European Embedded Value (EEV) basis results

Results analysis by business area

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    2012 £m 2011 £m
  Note Half year Half year
note (v)
Full year
note (v)

Notes

  1. EEV basis operating profit based on longer-term investment returns excludes the recurrent items of short-term fluctuations in investment returns, the mark to market value movements on core borrowings, the shareholders’ share of actuarial and other gains and losses on defined benefit pension schemes, and the effect of changes in economic assumptions. In addition for half year 2012, operating profit excludes the gain arising upon the dilution of the Group’s holding in PPM South Africa. The amounts for these items are included in total EEV profit attributable to shareholders. The Company believes that operating profit, as adjusted for these items, better reflects underlying performance. Profit before tax and basic earnings per share include these items together with actual investment returns. This basis of presentation has been adopted consistently throughout these results.
  2. The value of future profits or losses from asset management and service companies that support the Group’s covered insurance businesses are included in the profits for new business and the in-force value of the Group’s long-term business. The results of the Group’s asset management operations include the profits from the management of internal and external funds. For EEV basis reporting, Group shareholders’ other income is adjusted to deduct the unwind of the expected margin for the period arising from the management of the assets of the covered business (as defined in note 1(a)). The deduction is on a basis consistent with that used for projecting the results for covered insurance business. Group operating profit accordingly includes the variance between actual and expected profit in respect of this business.
  3. During the first half of 2011 the Group altered its inflation measure basis for future statutory increases to pension payments for certain tranches of its UK defined benefit pension schemes. This reflected the UK Government’s decision to replace the basis of indexation from RPI with CPI. This resulted in a credit to operating profit for half year and full year 2011 on an IFRS basis of £42 million and an additional £3 million recognised on the EEV basis.
  4. Restructuring costs comprise the charge of £(7) million recognised on an IFRS basis and an additional £(1) million recognised on the EEV basis for the shareholders’ share of restructuring costs incurred by the PAC with-profits fund. Solvency II implementation costs comprise the charge of £(27) million recognised on an IFRS basis and an additional £(2) million recognised on the EEV basis.
  5. The comparative results have been prepared using previously reported average exchange rates for the period.
Asia operations        
New business 2 547 465 1,076
Business in force 3 325 309 688
Long-term business   872 774 1,764
Eastspring Investments   34 43 80
Development expenses   (3) (2) (5)
Total   903 815 1,839
US operations        
New business 2 442 458 815
Business in force 3 363 373 616
Long-term business   805 831 1,431
Broker-dealer and asset management   17 17 24
Total   822 848 1,455
UK operations        
New business 2 152 146 260
Business in force 3 338 391 593
Long-term business   490 537 853
General insurance commission   17 21 40
Total UK insurance operations   507 558 893
M&G   199 199 357
Total   706 757 1,250
Other income and expenditure        
Investment return and other income   5 5 22
Interest payable on core structural borrowings   (140) (140) (286)
Corporate expenditure   (120) (118) (219)
Unwind of expected asset management margin note(ii)   (30) (28) (53)
Total   (285) (281) (536)
RPI to CPI inflation measure change on defined benefit pension schemes note (iii)   45 45
Solvency II implementation costs note (iv)   (29) (28) (56)
Restructuring costs note (iv)   (8) (9) (19)
Operating profit based on longer-term investment returns   2,109 2,147 3,978
Analysed as profits (losses) from:        
New business 2 1,141 1,069 2,151
Business in force 3 1,026 1,073 1,897
Long-term business   2,167 2,142 4,048
Asset management   250 259 461
Other results   (308) (254) (531)
Total   2,109 2,147 3,978

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    2012 £m 2011 £m
  Note Half year Half year Full year
Operating profit based on longer-term investment returns        
Asia operations   903 815 1,839
US operations   822 848 1,455
UK operations:        
UK insurance operations   507 558 893
M&G   199 199 357
    706 757 1,250
         
Other income and expenditure   (285) (281) (536)
RPI to CPI inflation measure change on defined benefit pension schemes   45 45
Solvency II implementation costs   (29) (28) (56)
Restructuring costs   (8) (9) (19)
Operating profit based on longer-term investment returns   2,109 2,147 3,978
Short-term fluctuations in investment returns 5 225 (111) (907)
Mark to market value movements on core borrowings 10 (113) (74) (14)
Shareholders’ share of actuarial and other gains and losses on defined benefit pension schemes 6 103 (8) 23
Effect of changes in economic assumptions 7 (371) (111) (158)
Gain on dilution of Group holdings 4 42
Profit before tax attributable to shareholders
(including actual investment returns)
  1,995 1,843 2,922
Tax attributable to shareholders’ profit 12 (554) (572) (776)
Profit for the period   1,441 1,271 2,146
         
Attributable to:        
Equity holders of the Company   1,441 1,269 2,142
Non-controlling interests   2 4
Profit for the period   1,441 1,271 2,146

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    2012 2011
  Note Half year Half year Full year
Based on operating profit including longer-term investment returns,
after related tax and non-controlling interests of £1,539 million
(half year 2011: £1,559 million; full year 2011: £2,930 million)
13 60.7p 61.5p 115.7p
Based on profit after tax and non-controlling interests of £1,441 million
(half year 2011: £1,269 million; full year 2011: £2,142 million)
13 56.8p 50.1p 84.6p

