Final Results - Part 2

Prudential PLC 22 February 2001 PART 2 PRUDENTIAL PLC 2000 UNAUDITED RESULTS Results Summary 2000 £m 1999 £m Statutory operating profit (based on longer-term investment returns) before amortisation of goodwill UK Insurance Operations Long-term business 468 454 General business 33 61 501 515 M&G 125 87 Egg (155) (150) UK Operations 471 452 US Operations 466 451 Prudential Asia 22 15 Prudential Europe (10) 6 Other income and expenditure (109) (78) Re-engineering costs - (70) Operating profit before amortisation of goodwill 840 776 Amortisation of goodwill (84) (54) Short-term fluctuations in investment returns (48) 28 Profit on sale and flotation of holding in Egg 119 - Share of exceptional gain of associate company 21 - Profit on sale of holding in associate company 99 - Profit before tax (including actual investment returns) 947 750 Earnings per share Based on operating profit after tax and minority 31.5p 29.1p interests before amortisation of goodwill Based on profit after tax and minority interests - basic 35.1p 27.8p Based on profit after tax and minority interests - 35.0p 27.7p diluted Dividend per share 24.5p 23.0p Achieved profits basis shareholders' funds £8.8bn £8.3bn Insurance and investment funds under management £165bn £170bn Banking deposit balances under management £7.6bn £8.2bn Statutory Basis Results Operating profit (based on longer-term investment returns) before amortisation of goodwill Results Analysis by Business Area 2000 £m 1999 £m UK Operations Prudential Insurance Services - Long-term business 313 317 - General business 33 61 346 378 Prudential Intermediary Business 127 101 Prudential Financial Services 28 36 UK Insurance Operations 501 515 M&G 125 87 Egg (155) (150) Total 471 452 US Operations Jackson National Life 459 457 Broker dealer and fund management 7 (6) Total 466 451 Prudential Asia Long-term business and investment products 39 27 Development expenses (17) (12) Total 22 15 Prudential Europe Long-term business 8 6 Development expenses (18) 0 Total (10) 6 Other Income and Expenditure Investment return and other income 76 93 Interest payable (143) (131) Corporate expenditure (42) (40) Total (109) (78) Re-engineering costs - (70) Total operating profit (based on longer-term investment returns) before amortisation of goodwill 840 776 Statutory Basis Results Summarised Consolidated Profit and Loss Account 2000 £m 1999 £m Operating profit (based on longer-term investment 840 776 returns) before amortisation of goodwill Amortisation of goodwill (84) (54) Short-term fluctuations in investment returns (48) 28 Profit on sale and flotation of holding in Egg 119 - Share of exceptional gain of associate company 21 - Profit on sale of holding in associate company 99 - Profit on ordinary activities before tax (including 947 750 actual investment returns) Tax (284) (208) Profit for the financial year before minority interests 663 542 Minority interests 25 - Profit for the financial year after minority interests 688 542 Dividends (484) (449) Retained profit for the financial year 204 93 Basic Earnings Per Share 2000 1999 Based on operating profit after tax and related 31.5p 29.1p minority interests before amortisation of goodwill of £617m (£567m) Adjustment for amortisation of goodwill (4.3)p (2.8)p Adjustment from post-tax longer-term investment (1.4)p 2.3p returns to post-tax actual investment returns (after related minority interests) Adjustment for profit on flotation of Egg and business 9.3p (0.8)p disposals (1999 tax paid on prior year disposal) Based on profit for the financial year after minority 35.1p 27.8p interests of £688m (£542m) Average number of shares 1,959m 1,947m Diluted Earnings Per Share Based on profit for the financial year after minority 35.0p 27.7p interests of £688m (£542m) Average number of shares 1,968m 1,959m Dividend Per Share 24.5p 23.0p Movement in Shareholders' Capital and Reserves 2000 £m 1999 £m Profit for the financial year after minority interests 688 542 Exchange movements 118 48 Goodwill on disposal of associate company 90 - New share capital subscribed 184 34 Dividends (484) (449) Net increase in shareholders' capital and reserves 596 175 Shareholders' capital and reserves at beginning of year 3,424 3,249 Shareholders' capital and reserves at end of year 4,020 3,424 Funds Flow Holding Company Funds Statement 2000 £m 1999 £m Operating profit after tax and minority interests 617 567 before amortisation