Interim Results - Part 2
Prudential PLC
26 July 2001
PART 2
ACHIEVED PROFITS BASIS RESULTS
Half year
ended 30 Full year
June
Summarised Consolidated Profit and Loss 2001 2000 2000
Account £m £m £m
Operating profit before amortisation of
goodwill and exceptional items (1)
New business 342 317 613
Business in force 401 304 544
Long-term business 743 621 1,157
Prudential Asia and Europe development (33) (11) (35)
expenses
General business 35 35 33
M&G 40 69 125
Egg (63) (81) (155)
US broker dealer and fund management 11 2 7
Other income and expenditure (56) (49) (103)
677 586 1,029
UK re-engineering costs (24) - -
Operating profit before amortisation of 653 586 1,029
goodwill and exceptional items
Amortisation of goodwill (47) (41) (84)
Short-term fluctuations in investment
returns (580) (223) (440)
Merger break fee (net of related expenses) 338 - -
Profit on business disposals - 223 223
Profit on ordinary activities before tax 364 545 728
Tax (133) (142) (239)
Profit for the period before minority 231 403 489
interests
Minority interests 19 - 25
Profit for the period after minority 250 403 514
interests
Dividends (172) (162) (484)
Retained profit for the period 78 241 30
Half year
ended 30 Full year
June
Basic Earnings Per Share 2001 2000 2000
£m £m £m
Based on operating profit after tax and
related minority interests before
amortisation of
goodwill and exceptional items of £462m (£
415m and £749m) 23.4p 21.3p 38.2p
Adjustment for amortisation of goodwill (2.4)p (2.1)p (4.3)p
Adjustment from post-tax longer-term
investment returns to post-tax actual
investment returns
(after related minority interests) (20.4)p (8.3)p (16.2)p
Adjustment for post-tax merger break fee 12.1p - -
(net of related expenses)
Adjustment for profit on business - 9.8p 8.5p
disposals
Based on profit for the period after
minority interests of £250m (£403m and £ 12.7p 20.7p 26.2p
514m)
Average number of shares 1,976m 1,948m 1,959m
Dividend per share 8.7p 8.2p 24.5p
Note
(1) Operating profit for insurance operations includes investment returns at
the expected longer-term rate of return. For the purposes of the
presentation shown above, to be consistent with the alternative earnings
per share, operating profit excludes amortisation of goodwill and merger
break fee, net of related expenses. The directors believe that operating
profit, as adjusted for these items, better reflects underlying
performance. Profit on ordinary activities before tax includes
these items together with actual investment returns and profit on
business disposals.
ACHIEVED PROFITS BASIS RESULTS
Operating Profit before amortisation of goodwill and exceptional items
Half year
ended 30 June Full year
Results Analysis by Business Area 2001 £m 2000 £m 2000 £m
UK Operations
Insurance operations
New business 140 123 230
Business in force 237 206 478
Long-term business 377 329 708
General business 35 35 33
Total UK Insurance operations 412 364 741
M&G 40 69 125
Egg (63) (81) (155)
Re-engineering costs (24) - -
Total 365 352 711
US Operations
New business 93 134 221
Business in force 134 72 (2)
Long-term business 227 206 219
Broker dealer and fund management 11 2 7
Total 238 208 226
Prudential Asia
New business 106 56 153
Business in force 28 21 60
Long-term business 134 77 213
Development expenses (22) (7) (17)
Total 112 70 196
Prudential Europe
New business 3 4 9
Business in force 2 5 8
Long-term business 5 9 17
Development expenses (11) (4) (18)
Total (6) 5 (1)
Other Income and Expenditure
Investment return and other income 24 42 70
Interest payable on core structural (60) (70) (131)
borrowings of shareholder financed
operations
Corporate expenditure (20) (21) (42)
Total (56) (49) (103)
Total operating profit before 653 586 1,029
amortisation of goodwill and exceptional
items
Analysed as profits (losses) from:
New business 342 317 613
Business in force 401 304 544
Long-term business 743 621 1,157
Prudential Asia and Europe development (33) (11) (35)
expenses
Other operating results (33) (24) (93)
Re-engineering costs of UK Insurance (24) - -
operations
Total 653 586 1,029
ACHIEVED PROFITS BASIS RESULTS
31
30 June December
Summarised Consolidated Balance Sheet 2001 2000 2000 £m
£m £m
Investments in respect of non-linked
business:
Equities 46,426 51,936 51,232
Fixed income securities 54,206 45,051 48,594
Properties 10,347 9,290 10,303
Deposits with credit institutions 4,701 5,435 3,875
Other investments (principally 4,552 4,711 4,507
mortgages and loans)
Total investments 120,232 116,423 118,511
Assets held to cover linked liabilities 18,290 18,720 18,323
Banking business assets 8,690 8,941 8,603
Goodwill 1,706 1,519 1,611
