News
Interim Results 6 months ended 30 June 2003
31 July, 2003
INTERIM RESULTS
6 MONTHS ENDED 30 JUNE 2003
LIFE OPERATIONS: EXCELLENT GROWTH IN CONTINENTAL EUROPE WITH STABILISED UK LIFE PERFORMANCE
- Strong worldwide bancassurance life and pensions sales up 56% to £299 million on an APE basis (2002: £179 million) representing a quarter of our new business with a margin of 35.5%
- Worldwide new business life and pension sales of £1.2 billion on an APE basis (2002: £1.2 billion) with margins maintained at 24.5% (full year 2002: 24.4%)
- UK margins maintained at 22.0% in the second quarter
- Worldwide new business sales at £7.5 billion (2002: £7.3 billion) with majority coming from outside the UK
EXCELLENT GENERAL INSURANCE PERFORMANCE
- Worldwide combined operating ratio† of 101% (2002: 101%) with strong performances in the UK, Ireland and the Netherlands
- Improved expense ratio† of 10.9% (2002: 11.1%)
IMPROVING FINANCIAL STRENGTH AND COST EFFICIENCY
- Operating profit* of £828 million (2002: profit of £955 million) which resulted in an improved profit before tax on an achieved profit basis of £850 million (2002: loss of £462 million). On a modified statutory basis, operating profit** was £638 million (2002: £733 million)
- Improved return on capital of 11.0% over first half of 2003 in comparison to the year end of 9.7%
- Net cost savings of £30 million achieved in first six months after incremental development spend of £10 million
- Equity shareholders’ funds of £10.2 billion (31 December 2002: £9.5 billion) with net asset value up at 468 pence per share (31 December 2002: 433 pence per share)
- Orphan estate of £4.5 billion (31 December 2002: £4.3 billion) and improved free asset ratio# of UK life with profit funds 14.0% at 30 June 2003 (31 December 2002: 11.8%)
- Interim dividend increased by 2.9% to 9.0 pence net per share
Richard Harvey, Group Chief Executive, commented:
“These good results show that we are delivering against our targets of maintaining margins, reducing costs and improving return on capital in a challenging environment. In the first half the Group has improved its return on capital to 11.0%, grown bancassurance sales by 56%, maintained margins by seeking cost efficiencies and produced an outstanding general insurance performance. Our business model of geographically spread long-term savings operations and a cash generating general insurance business gives us strength against the current backdrop”.
| * | From continuing operations, including life achieved operating profit and stated before tax, amortisation of goodwill and exceptional items. |
| ** | From continuing operations, before tax, amortisation of goodwill, amortisation of acquired additional value of in-force long-term business and exceptional items. |
| † | From continuing operations. |
| # | Calculated in accordance with FSA regulations, including implicit items but excluding the impact of the waivers granted by the FSA earlier in the year. |
| All growth rates quoted are at constant rates of exchange. |
FINANCIAL HIGHLIGHTS
| 6 months 2003 £m |
6 months 2002 £m |
|
| Total premiums written (after reinsurance) and investment sales Continuing operations, including share of associates’ premiums |
15,692 | 14,160 |
| Discontinued operations – Australia and New Zealand general insurance operations | - | 335 |
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|
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| 15,692 | 14,495 | |
| Worldwide long-term savings new business sales | ||
| Life and pensions | 6,931 | 6,674 |
| Retail investments | 520 | 622 |
| New business contribution (before effect of solvency margin) | 297 | 289 |
| Achieved operating profit before tax | ||
| Life achieved operating profit | 705 | 796 |
| Health | 27 | 32 |
| Fund management | 10 | 3 |
| General insurance | 387 | 456 |
| Non-insurance operations** | (47) | (28) |
| Corporate costs | (56) | (96) |
| Unallocated interest charges | (198) | (208) |
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| Achieved operating profit before tax – continuing operations | 828 | 955 |
| Discontinued operations – Australia and New Zealand general insurance operations | - | 24 |
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| Achieved operating profit before tax | 828 | 979 |
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| Modified statutory operating profit† | 638 | 733 |
| Modified statutory operating profit after tax, minorities and preference dividends† | 404 | 468 |
| Achieved operating earnings per share† | 22.5p | 26.7p |
| Modified statutory operating earnings per share† | 17.9p | 20.8p |
| Dividend per ordinary share | 9.0p | 8.75p |
| Equity shareholders’ funds | 10,219 | 9,469* |
| Total shareholders’ funds | 10,419 | 9,669* |
| Net asset value per ordinary share# | 468p | 433p* |
| Assets under management | £229bn | £208bn* |
| † | From continuing operations. |
| # | After adding back the claims equalisation provision. |
| * | As at 31 December 2002. |
| ** | The wealth management result has been included within non-insurance in all periods. |
GROUP CHIEF EXECUTIVE’S STATEMENT
As the UK’s leading insurer and one of the top five life companies in Europe, the Group has delivered a good set of results which demonstrate the financial and operational resilience of our businesses. The strength of our multi-distribution capability is evident. We have developed one of the leading bancassurance networks in Europe which now accounts for a quarter of our new business life and pension sales. Total operating profit before tax from continuing operations was £828 million (2002: £955 million).
