Interim Results
Prudential PLC
27 July 2000
2000 INTERIM RESULTS
- Record insurance and investment sales of £7 billion
- New business achieved profits up 15% to £317 million
- Statutory operating profit up 14% to £425 million
- Dividend increases 6.5% to 8.2 pence per share
- Successful listing on New York Stock Exchange and Initial Public Offering
of Egg
- Prudential to run TUC stakeholder pension scheme - access to 5.5 million
eligible trade union members
Commenting on Prudential's 2000 interim results, Jonathan Bloomer, group chief
executive of Prudential plc, said:
'I am pleased with our achievements in the first half of the year. In
particular, our successful listing in New York and the initial public offering
of a minority stake in Egg.
In the US, Jackson continues to drive forward its strategy of broadening its
product range and distribution reach. This has resulted in another strong
performance with record sales in the first half of the year.
In the UK, we are delighted that the Trades Union Congress (TUC) has chosen
Prudential to run its Stakeholder pensions scheme which gives us access to
five and a half million eligible trade union members. The TUC appointment
demonstrates the strength of our stakeholder proposition.
Our Asian operations have had another highly impressive six months with an
almost three-fold increase in new business.
We have built a powerful multi-brand, multi-distribution business model in the
international retail financial services markets that is well placed to face
the challenges ahead and positioned to deliver long-term out-performance.'
For further information please contact:
Media: Analysts:
Jeremy Reynolds + 44 20 7548 3721 Rebecca Burrows +44 20 7548 3537
Tina Christou + 44 20 7458 3719
Stuart Blackmore + 44 20 7548 3520
Notes to Editors:
A presentation to analysts will take place at 10.00 am at Laurence Pountney
Hill, London EC4R 0HH. A webcast of the presentation and the presentation
slides will be available on the group's website, www.prudential.co.uk.
Photographs are available at www.newcast.co.uk.
PRUDENTIAL PLC 2000 UNAUDITED INTERIM RESULTS
Half year
Ended 30 June Full year
Results Summary 2000 £m 1999 £m 1999 £m
Statutory operating profit based on longer-term
investment returns before amortisation of goodwill
Retail Insurance Operations 253 252 515
M&G 69 27 87
Egg (81) (69) (150)
UK operations 241 210 452
US operations 230 219 451
Prudential Asia 9 7 15
Prudential Europe 0 3 6
Other income and expenditure (55) (12) (78)
Re-engineering costs - (55) (70)
Operating profit before amortisation of goodwill 425 372 776
Amortisation of goodwill (41) (14) (54)
Short-term fluctuations in investment returns 17 11 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) 640 369 750
Earnings per share
Based on operating profit after tax before
amortisation of goodwill 15.7p 14.0p 29.1p
Based on profit after tax - basic 24.5p 14.0p 27.8p
Based on profit after tax - diluted 24.4p 13.9p 27.7p
Dividend per share 8.2p 7.7p 23.0p
Achieved profits basis shareholders' funds £8.9bn £8.2bn £8.3bn
Insurance and investment funds under management £156bn £157bn £170bn
Banking funds under management £7.7bn £7.4bn £8.1bn
Profit before tax includes actual investment returns. The Company believes
that operating profit, which is based on longer-term investment returns,
before amortisation of goodwill, better reflects the Group's underlying
performance.
An abridged statutory profit and loss account is set out on page 6.
Supplementary achieved profits basis results are shown on pages 8 to 11.
The dividend will be paid on 30 November 2000 to shareholders on the register
at the close of business on 22 September 2000.
A scrip dividend alternative will be offered to shareholders.
GROUP CHIEF EXECUTIVE'S REVIEW
GROUP OVERVIEW
In the first half of 2000 Prudential has delivered strong financial
performance and a series of significant corporate events which demonstrate our
commitment to increasing the breadth and depth of our business and to
delivering superior returns to our shareholders.
With the scale of our operations in the UK, the United States and Asia, we are
a leading international retail financial services group. This position has
been reinforced by our listing, in June, on the New York Stock Exchange.
Also in June, we successfully completed an Initial Public Offering of Egg on
the London Stock Exchange. Despite the difficult market conditions prevailing
at the time, there was significant interest and support both from investors
and customers. Egg's management team is now in a strong position to accelerate
Egg's growth and to drive the business forward.
The overall strength of the business is demonstrated by our group-wide sales
in the first half of the year with a record inflow of new insurance and
investment funds of £7.1 billion, some 21 per cent higher than the same period
last year. Particularly strong performances have come from Jackson National
Life, our US business, where sales have increased by 33 per cent to £2.7
billion and in Asia, where sales have almost trebled to £905 million. Over
half of our sales now come from outside the UK.
