Maurice Tulloch has been chosen to replace Mark Wilson at Aviva because he reckons he can “re-energise” the insurer, by “injecting a different pace of change”. And, incredibly, just four days into his tenure as chief executive, the pace of change in next year’s earnings and dividend already looks different. It’s slower.
Can this be what Mr Tulloch promised in the job interview? Probably not. But it is what he, and colleagues, said in Thursday’s results statement — which may explain why all his pace and energy led to a 4 per cent share price fall.
Earnings per share growth is now expected to slow, which Mr Tulloch’s chief financial officer blamed on “the unknown future impacts of Brexit”. He said: “While we achieved 7 per cent operating EPS growth in each of the past two years, it will be difficult to sustain this momentum in 2019.” Barclays analysts said: “The CFO has effectively warned on 2019 EPS”, and suggested negative EPS revisions are “likely to be larger than we expected”. They may prove larger still, and EPS growth even slower, under a new capital management plan that will prioritise debt reduction over share buybacks — because more than half of last year’s 7 per cent EPS growth was down to £600m of buybacks, plus reserves being released on changes to life expectancy. Actual operating profit rose by a not very pacy 2 per cent.
Dividend growth will also be slower as Aviva is moving to a progressive dividend policy, with payouts based on growth prospects rather than a fixed 50-60 per cent of earnings. Mr Tulloch’s CFO said: “Growth rates of the dividend per share will be more modest.” The FT’s Alphaville blog said: “9 per cent divi growth turns into 5 per cent growth going forward, probably”.
However, moving to a more sustainable dividend policy is what many shareholders had wanted, and a debt reduction target of £1.5bn by 2022 adds 1 percentage point to earnings growth in each of the next three years.
So why did investors sell before Mr Tulloch hit his stride? Might it be that, as Hargreaves Lansdown’s analyst put it: “His pledge to cut debt and focus on ‘insurance fundamentals’ is hardly going to set the world on fire . . . it looks like the plan is to ‘re-energise’ Aviva with more of the same.”
Aviva can go faster in some areas, though — if Mr Tulloch is willing to focus his energies.
UK bulk annuity and equity release sales are rising at 12 per cent a year, to reach £4.8bn, and the wider bulk annuity market is forecast to grow by a fifth in 2019. Reinvestment of mortality gains into digital initiatives is also accelerating — and can be stepped up next year: new life expectancy figures suggest more than this year’s £780m can be released from reserves to win new business. On Thursday, this was the only context in which Aviva used the word “accelerate”. Mr Tulloch needs to excite investors about his pace in the long run. Growth through lower interest payments does not exactly quicken the pulse.
Fed up with Greggs
“Greggs on a roll” . . . “Growth is baked in” . . . “healthy turnover” . . . “feeding into the bottom line” . . . “a tasty rise in the dividend”. Oh, for God’s sake! Enough! Enough! Just stop it!
This might seem hypocritical from a columnist who ekes out a living by over-extending metaphors, but Lombard cannot bear to read another article or analyst note waxing lyrical — and punning predictable — about this chain of pie shops. That “healthy turnover” line does not even work — Greggs has not sold an apple turnover since 2015 — which only makes it more annoying. All this cringe-inducing media puffery . . . oh no, even I’m doing it now . . . is about a company where the idea of innovation is to replace sausage meat with Quorn.
In fact, to read coverage of Greggs’ full-year results, one would think its new vegan sausage roll was a cure for a terrible disease — although it did have an adverse effect on Piers Morgan, so in some ways it is. According to professional equity analysts, it is not just plant-based mush wrapped in pastry but a “brand transformation”. It is why sales rose 10 per cent in the first seven weeks of this year. It justifies three earnings upgrades in four months. It is bringing new customers. It will even be available for “click & deliver” with Uber Eats and Deliveroo.
But while annual sales of £1bn are no confection, so much of this is nonsense.
Committed vegans — as opposed to “Veganuary” diet tourists — are not going to patronise the spiritual home of the steak bake. Even the vegan-curious will salivate less when they learn a Quorn roll has more salt than the sausage variety. And none of them will order a pasty for delivery.
Nor is the sales growth indicative. It is inflated by comparisons with early 2018 when cold weather deterred buyers of hot food. Even Greggs calls 10 per cent “extraordinary” — its like-for like figures suggest 2-3 per cent is the norm. So, to the punmeisters who think social media hype about a baked contradiction in terms justifies a share price of 30 times earnings, a request: shut your cakeholes.