Prudential Plc · LSE:PRU
Prudential — Investor Presentation (December 2015)
56 slides from Prudential's investor presentation, December 2015
Slide 1: Prudential UK & Europe
Prudential UK & Europe John Foley - Chief Executive Aki Hussain - Chief Finance Officer
Slide 2: Forward Looking Statements
Forward Looking Statements This document may contain ‘forward-looking statements’ with respect to certain of Prudential's plans and its goals and expectations relating to its future financial condition, performance, results, strategy and objectives. Statements that are not historical facts, includin
Slide 3: Agenda
Agenda • UK&E business and environment • Market context and model • Performance update • Proposition and distribution update • Summary 2
Slide 4: UK&E business and capabilities
UK&E business and capabilities Customers Brand • 7m policies • A leading retirement and savings brand Leading UK Financial Performance Retail Growth retirement • Sustainable cash • Retirement solutions and and savings generation and unique investments asset in WP fund business Distribution Investmen
Slide 5: Environment
Environment Past 3 years has been a period of fundamental change and opportunity Implementation Budget “Pensions Budget “Pensions Solvency II of Retail Freedoms” Freedoms” implemented Distribution Review announced implemented 2013 2014 2015 2016 Government Macro- and Consumers economy Regulation
Slide 6: UK savings and investment market opportunity
UK savings and investment market opportunity Growth market with attractive retail investments segment Flows into Retail UK Population Aged 50+, (millions)2 Investment Products (£bn)1 2012-18 CAGR CAGR 135 +8% 12 -9% 2015 23.6 104 14 52 +11% 83 21 39 2020 25.6 28 72 +13% 52 34 2025 27.1 2012 2015E 20
Slide 7: Our model
Our model Focussed participation in two distinct segments Retail Growth Cash and In-Force Optimisation Grow differentiated proposition & distribution Improve, re-shape, optimise • Mutual value creation for customers and • Significant ongoing value to be managed shareholders Segment • Opportunity to
Slide 8: Sales
Sales Robust performance in a challenging environment Total Sales Retail Sales Breakdown (APE; £m)1 (APE; £m)1 PF2 820 836 RDR 834 41 762 Retail Growth Other Retail Products 95 746 725 34 171 (APE; £m) (APE; £m) 28 149 628 141 +65% 458 795 725 712 697 278 663 613 209 -26% 155 487 6 86 5 43 117 107 2
Slide 9: 9M 2015 Retail Growth sales
9M 2015 Retail Growth sales Growth across wrappers and new propositions Bonds Individual Pensions (APE; £m) (APE; £m) 239 +15% 207 100 + 48 +108% Retail Growth (APE; £m) 458 +65% 1 2 1 2 = 9M 2014 9M 2015 9M 2014 9M 2015 278 Drawdown PruFund ISA (APE; £m) (APE; £m) 71 + +209% + 48 1 9M 2014 2 9M 201
Slide 10: Retail Growth
Retail Growth Demand driven by core fund range and favourable demographics Retail Growth Sales (APE; £m) • Long-term profitable growth of retail 1.5x investment and pensions franchise CAGR +11% PF1 458 • PruFunds at the core of this success 9M RDR 401 • UK #1 in life bonds2 338 284 • 1 in every 6 dr
Slide 11: With-profits leverages Group capabilities
With-profits leverages Group capabilities Combination creates a unique asset in the investment solutions market • Capital-efficient Prudential Group Capabilities Total Shareholder Transfer supporting With-Profits Business from all With-Profits4 • £104bn fund – around a Projected third of all assets
Slide 12: PruFund range
PruFund range Strong growth and attractive returns for customers and shareholders PruFund Investment Performance1 Growth in AuM (£bn) and Policy Count2 254 100% PruFund Growth 80% +83% 190 60% 142 ABI fund comparator 125 40% +37% 98 14.9 75 20% 44 11.6 9.1 7.5 20 0% 5.4 3 6 4.1 0.1 0.3 2.5 0.9 -20%
Slide 13: PruFund range
PruFund range Growth across wrappers in 9M 2015 9M 2015 PruFund Inflows by Fund and Product/Wrapper (APE; £m) Tax/Product Wrapper ISA Bond Pension Drawdown PruFund Range 9M 2015 Risk Managed £395m APE PruFund PruFund (9M 2014: £215m APE) 0%-30% 10%-40% 12 13 15 23 PruFund PruFund 20%-55% 40%-80% 91%
Slide 14: Retail annuities under Solvency II
Retail annuities under Solvency II New business: lower customer demand and economics less favourable Annuity Sales Financial Resource Requirement for (APE; £m) New Retail Annuities (illustrative) CAGR -48% 1.5x Risk Capital and 161 Risk Margin Risk 86 Capital 43 9M 2013 9M 2014 9M 2015 SI SII • Cust
Slide 15: Retail annuities under Solvency II
