SOURCE: Prudential plc

July 27, 2005 02:06 ET

Prudential Plc 2005 Interim Results - Part 2

LONDON, UK -- (MARKET WIRE) -- July 27, 2005 --


Part 2



IFRS BASIS RESULTS

STATUTORY BASIS RESULTS

NOTES ON THE UNAUDITED STATUTORY BASIS RESULTS

A Basis of preparation and audit status

EU law (IAS Regulation EC 1606 / 2002) requires that the next annual
consolidated financial statements of the Group, for the year ending 31 December
2005, be prepared in accordance with International Financial Reporting Standards
(IFRS) adopted for use in the EU.

This interim financial information has been prepared on the basis of the
recognition and measurement requirements of those standards in issue that either
are endorsed by the EU and effective (or available for early adoption) at 31
December 2005 or are expected to be endorsed and effective (or available for
early adoption) at 31 December 2005, the Group's first IFRS annual reporting
date.

Compared to the UK GAAP basis of presentation, the statutory IFRS basis results
reflect the application of:

(i) Measurement and recognition changes arising from policies the Group expects
to apply on the adoption of all IFRS standards, other than IAS32 ("Financial
Instruments: Disclosure and Presentation"), IAS39 ("Financial Instruments:
Recognition and Measurement"), and IFRS4 ("Insurance Contracts"), from 1 January
2004. The half year 2005 results include the expected effect of these three
standards from 1 January 2005.

(ii) Changes to the format of the results and other presentational changes that
the Group expects to apply in its full year 2005 financial statements in so far
as they affect the summary results included in this interim report.

In addition, compared to the basis of preparing supplementary results and
earnings per share basis information previously provided under UK GAAP, a
discretionary change of policy for the basis of determining longer-term
investment returns included in operating profit based on longer-term investment
returns has been applied in respect of the policy for determining longer-term
investment returns included in operating profits. Details of the change are
described in note B.

The statutory IFRS basis results for the 2005 and 2004 half years are unaudited.
References to UK GAAP results throughout the statutory basis financial
statements contained in this report reflect the Group's previously published
results for the 2004 half year and full year. The UK GAAP basis results for the
2004 half year are unaudited. The 2004 full year UK GAAP results have been
derived from the 2004 statutory accounts. The auditors have reported on the 2004
statutory accounts and they have been delivered to the Registrar of Companies.
The auditors' report was not qualified and did not contain a statement under
section 237(2) or (3) of the Companies Act 1985.

B Significant changes of basis of preparation and accounting policy

The changes of accounting policy that arise on the conversion to IFRS basis
reporting are numerous and extend to many items of income, expenditure, assets
and liabilities. Comprehensive details of the changes were included with the
announcement of restated 2004 comparative results on 2 June 2005 and are
available at the Group's web-site at www.prudential.co.uk or on request. The
policy changes from the 2004 UK GAAP audited financial statements which are of
significance to reported results are as follows:-

2004 and 2005 results

Basis of preparation

Under UK GAAP, the Group's consolidated financial statements were previously
prepared in accordance with applicable accounting standards under UK GAAP
including being in accordance with the Statement of Recommended Practice issued
in November 2003 by the Association of British Insurers.

The statutory basis financial statements included in this report have been
prepared on the basis of policies expected to be applied under IFRS for the year
ending 31 December 2005. The 2004 full year results included in the IFRS
financial information within this report establish the comparative financial
information in summary format that the Group expects to be included in the
Group's first set of IFRS financial statements for the year ending 31 December
2005. However, due to the continuing work of the IASB and possible amendments to
the interpretative guidance, the Group's accounting policies and consequently
the information presented may change for the Group's full year 2005 results.

The date of adoption of IFRS is 1 January 2004. As at that date the Group has
applied all IASB standards on a basis prescribed or permitted by those standards
in the preparation of its consolidated financial statements.

In general, a Group is required to determine its IFRS accounting policies and
apply those retrospectively to determine its opening balance sheet under IFRS.
However, in accordance with IFRS1 ("First-time Adoption of International
Financial Reporting Standards"), the Group has applied the mandatory exceptions
and certain optional exemptions from full retrospective application of IFRS.

Significant exemptions from full retrospective application elected by the Group
are as follows:

Business combinations
The Group has elected not to apply retrospectively the provisions of IFRS3
("Business Combinations") to business combinations that occurred prior to 1
January 2004. At the date of adoption, therefore, no adjustment was made between
UK GAAP and IFRS shareholders' funds for any historical business combination.
Consistent with this approach, goodwill recognised in the opening balance sheet
at 1 January 2004 for acquired businesses that have previously been consolidated
is the same as previously shown under UK GAAP. Goodwill on newly consolidated
entities, for example on venture fund investments, is determined by reference to
net assets at transition date.

Comparatives
The Group has taken advantage of the exemption within IFRS that allows
comparative information presented in the first year of adoption of IFRS not to
comply with the standards IAS32, IAS39 and IFRS4.

Consolidation principles

Inter-company transactions

Previously, under UK GAAP, all inter-company transactions were eliminated on
consolidation except for investment management fees charged by M&G and the
Group's US and Asia fund management operations to long-term business funds.

Under IFRS, all inter-company transactions are eliminated on consolidation.
Investment management fees charged by M&G, and the Group's US and Asia fund
management operations to long-term business funds are recorded within
inter-segment revenue and expenditure as set out in note D but eliminated on
consolidation in the summary income statement.

Entities subject to consolidation

Previously, under UK GAAP, the assets and liabilities and results of entities
were consolidated where Prudential had a controlling interest under the terms of
Companies Act legislation, FRS2 ("Accounting for subsidiary undertakings") and
other relevant UK GAAP interpretations.

Entities are consolidated under IFRS if they fall within the scope of IAS27
("Consolidated and Separate Financial Statements") and the IFRIC interpretation,
SIC12 ("Consolidation - Special Purpose Entities"), of the IASB. Under IFRS,
certain investment vehicles are newly consolidated due to the requirements
differing from UK GAAP.

IFRS BASIS RESULTS

STATUTORY BASIS RESULTS

NOTES ON THE UNAUDITED STATUTORY BASIS RESULTS (CONTINUED)

B Significant changes of basis of preparation and accounting policy (continued)

2004 and 2005 results (continued)

Basis of presentation of tax charges

Under Companies Act requirements, previously, tax charges attributable to
policyholders and unallocated surplus of with-profits funds and unit linked
policies were charged, together with tax charges attributable to the long-term
business result attributable to shareholders, as an expense in the long-term
business technical account of the Company's Act format of the profit and loss
account. In the non-technical section (i.e. the summary profit and loss section
attributable to shareholders) the post-tax balance transferred from the
long-term business technical account was grossed up by attributable shareholder
tax to derive the pre-shareholder tax long-term business result. Tax charges in
the non-technical account reflected the aggregate of the shareholder tax on the
long-term business result and on the Group's other results.

Under UK Listing Authority rules, profit before tax is required to be presented.
This requirement, coupled with the fact that IFRS does not contemplate tax
charges which are attributable to policyholders and unallocated surplus of
with-profits funds and unit linked policies, necessitates the reporting of total
tax charges within the presented results. The result before all taxes i.e.
'profit before tax' is shown in the income statement as "IFRS basis income
(representing income, net of post-tax transfers to unallocated surplus of
with-profits funds, before tax attributable to policyholders and unallocated
surplus of with-profits funds, unit linked policies and shareholders)".
Separately, within the income statement "Profit from continuing operations
(including actual investment returns) before tax attributable to shareholders"
is shown after deduction of taxes attributable to policyholders and unallocated
surplus of with-profits funds and unit linked policies. Tax charges on this
measure of profit reflect the tax charges attributable to shareholders. In
determining the tax charges attributable to shareholders, the Group has applied
a methodology consistent with that previously applied under UK GAAP reflecting
the broad principles underlying the tax legislation on life assurance companies.

Pension costs

Under UK GAAP, the Group applied the provisions of SSAP24 ("Pension Costs").
Consistent with the surplus financial position of the Prudential Staff Pension
Scheme (PSPS) (which accounts for 90 per cent of the liabilities of the Group's
defined benefit pension schemes) at 5 April 2002, when the scheme was last
subject to a full triennial actuarial valuation, and the scheme rules over
minimum levels of funding, no SSAP24 basis prepayment or provision has been
reported in the Group's UK GAAP balance sheet. Additional disclosures were made
in the notes to the Group's financial statements concerning the Group's UK
defined benefit schemes, applying the methodology prescribed by FRS17
("Retirement Benefits").

