Prudential plc Half 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 half year financial supplement

PRUDENTIAL CONTINUES TO DELIVER ASIA-LED GROWTH AND PREPARES FOR DEMERGER IN Q4 2019

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

Group operating profit¹ from continuing operations (excluding M&GPrudential) of £2,024 million, up 14 per cent² (21 per cent)
Asia operating profit¹ up 14 per cent² (up 18 per cent); new business profit³ up 10 per cent² (up 15 per cent); operating free surplus generation⁴ up 13 per cent² (up 16 per cent)
US operating profit¹ up 14 per cent² (up 21 per cent); RBC capital ratio in excess of 400 per cent
2019 first interim ordinary dividend increased by 5 per cent to 16.45 pence per share in line with our existing dividend policy
Group Solvency II surplus^5,6 estimated at £16.7 billion, equivalent to a cover ratio of 222 per cent
Demerger expected to be completed in fourth quarter of 2019, as a result of which M&GPrudential has been classified as discontinued operations.

Mike Wells, Group Chief Executive, said: “We have delivered a positive performance in the first half of 2019. The Group’s operating profit¹ from continuing operations increased by 14 per cent². Our focus on key areas of operational improvement and continued investment has enabled us to drive growth and position ourselves to continue to grow profitably. At the same time, we expect to complete the demerger of M&GPrudential in the fourth quarter of 2019, and preparations are complete for Prudential plc’s move to Group-wide supervision by the Hong Kong Insurance Authority. We believe that the demerger will enable both businesses to maximise their potential performance. Both will have experienced management teams better able to focus on their strategic priorities and distinct investment prospects, as well as improved allocation of resources and greater flexibility in execution.

“The Group’s performance has again been driven by our Asian business, where we have delivered double-digit growth across our key metrics of operating profit¹, up 14 per cent², new business profit³ and APE sales¹², both up 10 per cent², and operating free surplus generation⁴, up 13 per cent². Total assets under management at our Asian asset manager, Eastspring, grew 12 per cent⁷ to £169.5 billion, with positive external net flows of £3.1 billion⁸ (2018: net outflows of £0.9 billion on an actual exchange rate basis). Our multi-channel strategy across life insurance and asset management ensures that we provide high-quality products delivering distinctive value-added services to our broad customer base. We are benefiting from growing demand for health, protection and savings across the region and we are constantly improving our access to this demand by innovating in new value-added services, distribution and digitalisation of the customer journey. We recently passed another key milestone through the first launch of our new holistic health management app, Pulse by Prudential, in Malaysia, which will be followed by a wider roll-out across the region.

“In the US, Jackson’s operating profit¹ increased by 14 per cent², largely due to lower amortisation of deferred acquisition costs resulting from the strong equity market performance in the period. With greater clarity in key consumer regulations emerging, we intend to accelerate our process of diversifying our business, while retaining our longstanding discipline in terms of risk management. We have a leading position in the retirement income industry, with strong long-term economics, and our operating platform has industry-leading cost advantages and is highly digital and scalable. We are in the process of driving a more diversified product mix and developing relationships with new distributors. We are actively exploring options to accelerate this diversification.

“M&GPrudential is approaching life as a fully independent business, and its Board and management are in place. The business is well positioned to capture the opportunities created by shifting demographics and the search for yield, through its differentiated, high-value savings and investment solutions. While operating profit¹ was lower at £687 million (2018: £736 million), PruFund net inflows of £3.5 billion contributed to 6 per cent growth in total assets under management⁹ to £341.1 billion.

“Our focus on structural growth opportunities in terms of geographies, products and distribution platforms and our diligent approach to execution mean that we are well placed to continue to deliver important benefits for our customers and profitable growth for our shareholders.”

Summary financials	Half year 2019 £m	Half year 2018 £m	Change on AER basis	Change on CER basis

Operating profit from continuing operations¹	2,024	1,669	21%	14%
Operating profit from discontinued operations¹	687	736	(7)%	(7)%
Operating free surplus generated from continuing operations⁴	1,502	1,173	28%	22%
Life new business profit from continuing operations³	1,643	1,588	3%	(2)%
Life new business profit from discontinued operations³	152	179	(15)%	(15)%
IFRS profit after tax (total continuing and discontinued operations)¹⁰	1,540	1,356	14%	7%
Net cash remittances from business units (both continuing and discontinued operations)¹¹	1,212	1,111	9%	-

	30 June 2019	31 December 2018	Change on AER basis

IFRS shareholders’ funds per share	757p	665p	14%
EEV shareholders’ funds per share	2,055p	1,920p	7%
Group Solvency II cover ratio^5,6	222%	232%	(10)pp

