M&G plc full year 2022 results

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M&G (MNG)

UK 100

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-	Operating capital generation of £821 million (2021: £1,117 million) with improved underlying capital generation of £628 million (2021: £484 million) demonstrating the resilience of our business model offset by a lower benefit from management actions
-	Shareholder Solvency II coverage ratio remained strong at 199% (2021: 218%) which includes the impact of dividends, the share buy-back ¹ and the dilutive impact from the recognition of deferred tax assets due to mark to market losses on our assets
-	Adjusted operating profit (AOP) before tax of £529 million (2021: £721 million), affected by £(172) million non-cash items from duration mismatching losses in the annuity portfolio and foreign exchange losses on our USD denominated subordinated debt
-	Assets under management and administration decreased by £28 billion to £342 billion (2021: £370 billion), predominantly driven by adverse market movements
-	IFRS loss after tax of £1,619 million (2021: £92 million profit), impacted by non-cash losses in the fair value of the surplus assets in our annuity portfolio and derivatives used to hedge the Solvency II balance sheet caused by increasing yields
-	Second interim dividend of 13.4 pence per share, in line with our policy of stable or increasing dividends, with a total dividend per share of 19.6 pence per share, up 7% year-on-year (2021: 18.3 pence per share)

-	Positive net client flows excl. Heritage of £0.3 billion (2021: £0.6 billion) despite significant market volatility
-	Wholesale Asset Management returned to net client inflows for the first time since 2018 of £0.5 billion (2021: £3.8 billion outflows) reflecting the measures taken to improve investment performance - 68% of Wholesale funds now in upper two performance quartiles over one year (31 December 2021: 45%) ²
-	Net client inflows of £0.2 billion (2021: £1.4 billion outflows) into Wealth driven by continued operational improvements and a strong performance from PruFund
-	Roll out of PruFund-type products in Europe progressing with the launch of Future+ in Italy and Ireland

-	Simplify the operating model and unlock growth through a new transformation programme, and by end of 2025:
	-	Generate £200 million of cost savings, gross of inflation; and
	-	Reduce core Asset Manager cost/income ratio to sustainably lower than 70%
-	Deliver increased adjusted operating profit from Asset Management and Wealth to more than 50% of the Group total by end of 2025
-	On track to achieve £2.5 billion operating capital generation target by 2024
-	Aim to reduce our leverage ratio to below 30% by 2025 ³

Performance highlights⁴	2022	2021
Adjusted operating profit before tax (£m)	529	721
IFRS (loss)/profit after tax (£m)	(1,619)	92
Assets under management and administration (£bn)	342.0	370.0
Net client flows excluding Heritage (£bn)	0.3	0.6
Operating capital generation (£m)	821	1,117
Total capital generation (£m)	(397)	1,822
Shareholder Solvency II coverage ratio (%)	199%	218%

Media		Investors/Analysts
Jonathan Miller	+44(0)20 8162 1699	Luca Gagliardi	+44(0)20 8162 7307
Irene Chambers	+44(0)7825 696815

	For the year ended 31 December
£m	2022	2021
Core Asset Management	213	277
Performance fees (including carried interest) and investment return	51	38
Asset Management	264	315
Wealth	96	41
Heritage	466	620
Other	10	(1)
Retail and Savings	572	660
Corporate Centre	(307)	(254)
Adjusted operating profit before tax	529	721

	As at 31 December
£m	2022	2021
Nominal value of subordinated debt	3,264	3,216
Shareholder Solvency II own funds	9,268	11,409
Leverage ratio	35%	28%

	Net client flows		AUMAⁱ
	For the year ended 31 December		As at 31 December
£bn	2022	2021	2022	2021
Institutional Asset Management	(0.7)	5.8	99.2	103.1
Wholesale Asset Management	0.5	(3.8)	53.9	52.7
Other	-	-	1.1	0.9
Total Asset Management	(0.2)	2.0	154.2	156.7

