European Embedded Value (EEV) basis results

Operating profit based on longer-term investment returns note (i)

Results analysis by business area

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  Note

2012 £m

2011 £m
note (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, 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 2012, operating profit excludes the gain arising on the acquisition of REALIC and the dilution of the Group’s holding in PPM South Africa. 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 year 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. During 2011, the Group altered its inflation measure basis for future statutory increases to pension payments for certain tranches of its UK defined benefit pension schemes. This reflected the UK Government’s decision to replace the basis of indexation from RPI with CPI. This resulted in a credit to operating profit for 2011 on an IFRS basis of £42 million and an additional £3 million recognised on the EEV basis.
  4. Restructuring costs comprise the charge of £(19) million recognised on an IFRS basis and an additional £(3) million recognised on the EEV basis for the shareholders’ share of restructuring costs incurred by the PAC with-profits fund. Solvency II implementation costs comprise the charge of £(48) million recognised on an IFRS basis and an additional £(2) million recognised on the EEV basis.
  5. The comparative results have been prepared using previously reported average exchange rates for the year.
Asia operations      
New business 2 1,266 1,076
Business in force 3 694 688
Long-term business   1,960 1,764
Eastspring Investments   75 80
Development expenses   (7) (5)
Total   2,028 1,839
US operations      
New business 2 873 815
Business in force 3 737 616
Long-term business   1,610 1,431
Broker-dealer and asset management   39 24
Total   1,649 1,455
UK operations      
New business 2 313 260
Business in force 3 553 593
Long-term business   866 853
General insurance commission   33 40
Total UK insurance operations   899 893
M&G   371 357
Total   1,270 1,250
Other income and expenditure      
Investment return and other income   13 22
Interest payable on core structural borrowings   (280) (286)
Corporate expenditure   (231) (219)
Unwind of expected asset management marginnote(ii)   (56) (53)
Total   (554) (536)
RPI to CPI inflation measure change on defined benefit pension schemesnote(iii)   45
Solvency II implementation costsnote(iv)   (50) (56)
Restructuring costsnote(iv)   (22) (19)
Operating profit based on longer-term investment returnsnote(i)   4,321 3,978
Analysed as profits (losses) from:      
New business 2 2,452 2,151
Business in force 3 1,984 1,897
Long-term business   4,436 4,048
Asset management   485 461
Other results   (600) (531)
Total   4,321 3,978

Summarised consolidated income statement

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  Note 2012 £m 2011 £m
Operating profit based on longer-term investment returns      
Asia operations   2,028 1,839
US operations   1,649 1,455
UK operations:      
UK insurance operations   899 893
M&G   371 357
    1,270 1,250
Other income and expenditure   (554) (536)
RPI to CPI inflation measure change on defined benefit pension schemes   45
Solvency II implementation costs   (50) (56)
Restructuring costs   (22) (19)
Operating profit based on longer-term investment returns   4,321 3,978
Short-term fluctuations in investment returns 6 538 (907)
Mark to market value movements on core borrowings 10 (380) (14)
Shareholders’ share of actuarial and other gains and losses on defined benefit pension schemes 7 62 23
Effect of changes in economic assumptions 8 (16) (158)
Gain on dilution of Group’s holdings 4 42
Gain on acquisition of REALIC 5 453
Profit before tax attributable to shareholders (including actual investment returns)   5,020 2,922
Tax attributable to shareholders’ profit 12 (1,207) (776)
Profit for the year   3,813 2,146
Attributable to:      
Equity holders of the Company   3,813 2,142
Non-controlling interests   4
Profit for the year   3,813 2,146

Earnings per share (in pence)

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  Note 2012 2011
Based on operating profit including longer-term investment returns, after related tax and non-controlling interests of £3,176 million (2011: £2,930 million) 13 125.0p 115.7p
Based on profit after tax and non-controlling interests of £3,813 million
(2011: £2,142 million)
13 150.1p 84.6p

Dividends per share (in pence)

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  2012 2011
Dividends relating to reporting year:    
Interim dividend 8.40p 7.95p
Final dividend 20.79p 17.24p
Total 29.19p 25.19p
Dividends declared and paid in reporting year:    
Current year interim dividend 8.40p 7.95p
Final dividend for prior year 17.24p 17.24p
Total 25.64p 25.19p

Movement in shareholders’ equity (excluding non-controlling interests)

