strong top-line growth - even faster bottom-line growth
TRANSCRIPT
Mark NorbomPrudential Corporation Asia
November 2004
Our Growth OpportunitiesOur Growth Opportunities
Delivering profitable and sustainable growth
Strong top-line growth - even faster bottom-line growth
Leveraging regional scale, expertise and innovation
Creating a lastingfoundation
Driving proven successmodels to all markets
Continued strong growth
Accelerating profitability
Building sustainability
Integrated operating model
Leadership development
Risk management
Brand strength
Business building expertise
Multi-channel distribution
Product innovation
Customer centricity
4
Overview of the Funds BusinessOverview of the Funds Business
Ajay SrinivasanPrudential Corporation Asia
November 2004
Key messages
Mutual funds in Asia have grown strongly and the potential to grow is substantial
We have a track record of delivery and have built a sizeable business in a short time
We add considerable value to the Life companies through fund management of Life Funds
Our goal is to be a significant and profitable force in all our chosen markets
We have the vision, the strategy and the people to succeed
Mutual funds market in Asia : Size and growth
7379Total
3Malaysia**
5Singapore
9
15
219
China
India
Japan
33
20
11
13
10
Source : www.ici.org, Cerulli Associates, Monetary Authority of Singapore, Association of Mutual Funds in India, Securities Investment Trust Association, SITCA, KITCA, * local retail funds only, **Securities Commission of Malaysia (private funds only),
78 (17)Korea
15 20Hong Kong*
35 26Taiwan
405
4
6
10
17
241
65
18
44
FUM 2002(£ billion)
FUM 2003(£ billion)
2003 v 2002growth (%)
Asian mutual fund market is embryonic compared to other countries
Mutual funds market in Asia : Opportunity for growth
Source : UBS, Bloomberg
Mutual funds markets as % of GDP%80
70
60
50
40
30
20
10
096 97 02 0300 0198 99
JapanMalaysiaChinaTaiwanIndiaUKUS
Customer perspective– One of two best of breed products in our offering (ie life and mutual
funds)– Create more loyal customers for Prudential in Asia
Financial perspective– Create shareholder value building on Prudential Corporation Asia’s
core strengths – Funds business has attractive return on capital profile
Synergies with life business– Leverage existing local market knowledge (eg customers, competitors,
culture and regulatory environment)– Use Prudential brand strength to broaden Prudential’s customer base
in Asia
Funds business : Fit with overall strategy
Funds division : Structure
Ajay SrinivasanManaging Director, Funds
Pankaj Razdan
India
Kelvin Blacklock
CIO, F/I
Ted PullFinance,
Planning and Risk
Suraj MishraInternational
Funds
Mark TohMalaysia
Felix Pang Japan
Oscar WongHK
Thomas Tsao
Taiwan
S H Hwang Korea
Kong SiewCheong
Singapore
Nick ScottCIO, Equities
Country CEOs
Kong SiewCheong
Operations
Regional functions
New HireMarketing
IndiaTaiwan
Malaysia
Japan
Korea
19982000
2001
2001
2002
Hong Kong2000
Singapore
2001
Funds division : Extensive presence in Asia
*•••••••*
# Represents year of commencement of mutual funds business * Opportunities being reviewed
ChinaHong KongIndiaIndonesiaJapanKoreaMalaysiaPhilippinesSingaporeTaiwanThailandVietnam
••••••••
CountryUnit
linkedMutual funds
••
10
Foreign players are increasing penetration and moving towards multi-country leadership positions
Mutual funds : Peer comparison
HK Sing IndiaKoreaTaiwanJapan VietnamChinaMal
Prudential (7)
Templeton (7)
Alliance Cap (6)
AIG Global (5)
Jardine Fleming (5)
ABN Amro (5)
HSBC (5)
Schroders (5)
Fidelity (4)
Aberdeen (2)
Source : Internal research Note : Presence with licence and office set up as of Sep 2004 * Opportunities being reviewed
**
Strong FUM growth
Rapid growth in FUM
£ billion
FUM growth mainly due to increase in net inflows
Total
LI
MF
£ billion20181614121086420
98 99 00 01 02 03 9/04 2001 2002 2003 9/2004
2.5
2.0
1.5
1.0
0.5
0
Note : FUM excludes advisory assets
Constant exchange rate
Drivers of profitability : Diversity of geographic presence and client base
Source : Prudential Corporation Asia as at 30 September 2004, FUM excludes advisory assets
FUM by clientsSeptember 2004
