Final Results for 1999 - Part 1
Prudential PLC
23 February 2000
PART 1
PRUDENTIAL PLC 1999 UNAUDITED RESULTS
New business achieved profits up 46% at £603 million
Record in-flow of new funds of over £18 billion
Underlying operating profit before amortisation of goodwill up 6% to
£996 million
Total dividend up 9.5% to 23p per share
Plans for an IPO of a minority stake in egg to be pursued*
Results Summary 1999 1998 %
£m £m
New business achieved profits 603 413 46%
Underlying operating profit before
amortisation of goodwill, investment
in egg and UK re-engineering costs 996 937 6%
Operating profit before amortisation
of goodwill 776 860 (10)%
Full year dividend per share 23.0p 21.0p 9.5%
Shareholder's funds - achieved
profits basis 8,342 7,510 11%
Commenting on the results, Jonathan Bloomer, Prudential's group chief
executive
designate said:
'We have had a busy 12 months working towards delivering our strategic
objectives in the UK, the USA, Asia and Europe. We have restructured and
re-engineered our traditional operations while investing and developing new
businesses. This strategy has helped us to maintain our leadership position
in a rapidly changing financial services sector. We are using technology to
maximise development and efficiencies across all areas of our business. Our
focus on technology gives our customers better access to our business, higher
levels of customer service and drives down unit costs.
'In 1999 we have attracted a record in-flow of more than £18 billion of new
funds through further diversifying our product range and distribution
capability.
'In the UK we have made important progress in developing new business models
for our retail insurance business and in growing our IFA operations. We bought
M&G and are integrating it successfully with PPM in the UK, allowing
us to focus on those areas of fund management where we have unique strengths
and competitive advantage: unit trusts, fixed income and pooled life and pension
funds. This acquisition has increased the Group's retail and fund management
presence greatly and since acquisition M&G has produced a 20% increase in sales
over the equivalent prior year period.
'We continue to invest in egg. To enhance the future development of this
business and to maximise long-term value for our shareholders, the Prudential
Board has decided to pursue a plan for an initial public offering (IPO) of a
minority stake in egg subject to continuing progress in the business and
favourable market conditions. It is currently intended that an IPO would take
place later this year.
'Further full details of a potential offer have not been determined. However,
it is envisaged that any customer offering will be limited to existing egg
customers as at midnight on 22 February 2000 (and additional eligibility
criteria will apply).
'Internationally we have extended our reach. 1999 has been a significant
year for our Asian operations. We are the first UK company to be
granted life licences in China and Vietnam; we have also made a major
acquisition in Taiwan and signed a significant joint venture agreement in
Hong Kong. In the US, Jackson continues its strong performance with record
sales and profits. At the end of 1999, we formed Prudential Europe and
secured strategic alliances in France and Germany, giving us footholds in
markets with considerable growth potential.
'We have also experienced some challenges: the issues associated with the
mis-selling of pensions in the UK, which have affected the whole industry,
are not fully behind us. Rectifying cases has absorbed considerable resource
in 1999; there has been an increase in the provision for future costs of
£0.6 billion and an increase in cumulative costs paid to date of £0.1
billion. We now estimate the total cost of pensions mis-selling to be £2
billion. We are determined to do whatever is required to ensure that none
of our customers loses out and that such a situation will not happen again.
'In the past few years we have consistently delivered superior
investment returns to our shareholders. We will continue to maximise the
value from our existing businesses and invest for the future. With a strong
management team we are ideally placed to continue to deliver long-term
out-performance.
'Given the progress Prudential has made during 1999 and our confidence in
the future success of the business, we propose that the total dividend for the
year is increased to 23.0p per share, an increase of 9.5%.
'The final dividend of 15.3p per share will be paid on 31 May 2000
to shareholders on the register at the close of business on 31 March
2000. Shareholders will once more be offered a scrip dividend alternative.'
Media Enquiries: Analyst Enquiries:
Jeremy Reynolds/Kevin Russell Carys Walshe
Prudential Group Media Relations Prudential Group Investor Relations
Tel: 020 7548 3721/020 7548 3723 Tel: 020 7548 3823
Notes to Editors:
A presentation to analysts will take place at 10:00am at Governor's
House, Laurence Pountney Hill, London, EC4R 0HH. A webcast of the
presentation and the presentation slides will be available on the group's
website, www.prudential.co.uk, during the day.
*Legal disclaimer
This information is not an offer of egg securities for sale into the United
States, Canada or Japan.
