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

Perfect. So we're live and welcome to M&G's 2026 Half Year Results. Welcome back after the summer. It is a very good set of results. So without further ado, I'll hand over to Andrea Rossi, our Group Chief Executive Officer.

Thank you. Thank you. Good morning, and welcome to M&G's 2026 Half Year Results. It is a pleasure to be here with you today. In the first 6 months of the year, we have made great progress on our strategy. Despite a volatile macro environment, we delivered good net inflows from open business and strong profit growth. I am excited to see how day by day. Our vision for M&G is translating into operational and financial delivery. So let me share with you the main highlights of the year so far. In 2023, we set 3 strategic priorities for M&G. First, we focus on financial strength and simplification to set up M&G for the long-term success. Now we are delivering growth. 2025 was a good year for us. And this strong momentum continued into 2026. Operating profit of GBP 435 million is our best half results since listing in 2019. It is up 15% year-on-year, thanks to a 24% increase in asset management and double-digit growth in PruFund. Our strategic pivot is paying off, with high-quality capital-light earnings now representing 80% of total earnings. And they will continue to grow, thanks to the success of our with-profits offering. Our new With-Profit BPA called BPA Plus is a prime example of this. Since its launch in February, we have completed GBP 1.7 billion of sales, already improving on last year's total annuity volumes. And whilst driving innovation in life, we continue to deliver strong asset management performance with GBP 2.2 billion net inflows in high-value solutions across public and private markets. As we have grown the business, we have also improved our profitability. In the first 6 months of the year, our asset management cost-to-income ratio reduced by 2 percentage points to 73%, and we expect further improvements in operating leverage as we continue to transform M&G. We have delivered over GBP 250 million in savings since 2023 and will go further. We continue to simplify our business and free up capacity that we reinvest in products and services supporting long-term growth. Let's now review our financial targets. Here, we continue to make steady progress as we reach the halfway point to our 2027 targets. Our commitment to shareholders is clear. To deliver strong capital generation, to improve the efficiency of our business and to drive sustainable earnings growth, and we are delivering. Capital generation is on track to achieve the GBP 2.7 billion cumulative target. Our cost-to-income ratio improved to 73%, and we achieved record operating profit of GBP 435 million, up 15% year-on-year. In March, I told you that 2025 was a year of foundation building for M&G as we added distribution, products and investment capabilities. Now we're seeing the benefits come through. We are on track to deliver low double-digit profit growth this year as we continue to experience strong momentum with clients across the group. And the reason that I'm confident we will continue to deliver is because we have a clear strategy and the right business model to win. Our ambition is to be Europe's leading integrated asset manager. To achieve it, we will scale across both asset management and life with the growth of one segment, reinforcing and compounding the growth of the other. Live gives asset management the scale and long-term capital it needs to develop high-quality investment capabilities. In return, like benefits from this expertise with access to alternative assets that are essential to back its core propositions, including PruFund and bulk purchase annuities. The balanced and synergistic nature of this model is reinforced by the With-Profits Fund, which attracts insurance assets in a capitalized way with limited shareholder balance sheet exposure. A real competitive advantage. Another important differentiator for M&G is our strategic partnership with Dai-ichi Life, one that builds on and leverages our business model. Like us, Dai-ichi also believes in the powerful combination of asset management and life, fully understanding the value of M&G Dai-ichi decided to invest in our group. Over the past year, they have become our largest shareholder with a 15.7% position. I'm delighted by the strength of our partnership, and to announce that senior Dai-ichi executive, Hitoshi Yamaguchi, has joined our Board of Directors effective today. He brings more than 3 decades of leadership experience spanning international insurance and finance. By becoming Dai-ichi's preferred asset manager for Europe, we have gained access to the second large balance sheet, which has already allocated over GBP 1 billion to our investment solutions. At the same time, we are actively exploring a number of joint business opportunities across asset management and life, including product co-development and distribution. Having covered the group highlights, I will now move on to our segments, starting with asset management. I am very proud of the progress we have made in our asset management business. Over the last 3 years, assets under management have grown steadily, increasing by 17% to GBP 356 billion. And we have improved our diversification, becoming less reliant on our internal clients and on the U.K. market. Over the same period, external assets have increased by 29% to GBP 189 billion, with our international business increasing even faster by more than 40% and now accounting for nearly 60% of total external assets. We also remain disciplined on costs. translating higher volumes into better operating leverage. The cost-to-income ratio reduced to 73% and fee-related earnings increased by 45%. And the outlook is bright. New business momentum remains strong with net inflows of GBP 1 billion in July alone. With good client demand, the GBP 7.8 billion capital queue in private markets and new business from Dai-ichi, we are confident that we will continue to drive profitable growth in asset management. Another reason that supports my confidence is the quality of our flows. Net inflows of GBP 2.2 billion in H1 corresponds to GBP 13 million in annualized net new revenues. This proves that our focus on high-margin and high-value solutions is delivering. Both our