Interim Results - Part 2
PRUDENTIAL CORPORATION PLC
29 July 1999
Part 2
NOTES ON THE UNAUDITED RESULTS
(a) The results for the 1999 and 1998 half years are unaudited. The results
for the 1998 full year have been derived from the Company's statutory
accounts. The auditors have reported on the 1998 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 results for the 1999 half year have been prepared using the same
accounting policies as were used in the 1998 statutory accounts, with the
following exception. Expected DSS Rebates for 1999 are recognised in full in
Quarter One whereas previously Retail IFA included this business on a cash
received basis. The Retail IFA figures for 1998 have accordingly been restated
on to the new basis resulting in an increase in both new business single
premiums and gross premiums written of £31m.
(c) The long-term business profit of the UK operations has been calculated
assuming the shareholder proportion 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 1999.
(d) Acquisitions reported on page 9 relate to the Company's purchase of M&G
Group PLC at the end of April 1999. The total cost of the purchase was
£1,943m. Goodwill of £1,537m arising on the acquisition is being amortised
on a straight-line basis over 20 years.
(e) Discontinued operations comprise the Company's Australasian operations
which were sold in September 1998.
(f) Costs in respect of re-engineering the Company's UK operations relate
principally to redundancy and related property, outsourcing and other costs.
(g) The statutory tax charge reported on page 9 comprised £32m (1998 £65m) UK
tax and £65m (1998 £62m) overseas tax.
(h) New share capital subscribed in the 1998 half year and shareholders'
funds at 30 June 1998 reported on page 8 have been reduced by £19m from that
previously published as a result of a change in accounting treatment of shares
issued to a qualifying share ownership trust.
(i) The UK operations general business operating result for the 1999 and
1998 half years comprised:
Gross Operating profit
premiums Underwriting Investment (including longer term
Written result return investment gains)
1999 £m 1998 £m 1999 £m 1998 £m 1999 £m 1998 £m* 1999 £m 1998 £m*
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Home 140 140 19 7 12 12 31 19
Motor 21 19 (2) (2) 3 3 1 1
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Total 161 159 17 5 15 15 32 20
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* Restated in accordance with note (j)
(j) Consistent with the Statement of Recommended Practice on Accounting for
Insurance Business issued by the Association of British Insurers in December
1998 and the accounting policy adopted for the 1998 full year results,
investment returns credited to operating results, for investments
attributable to shareholders, are determined using the longer term rate of
return or (by five year averaging of gains) an estimate thereof. For
general business and shareholders' other income, the only significant element
relates to UK equities where the longer term rate of return (net of advance
corporation tax credits) has been taken to be 8.1% (1998 half year 9.2 per
cent, 1998 full year 8.1 percent). For long-term business, the only
significant element relates to fixed income securities held by Jackson
National Life where gains arising on the realisation of these investments
continue to be averaged over five years.In addition, within the profit and
loss account, the basis of allocation of investment return between the general
business technical account,long-term business technical account and
non-technical account has been altered so that balances on the technical
accounts are consistent with operating profits calculated on the new basis.
Comparative results for the 1998 half year have been restated accordingly.
The 1998 half year results previously published were prepared on the basis of
all such investment gains being recognised in operating results by five year
averaging. In addition the basis of allocation of investment return between
the technical accounts and the non-technical account reflected unsmoothed
investment returns. The effect of the changes was explained in the 1998
Interim Report. There was no impact on total profit before or after tax.
