a cost base that was 2% lower and of a better quality. We remain highly focused on improving our cost base in '25 and importantly, also beyond this year as we continue to drive operating leverage across the group. So to wrap up, today's results demonstrate the key strengths of our diversified business model and our ability to generate sustainable value for our shareholders and clients alike. The combination of our asset management and life operations provides us with differentiated growth opportunities that we will capitalize on in a disciplined and profitable way. So looking ahead, we're confident that we are well positioned to navigate what is an uncertain external environment. And we expect to see improved momentum on flows with U.K. institutional outflows continuing to reduce while we keep growing internationally, and of course in the BPA market, positive operating jaws in asset management and a resilient contribution to operating profits from Life with stable CSM amortization rates. And finally, on capital generation, a gradually improving underlying result, higher new business strength of BPAs and management actions returning to our usual sustainable long-term range of GBP 100 million to GBP 200 million a year. And with that, I'll hand back to Andrea.

Thanks, Kathryn. Great. Great to see. I will conclude with an update on targets and capital management. As you can see over the year, we continued to make progress across all our targets. We exceeded our capital generation target, which came an end last December. We are, therefore, refreshing our 3-year guidance and aim to deliver GBP 2.7 billion of operating capital by 2027, an ambition in line with the last upgraded target. As Kathryn mentioned, going forward, we expect management actions to contribute GBP 100 million to GBP 200 million per annum. This means that we will grow the underlying result over time, which is the higher quality component of our capital generation. Looking at the other metrics. I am very pleased with the progress on leverage and on the cost target, which we are upgrading for the second time. Whilst the delivery of the 70% cost-to-income ratio for the current year is unlikely, we are proud of the progress achieved in 2024. This ambitious target helped us set the right expectations for the organization and drive material improvements. We are committed to continue making good progress in 2025 and beyond. Finally, given our strength and focus on growth, we have added a new and explicit profit growth target. With our targets, we want to convey a simple message. M&G will continue to be highly capital generative. It will remain sharply focused on costs and it will grow. Our confidence in achieving our target is a fundamental driver behind our shift from a stable and increasing dividend to a progressive dividend policy. And we're starting today with a 2% DPS increase for 2024. This is an important milestone for us as it is the first increase in the absolute cash cost of the dividend since we listed in October 2019. The way we think about our business is reflected in how we approach our capital management framework. We are in a strong financial position, and we will maintain it going forward by being disciplined on capital, leverage and cash. From this position of strength, we will deliver business and earnings growth to underpin the dividend progression. To support our growth strategy, we will continue to consider targeted acquisitions, deploy capital to write insurance new business and push ahead with our simplification agenda beyond 2025. These investments are instrumental to the continued delivery of our attractive and growing dividends. And while we remain committed to return any excess capital over time, we are prioritizing disciplined investments in the business that meet our strict hurdle rates. Yield and growth, this is our commitment to investors. The majority of the GBP 2.7 billion capital that we will generate over the next 3 years will address the first part of the equation, underpinning an attractive and growing DPS. The remainder will support business growth, securing the long-term success of M&G. In Life, as you have heard from Clive, we will deploy capital to increase new business volumes in the BPA market. In Asset Management, we will complete later in the year, the PCP acquisition. But we will also continue to monitor opportunities to selectively add investment capabilities. And finally, we will drive forward our cost reduction efforts beyond 2025. So to conclude. First, M&G in a strong financial position. Second, we remain committed to operational discipline. And third, we are pivoting the group to long-term growth across Asset Management and Life. This shift is also reaffirmed in our targets as we reiterate the upgraded level of operating capital generation for the next 3 years, and we have added a new explicit target for operating profit growth. And finally, because of our confidence in the future of M&G, we are increasing the dividend cash spend for the first time since listing, moving to a progressive dividend policy. I am excited what M&G will deliver, and I want to thank all my colleagues for their continued hard work and dedication. I look forward to the year ahead and to delivering for our clients and shareholders. The macroeconomic environment remains volatile, but it is exactly in times like these that you can best see the value of our synergistic business model. We have a resilient earnings mix, improved operating leverage and access to diversified growth opportunities across Asset Management and Life. In 2025, we will maintain our financial strength. We will continue to simplify the business, and we will accelerate growth. Thank you. I'll stay here, right?

Yes. Thank you. You can stay on stage. We'll just...

I'll go behind this.

Hands are already up but I know that Nasib needs to dash. So I'm sure no one is going to take offense if I start with him and I can't even do the introduction. Remember to pullout as usual the microphone from the chair, pull the button down. Over to Nasib from UBS.

So 2 questions. Firstly, on net flows over the first 2.5 months. Can you tell us how institutional wholesale and PruFund have performed over the first 2.5 months? Secondly, on the last slide, Slide 41. Really appreciate the color on the uses of the GBP 2.7 billion but can you kind of break that down a little bit and give us some color particularly on how much cost you need to get to achieve the GBP 230 million, how much is left on the simplification bucket and how much new business strain do you expect or you've budgeted for over the next 3 years?

First, I guess, Andrea, do you want to start with flows and then...

