Prudential Public Limited's (PUK) CEO Tidjane Thiam on Q2 2014 Results - Earnings Call Transcript

Aug.13.14 | About: Prudential plc (PUK)

Prudential Public Limited Company (NYSE:PUK)

Q2 2014 Earnings Conference Call

August 12, 2014 06:30 ET


Tidjane Thiam – CEO

Jackie Hunt – Executive Director and Chief Executive, Prudential UK & Europe

Nic Nicandrou – CFO

Mike Wells – Executive Director, Jackson National Life Insurance

Barry Stowe – Executive Director, Asia


Jon Hocking – Morgan Stanley

Blair Stewart – Bank of America Merrill Lynch

Andy Hughes – Exane BNP Paribas

Oliver Steel – Deutsche Bank

Tidjane Thiam

Okay. Good morning everybody, let’s start. You will see that we have adopted a kind of politburo configuration, and you'll probably wonder why. The truth is you can’t see, but they keep making faces at me particularly Barry Stowe over there, so I have decided to change the layout so I can be focused. So now more seriously welcome to 2014 Interim Results for Prudential, we have produced we believe good results across the board. Broad based performance with growth and cash coming out of all four business units and we promised you a while back more of the same and I think we have delivered more of the same. So I will start with fundamentally taking you through the highlights of the group performance and some of I think take you through the first strategy then I will cover Asia and I will do a bit of regional level, a bit of country by country. I will cover Jackson. And Jackie, because she is almost at her first anniversary with us and she has had a lively first half in the UK.

We will take the stage and talk to you a little bit about her views on the UK and give you a quick update and I will come back to do M&G, talk to about cash and dividend before Nic does the financial review of our business and I will come back again for outlook and we will then move to questions and answer.

So if you look at the numbers and the results -- these results in my mind standout because we have faced a very challenging environment in the first half of the year. If you take into account the microeconomic volatility in some of our key Asian markets, whether it's Indonesia, or Thailand, depreciation of the U.S. dollar and the advance in the UK market it's been a very lively first year and I think these numbers are very strong in that context.

You will see that we have shaded in grey the CER column. For this audience I won't belabor the point about exchange rates but we do run local businesses that have no mismatches in currency, we have no economic FX exposure. So we really think that if you want to understand the underlying performance of the businesses these is what you need to look and we have used this other feedback but we do measure of our UK business in British Pounds, it seems to make sense.

So next time we will do the same thing in Indonesia with the rupiah, rather than some other foreign currency and I think they are progressively accepting that. The flows in which you get the money, the currency in which you get your flows is relevant, assets and liabilities it makes sense. We have set the challenge on remittances but we have strong, in pounds if you look there is no difference here in the columns, they are up 15% free surplus up 13% so we think that across the Board it's really a pleasing performance and even taking the toughest metric which would be AER there is still progression. So really I think that the teams and the businesses have done very well. So we have added one more to this now familiar chart that we show you every time. NBP, IFRS, and cash, with the very good progression across the Board and no major issues.

So I think we have been able to deliver as you say in English, through thick and thin and probably more thin than thick if you look at this chart we have viewed those a number of times shows you every year. I have been here seven years, I cannot remember a quiet year. First it was survival of the financial services sector of the economy in ’08 – ’09 then we had the challenges to VAs from low interest rates and high equity volatility, then we had the sovereign debt in the Eurozone, then we had a potential China slowdown.

So through this period we have delivered steady increases I believe in the face of many, many challenges. The two blue ovals are about objectives we have delivered, some of you may remember that we were aiming to double 2005 in Asia by 2009. We were able to do it in spite of the crisis and we then promised we double 2009, in 2013 we were able to do that and that’s important that you will tell me well, that's all the past, we don't really care, it's only the future that matters.

If you’ve got 2014 I think we have continued what has become a tradition of headwinds, you know I mentioned the steep currency depreciation in key Asian markets. The challenges in the UK, we have presidential election in Indonesia, I am sure we will come back to that. There was an important factor this year and it's not over yet. The military coup in Thailand, so obviously a lot of headwinds and very good performance, very good delivery.

The next slide I want to show you is really about the 2017 objectives. You will remember that we use the same format to track the 2013 objective in ’09, ’10, ’12, all I want to say here it's 10 half years, five years, we have done three -- so it's still early days and there is no point I think getting overly excited about this. All we can say is that we’re making good progress but it's still very early days in that period.

Our strategy is unchanged, we’re focused on three major opportunities, savings and protection gap in Asia. Baby boomers in the U.S. and the savings gap in the aging population in the UK. We always talk to you about those and our main way to if you wish to capture these is for allocating capital and I would like to take a few minutes to go through our capital allocation and our track record there.

It's another chart you’re familiar, we have now introduced it in ’08 you can see the new business trend, it shows I think amazing stability in terms of quantum. So you can see the basic capital invested has been flat over a period and the group has changed scale several times as you can see on the right of the new business profits of growing 2.5 times for about the same amount of capital. I will pause for a minute maybe on the 2014 bar. If you look at, part of the story is the reduction of the investment in the UK, there is visible there, you can see it going up. Okay, so we have invested 22 million more in the UK that’s basically bulks, okay? And with that we have generated 60 million of IFRS profit and 69 million of NBP. So that’s how I would invite you to think about those 22 million and we think that has been put to good use. And that’s about the extent of the change you can expect in the UK. So it's not something that is hyper material on the scale of this group but it is a good investment that has generated very good return for UK and has allowed us to move and offset the changes and the disruption to UK market.

So that’s the global story. Now let’s take a look at Asia, the U.S. and the UK in that context. In Asia what we have done really is I think well summarizing this slide is we are driving this health and protection, H&P proposition. You can see that we went from 8% of our sales to 30%, that’s a very successfully executed strategy and better profits have increased by 6, 7 times in the period. Now that’s absolutely transformational because it has made the business one, more resilient, two, financial market and variation -- financial market, these are premiums. It's not interest rate, it's not equity returns and it's also made it more cash generative because we have grown a product line that has much shorter payback than the rest of the business.

So it's been a very, very, good enough bars now that we can say this is the real story. And again it shows you how we allocate capital and the effectiveness about capital allocation. But it's not the only story if you look at the U.S., we have done a similar thing, Jackson used to be a FA shop, fixed annuity shop, so most of the interest spread in terms of income and by basically creating a VA business alongside the FA business we have changed the income stream and if you look at the fee income it's not of a good news in these results, the fee income has been growing up very, very strongly and you see but it's growing 6.6 times in the period and has had a phenomenal impact on our results.

The next example I would like to use is the UK, it's PruFund. PruFund is one of with-profit product, for most of you who are here in 2008 we decided not to reattribute inherited estate, on the basis that the with-profit was a very good product with very strong prospects and if you look in 2008 when we were making that decision PruFund was 300 million. I think we have been proven right here because it's now 10 billion and it's been an extremely successful product in the UK market and it's something that Jackie will talk to you about later but that she will use to drive part of our strategy in the UK wherever it's wrapping it into an ISA, or putting on platform, et cetera so it was again a very capital efficient way because it's in the with-profit fund of growing and generating earnings for the Group.

So if you consolidate all that this chart you’re also familiar, it's obviously our IFRS earning by sources of income. You can see that if you combine insurance income and fee income it's gone from 24% of our profits to 64% of the total which itself has almost trebled in the period. That is, I would say 90% of the proof story in the period but the point I would make there is that we I think a strong track record of growing material businesses from a small base, if you look at those curves I’ve showed you whether it's the health and protection in Asia, where it's VA in the U.S., where it's PruFund here. I think it's something the group is good at and it's some of the things that gives us confidence.

When we see the volatility in the world that whether it's in Africa, or whether it's with SCB, every time whether it's UOB. UOB is four times what it was four years, there is something about our ability to take a business and make it grow 3-4 times and across geographies and that’s a very precious I think skill that the company has. It's good to have earnings but it's even better to have cash, what we have done in the next slide is show you the dividend, and the growth of the dividend. One thing we like to emphasize is that we haven't just delivered relative growth, we have delivered absolute growth from the pre-crisis, there were a lot of dividend cuts during the crisis so this dividend has grown not just on a relative basis, it's also grown on an absolute basis, and you can see the difference whether it's with the UK life peers or financial peers and I think you judge the strategy and the dividend overall long period of time, that’s why we took in ’13. A lot of the comparisons made on 2 or 3 years but it matters whether you have cut on it.