The securities may not be offered or sold in the United States unless they
are registered under applicable law or exempt from registration. egg does
not intend to register any portion of the offering in the United States or to
conduct a public offering of securities in the United States. Money,
securities or other consideration are not being solicited and, if sent in
response to the information contained herein, will not be accepted.
Results Summary
PRUDENTIAL PLC 1999 UNAUDITED RESULTS
1999 £m 1998 £m
_____________________________________________________________________________
Statutory operating profit (based on longer-term investment returns)before
amortisation of goodwill
Retail Insurance Operations 479 421
Group Pensions 36 22
Prudential M&G Asset Management 87 28
egg and Prudential Banking (150) (77)
_____________________________________________________________________________
UK operations 452 394
USA 451 411
Asia 15 13
Europe 6 4
Other income and expenditure (78) 38
Re-engineering costs (70) -
_____________________________________________________________________________
Total 776 860
Discontinued operations - 8
_____________________________________________________________________________
Operating profit before amortisation of goodwill 776 868
Amortisation of goodwill (54) -
Short-term fluctuations in investment returns 28 24
Profit on business disposals - 249
_____________________________________________________________________________
Profit before tax (including actual
investment returns) 750 1,141
_____________________________________________________________________________
Earnings per share
Based on operating profit after tax before amortisation
of goodwill 29.1p 33.7p
Based on profit after tax - basic 27.8p 45.3p
Based in profit after tax - diluted 27.7p 45.0p
_____________________________________________________________________________
Dividend per share 23.0p 21.0p
_____________________________________________________________________________
Achieved profits basis shareholders' funds £8.3bn £7.5bn
_____________________________________________________________________________
Insurance and investment funds under management £170bn £128bn
_____________________________________________________________________________
Banking funds under management £8.1bn £2.2bn
Profit before tax includes actual investment returns. The Company believes
that operating profit, which is based on longer-term investment returns,
before amortisation of goodwill better reflects the Group's underlying
performance. An abridged statutory profit and loss account is set out in
section 4. Supplementary achieved profits basis results are shown in section
6.
OPERATIONAL REVIEW
UNITED KINGDOM
Retail Insurance Operations
Retail IFA
Prudential's Retail IFA business produces and sells Scottish Amicable and
Prudential branded products, including the market-leading Prudence Bond.
Underlying statutory profits (before re-engineering costs) from our Retail
IFA business increased by 13% to £99 million in 1999 while new business
achieved profits increased by 53% to £174 million. This strong growth in new
business achieved profits has been primarily driven by increased sales of
investment bonds, predominantly Prudence Bond, which remains one of the UK's
most successful retail investment products with sales of £1.9 billion in 1999.
Central to this growth have been the further improvements that we have
initiated in customer service, building on the previous year's award-winning
performance. During the year we have given customers a choice of fund
manager and re-engineered the sales force structure to align it better with
the product focus of IFAs. The development of our new sales contact centre in
Glasgow will lead to even better levels of customer service in the future.
We are continuing to expand our operations at our Craigforth site near
Stirling, where the total number of staff employed is now close to 2,300.
During 2000, there will be a further small increase, as we transfer the
administration of M&G's Life & Pensions business from Chelmsford and integrate
it within the existing operations at Craigforth.
Scottish Amicable's high standards of customer care were recognised in the
1999 Financial Adviser Awards where it received five star awards for customer
service in the Life & Pensions and Investments categories. In addition,
several products were recognised with industry awards, including Prudence
Bond, Home Purchaser (our mortgage endowment product) and our Long-Term Care
Bond.
The continued implementation of new technology has been essential in
achieving this result: greater use of the Internet, an extranet giving IFAs
up-to-the-minute information on policies, plus new call centre technologies
and workflow systems. Further developments will give employers direct access
to database systems, allowing them to administer pensions on-line.
The range of products designed to meet the changing needs of IFAs continues
to expand and a 'stakeholder-friendly' group personal pensions product will
be introduced on 1 March 2000.
Retail Financial Services
Prudential Retail Financial Services (PRFS) comprises three business units:
Prudential Retail (with its 1,900 strong sales force), Life and Pensions and
General Insurance.
PRFS produces and sells a comprehensive range of personal investment and
insurance products. It also sells banking products for Prudential Banking
with mortgage sales exceeding £600 million in 1999. It has 6 million UK
customers, one in six of the adult population. Currently PRFS has 7.1
million life policies in force and 1.6 million personal pension contracts,
making us one of Britain's biggest pension providers.
PRFS also provides around 2 million retail general insurance policies, 1.7
million of which are home insurance policies, making us the UK's sixth
largest home insurer. Continued high levels of customer service have
contributed to customer retention rates among the best in the industry.
