Strong growth in achieved operating profits: up 37% to £1,130 million
- Strong growth in achieved operating profits: up 37% to £1,130 million
- Good life results in testing market conditions: maintaining focus on value over volume growth; life and pensions margins up at 26.5% (2003: 24.5%)
- Gradual recovery in new life, pension and investment sales: total sales up 7%; life and pensions APE up 2% at £1.2 billion, including Continental Europe up 5% and UK up 3%
- Excellent general insurance performance sustained and improved: worldwide combined operating ratio ahead of target at 97% (2003: 101%)
- Interim dividend increased by 4%
Richard Harvey, group chief executive, commented:
“Aviva is in great shape. Profits are up 37% and long-term growth prospects remain strong.
“Our focus is on value and cost control across our businesses. This has driven an increase in margins in our long-term savings business. In general insurance we’ve delivered another set of excellent results, maximising the competitive advantages of scale.
“Consumers are slowly regaining their appetite for saving. The speed of recovery will be linked to investment market conditions and the elimination of regulatory uncertainty, particularly in the UK. Our extensive distribution networks in Europe mean we will capture growth when this recovery happens. We will also continue to develop our businesses in Asia, which represent a significant long-term growth opportunity for us.”
Highlights
| 6 months 2004 | 6 months 2003 | Growth* | |
|---|---|---|---|
| Operating profit before tax – achieved profit basis** | £1,130m | £828m | 37% |
| Operating profit before tax – modified statutory basis*** | £878m | £638m | 38% |
| Worldwide new business sales# | £7,889m | £7,451m | 7% |
| New business contribution† | £324m | £297m | 10% |
| Interim dividend per share | 9.36p | 9.00p | 4% |
| Earnings per share – achieved profit basis** | 31.7p | 22.5p | |
| Earnings per share – modified statutory basis*** | 25.4p | 17.9p | |
| Total shareholders’ funds**** | £11,054m | £11,165m^ | |
| Return on capital employed | 13.4% | 11.0% | |
| Net asset value per share | 496p | 502p^ |
| All operating profit is from continuing operations. | |
| * | All growth rates quoted are at constant rates of exchange. |
| ** | Including life achieved operating profit, before amortisation of goodwill and exceptional items. |
| *** | Before amortisation of goodwill, amortisation of acquired additional value of in-force long-term business and exceptional items. |
| **** | Measured on an embedded value basis. |
| # | Including share of associates’ premiums (life, pensions and investment sales). |
| ^ | As at 31 December 2003. |
| † | Before the effect of solvency margin, tax and minorities. |
Group chief executive’s statement on the first half year trading
The Group operating profit on an achieved basis increased by 37% to £1,130 million against the first half of last year. The benefit of cost and pricing actions, seen in the second half of last year, was sustained into 2004. Our value focus produced improved life margins on the same period last year and an improved combined operating ratio of 97% from general insurance.
The interim dividend has increased by 4% to 9.36 pence net per share and is strongly covered by modified statutory earnings. The dividend policy, which is unchanged, is to grow the dividend by approximately 5% per annum, whilst looking to maintain 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
Long-term savings new business sales continued to recover with total sales, including investment products, of £7.9 billion, up 7%. The recovery is gradual but with encouraging signs as unit-linked sales increased in France and in the UK, where investment products were also popular.
Whilst worldwide life and pensions sales increased by 2% on an APE basis to £1,224 million, new business contribution increased by 10% to £324 million, with margins of 26.5% (2003: 24.5%), continuing to benefit from the actions taken on pricing and costs. Total life achieved operating profit was £800 million, up 14%.
In the UK, Norwich Union’s competitive position in long-term savings has improved significantly as weaker players have closed for new business. We are focused on driving additional value using pricing and cost levers. Sales of unit-linked bonds were up 84% to £577 million and investment products were up 41% to £451 million in the first half. The move to a 1.5% charging cap for new stakeholder products will provide a modest stimulus to the market, contingent on the adoption of a simplified sales approach. Ahead of the depolarisation changes that come into effect at the end of the year, we have reached agreements with a number of distributors, including Bankhall, Sesame and Portman.
Total new business sales in Continental Europe, including investment sales, increased by 14% to Ł4.1 billion, with life and pension sales up 5% on an APE basis to £603 million. Aviva France saw strong growth in new business sales and out-performed the market. Higher margins resulted from increased sales of unit-linked and other products which were up 27% to £478 million in the first half of the year. The Crédit du Nord bancassurance joint venture will add further impetus to sales from the fourth quarter of 2004.