Under IAS19 ("Employee Benefits") the impact of the surplus or deficit of
defined benefit pension schemes on the consolidated net assets of the Group is
determined by the difference between the market value of assets held within the
schemes and the net present value of projected future cash flows based on
accrued liabilities. The net present value is determined by applying a discount
rate based on the yield at the balance sheet date on high quality corporate
bonds.

The deficits on the Group's defined benefit pension schemes are apportioned
between shareholders' equity and unallocated surplus of the PAC with-profits
fund based on the weighted cumulative activity attaching to the contributions
paid into the schemes in the past. For the PSPS scheme it is currently estimated
that 80 per cent of the deficit is attributable to the PAC with-profits fund and
20 per cent to shareholder backed operations.

The IAS income statement charge for pension costs comprises two items, namely

(a) The aggregate of the actuarially determined service cost of the currently
employed personnel, the unwind of discount on liabilities at the start of the
period, less the expected investment return on the scheme assets at the start of
the reporting period, and
(b) Actuarial gains and losses. These gains and losses arise from changes in
assumptions, the difference between actual and expected investment return on the
scheme assets, and experience gains and losses on liabilities.

Goodwill

Under UK GAAP, with effect from 1 January 1998, goodwill arising from
acquisitions was reflected as an asset on the balance sheet and amortised
through the consolidated profit and loss account on a straight line basis over
its estimated useful life, not exceeding 20 years. Prior to 1 January 1998,
goodwill relating to acquisitions was charged directly to shareholders' funds.
As permitted under the transitional arrangements of FRS10, ("Goodwill and
Intangible Assets"), amounts previously charged to shareholders' funds were not
reinstated as assets in the UK GAAP balance sheet.

Under IFRS, the goodwill balance at 1 January 2004 reflects the carrying value
of UK GAAP goodwill for previously consolidated entities at that date on the
basis described above, as well as goodwill on certain newly consolidated
entities. Under IFRS, goodwill is no longer amortised. However, impairment
testing is required annually and on adoption. In addition, as prescribed by
IFRS1 ("First-time Adoption of International Financial Reporting Standards"),
goodwill previously charged to shareholders' funds on transition is not
transferred to the income statement upon disposal of the relevant entity. For
half year 2005 an impairment charge in respect of goodwill attaching to the
Japan Life Insurance business was appropriate.

Share based payments

The Group offers share awards and option plans for certain key employees and a
Save As You Earn (SAYE) plan for all UK and certain overseas employees. The
arrangements for distribution to employees of shares held in trusts relating to
share award plans and for entitlement to dividends depend upon the particular
terms of each plan. Shares held in trusts relating to non-SAYE plans are
conditionally gifted to employees. Previously, under UK GAAP, compensation for
non-SAYE plans was recorded over the periods to which share awards or options
were earned based on intrinsic value. No costs were required to be recorded for
SAYE plans.

Under IFRS, share based payments are accounted for on a fair value basis. The
fair value is recognised in the income statement over the relevant vesting
period and adjusted for lapses and forfeitures with the number of shares
expected to lapse or be forfeited estimated at each balance sheet date prior to
the vesting date. The only exception is where the share based payment depends
upon vesting outcomes attaching to market based performance conditions such as
in the case of the Restricted Share Plan. Under these circumstances additional
modelling is required to take into account these market based performance
conditions which effectively estimate the number of shares expected to vest. No
subsequent adjustment is then made to the fair value charge for shares that do
not vest on account of these performance conditions not being met.


IFRS BASIS RESULTS

STATUTORY BASIS RESULTS

NOTES ON THE UNAUDITED STATUTORY BASIS RESULTS (CONTINUED)

B Significant changes of basis of preparation and accounting policy (continued)

2004 and 2005 results (continued)

Shareholders' dividends

Previously, under UK GAAP, shareholders' dividends were accrued in the period to
which they related regardless of when they were declared. Under IFRS, dividends
declared after the balance sheet date in respect of the prior reporting period
are treated as a non-adjusting event. The appropriation reflected in the
movement on capital and reserves for a half year period therefore reflects the
final dividend in respect of the prior year.

Additional significant changes for the 2005 results

Adoption of IAS32, IAS39 and IFRS4

The Group has chosen to apply the exemption within IFRS that allows comparative
information presented in the first year of adoption of IFRS not to comply with
IAS32 ("Financial Instruments: Disclosure and Presentation"), IAS39 ("Financial
Instruments: Recognition and Measurement") and IFRS4 ("Insurance Contracts").
These standards have been formally adopted on 1 January 2005. The principal
effects of adopting these standards arises in the Group' UK and Europe long-term
business contracts, JNL's fixed income securities and derivative instruments,
and Egg's banking assets, liabilities and derivatives positions.

Long-term business

On adoption of these standards, the measurement basis of assets and liabilities
of long-term business contracts is dependent upon the classification of the
contracts under IFRS4 as either "insurance" contracts, if the level of insurance
risk in the contracts is significant, or "investment" contracts, if the risk is
insignificant. Insurance contracts are permitted to be accounted for under
previously applied GAAP. The Group has chosen to apply this approach. However,
as an improvement to accounting policy, permitted by IFRS, the Group has applied
the requirements of the UK standard FRS27 ("Life Assurance") to its UK
with-profits funds as explained in note I. For those "investment" contracts with
discretionary participating features, IFRS4 also permits the continued
application of previously applied GAAP. The Group has chosen to apply this
approach.

For those "investment" contracts that do not contain discretionary participating
features, IAS39 and, where the contract includes an investment management
element, IAS18 ("Revenue") apply measurement principles to the assets and
liabilities attaching to the contract that may diverge from those previously
applied under UK GAAP. The changes primarily arise in respect of deferred
acquisition costs, deferred income reserves and provisions for future expenses
commonly called "sterling reserves".

Under UK GAAP, acquisition expenses are deferred with amortisation on a basis
commensurate with the anticipated emergence of margins under the contract. Under
IFRS, acquisition costs for investment contracts are deferred to the extent that
is appropriate to recognise an asset that represents the entity's contractual
right to benefit from providing investment management services and is amortised
as the entity recognises the related revenue. IAS18 further reduces the costs
potentially capable of deferral to incremental costs only. Deferred acquisition
costs are amortised to the income statement in line with service provision.

Deferred income provisions for front end fees and similar arrangements are
required to be established for investment management contracts under IAS18 with
amortisation over the expected life of the contract in line with service
provision. In contrast to UK GAAP, sterling reserves are not permitted to be
recognised under IFRS. An additional feature is that investment contracts are
closer in nature to a deposit style arrangement between the policyholder and the
company. Under IFRS premiums and withdrawals for these contracts are recorded
within the balance sheet directly as a movement on the policyholder liability.
After making these and other consequential changes, the IFRS income statement
reflects fee income on the contracts, expenses and taxation rather than the UK
GAAP basis revenue account.

The investment contract classification applies primarily to certain unit linked
and similar contracts in the UK Insurance Operations and Guaranteed Investment
Contracts of Jackson National Life (JNL). However, significant differences
between the timing of recognising profitability under UK GAAP and IFRS bases are
confined to the UK contracts only.

JNL fixed income securities and derivative instruments

Under IAS39, except for loans and receivables, and unless designated under the
very restrictive held to maturity classification on an asset by asset basis,
most financial assets, including derivatives, are carried in the balance sheet
at fair value. To this extent IAS39 is consistent with the basis of valuation
applied under UK GAAP for most financial assets of the Group's UK and Asian
insurance operations. On application of IAS39, movements in the fair value of
investments are recorded either in the income statement or directly to
shareholders' reserves in the balance sheet, depending upon the designation and
the impact of hedge accounting rules. Derivative instruments are carried at fair
value with value movements being recorded in the income statement. Hedge
accounting, whereby value movements on derivatives and hedged items are recorded
together in the performance statements, is permissible only if certain criteria
are met regarding the establishment of documentation and continued measurement
of hedge effectiveness.

The changes from UK GAAP to the basis applied from 1 January 2005 arising from
these valuation requirements are concentrated on the accounting for the
investments and derivatives of JNL. Previously the fixed income securities of
JNL, unless impaired, were accounted for at amortised cost with derivatives
similarly treated. On adoption of IAS39, the Group has decided to account for
JNL's fixed income securities on an "available-for-sale" (AFS) basis whereby the
fixed income securities are accounted for at fair value with movements in fair
value being recorded in the Statement of Recognised Income and Expense i.e.
directly to shareholders' reserves rather than the income statement. Value
movements for JNL's derivatives are however booked in the income statement as
required by IAS39.

