12 Aug 2014
Prudential plc 2014 Half Year Results
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|News release and business review
Broad-based profitable growth, increased cash generation and higher dividend delivered, despite challenging conditions
Group Performance Highlights (on constant exchange rate basis)
- IFRS operating profit of £1,521 million, up 17 per cent1
- EEV new business profit2 of £1,015 million, up 24 per cent1
- Underlying free surplus generation3 (after investment in new business) of £1,219 million, up 13 per cent1
- Net cash remittances from business units up 15 per cent to £974 million
Business Units Performance Highlights (on constant exchange rate basis)
- Asia life and asset management IFRS operating profit of £525 million, up 19 per cent1
- Jackson life IFRS operating profit of £686 million, up 28 per cent1
- UK life IFRS operating profit of £374 million, up 10 per cent
- M&G IFRS operating profit of £227 million, up 11 per cent
Capital & Dividend:
- IFRS shareholders’ funds of £10.6 billion, up 9 per cent4
- EEV shareholders’ funds of £25.9 billion, up 4 per cent4, equivalent to 1,009 pence per share
- Insurance Groups Directive (IGD) capital surplus5 estimated at £4.1 billion; solvency requirements covered 2.3 times
- 2014 interim dividend increased by 15 per cent to 11.19 pence per share
Commenting on the results, Tidjane Thiam, Group Chief Executive, said:
“The Group has delivered a strong performance in the first six months of 2014 across our key financial metrics of IFRS operating profit, new business profit and cash, despite challenging conditions including macroeconomic concerns in South-east Asia and significant disruption to the UK life market. Our track record of profitable growth has continued with IFRS operating profit increasing to £1,521 million, up 17 per cent on constant exchange rates1, which we believe is the most appropriate way to assess business performance in a period of currency volatility. On the same basis EEV new business profit grew by 24 per cent to £1,015 million. Cash remitted by our business units to the Group was up 15 per cent to £974 million, while underlying free surplus increased by 13 per cent to £1,219 million.
“We continue to be proactive in focusing on growing high quality insurance margin and fee income. In the first half, fee income was up 24 per cent to £764 million, mostly as a result of the success of our US strategy, and insurance margin was up 23 per cent to £680 million, underlining our success in providing health and protection products in Asia. These two sources of income contributed 64 per cent of our life IFRS operating income in this period compared to 38 per cent five years ago. Over the long term, this high quality earnings mix has delivered growth across economic cycles (i) with insurance margin, which is not directly exposed to financial markets, providing direct exposure to growing demand for health and protection products in Asia and (ii) with fee income providing positive exposure to rising equity markets.
“In Asia, we continue to see robust activity levels in our distribution channels. We are continuing to invest in improving customer access to fulfil growing demand for our products and services. In the first quarter, we announced the renewal and expansion of our long-standing bancassurance partnership with Standard Chartered for another 15 years. Our active management of the diverse portfolio of businesses in the region has delivered a 19 per cent increase in IFRS operating profit at constant exchange rates to £525 million and a 19 per cent increase in free surplus generation on the same basis to £302 million. Cash remittances from the region are 14 per cent higher at £216 million. This performance underlines the value we derive from having an extensive, diversified and growing regional platform.
“In the US, our discipline and our focus on growing fee income and diversifying the sales mix of our variable annuity products with the continued success of Elite Access are delivering strong returns to our shareholders. In the first six months of 2014, IFRS operating profit from our life business increased by 28 per cent to £686 million with cash remittances growing by a record 20 per cent to £352 million. From 1 January 2008, the US business has remitted close to $2.5 billion of cash, underlining the successful execution of our strategy in this market.
“In the UK, life IFRS operating profit rose 10 per cent to £374 million, a strong performance in a market undergoing significant regulatory change. In this uncertain new regulatory landscape, we focused on developing existing product propositions to meet customers’ evolving needs. Our UK team was able to complete sales of £104 million of bulk annuity transactions above our hurdle rate (no bulk annuity transactions in the first half of 2013) and to significantly increase sales of with-profits bonds by 25 per cent as retail annuity sales decreased by 43 per cent.
