News

Preliminary results for the 12 months ended 31 December 2003

25 February, 2004

• Strong performance in both long-term savings and general insurance businesses
• Robust life results: good sales growth in Continental Europe; signs of confidence returning to UK market; margins up to 26.1%
• Significant growth from bancassurance: sales up 27%; now accounts for 25% of new life and pensions sales; average margins 39.7%
• Excellent and sustainable general insurance results with new group combined operating ratio target of 100% for next three years
• Strong capital position and well-prepared for new UK realistic reporting regime

Richard Harvey, group chief executive, commented:

“These are strong results. Our distribution partnerships in Europe have made a significant contribution to our life results. Once again, our general insurance business has shown that its scale and focused approach can deliver excellent and sustainable results.

“We’ve driven improvement in our life business margins through pricing and expense control. We’ve also made operational improvements and reduced costs across the Group in a very competitive market.

“Aviva is fit for the future with a strong capital position. We welcome the new UK realistic reporting regime and are well-prepared for it.

“Investment markets are showing signs of recovery and some consumer confidence is returning. We believe Aviva is the best-placed life company in Europe to capture the market upturn, gaining competitive advantage from our extensive distribution networks, strong market positions and financial strength.”

Highlights

	FY 03	FY 02	Growth in constant currency
Operating profit before tax - achieved profit basis*	£1,907m	£1,720m	6%
Operating profit before tax - modified statutory basis**	£1,490m	£1,218m	17%
Worldwide new business sales#	£14,433m	£14,646m	(5%)
Total dividend per share	24.15p	23p	5%
Earnings per share - achieved profit basis*	53.2p	48.3p
Earnings per share - modified statutory basis**	44.0p	34.8p
Total shareholders' funds***	£11,165m	£9,668m
Return on capital employed†	12.7%	9.7%
Net asset value per share	502p	433p

*	From continuing operations, including life achieved operating profit, before amortisation of goodwill and exceptional items.
**	From continuing operations, before amortisation of goodwill, amortisation of acquired additional value of in-force long-term business and exceptional items.
***	Measured on an embedded value basis.
#	From continuing operations, including share of associates’ premiums.
†	From continuing operations.
	All growth rates quoted are at constant rates of exchange.

Group chief executive's statement

This is a strong set of results with good performances from both our long-term savings and general insurance businesses. During 2003 we took action to improve pricing and operational efficiency and to target business in the most profitable product areas. It is pleasing to see these measures already benefiting our results with operating profit before tax on an achieved profit basis increasing by 6% to £1,907 million (2002: £1,720 million), including higher life margins and an improved COR of 100%. Our return on capital increased to 12.7% (2002: 9.7%) meeting the Group’s target of 10% net real.

The balance sheet strengthened in the year including the benefit of retained profits in excess of £1 billion, driven by this strong operating performance, and some recovery in global investment markets. The net asset value per share grew to 502p.

The Board has recommended a final dividend of 15.15 pence per share producing full year dividend growth of 5% to 24.15 pence and dividend cover of 1.82 times modified statutory earnings. This is in line with the Group’s dividend policy of growing the dividend by approximately 5% per annum, whilst looking to sustain a target cover in a range of 1.5 to 2.0 times operating earnings after tax on a modified statutory basis.

Long-term savings

Many of our major life operations grew their market share during the year and at the same time increased margins on new business written. We regained our number one position in the UK and in Spain we have built the number one life business in just a three-year period.

New business margins increased to 26.1% (2002: 24.4%), with the new business contribution at £621 million ahead by 3%, against a backdrop of sales being 3% lower at £2,377 million. Total life achieved operating profit was £1,555 million (2002: £1,524 million).

We made good progress in our important Continental European markets with improved margins of 29.8% (2002: 25.7%). These businesses continue to provide opportunities for us to expand in lower-penetrated markets including Spain and Italy which offer superior medium-term growth potential. We have established our platform in Eastern Europe and have quickly developed new business sales in Singapore and Hong Kong and have made a very promising start in India and China.

Our bancassurance partnerships continue to provide strong growth. New business sales increased by 27% to £563 million on an APE basis and include for the first time, sales from our new partnership with ABN AMRO in the Netherlands. Margins on bancassurance sales improved to 39.7% (2002: 35.1%). In 2004 we aim to build on our existing relationships and towards the end of the year our partnership with Crédit du Nord in France will become operational.

General insurance

In general insurance we have built a sustainable profit-generating model and our actuarial analysis suggests that our claims reserves across the Group are now extremely strong. We have set ourselves a COR target of 100% across the Group for each of the next three years.