Sales of insurance and investment products rose by 16% to £1.8 billion
despite a 40% reduction in the number of sales force consultants to 1,900.
This result reflects the success of our initiatives to increase efficiency
and improve consultant productivity. Single premium sales were up 22% at
£1.7 billion, reflecting higher sales of with-profit savings products,
fuelled by the low interest rate environment. Regular premium sales were
down 24% to £146 million, mainly due to lower sales of pension products.
Underlying long term business statutory profits rose 9% to £319 million and
underlying general insurance profits increased 56% to £61 million. Achieved
new business profits on long term business were up 20% to £83 million.
During 1999, we re-engineered the structure of Retail Financial Services to
broaden its appeal to customers and to reduce its cost base in anticipation of
an even more competitive financial services environment. Significant progress
towards this goal has been made through a programme to remove some 5,000 posts
over three years, 3,000 of which have been accounted for over the last year.
Our investment in new technology is key to this re-engineering. In addition
the move towards remote working, with no branch infrastructure, has been made
possible by the introduction of laptop computers as a tool for the sales
force. This innovation will make the sales process more efficient and will
reduce the administrative burden.
Further developments in point of sale technology will allow us to reduce the
amount of time spent form-filling with customers. This will lead to a greater
focus on advising customers and increasing productivity. The use of remote
channels, especially for top-ups to existing business, will also free up the
sales force to concentrate on generating quality new sales.
Prudential Retail has launched a new look website to support its core
proposition of face to face advice. General insurance customers can now
obtain quotes and take out policies on the Internet, and the opening hours of
our administration centres have been extended to allow customers increased
access to our services at times that suit them.
Prudential Annuities
Prudential Annuities is the market leader in the UK pensions annuity industry.
We now have over 700,000 customers and more than a 20% share of new business
in 1999. Total sales were £2.2 billion and funds under management now exceed
£10 billion. New business achieved profits of £21 million were more than
double 1998.
In the individual pension annuity market, with-profit sales have shown
strong growth and now represent more than 15% of individual sales. Bulk
annuity sales in 1999 represented more than half our total sales and were
boosted by two big sales totalling £1.1 billion in July.
The pensions annuity market is projected to grow strongly over the next few
years. Prudential Annuities is well placed to take advantage of this growth.
In addition to having a management team focused solely on the annuity market,
we believe our investment expertise in the fixed interest market and the
excellent track record of our with profit product will give us sustained
competitive advantage.
Group Pensions
Group Pensions is a leading provider of employer sponsored pensions and an
increasingly significant part of Prudential's business. Group Pensions
provides the pension arrangements for some 4,500 companies including 85
from the FTSE 500, covering some 500,000 individuals. During 1999, Group
Pensions' statutory profits rose 64% from £22 million to £36 million while
new business achieved profits were up 30% to £26 million.
The proposed introduction of Stakeholder Pensions by the Government in 2001,
in particular the capping of the annual management charge at just 1%, offers
a significant challenge to the pensions industry and a major opportunity to
those companies well positioned within it. To participate in this new
environment providers will need to find more efficient methods of
distribution. Stakeholder, together with the continuing shift towards
flexible defined contribution arrangements (away from defined benefit
schemes) presents Group Pensions with the opportunity to deliver
significant shareholder value through the effective delivery of simple,
value-for-money products.
Prudential intends to become a profitable participant in the stakeholder
environment. Current initiatives that will deliver this objective include:
the development of a marketing and distribution platform that exploits current
e-commerce technology to its fullest advantage. We have designed this to
maximise employee participation by giving them direct access to information
about their own pensions (for example through their own company's intranet),
so that they can manage their pension remotely with the benefit of a general
education service;
secondly, we have moved responsibility for the distribution of AVC products to
Teachers, University and Local Government employees to a dedicated salaried
sales team and away from our commission based sales force. These teams will
make presentations and sales to groups of individuals, replacing the more
expensive one-to-one distribution. This strategy will not only reduce costs
significantly and increase sales but also complement the e-commerce
proposition.
Prudential M&G Asset Management
Prudential's fund management business in the UK is conducted under the
umbrella of Prudential M&G Asset Management. The acquisition of M&G in April
1999 has given us enhanced access to the retail investment market and we are
currently carrying out a fundamental reorganisation of our fund management
operations.
In the UK we will specialise in those areas of fund management where we have
unique strengths and competitive advantage - unit trusts, fixed income and
pooled life and pension funds. We have therefore entered into discussions,
which are now at an advanced stage, to sell our UK institutional, segregated,
balanced and specialist equity business which constitutes around £10 billion
of mandates (out of a total Group funds under management of £170 billion).
