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Financial highlights

To create sustainable economic value for our shareholders we focus on delivering growth and cash while maintaining adequate capital.

Profit, cash and capital

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IFRS operating profit2,3

What we measure and why

IFRS operating profit is our primary measure of profitability. This measure of profitability provides an underlying operating result based on longer-term investment returns and excludes non-operating items.

Performance1

IFRS operating profit bar chart. HY2010: £817 million, HY2011: £1022 million, HY2012: £1157 million, HY2013: £1415 million, HY2014: £1521 million. CAGR +17%

Commentary

Group IFRS operating profit in half year 2014 increased by 17 per cent on a constant exchange rate basis (7 per cent on an actual exchange rate basis), compared to half year 2013, reflecting strong growth in Asia and the US, which, on the same basis, were up 19 per cent and 28 per cent respectively.

EEV operating profit2,4

What we measure and why

Embedded value reporting provides investors with a measure of the future profit streams of the Group’s long-term businesses and includes profit from our asset management and other businesses. It is provided as additional information to our IFRS reporting. As with IFRS, EEV operating profit reflects the underlying results based on longer-term investment returns.

Performance1

EEV operating profit bar chart. HY2010: £1209 million, HY2011: £1562 million, HY2012: £1541 million, HY2013: £1821 million, HY2014: £1943 million. CAGR +12%

Commentary

Group EEV operating profit in half year 2014 increased by 18 per cent on a constant exchange rate basis (7 per cent on an actual exchange rate basis), compared to half year 2013, reflecting higher new business profits and an increased contribution from the in-force business.

EEV new business profit4

What we measure and why

EEV new business profit represents a measure of the future profitability of all new business sold in the period. Life insurance products are, by their nature, long term and generate profit over a significant number of years. EEV new business profit reflects the value of future profit streams which are not fully captured in the period of sale under IFRS reporting.

Performance1

EEV new business profit bar chart. HY2010: £630 million, HY2011: £756 million, HY2012: £818 million, HY2013: £913 million, HY2014: £1015 million. CAGR +12%

Commentary

EEV new business profit in half year 2014 increased by 24 per cent on a constant exchange rate basis (11 per cent on an actual exchange rate basis), compared to half year 2013, driven by a combination of higher volumes and pricing and product actions to increase profitability.

Group free surplus generation2,5

What we measure and why

Free surplus generation is used to measure the internal cash generation by our business units. For the insurance operations it represents amounts maturing from the in-force business during the period, less investment in new business and excludes other non-operating items. For asset management it equates to post-tax IFRS operating profit for the period.

Performance1

Group free surplus generation. HY2010: £921 million, HY2011: £1091 million, HY2012: £1031 million, HY2013: £1152 million, HY2014: £1219 million. CAGR +6%

Commentary

Compared to half year 2013, underlying free surplus in half year 2014 has increased 13 per cent on a constant exchange rate basis (6 per cent on an actual exchange rate basis), driven by growth of the in-force portfolio, and continued discipline in the allocation of free surplus to new business opportunities.

Business unit remittances

What we measure and why

Remittances measure the cash transferred from the business units to the Group. Cash flows across the Group reflect our aim of achieving a balance between ensuring sufficient net remittances from the businesses to cover the dividend (after corporate costs) and retention of cash for reinvestment in profitable opportunities available to the Group.

Performance1

Business unit remittances bar chart. HY2010: £460 million, HY2011: £690 million, HY2012: £726 million, HY2013: £844 million, HY2014: £974 million. CAGR +22%

Commentary

Net business unit remittances increased by 15 per cent in half year 2014 when compared to half year 2013, with higher contributions from each of our four business units.

IGD capital surplus before interim dividend6

What we measure and why

Prudential is subject to the capital adequacy requirements of the European Union Insurance Groups Directive (IGD) as implemented by the Prudential Regulation Authority in the UK. The IGD capital surplus represents the aggregated surplus capital (on a Prudential Regulation Authority consistent basis) of the Group’s regulated subsidiaries less the Group’s borrowings7. No diversification benefit is recognised.

Performance1

IGD capital surplus before final dividend bar chart. HY2010: £3.4 billion, HY2011: £4.1 billion, HY2012: £4.2 billion, HY2013: £3.9 billion, HY2014: £4.1 billion

Commentary

We continue to operate with a strong solvency position, with our estimated IGD capital surplus before payment of the interim dividend covering the capital requirements 2.3 times.

Notes

  1. The comparative results shown above have been prepared using actual exchange rates (AER) basis except where otherwise stated. Comparative results on a constant exchange rate (CER) basis are also shown in financial tables in the Chief Financial Officer’s report on our 2014 first half financial performance. CAGR is Compound Annual Growth Rate.
  2. The comparative results have been adjusted from those previously published for the retrospective application of the new and amended accounting standards, In addition, following its reclassification as held for sale, the operating results exclude the result of the Japan life insurance business.
  3. The basis of IFRS operating profit based on longer-term investment returns is discussed in note B1.3 of the IFRS financial statements. The IFRS profit before tax attributable to shareholders has been prepared in accordance with the basis of preparation discussed in note A of the IFRS financial statements.
  4. The EEV basis results have been prepared in accordance with the EEV principles discussed in note 1 of EEV basis results. The 2014 EEV results of the Group are presented on a post-tax basis, and accordingly, prior period results are shown on a comparable basis.
  5. Free surplus generation represents ‘underlying free surplus’ based on operating movements, including the general insurance commission earned during the period and excludes market movements, foreign exchange, capital movements, shareholders’ other income and expenditure and centrally arising restructuring and Solvency II implementation costs.
  6. Estimated.
  7. Excludes subordinated debt issues that qualify as capital.
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