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  2012 £m 2011 £m
  Half year Half year Full year
Dividends relating to reporting period:      
Interim dividend (2012 and 2011) 8.40p 7.95p 7.95p
Final dividend (2011) 17.24p
Total 8.40p 7.95p 25.19p
Dividends declared and paid in reporting period:      
Current year interim dividend 7.95p
Final dividend for prior year 17.24p 17.24p 17.24p
Total 17.24p 17.24p 25.19p

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    2012 £m 2011 £m
  Note Half year Half year Full year
Profit for the period attributable to equity shareholders   1,441 1,269 2,142
Items taken directly to equity:        
Exchange movements on foreign operations and net investment hedges:        
Exchange movements arising during the period   (124) (96) (90)
Related tax   (1) (5) (68)
Dividends   (440) (439) (642)
New share capital subscribed   14 15 17
Reserve movements in respect of share-based payments   52 25 44
Treasury shares:        
Movement in own shares in respect of share-based payment plans   5 (10) (30)
Movement in Prudential plc shares purchased by unit trusts consolidated under IFRS   3 2 (5)
Mark to market value movements on Jackson assets backing surplus and required capital:        
Mark to market value movements arising during the period   28 39 96
Related tax   (10) (14) (34)
Net increase in shareholders’ equity 11 968 786 1,430
Shareholders’ equity at beginning of period (excluding non-controlling interests) 8, 11 19,637 18,207 18,207
Shareholders’ equity at end of period (excluding non-controlling interests) 8, 11 20,605 18,993 19,637

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Comprising

    30 Jun 2012 £m 30 Jun 2011 £m 31 Dec 2011 £m
  Note Long-
term
business
operations
Asset
manage-
ment
and other
operations
Total Long-
term
business
operations
Asset
manage-
ment
and other
operations
Total Long-
term
business
operations
Asset
manage-
ment
and other
operations
Total
Asia operations:                    
Net assets of operations   8,849 202 9,051 7,825 212 8,037 8,510 211 8,721
Acquired goodwill   237 61 298 239 61 300 235 61 296
  8 9,086 263 9,349 8,064 273 8,337 8,745 272 9,017
US operations:                    
Net assets of operations   5,257 108 5,365 4,821 108 4,929 5,082 113 5,195
Acquired goodwill   16 16 16 16 16 16
  8 5,257 124 5,381 4,821 124 4,945 5,082 129 5,211
UK insurance operations:                    
Net assets of operations 8 6,296 13 6,309 6,200 48 6,248 6,058 29 6,087
M&G:                    
Net assets of operations   348 348 310 310 229 229
Acquired goodwill   1,153 1,153 1,153 1,153 1,153 1,153
  8 1,501 1,501 1,463 1,463 1,382 1,382
    6,296 1,514 7,810 6,200 1,511 7,711 6,058 1,411 7,469
Other operations:                    
Holding company net borrowings at market value   (2,258) (2,258) (2,364) (2,364) (2,188) (2,188)
Other net assets   323 323 364 364 128 128
  8 (1,935) (1,935) (2,000) (2,000) (2,060) (2,060)
Shareholders’ equity at end of period (excluding non-controlling interests) 8 20,639 (34) 20,605 19,085 (92) 18,993 19,885 (248) 19,637
Representing:                    
Net assets   20,402 (1,264) 19,138 18,846 (1,322) 17,524 19,650 (1,478) 18,172
Acquired goodwill   237 1,230 1,467 239 1,230 1,469 235 1,230 1,465
    20,639 (34) 20,605 19,085 (92) 18,993 19,885 (248) 19,637

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  30 Jun 2012 30 Jun 2011 31 Dec 2011
* Annualised return on embedded value is based on EEV operating profit after related tax and non-controlling interests as a percentage of opening EEV basis shareholders’ equity. Half year profits are annualised by multiplying by two.
Based on EEV basis shareholders’ equity of £20,605 million
(half year 2011: £18,993 million; full year 2011: £19,637 million)
806p 745p 771p
Number of issued shares at period end (millions) 2,556 2,548 2,548
Annualised return on embedded value* 16% 17% 16%

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    2012 £m 2011 £m
  Note 30 Jun 30 Jun 31 Dec
* Including liabilities in respect of insurance products classified as investment contracts under IFRS 4.
† For IFRS reporting purposes, the Group has adopted altered US GAAP requirements for deferred acquisition costs as an improvement to its accounting policy under IFRS 4 for those operations of the Group which measure insurance assets and liabilities substantially by reference to US GAAP principles. Accordingly, the IFRS elements and additional EEV basis shareholders’ interest for the comparative results for half year and full year 2011 have been adjusted for the retrospective application of this change of IFRS accounting policy. This has resulted in a reallocation of £511 million and £553 million for half year and full year 2011 respectively, from IFRS basis shareholders’ reserves to shareholders’ accrued interest in the long-term business, with no overall effect on the EEV basis results.
Total assets less liabilities, before deduction for insurance funds   253,810 238,960 243,207
Less insurance funds:*        
Policyholder liabilities (net of reinsurers’ share) and unallocated surplus of with-profits funds   (244,518) (230,970) (234,643)
Less shareholders’ accrued interest in the long-term business   11,313 11,003 11,073
    (233,205) (219,967) (223,570)
Total net assets 8, 11 20,605 18,993 19,637
         
Share capital   127 127 127
Share premium   1,887 1,871 1,873
IFRS basis shareholders’ reserves   7,278 5,992 6,564
Total IFRS basis shareholders’ equity 8 9,292 7,990 8,564
Additional EEV basis retained profit 8 11,313 11,003 11,073
Total EEV basis shareholders’ equity (excluding non-controlling interests) 8, 11 20,605 18,993 19,637
 
 

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