Interim Results - Part 3

Prudential PLC
26 July 2001


PART 3

 

                                                                              
  PRUDENTIAL PLC                                                              
  2001 Unaudited Interim Results                                              
  Supplementary information                                                   
                                                                     Schedule 
  Achieved profits basis results                                              
  Earnings per share                                                        1 
  Key economic assumptions                                                  2 
  Operating profit                                                            
                                   New Business                             3 
                                   Business in force                        4 
  Short-term fluctuations in investment returns                             5 
  Tax charge                                                                6 
  Shareholders' funds                                                         
                                   Summary                                  7 
                                   Reconciliation of movement               8 
  Statutory basis results                                                     
                                                                            
  Earnings per share                                                        9   
  US operations                                                               
                                   Operating result                        10 
                                   Reconciliation from US to UK            11 
                                   GAAP                                       
  Short-term fluctuations in investment returns                            12 
  Tax charge                                                               13 
  Funds under management                                                      
                                   Summary                                 14 
                                   Analysis by business area               15 
  New business                                                                
                                   Summary schedule                        16 
                                   Analysis of UK and Asian                17 
                                   operations                                 
                                                                              
                                                                      Schedule 1

2001 Unaudited Interim results                                                  
                  
Achieved Profits basis results                                                  
                  
                                                           Post-tax         
                                                                and           
Half                                              Minority  minority  Earnings
year ended 30 June 2001   Pre-tax  Tax  Post-tax interests interests       per  
                                                                         share 
Basic                          £m   £m        £m        £m        £m   (pence)
earnings per share (note 1a)                                                    
                    
Based on operating profit     653 (201)      452        10       462     23.4  
after tax and minority                                                     
interests before                                                            
amortisation of goodwill                                                    
and merger break fee  
                                                      
Adjustment for               (47)           (47)                (47)    (2.4) 
amortisation of goodwill 
                                                   
Adjustment from post-tax                                                        
longer term investment                                                          
returns to post-tax                                                             
actual investment                                                               
returns (after                                                                  
related                                                                     
minority interests (note    (580)   166    (414)         9     (405)   (20.4) 
1b)) 
                                                                       
Adjustment for merger         338  (98)      240                 240     12.1  
break fee, net of related                                                   
expenses  
                                                                  
Based on profit for the       364 (133)      231        19       250     12.7  
period after minority                                                      
interests                                                                   

  Notes                                                                       
  1a         Average number of shares for the six months to 30 June 2001 is   
             1,976m.                                                          

  1b         Minority interests in adjustments from post-tax longer-term      
             investment returns to post-tax actual returns                    

             The adjustment from post-tax longer-term investment returns to   
             post-tax actual investment returns includes investment return    
             that is attributable to external equity investors in two         
             investment funds of the US fund management operation.            

             These two funds are consolidated as quasi-subsidiaries but have  
             no net impact on pre-tax or post tax operating profit.           

             Total profit, before and after tax, incorporating the adjustment 
             from longer term returns to actual investment returns,           
             includes losses of £9m attributable to these minority interests. 
                                                                              
                                                                  Schedule 2  
  2001 Unaudited Interim results                                              

  Achieved Profits basis results                                              

  (A) Current Economic assumptions                                            

  The following rates have been used in calculating the achieved profits basis  
  results for the half year results to 30 June 2001 and results for 2000 :      
                                                           
  UK operations                                                               

  Pre-tax expected long-term nominal rates of                                 
  investment return                                                           
                             UK equities                                   8% 
                             Overseas equities                             8% 
                             Property                                      8% 
                             Gilts                                         6% 
                             Corporate bonds                               7% 

                             PAC with-profit fund                             
                             assets                                           
                             (applying the rates                           8% 
                             listed above to the                              
                             investments held by the                          
                             fund)                                            
                             representing:                                    
                             - Expected long-term                        5.5% 
                             real rate of return                              
                             - Expected long-term                        2.5% 
                             rate of inflation                                