At the same time we plan to bring PPM and M&G together into a unified
business. We will be combining the investment processes and resources of
both in a single new management structure under Michael McLintock as chief
executive.
We have already successfully completed the merger of the fixed income teams
(creating the largest fixed interest team in the UK, with assets under
management of £33 billion), as well as the two retail administration centres.
In addition we are in the process of moving M&G's life and pensions business
to Craigforth under the management of Scottish Amicable.
M&G
We purchased M&G to enhance the group's retail fund management presence. M&G
is the oldest and largest retail unit trust manager in the UK and has a very
strong brand. Performance in its first eight months since acquisition has
been strong, with sales of £583 million and underlying profits of £56 million
both ahead of acquisition assumptions. At the end of 1999, M&G had £21
billion of assets under management.
M&G embraced Individual Savings Accounts (ISAs) from the outset. Taking full
advantage of the changes in regulations which allow customers to invest by
telephone or Internet, we are one of only a handful of companies that give
investors the chance to buy an ISA on-line. Sales of ISAs, through both the
intermediary and direct channels, have been good since launch, securing a 5%
share of the unit trust ISA market.
During 1999, we introduced innovative products, including the M&G Global
Managed Bond Fund and the M&G Global Technology Fund, to strengthen M&G's
reputation in the retail market. In November we reduced the annual management
charge on our UK Index Tracker from 0.75% to 0.3% resulting in a six-fold
increase in the daily rate of sales.
PPM
PPM manages £145 billion worldwide, mostly on behalf of Prudential's internal
clients. Underlying profit for PPM totalled £43 million in 1999,
in line with the previous year. PPM's strong equity weighting helped the
Life Fund outperform its competition by an estimated 3% to 4%.
PPM's principal overseas operations in the US and Asia have been re-aligned to
report alongside the local operations to maximise the synergies between the
investment process and product manufacturing and distribution.
egg and Prudential Banking
In little more than a year egg has become established as a household name and
one of the UK's most recognised e-commerce brands. Our strategy of offering
some of the most competitive and customer friendly products in the market,
delivered using the latest in Internet design and technology, has resulted in
an egg customer base of over 800,000 and deposit funds of £7.6 billion at the
year end. This remarkable growth has exceeded the initial business targets and
egg is regarded as the UK's leading e-commerce financial services web-site.
The combined Prudential Banking and egg mortgage book now stands at £1.7
billion, of which £452 million is egg mortgages, while egg personal loans
have reached £227 million.
Through egg Prudential has been able to reach a new type of customer: one who
is financially discerning and computer literate, who wants to benefit from
the combination of the best financial products the market has to offer, and
who uses Internet services which fit in with their lifestyle. The scale of
growth in the number of customers using our website is spectacular: in July
1999 we had 184,000 visitors to the egg website: in January 2000 that figure
rose to 1.1 million. In January, 62% of all egg's deposit transactions took
place over the Internet. 90% of mortgage applications are via the Internet.
Our hi-tech communication centres in Dudley and Derby continue to take some
60,000 calls and 11,000 e-mail enquiries from customers each week. Our
innovative working practices and specially designed employee training
programmes all lead to a unique egg culture and customer experience.
Building on the success of its core savings and loan products, egg launched
an Internet credit card in September 1999 which now has over 250,000 account
holders. Not only do credit card customers benefit from market-leading rates
and a guarantee against Internet fraud but also an on-line shopping zone
which offers some of the best value retail consumer products available.
We have previously announced our intention to launch a new on-line unit trust
supermarket which will give egg customers access to investment funds
offered by leading investment houses, as well as an on-line share-dealing
service. This service is now in live pilot.
During 1999 our investment in egg totalled £150 million and we anticipate a
similar level of investment during 2000. Current egg plans are to break even
in the latter part of 2001 as the benefits of the customer base and
cross-buying come through.
The intent to pursue plans for IPO, subject to progress in the business and
market conditions, announced today represents the best option for the
strategic development of egg and for the maximisation of long-term
shareholder value of Prudential. It will create greater financial flexibility
for egg, will facilitate growth by giving it the ability to undertake
acquisitions through the use of Internet paper, and it will help to recruit,
incentivise and retain high calibre staff.
UNITED STATES
Jackson National Life
Jackson National Life is our principal business in the United States.
Its product range encompasses traditional fixed annuities, variable
annuities, equity-linked indexed annuities, Guaranteed Investment Contract
business and life assurance products.
