M&G has seen its profits more than halve over the first half of the year after investors yanked a “concerning” £7.7bn from its retail funds business amid the coronavirus fall-out.
Adjusted operating profits before tax came in at £309m for the six months to 30 June 2020, down 57% from the £714m in profits posted over the same period last year after the group saw fee revenue plunge 9% as its asset management arm suffered a spike in redemptions and pressure on margins.
During the economic fallout from the coronavirus crisis net outflows across the business were three times higher than a year ago, hitting £4.1bn and causing groupwide assets under management and administration to slump from £352bn at the end of December to £339bn at the end of June.
Interactive Investor head of markets Richard Hunter said the asset manager has endured “a baptism of fire” since de-coupling from parent company Prudential and listing on the London Stock Exchange last October.
Initial uncertainty leading up to the December general election, compounded by Brexit, and the suspension of its £2.2bn Property Portfolio were all major headwinds plaguing the business before markets plunged in March during the coronavirus outbreak, Hunter said.
“Obviously, this is not the backdrop we would have wished as a newly independent company, but I have been hugely impressed by how my colleagues have responded to the challenge of continuing to serve our customers and clients during the pandemic,” said M&G chief executive John Foley (pictured).
Outflows from M&G funds ‘concerning’
The shock from the virus crisis was most acutely felt in its retail asset management business, which haemorrhaged over £7.7bn in the first six months of the year, over double the £3.8bn worth of outflows it racked up in H1 2019.
The majority of redemptions (£5.6bn) were recorded in the first quarter with outflows slowing to £2.1bn in Q2, taking AUM down 14% to £64.2bn.
While outflows have slowed quarter on quarter Hunter said the total amount exiting M&G’s retail funds business is “concerning … not only in terms of lost business but also in being reflective of how some retail investors traditionally react to market volatility, namely by heading for the exit, which is also something for the company to consider in light of future downturns”.
Redemptions from its retail funds business were offset slightly by net inflows into its institutional business of £2.8bn and £1.4bn worth of net new business attracted by its retail savings arm, including £600m into its PruFund range.
M&G maintains interim dividend
Despite the hit to its retail funds business Foley said earnings from M&G’s Heritage business “remained steady,” adding the group’s balance sheet remains “robust”.
As such he said the firm would still be paying shareholders an interim dividend of 6p per share.
The current rate on the dividend yield is around 7% which Hunter said is “punchy enough” and “compelling” compared to the ultra-low interest rate backdrop and the “current dividend drought”.
The M&G boss added the group was on track to deliver £145m of annual run-rate shareholder cost savings by end of 2022 as part of its transformation programme. Earlier this year the group launched a voluntary redundancy scheme with the aim of reducing total staff costs by 10% in 2020.
