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  CER note 4 RER note 4

Results highlights

 Half year
2008
£m		 Half year
2007
£m		 Change
%		 Half year
2007
£m		 Change
%

Notes

  1. Long-term business profits after deducting Asia development expenses and before restructuring costs.
  2. Based on longer-term investment returns from continuing operations. EEV basis operating profit is stated excluding the effect of short-term fluctuations in investment returns against the long-term assumptions, the effect of changes in economic assumptions and changes in the shareholder’s share of time value of cost of options and guarantees arising from changes in economic factors, actuarial gains and losses on defined benefit schemes and the mark to market value movements on borrowings.
  3. Based on longer-term investment returns from continuing operations. IFRS basis operating profit is stated excluding the effect of short-term fluctuations in investment returns against the long-term assumptions, and the shareholder’s share of actuarial gains and losses on defined benefit schemes.
  4. Constant exchange rate (CER) and reported exchange rate (RER).
  5. The comparative results for 2007 have been adjusted for the effects of an accounting policy change for pension costs to reflect the principles of IFRIC 14 as described in note 10 of the EEV financial statements and notes (B) and (O) of the IFRS financial statements.

In the Operating and Financial Review (OFR), year-on-year comparisons of financial performance are on a constant exchange rate (CER) basis, unless otherwise stated.
Annual premium equivalent (APE) sales 1,513 1,353 12 1,334 13
Present value of new business premiums (PVNBP) 10,986 9,785 12 9,681 13
Net investment flows 4,091 5,162 (21) 5,047 (19)
External funds under management 67,447 63,610 6 63,222 7
New business profit (NBP) 602 543 11 534 13
NBP Margin (% APE) 40% 40%   40%  
NBP Margin (% PVNBP) 5.5% 5.5%   5.5%  
EEV basis operating profit from long-term business notes 1,2 1,408 1,310 7 1,293 9
Total EEV basis operating profit from continuing operations notes 2,5 1,430 1,336 7 1,318 8
Total IFRS operating profit from continuing operations notes 3,5 674 598 13 593 14
EEV basis shareholders' funds 13,977 13,394 4 13,262 5
IFRS shareholders' funds 5,552 5,864 (5) 5,787 (4)
Holding company operating cash flow 86 34 153 34 153
Holding company operating cash flow plus proceeds for 2007 from the sale of Egg 86 561 (85) 561 (85)

These results show the robust performance of the Group in the first half of 2008 in a challenging economic and financial environment. The KPIs above show good growth in sales and profits and an improvement in operating cash flow. The year end 2007 surplus capital position of Prudential, measured under the Insurance Groups Directive basis, submitted to the Financial Services Authority (FSA) in April 2008 was £1.6 billion. The surplus at 30 June 2008 is estimated to be £1.4 billion.

Basis of preparation of results

The European Union (EU) requires that all listed European groups prepare their financial statements in accordance with EU adopted IFRS. Since 1 January 2005, Prudential has been reporting its primary results on an IFRS basis.

As a signatory to the European Chief Financial Officers’ (CFO) Forum’s EEV Principles, Prudential also reports supplementary results on an EEV basis for the Group's long-term business. These results are combined with the IFRS basis results of the non long-term businesses to provide a supplementary operating profit under EEV. Reference to operating profit relates to profit based on long-term investment returns. Under both EEV and IFRS, operating profits from continuing operations based on longer-term investment returns exclude short-term fluctuations in investment returns and shareholders' share of actuarial gains and losses on defined benefit pension schemes. Under EEV, where additional profit and loss effects arise, operating profits based on longer-term investment returns also exclude the mark to market value movement on core borrowings and 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.

In broad terms, IFRS profits for long-term business contracts reflect the aggregate of statutory transfers from with-profits funds and profits on a traditional accounting basis for other long-term business. Although the statutory transfers from with-profits funds are closely aligned with cash flow generation, the pattern of IFRS profits over time from shareholder-backed long-term businesses will generally differ from the cash flow pattern. Over the life of a contract, however, aggregate IFRS profits will be the same as aggregate cash flow.

Sales and funds under management

Prudential delivered overall sales growth during the first half of 2008 with total new insurance sales up 12 per cent from the first six months of 2007 to £1.5 billion on the annual premium equivalent (APE) basis. At reported exchange rates (RER), APE sales were up 13 per cent on the same period in 2007. This is equivalent to insurance sales of £11 billion on a present value of new business premiums basis (PVNBP), an increase of 12 per cent on 2007 at CER.

Total gross investment sales were £30.4 billion, up 18 per cent on the first half of 2007 at CER. Net investment sales of £4.1 billion were down 21 per cent from net investment sales in 2007 at CER.

Total external funds under management decreased by two per cent at RER from £69 billion at 31 December 2007, to £67 billion at 30 June 2008, reflecting net investment inflows of £4.1 billion, this was more than offset by net market and other movements.

At 30 June 2008, total funds under management were £256 billion, a decrease of four per cent from 2007 year end at RER.