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B: Earnings performance

B1: Analysis of performance by segment

B1.1 Segment results – profit before tax

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    2016 £m   2015 £m   %   2015 £m
  Note
 
Half year
 
  AER Half year
  note (iv)
CER Half year
  note (iv)
  Half year
2016 vs
half year
2015 AER
  note (iv)
Half year
2016 vs
half year
2015 CER
  note (iv)
  AER Full year
 
Asia operations                    
Asia insurance operations B4(a) 682   574 584   19% 17%   1,209
Eastspring Investments   61   58 60   5% 2%   115
Total Asia operations   743   632 644   18% 15%   1,324
                     
US operations                    
Jackson (US insurance operations)   888   834 887   6% 0%   1,691
Broker-dealer and asset management   (12)   12 12   (200)% (200)%   11
Total US operations   876   846 899   4% (3)%   1,702
                     
UK operations                    
UK insurance operations: B4(b)                  
Long-term business   473   436 436   8% 8%   1,167
General insurance commissionnote (i)   19   17 17   12% 12%   28
Total UK insurance operations   492   453 453   9% 9%   1,195
M&G   225   251 251   (10)% (10)%   442
Prudential Capital   13   7 7   86% 86%   19
Total UK operations   730   711 711   3% 3%   1,656
                     
Total segment profit   2,349   2,189 2,254   7% 4%   4,682
                     
Other income and expenditure                    
Investment return and other income   6   11 11   (45)% (45)%   14
Interest payable on core structural borrowings   (165)   (148) (148)   (11)% (11)%   (312)
Corporate expenditurenote (ii)   (156)   (146) (146)   (7)% (7)%   (319)
Total   (315)   (283) (283)   (11)% (11)%   (617)
Solvency II implementation costs   (11)   (17) (17)   35% 35%   (43)
Restructuring costsnote (iii)   (7)   (8) (8)   13% 13%   (15)
Interest received from tax settlement   43     n/a n/a  
Operating profit based on longer-term investment returns   2,059   1,881 1,946   9% 6%   4,007
                     
Short-term fluctuations in investment returns on shareholder-backed business B1.2 (1,360)   86 97   (1,681)% (1,502)%   (737)
Amortisation of acquisition accounting adjustmentsnote (v)   (35)   (39) (42)   10% 17%   (76)
Cumulative exchange loss on the sold Japan life business recycled from other comprehensive incomenote (vi)     (46) (54)   n/a n/a   (46)
Profit before tax attributable to shareholders   664   1,882 1,947   (65)% (66)%   3,148
Tax charge attributable to shareholders’ returns   23   (444) (461)   105% 105%   (569)
Profit for the period attributable to shareholders   687   1,438 1,486   (52)% (54)%   2,579

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    2016   2015   %   2015
Basic earnings per share (in pence) B6 Half year
 
  AER Half year
  note (iv)
CER Half year
  note (iv)
  Half year
2016 vs
half year
2015 AER
  note (iv)
Half year
2016 vs
half year
2015 CER
  note (iv)
  AER Full year
 

Notes

  1. The Group’s UK insurance operations transferred its general insurance business to Churchill in 2002. General insurance commission represents the commission receivable net of expenses for Prudential-branded general insurance products as part of this arrangement which terminates at the end of 2016.
  2. Corporate expenditure as shown above is for Group Head Office and Asia Regional Head Office.
  3. Restructuring costs are incurred in the UK and represent one-off business development expenses.
  4. For definitions of AER and CER refer to note A1.
  5. Amortisation of acquisition accounting adjustments principally relate to the REALIC business of Jackson.
  6. On 5 February 2015, the Group completed the sale of its closed book life insurance business in Japan.
Based on operating profit based on longer-term investment returns   61.8p   57.0p 59.0p   8% 5%   125.8p
Based on profit for the period   26.9p   56.3p 58.2p   (52)% (54)%   101.0p

B1.2 Short-term fluctuations in investment returns on shareholder-backed business

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  2016 £m   2015 £m
  Half year   Half year Full year

Notes

  1. Asia insurance operations
    In Asia, the positive short-term fluctuations of £26 million principally reflect net value movements on shareholders’ assets and related liabilities following falls in bond yields across the region during the period (half year 2015: negative £(57) million; full year 2015: negative £(119) million).
  2. US insurance operations
    The short-term fluctuations in investment returns for US insurance operations are reported net of related credit for amortisation of deferred acquisition costs of £616 million as shown in note C5.1(b) (half year 2015: charge of £188 million; full year 2015: credit of £93 million) and comprise amounts in respect of the following items:

