Prudential plc · LSE:PRU
Prudential — Investor Day (November 2004)
58 slides from Prudential's investor day presentation, Nov 4, 2004
Slide 1: Overview of the Funds Business
Overview of the Funds Business Ajay Srinivasan Prudential Corporation Asia November 2004 4
Slide 2: Key messages
Key messages z Mutual funds in Asia have grown strongly and the potential to grow is substantial z We have a track record of delivery and have built a sizeable business in a short time z We add considerable value to the Life companies through fund management of Life Funds z Our goal is to be a signi
Slide 3: Mutual funds market in Asia: Size and growth
Mutual funds market in Asia : Size and growth FUM 2002 FUM 2003 2003 v 2002 (£ billion) (£ billion) growth (%) Japan 219 241 10 Korea 78 65 (17) Taiwan 35 44 26 Hong Kong* 15 18 20 India 15 17 13 China 9 10 11 Singapore 5 6 20 Malaysia** 3 4 33 Total 379 405 7 Source : www.ici.org, Cerulli Associate
Slide 4: Mutual funds market in Asia: Opportunity for growth
Mutual funds market in Asia : Opportunity for growth Asian mutual fund market is embryonic compared to other countries Mutual funds markets as % of GDP % 80 70 Japan 60 Malaysia 50 China Taiwan 40 India 30 UK US 20 10 0 96 97 98 99 00 01 02 03 Source : UBS, Bloomberg
Slide 5: Funds business: Fit with overall strategy
Funds business : Fit with overall strategy z Customer perspective – One of two best of breed products in our offering (ie life and mutual funds) – Create more loyal customers for Prudential in Asia z Financial perspective – Create shareholder value building on Prudential Corporation Asia’s core stre
Slide 6: Funds division: Structure
Funds division : Structure Ajay Srinivasan Managing Director, Funds Regional functions Kelvin Ted Pull Suraj Mishra Kong Siew Nick Scott New Hire CIO, Equities Blacklock Finance, International Cheong Marketing CIO, F/I Planning and Risk Funds Operations Country CEOs Pankaj Thomas Kong Siew Mark Toh
Slide 7: Funds division: Extensive presence in Asia
Funds division : Extensive presence in Asia Mutual Unit Country linked funds China * • Korea Hong Kong • • 2002 India • • Japan Indonesia • • • 2001 Hong Kong Japan 2000 Taiwan Korea • • India 1998 Malaysia 2000 Malaysia • • 2001 Philippines • Singapore • • Singapore 2001 Taiwan Thailand • • Vietnam
Slide 8: Mutual funds: Peer comparison
Mutual funds : Peer comparison Foreign players are increasing penetration and moving towards multi-country leadership positions HK Sing Japan Taiwan Korea India Mal China Vietnam Prudential (7) 9 9 9 9 9 9 9 * * Templeton (7) 9 9 9 9 9 9 9 Alliance Cap (6) 9 9 9 9 9 9 AIG Global (5) 9 9 9 9 9 Jardin
Slide 9: Strong FUM growth
Strong FUM growth Rapid growth in FUM FUM growth mainly due to increase in net inflows £ billion £ billion 20 18 Total 2.5 16 14 2.0 12 1.5 10 LI 8 1.0 6 MF 4 0.5 2 0 0 98 99 00 01 02 03 9/04 2001 2002 2003 9/2004 Constant exchange rate Note : FUM excludes advisory assets
Slide 10: Drivers of profitability: Diversity of geographic presence and client base
Drivers of profitability : Diversity of geographic presence and client base Our FUM is derived from various countries and a diverse client base FUM by countries FUM by clients September 2004 September 2004 UK 30% MF 38% Hong Kong 11% India 10% Asia Life 30% Japan 9% Korea 8% Malaysia 2% UK Life 30%
Slide 11: Drivers of profitability: Asset mix
Drivers of profitability : Asset mix Our asset mix is moving towards products with higher margin September 2003 actual September 2004 actual Others 2% Others 2% Equity 45% Equity 47% Bond 53% Bond 51% Source : Prudential Corporation Asia as at 30 September 2004, FUM excluded advisory assets
Slide 12: Our persistency versus US
Our persistency versus US Our net inflows were 10% of gross inflows in 2003, in line with overall US market which was 11% % Net inflow as % of gross inflow 12 8 4 0 US mutual funds Our mutual funds market* operations Source : 2003 US Mutual Funds Handbook
Slide 13: Strong growth in revenue and economies of scale
Strong growth in revenue and economies of scale Net revenue Cost as % of continuing to grow net revenue* £ million % 50 90 45 80 40 70 35 60 30 50 25 40 20 30 15 10 20 5 10 0 0 2001 2002 2003 June 2004 2001 2002 2003 June 2004 * Net revenue = Gross management fee less commission
Slide 14: Strong growth in profits
