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Great post tophat !! I've PHNX and LGEN shares as well as AV. and wish Mr Market would 'cop onto' what you've written. These material accounting adjustments - my background is in Accounts - can be quite subjective, eg the old joke about asking 10 different Accountants to complete a same company's Accounts and all arriving at a different result !!
What shareholders in banks and insurance companies need to keep in mind is that the capital position is more important than the accountancy profit and loss.
Shareholder distributions such as dividends and buybacks, together with investment in new business, are paid out of excess capital, not profits.
For insurance companies the overall Solvency II Own Funds Capital Generation (OCG), Surplus and Cover Ratio are important. These are basically how much capital was generated, the surplus over the regulatory minimum capital required and the ratio of the surplus to the minimum. Slide 42 of the results presentation gives a good summary of the Capital position for Aviva.
Many things such as goodwill and fair value of own funds can make a big difference to the profit/loss figure but have absolutely no impact on the capital. As has been pointed out the change from IFRS4 to IFRS17 resulted in a loss for the restated 2022 accounts. However the capital position remained exactly the same. The change has no impact on capital which is what should be important to shareholders.
Quite right too Warthog4. How can you possibly refer to packet of cigarettes in such a derogatory manner! Cigarettes have feelings too you know ;-)
FHS? Did you mean FFS?
Been buying Pheonix for a rinse and repeat might be pushing my luck nice divi.
Thanks for the replies re IFRS, appreciated.
I see my comment has been censored by the ill-informed thought police at LSE. I used the word f.a.g. (without the punctuation), meaning of course the slang for cigarette.
What did they think I meant FHS?
“Can't she a cookery class, take up hill walking, or spend time with grandkids”
Amanda will have a middle aged white male to do all those menial tasks…Surely .!
Thedetector, considering Blanc's high level job with its high remuneration and all its responsibilities and pressures, I don't feel she should be allowed to do this extra work. Why does she need to do it anyway ? Can't she a cookery class, take up hill walking, or spend time with grandkids, etc...if her Aviva role doesn't excite her enough ?!!
thanks meconopsis-it did occur to me that in view of the apparent blatant discrepancies i might be oversimplifying the calculations and your knowledge of the ifrs has helped to dispel any reservations i may have had.
as a chap who used to do his finances on the back of a *** packet it's all a bit of a revelation i can tell you (joking)- a long time ago i had to read balance sheets as part of my job but now the accounting profession has gone on an ego trip by making annual accounts as complicated as possible, and aiding financial obfuscation big time, i wouldn't stand a chance!
What's this news about whitey Amanda and BP.
She seems to be very popular .She could get poached.
Personally, I think IFRS is a complete disaster. When your KPI's are always "adjusted" it tells you volumes about what the finance professionals and markets think about IFRS. As Meconpsis has already pointed out, a direct comparison between AV's 2023 results and their restated 2022 results with their 2021 and prior years results is nye of impossible (without those figures being restated too). Having said that, I think there are some positives for insurers (from the investors' perspective); under the previous accounting regime insurers used to fairly dissmissive of using mark-to-market valuations but I think the pendulum has now swung too far in the opposite direction (there is certainly some merit in the insurers' argurment that where they are intending to hold gilts and bonds to marturity, market price fluctuations in between are fairly irrelevant).
It seems wherever you look these days, IFRS is leaving investors and professionals scratching their heads and becoming increasingly reliant on alternative performance measures that often aren't audited! When a figure in the accounts isn't self-evident, and needs detailed explanation, alarms bells should be ringing loud and clear that IFRS is not fit for purpose and that rather than making accounts easier to understand it's often actually making them a lot more difficult to understand.
“… do you broadly think the IFRS standards are helpful / an improvement?”
They are helpful for what they are intended for. But not useful as management accounts.
One problem for investors is that they have made EPS and dividend cover numbers almost meaningless. If you look at at the restated 2022 numbers for Aviva you’ll see they made a “loss” - despite being operationally profitable.
Just out of interest, meconopsis, do you broadly think the IFRS standards are helpful / an improvement?
To complete the sentence in my long post...
It's worth saying that there is nothing dodgy about management using their own APM. The IFRS numbers aren't great if you're trying to manage the business. They were designed to provide an objective comparison across businesses and provide a view of fundamental value is broken up and liquidated tomorrow.
Yes, i liked seeing those buys.
"...for all i know she might fall under a bus tomorrow or get poached to something much bigger - plenty of organisations would be happy to have her on board at this point."
Agreed. Although the open market share purchase yesterday by both her and (presumably) her husband demonstrates a commitment to stay.
Her renumeration package will already include a good number of shares issued at below market price. To buy additional shares at market price demonstrates a clear belief in and commitment to the company.
Warthog4 - I've not had a detailed look through the financials yet, so just a couple of general observations...
OPERATING PROFIT
You can't directly compare the 2020 results with the 2023 results.
2020's results were compiled under IFRS4, whereby insurance companies could (more or less) immediately recognise profits from the sale of life and annuity products.
2023's results were compiled under IFRS17. The new rules mean that those "profits" get "parked" in a Contractual Service Margin + Risk Adjustment "pot" (CSM+RA). Money goes into the CSM+RA pot until the liability has lapsed and the profit can be drawn down in future years.
The outcome is that this year's operating profit is reduced, but future years will be enhanced.
There's a good explanation in the (very good) results video at https://players.brightcove.net/6204867251001/823mowZpQ_default/index.html?videoId=6348388200112
You want from 14:00 onwards.
