European Embedded Value (EEV) basis results

Operating profit based on longer-term investment returnsnote (i)

Results analysis by business area

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    2013 £m 2012 £m
  Note Half year Half year
notes (iv),(v)
Full year
notes (iv),(v)

Notes

  1. EEV basis operating profit based on longer-term investment returns excludes the recurrent items of short-term fluctuations in investment returns, the mark to market value movements on core borrowings and the effect of changes in economic assumptions. In addition, for all reporting periods shown above, operating profit excludes the (loss) profit attaching to the held for sale Japan Life business. For half year and full year 2012, operating profit also excludes the dilution of the Group’s holding in PPM South Africa and for full year 2012, the gain arising on the acquisition of REALIC. The amounts for these items are included in total EEV profit attributable to shareholders. The Company believes that operating profit, as adjusted for these items, better reflects underlying performance. Profit before tax and basic earnings per share include these items, together with actual investment returns.
  2. The value of future profits or losses from asset management and service companies that support the Group’s covered insurance businesses are included in the profits for new business and the in-force value of the Group’s long-term business. The results of the Group’s asset management operations include the profits from the management of internal and external funds. For EEV basis reporting, Group shareholders’ other income is adjusted to deduct the unwind of the expected margin for the period arising from the management of the assets of the covered business (as defined in note 1(a)) by the Group’s asset management businesses. The deduction is on a basis consistent with that used for projecting the results for covered insurance business. Group operating profit accordingly includes the variance between actual and expected profit in respect of management of the covered business assets.
  3. Restructuring costs comprise the charge of £(11) million recognised on an IFRS basis and an additional £(1) million recognised on the EEV basis for the shareholders’ share of restructuring costs incurred by the UK with-profits fund. Solvency II implementation costs comprise the charge of £(13) million recognised on an IFRS basis and an additional £(1) million recognised on the EEV basis.
  4. The presentation of the comparative results for Eastspring investments for half year and full year 2012 have been adjusted retrospectively to reflect the adoption of IFRS 11 ‘Joint arrangements’. This has resulted in a reallocation of £(4) million in half year 2013 (half year 2012: £(2) million; full year 2012: £(6) million) from the tax charge on operating profit based on longer-term investment returns to the pre-tax result for Eastspring investments, with no effect on the net of tax EEV basis results (see note 1).
  5. The comparative results have been prepared using previously reported average exchange rates for the period.
Asia operations        
New business 2 659 547 1,266
Business in force 3 420 327 692
Long-term business   1,079 874 1,958
Eastspring investmentsnote (iv)   38 32 69
Development expenses   (2) (3) (7)
Total   1,115 903 2,020
US operations        
New business 2 479 442 873
Business in force 3 537 363 737
Long-term business   1,016 805 1,610
Broker-dealer and asset management   34 17 39
Total   1,050 822 1,649
UK operations        
New business 2 130 152 313
Business in force 3 274 338 553
Long-term business   404 490 866
General insurance commission   15 17 33
Total UK insurance operations   419 507 899
M&G (including Prudential Capital)   225 199 371
Total   644 706 1,270
Other income and expenditure        
Investment return and other income   10 5 13
Interest payable on core structural borrowings   (152) (140) (280)
Corporate expenditure   (128) (120) (231)
Unwind of expected asset management marginnote (ii)   (34) (30) (56)
Total   (304) (285) (554)
Solvency II implementation costsnote (iii)   (14) (29) (50)
Restructuring costsnote (iii)   (12) (8) (22)
Operating profit based on longer-term investment returnsnote (i)   2,479 2,109 4,313
Analysed as profits (losses) from:        
New business 2 1,268 1,141 2,452
Business in force 3 1,231 1,028 1,982
Long-term business   2,499 2,169 4,434
Asset management   297 248 479
Other results   (317) (308) (600)
Total   2,479 2,109 4,313