Strong growth in profits Profitability has improved due to economies of scale and effective cost control Profit before tax £ million 14 13 12 12 10 10 9 8 6 4 3 2 -1 0 0 -2 98 99 00 01 02 03 6/04 Constant exchange rate
Slide 15: Return on capital
Return on capital Strong trend on increasing return on capital Pre-tax return on capital invested = PBT / accumulated capital (pre-dividend) % 18 16 14 12 10 8 6 4 2 0 2000 2001 2002 2003 6/2004* * June 2004 figure was annualised for consistent comparison
Slide 16: Value added for life funds
Value added for life funds We have added significant value to our life companies’ funds Clients Value added last 3 years (£ million) Singapore Life 49 Hong Kong Life 43 Malaysia Life* 23 United Kingdom Life 127 Total 242 * Value added in 12 months ended 31 December 2003
Slide 17: Mutual funds: Fund performance summary
Mutual funds : Fund performance summary Two-thirds of our funds are in top two quartiles % of funds in top two quartiles as of June 2004 1 year (%) 3 year (%) India 58 50 Taiwan 60 67 Singapore 100 50 Malaysia 83 100 Japan 100 100 Korea 65 N/A Total 66 65
Slide 18: Examples of our awards and recognition
Examples of our awards and recognition Prudential Unit Trusts Prudential ICICI Asset Malaysia received 4 Management among top awards for the 50 most trusted services following funds : brands in India (2004 A. C. Nielsen z Pru Growth Fund independent survey) z Pru Small-Cap Fund z Pru Balanced Fund P
Slide 19: Market leading position
Market leading position Top 5 ranking in 4 out of 7 markets with material market share Top 5 ranking Market share*** India 9 10% Taiwan 9 5% Malaysia 9 7% Hong Kong MPF* 9 13% Japan** 2% Korea 3% Singapore N/A N/A Source : AMFI, SITCA, Securities Commission of Malaysia, The Investment Trust Associat
Slide 20: Mutual funds: Strategic objectives
Mutual funds : Strategic objectives To achieve : 1. Scale and materiality in terms of : – FUM – Profitability – Geographic coverage 2. A material base of retail customers 3. A highly salient and relevant brand built on superior and consistent fund performance 4. A qualitatively superior business – E
Slide 21: Four pillars of our strategy
Four pillars of our strategy Customer Brand Build on the Prudence heritage and Understanding our add saliency to the brand as it target customers’ needs represents a fund management company Product Distribution Continuing to increase our multi channel Range of products and fund performance distribut
Slide 22: Customer strategy: Mutual funds
Customer strategy : Mutual funds How do we decide which customer segments to target? Key factors to consider z Total market FUM and fee pools – institutional and retail z Population demographics and retail savings pools z Mutual funds “share of wallet” Customer strategy
Slide 23: Our approach to understanding target customers' needs
Our approach to understanding target customers’ needs Customer Share Develop research insights propositions z Target customers z Agree on prime z Identify and z Investment customer target prioritize mindset / z Identify triggers opportunities behaviour for products, z Develop product, z Attitude tow
Slide 24: Four pillars of our strategy
Four pillars of our strategy Customer Brand Build on the Prudence heritage and Understanding our add saliency to the brand as it target customers’ needs represents a fund management company Product Distribution Continuing to increase our multi channel Range of products and fund performance distribut
Slide 25: Mutual funds: Single regional brand
Mutual funds : Single regional brand Our regional brand positioning based on commitment to put the customer at the centre of everything we do Brand platform Consumer Insights Making your money work z Find mutual funds confusing and as hard as you do difficult to understand z Find the idea of a brand
Slide 26: India: Prudential ICICI brand building
India : Prudential ICICI brand building z Television Commercial
Slide 27: Product development
Product development Customer Brand Product Distribution Jon Allen Regional product development - Funds
Slide 28: Role of regional product development (RPD)
Role of regional product development (RPD) Regional product development facilitates synergies between our funds and life businesses Product approval committee Regional Regional Regional Regional risk operations compliance CIOs management Regional product development team Prudential Corporation Prude