Okay. It was flows, asset management and PruFund, you wanted to have the overall picture. If you look -- if you finish to look at 2024 and I see sort of the momentum we had, clearly, we're very, very pleased with what we achieved, in particular internationally. And this was in a different market environment. When you look institutionally, thanks to the very strong offer that we have, both, I would say, on public equities and credit but also on private assets, we started to see momentum already at the end of 2024. And I have to say, with the volatility that we have or the renewed volatility we have in 2025, we continue to see strong momentum. I think these are moments where, if you are an active asset manager, you can get benefits from this because this is where you want to have an active asset manager next to you. In particular, for example, on wholesale, because we're performing so well in -- on all our funds, OEIC and mutual funds, we gave the number before, 25% are in the top decile, decile, 40% -- 40%, 42% in the top quartile, 25% are in the top decile, 1, 3, 5 years. That allows us to actually see some significant interest from a wholesale perspective. And we continue to see strong interest, in my view, on the private asset side, in particular, on private credit and on real estate. Real estate is an interesting one because it was sort of an asset class in the last 2 years, which did not have strong momentum. With valuations coming down the cycle, we see a lot of international investor, institutional wanting to invest there again. And of course, we have a very strong franchise there. So I would say the momentum starting in the year for the asset management, it's more positive than 2024. And as I said before, I expect us to continue and grow positively this business going forward. And even on the U.K., which you saw, we sort of had still some headwinds in 2024 but you saw that in the second half outflows were effectively halved versus the first half in 2024. I think we will continue to see this momentum also in 2025, as Joseph also explained before. So I would say, overall, I'm cautiously optimistic on the flows we will deliver on the asset management side, thanks to the relevance of our offer and the strong investment performance, vis-a-vis PruFund. And PruFund, let's talk PruFund in the U.K. Even here, we had strong competition in 2024, of course, from rates and from cash and gilts. But that competition sort of slowed down with rates coming down. You saw that the net outflows actually were halved versus the first half, GBP 600 million of our net outflows in the first half and GBP 300 million in the second half. And in 2025, we will see continued, I would say, improvement on PruFund flows, thanks also to the excellent investment performance we had in 2024. We had a 6.6% net investment performance. And that, of course, if you think about the volatility and people want to have a [indiscernible] solution, they want to have investment performance as well. PruFund is a perfect product for them. And we are also going to put PruFund on other platforms and we're increasing the number of restricted advisers. So that should also help momentum in 2025 for PruFund.

Perfect. And I think it's Slide 41, the one that you were...

And I was also just going to add one quick comment on flows. And I think given what we're seeing in the market, even we've got in that top decile of funds, we have great equity funds. European strategic Value add is doing really well. And we also hope the momentum to continue. It's not just fixed income and private assets but also equities.

Yes, no, no, it's a great point. I think one thing we've seen, last year, nobody was interested in Europe. Since January, strange enough, Europe is back and the U.K. as well. And it's not only about the U.S. So of course, this plays once again into our strength.

So just adding that. And then onto this slide. And I think you had 2 questions. I think there was one on the cost needed to achieve GBP 230 million. And then obviously, this is for the next couple of years. So what do you expect in terms of transformation cost spend? And the second one was on strain. So if you look at -- you may not have had a chance yet to look at the results announcement but we have spent a lot less on achieving our cost targets. So it's down from GBP 140 million to GBP 105 million last year. So we are spending a lot less on our change budget to deliver these savings. And so I wouldn't encourage you to get your little rulers out and look at the exact sums here. But we expect that spend to continue each year. So we will spend less each year on driving the simplification of the group. Really importantly, I think, obviously, what this translates to into the BAU cost base that is of a higher quality because of the savings we delivered last year, we reinvested in the business in a very disciplined way. So we are absolutely still hiring, investing Kerrigan's business, in the asset management business to grow in a very disciplined way. So I'd say the spend will continue to reduce over time. And as Andrea said, we will also continue with the simplification journey after this year. And in terms of strain, we've given some guidance around GBP 100 million to GBP 150 million that we'd expect going forward for the products that we're writing. Now as you know, they have a very different capital signature depending on whether we do the traditional BPA or the value share. And on Clive's slide, you saw him guide roughly to a split in 2025 that was still sticking with the roughly GBP 1-odd billion a year of traditional. But the key thing really is, though, that we will do what's -- our customers want that meet our hurdle rates. We have got great private markets capabilities. We can help these DB schemes with a range of products, given the innovation that we're now -- that we're now seeing across the group. So it really will depend on what our clients see but I'd encourage you to think about that GBP 100 million to GBP 150 million a year that we guided to.

Sorry, Nasib, can you -- we cannot hear you otherwise.

The strain is not coming down as a percentage because you're not allowing for any longevity reinsurance. So if I did 5% of the GBP 3 billion, I get to GBP 150 million, right? So are you going to do longevity reinsurance and get the strain down?

So -- and if you -- again, you can see that there are some disclosures in the slide -- in the -- sorry, in the results pack around strain. We haven't reinsured longevity. And so that is a management action that we can still take to deliver the GBP 100 million to GBP 200 million in management actions. But also, yes, we absolutely have got the ability to improve our strain, increase our returns for future deals on the traditional side and obviously aware of where reinsurance pricing is at the moment.

Then let's come to the front from all the way back to the front, let's do right to left, so we do Farooq. Let's first row and then back. So Farooq, Tom, Andrew, then there is some. No worries. So I'll introduce in the meantime Farooq from JPMorgan.

Just 3 questions, please. So I mean, I guess, contrary to the last question, when I look at your strain of 150 -- GBP 100 million to GBP 150 million actually given that you're using a lot of With-Profits Fund going forward, I think the GBP 3 billion to GBP 4 billion looks quite low. I think you're being quite measured in what you're guiding to the market. Is that the right sort of feeling to have about your future that actually you could do a lot better. And then generally speaking, when we look at your net flow picture and given the tone of your presentation, it seems that the future is really the life business, funding the growth of asset management. Is that balance between flows and life versus asset management the right way to think about it that; a, you could do more; and b, it's going to be very sort of life focused. The second question is on your cost base. So you talked about reducing costs and the absolute cost in the asset management business came down. Sorry, I'm just trying to...

2%, was that.

2%. So just, I was just kind of wondering whether we should expect that kind of quantum of reduction in the next few years in absolute cost base? And then my final question is on the With-Profits Fund. So you have the GBP 6 billion, you're moving to 100 zero obviously, over time. What are the restrictions on using that capital? So do we have to worry that at some point, somebody is going to raise a hand and say, hey, what are you doing with our money and try and end up -- cause some litigation issues around that because we've obviously seen these kind of issues before.

Okay. So maybe given that there were a lot of questions in those 3 questions, I'm just trying to, out of this, maybe, Kathryn, just to tick them off one after the other, one [indiscernible] kind of down your alley, is on cost, whether you want to take it, asset management, where we expected.

