6 - Long-term business operating profit on an International Financial Reporting Standard (IFRS) basis
On an IFRS basis, our long-term business operating profit before shareholder tax was £970 million (six months to 30 June 2007 restated: £834 million), an increase of 16%. The increase is primarily driven by the special distribution in the United Kingdom and increased profits in Europe, especially in the Netherlands.
United Kingdom
IFRS operating profit was 20% higher at £428 million (six months to 30 June 2007 restated: £357 million) driven by the with-profits business and supported by a £107 million profit relating to the shareholder proportion of the first phase of the special distribution announced in February this year.
The non-profit result was down by 17% to £226 million (six months to 30 June 2007 restated: £272 million). The prior year included a £76 million one-off benefit from the implementation of the reserving changes introduced by PS06/14. Excluding this item, earnings of the non-profit business were up 15% on an underlying basis reflecting the benefit of cost saving initiatives.
Europe
In Europe life IFRS operating profit increased to £486 million (six months to 30 June 2007 restated: £395 million), driven primarily by increased profits in France, the Netherlands, Poland and Spain. Elsewhere investment market volatility has impacted profits through reduced sales.
In France operating profit increased to £145 million (six months to 30 June 2007 restated: £136 million) reflecting the favourable impact of the euro partly offset by reduced unit-linked income. Operating profit in Ireland was down on the prior period at £28 million (six months to 30 June 2007 restated: £31 million) driven by higher expenses and adverse claims and lapse experience. In the Netherlands operating profit was £134 million (six months to 30 June 2007 restated: £94 million) including £20 million one off release of a surplus in a staff pension provision partially offset by new business strain particularly on the new corporate pension schemes. In Poland operating profit increased to £76 million (six months to 30 June 2007 restated: £53 million) reflecting higher life and pension sales and favourable foreign exchange. Operating profit in Spain was higher at £74 million (six months to 30 June 2007 restated: £57 million) reflecting the acquisition of Cajamurcia Vida in the latter half of 2007. In Italy we have seen operating profit remain steady at £37 million (six months to 30 June 2007 restated: £38 million) despite the downturn in sales.
Aviva Europe’s remaining businesses in central and eastern Europe contributed an improved operating loss of £8 million (six months to 30 June 2007 restated: £14 million loss), as we continue to build scale and market share in these developing countries.
North America
Life operating profit decreased by 28% to £42 million (six months to 30 June 2007 restated: £58 million) primarily due to margin compression from increased competitive pressures and higher cost of options to support product guarantees.
Asia Pacific
Life operating profit decreased to £14 million (six months to 30 June 2007 restated: £24 million), reflecting increased expenses arising from distribution expansion in China and India, and start-up costs in relation to the new businesses in Malaysia, Taiwan and Korea.
