Prudential : 2020 Half Year Results

11 Aug 2020

This announcement contains inside information

PRUDENTIAL ANNOUNCES RESILIENT ASIA OPERATING PROFIT AND INTENTION TO FULLY SEPARATE JACKSON

Strategic updates and performance highlights on a constant (and actual) exchange rate basis

• Prudential plc intends to fully separate Jackson from the Group, commencing with minority IPO planned for first half of 2021 and full divestment over time
• Post-separation Prudential Group to focus on high growth Asia and Africa markets with a view to sustained double-digit growth in embedded value per share
• New dividend policy aligned with revised Group strategy to focus on value creation through growth
• Asia half year adjusted operating profit¹ up 14 per cent², with double-digit adjusted operating profit¹ growth² in nine Asia markets
• Jackson local statutory RBC ratio expected to be above 425 per cent after Athene equity investment⁹
• Group regulatory capital surplus⁸ strong at $12.4 billion, with an LCSM ratio of 334 per cent (31 December 2019: 309 per cent)

Mike Wells, Prudential plc's Group Chief Executive, said: 'We have delivered a resilient performance in the first half, despite a challenging new business sales environment, which is likely to persist for the rest of the year, and further falls in interest rates. Our diverse, high-quality platform in Asia and our focus on writing profitable value-adding business led to a 14 per cent² increase in Asia adjusted operating profit¹. Our performance is again broad-based, with nine markets reporting double-digit adjusted operating profit¹ growth². In the US adjusted operating profit¹ was (19) per cent lower due to market-related effects on the level of DAC amortisation but, while sales were lower, we have maintained our leadership position in the annuities market.

'The Board of Prudential plc has decided to pursue the full separation and divestment of Jackson to enable the Group to focus exclusively on its high-growth Asia and Africa businesses. This would result in two separately listed companies with distinct investment propositions, which we believe would lead to improved strategic outcomes for both businesses. The Group would have primary listings in both London and Hong Kong and secondary listings in Singapore and the US. Jackson is expected to be solely listed in the US.

'The separation and divestment of Jackson would transform Prudential into a Group purely targeting the structural opportunities of Asia and Africa. Our differentiated product and geographic portfolio is well positioned to meet the health, protection and savings needs in these regions, where insurance penetration is low and demand for savings solutions is rapidly developing. The post-separation Group would focus on growth, with a view to achieving sustained double-digit growth in embedded value per share. This would be supported by growth rates of new business profit, which are expected to substantially exceed GDP growth in the markets in which the Group operates.

'The Group expects to commence separation by way of a minority IPO, targeting the first half of 2021, followed by future sell-downs over time, subject to market conditions, with the proceeds used to increase financial flexibility for further investment in our Asia and Africa business. If market conditions are not supportive of an IPO, the Group's current intention is that separation would be facilitated through a demerger of the Group's stake in Jackson to our existing shareholders. Any required shareholder approval for the separation will be sought in advance of its execution.

'Jackson intends to seek a strong credit rating and capitalisation and is expected to target an RBC ratio in the circa 425-475 per cent range at the point of the proposed listing. This range would be subject to market conditions and will be kept under review. Proceeds from anticipated new Jackson debt issuance would enable repayment of a portion of the Group's debt during 2021 and 2022, and support Prudential's intention to maintain its strong credit rating following the separation. Proceeds from further sell-downs in Jackson following the IPO would provide further resources to the Group for investment in Asia and Africa.

'To support the separation process, other than any pre-separation returns of capital including from Jackson's debt issuance as indicated above, Prudential plc does not currently expect Jackson to remit any regular dividends in 2020 or 2021 prior to an IPO. Prudential will adopt a new dividend policy that is aligned to the Asia and Africa growth strategy and to the intended separation of Jackson. The new policy will apply with immediate effect. This new policy reflects a rebalancing of capital allocation from cash dividends to reinvestment in Asia, which is expected to deliver profitable and sustainable compounding growth. For the 2020 first interim dividend, the Board has approved a dividend of 5.37 cents per share¹⁰, representing one third of the current expectation for the 2020 full-year dividend under the Group's new dividend policy. Dividends are expected to grow broadly in line with the growth in Asia operating free surplus generation net of right-sized central costs, and will be set taking into account financial prospects, market conditions and investment opportunities.

'We believe we are well positioned both to weather the disruption caused by the Covid-19 pandemic as we continue to support our customers and communities in the recovery to come, and emerge stronger and with a more focused strategy.'

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 period in note B1.1 of the IFRS financial statements.
² Period-on-period percentage increases are stated on a constant exchange rate basis unless otherwise stated.
³ 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 adjusted operating profit for the period. Further information is set out in note 11 of the EEV basis results.
⁴ During the second half of 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 were subsequently incorporated into the EEV model. HY20 has been prepared on the same basis as FY19. Accordingly, operating free surplus in HY20 is $(535) million lower than it would have been if the previous EEV modelling approach applied at HY19 had been used. After allowing for this, operating free surplus generated in the first half of 2020 is $1,444 million, down (25) per cent on a constant exchange rate basis and (26) per cent on an actual exchange rate basis.
⁵ New business profit, on a post-tax basis, on business sold in the period, calculated in accordance with EEV Principles.
⁶ 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 HY20 were driven by the impact of lower interest rates and equity markets on the Group's obligations to policyholders, together with amortisation of acquisition accounting adjustments, the impacts of the corporate transactions and tax.
⁷ Net cash amounts 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.
⁸ Surplus over Group minimum capital requirement and estimated before allowing for first interim ordinary dividend. Shareholder business excludes the available capital and minimum requirement of participating business in Hong Kong, Singapore and Malaysia. Further information on the basis of calculation of the LCSM measure is contained in note I(i) of the Additional unaudited financial information.
⁹ Based on the RBC capital position as at 30 June 2020 and assuming the Athene investment transaction completed at that date.
¹⁰ Under the Group's previous dividend policy, the first interim dividend would have been 12.28 cents per share.

Contact:

Person responsible

The person responsible for arranging the release of this announcement on behalf of Prudential plc is Tom Clarkson, Company Secretary.

Notes to Editors:

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