of goodwill Dividends (484) (449) Reinvested in businesses (292) (278) Funds available to holding company (159) (160) New investment in businesses (263) (2,320) Capital repatriated from businesses 123 310 New share capital subscribed on listing of shares on 139 - the New York Stock Exchange (net of expenses) Other new share capital subscribed 45 34 Sale of holding in Egg (net of expenses) 90 - Sale of holding in associate company 83 - Timing differences and other items 121 (132) Holding company net cash movement 179 (2,268) Movement in Net Cash Balances 2000 £m 1999 £m Holding company cash less shareholders' borrowings at (1,837) 453 beginning of year Holding company net cash movement (as above) 179 (2,268) Exchange translation losses (39) (22) Holding company cash less shareholders' borrowings at (1,697) (1,837) end of year Represented by: Holding company cash 38 78 Borrowings - Holding company (1,568) (1,760) - Jackson National Life (167) (155) (1,697) (1,837) New Business Premiums by Product Distributor Annual Premium Single Regular Equivalents 2000 £m 1999 £m 2000 £m 1999 2000 £m 1999 £m £m UK Operations Prudential Intermediary Business Individual 196 173 54 34 74 51 pensions Corporate 94 110 15 14 24 25 pensions Life 1,660 2,070 36 68 202 275 Annuities 652 1,658 - - 65 166 Investment 101 49 3 3 13 8 products 2,703 4,060 108 119 378 525 Department of 59 64 - - 6 7 Social Security rebate business Total 2,762 4,124 108 119 384 532 Prudential Financial Services Individual 30 35 34 51 37 55 pensions Corporate 751 487 93 120 168 168 pensions Life 534 883 28 49 82 137 Annuities 602 681 - - 60 68 Investment 43 40 12 7 16 11 products 1,960 2,126 167 227 363 439 Department of 175 175 - - 18 18 Social Security rebate business Total 2,135 2,301 167 227 381 457 M&G Individual 28 39 2 2 5 6 pensions Life 1 8 - 1 0 2 Investment 1,050 523 16 10 121 62 products Total 1,079 570 18 13 126 70 Total UK 5,976 6,995 293 359 891 1,059 operations Jackson National Life Fixed 1,056 826 - - 106 83 annuities Equity linked 409 431 - - 41 43 index annuities Variable 1,709 1,187 - - 171 119 annuities Guaranteed 365 994 - - 36 99 Investment Contracts GIC - 1,291 624 - - 129 62 European Medium Term Notes Life - - 25 24 25 24 Total 4,830 4,062 25 24 508 430 Prudential Asia Insurance 275 183 229 106 256 124 products Investment 2,259 582 - - 226 58 products Total 2,534 765 229 106 482 182 Prudential Europe Individual 5 6 16 14 16 14 pensions Investment 9 6 6 6 7 7 products Total 14 12 22 20 23 21 Group Total Insurance 9,892 10,634 532 483 1,521 1,546 products Investment 3,462 1,200 37 26 383 146 products Group Total 13,354 11,834 569 509 1,904 1,692 Single new business premiums include increments under existing group pension schemes and pensions vested into annuity contracts (at the annuity purchase price). Regular new business premiums are determined on an annualised basis. Annual Premium Equivalents are calculated as the aggregate of regular new business premiums and one tenth of single new business premiums. Gross Premiums Written by Product Provider Long-term Investment General Total business products business 2000 £m 1999 2000 £m 1999 2000 £m 1999 2000 1999 £m £m £m £m £m UK 7,469 9,331 - - 333 318 7,802 9,649 Insurance Operations M&G 239 223 1,224 725 - - 1,463 948 Total UK 7,708 9,554 1,224 725 333 318 9,265 10,597 Operations Jackson 5,223 4,449 - - - - 5,223 4,449 National Life Prudential 1,076 655 2,259 582 - - 3,335 1,237 Asia Prudential 166 168 - - - - 166 168 Europe Group 14,173 14,82 3,483 1,307 333 318 17,989 16,451 Total 6 The geographical analysis of premiums is based on the territory of the operating unit assuming the risk. Premiums by territory of risk are not materially different. General Business Operating Result Gross Underwriting Investment Operating premiums result return profit (based written on longer-term investment returns) 2000 1999 2000 1999 2000 1999 2000 1999 £m £m £m £m £m £m £m £m UK operations Home 276 274 0 35 28 23 28 58 Motor 57 44 (3) (3) 8 6 5 3 Total 333 318 (3) 32 36 29 33 61 Notes on the Unaudited Results a) The results for 2000 are unaudited and are not the Company's statutory accounts. The results for 2000 have been prepared using the same accounting policies as were used in the 1999 statutory accounts. The results for 1999 have been derived from those accounts. The auditors have reported on the 1999 statutory accounts and they have been delivered to the