Aviva targets 16 businesses for disposal in revival strategy

The businesses earmarked for disposal include its South Korean arm and its British large-scale bulk purchase annuity unit.

The operations to be disposed of account for £6bn of capital and contribute £300m to after-tax profit.

The insurer, whose weak stock market performance led to the removal of chief executive Andrew Moss in May, said it has identified a further 27 businesses which “require significant improvement”, including its Irish general insurance arm.

The disposal plan is the culmination of a two-month scrutiny of Aviva’s 58 businesses launched by executive chairman John McFarlane, who took day-to-day control of the group after Mr Moss quit on May 8.

Aviva said £400m of cost cuts can be achieved, helped by stripping out superfluous layers of management.

This will have an impact on its Yorkshire operations, with senior and middle management in York expected to be affected by the redundancies.

Aviva has 4,500 staff in Yorkshire, including 1,700 in Sheffield.

Its life business, led by chief executive David Barral, is headquartered in York.

Aviva said it was too soon to say who will be affected by the job losses.

The company is keen to simplify the management structure as at the moment there are up to 11 layers between the chief executive and frontline staff.

There will be no effect on frontline staff who deal with customers. In fact the number of customer-facing staff could be boosted.

The redundancies are unlikely to affect staff in Sheffield, who are mostly based in call centres.

Investec analyst Kevin Ryan said: “They’ve at last got to the nub of the matter which is that they’ve got lots of business units that are not making a proper return on risk capital.

“But clearly there’s enormous execution risk in that this is not an environment in which to try and sell.”

Mr McFarlane said: “At the end of the plan, Aviva will be focused, financially strong and performing. I believe I can make a difference here.”

He said there will be no need to raise equity or cut Aviva’s dividend, provided economic conditions do not deteriorate.

He said if conditions do get worse, he would prefer to sell assets.

The units earmarked for sale or closure also include a minority holding in Dutch rival Delta Lloyd.

The company declined to comment on whether its sizeable US arm, acquired for £2bn in 2006, is also on the block.

The insurer declined to name the others, saying that doing so might hinder efforts to sell them.

The overhaul is expected to yield results in 2014, and will be led by David McMillan, former chief executive of Aviva’s general insurance operations in Britain and Ireland.

Aviva has hired headhunters Spencer Stuart to help it find a new chief executive and an appointment is expected in early 2013.

Analyst Eamonn Flanagan, at Shore Capital, said: “It is simply too soon to offer anything more than outlines, with little concrete actually provided today.

“The group signalled its intention to exit a number of units but these will clearly take time and are subject to execution risk. Indeed, who are the buyers?

“Wisely, Aviva has asked for patience, with little evidence of its plans likely to emerge before 2014. All in all, we struggle to disagree with anything in this statement, we just struggle to identify the catalyst to drive the shares upwards.”

But analyst Barrie Cornes, at Panmure, said: “As anticipated there are no big disposal announcements, but a plan to narrow focus, build financial strength and improve performance.

“The announcements appears logical and sensible given where Aviva is today and in our view the new strategy could well prove to be the turning point for long-suffering shareholders.

“Given the rock bottom valuation we believe that this represents a very attractive entry point.”

The shares closed up one per cent yesterday, a rise of 3p to 284p.

Mr McFarlane unveiled a series of concerns flagged by shareholders alongside the disappointment over the shares performance.

He said shareholders found the business difficult to understand and feel it has expanded the international scope too far.

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