  Post-tax expected long-term nominal rate of return                          
                             Pension business (where                       8% 
                             no tax applies)                                  
                             Life business                               7.4% 
  Risk discount rate                                                     8.5% 

  US operations (Jackson National Life)                                       

  Expected long-term spread between earned rate and                      1.9% 
  rate credited to policyholders on business in force                         
  Expected long-term rate of return of return on                        7.75% 
  equity based investments                                                    
  Risk discount rate                                                     8.5% 

  Asia operations                                                             
  Risk discount rate (note                                              10.5% 
  2a)                                                                         

  (B) Estimated sensitivity of Group's Achieved                               

  Profits basis shareholders funds to changes in risk                         
  discount rate                                                               

  Published shareholders funds at 30 June 2001                        £9,104m 
  (applying risk discount rates as shown above)                               

  Estimate of change in Group shareholders' funds to                          
  alteration of risk discount rate for all                                    
  operations:                                                                 
                             1% decrease                Add             £570m 

                             1% increase                Minus         £(530)m 

  Note                                                                        
  2a                         The Asia risk discount rate has been determined  
                             by weighting each country's risk discount rate   
                             by reference to the Achieved Profits basis       
                             result for new business written in the first     
                             half of 2001.                                    
                                                               
                                                                  Schedule 3  
2001 Unaudited Interim results                 

Achieved Profits basis results                 
 

                                                                              
                                                Half year ended 30 June 2001  
                                               Pre-tax      tax     Post-tax  
  Operating profit from new                         £m       £m           £m  
  long-term insurance                                                         
  business                                                                    
  UK Operations                                    140      (42)          98  
  US Operations (Jackson                            93      (45)          48  
  National Life) (note 3a)                                                    
  Prudential Asia                                  106      (29)          77  
  Prudential Europe                                  3       (1)           2  
                                                   342     (117)         225  
  Note                                                                        
  3a) Jackson National Life                                                   
  net of tax profits                                                          
  Pre capital charge                                                      71  
  Capital charge                                                         (23) 
  Post capital charge                                                     48  
 
 

                                                                              
                                                                   Schedule 3 
  2001 Unaudited Interim results                                              

  Achieved Profits basis results                                              
                                                Half year ended 30 June 2000  
                                                                             
                                               Pre-tax      tax     Post-tax  
  Operating profit from new long-term               £m       £m           £m  
  insurance business                                                          
  UK Operations                                    123      (37)          86  
  US Operations (Jackson National Life)            134      (60)          74  
  (note 3a)                                                                   
  Prudential Asia                                   56      (15)          41  
  Prudential Europe                                  4       (1)           3  
                                                   317     (113)         204  
  Note                                                                        
  3a) Jackson National Life net of tax                                        
  profits                                                                     
  Pre capital charge                                                      95  
  Capital charge                                                         (21) 
  Post capital charge                                                     74  
 
 
 
 
 

                                                                              
                                                     Schedule 3               
  2001 Unaudited Interim results                                              
                                                                              
  Achieved Profits basis results                                              
                                                    Full year 2000 
                                          Pre-tax           tax     Post-tax  
  Operating profit from new                    £m            £m           £m  
  long-term insurance business                                                
  UK Operations                               230           (69)         161  
  US Operations (Jackson                      221          (101)         120  
  National Life) (note 3a)                                                    
  Prudential Asia                             153           (44)         109  
  Prudential Europe                             9            (3)           6  
                                              613          (217)         396  
                                           
  Note   
                                                               
  3a) Jackson National Life net of tax profits  
                                                               
  Pre capital charge                                                    155  
  Capital charge                                                       (35) 
  Post capital charge                                                   120  
 
 
 
 

                                                                              
                                                                   Schedule 4 
  2001 Unaudited Interim results                                                
            
  Achieved Profits basis results                                                
              
                                              Half year ended 30   Full year  
                                                           June               
  Operating profits                         2001 £m     2000 £m       2000 £m 
  from business in                                                            
  force  
                                                                     