Jackson National Life continues to go from strength to strength with
record profits and sales in 1999. Statutory profits have risen 10% to £451
million (after including a £6 million investment in building JNL's
broker-dealer operations and PPM America) with single premium sales 43% ahead
of 1998 at £4.1 billion. Annuity sales of £2.4 billion were 65% ahead of
the prior year while GIC sales totalled £1.6 billion.
Sales of variable annuity products were nearly £1.2 billion, more than
double 1998's figures and compared with industry growth over the same period
of 21%.
Equity-linked indexed annuity sales surpassed expectations and reached
£431 million, 52% above 1998 levels. By the end of 1999, JNL ranked as the
largest provider of equity-indexed annuities in the United States. Our
fixed annuity sales also rose by 23%, keeping us at second in that market.
We have enhanced our distribution capability dramatically with the
introduction of new technology in a programme entitled JNL-2-YOU. The
programme provides 24-hour access to account balances, premium receipts, net
policy values and other information either by telephone or by Internet. This
programme will be rolled out across JNL's full product range, including
the full complement of indexed and variable annuity products as well as
life insurance and traditional fixed annuities. We also intend to offer
on-line transactions.
Not only has new technology improved the service experienced by customers,
but it has positive financial benefits: the cost of a typical call from a
customer has been reduced from US$5 to between 25-50 cents for a phone call,
and 5 cents for an Internet 'hit'.
ASIA
Prudential Asia
It has been a year of intense activity and significant progress for
Prudential Asia. Total insurance and investment sales of £871 million
have more than quadrupled compared to the corresponding period in 1998.
Within this total, insurance sales more than doubled to £288 million due
to the continuing strong performance of the PruInvestor Bond and the
PruLink HiSaver Account in Singapore.
Through our partnership with ICICI, we are now the second largest private
sector mutual fund company in India with over 68,000 investors and offering a
choice of eight open-ended funds. Sales reached £583 million for the year,
against gross redemptions of £272 million, reflecting the liquid nature of
the money market funds. Total funds under management now total £453 million.
New business achieved profits, which reflects the value added to the group
from new insurance business, increased 61% on 1998 to £90 million.
Statutory operating profit (before development costs) for 1999 was up by
17% to £27 million; operating profit after development costs totalled £15
million.
In Malaysia, Prudential became the first company to launch a regular
premium unit-linked product. Within Hong Kong we have entered into a
joint-venture agreement with the Bank of China to provide pension products
to residents of Hong Kong through the Mandatory Provident Fund - a
compulsory pension scheme to be introduced in 2000 by the Hong Kong
government.
In November 1999 we launched a new operation in Taiwan following the
acquisition of a majority stake in Taiwan's Chinfon Life Insurance. Chinfon
Life is one of the top ten life insurance companies in Taiwan, with a
customer base of over 250,000 and a network of more than 2,100 agents.
We also gained a life licence in China and, in December, signed a joint
venture agreement to undertake a life insurance partnership with China
International Trust and Investment Corporation (CITIC) in Guangzhou, China.
This represents the culmination of several years' work and will be the first
Sino-British life insurance operation in China. With a population of 7
million people in Guangzhou alone, this clearly represents a significant
long-term opportunity for us.
During last year, we also gained a life licence in Vietnam, where we
already have two operations in Ho Chi Minh City and Hanoi.
EUROPE
Prudential Europe
Our strategy for continental European retail markets involves
harnessing existing product resources and tailoring them to individual
market needs. Whilst meeting local presentational, fiscal and regulatory
requirements, the basic core products will be the same in each market and be
produced in a single location.
We will be distributing through a series of non-exclusive strategic
partnerships with leading local financial services providers. Our products
will be branded or co-branded 'Prudential'.
In November 1999, we announced partnerships with CNP Assurances in France
and Signal Iduna in Germany. In forging links with France's leading life
assurer and one of Germany's major insurance providers, we have gained access
to local markets and marketing expertise and large scale distribution
networks. Our strategic partnerships include the sharing of technical
expertise and the consideration of joint ventures both in the
respective home markets and elsewhere.
We will launch the first new products for distribution under our
strategic partnerships in France and Germany later this year. In the
meantime, we continue to develop our German broker business based in
Frankfurt where we have already established a leading position in the new
but rapidly-growing unit linked market.
Whilst, in the short term, retail savings and investment products are our
main focus, in the longer term, the provision of funded pensions both
on an individual and a group basis will be a major market opportunity. In
addition, we will distribute products through the local equivalents of
independent financial advisers and insurance brokers.
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