     

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      2016 £m   2015 £m
      Half year   Half year Full year
    Net equity hedge resultnote (a) (1,692)   214 (504)
    Other than equity-related derivativesnote (b) 335   (71) 29
    Debt securitiesnote (c) (105)   66 1
    Equity-type investments: actual less longer-term return 13   7 19
    Other items 9   12 31
    Total (1,440)   228 (424)

    Notes

    1. Net equity hedge result
      The purpose of the inclusion of this item in short-term fluctuations in investment returns is to segregate the amount included in pre-tax profit that relates to the accounting effect of market movements on both the measured value of guarantees in Jackson’s variable annuity and fixed index annuity products and on the related derivatives used to manage the exposures inherent in these guarantees. As the Group applies US GAAP for the measured value of the product guarantees this item also includes asymmetric impacts where the measurement bases of the liabilities and associated derivatives used to manage the Jackson annuity business differ as described below.
      The result comprises the net effect of:

      • The accounting value movements on the variable and fixed index annuity guarantee liabilities;
      • Adjustments in respect of fee assessments and claim payments;
      • Fair value movements on free-standing equity derivatives; and
      • Related changes to DAC amortisation in accordance with the policy that DAC is amortised in line with emergence of margins.
      Movements in the accounting values of the variable annuity guarantee liabilities include those for:

      • The Guaranteed Minimum Death Benefit (GMDB), and the ‘for life’ portion of Guaranteed Minimum Withdrawal Benefit (GMWB) guarantees which are measured under the US GAAP basis applied for IFRS in a way that is substantially insensitive to the effect of current period equity market and interest rate changes.
      • The ‘not for life’ portion of GMWB embedded derivative liabilities which are required to be measured under IAS 39 using a basis under which the projected future growth rate of the account balance is based on current swap rates (rather than expected rates of return) with only a portion of the expected future guarantee fees included. Reserve value movements on these liabilities are sensitive to changes to levels of equity markets, implied volatility and interest rates.

      The free-standing equity derivatives are held to manage equity exposures of the variable annuity guarantees and fixed index annuity embedded options.

      The net equity hedge result therefore includes significant accounting mismatches and other factors that detract from the presentation of an economic result.

      These other factors include:


      • The variable annuity guarantees and fixed index annuity embedded options being only partially fair valued under ‘grandfathered’ GAAP;
      • The interest rate exposure being managed through the other than equity-related derivative programme explained in note (b) below; and
      • Jackson’s management of its economic exposures for a number of other factors that are treated differently in the accounting frameworks such as future fees and assumed volatility levels.
    2. Other than equity-related derivatives
      The fluctuations for this item comprise the net effect of:

      • Fair value movements on free-standing, other than equity-related derivatives;
      • Accounting effects of the Guaranteed Minimum Income Benefit (GMIB) reinsurance; and
      • Related amortisation of DAC.

      The free-standing, other than equity-related derivatives are held to manage interest rate exposures and durations within the general account and the variable annuity guarantees and fixed index annuity embedded options described in note (a) above.

      The direct GMIB liability is valued using the US GAAP measurement basis applied for IFRS reporting in a way that substantially does not recognise the effects of market movements. Reinsurance arrangements are in place so as to essentially fully insulate Jackson from the GMIB exposure. Notwithstanding that the liability is essentially fully reinsured, as the reinsurance asset is net settled, it is deemed a derivative under IAS 39 which requires fair valuation.

      The fluctuations for this item therefore include significant accounting mismatches caused by:

      • The fair value movements booked in the income statement on the derivative programme being in respect of the management of interest rate exposures of the variable and fixed index annuity business, as well as the fixed annuity business guarantees and durations within the general account;
      • Fair value movements on Jackson’s debt securities of the general account which are recorded in other comprehensive income rather than the income statement; and
      • The mixed measurement model that applies for the GMIB and its reinsurance.
    3. Short-term fluctuations related to debt securities

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        2016 £m   2015 £m
        Half year   Half year Full year

      The debt securities of Jackson are held in the general account of the business. Realised gains and losses are recorded in the income statement with normalised returns included in operating profit and variations from year to year are included in the short-term fluctuations category. The risk margin reserve charge for longer-term credit-related losses included in operating profit based on longer-term investment returns of Jackson for half year 2016 is based on an average annual risk margin reserve of 21 basis points (half year 2015: 23 basis points; full year 2015: 23 basis points) on average book values of US$56.4 billion (half year 2015: US$54.3 billion; full year 2015: US$54.6 billion) as shown below:


