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Group News ReleasesPrudential plc 2004 Full Year Results02 Mar 2005 Strong delivery across all of our businesses
*Operating profit on continuing operations before goodwill, exceptional items and short-term fluctuations in investment terms. All figures throughout are on a constant exchange rate basis, unless otherwise stated. Commenting on the results, Jonathan Bloomer, Prudential's Group Chief Executive, said: "Prudential has built strong positions in three of the most attractive savings markets in the world. In 2004, each of our three regional insurance businesses delivered double-digit growth in sales and profits. As a result, we registered record Group insurance APE sales and a 23 per cent increase in new business achieved profits. The UK market is starting to recover after three years of decline and, as the rise of 40 per cent in new business achieved profits shows, it is clear that the changes we have made to the business are enabling us to take advantage of this upturn. In Asia, new business achieved profits rose 19 per cent and margins remain attractive. We see excellent growth prospects throughout the region, especially in China and India. In the US, we continue to outperform the market, and in 2004 our business there returned $120 million to the Group. We expect this to be $150 million in 2005, and to rise thereafter. M&G also delivered a very strong performance in 2004, with underlying profits of £110 million, up 57 per cent on 2003. We see excellent growth opportunities across the Group. 1As adjusted, see note 9 Our markets and opportunities The United Kingdom It has successfully evolved from a direct-sales operation selling with-profits products into a company that sells mainly shareholder-backed products through IFAs, direct to customers, business to business and through partnership agreements with other companies. In 2004, it achieved strong new business performance across all these channels, increasing its share of the medium to long-term savings market to 8.9 per cent (source data: ABI), while maintaining overall margins, resulting in a 40 per cent increase in new business achieved profits year on year. Going forward, we expect to see some modest reduction in the overall UK margin as our new shareholder-backed business builds scale. Over the next few years, we see new opportunities arising from the move to a multi-tie distribution model, which we expect to favour financially strong players like Prudential with a powerful brand and attractive product range. Prudential UK has made good progress with the new multi-tie networks, winning places on many of the panels announced to date, and expects these agreements to begin to have an effect on our performance in 2005, making an increasing contribution thereafter. The Rights Issue, announced in October 2004, will allow us to reinvest in the UK, in order to take advantage of the developments in both our business and the marketplace. The solid performance of the with-profits fund, which delivered a return of 13.4 per cent in 2004, has enabled Prudential UK to maintain annual bonuses and increase policy values for nearly all of its 5.5 million with-profits customers. We believe the strength and performance of the fund combined with the beginnings of a recovery in the UK market will benefit Prudential in 2005. Prudential UK expects sales this year to grow by about 10 per cent from the base established in 2004. This compares with the industry expectation for UK market growth of around 5 per cent for 2005. Prudential UK is determined, however, that it will not grow volume at the expense of value, and has set itself a blended target internal rate of return on this new business of 14 per cent by 2007, compared with the 12 per cent it achieved in 2004. The United States The business continues to fund its own growth from internally-generated cash, and in 2004 it also contributed $120 million to the group. This is expected to increase to $150 million in 2005. JNL's strategy is to concentrate on organic growth within profitable market segments, but to use small self-financed acquisitions, such as that of Life Insurance Company of Georgia, announced in November 2004, to build scale and reduce unit costs. JNL is an industry leader in distributing products, and has repeatedly shown that it can react quickly to market changes and establish strong positions in new products and new channels. In 2004, for example, nearly 90 per cent of new sales came from products developed in the last two years. Its Perspective II variable annuity contract was the best selling contract in the US market last year (source: VARDS). In 2005, we expect the US market to grow at about 4 per cent and Jackson National Life to grow sales at around twice this rate, while keeping its costs down and delivering above market returns. Asia Against this backdrop, Prudential has established a strong track record of success. In the past decade we have expanded across 12 countries and delivered APE compound growth of 26 per cent per year, while maintaining margins above 50 per cent. In 2004, new business achieved profits rose 19 per cent. Prudential Corporation Asia is Europe's leading life insurer in Asia in terms of market coverage and number of top five market positions. We have also established a complementary regional funds management business in seven markets and are in the process of setting up a fund management operation in Vietnam. Our life operations in Asia put in another good performance last year. Following the restructuring in 2003, the Japanese business has made some progress establishing new distribution channels, but it will take some time to become large enough to be a positive contributor to the overall result for the region. Elsewhere, growth prospects are very good, particularly in India and China, and the business is already well placed to take advantage of these. In India, our joint