Aviva 2006 Annual Report Download - page 22

Aviva plc
Annual Report and Accounts 2006 18
Group performance
Operating profit
Group operating profit – IFRS basis
2006 2005
£m £m
Long-term business* 1,896 1,065
Fund management*† 155 124
General insurance and health 1,680 1,551
Other:
Other operations*† (80) (40)
Corporate costs (160) (136)
Net unallocated interest charges (381) (436)
IFRS operating profit before tax and adjusting items 3,110 2,128
Group operating profit – EEV basis
2006 2005
£m £m
Long-term business* 2,033 1,814
Fund management*† 96 83
General insurance and health 1,680 1,551
Other:
Other operations*† (23) 28
Corporate costs (160) (136)
Net unallocated interest charges (381) (436)
EEV operating profit beforetax and adjusting items 3,245 2,904
* The results of Norwich Union Equity Release, the proportion of the results of the
group’s UK and French asset management operations and the proportion of the
results of Norwich Union Life Services that arise from providing fund management
and other services to the life business have been included in the long-term business
operating returnon an EEV basis. On an IFRS basis, they are included in fund
management and other operations.
†Profits on the sales of retail fund management products in the Netherlands have
been reclassified from other operations to fund management following the
recognition of a separate fund management segment locally.
Business unit performance
Our operating profit before tax, including long-term operating
return on an EEV basis, grew by 12% to £3,245 million (2005:
£2,904 million) reflecting strong operational performance. On an
IFRS basis, operating profit before tax amounted to £3,110 million
(2005: £2,128 million),an increase of 46%. This robust set of
results has been achieved by our continued focus on profitable
growth, by expanding and strengthening our distribution channels,
leveraging our scale advantages in pricing and costs and our
disciplined approach to underwriting and efficient claims
management.
Business review continued
Total sales and EEV operating profit
split by region
100
80
60
20
40 3
2
1
3
2
1
1 International
2 Europe
3 UK
Operating
profit
%
0
Sales
The operating results of our long-term savings, fund management
and general insurance and health businesses are discussed in detail
in the business unit overview section of this review on pages 22 to
49. Other components of our operating profit are discussed below.
Other operations
Our other operations reported a loss of £80 million (2005: loss of
£40 million) on an IFRS basis. This loss comprises £45 million of
profits from RAC non-insurance operations (2005: £30 million
profit),lower losses from NU Life Services of £50 million (2005: loss
of £66 million), a loss of £29 million relating to the development
of the Lifetime and SIPP platforms (2005: £14 million) and a loss of
£46 million (2005: £10 million profit) from our other non-insurance
operations, including our Dutch banking division.
Our operating profit from RAC non-insurance operations, which
include BSM, HPI, Auto Windscreens and Solus, amounted to
£45 million, reflecting the inclusion of results for the entire year
(2005: £30 million post-acquisition).In July 2006, we completed
the sale of the Lex brand for a profit of £3 million. In total, this
transaction, and the previous disposals of the other non-core
operations of the RAC group in 2006, generated sale proceeds
of £358 million, and a profit on disposal of £69 million (2005:
£5 million).The disposed businesses contributed £17 million
to our operating profit in the year.
The loss from other non-insurance businesses of £46 million
(2005: £10 million profit) reflects the impact in the Netherlands
of increased holding company costs, a fall in the banking result
reflecting pricing competition on mortgage business in an
environment of rising interest rates and the inclusion of a
£19 million one-off cost relating to systems migration.
On an EEV basis, our other operations recorded a loss of
£23 million (2005: £28 million profit) as this excludes the majority
of NU Life Services Ltd losses which are incorporated within the life
EEV operating return.
Corporate costs
Our corporate costs were higher at £160 million (2005:
£136 million) despite the non-recurrence of global finance
transformation costs (2005: £28 million).Within this, central costs
relating to staff profit share and incentive plans rose to £17 million
(2005: £7 million) while other corporate costs increased to
£143 million (2005: £101 million) reflecting higher brand spend,
pension funding and staff costs.
Net unallocated interest charges
Our unallocated interest charges comprise internal and external
interest on borrowings, subordinated debt and intra-group loans
not allocated to local business operations. Also included is net
pension income, being the expected return on pension scheme
assets less the interest charge on pension scheme liabilities.
Interest costs in the year werelower at £458 million
(2005: £468 million).External interest costs were lower at
£230 million (2005: £248 million) as senior debt was repaid at the
end of 2005 while internal interest costs amounted to £228 million
(2005: £220 million).Net pension income increased to £77 million
(2005: £32 million) due to a larger increase in the expected return
on assets than the interest cost on the liabilities, reflecting gains in
2005 and accelerated deficit funding payments.