Prudential Plc · LSE:PRU
Prudential — FY2004 Earnings Presentation
45 slides from Prudential's earnings presentation, Mar 2, 2005
Slide 1: Prudential plc 2004 Full Year Results
PRUDENTIAL PLC 2004 Full Year Results
Slide 2: Forward-looking statements
This statement may contain certain “forward-looking statements” with respect to certain of Prudential's plans and its current goals and expectations relating to its future financial condition, performance, results, strategy and objectives. Statements containing the words “believes”, “intends”, “expe
Slide 3: Sir David Clementi, Chairman
SIR DAVID CLEMENTI CHAIRMAN
Slide 4: Introduction: A good performance throughout the group
INTRODUCTION A good performance throughout the group • Strong set of results from across the Group • Building value in each of our insurance and related fund management businesses • Driving profitable growth within our capital means 4
Slide 5: Philip Broadley, Group Finance Director
PHILIP BROADLEY GROUP FINANCE DIRECTOR
Slide 6: 2004 Full Year Highlights
2004 FULL YEAR HIGHLIGHTS • APE sales increased 26% to £1,846m • New business achieved profit increased 23% to £688m • Total achieved basis operating profits increased 39% to £1,124m • Total achieved basis profits before tax increased 82% to £1,521m • Total MSB operating profit on continuing operati
Slide 7: Key Themes
KEY THEMES • APE sales • New business margins • In-force achieved profit • Statutory profits • Holding Company cashflow • Returns on capital • Shareholders’ funds 7
Slide 8: APE Sales
APE SALES Growth in all business units £m Up 40% 900 • Outperforming UK market (growth of 800 3% in 2004(1)) Up 14% 700 • Outperforming US market (growth of 600 3% in 2004(2)) Up 21% 500 • Gross written premiums 19% higher 400 than 2003 at £16.4bn 300 • Total funds under management 200 increased 13%
Slide 9: Achieved Basis: New Business Profits and Margins
ACHIEVED BASIS: NEW BUSINESS PROFITS AND MARGINS Strong growth, stable margins VALUE ADDED BY NEW BUSINESS NEW BUSINESS MARGINS £m 800 2001 2002 2003 2004 UK(1) and Europe (%) 30 29 27 27 700 US (%) 34 39 35 34 Asia (%) 64 59 52 54 New Business Achieved Profit 600 Group (%) 39 40 38 37 500 Insurance
Slide 10: New Business Margins: UK Insurance Operations
NEW BUSINESS MARGINS: UK INSURANCE OPERATIONS Managing product and distribution mix 2001 2002 2003 2004 With-profit bonds (%) 54 48 41 41 B2B corporate pensions (%) 18 22 16 9 Individual annuities (%) 17 26 43 43 Bulk annuities (%) 40 30 56 46 OVERALL MARGIN (%) 30 29 27 27 • Overall margin maintain
Slide 11: New Business Margins: US
NEW BUSINESS MARGINS: US Spread maintained and cost efficiency 2001 2002 2003 2004 Fixed annuity (%) 26 41 36 32 Variable annuity (%) 45 39 36 37 Other (%) 38 37 34 34 OVERALL MARGIN (%) 34 39 35 34 • Target spread of 175bps was exceeded in 2004 • Expense ratio reduced 2bps in 2004 and is expected t
Slide 12: New Business Margins: Asia
NEW BUSINESS MARGINS: ASIA Managing product and geographic mix 2001 2002 2003 2004 OVERALL MARGIN (%) 64 59 52 54 • Management of product and country mix offsetting growth in lower margin markets of India and Korea • Margins maintained in countries with increasing competition by our focus on profita
Slide 13: In-Force Achieved Profit
IN-FORCE ACHIEVED PROFIT Strong growth in in-force Assumption Changes and 2003 Total 2004 Unwind Variances 2004 Total £m £m £m £m UK and Europe 193 330 (100) 230 US 44 139 22 161 Asia 67 122 (53) 69 TOTAL 304 591 (131) 460 • UK : strengthened persistency related to closed block of personal pensions
Slide 14: UK Persistency
UK PERSISTENCY Assumption strengthened for pre-2001 closed DSF pension business • Persistency experience on closed block of personal pensions business benefiting from conservation initiatives • £66m pre-tax assumption charge • Post-tax, assumption change represents around 1% of overall embedded valu
Slide 15: Modified Statutory Basis
MODIFIED STATUTORY BASIS Operating MSB up by 49% 2003 2004 £m £m UK and Europe 256 305 JNL 128 196 Asia 77 126 M&G 83 136 Egg 55 43 Other (194) (203) MSB Operating Profit 405 603 • Significant increase in statutory profits from UK annuity business • JNL benefiting from improvements in fee income, lo
Slide 16: Holding Company Cashflow
HOLDING COMPANY CASHFLOW 2003 2004 £m £m Cash remitted by business units • UK life fund transfer(1) 289 208 • UK: other dividends (including special dividend) 120 100 • JNL 48 65 • Asia 48 64 • M&G 84 84 TOTAL CASH REMITTED TO GROUP 586 521 Net interest paid (127) (144) Dividends paid (447) (323) Sc
Slide 17: Holding Company Cashflow (cont.)
