Prudential Plc · LSE:PRU
Prudential — M&GPrudential — Investor Day (July 2019)
126 slides from Prudential's investor day presentation, Jul 3, 2019
Slide 1: Investor & Analyst Conference
Investor & Analyst Conference 3 July 2019
Slide 2: Disclaimer
M&GPrudential Investor & Analyst Conference Disclaimer This presentation is made by M&GPrudential Limited (“M&GPrudential”). For the purposes of this notice, ‘presentation’ shall mean and include the document that follows and any oral presentation, any question-and-answer session and any other writt
Slide 3: Welcome and introduction
Welcome and introduction John Foley 3 July 2019
Slide 4: Agenda: What we will cover today
Agenda What we will cover today ► Overview of M&GPrudential ► Our new set-up as a single and integrated company ► Long-term opportunity in the savings and investments market ► Capabilities we have at our disposal to capture this opportunity ► How the merger, demerger and transformation are enhancing
Slide 5: The new M&GPrudential: What drives us
The new M&GPrudential What drives us Becoming the best loved and most successful savings and investments company 1 2 Investment Engine Customer and Distribution CARE 3 Finance and Capital 5
Slide 6: Who we are
A unique business mix Who we are A FUND MANAGER WITH A BALANCE SHEET… … focused on delivering great customer outcomes through active, high-value, solutions £ O U R H I S TO RY CUSTOMERS GEOGRAPHIES AUM 2017 c. 5.5 million 20 distribution 321 retail customers1 offices… 1931 £ bn 1848 c. 900 instituti
Slide 7: New financial segmentation
New financial segmentation How we see business opportunities Historical view New financial segmentation and AuM (FY 2018, £bn) A B Savings & Heritage Asset Management £198bn £123bn Asset Management > 1 Retail Savings £51bn 1 Traditional With-Profits £85bn (incl. PruFund) With-Profits Fund 2 2 Retail
Slide 8: A series of successful franchises
A series of successful franchises Our customers A Savings & Asset Management B Retail Savings Retail Institutional Heritage (incl. PruFund) Asset Management Asset Management £51bn £76bn £71bn £123bn • Comprehensive • Diversified and • Bespoke and high- • Large customer base proposition expanded inno
Slide 9: The Savings and Investments market
The Savings and Investments market Local and international expansion at scale UK Europe International Year of entry: 1848 Year of entry: 2001 ASIA 2011 AuM: £260bn AuM: £49bn AuM: £15bn1 SOUTH AFRICA 2011 51 12 6 123 31 NORTH 37 AMERICA 10 55 2018 AUSTRALIA 2018 A leading player serving the An inves
Slide 10: Our organisation: A single and integrated company
Our organisation A single and integrated company 1 2 Investment Engine Customer and Distribution Unified range of proprietary high-value Integrated proposition and investment solutions including: Merger and distribution approach across: Segregated transformation Smoothed Mutual Savings & Asset and p
Slide 11: Our organisation: Your presenters today
Our organisation Your presenters today 1 2 Investment Engine Customer and Distribution Jack Daniels William Nicoll David Macmillan Joffy Willcocks Chief Investment Head of Institutional Merger and Chief Customer and Global Head of Asset Officer Fixed Income transformation Distribution Officer Mgmt.
Slide 12: Global demographic trends: An ageing society
Global demographic trends An ageing society Life expectancy at birth (change between 1980 and 2015) Share of population aged 65 or more (change between 1980 and 2017) UK 73 81 JAPAN NORTH AMERICA 15% 19% 75 83 73 79 EUROPE1 9% 27% CHINA 11% 16% 71 77 13% 20% 66 76 5% 11% LATIN AMERICA 63 75 4% 8% AU
Slide 13: Retreat by corporates and governments: A widening saving gap
Retreat by corporates and governments A widening saving gap Corporates retreat … governments defer … while savers face a from DB schemes… statutory retirement age… widening retirement gap Number of FTSE 100 companies with Retirement age in key European markets 2015 retirement gap by country and DB s
Slide 14: The biggest opportunity: Putting cash to work
Putting cash to work The biggest opportunity In Europe, a significant portion … representing a huge untapped of financial assets is still held as cash… potential in the savings market Cash deposits as % of financial assets in Europe (Sep-18) Cash deposits assets in Europe (2016, in EUR trillion) 2.2
Slide 15: Investment Engine: Investment solutions meeting customer needs
Investment Engine Investment solutions meeting customer needs Our aim is to make all our investment capabilities available to the broadest range of retail customers and institutional clients, through their preferred channel, platform and tax wrapper Segregated and Smoothed solutions Mutual funds poo
Slide 16: Customer and Distribution: Attractive growth opportunities