The Group has decided not to seek to hedge account for the majority of JNL's
derivatives under IAS39. To do so would require a wholesale re-configuration of
JNL's derivative book into much smaller components than currently applied by JNL
through its economic hedge programme, and accompanied by an extra layer of
hedging instruments, beyond what is economically rational.

IFRS BASIS RESULTS

STATUTORY BASIS RESULTS

NOTES ON THE UNAUDITED STATUTORY BASIS RESULTS (CONTINUED)

B Significant changes of basis of preparation and accounting policy (continued)

Additional significant changes for the 2005 results (continued)

Egg

The changes of policy for Egg arising from the adoption of IAS39 arise primarily
in respect of determination of effective interest rates, impairment losses on
loans and advances to customers, carrying values of wholesale financial
instruments and equity savings products.

For credit card receivables, under UK GAAP, the carrying amount of credit card
receivables with low or zero rate interest on balance transfers are carried at
cost with interest being accrued at 0% during the incentive period and then at
the standard rate thereafter. Under IAS39, these receivables are measured on an
amortised cost basis.

For loans and advances to customers, specific and formulated provisions are
raised against non-performing loans and a general provision against the balance.
Under IAS39, an impairment loss is only recognised when there is objective
evidence that a debt is impaired.

Wholesale instruments, under UK GAAP, were previously accounted for on an
accruals cost basis. Under IAS39, certain wholesale financial instruments are
required to be measured at fair value, and depending on whether they have been
classified as fair value through the profit and loss or available-for-sale, the
changes in fair value are recognised in the income statement or in equity
respectively. The adjustments for wholesale financial instruments also include
the impact of designating some of Egg's derivatives as cash flow hedges.

Certain equity savings products contain embedded derivatives. Previously these
derivatives have been accounted for on an amortised cost basis. Under IAS39,
they are required to be fair valued.

Supplemental earnings information and discretionary non-IFRS change of policy
for longer-term investment returns

Previously, under UK GAAP, the Group used operating profit based on longer-term
investment returns before amortisation of goodwill as a supplemental measure of
its results. For the purposes of measuring operating profit, investment returns
on shareholder financed business were based on the expected longer-term rates of
return. For fixed income securities, the longer-term returns (including losses
arising on the recognition of permanent diminutions in value) were averaged over
five years for inclusion in operating profit.

Under IFRS, the Group continues to use operating profit based on longer-term
investment returns as a supplemental measure of its results, as disclosed in
note E. For the purposes of measuring operating profit, investment returns on
shareholder financed business continue to be based on the expected longer-term
rate of return. However, for fixed income securities, the five year averaging
approach described above has been replaced with a basis that more closely
reflects longer-term experience. The amount included in operating results for
longer-term capital returns comprises two components. These are a risk margin
reserve based charge for expected defaults, which is determined by reference to
the credit quality of the portfolio, and amortisation of interest related
realised gains and losses to operating results to the date when sold bonds would
have otherwise matured. This change has been applied following a comprehensive
review of the Group's accounting policies and is unrelated to the requirements
of IFRS.

Items excluded from operating profit, but included in total pre-tax profit of
continuing operations, include goodwill impairment charges, short-term
fluctuations in investment returns (i.e. actual less longer-term returns) and
actuarial gains and losses on defined benefit pension schemes. For the purposes
of distinguishing actuarial gains and losses on defined benefit pension schemes,
the component for short-term fluctuations in investment returns is determined by
reference to plan assets plus any Prudential policies held by the scheme. Total
profits are unaffected by the change of basis of determining longer-term
investment returns.

The supplemental earnings information in the statutory basis financial
statements is presented for 2005 but not for 2004 comparative results. This is
because the comparative 2004 results do not incorporate the effects of adoption
of IAS32, IAS39 and IFRS4 and are thus inconsistent with the basis of
preparation for the 2005 results. A comparison of supplemental earnings
information based on the statutory IFRS basis results for 2005 and proforma IFRS
results for 2004, which reflect the estimated effects of adoption of these three
standards on the 2004 results of the Group's insurance operations is included in
the supplementary IFRS results within this report.

IFRS BASIS RESULTS

STATUTORY BASIS RESULTS

NOTES ON THE UNAUDITED STATUTORY BASIS RESULTS (CONTINUED)

C Reconciliations of summary income statements
                                         Half Year 2004
                                        IFRS adjustments
                                     UK  Presen-   Recog-   Statu-
                                   GAAP   tation  nition,     tory
                                (note C       of measure-     IFRS
                                   (i))       UK     ment    basis
                                            GAAP      and
                                              in    other
                                            IFRS  changes
                                          format  (note C
                                         (note C    (ii))
                                            (i))
                                   GBPm     GBPm     GBPm     GBPm
Insurance contract revenues       7,397        0        0    7,397
Investment income                 2,380      987    (122)    3,245
UK fund management result            79     (79)        0        0
US broker dealer and fund           (2)        2        0        0
management result
Asia fund management result          10     (10)        0        0
UK banking result (continuing        30     (30)        0        0
operations)
Other income                          0      350      536      886
Total revenue                     9,894    1,220      414   11,528
Benefits and claims for         (8,410)      (7)    (165)  (8,582)
insurance contracts, and
movement in unallocated
surplus of with-profits funds
determined after charging
taxes borne by policyholders
and unallocated surplus of
with-profits funds and unit
linked policies
Acquisition costs and other       (901)  (1,119)    (188)  (2,208)
operating expenditure
Interest on structural                      (94)              (94)
borrowings
Amortisation of goodwill           (48)        0       48        0
(continuing operations)
Total charges                   (9,359)  (1,220)    (305) (10,884)

IFRS basis income, net of           535               109      644
post-tax transfers to
unallocated surplus of
with-profits funds, before tax
attributable to policyholders
and unallocated surplus of
with-profits funds, unit
linked policies and
shareholders
Income tax attributable to        (226)              (23)    (249)
policyholders and unallocated
surplus of with-profits funds
and unit linked policies

Profit from continuing              309                86      395
operations (including actual
investment returns) before tax
attributable to shareholders
Income tax (expense) benefit
attributable to shareholders:
   Total tax attributable to      (354)              (33)    (387)
   policyholders and
   unallocated surplus of
   with-profits funds, unit
   linked policies and
   shareholders
   Less: Income tax                 226                23      249
   attributable to
   policyholders and
   unallocated surplus of
   with-profits funds and unit
   linked policies
Income tax attributable to        (128)              (10)    (138)
shareholders
Profit from continuing              181                76      257
operations after tax
Discontinued operations (net       (18)                 1     (17)
of tax)
Profit for the period               163                77      240

Attributable to:
   Equity holders of the            156                77      233
   parent company
   Minority interest                  7                 0        7
Profit for the period               163                77      240

                                        Full Year 2004
                                       IFRS adjustments
                                    UK  Presen-   Recog-   Statu-
                                  GAAP   tation  nition,     tory
                               (note C       of measure-     IFRS
                                  (i))       UK     ment    basis
                                           GAAP      and
                                             in    other
                                           IFRS  changes
                                         format  (note C
                                        (note C    (ii))
                                           (i))
                                  GBPm     GBPm     GBPm     GBPm
Insurance contract revenues     16,099        0        0   16,099
Investment income               13,917    2,074    (249)   15,742
UK fund management result          136    (136)        0        0
US broker dealer and fund         (14)       14        0        0
management result
Asia fund management result         19     (19)        0        0
UK banking result (continuing       63     (63)        0        0
operations)
Other income                         0      760    1,266    2,026
Total revenue                   30,220    2,630    1,017   33,867
Benefits and claims for       (26,598)     (37)       51 (26,584)
insurance contracts, and
movement in unallocated
surplus of with-profits funds
determined after charging
taxes borne by policyholders
and unallocated surplus of
with-profits funds and unit
linked policies
Acquisition costs and other    (2,069)  (2,397)  (1,060)  (5,526)
operating expenditure
Interest on structural                    (196)             (196)
borrowings
Amortisation of goodwill          (94)        0       94        0
(continuing operations)
Total charges                 (28,761)  (2,630)    (915) (32,306)

IFRS basis income, net of        1,459               102    1,561
post-tax transfers to
unallocated surplus of
with-profits funds, before
tax attributable to
policyholders and unallocated
surplus of with-profits
funds, unit linked policies
and shareholders
Income tax attributable to       (701)              (10)    (711)
policyholders and unallocated
surplus of with-profits funds
and unit linked policies

Profit from continuing             758                92      850
operations (including actual
investment returns) before
tax attributable to
shareholders
Income tax (expense) benefit
attributable to shareholders:
   Total tax attributable to     (947)               (4)    (951)
   policyholders and
   unallocated surplus of
   with-profits funds, unit
   linked policies and
   shareholders
   Less: Income tax                701                10      711
   attributable to
   policyholders and
   unallocated surplus of
   with-profits funds and
   unit linked policies
Income tax attributable to       (246)                 6    (240)
shareholders
Profit from continuing             512                98      610
operations after tax
Discontinued operations (net      (94)                       (94)
of tax)
Profit for the period              418                98      516

Attributable to:
   Equity holders of the           428                89      517
   parent company
   Minority interest              (10)                 9      (1)
Profit for the period              418                98      516

Notes

C (i) UK GAAP results
The UK GAAP basis results shown above reflect those previously recorded in the
technical accounts and non-technical account of the Group's profit and loss
account under Companies Act requirements. These results are then reconfigured to
be consistent with the format expected to be applied for reporting in the
Group's 2005 full year financial statements under IFRS.