Summarised consolidated income statement

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    2013 £m 2012 £m
  Note Half year Half year
note (i)
Full year
note (i)

Notes

  1. The Group has adopted new accounting standards on ‘Joint arrangements’ (IFRS 11) and amendments to IAS 19 ‘Employee benefits’, from 1 January 2013. In addition, the Group agreed in July 2013 to sell, dependent on regulatory approval, its closed book life insurance business in Japan. Accordingly, the presentation of the 2012 comparative EEV basis results and related notes have been adjusted from those previously published for the retrospective application of these standards and for the effect of the Japan Life business sale agreement, as described in note 1. This approach has been adopted consistently throughout this supplementary information.
  2. During 2012, M&G reduced its holding in PPM South Africa, resulting in a reclassification from a subsidiary to an associate which gave rise to a gain on dilution of £42 million.
Operating profit based on longer-term investment returns        
Asia operations   1,115 903 2,020
US operations   1,050 822 1,649
UK operations:        
UK insurance operations   419 507 899
M&G   225 199 371
    644 706 1,270
Other income and expenditure   (304) (285) (554)
Solvency II implementation costs   (14) (29) (50)
Restructuring costs   (12) (8) (22)
Operating profit based on longer-term investment returns   2,479 2,109 4,313
Short-term fluctuations in investment returns 5 (808) 209 510
Mark to market value movements on core borrowings 9 203 (113) (380)
Effect of changes in economic assumptions 6 684 (361) (2)
(Loss) profit attaching to held for sale Japan Life business 7 (47) 5 21
Gain on acquisition of REALIC 4 453
Gain on dilution of Group's holdingsnote (ii)   42 42
Profit before tax attributable to shareholders (including actual investment returns)   2,511 1,891 4,957
Tax attributable to shareholders’ profit 11 (587) (527) (1,188)
Profit for the period attributable to equity holders of the Company   1,924 1,364 3,769

Earnings per share (in pence)

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    2013 2012*
  Note Half year Half year Full year

* As adjusted from 2012 results previously published for the adoption of IFRS 11 and revised IAS 19 – see note 1.

Based on operating profit including longer-term investment returns, after related tax of £1,821 million (half year 2012: £1,541 million; full year 2012: £3,174 million)* 12 71.5p 60.8p 124.9p
Based on profit after tax of £1,924 million (half year 2012: £1,364 million; full year 2012: £3,769 million)* 12 75.5p 53.8p 148.3p

Dividends per share (in pence)

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  2013 2012
  Half year Half year Full year
Dividends relating to reporting period:      
Interim dividend (2013 and 2012) 9.73p 8.40p 8.40p
Final dividend (2012) 20.79p
Total 9.73p 8.40p 29.19p
Dividends declared and paid in reporting period:      
Current year interim dividend 8.40p
Final dividend for prior year 20.79p 17.24p 17.24p
Total 20.79p 17.24p 25.64p

Movement in shareholders' equity

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    2013 £m 2012* £m
  Note Half year Half year Full year

* As adjusted from 2012 results previously published for the adoption of revised IAS 19 – see note 1.

Profit for the period attributable to equity shareholders   1,924 1,364 3,769
Items taken directly to equity:        
Exchange movements on foreign operations and net investment hedges:        
Exchange movements arising during the period   688 (124) (467)
Related tax   5 (1) (2)
Dividends   (532) (440) (655)
New share capital subscribed   1 14 17
Shareholders' share of actuarial and other gains and losses on defined benefit pension schemes, net of related tax*   (26) 77 44
Reserve movements in respect of share-based payments   31 52 42
Treasury shares:        
Movement in own shares in respect of share-based payment plans   25 5 (13)
Movement in Prudential plc shares purchased by unit trusts consolidated under IFRS   2 3 36
Mark to market value movements on Jackson assets backing surplus and required capital:        
Mark to market value movements arising during the period   (60) 28 53
Related tax   21 (10) (18)
Net increase in shareholders’ equity 10 2,079 968 2,806
Shareholders’ equity at beginning of period 10 22,443 19,637 19,637
Shareholders’ equity at end of period 10 24,522 20,605 22,443

