Business context and reporting period
Prudential plc filed this Form 20-F on 17 March 2022 for the fiscal year ended 31 December 2021. It is an annual report, not a standalone fourth-quarter filing. The Group completed its strategic shift to an Asia- and Africa-focused insurer and asset manager after demerging its US business, Jackson, on 13 September 2021. Comparatives were re-presented for the discontinued US operations where applicable.
Financial and operating performance
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue, net of reinsurance | $26.5bn | $36.2bn |
| Profit after tax, continuing operations | $2.214bn | $2.468bn |
| Adjusted operating profit, continuing operations | $3.233bn | $2.757bn AER; $2.790bn CER |
| IFRS profit/(loss) for the year | $(2.813)bn | $2.185bn |
| Operating cash flow, continuing operations | $278m | $2.773bn |
| Shareholders’ equity at year end | $17.088bn | $20.878bn |
Revenue fell mainly because investment returns were $3.486bn, versus $13.762bn in 2020, reflecting market movements and higher interest rates. Gross premiums earned rose 3% to $24.217bn. Adjusted operating profit increased 16% on a constant-exchange-rate basis (17% AER); life insurance adjusted operating profit rose 8% CER and asset-management adjusted operating profit rose 10% CER. The filing does not provide a single comparable Group operating margin.
The full-year IFRS loss was driven by a $5.027bn after-tax loss from discontinued US operations, including an $8.259bn after-tax remeasurement loss when Jackson was written down to fair value on demerger. Continuing operations generated $2.214bn of after-tax profit. Basic EPS was 83.4 cents from continuing operations and (77.7) cents for the Group overall.
APE new business sales rose 8% CER to $4.194bn; excluding Hong Kong, sales grew 16%. Hong Kong APE sales fell 27% as the Mainland China border remained closed. Eastspring funds under management increased to $258.5bn from $247.8bn; 61% of measured assets outperformed benchmarks over the year.
Debt, liquidity and capital
At 31 December 2021, core structural borrowings were $6.127bn and holding-company cash and short-term investments were $3.572bn, giving net core structural borrowings of $2.555bn and a 13% net gearing ratio. The Moody’s total leverage estimate was 26%, or an estimated 21% after the January 2022 debt redemptions; the medium-term target is approximately 20%–25%. The Group also had $2.6bn of undrawn committed facilities, expiring in 2026, and $500m of commercial paper outstanding.
Group shareholder GWS capital surplus was $13.2bn, with a 454% coverage ratio at year end. After the $1.725bn debt redemption completed in January 2022, the filing estimates shareholder surplus of $11.5bn and coverage of 408%. Holding-company cash remittances from continuing businesses were $1.451bn. The Board approved a total 2021 cash dividend of 17.23 cents per share, up 7% from 16.10 cents.
Material changes, outlook and risks
- Capital actions: The October 2021 Hong Kong share offer raised net proceeds of approximately $2.374bn. Proceeds supported debt repayments, including $1.25bn redeemed in December 2021 and $1.725bn redeemed in January 2022. A $1bn subordinated note was issued in November 2021.
- Business trends: Growth in most markets offset pandemic disruption, but Indonesia’s adjusted operating profit declined 16% CER amid higher Covid-related claims. Hong Kong sales continued to be constrained by border restrictions.
- Outlook: Management cited a strong balance sheet and capital position, while noting uncertainty around Covid-19, the Hong Kong border reopening and the Ukraine conflict’s potential effects on markets. It expects to reduce its Jackson stake below 10% and deliver a further $70m of annual central-cost savings from the start of 2023. Adjusted operating-profit tax rate guidance for 2022 is similar to 2021; OECD minimum-tax rules may affect rates from 2023.
- Key risks: Market volatility, interest rates and inflation; credit and liquidity risks; Covid-related claims and policy lapses; geopolitical and regulatory change, including China developments; climate transition and physical risks; cyber, data privacy and operational resilience; competition and execution of transformation; and joint-venture and third-party dependence.
- Unusual items and contingencies: The company disclosed unlimited mutual cross-indemnities under the Jackson demerger agreement, subject to customary time limits. Management said it did not expect material adverse outcomes from litigation and regulatory matters, but their outcomes are uncertain. IFRS 17 implementation remains a significant programme; a reliable quantified impact was not available, and adoption is expected from 2023.
Important facts for investors to verify
- Reconcile the $2.813bn Group IFRS loss to the $2.214bn continuing-operations profit and Jackson demerger accounting.
- Review operating cash flow, which fell to $278m, and distinguish statutory cash flow from holding-company remittances and operating free-surplus measures.
- Confirm the post-January 2022 debt balance, leverage, liquidity and GWS capital position, including the treatment of Jackson’s retained interest.
- Monitor Hong Kong new business recovery, Indonesia claims and persistency, and the pace and profitability of APE growth across other markets.
- Track the Jackson stake reduction, $70m central-cost savings plan, IFRS 17 transition, and potential tax effects of minimum-tax rules.
- Assess how evolving regulation, climate exposure, cyber risks and demerger indemnities could affect capital, earnings and distributions.