13 Aug 2009

Prudential plc 2009 Half Year Financial Results

PRUDENTIAL DELIVERS STRONG PERFORMANCE IN CHALLENGING CONDITIONS

Capital & Dividend:
  • Improved and very strong Insurance Groups Directive ("IGD") capital surplus estimated at £3.0 billion at 31 July 2009 and £2.5 billion at 30 June 2009 (before any allowance for 2009 interim dividend)
  • 2009 half year dividend increased by 5% to 6.29 pence per share
IFRS:
  • IFRS operating profit of £688 million up 6% *
Embedded Value:
  • New Business Profit of £691 million up 25% *
  • EEV Operating Profit of £1,246 million down 8% *
New Business:
  • Group EEV new business profit margin of 52% on an APE basis (2008: 38%) *
  • Group new business APE premiums of £1,321 million down 8% *

Mark Tucker, Group Chief Executive said:

"These results demonstrate a continuing strong performance by the Prudential Group in what remain challenging market conditions. As a result of the decision we took last year to focus on capital conservation and cash generation by concentrating on expanding sales in our most profitable product lines, we have been able to manage our investment in new business and improve our margins across the Group in the first six months of the year. Compared with the same period in 2008 our Group EEV New Business Profit increased 25 per cent to £691 million, and our Group IFRS statutory operating profit increased six per cent to £688 million.

Our Group EEV Operating Profit decreased eight per cent to £1,246 million. While our life businesses held their contribution at 2008 levels, market conditions held back the contribution from our asset management businesses and reduced income at Group level. Group new business APE premiums were £1,321 million, down eight per cent.

In Asia, New Business Profit was £277 million, down 4.2 per cent but this compares with a very strong first half in 2008. It is particularly encouraging that demand for higher margin protection products remains resilient in Asia, and we believe that our relative position in the region is continuing to strengthen.

Jackson, our US business, delivered total APE sales of £392 million in the first half of 2009, up 10 per cent on the first half of 2008. The company's retail sales were the highest in any first half in its history, as we continued to benefit from a flight to quality. Jackson's New Business Profit was £292 million, up 113 per cent.

Prudential UK had a strong first half relative to the market, with total APE sales of £376 million, down 14 per cent, and retail sales of £374 million, down eight per cent. These lower sales resulted in a reduction in EEV New Business Profit of five per cent to £122 million, with the underlying new business margin increasing to 32 per cent, demonstrating the success of our strategy of focusing on value over volume.

Despite the challenging market environment, our asset management businesses have continued to deliver record net inflows, capitalising on their leading market positions and history of strong investment performance. M&G continued to benefit from a combination of superior investment performance, diversified business mix and well-established distribution capabilities. These attributes helped M&G achieve an exceptionally strong first half, with net fund inflows of £8.6 billion up 254 per cent.

Our prudent but proactive approach enabled us to strengthen further our Group capital position and, at 30 June 2009, we had an estimated IGD surplus of £2.5 billion before any allowance for the interim dividend, up from £1.5 billion at the end of 2008. In addition, we completed a bond issue during July which will increase our IGD capital surplus by a further £0.5 billion to an estimated £3.0 billion.

In line with our sustainable dividend policy, we are pleased to announce an increase in the interim dividend of five per cent to 6.29 pence per share.

While we expect the business environment to remain difficult through the rest of 2009, Prudential is very well positioned to take advantage of any improvement in market conditions. Our Group-wide focus on long-term profitable growth remains unchanged and our combination of geographic diversification, advantaged distribution and flexible and full product range all mean we can focus on the most profitable opportunities, especially in the pre and post-retirement sector. Combined with our dynamic approach to risk management, this means we are well placed to continue to outperform over the economic and financial cycle.

I am immensely proud to have served as Chief Executive of Prudential. I leave knowing that we have an excellent management team in place across the Group and I am confident that Tidjane will continue to lead the Group from strength to strength."

ENDS

* 2008 comparatives are at actual exchange rates (AER). In order to facilitate comparisons for the Group's current business amounts shown for 2009 and 2008, new business and profit related KPIs exclude those of the Taiwan agency business for which the sale process was completed in June 2009.

Enquiries:
Media
Investors/Analysts
Edward Brewster +44 (0)20 7548 3719 Matt Lilley +44 (0)20 7548 2007
Sunita Patel +44 (0)20 7548 2466 James Matthews +44 (0)20 7548 3561
Tom Burns, Brunswick +44 (0)20 7404 5959 Jessica Stalley +44 (0)20 7548 3511

Notes to Editors:

  1. In addition to the financial statements provided with this press release, additional financial schedules, including full details of the Group's investments, are available on the Group's website at www.prudential.co.uk/prudential-plc/

  2. The results in this announcement are prepared on two bases: International Financial Reporting Standards ('IFRS') and European Embedded Value ('EEV'). The IFRS basis results form the basis of the Group's statutory financial statements. The supplementary EEV basis results have been prepared in accordance with the principles issued by the CFO Forum of European Insurance Companies in May 2004. Where appropriate the EEV basis results include the effects of IFRS.