  UK Operations  
                                                             
  Unwind of discount                            225        210           429  
  (note 4a)                                                                   
  Experience variances against current                                        
  assumptions :                                                               
                        Persistency               2          4             0  
                        Other                    (5)        (8)           19  
  Change of renewal expense assumption                                        
  resulting from re-engineering                                               
  (2000 change of persistency                    15                       30  
  assumption)                                                                 
  Total                                         237        206           478  

  Jackson National                                                            
  Life  
                                                                      
  Unwind of discount                            110        113           218  
  Return on surplus assets (over target          17         16            34  
  surplus)                                                                    
  Longer-term investment gains                    4         14            19  
  Experience variances against current                                        
  assumptions :                                                               
                        Spread                   (5)         9            39  
                        Persistency               1        (53)          (24) 
                        Mortality and            (3)        (4)          (10) 
                        morbidity                                             
                        Expenses                 (1)       (16)          (37) 
                        Other                    11         (7)           17  

  Loss from strengthening persistency                                   (258) 
  and expense assumptions 
                                                    
  Total                                         134         72            (2) 
  Prudential Asia                                                             
  Unwind of discount                             38         26            58  
  Experience variances against current                                        
  assumptions :                                                               
                        Persistency              (2)        (7)           (7) 
                        Other                    (8)         2             9  
  Total                                          28         21            60  
  Prudential Europe                                                           
  Unwind of discount                              5          3             8  
  Experience variances against current           (3)         2             0  
  assumptions :                                                               
                                                  2          5             8  
  Total                                         401        304           544  
 

                                                                              
  Note                                                                        
  4a      UK Operations - unwind of discount                                  
          The unwind of discount for UK operations represents the unwind of   
          discount on smoothed opening net assets (including                  
          longer-term return on surplus assets retained within the PAC        
          with-profits fund and shareholders assets held in long-term         
          business operations). Smoothed asset values represent the asset     
          values adjusted to remove the effects of short-term                 
          volatility.                                                         
                                                                              
                                                                  Schedule 5  
  2001 Unaudited Interim results                                              
  Achieved Profits basis results                                              
                                              Half year ended 30   Full year  
                                                           June               
  Short-term fluctuations in investment      2001 £m    2000 £m       2000 £m 
  returns                                                                     
  Long-term                                                                   
  business                                                                    
                     UK Operations             (399)      (204)         (218) 
                     (note 5a)                                                
                     Jackson National          (116)       (35)         (171) 
                     Life (note 5b)                                           
                     Prudential Asia            (20)        (4)          (46) 
                     Prudential Europe              -          -          (3) 
  Share of investment return of US                                            
  managed investment funds                                                    
  consolidated into Group results that           (9)           -         (13) 
  is attributable to external investors  
                                     
  General insurance and shareholders                                          
                     Relating to                    -       23            17  
                     investment in St                                         
                     James's Place                                            
                     Capital plc 
                                             
                     Other (as                  (36)        (3)           (6) 
                     explained on                                             
                     schedule 12)                                             
  Total                                        (580)      (223)         (440) 

  Notes                                                                       
  5a                 UK operations                                            
                     Short-term fluctuations in investment returns represent  
                     the difference between actual investment returns         
                     attributable to shareholders on the achieved profits     
                     basis and the return included within operating profit as 
                     described on schedule 4.                                 
  5b                 Jackson National                                         
                     Life                                                     

                     Short-term               Half year ended 30   Full year  
                     fluctuations                          June               
                     comprise:                                                
                                             2001 £m    2000 £m       2000 £m 
                     Actual investment                                        
                     return on                                                
                     investments less                                         
                     longer-term                                              
                     returns                                                  
                     included within            (60)       (34)         (109) 
                     operating profit                                         
                     (note 5c)  
                                              
