Prudential Plc · LSE:PRU
Prudential — FY2007 Earnings Presentation
38 slides from Prudential's earnings presentation, Mar 14, 2008
Slide 1: Prudential plc 2007 Full Year Results
Prudential plc 2007 Full Year Results 14 March 2008
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 Group Review Mark Tucker Financial Review Philip Broadley Outlook Mark Tucker Questions 3
Slide 4: Group Review: Capturing sustainable value
Group Review Capturing sustainable value Delivering on our strategy & priorities RETIREMENT - LED STRATEGY Robust & sustainable Strong momentum in value creation operating performance 4
Slide 5: 2007 financial headlines
Group Review 2007 financial headlines • Group new business profit up 22% to £1.2 billion • EEV operating profit up 25% to £2.5 billion • IFRS operating profit up 20% to £1.2 billion • Group Return on Embedded Value 15.4% (2006: 14.5%*) • Embedded value shareholders’ funds £14.8 billion (2006: £11.9
Slide 6: Strong momentum in performance
Group Review Strong momentum in performance EEV operating profit1 IFRS operating profit1 EEV shareholders’ funds doubled over 3 years almost doubled over 3 years £6.2 billion increase in £m £m £bn three years 3000 1400 £14.8 bn 16 £1,213m CAGR 28% £2.5bn 1200 CAGR 24% 2500 14 1000 12 2000 10 800 £8.
Slide 7: Diversified earnings
Group Review Diversified earnings 2007 contribution to profit • Over 75% of new business profit generated overseas – High growth in Asia and the US 100% – Value driven positioning in UK 80% • Two-thirds of Life EEV operating profit generated overseas 60% – Rapidly growing Asian in-force 40% • Approa
Slide 8: Asia insurance operations: doubling of 2005 EEV NBP a year early
Asia insurance operations We expect to deliver doubling of 2005 EEV NBP a year early New business APE New business profit £m £m Non-agency 1400 44% growth1 700 £653m CAGR 26% 1200 600 Agency 44% growth1 1000 500 £413m 800 400 600 300 400 200 200 100 0 0 2005 2006 2007 2005 2006 2007 Agency Non-agenc
Slide 9: Building capabilities in 2007 to access significant growth potential
Asia insurance operations Building capabilities in 2007 to access significant growth potential • Growing agency scale – India +50%; Indonesia +49%; China +34%; Korea +27% • Improving agency productivity – Vietnam +67%; Hong Kong +24%; Singapore +21% • Building partnership distribution – Record sales
Slide 10: Powerful savings, protection and investment culture driving growth
Asia insurance operations Powerful savings, protection and investment culture driving growth Regular premium new business • Emphasis on long-term savings and £m 1200 protection 1000 – 86% of new business on an APE basis 800 600 – Success in combining unit-linked and protection 400 – High quality age
Slide 11: US insurance: advice based model driving variable annuity out-performance
US insurance operations Advice based model driving long-term out-performance in variable annuities Relative growth in variable annuities (indexed to 2004) • Success in fast growing IBD channel – No.2 with 10.8% share 260 – 76% of Jackson’s 2007 sales 240 Jackson – PII top-selling contract 2003-2007
Slide 12: Diversified business with high quality earnings profile
US insurance operations Diversified business with high quality earnings profile Statutory admitted assets IFRS life operating profit $bn 90 4% 80 24% 70 60 50 41% 40 30 20 10 31% 0 2004 2005 2006 2007 Life Fee based Spread based Other General Account Separate Account 12
Slide 13: A significant retirement opportunity that plays to Jackson's strengths
US insurance operations A significant retirement opportunity that plays to Jackson’s strengths Jackson customer age profile 2007 Successfully targeting the • Two-thirds of Jackson VA sales include 35% pre & post retirement market a GMWB 30% • 78 million ‘baby boomers’ will continue to grow the marke
Slide 14: UK insurance operations: Delivering on our strategy
UK insurance operations Delivering on our strategy • Focus on strengths in retirement income • Re-shape and simplify retirement savings to improve returns • Take the required action on the cost base • Maintaining high margins and returns relative to the market 14
Slide 15: Focus on strengths in retirement income
UK Insurance Operations Focus on strengths in retirement income UK New Business Profit • Individual annuities – One in four annuities in the UK written £m by Prudential 300 + 4% – 50% of new business from internal vestings 250 – 30% of new business from direct and partnerships 200 – Market leader in
Slide 16: Implementing change to support growth and returns
UK insurance operations Implementing change to support growth and returns • Reshape retirement savings business – Exited structurally unprofitable market segments and launched factory-gate product suite – Emphasis on cautious managed products; £231m APE of with-profit new business up 21% – Improving
Slide 17: Asset Management: operating profit more than doubling over three years
Asset Management Operating profit more than doubling over three years • £8 billion of net inflows across UK, Europe and Asia – Second highest annual inflows in M&G’s history – Maintaining strong growth in Asia External funds under management Operating profit £bn £m CAGR 23% CAGR 29% 80 350 70 300 60
Slide 18: Philip Broadley, Group Finance Director
Philip Broadley Group Finance Director
Slide 19: Contents
Contents 1. Group results – KPIs – EEV shareholders’ funds – Holding company cashflow – New business profit and IRRs 2. Specific topics – Asia growth and margin – Credit risk – UK longevity 3. Capital formation and usage 19