The modified statutory basis result shows operating profit before amortisation
of goodwill of £425 million, 14 per cent higher than 1999. Underlying profits,
excluding our investment in Egg and the UK re-engineering costs of £55 million
reported last year, increased by 2 per cent to £506 million.
Statutory profit before tax has risen 73 per cent to £640 million which
includes £150 million arising from the sale of part of our stake in St.
James's Place Capital and £119 million in respect of the sale of a minority
stake in Egg.
UK INSURANCE OPERATIONS
The UK market continues to be affected by changing consumer preferences and
further changes in legislation, leading to a shift in product mix. The
introduction of Stakeholder Pensions in April 2001 is accelerating the trend
towards high volume, low margin products. To operate successfully in this
environment, a company must demonstrate both scale and efficiency and the
ability to invest in changing its business model to attack the new market. We
are doing just that.
In difficult market conditions, we continue to restructure our UK business to
increase cost effectiveness and to equip us to operate competitively in a low
margin environment. This drive for efficiency will continue through 2000,
building on the increases in productivity of the direct sales force delivered
over the past eighteen months. Last year we announced plans to reduce
headcount by 5,000 over three years, of which a reduction of some 4,000 has
already been achieved.
We are continuing our discussions with the FSA regarding the funds in the
inherited estate. We do not expect any resolution or announcement being made
in the short term.
Stakeholder Pensions represent a huge opportunity and our Group Pensions
business continues to develop its IT platform and distribution model in
preparation for this market. We have successfully tested a new customer
distribution and administration system with a major client, the UK Atomic
Energy Authority. This new proposition provides high quality information and
education delivered through a combination of e-commerce and traditional
channels, supported by a workplace communications infrastructure.
Our significant experience in providing group pensions and working with
affinity groups has already led to success in the form of our agreement with
the TUC to become the preferred supplier of Stakeholder Pensions to the TUC's
member unions. This gives us the opportunity to provide Stakeholder Pensions
to some 5.5 million eligible union members and demonstrates that we will be a
leading player in this market.
Overall, sales by our UK insurance and investment operations in the first half
of 2000 were in line with the prior year at £3.5 billion, principally
reflecting a continued strong performance in the IFA channel and the impact
of six months' investment sales by M&G. Despite increasingly competitive
pricing in the IFA channel, sales by our IFA operations were down only
marginally on the exceptional volumes achieved in 1999. Our market leading
with profits bond, Prudence Bond, has maintained its share of the market,
despite a fall in the overall size of the market.
Sales volumes from our Prudential Retail distribution channel reflect the
lower sales force headcount as we continue to build a new model for our retail
business by removing the weakest performers and driving up individual
productivity. Sales in the first half of 2000 were 25 per cent down on last
year, despite average headcount in the period being almost 40 per cent lower
than in the preceding period. In line with our expectations of lower long-term
investment returns, we continue to anticipate a reduction in bonus rates which
will impact on our UK long-term business results.
Profit from our general insurance business has grown by 9 per cent reflecting
improved operating cost ratios. We have continued to develop our Retail
Financial Services website, and are one of the first UK insurers to provide
online transactional capability for home and motor insurance quotes and sales.
We joined with Vodafone to enable customers to access this through WAP phones,
the first insurer to do so in the UK.
M&G
Over the last year, we have restructured our European fund management
businesses under one investment brand, M&G. The acquisition of M&G in 1999,
its integration with PPM and the sale of part of the institutional business,
have resulted in a significantly different investment management focus. M&G is
now able to concentrate on its core strengths in retail, equity and fixed
income and pooled funds.
Our retail fund management business continues to make encouraging progress
during 2000. Equity product sales have grown substantially and we have
launched a number of new funds, including the Global Technology and Innovator
funds. These new product launches have met with a positive response from IFAs
and customers.
M&G also continues to pursue innovative technological solutions. As we stated
at the time of the M&G acquisition, we are making a significant investment in
our unit trust administration platform to improve customer service quality,
response times and flexibility. In June, we announced our participation in
Consolidated Funds Limited (CFL), a joint venture between M&G and three other
leading investment houses to provide an exclusively IFA-focused funds
supermarket. CFL should launch its first products later in the year.
EGG
The first six months of 2000 have been a busy period for Egg, our internet
banking operation, culminating in the successful public offering of a 20 per
cent stake in June 2000. Egg has continued to develop new products and
services, launching its investment supermarket in March 2000, announcing an
exciting partnership deal with Boots, and continually adding functionality to
the Egg web site. Egg has made significant investment in its IT capability
and in ensuring a high quality experience for its customers. We believe that
the platforms supporting Egg's web site are now amongst the most sophisticated
and reliable in the UK.