                     Actual return on                                         
                     Separate Account                                         
                     business less                                            
                     return                                                   
                     based on                   (33)        (1)          (62) 
                     longer-term rate 
                                        
                     Transition                                               
                     write-down on                                            
                     implementation of                                        
                     EITF 99-20 for                                           
                     interests                                                
                     in securitised             (23)          -             - 
                     financial assets                                         
                     (as explained on                                         
                     schedule 11)     
                                        
                                               (116)       (35)         (171) 

  5c                 Actual investment                                        
                     return on                                                
                     investments less                                         
                     longer-term                                              
                     returns for the                                          
                     half year ended 30                                       
                     June 2001                                                
                                                                              
                     This comprises:                         £m               
                                                                              
                     Actual less                           (30)               
                     averaged realised                                        
                     gains and losses                                         
                     for fixed                                                
                     maturities                                               
                                                                              
                     Actual less                           (38)               
                     longer-term return                                       
                     on equity based                                          
                     investments                                              
                                                                              
                     Unrealised gains                         8               
                     on preference                                            
                     shares                                                   
                                                                              
                                                           (60)               
                                                                              
                                                                  Schedule 6  
  2001 Unaudited Interim results                                              
  Achieved Profits basis results                                              
                                              Half year ended 30   Full year  
                                                          June                
  Taxation charge                           2001 £m    2000 £m        2000 £m 
  Tax charge on operating profit                                              
  Long-term business                                                          
                     UK Operations              111         96           212  
                     (note 6a)                                                
                     Jackson National            84         71            44  
                     Life (note 6b)                                           
                     Prudential Asia             38         19            57  
                     (note 6c)                                                
                     Prudential Europe           (1)         2             0  
                     (note 6c)                                                
                                                232        188           313 
 
  General insurance and shareholders            (31)       (17)          (21) 
  (note 6d)                                                                   
  Total tax on operating profit                 201        171           292  

  Tax on items not included in                                                
  operating profits     
                                                      
  Tax on short-term fluctuations in            (166)       (62)         (110) 
  investment returns    
                                                      
  Tax on profit on Egg flotation and                        33            57  
  business disposals   
                                                       
  Tax on merger break fee, net of                98                           
  expenses    
                                                                
  Total tax on items not included in            (68)       (29)          (53) 
  operating profits  
                                                         
  Tax on profit on ordinary activities                                        
  (including tax on actual investment           133        142           239  
  returns)                                                                    

  Notes                                                                       
  6a                 Including tax relief on re-engineering costs borne by the  
                     PAC life fund.                                           
 
  6b                 Excluding tax charge on broker dealer and fund management  
                     result.                                       

  6c                 Including tax relief on development expenses.              
                                 

  6d                 Including tax relief on UK re-engineering costs borne by 
                     shareholder financed operations.                         
                                                                              
                                                                    Schedule 7
                                                                             
  2001 Unaudited Interim results                                              

  Achieved Profits basis results                                              
                                                 Half year ended 30       Full
                                                              June      year  
  Shareholders' funds summary                   2001 £m    2000 £m    2000 £m 
  UK                                                                          
  Operations                                                                  
                 Long-term business              4,095      4,054      4,227  
                 operations                                                   
                 General business solvency         197        165        206  
                 capital                                                      
                 M&G                               345        356        336  
                 Egg                               379        462        417  
                                                 5,016      5,037      5,186  
  US Operations (note 7b)                                                     
                 Jackson National Life (net                                   
                 of surplus note borrowings                                   
                 of £178m (half year 2000                                     
                 £165m, full year 2000                                        
                 £167m))                                                      
                                 Before          3,166      2,878      2,893  
                                 capital                                      
                                 charge  
                                     
                                 Capital          (260)      (249)      (222) 
                                 charge                                       
                                 (note 7a) 
                                   