C (ii) Recognition, measurement and other changes
Changes to profit from continuing operations (including actual investment
returns) before and after tax attributable to shareholders, for Half Year 2004
and Full Year 2004 reflect the expected effects of IFRS adoption. In summary the
effects are for:

                                                       Half     Full
                                                       Year     Year
                                                       2004     2004
                                                       GBPm     GBPm
   Egg - primarily relates to charges for share           1      (2)
   based payments in respect of Egg shares
   Additional pension costs and share based             (2)      (4)
   payments costs in respect of Prudential plc
   shares not allocated by business unit
   Amortisation of goodwill not permitted under          48       94
   IFRS
   Actuarial gains and losses of defined benefit         48      (7)
   schemes recognised under IFRS
   Value movements of US investment funds newly         (9)        2
   consolidated under IFRS
   Share of profits of venture investment                 0        9
   companies and property partnerships of the PAC
   with-profits fund, newly consolidated under
   IFRS, that is attributable to external
   investors.

   Total changes before tax                              86       92

   Related tax                                         (10)        6
   Total changes after tax                               76       98

Changes to revenue, charges, and related tax of the Group's with-profits funds
principally relate to measurement differences on investments, consolidation
criteria for venture and subsidiaries, and pension cost accounting. The total
change to IFRS basis income for these changes for Half Year 2004 and Full Year
2004 after related tax adjustments was GBP160m and GBP(22)m respectively. These
amounts have been reflected by changes of an equal and opposite amount to
transfers to unallocated surplus with no net effect on shareholder results. For
Half Year 2004, GBP126m of that GBP160m change relates to pension costs due to
actuarial gains on the Group's UK defined benefit pension schemes.

A summarised explanation of the changes of accounting policies that give rise to
these adjustments is contained in note B.

IFRS BASIS RESULTS

STATUTORY BASIS RESULTS

NOTES ON THE UNAUDITED STATUTORY BASIS RESULTS (CONTINUED)

                                                      Half     Half
                                                      Year     Year
D Segment disclosure                                  2005     2004
                                                      GBPm     GBPm

Revenue
Long-term business, including revenue of PAC        17,679   10,661
venture fund and other investment subsidiaries
Banking                                                682      591
Broker dealer and fund management                      420      384
Unallocated corporate                                   67       35
Intragroup revenue eliminated on consolidation       (147)    (143)
                                                    
Total revenue per income statement                   18,701  11,528

Charges (before income tax attributable to
policyholders and unallocated surplus of
long-term insurance funds)

Long-term business, including expenditure of PAC  (16,964) (10,082)
venture fund and other investment subsidiaries
and post-tax transfers to unallocated surplus of
with-profits funds
Banking                                              (669)    (558)
Broker dealer and fund management                    (329)    (291)
Unallocated corporate                                (244)     (96)
Intragroup charges eliminated on consolidation         147      143

                                                  
Total charges per income statement                (18,059) (10,884)

Segment results - Revenue less charges
Long-term business                                     715      579
Banking                                                 13       33
Broker dealer and fund management                       91       93
Unallocated corporate                                (177)     (61)

IFRS basis income, net of post-tax transfers to        642      644
unallocated surplus of with-profits funds, before
tax attributable to policyholders and unallocated
surplus of with-profits funds, unit linked
policies, and shareholders

Income tax attributable to policyholders and         (182)    (249)
unallocated surplus of with-profits funds and
unit linked policies

Profit from continuing operations (including           460      395
actual investment returns) before tax
attributable to shareholders


E Supplementary analysis of profit from continuing operations (including actual
investment returns) before tax attributable to shareholders and related earnings
per share

Profit from continuing operations        Half       Half       Full
before tax                               Year       Year       year
                                         2005       2004       2004
                                         GBPm       GBPm       GBPm

Operating profit from continuing          469
operations based on longer-term
investment returns before exceptional
items
Goodwill impairment charge               (95)        Not        Not
Short-term fluctuations in investment      94 applicable applicable
returns on shareholder backed business
Shareholders' share of actuarial gains    (8)  (see note  (see note
and losses on defined benefit pension             E (i))     E (i))
schemes

Profit from continuing operations         460
(including actual investment returns)
before tax attributable to
shareholders

Earnings per share from continuing
operations

From operating profit based on          14.0p
longer-term investment returns after
tax and related minority interest of
GBP331m
Adjustment for goodwill impairment     (4.0)p        Not        Not
charge
Adjustment from post-tax longer-term     3.0p applicable applicable
investment returns to post-tax actual
investment returns (after related
minority interest)
Adjustment for post-tax shareholders'  (0.3)p  (see note  (see note
share of actuarial gains and losses on             E(i))     E (i))
defined benefit pension schemes
Based on profit from continuing         12.7p
operations after minority interest of
GBP299m

Note

E (i) The supplementary analysis of statutory IFRS basis results shown above has
been presented only for half year 2005. Details have not been provided for 2004
as the results would not be comparable. This is due to IAS32, IAS39 and IFRS4
being only adopted from 1 January 2005.

Additional analysis of the 2005 result, and proforma basis comparative results
for 2004 as if these standards had been applied by the Group's insurance
operations from 1 January 2004, is provided as supplementary information to
these financial statements. The analysis on those pages does not form part of
the financial statements.

IFRS BASIS RESULTS

STATUTORY BASIS RESULTS

NOTES ON THE UNAUDITED STATUTORY BASIS RESULTS (CONTINUED)

F Reconciliations of equity and balance sheets

At 1 January 2004                               Share- Minority  Total
                                              holders'
                                                equity interest equity
                                                  GBPm     GBPm   GBPm

Changes on adoption of statutory IFRS basis

Treasury shares adjustment for Prudential plc     (40)            (40)
shares held by unit trusts newly consolidated
under IFRS (note F(i))
Minority share of equity of consolidated                     32     32
venture investments companies and property
partnerships of the PAC with-profits fund
(note F(i))
Shareholders' share of deficits (net of tax)     (110)           (110)
of UK defined benefit pension schemes (note F
(ii))
Timing difference on recognition of dividend       214             214
declared after balance sheet date (note F
(iii))
Other items                                        (8)      (2)   (10)

Total                                               56       30     86

Equity at 1 January 2004
As previously published under UK GAAP            3,240      107  3,347
As restated under statutory IFRS                 3,296      137  3,433

IFRS BASIS RESULTS

STATUTORY BASIS RESULTS

NOTES ON THE UNAUDITED STATUTORY BASIS RESULTS (CONTINUED)

F Reconciliations of equity and balance sheets (continued)

At 30 June 2004                        Effect of changes on
                                      implementation of IFRS
                                   Recognition and measurement
                                             changes
                                          UK      Newly   Defined
                                        GAAP       con-   benefit
                                              solidated   pension
                                               entities   schemes
                                                  (note   accoun-
                                                  F(i))      ting
                                                            (note
                                                           F(ii))
                                        GBPm       GBPm      GBPm
Assets

Goodwill:
     Attributable to PAC                            565
     with-profits fund
     Attributable to                   1,456
     shareholders
Investments: per IFRS balance                     2,124
sheet
Investments: per UK GAAP             120,061
analysis (non-linked, linked and
banking business assets)
Other items                           42,717      1,366        56
Total assets                         164,234      4,055        56

