Prudential Plc announces 2006 Full Year Results

Market Wire, March, 2007

Embargo: 7.00am Thursday 15 March 2007

PRUDENTIAL PLC 2006 FULL YEAR RESULTS

New business profit up 20%, exceeding GBP1 billion for the first time; margin increased

- New business APE of GBP2,470 million, up 16%; PVNBP of GBP18.9 billion, up 12%

- Total EEV operating profit of GBP1,976 million, up 15%

- New business profit of GBP1,039 million, up 20%, with Group margin of 42% (2005: 41%)

- Total IFRS statutory operating profit of GBP893 million, down 7%, includes GBP145m non-continuing Egg losses

- EEV shareholders' funds up 15% to GBP11.9 billion*

UK business focused on growing highly profitable core and enhancing future value

- Strong UK new business performance: margin 30%, IRR 15% and strong growth in IFRS and EEV profit

- Creation of focused Retail Retirement business comprising Individual Annuities, Equity Release and a new approach to Retirement Savings

- Cost reduction target increased from GBP115 million** to GBP195 million

- Nomination of Policyholder Advocate for potential reattribution of inherited estate

Cash and dividend

- Overall Group operating cash flow to be positive in 2008

- New dividend policy reflects the commitment to deliver a growing dividend

- 2006 dividend increased by 5% to 17.14 pence per share

All figures compared to 2005 at constant exchange rates unless stated; *at reported exchange rates

** Previously announced UK cost savings target of GBP150 million by 2009 included GBP35 million in relation to Egg, which was acquired by Citi in January 2007.

Commenting, Mark Tucker, Group Chief Executive said:

"These results demonstrate excellent continued progress in the delivery of the Group's growth and value agenda.

"Our new dividend policy reflects our confidence in the future and our commitment to providing shareholders with a cash return on the investments we make on their behalf.

"In Asia, the US and UK we have an enviable portfolio of businesses that will continue to deliver growth in profits and create value for our shareholders in the coming years.

"Our UK strategy, following the sale of Egg, builds on a strong performance in 2006 and our industry-leading position in the retail retirement annuity sector, eliminates uneconomic products and sets the scene for an enhanced contribution to future earnings."

Group Chief Executive's review

The Group's strategy is centred on optimising our competitive advantages in life assurance, becoming a leading provider of financial services for the retirement market, and on the further development of our asset management businesses. In implementing this strategy our clear aim is to secure superior growth in value for our shareholders.

In 2006 we continued to focus on developing our position in our chosen markets of Asia, the US and the UK; markets that we believe offer the greatest opportunity for sustained profitable growth.

Total Group operating profit before tax was GBP1,976 million on a European Embedded Value (EEV) basis, an increase of 15 per cent, and the Group's return on embedded value was 13.5 per cent (2005: 15.5 per cent). Statutory IFRS operating profit before tax was GBP893 million (2005: GBP957 million).

Across the Group's insurance operations new business increased by 16 per cent to GBP2,470 million, on an APE basis. Profits on new business exceeded GBP1 billion for the first time, 20 per cent up on 2005. Average margins across the Group remained strong and were 42 per cent (41 per cent in 2005) and returns on new business have also improved. Operating profit from the insurance businesses was GBP2,209 million, on an EEV basis, increasing by 28 per cent on 2005, and IFRS operating profit increased by 15% to GBP1,087 million.

In asset management we delivered record net flows at M&G and in our rapidly growing retail businesses in Asia. Net inflows of GBP8.6 billion were 66% ahead of 2005 and external funds under management increased to GBP57 billion (2005: GBP46 billion). Operating profit from these businesses was GBP254 million, up 46 per cent on 2005.

Difficult trading conditions in the UK personal loans market led to losses at Egg, the Group's UK banking business, of GBP145 million (2005: profit GBP44 million). In January 2007 we received an offer for Egg from Citi and the business was sold for GBP575 million in cash, subject to completion adjustments. We expect this transaction to complete by the end of April 2007.

The Group's cash flow developed strongly in 2006 and its capital position remains robust. Taking into account our plans for sustained high levels of growth and a normalised level of scrip dividend uptake we expect our operating cash flow to be positive in 2008. In light of this the Board has reviewed its longer term dividend policy.

The Board recommends a final dividend of 11.72 pence per share, bringing the full-year dividend to 17.14 pence per share, an increase of 5 per cent over the full year 2005 dividend of 16.32 pence.

The full year dividend is covered 1.52 times by post-tax IFRS operating profit from continuing operations.

The Board will focus on delivering a growing dividend, which will continue to be determined after taking into account the Group's financial flexibility and opportunities to invest in areas of the business offering attractive returns. The Board believes that in the medium-term a dividend cover of around two-times is appropriate.