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Group News ReleasesPrudential plc 2006 Interim Results28 Jul 2006
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). Outlook 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. ENDS Enquiries:
Notes to Editor:
*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. Forward-Looking Statements PRUDENTIAL PLC 2006 UNAUDITED INTERIM RESULTS RESULTS SUMMARY
* Basis of preparation The EEV basis results have been prepared in accordance with the European Embedded Value Principles issued by the CFO Forum of European Insurance Companies in May 2004. The basis of preparation of statutory IFRS basis results and supplementary IFRS basis information is consistent with that applied for the 2005 full year results and financial statements. 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 earnings per share are calculated using operating profits from continuing operations based on longer-term investment returns, after tax and minority interests. These profits exclude 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 profit based on longer-term investment returns also excludes the mark to market value movement on core borrowings and the effect of changes in economic assumptions and changes in the time value of cost of options and guarantees arising from changes in economic factors. After adjusting for related tax and minority interests, the amounts for these items are included in the calculation of basic earnings per share.
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