Slide 20: Group KPI highlights
Group KPI highlights Continuation of momentum in the 2007 performance Operating Profits £m* (CER) In 2007… 3000 • APE sales up 21% to £2.9 bn 2,542 • NBP up 22% to over £1.2 bn 2500 2,030 • Margin steady at 42% 2000 • EEV operating profit up 25% to over £2.5 bn 1500 1,213 1,008 • IFRS operating prof
Slide 21: EEV shareholders' funds
EEV shareholders’ funds Strong operating and investment performance Analysis of Movement in EEV shareholders’ funds: 31 Dec 2006 to 31 Dec 2007 17,000 EEV per share = £5.98 339 961 16,000 748 426 480 14,779 15,000 334 324 174 1,317 £m 14,000 1,215 13,000 11,883 12,000 11,000 10,000 A B C D E F G H I
Slide 22: Cashflow: Improved cashflow for the Group
Cashflow Improved cashflow for the Group FY07 UK life fund M&G Jackson transfer Total received £261m £139m £122m £742m (excluding Egg) Scrip div. & Asia share options Net £37m £183m Net central UK shareholder costs less tax business received Total outflow £(824)m £142m net £160m net Debt Dividend se
Slide 23: IRR and profit growth by business unit
IRR and profit growth by business unit Growing new business profits in all business units and returns remain strong FY 2005 FY 2006 FY 2007 Asia IRR >20% >20% >20% Asia NBP Growth +13% +23% +34% US IRR 15% 18% 19% US NBP Growth +45% +25% +19% UK IRR 14% 15% 18%* UK NBP Growth +1% +9% +4% * Excluding
Slide 24: Asia – Insurance highlights
Asia – Insurance highlights Strong and sustained growth Operating Profits £m* (CER) In 2007… 1500 • APE sales up 44% to £1,306m • NBP up 34% to over £650m 1,046 • Margin at 50% 1000 779 • EEV operating profit* up 34% to £1,046m 551 (CER) 500 • IFRS operating profit* up 7% to £189m 194 (CER), after I
Slide 25: Asia - New business profitability
Asia - New business profitability Targeting growth in new business profits FY07 NBP Growth 2007 Average Asia margin movement China 47% 2006 FY 54% Hong Kong 40% Geographic Korea 31% mix 3% Taiwan 80% Other 1% Other1 22% India (13)% 2007 FY 50% Overall Growth (%) 34% 42% 44% 46% 48% 50% 52% 54% 56% •
Slide 26: Asia – Indonesia
Asia – Indonesia Growth of profits and delivery of remittances to Group 75 60 45 £m 30 15 0 -15 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 NBP IFRS OPBT Capital (from)/to Group 26
Slide 27: Debt securities portfolio
Debt securities portfolio Portfolio has high average quality n .9 b £ 5 UK £6 7. IO ia 2b s n A 31 Dec 07 Total £84bn Ja ck r so e th n n O .9b £1 £0 9. 0b n 27
Slide 28: Debt securities portfolio
Debt securities portfolio • All assets are carried at fair value; change in fair value of assets backing shareholder liability reflected in shareholder funds in statutory accounts • 92% of debt securities valued using market bid prices • 85% of Jackson’s debt securities valued using market bid price
Slide 29: Jackson debt securities portfolio
Jackson debt securities portfolio IFRS Accounting on credit related value changes for available for sale investments Income statement £m Bond writedowns (35) Losses on sale of impaired and deteriorating bonds (51) Recoveries/reversals 8 (78) Operating profit £(48)m £(30)m short-term long-term defaul
Slide 30: Shareholder interest in sub-prime, Alt A, monolines and CDO Funds
Debt securities portfolio Shareholder interest in sub-prime, Alt A, monolines and CDO Funds Sub-prime and Alt A Jackson sub-prime (AAA) £237m Alt A (77% AAA; 17% AA) £660m Taiwan and Japan £15m Total £912m Direct monoline Jackson £23m Asia £4m Total £27m CDO Funds Jackson (65% AAA, 8% AA) £260m Taiw
Slide 31: UK longevity: cautious view of longevity improvement
UK longevity Reflecting cautious view of longevity improvement Male aged 70 in 2007 (age cohort view) 5% England & Wales • Longevity assumption strengthened population data by including 1.75% floor (EEV) in male longevity to age 90; then 4% CMI Assured tapering to zero at age 120 Lives data • This s
Slide 32: Capital cycle: capital flows for new business
Capital cycle Capital flows for new business Capital required New business Cost of acquiring to support new increases VIF new business business (commissions, etc) Free Required VIF* Surplus Capital Net worth 32 * Net of cost of capital
Slide 33: Capital cycle: capital flows for in-force policies
Capital cycle Capital flows for in-force policies Investment Investment Unwind of returns returns discount on VIF* +ve +ve +ve Free Required VIF* Surplus Capital Net increase in capital to support growing liabilities of in-force policies Annual profit transferred to net worth 33 * Net of cost of cap
Slide 34: Capital cycle: capital flows for expected claims and surrenders
Capital cycle Capital flows for expected claims and surrenders Free Required VIF* Surplus Capital Release of capital backing policies Transfer of profit to net worth 34 * Net of cost of capital
Slide 35: Capital summary: movements in free surplus in 2007
Capital summary Movements in free surplus in 2007 Column A Column B Column C Column D Column E Column F Column G Column H = B+C = E+F = D-A+G Total New Required cost of Capital Business Total in- Profit capital acquiring required to commission force transferred released new support new and other tra
Slide 36: Outlook
PRUDENTIAL
Slide 37: Group Outlook: Prospects for the Group remain positive
Group Outlook Prospects for the Group remain positive Asia expected to deliver doubling Record of out-performance of 2005 NBP a year early in the US to continue FULLY EXPLOIT THE GROUP’S RETIREMENT-LED STRATEGY Value driven strategy in the UK Asset management well placed to delivering strong returns
Slide 38: Questions
Questions Gg PRUDENTIAL