Registrar of Companies. The auditors' report was unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. b) In March 2000 the Company announced the disposal of part of its associate company, St James's Place Capital plc. Proceeds from this disposal amounted to £213 million of which £83m has been received by the holding company. After taking into account attributable net assets of £53 million and attributable goodwill of £61 million charged to reserves on acquisition, the profit on disposal reported in the Group's Interim Results and in the full year results included in this announcement, was £99 million. Subsequent to 30 June, the Company's remaining holding was sold for £79 million. After taking into account attributable net assets of £26 million and goodwill of £29m, the gain on sale of £24 million has been taken to short-term fluctuations in investment returns. The goodwill total of £90 million has been credited back to reserves. c) In March 2000 the Company announced the disposal of £12 billion of UK institutional fund management business. After taking into account the goodwill attached to this business, there was zero profit on disposal. d) In June 2000 the Company undertook an Initial Public Offering of part of its holding in Egg plc, its wholly owned UK banking subsidiary, and at the same time Egg issued new shares to the market. Total proceeds, net of expenses, amounted to £239 million of which £90 million related to the holding company. After taking into account minority interests of £120 million arising as a result of this transaction, the profit to the Group was £119 million. Notes on the Unaudited Results (continued) e) In July 2000 the Company issued 17 million shares following the listing of its shares on the New York Stock Exchange. Proceeds raised from the issue, net of expenses, amounted to £139 million. f) During the year the company acquired Core Pacific Securities Investment Trust Enterprise, a Taiwanese Mutual Fund company, and Highland Bank Corp Inc, the holding company of Highland Federal Bank of California. The results of these operations, which were acquired in the fourth quarter of 2000, do not materially affect the Group's results. In January 2001 the Company announced that it had signed an agreement to acquire Orico Life Insurance Compan. Limited of Japan for £133 million. The transaction was completed on 13 February 2001. g) The statutory tax charge comprises £167m (£83m) UK tax and £117m (£125m) overseas tax. h) On 13 February 2001 the Company announced the restructuring of the direct sales force and customer service channels in the UK Insurance Operations. The Company expects to incur a restructuring charge of £110m from these changes of which £13m will impact directly on shareholders. i) The 2000 Annual Report will be posted to shareholders on 30 March 2001. Supplementary Achieved Profits Basis Results Summarised Consolidated Profit and Loss Account 2000 £m 1999 £m Operating profit (based on longer-term investment returns) New business 613 603 Business in force (net of development expenses) 509 633 Total long-term business 1,122 1,236 General business 33 61 M&G 125 87 Egg (155) (150) US broker dealer and fund management 7 (6) Other income and expenditure (103) (60) Re-engineering costs - (70) Operating profit before amortisation of goodwill 1,029 1,098 Amortisation of goodwill (84) (54) Short-term fluctuations in investment returns (440) 637 Profit on sale and flotation of holding in Egg 119 - Share of exceptional gain of associate company 21 - Profit on sale of holding in associate company 83 - Profit on ordinary activities before tax (including 728 1,681 actual investment returns) Tax (239) (519) Profit for the financial year before minority interests 489 1,162 Minority interests 25 - Profit for the financial year after minority interests 514 1,162 Dividends (484) (449) Retained profit for the financial year 30 713 Basic Earnings Per Share 2000 1999 Based on operating profit after tax and related 38.2p 39.1p minority interests before amortisation of goodwill of £749m (£762m) Adjustment for amortisation of goodwill (4.3)p (2.8)p Adjustment from post-tax longer-term investment returns (16.2)p 24.2p to post-tax actual investment returns (after related minority interests) Adjustment for profit on flotation of Egg and business 8.5p (0.8)p disposals (1999 tax paid on prior year disposal) Based on profit for the year after tax and minority 26.2p 59.7p