Yes, of course. And so we did see a 2% reduction in absolute costs, as you said. It's -- we do look at the absolute number but the most important thing is to deliver positive jaws. So it's critical that the whole company becomes more efficient to get flows going through and creating operating leverage. So really, it's about the jaws and about getting positive jaws. But we obviously also want to make sure that we can manage, given the external environment. So we look at the absolute number but obviously, a 3% reduction in cost-to-income ratio was really pleasing and we want to see continued reduction in cost to income. I would say we stay focused on the positive jaws but we monitor also clearly the absolute cost number.

And maybe there was a question related to the asset manager, maybe more for Andrea. A little bit of a maybe slight provocation but is life the only future of the asset manager or is it part of the future?

No, no, no. Listen, let's be very clear. We want both businesses to grow. I know I insist a lot in saying that they work in synergy. But clearly, when you look at the asset management by itself and how it's been performing, we have amazing investment capabilities out there. You look at the flows even in 2024, internationally, we had GBP 2.8 billion of net flows institutionally. And this was not in one country. It was in different countries. Germany, we had strong flows in Asia, Netherlands, Italy, of course but Italy was more a bit of a wholesale, to be fair. So all that is well diversified. And it's thanks to a very, very strong investment capability, in particular on private assets but very much in fixed income and equities. I mean we have -- and even here, we have some unfunded wins, big ones that will actually fund in the first half of the year. So no, the asset manager has what it takes to grow by itself. But of course, having the support from the life business is critical because it actually helps you in particular on private assets when you go out there. The 2 bolt-on acquisitions we did, I can tell you, when we spoke with the counterpart of the ones selling, they were interested very much that will your life balance sheet invest in it? Well, of course, it's not my decision. They look at it and the fact that they like the investment strategy and want to invest in it, that's a very good sign for us to then scale it up with third-party money. So no, you should not think of the life business is supportive. It's the fuel but even the asset management by itself, thanks to its very strong investment capabilities is growing as well. So it's a booster. Let's call the life a booster. It's that turbo booster, if you want, if you think about an engine.

And maybe to -- back to the first question, trying to unwrap them one by one. On the volumes for BPAs, strain and the prospect of the with-profit product. I guess also, we don't yet have the with-profit product. So it will be a journey.

And so we've not given any more guidance at this stage. It is too early around what that either capital earnings signature looks like for the life operating partner, as Clive calls it. So in terms of this GBP 150 million, up to GBP 150 million of strain, it is intended to be helpful guidance. We do have a very modest amount of strain coming through from PruFund as well in the numbers that you know but it is really modest. So it will depend on the types of deals that we're seeing. We need to deliver double-digit IRR. So that's really key that we have got the hurdle rates for the business that we're writing. And that -- I'm pleased to say that's where we are. And there is a degree of flexibility because the value share BPAs, as we said today, they are quite lumpy. We don't expect any in the first half of this year. We expect the size to probably be bigger. And that will have, obviously, a different strain and it actually also has a different earnings impact in IFRS 17 and the CSM. So we have got some flexibility but that's good for us because we've got the capital generation that you see coming through, are going to see underlying capital generation improve over time and we are going back to our GBP 100 million to GBP 200 million from management actions as well.

Perfect. And the last question was around the excess surplus capital in the With-Profit Fund of GBP 5.8 billion and whether -- is it almost too good to be true that we can deploy that capital? And maybe, Clive, you want to explain a little bit why it is in the interest of the With-Profit Fund to actually deploy profitability that capital?

We just need to make sure that we -- is there a mic on, on Clive?

It's a really good question. I mean, essentially, a With-Profit Fund. And as you may know, I spent 5 years running LV='s with-profits fund and trading that [indiscernible] and I needed to do 2 things with it. So you can trade it for future funds, future with-profits funds or you can give it back to the existing fund. One thing positive which I think very credible, the shareholder just can't have it. And what we find here is a way that it does trade that surplus into the market, into the BPA market, into the investment market, both in the corporate, retail and international space. And what the shareholder will get its each share or partner can run the assets, provide the infrastructure. And we think also share in some of the insurance risk as well, as you see by that chart and we'll -- just to explain that [indiscernible] a little bit. There are essentially 3 balance sheets that we can play into the market. There's the shareholder balance sheet and with-profit balance sheet and also the sponsored balance sheet if they want to set up.

I think you need a mic.

Yes. I think we probably -- you could hear Clive, right? So I guess, well, for those people online, it would be good if we -- going forward, we can use the mic but then don't need to repeat it because I think that was a pretty comprehensive answer. Any other follow-up or are you good, Farooq? Excellent. So I promised -- let's do a bit, Tom. So we do fully right to left. So Abid Hussain from [indiscernible] now?

Abid Hussain from Panmure Liberum. [indiscernible] I've got 3 questions. The first one is going back to the Life business. What was the thought process in probably reopening the Life business to new business now? Was it the approval of the 100 zero structure? And I mean, quite candidly, what took you so long to make that decision? The second question is on the BPA value share. Can you share some more metrics, key metrics on that, perhaps if you can give us an example of a GBP 1 billion deal or GBP 100 million deal on a traditional BPA versus the value share and sort of talk to what the strain looks like on one versus the other? What the cash over the total lifetime looks like and what the payback period looks like because I just don't have a handle of that in my mind? And then the third one is on the private markets. Can you just give us more color on the GBP 850 million that you called out on seeding from the With-Profits Fund? And are there opportunities to seed other projects that can perhaps move the dial in a more meaningful way?

So maybe, Andrea, do you want to start on why we reopened the life book, although I'd say you mentioned the 100 zero that we opened the life book 18 months ago on the shareholder balance sheet. And I guess -- well, it didn't take Andrea very long because he said it on his first presentation exactly 2 years ago when he came as a new CEO. So there's always been -- also been a management change.

