Review of Operations 10 egg:| and Prudential Banking 12 Retail IFA 14 Prudential Retail Financial Services 14 Prudential Annuities 16 Prudential Group Pensions 18 Prudential M&G Asset Management 18 Prudential Portfolio Managers 20 M&G 22 Prudential Europe 24 US Operations 26 Prudential Corporation Asia 28 Group Financial Review 32 Corporate Social Responsibility 34 Board of Directors 36 Corporate Governance 39 Remuneration Report 45 Directors’ Report 47 Summary of Statutory Basis Results
• New business achieved profits up 46 per cent at £603 million
Prudential Portfolio Managers (PPM) manages £145 billion worldwide, mostly on behalf of Prudential’s internal clients. Its primary fund is Prudential’s UK Life Fund – the largest such fund in the UK.
The intent to pursue plans for an IPO, subject to continuing progress in the business and favourable market conditions, represents the best option for the accelerated development of egg:| and for the maximisation of long-term shareholder value of Prudential. It will create greater financial flexibility for egg:|, will facilitate growth by giving it the ability to undertake acquisitions through the use of internet paper, and it will help to recruit, incentivise and retain high calibre staff.
Prudential Portfolio Managers PPM manages £145 billion worldwide, mostly on behalf of Prudential’s internal clients. Underlying profit for PPM totalled £43 million in 1999, in line with the previous year. PPM’s strong equity weighting helped the Life Fund outperform its competition by an estimated three per cent to four per cent.
In a low inflation, low interest rate environment, continental European savers are already buying increasing quantities of equity-based savings products. Products of this kind are recognised areas of strength for Prudential and European legislation now enables products originating in one EU country to be marketed and sold on a cross-border basis.
We will be distributing through a series of non-exclusive strategic partnerships with leading local financial services providers. Our products will be branded or co-branded ‘Prudential’.
We have enhanced our distribution capability dramatically by the introduction of new technology in a programme entitled JNL-2-YOU. The programme provides 24 hour access to account balances, premium receipts, net policy values and other information either by telephone or by internet. In the next stage of development, the full range of JNL’s products will have such access – including the full complement of indexed and variable annuity products as well as life insurance and traditional fixed annuities. We plan to launch new services, including on-line transactions, customised illustrations and presentations – services previously available only on interactive CD-ROMs.
In India, our joint venture unit trust company Prudential ICICI grew by 550 per cent, reaching £453 million funds under management as at 31 December 1999. It has rapidly become a market leader with a reputation for sound investment management, innovative products and excellent customer service.
(Age 61) A director since February 2000. Chairman of Marconi PLC (formerly The General Electric Company PLC) and deputy chairman of Glaxo Wellcome plc. Director of Imperial Chemical Industries PLC. Previously Chairman of Smiths Industries plc and a director of SG Warburg Group and of Pilkington. Chairman of the Court of Governors at the Henley Management College.
The annual bonus award for all executive directors is calculated under a cash-based incentive plan. The awards are based on performance against quantitative financial and business targets as well as personal performance.
Michael Abrahams 12,894 13,199 Sir David Barnes 3,750 3,750 Keith Bedell-Pearce 80,808 142,463 Jonathan Bloomer 45,628 119,399 Ann Burdus 2,552 2,612 Les Cullen 2,500 2,500 Sir Peter Davis** 160,852 178,242 Derek Higgs 41,344 117,352 Sir Martin Jacomb 17,955 18,019 Bridget Macaskill 0 2,792 Rob Rowley 0 2,519 Sandy Stewart 9,786 9,786 Mark Tucker 84,747 85,398 * Or date of appointment if later. ** Shareholding includes those shares allocated in respect of the 1995 Restricted Share Plan, with a three year performance period ended 31 December 1997.
The directors do not expect there to be any significant residual risks from this issue but, in the unlikely event of residual risk crystallising, they believe that there are sufficient contingency plans in place.
Donations Charitable donations made by the group in 1999 were £1.8 million. It is group policy not to make political donations and no such donations were made in 1999.
Investment management and products: Prudential M&G Asset Management 70 28 Re-engineering costs* (10) –
Debtors Debtors arising out of direct insurance operations: Debtors arising out of reinsurance operations 30 160 Other debtors: Tax recoverable 330 269
Properties are valued annually by the group’s qualified surveyors or by professional external valuers, at market value. In accordance with UK SSAP 19 no depreciation is provided on investment properties as the directors consider that to depreciate them would not give a true and fair view. Depreciation is only one of the factors reflected in the valuations and the amount which might otherwise have been shown cannot reasonably be separately identified or quantified.
The geographical analyses of long-term business and general business premiums are based on the territory of the operating unit assuming the risk. Premiums by territory of risk are not materially different.
Longer term gains credited to operating results: Jackson National Life 179 161 General business and shareholders 177 142
Interest on bank loans and overdrafts 29 29 2 3 Interest on other loans 26 9 129 102
Amortisation expense charged to the profit and loss account (54) –
Issued shares of 5p each fully paid shares 1999 £m 1999 £m
At 31 December 1999 there were options subsisting under share option schemes to subscribe for 26,212,009 (28,126,716) shares at prices ranging from 193 pence to 759 pence (163 pence to 759 pence) and exercisable by the year 2006 (2005).
The term assurances are valued by a net premium method, with allowance made for discontinuances and claims expenses. Mortality rates are based on published tables suitably adjusted to reflect actual experience. Rates of interest vary between 6.0% and 9.5%.
General business and shareholders (as above) 1,078 2,339 Long-term business 113,552 97,973
Basis of Audit Opinion We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group’s circumstances, consistently applied and adequately disclosed.
Amortisation of goodwill (54) – – – – Short-term fluctuations in investment returns 28 24 83 (37) 215 Profit on business disposals – 249 18 797 31 Reclassification of shareholder reserves of discontinued Australian operation – – 204 – –
Share statistics Earnings per share: Based on operating profit after tax before amortisation of goodwill 29.1p 33.7p 32.0p 33.2p 28.5p Based on profit for the year after tax 27.8p 45.3p 43.3p 73.4p 39.8p
Achieved profits basis capital and reserves 2,533 2,166 1,846 1,536 1,477
Notes on the Achieved Profits Basis Supplementary Information 1 Basis of Preparation The achieved profits basis results have been prepared in accordance with the draft ‘Guidance on accounting in Group Accounts for proprietary companies’ long-term insurance business’ issued by the Association of British Insurers in July 1995. The information is supplementary to the financial statements on pages 48 to 72.
Auditors’ Report on the Achieved Profits Basis Supplementary Information to the members of Prudential plc