Notes

¹ In this press release ‘operating profit’ refers to adjusted IFRS operating profit based on longer-term investment returns. This alternative performance measure is reconciled to IFRS profit for the period in note B1.1 of the IFRS financial statements. Continuing operations relate to Asia, US and central operations (including Africa). It excludes M&GPrudential which met the criteria to be classified as held for distribution at 30 June 2019 and hence is shown as discontinued. M&GPrudential operating profit is stated after restructuring costs.
² Period-on-period percentage increases are stated on a constant exchange rate basis unless otherwise stated.
³ New business profit, on a post-tax basis, on business sold in the period, calculated in accordance with EEV Principles.
⁴ For insurance operations, operating free surplus generated represents amounts maturing from the in-force business during the period less investment in new business and excludes non-operating items. For asset management businesses, it equates to post-tax operating profit for the period. Restructuring costs are presented separately from the underlying business unit amount. The amount is for continuing operations only (ie M&GPrudential is excluded). Further information is set out in note 9 of the EEV basis results.
⁵ The Group shareholder capital position covers continuing and discontinued operations and excludes the contribution to own funds and the Solvency Capital Requirement from ring-fenced with-profits funds and staff pension schemes in surplus. The estimated solvency positions include management’s calculation of UK transitional measures reflecting operating and market conditions at each valuation date.
⁶ Estimated before allowing for first interim ordinary dividend (31 December 2018: second interim ordinary dividend).
⁷ Growth from 31 December 2018.
⁸ Excluding money market funds.
⁹ Represents M&GPrudential asset management external funds under management and internal funds included on the M&GPrudential long-term insurance business balance sheet.
¹⁰ IFRS profit after tax reflects the combined effects of operating results determined on the basis of longer-term investment returns, together with short-term investment variances, which in half year 2019 were driven by those arising in the US, results attaching to disposal of businesses and corporate transactions, amortisation of acquisition accounting adjustments and the total tax charge for the period.
¹¹ 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 financial information. This comprises dividends and other transfers from business units that are reflective of emerging earnings and capital generation.
¹² 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 period 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 financial information for further explanation.

Contact:

Media		Investors/Analysts
Jonathan Oliver	+44 (0)20 3977 3500	Patrick Bowes	+44 (0)20 3977 9702
Tom Willetts	+44 (0)20 3977 9760	Richard Gradidge	+44 (0)20 3977 4014
Addy Frederick	+44 (0)20 3977 9399	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. 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 half year 2019 were driven by those arising in the US, and gains/losses arising on the disposal of businesses and other corporate transactions including costs associated with the demerger of M&GPrudential. 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. The amounts shown are for continuing operations only (being Asia, US and central operations including Africa but excluding M&GPrudential) unless otherwise stated.

Total number of Prudential plc shares in issue as at 30 June 2019 was 2,599,796,199.

A presentation for analysts and investors will be held today at 11.30am (UK time) / 6.30pm (Hong Kong time) in the conference suite at 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/5d2f0850379ece0b00d7f019/lwin

To register attendance in person please send an email to investor.relations@prudential.co.uk

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) / 6.00pm (Hong Kong time).

Dial-in: 020 3936 2999 (UK Local Call) / +44 20 3936 2999 (International) / 0800 640 6441 (Freephone UK), Participant access code: 301853. 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: 830013). This will be available from approximately 3.00pm (UK time) / 10.00pm (Hong Kong time) on 14 August 2019 until 11.59pm (UK time) on 28 August 2019 / 6.59am (Hong Kong time) on 29 August 2019.

2019 First Interim Dividend

Ex-dividend date	22 August 2019 (UK, Hong Kong and Singapore)
Record date	23 August 2019
Payment of dividend	26 September 2019 (UK and Hong Kong) On or about 03 October 2019 (Singapore and ADR holders)

About Prudential plc

Prudential plc and its affiliated companies constitute one of the world’s leading financial services groups, serving 26 million customers, with £717 billion of assets under management (as at 30 June 2019). 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.

UK and Europe

Throughout this results announcement we use M&GPrudential to refer to the Group’s discontinued UK and Europe operations. M&GPrudential has announced that it will change its name in preparation for listing to M&G plc, providing a single corporate identity while retaining its two customer-facing brands of Prudential and M&G Investments.

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, operating environment, 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, including without limitation those referring to the demerger and the expected timing of the demerger, 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, the timing, costs and successful implementation of the demerger of the M&GPrudential business; the future trading value of the shares of Prudential plc and the trading value and liquidity of the shares of the to-be-listed M&GPrudential business following such demerger; future market conditions, including fluctuations in interest rates and exchange rates, the continuance of 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 actual or anticipated political, legal and economic ramifications of the UK’s withdrawal from the European Union; the impact of continuing application of Global Systemically Important Insurer (or ‘G-SII’) policy measures on Prudential; 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; disruption to the availability, confidentiality or integrity of Prudential’s IT systems (or those of its suppliers); 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’ section in the Prudential 2019 Half Year Financial Report.

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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