Insurer Aviva’s new chief executive has informed investors its dividend will be cut by a third and parts of the business, such as operations in France and Poland, could be sold. This year’s dividend was yesterday announced as 21p, down from 30p in paid last year on the performance of the 2018 fiscal year. Since then Covid-19 has paused dividends, strongly discourage by the financial sector regulator.
Now payouts are back, but at a reduced level. A special interim dividend of 7p-a-share will be distributed in January, followed by an expected 14p dividend for the 2020 financial year. Aviva told investors that it expects dividends to grow “by low to mid-single digits over time”, following the reset.
The Aviva share price didn’t react particularly negatively, down just 0.24% yesterday, as the cuts announced were in line with analyst forecasts and already priced in. However, there was relatively high levels of share price volatility throughout the day. That was attributed to fluctuating investor confidence around wither new chief executive Amanda Blanc will prove up to the job of leading what is an ambitious restructuring project at the insurer.
Ms Blanc has been in charge of the UK’s largest composite insurer since July and has given herself a mandate to focus on the company’s operations in the UK, Ireland and Canada. Part of being able to maintain that focus on priority markets is, she believes, reliant on simplifying the company. That could mean the sale of businesses in France, Poland, Italy and joint ventures in Turkey, China and India, which have all been put up for review.
International units definitely being sold include Aviva’s Singapore business and half of its business in Italy, for a respective £1.6 million and €400 million. If the rest of the international businesses were to be sold, Aviva’s size would be shrunk by a third, if measured in profits. However, it would be presumed that money would be reinvested in growing market share in priority regions.
Commenting for The Times newspaper, Royal Bank of Canada analyst Gordon Aitken said:
“Amanda Blanc has the opportunity to transform this conglomerate which has struggled for direction. Investors will rightly question whether Ms Blanc can do what each of her predecessors over the last 20 years have failed to. We believe she can; driving radical change together with the new chairman George Culmer.”
Analysts agreed with Ms Blanc’s justification of the need to reset the dividend policy to a level that the company believes will prove “sustainable and resilient”. If Aviva does sell businesses that analysts could be worth up to £5.2 billion, the expectation is that money will go towards paying down debt. If Aviva’s insolvency ratio, an insurance industry metric of balance sheet strength, holds above 180%, capital would also be returned to shareholders. As of the end of September that ratio stood at 195%.
Aviva is also expected to focus on growing its bulk annuities business, which it grew by £5 billion over the first nine months of the year. A growing number of companies prefer to offload employee schemes to take long-term pension obligations off the balance sheet. A number of insurers, Including Aviva and rival Legal & General, like the market and are expanding in it.
Over the nine months to the end of September, Aviva described its business as “resilient”. Life insurance revenues grew 40% to £9.2 billion over the period.
