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Prudential lifts interim dividend as cash generation and profits rise

The group said it is making "good progress" on plans to split itself up with the demerger of M&G

Prudential
Brexit and global trade tensions are among the risks facing Prudential

Prudential PLC (LON:PRU) raised its interim dividend by 8% as the insurance and pensions giant reported an increase in capital surplus and profits.

The company – which is in the process of demerging its UK and European asset management arm M&G Prudential – posted IFRS operating profit of £2.5bn for the first half ended June 30, up 2% on the previous year at actual foreign exchange rates.

Asia remained the key driver of growth, with operating profit rising 7% to £1.0bn, new business profit increasing 3% to £1.2bn and underlying free surplus generation gaining 7% to £590mln.

Operating profit in the US fell 7% to £1.0bn as net business profit increased 17% to £466mln. However, US new business sales fell 15% to £816mln and variable annuity sales in the US life insurance business, Jackson, fell by 3%.

The UK and Europe division delivered operating profit growth of 4% to £778mln, with new business profit in the life insurance arm up 11% to £179mln and sales up 7% to £770mln.

M&G demerger making 'good progress'

The group said its plan to split off M&G and list it as a separate company was “progressing well”. 

READ: Prudential to spin-off M&G Prudential and sell £12bn of UK annuity portfolio

"Our planned demerger of M&G Prudential from the group, which will result in two separately listed companies, each with its own distinct investment prospects, demonstrates our commitment to creating shareholder value,” said chief executive Mike Wells.

“We have mobilised our internal teams for delivery, positively engaged with external stakeholders and we are making good progress.”

M&G’s asset management external net inflows fell to £3.5bn from £7.2bn last year while PruFund net inflows edged up to £4.4bn from £4.3bn.

Interim dividend raised, surplus capital grows

Prudential ended the period with surplus Solvency II capital of £14.4bn, or a ratio of 209%, compared to a surplus of £13.3bn and ratio of 202% last year.

The interim dividend was raised to 15.67p from 14.5p last year and the company said it aims to grow the ordinary dividend by 5% per year.

"An increase to the dividend signals management confidence in prospects, although a projected yield of just under 3% is not a particular attraction," said Richard Hunter, head of markets at Interactive Investor. 

Looking ahead, Wells said he is “confident that we are well positioned to continue to grow profitably and provide value for our shareholders and customers into the future”.

Prudential warns on external risks 

However, the group warned the world's economic outlook remains uncertain with risks including Brexit, tightening monetary policy by central banks, political tensions in Europe and global trade tensions. 

Hunter added: "The major risks facing Prudential are not necessarily of its own making, namely investment performance where certain markets are starting to look stretched on a valuation basis, a political landscape which is lurching towards protectionism and the ongoing costs and overhang of regulation.

"In addition, currency headwinds are in focus, while the demerger will prove a complex undertaking and will inevitably become something of a distraction for the group as the time approaches."

Shares ticked up 0.2% to 1,761p in morning trading. 

Quick facts: Prudential

Price: 1304.5144 GBX

LSE:PRU
Market: LSE
Market Cap: £33.92 billion
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