Prudential Plc · LSE:PRU
Prudential — H1 2006 Earnings Presentation
44 slides from Prudential's earnings presentation, Jul 28, 2006
Slide 1: Prudential plc 2006 interim results
Prudential plc 2006 interim results 28 July 2006
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: Agenda
Agenda Introduction Mark Tucker Group Chief Executive Financial update Philip Broadley Group Finance Director Business update Mark Tucker Group Chief Executive Nick Prettejohn Chief Executive, Prudential UK & Europe Summary and Q&As Mark Tucker Group Chief Executive 3
Slide 4: Financial update
Financial update Philip Broadley, Group Finance Director
Slide 5: 2006 Interim Results Highlights
2006 Interim Results Highlights • New business PVNBP £9.8bn up 3%; APE £1,255m up 9% • New business profit up 17% to £504m – PVNBP margin up from 4.5% to 5.2% • Record net investment flows up 136% to £5.3bn • Total EEV basis operating profit (before UK restructuring costs) increased 17% to £980m • T
Slide 6: Focus on new business value across the group
Focus on new business value across the group Driven by increased sales and group margin PVNBP Sales Half Year New business profit 2005 2006 £m £m £m Down 12% UK 159 138 5000 US 99 134 Asia 173 232 4000 Group 431 504 Up 12% Insurance sales only Up 27% 3000 Half Year 2000 PVNBP Margin APE Margin 2005
Slide 7: EEV basis in-force profit
EEV basis in-force profit Strong growth in in-force UK US Asia HY 2006 HY 2005 £m £m £m Total £m Total £m Unwind of discount* 259 130 138 527 375 Change in assumptions 0 1 (9) (8) 13 Variances and other items Persistency 6 (4) 5 7 (3) US spread - 60 - 60 50 Amortisation of interest related gains - 2
Slide 8: EEV basis shareholders' funds
EEV basis shareholders’ funds Continued strong growth in shareholders’ funds Analysis of movement in EEV shareholders' funds: 31 December 2005 to 30 June 2006 £m 12,000 246 21 (376) 537 126 (39) (148) 200 (256) 11,500 (267) 504 103 10,932 11,000 10,301 10,500 10,000 9,500 9,000 8,500 8,000 A 2006 op
Slide 9: IFRS Basis Operating Profit
IFRS Basis Operating Profit Underlying operating profits growing in insurance businesses and fund management HY 2005 HY 2006 £m £m UK 187 205 US 178 227 Asia 121 103 M&G 83 100 Egg 13 (39) Other (93) (126) IFRS basis operating profit before restructuring costs 489 470 UK restructuring costs 0 (17) I
Slide 10: Egg
Egg Strong card performance and difficult personal lending conditions • Net interest income up £17m • Growing card book and strong returns – 3% growth compared to market decline of 2% – 153k new cards through 0% offer during Q1 2006 – £10m cost of offer in the period to be released in second half •
Slide 11: Capital Cycle for Life Businesses
Capital Cycle for Life Businesses 11
Slide 12: Capital Cycle: Net worth and value of in-force
Capital Cycle for Life Businesses Net worth and value of in-force Free Required Value of in-force* Surplus Capital (VIF) Net Worth 12 * Net of cost of capital
Slide 13: Capital flows for new business
Capital Cycle for Life Businesses Capital flows for new business Capital required New business Cost of acquiring new to support new increases VIF business business (commissions, etc) Free Required Value of in-force* Surplus Capital (VIF) 13 * Net of cost of capital
Slide 14: Capital flows for in-force policies
Capital Cycle for Life Businesses Capital flows for in-force policies Investment Investment Unwind of returns returns discount on VIF* +ve +ve +ve Free Required Value of in-force* Surplus Capital (VIF) Net increase in capital to support growing liabilities of in-force policies Annual surplus transfe
Slide 15: Capital flows for expected claims and surrenders
Capital Cycle for Life Businesses Capital flows for expected claims and surrenders Free Required Value of in-force* Surplus Capital (VIF) Release of capital backing policies Transfer surplus to net worth 15 * Net of cost of capital
Slide 16: New Business Capital Usage
New Business Capital Usage How much capital is required? Movement in net worth and value of in-force business HY 2006 Free Required Net Worth Total VIF surplus capital New business contribution UK (158) 112 (46) 143 97 JNL (141) 121 (20) 107 87 Asia (62) 7 (55) 221 166 (361) 240 (121) 471 350 Capita
Slide 17: In-force Capital Generation
In-force Capital Generation How much capital is generated? HY 2006 Free Required Net Worth Total VIF surplus capital Existing business – transfer to net worth UK 195 (24) 171 (171) 0 JNL 187 (133) 64 (64) 0 Asia 104 (18) 86 (86) 0 496 (175) 321 (321) 0 17
