Aviva Plc · LSE:AV.
Aviva — FY2004 Earnings Presentation
45 slides from Aviva's earnings presentation, Mar 9, 2005
Slide 1: Aviva plc 2004 results
AVIVA plc 2004 results Strength Performance 1 Growth 9 March 2005 © Aviva plc
Slide 2: Disclaimer
Disclaimer This presentation may contain certain “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 uncertai
Slide 3: Disclaimer continued
Disclaimer continued This document should be read in conjunction with, and is qualified in its entirety by reference to, the full terms of the announcement by Aviva dated 9 March 2005 relating to the recommended offer for RAC (the “Offer”). This document does not constitute an offer to sell or invit
Slide 4: Agenda
Agenda • Overview Richard Harvey, Group Chief Executive • Financial review Andrew Moss, Group Finance Director • RAC acquisition Patrick Snowball, Group Executive Director • Questions 4 © Aviva plc
Slide 5: A strong set of results
A strong set of results Operating profit (EEV basis) £2,344m +25% Operating profit (MSSB) £1,861m +27% Life and pensions sales (PVNBP) £20.7 bn +12% New business contribution £706 m +11% General insurance COR 96.7% (2003 100%) Full year dividend 25.36p +5% Strongly covered ROCE 14.4% (FY 2003 13.1%)
Slide 6: Strong growth in life new business sales
Strong growth in life new business sales (including investment sales) Growth 12% UK Continental Growth 23% Europe Growth 13% International 0 1 2 3 4 5 6 7 8 9 £’000 million Total new business sales 2003 2004 6 © Aviva plc
Slide 7: Priorities in life markets
Priorities in life markets • UK – target 15% IRR • launch of fully charged pensions • ongoing cost management • further actions on commissions • management of overall business mix – multi-tie partnerships • Continental Europe – deliver bancassurance growth – unit-linked • Asia – build on foundations
Slide 8: Excellent General Insurance results: ahead of target
Excellent General Insurance results: ahead of target % of total GI Combined operating ratios premiums 2004 2003 62 UK 97% 99% 6 France 101% 102% 6 Ireland 87% 97% 8 Netherlands 95% 101% 14 Canada 97% 108%* Group 97% 100% ** ( Pilot added *7% & **1%) Confident of meeting COR target of 100% in 2005 an
Slide 9: Financial review
Financial review Andrew Moss Group Finance Director
Slide 10: Strong results from a position of capital strength
Strong results from a position of capital strength • Full year operating profit of £2,344 million on EEV basis (2003: £1,906 million) • Equivalent to ROCE of 14.4% (2003: 13.1%) • New business contribution up 11% to £706 million • New business margins on PVNBP basis 3.4 % (2003: 3.4%) • Operating pr
Slide 11: Strong results across all major businesses
Strong results across all major businesses 2004 2003 Growth † £m £m % Life EEV operating profit 1,611 1,496 9% Health 58 61 (3%) Fund management 23 (4) - General insurance 1,326 911 47% Non-insurance operations (31) 8 - Corporate costs (178) (160) 11% Unallocated interest (465) (406) 15% Operating p
Slide 12: Growth across our life businesses with further to come in 05
Growth across our life businesses with further to come in 2005 FY 2004 • UK: improvement in unit- linked sales and annuities Sales Growth (2) PVNBP (1) % • France: strong growth in £m AFER and unit-linked sales; good start to Crédit UK 9,172 8% du Nord partnership France 2,782 28% Ireland 561 8% • N
Slide 13: Continued improvement in new business contribution
Continued improvement in new business contribution £m % 250 NBC APE basis margins* PVNBP basis margins** 35 30 200 25 150 20 100 15 10 50 5 0 0 Q103 Q203 Q303 Q403 Q104 Q204 Q304 Q404 *Margins calculated as NBC on EEV basis over APE 13 **Margins calculated as NBC over PVNBP © Aviva plc
Slide 14: New business contribution up 11% whilst maintaining a focus on value
New business contribution up 11% whilst maintaining a focus on value New business New business New business contribution (1) margin margin Restated * (using PVNBP) (using APE) 2004 2003 2004 2003 2004 2003 £m £m % % % % UK 269 250 2.9% 2.9% 23.1% 22.4% France 95 72 3.4% 3.2% 30.9% 29.9% Ireland 19 2
Slide 15: Life EEV operating profits up 9%
Life EEV operating profits up 9% EEV operating 2003 return: £1,496 million Higher new business contribution: £42 million Higher expected returns: £83 million Increased negative experience from in force book: £10 million EEV operating return: 2004 £1,611 million 0 500 1,000 1,500 2,000 £m Over 60% of
Slide 16: Strong results from Continental Europe