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        Half year 2016   Half year 2015   Full year 2015
      Moody’s rating category (or equivalent under NAIC ratings of mortgage-backed securities) Average book value   RMR   Annual expected loss   Average book value   RMR   Annual expected loss   Average book value   RMR   Annual expected loss
      US$m   %   US$m £m   US$m   %   US$m £m   US$m   %   US$m £m
      A3 or higher 29,172   0.12   (36) (25)   28,211   0.13   (37) (24)   28,185   0.13   (37) (24)
      Baa1, 2 or 3 25,771   0.24   (63) (44)   24,317   0.25   (60) (40)   24,768   0.25   (62) (40)
      Ba1, 2 or 3 1,065   1.08   (11) (8)   1,333   1.18   (16) (10)   1,257   1.17   (15) (10)
      B1, 2 or 3 319   3.02   (10) (7)   396   3.07   (12) (8)   388   3.08   (12) (8)
      Below B3 41   3.81   (2) (1)   43   3.69   (2) (1)   35   3.70   (1) (1)
      Total 56,368   0.21   (122) (85)   54,300   0.23   (127) (83)   54,633   0.23   (127) (83)
                                               
      Related amortisation of deferred acquisition costs (see below) 22 15           24 16           24 16
      Risk margin reserve charge to operating profit for longer-term credit-related losses (100) (70)           (103) (67)           (103) (67)

      Consistent with the basis of measurement of insurance assets and liabilities for Jackson’s IFRS results, the charges and credits to operating profits based on longer-term investment returns are partially offset by related amortisation of deferred acquisition costs.

      In addition to the accounting for realised gains and losses described above for Jackson general account debt securities, included within the statement of other comprehensive income is a pre-tax credit for net unrealised gains on debt securities classified as available-for-sale net of related amortisation of deferred acquisition costs of £1,683 million (half year 2015: charge for net unrealised loss of £(597) million; full year 2015: charge for net unrealised loss of £(968) million).

      Temporary market value movements do not reflect defaults or impairments. Additional details of the movement in the value of the Jackson portfolio are included in note C3.3(b).

      Short-term fluctuations relating to debt securities        
      (Charges) credits in the period:        
      Losses on sales of impaired and deteriorating bonds (87)   (13) (54)
      Defaults (6)  
      Bond write downs (32)   (3) (37)
      Recoveries/reversals 4   15 18
      Total credits (charges) in the period (121)   (1) (73)
      Less: Risk margin allowance deducted from operating profit based on longer-term investment returns 42   41 83
      (79)   40 10
      Interest-related realised gains:        
      Arising in the period 20   95 102
      Less: Amortisation of gains and losses arising in current and prior periods to operating profit based on longer-term investment returns (59)   (61) (108)
      (39)   34 (6)
      Related amortisation of deferred acquisition costs 13   (8) (3)
      Total short-term fluctuations related to debt securities (105)   66 1
  3. UK insurance operations
    The positive short-term fluctuations in investment returns for UK insurance operations of £246 million (half year 2015: negative £(96) million; full year 2015: negative £(120) million) include net unrealised movements on fixed income assets supporting the capital of the shareholder-backed annuity business.
  4. Other
    The negative short-term fluctuations in investment returns for other operations of £(192) million (half year 2015: positive £11 million; full year 2015: negative £(74) million) include unrealised value movements on financial instruments and foreign exchange items.
  5. Default losses
    The Group incurred default losses of £6 million on its shareholder-backed debt securities portfolio for half year 2016 wholly in respect of Jackson’s portfolio (half year 2015 and full year 2015: £nil).
Insurance operations:        
Asianote (i) 26   (57) (119)
USnote (ii) (1,440)   228 (424)
UKnote (iii) 246   (96) (120)
Other operationsnote (iv) (192)   11 (74)
Total (1,360)   86 (737)

B1.3 Determining operating segments and performance measure of operating segments

Operating segments

The Group’s operating segments, determined in accordance with IFRS 8 ‘Operating Segments’, are as follows:

Insurance operations:

Asset management operations:

  • Asia
  • Eastspring Investments
  • US (Jackson)
  • US broker-dealer and asset management
  • UK
  • M&G
 
  • Prudential Capital

The Group’s operating segments are also its reportable segments for the purposes of internal management reporting.