private and public markets team achieved good results. Within private markets, client appetite for structured credit remained very strong, and we saw renewed interest in real estate. Infrastructure is another priority area for our clients, where we have strengthened our leadership team. Within public markets, equities continued to outperform, thanks to great investment performance and a compelling offering across global, European and Asian strategies. When looking at flows from a client perspective, you see a similarly positive picture. Firstly, we delivered GBP 1.1 billion of net inflows in high-margin wholesale solutions. Secondly, we achieved net inflows in the U.K. institutional market for the second consecutive period, an important milestone as we turn around this segment. And while the U.K. remains a mature market, we continue to innovate. Later this month, we will launch our new CDIs proposition, an innovative insurance-backed solution designed to optimize the investment and hedging strategy of DB pension schemes in [indiscernible]. Finally, we achieved net inflows with international institutional clients for a fourth year in a row. Europe has historically been the primary driver of our expansion. But now we have added new engines for growth. establishing strategic partnership with high-caliber institutions across Asia and North America. And you can see on this page. As mentioned earlier, I am very pleased with the quality of the performance of our asset management business, which gives me real confidence in its future. Let's now move to our Life segment. Here, I want to start by reiterating while Life is now a core driver of M&G's capital-light growth. From this year, nearly all our new business in Life is being written by the With-Profit Fund. This means that we are gathering assets in a way that is capital light for shareholders and that carries limited risk and balance sheet exposure. We expect to attract at least GBP 50 billion to the group by 2030 through these With-Profit solutions. The chart in the middle of this slide gives you a rough indication of the breakdown with PruFund and the recently launched BPA Plus driving the bulk of the volumes. These assets will generate at least GBP 100 million of annual operating profit by 2030, emerging across Life and asset management. While offering great shareholder outcomes, the With-Profits Fund also delivers superior client outcomes. Our new BPA Plus has been a great success since its launched 6 months ago and with good reason. Entering into BPA transaction is the most important decision that pension trustees can make. It influences the lives of thousands of people for decades to come. When dealing with the With-Profit Fund, trustees know that their members are protected by one of the best capitalized insurance companies in Europe. So mutual that has put client interest at the heart of everything it does for over 175 years. And they are getting a great deal too. The low cost of capital on the With-Profit Fund makes its pricing attractive. And if the fund achieves good investment returns, it shares them with customers, declaring a bonus on top of the guaranteed income. You can see why our BPA Plus has a real edge in the U.K. BPA market. And we expect to scale our sales at least by 50% this year, remaining disciplined on pricing and to achieve our target volumes of GBP 3 billion to GBP 4 billion in 2027. And as we scale, we support our growth in asset management, in particular, thanks to the significant allocation of BPAs to private markets. Within Life, we are also making good progress on our retail strategy. Here, we have 2 core objectives to drive sales. First, to improve the distribution of PruFund and secondly, to broaden our proposition with other investments solutions. From a distributor perspective, we are pleased to have launched PruFund on Scottish Widows platform. We will add a second FNZ platform later this year. From a product perspective, last summer, we launched our retail time annuity, which has generated over GBP 100 million of net inflows in the first 12 months. A good start. In February, we declared our first bonus for this product, giving customers an uplift of an extra 45 basis points to their investments on top of their guaranteed returns. So again, clear evidence of the value delivered by our With-Profit solutions. Our sales in the first half reflect this positive momentum. When combining PruFund and fixed term annuities, our retail net flows improved by over GBP 500 million year-on-year. And looking ahead, we expect PruFund to deliver improved inflows in the second half and are encouraged by the positive market reaction to our launch on the Scottish Widows platform. Before handing over to Kathryn, I will briefly cover our group transformation. In March, we completed the first phase of our transformation program, achieving GBP 250 million of savings. But there continue to be exciting opportunities ahead. as we explore ways to make our business simpler and more scalable to deliver improved customer outcomes and long-term growth. AI plays a key role on this journey, improving personal productivity and transforming end-to-end processes. It changes how we serve our clients, how we operate and how we grow. On this slide, you can see some of the initiatives we are working on. Our advisers are now spending less time on admin and more time with the customers. We are faster and more accurate when pricing BPA new business answering RFPs from institutional clients or addressing customer needs. Our research and asset sourcing teams have reduced their cycle times without compromising on quality. The core objective is always the same. To deliver a better customer experience, improve process efficiency and free up resources, which are redeployed on high-value activities that drive growth. So to sum up. We have had a good first half with record operating profit, strong flows in asset management and new product launches in life. And as we grow, we are making M&G more diversified, resilient and capital light. Through cost discipline and business transformation, we are also freeing up resources to support our long-term ambition. We are delivering on our targets and are confident we will sustain this positive momentum in the second half. And with that, I will hand over to Kathryn, who will take you through the financial results.