So we’re quite product of this track record and we want to keep it growing, we’re committed to giving you a growing dividend, if you look at our dividend policy it says very, very clearly even during the crisis we grew the dividend at 5%. We’re also committed to reinvesting into our business. I will come back to SCB later but when you see the amount we invested in that deal that’s for group in Asia that has made very good return so we want the ability to reinvest and we want to keep some financial flexibility, because you’re going to ask us why don’t you grow the dividend faster? Well we like to keep as we say every time those growth between the earnings growth and the dividend growth because we expected it happen. If you look at the last six months what has happened in Indonesia, in Thailand, across Asia you understand the need for buffer there. And I would add less consideration, we need to reinvest in the balance sheet because as a group fortunately gets bigger and bigger the balance sheet has to grow too and we have to retain some capital.

So when you put all that together I think we take a very prudent long term approach to the dividend, we’re committed to giving you a growing dividend but also to reinvest in the business. Maybe one comment on our numbers, you’ve seen the remittance ratio has gone up. I just want to caution you against reading too much into that. It's mostly timing effects, so Jackson has paid $580 million dividend as you’ve noticed in the first half and a lot of the UK dividend has come in the first half and referred comment is that we hedge the Asian dividend intra-year and we have got a lot of the benefit of that and that will unwind later in the year and that’s something that Nic will cover in his presentation as well.

So I will stop here for our Group and maybe move to Asia. Another good bar, another red bar there you have seen the, that’s profit IFRS we are particularly pleased with. We have got 8 countries in Asia that grew IFRS at double digits, India, Korea, China, Taiwan, Indonesia, Philippine, Vietnam, have all grown and Thailand have all grown double digit so really a very, very strong performance and the cash has also been very strong satisfactory.

I would just like if you allow me to reuse two charts I used at the December Investor Day (Technical Difficulty). They tell the story, these were the first one and you will recognize it, what it says is that single premium sales are sentiment led, sensitive to macro and volatile. So we're showing you the MSCI and single premium sales and you can see the correlation there and then the second chart was the ones showing regular premiums, the thing about regular premiums were a source of resilient growth.

So it's almost, it's pleasing for us but that is exactly what we saw in the first half in Asia, if you look at the regular premium PCA up 15% and if you look at the single premium down 2%, there is always textbook reaction to a macro shock that’s what happens, that’s what has happened every time and that’s what we have guided you to expect. So when people ask us can you defy gravity, the answer is always no, we cannot. Look at the single premium but luckily we have a strategy that is focused on regular premium and that is the central point, invest 90% of our sales. So you can count on that, so I must say what I see swings wild swings in our sale price sometimes on new Asia macro, I just don’t understand because if you accept that. Sorry 2% of 97 is not a lot compared to 15% of 785, okay? That’s why the APE 13%. It's a very simple arithmetic and that we have trend (indiscernible), I mean it's not a completely verified number but I had Raghu [ph] look at that and we think that these does usually kind of 4% – 5%, okay? This is 14 – 15, so we’re talking 16 – 18. So what we have had is a drop in the single premiums as you would expect given what’s happened in Asia in the macro and it should almost be enough to show the slide to explain that, everything you’ve seen in Asia and it's all in here.

A word on Indonesia because of course it's always and rightly the object of a lot of focus but we actually think Indonesia is a good story, okay. Also what happens last year if the external shock, we think that the policy response was a textbook policy response. The Central Bank did exactly the right thing. I saw the Minister of Finance in January; he was laser focused on correcting the big imbalances according to accounts, the balance of trade et cetera and they led the rupiah drop which is one of the lessons from 97 – 98 you define unrealistic parities, you have to have flexible exchange rates in an open world where you trade so you do the right thing. And more importantly and that’s really for me very impressive, they raise interest rates in the face of the presidential election.

I haven't done the work to go back and look at various central banks and their behavior, but I would argue that’s on the rare side of the kind of virtues behavior and when you know you need to raise interest rates for macroeconomic reasons and you see the next one coming, to do it is actually quite courageous.

It's really one of the things that give me confidence, not only do they know what they are doing they are courageous and they do the right thing and I’m really pleased that they have been rewarded by the market, that the long term rates are going down, the market is of 19% from general insurers and for us it's a good story, okay and the rupiah is coming back. So of course it has impacted our ability to sell, the willingness of people to make long term decisions in that type of climate is limited. So what you’ve seen is the case size hold up but you’ve seen people differing decisions and that’s what comes for ourselves, just people deferring and that’s what the Asians tell us when they talk to the customers that we have continued to recruit.

We always believe in counter cyclical investment, we have continued to recruit, recruitments is going forward and that has actually allowed us to be flat in local currency which again I think was a very, very strong performance. So maybe a word on the macro, that part of the world, there is a very good study that the IMF published in June 2007, it's called emerging markets in transition, growth prospects and challenges in June 2014 if you haven't seen it I invite you to read it but that’s the conclusion of the study for South-East Asia. We’re seeing fundamentally they are still down and is cyclical but the structural growth is expected to be at 6.6% and a 1.9% is a potential upside when the U.S. recovers and advance economies grow stronger and that gives us a lot of comfort again that we’re in the right place but these countries will continue to grow faster than advance economies over medium term which will then drive currency appreciation which I believe is a source of value.

Maybe a few words on Standard Chartered because we have given you some disclosures on that. We're delighted to have that agreement; 15 year agreement. It's all about distribution in Asia so we have secured 15 years of distribution with a prime franchise. What it does is actually a number of existing countries it's improved the terms, we however have exclusivity where we didn’t have it before or a preferred status where exclusivity is not allowed, like in China and in Korea it's simply not allowed but it's all upside and we have a great business plans in each of those countries to drive sales up. Then we have new countries, India is really pleasing, Chanda Kochhar, from ICICI is here recently and we’re really pleased. We have already started selling for SCB and that’s doing very well. ICICI was up 21% in the first half in India, it's a good result and then we have new countries, Cambodia, Laos, Bangladesh, that's 178 million people. Completely new market, quite excited about Bangladesh, Barry and his team can give you more color on when we do the Q&A but it's really very promising, very encouraging.

And just want to say a word about Standard Chartered. In June our sales have been up more than 36% again. So that’s a partnership that’s going extremely well, 36% in June. We also have Africa which is very exciting, 200 branches and they have some existing agreements because frankly we were not in Africa up to very recently so we had some agreements in place but those will run out in the next 4 or 5 years and we have a 15 year agreement now going forward and the last word is really on price. We have given you the numbers, £503 million paid this year in 2014 and another 228 million in total to be paid in two installments, other two following off the three years, £731 million. We’re convinced that we’re going to recover that many times over 15 years and that was a good price to pay that we’re very, very comfortable with.

And maybe more on countries, Hong Kong, Hong Kong is up very, very strongly, 30% in APE, 32% in NBP. The bancassurance channel, which had suffered a little bit has come back also very strongly in Q2 and we have always said but we wanted to drive the H&P sales up in the Hong Kong business and we have launch of number of new products and initiative PRUmy child, that have really increased H&P by 53%. And that’s good news and very promising, it's an upside in Hong Kong was definitely.

Singapore was up 11%, that’s an increase in market share, because the market did less than that so we’re pleased with the performance, it's better than market and we have continued to drive the agency forward and we have been talking to you about high net worth in Singapore and how it's been going up in our numbers, the NBP on high network is up 73%. We have had the business rated by S&P to AA rating and we found that a great plus in selling to high net worth in the region, it's something they value, so a very good performance there.

Indonesia I have talked a little bit, we have continued to recruit as we say here pushing the recruitment is very important, we have been flat in sales but the IFRS profit because of regularly premium inflows was at 32% to a very, very comfortable and a very significant number and we remain completely optimistic about the prospects of the country, nothing has changed in our view. It's still a huge population, growing very well and we actually see a democratic peaceful election as having increased the value of Indonesia, and not decreased it. It's very good news that they have been able to run this and do it well.

Thailand is next, the profits are 2.5 times, what they were the previous year. Standard Chartered is a great success, good contribution of IFRS to us, with double market share in one year and frankly no impact yet from the political trouble on our business in Thailand is doing very well. The Philippines is an interesting case but you see the top line number is going down the underlying evolution is that regular premiums of 21%, that’s the number you need to keep in mind. We have shifted the strategy there to focus the agency force on regular premium and when you do that there is always an impact on your short term numbers, or medium term it's very promising. IFRS is up 38% and we’re happy with our performance.