Retail annuities under Solvency II Strong future surplus from in-force annuity portfolio • Used to meet payments to Best Estimate Liabilities and Capital Held Best policyholders TD TP1 Estimate • Surplus emerges with positive Mitigates additional Liabilities performance on longevity, credit Solvency
Slide 16: Wholesale
Wholesale No change to financial criteria for writing bulk annuities Bulk Annuities (APE; £m) • Highly disciplined approach to our participation 171 141 149 • Business written must meet required RoC 95 • Selective use of reinsurance moderates SII effects 41 34 28 2010 2011 2012 2013 2014 9M 2014 9M
Slide 17: Distribution
Distribution Strong intermediary support and complementary direct access 9M 2014 Retail Sales by Distribution 9M 2015 Retail Sales by Distribution Channel Channel .. (APE, £m)1 (APE, £m) Intermediated 19 14 . 107 117 Direct, Retail Voice .. 53 Direct, Prudential Financial £487m £613m 270 Planning 31
Slide 18: Intermediated distribution
Intermediated distribution Market leading model underpinning strong growth “Power of Three” Intermediary Firms using Prudential UK&E Long-term Intermediated (monthly averages) Distribution Growth, 180-strong sales team (APE; £m) Relationships with c5,500 intermediary firms 1.6x Face to face an
Slide 19: Direct distribution
Direct distribution Prudential Financial Planning: well-positioned in new environment Direct Advice Model Assets Under Advice, (£bn) Clients Under Advice, (000s)1 240 salaried advisers 80% of sales from existing Prudential customers 2.7 39 1.7 Partner 24 1.1 Report Writer 15 Sales Support Consul
Slide 20: Proposition and channel development
Proposition and channel development Investment to modernise offer and digitise business 2013 2014-15 2016+ • “Packaged” PruFund • Flexi-Access Drawdown • PruFund in the Retirement Bonds & Pensions for Advisers and D2C Account • Conventional & With- • PruFund ISA & Dynamic • Online PruFund ISA, Profi
Slide 21: Industry recognition
Industry recognition Broad support for the proposition Service On-line Product 20
Slide 22: Summary
Summary A capital-efficient growth business with strict management of in-force value Strong • Retail sales of £613m APE for 9M 2015, up 26% on 9M 2014 9M 2015 Performance • Robust bulk annuity performance • Strong growth and ongoing demand for our market leading and differentiated risk managed inves
Slide 23: Appendices
ty Appendices PRUDENTIAL
Slide 24: Financials
Financials Sustained profitability, predictable free surplus and cash generation Strong IFRS Generation from In-Force, Operating Free Surplus Generated Cash Remittances to Group Resilient over the Medium Term1, 2 (£m)2 (£m) 719 723 736 735 753 378 453 497 478 487 673 591 262 309 420 297 313 355 325
Slide 25: Financials
Financials Robust new business performance Total Sales New Business EEV Profit Retail New Business Wholesale New Business (APE; £m)1 (Net) (£m)2 Margin (APE, %)3 Margin (APE, %) 762 70 +8% +21% 62 149 628 141 +16% 231 23 -2% 200 21 104 88 613 487 112 127 9M 2014 .. Retail 9M 2015 Wholesale 1. Exclud
Slide 26: M&G Investments
M&G Investments Michael McLintock - Chief Executive Grant Speirs - Group Finance Director
Slide 27: Forward Looking Statements
Forward Looking Statements This document may contain ‘forward-looking statements’ with respect to certain of Prudential's plans and its goals and expectations relating to its future financial condition, performance, results, strategy and objectives. Statements that are not historical facts, includin
Slide 28: Agenda
Agenda Why are we experiencing retail outflows? Breadth of the business Snapshot financials A look forward 2
Slide 29: M&G's investment expertise: diversified across all principal asset classes
M&G’s investment expertise: diversified across all the principal asset classes M&G Group assets under management by client type and asset class (%), end September 2015 0.0% 0.6% 0.1% 0.9% 0.5% 0.8% 6.7% 3.3% 7.7% 8.1% 8.7% 20.6% 2.9% 6.4% 2.0% 11.7% 28.9% 0.7% 3.1% 56.0% 71.5% 58.8% Internal AUM: £1
Slide 30: Focus on retail flows
Focus on retail flows M&G Group assets under management by client type and asset class (%), end September 2015 0.0% 0.6% 0.1% 0.9% 0.5% 0.8% 6.7% 3.3% 7.7% 8.1% 8.7% 20.6% 2.9% 6.4% 2.0% 11.7% 28.9% 0.7% 3.1% 56.0% 71.5% 58.8% Internal AUM: £120.2bn Retail AUM: £63.5bn Wholesale AUM: £63.8bn Real es
Slide 31: Focus on retail flows
Focus on retail flows 1. Context 2. M&G Optimal Income Fund 3. Equity fund performance 4. Multi-asset fund range 5
Slide 32: Why are we experiencing retail net outflows?
