Aviva 2007 Annual Report Download - page 136
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Please find page 136 of the 2007 Aviva annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.1 – Exchange rates
The Group’s principal overseas operations during the year were located within the Eurozone and the United States.
The results and cash flows of these operations have been translated into sterling at an average rate for the year of
11 = £0.68 (2006: 11 = £0.68) and £1 = US$2.00 (2006: £1= US$1.84). Assets and liabilities have been translated
at the year end rate of 11 = £0.73 (2006: 11 = £0.67) and £1 = US$1.99 (2006: £1= US$1.96).
Total foreign currency movements during 2007 resulted in a gain recognised in the income statement of £45 million
(2006: £99 million gain).
2 – Presentation changes
(a) Change to definition of operating profit
IFRS operating profit is one of the key indicators of performance for the Group and we have changed its definition to
provide greater clarity and insight into the factors driving our results, in particular the impact of economic volatility from
the underlying business performance.
The new definition uses “expected rates of investment return” to report the operating profit of our long-term savings
business, thus bringing this business into line with the way we report our general insurance and health operating profit.
It also brings the methodology used for the IFRS basis into closer alignment with that used for the European Embedded
Value (EEV) basis, which is the industry’s alternative performance measure.
The change in definition does not affect the underlying performance, the economics of our business, the profit before tax
attributable to shareholders or the profit for the year being restated. It only changes the allocation of profit between
operating and non-operating elements.
The key changes to our definition of IFRS operating profit are:
(i) Operating profit is now based on the investment returns that the Group expects to make on the financial investments
that back the shareholder and policyholder funds of its long-term business over the reporting period, rather than the
actual returns on these investments. The difference between the expected return and the actual return on investments,
and the corresponding impact on liabilities, is shown below the operating profit line.
(ii) The amortisation of acquired value of in-force business (AVIF) on both insurance and investment contracts is now
included within operating profit. This change matches the emergence of benefit from the acquired book with the
associated amortisation expense.
(iii) The criteria for treating an item as an adjustment, outside operating profit, have been refined to limit these to significant
items only. The Financial Services Compensation Scheme and other levies are now included in operating profit.
(iv) The result for Norwich Union Life Services has been reclassified as long-term business instead of other operations, to
match its treatment under EEV.
The table below sets out the effect of the above changes to IFRS operating profit for the year ended 31 December 2006:
Effect of
restating the
As definition of
reported IFRS operating Restated
2006 profit 2006
£m £m £m
Operating profit before tax attributable to shareholders’ profits
Long-term business 1,896 (562) 1,334
Fund management 155 – 155
General insurance and health 1,680 6 1,686
Other:
Other operations and regional costs (80) 55 (25)
Corporate centre (160) – (160)
Group debt costs and other interest (381) – (381)
Operating profit before adjusting items and tax attributable to shareholders’ profits 3,110 (501) 2,609
Adjusted for the following:
Investment return variances and economic assumption changes on long-term business – 401 401
Impairment of goodwill (94) – (94)
Amortisation and impairment of acquired value of in-force business (100) 100 –
Amortisation and impairment of intangibles (70) 6 (64)
Short-term fluctuation in return on investments backing general insurance and health business 149 – 149
Profit on the disposal of subsidiaries and associates 222 – 222
Integration and restructuring costs (246) – (246)
Financial Services Compensation Scheme and other levies 6 (6) –
Profit before tax attributable to shareholders’ profits 2,977 – 2,977
Tax attributable to shareholders’ profits
Operating profit (725) 80 (645)
Other activities 137 (80) 57
(588) – (588)
Profit for the year 2,389 – 2,389
Aviva plc
Annual Report and
Accounts 2007
132
Financial
statements
Notes to the consolidated financial statements