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  Note 2012 £m 2011 £m
Profit for the year attributable to equity shareholders   3,813 2,142
Items taken directly to equity:      
Exchange movements on foreign operations and net investment hedges:      
Exchange movements arising during the year   (467) (90)
Related tax   (2) (68)
Dividends   (655) (642)
New share capital subscribed   17 17
Reserve movements in respect of share-based payments   42 44
Treasury shares:      
Movement in own shares in respect of share-based payment plans   (13) (30)
Movement in Prudential plc shares purchased by unit trusts consolidated under IFRS   36 (5)
Mark to market value movements on Jackson assets backing surplus and required capital:      
Mark to market value movements arising during the year   53 96
Related tax   (18) (34)
Net increase in shareholders’ equity 11 2,806 1,430
Shareholders’ equity at beginning of year (excluding non-controlling interests) 11 19,637 18,207
Shareholders’ equity at end of year (excluding non-controlling interests) 11 22,443 19,637

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  31 December 2012 £m 31 December 2011 £m
Comprising: Long-term
business
operations
Asset
management
and other
operations
Total Long-term
business
operations
Asset
management
and other
operations
Total
Asia operations:            
Net assets of operations 9,462 207 9,669 8,510 211 8,721
Acquired goodwill 239 61 300 235 61 296
  9,701 268 9,969 8,745 272 9,017
US operations:            
Net assets of operations 6,032 108 6,140 5,082 113 5,195
Acquired goodwill 16 16 16 16
  6,032 124 6,156 5,082 129 5,211
UK insurance operations:            
Net assets of operations 6,772 25 6,797 6,058 29 6,087
M&G:            
Net assets of operations 392 392 229 229
Acquired goodwill 1,153 1,153 1,153 1,153
  1,545 1,545 1,382 1,382
  6,772 1,570 8,342 6,058 1,411 7,469
Other operations:            
Holding company net borrowings at market value (2,282) (2,282) (2,188) (2,188)
Other net assets 258 258 128 128
  (2,024) (2,024) (2,060) (2,060)
Shareholders’ equity at end of year (excluding non-controlling interests) 22,505 (62) 22,443 19,885 (248) 19,637
Representing:            
Net assets (liabilities) 22,266 (1,292) 20,974 19,650 (1,478) 18,172
Acquired goodwill 239 1,230 1,469 235 1,230 1,465
  22,505 (62) 22,443 19,885 (248) 19,637

Net asset value per share (in pence)

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  31 December 2012 31 December 2011

* Return on embedded value is based on EEV operating profit after related tax and non-controlling interests, as shown in note 13, as a percentage of opening EEV basis shareholders’ equity.

Based on EEV basis shareholders’ equity of £22,443 million (2011: £19,637 million) 878p 771p
Number of issued shares at year end (millions) 2,557 2,548
Return on embedded value* 16% 16%

Summary statement of financial position

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  Note 31 December
2012
£m
31 December
2011
£m
  • * Including liabilities in respect of insurance products classified as investment contracts under IFRS 4.
  • For IFRS reporting purposes, the Group has adopted updated US GAAP requirements for deferred acquisition costs as an improvement to its accounting policy under IFRS 4 for those operations of the Group which measure insurance assets and liabilities substantially by reference to US GAAP principles. Accordingly, the IFRS elements and additional EEV basis shareholders’ interest for the comparative results for 2011 have been adjusted from those previously published for the retrospective application of the change as if the new accounting policy had always applied. This has resulted in a reallocation of £553 million for 2011 from IFRS basis shareholders’ reserves to shareholders’ accrued interest in the long-term business, with no overall effect on the EEV basis results.
Total assets less liabilities, before deduction for insurance funds   274,863 243,207
Less insurance funds:*      
Policyholder liabilities (net of reinsurers’ share) and unallocated
surplus of with-profits funds
  (264,504) (234,643)
Less shareholders’ accrued interest in the long-term business   12,084 11,073
    (252,420) (223,570)
Total net assets 11 22,443 19,637
Share capital   128 127
Share premium   1,889 1,873
IFRS basis shareholders’ reserves   8,342 6,564
Total IFRS basis shareholders’ equity 11 10,359 8,564
Additional EEV basis retained profit 11 12,084 11,073
Total EEV basis shareholders’ equity (excluding non-controlling interests) 11 22,443 19,637

The supplementary information in the EEV basis results and Notes on the EEV basis supplementary results was approved by the Board of directors on 12 March 2013 and signed on its behalf.

Paul Manduca
Chairman

Tidjane Thiam
Group Chief Executive

Nic Nicandrou
Chief Financial Officer

 
 

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