Performance measure

The performance measure of operating segments utilised by the Company is IFRS operating profit attributable to shareholders based on longer-term investment returns. This measurement basis distinguishes operating profit based on longer-term investment returns from other constituents of the total profit as follows:

  • Short-term fluctuations in investment returns on shareholder-backed business;
  • Amortisation of acquisition accounting adjustments arising on the purchase of business. This comprises principally the charge for the adjustments arising on the purchase of REALIC in 2012;
  • The recycling of the cumulative exchange translation loss on the sold Japan life business from other comprehensive income to the income statement in 2015.

Segment results that are reported to the Group Executive Committee include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items are mainly in relation to the Group Head Office and the Asia Regional Head Office.

The determination of operating profit based on longer-term investment returns for investment and liability movements is as described in note B1.3 of the Group’s consolidated financial statements for the year ended 31 December 2015.

For Group debt securities at 30 June 2016, the level of unamortised interest-related realised gains and losses related to previously sold bonds and have yet to be amortised to operating profit was a net gain of £605 million (30 June 2015: net gain of £478 million; 31 December 2015: net gain of £567 million).

For equity-type securities, the longer-term rates of return applied by the non-linked shareholder-financed insurance operations of Asia and the US to determine the amount of investment return included in operating profit are as follows:

  • For Asia insurance operations, investments in equity securities held for non-linked shareholder-financed operations amounted to £1,035 million as at 30 June 2016 (30 June 2015: £831 million; 31 December 2015: £840 million). The rates of return applied for 2016 ranged from 3.2 per cent to 13.0 per cent (30 June 2015: 3.8 per cent to 13.0 per cent, 31 December 2015: 3.5 per cent to 13.0 per cent) with the rates applied varying by territory.
  • For US insurance operations, at 30 June 2016, the equity-type securities for non-separate account operations amounted to £1,115 million (30 June 2015: £1,087 million; 31 December 2015: £1,004 million). The longer-term rates of return for income and capital applied in 2016 and 2015, which reflect the combination of the average risk-free rates over the period and appropriate risk premiums, are as follows:

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  2016   2015
  Half year   Half year Full year
Equity-type securities such as common and preferred stock and portfolio holdings in mutual funds 5.5% to 5.9%   5.7% to 6.4% 5.7% to 6.4%
Other equity-type securities such as investments in limited partnerships and private equity funds 7.5% to 7.9%   7.7% to 8.4% 7.7% to 8.4%

B1.4 Additional segmental analysis of revenue

The additional segmental analyses of revenue from external customers excluding investment return and net of outward reinsurance premiums are as follows:

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  Half year 2016 £m
  Asia US UK Intra-group Total
Revenue from external customers:          
Insurance operations 5,747 6,817 4,985 17,549
Asset management 179 369 561 (246) 863
Unallocated corporate 67 67
Intra-group revenue eliminated on consolidation (95) (47) (104) 246
Total revenue from external customers 5,831 7,139 5,509 18,479
           

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  Half year 2015 £m
  Asia US UK Intra-group Total
Revenue from external customers:          
Insurance operations 5,154 8,426 4,518 18,098
Asset management 179 451 641 (241) 1,030
Unallocated corporate 41 41
Intra-group revenue eliminated on consolidation (94) (45) (102) 241
Total revenue from external customers 5,239 8,832 5,098 19,169
           

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  Full year 2015 £m
  Asia US UK Intra-group Total
Revenue from external customers:          
Insurance operations 10,514 16,567 8,863 35,944
Asset management 349 850 1,246 (487) 1,958
Unallocated corporate 99 99
Intra-group revenue eliminated on consolidation (178) (90) (219) 487
Total revenue from external customers 10,685 17,327 9,989 38,001

Revenue from external customers comprises:

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  2016 £m   2015 £m
  Half year   Half year Full year
Earned premiums, net of reinsurance 17,394   17,884 35,506
Fee income and investment contract business and asset management (presented as ‘Other income’) 1,085   1,285 2,495
Total revenue from external customers 18,479   19,169 38,001

The asset management operations of M&G, Prudential Capital, Eastspring Investments and the US asset management businesses provide services to the Group insurance operations. Intra-group fees included within asset management revenue were earned by the following asset management segments:

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  2016 £m   2015 £m
  Half year   Half year Full year
Intra-group revenue generated by:        
M&G 88   93 194
Prudential Capital 16   9 25
Eastspring Investments 95   94 178
US broker-dealer and asset management 47   45 90
Total intra-group fees included within asset management segment 246   241 487

Revenue from external customers of Asia, US and UK insurance operations shown above are net of outwards reinsurance premiums of £401 million, £162 million and £381 million respectively (half year 2015: £228 million, £142 million and £152 million respectively; full year 2015: £364 million, £320 million and £473 million respectively).

