Embargo: 07.00am Thursday 19 March 2009
PRUDENTIAL PLC DELIVERS VERY STRONG 2008 FULL YEAR RESULTS
Embedded Value:
- EEV Operating Profit of GBP2,961 million up 17%
- New Business Profit of GBP1,307 million up 8%
- Asset management operating profit up 3% to GBP345 million
- EEV Shareholders' funds up 2% to GBP15.0 billion
- Net asset value per share GBP5.99 (2007: GBP5.91)
- Return on Embedded Value of 15.0% (2007: 15.4%)
IFRS:
- IFRS statutory operating profit of GBP1,347 million up 12%
- IFRS Shareholders' funds of GBP5.1 billion (2007: GBP6.1 billion)
- Net asset value per share GBP2.03 (2007: GBP2.45)
Capital & Cash:
- Robust IGD capital surplus estimated at GBP1.7 billion (2007:
GBP1.9 billion), GBP2.5 billion on completion of transfer of Taiwan
agency business
- Holding Company cash flow positive at GBP54 million
- 2008 full year dividend increased by 5% to 18.90 pence per share
Mark Tucker, Group Chief Executive said:"These results represent a very
strong absolute and relative
performance in quite exceptional circumstances. Our focus has remained
resolutely on delivering value over volume, whilst carefully managing
our risks, capital and cash. Group EEV operating profit was up 17 per
cent to GBP2,961 million and Group IFRS statutory operating profit was
up 12 per cent to GBP1,347 million. New business profits increased by 8
per cent and the Group margin increased from 42 per cent to 43 per cent,
demonstrating the resilience and sustainability of our retirement led
strategy.
Prudential is one of the strongest insurers in the world. Our prudent
but proactive approach has ensured our Group capital and cash position
remains very robust, with an estimated IGD surplus of GBP1.7 billion,
which will increase by GBP800 million on completion of the transfer of
our Taiwanese agency business. In line with our conservative dividend
policy, we are pleased to announce an increase in the final dividend
of 5 per cent to 12.91 pence per share.
All our businesses performed well in 2008. New business profit in
Asia grew 15 per cent to GBP741 million; Jackson saw new business
profit up 3 per cent to GBP293 million; while new business profit in
the UK was down only 1 per cent at GBP273 million. Asset management had
an excellent year with operating profit up 3 per cent to GBP345
million. In relative terms Prudential outperformed the market,
demonstrating the resilience of our strategy and the strength of our
operations worldwide.
2009 will be a challenging year and we will continue to focus on
balancing growth with cash and capital generation. Our geographic
diversification, distribution strategy, product mix and disciplined
approach all mean we can focus on the most profitable opportunities in
the pre and post-retirement sector. Combined with our dynamic approach
to risk management, this means we are well placed to outperform over
the economic and financial cycle."
Group Chief Executive's Report
I am pleased to report that Prudential delivered a strong performance
in all its businesses in 2008, and maintained a healthy capital
position despite the banking liquidity crisis in mid-year and the onset
of the most severe worldwide recession in more than a generation.
This achievement once again demonstrated the soundness of the strategy
the Group has followed in recent years. Our selective spreading of
geographic risk across different continents and types of economy,
our focus on the most profitable opportunities in the pre- and
post-retirement sector in each of our chosen markets, and our resolute
refusal to pursue sales volume targets at the expense of profit have
once again proved their worth. We have said in the past that this is a
formula for outperformance, and this has held true amid the
particularly testing conditions of recent months.
As well as reaffirming our strategy, these results also reflect the
operational expertise and excellence that our operating divisions
around the world bring to bear, and fully justify our commitment to
nurturing the financial strength of the Group through prudent
management of capital resources.
Group Performance
During 2008, our Group operating profit before tax from continuing
operations, on the European Embedded Value (EEV) basis, rose to
GBP2,961 million, an increase of 17 per cent. This means our EEV
operating profit before tax has grown at a compound annual rate of 25
per cent since the end of 2004. The Group's return on embedded value
was 15.0 per cent (2007: 15.4 per cent).
On the statutory International Financial Reporting Standards (IFRS)
basis, operating profit before tax from continuing operations
increased by 12 per cent to GBP1,347 million. As a result, our IFRS
operating profit before tax has now grown at a compound annual rate of
21 per cent since the end of 2004.
Operating profit in the Group's asset management operations increased
by GBP11 million to GBP345 million in very difficult trading conditions
in all markets. Net inflows at M&G were GBP3.4 billion and our asset
management business in Asia recorded net inflows of GBP0.9 billion.