Results for the six months to 30 June 2000 showed a loss of £81 million. Egg's
banking business continues to grow rapidly, with Egg Card the major customer
acquisition vehicle. Egg's customer base grew by 311,000 in the first six
months and now stands at 1.1 million customers.
The mutual fund supermarket of Egg Invest has approximately £22 million in
funds under administration at 30 June 2000 on behalf of over 4,500 customers
and we recently added a share dealing service.
Egg has entered into an investment agreement to purchase a 37.5 per cent stake
in IFonline, a business-to-business, on-line mortgage transaction processing
service for financial intermediaries and mortgage product providers. It
intends to use IFonline's platform to facilitate our entry into mortgage
intermediation later this year.
Looking ahead, Egg has been piloting WAP services since April and plans to
roll out a full service to customers in August. It has also signed a deal
with BT Cellnet to provide free WAP phones to all of Egg's customers.
Egg has already announced its intention to develop a current account as well
as the 'Egg Wallet' for on-line shopping customers. Next month Egg intends to
launch Egg Insure, an on-line general insurance supermarket, which will offer
standardised insurance products at competitive prices from a range of leading
insurance providers. It will be launched initially with motor insurance,
followed over the following months by home and travel insurance.
US OPERATIONS
In the United States, Jackson National Life continues to drive forward our
strategy of broadening our product range and distribution reach with the self-
financed acquisitions of Highland Bancorp and IFC Holdings. Financial
performance has also been strong with record single premium annuity sales
increasing 68 per cent to £1.8 billion and new business achieved profits up
£38 million to £134 million.
Jackson's after-tax return on US capital employed for the first half is 14 per
cent, slightly below our longer-term target rate of 15 per cent. This is
consistent with our expectations and, looking to the full year, we expect an
overall return in line with the 15 per cent target.
Sales of variable annuities increased 79 per cent to in excess of £1 billion
attracting more than 1,300 new variable annuity producers and making Jackson
the fifth largest seller of variable annuities in the independent broker-
dealer market. Fixed annuity sales also demonstrated significant growth,
rising 69 per cent to £528 million, and Jackson remains the largest provider
of equity-linked index annuities with sales in the half year of £245 million.
This year has seen the rapid growth of Jackson's affiliate broker-dealer
network, National Planning Corporation which, together with IFC Holdings, will
create the fifth largest independent broker-dealer in the United States.
National Planning Corporation is also at the forefront of technological
innovation and has developed an industry-leading e-commerce platform to
enhance significantly its relationships with producers.
Jackson continues to make progress in developing its product range and the
acquisition of three First Fidelity branches and Highland Bancorp will give
Jackson's banking operation increased earnings and the infrastructure to
support the sale of banking related products through insurance distribution
channels.
ASIAN OPERATIONS
In an impressive six months our Asian operations have almost trebled new
business volumes with total premiums of £905 million and statutory profit
before tax up 29 per cent at £9 million. New business achieved profits rose 65
per cent to £56 million.
The large increase in sales has been due in part to the inclusion of
businesses in Taiwan and Vietnam which, together, contributed £33 million over
the six months. In Vietnam we are now the leading private sector life
insurance company after only six months in operation.
Sales of single premium insurance products have shown remarkable growth,
almost doubling to £123 million due principally to sales of the PruInvestor
Bond in Singapore.
In India our sales of mutual funds have trebled to £700 million making
Prudential ICICI, our asset management company in India, the number one
private mutual fund provider. Net mutual fund sales in the period were £264
million and, at 30 June, funds under management were £628 million. Prudential
ICICI also launched the first financial web site to enable e-commerce for both
resident and non-resident Indians.
In Malaysia we have rolled out our bancassurance channel with Standard
Chartered Bank following the successful launch of this partnership in Hong
Kong and Singapore last year. Our joint venture with Bank of China in Hong
Kong, targeted at the large Mandatory Provident Funds market, has shown
encouraging results in line with our aim of being one of the market leaders.
A series of high profile marketing initiatives in Singapore includes an
innovative loyalty card, the Prudential Dreams Card, which earns holders
bonus credits which can be used for a variety of purchases, including
insurance premiums. Motorola's latest WAP phone comes with a subscription to
the Dreams Card, making Prudential the first insurer in Singapore to provide
its customers with WAP phone services, including access to policy details and
a complete directory of merchant outlets.
Our preparations for entering two of the largest life markets in Asia, China
and India, are well under way. Our 50:50 partnership with China International
Trust and Investment Corporation (CITIC) is the first Sino-British life
insurance operation in China. Subject to regulatory approval, the new joint
venture aims to launch its first operations in Guangzhou in the third quarter
of this year. We also plan to launch our Indian life insurance operation early
in 2001 in partnership with the Industrial Credit and Investment Corporation
of India (ICICI).