Equity and liabilities
Equity
Attributable to shareholders of        3,320       (51)      (78)
the parent company
Minority interest                        103         70
Total equity                           3,423         19      (78)
Liabilities
Banking customer accounts: per
IFRS balance sheet
Banking business liabilities:         12,245
per UK GAAP balance sheet
Insurance liabilities:
     Contract liabilities            123,091                (115)
     (non-linked and linked
     business)
     Unallocated surplus of           12,110         28     (312)
     with-profits funds
Borrowings: per IFRS balance
sheet
     Core structural borrowings
     of shareholder financed
     operations (excluding Egg)
     Other borrowings                             1,086
     attributable to shareholder
     financed operations
     Borrowings attributable to                   1,642
     with-profits funds
Borrowings: per UK GAAP balance        4,589
sheet (subordinated liabilities,
debenture loans and other
borrowings)
Dividend payable                         109
Other non-insurance liabilities        8,667      1,280       561
Total liabilities                    160,811      4,036       134

Total equity and liabilities         164,234      4,055        56


At 30 June 2004              Effect of changes on implementation
                                           of IFRS
                             Recognition and measurement changes
                               Other    Gross-     Total    Stat-
                              recog-    ing-up      IFRS    utory
                              nition       and   changes     IFRS
                                 and     other              basis
                                mea-    format
                               sure-   changes
                                ment
                             changes
                               (note
                             F(iii))
                                GBPm      GBPm      GBPm     GBPm
Assets

Goodwill:
    Attributable to PAC                              565      565
    with-profits fund
    Attributable to               48                  48    1,504
    shareholders
Investments: per IFRS           (21)   153,046   155,149  155,149
balance sheet
Investments: per UK GAAP             (120,061) (120,061)        0
analysis (non-linked, linked
and banking business assets)
Other items                      122  (32,163)  (30,619)   12,098
Total assets                     149       822     5,082  169,316

Equity and liabilities
Equity
Attributable to shareholders     161                  32    3,352
of the parent company
Minority interest                (2)                  68      171
Total equity                     159                 100    3,523
Liabilities
Banking customer accounts:               6,699     6,699    6,699
per IFRS balance sheet
Banking business                      (12,245)  (12,245)        0
liabilities: per UK GAAP
balance sheet
Insurance liabilities:
    Contract liabilities           5               (110)  122,981
    (non-linked and linked
    business)
    Unallocated surplus of       (8)               (292)   11,818
    with-profits funds
Borrowings: per IFRS balance
sheet
    Core structural                      2,596     2,596    2,596
    borrowings of
    shareholder financed
    operations (excluding
    Egg)
    Other borrowings               9     6,156     7,251    7,251
    attributable to
    shareholder financed
    operations
    Borrowings attributable       98       109     1,849    1,849
    to with-profits funds
Borrowings: per UK GAAP                (4,589)   (4,589)        0
balance sheet (subordinated
liabilities, debenture loans
and other borrowings)
Dividend payable               (109)               (109)        0
Other non-insurance              (5)     2,096     3,932   12,599
liabilities
Total liabilities               (10)       822     4,982  165,793

Total equity and liabilities     149       822     5,082  169,316



  At 31 December 2004        Effect of changes on implementation
                                           of IFRS
                             Recognition and measurement changes
                                     UK       Newly        Defined
                                   GAAP        con-        benefit
                                          solidated        pension
                                           entities        schemes
                                              (note     accounting
                                              F(i))          (note
                                                            F(ii))
                                   GBPm        GBPm           GBPm
Assets
Goodwill:
      Attributable to PAC                       754
      with-profits fund
      Attributable to             1,367
      shareholders
Investments: per IFRS                         1,978
balance sheet
Investments: per UK GAAP        129,468
analysis (non-linked, linked
and banking business assets)
Other items                      43,741       1,477            102
Total assets                    174,576       4,209            102

Equity and liabilities
Equity
Attributable to shareholders      4,281        (30)          (117)
of the parent company
Minority interest                    71          76
Total equity                      4,352          46          (117)
Liabilities
Banking customer accounts:
per IFRS balance sheet
Banking business                 11,216
liabilities: per UK GAAP
balance sheet
Insurance liabilities:
      Contract liabilities      129,101                      (125)
      (non-linked and linked
      business)
      Unallocated surplus of     16,686           6          (472)
      with-profits funds
Borrowings: per IFRS balance
sheet
      Core structural
      borrowings of
      shareholder financed
      operations (excluding
      Egg)
      Other borrowings                          972
      attributable to
      shareholder financed
      operations
      Borrowings                              1,828
      attributable to
      with-profits funds
Borrowings: per UK GAAP           4,673
balance sheet (subordinated
liabilities, debenture loans
and other borrowings)
Dividend payable                    253
Other non-insurance               8,295       1,357            816
liabilities
Total liabilities               170,224       4,163            219

Total equity and liabilities    174,576       4,209            102

At 31 December 2004          Effect of changes on implementation
                                           of IFRS
                             Recognition and measurement changes
                                Other    Gross-     Total   Stat-
                               recog-    ing-up      IFRS   utory
                               nition       and   changes    IFRS
                                  and     other             basis
                                 mea-    format
                                sure-   changes
                                 ment
                              changes
                                (note
                              F(iii))
                                 GBPm      GBPm      GBPm    GBPm
Assets
Goodwill:
    Attributable to PAC                               754     754
    with-profits fund
    Attributable to                94                  94   1,461
    shareholders
Investments: per IFRS              35   162,459   164,472 164,472
balance sheet
Investments: per UK GAAP              (129,468) (129,468)       0
analysis (non-linked,
linked and banking business
assets)
Other items                        50  (32,155)  (30,526)  13,215
Total assets                      179       836     5,326 179,902

Equity and liabilities
Equity
Attributable to                   356                 209   4,490
shareholders of the parent
company
Minority interest                 (2)                  74     145
Total equity                      354                 283   4,635
Liabilities
Banking customer accounts:                6,607     6,607   6,607
per IFRS balance sheet
Banking business                       (11,216)  (11,216)       0
liabilities: per UK GAAP
balance sheet
Insurance liabilities:
    Contract liabilities            4         1     (120) 128,981
    (non-linked and linked
    business)
    Unallocated surplus of       (34)               (500)  16,186
    with-profits funds
Borrowings: per IFRS
balance sheet
    Core structural                       2,797     2,797   2,797
    borrowings of
    shareholder financed
    operations (excluding
    Egg)
    Other borrowings                9     5,891     6,872   6,872
    attributable to
    shareholder financed
    operations
    Borrowings attributable       105       144     2,077   2,077
    to with-profits funds
Borrowings: per UK GAAP                 (4,673)   (4,673)       0
balance sheet (subordinated
liabilities, debenture
loans and other borrowings)
Dividend payable                (253)               (253)       0
Other non-insurance               (6)     1,285     3,452  11,747
liabilities
Total liabilities               (175)       836     5,043 175,267

Total equity and                  179       836     5,326 179,902
liabilities

IFRS BASIS RESULTS

STATUTORY BASIS RESULTS

NOTES ON THE UNAUDITED STATUTORY BASIS RESULTS (CONTINUED)

F Reconciliations of equity and balance sheets (continued)

Notes

F(i) Newly consolidated entities

Under IAS27 and SIC12, the Group is required to consolidate the assets and
liabilities of certain entities which have previously not been consolidated. The
principal change to shareholders' equity arises from an adjustment in respect of
Prudential plc shares held by unit trusts that are newly consolidated. These
shares are accounted for as treasury stock and the cost of purchase of GBP44m,
GBP44m and GBP29m is deducted from shareholders' equity at 1 January 2004, 30
June 2004 and 31 December 2004 respectively. The change to the minority share of
equity reflects external parties' interest in consolidated venture investment
companies and property partnerships of the PAC with-profits fund. Measurement
changes to the carrying value of these companies that are attributable to the
PAC with-profits fund share are reflected in unallocated surplus.

F(ii) Defined benefit pension schemes accounting

Provisions for deficits on the Group's defined benefit pension schemes are
absorbed by the unallocated surplus of the PAC with-profits fund and
shareholders' funds on a basis that reflects the weighted cumulative activity
attaching to the contributions paid in the past, and after deduction of deferred
tax. The M&G scheme held Prudential Group's Insurance policies as scheme assets
of GBP115m at 30 June 2004 and GBP125m at 31 December 2004. The asset and
liability are eliminated on consolidation.

