Aviva plc: Adoption of Aviva Market Consistent Embedded Value (MCEV) methodology and impact on results
MCEV notes to the financial statements
14 – Return on capital employed
This note gives details of the return on the capital employed in our business.
Shareholders' funds, including minority interests
| 30 June 2008 closing shareholders' funds |
31 December 2007 closing shareholders' funds |
31 December 2006 closing shareholders' funds |
|||||||
|---|---|---|---|---|---|---|---|---|---|
| IFRS net assets £m |
Internally generated AVIF £m |
Total equity £m |
IFRS net assets £m |
Internally generated AVIF £m |
Total equity £m |
IFRS net assets £m |
Internally generated AVIF £m |
Total equity £m |
|
| Life and pensions | |||||||||
| United Kingdom | 3,564 | 2,387 | 5,951 | 3,670 | 3,484 | 7,154 | 3,326 | 3,303 | 6,629 |
| France | 1,504 | 1,076 | 2,580 | 1,447 | 1,323 | 2,770 | 1,221 | 1,134 | 2,355 |
| Ireland | 988 | 300 | 1,288 | 943 | 286 | 1,229 | 971 | 132 | 1,103 |
| Italy | 1,171 | 279 | 1,450 | 1,020 | 238 | 1,258 | 688 | 164 | 852 |
| Netherlands (including Belgium and Germany) | 2,464 | 989 | 3,453 | 2,994 | 950 | 3,944 | 2,860 | 654 | 3,514 |
| Poland | 253 | 1,058 | 1,311 | 276 | 926 | 1,202 | 202 | 744 | 946 |
| Spain | 1,168 | 737 | 1,905 | 1,122 | 624 | 1,746 | 845 | 567 | 1,412 |
| Other Europe | 494 | (174) | 320 | 346 | (68) | 278 | 61 | 71 | 132 |
| Europe | 8,042 | 4,265 | 12,307 | 8,148 | 4,279 | 12,427 | 6,848 | 3,466 | 10,314 |
| North America | 2,112 | (364) | 1,748 | 2,202 | (227) | 1,975 | 2,315 | (237) | 2,078 |
| Asia Pacific | 674 | 254 | 928 | 619 | 222 | 841 | 409 | 166 | 575 |
| 14,392 | 6,542 | 20,934 | 14,639 | 7,758 | 22,397 | 12,898 | 6,698 | 19,596 | |
| General insurance and health | |||||||||
| United Kingdom | 2,750 | – | 2,750 | 3,049 | – | 3,049 | 2,984 | – | 2,984 |
| France | 274 | – | 274 | 301 | – | 301 | 333 | – | 333 |
| Ireland | 474 | – | 474 | 435 | – | 435 | 434 | – | 434 |
| Netherlands | 723 | – | 723 | 756 | – | 756 | 684 | – | 684 |
| Other Europe | 308 | – | 308 | 295 | – | 295 | 161 | – | 161 |
| Europe | 1,779 | – | 1,779 | 1,787 | – | 1,787 | 1,612 | – | 1,612 |
| North America | 771 | – | 771 | 732 | – | 732 | 670 | – | 670 |
| Asia Pacific | 17 | – | 17 | 26 | – | 26 | 22 | – | 22 |
| 5,317 | – | 5,317 | 5,594 | – | 5,594 | 5,288 | – | 5,288 | |
| Fund management and other business | 841 | – | 841 | 1,186 | – | 1,186 | 1,179 | – | 1,179 |
| Corporate | (32) | – | (32) | (31) | – | (31) | (19) | – | (19) |
| Subordinated debt | (3,911) | – | (3,911) | (3,054) | – | (3,054) | (2,937) | – | (2,937) |
| External debt | (721) | – | (721) | (1,257) | – | (1,257) | (1,258) | – | (1,258) |
| Net internal debt | (1,212) | – | (1,212) | (1,146) | – | (1,146) | (1,406) | – | (1,406) |
| Shareholders' funds, including minority interests | 14,674 | 6,542 | 21,216 | 15,931 | 7,758 | 23,689 | 13,745 | 6,698 | 20,443 |
| Comprising: | |||||||||
| Equities | 10,517 | – | 10,517 | 11,741 | – | 11,741 | 14,343 | – | 14,343 |
| Property | 3,120 | – | 3,120 | 3,886 | – | 3,886 | 2,832 | – | 2,832 |
| Cash loans and debt securities | 11,338 | – | 11,338 | 12,132 | – | 12,132 | 7,255 | – | 7,255 |
| Other investments | 2,423 | – | 2,423 | 1,865 | – | 1,865 | 1,446 | – | 1,446 |
| Other net assets and pension liability | (13,315) | – | (13,315) | (14,732) | – | (14,732) | (12,925) | – | (12,925) |
| Intangible assets | 6,435 | 6,542 | 12,977 | 6,496 | 7,758 | 14,254 | 5,855 | 6,698 | 12,553 |
| Borrowing | (5,844) | – | (5,844) | (5,457) | – | (5,457) | (5,061) | – | (5,061) |
| 14,674 | 6,542 | 21,216 | 15,931 | 7,758 | 23,689 | 13,745 | 6,698 | 20,443 | |