Strong results from Continental Europe 2004 2003 • UK: impact of operating £m £m assumption changes and experience variances UK 551 597 • France: strong growth in AFER France 286 228 and unit-linked sales; good start to Crédit du Nord partnership Ireland 40 57 • Ireland: impact of lapse Italy 79 70
Slide 17: UK life operating profit
UK life operating profit £m New business contribution post cost of capital 215 Expected returns 475 Experience variances (81) Operating assumption changes (58) 551 Includes: Includes: • Exceptional expenses of £153m • Adverse lapse assumption • Adverse lapse experience of £50m change of £110m • Posi
Slide 18: Strong results from Continental Europe
Strong results from Continental Europe 2004 2003 • UK: impact of operating £m £m assumption changes and experience variances UK 551 597 • France: strong growth in AFER France 286 228 and unit-linked sales; good start Ireland 40 57 to Crédit du Nord partnership Italy 79 70 • Ireland: impact of lapse
Slide 19: Life MSSB profits – businesses generating capital and cash
Life MSSB profits – businesses generating capital and cash 2004 2003 • UK: £m £m – With profit: driven by UK reducing terminal With profit 107 145 bonuses Non profit 478 433 – Non profit: higher France 182 179 surplus on existing Ireland 35 41 business Italy 43 30 Netherlands 166 107 • Netherlands:
Slide 20: Excellent general insurance results
Excellent general insurance results General insurance results up 47% Operating profit: 2003 £911 million Underlying improvement in underwriting result : £285 million Non recurrence of reserve strengthening in Canada: £70 million Higher LTIR from strong cash flows: £60 million Operating profit: 2004
Slide 21: General insurance business delivering in an increasingly competitive environment
General insurance business delivering in an increasingly competitive environment 2004 2003 • UK: £m £m – Personal lines increase of up to 2% – SME and commercial lines increase on average between 4% UK 832 676 and 7% – Expense ratio of 10.0% France 32 35 • Ireland: Increasing capacity and Ireland 15
Slide 22: Strong results across all major businesses
Strong results across all major businesses 2004 2003 Includes provision £m £m for vacant owner Life EEV operating profit 1,611 1,496 occupied Health 58 61 properties of £40 Fund management 23 (4) million General insurance 1,326 911 Non-insurance operations (31) 8 Includes GFTP Corporate costs (178)
Slide 23: Working from a position of capital strength
Working from a position of capital strength Estimated 31 December 31 December 2004 2003 Total capital employed £19.3bn £17.8bn in business operations Shareholders’ funds on £14.1bn £11.7bn an EEV basis EU Directive Group £3.6bn excess £2.4bn excess solvency* * Excludes strength of UK and Irish life
Slide 24: A business model that is self-financing
A business model that is self-financing 2004 2003 £m £m New business strain (520) (581) Life inforce profits 848 1,111 Non life profits after interest costs 572 305 Normalised operating profits after tax 900 835 Dividend including preference shares and DCI appropriation (598) (562) Benefit from scri
Slide 25: Change in internal debt
Change in internal debt £m Internal debt as previously reported – 31 December 2003 3,083 Reclassification for net tangible assets (1,470) Net internal debt - 31 December 2003 1,613 Net internal debt - 31 December 2004 987 25 © Aviva plc
Slide 26: RAC: Value creation for NUI
RAC: Value creation for NUI • Accelerates NUI strategy – consolidates NUI’s leadership position – captures high value business • Realises RAC potential • Financially attractive transaction – confident in delivering substantial synergies 26 © Aviva plc
Slide 27: Transaction financials
Transaction financials • Price 925 pence per RAC share • RAC shareholders to retain RAC’s 15.6p final dividend Price • Aggregate consideration approximately £1.1 billion for RAC plc • Consideration represents 27% premium1 • Funding mix 50% equity and 50% existing internal resources • 0.7154 new Aviv
Slide 28: Strong addition to earnings
Strong addition to earnings • Combination of NUI and RAC expected to generate substantial synergies from revenue benefits and cost savings • Targeting significant revenue opportunities • Expected cost savings of at least £80 million pre tax in 2006 onwards • Reduces cyclicality and volatility of non
Slide 29: Balance sheet and cash flow impact
Balance sheet and cash flow impact • Pro forma EU Insurance Group’s Directive solvency excess remains strong at circa £3bn at 31st December 2004, after around £0.6bn impact of goodwill and equity issuance • Cash earnings increased and non-underwriting cash earnings diversified • Incremental cash flo
Slide 30: RAC acquisition