EUROPEAN OPERATIONS
In Germany, the joint venture agreement with Signal Iduna announced in
November last year has now been implemented and the first sales of the long
term care bond were made by the Signal Iduna sales force at the beginning of
June. We intend to begin distributing unit trust products through our German
broker sales force as soon as operational and regulatory issues are resolved.
In France, we have reached agreement in principle for the provision of the
long-term care bond to CNP Assurances for distribution through two of its
networks. Discussions with other potential distributors of Prudential
products in France are progressing well and we expect to be able to announce
an additional distribution agreement once French regulatory approval for our
French branch has been received. The establishment of our branch in Paris has
been approved by the FSA and is currently with the French regulatory
authorities. Subject to regulatory approval, we expect to be selling products
through the new branch in the last quarter of this year.
We have invested some £4 million of European development expenses in the first
half of 2000. We anticipate further investment in the second half of the
year.
DIVIDEND
The Board has increased the interim dividend by 6.5 per cent to 8.2p per
share.
DRIVING THE BUSINESS FORWARD
We have scale operations in our chosen markets which have attractive
demographics and excellent long-term growth prospects. We are seeing
tremendous change in all of our markets. This brings with it significant
opportunities and, as a major international business, we are focused on
anticipating and managing that change and leading the way in rapidly growing
markets.
We are actively leveraging our brand, our financial strength and our
distribution capabilities to ensure that we make the most of our opportunities
with the specific aim of delivering superior investment returns to our
shareholders.
SEGMENTAL ANALYSIS
Half year ended 30 June
Analysis of new business Analysis of gross
premiums by product premiums written
distributor and operating
profit by product
provider
Operating profit
based on longer-term
Gross investment returns
premiums before amortisation
Single Regular written of goodwill
Results Analysis by 2000 1999 2000 1999 2000 1999 2000 1999
Business Area £m £m £m £m £m £m £m £m
UK operations
Prudential Retail
Financial Services
and Annuities 945 1,271 53 81 1,756 1,856 187 196
Retail IFA 1,144 1,285 50 62 1,579 1,744 50 41
Group Pensions 407 442 34 28 624 688 16 15
Retail Insurance
Operations 2,496 2,998 137 171 3,959 4,288 253 252
M&G 646 158 10 4 868 176 69 27
Egg - - - - - - (81) (69)
Total 3,142 3,156 147 175 4,827 4,464 241 210
US operations
Jackson National Life 2,736 2,049 13 12 2,897 2,217 228 219
Broker dealer and
fund management - - - - - - 2 -
Total 2,736 2,049 13 12 2,897 2,217 230 219
Prudential Asia
Long-term business
and investment
products 823 289 82 36 1,183 491 16 14
Development expenses - - - - - - (7) (7)
Total 823 289 82 36 1,183 491 9 7
Prudential Europe
Long-term business 8 4 11 6 79 73 4 3
Development expenses - - - - - - (4) -
Total 8 4 11 6 79 73 0 3
Other income and expenditure
Investment return
and other income - - - - - - 42 70
Interest payable - - - - - - (76) (63)
Corporate expenditure - - - - - - (21) (19)
Total - - - - - - (55) (12)
Re-engineering costs - - - - - - - (55)
Group total 6,709 5,498 253 229 8,986 7,245 425 372
Results Analysis by Activity
Long-term business 5,330 5,085 233 220 7,391 6,655 468 455
Investment products
and management 1,379 413 20 9 1,430 429 58 21
General business - - - - 165 161 35 32
Banking - - - - - - (81) (69)
Other income and
expenditure - - - - - - (55) (12)
Re-engineering costs - - - - - - - (55)
Group total 6,709 5,498 253 229 8,986 7,245 425 372
HOLDING COMPANY FUNDS STATEMENT
Half year
Ended 30 June Full year
2000 £m 1999 £m 1999 £m
Operating profit after tax before
amortisation of goodwill 306 272 567
Dividends (162) (150) (449)
Reinvested in businesses (161) (159) (278)
Funds available to holding company (17) (37) (160)
New investment in businesses (60) (2,202) (2,320)
Capital repatriated from businesses 20 - 310
Sale of holding in Egg 90 - -
Sale of holding in associate company 83 - -
New share capital subscribed 28 20 34
Timing differences and other items (170) (60) (132)
Holding company net cash movement (26) (2,279) (2,268)
MOVEMENT IN NET CASH BALANCES
Half year
Ended 30 June Full year
2000 £m 1999 £m 1999 £m
Holding company cash less shareholders'
borrowings at beginning of period (1,837) 453 453
Holding company net cash movement (as above) (26) (2,279) (2,268)
Exchange translation losses (32) (40) (22)
Holding company cash less shareholders'
borrowings at end of period (1,895) (1,866) (1,837)
