Interim results - 6 months ended 30 June 2007
Results announcement
9 August 2007
- Strong and profitable growth in long-term savings
- Worldwide sales up 25% to £19,294m
- Life EEV operating profit up 24% to £1,251m, with growth across all regions
- UK: Record half year; sales up 7% to £7,415m; higher margins, improved service and lower costs
- Europe: Excellent performance; sales up 14% to £8,131m; strong growth in Southern and Eastern Europe
- US: Outstanding performance; sales up 51%# to £1,716m; integration on track
- Asia Pacific: Continued strong sales growth, up 72% to £2,032m; new markets entered
- General insurance profits hit by UK weather
- Combined operating ratio at 97%, ahead of ‘meet or beat’ commitment of 98%
- General insurance and health profit down 34% to £560m - exceptional UK weather losses of £235m
- Resilient result due to composite model of life, general insurance and asset management
- EEV operating profit lower by 8% to £1,541m
- IFRS operating profit up 1% to £1,375m
- Interim dividend increased by 10%
- Fresh focus by new management team on strategic priorities and momentum to drive profitable growth
- Top priority to realise the full potential of existing businesses
Andrew Moss, group chief executive, commented:
“My new management team brings energy, pace and fresh thinking to Aviva. Our top priority is to realise the full potential of our existing businesses.”
“Our new regional structure gets us closer to our customers, making it easier to offer products that are relevant in today’s changing market with better service. Constant attention to meeting the needs of our current and future customers will create extra sales momentum and deliver growth. By eliminating unnecessary complexity, and drawing our operations across the world closer together, we will boost productivity and deliver further value to our customers and shareholders.”
“Overall, Aviva has performed well in the first half of 2007. Substantial weather related losses in the UK have been countered by strong growth across our life and asset management businesses. The US has continued to be our star performer.”
| Worldwide highlights | 6 months 2007 | 6 months 2006 | Growth in constant currency |
|---|---|---|---|
| Operating profit - EEV basis* | £1,541m | £1,699m | % |
| Operating profit - IFRS basis** | £1,375m | £1,376m | 1% |
| Profit before tax - EEV basis | £2,031m | £1,284m | 60% |
| Profit before tax - IFRS basis | £1,198m | £1,248m | (3)% |
| Life EEV operating return | £1,251m | £1,021m | 24% |
| General insurance and health operating profit | £560m | £866m | (34)% |
| Long-term savings new business sales | £19,294m | £15,631m | 25% |
| New business contribution - gross | £550m | £459m | 21% |
| New business contribution - net of required capital, tax & minorities | £240m | £194m | 25% |
| Interim dividend per share | 11.90p | 10.82p | 10% |
| Equity shareholders’ funds*** | £19,136m | £17,531m^ | 9% |
| Return on equity shareholders’ funds | 11.6% | 14.0% | - |
| Net asset value per share | 737p | 683p^ | 8% |
All operating profit is from continuing operations and all growth rates quoted are at constant rates of exchange.
# On a pro forma basis for the former Aviva business in Boston and the former AmerUs group.
* 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 2006
Segmental analysis of Group operating profit* - For the six months ended 30 June
| Continuing operations | 6 months 2007 | 6 months 2006 | Growth in constant currency |
|---|---|---|---|
| Life EEV operating return | |||
| United Kingdom | 413 | 350 | 350 |
| France | 225 | 194 | 196 |
| Ireland | 37 | 8 | 8 |
| Italy | 72 | 52 | 53 |
| Netherlands (including Belgium and Germany) | 166 | 182 | 185 |
| Poland | 71 | 66 | 66 |
| Spain | 107 | 111 | 112 |
| Other Europe | 1 | (2) | (3) |
| Europe | 679 | 611 | 617 |
| North America | 112 | 14 | 16 |
| Asia | 24 | 18 | 19 |
| Australia | 23 | 19 | 19 |
| Asia Pacific | 47 | 37 | 38 |
| 1,251 | 1,012 | 1,021 | |
| Fund management1 | |||
| United Kingdom2 | 19 | 12 | 12 |
| France | 5 | 5 | 5 |
| Netherlands | 9 | 10 | 10 |
| Other Europe | 2 | 1 | 1 |
| Europe | 16 | 16 | 16 |
| North America | 1 | 1 | 1 |
| Asia Pacific | 9 | 3 | 4 |
| 45 | 32 | 33 | |
| General insurance and health | |||
| United Kingdom3 | 284 | 566 | 566 |
| France | 31 | 26 | 27 |
| Ireland | 80 | 86 | 88 |
| Netherlands | 70 | 79 | 80 |
| Other Europe | 22 | 18 | 19 |
| Europe | 203 | 209 | 214 |
| North America | 70 | 78 | 85 |
| Asia Pacific | 3 | 1 | 1 |
| 560 | 854 | 866 | |
| Other operations4 | (45) | 30 | 29 |
| Corporate centre | (80) | (73) | (73) |
| Group debt costs and other interest | (190) | (177) | (177) |
| Group operating profit before tax | 1,541 | 1,678 | 1,699 |
* Group operating profit before tax. All operating profit is from continuing operations.
