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European Embedded Value (EEV) basis results

Post-tax operating profit based on longer-term investment returns

Results analysis by business area

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  Note 2016 £m 2015 £m
note (iii),(vi)
Asia operations    
New business 4 2,030 1,482
Business in force 5 1,044 798
Long-term business   3,074 2,280
Eastspring Investments   125 101
Total   3,199 2,381
US operations    
New business 4 790 809
Business in force 5 1,181 999
Long-term business   1,971 1,808
Broker-dealer and asset management   (3) 7
Total   1,968 1,815
UK operations note (iv)    
New business: note (v)    
Excluding UK bulk annuities 4 268 201
UK bulk annuities   117
    268 318
Business in force 5 375 545
Long-term business   643 863
General insurance commission   23 22
Total UK insurance operations   666 885
M&G   341 358
Prudential Capital   22 18
Total   1,029 1,261
Other income and expenditure note (i)   (679) (566)
Solvency II and restructuring costs note (ii)   (57) (51)
Interest received from tax settlement   37
Operating profit based on longer-term investment returns   5,497 4,840
       
Analysed as profit (loss) from:    
New business: note (v)
Excluding UK bulk annuities 4 3,088 2,492
UK bulk annuities 117
    3,088 2,609
Business in force 5 2,600 2,342
Long-term business   5,688 4,951
Asset management and general insurance commission   508 506
Other results   (699) (617)
    5,497 4,840

Notes

  1. EEV basis other income and expenditure represents the post-tax IFRS basis result less the unwind of expected margins on the internal management of the assets of the covered business (as explained in note 14(a)(vii)).
  2. Solvency II and restructuring costs comprise the net-of-tax charge recognised on an IFRS basis and the additional amount recognised on an EEV basis for the shareholders’ share incurred by the PAC with-profits fund.
  3. The comparative results have been prepared using previously reported average exchange rates for the year.
  4. The EEV basis results have been prepared in accordance with the amended EEV Principles dated April 2016, prepared by the CFO Forum of major European insurers. The 2016 results for UK insurance operations have been prepared to reflect the Solvency II regime. The 2015 results for UK insurance operations were prepared reflecting the Solvency I basis being the regime applicable for the year. There is no change to the basis of preparation for Asia and US operations.
  5. Following Prudential’s withdrawal from the UK bulk annuity market, the 2015 comparative results for UK bulk annuities new business have been presented separately.
  6. The Group agreed in November 2016 to sell, subject to regulatory approval, its life business in Korea. Accordingly, the presentation of the 2015 comparative EEV basis results and related notes have been adjusted from those previously published for the reclassification of the result attributable to the held for sale Korea life business, as described in note 17. This approach has been adopted consistently throughout this supplementary information.

Post-tax summarised consolidated income statement

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  Note 2016 £m 2015 £m
Asia operations   3,199 2,381
US operations   1,968 1,815
UK operations   1,029 1,261
Other income and expenditure   (679) (566)
Solvency II and restructuring costs   (57) (51)
Interest received on tax settlement   37
Operating profit based on longer-term investment returns 5,497 4,840
Short-term fluctuations in investment returns 6 (507) (1,215)
Effect of changes in economic assumptions 7 (60) 66
Mark to market value movements on core borrowings   (4) 221
Loss attaching to the held for sale Korea life business 17 (410) 39
Total non-operating results   (981) (889)
Profit for the year attributable to equity holders of the Company   4,516 3,951

    * The 2015 comparative results have been adjusted from those previously published for the reclassification of the results attributable to the held for sale Korea life business (see note 17 for details).

    † The 2016 results for UK insurance operations have been prepared on a basis that reflects the Solvency II regime effective from 1 January 2016 (see note 2 for details). The 2015 comparative results for UK insurance operations reflected the Solvency I basis being the regime applicable for the year.

Basic earnings per share

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  2016 2015
Based on post-tax operating profit including longer-term investment returns (in pence)* 214.7p 189.6p
Based on post-tax profit attributable to equity holders of the Company (in pence) 176.4p 154.8p
Average number of shares (millions) 2,560 2,553

    * The 2015 comparative results have been adjusted from those previously published for the reclassification of the results attributable to the held for sale Korea life business (see note 17 for details).