SUPPLEMENTARY ACHIEVED PROFITS BASIS RESULTS
Half year
ended 30 June Full Year
Analysis by Business Area 1999 £m 1998 £m 1998 £m
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UK operations
Long-term business
New business 145 131 220
Business in force 210 129 309
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Total long-term business 355 260 529
General business 32 20 * 39
Investment management and products 21 25 28
Banking (69) (9) (77)
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Total UK Operations 339 296 * 519
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Jackson National Life
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New business 96 63 137
Business in force 152 132 231
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Total Jackson National Life 248 195 368
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Prudential Asia
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Long-term business
New business 34 16 56
Business in force 17 17 27
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Total long-term business 51 33 83
Development expenses (7) (4) (10)
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Total Prudential Asia 44 29 73
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Shareholders' other income
Investment return and other income 78 81 * 202
Interest payable (63) (49) (46)
Corporate expenditure (19) (19) (105)
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Total Shareholders' other income (4) 13 * 51
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Re-engineering costs (55) - -
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Total operating profit before amortisation
of goodwill for continuing operations 572 533 * 1,011
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* Restated for change in basis of recognition of investment returns, as
explained in note (j) on page 10
SUPPLEMENTARY ACHIEVED PROFITS BASIS RESULTS
Half year
Ended 30 June Full year
Results summary 1999£m 1998 £m 1998 £m
----------------------------------------------------------------------------
Operating profit
(including investment returns based on
long-term rates of investment return)
Long-term Business
New Business 275 210 413
Business in force 372 274 557
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Total long-term business 647 484 970
General business 32 20 * 39
Investment management and products 21 25 28
Banking (69) (9) (77)
Shareholders' other income (4) 13 * 51
Re-engineering costs (55) - -
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Total continuing operations 572 533 * 1,011
Discontinued operations - 8 12
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Operating profit before amortisation of goodwill 572 541 * 1,023
Amortisation of goodwill (14) - -
Short-term fluctuation in investment returns 340 460 * 289
Net loss from changes to UK projected long-term
rate of investment
return and to UK and US risk discount rates - - (106)
Profit on business disposals - - 202
Profit on ordinary activities before tax
(including actual investment returns) 898 1,001 1,408
Tax (253) (299) (371)
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Profit for the period 645 702 1,037
Dividends (150) (136) (407)
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Retained profit for the period 495 566 630
Basic earnings per share
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Based on operating profit after tax
before amortisation of goodwill of
£412m (£377m* and £752m) 21.1p 19.4p* 38.7p
Adjustment for amortisation of goodwill (0.7)p - -
Adjustment from post-tax longer term investment
returns to post tax actual investment returns 12.7p 16.8p* 10.3p
Adjustment for changes to projected investment
return and risk discount rates - - (4.1)p
Adjustment for profit on business disposals - - 8.5p
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Based on profit for the period of
£645m (£702m and £1,037m) 33.1p 36.2p 53.4p
Average number of shares 1,949m 1,941m 1,942m
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Movement in shareholders' capital and reserves
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Profit for the period 645 702 1,037
Exchange movements 139 (40) (75)
Goodwill on disposal of subsidiaries - - 28
New share capital subscribed 20 7 15
Dividends (150) (136) (407)
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Net increase in shareholders' capital and reserves 654 533 598
Shareholders' capital and reserves at beginning
of period 7,510 6,912 6,912
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Shareholders' capital and reserves at end of
period 8,164 7,445 7,510
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* Restated for change in basis of recognition of investment returns, as
explained in note (j) on page 10
SUPPLEMENTARY ACHIEVED PROFITS BASIS RESULTS
30 June 31 December
Summarised Consolidated Balance Sheet 1999 £m 1998 £m 1998 £m
____________________________________________________________________________
Net Assets
Investments (non linked):