The reality is, I mean, we -- 2 years ago, this was a shrinking life business. I mean, let's face it, it was not. The reason why we reopened was because there was a market opportunity there. And more importantly, we had, I would say, a right to win in this market. We have already an infrastructure, which we have not using for many years. And more importantly, we had some investment capabilities, which are rather unique and I would say, an advantage in this market, fixed income and private assets. So with those, we felt that there was an opportunity to enter into a much larger market. And we did so -- and we did so also what I would say with a broader proposition because, yes, we have written a couple of plain vanilla BPAs. But rightly, as you said, we also did a value share BPA which once again sort of links in to our business model. So I think we have a very strong right to win in this market. We've been very selective on how we have reentered it. And going forward, we want to continue to be selective. But as Clive presented, we have different sort of ways of doing so. They can be plain vanilla. They can be value share BPAs and we will launch early next year, of course, also with profit BPA. So different opportunities there. And let's not forget also, it's not only about BPAs. We can also provide thanks to the asset manager, run on solutions and investments. So we can really, thanks to our unique business model, provide all sort of solutions to DB schemes out there. So I mean I think we're well placed in order to benefit from this. And we'll be very, very careful how we do it. And of course, we have a very strict hurdle rate and IRR we need to deliver.

And I think just one point to add and then I'll get on to the value share. And obviously, all of this new life products will drive flows into the asset manager. So that is very beneficial. And we've been clear that we do intend to have a meaningful allocation into private markets. And we can take the question on what else beyond the GBP 850 billion that have been deployed for these 2. But all of it drives flows into our asset manager with a meaningful part to private markets. And also, we've indicated that the switch to more fee-related earnings. So our fee-related earnings go up anyway but changing the profit signature to make it simpler for shareholders to understand this business, given the firepower that we have with a very meaningful surplus, we think will over time generate meaningful value for the group. And so on the value share, so we did go through what we hope is a clear description of the various parties to the deal and the economics broadly. I'm not going to give actual numbers out. But given that capital is retained by the scheme sponsor, we obviously have a low strain. We have high IRR, higher on this transaction than on our traditional, caveated, of course, that with the traditional, we can still reinsure longevity. I would say that this is a scale game for us. It's a very exciting product. We've had a lot of interest externally. And the absolute earnings that we get is more modest but with the volumes that we'll be -- we can potentially write and again, we gave some indication, this should be attractive for us over time. And clearly, the other point is, you don't see all the fees recognized from this product as well. So higher IRRs and also lower capital, the earnings is going to grow over time and there is the additional fee streams that you don't see.

So let's go to Tom.

Thomas Bateman from Mediobanca. Just on the private market flows. I think you alluded to it a second actually but you've got this GBP 100 billion target, I think, by 2025. And we're a little bit off there. But it seems like there's a big allocation coming from the life of 20% to 30% into private markets. Is that the real driver that makes you confident of reaching that target? Second question, just on -- I've seen really positive announcements recently from M&G, whether that's PruFund being launched on new platforms or the new product launches. How much of these new products are in your GBP 2.7 billion guidance? Or is there upside there? And then just finally, on the cost-to-income ratio target and I know that you've upgraded the cost saving target but we're still a little bit way off the 70%. Are you still confident of achieving that and kind of where are we on that?

Okay. I'll take it too.

And maybe when covering private market, we should just touch upon briefly on what Abid asked earlier, which we forgot about the GBP 850 million into the 2 acquisitions that we have made.

Yes, for sure. So I have confidence in private markets, not only because we have what I call potential skin in the game. Let me be very clear. It's not because we have a life balance sheet and we have private assets capabilities that the life balance sheet has to invest in those private assets capabilities. They have to be relevant, performing. And of course, the life balance sheet has its own investment process, their own strategic asset allocation, tactical asset location. They decide in what to invest in. We run only roughly 80% of all the assets of the life balance sheet. So I just want to make that point clear. Because if not, it seems we are not doing what is best for the policyholders and we are always focused on what is the best interest for the policyholders. So I just want to make -- but of course, having access to permanent capital, potential seed capital is a help. It's a great help. It's a great help when you launch new strategies. And it also creates that strong alignment, which is very, very critical because when you go out and speak with other pension funds, insurance companies, sovereign wealth funds, when you can tell them that you yourself have invested your own money, let's say, in the strategy, that helps a lot. So that certainly is a positive. And with regards to, for example, those 2 acquisitions, we would not have done those unless there was appetite from the life balance sheet. That is actually one of the critical components. We believe that our model has always been, let's see if there is a seed from the life balance sheet and then let's scale it up, thanks to the great distribution network that we have with our asset management business. That has been a model how we have developed our other private assets capabilities in real estate, infrastructure, private credit, et cetera. So it is important know that, the reason why I am positive on private assets going forward is; a, rates have come down. So valuations are more attractive now. There is definitely more appetite on private assets here in Europe. Private credit is one, in particular, on -- of structured credit, where we are very, very strong. But the real estate, once again, thanks to our very strong franchise is back again in terms of appetite. We see a lot of investors, Asian one, European ones that are coming back to invest in real estate core and, of course, now value add, which we just added. So yes, we believe that we will grow this franchise going forward. I never gave a GBP 100 billion target. I want to be clear on this. I think I gave an ambition, I never gave it as a target because there's a difference between a target and ambition. But having an ambition, it focuses people on trying to deliver it. And of course, I want to see this private asset franchise grow in 2025. And I think we really -- we have some very strong elements to do so. Maybe on the cost-to-income ratio, if I might lead to that one. So there, we had a target. It's true. There we have a target of 70%. And indeed, when I look at what we have achieved in 2024, I'm very pleased with the progress. We moved from 79% to 76%. That 76% is without performance fees. And as you all know, when you compare to peers, they always include performance fees. So you should compare 74%, not 76% because 74% is what we have with performance fees. So that's our true cost-to-income ratio, let's say, that you should compare to others. We want -- we're very pleased with what we have done in terms of progress. It's thanks to a relentless focus on costs. It's what also allowed us to have nearly 20% of operating profits increased from asset management. So we're pleased with that. But I want us to continue. And I want us to -- that's why I'm keeping the target. I want management, I want everyone in asset management to understand, I want that 70%. I want us to get there. Now will we get there in 2025? It's a challenging target. But we will get there in time and I predict that we will continue to improve it as we did in 2024.