			2022	Restatedⁱ 2021
For the year ended 31 December		Note	£m	£m
Gross premiums earned			6,507	4,784
Outward reinsurance premiums			(479)	(1,019)
Earned premiums, net of reinsurance			6,028	3,765
Investment return			(15,656)	12,909
Fee income		4	1,037	983
Other income			46	115
Total revenue, net of reinsurance			(8,545)	17,772
Benefits and claims		11	6,987	(3,551)
Outward reinsurers' share of benefit and claims		11	(241)	(8,480)
Movement in unallocated surplus of the With-Profits Fund		11	1,689	(1,052)
Benefits and claims and movement in unallocated surplus of the With-Profits Fund, net of reinsurance			8,435	(13,083)
Administrative and other expenses		5	(2,810)	(2,803)
Movements in third party interest in consolidated funds			547	(1,019)
Finance costs		5	(162)	(160)
Total charges, net of reinsurance			6,010	(17,065)
Share of profit from joint ventures and associates			38	81
(Loss)/profit before taxⁱⁱ			(2,497)	788
Tax credit/(charge) attributable to policyholders' returns		6	379	(707)
(Loss)/profit before tax attributable to equity holders			(2,118)	81
Total tax credit/(charge)		6	878	(696)
Less tax (credit)/charge attributable to policyholders' returns			(379)	707
Tax credit attributable to equity holders		6	499	11
(Loss)/profit for the year			(1,619)	92

Attributable to equity holders of M&G plc			(1,632)	83
Attributable to non-controlling interests			13	9
(Loss)/profit for the year			(1,619)	92

Earnings per share:
Basic (pence per share)		7	(66.0)	3.3
Diluted (pence per share)		7	(66.0)	3.2
i	Following a review of the Group's presentation of tax positions within consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on profit for the year or net assets. See Note 1.1 for further information.
Ii	This measure is the profit before tax measure under UK-adopted IAS but it is not the result attributable to equity holders. This is principally because the corporate taxes of the Group include those on the income of consolidated with-profits and unit-linked funds that, through adjustments to benefits, are borne by policyholders. These amounts are required to be included in the tax charge of the company under UK-adopted IAS. Consequently, profit before tax is not representative of pre-tax profits attributable to equity holders. Profit before tax is determined after deducting the cost of policyholder benefits and movements in the liability for unallocated surplus of the With-Profits Fund after adjusting for taxes borne by policyholders.