Equities 53,409 53,342 49,088
Fixed income securities 40,122 32,200 35,622
Properties 7,970 7,130 7,298
Deposits with credit institutions 4,603 3,519 3,917
Other investments* 2,287 1,808 2,352
____________________________________________________________________________
Total investments 108,391 97,999 98,277
Assets held to cover linked liabilities 15,483 10,889 9,737
Banking business assets 8,029 1,116 2,397
Goodwill 1,582 59 59
Holding company cash less shareholders'
borrowings:
Holding company cash and short-term investments 135 1,622 1,826
Borrowings-Holding company (1,842) (1,220) (1,223)
-Jackson National Life (159) (150) (150)
____________________________________________________________________________
(1,866) 252 453
Deferred acquisitions costs 2,710 2,543 2,595
Dividend payable (150) (136) (271)
Other net assets (liabilities) (929) (220) 91
____________________________________________________________________________
133,250 112,502 113,338
Long-term business technical provisions (net of
reinsurance) and fund for future appropriations
UK operations (98,150) (85,169) (86,297)
Jackson National Life (21,529) (18,819) (19,423)
Prudential Asia (1,997) (1,203) (1,615)
Discontinued operations - (2,766) -
____________________________________________________________________________
(121,676) (107,957) (107,335)
Less:shareholders' accrued interest in the
long-term business 4,684 4,447 4,261
____________________________________________________________________________
Long-term business technical provisions (net of
reinsurance) and fund for future appropriations,
less shareholders' accrued interest (116,992) (103,510) (103,074)
Banking business liabilities (7,633) (1,043) (2,271)
General business technical provisions (461) (504) (483)
____________________________________________________________________________
Total net assets 8,164 7,445 7,510
____________________________________________________________________________
Shareholders' capital and reserves
____________________________________________________________________________
Share capital 98 97 98
Share premium 241 183 221
Statutory basis retained profit 3,141 2,718 2,930
Additional reserves on the achieved profits basis 4,684 4,447 4,261
____________________________________________________________________________
Total shareholders' capital and reserves 8,164 7,445 7,510
____________________________________________________________________________
Comprising:
UK operations 4,984 4,108 3,957
Jackson National Life 2,432 1,939 2,149
Prudential Asia 475 297 378
Discontinued operations - 258 -
Other operations (including net shareholders'
cash) 273 843 1,026
____________________________________________________________________________
8,164 7,445 7,510
____________________________________________________________________________
* Other investments, which mainly comprise mortgages and loans to
policyholders, are stated after deduction of amounts due by Jackson
National Life under sale and repurchase and funding agreements.
Notes on the supplementary achieved profits basis results
(a) 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
and are provided as a supplement to the statutory basis results contained
in this report.
(b) The results for the 1999 and 1998 half years are unaudited. The results
for the 1998 full year have been derived from the achieved profits basis
results supplement to the Company's statutory accounts. The supplement
included an unqualified report from the auditors. The results for UK
investment products are now amalgamated with those for investment management.
Previously the results for investment products were included within the
business in force result for UK long-term business. Comparative figures
have been restated accordingly.
(c) The results for the 1999 half year have been prepared using the same
principal assumptions as were used for the 1998 full year.
(d) Consistent with note (h) on page 10, statutory basis retained profit at 30
June 1998 has been reduced by £19m as a result of a change in accounting
treatment of shares issued to a qualifying share ownership trust.
Appendix
PRUDENTIAL CORPORATION PLC - 1999 NEW BUSINESS PREMIUMS - HALF YEAR
Single Regular Total
1999 1998 +/- 1999 1998 +/- 1999 1998 +/-
£m £m (%) £m £m (%) £m £m (%)
UK Operations
IFA Channel:
Individual Pensions 100 121 (17) 22 21 5 122 142 (14)
Corporate Pensions 424 253 68 35 30 17 459 283 62
Life 1,018 719 42 39 32 22 1,057 751 41
Annuities 434 308 41 - - 0 434 308 41
Investment Products 109 33 230 2 - 0 111 33 236
---------------------------------------------------
Sub-Total 2,085 1,434 45 98 83 18 2,183 1,517 44
DSS Rebates 50 33 52 - - 0 50 33 52
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Total 2,135 1,467 46 98 83 18 2,233 1,550 44
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M&G (Direct):
Investment Products 54 - 0 2 - 0 56 - 0
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Total 54 - 0 2 - 0 56 - 0
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Prudential Retail:
