M&G Overview & Performance Michael McLintock, Will Nott, Simon Pilcher and Grant Speirs 1
M&G Agenda g M&G Group overview Michael McLintock M&G Retail Will Nott M&G Fixed Income Simon Pilcher M&G Group Financials Grant Speirs 2
M&G s strategic priorities People Performance Sales & profits 3
M&G Group overview 191bn FUM invested in equities, fixed income and property* 83bn external funds Manage global assets predominantly on behalf of UK and European investors Pre-tax profit of 177m (2009 results) 122m (H1 2010) *as at 30 September 2010 4
M&G Group Devolved business structure with centralised support M&G Investments Retail 102m PBT Equities Fixed Income 43m PBT PruPIM* PPM** South Africa Will Nott Simon Pilcher Shared services including Risk, Compliance, Operations *Prudential Property Investment Management **Prudential Portfolio Managers South Africa 5
Our market-leading position Net UK retail sales 2 nd quarter 2007 2 nd quarter 2008 4 th quarter 2008 3 rd quarter 2010 TOP TEN NET RETAIL SALES Second Quarter 2007 ( m) Invesco Perpetual 1,143.6 Schroder 779.4 New Star 657.1 SWIP 547.0 Artemis 365.3 Jupiter 357.1 BlackRock k 342.3 3 Standard Life 250.7 M&G 247.8 Investec 224.4 TOP TEN NET RETAIL SALES S TOP TEN NET RETAIL SALES TOP TEN NET RETAIL SALES S Second Quarter 2008 ( m) Fourth Quarter 2008 ( m) Third Quarter 2010 ( m) BlackRock 879.2 M&G 1,003.9 M&G 1,282.5 Invesco Perpetual 813.9 Invesco Perpetual 765.2 BlackRock 1,032.3 SWIP 571.3 M&G 410.9 Jupiter 256.9 Mellon 240.5 First State 226.4 Halifax 156.8 Threadneedle 141.1 Martin Currie 133.0 Jupiter 468.7 SWIP 458.5 BNY Mellon 356.9 BlackRock 301.9 Cazenove 171.3 Neptune 166.6 Schroder 130.2 First State 128.3 Standard d Life Inv 760.0 0 BNY Mellon 567.2 First State 520.3 Invesco Perpetual 357.8 Schroder 291.5 SWIP 260.2 HSBC 250.5 AXA 245.4 8 consecutive quarters at number 1 for gross and net UK Retail sales Source: Pridham Report 6
2 nd largest UK retail fund manager UK retail FUM bn Jan 2008 40 40 UK retail FUM bn end September 2010 36.0 25.6 21.6 35 35 30 26.5 30 25 25 20 19.4 20 17.4 17.2 13.2 15 11.8 11.7 15 10.3 10 10 7.7 6.9 6.8 10 5 5 0 0 16.3 14.5 14.5 13.0 12.2 Bla lackrock Invesco Perpetual Fidelity Jupiter Scottish hwidows M&G Threa eadneedle Schroders Capita Finance L&G Blac lackrock Invesco Perpetual M&G Fidelity Jupiter Threa eadneedle Scottish hwidows L&G St. James es' Place Schroders 119% growth in FUM in under 3 years Source: IMA 7
How have we achieved this position? Strength across key asset classes in the UK Est. net sales year ending Sept 10 ( m) 1,000 900 800 700 600 500 400 300 200 100 0 907.8 M&G Recovery Fund 712.9 SWIP UK Enhanced Equity 415.7 BlackRock Collective Investment Funds - UK Equity Tracker 382.7 SWIP Foundation Growth 192.0 172.3 162.7 Prudential UK Number 1 money taker in UK equities Growth L&G (N) Tracker UK Tracker Trust AXA Framlington UK Select Opportunities Fund Source: Lipper FMI - Lipper FundFile as at end-september 2010. Figures in GBP. M&G data sourced internally and based on UK retail sales only (excluding internal flows). 125.1 119.1 107.4 BlackRock UK Special Situations JOHCM UK Opportunities Fund Newton Income Fund 8
How have we achieved this position? Strength across key asset classes in the UK Est. net sales year ending Sept 10 ( m) 500 443.7 450 400 396.66 350 330.5 294.4 300 251.3 250 208.3 207.1 200 160.2 150 148.4 100 50 0 Newton Global Higher Income Aberdeen World Equity M&G Global Basics Fund St James's Place Worldwide M&G Global Dividend Fund Sarasin EquiSar Global Thematic Vanguard FTSE Developed World Schroder QEP Global Active Value Neptune Global Equity Fund Opportunties Unit ex-u.k. Equity Index Trust Fund Number 1 money taker in global equities Source: Lipper FMI - Lipper FundFile as at end-september 2010. Figures in GBP. M&G data sourced internally and based on UK retail sales only (excluding internal flows). 107.7 Jupiter Merlin Worldwide Portfolio 9