And Kathryn, on the question on the GBP 2.7 billion, if I remember correctly, is whether it already factors in some of the, I guess, flows and contribution and capital generation from the new products that we talked about.

Yes. So there have been some good announcements we've had. Obviously, what we said we intend to launch PruFund in the Middle East subject to local regulatory approval sometime soon. We are working on putting PruFund also on other platforms. And as we said, we also feel that we've got good momentum given the external environment and the strong positions of our business and the good investment performance that underpins it. So yes, the target is that reflects the future earnings, capital generation across the group, with the ambitions we have in asset management, some of the benefits they get from the life strategy and the volumes that we hope to deliver across what is now, I think, a more diversified product range. So clearly, with the fixed-term annuities, we expect that to build quite slowly. We've been very clear on that. Individual annuity is coming later. And we'll give some more color when we get closer to the With-Profit Fund writing BPAs. And you're very aware, obviously, of the industry environment and conditions there. So yes, it does reflect our business plan and our product launches this year and next year.

Perfect. Then let's go to Andrew Baker, Goldman Sachs.

So first one on the operating profit growth target. Are you expecting this to be fairly linear over the period? Or should we expect it to be either front or back-end loaded? And then secondly, on leverage, again, on your target there, are you expecting to do any additional sort of nominal debt reduction? Or are you just relying -- are you expecting own funds growth to get there? And then finally, sort of -- again on Slide 21, when we think about the GBP 3 billion to GBP 4 billion of BPA flows by 2027. Can you just help me think through how much of that goes through the shareholder annuity CSM, how much comes outside of sort of IFRS 17 and just generally, the accounting and the different accounting based on value share, with-profit and traditional?

So they are very skillful. So Kathryn, if you don't mind.

So I think, certainly, when we give the 5% guidance, it is on average over the next 3 years. We obviously delivered 5% last year. And I would say that when we obviously stood at this time last year, we guided down meaningfully because of the lower rates, lower expected returns. So we do -- so we still hit the 5% for last year. Asset management clearly had a strong result but we have also indicated that the asset management business did have some one-offs, GBP 12 million higher investment income than we've had. So clearly, the life, as you know very well, a lot of the traditional AOP is relatively stable. We've given some guidance around this 30% reduction just in base rates at the beginning of the year but stable amortization rates. So we would see the benefits over time coming through into AOP. But we're pleased that we increased the CSM by 10%. So it's sitting at GBP 6 billion and we do look at that metric. And obviously, the key thing on the asset management side, which obviously flows through immediately into AOP is delivering growth given the strong positions of the key franchise where we're seeing a good external demand and positive jaws. So that continued growth in the asset management business. But given the profit signature from the traditional life products, clearly, it comes through differently over time. Now on leverage, so we're really pleased to have done the GBP 461 million debt reduction last year and also partly redeeming a bond and then the liability management exercise. I'd just remind everybody about our calculation basis of [indiscernible] is very, very different from other people. It is much more conservative. We know where we'd be if we use some of the other calculation or methodologies for calculating it. So we're really happy with our debt at the holdco with what we have. There's one bond that's coming up for call in a couple of years. So we want to reduce our leverage over time as we grow own funds. And we gave some color as to why our own funds went down last year. But certainly, we do want to see the leverage ratio reduce. We caveat that we're very conservatively calculated at the moment. Obviously, we've got asset management growth and other contributors to own funds to get the leverage down.

And to be explicit on the own funds, it's really like -- if you think about it last year, we had GBP 450 million from deleveraging and GBP 280 million adverse from higher interest rates. So it's almost like GBP 730 million of adverse own funds pressure that you normally wouldn't expect at the start of the year, you know what I mean?

And I think the last question was on the value share and on capital.

I think Slide 21. So let me bring it up.

So it is more around what goes into the CSM in terms of new business and how the shareholder CSM grows and what comes through as fee income and so...

So we can follow up around the value chain in particular. But it's the -- you should think about it as a sort of typical BPA with a reinsurance and then with a fee stream. So the CSM impact will not be as great because of the different profile of the product and what's kept with the scheme sponsor with the reinsurer sitting in the middle. And when you go back to the other slide, you don't have to pull it up now, you obviously get the benefits coming through from surplus flowing back to the reinsurer. So it is -- you can -- we can follow up later but you can split it into the traditional BPA with the reinsurance and then the different fee streams that go into the asset manager and into the life operating partner.

And clearly, as this products will grow in volumes and become more relevant to the equation of the group, clearly, we'll give greater disclosure and guidance on each one of those. But I think the key point from Kathryn is like whether it's value share with profit BPAs because there's less capital intensity. It's less of a CSM game. It's more of a fee-related earnings stream, a little bit like asset management that is not typically captured by the CSM metrics effectively. . I don't know whether to go backwards or forward. I mean, Dom looks very sad. I'll go with you, Dom O'Mahony from BNP Paribas Exane.

So 3 for me, if that's all right. Firstly, just on the shift from 90/10 to 100, which I think is just on the new business. Just understanding the importance of that from a shareholder perspective, my assumption is, this is helpful for the liquidity flow. You'd have to wait for the bonus to be paid or indeed for the customers to withdraw their funds to get the liquidity as a shareholder. Is that the point -- sorry, is that one of the points? And is there anything you can do to transform the existing in-force book in this way? Or is it just actually they can only be on new business? That's the first question. Second and third is just on Slide 41. And Kathryn, I'm really sure I got my protractor out before you told me not to. And my first observation is just the tax, which I think is about 15% of the OCG. Is -- presumably that's deliberate. I mean as I understand it, conceptually, one pays tax on own funds generation, not SCR release. But I'm guessing that probably the SCR development over time is roughly flat. So why is the tax rate so low? Is it actually that a lot of the OCG here is SCR release? And then the third question is also on 41. I'm just thoughtful about the way that you've framed the right-hand side here, which is anything above the GBP 2.7 billion you can allocate. You've got a lot of stock of surplus right now. And I mean it's about GBP 1 billion, I think. I get that it's not always easy to deploy surplus. But in terms of taking risk and growing the SCR, which I think is the life growth here. I mean most of that will be strainful SCR growth. My -- I would have thought that actually you could use that very large stock of surplus today to fund that. So I suppose it's a long way of saying, why couldn't you deploy some of this into maybe more M&A or extra capital returns?