			Share capital	Share premium	Shares held by employee benefit trust	Treasury shares	Retained earnings	Other reserves	Total equity attributable to equity holders of M&G plc	Non- controlling interests	Total Equity
		Note	£m	£m	£m	£m	£m	£m	£m	£m	£m
As at 1 January 2022			130	370	(93)	(1)	16,550	(11,660)	5,296	49	5,345
(Loss)/profit for the year			-	-	-	-	(1,632)	-	(1,632)	13	(1,619)
Other comprehensive income for the year			-	-	-	-	24	20	44	-	44
Total comprehensive (loss)/income for the year			-	-	-	-	(1,608)	20	(1,588)	13	(1,575)
Shares purchased in buy-backⁱ		10	(11)	-	-	(47)	(456)	11	(503)	-	(503)
Dividends paid to equity holders of M&G plc		8	-	-	-	-	(465)	-	(465)	-	(465)
Dividends paid to non-controlling interests			-	-	-	-	-	-	-	(14)	(14)
Shares distributed by trusts			-	-	23	-	(22)	-	1	-	1
Vested employee share-based payments			-	-	-	-	23	(23)	-	-	-
Expense recognised in respect of share-based payments			-	-	-	-	-	34	34	-	34
Tax effect of items recognised directly in equity			-	-	-	-	1	5	6	-	6
Other movements			-	-	-	1	-	-	1	-	1
Net (decrease)/increase in equity			(11)	-	23	(46)	(2,527)	47	(2,514)	(1)	(2,515)
As at 31 December 2022			119	370	(70)	(47)	14,023	(11,613)	2,782	48	2,830
i	On 24 March 2022, the Group announced that it would commence a share buy-back programme to purchase ordinary shares of 5 pence each up to a maximum consideration of £500m and the programme completed on 27 October 2022 for a total consideration, including expenses and stamp duty, of £503m. Shares with a nominal value of £11m were cancelled, leading to a capital redemption reserve for the same amount, disclosed within other reserves.
			Share capital	Share premium	Shares held by employee benefit trust	Treasury shares	Retained earnings	Other reserves	Total equity attributable to equity holders of M&G plc	Non- controlling interests	Total Equity
		Note	£m	£m	£m	£m	£m	£m	£m	£m	£m
As at 1 January 2021			130	370	(117)	(1)	16,853	(11,658)	5,577	8	5,585
Profit for the year			-	-	-	-	83	-	83	9	92
Other comprehensive income for the year			-	-	-	-	50	(13)	37	-	37
Total comprehensive income for the year			-	-	-	-	133	(13)	120	9	129
Non-controlling interest arising through business combinations			-	-	-	-	-	-	-	38	38
Dividends paid to equity holders of M&G plc		8	-	-	-	-	(466)	-	(466)	-	(466)
Dividends paid to non-controlling interests			-	-	-	-	-	-	-	(6)	(6)
Shares distributed by trusts			-	-	24	-	(24)	-	-	-	-
Vested employee share-based payments			-	-	-	-	33	(33)	-	-	-
Expense recognised in respect of share-based payments			-	-	-	-	-	40	40	-	40
Tax effect of items recognised directly in equity			-	-	-	-	21	4	25	-	25
Net increase/(decrease) in equity			-	-	24	-	(303)	(2)	(281)	41	(240)
As at 31 December 2021			130	370	(93)	(1)	16,550	(11,660)	5,296	49	5,345

	Note	For the year ended 31 December 2021 as previously reported £m	Adjustments £m	For the year ended 31 December 2021 restated £m
Consolidated income statement:
Administrative and other expenses	5	(2,884)	81	(2,803)
Total charges, net of reinsurance		(17,146)	81	(17,065)
Profit before tax		707	81	788
Tax charge attributable to policyholders' returns	6	(626)	(81)	(707)
Total tax charge	6	(615)	(81)	(696)
Less tax charge attributable to policyholders' returns		(626)	(81)	(707)

	Note	As at 31 December 2021 as previously reported £m	Adjustments £m	As at 31 December 2021 restated £m	1 January 2021 as previously reported £m	Adjustments £m	1 January 2021 restated £m
Consolidated statement of financial position:
Liabilities:
Deferred tax liabilities	6	1,157	262	1,419	916	210	1,126
Current tax liabilities and other taxes	6	323	36	359	276	21	297
Accruals, deferred income and other liabilities	13	6,964	(298)	6,666	6,964	(231)	6,733
Other		205,345	-	205,345	214,985	-	214,985
Total liabilities		213,789	-	213,789	223,141	-	223,141

-	20% fall in equity prices
-	20% fall in property prices
-	(50bps) parallel shift in nominal yields
-	20% of the credit portfolio downgrading by one full letter
-	+100bps spread widening (A-rated assets)

-	Reference to the Conceptual Framework (Amendments to IFRS 3), issued in May 2020 and effective from 1 January 2022
-	Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16), issued in May 2020 and effective from 1 January 2022
-	Onerous Contracts - Costs of Fulfilling a Contract (Amendments to IAS 37), issued in March 2018 and effective from 1 January 2022