RAC acquisition Patrick Snowball Group Executive Director
Slide 31: RAC – a transformational deal for NUI
RAC – a transformational deal for NUI • Acceleration of NUI Strategy – Improved customer retention as provider of more products – Insurance and motoring services provider across the customer life cycle – Strengthens NUI’s competitive position • Growth and revenue opportunities – RAC brand under-deve
Slide 32: NUI at the forefront of market change
NUI at the forefront of market change Personal Lines Distribution • Changing customer demands – Service levels and product 70% offerings – Trusted brands 60% – Cost and convenience 50% 40% 30% • Traditional distribution has declined 20% • Telephone/internet 10% distribution dominates 0% • Large reta
Slide 33: NUI successes to date
NUI successes to date • Financial track record – Between 2001 and 2004 generated an average post-tax ROCE of 18.6% – Annualised supply chain savings of £230m – Offshored 2,600 jobs, £10m cost savings in 2004 • Market Leadership – Moved insurance brand from top 5 to top 3 in brand awareness – Norwich
Slide 34: RAC: Leading and trusted brands
RAC: Leading and trusted brands • Roadside assistance • Financial services • Driver training • Windscreens • Legal services • Vehicle inspections • Claims management • Vehicle leasing • Parts and logistics 34 © Aviva plc
Slide 35: RAC: Structure and 2004 Performance
RAC: Structure and 2004 Performance RAC Consumer Total EBITA (a) £102.2m Services • Roadside Manufacturer Support • Financial services 26% Services • Legal services • Auto logistics • Auto Windscreens • Hyundai • BSM 47% • Transfleet 22% Lex Vehicle Leasing 5% • Fleet services RAC Business Solutions
Slide 36: The RAC Opportunity
The RAC Opportunity Home Insurance Travel Insurance NUI Motor Insurance • No.1 UK general insurer • Proven scale advantages • Vehicle History • Track record of delivery • 15 million policyholders • Car Sales Checking • No. 1 roadside company for customer satisfaction* • 2.2m individual roadside RAC
Slide 37: Building on track record of cost outperformance
Building on track record of cost outperformance Expect £80m Savings* from c. £2bn cost base • Centralisation of support functions: – Finance, HR and IT Removal of – 900 roles lost from combined base of 24,000 Overlap • Rationalisation of call centres and offices • Removal of plc costs £80m • Expand
Slide 38: Motor services provider across customer lifetime
Motor services provider across customer lifetime Grow insurance revenue Grow rescue revenue – RAC brand potential – RAC growth static – NUI track record – Risk pricing proven on NUI Rescue – Match AA customer penetration – Increase sales to NUI customer base Insurance Rescue We know she is Lease lik
Slide 39: RAC Direct Insurance
RAC Direct Insurance Which companies would you consider using first for motor insurance? 25% Unprompted Prompted AA 20% • 1.7m 15% insurance policies 10% 5% RAC • 450k 0% insurance Zurich Allianz Cornhill More Th>n Sainsbury Tesco Hastings Swinton AXA SAGA Budget Direct Line ASDA AA RAC Norwich Unio
Slide 40: Lex Vehicle Leasing
Lex Vehicle Leasing • Lex is a leader in vehicle leasing • NUI needs vehicle leasing proposition • Combination with NUI has potential through: – NUI’s market leading fleet and commercial vehicle insurance business – Vehicle leasing to NUI customer base – Motoring solutions opportunities with HPI, PA
Slide 41: Strong support services
Strong support services Manufacturer Support Services • Strong profitable (£m) 2003 2004 standalone businesses Revenue 677.1 720.2 • Attractive growth Profit 32.0 26.8 prospects • Well regarded • Clients include NU management teams and MoD • Opportunity for revenue • Car importership – enhancements
Slide 42: Organisation structure
Organisation structure Giving focus and removing duplication Board NUI Insurance RAC Motoring Services Retail Broker Partners Roadside Leasing MSS H.R. Finance IT Central Services Integration costs expected to be £100m pre-tax 42 © Aviva plc
Slide 43: NUI and RAC: Substantial value creation
NUI and RAC: Substantial value creation NUI • Strategically sound • Operationally compelling RAC Insure • A value driven transaction RAC 43 © Aviva plc
Slide 44: Aviva: a thriving business
Aviva: a thriving business • Strong growth in profits – New business contribution +11% – COR improved to 96.7% – Operating efficiency • Brighter outlook for long-term savings • Strong and sustainable outlook for general insurance • Healthy dividend growth and cover Aviva is financially fit and stron
Slide 45: Questions and answers
31 December 2004 results Questions and answers