Our FUM is derived from various countries and a diverse client base
FUM by countries September 2004
Hong Kong 11%
India 10%
Japan 9%
Korea 8%
Malaysia 2%Singapore 18%
Taiwan 12%
UK 30%MF 38%
Asia Life 30%
UK Life 30%
Others 2%
Our asset mix is moving towards products with higher margin
Drivers of profitability : Asset mix
September 2004 actualSeptember 2003 actual
Source : Prudential Corporation Asia as at 30 September 2004, FUM excluded advisory assets
Others 2%
Equity 45%
Bond 53%
Others 2%
Equity 47%
Bond 51%
Our net inflows were 10% of gross inflows in 2003, in line with overall US market which was 11%
Our persistency versus US
Net inflow as % of gross inflow
Source : 2003 US Mutual Funds Handbook
%12
8
4
0US mutual funds
market*
Our mutual funds operations
Strong growth in revenue and economies of scale
Net revenue continuing to grow
£ million50454035302520151050
2001 2002 2003 June 2004
Cost as % of net revenue*
2001 2003 June 20042002
* Net revenue = Gross management fee less commission
%9080706050403020100
Strong growth in profits
Profit before tax£ million
14
12
10
8
6
4
2
0
-298 99 00 01 02 03 6/04
-1 0
3
9
1213
10
Profitability has improved due to economies of scale and effective cost control
Constant exchange rate
Return on capital
Strong trend on increasing return on capital
* June 2004 figure was annualised for consistent comparison
Pre-tax return on capital invested= PBT / accumulated capital (pre-dividend)
%181614121086420
2000 2001 2002 2003 6/2004*
We have added significant value to our life companies’ funds
United Kingdom Life
23Malaysia Life*
242Total
127
43Hong Kong Life
49Singapore Life
Value added last 3 years (£ million)Clients
Value added for life funds
* Value added in 12 months ended 31 December 2003
1 year (%) 3 year (%)
Mutual funds : Fund performance summary
India
Taiwan
Singapore
Malaysia
Japan
Korea
Total
58
60
100
83
100
65
66
50
67
50
100
100
N/A
65
% of funds in top two quartiles as of June 2004
Two-thirds of our funds are in top two quartiles
Examples of our awards and recognition
PRUlink Singapore Managed Fund won the 10 year Special Award
for highest absolute return over 10 years in
entire Singapore authorized investment
linked products category
(Investment Fund Awards 2003)
Prudential ICICI Asset Management among top 50 most trusted services
brands in India(2004 A. C. Nielsen
independent survey)
Prudential Unit Trusts Malaysia received 4
awards for the following funds :
Pru Growth FundPru Small-Cap FundPru Balanced Fund
PCA Asia Securities Investment Trust’s Hi-
Tech Fund recognized as Best Performing Funds in
‘Three-year Taiwan TMT (Technology Media
Telecommunication)’category
(Standard and Poor’s Taiwan Investment Funds
Awards 2003)
21
Hong Kong MPF*
Japan**
Korea
Singapore
Malaysia
Taiwan
India
Market share***
10%
5%
7%
3%
13%
2%
N/A
Market leading position
Top 5 ranking in 4 out of 7 markets with material market share
Top 5 ranking
Source : AMFI, SITCA, Securities Commission of Malaysia, The Investment Trust Association of Japan, KITCA* By members numbers ** By Foreign players’ AUM *** As of June 2004
N/A
Mutual funds : Strategic objectives
To achieve :1. Scale and materiality in terms of :
– FUM– Profitability– Geographic coverage
2. A material base of retail customers
3. A highly salient and relevant brand built on superior and consistent fund performance
4. A qualitatively superior business – Employer of choice– The best team in the business– A business that shareholders truly value
and count on for reliable delivery
23
Product
Customer Brand
Distribution
Four pillars of our strategy
Build on the Prudence heritage and add saliency to the brand as it
represents a fund management company
Continuing to increase our multi channel distribution reach so that customers
can access us when and where they choose
Range of products and fund performance to meet our customers’ changing needs
Understanding our target customers’ needs
Key factors to considerTotal market FUM and fee pools – institutional and retail
Population demographics and retail savings pools
Mutual funds “share of wallet”
Customer strategy : Mutual funds
Customer strategy
How do we decide which customer segments to target?