Holding company cash less shareholders'
borrowings:
Holding company cash and short-term 24 94 38
investments net of related borrowings
Accrued expenses and tax on merger (183) - -
break fee
Core structural borrowings of
shareholder financed operations
- Holding company (1,419) (1,824) (1,568)
- Jackson National Life (178) (165) (167)
(1,756) (1,895) (1,697)
Deferred acquisition costs 3,139 2,912 2,952
Dividend payable (172) (162) (322)
Obligations of Jackson National Life under (3,231) (1,676) (2,652)
sale and repurchase and lending agreements
Other net (liabilities) assets (325) (514) 325
146,573 144,268 145,654
Insurance technical provisions (net of
reinsurance) and fund for future
appropriations:
UK Operations (103,111)(104,621) (105,939)
US Operations (25,409) (23,694) (23,585)
Prudential Asia (4,557) (2,945) (3,340)
Prudential Europe (614) (570) (593)
(133,891)(131,830) (133,457)
Less: shareholders' accrued interest in the
long-term business 4,718 4,902 4,813
Insurance technical provisions (net of
reinsurance) and fund
for future appropriations, less shareholders'
accrued interest (129,173)(126,928) (128,644)
Banking business liabilities (8,172) (8,340) (8,040)
Minority interests (124) (119) (137)
Total net assets 9,104 8,881 8,833
31
30 June December
Shareholders' Capital and Reserves 2001 2000 2000 £m
£m £m
Share capital 100 98 99
Share premium 524 309 458
Statutory basis retained profit 3,762 3,572 3,463
Shareholders capital and reserves - statutory 4,386 3,979 4,020
basis
Additional reserves on the achieved profits 4,718 4,902 4,813
basis
Shareholders' capital and reserves - achieved 9,104 8,881 8,833
profits basis
ACHIEVED PROFITS BASIS RESULTS
Half year
ended 30 June Full year
Movement in Shareholders' Capital and 2001 £m 2000 £m 2000 £m
Reserves
Profit for the period after minority 250 403 514
interests
Exchange movements 167 180 187
Goodwill on sale of holdings in - 90 90
associate company
New share capital subscribed 26 28 184
Dividends (172) (162) (484)
Net increase in shareholders' capital 271 539 491
and reserves
Shareholders' capital and reserves at 8,833 8,342 8,342
beginning of period
Shareholders' capital and reserves at 9,104 8,881 8,833
end of period
Half year
ended 30 June Full year
Comprising 2001 £m 2000 £m 2000 £m
UK operations:
Insurance 4,292 4,219 4,433
operations
M&G 345 356 336
Egg 379 462 417
5,016 5,037 5,186
US operations 3,002 2,800 2,756
Prudential Asia 901 682 793
Prudential Europe 90 79 82
Other operations 95 283 16
(including central
goodwill and net
shareholder
borrowing)
9,104 8,881 8,833
Notes on the Supplementary Achieved
Profits Basis Results
(a) The achieved profits basis results for the
2001 and 2000 half years are unaudited.
The results for 2000 full year have been
derived from the achieved profits basis supplement to the
Company's statutory accounts for that
year. The supplement included an unqualified review
report from the auditors. The results for
the 2001 half year have been prepared
using the same principal assumptions as
were used for the 2000 full year.
(b) The results have been prepared in
accordance with the draft 'Guidance on
accounting in Group Accounts for
proprietary companies' long-term insurance business'
issued by the Association of British
Insurers in July 1995.
(c) The proportion of surplus allocated to
shareholders from the UK with profits
business has been based on the present
value of 10%.
Future bonus rates have been set at levels
which would fully utilise the assets of
the with profits fund over the lifetime of
the business
in force.
(d) In February 2001 the Company acquired
Orico Life Insurance Company of Japan. The
total cost of purchase (including
acquisition costs) was £139m.
The fair value of the acquired net assets
including business in force was £nil.
Goodwill of £139m is being amortised on a
straight line basis over 20 years.
(e) In February 2001 the Company announced the
restructuring of the direct sales force
and customer service channels of the UK
Insurance Operations. The total expected costs of
this restructuring, including amounts
borne by the long-term fund of the
Prudential Assurance Company
Limited are £110m. After including amounts
borne by the fund, but attributed to
shareholders, the cost recognised on the
achieved profits basis
is £24m.
(f) In March 2001 the Company entered into a
merger agreement with American General
Corporation, a US investment, life
insurance, and consumer
finance group. On 11 May, following the
termination of the merger and in
accordance with the terms of the
agreement, a fee of $600m (£423m)
was paid to the Company by American
General.
