Interim results for 6 months ended 30 June 2006
9 August, 2006
- Record half-year results with strong performance across all businesses and geographies
- Worldwide EEV operating profit up 27% to £1,699m; IFRS operating profit up 45% to £1,376m
- Strong and profitable growth in long-term savings with worldwide sales up 25%:
- UK: up 43% to £6,899m (2005: £4,825m)
- Continental Europe: up 10% to £7,227m (2005: £6,593m)
- US: up 24% to £289m (2005: £222m)
- Asia: up 80% to £386m (2005: £201m)
- Bancassurance sales up 24% to £4,055m, representing 26% of new business sales
- Group new business margin remains strong at 3.5% (2005: 3.6%)
- Life EEV operating profit up 19% to £1,021m, with 66% coming from international businesses
- Excellent general insurance result: Best ever combined operating ratio (COR) of 92%, ahead of ‘meet or beat’ commitment of 98%; general insurance and health operating profit up 23% to £866m
- Interim dividend increased by 10% to 10.82 pence per share
Richard Harvey, group chief executive, commented:
“Aviva has once again delivered top and bottom line growth around the world. We’ve grown premiums, profit and dividend and are reaping the benefits of being in the right markets at the right time. Especially pleasing is our increased market share in a stronger UK market and, in line with our ambitions, international life profits growth continues to outpace excellent sales. Bancassurance continues to be an important contributor to our growth.
“Looking to the future, Europe and the US will be the two biggest long-term savings markets over the next decade. We’re in prime position to capture a significant share of European growth, having secured an early and leading franchise that cannot easily be replicated. In a single step, our acquisition of AmerUs in the United States will give us a scaleable platform to capture growth in the biggest savings market in the world. Meanwhile we continue to build scale in Asia where the savings market will offer significant rewards over the longer term.
“Our general insurance business has delivered its best combined operating ratio ever, demonstrating again the sustainability of our general insurance results. The integration of RAC is complete and we are on track to deliver our cost and revenue targets for this business.
“These results highlight the fundamental competitive advantage that Aviva derives from its balanced international portfolio of life and general insurance businesses. Our increase in profit is evenly spread, and we are poised to deliver further profitable growth both by business and geography.”
| Worldwide
highlights |
6 months 2006 | 6 months 2005 | Growth in constant currency |
|---|---|---|---|
| Operating profit – EEV basis* | £1,699m | £1,318m | 27% |
| Operating profit – IFRS basis** | £1,376m | £943m | 45% |
| Life EEV operating return | £1,021m | £857m | 19% |
| General insurance and health operating profit | £866m | £694m | 23% |
| Long-term savings new business sales | £15,631m | £12,510m | 25% |
| New business contribution – gross | £459m | £393m | 17% |
| New business contribution – net of required capital, tax & minorities | £194m | £158m | 23% |
| Interim dividend per share | 10.82p | 9.83p | 10% |
| Equity shareholders’ funds*** | £15,532m | £14,899m^ | - |
| Return on equity shareholders’ funds | 14.0% | 14.6% | - |
| Net asset value per share | 643p | 622p^ | - |
All operating profit is from continuing operations and all growth rates quoted are at constant rates of exchange.
* Including life EEV operating return, before tax and exceptional items.