Customer and Distribution Attractive growth opportunities UK Europe International Broaden proposition Deepen presence Focused investments through digital and investment across institutional and retail to capture global growth capabilities markets opportunities • Transform digital customer • Enhance
Slide 17: Finance and Capital: Our financial priorities
Finance and Capital Our financial priorities Proactive and disciplined managers of capital… … delivering attractive shareholder returns balancing dividend and profitable growth… … while supporting transformation to drive customer experience, scalability, efficiency and capability 17
Slide 18: An international leader in savings and investments
An international leader in savings and investments The scale of our ambition Where we come from Where we are going A leading UK savings and An international leader in savings and Who investments business with a investments with investment management we are growing European footprint and asset origin
Slide 19: M&GPrudential's story: Key messages
M&GPrudential's story Key messages 1 Unique and compelling business mix; a fund manager with a balance sheet 2 Differentiated and high-value savings and investments solutions to address customers’ needs 3 Proven track record for growing new franchises, at home and internationally 4 Well positioned t
Slide 20: 1. Investment Engine
1 2 1. Investment Investment Customer and Engine Distribution Engine 3 Finance and Capital Jack Daniels 3 July 2019
Slide 21: Asset Owner and Asset Manager
Asset Owner and Asset Manager Being both an asset owner and Asset Owner Asset Manager manager is a key competitive Managing own funds Managing 3rd party funds advantage and allows us to: • Understand clients’ needs In-house fiduciary Investment manager manager for Pru UK&E specialised in active Allo
Slide 22: Innovation benefits internal and external clients
Innovation benefits internal and external clients Leveraged loans example Leveraged loans AuM in £bn 9.0 8.0 7.0 • One of the first non-bank investors in the asset class 6.0 First pension fund 5.0 client investment • Development of capability Launch of and track record attracted 4.0 pooled fund thir
Slide 23: Our approach to investing
Our approach to investing Customer 1 Listen to clients to understand their underlying needs centric Develop convictions and identify value through 5 Value based long-term Differentiated 2 Combine proven active capabilities with the strength capabilities bottom-up analysis discipline of the With-Prof
Slide 24: Industry leading capabilities
Industry leading capabilities Our investment capabilities Some of our achievements We are one of the largest Private Multi-asset Debt Investors in the world (and 2nd in Europe)2… Private Infracapital1 Public Real Public Fixed & Fixed Cash … as well as one of the largest Estate Alternatives Equities
Slide 25: Scale in high-value market segments
Scale in high-value market segments AuM by strategy AuM by asset class ∑ £265bn ∑ £265bn Look-through of Multi-asset holdings Public Multi-asset Cash Fixed internal Income SAA Infracapital1 Multi asset Multi-asset Private Assets £132bn £57bn 1. M&GPrudential Infrastructure team Note: All internal Au
Slide 26: Strengths in the right places
Strengths in the right places Search for yield Volatility management Pension de-risking Low yields drive shift from Desire to limit volatility drives shift DB pension scheme de-risking deposits to Fixed Income and towards assets with less drives need for solutions to match from Public to Private ass
Slide 27: Asset Owner (deep-dive 1)
Asset Owner 1 Being both an asset owner and Asset Owner Asset Manager manager is a key competitive Managing own funds Managing 3rd party funds advantage and allows us to: • Understand clients’ needs In-house fiduciary Investment manager manager for Pru UK&E specialised in active high- Allocates £174
Slide 28: The role of the Investment Office
1 The role of the Investment Office Prudential UK&E assets Investment Office Asset managers Unit-Linked and other ∑ £174bn Predominantly other asset ∑ £174bn Non-Profit £18bn managers within the Prudential PLC group Strategic Asset Shareholder Allocation Annuities £25bn1 Other managers Manager selec
Slide 29: Characteristics of the With-Profits Fund
1 Characteristics of the With-Profits Fund Long-term Diversification Active Importance of Illiquidity Credit risk Evolving asset approach management value and premium premium mix and new valuation asset classes Investment Office strategy and process 29
Slide 30: Strategic Asset Allocation: Evolution of the With-Profits Fund
1 Strategic Asset Allocation Evolution of the With-Profits Fund Asset allocation evolution between 2010 and 2019 Asset allocation as of April 2019 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Equities Real Estate Alternatives Fixed Income UK Asia ex.