Gross premiums earned in Asia including those attributable to joint ventures (that are accounted for on an equity method) were £6,814 million (half year 2015: £6,086 million; full year 2015: £12,136 million).

B2: Profit before tax – asset management operations

The profit included in the income statement in respect of asset management operations for the year is as follows:

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  2016 £m   2015 £m
  M&G Prudential Capital US Eastspring Investments Half year Total   Half year Total Full year Total

Notes

  1. NPH broker-dealer fees represent commissions received that are then paid on to the writing brokers on sales of investment products.
    To reflect their commercial nature, the amounts are also wholly reflected as charges within the income statement. After allowing for these charges, there is no effect on profit from this item. The presentation in the table above shows the amounts attributable to this item so that the underlying revenue and charges can be seen.
  2. M&G operating profit based on longer-term investment returns:

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      2016 £m   2015 £m
      Half year   Half year Full year

    The revenue for M&G of £449 million (half year 2015: £492 million; full year 2015: £961 million), comprises the amounts for asset management fee income, other income and performance-related fees shown above, is different to the amount of £557 million shown in the main table of this note. This is because the £449 million (half year 2015: £492 million; full year 2015: £961 million) is after deducting commissions which would have been included as charges in the main table. The difference in the presentation of commission is aligned with how management reviews the business.

    Asset management fee income 431   489 934
    Other income 9   2 5
    Staff costs (133)   (154) (293)
    Other costs (96)   (94) (240)
    Underlying profit before performance-related fees 211   243 406
    Share of associate’s results 5   7 14
    Performance-related fees 9   1 22
    M&G operating profit based on longer-term investment returns 225   251 442
Revenue (excluding NPH broker-dealer fees) 557 (13) 109 181 834   1,029 1,964
NPH broker-dealer feesnote (i) 259 259   272 522
Gross revenue 557 (13) 368 181 1,093   1,301 2,486
Charges (excluding NPH broker-dealer fees) (339) (48) (121) (141) (649)   (734) (1,497)
NPH broker-dealer feesnote (i) (259) (259)   (272) (522)
Gross charges (339) (48) (380) (141) (908)   (1,006) (2,019)
Share of profits from joint ventures and associates, net of related tax 5 21 26   27 55
Profit before tax 223 (61) (12) 61 211   322 522
Comprising:                
Operating profit based on longer-term investment returnsnote (ii) 225 13 (12) 61 287   328 587
Short-term fluctuations in investment returns (2) (74) (76)   (6) (65)
Profit before tax 223 (61) (12) 61 211   322 522

B3: Acquisition costs and other expenditure

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  2016 £m   2015 £m
  Half year   Half year Full year
Acquisition costs incurred for insurance policies (1,700)   (1,580) (3,275)
Acquisition costs deferred less amortisation of acquisition costs 740   (15) 431
Administration costs and other expenditure (2,451)   (2,314) (4,746)
Movements in amounts attributable to external unit holders of consolidated investment funds (152)   (596) (618)
Total acquisition costs and other expenditure (3,563)   (4,505) (8,208)

Included in total acquisition costs and other expenditure is depreciation of property, plant and equipment of £(75) million (half year 2015: £(55) million; full year 2015: £(129) million).

B4: Effect of changes and other accounting features on insurance assets and liabilities

The following features are of relevance to the determination of the half year 2016 results:

a Asia insurance operations

In half year 2016, the IFRS operating profit based on longer-term investment returns for Asia insurance operations included a net credit of £42 million (half year 2015: £29 million; full year 2015: £62 million) representing a small number of non-recurring items, including a gain resulting from entering into a reinsurance contract in the period.

b UK insurance operations

Annuity business – allowance for credit risk

For IFRS reporting, the results for UK shareholder-backed annuity business are particularly sensitive to the allowances made for credit risk. The allowance is reflected in the deduction from the valuation rate of interest used for discounting projected future annuity payments to policyholders that would have otherwise applied. The credit risk allowance comprises an amount for long-term best estimate defaults and additional provisions for credit risk premium, the cost of downgrades and short-term defaults.

