The directors submit their report and accounts for Aviva plc, together with the consolidated accounts of the Aviva Group of companies, for the year ended 31 December 2006. Pursuant to amendments made to the Companies Act 1985 in 2005 companies are required to produce a business review as part of their directors’ report in respect of financial years beginning on or after 1 April 2005. View the business review. Certain matters that are required to be disclosed within the directors’ report have been included within the Business Review and accordingly, the review of the Group’s operations, current position and future prospects together with a description of the principal activities of the Group can be found within the business review. Details of material acquisitions and disposals made by the Group during the year are contained in note 3 to the accounts.
Results
The Group results for the year are shown in the Consolidated income statement.
Dividends
The directors are recommending a final dividend of 19.18 pence per share (2005: 17.44 pence), which together with the interim dividend of 10.82 pence paid on 17 November 2006 (2005: 9.83 pence), produces a total dividend for the year of 30.00 pence per share (2005: 27.27 pence). The total cost of ordinary dividends for 2006, will amount to £693 million (2005: £598 million), leaving £1,468 million to be transferred to reserves (2005: £1,123 million to reserves). The final dividend for 2006 will be paid on 17 May 2007 to all holders of ordinary shares on the Register of Members at the close of business on 9 March 2007. The Company’s Scrip Dividend Scheme will be available to shareholders in respect of the payment of the final dividend. In addition, a local currency payment service will be available to shareholders residing in certain participating countries outside the UK. Further details of these arrangements can be found in the shareholder services section .
Share capital
At the Company’s Annual General Meeting, held on 10 May 2006, shareholders approved an increase in the Company’s authorised share capital from £1.45 billion and €700 million to £1.95 billion and €700 million by the creation of 500 million preference shares of £1 each.
The issued ordinary share capital of the Company was increased by 170 million ordinary shares during the year. 129 million new shares were allotted on 18 July 2006 in part consideration for the acquisition of AmerUs Group Co which completed on 15 November 2006. The balance of 41 million shares was allotted under the Group’s employee share and incentive plans and the Aviva Scrip Dividend Scheme. At 31 December 2006 the issued ordinary share capital totalled 2,565.8 million shares. Details of the Company’s share capital and shares under option at 31 December 2006 and shares issued during the year are given in notes 27 to 30 of the accounts.
Authority to purchase own shares
At the Company’s Annual General Meeting held on 10 May 2006, shareholders renewed the Company’s authority to make market purchases of up to 239 million ordinary shares, up to 100 million 8 3/4% preference shares and up to 100 million 8 3/8% preference shares. This authority was not used during the year and, at the forthcoming Annual General Meeting, shareholders will be asked to renew these authorities for another year. Details are contained in the Notice of Meeting. The Company held no Treasury shares during the year.
Post balance sheet events
There have been no material events between 31 December 2006 and the date of this report that are required to be brought to the attention of shareholders.
Directors
The following persons served as directors of the Company during the year:
Guillermo de la Dehesa
Wim Dik
Mary Francis
Richard Karl Goeltz
Richard Harvey
Andrew Moss
Carole Piwnica
Philip Scott
Lord Sharman of Redlynch
Derek Stevens (retired 31 December 2006)
Patrick Snowball
André Villeneuve (retired 31 December 2006)
Russell Walls
See biographical details of the persons currently serving as directors.
The Company’s Articles of Association require one-third of the directors to retire by rotation each year. At the forthcoming Annual General Meeting Guillermo de la Dehesa, Wim Dik, Richard Karl Goeltz, and Russell Walls, all independent non-executive directors will retire and, being eligible, will offer themselves for re-election. Derek Stevens and André Villeneuve who were re-elected by shareholders at last year’s Annual General Meeting had served on the Board for more than nine years and therefore retired on 31 December 2006 in line with the Board’s plans to renew and refresh its composition. None of the directors retiring at the Annual General Meeting has a service contract with the Company.