So that’s for the life business, just a word on Eastspring, very good performance, very strong net interest £2.5 billion, it refers half of that 1.6 billion is equity, so equity has increased 3.6 times in the period and IFRS profit at 42 million that’s how you get the 525, it's 484 million and 42 million Eastspring gets you to 525, 42 million is more than 10%, 20% of both prior year. So really very good performance in Eastspring. We’re very pleased, we are getting sufficient flows in equities and it's a good story and it has taken the funds up 22% to 67 billion.

So really overall in Asia we have guided you to focus on two things, IFRS and free surplus and IFRS is up 19% and free surplus is nicely up 19%. So we’re pleased with our performance. We think that the fundamental, the structural, positives in the region are intact whatever it is the demographic, young, growing population, improving education, the urbanization and, if you wish, the underdevelopment of the welfare system, we have under insured middle-class remain really the kind of strong long term drivers of the business. They are only in place, we have superb platform in all those markets where we are on the agency, our bank side, and Barry don’t listen but we have a very good management team that is able to deliver on everything we promise and continue to deliver profitable growth. So we’re very confident on the delivery, extremely confident.

So let’s move to Jackson, and you’re familiar with the Jackson strategy, we have driven cash, we have driven earnings. What I want to show you is our VA sales because it's always much discussed that’s what they look like. So if you look at ’08 – '09 yes we have been opportunistic, we expanded aggressively. You remember half of the providers have grown up and we had margin went from 40% rate (indiscernible). So we have a once-in-a-cycle opportunity to write business at extremely attractive margins so that in 2010 where business has doubled and we understand some of the nervousness around the group like that and one can be forgiven for. When looking at these two things that this is uncontrolled group, but it's not, and that’s I would like to get under the surface and show you the service curves.

The first one will be VA with living benefits. If you track our sales of VAs with living benefits that’s what we’re. So through product changes, we went from here to here and that’s when we started changing for products in the future to continuously enhance the return on the product and control revenues. I really think that -- that is not the mental image that people have of our group in VAs, our strategic in VAs. How did we do that? Because we have VA without living benefits, we have created Elite Access here in 2012, okay, we sold 4 billion of it in the first half of 2014 an we sold 7.9 billion since inception and we also have other VAs without living benefits GMDBs, which sold 2.4.

So VA without living benefits have gone from 11% of our sales to 31%, that’s the story we like because it has allowed us to book control risks and grow the top line. Now, it's a bit our fault that we haven't necessarily told the story in those terms but that’s what drives all those good numbers you’re seeing out of Jackson. Another way to look to at it is a quarterly cut which we have done here that one we really like because what it shows you is the sales of VAs with living benefits over 14 quarters, average is 4 billion. So we have moved between 3.3 and 4.8 billion, every quarter for 14 quarters. So it doesn’t look like an erratic strategy. I think Jackson know what we’re doing, we’re very good at controlling their volumes, they are very good at controlling their pricing and their product features to land exactly where they want and that’s a track record we are actually quite pleased with which we think has generated great earnings of 686 million for the first half. That’s as much profit as we used to do a year for Prudential Worldwide few years ago and a very nice 180 million cash dividend, thank you very much Mike that we have received.

So overall a good story, now if you look at the book. It's very healthy, we keep showing you this slide but it's 1% in the money. I should say maybe a word just about Curian, because I should imagine it's going to come back later. You've noticed that we had a loss issues about technical error which we can explain to you and Nic will come back to that and I’m sure he will tell you about it in Q&A but it's a technical error. Business is doing very well, the book is very healthy and this is what allows us to sleep at night and feel comfortable. 62% of the book has been written at 30% or lower than current market level, 62%, that’s a very good statistic and we’re pleased with that.

So the last slide on that is really the dividend, I think what Jackson has been able to do is to limit the downside during the crisis and really give us huge upside when equity markets aren’t supportive and you’ve seen those profits turning into cash overtime. So with this I will stop on Jackson and I will give the floor to Jackie, who is going to talk to you about the UK for few minutes. Thank you.

Jackie Hunt

Thank you Tidjane and good morning everyone. As you all well know the UK market has continued to be heavily influenced by an unprecedented level of regulatory and legislative change over the six months. And I think we have delivered a resilient performance against those headwinds with the majority of our metrics ahead of 2013 and Nic will go through those in more detail in his session.

The end of compulsory annuitization, and the increase of number of customers have actually deferred converting their pension savings into retirement income led to a reduction in our new business operating profit of 29 million. This financial impact was more than offset by higher levels of bulk annuities and by increased sales of both on-shore and off-shore bonds up 23% and 57% respectively. Now the growth in our bond sales reflects the strength of our investment proposition and the broadening of our distribution capability and that proposition is supported in part by PruFund which Tidjane referred to earlier.

We have also seen a doubling of sales and in our income drawn drops will be at from the low base and when we talk about how we see the product suite developing over the future drawn down and some implementation of a flexible drawn down product is obviously fundamentally important.

It's worth pointing out that in-force IFRS remains strong, this will continue to be an underpin to our results as we go forward and when we combine with the improved sales performance it enabled us to deliver 374 million of IFRS operating profit at the half year.

Now reflecting to some -- that we see the bulks market as an attractive opportunity in which we want to participate more fully and several of the deals that we have actually announced through the first half of this year were transactions on which we began working in late 2013. So our bulk strategy really shouldn’t be seen as a response to budget changes, it's really a continuation of what I set out in December last year.

The strong demand for bulk annuity solutions is driven by we believe three particular factors, firstly the improving economic environment means that there has been a reduction in the level of deficits and that means that the funding gaps that employers and sponsors need to address as they go into a solution have reduced significantly that creates a good environment which for they consult looking at external solutions to their challenges.

Secondly, we’re well aware that those schemes that have large gilt holdings see a time of potentially rising interest rates, and again Tidjane has mentioned this as being a good time to look at offloading some of these obligations and finally what we have seen a significant change around is the willingness of employers and trustees to partition liabilities into multiple segments and that facilitates off laying some of the liabilities while holding onto those where they may be bigger unfunded gaps as they wait for the funds to strengthen overtime.

And as those current market factors which is driving the very significant demand for bulk solutions in the market and which means that we can continue to participate very selectively with significant financial discipline and I’m sure we will come back to this in a second but in a strongly growing demand based environment.

As we look forward we do expect opportunities in bulk market to remain both resilient and very profitable. Many of you have asked about the UK strategy, the UK business continues to evolve its strategy. We see the market challenges that I laid out in December is unchanged so we have a significant savings gap, we have got the concentration of the wealth in the over 50s. The transfer of risk from government and corporate individuals and also the reduction in the access of advice for the mass market all creating opportunities with modest levels of investments we believe we can generate good returns.

Now expect that investment to moderate the cash remitted by the UK business by around 50 million per annum for the next two years. And we believe that our insight and our capabilities leave us well positioned to help our customers through this period of change and I want to flag that our program of product and proposition development which I’ve talked to many of you about remains on track through this process.

If we highlight some of those we’re broadening our retirement income proposition for example by developing a flexible drawn down product that has PruFund inside it. Again, focusing on this very strong investment proposition that it's delivered for our customers.

We’re also evolving existing with profits product suite and again this is in the form of an ISA wrapper so the budget has made ISA’s far more attractive products and that’s on track to launch in the first quarter of 2015 and finally we are developing our unique packaged products so that they will fit into the platform market space.

So you will continue to see our strategy evolving and should expect us to see us delivering for our customers with a shortened and much more dynamic innovation cycle responding more quickly to customer needs and to changes in the market in terms of our products or proposition and our distribution.

But I want to highlight that all of that will be against the back of continued focus and strong financial performance and also the support of what we see as a very resilient portfolio across the UK business as a whole.

So with that I will hand back to Tidjane.

Tidjane Thiam

Thank you Jackie. What I would like to cover is M&G, the results have been very, very strong. If you look at the retail assets M&G has been able to continue to diversify very successfully, a very strong performance in Continental Europe where there are 32%, anybody who can grow at 32% has done well from year-over-year and if you step back and look at the total asset internal versus external, very good performance.

We have crossed really a point to the external are now more than half of our assets, it is something we like sort of business is both larger and with a richer mix, of course the profitability is better here. So the total has grown 1.5 times and the external has grown faster, 1.9 times and that is what is driving the profits that you see on the next slide, 227 million, that's the highest ever for M&G the first half. I don’t know it must probably be a shock to Michael, because he didn’t show up today. More seriously, he is on holiday but he is following us, up 11% in profits, it's very creditable performance. So another very, very, very good story in the UK that’s our UK business and very pleasant.