How have we achieved this position? Strength across key asset classes in the UK Est. net sales year ending Sept 10 ( m) 1,200 1,100 1061.1 1007.7 1,000 900 783.1 800 700 600 500 400 300 200 100 0 M&G Strategic Corporate Bond M&G Optimal Income Fund L&G Dynamic Bond 390.9 380.8 371.3 344.6 Henderson All Stocks Credit Santander Sterling Corporate Bond Aviva Investors Corporate Bond Number 1 money taker in Fixed Interest 281.8 267.1 266.6 243.5 229.1 226.7 223.4 215.8 SWIP Sterling L&G High IP Tactical Henderson Fidelity Standard Life Henderson Fidelity Credit Income Bond Fund Strategic Bond Strategic Bond Select Income Long Dated Moneybuild Advantage Credit Income Please note that LV= Short Dated Corporate Bond and LV= Medium and Long Dated Corporate Bond have been removed from the top selling fund list as the majority of the funds estimated net sales over the latest year are sourced from internal seed capital. Source: Lipper FMI - Lipper FundFile as at end-september 2010. Figures in GBP. *UK IMA fixed income sectors consists of the IMA Corporate Bond, IMA Strategic Bond, IMA High Yield and IMA UK Gilts sectors. M&G data sourced internally and based on UK retail sales only (excluding internal flows). Cazenove Strategic Bond 10
How have we achieved this position? Strength across key asset classes in the UK Est. net sales year ending Sept 10 ( m) 800 700 600 500 400 300 200 100 0 755.3 722.7 223.0 219.4 214.3 188.2 109.4 107.9 97.9 88.9 M&G Property SWIP Property Threadneedle Ignis UK L&G UK Aviva Investors Schroder Skandia Clerical Aviva Investors Portfolio Trust UK Property Property Fund Property Trust Property Global Property Property Fund Medical UK Asia Pacific Trust Number 1 money taker in Property Source: Lipper FMI - Lipper FundFile as at end-september 2010. Figures in GBP. M&G data sourced internally and based on UK retail sales only (excluding internal flows). Securities Property Property Fund 11
M&G Fixed Income One of the largest fixed income investors in Europe 2006: 15% of top 40 UK pension funds 2009: 70% of top 40 UK pension funds Dynamic and innovative investment approach Pioneer new investment products and thinking 12
How have we achieved this position? Investment-led Stable team with low turnover Strong identity around culture and brand Single fund management centre Focus on organic growth 13
M&G Group Recognition for our investment leading gpropositionp Outstanding Investment House (UK) 14
M&G Retail Will Nott, CEO M&G Securities 15
M&G Retail fund performance Long term performance remains strong Rolling 3 year Retail fund performance 100% 62% retail funds above median 90% Top quartile over 3 years 80% 70% 60% 50% 40% 30% 20% 10% 0% S-08 O-08 N-08 Upper quartile Lower quartile Bottom quartile D-08 J-09 F-09 M-09 A-09 M-09 J-09 J-09 A-09 S-09 O-09 N-09 D-09 J-10 F-10 M-10 A-10 M-10 J-10 J-10 A-10 S-10 Investment performance is fundamental to success Source: M&G management information 60% equity funds above median over 3 years 67% retail fixed income funds above median over 3 years 16
M&G Retail today Transformation of the Retail business since 2000 8 7 M&G Retail net sales 2000 end Sept 2010 ( bn) 7.3 6 5 5.1 Sa ales bn 4 3 2 1.7 2.4 2.1 1.8 1 0 06 0.6 0.1 0.2 0.3 0.2 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 YTD 2010 Source: M&G management information 17