Represented by:
Holding company cash 94 135 78
Borrowings - Holding company (1,824) (1,842) (1,760)
- Jackson National Life (165) (159) (155)
(1,895) (1,866) (1,837)
MOVEMENT IN SHAREHOLDERS' CAPITAL AND RESERVES
Half year
Ended 30 June Full year
2000 £m 1999 £m 1999 £m
Profit for the period 478 272 542
Exchange movements 121 89 48
Goodwill on disposal of associate company 90 - -
New share capital subscribed 28 20 34
Dividends (162) (150) (449)
Net movement in shareholders' capital
and reserves 555 231 175
Shareholders' capital and reserves at the
beginning of period 3,424 3,249 3,249
Shareholders' capital and reserves at end
of period 3,979 3,480 3,424
ABRIDGED STATUTORY PROFIT AND LOSS ACCOUNT
Half year
Ended 30 June Full year
Results summary 2000 £m 1999 £m 1999 £m
General business technical result 35 32 61
Long-term business technical result 468 455 943
Investment products and management 58 21 70
Banking (81) (69) (150)
Other income and expenditure (55) (12) (78)
Re-engineering costs - (55) (70)
Amortisation of goodwill (41) (14) (54)
Operating profit based on longer-term
investment returns 384 358 722
Short-term fluctuations in investment returns 17 11 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 actual investment returns) 640 369 750
Tax (162) (97) (208)
Profit for the period 478 272 542
Dividends (162) (150) (449)
Retained profit for the period 316 122 93
Basic Earnings Per Share
Based on operating profit after tax before
amortisation of goodwill of £306m
(£272m and £567m) 15.7p 14.0p 29.1p
Adjustment for amortisation of goodwill (2.1)p (0.7)p (2.8)p
Adjustment from post-tax longer-term investment
returns to post-tax actual investment returns 0.3p 0.7p 2.3p
Adjustment for profit on business disposals
(1999 full year tax paid on prior year disposal) 10.6p - (0.8)p
Based on profit for the period
of £478m (£272m and £542m) 24.5p 14.0p 27.8p
Average number of shares 1,948m 1,949m 1,947m
Diluted Earnings Per Share
Based on profit for the period
of £478m (£272m and £542m) 24.4p 13.9p 27.7p
Average number of shares 1,958m 1,964m 1,959m
Dividend Per Share 8.2p 7.7p 23.0p
NOTES ON THE UNAUDITED RESULTS
(a) The results for the 2000 and 1999 half years are unaudited. The results
for the 2000 half year have been prepared using the same accounting policies
as were used in the 1999 statutory accounts. The results for the 1999 full
year have been derived from those accounts. The auditors have reported on the
1999 statutory accounts and the accounts 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) The long-term business profit of the UK operations has been calculated
assuming that the shareholder proportion of The Prudential Assurance Company
Limited remains at 10%. Provision has been made for possible reductions in
bonus rates arising from the fund valuation at 31 December 2000.
(c) 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 £239m. After taking into account minority interests of
£120m arising as a result of this transaction, the profit to the Group was
£119m.
(d) In March 2000 the Company announced the disposal of part of its associate
company, St James's Place Capital plc. Proceeds from the disposal amounted
to £213m. After taking into account attributable net assets of £53m and
attributable goodwill of £61m charged to reserves on acquisition, the profit
on disposal was £99m. The market value at 30 June 2000 of the Company's
remaining holding was £85m. After taking into account attributable net assets
of £26m and goodwill of £29m, the increase in market value of £30m has been
taken to short-term fluctuations in investment returns. The goodwill total of
£90m has been credited back to reserves.
(e) 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.
(f) The statutory tax charge reported on page 6 comprises £93m (1999 £32m) UK
tax and £69m (1999 £65m) overseas tax.
(g) The average number of shares for the 2000 half year has been reduced by 9
million (1999 full year 4 million) as a result of a change in treatment at the
1999 year end in respect of shares purchased under employee incentive plans.
(h) The general business operating result for the 2000 and 1999 half years
comprises:
Operating profit
Gross based on longer-term
Premiums Underwriting Investment investment
Written Result return returns
2000 1999 2000 1999 2000 1999 2000 1999
£m £m £m £m £m £m £m £m
__________________________________________________________________________
UK operations
Home 139 140 19 19 12 12 31 31
Motor 26 21 0 (2) 4 3 4 1
__________________________________________________________________________
Total 165 161 19 17 16 15 35 32
__________________________________________________________________________
(i) On 5 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 £140m.