Slide 31: With-Profits Fund delivers superior outcomes
1 With-Profits Fund delivers superior outcomes Annualised 5-year rolling returns1 PruFund Growth returns vs. peers 25% 20% 15% 10% 5% 0% 1950 1960 1970 1980 1990 2000 2010 -5% 1. Data shows OBMG returns; OBMG is the largest of the funds within the With-Profits sub fund, backing PruFund Growth Fund,
Slide 32: Management of shareholder annuities
1 Management of shareholder annuities Seniority composition1 Public vs. private asset composition1 86% of the £39bn £39bn £25bn portfolio is rated £39bn £39bn £25bn A or higher 2% 3% 2% (46% is AA or higher) 19% 31% 28% 66% 78% 78% 42% 56% 40% 34% 27% 27% 23% 22% 22% 2016 2017 2018 2016 2017 2018 Ri
Slide 33: Asset Manager (deep-dive 2)
Asset Manager 2 Being both an asset owner and Asset Owner Asset Manager manager is a key competitive Managing own funds Managing 3rd party funds advantage and allows us to: • Understand clients’ needs In-house fiduciary Investment manager manager for Pru UK&E specialised in active Allocates £174bn a
Slide 34: Growth in 3rd party business
2 Growth in 3rd party business Asset Management AuM in £bn 298 264 265 265 244 246 228 198 201 c.55% 174 147 3rd party 164 167 149 AuM 141 126 111 24 118 87 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Internal AuM 3rd party AuM Source: M&GPrudential as of FY18 34
Slide 35: Depth of investment expertise
2 Depth of investment expertise £132bn Multi-asset Income Growth Target Return Conservative Macro Allocation £118bn Pru UK&E SAA £14bn 3rd party assets Private Real Infracapital1 & Public Equities Fixed Income Estate Alternatives Fixed Income Leveraged Loans UK Commercial Infrastructure Equity Flexi
Slide 36: Successful record of product innovation
2 Successful record of product innovation Largest mutual funds Largest pooled mandates £21bn Optimal Income Public FI £8bn Alpha Opportunities Private/Public FI £7bn Dynamic Allocation Multi Asset £4bn All Stocks Corporate Bond Public FI £5bn Global Dividend Equity £4bn Secured Property Income Real
Slide 37: Consistent ability to anticipate market demand
2 Consistent ability to anticipate market demand Our mutual fund launch success rate is almost double the industry average1 Mutual fund launches2 UK inflation linked Conservative Allocation3 AuM at 3-year mark corporate bond £2,486m Recent fund launches4 £775m Focus on value-add solutions Optimal In
Slide 38: Strong investment performance
2 Strong investment performance Mutual funds performance Segregated / pooled performance1 Weighted by fund size % As % of revenues 16% “Achieving 5% 39% objectives” 55% Top quartile typically requires beating benchmarks by an agreed 91% 90% 88% threshold 58% 35% 19% Upper quartile 8% Lower quartile
Slide 39: Resilient fee margins driven by solutions
2 Resilient fee margins driven by solutions Mutual funds Segregated / pooled Margins As % of AuM As % of revenues Average fee margin1 (bps per AuM including internal client) 40 36 37 58% 66% 70% 93% 94% 95% 42% 34% 30% 7% 6% 5% 2016 2017 2018 2016 2017 2018 2016 2017 2018 Building blocks Solutions M
Slide 40: Positive market outlook in our core areas
2 Positive market outlook in our core areas Global revenue pool (in $bn) and split by asset type $168bn $275bn $375bn 40% 43% 43% Alternatives (including Private Assets) 5% 10% Solutions 12% (including Multi-asset) 23% 20% 19% Active specialties 28% 21% 17% Active core 4% 6% 7% Passive 2008 2017 202
Slide 41: Confident about the future
2 Confident about the future Expert Consistent High-value Supportive where it matters track record solutions market dynamics We have an established We have a long history Through continuous Customers’ demand presence in segments and strong reputation innovation we have is expected to where credible
Slide 42: Investment Engine: Key messages
Investment Engine Key messages Combination of asset owner and manager as key competitive advantage Long-term, active, investment philosophy with emphasis on value Extensive range of capabilities in public and private markets Ethos of customer-focused innovation Growth opportunities in our core areas
Slide 43: Institutional deep-dive
Institutional deep-dive William Nicoll 3 July 2019
Slide 44: What we mean by institutional clients
What we mean by institutional clients Organisations investing their own assets… Pension Schemes • …where there are legally mandated liabilities… Insurance Balance Sheet Assets • …to be delivered within specified regulatory guidelines… Sovereign Wealth Funds • …in which a fiduciary duty must be Found
Slide 45: Retail and Institutional markets are not the same
Retail and Institutional markets are not the same Retail Institutional • Industry set up to buy • Industry set up to maintain status quo • Add value by equipping advisers to • Add value by solving problems service their clients • Large number of small decisions • Small number of large decisions • Fo
Slide 46: The institutional market is attractive
The institutional market is attractive The market is large, growing and concentrated… … with attractive dynamics Pension schemes Global AuM in $ trillion 32% • Natural growth is underpinned by strong macroeconomic-factors 41 31 • Market favours established players due to quality standard requirement
Slide 47: A differentiated approach