** Before tax and exceptional items.
*** Measured on an EEV basis, excluding preference shares, direct capital instrument and minority interests.
^ As at 31 December 2005
Segmental analysis of Group operating profit*
For the six months ended 30 June
| Continuing operations | 6 months 2006 £m |
6 months 2005 at 2006 exchange rates £m |
6 months 2005 £m |
|---|---|---|---|
| Life EEV operating return1 | |||
| France | 196 | 157 | 158 |
| Ireland | 8 | 21 | 22 |
| Italy | 53 | 46 | 47 |
| Netherlands (including Belgium, Germany and Luxembourg) | 185 | 124 | 125 |
| Poland | 66 | 50 | 48 |
| Spain | 112 | 91 | 92 |
| Other Europe | (3) | 2 | (1) |
| Asia | 19 | 9 | 9 |
| Australia | 19 | 17 | 17 |
| United States | 16 | 11 | 10 |
| Aviva International | 671 | 528 | 527 |
United Kingdom |
350 | 330 | 330 |
| |
1,021 | 858 | 857 |
Fund Management2, 3 |
|||
| France | 5 | 2 | 2 |
| Netherlands | 10 | 8 | 8 |
| Other Europe | 5 | 7 | 5 |
| International | 7 | 6 | 6 |
| United Kingdom | 6 | 5 | 5 |
| |
33 | 28 | 26 |
General insurance and health |
|||
| United Kingdom | 555 | 431 | 431 |
| France | 27 | 17 | 17 |
| Ireland | 88 | 83 | 83 |
| Netherlands | 80 | 55 | 55 |
| Other Europe | 19 | 19 | 19 |
| Canada | 85 | 77 | 67 |
| Other | 12 | 22 | 22 |
| Aviva International | 311 | 273 | 263 |
| |
866 | 704 | 694 |
Non-insurance operations2, 4 |
29 | 38 | 37 |
| Corporate costs | |||
| – global finance transformation programme | - | (27) | (28) |
| – central costs and sharesave schemes | (73) | (55) | (55) |
| Unallocated interest charges | |||
| – external | (109) | (130) | (130) |
| – intra-group | (106) | (101) | (101) |
| – net pension income | 38 | 18 | 18 |
| Group operating profit before tax* | 1,699 | 1,333 | 1,318 |
* Group operating profit before tax. All operating profit is from continuing operations.
1 Germany has been reclassified from Other Europe to the Netherlands, Lithuania has been reclassified from Other Europe to Poland and Norwich Union’s Dublin-based offshore life and savings business has been reclassified from Other Europe to the United Kingdom. 2005 figures have been reclassified accordingly.
2 Delta Lloyd Asset Management previously included within non-insurance has been reclassified to fund management and 2005 figures reclassified accordingly.
3 Excludes the proportion of the results of Morley’s fund management businesses and of our French asset management operation Aviva Gestion d’Actifs (AGA) that arise from the provision of fund management services to our life businesses. These results are included within the Life EEV operating return.
4 Excludes the results of Norwich Union Equity Release. Also excludes the proportion of the results of Norwich Union Life Services relating to the services provided to the UK life business. These results are included within the Life EEV operating return.
The total IFRS operating profit for the six months to 30 June 2006 was £1,376 million (2005: £943 million; £949 million restated at constant exchange rates).
GROUP CHIEF EXECUTIVE’S STATEMENT
I am delighted to report strong growth in premiums, profit and dividend for Aviva in the first six months of 2006. Our businesses are growing sales and profits, on the back of offering competitive products in each of our markets. Operating profit before tax is up 27% on an EEV basis to £1,699 million (2005: £1,318 million), representing an annualised return on equity shareholders’ funds of 14.0% (2005: annualised of 14.6%), ahead of our group target of 12.5%. On an IFRS basis, operating profit before tax reached £1,376 million (2005: £943 million), an increase of 45%.
The Board is announcing an interim dividend increase of 10% to 10.82 pence net per share.
Financial highlights
Long-term savings
We have delivered strong life new business growth across our portfolio with total long-term savings new business sales up 25% to £15,631 million (2005: £12,510 million). This was led by sound growth from our International businesses and the return of growth to the UK market. Over 55% of Aviva’s life new business sales and profit came from outside the UK in the first half of this year.
The Group continues to focus on increasing value. Groupwide life and pension sales grew by 19% to £13,147 million (2005: £11,016 million), with new business contribution after required capital increasing by 24% to £352 million (2005: £286 million). On a post-minorities basis, new business sales and post-tax new business profit rose in line to maintain margins. Our total life operating profit before tax grew 19% to £1,021 million on an EEV basis.
We are pleased to report new momentum in the UK life market with our UK life business delivering its fifth consecutive quarter of growth. Sales increased ahead of the market and Norwich Union became the UK market leader once again with a market share of 11.8% at the end of the first quarter. Total sales were up 43% to £6,899 million (2005: £4,825 million) with margins increasing to 2.9% (first quarter 2006: 2.8%). Individual pension sales led this increase with sales up 86%, boosted by A-day. This increased level of market activity is expected to continue for the rest of the year and into 2007 before moving back to lower, more normal levels thereafter. Our bancassurance partnership with the Royal Bank of Scotland Group generated best ever quarterly sales, with half year sales increasing 87% to £598 million (2005: £319 million). We continue to benefit from developing our collective investment capability, with sales doubling to just over £1 billion (2005: £513 million). We also continue to focus on delivering further service improvements in the advisor market. The new management structure for our UK operations gives us opportunities to align our customer proposition under the Norwich Union and RAC brands and we anticipate further benefits from more integrated management of our UK businesses.
