02 Mar 2005

Prudential plc 2004 Full Year Results

Strong delivery across all of our businesses

  • Record new business achieved profits of £688 million, up 23 per cent on 2003
  • Strong growth in achieved profit basis operating profit, up 39 per cent on 2003 to £1.12 billion*
  • Modified statutory basis profit of £603 million, up 49 per cent on 2003*
  • New business achieved profit margin of 37 per cent (2003: 38%)
  • Shareholders funds on an achieved profits basis of £8.6 billion
  • Record insurance APE sales of £1.85 billion, up 26 per cent on 2003
  • Record funds under management of £187 billion, up £22 billion on 2003
  • Full-year dividend per share up 3 per cent to 15.84 pence (2003:15.38 pence1)

*Operating profit on continuing operations before goodwill, exceptional items and short-term fluctuations in investment terms.

All figures throughout are on a constant exchange rate basis, unless otherwise stated.

Commenting on the results, Jonathan Bloomer, Prudential's Group Chief Executive, said:

"Prudential has built strong positions in three of the most attractive savings markets in the world. In 2004, each of our three regional insurance businesses delivered double-digit growth in sales and profits. As a result, we registered record Group insurance APE sales and a 23 per cent increase in new business achieved profits.

The UK market is starting to recover after three years of decline and, as the rise of 40 per cent in new business achieved profits shows, it is clear that the changes we have made to the business are enabling us to take advantage of this upturn.

In Asia, new business achieved profits rose 19 per cent and margins remain attractive. We see excellent growth prospects throughout the region, especially in China and India.

In the US, we continue to outperform the market, and in 2004 our business there returned $120 million to the Group. We expect this to be $150 million in 2005, and to rise thereafter.

M&G also delivered a very strong performance in 2004, with underlying profits of £110 million, up 57 per cent on 2003.

We see excellent growth opportunities across the Group.

1As adjusted, see note 9

Our markets and opportunities

The United Kingdom

The UK is the third largest life insurance market in the world, but between 2001 and 2003 it shrank by nearly 6 per cent per annum. During this period, our UK insurance operation focused on increasing its efficiency, developing its product range and broadening its distribution base, while maintaining its position as one of the financially strongest companies in the sector.

It has successfully evolved from a direct-sales operation selling with-profits products into a company that sells mainly shareholder-backed products through IFAs, direct to customers, business to business and through partnership agreements with other companies. In 2004, it achieved strong new business performance across all these channels, increasing its share of the medium to long-term savings market to 8.9 per cent (source data: ABI), while maintaining overall margins, resulting in a 40 per cent increase in new business achieved profits year on year. Going forward, we expect to see some modest reduction in the overall UK margin as our new shareholder-backed business builds scale.

Over the next few years, we see new opportunities arising from the move to a multi-tie distribution model, which we expect to favour financially strong players like Prudential with a powerful brand and attractive product range. Prudential UK has made good progress with the new multi-tie networks, winning places on many of the panels announced to date, and expects these agreements to begin to have an effect on our performance in 2005, making an increasing contribution thereafter.

The Rights Issue, announced in October 2004, will allow us to reinvest in the UK, in order to take advantage of the developments in both our business and the marketplace. The solid performance of the with-profits fund, which delivered a return of 13.4 per cent in 2004, has enabled Prudential UK to maintain annual bonuses and increase policy values for nearly all of its 5.5 million with-profits customers. We believe the strength and performance of the fund combined with the beginnings of a recovery in the UK market will benefit Prudential in 2005.

Prudential UK expects sales this year to grow by about 10 per cent from the base established in 2004. This compares with the industry expectation for UK market growth of around 5 per cent for 2005. Prudential UK is determined, however, that it will not grow volume at the expense of value, and has set itself a blended target internal rate of return on this new business of 14 per cent by 2007, compared with the 12 per cent it achieved in 2004.

The United States

The US is the largest long-term savings market in the world, with considerable opportunities for growth. Despite uncertainty in equity and capital markets over the last few years, Jackson National Life's (JNL) ability to respond quickly to changes in both consumer demand and the economic climate, enabled it to continue to grow profitably during this period, and in 2004 it increased new business achieved profits by 18 per cent, to £156 million.