Slide 18: Prudential Corporation Asia Actual Cash Flows
Prudential Corporation Asia Actual Cash Flows Cash flow positive in 2006 £m • Since 1995, net capital of £512m 200 invested for organic growth and £543m 150 for acquisitions 100 • Now generating a net cash surplus due 50 to: 0 (50) – Consistent focus on capital efficient (100) products, especially u
Slide 19: Prudential Corporation Asia Future Annual Cash Flows
Prudential Corporation Asia Future Annual Cash Flows Ability to self-fund significant growth Illustration under different growth scenarios(1) • Cashflow scenarios assume: £m – Organic growth 400 10% – 2005 business mix and product margin 350 50% growth rate 10% growth rate • Even at a growth rate of
Slide 20: Jackson Capital Formation
Jackson Capital Formation Able to fund rapid growth from strong statutory earnings and capital release $m 1800 A. Excess capital at 31/12/04 $60 1600 $325 B. Statutory net income C. Back-book run-off $120 D. Unrealised gains/losses 1400 $45 E. Capital backing Life of Georgia $480 $170 F. Invested in
Slide 21: Managing the Growth in Shareholder-backed Business in the UK
Managing the Growth in Shareholder-backed Business in the UK Focus on value UK shareholder-backed APE sales (1) UK capital investments (2) £m £m 800 300 700 250 600 200 500 HY 400 2005 150 427 300 100 200 50 100 0 0 2001 2002 2003 2004 2005 HY 2006 2001 2002 2003 2004 2005 2006 2007 • Capital reduci
Slide 22: Cashflow
Cashflow Cash to fund organic growth UK life fund Prudential UK GI Rights Issue M&G JNL transfer Corporation Egg Business - available as Profits Remittance Asia RBS required Reinvestment Reinvestment Reinvestment Reinvestment Reinvestment £625m remains at £217m received in 2006 Post-tax profits $180
Slide 23: Business Update
Business Update Mark Tucker, Group Chief Executive
Slide 24: Business Update Priorities
Business Update Priorities Asia Insurance Operations US Insurance Operations • Building distribution to continue to drive growth • Focus on variable annuity market and ‘baby boomer’ opportunity • Emphasising high return, capital efficient unit-linked products • Continued product innovation • Increas
Slide 25: Asia Insurance Operations Highlights
Asia Insurance Operations Highlights • New business profit up 34% • New business £2.3 billion up 27% on a PVNBP basis – India +61% – Korea +56% – China +40% – Singapore +32% – Taiwan +19% • Strong growth in both agency sales +32% and other channels +15% • High proportion of unit-linked sales • Cash
Slide 26: Asia: Growth across a broad-based distribution capability
Asia Insurance Operations Growth across a broad-based distribution capability Sales by channel y Agent numbers up 20% at 191,000 £m PVNBP 2500 – Includes +25,000 in India and +13,000 + 27% 48 in Indonesia 229 2000 71 361 y Building highly productive financial 164 consultant channel in Korea 1500 318
Slide 27: Asia: Focus on unit-linked products
Asia Insurance Operations Focus on high return capital efficient unit-linked products Sales by product • Customer orientated packaging of £m PVNBP combined savings and protection 2500 products • Unit-linked highly capital efficient 2000 571 – 66% of total sales up from 58% in H105 213 1500 556 – Sol
Slide 28: US Insurance Operations Highlights
US Insurance Operations Highlights • New business profit up 35% • New business £3.2 billion up 12% on a PVNBP basis – Retail new business up 26% • Continuing to make significant gains in variable annuity market share – Variable annuity sales up 52% – Separate Account assets $17.6 billion up 48% • Ma
Slide 29: US Insurance Operations: Strong annuity position
US Insurance Operations Strong annuity position Sales by product • Variable annuities $m PVNBP – Top 3 net sales (1) 6000 2% +1 5500 – Perspective II No.2 by net sales (1) 5000 1283 – Top 15 by gross sales (2) 4500 1609 4000 524 • Fixed index annuities 560 3500 554 – 8th largest provider (3) 3000 25
Slide 30: US: Variable annuity market and baby boomer opportunity
US Insurance Operations Focus on variable annuity market and ‘baby boomer’ opportunity VA sales and market share • Continue to expand product offering $m 2000 VA Sales 4.50% – Perspective Advisors II VA Market Share 1800 4.30% 1600 4.10% – Perspective L Series 1400 3.90% 1200 3.70% – Launched 5 new