Thanks, Andrea, and good morning, everyone. I'll now take you through the details of our H1 results, which showed steady momentum across the group and good progress against our targets. Covering first, the key highlights. We delivered GBP 2.4 billion of net flows from open business, an increase of GBP 300 million year-on-year. In Asset Management, we continue to grow across both our wholesale and institutional channels despite the volatile macro environment. In life, flows improved meaningfully on the back of higher annuities and PruFund sales. Group adjusted operating profit increased by 15% year-on-year to GBP 435 million, our guest first half results since listing. And within it, asset management earnings increased by 24%, thanks to higher recurring revenues and improved operating leverage. In Life, by higher contribution from the capital-light with-profits business led to a 9% increase in profits. At GBP 372 million, operating capital generation was GBP 36 million lower, largely due to movements in our capital requirements in asset management and the Corporate Center. New business strain of GBP 20 million was GBP 15 million better year-on-year, despite us delivering twice the volume of BPAs, reflecting the capital-light nature of our new With-Profit BPA Plus. So thanks to this good result, we remain on track to achieve our GBP 2.7 billion capital generation cumulative target. Finally, supported by our strong operating performance, the Solvency II ratio reached 247%. So let's now turn to our flows. Closing AUMA stood at GBP 387 billion supported by GBP 2.4 billion of net inflows from open business and GBP 13 billion of positive market movements. With GBP 2.2 billion, asset management accounted for the majority of net flows equally split across our wholesale and institutional channels. And this equates to 2.4% of opening AUMA from external clients on an annualized basis. And as you've heard from [indiscernible], we delivered another GBP 1 billion of net inflows in July with good momentum across a range of public and private strategies. While we continue to grow internationally, supported by our strategic partnership with Dai-ichi Life, we're very pleased with the continued turnaround of our U.K. institutional segment, where we delivered net inflows of GBP 800 million. And thanks to our business model, we're very well placed to support U.K. pension schemes along their entire derisking journey, leveraging the capabilities of both asset management and Life. Our new CDIs solution, which Andrea just mentioned, is an example of our product innovation for these clients. In wholesale, our strong investment performance, particularly in public equities, remained a key attraction for clients. Life net flows from open business of GBP 200 million was a GBP 700 million improvement year-on-year. And this reflects GBP 500 million increase improvement year-on-year and continued growth in the BPA market, where we recorded GBP 600 million in sales in the first half. And activity has picked up over the summer as we completed a further GBP 1.1 billion in BPA transactions across July and August. We're very pleased with our continued positive growth in net flows across M&G despite a volatile external environment as we deliver the products and solutions our clients want. Moving on now to profit. At GBP 435 million of operating profit in the first 6 months was up 15%, with the key beaches being firstly, 24% higher earnings and improving operating leverage in asset management, supporting a steady reduction in our cost-to-income ratio. Secondly, a 9% increase in Life profits to GBP 375 million with double-digit growth in both PruFund and traditional with profits more than offsetting an GBP 8 million reduction in annuities due to lower returns on excess assets, which we flagged in March. And finally, the corporate center outcome was adverse by GBP 5 million, impacted by lower investment income and slightly higher head office expenses. Our operating profit is not just growing, it's also improving in quality as we increase the diversification of our business and pivoted to capital light sources. And today, 80% of our operating profit comes from asset management and With-Profits capital-light business. And this proportion is up meaningfully from 73% last year and we expect it to rise further over time as we now write the vast majority of our annuity business through the with-profits funds. So let us now look at each of our businesses in turn and starting with asset management. Our asset management business delivered a strong result, with adjusted operating profit up 24% to GBP 159 million. This was driven by a higher asset base and resilient margins, generating much improved recurring revenues. At GBP 356 billion, assets under management were up by GBP 32 billion compared to last year, supported by sustained net inflows and favorable markets. Our average fee margin remained resilient at 32 basis points as we continue to expand our business with external clients focusing on high-value solutions, particularly in private markets. We're very pleased with the quality of our flows, which generated GBP 13 million of annualized net new revenues. Together with a growing asset base, this contributed to revenue growth in the first 6 months of 10%. Costs of GBP 417 million increased by 7% year-on-year but remained flat compared to the second half of last year. And this cost base reflects our investments to support long-term growth in asset management as we added distribution and investment capabilities including our acquisition of Key Capital Partners. And as we grow, we continue to improve our operating leverage. In H1, the cost income ratio reduced by 2 percentage points for the third straight year reaching 73%, and we are confident that we can continue to improve our efficiency in the second half of the year and remain firmly committed to our 70% target by the end of 2027. Fee-related earnings, which are a key metric for us, were up by an encouraging 17%. Finally, the operating profit also benefited from a GBP 13 million increase in investment income, mainly due to improved impact from FX revaluation given the stronger dollar. Given the business momentum we are seeing and by continuing to be disciplined on costs and reinvesting capacity into growth initiatives, we are confident that we will further deliver top line expansion and operating leverage. So let us now turn to our life business. Here, PruFund's operating profit increased by 15% to GBP 129 