interests of £514m (£1,162m) Average number of shares 1,959m 1,947m Supplementary Achieved Profits Basis Results (continued) Operating profit (based on longer-term investment 2000 £m 1999 £m returns) before amortisation of goodwill UK operations New business 230 308 Business in force 478 327 Total long-term business 708 635 General business 33 61 M&G 125 87 Egg (155) (150) Total 711 633 US Operations New business 221 198 Business in force (2) 277 Total long-term business 219 475 Broker dealer and fund management 7 (6) Total 226 469 Prudential Asia New business 153 90 Business in force 60 35 Total long-term business 213 125 Development expenses (17) (12) Total 196 113 Prudential Europe New business 9 7 Business in force 8 6 Total long-term business 17 13 Development expenses (18) 0 Total (1) 13 Other Income and Expenditure Investment return and other income 82 111 Interest payable (143) (131) Corporate expenditure (42) (40) Total (103) (60) Re-engineering costs - (70) Total operating profit (based on longer-term investment returns) before amortisation of goodwill New business 613 603 Business in force (net of development expenses) 509 633 Total long-term business (net of development expenses) 1,122 1,236 Other operating results (93) (138) Total 1,029 1,098 Supplementary Achieved Profits Basis Results (continued) Summarised Consolidated Balance Sheet 2000 £m 1999 £m Investments in respect of non-linked business: - Equities 51,232 57,692 - Fixed income securities 48,594 39,818 - Properties 10,303 8,763 - Deposits with credit institutions 3,875 4,413 - Other investments (principally mortgages and 4,507 3,960 loans) Total investments 118,511 114,646 Assets held to cover linked liabilities 18,323 18,643 Banking business assets 8,603 8,945 Goodwill 1,611 1,582 Holding company cash less shareholders borrowings: - Holding company cash 38 78 - Borrowings - Holding company (1,568) (1,760) - Jackson National Life (167) (155) (1,697) (1,837) Deferred acquisition costs 2,952 2,741 Dividend payable (322) (299) Obligations of Jackson National Life under sale and (2,652) (1,512) repurchase and lending agreements Other net assets 305 166 145,634 143,075 Insurance technical provisions (net of reinsurance) and fund for future appropriations: - UK operations (105,907) (105,959) - US operations (23,585) (21,783) - Prudential Asia (3,352) (2,855) - Prudential Europe (593) (529) (133,437) (131,126) Less: shareholders' accrued interest in the 4,813 4,918 long-term business Insurance technical provisions (net of reinsurance) and fund for future appropriations, less shareholders' (128,624) (126,208) accrued interest Banking business liabilities (note c) (8,040) (8,525) Minority interests (137) - Total net assets 8,833 8,342 Shareholders' Capital and Reserves 2000 £m 1999 £m Share capital 99 98 Share premium 458 249 Statutory basis retained profit 3,463 3,077 Total shareholders' capital and reserves - 4,020 3,424 statutory basis Additional reserves on the achieved profits basis 4,813 4,918 Total shareholders' capital and reserves - achieved 8,833 8,342 profits basis Supplementary Achieved Profits Basis Results (continued) Movement in Shareholders' Capital and Reserves 2000 £m 1999 £m Profit for the financial year after minority interests 514 1,162 Exchange movements 187 85 Goodwill on disposal of associate company 90 - New share capital subscribed 184 34 Dividends (484) (449) Net increase in shareholders' capital and reserves 491 832 Shareholders' capital and reserves at beginning of year 8,342 7,510 Shareholders' capital and reserves at end of year 8,833 8,342 Notes on the supplementary achieved profits basis results (a) The results for 2000 are unaudited. The results for 1999 have been derived from the achieved profits basis results supplement to the Company's statutory accounts for that year. The supplement included an unqualified review report from the auditors. (b) The results have been prepared in accordance with the draft 'Guidance on accounting in Group Accounts for proprietary companies' long-term insurance business' issued by the Association of British Insurers in July 1995 and are provided as a supplement to the statutory basis results contained in this announcement. Except for changes to strengthen assumptions for future persistency and expenses at Jackson National Life, and to recognise the improvement in the persistency of with-profit bonds in the UK, the results for 2000 have been