    Period on period percentage increases are stated on an actual exchange rate basis.

  3. Annual premium equivalent (APE) sales comprise regular premium sales plus one-tenth of single premium insurance sales.

  4. Present value of new business premiums (PVNBP) are calculated as equalling single premiums plus the present value of expected new business premiums of regular premium business, allowing for lapses and other assumptions made in determining the EEV new business contribution.

  5. Operating profits are determined on the basis of including longer-term investment returns. EEV and IFRS operating profit is stated after excluding the effect of short-term fluctuations in investment returns against long-term assumptions, the shareholders' share of actuarial and other gains and losses on defined benefit pension schemes, and the effect of disposal and results of the Taiwan agency business, for which the sale process was completed in June 2009. In addition for EEV basis results, operating profit excludes the effect of changes in economic assumptions and the time value of cost of options and guarantees, and the market value movement on core borrowings.

  6. There will be a conference call today for wire services at 07.30am (BST) hosted by Mark Tucker, Group Chief Executive and Tidjane Thiam, Chief Financial Officer and Group Chief Executive-designate. Dial in telephone number: 020 8609 0793. Passcode: 797476#

  7. A presentation to analysts will take place at 09.30am (BST) at Governor's House, Laurence Pountney Hill, London, EC4R 0HH. An audio cast of the presentation and the presentation slides will be available on the Group's website, www.prudential.co.uk/prudential-plc/

  8. High resolution photographs are available to the media free of charge at www.newscast.co.uk on +44 (0) 207 608 1000 or by calling Sunita Patel on 020 7548 2466.

  9. Total number of Prudential plc shares in issue as at 30 June 2009 was 2,523,718,245.

  10. Financial Calendar 2009:
    Third Quarter 2009 Interim Management Statement 28 October 2009
    2009 Interim Dividend
    Ex-dividend date 19 August 2009
    Record date 21 August 2009
    Payment of dividend 24 September 2009
  11. About Prudential plc
    Prudential plc is a company incorporated and with its principal place of business in England, and its affiliated companies constitute one of the world's leading financial services groups. It provides insurance and financial services through its subsidiaries and affiliates throughout the world. It has been in existence for over 160 years and has £245 billion in assets under management (as at 30 June 2009). Prudential plc is not affiliated in any manner with Prudential Financial, Inc, a company whose principal place of business is in the United States of America.

Forward-Looking Statements

This statement may contain certain "forward-looking statements" with respect to certain of Prudential's plans and its current goals and expectations relating to its future financial condition, performance, results, strategy and objectives. Statements containing the words "believes", "intends", "expects", "plans", "seeks" and "anticipates", and words of similar meaning, are forward-looking. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond Prudential's control including among other things, UK domestic and global economic and business conditions, market related risks such as fluctuations in interest rates and exchange rates, and the performance of financial markets generally; the policies and actions of regulatory authorities, the impact of competition, inflation, and deflation; experience in particular with regard to mortality and morbidity trends, lapse rates and policy renewal rates; the timing, impact and other uncertainties of future acquisitions or combinations within relevant industries; and the impact of changes in capital, solvency or accounting standards, and tax and other legislation and regulations in the jurisdictions in which Prudential and its affiliates operate. This may for example result in changes to assumptions used for determining results of operations or re-estimations of reserves for future policy benefits. As a result, Prudential's actual future financial condition, performance and results may differ materially from the plans, goals, and expectations set forth in Prudential's forward-looking statements. Prudential undertakes no obligation to update the forward-looking statements contained in this statement or any other forward-looking statements it may make.

PRUDENTIAL PLC UNAUDITED HALF YEAR 2009 RESULTS

RESULTS SUMMARY

European Embedded Value (EEV) Basis Results*
Half year
2009
£m
Half year*
2008
£m
Full year*
2008
£m
Asian operations 417 486 1,239
US operations 503 360 593
UK operations:
UK insurance operations 433 504 1,081
M&G 102 146 286
Other income and expenditure (195) (131) (302)
Restructuring costs (14) (15) (32)
Operating profit based on longer-term investment returns* 1,246 1,350 2,865
Short-term fluctuations in investment returns (707) (1,868) (4,967)
Mark to market value movements on core borrowings (108) 171 656
Shareholders' share of actuarial and other gains and losses on defined benefit pension schemes (71) (98) (14)
Effect of changes in economic assumptions and time value of cost of options and guarantees (384) (100) (398)
Profit on sale and results of Taiwan agency business 91 (90) (248)
Profit (loss) before tax (including actual investment returns) 67 (635) (2,106)
Shareholders' equity, excluding minority interests £13.7bn £14.0bn £15.0bn

International Financial Reporting Standards (IFRS) Basis Results*


Statutory IFRS basis results
Half year
2009
Half year
2008
Full year
2008
Loss after tax attributable to equity holders of the Company £(254)m £(116)m £(396)m
Basic earnings per share (10.2)p (4.7)p (16.0)p
Shareholders' equity, excluding minority interests £4.7bn £5.6bn £5.1bn