million, reinforcing its role as a growth engine within the group. And the main driver of this positive result was the higher opening CSM, which grew strongly in 2025 and a broadly stable amortization rate. The result of our traditional With-Profits business was up by 14% year-on-year to GBP 137 million, reflecting similar positive dynamics. We're encouraged by this performance, particularly with achieved against a backdrop of lower expected returns and risk-free rates, which we previously highlighted. Both PruFund and traditional With-Profits continue to provide resilient long-term earnings for the group, underpinned by a combined GBP 4.2 billion of CSM supporting the sustainability of our future profits. As you know, we switched 2 PruFund products to a 100 charges less expenses approach from the 1st of April, which will accelerate profit recognition on new business. Let's now turn to annuities. Here, annuities profit was down 7% year-on-year to GBP 105 million, reflecting the guidance given in March. Specifically, the lower expected returns on surplus assets, which reduced to 4.5% from 5.2% last year. And these headwinds were partly offset by a higher CSM release, supported by the longevity benefit we recognized in the second half of 2025 and improved experience variances due to the non-repeat of the GBP 8 million headwind we flagged last year. This year, all annuity business was redone With-Profit Funds through our BPA Plus solution. The With-Profit Fund retains roughly 80% of the economic interest after reinsuring around 20% to the shareholder balance sheet. In due course, as BPA Plus volumes grow, we will evolve our disclosures to share more details on the different contributions from each book of business. Turning to other Life, where we generated a profit of GBP 4 million of turnaround on last year, primarily thanks to lower losses in our platform and advice business. Here, we continue to reduce costs and improve the efficiency of our digital platform, including the outsourcing of our back-office functions. Before moving on to capital generation, I would highlight the strength of our CSM, the details of which you can find in the appendix. Our group CFM of GBP 7 billion was up 6% since the start of the year and represents a large and growing store of future value for our shareholders. Turning now to capital generation. In the first half, we generated GBP 392 million of operating capital before new business strain, keeping us firmly on track to achieving our 3-year target of GBP 2.7 billion. Underlying capital generation of GBP 304 million was GBP 27 million lower than the prior year. Within it, asset management capital generation reduced by GBP 7 million, despite the higher owned funds as we experienced a GBP 14 million increase in capital requirements compared to a GBP 12 million reduction last year. And we experienced a similar dynamic in the Corporate Center, where last year, we benefited from an GBP 18 million SCR reduction. In Life, the in-force contribution reduced by GBP 10 million to GBP 340 million driven by a GBP 15 million lower return on annuity surplus assets, which we flagged in March. Importantly, Life new business gain improved by GBP 15 million to GBP 20 million despite higher BPA sales as we shifted our Life new business to a capital-light model. Management actions contributed GBP 68 million, primarily reflecting equity hedging activities, and we remain on track towards our annual guidance of GBP 100 million to GBP 200 million. Thanks to our good operating performance, our balance sheet continued to strengthen. The Solvency II ratio closed the period at 247% with a GBP 5 billion capital surplus. On bond of GBP 8.4 billion include GBP 4.8 billion of PVST. The present value of future shareholder transfers from our With-Profit Fund. And this is a unique feature of M&G, reflecting the scale and profitability of our With-Profit business. The PVST is a store of future value that has grown tremendously in recent years, thanks to the success of proband and supported markets. And this growth has been a key driver of our improved financial performance and underpins the long-term cash, earnings and capital generation of the group. We will realize this asset gradually over time, and thus expect to continue to operate above our target Solvency II range over the medium term. You will also see on this page that we've updated the definition of our leverage ratio to reflect the Solvency II value of our debt instead of the nominal value. And on this basis, the leverage ratio stood at 29% at the end of June. We made this change to ensure consistency between the numerator and denominator of the metric and to better align our approach to industry standards. This is still a more conservative approach than peers as we use shareholder-owned brands, not regulatory own funds. We're pleased with the continued strength of our balance sheet that it represents a key competitive advantage for M&G in what remains a volatile and uncertain macro environment. I will finish by briefly covering costs. Our managed cost base at the 30th of June of GBP 744 million reflects the investments that we made last year to support growth, which underpins a strong new business momentum we are now seeing. In Life, we built out our BPA team on pricing, focusing on pricing and commercial capabilities. And in Asset Management, we added private markets expertise, such as the acquisitions of P Capital Partners and Beaumont and scaled by distribution platform to support our international expansion. These initiatives drove a 7% increase in costs in the second half of last year. Since then, costs have stabilized, remaining flat over the last 6 months. Looking to the remainder of H2, we expect asset management costs to stay in line with the first 6 months of the year, while corporate tender costs will be roughly GBP 10 million higher due to the seasonality of our head office expenses. Our approach to cost management remains the same. We will continue to create capacity by streamlining our operating model, reengineering our processes, optimizing third-party spend and better leveraging technology such as AI, as you had earlier from Andrea. These savings will offset inflationary pressures and free up resources to be reinvested into growth. By investing for long-term growth and remaining disciplined on costs, we will further improve our operating leverage and achieve our target cost-to-income ratio for the end of next year. And with that, I'll hand back to Andrea.