Equally important, our Group capital position remains robust. Using the
regulatory measure of the Insurance Groups Directive (IGD), the Group's
capital surplus was estimated at GBP1.7 billion with a solvency ratio of
162 per cent. Through an innovative transaction we have been allowed by
the regulator to include GBP0.3 billion of the shareholders' economic
interest in the future transfers from the UK With-Profits Fund, which
in total was worth GBP1.7 billion at 31 December 2008. Going forward,
there is the opportunity to develop similar transactions which may
allow us to access more of the residual GBP1.4 billion if required.
Our IGD position will be further strengthened during 2009 by around
GBP0.8 billion on completion of the transfer of the agency back-book
business in Taiwan, a transaction that we announced on 20 February
2009.
In addition to this strong capital position, the total credit reserve
for the UK annuity shareholder business is GBP1.4 billion.
We also retain significant flexibility and capacity for other
management actions to improve and protect our position still further,
were the need to arise.
Taking all these factors into account alongside our proactive approach
to risk management, we are confident that our Group remains resilient
to any further deterioration in market conditions across all asset
classes.
Our cash flow position has been improving over a number of years, and
in 2008 we achieved our target of being operating cash flow positive at
the Group level, with a cash surplus of GBP54 million.
Given this robust financial position, the Board has recommended a final
dividend of 12.91 pence per share, bringing the full-year dividend
to 18.90 pence per share, an increase of 5 per cent. The dividend is
covered 2.24 times by post-tax IFRS operating profit from continuing
operations.
Our Strategy
The Group's overriding objective remains the generation of sustainable
value for our shareholders, resulting from sound strategic positioning
to capture long-term growth opportunities in the pre- and
post-retirement market, combined with a focused approach to delivering
the optimal level of capital-efficient profitable growth in the short
and medium term.
The bedrock of our strategy is to be both highly international and very
selective. We look to maintain an internationally diverse portfolio of
businesses, embracing countries that are at different stages of
economic development but which all share one key attribute: the
opportunity for us to build a market-leading operation with prospects
for sustainable long-term profitable growth and a superior rate of
return on capital. In every market we choose to enter, we also benefit
from an operating model that enables each of our businesses to stay
close to its customers and their needs when formulating product and
distribution strategies, while taking a consistent, disciplined
Group-wide global approach to managing risk, capital and cash.
Within this proven framework, we maintain a strong and consistent focus
on the retirement savings, income and protection sectors. This has many
different facets, ranging from providing regular savings products that
accumulate funds for retirement, through healthcare protection at all
ages, to helping those entering or already in retirement to organise
their finances so as to secure an efficient retirement income. As
demographic and welfare trends worldwide continue to reinforce the need
for personal savings to provide income in retirement, and as the'baby-
boomer' generation in the Western world makes the transition from
employment into retirement, our strong presence, assets and
capabilities in the sector will position us to capture a
disproportionate share of this growing profit pool over the coming
years.
The Group's particularly strong association with the Asian region,
which has been our primary focus for investment and expansion in recent
years, has also been vindicated by recent events. Of course, Asian
markets did feel the impact of the global financial turmoil in
mid-2008, and the region's economic performance has undoubtedly
suffered as a consequence of the downturn in Western markets for its
goods. Nevertheless, Asia was the only region worldwide to record high
single-digit economic growth in 2008. Going forward, we believe
that Asia's fundamentals of continued economic growth, increasing mass
affluence and shifting demographics will continue to be powerful
drivers of profitable growth in the future. In line with our stated
strategy to review acquisition opportunities, we did look at AIA's
assets in Asia. Following careful consideration against our strict
financial criteria and our strategic objectives, we decided not to
proceed with an offer for any of these assets.
The US remains the largest retirement market in the world, validating
our strategy to position Jackson to meet the pre- and post-retirement
needs of the baby-boomer generation. As in the UK, the retirement and
near-retirement population will represent the fastest growing segment
of the market in the US over the next decade.
Overall we believe that our strategy, and the consistency with which we
execute it, are the core factors that differentiate us from our peers.
Product and Distribution Strategy
In all our operations, our aim is to have a suite of products that
delivers good value and meets customers' needs without being unduly
capital intensive or leaving the Group overly exposed to the economic
cycle. While we would not claim to be recession-proof, we have shown
that we are recession-resistant. The need to fund retirement savings
and provide for income in retirement is not going to go away - and this
makes our revenue streams highly resilient, even though at different
points in the cycle customers may prefer to achieve their goals through
different products and investment options.
In Asia, we continued to benefit in 2008 from our focus on regular
premium products, as sales of single premium products suffered amid the
market dislocation experienced in the second half of the year. In
addition, the breadth of our offering enabled us to refocus our
energies on higher-margin health and protection products, and also on
with-profits for the more cautious investor.
In the US, the prevailing economic uncertainty and equity market
volatility had a negative impact on variable annuity sales in 2008.
However, fixed annuity product sales increased as customers became more
risk averse. Jackson's strength across the annuity product range
enabled us to anticipate this change and meet shifting demand. We
executed this change while maintaining our disciplined approach to
pricing, despite intense price pressures in the variable annuity
market. Our successful hedging of variable annuity guarantees meant our
equity hedging gains more than offset the drop in equity markets during
the year.
