11 Aug 2015

Prudential plc 2015 Half Year Results

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

PRUDENTIAL DELIVERS BROAD-BASED PROFITABLE GROWTH AND INCREASED CASH GENERATION

Group Performance Highlights (on constant exchange rate basis)

  • IFRS operating profit of £1,881 million, up 17 per cent1
  • EEV new business profit of £1,190 million, up 12 per cent1,2
  • Underlying free surplus generation3 (after investment in new business) of £1,418 million, up 12 per cent1
  • Net cash remittances from business units of £1,068 million, up 10 per cent

Business Units Performance Highlights (on constant exchange rate basis)

  • Asia life and asset management IFRS operating profit of £632 million, up 17 per cent1
  • Jackson life IFRS operating profit of £834 million, up 11 per cent1
  • UK life IFRS operating profit of £436 million, up 19 per cent2
  • M&G IFRS operating profit of £251 million, up 11 per cent

Capital & Dividend

  • IFRS shareholders’ funds of £12.1 billion, up 14 per cent4
  • EEV shareholders’ funds of £30.1 billion, up 16 per cent4, equivalent to 1,170 pence per share
  • Insurance Groups Directive capital surplus5 estimated at £5.2 billion; solvency requirements covered 2.5 times
  • 2015 interim dividend increased by 10 per cent to 12.31 pence per share

Commenting on the results, Mike Wells, Group Chief Executive, said:

“We have delivered a strong, broad-based performance in the first half of 2015. Our consistent strategy, rigorous execution and tight focus on the needs of our customers have ensured that we continue to deliver profitable growth and increased cash generation.

“Group IFRS operating profit increased 17 per cent to £1,881 million and EEV new business profit grew by 12 per cent to £1,190 million, while underlying free surplus generation increased by 12 per cent to £1,418 million.

“We have seen strong performances from each of our principal business units. In Asia, where we are focused on meeting the protection and savings needs of the growing middle classes through our high-quality agency force and productive bank partnerships, our life and asset management businesses delivered a combined IFRS operating profit of £632 million, up by 17 per cent and free surplus generation of £356 million, up 16 per cent. Life new business profit in the region was up 30 per cent to £664 million, reflecting a 31 per cent increase in APE sales.

“At Eastspring, our Asia-based asset management business, external net inflows of £4.6 billion and positive market movements have driven total funds under management to a record level of £85.3 billion, 28 per cent higher than a year ago.

“In the US, Jackson continues to execute with discipline, delivering growth in both IFRS operating profit and cash, while maintaining a strong focus on value, risk management and capital. In the first half of 2015, we continued to manage proactively sales of variable annuities with living benefits while diversifying our sales mix. Our success in capturing strong variable annuity inflows at attractive margins drove our separate account asset base 11 per cent6 higher to £85.9 billion at 30 June 2015. Jackson’s life IFRS operating profit consequently increased by 11 per cent to £834 million, which represents a new high at the half year stage. Cash remittances also grew by 14 per cent (on an actual exchange rate basis) to £403 million.

“Our UK life business delivered a strong performance amid an unprecedented level of regulatory change affecting how customers access their savings in retirement. Prudential delivered a 25 per cent increase in retail APE sales to £393 million, despite lower sales of retail annuities. This volume growth, together with the completion of two attractively priced bulk deals in the first half of the year, resulted in a 12 per cent increase in total new business profit. Life IFRS operating profit of £436 million was up 19 per cent, reflecting ongoing active management to unlock value in our in-force business.

“In asset management, M&G delivered operating profit of £251 million, an increase of 11 per cent, reflecting higher average levels of funds under management. This was achieved despite the net outflows experienced in the second quarter of 2015, a consequence of softer consumer sentiment on fixed income assets.

“Our capital-generative business model and our disciplined approach to risk management have driven our shareholders’ equity and our estimated Insurance Groups Directive surplus to higher levels at 30 June 2015 than at 31 December 2014. In anticipation of the implementation of Solvency II at the start of 2016, we submitted our internal model to the Prudential Regulation Authority for approval in June. Alongside our UK peers, we expect to hear the outcome of the approval process in early December. Our strong half year performance and sound capital position have enabled us to increase our 2015 interim dividend by 10 per cent to 12.31 pence per share.

“In summary, the first half of the year has demonstrated the success of our disciplined execution of the Group’s strategy. We are capturing profitably the opportunities available to us in the growing markets of Asia, while in the US and the UK we are continuing to use our established market position, distribution strength and products that are valued by customers to deliver growth in IFRS operating profit and free surplus generation. In doing so, we are making progress towards our 2017 objectives.

“I am pleased to be able to announce such a strong performance today, the first time I have reported our results after taking over as Group Chief Executive at the beginning of June. Since then I have visited all of our major business operations, which has confirmed to me not only that our strategy is the right one, but that we have all of the capabilities required to execute it successfully.

“Looking ahead, despite ongoing macro-economic uncertainties, we are confident that our proven strategy, strong execution and the quality of our people will continue to deliver great products and service to our 25 million customers and relative outperformance to our shareholders.”

Contact:

Media Investors/Analysts
Jonathan Oliver +44 (0)20 7548 3719 Raghu Hariharan +44 (0)20 7548 2871
Tom Willetts +44 (0)20 7548 2776 Richard Gradidge +44 (0)20 7548 3860

1 Period-on-period percentage increases are stated on a constant exchange rate basis unless otherwise stated. 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. All amounts are comparable to the six months ended 30 June 2014 unless otherwise indicated.
2 Following the disposal of the Group’s 25 per cent interest in PruHealth and PruProtect in November 2014, the 2014 comparative results of UK insurance operations have been adjusted to exclude results of those businesses.
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 30 June 2014 on an actual exchange rate basis.
5 Before allowing for interim dividend.
6 Comparable to 30 June 2014 on a constant exchange rate basis.

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 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. The Group’s EEV basis results are stated on a post-tax basis and, where appropriate, include the effects of IFRS. 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 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, gain on the sale of PruHealth and PruProtect and the costs arising from the domestication of our Hong Kong business. Furthermore, for the 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 arising principally on the acquisition of REALIC completed in 2012 and the cumulative foreign exchange loss on the disposal of the Japan Life business that has been recycled from Other Comprehensive Income on completion of the sale process.
4. Total number of Prudential plc shares in issue as at 30 June 2015 was 2,571,064,069.
5. A presentation for analysts and investors will be held today at 11.00am (UK) / 6.00pm (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://prudential.co.uk/investors/results-and-presentations/results-day

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 10.30am (UK) / 5.30pm (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, Passcode: 1320141#. This will be available from approximately 4.00pm (UK) / 11.00pm (Hong Kong) on 11 August 2015 until 11.59pm (UK) on 25 August 2015 and 06.59am (Hong Kong) on 26 August 2015.
6. High-resolution photographs are available to the media free of charge at
www.prudential.co.uk/prudential-plc/media/media_library
7. 2015 Interim Dividend
Ex-dividend date 20 August 2015 (UK, Ireland and Hong Kong)
19 August 2015 (Singapore)
Record date 21 August 2015
Payment of dividend 24 September 2015 (UK, Ireland and Hong Kong)
On or about 1 October 2015 (Singapore)
On or about 1 October 2015 (ADR holders)
8. About Prudential plc
Prudential plc is incorporated in England and Wales, and its affiliated companies constitute one of the world's leading financial service groups serving around 25 million customers and has £505 billion of assets under management (as at 30 June 2015). Prudential plc 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.
9. 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 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 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 uncertainty, inflation and deflation; changes in Prudential’s profitability due 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.

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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).