Prudential PLC (PUK) 2005 Q2 法說會逐字稿

Welcome to the Prudential 2005 interim results conference call. Today I'm pleased to present Mark Tucker, group chief executive of Prudential, and Philip Broadley, group finance director. (OPERATOR INSTRUCTIONS)

Mr. Tucker, please begin.

Thanks very much and good morning to everyone. I'm here with Philip Broadley, my good friend (inaudible). Philip and I will take you through the results. What we'd like to do is an overview and just give you a feel for the results and then we'll very happily take any questions you have.

In terms of the results, we'll cover the headlines that were published this morning in London and then talk a little bit about each of our businesses in the group. And then what I'd like to do is spend a few minutes at the end just talking about what I view as my priorities going forward.

In terms of context (inaudible), I think it is an important context. I've been onboard for a couple of months now, a little over two months. And, as you can see from the results, the businesses are performing well.

With this in mind, what I think the -- it's important that I've got no intention of charging in and making dramatic changes. That's neither my style nor my intent. What does that mean in terms of Egg or in terms of Jackson National, in terms of Asia or the UK? What it means is that I'm not going to be rushing into making any quick decisions and I won't be making any announcements today about any parts of the group.

What I will be doing is spending the next few months carefully considering the direction of the group in terms of where we think we are best able to create sustainable competitive advantage and drive increased value for shareholders over time. I'll be coming back to share my evolving thinking with you at the Q3 new business and the Q3 new business numbers are at the end of October.

Okay, if we can turn to the headline figures, I'm pleased to report that all our businesses delivered double-digit sales growth over the last six months. And at that same time, we've maintained margins at group level. We've seen new business APE of 1.129 million, which is up 34%. We've seen new business achieve profit of 413 million and it's all in sterling, up 37%. We've seen the group margin up from 36 to 27%. We've seen total achieved profit on continuing operations at 834 million, up 31%. And we announced this morning an interim dividend of 5.3 pence per share and we've said we've also announced no change in dividend policy. That gives you the headline figures.

Let me just talk a little bit about each of our businesses. With regard to the UK and Europe, insurance sales are making good progress, sales of 541 million on an APE basis, which is 60% (ph) ahead of last year. And this includes the acquisition of Phoenix Life & Pension Limited, which increased the APE sales by 145 million in the period. And I think you'll remember that was the second half of the Royal & Sun Alliance book, which we took over from Resolution Life in late June of this year. Excluding this transaction, sales growth was 10%, which is well ahead of the market growth, which we estimate to be 2 to 3% for the six months.

If you look at the primary drivers of growth for the UK, they were really around strong sales of unit-linked bonds, which growth was 100%, individual annuities around about 12%, and bulk annuities about 67%. And we remain confident of achieving the 10% growth for 2005 as a whole.

Margin was 30% for the half year, but we do expect some reduction in the overall margin from the 2004 year-end level of 27%. We've also seen IRR and new business in the first half at 13%. And I think you'll remember that the IRR target for 2007 for the UK is 14%, so good progress on the path to deliver that.

In the half-year we have made a persistency assumption change to reflect our current experience, in particular for PruBond, our with-profits bond. We (inaudible) bonus announcement in February, we'd have had a positive effect on persistency. However, what we've seen is that customers have continued to surrender. In short, what we've done is strengthen the businesses assumption by 40%. The total charge of persistency assumption changes was about 132 million sterling.

On a personal basis, what I've done is spend some time in our UK operations, all of our UK operations, in London, in Redding (ph) in Scotland, over the last number of weeks. And I think what has struck me is the -- is really the scale and quality of the change. The business I think has improved and continues to improve. But I think there's still plenty more to do, both in broadening out our product range, which I think can be wider and deeper, and also our distribution channels. And I think there's a need to continue to drive efficiencies in the pension area in order that we deliver profitable growth. That gives you a sense of the UK.

Let me just spend a couple of seconds on the U.S. As you guys know, Jackson increased sales by 18%, with margins improving to 37% and 34% in the half year. The acquisition of Life of Georgia was completed in May and the integration of that business remains pretty much on track to be completed by the end of 2005.

What we've also got at Jackson (inaudible) taking the division (ph) in the first half to reprice (inaudible) at 10-year term business benefiting result by 141 million.

I've also spent time, much as in the UK, visiting and drag (ph) back to visit the U.S. I think you may or may not know, but I was COO of the U.S. business back in the early '90s and it's a business that I do know well. and I think the impression that I was left with was they gained a quantity of people with tremendously strong work ethic and energy. And Jackson is -- always tried to focus on is a low cost high quality operator that in addition to delivering cash back to the group is really leading edge in areas like product innovation and IT. And we're beginning to use this expertise and share it more widely across the group.

We do have an investor visit planned to Jackson and to insurance (inaudible) better operation in Chicago, PP of America (ph), in November and I think that will be a -- really an excellent visit is planned. And I think to be able to show and talk about our U.S. business, particularly from the point of view of the UK analysts, I think will be a very valuable exercise. But I know that you're more than welcome to join us and I think will be very useful because it's certainly a business that I think is a very strong business.

