SOURCE: Prudential plc

July 28, 2006 02:01 ET

Prudential Plc announces Interim Results

LONDON, UK -- (MARKET WIRE) -- July 28, 2006 --


  -  Total EEV operating profit £980 million before restructuring 
     costs, up 17%

  -  New business PVNBP £9.8 billion, up 3%; APE of £1,255 million,
     up 9%

  -  New business EEV profit £504 million, up 17%

  -  Total net inflows for the asset management businesses 
     £5.3 billion, up 138%

  -  Total IFRS operating profit £470 million before restructuring
     costs, down 4%

  -  Targeted cost savings from UK business increased by 
     £110 million per annum to £150 million per annum by 2009

  -  EEV shareholders' funds up to £10.9 billion (end 2005 
     £10.3 billion*)

  -  Interim dividend 5.42 pence per share (2005: 5.3 pence per 
All figures compared to 2005 constant exchange rates unless stated, *at reported exchange rates

Commenting, Mark Tucker, Group Chief Executive said:

"In the first half of 2006 the Group has continued to build on the momentum established during a successful 2005, with Group operating profit on an EEV basis up 17% to £980 million before restructuring costs in the UK.

"Insurance sales were £9.8 billion on a PVNBP basis, with strong growth in Asia and the US and a steady performance in the UK. Net sales in our asset management businesses more than doubled to £5.3 billion. Difficult trading conditions in the personal loans market resulted in a loss at Egg in the first half of the year but we expect Egg to report an operating profit for the second half.

"In line with our forecast that Asia will be cash positive in 2006 there was a net remittance to the Group of £5 million in the first half of the year. Across our UK insurance business and Egg we have increased our cost saving target to £150 million per annum from the £40 million announced in December 2005.

"Our clear focus continues to be to drive profitable growth across each of our businesses as well as leveraging opportunities within each region and across the Group. There remains tremendous scope to increase value for our shareholders and I am confident of the outlook for the Group."

Operational highlights:

Insurance and banking

The Group's insurance businesses delivered an increase of 22% in operating profit before tax on an EEV basis to £1,041 million and the operating profit on an IFRS basis was £516 million, up 8%.

Insurance sales in Asia grew by 27% on a PVNBP basis to £2.3 billion (up 35% on an APE basis) in the half year building on strong growth in 2005 as a whole. There was continuing strong growth in India up 61%, Korea up 56%, China up 40%, Singapore up 32% and Taiwan up 19%.

The average margin on new business in the region was 10% on a PVNBP basis (2005: 9.4%) and we expect margins for the full year to be maintained at around this level.

In line with our forecast that Asia will be cash positive in 2006 there was a net remittance to the Group of £5 million in the first half of the year. The Group has an unrivalled exposure to the high growth, high return markets in Asia and we continue to expect significant growth as we build on our powerful distribution capability; and to generate increasing levels of cash from the region.

Jackson, our US business, benefits from a strong presence in all the annuity product areas. Market conditions continue to favour variable annuities and Jackson increased its sales by over 50% in the first half of the year well ahead of overall market growth and market share in the first quarter increased to 4.2%. Overall sales in the US increased by 12% on a PVNBP basis (up 12% on an APE basis).

Jackson has continued to develop its core Perspective II product with a number of enhancements that have been well received by customers and advisors. Overall margins on new business increased to 4.2% on a PVNBP basis (2005: 3.5%). We will maintain our focus on the variable annuity market and we expect to increase our market share as the "baby boomer" generation looks to generate income from their retirement savings.

Further increases in US interest rates in the second half of the year could lead to a change in the sales mix across the annuity product range. The breadth of our offering in variable, fixed- indexed and fixed annuities means we are well positioned to respond.

The US business generated almost $300 million of statutory capital in the period and is expected to remit $180 million to the Group during 2006.

The UK insurance business continued to focus on value. Sales of £4.2 billion on a PVNBP basis were down 12% (down 9% on an APE basis) on the first half of 2005 with retail sales remaining stable and retail margins improving. Two large bulk annuity transactions were completed in the first half of 2006 with sales of £1.25 billion on a PVNBP basis. In the first half of 2005 we completed one large transaction of £1.45 billion on a PVNBP basis. There has been some reduction in margins on the bulk annuity business.

The aggregate margin on new business was 3.3% on a PVNBP basis (2005: 3.3%). We will continue to target an internal rate of return on new business of 14%. In the first half we achieved an internal rate of return of 13%.

Egg's card book is performing well and 153,000 new cards were sold during a successful marketing campaign in the first quarter. Egg has grown its card book by 3% at a time when the UK card market has contracted by 2%.

Conditions in the personal loans market, which had begun to deteriorate in 2005, continued to be difficult in the first half of the year. In current market conditions we do not see attractive returns. We have taken action to lower our exposure to personal lending and we expect this to continue for some time. This action adversely affects short term reported profits but we are confident that it will improve the long term value of the loan book. Bad debt charges in the first half increased significantly across the unsecured lending industry as a whole and we have taken prudent action by increasing the charge in the first half by 42%. As a result, Egg reported an operating loss before tax of £39 million (2005: profit £13 million). We expect Egg to report an operating profit for the second half.

