Prudential plc - HY21 Results - IFRS

IFRS disclosure and additional financial information

Prudential plc Half Year 2021 results

International Financial Reporting Standards (IFRS) basis results

 

CONDENSED CONSOLIDATED INCOME STATEMENT

 

				2021 $m		2020 $m
			Note	Half year		Half year	Full year
Continuing operations:
Gross premiums earned				11,521		10,950	23,495
Outward reinsurance premiums				(898)		46	(1,625)
Earned premiums, net of reinsurance			B1.4	10,623		10,996	21,870
Investment return				738		4,202	13,762
Other income				331		305	615
Total revenue, net of reinsurance			B1.4	11,692		15,503	36,247
Benefits and claims and movement in unallocated surplus of with-profits funds, net of reinsurance				(7,748)		(11,728)	(28,588)
Acquisition costs and other expenditure			B2	(2,402)		(2,823)	(4,651)
Finance costs: interest on core structural borrowings of shareholder-financed businesses				(164)		(153)	(316)
Loss attaching to corporate transactions			D1.1	(56)		-	(30)
Total charges, net of reinsurance				(10,370)		(14,704)	(33,585)
Share of profit from joint ventures and associates, net of related tax				179		133	517
Profit before tax (being tax attributable to shareholders' and policyholders' returns)note (i)				1,501		932	3,179
Remove tax charge attributable to policyholders' returns				(238)		(66)	(271)
Profit before tax attributable to shareholders' returns			B1.1	1,263		866	2,908
Total tax charge attributable to shareholders' and policyholders' returns			B3.1	(431)		(310)	(711)
Remove tax charge attributable to policyholders' returns				238		66	271
Tax charge attributable to shareholders' returns			B3.1	(193)		(244)	(440)
Profit from continuing operations			B1.5	1,070		622	2,468
Loss from discontinued US operationsnote (ii)			D1.2	(5,707)		(88)	(283)
(Loss) profit for the period				(4,637)		534	2,185
Attributable to:
Equity holders of the Company:
	From continuing operations			1,063		600	2,458
	From discontinued US operations			(5,073)		(88)	(340)
				(4,010)		512	2,118
Non-controlling interests:
	From continuing operations			7		22	10
	From discontinued US operations			(634)		-	57
				(627)		22	67
(Loss) profit for the period				(4,637)		534	2,185

 

Earnings per share (in cents)				2021		2020
			Note	Half year		Half year	Full year
Based on profit attributable to equity holders of the Company:			B4
	Basic
		Based on profit from continuing operations		40.9¢		23.1¢	94.6¢
		Based on loss from discontinued US operationsnote (ii)		(195.1)¢		(3.4)¢	(13.0)¢
	Total			(154.2)¢		19.7¢	81.6¢
	Diluted
		Based on profit from continuing operations		40.9¢		23.1¢	94.6¢
		Based on loss from discontinued US operationsnote (ii)		(195.1)¢		(3.4)¢	(13.0)¢
	Total			(154.2)¢		19.7¢	81.6¢

 

Dividends per share (in cents)			2021		2020
		Note	Half year		Half year	Full year
Dividends relating to reporting period:		B5
	First interim ordinary dividend		5.37¢		5.37¢	5.37¢
	Second interim ordinary dividend		-		-	10.73¢
Total			5.37¢		5.37¢	16.10¢
Dividends paid in reporting period:		B5
	Current year first interim dividend		-		-	5.37¢
	Second interim ordinary dividend for prior year		10.73¢		25.97¢	25.97¢
Total			10.73¢		25.97¢	31.34¢

 

Notes

(i)    This measure is the formal profit before tax measure under IFRS. It is not the result attributable to shareholders principally because total corporate tax of the Group includes those on the income of consolidated with-profits and unit-linked funds that, through adjustments to benefits, are borne by policyholders. These amounts are required to be included in the tax charge of the Company under IAS 12. Consequently, the IFRS profit before tax measure is not representative of pre-tax profit attributable to shareholders as it is determined after deducting the cost of policyholder benefits and movements in the liability for unallocated surplus of with-profits funds after adjusting for tax borne by policyholders.

(ii)   Loss from discontinued US operations represents the aggregate of the post-tax results during the period and the remeasurement adjustment to the carrying value of the business to reflect its classification as held for distribution in half year 2021. The 2020 comparative results have been re-presented from those previously published accordingly (as described in note A1).

 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

				2021 $m		2020* $m
			Note	Half year		Half year	Full year
Continuing operations:
Profit for the period				1,070		622	2,468
Other comprehensive income (loss)
Exchange movements arising during the period				(163)		(201)	233
Total items that may be reclassified subsequently to profit or loss				(163)		(201)	233
Total comprehensive income from continuing operations				907		421	2,701
Discontinued US operations:*
Loss for the period				(5,707)		(88)	(283)
Valuation movements on available-for-sale debt securities, net of related change in amortisation of deferred acquisition costs and related tax				(867)		(22)	292
Total comprehensive (loss) income for the period from discontinued US operations			D1.2	(6,574)		(110)	9
Total comprehensive (loss) income for the period				(5,667)		311	2,710
Attributable to:
Equity holders of the Company:
	From continuing operations			905		400	2,697
	From discontinued US operations			(5,844)		(110)	(40)
				(4,939)		290	2,657
Non-controlling interests:
	From continuing operations			2		21	4
	From discontinued US operations			(730)		-	49
				(728)		21	53
Total comprehensive (loss) income for the period				(5,667)		311	2,710

* The 2020 comparative results have been re-presented from those previously published to reflect the Group's US operations as discontinued operations in half year 2021 (as described in note A1).