In Asia we've seen sales grow for the first half of the year 26% on an APE basis. The new business margin was lower at 49% and this was really due to a combination of our changes in country and product mix. And margins still at 49% are strong. And we expect to be able to maintain average margins actually around current levels given our planned mix of business in 2005.

In July we were really pleased and excited to announce our ninth and tenth licenses in China, giving us the largest number of licenses in that market of any private insurer. And clearly that includes IG (ph). As you would expect, I think given I spent a lot of the last of my working life with a crew out in Asia, I'm delighted to see the Asia operation continuing to go strong. My recent visit to operations there a few weeks ago has confirmed to me that all the drivers of success that were present during my time in the region are still there. And my belief is we've made excellent progress in Korea, India and China and the overall growth story remains compelling.

In Japan we've -- on the mutual fund side, business has gone well. We've gone past 4 billion in terms of retail sales. On the life side, (inaudible) hasn't been as happy and it's been a bit slow in implementing our bank insurance strategy with the regulatory environment still remaining difficult. To reflect this, we've impaired goodwill by about 95 million sterling. The negative assumption change in Asia of 230 million that you would have seen really reflects the effective bond yields in Taiwan and other markets.

With regard to the fund manager business in Asia, we've seen excellent growth in fund number management to 9.7 billion. The operations in Japan and Korea, as I mentioned earlier, are continuing to build material scale. And that gives you a sense, I think, of I'd say the overall growth story in Asia remaining compelling.

Our fund management business, M&G, enjoyed a strong start to the year with net investment flows of 1.7 billion sterling and growth in underlying profits of 15% to 68 million. total profit for the period was 83 million.

M&G is a very good business and I think has continued to deliver this performance as a result of really just continuing to build on core strengths and the strength it has in different sides of the asset management chain, as well as successfully diversifying into some external revenues. But I will I think and you saw it on the performance of the UK life fund, the investment move over to 7.4% is for the first half for our big UK life fund is indicative of the sort of excellent performance that M&G have delivered.

Finally, I think just -- and it's certainly last but not least, is Egg. The Egg first half profits from the core UK business were 13 million after charging 10 million for restructuring costs. And the focus here remains on optimizing the performance of the business, supporting Paul and his team to do that. And really from the group's point of view for optimizing the value of the group's investment in Egg and that's a clear focus of mine and Philip's.

Okay, I think just sort of coming towards the end is having looked at the individual businesses, I think you can see overall that we've had a good first half and really are taking advantage of our presence across the diverse markets in which we operate.

Since returning to the Prudential, certainly I've been impressed by the strength of the business. We have a good company with (inaudible) teams in each business. But having said that, we are not without our challenges. I think coming into the group with a fresh perspective, I believe there is potential for further profitable growth in all our markets. And there's good hedging for profitable growth in those markets and those markets, clearly the U.S., the UK and Asia. My first priority I think is really to maintain and accelerate our focus on delivery in order to make the most of these opportunities and to work hard at that and to really deliver that hard and strong.

I think we need to continue to build on the advances in capital management. You may have seen the work that Philip and Andy (ph) and his colleagues presented on the 2nd of June on economic capital. Some really excellent work there. And I think the focus there on continuing optimization of the balance sheet, of looking at the flexibility there and significantly, importantly, certainly to me, and this is an area close to my heart, is capital discipline and remaining very clear and very focused that we write business in a disciplined way and we write profitable business. And I think we ensure that growth is profitable growth, not just growth.

We're also looking I think at spending time looking at longer-term trends of opportunities. And I think looking at our trends in customer and competitive behavior, changing regulatory environment, emerging technologies, different economic cycles, different stages and sophistication of markets, all of those elements, to be able to look at and I think how we can position ourselves for the future.

And this is very much part of an evolutionary process and I don't believe it's -- we're going to sort of come up with a single answer, a lot of discussions internally to see and to understand the business. And I think the attention to the longer term I think will help build the foundations for an even stronger future for Prudential in the future.

And to my mind it's moving a company from being a good company to being a great company and many ways to do that, which I will come about and talk about later. And one element which I -- or two elements that I haven't spoken about which I think let me leave you on are looking at group synergies, are we optimizing all the synergies of the group that I think we can. I think we've got more to do there and I think particular areas like IT. I think having worked, personally worked in the U.S., the UK and Asia, I think I can see many opportunities there that we can take forward.

And second of all is on the people, ensure we continue to motivate, train, recruit the best people possible and move us back to a position where I think we need to be, which is as one of the industry leaders.

What I said at the beginning was that I will talk about -- more about our evolving thinking on these issues at the time of our third quarter new business in October. But in the meantime, I just want to say thank you for listening and Philip and I are very happy to take any questions.

(OPERATOR INSTRUCTIONS)

Okay, at this point there seems to be no questions. Shall I pass it back to you for closing comments, Mr. Tucker?

Yes, I'm very happy to do that. I'm sure if there are individual questions then to please contact Philip or I directly. We're happy to answer any questions. And again, thank you for your time and to say that we as a team and as a group remain optimistic for the future.

Thank you very much for your time today.

This now concludes our conference call. Thank you all very much for attending.