The IFRS credit risk allowance made for shareholder-backed fixed and linked annuity business for PRIL, the principal company which writes the UK’s shareholder-backed business, equated to 43 basis points at 30 June 2016 (30 June 2015: 46 basis points; 31 December 2015: 43 basis points). The allowance represented 23 per cent of the bond spread over swap rates (30 June 2015: 31 per cent; 31 December 2015: 25 per cent).

The reserves for credit risk allowance at 30 June 2016 for the UK shareholder-backed business were as follows:

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  2016 £bn   2015 £bn
  30 Jun   30 Jun 31 Dec
PRIL 1.6   1.5 1.5
PAC shareholder annuity business 0.2   0.2 0.1
Total 1.8   1.7 1.6

Annuity business – longevity reinsurance and other management actions

A number of management actions were taken in the first half of 2016 to improve the solvency position of the UK insurance operations and further mitigate market risk, which have generated combined profits of £140 million. Similar actions were also taken in 2015.

Of this amount £66 million related to profit from additional longevity reinsurance transactions covering £1.5 billion of annuity liabilities on an IFRS basis, with the balance of £74 million reflecting the effect of repositioning the fixed income portfolio and other actions.

The contribution to profit from similar longevity reinsurance transactions in 2015 was £61 million for half year covering £1.6 billion of annuity liabilities (on a Pillar 1 basis) and £231 million for full year covering £6.4 billion of annuity liabilities (on a Pillar 1 basis). Other asset-related management actions generated a further £169 million at full year 2015.

At 30 June 2016, longevity reinsurance covered £10.7 billion of IFRS annuity liabilities equivalent to 32 per cent of total annuity liabilities.

B5: Tax charge

a Total tax charge by nature of expense

The total tax charge in the income statement is as follows:

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  2016 £m   2015 £m
Tax charge Current tax Deferred tax Half year Total   Half year Total Full year Total
UK tax (162) (67) (229)   (159) (149)
Overseas tax (340) 300 (40)   (487) (593)
Total tax (charge) credit (502) 233 (269)   (646) (742)

The current tax charge of £502 million includes £27 million (half year 2015: £16 million; full year 2015: £35 million) in respect of the tax charge for the Hong Kong operation. The Hong Kong current tax charge is calculated as 16.5 per cent for all periods on either: (i) 5 per cent of the net insurance premium; or (ii) the estimated assessable profits, depending on the nature of the business written.

The total tax charge comprises tax attributable to policyholders and unallocated surplus of with-profits funds, unit-linked policies and shareholders as shown below:

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  2016 £m   2015 £m
Tax charge Current tax Deferred tax Half year Total   Half year Total Full year Total
Tax charge to policyholders’ returns (153) (139) (292)   (202) (173)
Tax (charge) credit attributable to shareholders (349) 372 23   (444) (569)
Total tax (charge) credit (502) 233 (269)   (646) (742)

The principal reason for the increase in the tax charge attributable to policyholders’ returns compared to half year 2015 is an increase on investment return in the with-profits fund in the UK insurance operations. An explanation of the tax charge attributable to shareholders is shown in note (b) below.

b Reconciliation of effective tax rate

Reconciliation of tax charge on profit attributable to shareholders

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  Half year 2016 £m
  Asia
insurance operations
US
insurance operations
UK
insurance operations
Other operations Total
Operating profit (loss) based on longer-term investment returns 682 888 492 (3) 2,059
Non-operating profit (loss) 22 (1,471) 246 (192) (1,395)
Profit (loss) before tax attributable to shareholders 704 (583) 738 (195) 664
Expected tax rate* 21% 35% 20% 20% 8%
Tax at the expected rate 148 (204) 148 (39) 53
Effects of recurring tax reconciliation items:          
Income not taxable or taxable at concessionary rates (14) (5) (16) (3) (38)
Deductions not allowable for tax purposes 8 2 6 2 18
Items related to taxation of life insurance businesses (10) (60) (1) (71)
Deferred tax adjustments (1) 3 (3) (1)
Effect of results of joint ventures and associates (10) (7) (17)
Irrecoverable withholding taxes 20 20
Other 3 (2) 16 17
Total (24) (63) (10) 25 (72)
Effects of non-recurring tax reconciliation items:          
Adjustments to tax charge in relation to prior years 1 (3) (2) (4)
Total 1 (3) (2) (4)
Total actual tax charge (credit) 125 (270) 138 (16) (23)
   