A differentiated approach We aim to always be trusted partners by leveraging: Deep expertise and • We have one of the largest dedicated credit teams in Europe stable team • Retain talent and foster collaboration across investment teams Disciplined, • Adopt a truly bottom up approach long-term view •
Slide 48: Solving clients' problems, not selling funds
Solving clients’ problems, not selling funds Win Pitch We help clients formulating 12-18 months their own requirements and identifying relevant solutions Buy rating We aim to be influential at the critical, client centric Onsite due diligence points in the process The market focuses on influencing t
Slide 49: Innovation is core to our proposition
Innovation is core to our proposition Route to innovation Product case study – Illiquid Credit Opportunity Fund • Launching new products is not easy; the industry is setup Fund I Fund II Fund III to resist buying • We do not waste clients’ time Idea Education Pitch Ed. Pitch and only take ideas that
Slide 50: Our long-term partnership approach works
Our long-term partnership approach works Client case study – large UK pension scheme Conditions to build trust Start with low- Grow initial mandate(s) Shift from low to margin products start higher-value ones high-value solutions £1.4 £5 Client AuM in £bn 1 £1.2 £4 Offer solutions that £1.0 solve cl
Slide 51: 20 year track record of innovation
20 year track record of innovation 2018 Cash Flow Driven Investing 2017 Consumer Loans 2017 Impact Financing 2014 Illiquid Credit Opportunity Funds 2009 Direct Lending Fund 2007 Multi Asset Credit 2007 Real Estate Debt 2002 Asset Backed Securities 2001 Infrastructure Equity 2000 Long Lease Property
Slide 52: We build solutions that consistently deliver
We build solutions that consistently deliver Solving client problems Delivering on promises As % of revenues As % of revenues “Achieving objectives” typically requires beating benchmarks by 88% an agreed 93% 94% 95% 91% 90% threshold 4% 5% 7% 3% 8% 4% 7% 6% 5% 2016 2017 2018 2016 2017 2018 Solutions
Slide 53: Being a trusted partner brings repeat business
Being a trusted partner brings repeat business 1 2 Work Grow existing with us relationships Our pitch conversion rate 250+ clients invest in multiple strategies for the last 3 years is 79%1 with us (~55% of institutional AuM) 3 Seed our new products 70% of Funds launched in the last 5 years have bee
Slide 54: Our Institutional model takes time, building relationships on trust
Our Institutional model takes time, building relationships on trust that pay dividends in the long term 3rd party UK institutional revenues in £m 180 UK revenue has increased over 20 times in past 15 years to over £160m 160 140 120 100 80 60 40 20 - 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Slide 55: We have implemented this strategy internationally
We have implemented this strategy internationally, with similar results 3rd party institutional revenues for selected international markets in £m 18 We initially assess markets through fly-in fly-out 16 Before moving to a light touch dedicated coverage model Netherlands 14 12 Nordics 10 8 Switzerlan
Slide 56: New office openings in North America and Australia
New office openings in North America and Australia enable us to tap a pool of institutional assets of ~$30tn Institutional AuM in $ trillion US 24.7 Japan 3.1 UK 2.9 Australia 1.9 Canada 1.6 Netherlands 1.5 Switzerland 0.9 = New dedicated coverage Norway1 0.9 = Existing coverage South Korea 0.7 Germ
Slide 57: Institutional deep-dive: Key messages
Institutional deep-dive Key messages Large scalable market Market favours established players Clearly differentiated approach Proven track record Significant growth opportunity 57
Slide 58: 2. Customer and Distribution
1 2 2. Customer Investment Customer and Engine Distribution and Distribution 3 Finance and Capital 3 July 2019
Slide 59: M&GPrudential Customer and Distribution
M&GPrudential Customer and Distribution Become the best loved and most successful Our vision: savings and investments company Investment Engine: Private Fixed Real Infracapital1 & Multi- Public Public Income Estate Alternatives asset Fixed Income Equities Unified range of proprietary investment solu
Slide 60: M&GPrudential broad customer relationships
M&GPrudential broad customer relationships Savings & Asset Management Retail Institutional Heritage customers clients customers1 Customers 0.7 c. 900 4.8 million million AuM £127bn £71bn £123bn £51bn Retail Savings Institutional Asset Management £76bn Retail Asset Management Guidance and advice Segr
Slide 61: Savings & Asset Management
Customer and Savings & Asset Management Distribution Retail Institutional Heritage customers clients Savings & Asset Management David Macmillan & Joffy Willcocks 3 July 2019
Slide 62: Savings and Asset Management segment: UK retail customers
Savings and Asset Management segment UK retail customers Direct Tied advisers David UK retail IFAs1 Macmillan customers DFMs2 and top-end advisers International retail Global banks & customers wealth managers Joffy Willcocks Investment consultants Institutional clients In-house investment teams 1. I
Slide 63: Significant opportunity from dynamic market trends
Significant opportunity from dynamic market trends, with exceptional experiential innovation at the core Regulatory focus on customer Winning characteristics Demanding new responses from Customer experience innovation is providers to deliver successfully key to competing in all areas CAPABILITIES: I
