M&G's bottom line hit by market volatility but client inflows hold up

M&G reported a big hit to its bottom line for 2022 as a result of market volatility, albeit alongside a second consecutive year of client inflows.

"We now have a clear strategy to build on the inherent strengths of our differentiated business model," said group chief executive officer Andrea Rossi.

"We will maintain our financial strength, simplify our business and deliver profitable growth. We are at the start of the next phase for M&G and I am encouraged by the progress we are already making."

For the 12 months ending on 31 December, the firm posted a 27% drop in its full-year adjusted operating profits to reach £529m.

That result included a £172m non-cash charge from duration mismatching losses in its annuity portfolio and FX losses on its US dollar subordinated debt.

On an IFRS reporting basis, the company incurred in a loss after tax of approximately £1.62bn, due to non-cash losses in the fair value of the surplus assets within its annuity portfolio and from derivatives used to hedge the Solvency II balance sheet because of rising yields.

The company recorded a second year of positive net client flows, excluding Heritage, to the tune of £0.3bn - despite market volatility.

Wholesale Asset Management saw net inflows of £0.5bn, the first since 2018, thanks to measures to improve investment performance, M&G said.

Yet total assets under management and administration on the other hand shrank by £28bn to £342bn driven by adverse market movements.

M&G's operating capital generation also fell by 27% to £821m.

In parallel, the Solvency II ratio declined from 218% for 2021 to 199% in 2022, including the impact from dividends, share buybacks and the dilution from recognising deferred tax assets as a result of marking to market losses on its assets.

Looking ahead, management said that the firm remained on track to achieve its £2.5bn operating capital generation target by 2024 and said that its goal was to cut leverage to below 30% by 2025.

By the end of 2023, it was also anticipating £200m of cost savings, gross of inflation, a fall in its core Asset Manager cost/income ratio to "sustainably" beneath 70%.

The investment manager declared a second interim dividend of 1.4p per share, as per its stated policy of stable or increasing payouts, for a 7% increase in the total dividend per share to 19.6p.