Aviva moving in "right direction" with first-half results - UPDATE

7th Aug 2014 08:12

- Cash flow improved, remittances up 7%, cost ratio cut to 52%- Combined operating ratio improves to 95.5%- Dividend up 4.5% to 5.85pAs it looks to turn around its fortunes, Aviva showed resilience in the face of a fast-shifting industry and delivered half-year improvements in its five key metrics, increasing cash flow, operating profits and new business, as well as cutting both costs and its combined operating ratio.With challenges in the period including an overhaul of the UK annuity market, a particularly harsh winter in Canada, UK floods and a stronger pound, the FTSE 100 insurer lifted operating profits 4% to £1.05bn, a 9% increase in constant currency.Chief executive Mark Wilson said progress in the reinvigoration of the business had accelerated in 2014, with results showing that momentum in Aviva's turnaround continued but it remains a work in progress. As profit after tax more than doubled to £863m due to lower restructuring costs and positive investment variances, operating earnings per share were lifted 16% to 23.6p.The combined operating ratio improved to 95.5% from 96.2%.The core life business performed well given the impact on UK sales of individual annuities post the Budget with operating profit up 4.5% to £954m, just ahead of expectations of £948m.General insurance delivered flat operating profit, slightly lower than some forecasts due to flood losses.Aviva made good progress on improving its cash flow, cutting the cost ratio to 52% towards the sub-50% target, cutting central spend by an impressive 24% and drummed up 7% more in cash remittances to £612m, thanks in particular to gains in UK, Spain and Poland. The £129m, or 8.4%, cuts in operating expenses implied an annualised expense reduction of £568m by the end of 2014, well ahead of the £400m target set in 2012.With still-lingering questions about the company's dividend policy remaining unanswered, the interim payout was hiked 4.5% to 5.85p, in line with the growth in the last full year dividend. However, on this issue Panmure Gordon analyst Barrie Cornes said: "Importantly we understand that there is no read across from the interim to the final dividend which we believe suggests that the final could be rebased upwards."Wilson said that with leverage cut from 50% to 46%, significantly improved economic capital and liquidity over the past 12 months, "Aviva's financial strength is being restored". On outlook he added: "We have reduced our debt, decreased expenses and increased profit - this is just good business. Aviva remains a work in progress, and these results are a step in the right direction."Broker Panmure Gordon confirmed that the figures were in line or just ahead of expectations on every metric and that it believed that the outlook for the final dividend was "particularly positive".Aviva shares were up 2.6% to 502.62p at 09:18 on Thursday.OH