Our approach to understanding target customers’needs
Customer propositions are developed based on customers’ needs
Target customersInvestment mindset / behaviourAttitude toward mutual fundBarriers to mutual fundAppeal of propositions
Customer research
Agree on prime customer targetIdentify triggers for products, service and communications
Shareinsights
Identify and prioritize opportunitiesDevelop product, service and communications that leverage our understanding of our customers
Developpropositions
Product
Customer Brand
Distribution
Four pillars of our strategy
Build on the Prudence heritage and add saliency to the brand as it
represents a fund management company
Continuing to increase our multi channel distribution reach so that customers
can access us when and where they choose
Understanding our target customers’ needs
Range of products and fund performance to meet our customers’ changing needs
Mutual funds : Single regional brand
Brand platform
Find mutual funds confusing and difficult to understandFind the idea of a brand that is committed to understanding their needs and offering products to meet those needs highly appealingWould look for ‘well known’brands they can trust to look after their hard-earned money and help simplify purchase decisions
Consumer Insights Making your money work as hard as you do
Different names, same proposition
Our regional brand positioning based on commitment to put the customer at the centre of everything we do
India : Prudential ICICI brand building
Television Commercial
Product
Customer Brand
DistributionProduct
Product development
Jon AllenRegional product development
- Funds
Regional product development facilitates synergies between our funds and life businesses
Role of regional product development (RPD)
Regional product development team
Prudential Corporation Asia mutual fund
companies
Prudential Corporation Asia investment
linked life companies
Regional compliance
Regional CIOs
Regional risk management
Product approval committee
Regional operations
3rd party fund providers
Creating competitive advantage
Centralised approach to product development
Work within each business as a consultant
Add value via early adoption of global product trends
Our life companies who sell investment
linked products
Our mutual fund companies
Regional product development team
Build products that meet these needs
Product propositions to our target customers
Specific investment goalseg to grow capital to achieve
specific returns
“Financially Savvy”
I = Investment
Specific lifestage goalseg marriage, children’s education, retirement
“Needs focused”
N = Needs
Without specific goalseg want to invest or save
but need advice
“Advice based”
A = Advice
They save or invest for
Apply across each distribution channel
India example : Product mapping methodology
“Bottom Up” approach to customer needs
A = Advice
Risk basedExisting products
Customer voice + Distributor feedback + Global trends = what to build
N = Needs
Lifestage
I = Investment driven
HybridBondEquity
Eg : Need in India for school fees provision - Child Care PlanNew products
Examples of successful product launches
Successful execution validates our approach
£ 130 millionBond and equity product focused on
paying regular yieldMonthly
Income Plan
FUMat 30 Sep 04Key featureProduct Country
£ 107 millionActive bond and equity product focused on absolute returnsBalanced Fund
£ 43 millionSharia compliant bond and equity
product focused on absolute returnsIslamic Dynamic
£ 37 millionActive equity fund investing in China and IndiaDragon Peacock
KLCI Index Hybrid Actively managed bond combined with the KLCI Equity Index £ 28 million
Product
Customer Brand
DistributionProduct
Product innovation
Felix PangCEO, PCAAM Japan
Greenfield start-up in mature market – 70 competitors – Over 2,500 funds
Despite highly competitive environment, demographics make Japan a very attractive market
– World’s second largest economy– Large population with high level
of wealth
PCA ASSET Japan : Background
Source : UBS
Japan 12%
US 33%
Europe 32%
Rest of world 23%
Global GDP
Opportunities in Japan
Japan has the fastest aging population in the worldOlder generation has higher saving pools
Source : 2000 data for others and GDP growth rate. Original data by The Council for Financial Services Information (BOJ Organization).
