Prudential Public Limited Company (PUK)

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Prudential (PUK)

Q3 2012 Results Earnings Call

November 14, 2012 5:15 am ET

Executives

Cheick Tidjane Thiam - Group Chief Executive and Executive Director

Michael Andrew Wells - Vice Chairman, Chief Executive Officer and President

Barry Lee Stowe - Executive Director and Chief Executive Officer of Prudential Corporation Asia

Nicolaos Andreas Nicandrou - Chief Financial Officer and Executive Director

Analysts

Blair Stewart - BofA Merrill Lynch, Research Division

Edward Houghton - Sanford C. Bernstein & Co., LLC., Research Division

Ashik Musaddi - JP Morgan Chase & Co, Research Division

Andrew Crean - Autonomous Research LLP

Nick Holmes - Nomura Securities Co. Ltd., Research Division

Jon Hocking - Morgan Stanley, Research Division

Gordon Aitken - RBC Capital Markets, LLC, Research Division

Greig N. Paterson - Keefe, Bruyette, & Woods, Inc., Research Division

Eamonn Flanagan - Shore Capital Group Ltd., Research Division

Presentation

Operator

Good morning, and welcome to the Prudential's Third Quarter Interim Management Statements Conference Call. [Operator Instructions] And just to remind you, this conference call is being recorded. Today, I'm pleased to present group Chief Executive, Tidjane Thiam. Please begin your meeting.

Cheick Tidjane Thiam

Good morning, everybody. I am joined today by Nic Nicandrou, as usual; and also Barry Stowe, CEO of Asia; and Mike Wells, CEO of Jackson who are in town for the committee meeting and have the pleasure of joining us, I believe for the first time, for an earnings call.

So Prudential has continued to perform strongly in the third quarter in a turbulent economic environment. In the discrete third quarter, APE grew by 19% to GBP 1 billion, while new business profit for the group grew by 28% to GBP 597 million.

Year-to-date, group new business profit are preferred growth metric has grown 13% to GBP 1.7 billion, while APE has grown by 14% to GBP 3.1 billion. Let me underline a few points in these Q3 results before taking you, as usual, for a more detailed review of the performance of each of our businesses.

In the discrete third quarter, APE is up 20% in Indonesia, 23% in Hong Kong, 27% in Singapore and 19% in aggregate in Thailand, Philippines and Vietnam, a very strong performance in our key target markets, and keep in mind that some of those numbers are also impacted by FX. I'm sure I will come back to that.

In the 6 countries, Indonesia, Hong Kong, Singapore, Thailand, Philippines and Vietnam, NBP was up in the discrete quarter 21% and APE, so sales, was up 22%. We are pleased with that performance, particularly considering that we report our NBP on an active basis. New business profit has continued to grow in the U.S., up 10% to GBP 683 million; and in the U.K., up 17%, to GBP 227 million.

Last but not least, our asset management business has achieved record year-to-date net flows of GBP 12.3 billion on the back of a particularly strong performance by M&G in Continental Europe. So overall, we're firmly on-track to deliver our 2013 growth objectives, and cash delivery has been strong as well.

Let's take a closer look at each of our 4 businesses in turn. In Asia, first, we have continued to do well in Southeast Asia, with a strong performance in Indonesia, Hong Kong, Singapore, Thailand and the Philippines. Year-to-date, as opposed to discrete quarter numbers I gave you earlier, year-to-date, we have delivered 18% new business profit growth and 21% APE growth in Southeast Asia.

You will have noted that APE for Asia in aggregate grew by 6% in the third quarter, that comes purely from the numbers. This is actually the result of deliberate action, not of the market evolution, but of the deliberate actions we have taken on 2 fronts. In North Asia, we have very low interest rates, demand for capital intensity and we believe economically unattractive products is strong at this point in the cycle. We have decided not to provide these products and given up APE willingly to protect our bottom line. This explains the decrease in APE in Korea and Taiwan, 15% and 33%, respectively, who are 2 of our contributors to our regional APE but not NBP. So in short, what we've done is give up a lot of not very profitable APE volume. That is 26%.

In Malaysia, one of our sweet spot countries, we are refocusing the business on higher value but lower volume protection product, which led to a 20% decrease in APE compared to Q3 last year where we had a higher volume of products [ph]. And this shows that we do not hesitate to enforce our view of our volume philosophy, including in our so-called sweet countries, even when optically it had a slowdown.

Discrete third quarter APE growth, excluding these 3 markets where we took deliberate action, was a strong 19%. I will just take a moment to run you through some of our most attractive markets. In Indonesia, APE sales increased by 27% in reported sales rate in the first 9 months and 20% in Q3, driven by a positive agency growth, but also by an increasing, if still small, contribution from bancassurance, which went from 4% of our sales in '09 to 8% now, and increased by 74% in the period, as our partnership with UOB, among others, continues to gather momentum.

In Hong Kong, we delivered APE growth of 19% year-to-date and 23% in the quarter, as we achieved increases in average case sizes, [indiscernible] the agency and the bank channels. The rising wealth of the Hong Kong population and the growing business for mainland customers create a significant opportunity for increasing customer case sizes, and we have initiatives in place to continue to capture this opportunity.

In Singapore, where bancassurance is now our longest channel, we delivered APE growth of 33% year-to-date and 27% in the quarter.

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