“In asset management, M&G’s IFRS operating profit rose 11 per cent to £227 million, while cash remitted to Group increased 24 per cent to £135 million. M&G has continued its successful, long-term strategy of geographic diversification. Funds under management in continental Europe grew by 32 per cent to £27.9 billion over the past 12 months, now accounting for 39 per cent of all retail assets. Our Asia asset manager, Eastspring Investments, had a good half year, with IFRS operating profits up 24 per cent to £42 million with funds under management increasing by 22 per cent over the past 12 months.
“We are making progress towards our 2017 growth and cash objectives, which we set out at the December 2013 investor day in London.
“In the first half of 2014 we faced some challenges with significant and sudden depreciation of the currencies in some of our ‘sweet spot’ markets6, a lower US dollar and significant disruption in the UK life and pension market where annuities sales decreased markedly following the Budget announcement. In addition, a number of geopolitical developments created additional uncertainty. Against this difficult backdrop, our businesses in Asia, the US and the UK have delivered a strong performance.
“Looking ahead, outside the Eurozone, which continues to grapple with significant, unresolved economic and political challenges, GDP growth is forecast to accelerate in the US and the UK. Growth in the emerging economies of Asia is expected to continue outpacing growth in the advanced economies. The fundamentals for our businesses in Asia remain compelling – strong economic growth and significant and rising demand for insurance from a rapidly growing and increasingly prosperous middle class, which is under-insured. This is what we call the Asian ‘protection gap’.
“The broad-based and resilient financial performance we achieved in the first half of 2014 is evidence of (i) the strength we derive from our diversification across geographies, channels and products; (ii) the quality of our strategy; and (iii) our focus on disciplined execution and delivery.
“We remain confident in our ability to produce profitable growth over the long term and continue to create value for our customers and shareholders.”
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Notes to Editors:
||The results in this announcement are prepared on two bases: International Financial Reporting Standards (IFRS) and European Embedded Value (EEV). The IFRS basis results form the basis of the Group's statutory financial statements. The supplementary EEV basis results have been prepared in accordance with the European Embedded Value principles issued by the CFO Forum of European Insurance Companies in May 2004. Where appropriate the EEV basis results include the effects of IFRS. The 2014 EEV results of the Group are presented on a post-tax basis and, accordingly, the half year and full year 2013 results are shown on a comparable basis. Period-on-period percentage increases are stated on a constant exchange rate basis unless otherwise stated. Constant exchange rates results are calculated by translating prior period results using the current period foreign exchange rate i.e. current period average rates for the income statement and current period closing rates for the balance sheet.
||Annual Premium Equivalent (APE) sales comprise regular premium sales plus one-tenth of single premium insurance sales.
||Operating profits are determined on the basis of including longer-term investment returns. EEV and IFRS operating profits are stated after excluding the effect of short-term fluctuations in investment returns against long-term assumptions, the costs arising from the domestication of our Hong Kong business, and loss attaching to the held for sale Japan Life insurance business. Furthermore, for EEV basis results, operating profit based on longer-term investment returns additionally excludes the effect of changes in economic assumptions and the mark to market value movement on core borrowings. Separately on the IFRS basis, operating profit also excludes amortisation of accounting adjustments on the acquisition of REALIC completed in 2012.
||Total number of Prudential plc shares in issue as at 30 June 2014 was 2,566,227,473.
||There will be a conference call today for media at 10.30am (UK) / 5.30pm (Hong Kong) hosted by Tidjane Thiam, Group Chief Executive. UK dial-in telephone number: +44 (0)203 139 4830 Hong Kong dial-in telephone number: +852 3068 9834 (Freephone). Passcode: 88890810#.
||A presentation for analysts and investors will be held today at 11.30am (UK) / 6.30pm (Hong Kong) in the conference suite at Nomura International plc, 1 Angel Lane, London EC4R 3AB. The presentation will be webcast live and as a replay on the corporate website via the link below:
A dial-in facility will be available to listen to the presentation. Please allow time ahead of the presentation to join the call (lines open half an hour before the presentation is due to start, i.e. from 11.00am (UK) / 6.00pm (Hong Kong)). Dial-in: +44 (0)203 059 8125 / 0800 368 0649 (Freephone UK), Passcode: ‘Prudential’ (this must be quoted to the operator to gain access to the call). Playback: +44 (0)121 260 4861, Passcode: 6685969#. This will be available from approximately 4.00pm (UK) / 11.00pm (Hong Kong) on 12 August 2014 until 11.59pm (UK) on 25 August 2014 and 6.59am (Hong Kong) on 26 August 2014.