Movement in shareholders’ equity

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  Note 2016 £m 2015 £m
Profit for the year attributable to equity shareholders   4,516 3,951
Items taken directly to equity:      
Exchange movements on foreign operations and net investment hedges 9 4,211 244
External dividends 9 (1,267) (974)
Mark to market value movements on Jackson assets backing surplus and required capital 9 (11) (76)
Other movements 9 (367) 53
Net increase in shareholders’ equity 9 7,082 3,198
Shareholders’ equity at beginning of year      
As previously reported 9 32,359 29,161
Effect of implementation of Solvency II on 1 January 2016* 2 (473)
    31,886 29,161
Shareholders’ equity at end of year 9 38,968 32,359

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  31 Dec 2016 £m   31 Dec 2015 £m
Comprising: Long-term business operations Asset management and other operations Total   Long-term business operations Asset management and other operations Total

    * The 2016 results for UK insurance operations have been prepared on a basis that reflects the Solvency II regime effective from 1 January 2016 (see note 2 for details). The 2015 comparative results for UK insurance operations reflected the Solvency I basis being the regime applicable for the year.

Asia operations 18,717 383 19,100   13,876 306 14,182
US operations 11,805 204 12,009   9,487 182 9,669
UK insurance operations* 10,307 25 10,332   9,647 22 9,669
M&G 1,820 1,820   1,774 1,774
Prudential Capital 22 22   70 70
Other operations (4,315) (4,315)   (3,005) (3,005)
Shareholders’ equity at end of year 40,829 (1,861) 38,968   33,010 (651) 32,359
         
Representing:        
Net assets excluding acquired goodwill and holding company net borrowings 40,584 961 41,545   32,777 866 33,643
Acquired goodwill 245 1,230 1,475   233 1,230 1,463
Holding company net borrowings at market value note 8 (4,052) (4,052)   (2,747) (2,747)
  40,829 (1,861) 38,968   33,010 (651) 32,359

Summary statement of financial position

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  Note 31 Dec 2016
£m
31 Dec 2015
£m

    * Following its classification as held for sale, Korea life business is included in total assets at a carrying value of £105 million (see note 17 for details).

    † Including liabilities in respect of insurance products classified as investment contracts under IFRS 4.

    ‡ The 2016 results for UK insurance operations have been prepared on a basis that reflects the Solvency II regime effective from 1 January 2016 (see note 2 for details). The 2015 comparative results for UK insurance operations reflect the Solvency I basis being the regime applicable for the year.

Total assets less liabilities, before deduction for insurance funds*   407,928 340,666
Less insurance funds:
Policyholder liabilities (net of reinsurers’ share) and unallocated surplus of with-profits funds (393,262) (327,711)
Less shareholders’ accrued interest in the long-term business 9 24,302 19,404
    (368,960) (308,307)
Total net assets 9 38,968 32,359
     
Share capital   129 128
Share premium   1,927 1,915
IFRS basis shareholders’ reserves   12,610 10,912
Total IFRS basis shareholders’ equity 9 14,666 12,955
Additional EEV basis retained profit 9 24,302 19,404
Total EEV basis shareholders’ equity (excluding non-controlling interests) 9 38,968 32,359

Net asset value per share

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  31 Dec 2016 31 Dec 2015
Based on EEV basis shareholders’ equity of £38,968 million (2015: £32,359 million) (in pence) 1,510p 1,258p
Number of issued shares at year end (millions) 2,581 2,572
Annualised return on embedded value* 17% 17%

    * Annualised return on embedded value is based on EEV post-tax operating profit, as a percentage of opening EEV basis shareholders’ equity.

    † The 2016 results for UK insurance operations have been prepared on a basis that reflects the Solvency II regime effective from 1 January 2016 (see note 2 for details). The 2015 comparative results for UK insurance operations reflect the Solvency I basis being the regime applicable for the year.

The supplementary information in the European Embedded Value (EEV) basis results was approved by the Board of Directors on 13 March 2017.

Paul Manduca
Chairman

Mike Wells
Group Chief Executive

Nic Nicandrou
Chief Financial Officer

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