Slide 31: Asset Management Highlights
Asset Management Highlights • Record Net Sales – M&G net retail sales in HY 2006 30% greater than the whole of 2005 – Asia net sales tripled • Strong profit growth in both M&G and Asia • Expanding into new markets and broadening product range – M&G expanding in Europe and distributing through Pruden
Slide 32: Asset Management: Grow external FUM in the UK and Asia
Asset Management Grow external FUM in the UK and Asia M&G £bn Asia 1.8 £bn Net sales Net sales 4.0 1.6 Retail Institutional 3.5 1.4 3.0 1.2 2.5 1 2.0 Excellent investment 0.8 1.5 performance 0.6 1.0 0.4 0.5 0.2 0.0 Growth in Net Sales 0 HY 2002 HY 2003 HY 2004 HY 2005 HY 2006 -0.5 HY 2002 HY 2003 HY
Slide 33: Asset Management investment performance
Asset Management • Outstanding investment performance at M&G – Over 3 years 77% of M&G retail funds beat the UK sector average – Over 1 year all major M&G UK and global equity funds were top decile – Over 3 years 97% of active M&G fixed income institutional funds above benchmark • Strong investment
Slide 34: UK Operations Highlights
UK Operations Highlights • New business margins maintained against HY 2005 – Improving retail margins, lower bulk margins – Continue to target 14% IRR; achieved 13% HY 2006 • New business £4.2 billion down 12% on a PVNBP basis – Focused on returns – Retail sales stable • Organisational change implem
Slide 35: Business Update
Business Update Nick Prettejohn, Chief Executive, Prudential UK & Europe
Slide 36: UK Operations: The last six months
UK Operations The last six months Situation Analysis Immediate Priorities • Strong assets • Create an organisational structure that – Brand works – Financial strength • Major reappraisal of the cost base – Diversified distribution • Critical review of product and – Investment capability distribution
Slide 37: UK Operations: Restructuring and focusing the business
UK Operations Restructuring and focusing the business UK Operations • Clear profit and balance sheet accountability Income in Wealth and Mature Life Banking Retirement Health and Pensions • Deliver on UKIO Egg integration Indirect Direct Distribution Distribution • Remove duplication Gary Mark Gary
Slide 38: UK Operations: 18% reduction in the cost base by 2009
UK Operations 18% reduction in the cost base by 2009 Annual Cost Savings • Integration process developed into an end- £m to-end review identifying an additional £60 160 million per annum of shareholder savings £150m 140 – Site rationalisation 50 – Functional restructuring 120 – Focus on discretionar
Slide 39: Income in Retirement
Income in Retirement Capitalise on leadership position in a growth market Situation analysis Priorities • 75% of new business profit • Continue to develop the retail market • Retail – Retention of internal vestings – Individual annuities, more than half of the – Develop distribution of Equity Releas
Slide 40: Wealth & Health
Wealth & Health Selective participation based on strict return criteria Situation analysis Priorities • 45% of sales, 15% of new business • Segment intermediaries and improve profit account management capabilities • Material variation in returns across – Learning from Jackson intermediaries • Develo
Slide 41: Banking
Banking Significant value as part of a broader customer and distribution strategy Situation analysis Priorities • Strong card business with good • Continue to develop card business returns – HY 2006 Egg balances 3% higher vs total market balances 2% lower • Excellent customer platform – Focus on cre
Slide 42: Mature Life & Pensions
Mature Life & Pensions Differentiated approach to improve returns Situation analysis Priorities • Represents around 60% of the life • Manage as a separate business and pensions cost base – Fit for purpose Customer Service • Cost base too high – Appropriate levels of internal support • Limited revenu
Slide 43: Summary: A business focused on returns
Summary A business focused on returns • Operations restructured into four businesses with clear leadership and accountability • Cost base reduction and greater levels of innovation required in all areas • Profitable opportunities in each business area – Income in Retirement – Capitalise on the conti
Slide 44: A growth business with strong momentum
A growth business with strong momentum Capital and cash to fund organic growth Significant scope for value creation 44