Individual Pensions 22 26 (15) 28 44 (36) 50 70 (29)
Corporate Pensions 4 2 100 20 25 (20) 24 27 (11)
Life 435 300 45 28 30 (7) 463 330 40
Annuities 310 227 37 - - 0 310 227 37
Investment Products 25 56 (55) 5 9 (44) 30 65 (54)
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Sub-Total 796 611 30 81 108 (25) 877 719 22
DSS Rebates 175 175 0 - - 0 175 175 0
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Total 971 786 24 81 108 (25) 1,052 894 18
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Total UK Operations:
Individual Pensions 122 147 (17) 50 65 (23) 172 212 (19)
Corporate Pensions 428 255 68 55 55 0 483 310 56
Life 1,453 1,019 43 67 62 8 1,520 1,081 41
Annuities 744 535 39 - - 0 744 535 39
Investment Products 188 89 111 9 9 0 197 98 101
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Sub-Total 2,935 2,045 44 181 191 (5) 3,116 2,236 39
DSS Rebates 225 208 8 - - 0 225 208 8
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Total UK Operations 3,160 2,253 40 181 191 (5) 3,341 2,444 37
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Jackson National Life:
Fixed Annuities 313 382 (18) - - 0 313 382 (18)
Equity Linked
Index Annuities 182 144 26 - - 0 182 144 26
Variable Annuities 581 273 113 - - 0 581 273 113
Guaranteed Investment
Contracts 636 708 (10) - - 0 636 708 (10)
GICs-European Medium
Term Notes 337 - 0 - - 0 337 - 0
Life - - 0 12 14 (14) 12 14 (14)
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Sub-Total 2,049 1,507 36 12 14 (14) 2,061 1,521 36
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Prudential Asia:
Insurance Products 64 22 191 36 35 3 100 57 75
Investment Products 225 16 1306 - - 0 225 16 1306
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Sub-Total 289 38 661 36 35 3 325 73 345
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Group Total:
Insurance Products 5,085 3,693 38 220 231 (5) 5,305 3,924 35
Investment Products 413 105 293 9 9 0 422 114 270
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Group Total 5,498 3,798 45 229 240 (5) 5,727 4,038 42
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1999 1998
£m £m
UK Banking Products
Funds Under Management:
Prudential Banking 717 955
egg: 6,694 -
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Total 7,411 955
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Mortgage Book:
Prudential Banking 932 422
egg: 130 -
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Total 1,062 422
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General Insurance
UK Gross Premiums Written 161 159
Single Regular Total
1999 1998 +/- 1999 1998 +/- 1999 1998 +/-
£m £m (%) £m £m (%) £m £m (%)
UK Operations
Retail IFA:
Individual Pensions 85 121 (30) 21 21 0 106 142 (25)
Corporate Pensions 52 22 136 7 9 (22) 59 31 90
Life 1,015 719 41 39 32 22 1,054 751 40
Annuities 64 41 56 - - 0 64 41 56
Investment Products 23 33 (30) 1 - 0 24 33 (27)
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Sub-Total 1,239 936 32 68 62 10 1,307 998 31
DSS Rebates 50 33 52 - - 0 50 33 52
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Total 1,289 969 33 68 62 10 1,357 1,031 32
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Prudential Corporate:
Corporate Pensions 372 231 61 28 21 33 400 252 59
Annuities 70 74 (5) - - 0 70 74 (5)
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Total 442 305 45 28 21 33 470 326 44
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Prudential Annuities:
Annuities 300 193 55 - - 0 300 193 55
M&G IFA:
Individual Pensions 15 - 0 1 - 0 16 - 0
Life 3 - 0 - - 0 3 - 0
Investment Products 86 - 0 1 - 0 87 - 0
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Total 104 - 0 2 - 0 106 - 0
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Total IFA Channel 2,135 1,467 46 98 83 18 2,233 1,550 44
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M&G Summary (IFA + Direct):
Individual Pensions 15 - 0 1 - 0 16 - 0
Life 3 - 0 - - 0 3 - 0
Investment Products 140 - 0 3 - 0 143 - 0
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Total 158 - 0 4 - 0 162 - 0
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Notes to Schedules:
1. The table above analyses UK IFA channel sales by business unit and
provides a summary of the M&G new business premiums for the two month period
from acquisition to 30 June.
2. The figures for overseas operations have been calculated using average
exchange rates. The applicable rate for Jackson National Life is 1.62
(half year 1998 - 1.65). After adjusting for the impact of foreign currency
movements, the Group's single premiums sales increased by 44%, and regular
premium sales fell by 5%.
3. The 1998 figures exclude the results of the Australian and New Zealand
operations that were sold later in that year.
4. The expected 1999 DSS Rebates have been recognised in full in quarter one,
whereas previously Retail IFA included DSS Rebates on a cash received basis.
The Retail IFA figure for 1998 has accordingly been restated, resulting in an
increase in single premiums from £2m to £33m.
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