So just to wrap up, all that in the end has to translate into cash. We have always talked about that and I encourage you to focus on it. So if you look at the free surplus generation and the dividend and the reinvestment rate it's all a very, very nice story, 2.4 times the free surplus we’re generated in ’08 through the crisis. So that’s something I think the group has been really good at developed a good track record and my last slide will be really the dividend. So I believe it's a good story both from an absolute and on a relative basis, 91% growth from before the crisis and 11.19 as you would expect is one further prior year in the first half of this year. So overall I think we’re allowed to say that this was a very good first half. We have a very broad based performance across the board and I will now hand over to Nic who is going to give you much detail and much more color on how all these numbers were generated by our businesses. Nic?

Nic Nicandrou

Thank you Tidjane and good afternoon everyone. In my presentation I will provide you with the detailed look at the drivers of our financial performance in the first half of 2014 and give you a brief update on our balance sheet. Starting with the financial headlines, the Group has delivered strong performance in the first half with good progress in all of the key financial metrics shown on the slide. This performance stems from the disciplined execution of our strategy which has seen us continue to attract sizeable and highly profitable new flows and manage our in-force business for value.

As a result once the currency translation effects are removed IFRS operating profit increased by 17% to 1.5 billion. Free surplus generation was up 13% to 1.2 billion, new business profit on a post-tax basis rose by 24% to just over a 1 billion and embedded value operating profit also on a post-tax basis was 18% higher at 1.9 billion.

With long term yields at the end of June being broadly similar to those a year ago interest rates are not a significant factor when comparing the performance between the two periods. The rise in equity markets has provided tailwinds for our fee income businesses and I will highlight the effect of this as I step through the presentation. Because we’re reporting sterling the main external market influence on our headline results are the currency translation effects and I would like to tackle this first before turning to the underlying business performance. As the pie chart on the left show the majority of our profits are earned in U.S. dollars and in various Asian currencies which we translate into sterling when reporting our headline results.

In-line with our previous guidance and as illustrated on the right for our major markets the translation effect of the strong pound has now worked its way through the 2014 reported numbers. I would reiterate what Tidjane has said that this effect on our results is purely translational. We’re on local currency businesses in each of our markets, where assets and liabilities are currency matched and have no transactional cross currency exposures.

The purposes of my presentation I have expressed 2013 comparative results on a constant exchange rate basis. The slide shows the effect of this retranslation on the four main financial metrics that I’m about to cover. You can see the impact on each metric that comes from Jackson in dark blue and the impact that comes from Asia in the lighter blue. If the half year average exchange rates persist for the rest of 2014 I would expect these transitional effects to repeat at the full year or be it at a reduced level. We have updated the full year sensitivities that we provided back in March and now we have included these in the appendix to your slides.

With this covered I will now focus on the underlying drivers of our business performance. Looking at the contribution of the full businesses to each financial metric, you can see that the improvement in performance has been broad based. Asia has delivered strong double digit growth across all measures demonstrating the effectiveness of our execution, the benefits of ongoing investment in our distribution capabilities and our well-known preference for regular premium business with a high health and protection content.

In the U.S. Jackson’s improved results reflect a continuation of robust trading inflows and a significant growth in the market value of separate account assets over the last 12 months.

Jackson’s disciplined approach to writing new business on attractive economics while appropriately managing the balance of risks remains central to its success. In our UK life business we have increased our selective and profitable participation in the bulk annuity market, which has offset the pressures on our retail business and has enabled us to deliver high overall new business and operating profits. Finally M&G has continued to attract positive flows in the first half resulting in record funds under management profits and cash.

I would now like to look at each financial measure in more detail starting with IFRS, total operating profit increased by 17% to 1521 million which is equivalent to an annualized return on opening IFRS equity of 24%. Within this total the contribution from our life operations increased by 20% to 1543 million. The chart on the right analyzes the overall increase in life IFRS profits by reference to the various sources of earnings. We continue to have a biased for fee and insurance income ahead of spread income as these two sources are more predictable and more resilient to volatility in economic and investment market conditions. It is therefore pleasing to see that these two high quality sources are driving most of the increase.

Life expenses are also higher reflecting our business growth. The 158 million shown in the chart represents an 11% increase in the expenses base which was outpaced by the 16% rise in total life income. This evidence has won us again the benefit of operational leverage across our businesses. Turning to the IFRS results for each business and starting with Asia, our overall profit from Asia was up 19% with strong growth in both life and asset management. Life profits increased to 483 million, reflecting the benefit of our focus in Hong Kong and South-East Asia which together accounted for over 90% of the improvement.

Noteworthy within this was the result from Indonesia which increased its contribution by 32%. Furthermore the smaller South-East Asian businesses of Thailand, the Philippines and Vietnam have doubled their collective contribution to 63 million and now represent 13% of the life total up from 8% a year ago. The improvement in profit is directly linked to the growing scale of our life book driven by the high and rising level of regular premium sales each year.

As you can see in the chart in the top right, our growing scale is represented by the increase in policy holder, liabilities which was 16% higher than this time last year and major factor in this positive trend has been the ongoing growth of premium inflows from our in-force book. These flows have increased to 1192 million in 2014 reflecting improved customer retention and the addition of another sizeable cohort of regular premium new business.

The chart below shows how this growth in scale translates into higher profits. As you can see insurance margin has grown fastest at 20%, reflecting our ongoing focus on health and protection. You can also see that taken together the various sources of income are growing at a faster rate than the 8% increase in costs of net DAC, highlighting the operational efficiency of the business.

The slides showing the detailed analysis of earnings of the sources of earning that I normally walk you through are included but this time I’ve put them in the appendix, so the dynamic of layering new highly profitable regular premium cohorts on top of a very sticky in-force book or process through a scalable platform remain a powerful underpin of our earnings momentum in Asia.

Turning to Eastspring briefly, IFRS profit was up 24% to 42 million, as shown in the box in the top right, the improved performance is driven by a 13% increase in fee income and a 4 point reduction in the cost ration. The rise is fees is directly linked to the growth in average AUM which are up 12% as shown in the box below. Eastspring has seen record inflows both from its internal and external client mandates with an increasing flow of assets into equities over the period driving a positive mix effect and improving the average fee margins.

Turning to the U.S., IFRS profit was up strongly at 681 million driven by 28% increase in Jackson’s life result. You know recall that the 2013 result was itself 29% up on the prior year period which demonstrates the momentum of Jackson’s business model particularly when the macro and market conditions are supportive.

The step up in Jackson’s profitability has been accompanied by an improvement in the mix of earnings as illustrated in the chart in the top right. You can see fee income and technical margin are the fastest growing sources and between them they now represent nearly three quarters of the total. Spread income has also increased albeit at a slower rate as the average crediting rates continue to fall faster than the reduction in the gross yield.

Technical margin has benefited from a £100 million contribution from REALIC and this is equivalent to seven of the 24 percentage points shown in the chart of this source. Underpinning the 28% increase in fee income is the growth in the scale of our variable annuity business shown in the box underneath. Separate account assets have increased by 34% between the two periods to just over a $122 billion. As you can see this is driven by the high levels of positive net inflows and the rise in the S&P 500.

The progress that Jackson has made with Elite Access has contributed roughly $4.5 billion of the $13.8 billion of inflows shown in the chart. Elite Access AUM now represents about 7% of the separate account assets. So 7% of the 122 billion, which is a testament to both the wholesaling capabilities of Jackson and its focus on improving the overall risk profile of the business. Even though the risk adjusted returns of Elite Access are excellent, the absolute fees charged on lower and this has the effect of diluting slightly the overall increase in fee income.

Earnings relating to Jackson’s other operations are lower, this year at minus 5 million following an internal review, we detected that Curian may have breached the small number of ERISA rules on client fees, the 2014 result therefore includes a provision of 33 million relating primarily to the potential refund of certain fees by Curian.

Moving to the UK, the overall increase in IFRS operating profit is driven by a 10% a rise in the life result to 374 million. This is analyzed further into the table on the right. You can see in the dotted box the 60 million contributions from bulks exceeded the 29 million reduction in profits from new retail annuities which are 25 million represent the modest proportion of the overall group result. The main source of annuity profit is the sizeable in-force book which has contributed a 147 million in the period. This component together with the with-profits result represents a reliable and sustainable source of future IFRS profit for our UK business.

