Interim results for 6 months ended 30 June 2006
Operating and financial review
Fund management operating profit
Our worldwide fund management operating profit grew strongly to £61 million (2005: £41 million) on an IFRS basis. Assets under management at 30 June 2006 grew to £332 billion (31 December 2005: £322 billion) reflecting the impact of new business.
In the UK, our fund management businesses comprise our institutional business Morley Fund Management (Morley), our retail investment business trading as Norwich Union, and our collective investment joint venture business with RBSG. These businesses reported an operating profit of £18 million (2005: £11 million) in the period. Our international operations consist of Morley’s overseas businesses based in Melbourne, Dublin, Warsaw, Boston, Milan and Madrid, Aviva Gestion d’Actifs in France, Delta Lloyd Asset Management in the Netherlands, and other businesses including our fund administration business Navigator. Our international fund management operating profit was £43 million (2005: £30 million).
| 6 months 2006 £m |
6 months 2005 £m |
|
|---|---|---|
| Morley | ||
| UK | 23 | 11 |
| International | 8 | 7 |
| UK (excluding Morley) | (5) | - |
| France | 16 | 10 |
| Netherlands | 13 | 8 |
| Other Europe and Rest of the World | 6 | 5 |
| Fund management operating profit – IFRS basis | 61 | 41 |
The Morley group as a whole reported a 45% increase in total operating profit to £32 million (2005: £22 million), including the £1 million (2005: £4 million) contribution from our pooled pension business, which is reported in the long-term savings segment. Our fund management operating profit grew significantly to £31 million (2005: £18 million), resulting from positive market movements, new business mandates and performance fees. Sustained increases in revenue while maintaining the underlying cost base improved our cost/income ratio to 74% (2005: 80%).
In May, Morley completed the take-on of £2.3 billion of funds from the Ark Life Assurance company resulting from Aviva’s bancassurance joint venture with AIB. In addition to the Ark Life Assurance funds, new funded external mandates totalled £2.7 billion, principally from UK retail and institutional investors but also including contributions in respect of property partnerships vehicles and overseas operations.
In June, Morley completed the purchase of a 56% stake in a hedge fund management company ORN Capital as part of their strategy to accelerate their alternatives business, adding one multi-strategy and four single-strategy hedge funds to their range of absolute return products. Furthermore, the growth of Morley’s property funds under management continues apace with strong fund inflows. Our property team continues to be recognised by the industry, winning property fund manager of the year from both Property Week and Pensions Management. Our Socially Responsible Investment team continues to be highly regarded in the market and was the only UK-based team to be awarded a UK equities mandate by France’s state pensions reserve fund. It was also recognised as SRI Provider of the Year by Global Pensions 2006.
Norwich Union’s retail investment business reported a loss of £1 million in the period (2005: £3 million profit) while our collective investment business with RBSG recorded a loss of £4 million (2005: £3 million loss) due to increased new business strain.
Operating profit from our French business, Aviva Gestion d’Actifs (AGA), increased to £16 million (2005: £10 million) as a result of increased fee income from increased funds under management. We have continued to earn industry awards for the sustained performance of our funds. Over the 5 years to 30 June 2006, 97% of AGA funds were ranked in the first and second quartiles. The financial newspaper ‘Le Revenu’ awarded 5 prizes to AGA’s funds for their high performance over both the past 3 and 10 years.
Operating profit from our fund management business in the Netherlands was £13 million (2005: £8 million previously reported within non-insurance business). The increase in the result reflects the impact of increased funds under management.
Operating profits across our Other Europe and Rest of the World businesses rose to £6 million (2005: £5 million).
On an EEV basis, the total operating profit from our fund management businesses was £33 million (2005: £26 million) and represents the profit from those funds managed on behalf of third parties and the Group’s non-life businesses.