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  30 Jun 2013 £m 30 Jun 2012 £m 31 Dec 2012 £m
Comprising: Long- term business operations Asset manage- ment and other operations Total Long- term business operations Asset manage- ment and other operations Total Long- term business operations Asset manage- ment and other operations Total
Asia operations:                  
Net assets of operations 10,921 217 11,138 8,849 202 9,051 9,462 207 9,669
Acquired goodwill 244 61 305 237 61 298 239 61 300
  11,165 278 11,443 9,086 263 9,349 9,701 268 9,969
US operations:                  
Net assets of operations 6,638 127 6,765 5,257 108 5,365 6,032 108 6,140
Acquired goodwill 16 16 16 16 16 16
  6,638 143 6,781 5,257 124 5,381 6,032 124 6,156
UK insurance operations:                
Net assets of operations 7,096 11 7,107 6,296 13 6,309 6,772 25 6,797
M&G:              
Net assets of operations 511 511 348 348 392 392
Acquired goodwill 1,153 1,153 1,153 1,153 1,153 1,153
  1,664 1,664 1,501 1,501 1,545 1,545
  7,096 1,675 8,771 6,296 1,514 7,810 6,772 1,570 8,342
Other operations:                  
Holding company net borrowings at
market value
(2,580) (2,580) (2,258) (2,258) (2,282) (2,282)
Other net assets 107 107 323 323 258 258
  (2,473) (2,473) (1,935) (1,935) (2,024) (2,024)
Shareholders’ equity at end of period 24,899 (377) 24,522 20,639 (34) 20,605 22,505 (62) 22,443
Representing:                  
Net assets (liabilities) 24,655 (1,607) 23,048 20,402 (1,264) 19,138 22,266 (1,292) 20,974
Acquired goodwill 244 1,230 1,474 237 1,230 1,467 239 1,230 1,469
  24,899 (377) 24,522 20,639 (34) 20,605 22,505 (62) 22,443

Net asset value per share

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  2013 2012
  30 Jun 30 Jun 31 Dec

† Annualised return on embedded value is based on EEV operating profit after related tax, as shown in note 12, as a percentage of opening EEV basis shareholders’ equity. Half year profits are annualised by multiplying by two.

Based on EEV basis shareholders’ equity of £24,522 million (half year 2012: £20,605 million; full year 2012: £22,443 million) (in pence) 958p 806p 878p
Number of issued shares at period end (millions) 2,559 2,556 2,557
Annualised return on embedded value 16% 16% 16%

Summary statement of financial position

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    2013 £m 2012* £m
  Note 30 Jun 30 Jun 31 Dec

* As adjusted from 2012 results previously published for the adoption of IFRS 11 – see note 1.
† Including liabilities in respect of insurance products classified as investment contracts under IFRS 4. For half year 2013, the policyholder liabilities of the held for sale Japan Life business are included in total assets less liabilities, before deduction for insurance funds.

Total assets less liabilities, before deduction for insurance funds   286,583 250,903 271,768
Less insurance funds:        
Policyholder liabilities (net of reinsurers’ share) and unallocated surplus of with-profits funds   (276,958) (241,611) (261,409)
Less shareholders’ accrued interest in the long-term business   14,897 11,313 12,084
    (262,061) (230,298) (249,325)
Total net assets 10 24,522 20,605 22,443
         
Share capital   128 127 128
Share premium   1,890 1,887 1,889
IFRS basis shareholders’ reserves   7,607 7,278 8,342
Total IFRS basis shareholders’ equity 10 9,625 9,292 10,359
Additional EEV basis retained profit 10 14,897 11,313 12,084
Total EEV basis shareholders’ equity (excluding non-controlling interests) 10 24,522 20,605 22,443
 
 

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