Our robust business model, with geographically spread long-term savings operations and our cash-generating general insurance business, provides strength in a challenging economic environment.
Long-term savings
As one of the leading providers of life and pension products to Europe, we have made good progress and delivered worldwide new business life and pension sales of £6.9 billion (2002: £6.7 billion). Margins were maintained at 24.5% (full year 2002: 24.4%) and, where necessary, actions are being taken to protect margins and size costs to revenue.
In the UK the Group achieved life and pension sales of £531 million (2002: £676 million) on an Annual Premium Equivalent (APE) basis and we expect to regain our position as market leader. New business performance in 2003 has stabilised. Sales of annuities continued to grow strongly but were offset by lower bond and savings sales reflecting the continued lack of investor confidence in the equity markets. We took the decision last year to focus on larger group pensions and have started to see encouraging growth in this sector. Sales in the first half of 2003 reaffirm the strength of the Norwich Union brand, its broad product offerings and its multi-distribution capability. Life achieved operating profit in the UK was lower at £339 million (2002: £424 million) in part reflecting the lower level of investment returns as a result of the lower asset values at the start of the year.
In Continental Europe, life and pension sales increased by 21% to £581 million (2002: £443 million) on an APE basis. Margins were good at 27.4% (full year 2002: 25.7%). We continue to see the strong growth in our Spanish and Italian bancassurance businesses and we are now the number one life business in the Spanish market. Life achieved operating profit from Continental Europe was £336 million (2002: £350 million) which represents 48% of our total life achieved operating result.
Bancassurance is an integral part of our distribution strategy and we continue to focus on the development of the joint ventures we have established with our partners. In the first half of 2003 worldwide sales through this channel increased by 37% to £1.9 billion (2002: £1.3 billion) and account for a quarter of our business. We have grown these businesses significantly over the past three years. In 2000 total sales were approximately £400 million and since then these bancassurance ventures have generated £7 billion in new business sales. In the first half of 2003 we completed our bancassurance arrangement with ABN AMRO in the Netherlands. This has contributed total sales of £134 million to 30 June.
General insurance
Our cash-generative general insurance businesses are an important part of our strategy and we have strong positions in the markets in which we operate. Our businesses experienced a strong start to 2003 benefiting from both a favourable rating environment and better than expected weather-related claims experience across our major European businesses. Our businesses in the UK, Ireland and the Netherlands have all delivered strong underwriting results with combined operating ratios (COR) of 99%, 97% and 98% respectively, demonstrating the success of our clear and focused strategy on personal lines and small commercial businesses. Total operating profit amounted to £387 million (2002: £456 million) reflecting lower investment returns.
Our worldwide COR was 101% (2002: 101%) and includes the impact of reserving for the shortfall of £70 million in claims case reserves relating to prior years identified in our Canadian subsidiary Pilot Insurance Company (Pilot). Excluding this impact, the underlying Group COR was 99%. We have exceeded our COR target and this performance demonstrates our track record of delivering consistent results. We recognise many of our business lines are operating at the top of the cycle and remain confident in our ability to deliver our target of 102% across the cycle.
Fund management
The first half of 2003 saw continued falls in worldwide investment markets. Despite these trading conditions and our continued investment in the business, operating profit from our worldwide businesses was £10 million (2002: £3 million). Worldwide assets under management at 30 June 2003 grew to £229 billion (31 December 2002: £208 billion) reflecting the benefit of new business flows and improved investment markets.
Shareholders’ capital employed and financial strength
In a market that increasingly looks for quality and financial strength, our strong and resilient capital position is fundamental to our business. The Group achieved a good performance at the operational level and has been supported by the beneficial impact of a strengthened euro and improved investment market performance. As a result the equity shareholders’ funds were £10.2 billion at 30 June 2003 (31 December 2002: £9.5 billion) which is equivalent to 468 pence per share (31 December 2002: 433 pence).