We remain selective in our approach to the bulk annuity market and we will only write the business when the returns are sufficiently attractive to us. This approach will mean that the UK life result will be a little more uneven as we move forward. Staying in the UK and turning to M&G, IFRS operating profit was 11% higher up 227 million reflecting the increased scale of the business. As shown in the box in the top right -- the improved result was driven by a 10% increase in underlying fee income. The rise in fee income is directly linked to the growth in AUM shown in the box below, total AUM at 30 June exceeded the 250 billion mark for the first time following another six months of strong third party inflows totaling 4.2 billion and positive market movements. The increasing proportion of higher margin retail business has seen M&G’s average fee income improve to 38 basis points.

The higher overall fee income levels have helped absorb a larger cost base reflecting M&G’s continued investment in people and infrastructure. As a result the cost income ratio was 54% unchanged from last year. I would remind you that as in previous year’s M&G's cost base has a second half bias so please allow for this in your forecast. In 2013 for example the full year cost ratio was 5 points higher than in the first half.

I will now move to free surplus which is a measure that we use to track the internal cash generation of our Group. As you can see on the left, free surplus generation before investment in new business increased by 11% to 1.6 billion. The main driver for this was the expected return from the life in-force book which increased by 14% at 1.1 billion demonstrating once again the powerful capital dynamics on focusing on high return fast payback new business.

Positive experience of 187 million which this time excludes any assumption change effects has augmented our cash generation further. On the top right you can see that all three life businesses are making significant contributions to the in-force total with a strong uplift from Asia and the U.S. with a capital dynamic I referred to earlier is most evident. In the UK free surplus generation has been maintained as this measure is relatively insensitive to the disruption in the retail annuity market. We remain disciplined in the redeployment of capital directing our investment towards low strain high return and short payback opportunities. In the first half investment in new business of 382 million increased less rapidly than new business sales and profit highlighting the capital efficient nature of our growth.

As you can see in the bottom right, Asia’s new business strength was in line with sales while that for Jackson was 11% lower despite the increase in sales volumes. This reflect the beneficial effect of higher valuation interest rates for active actions to restrict sales of higher strain products and changes in the overall sales mix. Consumption in the UK has increased reflecting additional capital for bulks and a modest rise in unit cost and individual annuities driven by lower volumes.

My next slide shows how this cash generation has impacted the stock of free surplus on the left and central cash on the right. Starting on the left, you can see that market movements which include a negative currency effect have been relatively benign in the period. The increase in the overall stock has therefore been driven by our operational performance and this has in turn enabled our businesses to remit 974 million to Group. I would remind you that our approach to remittances is underpinned by our stance that the natural home for capital is at the local business level. Decisions on the level of remittances to group are driven by balancing the desire to retain capital locally so it can be invested in profitable opportunities with the need for cash at Group to fund central costs dividends and corporate actions. The remittances by business units in the breakout box on the right captures the outcome of this approach.

The 14% increase from Asia to 216 million reflects the cash generative nature of our growth in the region. Jackson remitted it's full year dividend of 352 million in the first half which represents as new high as you’ve heard already reflecting its strong performance at this point in the cycle. The UK remittance is also higher and like Jackson it has strong first half bias as it includes the with-profits transfer of a 193 million. The increased remittance from M&G reinforces the importance of this business to the cash dynamics of our Group.

Remittances so far this year have been supported by our approach to hedging sizeable non-sterling flows up to 12 months in advance. This approach has sheltered the U.S. and Asia cash flows from the full effects of the sterling appreciation absorbed around this time last year.

The transitory benefit of this approach will therefore unwind through the second half of 2014 and into 2015. Furthermore as I highlighted by Jackie, the investment that we’re making in response to the budget and other regulatory initiatives will have a moderating effect on UK remittances reducing these by up to 50 million for the next couple of years.

Now for a group of our size these effects are manageable. I would reiterate that cash flow from business to the center continues to be underpinned by our disciplined approach to capital generation and consumption and the powerful business dynamic of growth with cash. Finally included under the item marked corporate actions in the right hand chart is the 0.5 billion initial upfront payment to SCB. As Tidjane had said there are two further payments totaling just over £0.2 billion which will be settled in two equal parts in 2015 and 2016.

I will now briefly cover the EEV results before turning to the balance sheet. On this basis, total operating profit was 18% higher at 1943 million, equivalent to an annualized return on opening embedded value of 16%. As shown on the left the result is driven by our life operations where profits were up 19% to 1997 million reflecting strong double digit increases in all three businesses. With interest rates at June 13, 2014 being broadly similar the impact of economic assumption changes is less than 20 million so the improvement that you see in the result is purely performance driven, okay, there is no economic assumption effects.

The chart on the right analyzes the contribution from new and in-force life business, new business profit was up 24% and I will come back to that in the next slide.

In-force profit was 15% higher at 982 million and again every single of our three businesses reported double digit growth in their in-force result. As shown in the breakout box the overall increase reflects the growth in our book which comes through the line labeled unwind and which is 16% higher at 749 million. Favorable experience totaled 224 million reflecting our focus on managing the back book for value and our prudence in settling EEV assumptions. Finally, other than in relation to a small regulatory driven change, we have deferred the booking of any assumption changes to the second half of the year, you shouldn’t read anything into this not at least because experience was positive so far this year.

New business profit shown on this next slide was up 24% to 1015 million. The table on the top right analyzes the drivers of this growth with items under management’s control namely sales volumes, bulks, pricing and product actions driving most of the increase. All three regions continue to write new business at internal rates of return of more than 20% with short payback periods. In Asia, new business profit was 15% higher at 494 million, despite a broadly flat result from Indonesia highlighting the benefit of having an extensive and diversified regional platform.

Our NBP performance in the region is both robust and resilient underpinned by a 15% increase from our South-East Asian sweet spot, a 15% rise from agency and a contribution from health and protection which was 14% higher. In the U.S. NBP increased by 31% to 376 million, although interest rates remain low the beneficial impact of product initiatives implemented in previous years has enabled us to write new business in 2014 on economic returns that are close to post financial crisis highs. Almost the entire improvement is attributed to VAs including Elite Access which together have reported an NBP increase of 29% so the VAs with Elite Access ahead of the 24% growth in sales.

UK NBP was 45% higher driven by bulks which contributed 69 million, at a retail level NBP was 24% lower reflecting a reduction in the contribution from individual annuities mitigated in part by the higher NBP from with-profit bonds. Moving now to the rest of the profit and loss account which is summarized here for both our reporting basis, in IFRS investment variances were neutral. This reflect the offsetting effects from the fall in yields which generated positive value movements on our fixed income portfolios in the U.S. interest rate hedges and the rise in equities which generated negative value movements on Jackson’s equity hedges net of changes through related guarantee reserves.

In 2013 the negative value effects of the rise in interest rates and equity markets compounded which is why IFRS profit after tax has increased by 214% year-on-year to 1.1 billion. The fall in U.S. yields in the first half of the year also gave rise to a 0.5 billion unrealized gain on Jackson's fixed-income assets, which are accounted as available for sale. After deducting the final dividend our overall IFRS retained earnings were positive 1 billion equivalent to 37 pence per share.

Investment variances in EEV were also neutral in the first half therefore the operating result was the main driver of the increase in the Group’s embedded value to 25.9 billion equivalent now to £10.09 per share.

I have provided you on this slide the usual update on the balance sheet, in short the overall picture is unchanged and we remain well capitalized and defensively positioned. The Group's IGD surplus at the end of June was estimated at 4.1 billion after deducting the full upfront SCB fee of 0.7 billion. You can see as you can see IGD surplus is higher than this time last year and is equivalent to healthy cover of 2.3 times.

We continue to work towards the implementation of Solvency II and as previously flagged we will provide you with an update of our economic capital position based on our internal model at full year 2014. Our roll-forward estimates indicate that the surplus position at the half year stage has not changed markedly, with the positive contribution from trading activities and market movements of that being offset by the final dividend payment, the effect of the SCB initial fee, the impact of Hong Kong domestication desynergies and foreign exchange. We have renewed our liquidity facilities raising them from 2.1 billion to 2.4 billion and have extended that term to 2019.

We experienced no defaults in the first half but have nevertheless maintained a UK credit provisions and remain generally conservative when it comes to credit risk. Our balance sheet assets remain cautiously invested in high quality securities, we continue to have minimal troubled European sovereigns. Our direct holdings of securities in corporates that are under Russian sanction list totaled 4 million while holdings in Banco Espirito Santo amount to 28 million and we have no exposure to Argentinian sovereign debt.

