Viva Aviva! | The Motley Fool UK

The insurer Aviva (LSE: AV) tops FTSE 100 board risers last Friday – up 2.7% in the publication of annual results.

For much of the 21st century, I did not consider this company a very strong candidate for long-term investment. However, my view has changed dramatically over the past few years.

Today, I want to talk about what changed my thinking, how Aviva has done since then, and why I think the company may be a leopard that has changed places.

Inconsistency

Aviva was created by a spate of mergers in the UK insurance market for about a century. In 1998, Commercial Union and General Accident merged to form CGU. And in 2000, CGU merged with Norwich Union to form CGNU – which later changed its name to Aviva in 2002.

In 2012, the company has issued dividends on three separate occasions. It has now been its fifth CEO and also had two spells under two different chairmen who took over the executive post when the company was CEO-less.

Expansion into new business areas and geographies by one CEO is sometimes reversed by another. For example, the RAC breakdown business was bought for £1.1bn in 2005 and sold for £1bn in 2011. And the US business bought for $2.9bn in 2006 was sold for $1.8bn in 2012.

As dividend records, boardroom turnover and strategic tinkering might suggest, Aviva has become a business struggling to deliver consistent returns for investors.

The new CEO

On 6 July 2020, Aviva announced that CEO Maurice Tulloch had stepped down for family health reasons, and that they had appointed Amanda Blanc as the new CEO with immediate effect.

I thought Blanc’s CV was impressive. He has extensive experience in the insurance sector, including nine years in various management roles at Commercial Union, and 11 years in two assignments at AXArising from regional director to Group CEO AXA UK & Ireland.

Outlook

Having spent the better part of his career working with Aviva’s rivals, I thought Blanc would have a good insight into the group’s strengths and weaknesses.

Furthermore, after being appointed as a non-executive director of Aviva at the start of 2020, he has six months to see the company from the inside before Tulloch’s sudden and unexpected departure.

Transparent

On paper, Blanc appears to have good credentials to improve Aviva’s performance. But what caught my eye was his first presentation to City analysts. This was on the day of Aviva’s half-year results in August, just four weeks after he became CEO.

There is no lengthy strategic review. He is very clear about how he wants to move Aviva forward, and his strategy is not complicated.

Impressive

Blanc intends to focus his investment on Aviva’s market leading position in the UK, Ireland and Canada. Sell ​​the business in Europe and Asia, if it cannot return a strong investment. And transform business execution, financial strength and shareholder returns.

And they will do it quickly.

I am writing as I am unimpressed with the first presentation of the incoming Footsie CEO since Dave Lewis debuted as a newbie. Tesco boss in 2014. And let me tell you, I spend far too many hours a week calling in company presentations and conference calls (yes, I have many from the stock market saddo!) Easily impressed.

Transformation

After leaving the cafe, Blanc put the money where his mouth was. He bought £1m of Aviva shares on the market at 308p.

In hindsight, I regret not acting on my good impression and immediately follow him. But even I was surprised by the speed and aplomb with which he transformed the company.

In 18 months, he sold eight non-core businesses for good money. The £7.5bn proceeds were used to strengthen Aviva’s balance sheet, returning £3.75bn of capital to shareholders, with an additional £1bn returned through a share buyback programme.

The new Aviva

The company has entered 2023 with a commitment to provide an attractive and sustainable dividend. The current yield is 7.3%.

The capital framework generates a large amount of excess cash for reinvestment in the business, disciplined bolt-on acquisitions in focused growth areas, and additional shareholder returns. The board has just launched a share buyback program of up to £300m.

There are no guarantees, but after two decades of inconsistent performance for investors, I think Aviva may be the leopard that has changed its position under Blanc’s brilliant leadership.