	Classification under IAS 39	Classification under IFRS 9
Financial assets:
Loans	Loans and receivables/FVTPL designated	FVTPL mandatory
Derivative assets	FVTPL held for trading	FVTPL mandatory
Equity securities and pooled investment funds	FVTPL designated	FVTPL mandatory
Deposits	Loans and receivables	Amortised cost
Debt securities	FVTPL designated	FVTPL mandatory
Accrued investment income and other debtors	Loans and receivables	Amortised cost
Cash and cash equivalents	Loans and receivables	Amortised cost
	Classification under IAS 39	Classification under IFRS 9
Financial liabilities:
Investment contract liabilities without DPF	FVTPL designated	FVTPL designated
Third party interests in consolidated funds	FVTPL designated	FVTPL designated
Subordinated liabilities and other borrowings	Amortised cost	Amortised cost
Derivative liabilities	FVTPL held for trading	FVTPL mandatory
Other financial liabilities	Amortised cost	Amortised cost
Accruals, deferred income and other liabilitiesⁱ	Amortised cost	Amortised cost

-	Insurance contracts (including reinsurance contracts issued);
-	Reinsurance contracts held; and
-	Investment contracts with discretionary participation features (DPF) issued, provided the entity also issues insurance contracts.

-	If they are subject to similar risks and managed together;
-	If they were issued in the same calendar year; and
-	According to whether at initial recognition they are expected to be loss making, profitable with no significant possibility of becoming loss making subsequently, or neither of these.

-	The present value of the probability-weighted expected future cash flows that are expected to arise from fulfilling the contracts. Cash flows are discounted using risk-free yield curves adjusted to reflect the liquidity characteristics of the contracts;
-	An explicit risk adjustment that reflects the entity's own view of the additional amount it requires for bearing the uncertainty about the timing and amount of the cash flows that arises from non-financial risk; and
-	A contractual service margin (CSM), which represents the unearned profit that will be recognised as the entity provides services under the contracts.

-	The discounted value of the amounts that will be charged to policies;
-	Less: the discounted value of future shareholder transfers, gross of tax;
-	Less: the discounted value of other costs directly attributable to the group of insurance contracts.

	Financial assets that pass the SPPI test		All other financial assets, net of derivative liabilities
	31 December 2022	Movement in fair value during the year	31 December 2022	Movement in fair value during the year
Financial assets on the consolidated statement of financial position	£m	£m	£m	£m
Equity securities and pooled investment funds	-	-	70,127	(2,876)
Loans	-	-	3,233	(933)
Debt securities	-	-	62,821	(12,637)
Derivative assets - net of derivative liabilities	-	-	(1,335)	(3,983)
Deposits	21,401	-	-	-
Accrued investment income and other debtors	2,340	-	-	-
Cash and cash equivalents	4,884	-	-	-
Total financial assets, net of derivative liabilities	28,625	-	134,846	(20,429)

	Financial assets that pass the SPPI test		All other financial assets, net of derivative liabilities
	31 December 2021	Movement in fair value during the year	31 December 2021	Movement in fair value during the year
Financial assets on the consolidated statement of financial position	£m	£m	£m	£m
Equity securities and pooled investment funds	-	-	74,069	9,298
Loansⁱ	-	-	5,876	(172)
Debt securities	-	-	81,059	(2,732)
Derivative assets - net of derivative liabilities	-	-	684	(56)
Deposits	17,633	-	-	-
Accrued investment income and other debtors	2,647	-	-	-
Cash and cash equivalents	6,908	-	-	-
Total financial assets, net of derivative liabilities	27,188	-	161,688	6,338

-	The entirety of the assets in the With-Profits Fund;
-	Less: the underlying items of the with-profits groups of insurance contracts; and
-	Less: the assets held to meet other liabilities of the With-Profits Fund, for example for non-profit contracts.

-	Effect of new contracts added to the group of contracts;
-	Interest accreted on the carrying amount of CSM, measured at the locked-in rate;
-	Changes in cash flows arising from non-financial risk that relate to future service;
-	Effect of any currency exchange differences on the CSM; and
-	Recognition of insurance revenue for services provided in the year.

-	Effect of new contracts added to the group of contracts;
-	Change in the entity's share of the fair value of underlying items;
-	Changes in cash flows that relate to future service, including the effect of the time value of money and financial risk not arising from the underlying items;
-	Effect of any currency exchange differences on the CSM; and
-	Recognition of insurance revenue for services provided in the year.