Directors’ interests and indemnity arrangements
At no time during the year did any director hold a material interest in any contract of significance with the Company or any of its subsidiary undertakings other than a third-party indemnity provision between each director and the Company and service contracts between each executive director and a Group company. The Company has purchased and maintained throughout the year directors’ and officers’ liability insurance in respect of itself and its directors. The directors also have the benefit of the indemnity provision contained in the Company’s Articles of Association. The Company has executed deeds of indemnity for the benefit of each director of the Company, and each person who was a director of the Company during the year, in respect of liabilities that may attach to them in their capacity as directors of the Company or of associated companies. These provisions, which are qualifying third-party indemnity provisions as defined by Section 309B of the Companies Act 1985, were in force throughout the year and are currently in force. Details of directors’ remuneration, service contracts and interests in the shares of the Company are set out in the Directors’ remuneration report.
Substantial shareholdings
Until 19 January 2007 the Company maintained a register of substantial shareholdings in accordance with the provisions of Section 211 of the Companies Act 1985. At 19 January 2007, the register showed that the holdings exceeding the 3% disclosure threshold were those of Barclays Plc which held 102,377,279 ordinary shares (3.99%) of the issued ordinary share capital of the Company, Legal & General Group Plc which held 93,312,175 ordinary shares (3.65%) and AXA S.A. and its Group companies which held a total of 262,220,441 ordinary shares (10.22%) of which 29,277,260 (1.14%) were held beneficially and 232,943,181 (9.08%) were held non-beneficially.
On 20 January 2007 the Companies Act 1985 provisions in respect of substantial shareholdings were repealed and the Disclosure and Transparency Rules of the Financial Services Authority came into force. At 28 February 2007, the Company had received notifications that the holdings exceeding the 3% notification threshold were those of Barclays Plc which held 153,862,359 voting rights (representing 5.99% of the total voting rights attaching to the issued ordinary share capital of the Company), Legal &General Group Plc which held 93,312,175 voting rights (3.65%) and Axa S.A. and its Group companies which held a total of 262,220,441 voting rights (10.22%) of which 29,277,260 (1.14%) were held beneficially and 232,943,181 (9.08%) were held non-beneficially.
Financial instruments
Aviva Group companies use financial instruments to manage certain types of risks including those relating to credit, foreign currency exchange, cash flow, liquidity, interest rates, and equity and property prices. Details of the objectives and management of these instruments are contained in the Business Review and an indication of the exposure of the Group companies to such risks is contained in note 51 to the accounts.
Health and safety
The health and safety of the Group’s employees is a priority and is reviewed at regular intervals. Each business within the Group has an appointed health and safety representative, whose role is to bring to the attention of senior management any areas of concern that should be addressed within the health and safety programme. Information on health and safety matters is communicated to staff through the normal communication channels. Under the Group’s Health and Safety Policy the Group Chief Executive is accountable for health and safety.
Charitable donations
Aviva has continued to support community initiatives and charitable causes worldwide and the total Group commitment during the year, as measured in accordance with Business in The Community’s PerCent Standard, was £6.3 million (2005: £5.7 million). In 2006, the Group’s community investment in the United Kingdom totalled £3.7 million (2005: £3.9 million) of which £1.4 million (2005: £1.7 million) was given in the form of donations to charitable organisations. The Company allocates a part of its budget to matching contributions raised by staff and to providing financial support to charities and communities where members of staff give a personal commitment in terms of their time. In addition, the Company provides a significant level of support to a number of national charities. During 2006, the Company continued its commitment to Breakthrough Breast Cancer, Wheelpower (the British wheelchair sports association), The Princess Royal Trust for Carers, NCH (the children’s charity) and Muscular Dystrophy, which was chosen by employees in the United Kingdom as their “charity of the year”. In support of its “Forward Thinking” initiative the Company has become a founder partner of the Oxfam 365 Alliance which provides immediate humanitarian aid to disasters occurring throughout the world. The Company has committed to support the 365 Alliance for three years.
