European Embedded Value (EEV) basis supplementary information

Results analysis by business area

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  Note 2010 £m 2009 £mv
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, the shareholders’ share of actuarial and other gains and losses on defined benefit pension schemes, and the effect of changes in economic assumptions. In addition, for 2010, operating profit excludes costs associated with the terminated AIA transaction and the gain arising upon the dilution of the Group’s holding in PruHealth. For 2009, operating profit excluded the non-recurrent cost of hedging the Group IGD capital surplus included within short-term fluctuations in investment returns and the profit on sale and results of the sold Taiwan agency business.
    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. This basis of presentation has been adopted consistently throughout this supplementary information.
  2. The value of future profits or losses from asset management and service companies that support the Group’s covered 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 management of internal and external funds. For EEV basis reporting, Group shareholders’ other income is adjusted to deduct the expected margins for the period on management of covered business. The deduction is on a basis consistent with that used for projecting the results for covered business. Group operating profit accordingly includes the variance between actual and expected profit in respect of covered business.
  3. Restructuring costs comprise the charge of £(26) million recognised on an IFRS basis and an additional £(2) million recognised on the EEV basis for the shareholders’ share of restructuring costs incurred by the PAC with-profits fund (2009: £(23) million on an IFRS basis and an additional £(4) million on the EEV basis). For 2010, Solvency II implementation costs comprise the charge of £(45) million recognised on an IFRS basis and an additional £(1) million recognised on the EEV basis.
  4. New business profits for the Group’s Japanese insurance subsidiary, which ceased selling new business with effect from 15 February 2010, have been presented separately from those of the remainder of the Group.
  5. Exchange translation
    The comparative results have been prepared using previously reported average exchange rates for the year.
Asian operations      
New business:      
Excluding Japan 2 902 725
Japaniv   (1) (12)
Total   901 713
Business in force 3 549 392
Long-term business   1,450 1,105
Asset management   72 55
Development expenses   (4) (6)
Total   1,518 1,154
US operations      
New business 2 761 664
Business in force 3 697 569
Long-term business   1,458 1,233
Broker-dealer and asset management   22 4
Total   1,480 1,237
UK operations      
New business 2 365 230
Business in force 3 571 640
Long-term business   936 870
General insurance commission   46 51
Total UK insurance operations   982 921
M&G   284 238
Total   1,266 1,159
Other income and expenditure      
Investment return and other income   30 22
Interest payable on core structural borrowings   (257) (209)
Corporate expenditure   (220) (203)
Charge for share-based payments for Prudential schemes   (3) (5)
Charge for expected asset management marginii   (44) (38)
Total   (494) (433)
Solvency II implementation costsiii   (46)
Restructuring costsiii   (28) (27)
Operating profit based on longer-term investment returnsi   3,696 3,090
Analysed as profits (losses) from:      
New business:      
Excluding Japan 2 2,028 1,619
Japaniv   (1) (12)
Total   2,027 1,607
Business in force 3 1,817 1,601
Long-term business   3,844 3,208
Asset management   378 297
Other results   (526) (415)
Total   3,696 3,090

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  Note 2010 £m 2009 £m
Operating profit based on longer-term investment returns      
Asian operations   1,518 1,154
US operations   1,480 1,237
UK operations:      
UK insurance operations   982 921
M&G   284 238
    1,266 1,159
       
Other income and expenditure   (494) (433)
Solvency II implementation costs   (46)
Restructuring costs   (28) (27)
Operating profit based on longer-term investment returns   3,696 3,090
Short-term fluctuations in investment returns 4 (30) 351
Mark to market value movements on core borrowings 9 (164) (795)
Shareholders’ share of actuarial and other gains and losses on defined benefit pension schemes   (11) (84)
Effect of changes in economic assumptions 5 (10) (910)
Costs of terminated AIA transaction 6 (377)
Gain on dilution of holding in PruHealth 18 3
Profit on sale and results for Taiwan agency business 19 91
Profit from continuing operations before tax (including actual investment returns)   3,107 1,743
Tax attributable to shareholders’ profit 11 (530) (481)
Profit from continuing operations after tax before non-controlling interests   2,577 1,262
Discontinued operations (net of tax)   (14)
Profit for the year   2,577 1,248
       
Attributable to:      
Equity holders of the Company   2,573 1,245
Non-controlling interests   4 3
Profit for the year   2,577 1,248

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  Note 2010 2009
  • *Excluding an exceptional tax credit of £158 million which primarily relates to the impact of a settlement agreed with the UK tax authorities – see note 11.
From operating profit based on longer-term investment returns, after related tax and non-controlling interests of £2,700m*(2009: £2,221m) 12 106.9p 88.8p
Based on profit after tax and non-controlling interests of £2,573m (2009: £1,245m) 12 101.9p 49.8p