Why are we experiencing retail net outflows? M&G Group retail net sales (£bn), 2003 – Q3 2015 10.0 8.0 7.8 7.5 7.4 7.3 6.7 6.0 4.0 3.9 3.1 2.7 2.1 2.0 1.3 0.2 0.4 0.0 (2.0) (4.0) (6.0) (8.0) (7.4) (10.0) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD Q3 2015 Note: Data as at 30 Sept
Slide 33: A period of successful retail asset accumulation
A period of successful retail asset accumulation M&G Group retail FUM (£bn), 2003 – end Q3 2015 80 74.3 70 63.5 60 50 40 30 20 19.1 10.1 10 7.1 0 M&G Group retail FUM pre the 2003 2008 2014 End Q3 2015 Prudential acquisiton A business that is 9 times greater in size Note: Data as at 30 September 201
Slide 34: M&G Optimal Income Fund: growth in assets
M&G Optimal Income Fund Growth in assets M&G Optimal Income monthly FUM since inception* (£m), December 2006 – September 2015 25,000 Sep-15: £18.2bn and now the 6th Dec-14: largest mutual fund £24.7bn FUM and in Europe** 20,000 the largest mutual fund in Europe 15,000 10,000 5,000 0 Dec-06 Dec-07 De
Slide 35: M&G Optimal Income Fund investment performance
M&G Optimal Income Fund Investment performance Fund manager 1 year 3 years 5 years tenure* Sector Return % Return % Return % Return % Quartile Quartile Quartile Quartile p.a. p.a. p.a. p.a. M&G Optimal Income A Inc (1.24) 3 3.53 2 5.77 1 7.11 1 IA £ Strategic Bond sector average (0.23) 2.98 4.81 4.0
Slide 36: Equity fund performance
Equity fund performance Six-year bull market: MSCI Growth up 40% vs. Value index Global value vs. quality and U.S. bond yields Value stocks are cheap relative to growth stocks Energy An unusually long period of underperformance by Value Note: Data as at 31 October 2015 10 Source: Barclays
Slide 37: Well-positioned in the growing multi-asset market
Well-positioned in the growing multi-asset market Multi-asset fund success in Europe M&G Retail multi-asset FUM from European investors (£m), January 2013 – September 2015 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Ja
Slide 38: Agenda
Agenda After a long period of success, why are we experiencing retail outflows? Breadth of the business Snapshot financials A look forward 12
Slide 39: Breadth of the business
Breadth of the business 1. European footprint 2. Market leading wholesale business 3. Strength in property 13
Slide 40: Europe remains a significant long-term opportunity
Europe remains a significant long-term opportunity M&G’s retail market share by FUM in the UK and Europe, October 2015 Total size of fund market M&G Retail market share UK £860.1bn 4.26% Europe €7,017.8bn 0.47% Note: Data as at 31 October 2015. European market is defined as funds flagged as fund mar
Slide 41: Strong positioning in Europe across a number of key markets
Strong positioning in Europe across a number of key markets M&G Retail FUM across leading European markets (€bn), Q4 2008 and Q3 2015 €bn 14 12.4 12 10 8 6.1 6 5.2 4.1 4 3.2 2 1.6 0.3 0.3 0.1 0.1 0 France Germany Italy Spain Switzerland Q4 2008 Q3 2015 A good base for future growth Note: Data as at
Slide 42: Market leading wholesale business
Market leading wholesale business M&G Group assets under management by client type and asset class (%), end September 2015 0.0% 0.6% 0.1% 0.9% 0.5% 0.8% 6.7% 3.3% 7.7% 8.1% 8.7% 20.6% 2.9% 6.4% 2.0% 11.7% 28.9% 0.7% 3.1% 56.0% 71.5% 58.8% Internal AUM: £120.2bn Retail AUM: £63.5bn Wholesale AUM: £63
Slide 43: M&G Wholesale: market leading, innovative business
M&G Wholesale: market leading, innovative business Principal areas of investment expertise Leveraged Commercial real Public debt Private debt Distressed debt finance estate debt Long lease real Infrastructure Infrastructure Direct lending Private equity estate equity debt 17
Slide 44: M&G Alpha Opportunities Fund