Thank you, Kathryn. Before concluding, I want to summarize the key elements of M&G's investment case. Our message is simple. We are becoming Europe's leading integrated asset manager. Our synergistic business model underpins our growth. We operate in attractive markets with clear competitive strength, including our unique with-profits fund. And by delivering a balanced combination of yield, growth and quality, we offer consistently strong outcomes to our shareholders. Life underpins our attractive dividend yield. Asset Management and With-Profits drive the group's growth. And as they do that, the quality of our profits improve. 2026 has been a strong year so far with record profits and real business momentum. That reflects the hard work of colleagues across M&G, and I want to thank everyone for their contribution to this half year results. We will build on this track record, maintain our momentum and continue delivering for our clients and shareholders. I am proud of what we have achieved, and I'm energized by the opportunity ahead as we enter this new phase of growth. Thank you. And now we'll move that I'll take my water. Thank you. And now we're going to do Q&A.

Thank you very much, Andrea. And Kathryn, we can move to the Q&A. [Operator Instructions] We'll later take questions online. A couple of analysts could have make it in the room, but they've already submitted questions, but we'll give them for last. So Andrew, Farooq and Tom in that order.

[indiscernible], RBC Capital Markets. I will kick over only 2 questions actually, just for a good start. The first one on dividend and excess capital. I suppose with the shareholder solvency ratio of 247%, it sits materially above the top end of your stated operating range. And just wondering how do you think about shareholder returns going forward, especially in light of the strong capital position? Is there maybe a specific point at which you would consider a more meaningful step-up in those returns? And then second question on asset management. The private markets AUM continues to grow, which is very good to see. However, the blended margin stays flat and also the private markets margin actually decreased 1 basis point year-over-year. So just if you could share more color on what drove the contraction there? And how do you think about the trajectory going forward?

Perfect. So if you want, you've got a bonus question later, if you want to come back to it. In terms of the first question, I guess, there were 2 questions in one. One was around dividend and one is around maybe more capital return. So maybe we'll split them a little bit. I don't know, Andrea, if you want to.

Yes. I mean -- and this time, I didn't show our clear capital management framework, which every time we show. I hope you remember what the 4 different things. But as you know, we have a clear capital management framework in place, and we've been on a journey in the last 3, 4 years. If you remember, in the beginning, we were focusing on financial strength, and we have been strengthening the balance sheet we have been improving our leverage, improving liquidity. And then it was about making sure we -- when the business was doing better, to actually pay out attractive dividends and we came out with a growing dividend policy 18 months ago. Let's not forget that our investors, and I meet many of them, they're very pleased with what we're doing. We have been returning back to our investor over GBP 4.4 billion since we listed in 2019 and also a double-digit annual total shareholder return. So our investors are very, very pleased with what we're doing in terms of capital returns. Now it's time for growth. We are focusing on growth. That's our focus. Those results that you see there is thanks to a relentless focus on growth and investing for growth, and that's our focus. And we will do so by making sure we have we realized double-digit IRRs above our cost of capital. So that's our focus. I don't know, Kathryn, if you want to add on something.

