Instant market reactions are never an ideal measure of multi-year plans. But the 4 per cent share price decline that greeted Aviva’s (AV.) strategic update this week suggests investors remain unconvinced by efforts to reshape the sprawling financial services giant.
At the FTSE 100 company’s capital markets day on 20 November, shareholders were given on wide-ranging overview of chief executive Maurice Tulloch’s vision for a “stronger, simpler, better Aviva”. Coming in at 111 pages, the size of the accompanying corporate presentation hinted at the challenge of communicating that message.
Some of those plans are not new. The group reiterated previously announced moves to shave £300m from the cost base and cut debt by £1.5bn by 2022, while an update on the capital position – a Solvency II cover ratio of 195 per cent, with £2.2bn cash on hand – was broadly in line with half-year figures.
More space was given to future profitability. In a bid to sustain its progressive dividend and reduce debt, the group will aim to generate between £8.5bn and £9.5bn in cash from its five businesses in the four years to December 2022, whilst working towards a 12 per cent return on equity. The latter figure is down on the 12.5 per cent achieved in 2018, which may explain some investors’ apparent disinterest.
For analysts at Citi, the update was more concerned with “simplification and execution of the existing businesses” rather than a major overhaul in the shape of the group.
Elsewhere, the group confirmed the sale of its Hong Kong joint venture, after a strategic review of its Asian businesses concluded that shareholders would be better off with the China and Singapore divisions. The latter two countries boasted double-digit operating profit growth in 2018, although Aviva continues to weigh options for its businesses in Vietnam and Indonesia.
The regional review, which was launched by Mr Tulloch in August, appears to have been viewed by some investors as an opportunity for a cash windfall, as Aviva’s shares dipped when the retention of China and Singapore was announced on Monday.