-	Identify, recognise and measure each group of insurance contracts, investment with DPF contracts and reinsurance contracts held as if IFRS 17 had always applied;
-	Derecognise previously reported balances that would not have existed if IFRS 17 had always applied (including IFRS 4-related deferred acquisition costs, and the unallocated surplus of the With-Profits Fund); and
-	Recognise any resulting net difference in equity, after allowing for any deferred tax adjustment.

Transition approach	Applied for
Fully Retrospective Approach	With-profits business written 2020-2021 Non-Profit protection in Poland written 2020-2021 Rothesay annuity reinsurance treatyⁱⁱ
Modified Retrospective Approach	90:10 with-profits business written 2004-2019
Fair Value Approach	With-profits business written before 2004 All other contracts written up to 2021 All other reinsurance treaties incepted up to 2021

-	The effects of retrospective application are not determinable because the information required has not been collected, or has not been collected with sufficient granularity, or is unavailable because of system migrations or other reasons.
-	The fully retrospective approach requires assumptions about what the Group management's intentions would have been in previous periods that cannot be made without the use of hindsight. These include judgements about the compensation the Group requires for bearing non-financial risk in order to determine the risk adjustment. As the Group was established as a separate entity in 2019, the Group's current business management and assumptions are not appropriate prior to 2020 and choosing to use these or other assumptions would require the application of hindsight.
-	Where the fully retrospective approach is impracticable for the valuation of a portfolio of insurance contracts written then it will also be impracticable for the valuation of associated reinsurance portfolio as measurement requires similar considerations.

-	Amounts charged to policyholders (including charges deducted from the underlying items) before 1 January 2022.
-	Amounts paid before 1 January 2022 that did not vary based on the underlying items.
-	The change in the risk adjustment for non-financial risk caused by the release from risk before 1 January 2022, which will be estimated by reference to the release of risk for similar contracts that the Group issues at 1 January 2022.

-	The best estimate of the liability, determined using a discounted cash flow technique; and
-	The compensation a market participant would require for taking on the obligation, over and above the best estimate liability, determined using a cost of capital approach, and an amount to reflect the risk around the quantum of future shareholder transfers.

-	For with-profits contracts that share in the profit arising in the main With-Profits fund, profits are recognised when bonuses are added to policies. As a substantial proportion of the total bonus is determined when claims are paid to policyholders, a considerable part of the profit is recognised when policies terminate.
-	For non-profit contracts (notably annuities) a substantial proportion of the lifetime expected profit is recognised at policy inception reflecting the difference between the premiums received less costs incurred and the prudent liability established for the expected future cash flows.

-	IFRS 17 requires that the discount rates include an illiquidity premium. The IFRS 4 discount rates for with-profits contracts in particular do not include an illiquidity premium. For annuity contracts, the IFRS 4 discount rates are similar to IFRS 17.
-	IFRS 4 liabilities for non-profit contracts are determined using implicit prudence margins in the demographic and expense assumptions. In contrast IFRS 17 requires a separate risk adjustment for non-financial risks which may differ from the value of the IFRS 4 margins.
-	Under IFRS 4, the unallocated surplus of the With-Profits Fund represents the excess of the fund's assets over policyholder liabilities that are yet to be appropriated between policyholders and shareholders with no allocation to equity. There is no unallocated surplus under IFRS 17 although IFRS 17 does allow a liability to be held for the policyholders' share of the surplus assets in the With-Profits Fund. Under IFRS 17 there will be equity for the first time relating to the With-Profits Fund.

-	the Group is continuing to refine the new accounting processes, methodology and internal controls in applying IFRS 17; and
-	the new accounting policies, assumptions, judgements and estimation techniques employed are subject to change until the Group finalises its adoption of IFRS 17.