M&G Alpha Opportunities Fund Investment performance and asset accumulation track record Since 3 years 5 years 7 years Sector 1 year inception (p.a.) (p.a.) (p.a.) (p.a.)* M&G Alpha Opportunities Fund 0.71% 3.17% 3.7% 5.42% 3.56% Relative to benchmark (0.05)% +0.07% +0.36% +0.49% +1.21% M&G Alpha Opp
Slide 45: Strength in property
Strength in property Top 10 European property investor with £19.8bn of assets Actively manage our assets, drawing on our long heritage of expertise, knowledge and industry networks Over 100 specialist property and investment professionals based in 7 locations across Europe and Asia Coverage
Slide 46: Strength in property
Strength in property Necessary attributes for success Track record and an invested book at scale Specialist investment skills (e.g. active asset management) Network and off-market contacts Ability to execute quickly Long-term staying power M&G has these attributes 20
Slide 47: Long lease real estate: M&G Secured Property Income Fund
Long lease real estate: M&G Secured Property Income Fund The result of the extensive and longstanding collaboration between our wholesale Fixed Income and Real Estate investment teams 5 year total return of 9.2% p.a. and a real return of 6.3% p.a. over UK RPI* Remains a very compelling proposi
Slide 48: M&G Secured Property Income Fund
M&G Secured Property Income Fund Growth in assets Capital raised and invested since inception* (£m), August 2007 – September 2015 3,000 2,500 2,000 1,500 1,000 500 0 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2007 2007 2008 2008 2008 2008 2009
Slide 49: Agenda
Agenda After a long period of success, why are we experiencing retail outflows? Breadth of the business Snapshot financials A look forward 23
Slide 50: The asset management model
The asset management model Drivers of profitable growth Customer-centric product portfolio Delivery of investment performance over the medium to long-term Asset accumulation Pricing Costs 24
Slide 51: M&G's profits
M&G’s profits M&G Group pre-tax profits (£m), 2009 – 2014 500 450 446 400 395 +20% CAGR pre-tax profits 2009 – 2014 350 320 301 300 250 246 200 177 150 100 50 0 2009 2010 2011 2012 2013 2014 Operating profit PRFs and carried interest Profit from associate Note: Data as at 30 September 2015. From 201
Slide 52: The growth of our business
The growth of our business Business metric 2009 H1 2015 New offices Helsinki Hong Kong Seoul Stockholm Tokyo Zurich Retail new market Belgium Denmark Finland Ireland Netherlands Norway Portugal Singapore* Sweden fund registrations Institutional new AIFMD marketing Fund registrations market fund regi
Slide 53: A competitive cost / income ratio by industry standards
A competitive cost / income ratio by industry standards M&G Group cost / income ratio vs. industry peers (%), 2014 80 77 75 71 70 68 65 64 63 63 62 60 60 58 55 52 50 46 45 40 Franklin Amundi M&G BlackRock Henderson Standard Life Man Group Schroders Aberdeen JPMorgan Aviva Investors Templeton Global
Slide 54: Agenda
Agenda After a long period of success, why are we experiencing retail outflows? Breadth of the business Snapshot financials A look forward 28
Slide 55: A look forward
A look forward Over the medium to longer term, we expect that flows into the asset management industry will remain strong M&G has a tradition of innovative investment ideas which meet client needs, and a proven ability to convert these ideas into significant fund flows 29
Slide 56: A look forward
A look forward Market backdrop: zero interest rates and prospective low returns The rise of passives Pricing pressures across the board Operating in a post-RDR environment and the consequences of MiFID II FCA’s asset management competition market study Brexit Increased political and pu