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

			Period ended 30 Jun 2021 $m
		Note	Share  capital	Share premium	Retained   earnings	Translation reserve	Available -for-sale  securities reserves	Shareholders' equity		Non- controlling interests		Total  equity
Reserves
Profit for the period			-	-	1,063	-	-	1,063		7		1,070
Other comprehensive loss			-	-	-	(158)	-	(158)		(5)		(163)
Total comprehensive income (loss) from continuing operations			-	-	1,063	(158)	-	905		2		907
Total comprehensive loss from discontinued US operations		D1.2	-	-	(5,073)	-	(771)	(5,844)		(730)		(6,574)
Total comprehensive loss for the period			-	-	(4,010)	(158)	(771)	(4,939)		(728)		(5,667)
Dividends		B5	-	-	(283)	-	-	(283)		(3)		(286)
Reserve movements in respect of share-based payments			-	-	77	-	-	77		-		77
Effect of transactions relating to non-controlling interests			-	-	(10)	-	-	(10)		-		(10)
Share capital and share premium
New share capital subscribed		C8	-	8	-	-	-	8		-		8
Treasury shares
Movement in own shares in respect of share-based payment plans			-	-	(18)	-	-	(18)		-		(18)
Net increase (decrease) in equity			-	8	(4,244)	(158)	(771)	(5,165)		(731)		(5,896)
Balance at beginning of period			173	2,637	14,424	1,132	2,512	20,878		1,241		22,119
Balance at end of period			173	2,645	10,180	974	1,741	15,713		510		16,223

 

			Period ended 30 Jun 2020* $m
		Note	Share  capital	Share premium	Retained   earnings	Translation reserve	Available -for-sale  securities reserves	Shareholders' equity		Non- controlling interests		Total  equity
Reserves
Profit for the period			-	-	600	-	-	600		22		622
Other comprehensive loss			-	-	-	(200)	-	(200)		(1)		(201)
Total comprehensive income (loss) from continuing operations			-	-	600	(200)	-	400		21		421
Total comprehensive loss from discontinued US operations		D1.2	-	-	(88)	-	(22)	(110)		-		(110)
Total comprehensive income (loss) for the period			-	-	512	(200)	(22)	290		21		311
Dividends		B5	-	-	(674)	-	-	(674)		(16)		(690)
Reserve movements in respect of share-based payments			-	-	29	-	-	29		-		29
Effect of transactions relating to non-controlling interests			-	-	32	-	-	32		-		32
Share capital and share premium
New share capital subscribed		C8	-	10	-	-	-	10		-		10
Treasury shares
Movement in own shares in respect of share-based payment plans			-	-	(54)	-	-	(54)		-		(54)
Net increase (decrease) in equity			-	10	(155)	(200)	(22)	(367)		5		(362)
Balance at beginning of period			172	2,625	13,575	893	2,212	19,477		192		19,669
Balance at end of period			172	2,635	13,420	693	2,190	19,110		197		19,307

* The half year 2020 comparative results have been re-presented from those previously published to reflect the Group's US operations as discontinued operations in half year 2021 (as described in note A1).

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)

 

				Year ended 31 Dec 2020* $m
		Note	Share  capital	Share premium	Retained   earnings	Translation reserve	Available -for-sale  securities reserves	Shareholders' equity	Non-  controlling   interests	Total  equity
Reserves
Profit for the year			-	-	2,458	-	-	2,458	10	2,468
Other comprehensive income (loss)			-	-	-	239	-	239	(6)	233
Total comprehensive income from continuing operations			-	-	2,458	239	-	2,697	4	2,701
Total comprehensive income (loss) from discontinued US operations		D1.2	-	-	(340)	-	300	(40)	49	9
Total comprehensive income for the year			-	-	2,118	239	300	2,657	53	2,710
Dividends		B5	-	-	(814)	-	-	(814)	(18)	(832)
Reserve movements in respect of share-based payments			-	-	89	-	-	89	-	89
Effect of transactions relating to non-controlling interests†			-	-	(484)	-	-	(484)	1,014	530
Share capital and share premium
New share capital subscribed		C8	1	12	-	-	-	13	-	13
Treasury shares
Movement in own shares in respect of share-based payment plans			-	-	(60)	-	-	(60)	-	(60)
Net increase in equity			1	12	849	239	300	1,401	1,049	2,450
Balance at beginning of year			172	2,625	13,575	893	2,212	19,477	192	19,669
Balance at end of year			173	2,637	14,424	1,132	2,512	20,878	1,241	22,119

* The full year 2020 comparative results have been re-presented from those previously published to reflect the Group's US operations as discontinued operations in half year 2021 (as described in note A1).

^†   The $1,014 million effect of transactions relating to non-controlling interests recognised in full year 2020 related to the equity investment by Athene Life Re Ltd. into the US business in July 2020.

