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Turnaround working for insurer

Aviva offers higher returns after restructure

Aviva

Higher returns: insurance group has boosted targets


Aviva has upgraded its targets for earnings growth, cash and dividend following a restructuring of the business.

At a conference for investors and analysts the insurance group will say that over the last four years its financial and strategic position has been transformed.

The capital surplus has tripled; the group has been streamlined and Aviva is now focused on markets where it has high quality franchises and is gaining market share. 

As a result Aviva is upgrading the financial objectives it set out previously.

Growth: targeting higher than mid-single digit percentage growth annually in IFRS operating earnings per share from 2019

Cash: remittance target increased from £7 billion to £8bn, allowing Aviva to deploy £3bn of excess cash over 2018 and 2019. This is expected to be used to repay £900 million of debt in 2018 and fund bolt-on acquisitions and additional returns to investors

Dividend: pay-out ratio target increased to 55-60% of operating EPS by 2020, underpinned by improved earnings quality and cash flows from Aviva’s businesses which are becoming less capital-intensive. 

Mark Wilson, group chief executive, said: “We are upgrading our cash flow and growth targets. After a few years of restructuring, our businesses are now high quality and we expect good, sustainable growth from each of them.

“We have improved the consistency and quality of our profits and so we are raising our expectations for earnings growth to more than 5% annually from 2019 onwards.

“We have significant surplus capital and cash and this means we will have £3 billion of excess cash to deploy in 2018 and 2019, £2 billion of which we plan to deploy next year.  In 2018 we expect to use our excess cash to pay down £900 million of expensive debt, return capital to investors and invest in growing our business, both organically and through acquisitions.

“The quality of our earnings has improved by 15 to 20% and with lower debt costs and stronger than expected cash flows, it is appropriate to raise our target dividend pay-out ratio to 55-60% by 2020.”

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