Analysed into:          
Tax on operating profit based on longer-term investment returns 120 245 101 13 479
Tax on non-operating profit 5 (515) 37 (29) (502)
Actual tax rate:          
Operating profit based on longer-term investment returns          
Including non-recurring tax reconciling items 18% 28% 21% (433)% 23%
Excluding non-recurring tax reconciling items 17% 28% 21% (500)% 23%
Total profit 18% 46% 19% 8% (3)%

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  Half year 2015 £m
  Asia
insurance operations
US
insurance operations
UK
insurance operations
Other operations Total
Operating profit based on longer-term investment returns 574 834 453 20 1,881
Non-operating (loss) profit (107) 193 (96) 11 1
Profit before tax attributable to shareholders 467 1,027 357 31 1,882
Expected tax rate* 26% 35% 20% 19% 30%
Tax at the expected rate 121 359 71 6 557
Effects of recurring tax reconciliation items:          
Income not taxable or taxable at concessionary rates (13) (3) (2) (5) (23)
Deductions not allowable for tax purposes 4 2 2 11 19
Items related to taxation of life insurance businesses (2) (64) (66)
Deferred tax adjustments 1 (1) (4) (4)
Effect of results of joint ventures and associates (16) (6) (22)
Irrecoverable withholding taxes 14 14
Other 2 5 (3) 4
Total (24) (65) 4 7 (78)
Effects of non-recurring tax reconciliation items:          
Adjustments to tax charge in relation to prior years 5 (28) 4 (19)
Movements in provisions for open tax matters (9) (2) (11)
Impact of changes in local statutory tax rates (5) (5)
Total (9) (28) 2 (35)
Total actual tax charge 88 266 75 15 444
   
Analysed into:          
Tax on operating profit based on longer-term investment returns 91 222 94 19 426
Tax on non-operating profit (3) 44 (19) (4) 18
Actual tax rate:          
Operating profit based on longer-term investment returns          
Including non-recurring tax reconciling items 16% 27% 21% 95% 23%
Excluding non-recurring tax reconciling items 17% 30% 21% 85% 25%
Total profit 19% 26% 21% 48% 24%

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  Full year 2015 £m
  Asia
insurance operations
US
insurance operations
UK
insurance operations
Other operations Total

* The expected tax rates (rounded to the nearest whole percentage) reflect the corporation tax rates generally applied to taxable profit of the relevant country jurisdictions. For Asia operations the expected tax rates reflect the corporation tax rates weighted by reference to the source of profit of operations contributing to the aggregate business result. The expected tax rate for other operations reflects the mix of business between UK and overseas non-insurance operations, which are taxed at a variety of rates. The rates will fluctuate from year to year dependent on the mix of profit.

Operating profit (loss) based on longer-term investment returns 1,209 1,691 1,195 (88) 4,007
Non-operating loss (173) (492) (120) (74) (859)
Profit (loss) before tax attributable to shareholders 1,036 1,199 1,075 (162) 3,148
Expected tax rate* 24% 35% 20% 20% 27%
Tax at the expected rate 249 420 215 (32) 852
Effects of recurring tax reconciliation items:          
Income not taxable or taxable at concessionary rates (42) (10) (2) (9) (63)
Deductions not allowable for tax purposes 15 5 7 6 33
Items related to taxation of life insurance businesses (20) (113) (133)
Deferred tax adjustments 10 (11) (1)
Effect of results of joint ventures and associates (37) (13) (50)
Irrecoverable withholding taxes 28 28
Other (4) (1) 6 2 3
Total (78) (119) 11 3 (183)
Effects of non-recurring tax reconciliation items:          
Adjustments to tax charge in relation to prior years 5 (65) (7) (67)
Movements in provisions for open tax matters (6) (5) (11)
Impact of changes in local statutory tax rates (5) (16) (1) (22)
Total (6) (65) (23) (6) (100)
Total actual tax charge (credit) 165 236 203 (35) 569
   
Analysed into:          
Tax on operating profit based on longer-term investment returns 180 408 227 (19) 796
Tax on non-operating profit (15) (172) (24) (16) (227)
Actual tax rate:          
Operating profit based on longer-term investment returns          
Including non-recurring tax reconciling items 15% 24% 19% 22% 20%
Excluding non-recurring tax reconciling items 15% 28% 21% 15% 22%
Total profit 16% 20% 19% 22% 18%

B6: Earnings per share

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  Half year 2016
  Note Before
tax
note B1.1
£m
Tax
note B5
£m
Net of tax

