Major Scottish employer Aviva hikes dividend: City reacts

Aviva, the insurance giant lead by Scots-born chief executive Maurice Tulloch, has reported a “steady” performance against a challenging backdrop in the first half of the year.

Scots-born chief executive Maurice Tulloch took the helm in March. Picture: Aviva plc

The firm, which also signalled a potential sale of its Asian business, said operating profit for the six months to the end of June nudged up 1 per cent to £1.45 billion, while operating earnings per share lifted 2 per cent to 27.3p.

The interim dividend was hiked by 3 per cent to 9.5p per share.

In June, Aviva announced that some 1,800 jobs would be cut over the next three years as part of a restructuring plan overseen by Falkirk-born boss Tulloch, who took on the top job in March.

The group, which employs about 30,000 staff globally, including more than 2,000 people at its major Scottish sites in Perth and Bishopbriggs, is looking to keep redundancies to a minimum as it slashes costs, with some of the role cuts coming from natural staff turnover. It aims to save £300 million a year.

Releasing the firm’s first-half results, Tulloch said the period had been “characterised by a challenging economic and political backdrop and significant levels of organisational and leadership change”.

He told investors: “Our financial position remains strong with a capital surplus of £11.8bn and £2.3bn of cash at group. Maintaining such a healthy capital surplus is important as we continue to reduce our debt levels and safely navigate uncertain market conditions. Aviva is ready and resilient.”

He also announced that the group would review options for its Asian business.

“Our Asian operations are strategically and financially attractive, however, we are evaluating a range of options to enhance the value of the businesses to shareholders,” he said.

It comes just a week after reports suggested that the insurer was mulling a sale of the Asian operation, with a possible value of up to $2bn (£1.64bn).

Operating profits in life insurance and fund management were both down in the period under review, falling 8 per cent and 18 per cent respectively. Life insurance performance was impacted in the UK by the competitive market, leading to lower new business volumes.

However, the group’s general insurance and health business enjoyed a 29 per cent hike in operating profit.

Looking ahead, Aviva said the challenging macro backdrop was expected to persist in the second half, including a softer outlook for economic growth in Europe and the UK.

John Moore, senior investment manager at Brewin Dolphin, said: "It’s another mixed set of results from Aviva. On the positive side, earnings per share are ahead of expectations, profits are slightly up on last year, and the insurer has again made good on its progressive dividend policy.

"However, the life business remains challenging – although, it may be that now the UK life and general insurance businesses are separated further action could be taken to improve the former division. If that can be achieved, Aviva will appear to be in a promising position: the business has surplus regulatory cash, which will allow for lower levels of debt, and greater overall flexibility.

"Added to this is the review of its Asian business and cost-cutting moves, which should remove complexity. That said, the performance of Aviva’s multi-asset platform, which was flagged as a potential future catalyst for growth, hasn’t been great. The shares appear lowly valued, but progress on some of the self-help initiatives is likely to be required to change this."

Shore Capital analyst Paul De’Ath noted: “Operating profit is in-line with consensus driven by better-than-expected results in the general insurance business thanks to benign weather in the first half and improvements in Canada.”

AJ Bell investment director Russ Mould said: "If the first set of numbers covering new Aviva chief executive Maurice Tulloch’s tenure read like a report on his first term at school it would indicate he is showing some promise but with clear room for improvement.

"General insurance, home, motor and so on, may be performing well but the life insurance arm had a tough period and, unsurprisingly perhaps given subdued investor sentiment, so did the asset management division. Overall the first-half results are perhaps just a smidge ahead of expectations.

"With only six months in the role, a full outlining of Tulloch’s strategic plans for the business will have to wait until November."

The shares were up slightly in early trading.