Retail saving pools by life-stage£ billion
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0Young Singles
OlderSingles
Mature Singles
YoungParents
OlderParents
Mature Parents
EmptyNesters Retired
2001 2008
Source : Ministry of Health, Labour and Welfare of Japan
Over 65years old
15-64
0-14
100
90
80
70
60
50
40
30
20
10
01920 1950 1970 1990 2010 2030 2050
% of population by age group
So what products did we focus on in Japan?
Consider depositors’ risk tolerance and monthly allowance needs after retirement
Customers prefer regular income products with low to medium risk
* Source : NRI
Proportion of regular dividend fund is increasing
Our target customers
Customers’ needs Market trend
The older generation
% of regular dividend fund in total market
25
20
15
10
5
03/03 6/03 9/03 12/0312/02 3/04 6/04
39
PCA ASSET Japan : Introducing key products
Growth in 2003-4 through United States high yieldopen fund
Open-ended fund investing in United States high yield (BBB rating and above),
Target to pay stablemonthly dividend payout,
Attracted many new distributors for PCA Asset Management Japan
40
Investment in US High Yield Open fund has generated better returns than investments in bank deposits and government bonds
Comparison of returns
*Source : Bloomberg, Fund Mar (NRI)
%8
7
6
5
4
3
2
1
0Bank deposit Japan 10-year
government bond 10 yearPCA US high
yield open
0.25
1.45
7.2
Annualised return
PCA ASSET Japan : Introducing key products
US high yield open fund’s FUM grown 65 times over last 18 months
FUM of US high yield open fund£ million
700
600
500
400
300
200
100
01/03 3/03 5/03 7/03 9/03 11/03 1/04 3/04 5/04 7/04 9/04
2/03 4/03 6/03 8/03 10/03 12/03 2/04 4/04 6/04 8/04
65 X
Currently ranked 18 out of 33
PCA ASSET Japan : Competitor comparison
FUM positions against key competitors
*Source : Nikkin Investment Trust
-10(103)912 1,015 Credit Suisse
38365 1,319 954 UBS
106934 1,813 879 Barclays
119363 669 305 BNP
568404 475 71 Commerz
595205 240 HSBC
1,261768 828 61 PCA Asset
% ChangeJuly 04June 02All in £ million
71
Our asset management product pools
Group synergies
US High Yield is managed in the United States by our group company, PPMA
Another successful example : Our India fund launched end of September 2004
We will continue to launch funds that leverage our understanding of customers, group knowledge and skill base
Market recognition
Fastest Growing AMC
PCA ASSET launches the First India Equity Open in Japan
DistributionProduct
Customer Brand
Distribution strategy
Pankaj Razdan and Mark TohCEO, Pru-ICICI and CEO, PUTB
Distribution channels vary across markets
0
20
40
60
80
100
Japan Korea Taiwan Hong Kong India Singapore Malaysia
Source : Cerulli, Prudential Corporation Asia
Channel Mix - 2003
BanksAgentsOthers (Internet / IFA)
Securities brokersInsurance companiesDirect sales force
%
Penetration of mutual funds in India is still very low
India : Opportunities
Source : Marakon 2002
Distribution of personal financial holdings by asset class
Cash and deposits 55%
Life insurance 12%
Pensions 23%
Equity 2%
Mutual funds 1%
Other / Misc 7%
Structural changes in Indian economy could be drivers of future growth for mutual funds business
India : Opportunities
Young and growing population
Low interest rates
Source : Forecast Asia Tables for India, CLSA securities report and Bloomberg Data
Multiple channel strategy required to grow investor base in India
India : Retail distribution strategy
Financial savings pool by social economic classification*
£ 25 billion
£ 26 billion
£ 25 billion
£ 21 billion
£ 69 billionTop 8 Metros
Over 1,000,000
500,000 – 1000,000
100,000 – 500,000
Below 100,000
0 20 40 60 80 100 %
SEC A* For period 2003-2008
SEC B SEC C SEC D SEC E
City populationFinancial
savings pool
Alternate channels
Tied agency
Banks
Independent financial advisors
Institutional brokers
Direct sales
Retail customers
High Net-worth customers
CorporateLarge Corporate
Focus on multiple channel structure
India : Retail distribution structure
India : Our wide coverage
India : Our points of sale