After deducting employment costs incurred
as a consequence of the proposed merger
for the company's US operations, advisor
costs, and other directly related expenses of £85m, an
exceptional item of £338m has been
accounted for within the Group's results.
STATUTORY BASIS RESULTS
Half year
ended 30 June Full year
Summarised Consolidated 2001 £m 2000 £m 2000 £m
Profit and Loss Account
Operating profit before 362 425 840
amortisation of goodwill
and exceptional items
Amortisation of goodwill (47) (41) (84)
Short-term fluctuations in (105) 17 (48)
investment returns
Merger break fee (net of 338 - -
related expenses)
Profit on business - 239 239
disposals
Profit on ordinary 548 640 947
activities before tax
(including actual
investment returns)
Tax (184) (162) (284)
Profit for the period 364 478 663
before minority interests
Minority interests 19 - 25
Profit for the period after 383 478 688
minority interests
Dividends (172) (162) (484)
Retained profit for the 211 316 204
period
Half year
ended 30 June Full year
Basic Earnings Per Share 2001 £m 2000 £m 2000 £m
Based on operating profit
after tax and related
minority interests before
amortisation of goodwill 13.4p 15.7p 31.5p
and exceptional items of
£264m (£306m and £617m)
Adjustment for amortisation (2.4)p (2.1)p (4.3)p
of goodwill
Adjustment from post-tax
longer-term investment
returns to
post-tax actual investment (3.7)p 0.3p (1.4)p
returns (after related
minority interests)
Adjustment for post-tax 12.1p - -
merger break fee (net of
related expenses)
Adjustment for profit on - 10.6p 9.3p
business disposals
Based on profit for the 19.4p 24.5p 35.1p
period after minority
interests of £383m (£478m
and £688m)
Average number of shares 1,976m 1,948m 1,959m
Diluted Earnings Per Share
Based on profit for the 19.3p 24.4p 35.0p
period after minority
interests of £383m (£478m
and £688m)
Average number of shares 1,982m 1,958m 1,968m
Dividend Per Share 8.7p 8.2p 24.5p
Half year
ended 30 June Full year
Movement in Shareholder's 2001 £m 2000 £m 2000 £m
Capital and Reserves
Profit for the period after 383 478 688
minority interests
Exchange movements 129 121 118
Goodwill on sale of holding - 90 90
in associate company
New share capital 26 28 184
subscribed
Dividends (172) (162) (484)
Net increase in 366 555 596
shareholders' capital and
reserves
Shareholders' capital and 4,020 3,424 3,424
reserves at beginning of
period
Shareholders' capital and 4,386 3,979 4,020
reserves at end of period
STATUTORY BASIS RESULTS
Operating Profit before amortisation of goodwill and exceptional items
Half year
ended 30 June Full year
Results Analysis by Business Area 2001 £m 2000 £m 2000 £m
UK Operations
Prudential Insurance Services
Long-term 160 151 313
business
General 35 35 33
business
195 186 346
Prudential Intermediary Business 42 51 127
Prudential Financial Services 6 16 28
UK Insurance Operations 243 253 501
M&G 40 69 125
Egg (63) (81) (155)
Re-engineering costs (13)
Total 207 241 471
US Operations
Jackson National Life 209 228 459
Broker dealer and fund management 11 2 7
Total 220 230 466
Prudential Asia
Long-term business and investment 22 16 39
products
Development expenses (22) (7) (17)
Total 0 9 22
Prudential Europe
Long-term business 2 4 8
Development expenses (11) (4) (18)
Total (9) 0 (10)
Other Income and Expenditure
Investment return and other income 24 36 64
Interest payable on core structural (60) (70) (131)
borrowings of shareholder financed
operations
Corporate expenditure (20) (21) (42)
Total (56) (55) (109)
Operating profit before amortisation
and exceptional items 362 425 840
FUNDS FLOW
Half year
ended 30 June Full year
Holding Company Funds Statement 2001 £m 2000 £m 2000 £m
Statutory basis operating profit
after tax and related minority
interests
before amortisation of goodwill 264 306 617
and exceptional items
Merger break fee (net of accrued 240 - -
related expenses and tax)
New share capital subscribed on - - 139
listing of shares on New York
Stock Exchange (net of expenses)
Other new share capital subscribed 26 28 45
Capital repatriated from - 20 123
businesses
Proceeds from business disposals - 173 173
530 527 1,097
New investment in businesses (210) (60) (263)
Reinvested in businesses to (96) (161) (292)
finance growth
Timing differences and other items (77) (170) 121
147 136 663
Dividends (172) (162) (484)
Holding company net funds movement (25) (26) 179
Half year
ended 30 June Full year
Movement in Net Borrowings (1) 2001 £m 2000 £m 2000 £m
Holding company cash less (1,697) (1,837) (1,837)
shareholders' borrowings at
beginning of period
Holding company net funds movement (25) (26) 179
(as above)
Exchange translation losses (34) (32) (39)
(1,756) (1,895) (1,697)
Represented by:
Holding company cash and short 535 94 38
term investments
Core structural borrowings of
shareholder financed operations
- Holding (1,419) (1,824) (1,568)
company
- Jackson (178) (165) (167)
National Life
Other borrowings (511) - -
(1,573) (1,895) (1,697)
Accrued expenses and tax on merger (183) - -
break fee
(1,756) (1,895) (1,697)
Note
(1) To indicate the underlying commercial position, shareholders' borrowings,
as shown above, have been augmented to include accrued expenses and tax payable
on the merger break fee that were liabilities at 30 June 2001.
