The Week Ahead: Results due from Aviva, Legal & General, Admiral, Cineworld and John Lewis Partnership
- Credit: PA
IT WILL be a big week for the insurance sector with Aviva, Legal & General and Admiral all due to deliver results in the next few days.
Full-year results from sector giant Aviva on Thursday come after a turbulent year, which saw its chief executive ousted and a turnaround plan set in motion.
New boss Mark Wilson unveils his first set of full-year results just two months after joining to replace predecessor Andrew Moss, who quit following a shareholder rebellion over pay and performance last May.
Mr Wilson has already started to make his mark at the group, overhauling the management team in a shake-up that claimed the scalp of Trevor Matthews, former UK chief executive and current executive director of developed markets.
Aviva has undergone a raft of changes under a transformation plan, including swingeing cost cutting and a £1.1billion deal at the end of last year to quit the US life and pensions market by offloading its American arm, Aviva USA, to major US player Athene.
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Restructuring costs contributed to a 10% decline in half year profits to £935million, with the figure also dented by lower returns from its pensions and life operations.
City experts predict full-year operating profits will fall 13% to £2bn, excluding its recently offloaded stake in Amsterdam-listed Delta Lloyd.
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But Barrie Cornes, analyst at Panmure Gordon, said: “In our view the business continues to trade well and given the headline grabbing restructuring of the business this has been largely overlooked.
“We think that life and non-life will have continued to perform well. As economic pressures in the eurozone ease we anticipate that subdued life sales in the region will recover.”
The City will also be watching the group’s dividend payment closely after rival RSA recently shocked the market with an unexpected hefty cut in its shareholder payout.
Keith Bowman, equity analyst at Hargreaves Lansdown, said: “Following a one third cut in the dividend at RSA, Aviva’s payment is now firmly in the spotlight.
“Similarly, low investment returns are likely to be proving a challenge for Aviva, with the relatively new chief executive potentially sensing an opportunity to further reassess the group’s strategy.”
But experts at JP Morgan are predicting Aviva to hold its full year dividend pay-out firm at 26p.
Mr Wilson, formerly boss at Asian insurer AIA, faces a challenge in reviving Aviva’s fortunes after its lacklustre performance in recent years.
Mr Moss sparked investor anger when he presided over a 60% decline in the share price of Britain’s second largest insurer from July 2007.
The Norwich-based group, which employs 18,500 people in the UK, has been slashing costs to get back on track, warning last year that up to 800 jobs could be lost under the restructuring plan.
The launch of auto-enrolment pension schemes for large companies is expected to have provided a boost to insurer Legal & General when it reports full-year figures on Wednesday.
L&G enjoyed a bumper third quarter as new business leapt 28% to £533m. The boost in the July to September quarter came after strong growth in workplace pensions, up by a mammoth 189% to £159m, thanks to auto-enrolment, which came into force for larger UK companies in October 2012.
Sales of protection products were up by nearly a third year-on-year, while individual annuity sales reached a record £35m in the third quarter, up 10% on a year earlier.
Shareholder dividend payments will also be in focus as L&G reports. The group pleased investors last year when it restored its dividend pay-out to a level seen before the financial crisis, increasing it by 35% to 6.4p a share and reversing cuts made in 2008 and 2009.
There is speculation there may be further increases in its divi after what is expected to have been a robust year.
Barclays analysts expect L&G’s “already attractive” divi to increase by 19% over the full year. They added that the auto-enrolment effect is likely to have provided a further fillip in the fourth quarter and to continue having a positive impact throughout 2013.
Full-year operating profits of £1.1bn are expected in 2012 after a 5% rise in the second half, according to Barclays experts. The market will also be looking for early indications of the impact of the Retail Distribution Review (RDR), which came into force on January 1 banning product providers from offering commission to financial advisers.
The UK’s second largest car insurer, Admiral, which owns Elephant, Bell and the comparison website Confused.com, is expected to deliver another hike in profits on Wednesday, up 11% to £331.2m.
That should be good news for staff, who landed a £1,500 shares bonus after the group improved profits by 7% in the first half of the year, helped by an 11% rise in the number of vehicles on its books to 3.5m.
The group has seen claims trends improve since the fourth quarter of 2011 in a welcome respite after it was hit hard by a rising tide of bodily-injury claims.
But Andreas van Embden, analyst at JP Morgan Cazenove, said the company had a higher than average pool of motor risks in the UK which may need to be scaled down in the short term.
He said: “The company has started to grow more selectively in the past year and de-risk part of its exposures. This is likely to continue in the short term.”
Cardiff-based Admiral has resisted being dragged into a price war in an effort to protect its margins, pricing its premiums less competitively and slowing the rate at which it won new customers.
Direct Line Insurance Group is also shunning riskier drivers and it unveiled an increase in underlying profits last week as price rises helped boost results.
Mr Van Embden said the group’s comparison website Confused.com, which is one of top five insurance price comparison websites in UK, remained a positive contributor to earnings, but had come under pressure in the recent years due to competition in the UK market.
Away from insurance, Cineworld will unveil an increasein profits on Thursday as the success of James Bond blockbuster Skyfall ensured a strong finish to 2012.
Analysts at Investec expect pre-tax profits to jump 9% to £39.5m as the world’s most famous fictional spy helped it shrug off a summer sales decline as film fans stayed at home to enjoy one-off events such as the Jubilee, Euro 2012 and London Olympics.
The cinema chain has already reported that sales were up 2.4% in the year to December 27 and Investec expects revenues of £358.3m.
The City will also be keen to find out if the success of hit musical Les Miserables and the Oscar-winning performance of Daniel Day Lewis in Lincoln at the awards ceremony managed to draw in audiences.
Wayne Brown, analyst at Canaccord Genuity, said all eyes would be on current trading.
“Industry data leads us to believe that UK box office is about 20% to 25% ahead of last year due to a strong film slate including Les Miserables, Django Unchained, Wreck it Ralph, to name a few,” he said.
Nick Batram, analyst at Peel Hunt, said the business had performed well in a difficult consumer market and increased competition from other platforms.
He also said the full benefits of digital were yet to come through and its site pipeline was building, with its recent acquisition of arthouse cinema chain Picturehouse taking the group into a growing niche.
John Lewis Partnership staff should see bonuses edge up on Thursday when the department store chain and Waitrose supermarket owner reports results buoyed by a “bumper” Christmas and surging online sales.
Retail analyst Nick Bubb is pencilling in a 17% hike in profits at the Partnership to £415m, with staff poised to see a “small increase” on last year’s 14% of salary payout. Each worker - from weekend check-out assistants to chairman Charlie Mayfield - receives the same percentage of salary as a bonus.
The group reported a 60% surge in first half profits to £145m at its half year, but warned in September that profit growth would be much slower in the second half.
Mr Bubb said second half profits would be flattened by a big swing to lower-margin electrical goods and intense competition in food retailing, as well as significant growth in operating costs from online delivery and distribution.
But he said: “Given the disarray amongst John Lewis Partnership’s major competitors and the strong start to trading in the new year, John Lewis will no doubt be in very good heart next Thursday about the momentum in the business.”
He is predicting operating profits at its supermarket brand Waitrose will be up 14% to £298m and the partnership’s department stores should bounce by 33% to £211m.
The figures come just days after the group announced it will invest more than £50m in its stores this year as part of its commitment to “bricks and mortar” retailing.