Number of points
of sale
Over 20,000 points of sale
Distribution structure
Branches Brokers Banks Agency Retail shops
2,000 brokers with 8,000 branches
16 banks with 1,200
branches10,000 80030
53
Products were mainly distributed by agents in 2000
Malaysia : Mutual funds distribution pattern
Channel Mix - 2000
Banks 17%
Agents 80%
Direct sale force3%
Direct sales team
Retail tied agents
Institutional agents
Large Corporate investors
Corporate investors
High Net-worth customers
Retail Investors
Prudential Unit Trusts Malaysia : Distribution structure
Multiple-channels to reach out to and serve different market segments
Institutional unit trust agents (IUTAs)
Hong Leong Bank Berhad
We have partnerships with a panel of reputable 3rd party institutional distributors, including banks and stockbrokers
Leveraging Prudential Assurance agents
Leverage Prudential Assurance’s large, professional agency force – 37 branch and agency
offices– Training, customer service
and collection
Top 32% of Prudential life agents now licensed to sell unit trusts
57
Direct sales : For segments not catered to by traditional channels
Covering major business areas in Peninsular and East Malaysia,
Catering mainly to larger corporate clients and high net worth individuals
58
Multiple channels contribute to business growth with institutional agents playing significant role
FUM by channel
Prudential Unit Trusts Malaysia : FUM by channel
%100
80
60
40
20
02001 2002 2003
36
22
42
68
15
16
65
13
22
Retail agent IUTA Direct sales
Increasing influence of banks for Unit Trust distribution in Malaysia
Malaysia : Mutual funds distribution pattern
Channel mix - 2003Channel mix - 2000
Direct sale force4%
Banks 44%
Agents 52%
Direct sale force3%
Banks 17%
Agents 80%
Recap : Four pillars of our strategy
Product
Customer Brand
Distribution
Build on the Prudence heritage and add saliency to the brand as it
represents a fund management company
Continuing to increase our multi channel distribution reach so that customers
can access us when and where they choose
Understanding our target customers’ needs
Range of products and fund performance to meet our customers’ changing needs
Thomas Tsao November 2004
Mutual Funds : Opportunity in China
Mutual Funds : Opportunity in China
China’s household savings provide a large and growing savings pool in China
Bank deposits per capita
Source : CEIC
£600
500
400
300
200
100
01985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Bank deposits per capita
25% CAGR
Opportunity to increase penetration of mutual funds by targetinglarge proportion of balances held as bank deposits
Distribution of personal financial holdings
100
80
60
40
20
0China US
Other / Miscellaneous
Mutual fund
Equities
Fixed incomesecurities
Pensions
Life insurance
Cash and deposits
%
Source : Marakon 2002
Distribution of personal financial holdings by asset class
China’s equity and bond markets experienced substantial growth over last few years
China’s equity and bond markets
Source : UBS
Market cap of Shanghai and Shenzhen stock market
£ billion350
300
250
200
150
100
50
01995 1996 1997 1998 1999 2000 2001 2002 2003
Bond market size
£ billion300
250
200
150
100
50
01995 1996 1997 1998 1999 2000 2001 2002 2003
6.5X11X
02468
1012141618
1998 1999 2000 2001 2002 2003 H1/04020406080100120140160
£ billion
Asset under management Number of mutual funds
Number of funds
Rapid growth of China mutual fund industry
Source : UBS
China mutual funds market still embryonic. Strong growth since 1998 and is expected to continue
Summary : China
Favorable demographics make China an attractive market for Mutual Funds
Mutual Funds market in China is embryonic but growing substantially
Entry to China Mutual Fund market presents significant growth opportunities
We have proven track record to capture these opportunities
Ajay SrinivasanPrudential Corporation Asia
November 2004
Mutual Funds Growth Opportunities in Asia
Mutual Funds Growth Opportunities in Asia
Mutual funds in Asia : Future outlook
