Prudential profits below forecasts
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LONDON, England (Reuters) -- Britain's second-largest insurer Prudential unveiled a sharper-than-expected 30 percent drop in annual profit on Tuesday and signaled no swift return to a higher dividend, sending its shares sharply into the red.
Prudential was down more than three percent to 492-1/2 pence in a flat market as investors digested the sober dividend outlook and a warning from Chief Executive Jonathan Bloomer that a sale of its majority stake in Internet bank Egg was not expected any time soon.
Kicking off the UK insurers' results season, Prudential said operating profit on an achieved basis had fallen to £794 million ($1.48 billion) from £1.133 billion the previous year due to a poor performance in the United States and Britain and a weaker dollar, which also hit some of its Asian profits.
As expected, the company slashed its dividend for the first time since World War One, by nearly 40 percent to 16 pence.
A Reuters poll of 10 analysts had forecast a consensus operating profit of £848.5 million with a range of £803-£898 million. Achieved operating profit reflects the profit of an insurer's book of policies in the reporting period to give a more realistic picture of its financial health.
"These are not great figures. What this shows is that the insurers are not finding life that easy yet. They don't seem to have yet started to see the benefit of improved confidence ... new business remains pretty elusive still,'' said Colin Morton, fund manager at BWD Rensburg.
Profits declined across all three of the company's main business regions; the UK, the United States and Asia.
Egg sale on slow boil
There was little news on the timing of the Egg sale.
"There is no point in trying to rush things through,'' Bloomer told a conference call, declining to say how many parties were involved in the four-week auction or how Prudential would use any money from a sale.
Some analysts have said Prudential could get a £1.3 billion cash injection from its 79 percent stake in loss-making Egg, which would provide some welcome respite for the company.
Bloomer said any increase in future dividends would be determined after considering investment in growth opportunities, the company's financial flexibility and growth in statutory profits over the medium to long term.
"They are suggesting that the dividend growth will be sacrificed to growth of the business, which in my view is the right thing to do,'' said Mikir Shah, analyst with ABN Amro, which has a "reduce'' recommendation on the stock.
Bloomer added Prudential would look for bolt-on acquisitions for its U.S. life business Jackson National Life over the next few years but said the group was in no hurry to seal a deal.
He said the group was well positioned for future growth in its key markets of Asia and the U.S. but repeated his circumspect view of first-half trading in the UK, where regulatory reviews, uncertain equity markets and low interest rates have kept consumer demand weak.
Bloomer expected UK demand to bounce back in the second half and he repeated the group's commitment to Britain's with-profits market, where supply and demand have been hit by tighter regulation, weaker capital and falling bonuses.
Bloomer said he believed Prudential had reached the end of its bonus cutting on with-profits policies. On Tuesday, the group cut the bonus on personal pensions to 3.25 percent from 3.50 percent but, in contrast to rivals, maintained the bonus on its flagship Prudence bond.
Finance Director Philip Broadley said the group had calculated that its capital position under new risk-based reporting rules was £5 billion but cautioned that the rules had not been finalized and it was difficult to draw comparisons between firms.
Rival insurer Standard Life revealed last week that it was forced to sell £7.5 billion pounds broadly the same as under the old regime.
Prudential increased its equity holdings over 2003 to 48 percent from 45 percent.
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