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Performance measures

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

Profit, cash and capital

Prudential takes a balanced approach to performance management across IFRS, EEV and cash. We aim to demonstrate how we generate profits under different accounting bases, reflecting the returns we generate on capital invested, and highlight the cash generation of our business.

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IFRS operating profit2 (£m)

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

CAGR
+16%
HY2012 HY2013 HY2014 HY2015 HY2016
1,157 1,415 1,521 1,881 2,059

Group IFRS operating profit in half year 2016 increased by 6 per cent on a constant exchange rate basis (9 per cent on an actual exchange rate basis), equivalent to an annualised 24 per cent return on opening IFRS equity. This result was driven by continued double-digit growth in our Asia life operations.

EEV new business profit3, 4, 5 (£m)

What we measure and why

Life insurance products are, by their nature, long term and generate profit over a significant number of years. Embedded value reporting provides investors with a measure of the future profit streams of the Group. 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

CAGR
+11%
HY2012 HY2013 HY2014 HY2015 HY2016
818 913 1,009 1,190 1,260

EEV new business profit in half year 2016 increased by 8 per cent on a constant exchange rate basis (13 per cent on an actual exchange rate basis) compared to half year 2015, driven by a combination of higher volumes and pricing and product actions to increase profitability.

EEV operating profit3, 4 (£m)

What we measure and why

EEV operating profit is provided as an additional measure of profitability. This measure includes EEV new business profit, the change in the value of the Group’s long-term in-force business, and profit from our asset management and other businesses. As with IFRS, EEV operating profit reflects the underlying results based on longer-term investment returns.

Performance1

CAGR
+9%
HY2012 HY2013 HY2014 HY2015 HY2016
1,541 1,821 1,943 2,278 2,263

Group EEV operating profit in half year 2016 was lower by 4 per cent on a constant exchange rate basis (1 per cent on an actual exchange rate basis) compared to half year 2015, reflecting higher new business profits and adverse impact of lower interest rates on the expected return from the in-force business.

Group free surplus generation4, 6 (£m)

What we measure and why

Free surplus generation is used to measure the internal cash generation of our business units. For 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

CAGR
+11%
HY2012 HY2013 HY2014 HY2015 HY2016
1,031 1,152 1,219 1,418 1,609

Underlying free surplus in half year 2016 increased by 10 per cent on a constant exchange rate basis (13 per cent on an actual exchange rate basis) compared to half year 2015, driven by higher contribution from the in-force portfolio, and continued discipline in the allocation of free surplus to new business opportunities.

Business unit remittance7 (£m)

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 business units to cover the dividend (after corporate costs) and the use of cash for reinvestment in profitable opportunities available to the Group.

Performance1

CAGR
+11%
HY2012 HY2013 HY2014 HY2015 HY2016
726 844 974 1,068 1,118

Net business unit remittances increased by 5 per cent in half year 2016, with sizeable contributions from Asia, the US and M&G.

Group Solvency II capital surplus8, 9 (£bn)

What we measure and why

Replacing the IGD capital regime, from 1 January 2016 Prudential is subject to the risk-sensitive solvency framework required under European Solvency II Directives (Solvency II) as implemented by the Prudential Regulation Authority in the UK. The Solvency II surplus represents the aggregated capital (own funds) held by the Group less solvency capital requirements.

Performance1

Group Solvency II capital surplus (Solvency cover 175%; Surplus £9.1bn; Own funds: £21.1bn; Solvency capital requirements: £12.0bn)

The high quality and recurring nature of our operating capital generation and our disciplined approach to managing balance sheet risks have enabled us to enter the new Solvency II regime with a strong Group shareholders’ capital surplus of £9.1 billion.

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 the 2016 first half financial performance. CAGR is Compound Annual Growth Rate.
  2. IFRS operating profit is management’s primary measure of profitability and provides an underlying operating result based on longer-term investment returns and excludes non-operating items. Further information on its definition and reconciliation to profit for the period is set out in note B1 of the IFRS financial statements.
  3. Embedded value reporting provides investors with a measure of the future profit streams of the Group. The EEV basis results have been prepared in accordance with the EEV principles as discussed in note 1 of the EEV basis results. A reconciliation between IFRS and EEV shareholder funds is attached in note II (f) of the additional financial information.
  4. The half year 2016 results for UK insurance operations have been prepared on a basis that reflects the Solvency II regime, effective from 1 January 2016. The results for UK insurance operations prior to 31 December 2015 reflect the Solvency I basis.
  5. Excluding UK bulk annuities as Prudential has withdrawn from this market.
  6. Free surplus generation represents ‘underlying free surplus’ based on operating movements, including the general insurance commission earned during the period and excludes market movement, foreign exchange, capital movements, shareholders’ other income and expenditure and centrally arising restructuring and Solvency II implementation costs. Further information is set out in note 9 of the EEV basis results.
  7. Business unit net remittances to the Group form part of the net cash flows of the holding company. A full holding company cash flow is set out in note II (a) of the additional financial information. This differs from the IFRS Consolidated Statement of Cash Flows which includes all cash flows relating to both policyholders and shareholders’ fund. The holding company cash flow is therefore a more meaningful indicator of the Group’s central liquidity.
  8. Estimated before allowing for first interim dividends.
  9. Excludes surplus in ring-fenced policyholder funds. The methodology and assumptions used in calculating the Group Solvency II capital results are set out in note II (c) of the additional financial information.

Section 1

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Group Chief Executive's report

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