HOLDING COMPANY CASHFLOW (cont.) 2003 2004 £m £m Cashflow before investment in businesses 177 176 Capital invested in business units • UK and Europe (28) (189) • JNL 0 0 • Asia(1) (145) (158) Increase/(decrease) in cash 4 (171) Rights Issue proceeds 0 1,021 INCREASE IN CASH 4 850 17 (1) Net cash inv
Slide 18: UK and Europe
UK AND EUROPE IRR of 12% achieved in 2004 with strong new business growth 2004 Target 2007 Unit-linked bonds (%) 7 8 Corporate pensions (%) 3 15 Protection (%) 1 15 Annuities (%) 20 20 OVERALL POST-TAX IRR (%) 12 14 • Strong progress towards 2007 target • Unit-linked bonds: performance ahead of plan
Slide 19: Jackson National Life
JACKSON NATIONAL LIFE Above market returns • IRR of 13% on new business in 2004 • Life of Georgia – IRR 13% after tax – payback within about 5 years – addition of 1.6 million life policies doubles total of life and annuity policies in-force, with unit cost advantages – achieves growth in life busine
Slide 20: Asia
ASIA Achieving IRR targets Overall IRR target of 20% • Asia’s targeted IRR is at least 10% higher than risk discount rates in each country • This overall target was exceeded for new business in 2004 TARGET MET OR EXCEEDED: Hong Kong, Singapore, Malaysia, China, India, Indonesia, Korea, Philippines,
Slide 21: Financial Groups' Directive
FINANCIAL GROUPS’ DIRECTIVE Applies a new, additional capital model to the Group • An aggregation of capital positions of the Group’s subsidiary operations less non-hybrid debt • UK, US, Singapore and Hong Kong permitted to use existing regulatory models • UK regulatory capital models applied to all
Slide 22: Achieved Profit Shareholders' Funds
ACHIEVED PROFIT SHAREHOLDERS’ FUNDS Growth in shareholders’ funds ANALYSIS OF MOVEMENT IN AP SHAREHOLDERS' FUNDS: 2003-2004 9,000 100 1,021 8,596 679 479 8,500 43 288 136 460 AP Shareholders Funds in £m 97 229 8,000 243 688 7,500 7,005 7,000 6,500 6,000 Opening New In-force M&G Egg Other Goodwill ST
Slide 23: Jonathan Bloomer, Group Chief Executive
JONATHAN BLOOMER GROUP CHIEF EXECUTIVE
Slide 24: Introduction: A good performance throughout the Group
INTRODUCTION A good performance throughout the Group • Strong set of results from across the Group • Building value in each of our insurance and related fund management businesses • Driving profitable growth within our capital means 24
Slide 25: Capital and Cash Flows
CAPITAL AND CASH FLOWS Active management of capital CAPITAL CAPITAL CONTRIBUTION CONSUMPTION UK shareholder- UK life fund backed business Reinvestment Reinvestment Prudential M&G 2006 Corporation Asia Reinvestment Reinvestment JNL Egg Shareholder dividend and interest on debt Reinvestment Reinvestme
Slide 26: Key 3 Year Planning Assumptions
KEY 3 YEAR PLANNING ASSUMPTIONS Expectations of stable markets over the medium-term • Modest growth in savings market (UK and US) • Nominal equity market returns of 8.5% • Normalised level of credit losses • Limited interest rate rises • Stable regulatory environment • Business mix consistent with p
Slide 27: Optimising Returns on Capital
OPTIMISING RETURNS ON CAPITAL Balancing risks and returns across the businesses • Balancing risks and returns • Each business has different capital characteristics and different risk profiles – JNL: returning cash to the group while funding its own growth – Asia: higher rates of return balance highe
Slide 28: UK Insurance
UK INSURANCE Continued outperformance of the market • UK business in shape • Well-positioned to capitalise on changing environment • Market conditions favour the larger players • Regulatory capital changes bring pricing discipline • Conclusion to government reviews removes uncertainty 28
Slide 29: UK Insurance: Diversified distribution strategy
UK INSURANCE Diversified distribution strategy Business to Partnerships Direct to Intermediaries Business Consumer APE Sales (2004) £223m £206m £75m £267m % of UK APE Sales (2004) 29% 27% 10% 34% Channel Consulting Actuaries Banks, Insurers, Direct Marketing Retail IFAs and Benefit Advisers Retail B
Slide 30: UK Insurance: Establishing strong multi-tie presence
UK INSURANCE Establishing strong multi–tie presence CONFIRMED PANEL MEMBERS Sesame (1) (1) Bankhall (2) Tenet Millfield Barclays Destini Burns Anderson 30 (1) Shareholders (2) Appointed to work with Tenet on the detailed design of their regulated multi-tie platform
Slide 31: Egg