SUPPLEMENTARY ACHIEVED PROFITS BASIS RESULTS
Half year
Ended 30 June Full Year
Analysis by Business Area 2000 £m 1999 £m 1999 £m
UK operations
New business 123 143 308
Business in force 206 198 327
Total long-term business 329 341 635
General business 35 32 61
M&G 69 27 87
Egg (81) (69) (150)
Total 352 331 633
US operations
New business 134 96 198
Business in force 72 152 277
Total long-term business 206 248 475
Broker dealer and fund management 2 - (6)
Total 208 248 469
Prudential Asia
New business 56 34 90
Business in force 21 17 35
Total long-term business 77 51 125
Development expenses (7) (7) (12)
Total 70 44 113
Prudential Europe
New business 4 2 7
Business in force 5 6 6
Total long-term business 9 8 13
Development expenses (4) - -
Total 5 8 13
Other income and expenditure
Investment return and other income 48 78 111
Interest payable (76) (63) (131)
Corporate expenditure (21) (19) (40)
Total (49) (4) (60)
Re-engineering costs - (55) (70)
Total operating profit based on long-term
investment returns before amortisation of goodwill 586 572 1,098
On the achieved profits basis of reporting, group operating profit before
amortisation of goodwill and tax increased by 2.5% to £586 million in the
first half of 2000. Of this amount, the contribution from long-term
businesses was £612 million. Strong sales growth in the Group's US and Asian
operations helped profit from new business to grow by 15 per cent to £317
million. Profit from business in force fell by 19 per cent to £295 million
due to unfavourable experience variances, principally at Jackson National
Life.
UK Operations
Profit from new business for the Group's UK operations decreased by 14 per
cent to £123 million. This reflects subdued sales volumes partially offset by
improved contributions from sales of with-profit annuity products. Profit
from business in force increased by 4 per cent to £206 million.
US Operations
At Jackson National Life, profit from new business increased by 40 per cent to
£134 million, reflecting the 33 per cent increase in sales and a shift in
overall product mix from relatively less profitable stable value products
towards annuity products. However, profit from business in force halved to
£72 million following an increase in surrender rates for certain fixed annuity
products and a reduction from the high spread margins attained in 1999.
Prudential Asia
Profit in Prudential Asia before regional development costs increased by 51
per cent to £77 million as profit from new business increased by 65 per cent
to £56 million. The strong contribution from new business principally
reflects a combination of higher sales, including first time contributions
from Taiwan and Vietnam. Profit from business in force increased by £4 million
to £21 million. Development expenses remained constant at £7m.
Prudential Europe
Profit from new business at Prudential Europe doubled to £4m. Profits from
business in force of £5m were offset by development costs of £4m.
Shareholders' Funds
Total achieved profits basis shareholders' funds were £8.9 billion at 30 June
2000 (31 December 1999 £8.3 billion). The increase of 6 per cent reflects
retention of operating profit within the business together with profits
arising from the Egg flotation and business disposals. The impact of adverse
investment markets in the first six months of the year was offset by exchange
gains on the re-translation of the net assets of the Group's overseas
operations.
SUPPLEMENTARY ACHIEVED PROFITS BASIS RESULTS
Half year
Ended 30 June Full year
Results summary 2000 £m 1999 £m 1999 £m
Operating profit including investment returns
based on long-term rates of investment return
New business 317 275 603
Business in force 295 366 627
Total long-term business 612 641 1,230
General business 35 32 61
M&G 69 27 87
Banking (81) (69) (150)
Other income and expenditure (49) (4) (60)
Re-engineering costs - (55) (70)
Operating profit before amortisation of goodwill 586 572 1,098
Amortisation of goodwill (41) (14) (54)
Short-term fluctuations in investment returns (223) 340 637
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 actual investment returns) 545 898 1,681
Tax (142) (253) (519)
Profit for the period 403 645 1,162
Dividends (162) (150) (449)
Retained profit for the period 241 495 713