The business continues to fund its own growth from internally-generated cash, and in 2004 it also contributed $120 million to the group. This is expected to increase to $150 million in 2005.

JNL's strategy is to concentrate on organic growth within profitable market segments, but to use small self-financed acquisitions, such as that of Life Insurance Company of Georgia, announced in November 2004, to build scale and reduce unit costs.

JNL is an industry leader in distributing products, and has repeatedly shown that it can react quickly to market changes and establish strong positions in new products and new channels. In 2004, for example, nearly 90 per cent of new sales came from products developed in the last two years. Its Perspective II variable annuity contract was the best selling contract in the US market last year (source: VARDS).

In 2005, we expect the US market to grow at about 4 per cent and Jackson National Life to grow sales at around twice this rate, while keeping its costs down and delivering above market returns.

Asia

The Asian economies' consistently high growth rates and favourable demographics, together with the trend towards allowing greater access and ownership to foreign financial services players, make these markets very attractive for selling medium to long-term savings and protection products.

Against this backdrop, Prudential has established a strong track record of success. In the past decade we have expanded across 12 countries and delivered APE compound growth of 26 per cent per year, while maintaining margins above 50 per cent. In 2004, new business achieved profits rose 19 per cent.

Prudential Corporation Asia is Europe's leading life insurer in Asia in terms of market coverage and number of top five market positions. We have also established a complementary regional funds management business in seven markets and are in the process of setting up a fund management operation in Vietnam.

Our life operations in Asia put in another good performance last year. Following the restructuring in 2003, the Japanese business has made some progress establishing new distribution channels, but it will take some time to become large enough to be a positive contributor to the overall result for the region. Elsewhere, growth prospects are very good, particularly in India and China, and the business is already well placed to take advantage of these.

In India, our joint venture with ICICI delivered APE sales growth of 127 per cent and continues to be the leading private sector player. In 2004, the government announced its intention to increase the cap on foreign ownership from 26% to 49%. While Prudential remains interested in increasing its stake in the joint venture, the relevant legislation has not yet been put before the Indian Parliament.

In China, our joint venture with CITIC is one of the country's leading foreign players and new business APE growth was 70 per cent last year. We already operate in three cities and our fourth operation, in Shanghai, will launch in the second quarter of 2005. We have recently received licences for two further cities, Dongguan and Foshan, and a licence to write Group Life insurance business. We expect to continue to develop rapidly as geographic licensing restrictions in China ease further. We already hold licences for more cities than any other European life insurer.

We are confident of our ability to grow strongly and profitably in Asia: the opportunities in our newer markets, coupled with the strength of our larger operations, should enable us to accelerate our level of sales growth in 2005. Our Asian business remains on track to become cash positive from 2006.

M&G

M&G is Prudential's UK and European fund management operation, providing high quality investment management services for Prudential's customers. M&G is also a leading UK manager of retail investment funds and institutional fixed income and pooled life and pensions funds.

M&G enjoyed a successful 2004, with external funds under management rising by 19 per cent during the year to £28.7 billion, due to a combination of net fund inflows from both retail and institutional clients and market gains on existing funds. M&G has a total of £126 billion in funds under management, up 14 per cent on 2003.

In recent years, M&G has been developing profitable new income streams while keeping a tight control over costs. This is a powerful combination, which resulted in a strong performance in 2004, with underlying profits of £110 million, up 57 per cent on 2003.

We expect M&G to continue to perform strongly in 2005.

Egg

Egg has closed its loss-making French operation and has recently put its Funds Direct business on the market. It is now firmly focused on its profitable core UK business, where it achieved underlying profits of £74 million in 2004.

This was a good performance from Egg's UK business, especially given the increased competition and rising interest rates that have affected the credit card and personal loan markets. Egg's effective cost management and good credit quality also contributed to the solid results from its UK operation. At the same time, it has increased its provision levels to reflect the change in its product mix following growth in its unsecured lending portfolio, the stage in the life cycle of its card and loan books and the increasing proportion of personal loans business.