Well, I guess, only that we also think that 247% today is quite an uncertain volatile time. And it is a competitive advantage to have a very strong balance sheet. And one of the points I made also was we've got a great asset with the PVST at GBP 4.8 billion. We've got quite a unique own funds because of the strength of PruFund, but this really does underpin today's results. It will flow through into earnings, cash and capital generation over time, and we've got strong financial flexibility to do the growth investments that you heard Andrea talk about. So no very comfortable where we are, and we're already delivering good returns back to our shareholders.

And Andrea, maybe you want to tackle separately the dividend question. So in terms of the dividend projector.

Yes. Well, on the dividend question, and as you all know, dividend is a matter for the Board. But if you look at our results today, obviously, we're very, very pleased with the AOP growth. But you should not see a one-to-one relationship in the short term between AOP and DPS. I mean there are other elements you should take into account. There is capital generation. There are the state of the business. So all these things means more you should look at it from a more longer-term perspective. Obviously, we're very, very pleased that we have a growing dividend policy, as I said before. And it's a matter for the Board. It will be discussed in February next year. But I feel comfortable with the market expectations in terms of DPS growth. I'm sure you know what the market expectations are. And obviously, it's a discussion for the Board in February next year.

Perfect. And moving on to the asset management point. So it was around private market cares and the impact.

Well, I'd like to say one thing here. I mean I I'm sure if you look at some of our peers, they must be very jealous about our trajectory because we have resilience on average bits. Yes, some peers might move up, but they move up from such a low bits that it doesn't really matter. Look at our average bp at 32. I mean that's a good average bit. And of course, that is driven by strong flows in our wholesale solution at an average of 55 bps. And private markets is important for us. I mean it went down by 1 bps, I think, 37, 38, but that's mix, mix of whatever private assets we have. But if you look at our private assets, the quality and our performance, it's very, very positive. We had GBP 1.3 billion of net inflows in the first 6 months. Of that, we had GBP 1.2 billion in private credit and structured credit, and we see good momentum here. And let's not forget, when we talk about private and structured credit, this is nearly 100% Europe. I know that there are issues with private credit. It's mainly in the U.S. We have no exposure to the U.S., no real exposure to tech and software either. So we're very, very pleased with what we're doing there. And the interesting thing here as well is that we have a capital queue of GBP 7.8 billion in our private assets for our private asset franchise. So you should see resilience in that, I would say, for private markets. And of course, I took the institutional one. It's also fixed income in institutions. It's not only about private assets, we have fixed income mandates, by maintain mandates. We have equity mandates. So it's a mixture. But you should see resilience in our average margin in terms of bps, which I think is a great result.

Andrew Baker from Goldman Sachs. So I've done the introduction for you.

Three questions, please. So first one, I guess, if I look at Slide 11, you're guiding at least soft guiding to GBP 3 billion to GBP 4 billion -- okay. Hopefully. So if I look at Slide 11, it looks like you're guiding or at least soft guiding to GBP 3 billion to GBP 4 billion of BPA flows of GBP 27 billion to GBP 30 billion. Given, I guess, the advantages that you've outlined versus peers, I guess, post 2027, when you hit your GBP 3 billion to GBP 4 billion target, why shouldn't we expect a material increase in flows after that? Is there any constraints to volume growth that's maybe not obvious that's stopping being a bit more aggressive there? And then secondly, just on the asset management underlying capital generation, can you just give a bit more detail on the SCR increase and if there's anything we need to be thinking about going forward there? And then thirdly, hopefully, a quick one on the leverage change in methodology. Is there any change to the 30% target level?

So probably I'd say the first one, Andrea, if you want to take it, while the other 2 for Kathryn?

