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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