Supplementary IFRS basis information
Half year
2009
£m
Half year*
2008
£m
Full year*
2008
£m
Operating profit based on longer-term investment returns* 688 647 1,283
Short-term fluctuations in investment returns on shareholder-backed business (80) (617) (1,721)
Shareholders' share of actuarial and other gains and losses on defined benefit pension schemes (63) (92) (13)
Profit / (loss) before loss on sale and results of Taiwan agency business 545 (62) (451)
Loss on sale and results of Taiwan agency business (621) (40) 1
Loss from continuing operations before tax attributable to shareholders (76) (102) (450)
Operating earnings per share* (reflecting operating profit based on longer-term investment returns after related tax and minority interests) 20.5p 18.6p 39.9p

Half year 2009 Half year 2008 Full year 2008
Dividends per share declared and paid in reporting period 12.91p 12.30p 18.29p
Dividends per share relating to reporting period 6.29p 5.99p 18.90p
Funds under management £245bn £256bn £249bn
Insurance Groups Directive capital surplus (as adjusted)* £2.5bn £1.4bn £1.5bn

*Basis of preparation

Results bases

The EEV basis results have been prepared in accordance with the European Embedded Value Principles issued by the CFO Forum of European Insurance Companies in May 2004. With the exception of the presentation of the results for the Taiwan agency business, for which (as described below) the sale process was completed in June 2009, the basis of preparation of statutory IFRS basis results and supplementary IFRS basis information is consistent with that applied for the 2008 results and financial statements.

Life insurance products are, by their nature, long-term and the profit on this business is generated over a significant number of years. Accounting under IFRS alone does not, in Prudential's opinion, fully reflect the value of future profit streams.

Prudential considers that embedded value reporting provides investors with a measure of the future profit streams of the Group's long-term businesses and is a valuable supplement to statutory accounts.

Exchange translation

The comparative results have been prepared using previously reported exchange rates, except where otherwise stated.

Operating profit based on longer-term investment returns

Consistent with previous reporting practice, the Group analyses its EEV basis results and provides supplementary analysis of IFRS profit before tax attributable to shareholders, so as to distinguish operating profit based on longer-term investment returns from other elements of total profit. On both the EEV and IFRS bases, operating earnings per share are calculated using operating profits based on longer-term investment returns, after related tax and minority interests. These profits exclude short-term fluctuations in investment returns and the shareholders' share of actuarial and other gains and losses on defined benefit pension schemes. Under the EEV basis, where additional profit and loss effects arise, operating profit based on longer-term investment returns also excludes the mark to market value movements on core borrowings and the effect of changes in economic assumptions and changes in the time value of cost of options and guarantees arising from changes in economic factors.

In half year 2009, as a result of the exceptional dislocated market conditions, the Group incurred non-recurrent costs of £216 million for hedging its Insurance Group's Directive (IGD) capital surplus. These costs have been shown separately from operating profit based on longer-term investment returns as part of short-term fluctuations in investment returns. After adjusting for related tax and minority interests, these amounts are included in the calculation of basic earnings per share.

Also, in June 2009 the Group completed the previously announced sale of its Taiwan agency business. In order to facilitate comparisons of the Group's businesses, the effect of disposal and the results of the Taiwan agency business are shown separately from operating profit based on longer-term investment returns. The presentation of the comparative results for half year and full year 2008 has been adjusted accordingly as described in notes 12 and G of the EEV and IFRS financial statements.

Insurance Groups Directive capital surplus (as adjusted)

The estimated surpluses shown for half year 2009 and half year 2008 are before allowing for the interim dividends for 2009 and 2008. The surplus for full year 2008 of £1.5 billion is determined as the estimate provided with the year end results of £1.4 billion (i.e. before allowing for the 2008 final dividend) plus final adjustments of £0.1 billion included with the filing to the Financial Services Authority (FSA) in April 2009 and before the benefit of £0.3 billion allowed by the FSA in February 2009, for a portion of the shareholders' interest in the future transfers from the PAC with-profits fund. Due to a change in the tax applied to this benefit since February 2009, it is estimated at £0.4 billion at 30 June, 2009, up £ 0.1 billion from the £0.3 billion estimate in February 2009.

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Prudential plc is an international company incorporated in the United Kingdom, and its affiliated companies constitute one of the world’s leading financial services groups. It provides insurance and financial services directly and through its subsidiaries and affiliates throughout the world, and it has been in existence for over 170 years. Prudential plc is not affiliated in any manner with Prudential Financial, Inc, a company whose principal place of business is in the United States of America, or the Prudential Assurance Company, a subsidiary of M&G plc (a company incorporated in the United Kingdom).

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Prudential plc is an international company incorporated in the United Kingdom, and its affiliated companies constitute one of the world’s leading financial services groups. It provides insurance and financial services directly and through its subsidiaries and affiliates throughout the world, and it has been in existence for over 170 years. Prudential plc is not affiliated in any manner with Prudential Financial, Inc, a company whose principal place of business is in the United States of America, or the Prudential Assurance Company, a subsidiary of M&G plc (a company incorporated in the United Kingdom).