Finally on Jackson our stance on variable annuity hedging is unchanged, policy holder behavior is in-line with our pricing assumptions. We remain focused on being appropriately diversified within the VA book be it by vintage, types of guarantees offered and benefit levels. Updates to the usual additional information that we provide you on Jackson are included in the appendix to your slides.

So to conclude our disciplined execution combined with our relentless focus on cash generative growth from our attractive and increasingly diverse business portfolio has delivered strong high quality and broad based financial performance. This along with our conservative approach to risk management underpins our confidence in the future prospects of our business.

I will now hand it back to Tidjane.

Tidjane Thiam

All right. Thank you Nic. So I think you will agree with that this has been a strong first half and I think Nic’s presentation confirms the breadth and the strength and the performance. I believe it underlines the quality of our strategy, we have the right strategy, the quality of the execution of our teams across the world and many of them are in the room today. But I also think further we have been effective in allocating capital and we have given you few examples. It's very easy to underestimate the value of the levers we have, the optionality we have, the breadth of business and channels we have and how that allows us to generate at Group level for best outcomes for the shareholder and I must say having said everything we have had to say about CER, I think Group number is even on AER are very defensible. It's really a very strong performance in a very challenging environment.

So, back to macro and this is really our outlook. On the positive side we believe there is a recovery in the U.S., in the UK, it's very strong and that is a strong tailwind for the company going forward. In the U.S. and the in UK for our businesses in those markets but also in Asia to which we are exposed very significantly. On a more cautious site there is a geopolitical uncertainty, we’re aware of what’s going on in the world and there is also the transition to a less accommodative world particularly in the U.S. and we remain cautious regarding the potential unintended consequences of that and you see us holding on to a number of reserves and being very strongly capitalized because we’re always keeping an eye on credit and credit risk in that scenario but is a risk but we think we’re well positioned to deal with it and looking at regionally, we've discussed some of the short-term cyclical headwinds in Asia. We believe they are completely short term and completely cyclical. Our belief in the long term potential on those economies is intact. We firmly believe we’re going to outperform the Western economies in terms of growth.

We believe that we will drive appreciation of their currencies in the medium to long term and that view has not changed; we remain extremely bullish on Asia. In the U.S. we have a recovery on top of all the rest and a strong position and the quality business we have. Again we’re very bullish, very strong and in the UK as illustrated in the first half there are new opportunities I believe we have all the scales to take advantage of those. So really in a nutshell a very good first half, a very bullish outlook for the rest of the year and I think now we’re ready to take your questions.

So I will move to the other side of the stage and we will start the Q&A.

Question-and-Answer Session

(Operator Instructions).

Jon Hocking – Morgan Stanley

I've got three questions please. Firstly, Nic, you talked about the hedging impact on cash in the first half, but there is also some phasing impacts. I just wonder if you could break that out a little bit more in terms of what the hedging benefit was on the cash for the first half, please. Secondly, on the U.S., I just wondered whether you've made any pricing changes to the living benefit product, given how well equity markets have done in the U.S. Have you changed the features at all there? And then finally, just on Solvency II, I wonder if you could give us an update on what your expectations are for equivalents in the U.S., and also the PRA implementation and matching adjustment for the annuity book. Thank you.

Nic Nicandrou

Yes I mean in terms of the, I’m not going to give you a running commentary on the effect in this sort of hedging or otherwise. There are many moving parts. We only hedge part of the remittances. It's not everything. We only hedge the sizeable ones, the timing and the size will vary depending on the type of instruments that are available to us. I mean indeed when we know that we have outflows in currencies we factor that into our cash planning.

So beyond really, the reason for raising is that I didn’t wanted to give you the impression that the cash that you’ve seen from Asia in the second half of last year indeed in the first half of this year was after, if you like absorbing the currency effect that is come through and it will come through as we go from the second half -- in the second half of the year and beyond.

There are no kind of one offs outside that, we have said before that we’re not looking to increase the remittance ratios if I go deeper into the internal remittance ratios and we have guided you in the past that remittances from the business will grow in sync with free surplus generation. We like the buffers that we have in those businesses; we have always said that in the past that we will retain enough capital not only so that we can direct it to the most profitable opportunities and there are many in these countries as you’ve seen in the results but also for uncertainty and as you’ve seen the overall, even though free surplus stock has increased. The coverage ratio has remained broadly unchanged, reflecting that the book is growing all the time.

Jon Hocking – Morgan Stanley

Any hedging in place now or all the hedges have rolled off pretty much in the first half?

Nic Nicandrou

Well it's the rolling thing, so as we go into, as we look into the second half of this year and then into next year we have started that process but no the -- as I said up to 12 months that we hedge and the drop in currencies came around this time last year.

Tidjane Thiam

We really hedge more from budget reasons than for economic reasons. And it's something that predates all of us. When I arrived at the group it was already the policy and we have kept it because it's just for to cover expenses but fundamentally we continue to believe those currencies will appreciate. We don’t want to hedge too long into the future because we think that is economically wrong and also as Nic said a lot of those countries don’t have forward markets anyway. We told them you cannot hedge. I would say at one level you’re going to have to trust us on that. We focus on the free surplus generation that’s really the hard data that you need to look at, you know is the business generating the cash after that where we leave the cash, this is why we’re always reluctant to give you short term remittance target. You have seen all the remittance target, always cumulative. But we’re very confident that over 4 or 5 years we’re going to get X amount of cash, within that it's a bit of a management call. Sometimes you remit in this place because you know you have an outlay (Technical Difficulty) (indiscernible) there is no economic value attached to that and we will manage it to optimize of course ultimately we will value in pound but it's hard to tell you in H2, ’15 we’re going to extract this much because currencies they move in the way, we say okay, fine we’re going to hedge the Korean one because there is a deep liquid market in forwards. But frankly we’re just going to wait in Vietnam because the currency is weak and you know we should probably extract it next year.

So those factors are at play. But the key take away is the dividend is not at risk, okay, it's so well covered, so deeply covered. We have so much cash on the center and so much capital and that’s why really I wanted to be in that position where you don’t end up doing silly things that are economically silly for cosmetic reasons. That very destructive for our shareholder we have enough capital and we are very comfortable, we can meet all our obligations and on top of that do a kind of economic optimization. So I wouldn’t worry too much given as Nic said, there wasn’t enough material at the scale of the group. You have 10 million here 20 million there.

It's not worth if you wish to show a big optical number in H2, I think destroying economic value because that’s what you will be doing.

The second was, is that okay Jon? Pricing changes in the U.S. with the S&P level?

Mike Wells

Yes John, we did in April, Q2 we did a commission reduction and we did suspension of certain withdrawal and debt benefits. So we have the ability to turn those back on if we choose to but the net effect of those, the benefit piece was affected by 31% of the sales going into that cycle. So you’re not seeing a dollar per dollar reduction in sales but just to give you an idea the magnitude of the change.

Tidjane Thiam

Yes and the other thing I should mention in addition is that we’re also using the current environment to as we have always been to hedge deeper into the tail. So we’re really very, very low activity, very high equity market levels, that’s the good time, that’s the right time to go bit further and dig deeper into the tail. That’s a good move to make at this point.

Solvency II, an update, look, we are developing our internal model, I think it's progressing well. On the equivalence we’re probably more optimistic than we have ever been, provisional equivalence with the U.S. looks very likely so we don’t see any real reason to worry there. The other development I should probably mention I know other companies have commented on it, that is the BCR. If you think of the G-SII, it's positive development that’s also moving well. I think the regulators have done what they've said. In meetings they have told us that it would be set according to what it's called, the basic capital requirements are relatively lower and everything we have seen their makes us feel quite relaxed about it.

Blair Stewart – Bank of America Merrill Lynch

Starting with three questions, starting with the U.S., I think every time you report you say that the spread I think was starting to come under pressure, the spread will come under pressure and it never seems to, so just a update on that it has been relatively good again. Secondly in Asia, was a Singapore a little disappointing? Wasn’t it one of your double digit markets I don’t think. And I guess one for Jackie maybe a few words on the new product initiatives you seem to be expanding 100 million or so over the next couple of years, is it a lack of platform, a drawback when you think about drawn down et cetera? Thank you.

Nic Nicandrou

You will see that the size of our general account isn't increasing. I will just give you a little more color. So what’s happening is you’ve new business coming in and it's mostly from the fixed annuity option that is offered as part of the VA offering and no that the crediting rate is 1%, okay. So yes we’re investing it in new securities that have lower yield but the crediting rate is, so as you put more of that onto the book and some of the older stuff moves on you will see the average crediting rate and the average yields come down and roughly that explains the statement I made earlier.