F(iii) Other recognition and measurement changes

Under IFRS, dividends declared after the balance sheet date are not recognised
as a liability. In addition, goodwill under IFRS represents the balance sheet
carrying value at adoption date as discussed in note B. Adjustments in the table
are to write-back amortisation previously charged under UK GAAP from 1 January
2004.


IFRS BASIS RESULTS

STATUTORY BASIS RESULTS

NOTES ON THE UNAUDITED STATUTORY BASIS RESULTS (CONTINUED)

G Effect of adoption of IAS32, IAS39, and IFRS4 at 1 January 2005

                                   Effect of adoption of IAS32,
                                          IAS39 and IFRS4
                                    Recognition and measurement
                                              changes
                                        Stat-         UK     Jack-
                                        utory        and       Son
                                         IFRS     Europe  National
                                        basis     insur-      Life
                                           at       ance     (note
                                           31      oper-    G(ii))
                                          Dec     ations
                                         2004      (note
                                        (note      G(i))
                                           F)
                                         GBPm       GBPm      GBPm
Assets
Goodwill:
   Attributable to PAC                    754
   with-profits fund
   Attributable to shareholders         1,461

Deferred acquisition costs:
   PAC with-profits fund (note            798      (798)
   I)
   Other operations                     2,122         43     (456)
Investments                           164,472      (145)     1,262
Other assets (excluding deferred       10,295         26        66
acquisition costs and goodwill)
Total assets                          179,902      (874)       872

Equity and liabilities
Equity
   Attributable to shareholders         4,490       (12)       273
   of the parent company
   Minority interest                      145
   Total equity                         4,635       (12)       273
Liabilities
Banking customer accounts               6,607
Insurance liabilities:
   Contract liabilities               128,981      7,020      (51)
   (non-linked and linked
   business)
   Unallocated surplus of              16,186    (7,840)
   with-profits funds
Borrowings:
   Core structural borrowings of        2,797
   shareholder financed
   operations (excluding Egg)
   Other borrowings attributable        6,872                  207
   to shareholder financed
   operations
   Borrowings attributable to           2,077
   with-profits funds
Other non-insurance liabilities:
   Deferred tax liabilities             2,244       (91)       218
   Other                                9,503         49       225
Total liabilities                     175,267      (862)       599

Total equity and liabilities          179,902      (874)       872

                           Effect of adoption of IAS32, IAS39 and
                                            IFRS4
                             Recognition and measurement changes
                                 Bank-     Gross-   Total    Stat-
                                   ing     ing-up  effect    utory
                                   and        and             IFRS
                                 non-i      other            basis
                                 nsur-     format               at
                                  ance    changes            1 Jan
                                 oper-                        2005
                                ations
                                 (note
                               G(iii))
                                  GBPm       GBPm    GBPm     GBPm
Assets
Goodwill:
   Attributable to PAC                                         754
   with-profits fund
   Attributable to                                           1,461
   shareholders

Deferred acquisition
costs:
   PAC with-profits fund                            (798)        0
   (note I)
   Other operations                                 (413)    1,709
Investments                        145         55   1,317  165,789
Other assets (excluding          (118)               (26)   10,269
deferred acquisition costs
and goodwill)
Total assets                        27         55      80  179,982

Equity and liabilities
Equity
   Attributable to                (25)                236    4,726
   shareholders of the
   parent company
   Minority interest               (3)                (3)      142
   Total equity                   (28)                233    4,868
Liabilities
Banking customer accounts           84                 84    6,691
Insurance liabilities:
   Contract liabilities                             6,969  135,950
   (non-linked and linked
   business)
   Unallocated surplus of                         (7,840)    8,346
   with-profits funds
Borrowings:
   Core structural                                           2,797
   borrowings of
   shareholder financed
   operations (excluding
   Egg)
   Other borrowings                 62                269    7,141
   attributable to
   shareholder financed
   operations
   Borrowings attributable                                   2,077
   to with-profits funds
Other non-insurance
liabilities:
   Deferred tax                    (6)                121    2,365
   liabilities
   Other                          (85)         55     244    9,747
Total liabilities                   55         55   (153)  175,114

Total equity and                    27         55      80  179,982
liabilities


Notes

A summary explanation of the requirements of IAS32, IAS39 and IFRS4 and basis of
application by the Group is contained in note B. The changes shown above reflect
the impact of re-measurement for :

G (i) UK and Europe Insurance Operations

(a) Certain unit linked and similar contracts that do not contain significant
insurance risk and are thus categorised as investment contracts under IFRS4. The
net of tax shareholder impact is to reduce shareholders' equity at 1 January
2005 by GBP8m

(b) Changes to insurance assets and liabilities of the PAC with-profits fund
following the improvement of accounting policy applied on adoption of IFRS4. The
changes correspond to those applicable if the Group had adopted FRS27 under UK
GAAP. As a result of the policy improvement, liabilities, deferred acquisition
costs, deferred tax and unallocated surplus of UK regulated with-profits fund
are remeasured as described in Note I. At 1 January 2005, the unallocated
surplus is subject to a transition adjustement of GBP(7.8)bn. Shareholders'
equity is not affected by this change.

The unallocated surplus of GBP8.3bn at 1 January 2005 post IAS39 and IFRS4
adoption, comprises GBP8.0bn for the PAC with-profits fund and GBP0.3bn for
Asian subsidiaries. The GBP8.0bn for the PAC with-profits fund represents:

                                                          GBPbn
Regulatory basis realistic surplus of with-profits          6.0
sub fund and SAIF
Add back: Regulatory basis provision for future             2.9
shareholder transfers
                                                            8.9
Value of non-participating business not explicitly        (0.9)
allocated to asset shares
Accounts Basis                                              8.0

Other reconciling items for the differences between regulatory and accounts
basis carrying values of assets and liabilities net to less than GBP0.05 billion

G (ii) Jackson National Life
Under IAS39, JNL's fixed income securities and derivative financial instruments
are re-measured to fair value from the lower of amortised cost and, if relevant,
impairment value. Fair value movements on fixed income securities, net of
"shadow" changes to deferred acquisition costs and related deferred tax are
recorded directly to equity. Fair value movements on derivatives are recorded in
the income statement.

G (iii) Banking and non-insurance operations
Under IAS39, for Egg, changes to opening equity at 1 January 2005 arise from
altered policies for effective interest rate on credit card receivables,
impairment losses on loans and advances, fair value adjustments on wholesale
financial instruments and embedded derivatives in equity savings products. The
net effect on shareholders' equity of these changes, after tax, is a deduction
of GBP15m. A further GBP10m reduction in equity arises on certain centrally held
financial instruments and derivatives.

IFRS BASIS RESULTS

STATUTORY BASIS RESULTS

NOTES ON THE UNAUDITED STATUTORY BASIS RESULTS (CONTINUED)

H Jackson National Life - Fixed income securities

Statement of Recognised Income and Expense

IAS32 and IAS39 have been adopted from 1 January 2005. Accordingly, for 2004
under IFRS, financial instruments continue to be accounted for under previous
GAAP. For Jackson National Life fixed income securities have been accounted for
at amortised cost, unless impaired. From 1 January 2005, these assets have been
classified as available-for-sale under IAS39 with valuation at fair value.
Unrealised gains and losses and reclassification adjustments for gains and
losses included in net income are recorded from 1 January 2005 within the
Statement of Recognised Income and Expense.

Balance sheet

Due to the change in the valuation basis referred to above, the carrying values
of the fixed income securities of Jackson National Life in the Group balance
sheet that have been included are not comparable. The fair value of the fixed
income securities at 31 December 2004 was GBP22.5bn. After deduction of related
changes to deferred acquisition costs and deferred tax, there was a
consequential impact on shareholders' equity at 1 January 2005, on adoption of
IAS32 and IAS39, of GBP397m for the changed basis of valuation of Jackson's
securities, as shown in note G.

I Unallocated surplus of with-profits funds

The unallocated surplus of with-profits funds reflects the excess of assets over
technical provisions and other liabilities and represents amounts that have yet
to be allocated to policyholders and shareholders. For the Group's 2004
financial statements, and as applied for IFRS purposes for 2004 in these
financial statements, the technical provisions in respect of insurance and
investment contracts of UK regulated with-profits funds have been determined in
accordance with the modified statutory basis of accounting that applied under UK
GAAP. With the exception of minor accounting adjustments, the technical
provisions reflect the UK regulatory basis of reporting which effectively
constitutes the Peak 1 basis under the new FSA regime.