venture with ICICI delivered APE sales growth of 127 per cent and continues to be the leading private sector player. In 2004, the government announced its intention to increase the cap on foreign ownership from 26% to 49%. While Prudential remains interested in increasing its stake in the joint venture, the relevant legislation has not yet been put before the Indian Parliament. In China, our joint venture with CITIC is one of the country's leading foreign players and new business APE growth was 70 per cent last year. We already operate in three cities and our fourth operation, in Shanghai, will launch in the second quarter of 2005. We have recently received licences for two further cities, Dongguan and Foshan, and a licence to write Group Life insurance business. We expect to continue to develop rapidly as geographic licensing restrictions in China ease further. We already hold licences for more cities than any other European life insurer. We are confident of our ability to grow strongly and profitably in Asia: the opportunities in our newer markets, coupled with the strength of our larger operations, should enable us to accelerate our level of sales growth in 2005. Our Asian business remains on track to become cash positive from 2006. M&G M&G enjoyed a successful 2004, with external funds under management rising by 19 per cent during the year to £28.7 billion, due to a combination of net fund inflows from both retail and institutional clients and market gains on existing funds. M&G has a total of £126 billion in funds under management, up 14 per cent on 2003. In recent years, M&G has been developing profitable new income streams while keeping a tight control over costs. This is a powerful combination, which resulted in a strong performance in 2004, with underlying profits of £110 million, up 57 per cent on 2003. We expect M&G to continue to perform strongly in 2005. Egg This was a good performance from Egg's UK business, especially given the increased competition and rising interest rates that have affected the credit card and personal loan markets. Egg's effective cost management and good credit quality also contributed to the solid results from its UK operation. At the same time, it has increased its provision levels to reflect the change in its product mix following growth in its unsecured lending portfolio, the stage in the life cycle of its card and loan books and the increasing proportion of personal loans business. Looking ahead, Egg will continue to develop its UK operation, building its unsecured lending business, while expanding its product range to increase cross-sales to existing customers. We expect Egg to finance its own growth without requiring capital support from the group. Outlook Dividend - ENDS - Enquiries to: Rebecca Burrows, Group Communications Director: 020 7548 3537
*Prudential plc, a company incorporated and with its principal place of business in the United Kingdom, and its affiliated companies constitute one of the world's leading financial services groups. It provides insurance and financial services directly and through its subsidiaries and affiliates throughout the world. It has been in existence for over 150 years and has £187 billion in assets under management, as at 31 December 2004. 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. Forward-Looking Statements This statement may contain certain "forward-looking statements" with respect to certain of Prudential's plans and its current goals and expectations relating to its future financial condition, performance, results, strategy and objectives. Statements containing the words "believes", "intends", "expects", "plans", "seeks" and "anticipates", and words of similar meaning, are forward-looking. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond Prudential's control including among other things, UK domestic and global economic and business conditions, market related risks such as fluctuations in interest rates and exchange rates, and the performance of financial markets generally; the policies and actions of regulatory authorities, the impact of competition, inflation, and deflation; experience in particular with regard to mortality and morbidity trends, lapse rates and policy renewal rates; the timing, impact and other uncertainties of future acquisitions or combinations within relevant industries; and the impact of changes in capital, solvency or accounting standards, and tax and other legislation and regulations in the jurisdictions in which Prudential and its affiliates operate. This may for example result in changes to assumptions used for determining results of operations or re-estimations of reserves for future policy benefits. As a result, Prudential's actual future financial condition, performance and results may differ materially from the plans, goals, and expectations set forth in Prudential's forward-looking statements. Prudential undertakes no obligation to update the forward-looking statements contained in this statement or any other forward-looking statements it may make. PRUDENTIAL PLC 2004 RESULTS
Operating profit and operating earnings per share include investment returns at the expected long-term rate of return but exclude amortisation of goodwill and exceptional items. The directors believe that operating profit, as adjusted for these items, better reflects underlying performance. Profit on ordinary activities and basic earnings per share include these items together with actual investment returns. This basis of presentation has been adopted consistently throughout the Preliminary Announcement. * Earnings per share and dividend per share figures for 2003 have been restated to take account of the Rights Issue in 2004. In addition, the achieved profits and statutory basis shareholders' funds for 2003 have been adjusted to reflect the implementation of UITF Abstract 38 on Accounting for ESOP Trusts.
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