Slide 29: Creating competitive advantage
Creating competitive advantage Our life companies Regional product Our mutual fund who sell investment development team companies linked products Centralised approach to product development Work within each business as a consultant Add value via early adoption of global product trends
Slide 30: Product propositions to our target customers
Product propositions to our target customers They save or invest for Specific investment goals Specific lifestage goals Without specific goals eg to grow capital to achieve eg marriage, children’s eg want to invest or save specific returns education, retirement but need advice “Financially Savvy” “N
Slide 31: India example: Product mapping methodology
India example : Product mapping methodology “Bottom Up” approach to customer needs I = Investment driven N = Needs A = Advice Existing Equity Bond Hybrid Lifestage Risk based products Customer voice + Distributor feedback + Global trends = what to build New Eg : Need in India for school fees provisi
Slide 32: Examples of successful product launches
Examples of successful product launches Successful execution validates our approach FUM Country Product Key feature at 30 Sep 04 Monthly Bond and equity product focused on Income Plan paying regular yield £ 130 million Active bond and equity product Balanced Fund £ 107 million focused on absolute re
Slide 33: Product innovation
Product innovation Customer Brand Product Distribution Felix Pang CEO, PCAAM Japan
Slide 34: PCA ASSET Japan: Background
PCA ASSET Japan : Background z Greenfield start-up in mature market Global GDP – 70 competitors Rest of – Over 2,500 funds world 23% z Despite highly competitive environment, demographics Europe 32% make Japan a very attractive market Japan 12% – World’s second largest economy – Large population wit
Slide 35: Opportunities in Japan
Opportunities in Japan z Japan has the fastest aging population in the world z Older generation has higher saving pools % of population by age group Retail saving pools by life-stage £ billion 100 4,000 90 Over 65 3,500 80 years old 3,000 70 2,500 60 2,000 50 1,500 40 15-64 30 1,000 20 500 10 0 0-14
Slide 36: So what products did we focus on in Japan?
So what products did we focus on in Japan? Our target Customers’ needs Market trend customers z Consider Proportion of regular depositors’ risk dividend fund is increasing tolerance and % of regular monthly allowance dividend fund needs after in total market retirement 25 20 z Customers prefer 15 re
Slide 37: PCA ASSET Japan: Introducing key products
PCA ASSET Japan : Introducing key products Growth in 2003-4 through United States high yield open fund z Open-ended fund investing in United States high yield (BBB rating and above), z Target to pay stable monthly dividend payout, z Attracted many new distributors for PCA Asset Management Japan 40
Slide 38: Comparison of returns
Comparison of returns Investment in US High Yield Open fund has generated better returns than investments in bank deposits and government bonds Annualised return % 8 7.2 7 6 5 4 3 2 1.45 1 0.25 0 Bank deposit Japan 10-year PCA US high government bond 10 year yield open *Source : Bloomberg, Fund Mar
Slide 39: PCA ASSET Japan: Introducing key products
PCA ASSET Japan : Introducing key products US high yield open fund’s FUM grown 65 times over last 18 months £ million 700 FUM of US high yield open fund 600 500 400 300 65 X 200 100 0 1/03 3/03 5/03 7/03 9/03 11/03 1/04 3/04 5/04 7/04 9/04 2/03 4/03 6/03 8/03 10/03 12/03 2/04 4/04 6/04 8/04
Slide 40: PCA ASSET Japan: Competitor comparison
PCA ASSET Japan : Competitor comparison Currently ranked 18 out of 33 FUM positions against key competitors All in £ million June 02 July 04 Change % PCA Asset 61 828 768 1,261 HSBC 71 240 205 595 Commerz 71 475 404 568 BNP 305 669 363 119 Barclays 879 1,813 934 106 UBS 954 1,319 365 38 Credit Suiss
Slide 41: Group synergies
Group synergies z US High Yield is managed in the United States by our group company, PPMA Our asset management product pools z Another successful example : Our India fund launched end of September 2004 z We will continue to launch funds that leverage our understanding of customers, group knowledge
Slide 42: Market recognition
Market recognition Fastest Growing AMC PCA ASSET launches the First India Equity Open in Japan