On this basis the unallocated surplus of the PAC with-profits fund for 30 June
2004 and 31 December 2004 was GBP11,858m and GBP16,301m respectively. After
inclusion of the unallocated surplus of with-profits funds of Asian subsidiaries
the unallocated surplus in the consolidated Group balance sheet at 30 June 2004
and 31 December 2004 was GBP12,110m and GBP16,686m. Following changes arising
from the application of IFRS requirements applicable for 2004, the IFRS basis
unallocated surplus for the Group is altered as described in Note F.

The FSA's Peak 2 calculation under the new realistic regime which came fully
into effect for the first time for 2004 regulatory reporting requires the value
of liabilities for UK regulated with-profits funds to be calculated as:

- a with-profits benefits reserve (WPBR); plus
- future policy related liabilities (FPRL); plus
- the realistic current liabilities of the fund.

The WPBR is primarily based on the retrospective calculation of accumulated
asset shares but is adjusted to reflect future expected policyholder benefits
and other outgoings. By contrast, the Peak 1 basis addresses, at least
explicitly, only declared bonuses.

The FPRL must include a market consistent valuation of costs of guarantees,
options and smoothing, less any related charge, and this amount must be
determined using either a stochastic approach, hedging costs or a series of
deterministic projections with attributed probabilities. Under the Peak 1 basis
there is an allowance on a deterministic basis for the intrinsic value of these
costs. The cost of guarantees, options and smoothing is very sensitive to the
bonus, Market Value Reduction and investment policy the Company employs and
therefore the stochastic modelling incorporates a range of management actions
that would help to protect the fund in adverse investment scenarios. The
management actions assumed are consistent with the management policy for
with-profits funds and the disclosures in the publicly available Principles and
Practices of Financial Management.

On adoption of IFRS 4 at 1 January 2005, the Group has chosen to improve its
accounting policy in respect of the insurance assets and liabilities of UK
regulated with-profits funds. The improvement is consistent with the
requirements of FRS27 that apply for life assurers reporting under UK GAAP in
2005.

The Peak 2 approach underpins the requirements of FRS27. The main changes that
are required for UK regulated with-profits funds are:

- De-recognition of deferred acquisition costs and related deferred tax
- Inclusion of the FSA Peak 2 basis of the value of in-force non-participating
business written by the PAC with profits sub-fund, and the Scottish Amicable
Insurance Fund; and
- Replacement of modified statutory basis liabilities for with-profits business
with adjusted realistic basis liabilities.

Adjusted realistic liabilities represent the Peak 2 realistic liabilities for
with-profits business included in Form 19 of the FSA regulatory returns, but
after excluding the element for shareholders' share of future bonuses. This
latter item is recognised as a liability for the purposes of regulatory returns
but for accounting purposes shareholder transfers are recognised only on
declaration.

For accounting purposes, to the extent that the value of non-participating
business has been taken into account in determining projected policyholder
benefits, deduction is made from the gross regulatory value of realistic
liabilities. The balance is deducted from the accounting balance of unallocated
surplus.

In determining accounting basis liabilities and unallocated surplus an
adjustment is also required where the regulatory and accounting carrying values
of assets and liabilities differ for altered measurement or recognition
criteria. For the Group's UK with-profits funds the main additional item for
which adjustment is necessary is the attributable share of deficit of the
Group's UK defined benefit pension schemes, net of related tax.

The impact of the changes at 1 January 2005, on adoption of IFRS4, are shown in
note G. At 30 June 2005, the unallocated surplus of GBP8.9 bn comprises GBP8.8
bn for the PAC with-profits funds and GBP0.1 bn for Asian subsidiaries. The
GBP8.8 bn for the PAC with-profits fund represents:

                                                             GBPbn
Estimated regulatory basis realistic surplus of the            7.1
PAC with-profits sub-fund and SAIF
Add back: Provision for future shareholder transfers           3.0
                                                              10.1
Estimated value of non-participating business not            (0.8)
explicitly allocated to asset shares
Provision for share of deficit of UK defined benefit         (0.5)
pension schemes
                                                               8.8

The GBP0.1bn of unallocated surplus for Asia subsidiaries almost wholly relates
to the Malaysian life business. Following local regulatory changes which affect
the presentation of the balance sheet, unallocated surplus of the Singapore
with-profits business is now amalgamated with policyholder liabilities.

J Dividend

The interim dividend of 5.3p per share will be paid on 28 October 2005 to
shareholders on the register at the close of business on 19 August 2005. A scrip
dividend alternative will be offered to Shareholders.

K Shareholders' equity

                                      30 June   30 June        31
                                                         December
                                         2005      2004      2004
                                         GBPm      GBPm      GBPm

Share capital                             119       101       119
Share premium                           1,561       553     1,558
Other reserves                          3,309     2,698     2,813
Total                                   4,989     3,352     4,490

L Other borrowings

                                      30 June   30 June        31
                                                         December
                                         2005      2004      2004
                                         GBPm      GBPm      GBPm

Operational borrowings attributable
to shareholder financed operations:
   Borrowings in respect of             1,131     1,203     1,079
   short-term fixed income securities
   programmes
   Non-recourse borrowings of           1,195     1,602     1,155
   investment subsidiaries managed by
   PPM America
   Borrowings in respect of banking     3,888     3,967     4,159
   operations
   Other borrowings                        30        28        28
   Total                                6,244     6,800     6,421

Borrowings attributable to
with-profits funds
   Non-recourse borrowings of venture     695       950     1,107
   fund investment subsidiaries of
   the with-profits sub-fund of the
   PAC long-term fund
   Structural borrowings                  100       100       100
   (subordinated debt of the Scottish
   Amicable Insurance Fund)
   Other borrowings (predominantly        870       799       870
   external funding of consolidated
   investment vehicles)
   Total                                1,665     1,849     2,077

M Tax charge

The total tax charge of GBP338m for the 2005 half year (2004 half year GBP387m)
comprises GBP217m (GBP308m) UK tax and GBP121m (GBP79m) overseas tax. This tax
charge comprises tax attributable to policyholders and unallocated surplus of
with-profits funds, unit linked policies and shareholders. The tax charge
attributable to shareholders of GBP156m for the 2005 half year (2004 half year
GBP138m) comprises GBP52m (GBP63m) UK tax and GBP104m (GBP75m) overseas tax.

N Acquisitions

In May 2005, Jackson National Life completed the purchase of Life Insurance
Company of Georgia from ING Groep NV for GBP142m, subject to post-completion
adjustments. There was no goodwill arising on the transaction.

SUPPLEMENTARY IFRS BASIS RESULTS

Additional IFRS basis information to enable consistent comparison of results for
Prudential's insurance operations

This information does not form part of the interim statutory IFRS basis
financial statements.

The information shown for Half Year 2005 is based on the statutory IFRS basis
results as shown in the Group's interim financial statements, and the basis of
preparation and significant changes of accounting policies from those previously
applied under UK GAAP, described therein. In particular, the Half Year 2005
results include the effects of adoption of the standards IAS32, IAS39 and IFRS4
for the Group's insurance and other operations from 1 January 2005. The 2004
comparative results in those statements are therefore prepared on an
inconsistent basis.

The "Proforma IFRS basis" comparative results shown below for 2004, reflect the
estimated effect on the Group's 2004 results if IAS32, IAS39, and IFRS4 had been
applied from 1 January 2004 to the Group's insurance operations.

The main purpose of providing this proforma information is to present the
operating results for the UK and Europe insurance business and short-term
fluctuations in investment returns for Jackson National Life on a consistent
basis. Under IAS39 and IFRS4, the assets and liabilities of certain unit linked
and similar contracts of the UK and Europe insurance business are subject to
re-measurement. For Jackson National Life (JNL) derivatives held for economic
hedging purposes are fair valued under IAS39 with value movements recorded in
the income statement giving rise to significant levels of volatility. In
addition fixed income securities of JNL are fair valued with value movements
taken directly to shareholder reserves through the Statement of Recognised
Income and Expense.