I mean, if you don't mind, Kathryn.

I actually have written them all down. So we wanted to start talking today and I think there might have been a session that Clive did with some of the analysts last year on the life strategy and around how we see that we will use the With-Profit Fund as a source of value, not just for its own policyholders but for the whole group. And I think that, yes, it will have a different -- it will accelerate capital generation. It will accelerate cash generation as we move to 100 zero. I think really importantly, it will just really simplify for shareholders how to think about the value and the economics of the business. And obviously, 90/10 shareholder transfers, you all understand it very well but the generalist shareholder, it is much more complex. So it will be simpler. It will be hopefully more predictable. And perhaps 1 day, it will attract a better multiple but it does -- so it does accelerate capital and cash gen but the real driver really is it's about making our business easier to understand and certainly emphasizing fee-related earnings. We have this strong insurance balance sheet that is able to also contribute to fee-related earnings for the group. And in terms of whether we've guided for new flow for the With-Profit Fund taking on that signature and there's no imminent plans. We're looking at anything on the in-force book. But obviously, what we want to try and do is to continue to optimize our balance sheet, to generate strong returns for policyholders and With-Profit Fund and across the group.

And maybe Dom, the last thing on that one is that by moving from 90/10 to 100 zero, there's no arbitrage either way. So it's not that either 1 of the 2 parties, the With-Profit Fund or M&G plc should be better off or worse off. It's just purely a different profit recognition and time lines.

And tax and life tax is quite complex. And so what we've given here is just some guide to generate, I guess, the after-tax impact in terms of capital generation. You also probably saw that we had a tax benefit this year. So we had essentially saw the PVST increase from 4% to 4.3%. So we had future shareholders transfers able to absorb more of the [ DTA ], which did contribute to that increase in the solvency ratio in 2024. So perhaps it might be helpful if we can follow up with some generic guidance with you around how to think about tax. It's obviously pretty simple in one part of our business, and it is more complex on the life side and particularly with the With-Profit Fund. And so I think the last question was, you've got a lot of -- a very strong solvency ratio of 223%. Why can't you deploy more capital? And certainly, when we look at the opportunities that we have and we look at what Kerrigan is doing across the corporate business and with the opportunities clearly to also use With-Profit Fund, the GBP 6 billion surplus next year, certainly subject to meeting the right hurdle rates, there is the ability to use a bit more capital. We've -- since -- as Andrea, when he came in and decided to reenter the BPA market, we have been quite thoughtful and modest around our overall size ambitions. We know it's incredibly competitive. And so we felt that having a thoughtful volume assumption is the right approach. And the increase to $3 billion to $4 billion was across all products. But certainly, if there are the opportunities, if it helps our asset management business, if it meets our hurdle rates, as we said also with the possibility of reinsuring longevity, then yes, we have got some surplus capital that we can use subject to the capital management framework that Andrea talked do.

And maybe, Andrew, I don't know if you want to answer to the slightly tail of the question, which is, couldn't you just use some of the capital from your stock to go for capital returns?

Well, listen, we've been in different stages here. The first 2 years, we have fixed the business. And we have reignited the life business. We got the asset management to have earnings again. We have fixed our leverage. So we fixed the basics. Now the focus for us is looking for sustainable profitable growth going forward. And to do so, you can see it here, we want to invest in our businesses to make sure that we can sustain that growth going forward. And by the way, we also want to continue to simplify and transform our business to deliver better client outcomes but also create capacity so we can invest further. So that's our focus at the moment. And as I said, it says very clearly here, any capital generated above, then that we will see what we will do. But so far, we're very much focused in making sure that we deliver growth. It's all about growth now. One year ago, you were all asking about leverage, leverage, leverage. Now we fixed that. Now -- so let's talk about growth. We know we're growing the business. We want to grow it further. I think there's a great opportunity for us in the current environment and given our strength of our business model to really deliver sustainable growth. That's also why we came up with the progressive dividend policy. And that is what is going to fuel that growing dividend going forward. So that's our focus. I'm afraid any capital return is not on the paper today.

And just like mechanically, it's not just about solvency ratio, you always need to think about how it triangulates with leverage and other metrics. So the play -- interplay between the 2 is important. And so moving to the front. Finally, sorry, for taking so long. Andy Sinclair from Bank of America. Or I don't know if you're pulling out the microphone, turn it over to Andrew Crean from Autonomous.

The GBP 2.7 billion OCG figure. Helpful to have a GBP 100 million to GBP 200 million per annum for management actions. But within that GBP 2.7 billion, low end of GBP 100 million, GBP 200 million a year is what, GBP 300 million, high-end GBP 600 million, is quite a range. What are you actually allowing for within that GBP 2.7 billion for management actions? And second is, nice to see the progressive dividend policy. Just kind of thinking what's longer term? We can see the 5% operating profit growth. But thinking longer term, what's the right payout ratio for this business kind of once we've settled down? And third was just kind of coming back to the inorganic asset management bolt-ons, you bolted on to real estate, private credit. What skill sets do you say that are missing or that you'd like to add or accelerate?

So I guess probably the first one is more of a Kathryn question on management action on the GBP 2.7 billion and then Andrea on the progressive dividend and the inorganic. What are we missing, anything else, I guess?

Okay. Shall I go with maybe the first one. So you talked about the dividend. You want to understand where we're going to move on dividend. First of all, obviously, we're very pleased to have moved to progressive dividend. We fixed the business. We're in a place now where we feel that the business can deliver sustainable growth going forward. And let's face it, it's since the delisting that we have not touched that dividend. So moving to a progressive dividend policy is very, very positive and shows the confidence that both we as management and Board has in the future of the business. And clearly, the quantum is not a decision for me. I mean that's something that the Board will decide but you would obviously expect it to grow year-on-year. But there are also other -- there are other components you have to take into account when you think about dividend. And then maybe you want to go into more detail on those linked to leverage and...