We are restructuring our UK operations to focus on the opportunities for income in retirement, the wealth and health sectors and retail banking. We will also separate out our mature products and manage these as a specific business area. We are making good progress in integrating our UK insurance operations and Egg following the completion of the buy-back of the Egg minority announced in December 2005.

Following a further review of the combined cost base we are targeting total cost savings of £150 million per annum (inclusive of £40 million per annum savings announced in December 2005) by 2009. These savings are equivalent to 18% of the cost base and one-off costs to be incurred up to 2008 are estimated at £110 million (inclusive of £50 million announced in December 2005). In addition, following the purchase of the minority interest in Egg, we have reorganised the Group's structure with an expected benefit of £120 million to the Group's Financial Conglomerates Directive capital position.

Asset Management

Supported by continuing excellent investment performance, our asset management businesses in the UK and Asia are performing very strongly with net investment flows more than doubling to £5.3 billion. Operating profit before tax at M&G increased by 20% to £100 million and in Asia first half profits were £22 million (2005: £2 million). External funds under management have increased to £51 billion (2005: £46 billion).


Overall the Group has significant capacity to grow and to build on the strength of our positions in the major retail financial services markets of Asia, the US and the UK.




Jon Bunn                    020 7548 3559     

William Baldwin-Charles     020 7548 3719     

Joanne Doyle                020 7548 3708


James Matthews              020 7548 3561

Valerie Pariente            020 7548 3511

Notes to Editor:

1. The results in this announcement are prepared on two bases, namely International Financial Reporting Standards ('IFRS') and the European Embedded Value ('EEV') basis. The IFRS basis results form the basis of the Group's financial statements.

The EEV basis results have been prepared in accordance with the principles issued by the CFO Forum of European Insurance Companies in May 2004. Where appropriate the EEV basis results include the effects of IFRS.

References to 'operating profit' in this announcement are to operating profit based on longer-term investment returns. Consistent with previous reporting practice the Group analyses its EEV basis results, and provides supplementary analysis of IFRS profit before tax attributable to shareholders, so as to distinguish operating profit based on longer-term investment returns from other constituent elements of total profit. On both the EEV and IFRS bases operating profit based on longer- term investment returns excludes goodwill impairment charges, short-term fluctuations in investment returns and the shareholders' share of actuarial and other gains and losses on defined benefit pension schemes. Under the EEV basis, where additional profit and loss effects arise, operating profits based on longer-term investment returns also excludes the mark to market value movement in core borrowings, the effect of changes in economic assumptions, and changes in the time value of the cost of options and guarantees arising from changes in economic factors.

'PVNBP' refers to the Present Value of New Business Premiums. PVNBPs are calculated as equalling new single premiums plus the present value of expected premiums of new regular premium business. In determining the present value, allowance is made for lapses and other assumptions applied in determining the EEV new business profit.

Period on period percentage increases are stated on a constant exchange rate basis.

2. Annual premium equivalent (APE) sales comprise regular premium sales plus one-tenth of single premium insurance sales.

3.The internal rate of return (IRR) is equivalent to the discount rate at which the present value of the post-tax cash flows expected to be earned over the life time of the business written in shareholder-backed life funds is equal to the total invested capital to support the writing of the business. The capital included in the calculation of the IRR is the initial capital in excess of the premiums received required to pay acquisition costs and set up the statutory capital requirement. The time value of options and guarantees are included in the calculation.

4.There will be a conference call today for wire services at 7.30am (BST) hosted by Mark Tucker, Group Chief Executive and Philip Broadley, Group Finance Director. Dial in telephone number: +44 (0)20 8609 0793. Passcode: 155439#.

5. A presentation to analysts will take place at 9.30am (BST) at Governor's House, Laurence Pountney Hill, London, EC4R 0HH. An audio cast of the presentation and the presentation slides will be available on the Group's website,

6. There will be a conference call for investors and analysts at 2.30pm (BST) hosted by Mark Tucker, Group Chief Executive and Philip Broadley, Group Finance Director. Please call from the UK +44 20 8609 0793 and from the US + 1 866 793 4279. Pin number 487687#. A recording of this call will be available for replay for one week by dialling: +44 20 8609 0289 from the UK or 1866 676 5865 from the US. The conference reference number is 147018#.

7. High resolution photographs are available to the media free of charge at (+44 (0) 207 608 1000).

8. An interview with Mark Tucker, Group Chief Executive, (in video/audio/text) will be available on and from 7.00am on 28 July 2006.

9. Financial Calendar 2006:

Ex-dividend date                          16 August 2006
Record Date                               18 August 2006
Third Quarter 2006 New Business Figures   19 October 2006
Payment of interim dividend               27 October 2006
Full Year 2006 New Business Figures       30 January 2007
Full Year 2006 results                    15 March 2007

10. In addition to the financial statements provided with this press release, additional financial schedules are available on the Group's website at

11. Total number of Prudential plc shares in issue as at 30 June 2006 was 2,429,728,675.

*Prudential plc, a company incorporated and with its principal place of business in the United Kingdom, and its affiliated companies constitute one of the world's leading financial services groups. It provides insurance and financial services directly and through its subsidiaries and affiliates throughout the world. It has been in existence for over 150 years and has £238 billion in assets under management, as at 30 June 2006. Prudential plc is not affiliated in any manner with Prudential Financial, Inc, a company whose principal place of business is in the United States of America.

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