                                 After           2,906      2,629      2,671  
                                 capital                                      
                                 charge  
                                     
                 Other US operations (note          96        171         85  
                 7c)                                                          
                                                 3,002      2,800      2,756  

  Prudential Asia                                  901        682        793  
  Prudential Europe                                 90         79         82  
  Other                                                                       
  operations                                                                  
                 Goodwill                        1,643      1,519      1,546  
                 (note 7b)                                                    
                 Holding company net            (1,578)    (1,730)    (1,530) 
                 borrowings                                                   
                 Other assets                       30        494          0 
 
                                                    95        283         16 
 
  Total                                          9,104      8,881      8,833  

  Notes                                                                       
  7a             In determining the cost of capital of Jackson National Life  
                 it has been assumed that an amount equal to                  
                 200 per cent of the risk based capital required by the US    
                 Supervisory authorities must be retained. The impact of      
                 the related capital charge is to reduce Jackson National     
                 Life's shareholders' funds by £260m (30 June 2000 £249m,     
                 31 December 2000 £222m).                                     
                                                                     £m       
  7b             Total goodwill at 30 June 2001                               
                 comprises:                                                   
                                 Held within US                           63  
                                 Operations relating to                       
                                 purchase of broker                           
                                 dealer and banking                           
                                 businesses                                   
                                 Other operations                      1,643  
                                 relating to M&G and                          
                                 acquired Asian                               
                                 businesses                                   
                                                                       1,706  
  7c             Relates to broker dealer, fund management, intra-group       
                 funding arrangements and certain tax balances.               
                                                                              
                                                                     Schedule 8 
         
                                                                              
  2001 Unaudited Interim                                                      
  results                                                                     
                                                                              
                                                                             
  Achieved Profits basis results         Long-term business operations       
                                                                              
                                                                       Total  
                                           Jackson                 Long-term  
                                           National                  business  
                                        UK  Life      Asia  Europe  operations  
  Reconciliation of movement in         £m    £m        £m      £m        £m    
  shareholders funds                                                          
                                                                              
  Operating profit (including                                                 
  investment return based on                                                  
  long-term rates of returns)                                                 
                                                                              
                                                                              
  Long-term business                                                          
                               New     140    93       106       3       342    
                               bus
                               iness                                            

                               Bus
                               iness 
                               in      237   134        28       2       401    
                               force                                          
                                                                              
                                       377   227       134       5       743    
 
                                                                             
                                                                              
  General business                                                            
  Re-engineering costs                (11)                              (11)    
 
                                                                             
  Asia and Europe development                         (22)    (11)      (33)    
  expenses                                                                  
                                                                              
  M&G                                                                         
  Egg                                                                         
  US broker dealer and fund                                                   
  management                                                                  
  Other income and expenditure                                                
                                                                              
  Total operating profit before        366   227       112     (6)       699    
  amortisation of goodwill                                                   
                                                                              
  Amortisation of goodwill                   (2)                         (2)    
 
  Short-term fluctuations in         (399) (116)      (20)             (535)    
  investment returns                                                      
                                                                              
  Merger break fee, net of expenses                                           
                                                                              
  Profit on ordinary activities                                               
  before tax (including actual                                                
  investment gains)                   (33)   109        92     (6)       162    
 
                                                                             
  Tax                                                                         
                  tax on operating   (111)  (84)      (38)       1     (232)    
                  profit 
                                                 
                  tax on short-term    119    41         4              164     
                  fluctuations in                                             
                  investment returns 
                                         
                  tax on merger                                               
                  break fee, net of                                           
                  expenses   
                                                 
                  total tax charge       8  (43)      (34)       1     (68)     

                                                                            
                                                                              
  Minority interests  
                                                        
  Profit for the period               (25)    66        58     (5)       94     

                                                                             
                                                                              
  Exchange movements                         169        26              195     

                                                                              
  Development costs included above                      10       1       11     
  (net of tax) borne centrally  
                                              