£m
Basic
earnings
per share

pence
Diluted
earnings
per share

pence
Based on operating profit based on longer-term investment returns   2,059 (479) 1,580 61.8p 61.7p
Short-term fluctuations in investment returns on shareholder-backed business B1.2 (1,360) 491 (869) (34.0)p (34.0)p
Amortisation of acquisition accounting adjustments   (35) 11 (24) (0.9)p (0.9)p
Based on profit for the period   664 23 687 26.9p 26.8p

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  Half year 2015
  Note Before
tax
note B1.1
£m
Tax
note B5
£m
Net of tax

£m
Basic
earnings
per share

pence
Diluted
earnings
per share

pence
Based on operating profit based on longer-term investment returns   1,881 (426) 1,455 57.0p 56.9p
Short-term fluctuations in investment returns on shareholder-backed business B1.2 86 (31) 55 2.1p 2.1p
Cumulative exchange loss on the sold Japan life business recycled from other comprehensive income   (46) (46) (1.8)p (1.8)p
Amortisation of acquisition accounting adjustments   (39) 13 (26) (1.0)p (1.0)p
Based on profit for the period   1,882 (444) 1,438 56.3p 56.2p

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  Full year 2015
  Note Before
tax
note B1.1
£m
Tax
note B5
£m
Net of tax

£m
Basic
earnings
per share

pence
Diluted
earnings
per share

pence
Based on operating profit based on longer-term investment returns   4,007 (796) 3,211 125.8p 125.6p
Short-term fluctuations in investment returns on shareholder-backed business B1.2 (737) 202 (535) (21.0)p (20.9)p
Cumulative exchange loss on the sold Japan life business recycled from other comprehensive income   (46) (46) (1.8)p (1.8)p
Amortisation of acquisition accounting adjustments   (76) 25 (51) (2.0)p (2.0)p
Based on profit for the year   3,148 (569) 2,579 101.0p 100.9p

Earnings per share are calculated based on earnings attributable to ordinary shareholders, after related tax and non-controlling interests.

The weighted average number of shares for calculating earnings per share, which excludes those held in employee share trusts and consolidated unit trusts and OEICs, is set out as below:

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  Half year
2016
millions
Half year
2015
millions
Full year
2015
millions
Weighted average number of shares for calculation of:      
Basic earnings per share 2,558 2,552 2,553
Diluted earnings per share 2,559 2,555 2,556

B7: Dividends

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  Half year 2016   Half year 2015   Full year 2015
  Pence per
share
£m   Pence per
share
£m   Pence per
share
£m
Dividends relating to reporting period:                
First interim dividend/interim dividend for prior year 12.93p 333   12.31p 315   12.31p 315
Second interim dividend     26.47p 681
Special dividend     10.00p 257
Total 12.93p 333   12.31p 315   48.78p 1,253
Dividends declared and paid in reporting period:                
Current year interim dividend     12.31p 315
Second interim dividend/final dividend for prior year 26.47p 679   25.74p 659   25.74p 659
Special dividend 10.00p 256    
Total 36.47p 935   25.74p 659   38.05p 974

Dividend per share

Prudential makes twice-yearly interim dividend payments to replace interim/final dividends that were paid in 2015. The second interim dividend of 26.47 pence per ordinary share and the special dividend of 10.00 pence per ordinary share for the year ended 31 December 2015 were paid to eligible shareholders on 20 May 2016.

The 2016 first interim dividend of 12.93 pence per ordinary share will be paid on 29 September 2016 in sterling to shareholders on the principal register and the Irish branch register at 6.00pm BST on 26 August 2016 (Record Date), and in Hong Kong dollars to shareholders on the Hong Kong branch register at 4.30pm Hong Kong time on the Record Date (HK Shareholders). Holders of US American Depositary Receipts (US Shareholders) will be paid their dividends in US dollars on or about 6 October 2016. The first interim dividend will be paid on or about 6 October 2016 in Singapore dollars to shareholders with shares standing to the credit of their securities accounts with The Central Depository (Pte.) Limited (CDP) at 5.00pm Singapore time on the Record Date (SG Shareholders). The dividend payable to the HK Shareholders will be translated using the exchange rate quoted by the WM Company at the close of business on 9 August 2016. The exchange rate at which the dividend payable to the SG Shareholders will be translated into Singapore Dollars, will be determined by CDP.

Shareholders on the principal register and Irish branch register will be able to participate in a Dividend Reinvestment Plan.

Section 3

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C: Balance sheet notes

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