Looking ahead, Egg will continue to develop its UK operation, building its unsecured lending business, while expanding its product range to increase cross-sales to existing customers.

We expect Egg to finance its own growth without requiring capital support from the group.

Outlook

Prudential has built strong positions in three of the most attractive savings markets in the world. Each of the businesses is performing well, and is positioned to take advantage of the opportunities in its respective market. We are on track to deliver sustainable, profitable growth and to achieve our target returns on capital in 2005 and beyond.

Dividend

The Board has decided to recommend to shareholders a final dividend for the year of 10.65 pence per share, which together with the restated interim dividend of 5.19 pence makes a total amount of 15.84 pence. This represents growth of three per cent on the 2003 dividend of 15.38 pence, after adjusting for the bonus element of the rights issue. The 2004 dividend is covered 1.2 times by post-tax modified statutory basis profit for the year after minority interests. We intend to maintain our current dividend policy, with the level of dividend growth being determined after considering the opportunities to invest in those areas of our business offering attractive growth prospects, our financial flexibility and the development of our statutory profits over the medium to long-term."

ENDS

Enquiries to:
Rebecca Burrows, Group Communications Director: 020 7548 3537
Media Investors/Analysts
Clare Staley 020 7548 3719 Mike Kempster 020 7548 3823
Joanne Davidson 020 7548 3708 Marina Lee-Steere 020 7548 3511
  1. There will be a conference call today for wire services at 7.45am hosted by Jonathan Bloomer, Group Chief Executive and Philip Broadley, Group Finance Director. Dial in telephone number: +44 (0)20 7162 9962. Passcode: 646915
  2. A presentation to analysts will take place at 9:30am at Governor's House, Laurence Pountney Hill, London, EC4R 0HH. A webcast of the presentation and the presentation slides will be available on the group's website, www.prudential.co.uk.
  3. A press conference will take place at 11:45am at Governor's House, Laurence Pountney Hill, London, EC4R 0HH. If journalists wish to attend, please call the Press Office in advance on 020 7548 3712.
  4. There will be a conference call for investors and analysts at 2:30pm hosted by Jonathan Bloomer, Group Chief Executive, Philip Broadley, Group Finance Director and Mark Wood, CEO UK and Europe. Dial in telephone number: +44 (0)20 7162 0180, US callers: 1 334 420 4951. Callers to quote "Prudential results" for access to the call.

    A recording of this call will be available for replay for one week by dialling: UK: 020 7031 4064, US: 1 954 334 0342, Passcode 645883

  5. High resolution photographs are available to the media free of charge at www.newscast.co.uk (+44 (0) 207 608 1000).
  6. An interview with Jonathan Bloomer (in video/audio/text) will be available on www.cantos.com and www.prudential.co.uk from [7.00am] on 2 March 2005.
  7. Annual premium equivalent (APE) sales comprise regular premium sales plus one-tenth of single premium insurance sales.
  8. New business achieved profits represent the present value of the future cash flows we expect to receive from new business written in the year, less the costs of acquiring that new business and the cost of holding the capital required to back it.
  9. In order to compare the pre-rights issue dividend with the 2004 dividend, it is necessary to recalculate the 2003 dividend to take account of the bonus element in the rights issue, i.e. the value to shareholders of the difference between the market price and the rights issue price. Full details of the calculations can be found in the Financial Review.
  10. Total number of Prudential plc shares in issue as at 10 February 2005 was 2,375,393,020.
  11. Financial Calendar:
    2005
    Ex-dividend date Wednesday 16 March 2005
    Record date Friday 18 March 2005
    Annual Report issued Friday 8 April 2005
    First quarter New Business Figures Wednesday 20 April 2005
    Annual General Meeting Thursday 5 May 2005
    Payment of 2004 final dividend Wednesday 25 May 2005
    2005 Interim Results/Second quarter New Business Figures Wednesday 27 July 2005
    Ex-dividend date Wednesday 17 August 2005
    Record date Friday 19 August 2005
    Payment of interim dividend Friday 28 October 2005
  12. In addition to the preliminary financial statements provided with this press release additional financial schedules are available on the group's website at www.prudential.co.uk

*Prudential plc, a company incorporated and with its principal place of business in the United Kingdom, and its affiliated companies constitute one of the world's leading financial services groups. It provides insurance and financial services directly and through its subsidiaries and affiliates throughout the world. It has been in existence for over 150 years and has £187 billion in assets under management, as at 31 December 2004. 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.

