Prudential PLC (PUK) 2005 Q4 法說會逐字稿

Welcome to today’s 2005 preliminary results call. Today, I am pleased to present Mark Tucker, CEO of Prudential PLC. For the first part of this call, all participants will be in listen-only mode, and after this there will be a question and answer session. Mr. Tucker, please begin.

Thank you. Good afternoon and welcome to our 2005 results teleconference. I’m here with Philip Broadley, our Group Finance Director. What I’d like to do is to basically take you through some brief introductory comments, and then hand it back to you for questions, which Philip and I will be happy to answer.

In summary, I think the figures that you saw this morning show that the business is growing strongly. You can see that we’ve delivered double-digit growth in all our key performance measures. In January, we reported APE insurance sales 15% ahead of 2004 and an increase in external funds under management to £46b. That was ahead 23%.

Today, we reported 2005 full year EEV operating profit up 33% at just over £1.7b, and IFRS operating profit also ahead strongly at £957m, up 36%. So strong profit growth.

Profit on new business written in the year was 15% ahead of 2004, and we have seen internal rates of return in all regions improving in the year. In the U.K., we met our internal rate of return target of 14% last year, two years ahead of schedule.

As a result of our strong operating performance and the excellent investment management performance delivered by our asset management businesses worldwide, shareholders’ funds are up 20% at £10.3b. The return on embedded value in the year is also up, at 15.7%.

The recommended full-year dividend, I think as you saw this morning, is £0.1632, with growth of 3% on last year. The dividend policy is unchanged and maintained. The 2005 dividend was covered 1.7 times by IFRS operating profit after our normalized tax charge.

I think these results demonstrate the progress we are making in building and expanding the Group. What I did at the presentation this morning was to set out our key priorities for the Group as we look forward and as we look to deliver significant profitable growth.

Let me first turn to the U.K. In the U.K., under Nick Prettejohn, we now have the leadership team in place and are targeting profitable growth while remaining clearly focused on returns. We are looking to capitalize on our strength and experience in both annuities and corporate pensions. We are developing in areas such as bonds and lifetime mortgages. With the ownership of Egg clarified, we can build this business and deliver the £40m per annum cost savings and develop the revenue synergies we’ve identified.

On to the U.S. We will continue to focus on the variable annuity market where we have seen, in 2005, considerable success. We grew, I think as you know, on the variable annuity side, against a market of around 2.5%, we grew over 30%. What we have done in the U.S., I think, and what we’re looking forward to, is further product innovation and developing our distribution, areas where Jackson is already strong. We will also look to take advantage of bolt-on opportunities, like the successful Life of Georgia transaction, where we see good value.

Moving on to Asia. In Asia, we will continue to develop our distribution capability. We have 170,000 – now probably over 170,000 – agents in the region and we can build on this, particularly in China and India, as our presence grows. We will also maintain our focus on agent productivity. I think just having agency numbers is not enough. We need these agents to be productive as well, especially in the more established markets. Productivity grew in 2005 and that’s a focus for us in 2006.

We have the positioning to materially develop the contribution from the bank channel and we will look to access other channels as they develop. We now have 40 banking relationships across the region and we’re looking to expand on those, build on the existing relationships and forge new ones.

In product terms, we will focus on high return, capital efficient unit linked products. I think it’s interesting to note that, in 2005, unit linked accounted for 63% of total sales in Asia. Clearly, its high return, capital efficient nature is a significant advantage. With regard to margins, margins have developed as expected and they still remain strong.

Moving on to asset management. Our asset management businesses have had a very successful year. Looking forward, we will continue to target growth in third party funds under management but also to achieve superior investment performance, which, I think as you know, adds significant value to the Group.

What we’d like to do is come back to talk to the city and talk to you on May 19. We plan for a seminar in London on May 19 with our asset management businesses, where we’ll talk about what we’re doing in the businesses and how we’re looking to work more effectively together. That seminar will consist of M&G, PPM America and the Prudential Asset Management business in Asia.

In summary, I think we have excellent franchises in the U.K., in the insurance business, in Egg, in M&G, and we are improving returns. Our U.S. business is performing well. It’s highly cash generative and well positioned for the major changes in the U.S. retirement market as the baby boomers retire, retirement year being –- the first of these [inaudible] retirement years clearly being in 2006. We have unrivalled exposure and weighting for the high growth and high profit markets of Asia.

In addition, our asset management businesses in the U.K., Asia and the U.S. offer both good growth opportunities as well as a growing cash flow. Last but not least, we have the financial strength and the increasing scope to be able to capture and systematically capture Group synergies. I remain confident of the outlook for the Group, and we have the plans and priorities to drive growth harder and to increase returns.

That’s really all I wanted to say as an introduction. What I’d like to do now is clearly opening this up for questions and hand it back to Hugh.

Okay. We’ll now begin the question and answer portion of this call. [OPERATOR INSTRUCTIONS].

Hugh, it doesn’t sound like there’s much demand there. I think we’re happy to take anybody’s questions, but I think –-

There is a question just jumped in from Bruno Paulson of Bernstein. Bruno, please go ahead with your question.

Hi. I didn’t want to leave you [inaudible] audience.

Bruno, I wouldn’t have been insulted, I promise you.

Two questions. Firstly, on the U.S., there was the deterioration in the new business margin due to mix. Now, looking at the detail, the annuity share of the total sales went up, so presumably this mix deterioration is largely down to pension sales moving away from with profits to shareholder sales. Could you give us the share of --

Bruno, sorry, you said the U.S.

Sorry, U.K. Sorry. So within U.K., the annuity sales went up as a percentage of the total, but the margins went down. So presumably the mix deterioration you speak of is a shift from with profits to shareholder on the pensions business. I was wondering if you had the percentage of the pension business which had been with profits in ’04 and ’05.

You said two questions.

The second question is you mentioned that the commission –- in the document, you say that the commission on the P&C deal with Churchill will be coming through from 2008. I was wondering how much the commission would have been in 2005.

Let me pass you to Philip for the first part of that.

I think your analysis is correct, Bruno, around margin, that the –- Actually, there are two elements I would comment on. The first is there’s a lower level of with profits sales generally in ’05 compared to ’04, which has an effect on margin. Then, also, your comment about the with profit effect within the pensions business is also correct. But in terms of that level of detail you were then asking for in terms of the precise mix, that’s not something we disclose. But the trends there, you were identifying correctly.

On the commission business, we haven’t disclosed that and I think the level of –- Presumably, the reason for asking the question is to try to get a sense of the likely profit and cash flow that will emerge from the Churchill deal at the end of the period as we described. That will somewhat depend on the level of business generated in 2008, so that could be quite significantly different from current levels in any case.

The other factor, I think, in addition, Philip – and just correct me if I’m wrong – is that a large part of that was capitalized up front.

That’s correct, so the payment we received from Churchill at the time of the original deal was capitalized. So we’re basically going through that memorandum account. By 2008 we will then see the commission payments which will form part of the Group’s statutory profit and cash flow at that point in time.

Thank you very much.

Pleasure.

[OPERATOR INSTRUCTIONS]. Okay. At this stage, that seems to be it for the questions, so can I please pass it back to you for closing comments?

I think to thank you for calling in and to once again reiterate that I think we do feel confident with the outlook for the Group. I think we do feel there’s a new momentum in place and we continue to focus on delivery as we go forward. We look forward to talking to you again at the next opportunity. Thank you for listening.

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