We have -- we did do some, we did enter into some swaps back in 2010 and candidly the benefit that we got from those has lasted longer than we were expanded, not expected not at least because interest rates have stayed lower for longer which is why that is coming through. Interest rates will normalize at some stage so I will stick my guidance for you that this thing will come down, it will head towards the 200 basis point level, this is typically where we have operated and so that’s where we are headed and my prediction of getting there by around now has not proved right but I didn’t think interest rates would stay as low as they have done.

Tidjane Thiam

Barry were you disappointed by Singapore?

Barry Stowe

No, not really. I mean obviously you know 11% growth is not as good as 25 or 30 and that’s always more fun than easier to explain but the reality is in most of the markets across the region we’re experiencing headwinds of different kinds and Singapore is not immune to that. So at 11% growth we gained share in Singapore I think that’s probably the key takeaway. Bank came off a little bit, the Maybank relationship that we've had there, the sort of deals with the middle markets one of our smaller relationships, the good relationship. They are taking that in-house, they are bringing Etiqa which is their own company from Malaysia into Singapore and they have made the decision so to take that in-house that impacts us a little bit. It's not huge but it impacts us a little bit. But we’re making up for that really in the near term with agency where we have actually recruited some additional agents, some experienced agents which is unusual in Singapore you usually don’t see a lot of agency growth. You just try to focus remaining highly productive and it is already a highly productive agency force. But even having said that, in addition to growing the scale we also improved the productivity by about 5% so and I think it's a good result.

Tidjane Thiam

Well thanks for flagging that note, we’re losing some distribution in Singapore. How can I say this, there is two sides of every coin. I think our success and how transparent we’re about it, it does attract a lot of attention sometimes unwanted. So we are losing SingPost --

Mike Wells

Which was quite small and then we made that --

Tidjane Thiam

But we’re happy to lose it because you will never see us chasing volume, see us chasing value not volume and at a price at which it's went (multiple speakers) I’m pleased we’re losing it, it's fine and I wish good luck to the new operators and when you see us losing bancassurance volume, it's for value reasons. So we’re losing SingPost, Maybank as we said we’re --

Barry Stowe

Maybank we’re taking it in half so --

Tidjane Thiam

So basically, the thing in Singapore, you've got very good market statistics. Market went up 1.4%. So 11% -- Barry was being modest, in the market that went up 1% is very good and within that agency went up 21%.

Barry Stowe

We’re still number one in Linked [ph] we're still number one in PruShield, or health shield products so that’s actually quite a strong performance.

Tidjane Thiam

The pressure is on the banking. It's very good, volatility -- we reach the uncertainty -- Singapore has an exquisite strategy of having a better greater than one in regional economies of course when there is a bump they get hit.

Barry Stowe

And it's also just one other point, a lot of our competitors are driving most of their growth, that’s on universal life to high net worth customers. A lot of those customers come from Indonesia, okay so the Indonesia play what’s happening there plays directly into what happens in the high worth space.

Tidjane Thiam

So the actually the performance is quite strong and we’re under pressure in bank that’s why we’re very pleased to have SCB where we can work in quality for 15 years. We have got 15 years, we have done that trial, we have got 10 years UOB. Other relationships I think will be transacted because some people are so desperate to show Asian growth but they will literally will pay any price for any Asian volume and we have a big enough platform but we’re just not willing to do that. So from time to time someone comes us to and says pay five times and I say look, we have to stand here and explain to you why in market A or B the -- we went backwards. There is a bank story embedded in these numbers and really have limited time. We have slides of that too and we haven't put them but there is some pressure on the banking side, we lost distribution in the Philippines. Some -- we had questions, HSBC, basically closed down and they stopped selling that’s what explains the number and there is some pressure from Citi. That’s why we’re so happy that our bank distribution is mostly long term deals where we have really a long term partner to work with.

Jackie Hunt

So when we talk about the moderation of the cash remittances to the group to the tune of up to around 50 million per annum, it's actually a very broad based range of products and propositions and in fact some of our core systems that we’re investing in. The ones we have been vocal about, we have talked about it in the past PruFund ISA; flexible drawdown products getting onto external platforms I should say the platform solution we think is critical but actually it's single digit millions in terms of its investments. So it's pretty modest. And then also just broadening sort of our digital capabilities, we have almost no way in which customers can interact with us on a digital basis and some new business strain. So I think it is the mix of a very wide range of potential solutions, longevity solutions. We think annuities will remain a suitable product for many customers as we go forward into 2015. They are likely probably to buy later in their lives but actually many will still be looking for some sort of longevity protection. So it's really looking at the opportunities that the budget has given us and we think actually the underlying direction of traveler is very positive for the UK business because we think releasing the need on the compulsory annuitization will encourage people to save more and I think that creates opportunities for us and it's broad-based in its nature.

Tidjane Thiam

And I think there was a question on platform, he is not an platform -- an issue.

Jackie Hunt

Yes so I talked in December about my view on platforms. If you look at money, it's moving on to platforms, it's the way our customers want to deal with is, it's the way in which our advisors want to deal with us. I don’t think we necessarily need to own a platform, we need to have technology that can and products that can work on various solutions. I think the line is blurring between platforms for example in some of the policy admin systems. So I think directionally moving into digitally enabled world is important for us, it's part of this underlying investment but it's not in the kind of way in which we might have talked about this sort of 3 or 4 years ago. I think it's just more blurred sort of environment now.

Andy Hughes – Exane BNP Paribas

First question is on the U.S. on the kind of the provision you’ve made there. Presumably you have given us the U.S. it's not too rude to ask how much the fine is likely to be, rather than whether you will have the fine. Presumably you’re not the first to make this kind of error, so have other people who have done this before have been fined for this? And it's roughly how can we estimate what range it might be?

And second question on Indonesia, I’m a bit confused with the message on Asia that it's very robust and regular premium and therefore not subject to the economy but then in Indonesia we’re their long term investment decisions is that fall off, is going back to the full year results when we said when obviously the election was then the -- concerns about election at that stage. I think we said in March that the Asian sales were up 19% year-on-year. So I’m just kind of workout what’s happened in terms of election of since March time when things appeared to be that worst. Thank you.

Mike Wells

I will give some color around the Curian issue, so through an internal review we found that certain fees that we’re collecting around the wrap fee portion of Curian probably aren’t compliant with ERISA. So we self-reported to the regulators; that's the all the U.S. regulators and the PRA, we sort of external sourced investigation to go through the entire process to make sure that both Curian and Jackson’s funds and platforms were reviewed. There is no -- we were almost complete with that problem and there is no suggestion of any intentional wrong doing. To your point on fees there is, the issue seemed to be around ERISA which (indiscernible) Department of Labor which generally charges a percentage tax and we have yet to -- we talk to them every week to the process but we have yet to get to a point with them where we’re discussing those levels and so beyond that given we’re engaged with the regulators on it I don’t really have much more I can tell you. We think the provision that we have put is what we estimate the effect to be and by year-end we will have all the client. Any fees that were collected it will be related to the clients plus the tax implications by year-end. And that system works and is in place now. So again nothing to do with the main Jackson business.

Tidjane Thiam

The next one was Indonesia, can we just explain better what’s happened here?

Barry Stowe

So the reason that we’re flat and everyone else in Indonesia is down most by double digit some pretty significant double digit drop sis because of the resilience of our agency force. So the agency force is stable I think Tidjane alluded to in his presentation, you know recruitment continues, number of active agents is up about 4% in the first half, case sizes are stable but the number of cases per active is down slightly. And so again what you’re seeing is not the people who are buying less, what you’re really seeing is that people are delaying and one of the reasons they are delaying is because we also alluded to the fact that interest rates have been moved up. Government took the smart decision to do the right thing which is in some respect kind of painful but they did it and so you’ve seen a corresponding increase in deposit rates so what customers are doing in an environment where there is some an uncertainty and I will come back to that point in just a second.

They have a choice to say, okay I’ve got a $1000 I am either going to agree to give you a $1000 a year for the next 20 years or maybe I will put the $1000 in bank at a pretty high interest rate and with three months and see what’s happening and that’s affectively what’s happening. We have seen it happen before in markets where interest rates go up. It particularly hits the bancassurance players, because deposits are now so attractive that you have seen our competitors who are heavily relied upon on bank distribution which we’re not in Indonesia. You’ve seen their results, really crater. Again, I suspect that will continue in the short term until things stabilize.