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", "expects", "plans", "seeks" and "anticipates", and words of similar meaning, are forward-looking. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond Prudential's control including among other things, UK domestic and global economic and business conditions, market related risks such as fluctuations in interest rates and exchange rates, and the performance of financial markets generally; the policies and actions of regulatory authorities, the impact of competition, 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; and the impact of changes in capital, solvency or accounting standards, and tax and other legislation and regulations in the jurisdictions in which Prudential and its affiliates operate. This may for example result in changes to assumptions used for determining results of operations or re-estimations of reserves for future policy benefits. As a result, Prudential's actual future financial condition, performance and results may differ materially from the plans, goals, and expectations set forth in Prudential's forward-looking statements. Prudential undertakes no obligation to update the forward-looking statements contained in this statement or any other forward-looking statements it may make.

PRUDENTIAL PLC 2004 RESULTS

Results Summary
Achieved Profits Basis Results 2004 £m 2003 £m
Operating profit before amortisation of goodwill
UK and Europe Insurance Operations 450 359
M&G 136 83
Egg - continuing operations 43 55

- discontinued operations (37) (89)
UK and Europe Operations 592 408
US Operations - continuing operations 303 194

- discontinued operations 17 22
Prudential Asia 400 378
Other Income and Expenditure (including Asia development expenses) (208) (208)
Operating profit before amortisation of goodwill 1,104 794
Analysed as:

Operating profit from continuing operations 1,124 861

Operating loss from discontinued operations (20) (67)
Amortisation of goodwill (97) (98)
Short-term fluctuations in investment returns 679 682
Effect of changes in economic assumptions (100) (540)
Profit or loss on the sale or termination of discontinued operations:

Profit on business disposals 48 -

Egg France closure cost (113) -
Profit on ordinary activities before tax 1,521 838
Operating earnings per share* 37.2p 25.4p
Shareholders' funds £8.6bn £7.0bn
Statutory Basis Results 2004 £m 2003 £m
Operating profit before amortisation of goodwill 583 357
Profit on ordinary activities before tax 650 350
Operating earnings per share* 19.2p 12.4p
Basic earnings per share* 20.1p 10.0p
Shareholders' funds £4.3bn £3.2bn
Dividend Per Share* 15.84p 15.38p
Insurance and Investment Funds under Management £187bn £168bn

Operating profit and operating earnings per share include investment returns at the expected long-term rate of return but exclude amortisation of goodwill and exceptional items. The directors believe that operating profit, as adjusted for these items, better reflects underlying performance.

Profit on ordinary activities and basic earnings per share include these items together with actual investment returns. This basis of presentation has been adopted consistently throughout the Preliminary Announcement.

* Earnings per share and dividend per share figures for 2003 have been restated to take account of the Rights Issue in 2004. In addition, the achieved profits and statutory basis shareholders' funds for 2003 have been adjusted to reflect the implementation of UITF Abstract 38 on Accounting for ESOP Trusts.

Jackson National Life Insurance Company

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Prudential plc is an international company incorporated in the United Kingdom, and its affiliated companies constitute one of the world’s leading financial services groups. It provides insurance and financial services directly and through its subsidiaries and affiliates throughout the world, and it has been in existence for over 170 years. 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, or the Prudential Assurance Company, a subsidiary of M&G plc (a company incorporated in the United Kingdom).

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Prudential plc is an international company incorporated in the United Kingdom, and its affiliated companies constitute one of the world’s leading financial services groups. It provides insurance and financial services directly and through its subsidiaries and affiliates throughout the world, and it has been in existence for over 170 years. 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, or the Prudential Assurance Company, a subsidiary of M&G plc (a company incorporated in the United Kingdom).