||High-resolution photographs are available to the media free of charge at
||2014 Interim Dividend
||20 August 2014 (UK, Ireland and Singapore)
21 August 2014 (Hong Kong)
||22 August 2014
|Payment of dividend
||25 September 2014 (UK, Ireland and Hong Kong)
On or about 2 October 2014 (Singapore)
On or about 3 October 2014 (ADR holders)
||About Prudential plc
Prudential plc is incorporated in England and Wales, and its affiliated companies constitute one of the world's leading financial services groups. It provides insurance and financial services through its subsidiaries and affiliates throughout the world. It has been in existence for more than 166 years and has £457 billion in assets under management (as at 30 June 2014). Prudential plc is not affiliated in any manner with Prudential Financial, Inc., a company whose principal place of business is in the United States of America.
This document may contain ‘forward-looking statements’ with respect to certain of Prudential's plans and its goals and expectations relating to its future financial condition, performance, results, strategy and objectives. Statements that are not historical facts, including statements about Prudential’s beliefs and expectations and including, without limitation, statements containing the words ‘may’, ‘will’, ‘should’, ‘continue’, ‘aims’, ‘estimates’, ‘projects’, ‘believes’, ‘intends’, ‘expects’, ‘plans’, ‘seeks’ and ‘anticipates’, and words of similar meaning, are forward-looking statements. These statements are based on plans, estimates and projections as at the time they are made, and therefore undue reliance should not be placed on them. By their nature, all forward-looking statements involve risk and uncertainty. A number of important factors could cause Prudential's actual future financial condition or performance or other indicated results to differ materially from those indicated in any forward-looking statement. Such factors include, but are not limited to, future market conditions, including fluctuations in interest rates and exchange rates and the potential for a sustained low-interest rate environment, and the performance of financial markets generally; the policies and actions of regulatory authorities, including, for example, new government initiatives related to the financial crisis and the effect of the European Union's ‘Solvency II’ requirements on Prudential's capital maintenance requirements; the impact of continuing designation as a Global Systemically Important Insurer or ‘G-SII’; the impact of competition, economic growth, inflation, and deflation; experience in particular with regard to mortality and morbidity trends, lapse rates and policy renewal rates; the timing, impact and other uncertainties of future acquisitions or combinations within relevant industries; the impact of changes in capital, solvency standards, accounting standards or relevant regulatory frameworks, and tax and other legislation and regulations in the jurisdictions in which Prudential and its affiliates operate; and the impact of legal actions and disputes. These and other important factors may for example result in changes to assumptions used for determining results of operations or re-estimations of reserves for future policy benefits. Further discussion of these and other important factors that could cause Prudential's actual future financial condition or performance or other indicated results to differ, possibly materially, from those anticipated in Prudential's forward-looking statements can be found under the ‘Risk Factors’ heading in this document.
Any forward-looking statements contained in this document speak only as of the date on which they are made. Prudential expressly disclaims any obligation to update any of the forward-looking statements contained in this document or any other forward-looking statements it may make, whether as a result of future events, new information or otherwise except as required pursuant to the UK Prospectus Rules, the UK Listing Rules, the UK Disclosure and Transparency Rules, the Hong Kong Listing Rules, the SGX-ST listing rules or other applicable laws and regulations.
1 The period since June 2013 has seen depreciation of currencies in some of the Group’s key Asia markets and more recently significant strengthening of sterling. In order to reflect underlying performance, and to be consistent with the currency of transactions of our businesses in Asia and US, period on period percentage increases referred to in this press release are stated on a constant exchange rate basis. Increases on an actual exchange rate basis, which incorporate the effect of the exchange rate movements, are shown in the Financial Highlights section and in the Chief Financial Officer’s report.
2 The 2014 EEV results of the Group are presented on a post-tax basis and, accordingly, the half year and full year 2013 results are shown on a comparable basis.
3 Underlying free surplus generated comprises free surplus generated based on operating movements from long-term business (net of investment in new business) and that generated from asset management operations.
4 Comparable to 31 December 2013.
5 Before allowing for interim dividend.
6 ‘Sweet spot’ markets include Indonesia, Singapore, Hong Kong, Malaysia, Philippines, Vietnam and Thailand.