EGG Focused on delivering profitable growth • Pursuing a UK strategy, focused on profitability and near-term delivery – a good UK performance in 2004 – UK profit before tax of £74m • Increasing success of cross-selling – strong brand awareness and attractive customer base – focus on customer, use of
Slide 32: Asset Management: M&G
ASSET MANAGEMENT: M&G Strong profit performance OPERATING PROFIT(1) • £126bn FUM as at 31 December 2004 150 • Clear strategy for profitable growth, 136 despite difficult markets • Building retail; exited subscale businesses 100 83 • Provides the Group with alternative 71 access to retail customer ba
Slide 33: Asset Management: Strong Investment Returns
ASSET MANAGEMENT: STRONG INVESTMENT RETURNS Good investment performance LIFE FUND INVESTMENT PERFORMANCE AGAINST COMPETITOR BENCHMARK OVER 6 YEARS 20.0 19.3 Prudential fund return Average competitor fund return 16.5 Top Quartile 14.9 15.0 13.4 13.0 11.3 10.0 Lower Quartile Upper Quartile 5.0 3.0 2.3
Slide 34: Jackson National Life
JACKSON NATIONAL LIFE Consistent execution delivers consistent results GAAP ASSETS STATUTORY PREMIUMS STATUTORY CAPITAL £(billions) £(billions) £(billions) $70 $8.0 $3.6 $3.2 $60 $7.0 $2.8 $6.0 $50 $2.4 $5.0 $40 $2.0 $4.0 $30 $1.6 $3.0 $1.2 $20 $2.0 $0.8 $10 $1.0 $0.4 $0 $0.0 $0.0 '93 '94 '95 '96 '9
Slide 35: Jackson National Life: Self-funding net capital contributor
JACKSON NATIONAL LIFE Self-funding and net capital contributor to group • One of the strongest track records of organic growth in the US insurance industry • Continuing to build sales momentum – 90% of sales from products developed in the last 24 months • Strong position across multiple distribution
Slide 36: Prudential Corporation Asia
PRUDENTIAL CORPORATION ASIA Building a high quality portfolio • Proven track record of delivery TOP 5 MARKET RANKINGS Insurance (1) Funds (2) – 26% APE and 34% FUM CAGR since 1994 China* India – sustainable margins above 50% Hong Kong Hong Kong – diversified across 12 markets India Malaysia Indonesi
Slide 37: Prudential Corporation Asia: Opportunity in China
PRUDENTIAL CORPORATION ASIA Rapidly-expanding opportunity in China • Positioned to meet the challenge of growing a quality long-term business • One of the leading foreign players with a strong platform after only 4 years • Establishing footholds in additional provinces • Group Life Insurance licence
Slide 38: Building a Sustainable and Profitable Business
BUILDING A SUSTAINABLE AND PROFITABLE BUSINESS UK US ASIA Building on strong Competitive position and position to take A high quality portfolio of low cost base driving advantage of market businesses profitable growth opportunity ASSET MANAGEMENT Superior capability delivering value for customers an
Slide 39: Building a Sustainable and Profitable Business: Focus on delivery
BUILDING A SUSTAINABLE AND PROFITABLE BUSINESS Focus on delivery • Strong set of results from across the Group • Building value in each of our insurance and related fund management businesses • Driving profitable growth within our capital means • In 2005, our focus is on delivery: – in the UK, build
Slide 40: Questions
QUESTIONS Prudential plc 2004 Full Year Results
Slide 41: Appendix
APPENDIX Prudential plc 2004 Full Year Results
Slide 42: M&G: Profit Progression
M&G: PROFIT PROGRESSION Underlying profits more than doubled at similar market levels 2002 2003 2004 02-04 £m £m £m % change Underlying profit 49 70 110 124% PRF 20 8 6 Carried interest 2 5 20 Profit before tax 71 83 136 92% Average FTAS 2221 1978 2250 1% 42
Slide 43: M&G: Revenue Progression
M&G: REVENUE PROGRESSION Sharp increase in last two years EXTERNAL REVENUE DISCLOSURE • Diversification by asset class £m 350 • Net inflows 300 – Reflects investment performance and capabilities 250 • Increased retail and pooled fees 200 • Market levels 150 • New sources of revenue 100 – Over £40 mi
Slide 44: M&G: Cost Progression
M&G: COST PROGRESSION Held flat over last four years EXTERNAL COST DISCLOSURE • Devolved structure £m 300 – Ownership of costs by the business – Rapid response to market conditions 250 – We have become better at saying no 200 • Exit from subscale / non-core businesses 150 – Outsourcing to IFDS 100 •
Slide 45: Transformation of UK & Europe Business
TRANSFORMATION OF UK & EUROPE BUSINESS Increasing proportion of shareholder-backed business 100% 90% 80% 70% % of total APE sales 60% 50% 40% 30% 20% 10% 0% 2000 Actual 2001 Actual 2002 Actual 2003 Actual 2004 Actual Shareholder-backed Policyholder-backed 45