                                          Based     Pro-    Pro-
                                             on    forma   forma
                                          stat-     IFRS    IFRS
                                          utory    basis   basis
                                           IFRS  results results
                                          basis     Half    Full
                                        results     Year    Year
                                           Half
                                           Year
Summary results                            2005     2004    2004
                                           GBPm     GBPm    GBPm

Operating profit from continuing            469      375     699
operations based on longer-term
investment returns before exceptional
items (note 1)
Goodwill impairment charge                 (95)        -       -
Short-term fluctuations in investment        94       65     293
returns (note 2)
Shareholders' share of actuarial gains      (8)       48     (7)
and losses on defined benefit pension
schemes
Profit from continuing operations           460      488     985
before tax attributable to
shareholders (including actual
investment returns)
Tax attributable to shareholders          (156)    (170)   (290)
Net income from continuing operations       304      318     695
Discontinued operations (net of tax)          1     (17)    (94)
Profit for the period                       305      301     601

Attributable to:
   Equity holders of the parent             300      294     602
   company
   Minority interest                          5        7     (1)
Profit for the period                       305      301     601

Earnings per share
Continuing operations
From operating profit, based on
longer-term investment returns after
tax and related minority interest of
GBP331m
(GBP254m, GBP481m)                        14.0p    12.2p   22.7p
Adjustment for goodwill impairment       (4.0)p        -       -
charge
Adjustment from post-tax longer-term
investment returns to post-tax actual
investment
returns (after related minority            3.0p     1.0p    9.0p
interest)
Adjustment for post-tax shareholders'    (0.3)p     1.6p  (0.2)p
share of actuarial gains and losses on
defined benefit pension schemes
Based on profit from continuing           12.7p    14.8p   31.5p
operations after minority interest of
GBP299m (GBP307m, GBP669m)
Discontinued operations
Based on post-tax profit (loss) from       0.0p   (0.6)p  (3.1)p
discontinued operations (after
minority interest)
Based on profit for the period after      12.7p    14.2p   28.4p
minority interest

SUPPLEMENTARY IFRS BASIS RESULTS

Additional IFRS basis information to enable consistent comparison of results for
Prudential's insurance operations

This information does not form part of the interim statutory IFRS basis
financial statements

                                           Based    Pro-    Pro-
                                              on   forma   forma
                                           stat-    IFRS    IFRS
                                           utory   basis   basis
                                            IFRS results results
                                           basis    Half    Full
                                         results    Year    Year
                                            Half
                                            Year
Statement of Recognised Income and          2005    2004    2004
Expense                                     GBPm    GBPm    GBPm

Net income for the period after              300     294     602
minority interest

Items taken directly to equity:

  Exchange movements                         183    (37)   (191)
  Movement on cash flow hedges               (7)       -       -
  Unrealised valuation movements on
  securities classified as available
  for sale:
     Gross change                           (63)   (562)   (106)
     Related change to amortisation of        14     265      74
     deferred acquisition costs
  Related tax                                 48     113      23

Total recognised income for the period       475      73     402

Cumulative effect of change in
accounting principles on adoption of
IAS32, IAS39 and IFRS4, net of
applicable taxes, at 1 January 2005
  Statutory IFRS basis                       236       -       -
  less: Proforma adjustment reflected      (261)       -       -
  in adjusted shareholders' equity at 1
  January 2005 (as reflected in
  statement of movement on
  shareholders' equity - see below) for
  impact of adoption of IAS32, IAS39
  and IFRS4 for insurance operations
  Proforma IFRS basis (i.e.                 (25)       -       -
  transitional adjustment in respect of
  banking and other non-insurance
  operations)
                                             
Total recognised income and expenses         450      73     402

Reconciliation of movement on
consolidated shareholders' equity
(excluding minority interest)

Total recognised income for the period       450      73     402
(as above)
Proceeds from rights issue, net of             -       -   1,021
expenses
Other new share capital subscribed            40      61     119
Dividends                                  (253)   (214)   (323)
Reserve movements in respect of share          6       3      10
based payments
Consideration paid for own shares:
  Consideration paid for own shares            0       0     (4)
  purchased in respect of share based
  payment plans
  Prudential plc shares purchased by         (5)       0      14
  unit trusts newly consolidated under
  IFRS
Net increase in shareholders' equity         238    (77)   1,239

Shareholders' equity at beginning of
period
UK GAAP - as previously published          4,281   3,240   3,240
Changes arising from adoption of             209      56      56
statutory IFRS
Statutory IFRS basis                       4,490   3,296   3,296
Proforma basis adjustments for               261     216     216
estimated impact if IAS32, IAS39, and
IFRS4 had been adopted from 1 January
2004 for insurance operations
Proforma IFRS basis                        4,751   3,512   3,512

Shareholders' equity at end of period      4,989   3,435   4,751

SUPPLEMENTARY IFRS BASIS RESULTS

Additional IFRS basis information to enable consistent comparison of results for
Prudential's insurance operations

This information does not form part of the interim statutory IFRS basis
financial statements

NOTES ON THE SUPPLEMENTARY IFRS BASIS RESULTS

1         Operating profit from continuing operations based on longer-term
investment returns before exceptional items

                                       Based     Pro-     Pro-
                                          on    forma    forma
                                       stat-     IFRS     IFRS
                                       utory    basis    basis
                                        IFRS  results  results
                                       basis     Half     Full
                                     results     Year     Year
                                        Half
                                        Year
Results analysis by business area       2005     2004     2004
                                        GBPm     GBPm     GBPm

UK and Europe Operations
UK and Europe Insurance Operations       187      153      296
M&G                                       83       79      136
Egg                                       13       33       61
Total                                    283      265      493
US Operations
Jackson National Life                    157      157      296
Broker dealer and fund management         18        9       15
Curian                                   (6)     (11)     (29)
Total                                    169      155      282
Asian Operations
Long-term business                       116       58      117
Fund management                            2       10       19
Development expenses                     (8)     (10)     (15)
Total                                    110       58      121
Other income and expenditure
Investment return and other income        45       16       44
Interest payable on core structural     (84)     (74)    (154)
borrowings
Corporate expenditure:
   Group Head Office                    (36)     (23)     (51)
   Asia Regional Head Office            (14)     (18)     (29)
Charge for share based payments for      (4)      (4)      (7)
Prudential schemes
Total                                   (93)    (103)    (197)

Operating profit from continuing         469      375      699
operations based on longer-term
investment returns before
exceptional items

2               Short-term fluctuations in investment returns
                                       Based     Pro-     Pro-
                                          on    forma    forma
                                       stat-     IFRS     IFRS
                                       utory    basis    basis
                                        IFRS  results  results
                                       basis     Half     Full
                                     results     Year     Year
                                        Half
                                        Year
                                        2005     2004     2004
                                        GBPm     GBPm     GBPm
US Operations:
   Movement in market value of            36       92      144
   derivatives used for economic
   hedging purposes
   Actual less longer-term                24       13       61
   investment returns for other
   items
Asian Operations                          17     (42)       37
Other Operations                          17        2       51
                                          94       65      293

INDEPENDENT REVIEW REPORT BY KPMG AUDIT PLC TO PRUDENTIAL PLC, extracted from
the Interim Report 2005

"Introduction

We have been engaged by the Company to review the financial information set out
on page 16 and pages 21 to 34 prepared on an IFRS basis and the financial
information set out on page 15 and pages 17 to 20 prepared on an achieved
profits basis and we have read the other information contained in the interim
report and considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.

This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the Listing
Rules of the Financial Services Authority. Our review has been undertaken so
that we might state to the Company those matters we are required to state to it
in this report and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the Company for
our review work, for this report, or for the conclusions we have reached.


Directors' responsibilities

The interim report, including the financial information contained therein, is
the responsibility of and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with the Listing
Rules which require that the accounting policies and presentation applied to the
interim figures should be consistent with those applied in preparing the
preceding annual financial statements except where any changes, and the reasons
for them, are disclosed.

As disclosed in note A to the financial information, the next annual financial
statements of the Group will be prepared in accordance with IFRS adopted for use
in the European Union. The accounting policies that have been adopted in
preparing the financial information are consistent with those that the directors
currently intend to use in the next annual financial statements. There is,
however, a possibility that the directors may determine that some changes to
these policies are necessary when preparing the full annual financial statements
for the first time in accordance with those IFRSs adopted for use by the
European Union.

Review work performed

We conducted our review in accordance with guidance contained in Bulletin 1999/4
Review of interim financial information issued by the Auditing Practices Board
for use in the United Kingdom. A review consists principally of making enquiries
of Group management and applying analytical procedures to the financial
information and underlying financial data and, based thereon, assessing whether
the accounting policies and presentation have been consistently applied unless
otherwise disclosed. A review is substantially less in scope than an audit
performed in accordance with Auditing Standards and therefore provides a lower
level of assurance than an audit. Accordingly, we do not express an audit
opinion on the financial information.

Review conclusion

On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2005.

KPMG Audit Plc
Chartered Accountants
London

26 July 2005"

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