In the Netherlands, our joint venture with ABN AMRO performed very strongly, with sales ahead by 67% on an APE basis to Ł35 million and margins at 31.4%.
Elsewhere, Spain and Italy produced robust margins. Sales were satisfactory compared to a very strong first half in 2003. Growth prospects remain good in these under penetrated markets, where we have strong and growing bancassurance distribution networks.
Aviva has a leading position in the UK market and has successfully developed its businesses across Continental Europe in recent years. Increased focus is now being given to expand our Asian businesses which have excellent long-term prospects. In recent years, we have invested some £200 million in developing a platform in the region in Singapore, Hong Kong, China and India. During 2004, we will establish businesses in Beijing and also in Chengdu, western China, making us the first joint venture foreign life insurer in that city. This adds to our presence in Guangzhou.
General insurance
Operating profit from our general insurance business was up strongly at £613 million (2003: £387 million). The worldwide COR of 97% is ahead of our 100% target for each of the next three years to 2006. A low level of weather-related claims continued to benefit these results.
In the UK, Norwich Union has competitive scale advantages in claims purchasing and has developed a significant capability in India, which will be able to handle a substantial element of our personal claims processing. Service quality in the UK and India is ahead of industry benchmarks. The strong cost control culture saw the administration expense ratio fall to 10% in the first half of 2004 (2003: 10.5%). Rate increases, albeit slowing, continued to be achieved across the book, but we anticipate annual cost savings of £200 million in the supply chain to offset claims inflation. The underwriting outlook in personal and small commercial lines remains favourable.
Cost savings
We remain on-track to deliver the £250 million of annualised cost savings from actions announced in 2003. Efficiency remains a focus in 2004, particularly in our larger life and general insurance businesses.
In June 2004, we announced the outsourcing of 950 jobs in our UK life business which will generate future savings, with the first full year arising in 2006. An estimated charge of £30 million will be taken in the Norwich Union Life Services operating result in the second half of 2004 for the costs related to this change.
Balance sheet
The Group’s capital position remains strong on both regulatory and realistic measures. The Group had estimated excess regulatory capital at 30 June 2004, as measured under the EU Groups Directive, of £2.2 billion which includes the impact of the new FSA Solvency 1 rules introduced in 2004.
In the UK, the financial strength of our with-profit funds gives Norwich Union competitive advantage. The FSA finalised the rules for realistic solvency reporting of with-profit funds in July 2004 in PS04/16 “Integrated Prudential Sourcebook for Insurers”. The orphan estate measured on this basis was £4.2 billion at 30 June 2004 and covers the required capital margin (RCM), as defined by PS04/16, by 2.3 times, without the inclusion of any shareholder capital.
Outlook
Aviva is in a strong and competitive position. Profitability is responding well to ongoing value-based management actions across our businesses. The life distribution network that we have put in place across Europe combined with our excellent general insurance business, gives us a strongly financed business model with promising long-term prospects. Aviva’s extensive distribution networks mean we can capture long-term savings growth as markets pick up. In general insurance, disciplined underwriting, cost efficiency and scale advantages are creating a sustainable, profitable outlook.
Richard Harvey
Group chief executive
Enquiries:
| Richard Harvey | Group chief executive | +44 (0)20 7662 2286 |
| Andrew Moss | Group finance 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 |
| Rob Bailhache | Financial Dynamics | +44 (0)20 7269 7200 |
NEWSWIRES: There will be a conference call today for wire services at 8:15am (GMT) on +44 (0)20 7098 0703 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)20 7019 9504. A replay facility will be available for two weeks on +44 (0)20 7984 7578. The pass code is 916840 for the whole presentation including Question & Answer session or 989439 for Question & Answer session only.
Visit Aviva’s media centre at www.aviva.com/media or download images from our image library.
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 fifth-largest insurance group, based on reported worldwide gross written premiums, at 31 December 2003.
- 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 Ł30 billion and assets under management of around Ł240 billion.
- Overseas currency results are translated at average exchange rates.
- All growth rates are quoted in local currency.
- This 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 for 2004 interim dividend | 11 August 2004 |
| Record date for 2004 interim dividend | 13 August 2004 |
| Final date for scrip dividend mandate forms to be received, in order to be effective | 20 October 2004 |
| Announcement of long-term savings new business for 9 months to 30 September 2004 | 29 October 2004 |
| Payment date of interim dividend | 17 November 2004 |
Download the full interim results announcement in Adobe PDF (355KB)