IFRS net assets have been restated to reflect the impact of change in general insurance reserves of £105 million, £107 million and £112 million offset by the consolidation of funds adjustments of £(838) million, £(758) million and £(431) million and change in shares held by employee trusts of £(10) million, £(10) million and nil at 30 June 2008, 31 December 2007 and 31 December 2006 respectively. Details can be found in the Basis of preparation section.
Analysis of return on capital employed
The analysis of return on equity shareholders' funds set out below incorporates the impact of the change to MCEV as well as the revision to the general insurance reserving policy. In addition to these accounting changes, the presentation format has also been revised to show returns on equity shareholders' funds at business level excluding goodwill and intangibles, with the impact of these items on Group return on equity shareholders' funds shown separately. This presentational change allows for returns on capital at the operational level to be based on the tangible capital employed at business level (including value of in-force business), whilst still retaining accountability at an aggregate group level for the requirement to generate returns on capital invested in goodwill and intangibles.
| Operating return | Opening shareholders' funds (including goodwill and intangibles) £m |
Opening shareholders' funds (excluding goodwill and intangibles) £m |
Annualised return on capital % |
||
|---|---|---|---|---|---|
| Reviewed 30 June 2008 | Before tax £m |
After tax £m |
|||
| Life and pensions | |||||
| United Kingdom | 417 | 300 | 7,154 | 6,888 | 8.7% |
| France | 241 | 158 | 2,770 | 2,770 | 11.4% |
| Ireland | 40 | 34 | 1,229 | 1,091 | 6.2% |
| Italy | 101 | 69 | 1,258 | 1,040 | 13.3% |
| Netherlands (including Belgium and Germany) | 35 | 25 | 3,944 | 3,939 | 1.3% |
| Poland | 114 | 93 | 1,202 | 1,197 | 15.5% |
| Spain | 173 | 121 | 1,746 | 1,042 | 23.2% |
| Other Europe | 24 | 20 | 278 | 177 | 22.6% |
| Europe | 728 | 520 | 12,427 | 11,256 | 9.2% |
| North America | 74 | 48 | 1,975 | 1,206 | 8.0% |
| Asia Pacific | 61 | 47 | 841 | 688 | 13.7% |
| 1,280 | 915 | 22,397 | 20,038 | 9.1% | |
| General insurance and health | |||||
| United Kingdom | 271 | 190 | 3,049 | 2,557 | 14.9% |
| France | 30 | 19 | 301 | 301 | 12.6% |
| Ireland | 41 | 36 | 435 | 353 | 20.4% |
| Netherlands | 44 | 32 | 756 | 734 | 8.7% |
| Other Europe | 22 | 15 | 295 | 187 | 16.0% |
| Europe | 137 | 102 | 1,787 | 1,575 | 13.0% |
| North America | 77 | 50 | 732 | 729 | 13.7% |
| Asia Pacific | (1) | (1) | 26 | 26 | (7.7)% |
| 484 | 341 | 5,594 | 4,887 | 14.0% | |
| Fund management | 30 | 21 | 355 | 305 | 13.8% |
| Other business | (57) | (40) | 831 | (595) | 13.4% |
| Corporate | (49) | (54) | (31) | (31) | 348.4% |
| Subordinated debt | (94) | (67) | (3,054) | (3,054) | 4.4% |
| External debt | (34) | (24) | (1,257) | (1,257) | 3.8% |
| Net internal debt | (51) | (36) | (1,146) | (1,146) | 6.3% |
| 1,509 | 1,056 | 23,689 | 19,147 | 11.0% | |
| Less: | |||||
| Minority interest | (156) | (2,501) | (2,501) | 12.5% | |
| Direct capital instruments | – | (990) | (990) | – | |
| Preference capital | (9) | (200) | (200) | 8.6% | |
| Operating return | 891 | 19,998 | 15,456 | 11.5% | |
| Goodwill and intangibles1 | 4,542 | ||||
| Operating return (including goodwill and intangibles) | 891 | 19,998 | 19,998 | 8.9% |
- Goodwill and intangibles comprises £3,082 million of goodwill in subsidiaries, £1,407 million of intangibles in subsidiaries, £197 million of goodwill and intangibles in joint ventures and £310 million of goodwill in associates, net of associated deferred tax liabilities of £454 million.