 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

				2021 $m		2020 $m
			Note	30 Jun		30 Jun	31 Dec
Assets
Goodwill			C4.1	926		942	961
Deferred acquisition costs and other intangible assets			C4.2	6,525		18,604	20,345
Property, plant and equipment				525		964	893
Reinsurers' share of insurance contract liabilities				9,891		44,918	46,595
Deferred tax assets			C7	298		4,259	4,858
Current tax recoverable				23		387	444
Accrued investment income				1,092		1,517	1,427
Other debtors				2,238		3,211	3,171
Investment properties				39		23	23
Investments in joint ventures and associates accounted for using the equity method				2,056		1,507	1,962
Loans				2,440		14,910	14,588
Equity securities and holdings in collective investment schemesnote (i)				60,466		234,698	278,635
Debt securitiesnote (i)				92,728		121,462	125,829
Derivative assets				485		2,459	2,599
Other investmentsnote (i)				-		1,569	1,867
Deposits				3,344		3,351	3,882
Assets held for distributionnote (ii)			D1.2	335,750		-	-
Cash and cash equivalents				6,295		8,384	8,018
Total assets			C1	525,121		463,165	516,097
Equity
Shareholders' equity				15,713		19,110	20,878
Non-controlling interests				510		197	1,241
Total equity			C1	16,223		19,307	22,119
Liabilities
Contract liabilities (including amounts in respect of contracts classified as investment contracts under IFRS 4)			C3.1	144,809		391,924	441,246
Unallocated surplus of with-profits funds			C3.1	6,273		5,512	5,217
Core structural borrowings of shareholder-financed businesses			C5.1	6,404		6,499	6,633
Operational borrowings			C5.2	895		2,245	2,444
Obligations under funding, securities lending and sale and repurchase agreements				396		9,085	9,768
Net asset value attributable to unit holders of consolidated investment funds				5,770		5,967	5,975
Deferred tax liabilities			C7	2,735		5,278	6,075
Current tax liabilities				200		428	280
Accruals, deferred income and other liabilities				8,017		16,208	15,508
Provisions				227		245	350
Derivative liabilities				412		467	482
Liabilities held for distributionnote (ii)			D1.2	332,760		-	-
Total liabilities			C1	508,898		443,858	493,978
Total equity and liabilities			C1	525,121		463,165	516,097

 

Notes

(i)    Included within equity securities and holdings in collective investment schemes, debt securities and other investments as at 30 June 2021 are $1,006 million of lent securities and assets subject to repurchase agreements (30 June 2020: $229 million; 31 December 2020: $895 million from continuing operations). Included within discontinued operations is $2,281 million (30 June 2020: $36 million; 31 December 2020: $1,112 million).

(ii)   Assets and liabilities held for distribution at 30 June 2021 related to the Group's US operations which were classified as discontinued operations in half year 2021, as discussed in note A1. A line-by-line analysis of assets and liabilities for the discontinued US operations is included in note D1.2. The 2020 comparative results for the assets and liabilities at 30 June 2020 and 31 December 2020 are as published and not re-presented on a basis consistent with 30 June 2021 (as described in note A1).

 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

 

				2021 $m		2020 $m
			Note	Half year		Half year	Full year
Continuing operations:
Cash flows from operating activities
Profit before tax (being tax attributable to shareholders' and policyholders' returns)				1,501		932	3,179
Adjustments to profit before tax for non-cash movements in operating assets and liabilities:
	Investments			(5,651)		(6,404)	(20,978)
	Other non-investment and non-cash assets			2,693		(4,999)	(7,185)
	Policyholder liabilities (including unallocated surplus of with-profits funds)			2,424		12,082	27,117
	Other liabilities (including operational borrowings)			105		382	155
Other itemsnote (i)				156		(376)	485
Net cash flows from operating activities				1,228		1,617	2,773
Cash flows from investing activities
Net cash flows from purchases and disposals of property, plant and equipment				(19)		(42)	(51)
Net cash flows from other investing activitiesnote (ii)				(773)		(733)	(1,142)
Net cash flows from investing activities				(792)		(775)	(1,193)
Cash flows from financing activities
Structural borrowings of shareholder-financed operations:note (iii)			C5.1
	Issuance of debt, net of costs			-		983	983
	Interest paid			(163)		(147)	(294)
Payment of principal portion of lease liabilities				(54)		(53)	(128)
Equity capital:
	Issues of ordinary share capital			8		10	13
External dividends:
	Dividends paid to the Company's shareholders		B5	(283)		(674)	(814)
	Dividends paid to non-controlling interests			(3)		(16)	(18)
Net cash flows from financing activities				(495)		103	(258)
Net increase (decrease) in cash and cash equivalents from continuing operations				(59)		945	1,322
Discontinued US operations:note (iv)
Net cash flows from operating activities				(442)		549	(807)
Net cash flows from investing activities				-		(1)	(2)
Net cash flows from financing activitiesnote (v)				(18)		(15)	470
Net increase (decrease) in cash and cash equivalents from discontinued US operations				(460)		533	(339)
Cash and cash equivalents at beginning of period				8,018		6,965	6,965
Effect of exchange rate changes on cash and cash equivalents				(43)		(59)	70
Cash and cash equivalents at end of period				7,456		8,384	8,018
Comprising:
	Cash and cash equivalents from continuing operations			6,295		5,891	6,397
	Cash and cash equivalents from discontinued US operations		D1.2	1,161		2,493	1,621

 

Notes

(i)    The adjusting items to profit before tax included within other items are adjustments in respect of non-cash items together with operational interest receipts and payments, dividend receipts and tax paid. Included in net cash flows from operating activities are dividends from joint ventures and associates of $114 million (half year 2020: $79 million; full year 2020: $118 million).

(ii)   Net cash flows from other investing activities include amounts paid for distribution rights and cash flows arising from the acquisitions and disposals of businesses. 

