Prudential Plc · LSE:PRU
Prudential — H1 2002 Earnings Presentation
37 slides from Prudential's earnings presentation, Jul 24, 2002
Slide 1: Prudential plc 2002 Interim Results
PRUDENTIAL PLC 2002 INTERIM RESULTS
Slide 2: Forward-looking statements
This presentation 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 and results. By their nature, all forward- looking statements involve risk and uncertainty b
Slide 3: Good start to meeting doubling value target
GOOD START TO MEETING “DOUBLING VALUE” TARGET n 36% increase in total sales of £13.7bn - 2% increase in APE insurance sales to £926m - 50% increase in net sales of investment products to £826m n 16% increase in new business achieved profits to £397m n Dividend increased to 8.9p n Clear benefits from
Slide 4: Total new business in-flows: sales of £13.7bn in first half 2002
TOTAL NEW BUSINESS IN-FLOWS SALES OF £13.7BN IN FIRST HALF 2002 Insurance sales (APE) up 2% Net investment flows up 50% £m £m 2000 900 800 1500 700 600 500 1000 400 300 500 200 100 0 0 2000 2001 2002H 2001H 2002H Half year Full year
Slide 5: UK insurance operations new business margin increases to 36%
ACHIEVED BASIS UK INSURANCE OPERATIONS NEW BUSINESS MARGIN INCREASES TO 36% 2002H 2001FY New business achieved profits £m £m £m 400 NBAP 142 243 APE 398 823 300 MARGIN 36% 30% 200 100 0 1998 1999 2000 2001 2002H Half year Full year
Slide 6: Additional £25m of annual savings identified at no extra cost
ADDITIONAL £25M OF ANNUAL SAVINGS IDENTIFIED AT NO EXTRA COST 2001 2002 2003 2004 £m* 200 200 175 n Total annual savings Annual Savings 165 increased to £200m 150 145 100 n Full run-rate of savings 100 85 achieved from 2004 n One-off cost of c£170m 50 is unchanged 10m 0 Transition costs (50) (40) (4
Slide 7: Positive earnings impact from 2002
POSITIVE EARNINGS IMPACT FROM 2002 2002 2003 2004 MSB AP MSB AP MSB AP £m £m £m £m £m £m November target: 15 20 35 45 40 55 £175m Revised target: £200m 20 25 40 50 50 65
Slide 8: Jackson National Life new business achieved profit up 26%
ACHIEVED BASIS JACKSON NATIONAL LIFE NEW BUSINESS ACHIEVED PROFIT UP 26% ON PRIOR YEAR £m 2002H 2001FY New business achieved profits £m £m 300 NBAP 117 167 APE 298 483 200 MARGIN 39% 35% 100 0 1998 1999 2000 2001 2002H Half year Full year
Slide 9: Asia new business achieved profit up 27% on prior year
ACHIEVED BASIS ASIA NEW BUSINESS ACHIEVED PROFIT UP 27% ON PRIOR YEAR £m 2002H 2001FY 300 New business achieved profits £m £m NBAP 135 255 200 APE 217 434 MARGIN 62% 59% 100 0 1998 1999 2000 2001 2002H Half year Full year
Slide 10: Asia: margin analysis
ASIA: MARGIN ANALYSIS FY2001: 59% HY2002: 62% Malaysia Malaysia High High Hong Kong Hong Kong Others Others Margin Margin Taiwan Singapore Singapore RP RP Taiwan Low Low Singapore SP Japan Singapore Japan SP Low High Low High Sales Proportion Sales Proportion
Slide 11: Asia: well-diversified geographic and product mix
ASIA: WELL-DIVERSIFIED GEOGRAPHIC AND PRODUCT MIX H12002 APE by country H12002 NBAP by product type 18% 16% 23% 34% Total = £217m Total = £135m 22% 23% 9% 12% 43% Singapore AP Malaysia Hong Kong Traditional Linked Accident & Health Japan Taiwan Other
Slide 12: Asia: capital flows update
ASIA: CAPITAL FLOWS UPDATE NET CAPITAL FLOWS £m 274 300 250 n Total net capital 1994 to 200 144 158 30 June 02: £723m 150 76 100 32 50 22 7 11 (1) 0 -50 H 94 95 96 97 98 99 00 20 1 0 02 19 19 19 19 19 19 20 20 Working capital Repatriations Acquisitions
Slide 13: Achieved basis in-force result
ACHIEVED BASIS IN-FORCE RESULT UK & Europe US Asia Total £m £m £m £m Unwind of discount* 206 112 52 370 Jackson spread - (15) - (15) Persistency - 5 (5) - Change in assumptions - (56) (5) (61) Average realised investment losses - (71) - (71) Other items and experience variances (14) 2 (8) (20) Total
Slide 14: Jackson National Life invested assets mix
