Prudential plc Full Year 2019 Results

HKEx English version
HKEx Chinese version

Links to supplementary information about this release:
Full news release and business review
IFRS disclosure
EEV statements
Risk factors
2019 full year financial supplement

PRUDENTIAL DELIVERS RESILIENT BROAD-BASED GROWTH IN ASIA

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

Group adjusted operating profit¹ from continuing operations of $5,310 million, up 20 per cent² (20 per cent³)
Asia adjusted operating profit¹ up 14 per cent² (up 13 per cent³); Asia embedded value up 23 per cent³ to $39.2 billion
Double-digit growth² in new business profit⁴ in eight markets in Asia
Preparations commenced for a minority IPO of Jackson
LCSM shareholder surplus⁵ estimated at $9.5 billion, equivalent to cover ratio of 309 per cent
Second interim ordinary dividend of 25.97 cents per share

Mike Wells, Prudential plc’s Group Chief Executive, said: “We have delivered another positive performance during 2019, despite significant macroeconomic and geopolitical volatility. Our clear strategy and strong execution have enabled us both to deliver profitable growth and to position ourselves for further growth into the future.

“In Asia, we are focused on growth opportunities. We are building the long-term value of our fast-growing franchise by deepening our strong relationships with existing customers and by acquiring new customer relationships. We are continuing to strengthen our agency and bank channels in Asia, and harnessing the opportunities of digital technology, including Pulse by Prudential, our new end-to-end digital health app. We see continuing opportunities for selective inorganic investment.

“Outside Hong Kong, we delivered a 17 per cent² increase in APE⁶ sales and a 29 per cent² rise in new business profit⁴. This includes China where APE⁶ sales were up by 53 per cent². Fewer visitors from mainland China caused a fall in total Hong Kong APE⁶ sales by 11 per cent² and a fall in new business profit⁴ of 12 per cent². Adjusted operating profit from Asia insurance operations was $2,993 million, growing by 14 per cent² with Hong Kong up by 24 per cent² to $734 million demonstrating the resilience of our business. Our Asia asset manager, Eastspring, performed well, with net external inflows of $8.9 billion⁷ (2018: net outflows $(2.1) billion⁷) contributing to average assets under management up 15 per cent³ and adjusted operating profit of $283 million, up 18 per cent².

“In the US, the world’s largest retirement savings market and the continuing transition of millions of Americans into retirement creates a substantial opportunity for Jackson’s products. US APE⁶ sales increased by 8 per cent driven by fixed income and fixed index annuities, in line with our diversification strategy. New business profit⁴ declined by 28 per cent, reflecting lower interest rates and changes in product mix. US adjusted operating profit¹ increased by 20 per cent to $3,070 million, reflecting the impact of lower market-related amortisation of deferred acquisition costs. Higher equity markets also led to US separate account assets increasing by 19 per cent³ to $195.1 billion. Our US business continued its long term track record of delivering cash to the Group, remitting a dividend of $525 million⁸ during the year.

“As previously stated, in order to diversify at pace, Jackson will need access to additional investment, which we believe would best be provided by third parties. We are today announcing that the Board has determined that the preferred route to achieve this is a minority Initial Public Offering (IPO) of Jackson. We have already taken a number of management actions to support this path. We will now begin detailed engagement with our key stakeholders, with a view to ensuring that Jackson will have the capital strength as a separately listed business to support its continued success as a broad provider of retirement solutions for America’s aging population.

“We continue to monitor closely the development of the coronavirus outbreak and are focused on the health and well-being of our customers and staff. The outbreak has slowed economic activity and dampened our sales momentum in Hong Kong and China. Given these conditions, lower levels of new sales activity in affected markets are to be expected with a consequential effect on new business profit. Our in-force business is proving robust. The broad geographic spread of our business across the region and the strength of our recurring premium business model lends considerable resilience to our earnings.

“I am confident that, with our clear focus on our structural growth markets and our continuing operational improvements, we will continue to deliver profitable growth for our investors and benefits for our stakeholders over the medium and long term.”

