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Aviva PLC posts major loss, chops dividend

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Aviva PLC shares tumbled last week after the company announced a net loss of £3 billion for 2012 and a chopped second-half dividend.

Accompanying the loss, the second largest U.K. insurer by market share said they were going to cut directors bonuses to zero and freeze pay for 400 top managers.

The after tax loss, which was anticipated by executives and analysts alike due to previously announced writedowns pertaining to the sale of its U.S. business to Athene Holding Ltd. in December for $1.8 billion, is part of Aviva’s decision to refocus on its core competencies and exit 16 non-core segments.

In what Aviva called “a year of transition,” the designed turnaround plan put in action last year continued as intended with the company disposing of units in Malaysia, the Netherlands, Sri Lanka, Russia as well as the U.S. CEO Mark Wilson, who replaced Andrew Moss after shareholder questions over executive compensation, believes in selling assets not only as part of Aviva’s leaner overall strategy but also to kick-up capital after the company was hit hard by the European sovereign debt crisis. Aviva stated that a goal for 2013 will be to reduce its exposure to southern European countries, a sign that the company sees Europe’s ailing economy not getting better anytime soon.

But it was the slashed dividends that made the biggest splash when the earnings were announced. The final dividend of 9 pence a share was down from 16 pence a share in 2011. The cut renders the final full-year dividend down to 19 pence a share from 26 pence.

The rebased dividend was attributed to Aviva’s overall leverage issues. The company, in order to meet its growth goals, felt that it had no other course of action. That did not quiet critics, both shareholders and analysts alike who contend that Aviva’s success with regards to its disposal program should have generated enough capital to keep the dividend at the historic rate. Aviva conceded that they have enough short-term liquidity to be able to pay the dividend, but cashflows from the business are too tight to sustain the historic level.

Wilson said operating profits across major businesses in the U.K., France and Canada were strong prompting many to conclude that once Aviva fully implements its transition to a slimmer company, its future will be solid. 

   

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