prepared using the same principal assumptions as were used for 1999. (c) Banking business liabilities 2000 £m 1999 £m Egg 7,387 8,438 US operations 653 87 8,040 8,525 Comprising: Banking deposit balances 7,618 8,222 Accruals, deferred income and other liabilities 422 303 8,040 8,525 PRUDENTIAL PLC 2000 Unaudited results Additional information to the preliminary announcement Schedule Statutory basis results Earnings per share 1 US operations 2 Short-term fluctuations in investment returns - Summary 3 - Analysis by business area 4 Taxation charge 5 Achieved Profits basis results Earnings per share 6 Key economic assumptions 7 Operating profits - New Business 8 - Business in force 9 Taxation charge 10 Shareholders' funds - Summary 11 - Reconciliation of movement 12 Funds under management Summary 13 Analysis by business area 14 Schedule 1 Statutory basis results Post-tax and Minority minority Earnings Pre-tax Tax Post-tax interests interests per share 2000 Basic £m £m £m £m £m (pence) Earnings Per Share (note 1a) Based on 840 (235) 605 12 617 31.5 operating profit after tax and minority interests before amortisation of goodwill Adjustment (84) (84) (84) (4.3) for amortisation of goodwill Adjustment (48) 8 (40) 13 (27) (1.4) from post-tax longer-term investment returns to post-tax actual investment returns (after related minority interests) (note 1b) Adjustment 239 (57) 182 182 9.3 for profit on flotation of Egg and business disposals Based on 947 (284) 663 25 688 35.1 profit for the financial year after minority interests Notes 1a. Average number of shares for 2000 is 1,959m 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 £13m attributable to these minority interests. Schedule 2 Statutory basis results 2000 1999 2000 1999 US operations US $m US $m £m £m Jackson National Life US GAAP operating 672 661 443 408 income (excluding realised gains and losses) (note 2a) Cumulative effect of change in - 28 - 17 accounting policy on guarantee fund assessments (and related amortisation of acquisition costs) Averaged realised gains (Schedule 4) 23 52 16 32 UK basis operating result Jackson National Life (note 2b) 695 741 459 457 Broker dealer and fund 10 (10) 7 (6) management result Total US operations 70 73 466 451 5 1 Adjustment to reflect actual realised investment gains and losses (Schedule 4) (79) (24) (52) (15) Amortisation of goodwill (2) (1) Profit before tax 624 707 413 436 Exchange rate 1.52 1.62 Notes 2a. Jackson National Life 2000 Segmental result: result for UK Published Minority reporting accounts interests purposes US$m US$m US$m US GAAP operating income 682 (10) 672 Realised investment losses (121) 50 (71) Related amortisation of 15 15 acquisition costs Amortisation of goodwill (2) (2) Pre-tax income before 574 40 614 minority interests (note 2b) Minority interests (note 2c) 40 (40) 0 Pre-tax income after minority interests 614 0 614 2b. UK basis of presentation of Jackson National Life results: Operating result for UK reporting purposes Excluding 672 investment gains and losses Averaged 23 realised gains (net of related change to amortisation of acquisition costs) 695 Adjustment to reflect actual (79) realised investment gains and losses Amortisation of goodwill (2) 614 2c. Minority interests: The minority interests reflect the share of income and realised losses attributable to investors other than Jackson National Life in two investment funds. The results of the funds have been consolidated in the published accounts of both Jackson National Life and the Prudential Group. The minority stakes in the two funds are held by a subsidiary of the PAC life fund and external investors. For UK reporting purposes the segmental results of Jackson National Life, the PAC life fund and external investors reflect their proportionate interests in the results of the two investment funds. Schedule 3 Statutory basis results Short-term fluctuations in investment returns - 2000 £m 1999 £m summary Long-term business Jackson National Life (52) (15) (schedule 4) UK non-life long-term 1 (2) Asia (2) 2 Share of investment return of US managed (13) - investment funds consolidated into Group results that is attributable to external investors General business and shareholders Gain on sale post 30 24 - June 2000 of residual stake in St James's Place Capital plc (formerly an associate holding) Other (schedule 4) (6) 43 Total (48) 28 MORE TO FOLLOW

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