As to the political situation and what impact that has had, two elections this year, the first one was in April. Everyone expected legislative election so the first one is legislative and everyone expected Jokowi's party to dominate that parliamentary election and then that would sort of be the read through to what would happen in July in the presidential election. His party won but by a fairly narrow margin and so that’s really when people started wondering what was going to happen and if actually they had predicted the right horse was going to win the race. Ultimately as you know we got to the election last month Jokowi did win, 53%, his challenger is now contesting that in the constitutional court which does create against some uncertainty and disruption that’s without President I mean elections have been challenged before SBY was challenged before when he was elected.

The expectation is that the election was fair and clean, it's a pretty reasonable margin of victory. So most people assume that he will be certified some time later this month, early next month and then you will get to an inauguration of a new President towards the end of October and our hope is that by the fourth quarter then things will sort of perk back up and will stabilize. But that's essentially what it feels like on the ground right now.

Tidjane Thiam

I think that’s exactly right. Q3, started very much like the rest of the year; no fireworks. And the upside is in Q4, really. When the president is inaugurated in October 25 then it will be a much clearer horizon. We can take probably one more question, I think we’re over time already.

Oliver Steel – Deutsche Bank

Three questions if I’m allowed, the first is just going back to the U.S. pre-pricing and sort of changing of terms. I mean normally there is a bit of lag effect where volume actually even sometimes goes up after you've changed that. So I was wondering if you could quantify that and perhaps give us some easy guidance looking forward into the second half. Secondly, on the UK, the extra 50 million a year or rather the reduced 50 million a year of cash remittance, just so that it's clear how does that sort of breakdown into say the IFRS effect versus cash, I suppose how much is sort of new business strain and capital strain rather than just go to straight cost and then the third thing is the U.S. remittance certainly surprised me on the upside. Is that just normal remittance or is there something behind that and perhaps I suppose linked to my question, I thought you were looking to make bolt-on acquisitions in the States, and yet you do seem to have raised remittance quite strongly.

Tidjane Thiam

U.S. repricing, more detail how it's going to pay out in terms of volume.

Mike Wells

So Oliver I think one of the competence is now that the U.S. carriers have to have including us is you’ve this balance when you’re repricing you product between giving the advisors notice to not surprise them when they have trades and process and meetings with those clients. Again it's typically 3 or 4 meetings with the consumer before they actually select the product. The more notice you give them, the more of a fire sale before the changes you get. The sooner you have to make the changes to get to the desired sales level you want. So it's very interesting relationship in the two. You reason you see the surge in sales with us and competitors after the changes is the 1035 pipeline. So the amount of exchanges from other VA contracts that come to us those can land anywhere from three days to weeks later and so we get this, you know a backup of business that’s processed and typically four weeks following. So it gives you impressed you had more sales after the change, you actually had them leading right up to the changes. Okay?

So our intent is to do -- I gave you an idea of the scale of the business impacted by the changes in my earlier comments. I think we have a Group risk appetite and how much VA we want to write with living benefits. Obviously we’re the EA franchises and it's outside of that. We clearly have strong demand for products and every time I have been up here we talked about the product changes and we have made them all the way through the post-crisis every quarter now almost, the key is I think the core product is still really good and for the consumer it's still I think the best variable annuity contract a consumer can buy, both on performance in-line funds, control of funds and pricing.

So that was what a commission change was a unique one for us, we have never done that before but again we’re trying to keep the consumer proposition right where it needs to be and I think if you talked to U.S. advisors when you go there, I think that’s the consistent view is it's the best product in the street. So you see it in the earnings growth -- these clients actually participate in the market on the way up consistent with the allocations to equities. So we have a lots of demand, we will continue to manage it to the levels that the plan wants -- the group and we have chosen to bring them in at.

Tidjane Thiam

Absolutely. Oliver, IFRS and cash impact of lower remittance.

Jackie Hunt

Yes, Oliver, it's not a straightforward question as to how's the cash going to play through into IFRS. I mean if we talk first about the product initiatives, there are split between those that will be written into the with-profits fund. Clearly, anything that benefits the with-profit spend, you know they compensate for some of the investment costs associated with that and then there will be an element of new business strain and new business strain isn't one for one and to IFRS results either. Very roughly I would say if you’re looking first half of this year and new business strain was up about 22 million, roughly double it and this isn't forecast, so let’s say you could come into the sort of 40 million and then sort of 10 million – 15 million development, it kind of feels of the right sort of order.

But clearly we haven't, many of these things are at an early stage of development. We haven't really gone through all of the sort of process yet.

Tidjane Thiam

We discussed very much whether to give you a number, or not. We're giving you one, so, you understand, this is not material. Yes there is investment but on the scale of the Group and the commitment we have it doesn’t change anything, it doesn’t move the needle but it will have a very beneficial impact on the UK business we hope.

Why it's such a bigger returns when you’ve bolt-ons, I will take this one. We don’t store cash in the U.S. if you wish in the expectation of bolt-ons. The way we manage the Group is that we remit what we can. There is no major friction at that level, the business is left with an RBC of 427, after paying the dividend, so it's really comfortable. Happy to have it at the center. Frankly it's not exceptional it is justified given the size of the business, the size of the upside and the scale of profits generated, it's very, very strong. We’re just pleased, this is playing out positively. It's a very, very strong dividend. So thank you again.

We'd like to have the cash at the center. I always listen to my IR. We think we should take one more question. So one more and then we will stop.

Unidentified Analyst

Just two questions, one on U.S. fixed annuities, can you talk about your appetites to write fixed annuities, should U.S. rates rise over the next 2 to 3 years and the second question is back on the UK. In the UK the payback period increased to 5 years, is that driven by bulk annuities and can you tell us how should we think about that going forward?

Mike Wells

Fixed annuities and the fixed index annuities particularly we really like I think the both require both higher rates and better spreads. It's not just the rate increase you actually need to be able to generate some yield above treasuries that you’re happy with the risk you’re getting. So in a more normal, if both of those two were more normal yes we have a definite appetite. The FIAs we talked before, is a natural offset to the withdrawal benefit and the VA but it is -- if you look in the documents you’ve got that we’re shorter on duration, higher on credit. We keep getting conservative with the portfolio right now. It just doesn’t feel like the time to -- I know we have some competitors out there selling a lot of stuff but it just doesn’t feel like the time to be pushing that part of the product. My biggest concern whether it’s those rates go up those clients will need to surrender and will be able to afford to surrender to get in newer higher yielding products if you think of a material shift in rates couple 100 basis points. So this won't be a sticky vintage in my view.

Tidjane Thiam

I agree. Yes. The UK payback periods, Nic, or Jackie?

Nic Nicandrou

It's an average of course depending on the link to the products that we’re writing. The major change has be the fact that we have written less retail annuity. Retail annuity had a positive strain so it was almost an instant payback in that sense, so the fact that we’re writing less of it means that the average is longer. Your question on bulks, when we say that we only write bulks on attractive economies, we don’t only look at the IRR, but we also look at the payback. So it isn't bulks, there is no relaxation or change if you like in the payback pattern that we’re expecting from the bulks that we’re writing. It's purely the effect of mix and retail annuity is just coming back a little.

Tidjane Thiam

That’s a really important comment because the bulks, we’re focused on the high end of the market if you wish because really when we talk about capital allocation and the competition for capital inside the Group it is real. The only way Jackie can hold her head up is if everybody thinks that I’m not giving her what you say an easy pass literally or giving her pass on capital when she is writing -- they're quite merciless in their competition. So, basically, the capital that goes into the UK has a good risk-adjusted return, otherwise she doesn’t get it.

So really, the bulks we write, we're actually very proud of. We can look anybody in the eye and say this is good value and that’s money I’m happy not to invest in Asia, or not to invest in the U.S. because if it wasn’t the case she would just would have done it, we don’t do things for volume reasons or cosmetic reasons. So the deal she has done with the team actually are really excellent. So you should not expect deterioration of any of our core metrics because we are starting to reimburse, other than the strain and gave you the magnitude in H1, 22 million. It is not going to deteriorate anything.

So with that, thank you for your patience. And I have -- they are all pointing at the screen there, we’re going to have a slide, there you go, because you’re cordially invited to join us in Asia on December 1st, it will be a two part trip Singapore where the main event will be and we will show you showcase of the business and talk about other parts of the Group and then a special for Jakarta. For those who want, that will be optional. But we will lift the lid on Indonesia for those who have never seen it or if who want to see it again and it's always a very worthwhile trip. So, again, thank you for your patience and have a good holiday for those who are going on holiday, we certainly are in a few days. Thank you.

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