Basic Earnings Per Share
Based on operating profit after tax
before amortisation of goodwill of
£415m (£412m and £762m) 21.3p 21.1p 39.1p
Adjustment for amortisation of goodwill (2.1)p (0.7)p (2.8)p
Adjustment from post-tax long-term investment
returns to post tax actual investment returns (8.3)p 12.7p 24.2p
Adjustment for profit on business disposals
(1999 full year tax paid on prior year disposal) 9.8p - (0.8)p
Based on profit for the period of £403m (£645m
and £1,162m) 20.7p 33.1p 59.7p
Average number of shares 1,948m 1,949m 1,947m
Movement in Shareholders' Capital and Reserves
Profit for the period 403 645 1,162
Exchange movements 180 139 85
Goodwill on disposal of associate company 90 - -
New share capital subscribed 28 20 34
Dividends (162) (150) (449)
Net increase in shareholders' capital and reserves 539 654 832
Shareholders' capital and reserves at beginning
of period 8,342 7,510 7,510
Shareholders' capital and reserves at end of
period 8,881 8,164 8,342
SUPPLEMENTARY ACHIEVED PROFITS BASIS RESULTS
30 June 31 December
Summarised Consolidated Balance Sheet 2000 £m 1999 £m 1999 £m
Investments (non-linked):
Equities 51,936 53,409 57,693
Fixed income securities 45,051 40,122 39,833
Properties 9,290 7,970 8,763
Deposits with credit institutions 5,435 4,603 4,415
Other investments* 4,221 2,287 2,959
Total investments 115,933 108,391 113,663
Assets held to cover linked liabilities 18,720 15,483 18,643
Banking business assets 8,722 8,029 8,850
Goodwill 1,519 1,582 1,582
Holding company cash less shareholders'
borrowings:
Holding company cash and short-term investments 94 135 78
Borrowings-Holding company (1,824) (1,842) (1,760)
-Jackson National Life (165) (159) (155)
(1,895) (1,866) (1,837)
Deferred acquisitions costs 2,912 2,710 2,741
Dividend payable (162) (150) (299)
Other net liabilities (including tax) (786) (923) (343)
144,963 133,256 143,000
Long-term business technical provisions (net of
reinsurance) and fund for future appropriations:
UK operations (103,626) (97,711) (105,475)
US operations (25,099) (21,529) (21,783)
Prudential Asia (2,945) (1,997) (2,848)
Prudential Europe (570) (439) (529)
(132,240) (121,676) (130,635)
Less:shareholders' accrued interest in the
long-term business 4,902 4,684 4,918
Long-term business technical provisions (net of
reinsurance) and fund for future appropriations,
less shareholders' accrued interest (127,338) (116,992) (125,717)
Banking business liabilities (8,141) (7,633) (8,438)
General business technical provisions (469) (461) (491)
Minority interests (134) (6) (12)
Total net assets 8,881 8,164 8,342
Shareholders' Capital and Reserves
Share capital 98 98 98
Share premium 309 241 249
Statutory basis retained profit 3,572 3,141 3,077
Additional reserves on the achieved profits basis 4,902 4,684 4,918
Total shareholders' capital and reserves 8,881 8,164 8,342
Comprising:
UK operations 5,037 4,926 5,029
US operations 2,800 2,432 2,533
Prudential Asia 682 475 593
Prudential Europe 79 58 68
Other operations (including goodwill and net
shareholders' borrowings) 283 273 119
8,881 8,164 8,342
* Other investments, which mainly comprise mortgages and loans to
policyholders, are stated after deduction of amounts due by Jackson
National Life under sale and repurchase and lending agreements.
Notes on the Supplementary Achieved Profits Basis Results
(a) The results for the 2000 and 1999 half years are unaudited. The results
for the 1999 full year have been derived from the achieved profits basis
results supplement to the Company's statutory accounts. The supplement
included an unqualified review report from the auditors. The results for the
2000 half year have been prepared using the same principal assumptions as were
used for the 1999 full year.
(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
report.
Schedule 1
PRUDENTIAL PLC - 2000 NEW BUSINESS PREMIUMS - QUARTER 2
Single Regular Total
2000 1999 +/- 2000 1999 +/- 2000 1999 +/-
£m £m (%) £m £m (%) £m £m (%)
IFA Channel:
Individual Pensions 116 98 18% 22 17 29% 138 115 20%
Corporate Pensions 388 424 (8%) 42 35 20% 430 459 (6%)
Life 861 1,018 (15%) 19 39 (51%) 880 1,057 (17%)
Annuities 346 434 (20%) - - - 346 434 (20%)
Investment Products 330 107 208% 4 1 300% 334 108 209%