Slide 64: Capitalising on market trends via PruFund
Capitalising on market trends via our unique multi-wrapper ‘smoothed’ solution (PruFund) Market Share of UK Retirement (%) PruFund inflows (£bn) 12.0 40% Pensions Pensions 0.5 Freedom Freedom 35% Retirement Account Announced Live Post-retirement 30% Retirement Account 6.0 Pre-retirement 25% ISA 20%
Slide 65: We gather assets directly onto our digital platform
We gather assets directly onto our digital platform, bypassing open architecture platforms Our adviser support base PruFund inflows (£bn) IN-HOUSE 11.8 12.0 Prudential Financial Planning Generalist open 8.4 architecture platforms 380+ tied advisers1 • c25 credible platforms 5.5 IFAs2 and non-M&GP ti
Slide 66: Merger provides broad value chain coverage
Merger provides broad value chain coverage and proprietary influence over customer proposition Comprehensive value chain Multi-channel distribution participation including guidance and advice Guidance & Advice Rich stream of real data from customers and advisers to shape experiential innovation Dire
Slide 67: Allowing our proprietary fund range to expand
Allowing our proprietary fund range to expand to target untapped growth opportunities Merger-enabled customer solutions PruFolio: A multi-asset range for all needs Increasing share of wallet through existing One risk-rated range with three consistent wrappers and channels drives growth investment st
Slide 68: Accelerating transformation to deliver superior customer outcomes
Accelerating transformation to deliver against our objective of superior customer outcomes CAPABILITIES - Investing in skills, infrastructure & digital technology CX1 designers, customer insight specialists, coders and data scientists Rapid, iterative digital development of customer applications DIG
Slide 69: Retail Savings: Key messages
Retail Savings Key messages PruFund is the successful anchor on our digital platform – more than just drawdown Broad market coverage from our multi-wrapper offering – which continues to expand Merger enables ongoing proposition expansion – starting with PruFolio risk-rated range Transformation inves
Slide 70: Retail and Institutional Asset Management
Savings and Asset Management segment Retail and Institutional Asset Management Direct Tied advisers David UK retail IFAs1 Macmillan customers DFMs2 and top-end advisers International retail Global banks & customers wealth managers Joffy Willcocks Investment consultants Institutional clients In-house
Slide 71: Growing our international footprint
Growing our international footprint £321bn AuM 51 UK EUROPE 20 distribution offices 123 31 12 £260.2bn 55 £49.4bn 37 28 markets 0.4 ASIA-PAC 0.8 £7.8bn2 2.9 AMERICAS MIDDLE EAST 4.9 £1.2bn & AFRICA1 £6.4bn Retail Savings Retail Asset Management Institutional Asset Management Heritage Distribution ce
Slide 72: The evolution of M&GPrudential's third party assets
The evolution of M&GPrudential’s third party assets M&GPrudential 3rd party assets by distribution channel 2003-2018 (in £bn) and international distribution offices1 New York Miami Melbourne Sydney2 Distribution offices Japan 164 opened pre-2003 Sweden 147 Germany Singapore 137 137 Hong Kong 126 126
Slide 73: Asset Management flows 2016-2018
Asset Management flows 2016-2018 M&GPrudential asset management net flows Retail market flows2 (£bn) Europe and Int’l mutual funds net sales excl. ETF & Index Funds (by asset class in €bn) 40 6.6 30 20 10.8 10 4.1 1.2 0 -9.3 -7.5 -10 -20 -6.51 -30 -40 2016 2017 2018 2016 2017 2018 Institutional Asse
Slide 74: M&GPrudential in Italy
A proven ability to grow internationally: M&GPrudential in Italy Evolution of M&GPrudential Italy AuM M&GPrudential Italy AuM by asset class £bn 18.6 17.4 Leveraged Other institutional Institutional: 3% Loans 3% strategies 1% Sub-Advisory: 11% 10.9 10.4 10.0 Retail Advisory: 56% Fixed Multi-asset In
Slide 75: What is Sub-Advisory?
What is Sub-Advisory? Partnering with distributors to develop Driven by changes affecting our bespoke customer solutions distributors (and their clients) Off-the-peg Regulatory Adapting to RDR and MIFID II, with e.g. existing range of mutual funds changes rebates gradually (building blocks) disappea
Slide 76: Sub-Advisory markets present a huge opportunity
Sub-Advisory markets present a huge opportunity for M&GPrudential European Sub-Advisory Growth Attractive new business stream (forecast in € trillion) for M&GPrudential 1.7 1.5 • Institutionalise the wholesale distribution model 1.4 1.3 • Democratising Institutional Asset Management 1.1 1.0 capabili
Slide 77: Drivers of growth
Drivers of growth What we are doing Sub-Advisory Created dedicated ‘Investment Solutions’ team European Sub-Advisory market forecast to hit €1.7tn by 20281 to develop bespoke client solutions ESG Integrating ESG principles into everything we do Set to attract $420bn of new assets over the next 5 yea
Slide 78: Priorities by region
Priorities by region Retention and tactical Deeper into Focused international growth in the UK Europe expansion Year of entry: 1848 Year of entry: 2001 AuM: £15bn AuM: £260bn AuM: £49bn SOUTH AFRICA ASIA NORTH AMERICA AUSTRALIA • Europe continues to drive short to • Asia: Leverage existing partnersh
Slide 79: Retail and Institutional Asset Management: Key messages