(iii)  Structural borrowings of shareholder-financed businesses exclude borrowings to support short-term fixed income securities programmes, non-recourse borrowings of investment subsidiaries of shareholder-financed businesses and other borrowings of shareholder-financed businesses. Cash flows in respect of these borrowings are included within cash flows from operating activities. The changes in the carrying value of the structural borrowings of shareholder-financed businesses for the Group are analysed below:

 

		Balance at	Cash movements $m		Non-cash movements $m			Balance at
		beginning of period $m	Issuance of debt		Foreign exchange movement	Reclassification of US operations as held for distribution	Other  movements	end of period $m
	30 Jun 2021	6,633	-		14	(250)	7	6,404
	30 Jun 2020	5,594	983		(85)	-	7	6,499
	31 Dec 2020	5,594	983		42	-	14	6,633

 

(iv)    Net cash flows from discontinued operations represents the movement in cash and cash equivalents from the discontinued US operations which were classified as held for distribution in half year 2021. The statement of cash flows is presented excluding intragroup cash flows between the continuing and discontinued US operations. The 2020 comparative results have been re-presented from those previously published accordingly (as described in note A1).

(v)     No dividends were paid to non-controlling interest of the discontinued US operations during the periods shown above.

 

 

NOTES TO THE FINANCIAL STATEMENTS

 

A    Basis of preparation

A1  Basis of preparation and exchange rates

 

These condensed consolidated interim financial statements for the six months ended 30 June 2021 have been prepared in accordance with both IAS 34 'Interim Financial Reporting' as issued by the International Accounting Standards Board (IASB) and IAS 34 as adopted for use in the UK. The Group's policy for preparing this interim financial information is to use the accounting policies adopted by the Group in its last consolidated financial statements, as updated by any changes in accounting policies it intends to make in its next consolidated financial statements as a result of new or amended IFRS and other policy improvements. At 30 June 2021, there were no unadopted standards effective for the period ended 30 June 2021 which impact the condensed consolidated financial statements of the Group, and there were no differences between IFRS adopted for use in the UK and IFRS issued by the IASB in terms of their application to the Group.

 

The accounting policies applied by the Group in determining the IFRS basis results in this report are the same as those previously applied in the Group's consolidated financial statements for the year ended 31 December 2020, as disclosed in the 2020 statutory accounts, aside from those discussed in note A2 below.

 

In 2021, the Group changed its operating segments for financial reporting under IFRS 8, 'Operating Segments' as discussed further in note B1.3 and has reclassified Jackson as held for distribution and discontinued operations as discussed further below.

 

The IFRS basis results for half year 2021 and half year 2020 are unaudited. The 2020 full year IFRS basis results have been derived from the 2020 statutory accounts. The auditors have reported on the 2020 statutory accounts which have been delivered to the Registrar of Companies. The auditors' report was: (i) unqualified; (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report; and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

 

Going concern basis of accounting

The Directors have made an assessment of going concern covering a period of at least 12 months from the date that these financial statements are approved. In making this assessment, the Directors have considered both the Group's current performance, solvency and liquidity and the Group's business plan taking into account the Group's principal risks and the mitigations available to it which are described in the Group Chief Risk and Compliance Officer's report. The proposed demerger of Jackson from the Group is expected to occur within the period covered by the assessment. The Directors have therefore considered the ability of the Group to continue as a going concern in its current form (ie the Group including Jackson) as well as the more likely scenario that the demerger proceeds (ie the Group excluding Jackson).

 

The assessment also includes consideration of the results of key market risk stress and scenario testing over the assessment period covering the potential impact of up or down equity market and interest rate movements, corporate credit spread widening, and an elevated level of credit losses. The current situation on Covid-19 is not expected to impact the ability of the Group to continue as a going concern.

 

Based on the above, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue their operations for a period of at least 12 months from the date that these financial statements are approved. No material uncertainties that may cast significant doubt on the ability of the Group to continue as a going concern have been identified. The Directors therefore consider it appropriate to continue to adopt the going concern basis of accounting in preparing these interim financial statements for the period ended 30 June 2021.

 

Discontinued operations

On 28 January 2021, the Board announced that it had decided to pursue the separation of its US operations (Jackson) from the Group through a demerger, whereby shares in Jackson would be distributed to Prudential shareholders, subject to regulatory and shareholder approvals. In accordance with IFRS 5, 'Non-Current Assets Held for Sale and Discontinued Operations', the Group's US operations have been classified as held for distribution and discontinued operations in these condensed consolidated financial statements.

 

In order to present the results of the continuing operations on a comparable basis, and consistent with IFRS 5 requirements, loss after tax attributable to the discontinued US operations in half year 2021 has been shown in a single line in the income statement with 2020 comparatives being restated accordingly, with further analysis provided in note D1.2. Notes B1 to B4 have also been prepared on this basis.

 

IFRS 5 does not permit the comparative 30 June 2020 and 31 December 2020 statements of financial position to be re-presented, as the US operations were not classified as discontinued at these dates. In the related balance sheet notes, prior period balances have been presented to show the amounts from discontinued US operations separately from continuing operations in order to present the results of the continuing operations on a comparable basis. Additionally, in the analysis of movements in Group's assets and liabilities between the beginning and end of the periods, the balances of the discontinued US operations are removed from the opening balances to show the underlying movements from continuing operations.