| Operating return | Opening shareholders’ funds (including goodwill and intangibles) £m |
Opening shareholders’ funds (excluding goodwill and intangibles) £m |
Return on capital % |
||
|---|---|---|---|---|---|
| Audited 31 December 2007 | Before tax £m |
After tax £m |
|||
| Life and pensions | |||||
| United Kingdom | 822 | 575 | 6,629 | 6,394 | 9.0% |
| France | 568 | 373 | 2,355 | 2,355 | 15.8% |
| Ireland | 85 | 74 | 1,103 | 977 | 7.6% |
| Italy | 137 | 84 | 852 | 841 | 10.0% |
| Netherlands (including Belgium and Germany) | 316 | 236 | 3,514 | 3,508 | 6.7% |
| Poland | 181 | 147 | 946 | 946 | 15.5% |
| Spain | 233 | 163 | 1,412 | 894 | 18.2% |
| Other Europe | (17) | (12) | 132 | 132 | (9.1)% |
| Europe | 1,503 | 1,065 | 10,314 | 9,653 | 11.0% |
| North America | 124 | 80 | 2,078 | 1,267 | 6.3% |
| Asia Pacific | 95 | 70 | 575 | 511 | 13.7% |
| 2,544 | 1,790 | 19,596 | 17,825 | 10.0% | |
| General insurance and health | |||||
| United Kingdom | 294 | 206 | 2,984 | 2,487 | 8.3% |
| France | 70 | 45 | 333 | 333 | 13.5% |
| Ireland | 162 | 142 | 434 | 359 | 39.6% |
| Netherlands | 169 | 123 | 684 | 682 | 18.0% |
| Other Europe | 41 | 29 | 161 | 161 | 18.0% |
| Europe | 442 | 339 | 1,612 | 1,535 | 22.1% |
| North America | 154 | 101 | 670 | 667 | 15.1% |
| Asia Pacific | 4 | 3 | 22 | 22 | 13.6% |
| 894 | 649 | 5,288 | 4,711 | 13.8% | |
| Fund management | 90 | 63 | 305 | 243 | 25.9% |
| Other business | (70) | (49) | 874 | (458) | 10.7% |
| Corporate | (82) | (95) | (19) | (19) | 500.0% |
| Subordinated debt | (179) | (125) | (2,937) | (2,937) | 4.3% |
| External debt | (79) | (55) | (1,258) | (1,258) | 4.4% |
| Net internal debt | (53) | (37) | (1,406) | (1,406) | 2.6% |
| 3,065 | 2,141 | 20,443 | 16,701 | 12.8% | |
| Less: | |||||
| Minority interest | (265) | (1,817) | (1,817) | 14.6% | |
| Direct capital instruments | (37) | (990) | (990) | 3.7% | |
| Preference capital | (17) | (200) | (200) | 8.5% | |
| Operating return | 1,822 | 17,436 | 13,694 | 13.3% | |
| Goodwill and intangibles1 | 3,742 | ||||
| Operating return (including goodwill and intangibles) | 1,822 | 17,436 | 17,436 | 10.4% |
- Goodwill and intangibles comprises £2,910 million of goodwill in subsidiaries, £830 million of intangibles in subsidiaries and £280 million of goodwill in associates, net of associated deferred tax liabilities of £278 million.