Transformation of M&G Retail s asset base Strong ggrowth despite a challenging gexternal environment tail external FUM bn 40 30 20 Growth of M&G Retail external FUM 2001 end Sept 2010 ( bn) 19.9bn FUM Nov-07 35.9bn FUM Sep -10 M&G Re 10 0 Jan- 01 Jul- 01 Jan- 02 Jul- 02 Jan- 03 Jul- 03 Jan- 04 Jul- 04 Jan- 05 Jul- 05 Jan- 06 Jul- 06 Jan- 07 Jul- 07 Jan- 08 Jul- 08 Jan- 09 Jul- 09 Jan- 10 Jul- 10 Source: M&G management information 18
Improving the diversification of the business By country FUM UK vs. International 2001 FUM UK vs. International 2005 FUM UK vs. International to 30/9/10 INTERNATIONAL INTERNATIONAL UK UK UK Total FUM 11.5bn Total FUM 13.9bn Total FUM 35.9bn Expansion into Europe diversifying the asset base Source: M&G management information 2001 and 2005 data as at end Dec 19
Improving the diversification of the business By asset class FUM by asset class 2001 FUM by asset class 2005 Multi Asset Multi Asset Property t FUM by asset class 2010 to 30/9/10 Property Multi Asset Bond Equity Bond Equity Bond Equity Total FUM 11.5bn Total FUM 13.9bn Total FUM 35.9bn Strong growth in fixed income assets Source: M&G management information 2001 and 2005 data as at end Dec 20
Looking ahead Significant prospects p for future growth Size of Fund market (FUM at end 2009) M&G Retail Market share UK 481bn 4.9% Europe 4,118bn 0.1% Opportunities for M&G Retail even without underlying market growth Source: IMA, EFAMA 21
Opportunities for asset managers European distribution is opening up p p g p We have to work together to identify ways in which we can raise standards and transparency across Europe Financial Secretary to the Treasury, Nov 2010 Transparency and being open and honest with clients is a crucial differentiator for asset managers The issue of restoring trust will be dependent on creating more transparency in the industry FT January 2010 22
M&G Fixed Income Simon Pilcher, CEO Fixed Income 23
M&G Fixed Income Using management of internal assets as a platform for external growth g g p g Internal Institutional Deliver outstanding Utilise skills developed investment returns to primarily for internal in-house capital through client to build new investment in innovative business streams and and attractive ti areas of the diversify if revenues capital markets Active fund management, particularly credit 24
M&G Fixed Income A broad and growing gclient base 256 mandates 224 clients 22 have two mandates 6 have three mandates or more Other clients from 26 countries - sovereign wealth funds, insurance companies and local governments 25
M&G Fixed Income Performance is a key component of success 20 18 16 Institutional All Stocks Corporate Bond Fund High 100 90 June 2010 Rolling 3 year return and tracking error (to 30 June 2010) 14 12 10 8 Return 80 70 60 50 June 2007 Getting the risk/return blend right The roller coaster 6 40 4 2 0 1 year 2 years 3 years 5 years 30 20 10 All the benefits of passive management, but with active fees Low returns / high volatility Fund Benchmark 0 1.7% p.a. 2.0% p.a. 1.7% p.a. 1.1% p.a. Low 0 10 20 30 40 50 60 70 80 90 100 Risk High 100% of mandates ahead of benchmark in 3 years to Sept 2010 Sources: M&G, Mercer MPA, 30 June 2010 26
M&G Fixed Income Net sales history 7,000 M&G Fixed Income net sales 2003 end Sept 2010 ( bn) 6,000 5,000 4,000 3,000 2,000 1,000 0 2003 2004 2005 2006 2007 2008 2009 Ytd Q3 2009 Ytd Q3 2010 Sources: M&G, management information 27
M&G Fixed Income Growth in external revenues 120 M&G Fixed Income revenues 2006 2009 m d Income rev venues m M&G Fixe 100 80 60 40 20 0 2006 2007 2008 2009 Internal External Sources: M&G, management information 28
M&G Fixed Income Innovation enhances reputation, builds trust and helps to grow client base Social Housing Real Estate Debt Fund Secured Property Income Fund 29
