INSURANCE giant Aviva shocked the city yesterday with a 44 per cent cut to its full-year dividend to just 9p a share as new chief executive Mark Wilson took drastic action to reduce the company’s debts.
In a bid to appease shareholders, Mr Wilson said that he and the other top Aviva executives will forgo bonuses and pay rises this year. “This was a difficult decision, but it was absolutely necessary to give certainty to our shareholders, to reduce debt, and to put Aviva on a sound footing for the future,” he said.
Talking about the decision to scrap pay rises and bonuses, he said: “It’s entirely appropriate given where the company is at the moment.”
Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said the dividend cut was a disappointment, but could precede a recovery for the insurance group.
“On calm reflection, this may prove to be a pivotal point for Aviva,” he said.
“Expectations have now been set at a lower level, including dividend prospects – indeed, some may see today’s price drop as a potential entry point for what is now a recovery play.”
The dividend cut is Aviva’s second reduction in four years and came as the company reported a 15 per cent drop in operating profit to £2.13bn, in line with forecasts.
The dividend cut is part of a reorganisation launched by Aviva last July after investors forced out Mr Wilson’s predecessor, Andrew Moss.
Under the plan Aviva has cut costs and raised £2.4bn by selling non-core businesses including its subsidiary in the US.
Mr Wilson said that the sales had left it with a capital surplus of £7.1bn, easing shareholder concerns that it doesn’t have enough cash reserves to cope with a further downturn in the eurozone where it has heavy expo- sure.
Shares in Aviva fell 11? per cent to close at 319p?.
Aviva plans to focus on its core UK and Canadian businesses and invest in areas that are showing growth, including Asia, Poland and Turkey.
The sale of various businesses left the company with a £3bn loss after tax in 2012.
Mr Wilson, who joined the company just two months ago, said 2012 was a transition year for Aviva.
Aviva has 4,500 staff in Yorkshire, including 1,700 in Sheffield, over 2,500 in York, where its life business is headquartered, and around 300 based in Leeds.