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Pehr G Gyllenhammar
Chairman
The first six months have demonstrated that we have made further progress. Our growth is healthy and our profitability is improving steadily. Our capital position is robust and we have a sound positive cash flow. We have therefore declared an interim dividend increase of 5%.
Total group operating profit is up 21%, demonstrating a robust operational performance across all our major businesses. We are increasing the interim dividend to 9.83 pence net per share (2004 interim dividend: 9.36 pence), payable on 17 November 2005 to shareholders on the register on 19 August 2005. This represents an increase of 5%, in line with our dividend policy.
Outside the UK, in continental Europe, we see healthy growth in our life business, particularly from our bancassurance arrangements, which continue to be productive and give good returns. In India and China, our life assurance operations are growing very fast from a small base, and that growth rate is needed to reach the required scale. We have applied for further licences in China and are exploring possible opportunities in Russia.
Growth in the UK life market is slow and we are concentrating on improving our service and efficiency which will benefit our customers and provide our shareholders with better returns in the long term.
Our UK general insurance business continues to show excellent results and generates important cash flow. The acquisition of RAC has been completed and should add considerable strength and breadth in distribution, product offering, customer service and profitability.
Our general insurance portfolios in France and the Netherlands are performing well. In Ireland and Canada, our general insurance businesses are continuing the excellent results seen last year.
Our asset management operations are increasing in efficiency and profitability, particularly in the UK and France.
We are continuously improving our productivity and we benchmark ourselves against the best in our industry. We will employ 5,000 staff in India by the end of the year and our off-shoring capability is an important contribution in our drive towards efficiency.
We have taken the lead in introducing a new and more transparent way of accounting for Embedded Value, the most important measure of our life portfolio. At the same time our statutory accounts are now prepared on the new International Financial Reporting Standards (IFRS) basis. These two big changes have demanded a lot from our finance teams and they have done an outstanding job.
[Bar graph showing Aviva vs. FTSE EuroFirst 300 and FTSE EuroFirst 300 Life. ]
| Unaudited 6 months to 30 June 2005 £m |
Restated## unaudited 6 months to 30 June 2004 £m |
Growth in constant currency % |
|
|---|---|---|---|
| Operating profit before tax – EEV basis* | 1,318 | 1,076 | 21% |
| Operating profit before tax – IFRS basis** | 943 | 781 | 19% |
| Worldwide new business sales† | 12,078 | 10,528 | 13% |
| Interim dividend per share | 9.83p | 9.36p | 5% |
| Earnings per share – EEV basis* | 35.6p | 28.6p | |
| Earnings per share – IFRS basis** | 27.1p | 21.8p | |
| Total shareholders’ funds‡ | 12,633 | 11,661~ | |
| Net asset value per share | 533p | 511p~ | |
| Assets under management | £291bn | £280bn~ |
| Target | 6 months 2005 |
Restated## full year 2004 |
|
|---|---|---|---|
| Return on Capital Employed (ROCE) | 10% + inflation^ | 14.6% | 13.7% |
| General insurance COR# | 100%†† | 95% | 97% |
Equity markets continue to recover but, after a strong run up to March, our share price has not performed as well as we would like during the last quarter. We measure ourselves against our European peer group with an ambition to outperform.
We aspire to be a world class provider of financial services. By striving to improve the quality of our products and service to customers, we aim to increase returns to our shareholders.
The management team under Richard Harvey is working with great dedication. Precision and progress in our industry can only be achieved with hard and focused work. Our staff are undergoing a continued programme of learning and development and they are doing a very fine job.
The board is fully supportive of our corporate social responsibility (CSR) programme, which covers all our businesses worldwide, and which we believe enhances our business performance, both in the short and long term.
Our commitment to good governance also remains a priority for the board and it has taken great care in managing its succession plan. Our deputy chairman, George Paul, and non-executive director Elizabeth Vallance are due to retire from the board at the end of 2005. I thank them both for their wisdom and sound judgement over many years of service. Mary Francis is to join the board as a non-executive director from 1 October 2005. She has extensive experience of government affairs and business on an international level, most recently as director-general of the Association of British Insurers. We shall benefit greatly from her knowledge and I am delighted to welcome her to our board.
In anticipation of my planned retirement at the end of this year, I am delighted that Lord Sharman, who joined the board in January 2005, will become Aviva’s new chairman from 1 January 2006. He brings enormous experience to the Board and the combination of his knowledge and Richard Harvey’s proven leadership means that I leave Aviva in the most capable hands.
I am privileged to have been able to make my own contribution to the continued development of this outstanding company and I thank my colleagues and Aviva’s stakeholders for their generous support over the years.
| All operating profit is from continuing operations. | |
| All growth rates are quoted at constant rates of exchange. | |
| * | Including life European Embedded Value (EEV) operating return, before impairment of goodwill and exceptional items. |
| ** | Before impairment of goodwill, amortisation of acquired additional value of in-force long-term business and exceptional items. |
| † | Based on PVNBP for life and pensions plus total investment sales. |
| ‡ | Measured on an EEV basis, excluding preference shares, direct capital instrument and minority interests. |
| †† | Across the group for three years from 1 January 2004. |
| # | Combined operating ratio (COR) expresses the extent to which expenses and claims cover insurance premiums. It is the sum of expenses, including commissions, expressed as a percentage of net written premiums, and claims as a percentage of net earned premiums. |
| ~ | At 31 December 2004. |
| ## | Restated to an EEV/IFRS basis. |
| ^ | Annualised Inflation was 2.4% in the six months to 30 June 2005 (year ended 31 December 2004: 3.5%). ROCE for six months 2005 is annualised. |