During 2008, Prudential's UK Insurance Operations benefited from our
strength in the individual annuity market, supported by a significant
flow from internal vesting pensions and continuing high conversion
rates.
At the same time, with consumers seeking greater security and stability
amid unprecedented market volatility, the financial strength of our
with-profit funds and our long-term investment performance, proved to
be further advantages. We remain a market leader in both individual
annuities and with-profits, as well as in the corporate pensions market
and the emerging equity release market.
Across our asset management businesses we have broad multi-asset
capabilities covering all asset classes. Once again, these enable us to
tailor our offerings to changing market conditions and customer
preferences. M&G's investment performance and distribution strength
were key drivers behind M&G's robust profits, net sales performance and
clear relative outperformance.
We are also maintaining our proud track record of innovation in product
design. In the UK in 2008 we introduced an income drawdown product and
enhanced lifestyle pricing for annuities. And we continued to build on
our success in the with-profits sector by extending our multi-asset
capabilities across additional product structures. In Asia we continue
to build our health and protection product range, and have enjoyed
great success in developing Shariah-compliant products in
both Indonesia and Malaysia.
Our operating model also enables us to be flexible in distribution,
identifying and developing the specific distribution mix that will
create the optimal value in each market. In Asia, for example, we are
unique in that we have developed both the largest regional network of
tied agents and also excellent partnerships with Standard Chartered and
many other banks across the region. In the United States, our highly
successful distribution model focuses on our industry leading
wholesaler teams, who offer genuine added-value to the independent
financial advisor channel while also distributing products through
Regional Broker Dealers and banks. In the UK, we have a diverse
multi-channel approach including direct sales, financial advisers and
partnerships.
In asset management, our businesses achieve similar flexibility through
a multi-channel, multi-geography distribution approach in both the
retail and institutional marketplaces.
A further manifestation of our flexibility is our portfolio of
valuable, market-leading brands. Brands create value through their
relationship and resonance with customers. Whether you look at
Prudential, Jackson, M&G or any of our other brands, each has a clear
personality and values that helps us build and sustain customer loyalty
and trust. The benefits of this trust were especially apparent in 2008,
when the collapse in consumer confidence in the financial services
sector saw us benefit from a concerted 'flight to quality'.
Risk and Capital Management
The events of 2008 have put the balance sheets and capital positions of
all insurance companies under close scrutiny. Few anticipated the depth
of the banking crisis or the speed of onset of recession in the western
economies. But at Prudential we entered 2008 in a generally defensive
mode in expectation of a general downturn in the economic outlook - and
this certainly stood us in good stead as events unfolded.
Despite the downturn, the capital position of the Group remained strong
in 2008, in the face of a testing combination of highly volatile and
declining equity markets, falling interest rates, widening spreads on
corporate bonds, and rapidly deteriorating credit conditions. Our
defensive stance on credit exposure in particular served us well - as
did the comprehensive equity hedging strategies that we had put in
place in the US to protect against product guarantees.
Given the crisis in the global banking industry in 2008, it is worth
restating the fundamental differences between life insurers and banks -
a distinction that extends to the two industries' business models,
capital ratios and regulatory needs. Insurers do not borrow short and
lend long, do not give out credit, are structurally long in terms of
liquidity, and are much better able to hold assets to maturity without
risk of forced selling at depressed prices.
Equally important, at Prudential effective capital and risk management
are central to our approach to managing the Group. We took to heart the
lessons from the last downturn in 2002 and 2003, and responded by
improving our skills base, reducing concentration levels, and managing
our exposures prudently, but proactively. These measures paid off in
2008.
During the year we also took the decision not to proceed with the
reattribution of the inherited estate in the UK With-Profits Sub-Fund
of Prudential Assurance Company. This decision was taken after an
exhaustive review of the potential benefits and disadvantages of such a
move for policyholders and shareholders, the conclusion from which was
that it would be in their best long-term interests to maintain the
strength and stability inherent in the status quo. This cautious
approach on behalf of policyholders and investors was supported at the
time by most market commentators, and has been amply vindicated by
subsequent events.
We also remain comfortable with the Group's liquidity position at both
holding and subsidiary company level. The holding company has
significant internal sources of liquidity. As well as cash and
near-cash assets of GBP2.1 billion - more than sufficient to meet all
our requirements for the foreseeable future - the Group also has in
place GBP1.4 billion of undrawn committed banking facilities.
One result of our consistently cautious capital and cash management
strategy is our ability to maintain our conservative dividend policy,
as reflected in the dividend announced with these results. Going
forward, our Board will continue to focus on delivering a growing
dividend, the size of which will of course continue to reflect the
Board's view at the time of the Group's financial position and needs,
including available opportunities for profitable investment. The Board
believes that, in the medium term, a dividend cover of around two times
is appropriate to maintain a progressive, though conservative, dividend
policy.