Secured Property Income Fund What makes long lease property p so attractive? Pension schemes need inflation-linked income Long dated d bonds are natural investments t but: index-linked Government bonds are very expensive increased supply of Government bonds may impact returns conventional corporate bonds offer no direct inflation protection Long lease property can offer: predictable cash flows long duration increasing inflation-linked income security of owning the underlying real estate potential for capital gain 30
Secured Property Income Fund Example of long term bond-like income from property p Let to Tesco Property Nominees Ltd with guarantee from Tesco Plc, rated A- 25 year lease with Tesco responsible for insurance and all repairs Rent increases annually linked to RPI with a floor of 2% and cap of 5% for first 5 years and 0% to 5% thereafter Adjoins larger retail park with 26 leading retailers Tesco pay 20.50 per sq.ft but rents next door are 40-42.00 per sq.ft. Tesco planning consent is open A1 with food but next door is open A1 non food 31
M&G Group Financials Grant Speirs, Group Finance Director 32
M&G Group Consistently strong net flows; exceptional in 2009 and 2010 16000 M&G Group net sales 2003 end Sept 2010 ( bn) 14000 12000 10000 8000 5,962 5,400 6000 4000 2000 0 1,093 2998 2,998 2,238 7,517 2,517 1,312 5,700 5,117 1,587 3,104 2,720 1,169 1,345 184 416 2,095 2003 2004 2005 2006 2007 2008 2009 Ytd Q3 2009 Ytd Q3 2010 Retail Institutional Sources: M&G, management information 33
Jun-10 Sep-10 M&G Group Record FUM levels 200,000 180,000 June 2007 i d 160,000 000 previous record - 140,000 120,000 168bn September 2010 new record 191bn 100,000 80,000 60,000 40,000 20,000 000 0 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Internal External Institutional External Retail Despite FTSE All Share level being 16% lower Sources: M&G, management information 34
M&G Group Focus on growing g higher margin external FUM FUM Average net fee rates External Retail* External External Institutional 46bn 37bn 87 bps 36 bps Internal 108bn 11 bps * Retail fees are gross annual management charges less rebates and commission payments Sources: M&G, management information 35
M&G Group Strong ggrowth in profits: outperforming markets 250 M&G Group profit history 2003 end Jun 2010 ( m) 200 28 43 12 150 27 100 50 13 51 26 80 24 96 134 175 185 165 75 3 119 0 2003 2004 2005 2006 2007 2008 2009 H1 2009 H1 2010 Underlying profit Performance Related Fees/Carried Interest FTAS* UCP** * Full year average FTAS index rebased to 2003 (closing price adjusted for dividends and splits) ** Average Sterling Corporate & Collateralised All Stocks TR Index (UCP0) Index rebased to 2003 Sources: M&G, management information; Bloomberg 36
Cost: Income ratio Good cost discipline through the cycles Cost to income ratio 2005 end June 2010 Excellent profit margins in 90 comparison to our peers 100 80 70 60 50 40 30 20 10 0 75 70 65 62 2005 2006 2007 2008 2009 H1 2009 H1 2010 Scaleable business operating platform generates operational efficiencies Sources: M&G, management information, full year 2009 competitor data Morgan Stanley research 65 63 60 M&G 36.7% Schroders 25.0% Aberdeen 22.7% Henderson 27.6% F&C 27.0% Gartmore 24.5% 36% of current cost base is variable 37
2 nd largest UK retail fund manager 40 UK retail FUM bn Jan 2008 40 UK retail FUM bn end September 2010 35 35 30 26.5 30 25.6 25 25 21.6 20 19.4 20 17.4 17.2 13.2 15 11.8 11.7 15 10.3 10.0 10 7.7 6.9 6.8 10 5 5 0 0 36.0 16.3 14.5 14.5 13.0 12.2 Bla lackrock Invesco Perpetual Fidelity Jupiter Scottish hwidows M&G Threa eadneedle Schroders Capita Finance L&G Blac lackrock Invesco Perpetual M&G Fidelity Jupiter Threa eadneedle Scottish hwidows L&G St. James es' Place Schroders 119% growth in FUM in under 3 years Source: IMA 7