Retail and Institutional Asset Management Key messages Strong history, brand and penetration in the UK market A successful track record in internationalising our business Unified investment engine to create tailored solutions to meet customers’ needs Evolving business model to take advantage of oppo
Slide 80: Heritage
Customer and Savings & Asset Management Distribution Retail Institutional Heritage customers clients Heritage Roddy Thomson 3 July 2019
Slide 81: Our business transformation is designed to deliver real outcomes
Our business transformation is designed to deliver real outcomes to our customers Retail 0.7 Institutional c. 900 Heritage 4.8 customers million clients customers1 million Customer & People Digitally Enabled Simplified Low Risk Driven To enable scalable To ensure a To improve customer To serve custo
Slide 82: The transformation of our Heritage book
The transformation of our Heritage book Heritage Purpose customers1 To deliver the best possible service outcomes to Heritage customers 4.8 million Our Challenge Service delivery that adapts to the changing landscape, £123bn AuM whilst driving down costs & improving controls Traditional With-Profits
Slide 83: We will move from 14 policy administration systems to one
We will move from 14 policy administration systems to just one Some of our Heritage policy admin systems NPT are over 30 years old (figures reflect policy numbers) (New PruTrust) <0.1m IB 1982 (Industrial Branch) WoL, bonds, protection 2.0m 1968 Lamda PSP2 1998 <0.1m “Man from the Pru” (Pension Savi
Slide 84: 10-year partnership with Diligenta
We signed a 10-year partnership with Diligenta to provide proven digital and PAS1 migration expertise Outsourcing the administration of the UK Heritage book enables us to variabilise our cost base Diligenta has strong credentials and is a regulated business since 2005… before our partnership, it alr
Slide 85: Roadmap cuts total costs of ownership by 50%
Our roadmap delivers significant customer outcome benefits and cuts total costs of ownership by 50% Diligenta service Migration 3 commencement Pensions, Bonds, Life dates customer policies Migration 5 Migration 2 annuity customers Corporate Pensions Migration 1 (SALAS) policies Migration 4 Pensions,
Slide 86: Significant improvements in customer service already delivered
Significant improvements in customer service are already being delivered Transformed approach to customer 44% reduction in management – end-to-end journey Journey NPS up by from transactions to days since August1 14 points since end-to-end journey August1 outcomes … and we’re delivering continuous i
Slide 87: Significant improvements in customer service already delivered
Significant improvements in customer service are already being delivered Transformed approach to customer 44% reduction in management – end-to-end journey Journey NPS up by from transactions to days since August1 14 points since end-to-end journey August1 outcomes … and we’re delivering continuous i
Slide 88: Re-platform for MyPru provides the foundation for digital
Re-platform for MyPru provides the foundation for digital transformation ambitions • Foundations in place to ensure that customers who wish to engage online can do so (scalable) • Supported registration (where customers require help) allows set-up of access within minutes • User-friendly and easy to
Slide 89: Significant improvements in customer service already delivered
Significant improvements in customer service are already being delivered Transformed approach to customer 44% reduction in management – end-to-end journey Journey NPS up by from transactions to days since August1 14 points since end-to-end journey August1 outcomes … and we’re delivering continuous i
Slide 90: Online bond claims launched in late 2018
Online bond claims launched in late 2018, improving customer experience… 35% take-up to date Online bond claim for customer and advisors – c. 35% of claims now processed digitally, halving the number of touchpoints & reducing cycle time by over 75% Initiated via phone or paper forms… As was… E2E tim
Slide 91: Significant improvements in customer service already delivered
Significant improvements in customer service are already being delivered Transformed approach to customer 44% reduction in management – end-to-end journey Journey NPS up by from transactions to days since August1 14 points since end-to-end journey August1 outcomes … and we’re delivering continuous i
Slide 92: Modernising statements and customer communications
Modernising statements & other customer communications whilst improving customer value Improved investment proposition Reduced charges 280,000 customers 172,000 customers Modernised Annual Benefit Removed Exit Charges from all Statements personal pension products c. 1.7 million customers Over 1 mill
Slide 93: Heritage transformation: Key messages
Heritage transformation Key messages Digital transformation Systems rationalisation and simplified operating model Step change in customer outcomes Efficient and variabilised cost base Improved resilience and enhanced control environment 93
Slide 94: 3. Finance and Capital
1 2 Investment Customer and Engine Distribution 3. Finance and Capital 3 Finance and Capital Clare Bousfield 3 July 2019
Slide 95: Finance and Capital: Our financial priorities