-	Classification of Liabilities as Current or Non-current (Amendments to IFRS 1), issued in January 2020 and effective from 1 January 2023, although it is anticipated that the effective date will be pushed back to no earlier than 1 January 2024
-	Sale or Contribution of Assets between an Investor and its Associate or Joint Venture - (Amendments to IFRS 10 and IAS 28), issued in December 2015 and effective date pending completion of the research project on equity method accounting
-	The Disclosure Initiative: Accounting Policy Requirements (Amendments to IAS 1), issued in February 2021 and effective from 1 January 2023
-	Definition of Accounting Estimates (Amendments to IAS 8), issued in February 2021 and effective from 1 January 2023
-	Deferred tax related to assets and liabilities arising from a single transaction (Amendments to IAS 12), issued in May 2021 and effective from 1 January 2023
-	Lease Liability in a sale and leaseback (Amendments to IFRS 16), issued in September 2022 and effective from 1 January 2024.

	£m
Total cash consideration	73
Fair value of net assets acquired:
Accrued investment income and other debtors	1
Cash and cash equivalents	4
Total assets	5
Accruals, deferred income and other liabilities	(3)
Total liabilities	(3)
Acquired intangible assets:
Trade name	7
Customer-related	15
Deferred tax on assets not on balance sheet	(6)
Goodwill	55

-	99.9999% of the membership interest was acquired by M&G Wealth Solutions Limited (M&G WSL), formerly called M&G Wealth Investments Limited, which is a wholly owned subsidiary of M&G REH;
-	0.0001% of the membership interest was acquired by Pru Limited, a wholly owned subsidiary of M&G Corporate Holding Limited (M&G CHL).

-	Level annuities: provide a regular (for example, monthly) fixed annuity payment over the policyholder's life.
-	Fixed increase annuities: provide for a regular annuity payment which incorporates automatic increases in annuity payments by fixed amounts over the policyholder's life.
-	Inflation-linked annuities: provide for a regular annuity payment to which an additional amount is added periodically based on the increase in an inflation index.
-	With-profits annuities: are written in the With-Profits Fund. These combine the income features of annuity contracts with the investment smoothing features of with-profits products and enable policyholders to obtain exposure to investment return on the With-Profits Fund.

i.	Cash flow hedges ⁶ : those instruments that are held to mitigate volatility in the Group's IFRS results by being explicitly matched to the expected future shareholder transfers.
ii.	Capital hedges: instruments that hedge the economic present value of shareholder transfers on a Solvency II basis, to optimise the capital position.

	i.	Short-term temporary movements in the fair value of instruments held to mitigate equity risk in the with-profits shareholder transfer, including both cash flow and capital hedges.
	ii.	Total fair value movements on other capital hedges, which are held solely to optimise the Solvency II capital position.
	iii.	Total fair value movements on surplus assets backing the shareholder annuity capital, and the impact of short-term credit risk provisioning and experience variances over the period which are not reflective of the longer-term performance of the business, specifically:
-	The impact of credit risk provisioning for short-term adverse credit risk experience;
-	The impact of credit risk provisioning for actual upgrades and downgrades relative to best estimate assumptions. This is calculated by reference to current interest rates;
-	Credit experience reflecting the impact of defaults and other similar experience, such as asset exchanges arising from debt restructuring;
-	The impact of market movements on bond portfolio weightings and the subsequent impact on credit provisions.

-	The net impact of movements in the value of policyholder liabilities and fair value of the assets backing these liabilities, excluding the items included in short-term fluctuations above. The fair value movements of the assets backing the liabilities are closely correlated with the related change in liabilities;
-	The unwind of the credit risk premium, which is the opening value of the assets multiplied by the credit risk premium assumption, with an adjustment for claims paid over the year. The credit risk premium assumption is the difference between the total long-term credit allowance and a best estimate credit allowance (both of which allow for the combination of defaults and downgrades);
-	Actual income received in the year, such as coupon payments, redemption payments and rental income, on surplus assets backing the shareholder annuity capital, less an allowance for expenses;
-	The net effect of changes to the valuation rate of interest due to asset trading and portfolio rebalancing;
-	The impact of changes in the long-term component of credit provisioning.