Prudential said in its half-year results on August 10 that the first six months of the year had provided many challenges including “a further decline in interest rates to historic low levels, higher investment market volatility” and “the continuation of net outflows at M&G”.
Operating profits at M&G fell 10% from a year earlier to £225 million in the first half of 2016, which the group attributed to the revenue effect of lower assets under management because of “net retail business outflows experienced since the second quarter of 2015”.
Market price movements added £10.2 billion to assets over the six-month period, offsetting £7 billion in net outflows and pushing M&G’s assets under management from £126.4 billion at the start of the year to £129.7 billion.
But with retail assets declining to £59.2 billion –14% lower than their level a year ago – Prudential said this would “continue to put downward pressure on revenue prospects for the remainder of 2016”, with the business’s cost-income ratio predicted to rise towards 60% for the year as a whole.
Prudential said: “Our asset management business, M&G, as expected, has continued to experience significant net outflows in the first half… Although this is likely to impact short-term earnings prospects, M&G remains a highly regarded franchise, and the skills and capabilities that saw external assets under management double between 2008 and 2015 are very much intact.”
The insurer added: “At M&G, where we are coming off an extended period of earnings growth, we are focused on careful management of costs and improving performance. Overall, we have the scale, diversity and capabilities to outperform our markets over the long term.”
Lower costs helped to cushion the revenue decline at M&G, while Prudential added that Anne Richards, who took over in June as M&G’s chief executive, was “already working closely with the executive team to improve performance and address the operational impacts of the outcome of the UK referendum on EU membership”.
Overall, the group’s IFRS operating profit of £2 billion was up 6% compared with the same period a year earlier, compared with a 9% uptick over the same period in 2015.