Yes. I guess we just want to make sure that the dividend is supported by, obviously, sustainable earnings growth. We want to see underlying cap gen grow over time. We think about our broader financial metrics that you had on the capital management framework, as Andrea said, around leverage. We think about the external environment as well. And I think payout ratios is, we clearly understand you can have a OCG payout ratio. Obviously, earnings payout ratios perhaps once we've got a much more meaningful fee proportion to our earnings. So yes, it's really important for us to have got to this particular point, given we're on a journey and having the -- the Board having the confidence that they see the underlying improvement in the operating performance of the business. So yes, we will think about the growth rate over time. It's a question for the Board. We think this is absolutely the right number. It's an important first step for us. And also, we have got these opportunities and I know that was the next question but to do some very selective bolt-ons to continue to grow to support the capital and earnings generation of the group.

And maybe shall we -- actually, I think Joseph would be very well placed to answer on the capital management capabilities. So let me bring back up to the slide.

I hope you can hear me. happy to come back on the slide before, if you don't mind, on private market that slide. Yes, we did talk about bolt-on acquisitions and we are very pleased, again, to have done those 2 deals. But I want to insist on the fact that we already have extremely capable teams. What you don't see here is the number of products and new strategies we are launching in every single line of the slide on the screen, real estate, private and structured credit or even impact on private equity or even infrastructure. I just want to come back to the percentages that I mentioned here, which is the percentage of external assets. Probably what we don't see here is the time line. We launched our real estate franchise more than 20, 25 years ago. We have 54% of assets with third-party clients, meaning the rest is with internal clients, the life business. Actually, the life business is extremely hungry on real estate. Just look at the next door, the building, 40 Leadenhall and for sure, which means that we have to grow even more on third-party assets. Go to the next slide, private and structured credit. Still the same slide -- line, 84% like for infrastructure. These are strategies that have been around for more than 20 years, a lot has been sold through third-party clients. Reversely, we launched recently 3-plus years ago, Catalyst, which is our growth equity fund, investing in impact space alongside the acquisition we did in responsAbility. That's why as a weighted average, you have a relatively low percentage, Catalyst is still 100% for the internal clients and we want to externalize it out there. So we don't need only to do bolt-on acquisitions. We do have strong teams out there that can grow the business and we still have a strong pipeline of new strategies. We've mentioned the LTAF for the U.K. market. We mentioned also the social investment fund to grow effectively our, let's say, presence in various markets. Having said that, if you were to ask me, where are you at, not really. So we are strong in Europe, relatively strong in Asia, especially in real estate. We are probably less present in the U.S. as we speak now.

Management actions, should I do that quickly? So again, we're not going to guide to where exactly we will come out over the 3 years. I think you know that we've obviously delivered quite outsized management actions. We mentioned the GBP 700 million. And in particular, there was over the last 2 years, quite sizable gains in terms of management actions coming from With-Profit Fund shifting their allocation from equities into fixed income. And that was more meaningful in '23 and also into '24. Another really important factor is that we have largely optimized the annuity book also. So a lot of those levers have already been pulled in terms of management actions that we can take. We still look at credit risk. That's one area that we're focused on. And clearly, there are other possibilities around reinsuring longevity as well. So it is critical that we want to grow the high-quality underlying earnings and we said we'll do that over time. And then we absolutely will deliver management actions but we won't have some of these meaningful, sizable one-offs we've had in the last 2 years. But we still have clearly actions that we are looking at and that we have on the horizon for the next couple of years to hit the GBP 2.7 billion. But we won't guide to GBP 100 million, GBP 600 million.

Andrew Crean from Autonomous.

It's Andrew Crean, Autonomous. Can I ask 3 questions? The first one, can you provide the net flows -- gross net flows into asset management, first from private assets? And secondly, from the internal funds, I know you do wholesale institution. It would be nice to have the whole bit. Secondly, the strain on the annuities this year, it was, I think, GBP 64 million, so it was something like 7%.

Yes. That's right.

When you're talking about your new strain targets, is that entirely because you're changing the mix to a lower strain value-added [indiscernible]. Or is it the fact you're going to try and -- I mean that it's a very high strain figure compared to everyone else. And then thirdly, on the little section on the M&A, bolt-on M&A, rather me getting my protractor right because I don't think I've got a protractor anymore. You can tell me what the number is, please.

So I guess on the gross and net flows, you were asking for private and public assets and...

International.

International. I -- so we don't have -- in the slides, we provide gross and net by institutional and wholesale. So we need to come back to you. I need to check whether we have in the annual report anywhere but I'm not quite sure. And if we don't, good point, we can add it as additional disclosure because it's very fairly easy to do. So let us come back on that one. And on this strain on the annuity, the GBP 64 million is correct. And how do we think about lowering that percentage going forward? I mean maybe Kathryn, do you want to take it?

Yes. So we do know that -- and I thought it might be again a question on the CSM new business as well. But it is obviously at a higher 7% number. We have got a small amount, as we said, the strain for the value share really is quite modest. We genuinely are focused on double-digit IRRs. I know a lot of -- there's been a lot of commentary, too, around strain coming through from credit versus gilts and those sorts of things. But I think certainly, we have got the ability to still reinsure for longevity, both on the existing deals that we've done and how we think about some of the future opportunities. So we've said that there's GBP 64 million, there was also a modest amount for PruFund, which has been quite stable and it's quite small. But yes, having the opportunity to deliver if the strain is a tiny bit higher but we've got amazing IRRs coming through from perhaps private markets for a different type of transaction and it hits our hurdle rates, then we will look at it. So it's to give us some flexibility to be open for a variety of deals across both the traditional as well as the value share. But it really is around the hurdle rates and ensuring that we sort of optimize the total economics, not just the deployment, day 1. But back to the earlier question, we also have got capital that we can use. So if it's delivering flows into asset management, if the IRRs are good, it's attractive business for us.