  Intragroup dividends (including    (155)               2            (153)     
  statutory transfer)                                                       
                                                                              
  External dividends                                                          
  Investment in operations/adjts re:    50              12      10       72     
  changes in Prudential stake 
                                                
  Proceeds from issues of share                                               
  capital by parent company 
                                                  
  Adjustment for European new          (2)                       2              
  business sold by Prudential                                                 
  Intermediated Business
                                                      
  Net increase in shareholders'      (132)   235       108       8      219     
  capital and reserves                                                     
                                                                              
  Shareholders' capital and reserves 4,227 2,671       793      82    7,773     
  at 1 January 2001                                                        
                                                                              
                                                                              
  Shareholders' capital and reserves 4,095 2,906       901      90    7,992     
  at 30 June 2001                                                          
                                                                              
                                                                              
  Analysed as:                                                                
                  Statututory Basis    390 2,482       340      62    3,274     
                  shareholders'                                              
                  funds 
                                                      
                  Additional         3,705   424       561      28    4,718     
                  shareholders'                                            
                  interest on                                                 
                  Achieved Profits                                            
                  basis                                                       
                                                                              
                  Achieved Profits   4,095 2,906       901      90    7,992     
                  basis                                                    
                  shareholders'                                               
                  funds                                                       
 

                                                                              
                                                                              
                                                                              
                                                          Other        Group  
                                                         operations    total  
  Reconciliation of movement in shareholders funds           £m           £m  
                                                                              
                                                                              
  Operating profit (including investment return                               
  based on long-term rates of returns)                                          
      
                                                                              
                                                                              
  Long-term business                                                          
                                         New                             342  
                                         business                             
                                         Business                        401  
                                         in force                             
                                                                         743  
  General business                                           35           35  
  Re-engineering costs                                     (13)         (24)  
  Asia and Europe development expenses                                  (33)  
  M&G                                                        40           40  
  Egg                                                      (63)         (63)  
  US broker dealer and fund management                       11           11  
  Other income and expenditure                             (56)         (56)  
                                                                              
  Total operating profit before amortisation of            (46)          653  
  goodwill                                                                    
  Amortisation of goodwill                                 (45)         (47)  
  Short-term fluctuations in investment returns            (45)        (580)  
  Merger break fee, net of expenses                         338          338  
                                                                              
  Profit on ordinary activities before tax                                    
  (including actual                                                           
  investment gains)                                         202          364  
  Tax                                                                         
                       tax on operating profit               31        (201)  
                       tax on short-term                      2          166  
                       fluctuations in investment                             
                       returns                                                
                       tax on merger break fee,            (98)         (98)  
                       net of expenses                                        
                       total tax charge                    (65)        (133)  
  Minority interests                                         19           19  
  Profit for the period                                     156          250  
                                                                              
  Exchange movements                                       (28)          167  
  Development costs included above (net of tax)            (11)               
  borne centrally                                                             
  Intragroup dividends (including statutory                 153               
  transfer)                                                                   
  External dividends                                      (172)        (172)  
  Investment in operations/adjts re: changes in            (72)               
  Prudential stake                                                            
  Proceeds from issues of share capital by parent            26           26  
  company                                                                     
  Adjustment for European new business sold by                                
  Prudential Intermediated Business                                           
  Net increase in shareholders' capital and                  52          271  
  reserves                                                                    
  Shareholders' capital and reserves at 1 January         1,060        8,833  
  2001                                                                        
                                                                              
  Shareholders' capital and reserves at 30 June           1,112        9,104  
  2001                                                                        
                                                                              
  Analysed as:                                                                
                       Statututory Basis                  1,112        4,386  
                       shareholders' funds                                    
                       Additional shareholders'                        4,718  
                       interest on Achieved                                   
                       Profits basis                                          
                                                                              
                       Achieved Profits basis             1,112        9,104  
                       shareholders' funds                                    
 
 


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