Aviva vows to reduce focus on Asia and Europe as profit slumps

Aviva today vowed to reduce its focus on Asia and Europe, after profit in the first six months of 2020 fell 30 per cent.

The figures

Profit before tax dropped 30 per cent year on year to £1.08bn in the six months to 30 June down from £1.52bn in the same period last year.

Basic earnings per share sank 29 per cent as a result to hit 20p.

However, Aviva softened the blow to shareholders with a 6p interim dividend – the second relating to its 2019 performance.

Read more: Aviva CEO Maurice Tulloch steps down with immediate effect for ‘family health reasons’

Its general insurance arm suffered the biggest year-on-year decline, of 35 per cent, to rake in £194m for the first six months of 2020.

But Aviva’s retirement division also slumped 21 per cent to £356m of revenue, while Europe sank 29 per cent to £217m. The insurer’s Asia arm rose 28 per cent to £97m.

Aviva’s debt leverage ratio rose one per cent year on year to 32 per cent due to a £100m increase in commercial paper and foreign exchange movements.

Why it’s interesting

Aviva’s results came one month after the departure of former CEO Maurice Tulloch for family health reasons. His placement, Amanda Blanc, said today she would “focus on those markets or products where we have a right to win, via scale, capability, brand or a compelling proposition for customers”. 

She said she will focus on growth in the UK, Ireland and Canada, and reduce the focus on Europe and Asia. Instead she will only manage those areas for “long-term shareholder value”.

“Where we cannot meet our strategic objectives, we will be decisive and we will withdraw capital,” she added.

But Hargreaves Lansdown equity analyst Nicholas Hyett said Blanc’s stated mission to focus on core divisions amounts to more of the same from the insurance giant.

“It’s not that the various businesses are incompatible, just that they’re not terribly complementary and have always been run pretty much independently,” Hyett said. “That’s left Amanda Blanc facing similar challenges to every other Aviva CEO of recent times.

“The words may be different, but it’s pretty much the same playbook Aviva’s been working from for years. Blanc will have some work to do at the full year to show why her plan will succeed where others have struggled.

“The good news for shareholders is that dividends are back, something analysts hadn’t expected, but with a policy review coming up at the end of the year, and an ambition to cut debt, future payments are likely to be lower.”

Aviva took the decision to scrap its final 2019 dividend back in April to preserve capital, but today’s announcement of a second interim dividend may placate some investors.

Aviva’s share price rose 5.5 per cent to 299.9p in morning trading as investors welcomed the extra dividend.

However, the insurer said it will review its longer term dividend policy “in light of our strategic priorities”, revealing its decision towards the end of the year.

Read more: Insurance: Hiscox, Aviva, RSA and Direct Line suspend dividends following Bank of England pressure

What Aviva said

“Aviva’s financial performance in the first half of 2020 was solid,” CEO Amanda Blanc said. “Our financial position is strong and operating profit of £1.2bn was robust, thanks to our diverse range of products, excellent partners and our swift operational response to the Covid-19 pandemic. I am proud of the way our people have gone above and beyond to help our customers during this crisis.

“We have decided to take the opportunity to review our longer term dividend policy, in light of our strategic priorities and the future shape of the group, with the objective of a sustainable pay-out and lower levels of debt. We will update shareholders on all dividend matters, including the 2019 final dividend in the fourth quarter.

“I have been CEO for one month and I am confident we have many of the ingredients to make Aviva a winner. From this moment on, we must deliver. Nothing else will do. My focus is making sure it happens and at pace.”


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