Yes. I think we have to remember where we come from. 4 years ago, we were not growing in our Life business in the BPA market. We reentered it. And when you look at our track record, we've been consistently growing by 50% on average every year. And of course, the GBP 1.7 billion that we have done in the first 8 months this year for me is very, very strong performance. And we have a unique feature, which is true. I mean I said it today about the BPA Plus. I mean I think the with-profit fund gives us a competitive advantage. You have all the -- I'm not going to repeat them again, the key features here. But it gives me that confidence that we can continue to grow. We will grow, as I said, this year, at least 50% year-on-year, and we will continue to grow next year. And if you look at the market, it's roughly GBP 40 billion to GBP 50 billion. That means that we have in 3 years or 4 years, moved from 0 to 6% to 8% market share, which I think is a very relevant performance. Now beyond that, we will see what we can do. And we'll see whether that can continue. Of course, we have, in my view, strong competitive advantage with the BPA Plus, but it's not only about BPA Plus. It's also about other innovation that we have brought to this market. You saw last year when we presented results, our BPA value share, where we share the economics with the scheme sponsors. And now, of course, we also launched the CDI+ for run on. So we have what it takes in order to provide a solution across whatever requirements that pension schemes are looking for. And last but not least, and I think this is a critical element because we see a lot of partnerships out there. We have the unique combination of having a very strong asset manager supporting our life balance sheet. We're very, very strong in private assets, in private credit. And as you know, there's a significant allocation into private credit and of course, also public fixed income. So we have all the elements to grow, and that's why we're growing. Let us get to 2027, GBP 3 billion to GBP 4 billion, and then we will talk about the future growth.

And maybe Kathryn, on the BPA, do you want to add anything on kind of pricing discipline and capital constraints or lack of in the With-Profit Fund?

Yes. So obviously, one of the real advantages is the lower cost of capital of the With-Profit Fund. And we're very much focused on obviously delivering these schemes and their members superior outcomes with the possibility of this bonus and the very strong backing capital ratio behind it. And we're delivering double-digit IRRs. That's what we remain very focused on. And the earnings profitability will improve over time. We're still in sort of scale-up mode. We'll get more operating leverage as we go into 2027, and the second half should also improve versus the first half. So we're very disciplined. And that's why also, to Andrea's point, we're really comfortable with the guidance of GBP 3 billion to GBP 4 billion, given what that means where we'll be in the market. And obviously, importantly, it delivers to AUM and fees for our asset management business. So I cover -- so we expected this. It does look quite unusual. Asset management profits are up 24%, and yet you've got a reduction in underlying capture. And own funds is up, obviously. So there's nothing there. We had a difficult comparator. So we had quite an unusual low impact last year. Seating numbers were pretty low compared to normal. There was an FX element as well. And that is more normalized. So it just happened to be unusually low last year, which meant we had a bigger swing in capital requirements year-on-year and again another FX element this year, but nothing in particular I would call out just a notable year-on-year delta in the capital requirements of the business. And I think on leverage, yes. So leverage, we've been wanting to do this for some time. We have now completely aligned the numerator and denominator. And so we've seen a movement, obviously, reflecting the Solvency II value of debt. and that's we're now at 29%. We do still have a range, a guidance range or a target -- not a target guidance of around 30%. And so we at 29%, so really comfortable where we are.

So Farooq from JPMorgan. While you pull out the microphone.

So 2 straight 3 questions. So firstly, on the BPA, the GBP 3 billion to GBP 4 billion that you're writing, can you tell us a little bit about what size of scheme you're targeting and what size of scheme you're allowed to target by distribution? So I mean, is it more profitable to go for middle size or small size? So just some detail around that. And then secondly, on the CDI+, can you just explain a little bit what you see as the opportunity there, the margin, how that's going to work? Is it going to be a big market run on? Or do you think it's just a supplement? And my very last question is on operating leverage. So is 70% the right number for you? I mean I know you can't give us guidance on where you're going to be in '28, '29, '30, but it feels like you're saying AI is generating efficiency, which you then reinvest in the business and remain efficient rather than AI is an overall cost reduction, operating leverage. I just want to understand qualitatively at least what you meant by that.

