Aviva Has Biggest Gain in Almost Two Years on Profit
Aviva Plc (AV/), the U.K.’s third-biggest insurer by market value, reported first-half profit that beat analysts’ estimates as Chief Executive Officer Mark Wilson reduced costs and sold assets after taking the job in January.
Operating profit in the six months to June 30 increased 5 percent to 1.01 billion pounds ($1.6 billion), beating the 933 million-pound prediction of 18 analysts provided by the company. Restructuring costs fell 10 percent to 164 million pounds and it paid back 700 million pounds of an internal loan, London-based Aviva said in a statement today.
The results are “satisfactory,” Wilson said on a conference today. “We are not where we need to be just yet, we need to be clear on that, but we are where I thought we would be at this stage of the year. We’ve thrown our the rose-tinted glasses and we have a much sharper more focused edge.”
Wilson, who took the job after a shareholder rebellion over executive pay forced his predecessor Andrew Moss to resign, is seeking to appease investors by selling assets, eliminating jobs and cutting costs to rebuild capital depleted by the euro area’s debt crisis. The New Zealander cut the firm’s dividend by 44 percent in March as the insurer posted a full-year loss and wrote down its U.S. business.
The stock surged 7.6 percent to 399 pence in London, the biggest gain since October 2011 and the highest level since July 2011. It has increased 7 percent this year, trailing a 22 percent advance for the FTSE 350 Insurance Index.
“Aviva is successfully executing on its restructuring plan and we expect the stock to continue to gain traction,” Paul Bradley, an analyst at Citigroup Inc. with a buy rating on the stock, wrote in a report. Debt reduction “will give the market confidence that internal leverage is not necessarily a threat to ordinary dividends.”
Net income attributable to shareholders was 693 million pounds compared with a loss of 688 million pounds a year earlier. The dividend was reduced to 5.6 pence a share from 10 pence, in line with analyst estimates.
Operational capital generated increased 3.3 percent to 936 million pounds. The insurer’s combined operating ratio, or claims and expenses as a percentage of premiums, rose to 96.2 percent from 95.5 percent, as a 70 million-pound loss from floods in Alberta, Canada offset better-than-expected weather in the U.K.
Wilson said the company is on track to deliver its 400 million-pound cost reduction target for this year.
“I wouldn’t be making any assumption on headcount,” he said on the call. There is not going to be any “big bang on restructuring or redundancies, that is not the direction that we are going in at all,” he said.
Wilson, who is selling or winding down assets to free up capital, said the firm still expects to complete the sale of its U.S. business to Apollo Global Management LLC (APO) by the end of the year. Aviva agreed to sell the operation in December for $1.8 billion.
He declined to comment on the future of the insurer’s operations in India after a report earlier in the week said that the company is considering selling its 26 percent stake in its joint venture with Dabur Group.
“India is a very small part of the business,” Wilson told reporters. “We have a focus on China and South East Asia and we are looking on with interest on the developments of foreign investment rules. I wouldn’t rule out anything.”
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