Egg was launched in October 1998. In June 2000, Prudential completed an Initial Public Offering of a minority share of Egg. Now established as a household name, Egg has become a leading internet financial services brand, providing banking products and intermediation services over the internet. Egg offers deposit accounts, credit cards, personal loans, mutual funds, general insurance and online shopping.
Prudential Europe was formed in 1999 and is responsible for spearheading Prudential’s expansion into continental Europe. It currently has operations in France and Germany where it has established strategic alliances with strong local partners.
In addition, it has established a leading position in the unit linked market through its German broker business.
In my first statement to shareholders as Chairman of Prudential, I am delighted to report a strong financial performance with statutory basis operating profit up eight per cent to £840 million, overseas new business achieved profit up 30 per cent to £383 million, new business achieved profit up two per cent to £613 million and record insurance and investment sales of £13.9 billion. These results reflect the strength and diversity of our operations around the world. The Board has decided to increase the total dividend by 6.5 per cent to 24.5 pence per share.
At M&G, fund performance has been extremely strong across all activities in 2000. We have seen excellent performance in a number of our flagship retail equity funds as well as in fixed interest, and new funds, including the Innovator fund and the Global Technology fund, have shown market leading returns. In addition, despite difficult market conditions globally, the life fund has outperformed its competitors and its strategic benchmarks due in particular to strong relative returns from UK and European equities, as well as fixed interest. M&G’s specialist institutional business has continued to go from strength to strength, with £2.1 billion of new fixed interest mandates won during 2000.
During 2000 we had three significant new market launches. In China, we had a high profile launch with our CITIC Prudential joint venture in Guangzhou.
We also made two important acquisitions. In October, we acquired 89 per cent of Core Pacific Securities Investment Trust Enterprise (now Prudential Taiwan SITE), a mutual fund operation with around £1 billion funds under management, underlining our commitment to the growing Taiwanese market for high quality financial services products. This gives us a great opportunity to leverage synergies from our successful mutual fund business in India. In February 2001, we acquired Orico Life in Japan, an operationally and financially sound
We have continued to make innovative use of technology across Asia during the year to further improve our customer service and efficiency. Our electronic proposal and signature system has been enhanced with the addition of automatic underwriting and in Singapore we were the first insurer to provide customers with WAP phone services including access to policy details.
have shown market-leading returns. The breadth of this achievement is shown through the M&G Managed Growth Fund’s top quartile performance over three and five years, as this directly reflects the success of its underlying fund-of-fund portfolio of 22 M&G unit trusts*.▲
We will initially look at entry into Germany, with the intention of launching before the end of 2001, and plan entry into other European markets from 2002 onwards.
Prudential launched Egg in October 1998 as a division of Prudential Banking. Since then Egg has become a leading internet financial services brand, providing banking products and intermediation services over the internet. Egg currently offers customers deposit accounts, credit cards, personal loans, mutual funds, general insurance and on-line shopping.
In Europe we expanded our offering of products and services, and increased our range of distribution partners and channels.
Our strategy is to capture a significant and profitable share of the growing European savings market, building a substantial market presence through a business model that unbundles the value chain. We will provide competitive and relevant products, support and service, tailored to meet local markets’ requirements through an open platform in partnership with distributors and local market participants.
European medium and long-term savings market. We expanded our offering of products and services, and increased our range of distribution partners and channels.
Statutory basis operating profit* Before tax 840 776 After tax and related minority interests 617 567 Earnings per share 31.5p 29.1p
JNL’s in force result was a loss of £2 million, down from a profit of £277 million in 1999, reflecting a higher than expected level of surrenders of fixed annuities, primarily of older policies.
US Operations’ profit of £466 million was £15 million ahead of prior year reflecting increased spread, fee income and expenses 22 Prudential plc Annual Report 2000
Other income and expenditure was £31 million higher than prior year primarily reflecting the full year funding cost of the M&G acquisition and the cost of additional Egg funding up until the date of its IPO.
Prudential plc enjoys strong debt ratings from both Moody’s Investors Service and Standard & Poor’s. Its rated long-term debt is Aa3 and AA+, while short-term ratings are P-1 and A-1+. The Group also retains access to both committed and uncommitted bank facilities.
• In the US a scholarship programme, run by Jackson National Life, to encourage college education through the provision of $40,000 merit-based scholarships to area high schools. JNL is also a major participant in the ‘Big Brothers/Big Sisters’ programme, which provides children with adult ‘mentors’ when such mentors do not exist in the home environment.
There were no changes in interests between 31 December 2000 and 1 March 2001.