JACKSON NATIONAL LIFE JACKSON NATIONAL LIFE INVESTED ASSETS MIX $bn 25 58% 58% 20 53% 15 10 22%21% 21% 5 11% 9% 9% 5% 3% 4% 5% 3% 3% 2% 1% 1% 3% 3% 3% 0% 1% 1% 0 Commercial NIG - Public Private/144A Private/144A Equities equity & real Cash & other IG - Public Mortgages Private estate assets NIG - IG
Slide 15: Achieved profits basis results
ACHIEVED BASIS ACHIEVED PROFITS BASIS RESULTS 2002H 2001H £m £m Operating profit (based on longer-term investment returns) n New business 397 342 n Business in force 203 401 Total long-term business 600 743 Development costs for long-term business (16) (21) M&G 34 40 Egg 1 (63) Broker dealer and fun
Slide 16: Achieved profits basis results
ACHIEVED BASIS ACHIEVED PROFITS BASIS RESULTS 2002H 2001H £m £m Operating profit before amortisation of goodwill 543 653 Amortisation of goodwill (49) (47) Short term fluctuations in investment return (661) (580) Effect of change in economic assumptions (22) - Merger break fee (net of related expens
Slide 17: Modified statutory basis: MSB operating profit
MODIFIED STATUTORY BASIS MSB OPERATING PROFIT 2002H 2001H £m £m UK - long term insurance 215 208 M&G 34 40 Egg 1 (63) UK operations 250 185 US operations 150 220 Asian operations (pre development expenses) 16 22 European operations (pre development expenses) 3 2 Development expenses (16) (21) Other
Slide 18: Modified statutory basis
MODIFIED STATUTORY BASIS 2002H 2001H £m £m Operating profit before amortisation of goodwill 317 362 Amortisation of goodwill (49) (47) Short term fluctuation in investment returns (152) (105) Merger break fee (net of related expenses) - 338 Profit on sale of UK general insurance operations 355 - Pro
Slide 19: Holding company funds flow: investing to grow the business
HOLDING COMPANY FUNDS FLOW INVESTING TO GROW THE BUSINESS 2002H 2001H £m £m Group operating PAT & minority interests 227 258 New share capital subscribed 19 26 Capital received from businesses 95 - 341 284 American General Corporation merger break fee* - 240 Capital received from UK general insuranc
Slide 20: Prudential Assurance Company remains strong
PRUDENTIAL ASSURANCE COMPANY REMAINS STRONG Asset mix at 30th June 2002 n Form 9 ratio of 11%* at 30 June 2002 2.2% n No use of - future profits 29.4% 36.0% - subordinated debt - contingent loans - financial reinsurance n Resilience scenario 2.0% - fall in equity values 17% 15.6% 14.8% - fall in pro
Slide 21: Achieved profit shareholder funds
ACHIEVED PROFIT SHAREHOLDER FUNDS n Achieved basis shareholder funds £m of £8.05bn (2001: £8.15bn) 10000 n AP shareholder funds sensitivities: 8000 Investment return RDR 6000 £m £m Increase in rates of 1% 779 (469) 4000 Decrease in rates of 1% (732) 562 2000 0 2000 2001 2002H
Slide 22: Active management of balance sheet: senior debt
ACTIVE MANAGEMENT OF BALANCE SHEET SENIOR DEBT* £m 2500 2000 1500 1000 500 0 H 00 01 96 97 98 99 02 20 20 20 Senior Debt Hybrid * Debt shown net of cash
Slide 23: Active management of balance sheet: interest cover
ACTIVE MANAGEMENT OF BALANCE SHEET INTEREST COVER* 14 12 10 8 6 4 2 0 1999 2000 2001 2002H Achieved * Profits operating earnings before interest tax and amortisation of goodwill Interest on core and hybrid debt
Slide 24: Active management of balance sheet: gearing
ACTIVE MANAGEMENT OF BALANCE SHEET GEARING* 25% n Strong interest cover maintained n Managed reduction in senior debt 20% n Improved gearing 15% n Group balance sheet is managed actively to maximise efficient use of 10% capital 5% 0% 1999 2000 2001 2002H Gearing = Senior debt / (senior debt + hybrid
Slide 25: UK insurance operations
UK INSURANCE OPERATIONS n Government recognition of £27bn annual savings shortfall in the market n Well-positioned in changing regulatory environment - Sandler - Pickering n Leading position in key product areas where we add value and operate profitably - annuities - group pensions - investments