 

Exchange rates

The exchange rates applied for balances and transactions in currencies other than the presentation currency of the Group, US dollars (USD) were:

 

USD : local currency	Closing rate at period end				Average rate for the period to date
	30 Jun 2021	30 Jun 2020	31 Dec 2020		Half year 2021	Half year 2020	Full year 2020
Chinese yuan (CNY)	6.46	7.07	6.54		6.47	7.03	6.90
Hong Kong dollar (HKD)	7.77	7.75	7.75		7.76	7.76	7.76
Indian rupee (INR)	74.33	75.50	73.07		73.33	74.16	74.12
Indonesian rupiah (IDR)	14,500.00	14,285.00	14,050.00		14,273.32	14,574.24	14,541.70
Malaysian ringgit (MYR)	4.15	4.29	4.02		4.10	4.25	4.20
Singapore dollar (SGD)	1.34	1.40	1.32		1.33	1.40	1.38
Taiwan dollar (TWD)	27.86	29.50	28.10		28.02	30.00	29.44
Thai baht (THB)	32.06	30.87	30.02		30.83	31.62	31.29
UK pound sterling (GBP)	0.72	0.81	0.73		0.72	0.79	0.78
Vietnamese dong (VND)	23,016.00	23,206.00	23,082.50		23,044.83	23,303.21	23,235.84

 

Certain notes to the financial statements present half year 2020 comparative information at constant exchange rates (CER), in addition to the reporting at actual exchange rates (AER) used throughout the condensed consolidated financial statements. AER are actual historical exchange rates for the specific accounting period, being the average rates over the period for the income statement and the closing rates at the balance sheet date for the statement of financial position. CER results are calculated by translating prior period results using the current period foreign exchange rate, ie current period average rates for the income statement and current period closing rates for the statement of financial position.

 

A2  New accounting pronouncements in 2021

 

The IASB has issued the following new accounting pronouncements to be effective from 1 January 2021:

 

-      Amendments to IFRS 7, IFRS 9, IAS 39, IFRS 4 and IFRS 16 'Interest Rate Benchmark Reform - phase 2' issued in August 2020;

-      Amendments to IFRS 16, 'Covid-19 Related Rent Concession beyond 30 June 2021' issue in March 2021; and

-      Amendments to IFRS 4, 'Extension of temporary IFRS 9 exemption until 1 January 2023'.

 

The adoption of these pronouncements have had no significant impact on the Group financial statements.

 

B    EARNINGS PERFORMANCE

 

B1  Analysis of performance by segment

 

B1.1  Segment results

 

				2021 $m		2020 $m			2021 vs 2020 %			2020 $m
			Note	Half year		AER Half year	CER Half year		AER Half year	CER Half year		AER Full year
						note (i)	note (i)		note (i)	note (i)		note (i)
Continuing operations:
China JV				139		101	109		38%	28%		251
Hong Kong				460		412	412		12%	12%		891
Indonesia				225		249	255		(10)%	(12)%		519
Malaysia				184		158	164		16%	12%		309
Singapore				320		262	276		22%	16%		574
Growth markets and othernote (ii)				479		404	418		19%	15%		835
Eastspring				162		143	147		13%	10%		283
Total segment profit				1,969		1,729	1,781		14%	11%		3,662
Other income and expenditure:
	Investment return and other income			-		8	8		n/a	n/a		(15)
	Interest payable on core structural borrowings			(164)		(153)	(153)		(7)%	(7)%		(316)
	Corporate expenditurenote (iii)			(157)		(201)	(212)		22%	26%		(412)
Total other income and expenditure				(321)		(346)	(357)		7%	10%		(743)
Restructuring and IFRS 17 implementation costsnote (iv)				(77)		(97)	(99)		21%	22%		(162)
Adjusted operating profit			B1.3	1,571		1,286	1,325		22%	19%		2,757
Short-term fluctuations in investment returns on shareholder-backed business			B1.2	(212)		(418)	(421)		49%	50%		(579)
Amortisation of acquisition accounting adjustments				(2)		(2)	(2)		0%	0%		(5)
(Loss) gain attaching to corporate transactions			D1.1	(94)		-	-		n/a	n/a		735
Profit before tax attributable to shareholders				1,263		866	902		46%	40%		2,908
Tax charge attributable to shareholders' returns			B3	(193)		(244)	(249)		21%	22%		(440)
Profit from continuing operations				1,070		622	653		72%	64%		2,468
Loss from discontinued US operations			D1.2	(5,707)		(88)	(88)		n/a	n/a		(283)
(Loss) profit for the period				(4,637)		534	565		n/a	n/a		2,185
Attributable to:
Equity holders of the Company:
	From continuing operations			1,063		600	631		77%	68%		2,458
	From discontinued US operations			(5,073)		(88)	(88)		n/a	n/a		(340)
				(4,010)		512	543		n/a	n/a		2,118
Non-controlling interests:
	From continuing operations			7		22	22		(68)%	(68)%		10
	From discontinued US operations			(634)		-	-		n/a	n/a		57
				(627)		22	22		n/a	n/a		67
(Loss) profit for the period				(4,637)		534	565		n/a	n/a		2,185
Basic earnings per share (in cents)				2021		2020			2021 vs 2020 %			2020
			Note	AER Half year		AER Half year	CER Half year		AER Half year	CER Half year		AER Full year
			B4	note (i)		note (i)	note (i)		note (i)	note (i)		note (i)
Based on adjusted operating profit, net of tax and non-controlling interest, from continuing operations				51.6¢		38.1¢	39.4¢		35%	31%		86.6¢
Based on profit from continuing operations, net of non-controlling interest				40.9¢		23.1¢	24.3¢		77%	68%		94.6¢
Based on loss from discontinued US operations, net of non-controlling interest				(195.1)¢		(3.4)¢	(3.4)¢		n/a	n/a		(13.0)¢

 

Notes

(i)    Segment results are attributed to the shareholders of the Group before deducting the amount attributable to the non-controlling interests. This presentation is applied consistently throughout the document. For definitions of AER and CER refer to note A1.