And as a key point, like if you compare our 7% with whatever, 3%, 4%, 5% in the market, the market or 2%, well, they reinsure pretty much entirely the longevity risk, while as we've said a couple of times, we have reinsured no longevity risk on the traditional BPAs we have closed so far. And that by itself can be up high single-digit swing in terms of strain, right? So I think that is probably the best explanation for the 2024 results, while for going forward is about applying more longevity reinsurance, shifting more to value shares and with profit BPAs over time. There was -- I wrote down, can you tell me the number on the asset management bolt-ons, I guess the only callout that I'd make on Slide 41 is that we have not yet completed PCP. So part of P Capital Partners, the private credit acquisition. So part of that slice will be allocated to that. And it's also like how can we give you a number? Like it means that we exactly know who we're going to buy and for what and is not going to necessarily help the negotiations, right?

And I think just in terms of these opportunities that Joseph outlined, they really are subject to meeting our cost of capital, payback periods being attractive, also continuing to diversify our earnings mix. That's also really important. So we look at a number of things in terms of financial metrics for these acquisitions, adjacency to existing capabilities. And given the demand we're seeing externally and the attractiveness of having that internal client with GBP 850 million we've already deployed, I think there are opportunities, but we will be incredibly disciplined.

Yes. And let's be very clear on this because you see many of our peers, everybody is trying to look how they can grow externally. I think there are 2 models that are sort of winning models. One is about scale but significant scale, means that you have to arrive to 3 -- GBP 3 billion -- GBP 3 trillion plus passive, active, everything. And that has some risks, that has risk on talent, that has risk on clients but it's a possible play, not a play we're interested in. The other winning model, where we see many active asset managers want to go is, they want to significantly develop private assets. You can ask any active asset manager, we always say private assets is our top priority. In order to do so, if you really want to speed up, you need to have access to permanent capital. And that's where we believe we have an edge on many others. It's not -- when you look at many American players, alternative asset managers in the U.S., what have they done in order to boost even further their private assets franchise. They have been trying to buying life insurance books. That's what they've been doing in the U.S., they've tried to do the same thing in Europe but the regulator said no. So there is that model, which already we have. So I mean, when I look at the opportunities, I think we have everything within our reach in order to grow going forward. But we will be extremely selective. To Kathryn's point, there are opportunities that are bolt-on, it is critical that it is within the appetite of the strategic asset allocation of our life base because that helps us to scale it up much, much quicker afterwards. And we have a very, very strong distribution sales teams. Joseph had in the last 2 years hired many super strong institutional salespeople across the globe that will help us further. So I think we're well placed in this environment to accelerate further in 2025 and beyond.

Last but definitely not least, I think, Larissa, on the way end. And I promise, September, you'll be the first. You always sit at the back, so it's hard to spot you. And if Andrew would sit at the back, I would still see him.

See, that's why we read. Actually, just -- thank you, Luca. No need for September. On the longevity reinsurance, I'm curious as to why you haven't reinsured any longevity. And then could you give us an indication of the longevity cover on your back book, please? And if I can add a third, quick one related to that. Are you concerned about Ozempic?

Concerned about what, sorry?

Ozempic, with longevity reinsurance pricing.

Yes, of course. Yes. So look, I think we've tried to explain how -- since coming back into the market, we've obviously -- we're really pleased of what we've been able to achieve, [ GBP 1.7 million ], 6 deals and also this really innovative value share, GBP 0.5 billion transaction. So we have got capital that we have been able to use. And we've got the capabilities with -- across the group to deliver the hurdle rates that we need. So we've clearly known about the cost of longevity but we haven't felt the need yet to do that. But as I said, it remains a management action for us to take on the existing deals. I mean, obviously, we can use it to bring down the strain for new business and new deals if we do traditional shareholder deals. And in terms of longevity and I'm sure you saw there was the pretty meaningful impact to CSM as well as the contribution to capital. Really, it's just looking at those CMI 2022 tables. Obviously, we're a bit later than some peers in terms of how we adopt them. And we are not concerned around the trajectory for Ozempic and what that might do. And we do -- and you'll remember, we did a lot of work 2 years ago with external panels on all of the health trends. We had some benefit given for 2022 data in the longevity release that we did last year. So we're clearly engaging in all the industry discussions on Ozempic, as you would expect us to and monitoring it. But obviously, as you know, there are also many other considerations and our own, obviously, population I think that we think about when looking at potential future trends here. So we're engaging in all the right conversations.

Perfect. Actually, we got an extra question online from -- a similar actually, both from Rhea Shah, Deutsche Bank and Steven Haywood, HSBC. Congratulations, by the way, Rhea, if you're listening, great news. She is pregnant. So it is great news and almost there. And the question -- we had a few questions but I think we tackled most of them throughout the course of the presentation. The one that I think we have not touched on is for you, Kathryn, on the below line items. So in particular, the mismatching from IFRS 17 application, how should they think about it and the short-term fluctuation returns. We covered it in the past but it's good if you could just elaborate a bit.

So what -- before the below the line?

No, no, it's mismatches. It's all below the line and it's IFRS 17 mismatches and short-term fluctuations.

As you have seen before in the results. So we had about GBP 643 million from the short-term impact from markets, which was -- there was about -- of that about around GBP 100 million was from the equity gains. So losses on our equity hedging. We protect our solvency position. That's where we put these hedges on. And so the remainder was split roughly 50-50 mark-to-market losses on the annuity book and losses on the interest rate hedging. So pure accounting. We look at hedging our solvency position. We do monitor clearly looking at the statutory position. And so that was GBP 643 million and then the GBP 333 million from IFRS 17. Again, that probably is something that's a little bit more unique to us. Again, it is accounting noise from IFRS 17, it should unwind over time. And it really does come from mismatches in the accounting treatment for the annuity book that we have in With-Profit Fund. So it's quite a specific quirk of IFRS 17. So we -- again, there's some disclosure on it in the results but it is -- it's on the annuity book and With-Profit Fund. And that represents the majority -- the vast majority of the GBP 333 million.

Thank you very much. I don't see any more hands in the room. So with that, we'll bring it to a close. Thank you very much for joining us today and see you in September. Thank you.

Thank you.

Thank you.