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  2010 2009
Dividends relating to reporting year:    
Interim dividend (2010 and 2009) 6.61p 6.29p
Final/second interim dividend (2010 and 2009) 17.24p 13.56p
Total 23.85p 19.85p
Dividends declared and paid in reporting year:    
Current year interim dividend 6.61p 6.29p
Second interim/final dividend for prior year 13.56p 12.91p
Total 20.17p 19.20p

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  Note 2010 £m 2009 £m
Profit for the year attributable to equity shareholders   2,573 1,245
Items taken directly to equity:      
Exchange movements on foreign operations and net investment hedges:      
Exchange movements arising during the year   659 (761)
Related tax   34 11
Dividends   (511) (481)
New share capital subscribed (including shares issued in lieu of cash dividends)   75 141
Reserve movements in respect of share-based payments   37 29
Treasury shares:      
Movement in own shares held in respect of share-based payment plans   (4) 3
Movement in Prudential plc shares purchased by unit trusts consolidated under IFRS   3 (3)
Mark to market value movements on Jackson assets backing surplus and required capital (gross movement)   105 205
Related tax   (37) (72)
Net increase in shareholders’ equity 10 2,934 317
Shareholders’ equity at beginning of year (excluding non-controlling interests) 7,10 15,273 14,956
Shareholders’ equity at end of year (excluding non-controlling interests) 10 18,207 15,273

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  2010 £m 2009 £m
Comprising: Note Long-term business operations Asset management and other operations Total Long-term business operations Asset management and other operations Total
Asian operations:      
Net assets of operations   7,445 197 7,642 5,781 161 5,942
Acquired goodwill   236 61 297 80 61 141
  7 7,681 258 7,939 5,861 222 6,083
US operations:      
Net assets of operations   4,799 106 4,905 4,122 95 4,217
Acquired goodwill   16 16 16 16
  7 4,799 122 4,921 4,122 111 4,233
UK insurance operations:      
Net assets of operations   5,970 33 6,003 5,439 37 5,476
M&G:      
Net assets of operations   254 254 173 173
Acquired goodwill   1,153 1,153 1,153 1,153
    1,407 1,407 1,326 1,326
  7 5,970 1,440 7,410 5,439 1,363 6,802
Other operations:      
Holding company net borrowings at market value 9 (2,212) (2,212) (1,780) (1,780)
Other net assets (liabilities)   149 149 (65) (65)
  7 (2,063) (2,063) (1,845) (1,845)
Shareholders’ equity at end of year (excluding non-controlling interests) 7 18,450 (243) 18,207 15,422 (149) 15,273
Representing:      
Net assets   18,214 (1,473) 16,741 15,342 (1,379) 13,963
Acquired goodwill   236 1,230 1,466 80 1,230 1,310
    18,450 (243) 18,207 15,422 (149) 15,273

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  2010 2009
  • *Return on embedded value is based on EEV operating profit after tax and non-controlling interests (adjusted to exclude an exceptional tax credit of £158 million (as shown in note 11)) as a percentage of opening EEV basis shareholders’ equity.
Based on EEV basis shareholders’ equity of £18,207 million (2009: £15,273 million) 715p 603p
Number of issued shares at year end (millions) 2,546 2,532
Return on embedded value* 18% 15%

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  Note 2010 £m 2009 £m
  • *Including liabilities in respect of insurance products classified as investment contracts under IFRS 4.
Total assets less liabilities, before deduction for insurance funds   231,667 201,501
Less insurance funds:*      
Policyholder liabilities (net of reinsurers’ share) and unallocated surplus of with-profits funds   (223,636) (195,230)
Less shareholders’ accrued interest in the long-term business   10,176 9,002
    (213,460) (186,228)
Total net assets 7,10 18,207 15,273
 
Share capital   127 127
Share premium   1,856 1,843
IFRS basis shareholders’ reserves   6,048 4,301
Total IFRS basis shareholders’ equity 7 8,031 6,271
Additional EEV basis retained profit 7 10,176 9,002
Shareholders’ equity (excluding non-controlling interests) 7,10 18,207 15,273

The supplementary information was approved by the Board of directors on 8 March 2011 and signed on its behalf.

Harvey McGrath signature

Harvey McGrath

Chairman

Tidjane Thiam signature

Tidjane Thiam

Group Chief Executive

Nic Nicandrou signature

Nic Nicandrou

Chief Financial Officer

 

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