Slide 26: Distribution update: clear strategy in changing environment
UK INSURANCE OPERATIONS DISTRIBUTION UPDATE: CLEAR STRATEGY IN CHANGING ENVIRONMENT Market size (£bn) 7.6 11.1 16.0 Direct 2 4 Tied 3 7 4 3 1 n Multi-channel distribution 14 - intermediaries DSF 32 22 15 - affinities Ex-DSF - direct to consumer 13 17 Bancassurers multi-tie - business to business Ex-
Slide 27: M&G: sustaining good performance
M&G: SUSTAINING GOOD PERFORMANCE ABOVE AVERAGE PERFORMANCE IN DIFFICULT CONDITIONS M&G's position out of top 40 fund managers 0 n Solid 2 year records now 5 established and maintained 10 n Building on this base to 15 improve key 3 year positions 20 25 n Strong individual performers within the fund r
Slide 28: Egg: delivering profitable growth
EGG: DELIVERING PROFITABLE GROWTH customer growth customer profitability 160 q u a rte rly a n n u a lis e d re v e n u e p e r c u s to m e r (£ ) 2,500 140 egg unique customers (000's) 2,000 120 100 1,500 80 1,000 60 500 40 0 20 Jan Mar May Jul Sep Nov 0 1998 1999 2000 2001 2002 2000 2001 2002 362
Slide 29: Europe
EUROPE n Rigorous investigation of opportunities conducted n Expected future low returns on capital n Conclusion: not to pursue further development of European strategy n Positioned for growth in French market n On track for launch in H202 n Capitalising on huge potential European mutual fund market
Slide 30: Jackson National Life
JACKSON NATIONAL LIFE n Leading player in its chosen markets n Strong sales in a difficult environment n Successful diversification of types of product sold and sources of sales n Well below average cost structure n Demographics remain very attractive
Slide 31: Innovative response to irrational competitive behaviour
INNOVATIVE RESPONSE TO IRRATIONAL COMPETITIVE BEHAVIOUR n Modular design allows selection of specific features n Payment only for features chosen n Advice-based sales process n One of the lowest cost variable annuities in the industry n Maintains pricing disciplines n Less capital intensive
Slide 32: Promising trend in variable and fixed annuity sales
PROMISING TREND IN VARIABLE AND FIXED ANNUITY SALES Variable annuities: Fixed annuities: Successful launch of Perspective II Continued strong growth $200 $400 $150 $300 Sales ($m illions) S ales ($m illions) $100 $200 $50 $100 $0 $0 A pr Jul Feb S ep Oct M ar N ov D ec Jan A ug M ay Jun M ay M ar N
Slide 33: Asia: tremendous long-term potential
ASIA: TREMENDOUS LONG-TERM POTENTIAL Life Penetration n Regional economies showing signs Penetration, 19991 of recovery 12% - structurally stronger than 97/98 crisis 10% S Korea Japan 8% n Compelling demographics remain 6% Taiwan - vast populations with emerging middle Hong Kong classes 4% India Sin
Slide 34: Unique opportunity for medium and long term savings
UNIQUE OPPORTUNITY FOR MEDIUM AND LONG TERM SAVINGS Percent of holdings by asset class 100% Other/Misc 90% n The opportunity: 80% Mutual Funds - existing levels of wealth 70% Equities 60% Fixed Income - strong long-term economic Securities 50% growth projections 40% 30% Pensions - high personal savi
Slide 35: Strong track record of delivery
STRONG TRACK RECORD OF DELIVERY n Established operations continuing to grow strongly n Building scale in North Asia and Greater China n Leveraging expertise to build greenfield operations rapidly n Continuing to upgrade distribution and introduce innovative products n Managing life portfolio for sus
Slide 36: Driving the business forward
DRIVING THE BUSINESS FORWARD n Internationally-diversified retail financial services business n AAA financial strength n Resources to deliver continued growth in sales and profits n Focus on profitability and return on capital n Good start towards doubling value of the group
Slide 37: Prudential plc 2002 Interim Results
PRUDENTIAL PLC 2002 INTERIM RESULTS