M&G takes ground rent hit but adjusted operating profit beats forecast

M&G PLC on Thursday reported mixed first-half results with statutory profitability dented by planned ground rent changes in the UK taking some of the shine off net flows and adjusted operating profit beats.

In response, shares in the the London-based investment manager were down 0.6% at 341.20 pence each in London on Thursday morning. The wider FTSE 100 index was up 0.2%.

M&G said adjusted pretax operating profit rose 15% to £435 million in the six months that ended June 30 from £378 million a year prior, ahead of £429 million Visible Alpha market consensus. This was driven by 24% growth in Asset Management and 9% growth in Life, M&G said.

However, M&G swung to a pretax loss attributable to equity holders of £213 million from a £333 million profit a year ago. Its net loss was £165 million, worse than £172 million net income forecast by consensus and compared to net income of £248 million a year ago.

This reflected £551 million adverse short-term fluctuations in investment returns, of which £325 million relates to proposed changes to ground rent legislation, M&G explained.

In January, the UK government proposed to cap existing annual ground rents at £250 per property from 2028 for a transition period of 40 years, at the end of which all ground rents would be reduced to zero.

The draft bill is moving through Parliament, and the measures are expected to take effect closer to late 2027 or 2028, according to the BBC.

At the time, M&G said it had direct exposure of £722 million to ground rent assets through the shareholder fund of Prudential Assurance Co, although Chief Executive Andrea Rossi said M&G is "well positioned to absorb and manage" the "negative impacts" of the proposed legislation.

More positively, net flows from open business improved to £2.4 billion in the recent half-year from £2.1 billion the year before, despite a "volatile" external environment, beating £2.3 billion consensus.

Asset Management accounted for the vast majority of the inflows, with net inflows from external clients of £2.2 billion, including positive results across both Wholesale and Institutional clients in the UK and internationally.

M&G said new business momentum remains positive across the group with net inflows from external clients in Asset Management reaching £1.0 billion in July. In Life, M&G said it is confident in delivering continued growth in bulk purchase annuity volumes in the second half.

Operating capital generation fell to £372 million from £408 million, but beat £360 million consensus.

The solvency II coverage ratio improved to 247% from 230%, ahead of 239% consensus.

The dividend was nudged up to 6.8 pence per share from 6.7p.

CEO Rossi said the business is "performing strongly", with "record adjusted operating profit, strong net inflows and continued growth in BPA volumes".

M&G expects adjusted operating profit growth of at least 5% over 2025 to 2027. For 2026 alone, it predicts low double-digit adjusted operating profit growth compared to company-compiled market consensus at 11%.

In 2025, M&G reported adjusted operating profit of £838 million.

Elsewhere, M&G said it continues to progress towards a target cost-to-income ratio of 70%, and, having already achieved a 73% ratio in the first half of the year, expects further improvements in the second half of 2026.

In addition, it said it is on track to meet the target of £2.7 billion cumulative operating capital generation excluding new business strain over 2025 to 2027.

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