Finance and Capital Our financial priorities Proactive and disciplined managers of capital… … delivering attractive shareholder returns balancing dividend and profitable growth… … while supporting transformation to drive customer experience, scalability, efficiency and capability 95
Slide 96: What we will cover today
What we will cover today ► Introduction to our new segmentation To be covered closer to the time of demerger: ► Merger & transformation project • Prospective financial direction • Capital generation ► Capitalisation • Capital and risk management framework • Dividend policy ► Capital management previ
Slide 97: New financial segmentation
New financial segmentation: Reflecting how we see business opportunities Historical view New financial segmentation A B Savings & Heritage Asset Management Asset Management > 1 Retail Savings 1 Traditional With-Profits (incl. PruFund) With-Profits Fund 2 2 Retail Shareholder Annuities UK & Europe Li
Slide 98: AuM by sub-segment
AuM by sub-segment AuM by year, 2016-18 351 (£bn) 311 321 74 64 71 Institutional Asset Management Savings & Asset 90 76 Retail Asset Management Management 73 44 32 51 Retail Savings (incl. PruFund) 12 12 39 14 Other Heritage 39 25 Shareholder annuities1 Heritage 90 91 85 Traditional With-Profits 201
Slide 99: Net flows by sub-segment
Net flows by sub-segment Net flows by year, 2016-18 (£bn) 6.6 Institutional Asset Management Retail Savings FY16 FY17 FY18 10.8 Net Flows 4.1 PruFund 6.5 9.0 8.5 1.2 Other (0.2) (0.3) (0.3) Retail Asset Management 8.7 6.3 8.2 Total Retail Savings 6.3 8.7 8.2 Heritage Retail Savings (incl. PruFund) (
Slide 100: Earnings by source – FY 2018
Earnings by source – FY 2018 2018 Adjusted Operating profit Asset With-Profits s/h Shareholder £m, pre-tax Management transfers1 Annuities & Other2 Total A Savings & Asset Management 473 54 (59) 468 B Heritage - 201 961 1,162 Total Segments 473 255 902 1,630 Corporate centre (13) Total Adjusted Oper
Slide 101: Sources of earnings: Asset Management
A Savings & Sources of earnings: Asset Management Asset Management Key drivers Profitability (£m) End of year AuM (£bn) 1,113 128 135 1,079 118 90 73 74 76 71 927 64 602 640 2016 2017 2018 Expenses 4 Retail Institutional Internal 543 Fee based income 3 Asset Management Asset Management funds CIR2 CI
Slide 102: Sources of earnings: Savings and PruFund
A Savings & Sources of earnings: Asset Management With-Profits PruFund net flows (£bn) Net inflow profile reflecting the maturity profile of the book 11.8 12.0 9.0 • Gross flows into PruFund have remained very strong, 8.4 8.5 6.5 reflecting popularity of the product especially in a post- pension fre
Slide 103: Sources of earnings: Heritage With-Profits
B Heritage Sources of earnings: With-Profits AuM development (£bn) Heritage With-Profits book has long run-off 10.7 7.3 • Closed to new customers (5.5) (5.3) (1.5) (5.4) • Average net outflows c. 6% of AuM over 2016-2018 84.3 89.6 91.4 84.6 • Investment income has offset this on average 2015 Net flo
Slide 104: With-Profits shareholder transfer hedging
With-Profits Shareholder transfer hedging With-Profits Adjusted Operating Profit (FY18, £m) (13) Mitigating cashflow risk: 67 (52) • Existing programme mitigates the majority of equity market risk in shareholder transfers 54 • Constructed to swap future upside for downside protection • Annual rollin
Slide 105: Sources of earnings: Shareholder Annuities & Other
B Heritage Sources of earnings: Shareholder Annuities & Other Shareholder Annuities & Other – Split of adjusted operating profit (£m) 2016 2017 2018 Result driven by factors with varying Return on excess assets and margin release 245 273 251 probability of appearing in future: Asset trading and othe
Slide 106: Annuities: Recent longevity developments
Annuities: Recent longevity developments Declining mortality improvements… …and investment in our capability… …supported positive developments Annual mortality improvement rate1 • Enhanced longevity skill set within IFRS Longevity impacts (%) M&GPrudential and increased use of (Adjusted Operating Pr
Slide 107: Future longevity subject to continued uncertainty
Future Longevity subject to continued uncertainty M&GP will continue its focus on But what next for insight improvements? • Continued improvement in Annual mortality improvement rate data granularity and accuracy (%) 3% • Further development of our • Increased confidence in systems and technology en
Slide 108: Merger & Transformation: Key objectives
Merger & Transformation Key objectives 1 Improve customer outcomes In August 2017 we Leveraging key capabilities, broadening announced the merger and digitising our propositions of M&G with Prudential UK and a shareholder 2 investment of c. £250m, Strengthen the control environment over the course o
Slide 109: Transforming at pace across the entire business
Transforming at pace across the entire business Improve customer outcomes through a fundamental Heritage transformation of the operational, outsourcing & IT environment Create a multi-channel, multi-wrapper, digital environment to Savings transform experience, efficiency and critical outcomes for cu
Slide 110: On track to deliver transformation benefits by 2022
On track to deliver transformation benefits by 2022 as announced Shareholder investment1 Shareholder run-rate cash benefits1 27% 36% Operating Model Efficiency Operating Model Efficiency 6% Programme costs 10% Fund Rationalisation 5% Fund c. £145m Rationalisation c. £250m 29% 18% p.a. Outsourcing Ou
