Prudential PLC (LON:PRU) has provided a capital management update.
- Return of capital of US$2 billion to be completed no later than mid 2026.
- Progress towards our 2027 financial objectives2 will increase the potential for further cash returns to shareholders.
- Strong capital base to fund organic growth and to continue to invest in enhancing our capabilities.
CEO Anil Wadhwani, said: “I am pleased with the progress we continue to make in executing our strategy, as we drive towards generating growth in both value and cash returns for shareholders over the long term. The significant growth opportunity ahead of us has not changed and we remain focused on realising that opportunity.
“With our strong capital base, strategic progress and the recent clarification of the rating agencies’ treatment of the IFRS17 CSM, we can now provide a capital management update.
“We will continue to prioritise investment in organic new business at attractive returns and in enhancing our capabilities as we execute our strategy. We will pursue selective partnership opportunities to accelerate growth in our key markets. Investment decisions will be judged against the alternative of returning surplus capital to shareholders.
“Consistent with our capital allocation framework, we are today announcing a US$2 billion share buyback programme to return capital to shareholders. The buyback will be completed by no later than mid 2026.
“Progress towards our financial objectives will increase the potential for further cash returns to shareholders. Our dividend policy remains unchanged, with the Board continuing to expect the 2024 annual dividend to grow in the range of 7-9 per cent.
“Our outperformance in H1 2023 when the border between Hong Kong and the Chinese Mainland reopened results in a strong comparator for H1 2024. Q2 2024 APE sales trends are similar to those in Q1 2024. Given our focus on quality growth in both value and cash and on account of the progress on execution of our strategy, we have confidence in our FY2024 new business growth and in achieving our 2027 financial and strategic objectives.”
Free surplus ratio3
At our 2023 Half Year Results, we set out our capital allocation framework. Certain elements of the shareholder GWS capital surplus only become available as cashflows for distribution to the holding company over time. The Group’s free surplus (excluding intangibles) metric, which excludes these future flows, is therefore our preferred measure of distributable shareholder capital.
We are now able to provide additional guidance as to how we assess the deployment of free surplus, in the context of the Group’s growth aspirations, leverage capacity and our liquidity and capital needs. Going forwards, we will express this guidance based on the free surplus ratio, defined as the Group’s capital resources, being Group free surplus (excluding intangibles) plus the EEV required capital of the life business, divided by the EEV required capital of the life business.
Free surplus ratio operating range
Our historic focus on “with profit” savings, unit-linked and health and protection business results in a relatively low volatility of free surplus to stress events. Based on our current risk profile and our business units’ applicable capital regimes, we seek to operate with a free surplus ratio of between 175%-200%. If the free surplus ratio is above the operating range over the medium term, and taking into account opportunities to reinvest at appropriate returns and allowing for market conditions, capital will be returned to shareholders.
At the end of 2023, our free surplus ratio was 242%. Accordingly, and after taking into account the 2023 second Interim dividend, we have determined that we will return US$2 billion to shareholders.
Terms of proposed share buyback programme
The terms of the proposed share buyback programme will be in accordance with the relevant shareholder approval obtained at the 2024 AGM, and subsequently with the terms of any similar approval to be obtained at the 2025 AGM.
The pace and timing of and the form of the proposed return of capital will be subject to market conditions and execution considerations, including discretion given to a third party for execution during close periods and the completion of regulatory processes. Repurchases of shares will be made on the London Stock Exchange and/or other venues but will be treated as being bought back by the company on the London Stock Exchange4. Shares repurchased under the proposed buyback programme are expected to be cancelled.
We intend to continue our existing practice of neutralising the dilutive effects of Share Scheme and other share issuance on the Hong Kong Stock Exchange (including the possible issuance of future scrip dividends) through repurchases on the London Stock Exchange and/or other venues4. Such repurchases would be in addition to the proposed share buyback programme of up to US$2 billion announced today.
The person responsible for arranging the release of this announcement on behalf of Prudential plc is Tom Clarkson, Company Secretary.
Prudential plc expects to publish its Half Year Results for 2024 on Wednesday 28 August 2024.
A Q&A call for analysts and investors will be held on Monday, 24 June at 2.30pm HKT – 7.30am UKT – 2.30am ET.
The accompanying presentation slides and script are available on Prudential plc’s website under the following link: https://www.prudentialplc.com/en/investors/results-centre.
Dial-in details
A dial-in facility will be available to access the conference call and ask questions: please allow 15 minutes ahead of the start time to join the call (lines open half an hour before the call is due to start, i.e. from 2.00pm HKT – 7.00am UKT – 2.00am ET).
United Kingdom (Local): +44 20 3936 2999
United Kingdom (Toll-Free): +44 800 358 1035
Hong Kong (Local): +852 5803 3413
Hong Kong (Toll-Free): +852 800 908 350
Global Dial-In Numbers: https://www.netroadshow.com/events/global-numbers?confId=66208
Access Code: 028956
Registration to listen to the Q&A event online
To register to listen to the event and submit questions online, please do so via the following link: https://www.investis-live.com/prudential/667403701c01ae0c0015587a/ctatr
The conference call will be available to listen to afterwards using the same link.
Transcript
Following the call a transcript will be published on the results centre page of Prudential’s website on Wednesday, 26 June.
Playback facility
Please use the following for a playback facility: +44 (0) 20 3936 3001 (UK and international), replay code 748025. This will be available until 6.59am HKT on Tuesday, 9 July – 11.59pm UKT – 6.59pm ET on Monday, 8 July.
1 The terms of the proposed share buyback programme will be in accordance with the relevant shareholder approval obtained at the 2024 AGM, and subsequently with the terms of any similar approval to be obtained at the 2025 AGM.
2 Financial objectives: To grow new business profit to 2027 at a rate of 15-20 per cent compound annual growth from the level achieved in 2022; and, for the same period, to deliver double digit compound annual growth in operating free surplus generated from in-force insurance and asset management business. These objectives assume exchange rates at December 2022 and economic assumptions made by Prudential in calculating the EEV basis supplementary information for the year ended 31 December 2022, and are based on regulatory and solvency regimes applicable across the Group at the time the objectives were set. The objectives assume that existing EEV and Free Surplus methodology at December 2022 will be applicable over the period.
3 Free surplus ratio is defined as the sum of Group total free surplus, excluding distribution rights and other intangibles, and the EEV required capital of the life business, divided by the EEV required capital of the life business. Group total free surplus, excluding distribution rights and other intangibles, consists of the free surplus of the insurance business combined with the free surplus of asset management and other non-insurance operations, as defined on page 347 of the Group’s 2023 Annual Report. Group total free surplus forms part of the EEV shareholder’s equity as set out in the audited EEV basis results within the Group’s 2023 Annual Report. EEV shareholders’ equity is reconciled to IFRS shareholders’ equity in note II(viii) of the additional financial information to the Group’s 2023 Annual Report. Given the differing basis of preparation for he IFRS and EEV results, individual EEV and IFRS line items are not directly comparable.
4 Expected to include Aquis Exchange Europe, CHI-X, BATS and any multilateral trading facility operated by Turquoise Global Holdings Limited.