GROSS PREMIUMS WRITTEN BY PRODUCT PROVIDER
Long-term business Investment products General business Total
Half year 2001 2001 2001 2001
ended 30 £m £m £m £m
June
UK
Insurance 3,907 - 197 4,104
Operations
M&G - 582 - 582
Total UK
Operations 3,907 582 197 4,686
Jackson
National 2,806 - - 2,806
Life
Prudential 1,034 3,423 - 4,457
Asia
Prudential
Europe 97 - - 97
Group
Total 7,844 4,005 197 12,046
Long-term business Investment products General business Total
Half year 2000 2000 2000 2000
ended 30 £m £m £m £m
June
UK
Insurance 3,794 - 165 3,959
Operations
M&G 138 730 - 868
Total UK
Operations 3,932 730 165 4,827
Jackson
National 2,897 - - 2,897
Life
Prudential 483 700 - 1,183
Asia
Prudential
Europe 79 - - 79
Group
Total 7,391 1,430 165 8,986
The geographical analysis of premiums is based on the territory of the operating
unit assuming the risk.
Premiums by territory are not materially different.
GENERAL BUSINESS OPERATING PROFIT
Gross Underwriting Investment Based on
premiums result (1) return longer-term
written investment
returns
Half year ended 30 June 2001 £m 2001 £m 2001 £m 2001 £m
UK Insurance Operations
Home 153 19 13 32
Motor 44 (1) 4 3
Total 197 18 17 35
Gross Underwriting Investment Based on
premiums result (1) return longer-term
written investment
returns
Half year ended 30 June 2000 £m 2000 £m 2000 £m 2000 £m
UK Insurance Operations
Home 139 19 12 31
Motor 26 0 4 4
Total 165 19 16 35
(1) Underwriting results shown above are determined after transfers of £4m
(2000 £4m) to the claims
equalisation provision.
BANKING BUSINESS LIABILITIES 30 June 31 December
2001 2000 2000 £m
£m £m
Egg 7,385 8,141 7,386
US operations 787 199 654
8,172 8,340 8,040
Comprising:
Banking deposit balances 6,891 7,891 7,611
Accruals, deferred income
and other liabilities 1,281 449 429
8,172 8,340 8,040
ASIA MUTUAL FUNDS UNDER MANAGEMENT
India Taiwan Other Total
£m £m £m £m
Funds at 1 January 2001 695 934 20 1,649
Net Flows 170 272 1 443
Market movement 43 54 (2) 95
Funds at 30 June 2001 908 1,260 19 2,187
NOTES ON THE UNAUDITED STATUTORY BASIS RESULTS
(a) The results for the 2001 and 2000 half years are unaudited. The results
for the 2001 half year have been prepared using the same accounting
policies as were used in the 2000 statutory accounts. The results for the
2000 full year have been derived from those accounts. The auditors have
reported on the 2000 statutory accounts and the accounts have been
delivered to the Registrar of Companies. The auditors' report was
unqualified and did not contain a statement under section 237 (2)
or (3) of the Companies Act 1985.
(b) The long-term business profit of the UK insurance operations has been
calculated assuming that the shareholder proportion of surplus allocated
to shareholders from the with profits business of The Prudential
Assurance Company Limited remains at 10%. Provision has been made for
possible reductions in bonus rates arising from the fund valuation at
31 December 2001.
(c) In February 2001 the Company announced the restructuring of the direct
sales force and customer service channels of the UK Insurance operations.
The total expected direct costs of this restructuring, including
amounts borne by the long term fund of the Prudential Assurance Company
Limited, are £110m. On the statutory basis of reporting £13m of the
£110m is recognised as the cost to shareholders, reflecting the amounts
borne by the shareholder financed operations.
(d) The statutory tax charge for the half year ended 30 June 2001 of £184m
(half year 2000 £162m) comprises £124m (£93m) UK tax and £60m (£69m)
overseas tax.
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