(ii)   For growth markets and other, adjusted operating profit includes other items of $167 million (half year 2020: $104 million; full year 2020: $119 million) which primarily comprises of taxes for life joint ventures and associates and other non-recurring items.

(iii)  Corporate expenditure as shown above is for head office functions in London and Hong Kong.

(iv)  Restructuring and IFRS 17 implementation costs include those incurred in insurance and asset management operations of $(33) million (half year 2020: $(33) million; full year 2020: $(97) million).

 

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

 

		2021 $m		2020 $m
		Half year		Half year	Full year
Total segment (insurance and asset management operations)		(208)		(448)	(607)
Unallocated to a segment (central operations)		(4)		30	28
Total short-term fluctuations in investment returns from continuing operations		(212)		(418)	(579)

 

In general, the short-term fluctuations reflect the value movements on shareholders' assets and policyholder liabilities (net of reinsurance) arising from market movements in the period. In half year 2021, rising interest rates across most operations led to unrealised bond losses which more than offset the impact of higher discount rates on policyholder liabilities under the local reserving basis applied and equity gains on shareholder-backed business in the period. This has led to the overall negative short-term investment fluctuations for total insurance and asset management operations.

 

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

Operating segments

The Group's operating segments for financial reporting purposes are defined and presented in accordance with IFRS 8 'Operating Segments' on the basis of the management reporting structure and its financial management information.

 

Under the Group's management and reporting structure, its chief operating decision maker is the Group Executive Committee (GEC), chaired by the Group Chief Executive. In the management structure, responsibility is delegated to the Chief Executive, Prudential Corporation Asia, for the day-to-day management of the insurance and asset management operations (within the framework set out in the Group Governance Manual). This in turn is delegated to the Chief Executives of Hong Kong, Indonesia, Malaysia, Singapore, Growth markets (comprising Africa and the remaining Asia subsidiary operations) and Eastspring, the Group's Asia asset manager. The China JV is managed jointly with CITIC, a Chinese state-owned conglomerate.

 

In the first quarter of 2021, the Group reviewed its operating segments for financial reporting under IFRS 8 following changes to the business and financial management information provided to the GEC. As a result, performance measures for insurance operations are analysed by geographical areas for the larger business units of the China JV, Hong Kong, Indonesia, Malaysia and Singapore, with Eastspring, the asset management business, also analysed separately. All other Asia and Africa insurance operations are included in the 'Growth markets and other' segment alongside other amounts that are not included in the segment profit of an individual business unit, including tax on life joint ventures and associates and other items that are not representative of the underlying segment trading for the period. The 2020 comparatives have been re-presented to show the new segments for comparison. Previously the Group's segments were Asia and the US. The US operations have been classified as discontinued following its classification as held for distribution in half year 2021 (see note D1.2). In light of the proposed demerger, the segment analysis for the discontinued US operations is provided in note D1.2, separate from those for the continuing operations.

 

Operations which do not form part of any business unit are reported as 'Unallocated to a segment' and comprise head office functions in London and Hong Kong.

 

Performance measure    

The performance measure of operating segments utilised by the Group is IFRS operating profit based on longer-term investment returns ('adjusted operating profit'), as described below. This measurement basis distinguishes adjusted operating profit from other constituents of total profit or loss for the period as follows:

 

-    Short-term fluctuations in investment returns on shareholder-backed business;

-    Amortisation of acquisition accounting adjustments arising on the purchase of business; and

-    Gain or loss on corporate transactions, as discussed in note D1.1.

 

The determination of adjusted operating profit 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 2020. 

 

For Group debt securities at 30 June 2021 held by the continuing insurance operations, the level of unamortised interest-related realised gains and losses related to previously sold bonds was a net gain of $414 million (30 June 2020: net gain of $355 million; 31 December 2020: net gain of $525 million from continuing operations).

 

For equity-type securities, the longer-term rates of return are estimates of the long-term trend investment returns for income and capital having regard to past performance, current trends and future expectations. Different rates apply to different categories of equity-type securities.

 

For insurance operations, investments in equity securities held for non-linked shareholder-backed business amounted to $5,447 million as at 30 June 2021 (30 June 2020: $5,721 million; 31 December 2020: $4,963 million from continuing operations). The longer-term rates of return applied in half year 2021 ranged from 5.5 per cent to 16.9 per cent (half year 2020: 4.6 per cent to 17.6 per cent; full year 2020: 5.1 per cent to 16.9 per cent from continuing operations) with the rates applied varying by business unit.

 

B1.4  Additional segmental analysis of revenue from continuing operations

 