Political donations
It is the Company’s policy not to make donations to political organisations or for political causes, and it does not intend to change this policy. Accordingly, during the year the Company has made no donations to EU political organisations or incurred any EU political expenditure as defined in the Political Parties, Elections and Referendums Act 2000 (PPER) (2005: nil). In 2004, shareholders passed a resolution authorising the Board to incur expenditure, up to an aggregate limit of £100,000 per annum, on activities that fall under the PPER. The PPER introduced a very broad definition of political expenditure, such that some of the activities undertaken throughout the Group’s businesses could arguably fall within that definition. The Board sought shareholders’ authority to incur such expenditure in order to avoid any inadvertent breaches of the PPER. The Board does not believe that the Group has incurred any such political expenditure in the past year. The Board’s authority to incur such political expenditure expires in 2008.
The Group acquired the AmerUs group of companies on 15 November 2006 and, in line with accepted practice in the United States that group made political donations totalling $2,250 in December 2006. In common with other sizeable companies in the US, AmerUs also operates a Political Action Committee (PAC). The PAC allows employees to make contributions to be used for political donations and, in December 2006 a donation of $1,000 was made by the employee PAC. These are not political donations made by the Company. Following the integration of AmerUs into the Aviva Group, no future political donations will be made by the Company although AmerUs will continue to operate its employee PAC.
Group employees
The Group’s statement on its employees is set out in the Business Review.
In summary, the Group’s commitment to communication and dialogue with employees continues. A strong emphasis is placed on the provision of news through a variety of media, including intranets (both a Group-wide intranet, Arena, and local business unit intranets), Aviva radio, which can be accessed via mobile phone or computer, and poster campaigns. Employees have opportunities to voice their opinions and ask questions through intranet sites and climate surveys. Face-to-face briefings and team meetings are actively encouraged and are held in all business units across the Group. During 2006, the Group’s businesses in the United Kingdom established employee consultative forums.
Employee practice
Aviva Group companies are committed to providing equal opportunities to all employees, irrespective of their sex, sexual orientation, marital status, creed, colour, race, nationality, ethnic origin, disability, age, religion or union membership status. Aviva is an inclusive employer and values diversity in its employees. These commitments extend to recruitment and selection, training, career development, flexible working arrangements and promotion and performance appraisal. In the event of employees becoming disabled, every effort is made to ensure that their employment with the Group continues and to provide specialised training where this is appropriate.
Creditor payment policy and practice
It is the Group’s policy to pay creditors when they fall due for payment. Terms of payment are agreed with suppliers when negotiating each transaction and the policy is to abide by those terms, provided that the suppliers also comply with all relevant terms and conditions. The Company has no trade creditors. In respect of Group activities in the UK, the amounts due to trade creditors at 31 December 2006 represented approximately 13 days of average daily purchases through the year (2005: 8 days).
Auditor and the disclosure of information to the auditor
Each person who was a director of the Company on the date that this report was approved, confirms that so far as the director is aware, there is no relevant audit information, being information needed by the auditor in connection with preparing its report, of which the auditor is unaware. Each director has taken all the steps that he/she ought to have taken as a director in order to make himself/herself aware of any relevant audit information and to establish that the auditor is aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of Section 234ZA of the Companies Act 1985.
In accordance with Section 385 of the Companies Act 1985, a resolution is to be proposed at the Annual General Meeting for the reappointment of Ernst & Young LLP as auditor of the Company. A resolution will also be proposed authorising the directors to determine the auditor’s remuneration. The Audit Committee reviews the appointment of the auditor, the auditor’s effectiveness and relationship with the Group, including the level of audit and non-audit fees paid. Further details on the work of the auditor and the Audit Committee are set out below in the Audit Committee report.
Annual General Meeting
The Annual General Meeting of the Company will be held on 26 April 2007 at The Barbican Centre, Silk Street, London EC2Y 8DS at 11am. A separate document accompanying the Annual Report and Accounts contains the notice convening the Meeting and a description of the business to be conducted thereat.
By order of the Board.
Richard Whitaker
Group Company Secretary
28 February 2007
Registered Office: St. Helen’s
1 Undershaft, London EC3P 3DQ
Registered in England No. 2468686