There has also been an adverse change in longevity this year, which is nicely explained in the video.
They have restated 2022's results in IFRS17 terms in the 2023 results - and those are directly comparable.
You also need to be careful that you compare like with like.
ASSETS
At first look there appears to be around £1bn of assets less on the books. I haven't had time to work through what I think is going on, but...
The IFRS accounting standards require that held assets are valued at 'market value' when the accounts are produced (you'll see the term "mark to market"). Any reduction in value is taken off the operating profit and the value of the assets reduced on the books.
So, if you've got 2bn of offices; the market for offices drops 20% then you've got to knock £400m off the operating profit and the same £400m off your asset value. Regardless of whether the loss has, or will ever, be realised.
Some of it will be that revaluation.
This is why a company that is profitable in absolute terms can appear to make a "loss" in the accounts.
COMPARING LIKE WITH LIKE
You also need to be a little careful with which "operating profit", etc numbers you compare.
Because of the above accounting requirements, it starts to become extremely difficult to manage a company using the IFRS numbers. As a result, almost all companies now use so called "Alternative Performance Measures" (APMs), which are typically the accounting measures stated in a way excludes the unwanted distortions of IFRS.
At the front of the Aviva results release you'll see a little symbol next to Operating Profit. A quick look at the footnotes on page 9 shows that this is an APM - i.e. management's view of Operating Profit.
The IFRS Operating Profit is further back in the document.
That front section contains a mix of IFRS and non-IFRS numbers, which is almost certainly why they don't add up.
It's worth saying that there is nothing dodgy about management using their own APM. The IFRS numbers aren't great if y
The company has been the subject of takeover speculation, with the Italian insurer Generali reportedly looking at it.
Blanc shrugged this off as “random market chatter”. A number of UK companies have attracted takeover interest recently, including Aviva’s rival Direct Line, which rejected a £3.1bn offer from a Belgian insurer as “highly opportunistic” last week.
“If you look at most UK stocks today, you would say that they’re probably not at the valuation that they should be at”, Blanc said, pointing to Brexit, the pandemic, the turmoil around the mini-budget and other issues.
“Certainly, we would say that there’s plenty of room to go in our share price. But we are really focused on the things that are in our control, which is the brilliant performance of the business.”
https://www.theguardian.com/business/2024/mar/07/avivas-profits-rise-as-demand-for-uk-private-health-insurance-booms?ref=biztoc.com
… sure, but what I’m thinking about is how market will value aviva as & when blanc goes … will that be a mere hiccup or a nasty puke?
i’m a blanc fan, but my holding is in aviva, not blanc, and for all i know she might fall under a bus tomorrow or get poached to something much bigger - plenty of organisations would be happy to have her on board at this point.
It's not only the increase of say 5% in the dividend cash pot , but also the reduction in shares via the buyback process, so double benefit..
Add in some interest rates cuts in the 2H, and target a yield of 7%, based on the next dividend being say 35.6p, gives a target share price of £5 plus this time next year.
We are only at the level today where we should have been after the "return of capital" , but things went the wrong way after SV Bank and interest rates climbing.
The 2025 buy back will keep it above £5.
A good result in terms of profit and dividend but looking back revenue is only marginally lower than it was in 2020 but Operating Profit is down by 62%
Also and without having examined the financials in too much detail, I find it rather strange that, despite last year's share buyback, NAV has plummeted by 25% to 238p and by 60% on the 2020 figure.
No doubt there is an accounting Guru out there who can shed some light on the above
(I am assuming here that the figures shown in "Fundamentals" above have been spread accurately bit if one does the maths on the Income Statement, they don't seem to add up|)
Most successful CEOs form a cult following (warranted or not), succession doesn't normally factor that much in the market's thinking until the CEO announces their departure.
Sir John Harvey-Jones used to have a cult following at ICI back in the day (and ICI was highly rated as a result); it took the market a long time to realise that it was all just a cyclical commodity illusion and that JHJ hadn't acutally fundamentally changed anything at ICI (not long after he left ICI's profits plunged and it was unceremoniously broken up - the rump of which subsequently became Ineos).
A key issue for me is whether market will think going forward that it’s still about blanc personally, or whether market will believe that there are now sufficiently embedded cultural, structural and strategic changes from her leadership that would still persist after she goes. (otherwise, a lot of risk relating to one individual’s personal health / family issues etc.).
previously, AV. has been pretty pants at succession planning, hopefully blanc’s changing that too.
Bingobongo, that might be true in more cases than not but is never true in every case; it all depends on expectations. If the market's expectations of AV (and Blanc in particular) have changed then the share price can move up (or down) into a new trading range to reflect those new expectations. I think the market still doesn't fully appreciate what Blanc has done thus far but yesterday's results were perhaps a wake up call. Not only is AV now forecasting a mid-single digits increase in its future dividend cash pot but it's also forecasting its operating profits from continuing operations to increase from c£1.47bn in FY23 to c£2bn by FY26; a CAGR of ~11%. That's not too shabby for a dull and dowdy UK-listed company. Of course, it's one thing to promise and quite another to deliver but I think Blanc has now proven (to most people) that she can deliver
my ***-packet maths:
£300m buy back at current approximate sp of £4.60 = 65.22m shares off the table. against shares in issue of 2.74bn, this is about 2.4%.
likely explains why aviva stated they are now targeting mid-single-figure growth in the dividend as it should increase returns by about this amount on average. theoretically.