1 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.
2 Includes retail investment business trading as Norwich Union, our collective investment joint venture business with RBSG and both the UK and international businesses of Morley.
3 UK general insurance includes the results of the Group's reinsurance operations
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 2007 was £1,375 million (2006: £1,376 million; £1,360 million restated at constant exchange rates).
GROUP CHIEF EXECUTIVE'S STATEMENT
A generational change in the executive management of Aviva during the first half of 2007 has led to a reconsideration of our structure and our priorities. We remain committed to our diversified business model of long-term savings, general insurance and investment management, but with a new regional approach.
Our top priority is to realise the potential of Aviva's existing businesses.
The interests of our customers and shareholders are best served by our businesses acting as one group and we are headlining the changes we are making as a move to “One Aviva”. To make this happen, the organisational structure of Aviva now comprises four regions: UK, Europe, North America and Asia Pacific. This will allow us to reap the benefits of being a group, while placing more of our staff closer to our customers. We will continue to encourage the entrepreneurial spirit that has led to great success in our individual businesses in the past, while ensuring that investment is channelled into areas where returns are attractive relative to risk.
Revenue growth will be driven by:
- Constant attention to the needs of our 40 million existing customers;
- Providing the right products and services to prospective customers and transferring product development expertise across markets; and
- Continuing reinvestment of profits in expanding distribution to provide access to more customers.
Further productivity gains will be achieved through:
- A renewed focus on cost management across the Group to ensure we demonstrate the benefits of scale in our major markets; and
- Greater use of shared services across our businesses to increase efficiency.
Key areas for strong long-term savings growth include Southern, Central and Eastern Europe where we believe the opportunities for growth are under-estimated by many; also Asia where we place a high priority on growing our existing businesses and expanding our geographical presence; and the USA where the baby-boomer generation will drive a significant increase in retirement savings. We have established six new bancassurance partnerships in these key markets this year with the opportunity to market Aviva products to over 30 million new potential customers.
Continuing development of our asset management capabilities will be key to our success. We have appointed Alain Dromer as chief executive of our largest asset management business, Morley. In addition he will pursue our “One Aviva” agenda by harnessing the power and scale of our investment businesses around the world under the umbrella of Aviva Global Investors. This will enhance the value of our worldwide investment business.
GROUP RESULTS
Overview
Our composite model has brought resilience to our results. EEV operating profit was £1,541 million (£1,699 million) and statutory profit on an IFRS basis was £1,198 million (£1,248 million). We increased our interim dividend by 10%.
The excellent long-term savings performance was offset by poor weather experience in the UK, which had a negative impact on our general insurance result. General insurance profit declined by 34%. Despite this, we have reported a worldwide combined operating ratio (COR) of 97%, in line with our target, reflecting the benefit of a strong general insurance performance in Europe.
We delivered excellent growth in life sales and profits, with record results in the US and UK, and strong performances in Europe and Asia Pacific. Total worldwide new business sales were up 25%, with investment sales increasing 52%.
UK
- Total long-term savings sales, up 7%
- Life EEV operating profit, up 18%
- Improved profitability with new business margin up to 3.1%
- UK general insurance result down 50%
- On track to achieve £250m cost savings across life and general insurance
Our UK life performance builds on the strong sales growth delivered last year. We have grown market share, while increasing margins and improving service. We have driven costs down in line with our target and improved persistency. We continue to investigate ways to rationalise our cost base and simplify our legacy systems. Our outsourcing partnership with Swiss Re announced earlier this year will enable us to enhance customer service and cost effectiveness further.