	Half year 2021 $m
	Insurance operationsnote (i)
	Hong Kong	Indonesia	Malaysia	Singapore	Growth markets and other	Eastspring	Inter -segment  elimi- nation	Total segment	Un- allocated  to a segment	Total continuing operations
Gross premiums earned	4,776	871	929	2,934	2,011	-	-	11,521	-	11,521
Outward reinsurance premiums	(767)	(28)	(22)	(55)	(26)	-	-	(898)	-	(898)
Earned premiums, net of reinsurance	4,009	843	907	2,879	1,985	-	-	10,623	-	10,623
Other incomenote (ii)	24	5	1	10	57	234	-	331	-	331
Total external revenue	4,033	848	908	2,889	2,042	234	-	10,954	-	10,954
Intra-group revenue	-	-	-	-	-	106	(106)	-	-	-
Interest income	528	46	117	462	303	1	-	1,457	-	1,457
Other investment return	(1,230)	(102)	(179)	1,003	(220)	9	-	(719)	-	(719)
Total revenue, net of reinsurance	3,331	792	846	4,354	2,125	350	(106)	11,692	-	11,692
	Half year 2020 $m
	Insurance operationsnote (i)
	Hong Kong	Indonesia	Malaysia	Singapore	Growth markets and other	Eastspring	Inter -segment  elimi- nation	Total segment	Un- allocated  to a segment	Total continuing operations
Gross premiums earned	5,450	863	839	2,105	1,693	-	-	10,950	-	10,950
Outward reinsurance premiumsnote (iii)	(385)	(35)	(12)	501	(23)	-	-	46	-	46
Earned premiums, net of reinsurance	5,065	828	827	2,606	1,670	-	-	10,996	-	10,996
Other incomenote (ii)	26	7	3	15	36	200	-	287	18	305
Total external revenue	5,091	835	830	2,621	1,706	200	-	11,283	18	11,301
Intra-group revenue	-	-	-	-	-	81	(81)	-	-	-
Interest income	250	55	108	198	278	3	-	892	13	905
Other investment return	4,457	(727)	(81)	(273)	(145)	5	-	3,236	61	3,297
Total revenue, net of reinsurance	9,798	163	857	2,546	1,839	289	(81)	15,411	92	15,503

 

	Full year 2020 $m
	Insurance operationsnote (i)
	Hong Kong	Indonesia	Malaysia	Singapore	Growth markets and other	Eastspring	Inter -segment  elimi- nation	Total segment	Un- allocated  to a segment	Total continuing operations
Gross premiums earned	11,091	1,738	1,783	5,035	3,848	-	-	23,495	-	23,495
Outward reinsurance premiumsnote (iii)	(1,918)	(62)	(27)	432	(50)	-	-	(1,625)	-	(1,625)
Earned premiums, net of reinsurance	9,173	1,676	1,756	5,467	3,798	-	-	21,870	-	21,870
Other incomenote (ii)	59	8	-	38	91	417	-	613	2	615
Total external revenue	9,232	1,684	1,756	5,505	3,889	417	-	22,483	2	22,485
Intra-group revenue	-	-	-	-	1	164	(165)	-	-	-
Interest income	646	104	210	447	570	5	-	1,982	15	1,997
Other investment return	8,139	(115)	468	2,409	830	26	-	11,757	8	11,765
Total revenue, net of reinsurance	18,017	1,673	2,434	8,361	5,290	612	(165)	36,222	25	36,247

 

Notes

(i)    The China JV segment is a joint venture accounted for using the equity method under IFRS, with the Group's share of its results net of related tax presented in a single line within the Group's profit before tax on a net of related tax basis, and therefore not shown in the analysis of revenue line items above. Revenue from external customers of the China JV in half year 2021 is $1,307 million (half year 2020: $980 million; full year 2020: $1,866 million).

(ii)   Other income comprises income from external customers and consists primarily of revenue from the Group's asset management business of $234 million (half year 2020: $200 million; full year 2020: $417 million from continuing operations). The remaining other income consists primarily of policy fee revenue from external customers.

(iii)  The 2020 outward reinsurance premiums of Singapore included a credit of $542 million for the recapture of previously reinsured business following a change in regulatory requirements.

 

B1.5  Additional segmental analysis of profit after tax from continuing operations

 

	2021 $m		2020 $m
	Half year		Half year	Full year
China JV	148		57	394
Hong Kong	441		108	994
Indonesia	179		184	409
Malaysia	135		135	256
Singapore	141		246	521
Growth markets and other	330		192	548
Eastspring	147		126	253
Total segment	1,521		1,048	3,375
Unallocated to a segment (central operations)*	(451)		(426)	(907)
Group total profit after tax from continuing operations	1,070		622	2,468

* Comprising costs attributable to the head office functions in London and Hong Kong including interest costs on core structural borrowings and restructuring and IFRS 17 implementation costs.

 

B2  Acquisition costs and other expenditure from continuing operations

 

	2021 $m		2020 $m
	Half year		Half year	Full year
Acquisition costs incurred for insurance policies	(1,026)		(950)	(2,080)
Acquisition costs deferred	373		261	617
Amortisation of acquisition costs	(186)		(157)	(308)
Administration costs and other expenditure (net of other reinsurance commission)note	(1,542)		(1,528)	(2,433)
Movements in amounts attributable to external unit holders of consolidated investment funds	(21)		(449)	(447)
Total acquisition costs and other expenditure from continuing operations	(2,402)		(2,823)	(4,651)

 

Note

Included in total administration costs and other expenditure is depreciation of property, plant and equipment of $(85) million (half year 2020: $(92) million; full year 2020: $(186) million from continuing operations), of which $(62) million (half year 2020: $(66) million; full year 2020: $(134) million from continuing operations) relates to the right-of-use assets recognised under IFRS 16 and interest on the IFRS 16 lease liabilities of $6 million (half year 2020: $8 million; full year 2020: $16 million from continuing operations). The full year 2020 amount also included a credit of $770 million for the commission arising from the reinsurance transaction entered into by the Hong Kong business during the year as discussed in note D1.1.