Why don't I do the cost-to-income ratio and then you can do the EPA. Is 70% the right number? It's a target we have for the end of next year. I mean when you look at our track record, remember, we were at 79% 3 years ago. And now we're at 73%. And we have gotten there by also investing in the business. We've been investing in distribution. We've been investing in product capabilities. We've been doing some bolt-ons. All that are what I call the good costs. But we've also been very disciplined on cost because when you go and look at the last -- H2 of last year with H1 of this year in Asset Management, costs a bit flat. Of course, then there is the top line. There is market aspect, but it's the quality of the flows, which I think are critical. I mean there is a number you should remember of today is the GBP 13 million of annualized net new revenue. This is a key KPI because making flows with negative net new revenue, it's not that great. What you want is you want positive. So that shows that we have flows in the right higher margin investment solution. Private assets public equities, et cetera, and also, of course, see strong momentum on wholesale. So when I am looking for end of the year and 2027, we have the operating jaws in order to deliver that 70%, which is without performance fees. Remember, we do not put the performance fees because of the, I would say, the volatility or lumpiness of the performance fees. Let us get to the 70% end of next year. I think that is a target I'm confident we will deliver given the strength of our investment capabilities, the strength of the investment performance, capital queue of GBP 7.8 billion in private assets. and also Dai-ichi, obviously putting in more money as well. So let us get there and then we will see after 2027, what targets we go to it. But at the moment, I think 70% is a good target. And as you can see from the track record, we have been consistently improving this cost-to-income ratio by 2 percentage points per year.

And Andrea, on AI, is it like kind of a key driver of cost reduction or...

Well, AI is an interesting one. I mean I -- and I -- for those who know me a little bit, I did Six Sigma in end of the '90s. I wish we had AI then, would have made my life much easier because we were transforming processes in order to improve customer outcomes. It took us like 4, 5 months to get to improve from 3 Sigma to 3.5. With AI, all this can be done. I'm not saying instantly, but it can help you substantially to improve your processes and improve, I would say, client outcomes and quality that you live to the quality to our clients. So it's something that we are implementing in a very smart way. We're very careful how we implement it because as Kathryn said, we do it only if we cover our cost of capital. It needs to deliver double-digit IRR. But we've been doing it in several, I would say, in several processes in our business. We've been doing it, and you can show the slide if you don't mind in order to grow our business. So for example, we do -- when we do now our BPA pricing, we utilize AI and that has significantly improved the speed of pricing. When we do RFPs for institutional clients, the same thing is taking it down by a substantial number. But it's also about how we service our clients. Very, very important. For example, I was up in Scotland, we have a big customer service center there. Well, the way now we resolve issues or even how we do policy management has significantly reduced the time and our operators can now work on added more value-add activities. The good news in all this is, yes, it takes down costs or it creates efficiency and productivity. But if you're growing your business, this means that I can support my growth. So yes, there should be in improvement in the, I would say, numbers moving forward. It's a bit too early to start talking about what the returns are. But surely, this will support your growth. There's no doubt about it and it will support our growth at lower unit cost. And we're a growing business, as you can see. So this is supporting our growth, profitable growth, I would say.

Going to the other questions around the BPA volumes that we're seeing. So I would -- and you've obviously seen a number of other market players give their results already. And I'm really pleased that we have been obviously delivering the GBP 1.7 billion above the GBP 1.5 billion for the whole of last year. And we're comfortable with our guidance of 50% up this year and next year. So over the, I guess, 8 months of the year, we've seen both a small and slightly larger schemes. So we've been really pleased to be able to participate at the smaller end, but also larger schemes as well. And that's important for us as we clearly are a new player. We've got great credibility with the team. [ Kerrigan ], who leads the business is here in the room today. But given our size ambitions, we're not going to be at the large end of the market that some of the bigger players who are in the market participated. And just going back to discipline on pricing and double-digit IRRs. On CDI+, so this is a product we will be launching. We haven't launched it yet. And it's designed, and this is one of the benefits of our business model because we caught this an insurance enabled product. because the benefit from all the asset management capabilities, fixed income credit, cash flow matching as well as the insurance balance sheet that gives the schemes who want to run on and not yet ready to do buying or buy out the ability to manage their cash flows, they've got liquidity that's available for payout or whatever they might need it. and also the advantage of a strong balance sheet with strong collateral flexibility, which is a real plus for some of these schemes. So slightly better economic other also, more flexibility. And again, it's the combination of an insurance business and an asset management capability, which is really, really strong in the key areas of cash flow matching. So we'll share a little bit more on the economics. It will be based when we launched the product.

I think there was first Tom Bateman from BNP Exane. Then let's go to Andrew and we could do...

Can I just ask on the profitability of PACL I think we have the numbers over the past few months. And I guess the profitability on the U.K. GAAP is quite different to what you report at a group level. So it looks like the equity position is still falling. Can you just help me understand that, if that's a concern at all? The second question is just on the tax outlook, another positive one-off on capital generation. What's the outlook for the full year? And then finally, I just want to understand the kind of the economics from writing all of the Life business on the with-profits balance sheet. You're gaining GBP 100 million of operating profit there. But presumably, you're giving something up. Could you just help me kind of put those pieces of the puzzle together?