The UK general insurance market has been tough. A competitive market and some of the worst floods in living memory reduced our UK result, with a £235 million loss for adverse weather. We have sustained a further £165 million of flood losses in July, which will be reported in our full year results. We continue to do everything we can to help customers who have been affected by these events. We doubled the staff on our helplines at peak periods and have also brought in additional contractors and specialist equipment to ensure repairs are carried out as quickly as possible. We are also in discussion with local authorities to find the best solution for temporary accommodation for those who have had to leave their homes. We continue to focus on disciplined and profitable underwriting, while improving customer service. Later this year we will begin a significant new partnership with HSBC, selling general insurance products to their 10 million customers.
Europe
- Total long-term savings sales, up 14%
- Life EEV operating profit, up 11%
- General insurance profitability remains strong with improved COR of 85%
Our businesses in Ireland and Central and Eastern Europe performed particularly well. Our southern European businesses in Italy and Spain also grew strongly. In the more mature markets of northern Europe, we focused on profitability and achieved margin increases in France and the Netherlands.
Our aim is to grow our distribution capability and increase sales to our substantial bancassurance customer base.
North America
- Total long-term savings sales, up 51%1
- New business contribution, up 60%1
- New business margin almost doubled to 3.3%
- AmerUs integration 80% complete
In the USA, we delivered record sales across all business lines, exceeding our expectations. The integration of AmerUs into our group is almost complete and we are on track to achieve at least the targeted $45 million of cost savings. We expect to expand our distribution network further and grow sales by at least 20% a year, while maintaining margins.
1 On a pro forma basis
Asia Pacific
- Total long-term savings sales, up 72%
- Life EEV operating profit, up 27%
- Improved new business margin, up to 4.9%
Our businesses in Asia Pacific continue to achieve excellent growth, exceeding £2 billion of sales for the first time in a six month period, with strong life and pensions sales in Singapore, Hong Kong and China. We leveraged our global bancassurance skills to enter the new markets of Malaysia and Taiwan by securing major partnerships with local banks. We expect to continue to extend our footprint further in Asia and to achieve sustained growth in the Asia Pacific region.
Outlook
It is an exciting time at Aviva. Demographic changes are leading increasing numbers of people to protect their assets and invest for their future financial wellbeing. This presents a significant opportunity for us, particularly given the overall buoyancy in the world economy driven, to a great extent, by emerging markets. Our increasing scale and international reach, combined with our ability to deliver a wide range of superior products and services relevant to our customers, gives us every confidence that the group is well placed to deliver further significant growth.
Andrew Moss
Group Chief Executive
| Enquiries: | ||
|---|---|---|
| Andrew Moss | Group chief executive | +44 (0)20 7662 2679 |
| Philip Scott | Group finance director | +44 (0)20 7662 2264 |
| Analysts: | ||
| Charles Barrows | Investor relations director | +44 (0)20 7662 8115 |
| Amanda Wilbraham | Senior manager, 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 |
| Vanessa Rhodes | Group media relations manager | +44 (0)20 7662 2482 |
| James Murgatroyd | Finsbury | +44 (0)20 7251 3801 |
NEWSWIRES: There will be a conference call today for wire services at 8.15am (BST) on +44 (0)20 7162 0025 Quote: Aviva, Andrew Moss.
ANALYSTS: A presentation to investors and analysts will take place at 9.30am (BST) at the London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS. The investors and analysts presentation is being filmed for live webcast and can be viewed on the Group's website 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 7138 0839. A replay facility will be available until 24 August 2007 on +44 (0)20 7806 1970. The pass code is 4352983# for the whole presentation including Question & Answer session or 3161418# for Question & Answer session only.
The presentation slides will be available on the Group's website from 9.00am (BST).
The Aviva media centre includes images, company information and news release archive. Photographs are available from the Aviva media centre.
Notes to editors
- Aviva is the leading provider 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 2006.
- Aviva's principal business activities are long-term savings, fund management and general insurance, with worldwide total sales* of £41.5 billion at 31 December 2006 and assets under management of £377 billion at 30 June 2007.
- * Based on life and pensions PVNBP, total investment sales and general insurance and health net written premiums including share of associates' premiums.
- Income statements and cash flows of foreign entities are translated at average exchange rates while their balance sheets are translated at the closing exchange rates on 30 June 2007.
- 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.
