10 Aug 2017

Prudential plc 2017 Half Year Results

Links to supplementary information about this release: PDF
Full news release and business review
IFRS disclosure
EEV statements
Risk factors

PRUDENTIAL DELIVERS BROAD-BASED PERFORMANCE LED BY DOUBLE-DIGIT GROWTH IN ASIA

Performance highlights on a constant (and actual) exchange rate basis

  • Group IFRS operating profit1 of £2,358 million, up 5 per cent2,3 (up 15 per cent4)
  • Asia new business profit5 of £1,092 million, up 18 per cent2,3 (up 33 per cent4), IFRS operating profit1 of £953 million, up 16 per cent2,3 (up 31 per cent4) and free surplus generation6 of £553 million, up 15 per cent2,3 (up 30 per cent4)
  • US life insurance IFRS operating profit1 of £1,079 million, up 7 per cent3 (up 22 per cent4)
  • UK life retail APE sales of £721 million, up 22 per cent, with PruFund sales up 29 per cent to £564 million
  • M&G first half external asset management net inflows of £7.2 billion
  • M&G and Prudential UK & Europe to be combined to create a leading savings and investments provider
  • 2017 first interim dividend of 14.50 pence per share, up 12 per cent
  • Group Solvency II surplus7 estimated at £12.9 billion; equivalent to a ratio of 202 per cent8

Mike Wells, Group Chief Executive, said: “Our successful strategy, innovative products and strong execution have driven growth across all of our main performance measures led by double-digit growth in our Asian business. We have achieved our objective of generating over £10 billion of Group cumulative free surplus between 1 January 2014 and 31 December 2017 six months early and we remain on track to achieve the remaining Asia-focused objectives by the end of this year.

“In Asia, we continue to leverage our structural advantages, delivering a 16 per cent2 increase in IFRS operating profit and 15 per cent2 growth in free surplus generation. New business profit in our life business increased by 18 per cent2, while Eastspring, our asset management business, delivered £2.3 billion of external net inflows9. The scale, breadth and diversification of our businesses leave us well placed to continue to grow as we access the opportunities created by the region’s dynamic economies, fast-growing middle class and underpenetrated markets.

“Our US life business, Jackson, has delivered a 7 per cent rise in IFRS operating profit and continues to outperform the market10 with positive net flows in variable annuities, where its product and distribution capabilities are a competitive strength. In the UK our life retail sales are up by 22 per cent due to the continued consumer appetite for PruFund-backed products, while M&G experienced record net inflows from external retail clients for the first half of the year, reflecting improved investment performance.

“Our strategy is focused on markets where the need for our products is strong and growing, and our capabilities and execution ensure that we are successfully meeting that demand across our different regions. In Asia we offer innovative products that meet the savings, health and protection needs of the fast-growing middle class, in the US our variable annuities are focused on meeting consumers’ needs as they move into retirement, and in the UK and Europe we are responding with agility to changing consumer preferences, meeting the rising demand for savings and retirement solutions.

“We are also announcing today our intention to combine M&G and Prudential UK & Europe to form M&G Prudential, a savings and investments business focused on meeting growing customer demand for comprehensive financial solutions. Combining these businesses will allow us to better leverage our considerable scale and capabilities. This will enable us to increase our growth prospects by providing better outcomes for our millions of customers.

“This performance demonstrates our strength in accessing the market opportunities available to us. Our proven ability to innovate in both our products and capabilities positions us well to continue generating profitable growth and cash.”

Summary financials 2017
Half year
2016
Half year
Change on
AER basis
Change on
CER basis
IFRS operating profit based on longer term investment returns2 £2,358m £2,044m 15% 5%
Underlying free surplus generated2,6 £1,845m £1,615m 14% 6%
Life new business profit2,5 £1,689m £1,257m 34% 20%
IFRS profit after tax11 £1,505m £687m 119% 109%
Net cash remittances from business units £1,230m £1,118m 10% -
         
  2017
Half year
2016
Full year
Change on
AER basis
 
IFRS shareholders’ funds £15.4bn £14.7bn 5%  
EEV shareholders’ funds £40.5bn £39.0bn 4%  
Group Solvency II capital surplus7,8 £12.9bn £12.5bn 3%  