In June we announced growth ambitions for our international life operations to deliver average organic growth of at least 10% per annum over the next 5 years, while growing new business profit at least as quickly1. Our experienced management teams around the world are strongly positioned in the right markets with the right capabilities to achieve this.
International life and pension sales grew strongly by 10% to £7,331 million, with new business contribution after required capital growing well ahead of sales by 22% to £217 million. Business mix changes towards less capital intensive products continue to be made in France and Italy. We have once again seen strong growth in sales from our US business with life and pension sales up 24% to £289 million (2005: £222 million). The acquisition of AmerUs will increase the size of our US business four-fold.
In Asia we continue to build leadership positions in selected markets which will position us well to capture the long-term growth this market will bring. Total sales grew by 80% to £386 million (2005: £201 million). We are now the 6th largest private provider in the Indian life market and the market leader in the bancassurance market. In China, we have also recently received permission to open a branch in Changsha, the capital city of Hunan province which will bring the total number of major city licences to six, with sales offices in a further seven cities.
General insurance and health
With our best ever combined operating ratio (COR) at 92%, our worldwide general insurance performance is comfortably ahead of our stated commitment to meet or beat 98%. Aviva’s general insurance and health operations continue to outperform with operating profit of £866 million (2005: £694 million) demonstrating the continued resilience of the returns, notwithstanding the benefit of £125 million benign weather experience in the UK.
In the UK we have continued to produce excellent results with an operating profit of £555 million, up 29% from £431 million. The COR of 92% demonstrates the success of our focused general insurance strategy and the benefits of our scale, including our successful offshore operations, which together bring cost benefits and sustainable profits in competitive markets. In the UK, motor claims costs continue to rise and so premium rates have been increased.
Fund management
Our fund management operations continue to deliver improved performance. Worldwide investment sales increased 66% to £2,484 million (2005: £1,494 million). On an IFRS basis, operating profit before tax increased from £41 million to £61 million and assets under management at 30 June 2006 grew to over £332 billion (31 December 2005: £322 billion). New business flows, tight management of our cost base, an increase in fee income and the strong performance of global investment markets have all contributed to this improved result. Third party funds also increased to £55 billion (31 December 2005: £52 billion).
A strong track record
These strong results have been achieved by our core focus on growing our existing businesses supplemented by a number of successful acquisitions and distribution deals. Since Aviva was formed in May 2000, we have driven value for shareholders by integrating and developing new businesses both internationally and in the UK.
Our international bancassurance business has grown seven fold since 2000, delivering £5,439 million of new business sales in 2005 and £3,457 million (2005: £2,955 million) in the first half of 2006. We are now a partner of choice for banks worldwide due to the depth of our experience and successful track record of making these arrangements work. This year has continued to be as exciting in terms of developing new international distribution with the start of new bancassurance arrangements with Allied Irish Banks in Ireland, Centurion Bank of Punjab in India and National Development Bank in Sri Lanka. Additionally, our access to Unicredit Group branches in Italy has nearly doubled to approximately 1,000.
The integration of RAC with our UK general insurance business is now complete and RAC businesses contributed £86 million to the Group’s operating profit. This includes the benefit of £43 million of cost savings in the first half of the year. We are on track to deliver cost savings of £100 million in total in 2006 and operating profits of £220 million per annum by 2008 for businesses retained. The disposal of non-core RAC businesses is now complete with proceeds totalling £354 million, generating a run-rate return on investment in 2008 of 18.8%.