Summary financials	2019 $m	2018 $m	Change on AER basis	Change on CER basis

Adjusted operating profit from continuing operations¹	5,310	4,409	20%	20%
Operating free surplus generated from continuing operations before US EEV modelling enhancements^9,10	3,764	3,410	10%	10%
Life new business profit from continuing operations⁴	4,405	4,707	(6)%	(6)%
IFRS profit after tax from continuing operations¹¹	1,953	2,881	(32)%	(33)%
Net cash remittances from business units from continuing operations^8,12	1,465	1,417	3%	-
LCSM shareholder surplus over Group minimum capital requirement⁵	$9.5bn	$9.7bn	(2)%	-

31 December 2019	Total	Per share
IFRS shareholders’ funds¹³	$19.5bn	749¢
EEV shareholders’ funds¹³	$54.7bn	2,103¢

Notes

¹ In this press release ‘adjusted operating profit’ refers to adjusted IFRS operating profit based on longer-term investment returns from continuing operations. This alternative performance measure is reconciled to IFRS profit for the year in note B1.1 of the IFRS financial statements.
² Year-on-year percentage increases are stated on a constant exchange rate basis unless otherwise stated.
³ Growth rate on an actual exchange rate basis.
⁴ New business profit, on a post-tax basis, on business sold in the year, calculated in accordance with EEV Principles.
⁵ Surplus over Group minimum capital requirement and estimated before allowing for second interim ordinary dividend. Shareholder business excludes the available capital and minimum requirement of participating business in Hong Kong, Singapore and Malaysia. 2018 surplus excludes M&G plc and includes $3.7 billion of subordinated debt issued by Prudential plc that was transferred to M&G plc on 18 October 2019. Further information on the basis of calculation of the LCSM measure is contained in note I(i) of the Additional unaudited financial information.
⁶ APE sales is a measure of new business activity that comprises the aggregate of annualised regular premiums and one-tenth of single premiums on new business written during the year for all insurance products, including premiums for contracts designated as investment contracts under IFRS 4. It is not representative of premium income recorded in the IFRS financial statements. See note II of the Additional unaudited financial information for further explanation.
⁷ Excludes Money Market Funds.
⁸ During 2019, the Group’s holding company cash flow was managed in sterling and significant remittances were hedged and recorded on that basis. Amounts received were therefore distorted by the onwards translation into US dollars. The dividend paid by Jackson in the US in US dollars in 2019 was $525 million (2018: $450 million). The amount recorded as received in the holding company cash flow was $509 million (2018: $452 million).
⁹ For insurance operations, operating free surplus generated represents amounts maturing from the in-force business during the year less investment in new business and excludes non-operating items. For asset management businesses, it equates to post-tax operating profit for the year. Further information is set out in note 11 of the EEV basis results.
¹⁰ During 2019, as part of the implementation of the NAIC’s changes to the US statutory reserve and capital framework enhancements were made to the model used to allow for hedging within US statutory reporting which have been incorporated into the EEV model. This resulted in a fall in operating free surplus of $(903) million from a lower expected transfer to net worth. After allowing for this, operating free surplus generated is $2,861 million, down 16 per cent on both a constant and actual exchange rate basis.
¹¹ IFRS profit after tax from continuing operations reflects the combined effects of operating results determined on the basis of longer-term investment returns, together with short-term investment variances which for 2019 were driven by non-operating losses in Jackson, corporate transactions, amortisation of acquisition accounting adjustments and the total tax charge for the year.
¹² Net cash remitted by business units are included in the holding company cash flow, which is disclosed in detail in note I(iii) of the Additional unaudited financial information. This comprises dividends and other transfers from business units that are reflective of emerging earnings and capital generation.
¹³ IFRS and EEV Shareholders’ funds at 31 December 2019 are not directly comparable to group shareholders’ funds reported at 31 December 2018, as the prior year balance included shareholders’ funds of M&G plc which, following demerger, are not part of the Group at 31 December 2019. The reported 31 December 2018 IFRS shareholders’ funds per share were 847¢ and EEV shareholders’ funds per share were $2,445¢.

Contact:

Media		Investors/Analysts
Jonathan Oliver	+44 (0)20 3977 9500	Patrick Bowes	+44 (0)20 3977 9702
Tom Willetts	+44 (0)20 3977 9760	William Elderkin	+44 (0)20 3977 9215

Notes to Editors:

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 issued by the European Insurance CFO Forum in 2016. 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. The IFRS and EEV results are presented in US dollars, reflecting the change in the Group’s presentational currency, and comparative amounts are restated accordingly. The basis of translation is discussed in note A1 of the IFRS financial statements. Period-on-period percentage increases are stated on a constant exchange rate basis unless otherwise stated. Constant exchange rates are calculated by translating prior period results using the current period foreign exchange rate ie current period average rates for the income statement and current period closing rates for the balance sheet.