Slide 43: Distribution strategy
Distribution strategy Customer Brand Product Distribution Pankaj Razdan and Mark Toh CEO, Pru-ICICI and CEO, PUTB
Slide 44: Distribution channels vary across markets
Distribution channels vary across markets % Channel Mix - 2003 100 80 60 40 20 0 Japan Korea Taiwan Hong Kong India Singapore Malaysia Banks Securities brokers Agents Insurance companies Others (Internet / IFA) Direct sales force Source : Cerulli, Prudential Corporation Asia
Slide 45: India: Opportunities
India : Opportunities Penetration of mutual funds in India is still very low Distribution of personal financial holdings by asset class Other / Misc 7% Mutual funds 1% Equity 2% Pensions 23% Life insurance 12% Cash and deposits 55% Source : Marakon 2002
Slide 46: India: Opportunities
India : Opportunities Structural changes in Indian economy could be drivers of future growth for mutual funds business Young and growing Low interest rates population Source : Forecast Asia Tables for India, CLSA securities report and Bloomberg Data
Slide 47: India: Retail distribution strategy
India : Retail distribution strategy Multiple channel strategy required to grow investor base in India Financial savings pool by social economic classification* City population Financial savings pool Below 100,000 £ 25 billion 100,000 – 500,000 £ 26 billion 500,000 – 1000,000 £ 21 billion Over 1,000
Slide 48: India: Retail distribution structure
India : Retail distribution structure Focus on multiple channel structure Large High Retail Corporate Net-worth customers Corporate customers Direct sales 9 9 9 Institutional brokers 9 9 Independent financial advisors 9 9 Banks 9 9 9 Tied agency 9 9 Alternate channels 9 9
Slide 49: India: Our wide coverage
India : Our wide coverage
Slide 50: India: Our points of sale
India : Our points of sale Distribution structure Branches Brokers Banks Agency Retail shops Number 2,000 brokers 16 banks with of points 30 with 8,000 1,200 10,000 800 of sale branches branches Over 20,000 points of sale 53
Slide 51: Malaysia: Mutual funds distribution pattern
Malaysia : Mutual funds distribution pattern Products were mainly distributed by agents in 2000 Channel Mix - 2000 Direct sale force 3% Banks 17% Agents 80%
Slide 52: Prudential Unit Trusts Malaysia: Distribution structure
Prudential Unit Trusts Malaysia : Distribution structure Multiple-channels to reach out to and serve different market segments High Large Retail Corporate Net-worth Corporate Investors investors customers investors Institutional agents 9 9 9 Retail tied agents 9 9 Direct sales team 9 9 9
Slide 53: Institutional unit trust agents (IUTAs)
Institutional unit trust agents (IUTAs) We have partnerships with a panel of reputable 3rd party institutional distributors, including banks and stockbrokers Hong Leong Bank Berhad
Slide 54: Leveraging Prudential Assurance agents
Leveraging Prudential Assurance agents z Leverage Prudential Assurance’s large, professional agency force – 37 branch and agency offices – Training, customer service and collection z Top 32% of Prudential life agents now licensed to sell unit trusts 57
Slide 55: Direct sales: For segments not catered to by traditional channels
Direct sales : For segments not catered to by traditional channels z Covering major business areas in Peninsular and East Malaysia, z Catering mainly to larger corporate clients and high net worth individuals 58
Slide 56: Prudential Unit Trusts Malaysia: FUM by channel
Prudential Unit Trusts Malaysia : FUM by channel Multiple channels contribute to business growth with institutional agents playing significant role FUM by channel % 100 16 22 80 42 60 68 65 40 36 20 22 15 13 0 2001 2002 2003 Retail agent IUTA Direct sales
Slide 57: Malaysia: Mutual funds distribution pattern
Malaysia : Mutual funds distribution pattern Increasing influence of banks for Unit Trust distribution in Malaysia Channel mix - 2000 Channel mix - 2003 Direct sale force Direct sale 3% force 4% Banks 17% Banks 44% Agents Agents 80% 52%
Slide 58: Recap: Four pillars of our strategy
Recap : Four pillars of our strategy Customer Brand Build on the Prudence heritage and Understanding our add saliency to the brand as it target customers’ needs represents a fund management company Product Distribution Continuing to increase our multi channel Range of products and fund performance d