 

B3  Tax charge from continuing operations

 

B3.1  Total tax charge by nature

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

 

		2021 $m		2020 $m
Tax charge		Half year Total		Half year Total	Full year Total
Attributable to shareholders:
	Hong Kong	(16)		(16)	(15)
	Indonesia	(45)		(61)	(125)
	Malaysia*	(28)		(37)	(58)
	Singapore	(23)		(47)	(87)
	Growth markets* and other	(73)		(53)	(125)
	Eastspring*	(15)		(17)	(30)
Total segment		(200)		(231)	(440)
	Unallocated to a segment (central operations)	7		(13)	-
Tax charge attributable to shareholders		(193)		(244)	(440)
Attributable to policyholders:
	Hong Kong	(40)		(30)	(60)
	Indonesia	(2)		-	(3)
	Malaysia*	(2)		9	(34)
	Singapore	(194)		(42)	(170)
	Growth markets* and other	-		(3)	(4)
Tax charge attributable to policyholders		(238)		(66)	(271)
Total tax charge from continuing operations		(431)		(310)	(711)
Analysed by:
Current tax		(189)		(190)	(383)
Deferred tax		(242)		(120)	(328)
Total tax charge from continuing operations		(431)		(310)	(711)

* Profit before tax includes Prudential's share of profit after tax from the joint ventures and associates that are equity-accounted for. Therefore, the actual tax charge in the income statement does not include tax arising from the results of joint ventures and associates including the China JV.

 

The reconciliation of the expected to actual tax charge attributable to shareholders is provided in B3.2 below. The tax charge attributable to policyholders of $(238) million (half year 2020: $(66) million; full year 2020: $(271) million) above is equal to the profit before tax attributable to policyholders. This is the result of accounting for policyholder income after the deduction of expenses and movement on unallocated surpluses on an after-tax basis.

 

B3.2  Reconciliation of shareholder effective tax rate

In the reconciliation below, the expected tax rate reflects the corporation tax rates that are expected to apply to the taxable profit or loss of the continuing operations. It reflects the corporation tax rates of each jurisdiction weighted by reference to the amount of profit or loss contributing to the aggregate result from continuing operations.

 

			2021				2020
			Half year			Half year			Full year
			Tax attributable to  shareholders	Percentage  impact on ETR		Tax attributable to  shareholders	Percentage impact on ETR		Tax attributable to  shareholders	Percentage impact on ETR
			$m	%		$m	%		$m	%
Adjusted operating profit			1,571			1,286			2,757
Non-operating (loss) profit*			(308)			(420)			151
Profit before tax			1,263			866			2,908
	Tax charge at the expected rate		(259)	21%		(182)	21%		(602)	21%
	Effects of recurring tax reconciliation items:
		Income not taxable or taxable at concessionary ratesnote (i)	33	(3)%		31	(4)%		102	(4)%
		Deductions not allowable for tax purposes	(34)	3%		(15)	2%		(32)	1%
		Items related to taxation of life insurance businessesnote (ii)	71	(6)%		(7)	1%		152	(5)%
		Deferred tax adjustments	(4)	0%		(3)	0%		(26)	1%
		Unrecognised tax lossesnote (iii)	(66)	5%		(72)	8%		(146)	5%
		Effect of results of joint ventures and associatesnote (iv)	37	(3)%		37	(4)%		129	(4)%
		Irrecoverable withholding taxesnote (v)	(35)	3%		(26)	3%		(35)	1%
		Other	2	0%		3	0%		17	(1)%
		Total (charge) credit	4	(1)%		(52)	6%		161	(6)%
	Effects of non-recurring tax reconciliation items:
		Adjustments to tax charge in relation to prior years	6	0%		(21)	2%		(25)	1%
		Movements in provisions for open tax mattersnote (vi)	59	(5)%		12	(1)%		33	(1)%
		Impact of changes in local statutory tax rates	8	(1)%		(1)	0%		(1)	0%
		Adjustments in relation to business disposals and corporate transactions	(11)	1%		-	-		(6)	0%
		Total (charge) credit	62	(5)%		(10)	1%		1	0%
Total actual tax charge			(193)	15%		(244)	28%		(440)	15%
Analysed into:
	Tax on adjusted operating profit		(222)			(274)			(497)
	Tax on non-operating loss		29			30			57
Actual tax rate on:
	Adjusted operating profit:
		Including non-recurring tax reconciling itemsnote (vii)	14%			21%			18%
		Excluding non-recurring tax reconciling items	19%			21%			18%
	Total profitnote (vii)		15%			28%			15%

* 'Non-operating profit (loss)' is used to refer to items excluded from adjusted operating profit and includes short term investment fluctuations in investment returns on shareholder-backed business, corporate transactions and amortisation of acquisition accounting adjustments.

 

Notes

(i)    The $33 million (half year 2020: $31 million; full year 2020: $102 million) primarily relates to non-taxable investment income in Singapore and Malaysia.

(ii)   The $71 million (full year 2020: $152 million) primarily relates to Hong Kong where the taxable profit is computed as 5 per cent of net insurance premiums. The $(7) million adverse reconciling item at half year 2020 reflected non-tax deductible investment related marked-to-market losses.

(iii)  The $66 million (half year 2020: $(72) million; full year 2020: $(146) million) adverse reconciling item in unrecognised tax losses reflects losses arising where it is unlikely that relief for the losses will be available in future periods.

(iv)  Profit before tax includes Prudential's share of profit after tax from the joint ventures and associates. Therefore, the actual tax charge does not include tax arising from profit or loss of joint ventures and associates and is reflected as a reconciling item.

(v)   The Group incurs withholding tax on remittances received from certain jurisdictions and on certain investment income. Where these withholding taxes cannot be offset against corporate income tax or otherwise recovered, they represent a cost to the Group. Irrecoverable withholding tax on remittances is included in Other operations and is not allocated to any segment. Irrecoverable withholding tax on investment income is included in the relevant segment where the investment income is reflected.

(vi)  The statement of financial position contains the following provisions in relation to open tax matters.