The solvency position of our main trading operations remains strong and at 30 June 2003 the average free asset ratio of our main UK life with-profit trading operations improved to 14.0% (10.0% excluding implicit items), and the orphan estate amounted to £4.5 billion (2002: £4.3 billion). This value is based upon a realistic assessment of liabilities and is calculated after allowing for over £4 billion in respect of the expected cost of guarantees and the glidepath. Furthermore, the solvency capital of our combined general insurance and overseas life operations remains strong with an estimated excess solvency margin of £2.7 billion at 30 June 2003 (31 December 2002: £2.2 billion). Solvency cover for the CGUII group has been estimated at 4.3 times and for the NUI group at a cover of 3.1 times.
Cost savings
We continue to take action to improve our operational efficiency and ensure that costs are appropriately aligned to revenues. Increased hurdle rates on new developments and internal projects, together with a reduction of 700 jobs in the UK in the first half of 2003 resulted in a net benefit of £30 million to the profit and loss account in the period. There was incremental development spend of £10 million in 2003 in respect of our global finance transformation programme (GFTP) and the development of our new call centre and claims processing operation in India.
We estimate that the net benefit to the profit and loss account for the full year 2003 will be approximately £60 million after bearing one-off costs of £30 million associated with the recently announced 900 job reductions in our UK life and general insurance businesses and after incremental development spend of £50 million in the full year.
The full realisation of the actions taken so far in 2003 will deliver an estimated benefit to the profit and loss account of £175 million in 2004 but excludes the impact of inflation, future growth in the business and a further incremental spend of £40 million on GFTP. Improving efficiency will remain a focus of management.
Outlook
Although a degree of stability has returned to investment markets, we anticipate that conditions in long-term savings markets will remain challenging in the second half of 2003 as investor confidence slowly returns. We continue to see the benefits from our bancassurance distribution channel as it develops across Europe, particularly in Italy and Spain and in our new venture in the Netherlands with ABN AMRO. We remain optimistic about the potential for future growth from our bancassurance ventures over the second half of 2003.
Our emphasis remains on developing our distribution power, particularly in bancassurance, while ensuring strict cost and capital management disciplines across our businesses. We believe that these measures combined with our resilient business model will give us the platform to succeed in our chosen markets.
Richard Harvey
Group Chief Executive
Enquiries:
| Richard Harvey | Group Chief Executive | +44 (0)20 7662 2286 |
| Mike Biggs | Group Finance Director | +44 (0)20 7662 2031 |
| Analysts: | ||
| Steve Riley | Investor Relations Director | +44 (0)20 7662 8115 |
| James Matthews | Head of Investor Relations | +44 (0)20 7662 2137 |
| Media: | ||
| Hayley Stimpson | Director of External Affairs | +44 (0)20 7662 7544 |
| Sue Winston | Head of Group Media Relations | +44 (0)20 7662 8221 |
| Alex Child-Villiers | Financial Dynamics | +44 (0)20 7269 7107 |
NEWSWIRES: There will be a conference call today for wire services at 8.15am (GMT) on +44 (0)845 146 2003. Quote: Aviva, Richard Harvey.
ANALYSTS: A presentation to investors and analysts will take place at 9.30am (GMT) at St Helen’s, 1 Undershaft, London, EC3P 3DQ. The investors and analysts presentation is being filmed for live webcast and can be viewed on the Group’s website www.aviva.com/investor-relations/presentations/ 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 8400 6305. A replay facility will be available for two weeks on +44 (0)20 8797 2499. The pass code is 919248# for the whole presentation including Question & Answer session or 919251# for Question & Answer session only.
The presentation slides will be available on the Group's website, www.aviva.com/investor-relations/presentations/ from 9.00am (GMT).
Photographs are available from the media centre on www.aviva.com/media/
Notes to editors
- Aviva is one of the leading providers of life and pensions to Europe with substantial positions in other markets around the world, making it the world’s seventh-largest insurance group based on gross worldwide premiums.
- Aviva’s principal business activities are long-term savings, fund management and general insurance, with worldwide premium income and retail investment sales from continuing operations of Ł28 billion and assets under management of more than Ł200 billion.
- Overseas currency results are translated at average exchange rates.
- All growth rates are quoted in local currency.
- 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.
Financial calendar 2003/2004
| Ex-dividend date for 2003 interim dividend | 24 September 2003 | |
| Record date for 2003 interim dividend | 26 September 2003 | |
| Payment of interim 2003 dividend | 17 November 2003 | |
| Announcement of long-term savings new business for 9 months to 30 September 2003 |
23 October 2003 | |
| Preliminary announcement of 2003 results | 26 February 2004 |
