M&G swings to loss as value fluctuations hit profitability

Investment manager M&G reported a 6% improvement in its first-half adjusted operating profit before tax on Tuesday, at £327m.

The FTSE 100 company swung to an IFRS loss after tax, however, of £248m for the six months ended 30 June, compared to a profit of £826m in the first half of 2020.

It said its profitability was impacted in the period by short-term fluctuations in the fair value of surplus assets in its annuity portfolio, and derivatives used to hedge the Solvency II balance sheet caused by increasing yields and rising equity markets.

Assets under management and administration increased to £370bn from £338.7bn year-on-year, with positive market movements and net client inflows to institutional asset management more than offsetting net client outflows in other areas of the business.

Total capital generation was a positive £869m in the period, compared to a negative £202m a year ago, with the company saying it was on track for its target of £2.2bn by the end of 2022.

The firm’s shareholder Solvency II coverage ratio strengthened to 198%, from 164% year-on-year.

Its board declared an interim dividend of 6.1p per share, estimated to total £155m, in line with its policy of paying one-third of the previous year's total dividend.

On the operational front, M&G reported a “record level” of £89.7bn in institutional public and private assets under management, following net client inflows of £2.2bn.

It said it saw an improvement in fund performance in retail asset management, with 63% of funds in the upper two performance quartiles over one year, up from 20%.

Retail asset management net client outflows narrowed by 56% to £3.4bn, with sales in Europe and Asia returning to net positive territory in May and June.

M&G Wealth formed a new software partnership to develop hybrid advice for UK savers in the first half, with the launch scheduled for later in the year.

The company said it had started the process to convert €15bn of European mutual fund assets to meet articles eight and nine of the EU's Sustainable Finance Disclosure Regulations in the period, and in July launched ‘PruFund Planet’ in the UK.

M&G said it was on track to achieve annual run-rate shareholder cost savings of £145m through “business transformation and modernisation” plans by 2022.

Looking ahead, M&G said it was “optimistic” about the recovery in retail asset management in light of continued action on investment performance, net inflows into its new generation of thematic funds, and improved value-for-money for customers.

Institutional asset management was “well-placed” for strong growth, the board added, with £4bn of committed client capital and a further £5.5bn of client wins yet to be funded.

It reported a “good pipeline” of new propositions, with sustainable investment offerings gaining increased traction among clients.

The board said its “strong” balance sheet was continuing to underpin capital generation and dividend policy.

“Today's results show good progress on our actions to reposition the business for sustainable growth and continued strong total capital generation,” said chief executive officer John Foley.

“Institutional assets under management reached a record £89.7bn following net client inflows of £2.2bn, primarily from European clients.

“In retail asset management, net client outflows more than halved as investment performance improved, with 63% of funds in the top two quartiles over one year.”

Foley said that in July, the company launched PruFund Planet, which he described as the UK's first smoothed savings proposition that offered positive societal and environmental outcomes.

“The dividend of 6.1p per share takes the cumulative payout since our shares were listed in October 2019 to 40.1p per share.”

At 0902 BST, shares in M&G were down 1.51% at 234.61p.