Slide 111: Efficiency benefits absorb upward cost pressures
Efficiency benefits absorb upward cost pressures Cost efficiency programme to absorb inflation, offset Run-rate benefits from transformation programme business investment & reshape the cost base expected to materially increase from end of 2019 Indicative development of gross operating cost base 100%
Slide 112: Solvency II Position as at year end 2018
Solvency II Position as at year end 2018 Prudential Assurance Company (PAC) ► There are three key views of PAC’s solvency ratio ► For shareholder capital management purposes, the Shareholder view is the most relevant Shareholder view With-Profits Fund view Regulatory solvency view Own Funds (£8.8bn)
Slide 113: Solvency II Position as at year end 2018 (£bn)
Solvency II Position as at year end 2018 Prudential Assurance Company (PAC) £bn Shareholder view With-Profits Fund view Regulatory solvency view 4.2 Surplus = 3.7bn 8.8 2.4 Surplus = 3.7bn Surplus = 5.5bn 4.2 9.6 8.8 6.4 5.1 4.2 5.1 Own Funds SCR Own Funds SCR Own Funds SCR Own Funds excl. PV of fut
Slide 114: Solvency II Sensitivities
Solvency II Sensitivities PAC Shareholder Solvency II market sensitivities PAC Regulatory Solvency II market sensitivities (%) (%) Base Shareholder S2 ratio 172 Base Shareholder S2 ratio 140 20% fall in equity markets 168 20% fall in equity markets 137 50bp fall in interest rates 166 50bp fall in in
Slide 115: The creation of M&GPrudential – key financial aspects
The creation of M&GPrudential – key financial aspects 1 M&GPrudential Solvency II position prior to demerger 2 Demerger transaction • M&GP capital adequacy • M&GP assumes debt from measured under Solvency II Prudential plc • Own Funds and SCR mainly • Debt qualifies as Solvency II driven by PAC, wit
Slide 116: Expected adjusted operating profit vs surplus capital generation
Expected adjusted operating profit vs Surplus capital generation Conceptual framework: Expected Adjusted Group Solvency II expected surplus generation Operating Profit Own Funds SCR Asset Fees Fees Change in Management - expenses - expenses capital requirement Savings & Asset Management Retail Savin
Slide 117: Distributable surplus to parent company cash
Distributable surplus to parent company cash Indicative future flows Legal entity generating Holding company cash generation distributable surplus M&G dividend M&G Asset Management to HoldCo Dividend from M&G X Retail Savings Dividend from PAC X Prudential Assurance Company (incl. PruFund) Head offi
Slide 118: Finance and Capital: Key messages
Finance and Capital Key messages Proactive and disciplined managers of capital Supporting transformation to drive customer experience On track to deliver planned efficiency benefits Aiming to produce attractive balance of dividend and growth 118
Slide 119: M&GPrudential's story: Key messages
M&GPrudential's story Key messages 1 Unique and compelling business mix; a fund manager with a balance sheet 2 Differentiated and high-value savings and investments solutions to address customers’ needs 3 Proven track record for growing new franchises, at home and internationally 4 Well positioned t
Slide 120: Appendix
M&GPRUDENTIAL | Appendix
Slide 121: Details on AuM and flows
Appendix Details on AuM and flows Net Market / Net Market / Net Market / £bn YE15 flows Other YE16 flows Other YE17 flows Other YE18 Institutional Asset Management 55.3 1.2 7.6 64.1 6.6 2.9 73.6 (2.4) (0.7) 70.5 Retail Asset Management 71.1 (9.3) 10.9 72.7 10.8 6.8 90.3 (7.5) (6.4) 76.4 Savings & As
Slide 122: Earnings by source – FY 2016
Appendix Earnings by source – FY 2016 2016 Adjusted Operating profit Asset With-Profits s/h Shareholder £m, pre-tax Management transfers1 Annuities & Other2 Total A Savings & Asset Management 384 32 39 455 B Heritage - 179 574 753 Total Segments 384 211 613 1,208 Corporate centre (5) Total Adjusted
Slide 123: Earnings by source – FY 2017
Appendix Earnings by source – FY 2017 2017 Adjusted Operating profit Asset With-Profits s/h Shareholder £m, pre-tax Management transfers1 Annuities & Other2 Total A Savings & Asset Management 477 39 7 523 B Heritage - 164 683 847 Total Segments 477 203 690 1,370 Corporate centre (8) Total Adjusted O
Slide 124: Adjusted operating profit vs. prior Prudential plc disclosure
Appendix Adjusted operating profit vs. prior Prudential plc disclosure • Adjusted operating profit definition similar to existing Prudential plc Segment Profit • Future interest and head office expenses will be included in M&GP adjusted operating profit, consistent with existing Prudential plc pract
Slide 125: Supplementary reconciliation tables to prior Prudential plc disclosure
Appendix: Supplementary reconciliation tables to prior Prudential plc disclosure External AuM (£bn) Prudential plc disclosure M&GPrudential disclosure 2016 2017 2018 2016 2017 2018 Retail / Wholesale 64.2 79.7 69.5 Retail 72.7 90.3 76.4 Institutional 72.6 84.2 77.5 Institutional 64.1 73.6 70.5 Total
Slide 126: Investor Relations contacts
Investor Relations contacts Spencer Horgan Luca Gagliardi Maria Baines Director of Investor Relations Head of Investor Relations - Equity Investor Relations Event Manager spencer.horgan@prudential.co.uk luca.gagliardi@prudential.co.uk maria.baines@prudential.co.uk 126