Prudential takes £284m hit on aborted AIA deal

Prudential says it has cut the £450 million costs of its failed bid for Asian insurer to £284 million.

Prudential has capped its costs for its failed bid for Asian insurer AIA at £284 million, cutting the bill from an estimated £450 million by striking deals with its advisers and closing foreign currency hedges.

The insurer reported that operating profits increased 41% to £968 million for the first half of 2010 from £688 million in the same period of 2009, measured according to IFRS standards. It noted that £123 million from equity hedges from its US business boosted profits.

Prudential is increasing its interim dividend by 5% to 6.61 per share, and shares rose 10.5p or 1.8% to 572.5p in early trading.

The insurer reported that worldwide sales grew by 28% to £1.65 billion from £1.29 billion in 2009, based on the annual premium equivalent measure. Its UK business increased sales by 2% to £382 million from £376 million in 2009 but lagged behind the double digit growth from Prudential’s businesses in Asia and the United States.

‘Prudential has delivered strong results during the first half of 2010 as we continued to allocate capital to the geographies and products with the best profitable growth prospects, in line with our strategy,’ said Tidjane Thiam (pictured), chief executive of Prudential.

Thiam said Prudential’s focus was firmly back on organic growth but did not rule out the potential for an IPO of its high-growth Asian business. He dismissed reports it is in talks with Malaysian general insurer Pacific & Orient Insurance.  

Thiam said the board of Prudential retained the support of shareholders despite frequent and repeated criticism from major investors. ‘I believe we have the support of the body of shareholders,’ said Thiam. ‘I hope these results…will give confidence that we are running this company the way it should be done.’

Prudential closed its £100 million foreign exchange hedge positions within seven days of the AIA deal falling through, said Thiam, adding the £284 million cost of the failed bid were ‘manageable’.

Prudential incurred £377 million of costs from the AIA transaction but by offsetting these losses against tax will reduce the final bill to £284 million. ‘These are manageable. The dividend is not threatened. We have never cut our dividend in the crisis unlike many others…So £284 million is manageable,’ said Thiam.

Prudential’s asset management arm M&G reported that net inflows slowed to £4.4 billion in the first half down from £10.1 billion in 2009. M&G experienced ‘exceptional’ inflows in 2009 due to demand for its bond funds, noted Prudential. M&G increased its operating profits to £143 million from £102 in the first half of 2009, measured according to European Embedded Value (EEV) standards. The fund management group now has £178.5 billion of assets under management.

Prudential reported that group operating profits grew by 35% to £1.67 billion from £1.24 billion in 2009, based on the EEV measure, which reflects investment performance and the value of long-term business. Its capital buffers remain unchanged at £3.4 billion.