Aviva's profits plummet as restructuring costs rise
Insurance giant Aviva reported a sharp drop in half-year earnings as currency fluctuations and restructuring costs to hit profits.
Operating profit (including restructuring charges) was down 10% in the first six months of last year, to £935m. The market was expecting a figure of around £1 billion.
Operating profit before restructuring charges fell 2% to £1,121m. Annoyingly for the group, it had to write down £876m in goodwill and intangibles in its US operations, producing a net loss after tax of £681m compared with a profit of £465m at the same stage of the 'Last year.
The interim dividend remains unchanged at 10 pence per share. Operating profit squeezed from the P& C business "marginally improved," yielding a combined operating ratio (COR) of 95.5%. COR subtracts insurance payments from written premiums, anything less than 100% implies a profit. The big problem for Aviva is how to turn around its fortune after a five-year period in which its value has more than halved.
The company had to part ways with former chief executive Andrew Moss in May after shareholders grew dissatisfied with his growing salary package at a time of falling share valuations. The firm is now aiming for a £400 million cost-cutting program, but as with all refurbishments, this will involve high initial costs.
In his forecast for the coming months, new CEO John McFarlane says, "We expect second-half performance trends to be similar to the first six months, but with higher restructuring costs as we execute on our strategic plan."
Aviva Investors will focus on the cost of living crisis in corporate engagement
One of the UK's largest asset managers has identified the cost-of-living crisis as a major focus for its 2023 trading engagement.
Aviva Investors, which manages £232bn ($277bn) worth of assets, says in its annual letter to chairmen that issuers face difficult cost decisions but need to consider their accountability with all stakeholders. The letter, written by CEO Mark Versey, also highlights the energy transition and biodiversity as focal points for this year's stewardship activities.
"We expect management to explore every opportunity to drive cost efficiency, delay nonessential expenses, and leverage its pricing power where appropriate," says Versey. “But this must not be done at the expense of the most vulnerable stakeholders within a company's business model and value chain. “Multi-stakeholder management is not a zero-sum game; We will look unfavorably at any attempt to protect profitability and shareholder returns by disproportionately and excessively shifting costs onto employees, suppliers and customers.
"Furthermore, companies have a responsibility to protect their most vulnerable stakeholders during this time of extreme stress."
inflation factor
Households around the world have suffered significant declines in real income due to decades of high inflation. In the UK, the consumer price index reached 11.1% last October, the highest in 41 years, before falling to 10.1% in January this year.
Aviva Investors' letter says boards should consider a range of actions during the cost-of-living crisis, including paying a minimum wage, offering extra support to the most vulnerable workers, engaging of trade unions and wage moderation for executives. “As the workforce is increasingly forced to compromise to pay for essential expenses, it would be inappropriate for high-paying executives to be completely insulated from the impacts of inflation,” Versey says. "We expect any increase in base executive salaries to be below average for the overall workforce."
disclosure obligations
Regarding the energy transition, the CEO says all companies should "develop and publish robust and financially viable climate transition plans that support the decarbonization of economies in a socially fair and inclusive way." It adds that Aviva Investors strongly supports the information framework of the UK's Transition Plan Task Force and encourages companies to "pay close attention" to five areas: business models, financial planning, incentives and remuneration, value chain commitment and commitment to governments.
On biodiversity, Versey says he expects all companies to "begin reporting within a reasonable timeframe behind the Task Force on Nature-Related Financial Disclosure (TNFD) framework, which is expected to be finalized in 2023." To help prepare for the new disclosure framework, issuers should "undergo TNFD's recommended business model assessment process, called LEAP," he adds.
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