On 13 July 2006, we announced the acquisition of AmerUs for approximately £1.6 billion in cash, financed by a successful £900 million equity placing, internal resources and external debt. In a single step AmerUs creates a scaleable platform for Aviva in the US long-term savings market and makes the USA our fourth largest life business. As AmerUs is a leader in the high growth US equity-indexed market, Aviva will become the market leader in the equity-indexed life insurance market and number three for equity-indexed annuities, complementing our existing US product range. The acquisition of AmerUs provides us with the platform from which we can grow organically in the US and is expected to complete in the final quarter of 2006. Annual pre-tax cost savings of approximately $45 million (£24 million) by 2008 are anticipated and we expect significant revenue benefits from the enhanced national distribution platform and the superior financial strength and ratings of Aviva. We expect the investment to generate a post-tax return on investment of over 10% by 2009.
Strongly positioned for further organic growth
Our first priority is the continued profitable growth of our existing businesses. Our stated growth and profitability targets demonstrate our confidence in our international life growth ambitions for the next five years and the strength of our general insurance results. We anticipate further momentum in the UK market during this year, albeit at a more modest rate. We will continue to supplement organic growth through new distribution deals while focusing our efforts on the successful integration of AmerUs. Our success in the first half of 2006 highlights the fundamental competitive advantage that we derive from our balanced international portfolio of life and general insurance businesses. These businesses are poised to deliver further profitable growth.
Richard Harvey
Group Chief Executive
1 Compound annual growth rate, post minorities, before acquisitions, and assuming no major changes in conditions. New business contribution growth after cost of capital, tax and minorities.
Enquiries:
| Richard Harvey | Group chief executive | +44 (0)20 7662 2286 |
| Andrew Moss | Group finance director | +44 (0)20 7662 2679 |
| Analysts: | ||
| Charles Barrows | Investor relations director | +44 (0)20 7662 8115 |
| Jessie Burrows | Head of investor relations | +44 (0)20 7662 2111 |
| Media: | ||
| Hayley Stimpson | Director of external affairs | +44 (0)20 7662 7544 |
| Sue Winston | Head of group media relations | +44 (0)20 7662 8221 |
| Rob Bailhache | Financial Dynamics | +44 (0)20 7269 7200 |
NEWSWIRES: There will be a conference call today for wire services at 8.15am (BST) on +44 (0)20 7162 0125 Quote: Aviva, Richard Harvey.
ANALYSTS: A presentation to investors and analysts will take place at 9.30am (BST) at St Helen’s, 1 Undershaft, London, EC3P 3DQ. The investors and analysts presentation is being filmed for live webcast and can be viewed on the Group’s website www.aviva.com or on www.cantos.com. In addition a replay will be available on these websites later today. There will also be a live teleconference link to the investor and analyst meeting on +44 (0)20 7365 1833. A replay facility will be available until 23 August 2006 on +44 (0)20 7806 1970. The pass code is 5270491# for the whole presentation including Question & Answer session or 5865654# for Question & Answer session only.
The presentation slides will be available from 9.00am (BST).
The Aviva media centre includes images, company information and news release archive. High resolution images are also available for the media to view and download free of charge from www.vismedia.co.uk.
Notes to editors
- Aviva is one of the leading providers of life and pensions to Europe with substantial positions in other markets around the world, making it the world’s fifth largest insurance group based on gross worldwide premiums at 31 December 2005.
- Aviva’s principal business activities are long-term savings, fund management and general insurance, with worldwide total sales* of £36 billion and assets under management of £322 billion at 31 December 2005.
* Based on life and pensions PVNBP, total investment sales and general insurance and health net written premiums including share of associates’ premiums. - Overseas currency results are translated at average exchange rates.
- The present value of new business premiums (PVNBP) is equal to total single premium sales received in the year plus the discounted value of annual premiums expected to be received over the term of the new contracts, and is expressed at the point of sale.
- All growth rates are quoted at constant currency, which excludes the impact of changes in exchange rates between periods.
- This interim announcement may contain “forward-looking statements” with respect to certain of Aviva’s plans and its current goals and expectations relating to its future financial condition, performance and results. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond Aviva’s control, including amongst other things, UK domestic and global economic business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities, the impact of competition, inflation, deflation, the timing impact and other uncertainties of future acquisitions or combinations within relevant industries, as well as the impact of tax and other legislation and other regulations in the jurisdictions in which Aviva and its affiliates operate. As a result, Aviva’s actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in Aviva’s forward-looking statements. Aviva undertakes no obligation to update the forward-looking statements contained in this presentation or any other forward-looking statements we may make.