Sub-Total 2,041 2,081 (2%) 87 92 (5%)2,128 2,173 (2%)
DSS Rebates 51 50 2% - - - 51 50 2%
Total (Schedule 2) 2,092 2,131 (2%) 87 92 (5%)2,179 2,223 (2%)
Direct Channel (M&G):
Investment Products 318 54 489% 7 2 250% 325 56 480%
Total 318 54 489% 7 2 250% 325 56 480%
Prudential Retail:
Individual Pensions 19 22 (14%) 20 28 (29%) 39 50 (22%)
Corporate Pensions 1 4 (75%) 11 20 (45%) 12 24 (50%)
Life 273 435 (37%) 16 28 (43%) 289 463 (38%)
Annuities 238 310 (23%) - - - 238 310 (23%)
Investment Products 26 25 4% 6 5 20% 32 30 7%
Sub-Total 557 796 (30%) 53 81 (35%) 610 877 (30%)
DSS Rebates 175 175 0% - - - 175 175 0%
Total 732 971 (25%) 53 81 (35%) 785 1,052 (25%)
Total UK Operations:
Individual Pensions 135 120 13% 42 45 (7%) 177 165 7%
Corporate Pensions 389 428 (9%) 53 55 (4%) 442 483 (8%)
Life 1,134 1,453 (22%) 35 67 (48%) 1,169 1,520 (23%)
Annuities 584 744 (22%) - - - 584 744 (22%)
Investment Products 674 186 262% 17 8 113% 691 194 256%
Sub-Total 2,916 2,931 (1%) 147 175 (16%) 3,063 3,106 (1%)
DSS Rebates 226 225 0% - - - 226 225 0%
Total UK Operations 3,142 3,156 0% 147 175 (16%) 3,289 3,331 (1%)
Jackson National Life:
Fixed Annuities 528 313 69% - - - 528 313 69%
Equity Linked
Index Annuities 245 182 35% - - - 245 182 35%
Variable Annuities 1,040 581 79% - - - 1,040 581 79%
Guaranteed Investment
Contracts 168 636 (74%) - - - 168 636 (74%)
GIC-European Medium
Term Notes 755 337 124% - - - 755 337 124%
Life - - - 13 12 8% 13 12 8%
Sub-Total 2,736 2,049 34% 13 12 8% 2,749 2,061 33%
Prudential Asia:
Insurance Products 123 64 92% 82 36 128% 205 100 105%
Investment Products 700 225 211% - - - 700 225 211%
Sub-Total 823 289 185% 82 36 128% 905 325 178%
Prudential Europe:
Individual Pensions 3 2 50% 8 5 60% 11 7 57%
Investment Products 5 2 150% 3 1 200% 8 3 167%
Sub-Total 8 4 100% 11 6 83% 19 10 90%
Group Total:
Insurance Products 5,330 5,085 5% 233 220 6% 5,563 5,305 5%
Investment Products 1,379 413 234% 20 9 122% 1,399 422 232%
Group Total 6,709 5,498 22% 253 229 10% 6,962 5,727 22%
2000 1999 +/-
£m £m (%)
UK Banking Products
Egg 7,258 6,694 8%
Prudential Banking 450 717 (37%)
---------------------
Total Deposit
Liabilities 7,708 7,411 4%
---------------------
Mortgage Book 2,053 1,062 93%
Personal Loans Book 314 94 234%
Credit Card
Receivables 617 -
---------------------
Total Retail Assets 2,984 1,156 158%
---------------------
US Banking Products
Total Deposit
Liabilities 170 65 162%
Retail Assets 177 61 190%
General Insurance
UK Gross Premiums
Written 165 161 2%
Schedule 2
Single Regular Total
2000 1999 +/- 2000 1999 +/- 2000 1999 +/-
£m £m (%) £m £m (%) £m £m (%)
UK Operations
Retail IFA:
Individual Pensions 97 83 17% 21 16 31% 118 99 19%
Corporate Pensions 55 52 6% 8 7 14% 63 59 7%
Life 861 1,015 (15%) 19 39 (51%) 880 1,054 (17%)
Annuities 59 64 (8%) - - - 59 64 (8%)
Investment Products 21 21 0% 2 - 0% 23 21 10%
Sub-Total 1,093 1,235 (11%) 50 62 (19%) 1,143 1,297 (12%)
DSS Rebates 51 50 2% - - - 51 50 2%
Total 1,144 1,285 (11%) 50 62 (19%) 1,194 1,347 (11%)
Prudential Group Pensions:
Corporate Pensions 333 372 (10%) 34 28 21% 367 400 (8%)
Annuities 74 70 6% - - - 74 70 6%
Total 407 442 (8%) 34 28 21% 441 470 (6%)
Prudential Annuities:
Annuities 213 300 (29%) - - - 213 300 (29%)
M&G IFA:
Individual Pensions 19 15 27% 1 1 - 20 16 25%
Life - 3 - - - - - 3 -
Investment Products 309 86 259% 2 1 100% 311 87 257%
Total 328 104 215% 3 2 50% 331 106 212%
Total IFA Channel 2,092 2,131 (2%) 87 92 (5%) 2,179 2,223 (2%)
M&G Summary (IFA + Direct):
Individual Pensions 19 15 27% 1 1 0% 20 16 25%
Life - 3 - - - - - 3 -
Investment Products 627 140 348% 9 3 200% 636 143 345%
Total 646 158 309% 10 4 150% 656 162 305%
Notes to New Business Schedules:
1. The table above analyses UK IFA channel sales by business unit.
2. The figures for overseas operations have been calculated using average
exchange rates. The applicable rate for Jackson National Life is 1.57
(June 1999 -1.62). After adjusting for the impact of foreign currency
movements, the Group's single premium sales increased by 21%, and regular
premium sales increased by 9%.
3. The 1999 result for M&G in the above table relates to the period May to
June. The comparative result for the period January to June was £753m.
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