EEV and adjusted IFRS operating profit based on longer-term investment returns are stated after excluding the effect of short-term fluctuations in investment returns against long-term assumptions, which for IFRS in 2019 were driven by the negative effects in the US, and gains/losses arising on the disposal of businesses and other corporate transactions including costs associated with the demerger of M&G plc. 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, adjusted operating profit also excludes amortisation of accounting adjustments arising principally on the acquisition of REALIC completed in 2012. The amounts shown are for continuing operations only (being Asia, US and central operations including Africa but excluding M&G plc) unless otherwise stated.

Total number of Prudential plc shares in issue as at 31 December 2019 was 2,601,159,949.

A presentation for analysts and investors will be held today at 11.30am (UK time) / 7.30pm (Hong Kong time) in the Conference Centre of Nomura, 1 Angel Lane, London EC4R 3AB. The presentation will be webcast live and available to replay afterwards using the following link https://www.investis-live.com/prudential/5e26d0d852202e0d004a4961/wsse

To register attendance in person please send an email to investor.relations@prudentialplc.com

Alternatively, 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, ie from 11.00am (UK time) / 7.00pm (Hong Kong time).

Dial-in: 020 3936 2999 (UK Local Call) / +44 20 3936 2999 (International) / 0800 640 6441 (Freephone UK), Participant access code: 776388. Once participants have entered this code their name and company details will be taken.

Playback: +44 (0) 20 3936 3001 (UK and international excluding US) / + 1 845 709 8569 (US only) (Replay code: 542585). This will be available from approximately 3.00pm (UK time) / 11.00pm (Hong Kong time) on 11 March 2020 until 11.59pm (UK time) on 25 March 2020 / 7.59am (Hong Kong time) on 26 March 2020.

2019 Second Interim Ordinary Dividend

Ex-dividend date	26 March 2020 (UK, Hong Kong and Singapore)
Record date	27 March 2020
Payment of dividend	15 May 2020 (UK, Hong Kong and ADR holders) On or about 22 May 2020 (Singapore)

About Prudential plc
Prudential plc is an Asia-led portfolio of businesses focused on structural growth markets. The business helps individuals to de-risk their lives and deal with their biggest financial concerns through life and health insurance, and retirement and asset management solutions. Prudential plc has 20 million customers and is listed on 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, nor with the Prudential Assurance Company, a subsidiary of M&G plc, a company incorporated in the United Kingdom.

Discontinued Operations
Throughout this results announcement ‘discontinued operations’ refers to the recently demerged UK and Europe operations (referred to as M&G plc). All amounts presented refer to continuing operations unless otherwise stated.

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 continuance of a sustained low-interest rate environment, and the impact of economic uncertainty, asset valuation impacts from the transition to a lower carbon economy, inflation and deflation and the performance of financial markets generally; global political uncertainties; the policies and actions of regulatory authorities, including, in particular, the policies and actions of the Hong Kong Insurance Authority, as Prudential’s new Group-wide supervisor, as well as new government initiatives generally; the impact of continuing application of Global Systemically Important Insurer or ‘G-SII’ policy measures on Prudential; the impact on Prudential of systemic risk policy measures adopted by the International Association of Insurance Supervisors; the impact of competition and fast-paced technological change; the effect on Prudential’s business and results from, in particular, mortality and morbidity trends, lapse rates and policy renewal rates; the physical impacts of climate change and global health crises on Prudential’s business and operations; the timing, impact and other uncertainties of future acquisitions or combinations within relevant industries; the impact of internal transformation projects and other strategic actions failing to meet their objectives; the risk that Prudential’s operational resilience (or that of its suppliers and partners) may prove to be inadequate, including in relation to operational disruption due to external events; disruption to the availability, confidentiality or integrity of Prudential’s IT, digital systems and data (or those of its suppliers and partners); any ongoing impact on Prudential of the demerger of M&G plc; 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; the impact of legal and regulatory actions, investigations and disputes; and the impact of not adequately responding to environmental, social and governance issues. 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 of 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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