Insurance giant Aviva has revealed “intensifying” turnaround efforts as shares leapt 8% on the promise offered by growing cash flows and a hike in new business.
The group which launched a complex restructure following the resignation of Andrew Moss during 2012’s ‘shareholder spring’ said pre-tax profits saw a £5 billion swing to the good last year, allowing it to post earnings of £2.1bn for 2013.
The measure marked a considerable improvement, and led new chief executive Mark Wilson to acknowledge “faster than anticipated” progress.
Hopes for the firm were also bolstered by a 4% increase in its final dividend to 9.4p per share, though the total annual payout remained down on 2012.
“The turnaround at Aviva is intensifying,” Mr Wilson said. “We have focused the business on ‘cash flow plus growth’ and the benefits are starting to be reflected in our performance.
“Cash flows to the group are up 40%, operating expenses are down 7%, operating profit is up 6% and value of new business is up 13%.
“Following our exit from a number of low-margin, underperforming or non-strategic businesses, Aviva is simpler, more focused and better managed. We have significantly improved our capital surplus, increased our liquidity and have a stronger leadership team.”
But he warned against complacency, saying the company still has issues to address.
“Have we made progress? Yes, some,” Mr Wilson said. “Is it a little faster than anticipated? Probably. Have we unlocked the full potential at Aviva? Not yet.”
In June, the insurer secured the future of its operations in Perth, where it employs more than 1,000 people, with the purchase of its Pitheavlis site. There had been fears that the company could pull out following the expiry of its lease on the complex.
Aviva said claims relating to the floods in the south-west of England were valued at around £60m, but disclosed it had faced a bigger hit from extreme weather in Alberta and Toronto.
Despite wide-scale disruption, the company said the UK figure remained in line with the amount it normally sets aside for weather events in January and February.
It said operating expenses had been reduced by 7% to just above £3bn, while cost cutting which had been expected to deliver £400m in savings during 2014 realised an “ahead of plan” £360m in reductions last year.
Emerging markets in Poland, Turkey and Asia delivered 21% of the value of new business recorded by the group, but weakness continued in “turnaround” areas like Spain and Italy.
Aviva strengthened its balance sheet by reducing an inter-company loan by £1.7bn.
It also announced plans to reduce the outstanding balance from £4.1bn to £2.2bn by the end of next year, making use of cash resources and other savings.
Group businesses in the USA, Spain, Malaysia, the Netherlands and Italy are among those to have been disposed of as the company streamlines it operation to concentrate on the best-performing areas.
“Although we have made progress in 2013, turnarounds are rarely linear and the improving results should be tempered by the realism that the company still has issues to address and is performing nowhere near its full potential,” Mr Wilson added.
Stock closed the day up 37.9 points at 504p.