Prudential Plc Q4 FY2021 earnings call

Management Statement and Operational Highlights

• External Environment: Acknowledged acute global political issues and ongoing COVID-19 challenges, with record high COVID cases in Asian markets and 52 staff/agents lost to COVID. Took steps to support employees' well-being.
• Strategic Priorities: Completed strategic repositioning to focus on Asia and Africa, following demerger of Jackson and equity raise in Hong Kong. Excited about large markets like China, India, Indonesia, and Thailand.
• 2021 Results: Delivered strong growth in APE, new business profits, adjusted operating profit, and embedded value. Announced second interim ordinary dividend of $0.1186 per share, total dividend $0.1723 per share.
• Leadership Changes: Michael Wells retiring, Mark FitzPatrick to be interim Group CEO, James Turner taking over as CFO, Avnish taking over CRO.

Segment Performance

• Insurance Business: In 2021, delivered high-quality, resilient growth. APE sales increased by 8%, with double-digit growth in 9 of 14 insurance markets. Outside Hong Kong, APE sales grew by 16% driven by Mainland China, India, Malaysia, Philippines, Singapore, and Thailand. New business profits grew 13% to over $2.5 billion with improved margins. Adjusted operating profit for the continuing business was up 16% to $3.2 billion. China became the largest sales market.
• Asset Manager (Eastspring): IFRS operating profit was up 10% with funds under management reaching $258.5 billion.
• Embedded Value: Grew to $47.4 billion, leading to a 7% rise in embedded value per share.

Guidance

• Entered 2022 with a strong balance sheet and capital position. Recognized uncertainty due to COVID and Ukraine situation but confident in diversified multichannel approach and investment in new products, distribution, and product enhancements for long-term value.

Risks

• COVID Impact: Ongoing impact on customers, communities, and operations. High COVID cases in Asian markets, leading to challenges in business operations and employee well-being.
• Geopolitical Risks: Implications of events like the Ukraine situation on global economic and market conditions, potentially affecting business operations.
• Regulatory Risks: Impact of regulatory changes like RBC and C-ROSS II, with details to be shared at the half year.

Question and Answer

• Q: On Mainland China's outperformance and Hong Kong's domestic segment? **A: Michael Wells and Nick Nicandrou discussed Mainland China's growth due to diversified model, bancassurance and agency combination, and Hong Kong's pivot to domestic segment with expanded products, improved bank partnerships, and digital services via Pulse.
• Q: China agency productivity and outlook? **A: Nick Nicandrou explained agency productivity improvement through intensive model, training, virtual hiring, and structural advantages, with outlook for continued relative outperformance despite market challenges.
• Q: Greater Bay Area development and Indonesia plans? **A: Michael Wells and Nick Nicandrou talked about GBA as a rich market with good positioning, and Indonesia's business revival through product expansions, digital reach via Pulse, and improved capabilities despite current challenges.
• Q: Hong Kong IFRS profit growth and pent-up demand? **A: Mark FitzPatrick discussed Hong Kong IFRS profit growth due to regular premium and health/protection focus, and pent-up demand from Mainland Chinese consumers for long-term savings and medical care, with surveys showing continued interest.
• Q: New business value mix, persistency, and capital position? **A: Mark FitzPatrick and Stuart Turner addressed new business value mix changes, persistency in key markets, and capital position being well-capitalized with pro forma LCSM ratio of 48%, expecting positive impact from RBC and C-ROSS II adoption.
• Q: China JV talks, Pulse, and financial flexibility? **A: Michael Wells and Nick Nicandrou mentioned no current announcements on China JV talks, Pulse's impact across markets, and financial flexibility with low leverage and strong balance sheet enabling investment in growth.
• Q: Margins and financial flexibility? **A: Mark FitzPatrick explained margin uplift due to richer health and protection products, and financial flexibility with low leverage and headroom for further investment, ensuring regulatory capital is not a binding constraint.