1 Based on longer-term investment returns.
2 Following its sale in May 2017, the operating results exclude the contribution of the Korea life business. All comparative results have been similarly adjusted.
3 Period-on-period percentage increases are stated on a constant exchange rate basis unless otherwise stated. All amounts are comparable to the six months ended 30 June 2016 unless otherwise indicated.
4 Growth rate on an actual exchange rate basis.
5 New business profit on business sold in the period, calculated in accordance with EEV principles.
6 Underlying free surplus generated based on operating movements from long-term business (net of investment in new business) and that generated from asset management operations. Further information is set out in note 10 of the EEV basis results.
7 The Group shareholder capital position excludes the contribution to Own Funds and the Solvency Capital Requirement from ring fenced With-Profit Funds and staff pension schemes in surplus. The solvency positions include management’s estimate of transitional measures reflecting operating and market conditions at the valuation date. The estimated Group shareholder surplus would increase from £12.9 billion to £13.6 billion at 30 June 2017 if the approved regulatory transitional amount was applied instead.
8 Before allowing for first interim dividend (31 December 2016: Second interim dividend).
9 External net inflows exclude Asia Money Market Fund (MMF) net inflows of £499 million (2016: net inflows of £656 million on an actual exchange rate basis).
10 ©2017 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. 1Q 2017 Morningstar VA Report with Commentary.
11 IFRS profit after tax reflects the combined effects of operating results, negative short-term fluctuations in investments variances, result attaching to the sold Korea life business and the total tax charge for the year.

Contact:

Media   Investors/Analysts  
Jonathan Oliver +44 (0)20 7548 3537 Raghu Hariharan +44 (0)20 7548 2871
Jonathan Miller +44 (0)20 7548 2776 Richard Gradidge +44 (0)20 7548 3860
    William Elderkin +44 (0)20 3480 5590
    Chantal Waight +44 (0)20 7548 3039

Notes to Editors:

1. The results in this announcement are prepared on two bases: International Financial Reporting Standards (IFRS) and European Embedded Value (EEV). The results prepared under IFRS form the basis of the Group's statutory financial statements. The supplementary EEV basis results have been prepared in accordance with the amended European Embedded Value Principles dated April 2016 prepared by the European Insurance CFO Forum. The Group’s EEV basis results are stated on a post-tax basis and include the post-tax IFRS basis results of the Group’s asset management and other operations. 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.
2. Annual Premium Equivalent (APE) sales comprise regular premium sales plus one-tenth of single premium insurance sales.
3. Operating profit is determined on the basis of including longer-term investment returns. EEV and IFRS operating profit is stated after excluding the effect of short-term fluctuations in investment returns against long-term assumptions. Furthermore, for EEV basis results, operating profit based on longer-term investment returns 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 arising principally on the acquisition of REALIC completed in 2012 and the cumulative foreign exchange gain on the disposal of the Korea life business that was recycled from Other Comprehensive Income on completion of the sale process in 2017.
4. Total number of Prudential plc shares in issue as at 30 June 2017 was 2,585,853,418.
5. 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:

http://www.prudential.co.uk/investors/results-centre

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) 20 3059 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 (UK and international excluding US) / + 1 844 2308 058 (US only) Passcode: 6695475#. This will be available from approximately 2.30pm (UK) / 9.30pm (Hong Kong) on 10 August 2017 until 11.59pm (UK) on 24 August 2017 and 6.59am (Hong Kong) on 25 August 2017.

6. 2017 First Interim Dividend

Ex-dividend date

23 August 2017 (Singapore)
24 August 2017 (UK, Ireland and Hong Kong)

Record date

25 August 2017

Payment of dividend

28 September 2017 (UK, Ireland and Hong Kong)
On or about 5 October 2017 (Singapore)
On or about 5 October 2017 (ADR holders)

7. About Prudential plc
Prudential plc and its affiliated companies constitute one of the world’s leading financial services groups, serving around 24 million insurance customers, with £635 billion of assets under management (as at 30 June 2017). Prudential plc is incorporated in England and Wales and is listed on the stock exchanges in London, Hong Kong, Singapore and New York. 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.
8. Forward-Looking Statements
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 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; the political, legal and economic effects of the UK’s decision to leave the European Union; the impact of continuing designation as a Global Systemically Important Insurer or ‘G-SII’; the impact of competition, economic uncertainty, inflation and deflation; the effect on Prudential’s business and results from, in particular, 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 internal projects and other strategic actions failing to meet their objectives; 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 and regulatory actions, investigations 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.

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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).