Our focus on personal and small commercial business following our exit from long-tail risks underpins the continuing strong profits from our general insurance business. The operating result of £911 million (2002: £881 million) was achieved even though investment returns were £61 million lower than in 2002.

The worldwide combined operating ratio was 100% (2002: 102%) with particularly strong results in the UK and Ireland, of 99% and 97%, respectively. The worldwide COR includes the £70 million first-half impact of the shortfall in claims reserves relating to prior years in our Canadian subsidiary, Pilot Insurance Company. Excluding this impact, the underlying Group COR was 99%. During the year we have expensed an additional £58 million in developments that will improve underwriting capability and efficiency going forward. In an increasingly competitive market we continue to achieve rating increases across both our personal and commercial lines.

Financial strength

Total shareholders’ funds on an achieved profit basis were £11.2 billion at 31 December 2003 (31 December 2002: £9.7 billion).

We continue to manage the capital of the group prudently. During the year we took the opportunity to lock into attractive financing rates through a £1.6 billion subordinated debt issue, to provide us with capital for future growth.

In the UK, we have actively supported the move by regulators towards realistic capital assessment and reporting. We have assessed our UK with-profits funds under the new realistic regime and the solvency position of our life operations remains strong. The orphan estate measured on the realistic basis totalled £4.3 billion after the fair value of the guarantees, options and promises of £4.9 billion on a market consistent basis.

Cost savings

One of our key objectives in 2003 was to reduce costs and improve our operational efficiency. Through a series of initiatives that we announced in the course of the year we expect to deliver annualised cost savings of £250 million.

The net pre-tax benefit to the profit and loss account for the year was £65 million after incurring one-off costs of £100 million representing the costs associated with achieving these savings and the increased cost of our global financial transformation programme (GFTP).

In order to complete these expense saving initiatives and further work on GFTP increased costs of £140 million (relative to the 2002 cost base) will be incurred in 2004. We estimate that the resulting net pre-tax benefit to the profit and loss account in 2004, relative to 2002, will be £85 million. The full realisation of the actions announced in 2003 will deliver estimated annualised gross savings of £250 million. Improving operational efficiency remains a focus for management.

UK fund management

Following the retirement of Philip Twyman on 31 March 2004, Philip Scott will become non-executive chairman of Morley Investment Holdings Ltd (MIHL). In addition to his existing responsibilities as executive director for Aviva’s non-UK life companies, he will represent Morley at the Aviva main board. Keith Jones, chief executive officer of Morley, will continue overall executive responsibility for Morley.

It is the intention to appoint Andrew Moss to the board of MIHL, as non-executive director, when he joins Aviva later this year. The appointment of Andrew Moss as group finance director, Aviva plc, was previously announced on 29 January 2004. He will bring considerable international experience to MIHL from his previous appointments with HSBC.

Outlook

We believe that the prospects for growth in 2004 in our long-term savings businesses are encouraging, with evidence that investors are gaining confidence.

Aviva is one of the best-placed life companies in Europe to benefit from an upturn with our leading market positions, strong brands, unit-linked skills and the pensions expertise to benefit from widespread reforms. Our bancassurance partnerships in Europe and Asia are still at a relatively early stage of development and we expect further growth as these ventures mature. We will continue to focus on value ahead of volume.

In general insurance, our strict adherence to operational disciplines of focused underwriting and efficient claims handling will continue to deliver strong, sustainable earnings.

Richard Harvey
Group chief executive

Enquiries:

Richard Harvey	Group chief executive	+44 (0)20 7662 2286
Philip Twyman	Group executive director	+44 (0)20 7662 2679
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 on +44 (0) 20 7019 9513 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 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) 207 019 9509. A replay facility will be available for two weeks on +44 (0) 207 784 1024. The pass code is 415541# for the whole presentation including Question & Answer session or 585224# for Question & Answer session only.

The presentation slides will be available on the Group's website from 9am (GMT).

You can download a photograph of Aviva group chief executive Richard Harvey to go with the results announcement or from the Aviva media centre.

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 £30 billion and assets under management of around £240 billion.
• Overseas currency results are translated at average exchange rates.
• All growth rates are quoted in local currency.
• This preliminary 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 2004

Ex-dividend date (ordinary shares)		24 March 2004
Record date (ordinary shares)		26 March 2004
Annual General Meeting		27 April 2004
Announcement of long-term savings new business for 3 months to 31 March 2004		5 May 2004
Payment date (ordinary shares)		17 May 2004
Announcement of unaudited six months’ interim results		4 August 2004
Announcement of long-term savings new business for 9 months to 30 September 2004		2 November 2004

 

Download the full preliminary results announcement in Adobe PDF (357KB)