7 good reasons for significant growth of mutual funds in Asia
1. Large population
2. Positive economic outlook and growing wealth
3. High propensity to save
4. Very low penetration for mutual funds
5. Continued trend towards growth in professional wealth management
6. Regulatory reform to give rise to new products such as Pension and Offshore products
7. Attractive profit pool
1. Geography and demographics
Source : Asian Demographics
China
India
Indonesia
Japan
Philippines
Thailand
South Korea
Malaysia
Taiwan
Hong Kong
Singapore
Total
1,276
1,015
203
127
78
61
48
24
22
7
3
2,864
2001Pop’n (m)
1,359
1,165
215
127
92
64
50
29
24
7
4
3,136
2011EPop’n (m)
0.6%
1.4%
0.6%
0.0%
1.7%
0.5%
0.5%
2.0%
0.5%
0.9%
1.3%
0.9%
CAGRAsian region
Asia accounts for almost half of the world’s population and three of its four most populous countries
China
Indonesia
India
Japan
MalaysiaSingapore
Philippines
Thailand
TaiwanVietnam
Hong Kong
South Korea
2. Positive economic growth in Asia
Asia has weathered many crises in past 30 years and still produced high average GDP growth rates
Source : UBS , CEIC and Datastream
Average annual GDP growth (1974-2003)%10
8
6
4
2
0
2.73.3
5.2 5.46.0 6.3 6.4
6.9 6.9 7.0
8.8
3.02.1 2.3
JapanPhilippines
IndiaIndonesia
Hong KongThailand
MalaysiaSingapore
TaiwanKorea
ChinaUS
UKEurope
Source : Datastream, CEIC and UBS
3. High propensity to save
Savings as a % of GDP - 2003
US
26
4543
32 33
2431
25
11
TaiwanIndia
JapanKorea
Hong KongThailand
MalaysiaSingapore
4. Low penetration of mutual funds
Source: Marakon 2002 Note : United Kingdom Life and Pensions sectors are combined
Mutual funds
Equities
Fixed income securities
Pensions
Life insurance
Cash / Deposits
Other / Miscellaneous
%100
90
80
70
60
50
40
30
20
10
0HK MY SG IN JP TW KR CH UK US
Asian household assets much more concentrated towards cash and deposits than in UK or US
Distribution of personal financial holdings by asset class
Consistent growth in professionally managed wealth over the last 10 years in Asia but it is only half the US
5. Continued trend towards professional management
Source : Internal research
2622
57
%100
80
60
40
20
0US 2001Asia 2001Asia 1991
Rest of household assets Professionally managed
6. Regulatory reform : New products opportunities
Offshore products
Pension productsPension reform in Asia due to :
Demographics are set to worsen significantlyUnfunded or under funded pension schemes in AsiaReplacement rates are set to fall in most markets
Major markets in Asia
Predominantly domestic markets
Both domestic and offshore markets
India, China and Malaysia
Taiwan, Korea, Japan, Singapore and Hong Kong
Our estimate of current offshore
market is£70 - 110 billion
Pension reform gives rise to new market opportunities for asset management companies
India Taiwan Singapore Malaysia Japan Korea
Equity Balanced Fixed Income Offshore Fixed Income
7. Attractive management fee rates
Industry average annual gross management fees by product types
%
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
Mutual funds market overview
Significant growth trend has begun in Asia
Source : www.ici.org
CAGR of FUM growth (1998-2003) %16141210
86420
Americas Europe Asia Pacific
Well placed to capitalise on opportunities
7 reasons why our funds business is well positioned
1. Established presence in Key Asian Mutual Funds markets
2. Customer-centric approach to understand customers’ needs
3. Wide range of products to meet our customers’changing needs
4. Established distribution network which are tailored to market needs
5. Good brand recognition
6. Proven track records in fund performance
7. Quality people and systems in place
Key messages
Mutual funds in Asia have grown strongly and the potential to grow is substantial
We have a track record of delivery and have built a sizeable business in a short time
We add considerable value to the Life companies through fund management of Life Funds
Our goal is to be a significant and profitable force in all our chosen markets
We have the vision, the strategy and the people to succeed