M&G Group Pension Scheme Michael McLintock is a member of the M&G Group Pension Scheme and has a normal retirement age of 60. The scheme is contributory with members currently contributing 2.4 per cent of salary and will provide him with a maximum pension of 2/3rds of Final Pensionable Salary subject to Inland Revenue restrictions at the normal retirement age of 60. Final Pensionable Salary is the greater of salary in the last 12 months of service and the yearly average of salary over the last 36 months of service and, for entrants since 31 May 1989, is restricted to salary up to the Inland Revenue earnings cap. As Michael McLintock joined the scheme post 31 May 1989 his Final Pensionable Salary is restricted to the earnings cap.
Amounts owed to credit institutions 30 909 1,111 Other creditors including taxation and social security: Banking business liabilities: US Operations 654 89
Current assets Debtors: Amounts owed by subsidiary undertakings 307 295 Tax recoverable – 95 Other debtors 6 14
2 Basis of Presentation The consolidated financial statements are prepared in accordance with the provisions of Section 255A of, and Schedule 9A to, the Companies Act 1985 which cover the disclosures applicable to insurance companies and groups.
Investment Returns Investment returns comprise investment income, realised gains and losses and changes in unrealised gains and losses, except for changes in unrealised gains and losses on debt securities held by Jackson National Life which are carried at amortised cost. For debt and other fixed income securities held by Jackson National Life, purchase premiums and discounts are amortised based on the underlying investments’ call or maturity dates and this amortisation is included in investment returns. Realised gains and losses are recognised in income on the date of sale as determined on a specific identification basis for Jackson National Life and on an average cost basis elsewhere.
Investment returns in respect of long-term business, including that on assets matching solvency capital, are included in the long-term business technical account. Other investment returns are included in the non-technical account.
Business Acquisitions Business acquisitions are accounted for by applying the purchase method of accounting, which adjusts the net assets of the acquired company to fair value at the date of purchase. The difference between the fair value of the net assets of the acquired company and the fair value of the consideration given represents goodwill. Revenues and expenses of acquired entities are included in the consolidated profit and loss account from the date of acquisition in the year acquired. Gross premiums of the entities are separately presented in the consolidated profit and loss account.
GIC – European Medium Term Notes 1,291 624 – – 129 62
Other operations: * The 1999 figure for general business solvency capital has been restated to £261m from £127m. The restatement has been made to be consistent with a change in allocation of capital and related investments made in January 2000 ** Total goodwill at 31 December 2000 comprises: £m
Amounts included in the above relating to listed investments were: Shares and other variable yield securities and units in unit trusts 50,785 56,406 Debt securities and other fixed income securities – carried at market value 26,516 20,530 Debt securities and other fixed income securities – carried at amortised cost 15,090 14,093
27 Investments of the Company Shares in Loans to subsidiary subsidiary undertakings undertakings
Notes on the Financial Statements continued 31 Contingencies continued Pension Mis-selling continued In 1999 the scope of the pension mis-selling review in respect of Phase 2 cases was expanded by the UK regulator. Phase 2 cases, originally referred to as non-priority cases, are primarily younger investors who have retirement dates which are not near term. The increase in the provision as a result of this expansion in scope was £202m. There were no changes in scope in 2000. Also in 1999 the provision was increased by £261m to reflect changes in the method of calculation resulting from new requirements issued by the UK regulator and changes in the interest rate and mortality assumptions used. In 2000 changes to these assumptions resulted in a reduction of £117m in the provision.
Fair value of consideration (including expenses) 110 73 183 Net assets acquired: Cash and short-term investments 16 – 16 Banking business assets 565 – 565 Banking business liabilities (535) – (535) Other net assets 1 6 7
Sale of Institutional Fund Management Business In March 2000 the Company announced the sale of £12 billion of UK institutional fund management business. After taking account of the goodwill of £22m attached to this business, there was zero profit on disposal.
US Operations Long-term business New business: Operating profit (including averaged realised gains) 459 457 411 367 328 US broker dealer and fund management 7 (6) – – – US GAAP profit (including actual realised gains) 413 436 413 377 300 Statutory basis capital and reserves 2,326 1,911 1,564 1,300 1,017 Additional achieved profits basis retained profit 430 622 602 546 519
Intermediary Business (5) 5 External dividends (484) (484) New share capital subscribed 184 184 Goodwill credited to reserves on disposal of holding in associate company 90 90
Net increase in shareholders’ capital and reserves 100 262 200 14 (85) 491 Shareholders’ capital and reserves at 1 January 2000 4,127 2,409 593 68 1,145 8,342
Size of shareholding Number of shareholder accounts % Number of shares %