Investing for the Future
Amid all the turmoil in the global markets, it is imperative that we
continue to invest for the future to ensure we are positioned to
accelerate out of the economic slowdown and maintain our record of
outperformance.
Key to this will be our ability to prepare for, identify and capture
emerging growth opportunities. With this in mind, in 2008 we continued
to reinforce the already strong positions of our businesses in our
chosen markets - and these efforts have continued into 2009, with a
particular focus on recruiting the best talent.
Improving the efficiency of our operations remains an ongoing
objective. As announced in our 2007 full-year results, the first phase
of our UK cost reduction programme delivered savings of GBP115 million
per annum. The agreement with Capita, which commenced in April 2008,
will ultimately deliver a further GBP60 million per annum of savings and
will enable our UK business to achieve its total cost savings target of
GBP195 million by the end of 2010. In the US we are already a market
leader in terms of operational efficiency and have service levels that
are externally acknowledged as world class. We will continue to invest
in maintaining and extending this leadership through further systems
simplification, enabling us to stay ahead of the competition.
Outlook
It is clear that 2009 will be a challenging year. Indeed, there is an
increasing likelihood that in some parts of the world recession will
continue into 2010. However, the global economy will ultimately rebound
- albeit at different times and different speeds in different markets.
Given the uncertainty in the operating environment we have taken a
prudent approach to our plans for 2009. This means focusing on
balancing new business with cash generation, and making it our absolute
priority to ensure that our balance sheet and capital position remain
robust. At the same time, we will continue to position our businesses
to take advantage of any improvement in market conditions.
It is my firm belief that this cautious but proactive strategy will
allow us both to continue to outperform over the economic cycle.
ENDS
Enquiries:
Media
Edward Brewster +44 (0)20 7548 3719
Sunita Patel +44 (0)20 7548 2466
Tom Burns, +44 (0)20 7404 5959
Brunswick
Investors/Analysts
James Matthews +44 (0)20 7548 3561
Jessica Stalley +44 (0)20 7548 3511
Notes to Editors:
1. In addition to the financial statements provided with this press
release, additional financial schedules, including full details of the
Group's investments, are available on the Group's website at
www.prudential.co.uk/prudential-plc/
2. 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 principles issued by
the CFO Forum of European Insurance Companies in May 2004 and expanded
by the Additional Guidance on EEV disclosures published in October
2005. Where appropriate the EEV basis results include the effects of
IFRS.
Period on period percentage increases are stated on an actual exchange
rate basis.
3. Annual premium equivalent (APE) sales comprise regular premium sales
plus one-tenth of single premium insurance sales.
4. Present value of new business premiums (PVNBP) are calculated as
equalling single premiums plus the present value of expected new
business premiums of regular premium business, allowing for lapses and
other assumptions made in determining the EEV new business
contribution.
5. An interview with Mark Tucker, Group Chief Executive, (in video/
audio/text) will be available on both www.cantos.com and
www.prudential.co.uk/prudential-plc/ from 07.00am today.
6. There will be a conference call today for wire services at 07.30am
(GMT) hosted by Mark Tucker, Group Chief Executive and Tidjane Thiam,
Chief Financial Officer. Dial in telephone number: 020 8609 0793.
Passcode: 797476#
7. A presentation to analysts will take place at 09.30am (GMT) at
Governor's House, Laurence Pountney Hill, London, EC4R 0HH. An audio
cast of the presentation and the presentation slides will be available
on the Group's website, www.prudential.co.uk/prudential-plc/
8. A media roundtable will take place at 12pm (GMT) at 12 Arthur
Street, London, EC4R 9AQ. To attend please call Sunita Patel on 020
7548 2466.
9. High resolution photographs are available to the media free of
charge at www.newscast.co.uk on +44 (0) 207 608 1000 or by calling
Sunita Patel on 020 7548 2466.
10. Total number of Prudential plc shares in issue as at 31 December
2008 was 2,496,947,688.
11. Financial Calendar 2009:
First Quarter 2009 Interim Management Statement 14 May 2009
Annual General Meeting 14 May 2009
Interim Results 2009 13 August 2009
Third Quarter 2009 Interim Management Statement 28 October 2009
2008 Final Dividend
Ex-dividend date 8 April 2009
Record date 14 April 2009
Payment of dividend 22 May 2009
2009 Interim Dividend
Ex-dividend date 19 August 2009
Record date 21 August 2009
Payment of dividend 24 September 2009
12. About Prudential plc
Prudential plc is a company incorporated and with its principal place
of business in England, 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 160
years and has GBP249 billion in assets under management (as at 31
December 2008). 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.
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