Aviva, Plc (NYSE:AV)
Q1 2014 Earnings Conference Call
May 15, 2014 04:00 ET
Mark Wilson – CEO
Thomas Stoddard – CFO
Euan Munro – CEO Aviva Investors
David McMillan – CEO Aviva Europe
John Lister – Chief Risk and Capital Officer
Maurice Tulloch – CEO, Aviva UK & Ireland General Insurance
Blair Stewart – Bank of America
Ashik Mussadi – JPMorgan
Andrew Crean – Autonomous
Gordon Aitken – RBC
Abid Hussain – Societe Generale
Oliver Steel – Deutsche Bank
Fahad Changazi – Nomura
William Elderkin – Goldman Sachs
Andy Hughes – Exane BNP Paribas
Greg Patterson – KBW
Chris Roberts – Barclays
Good day and welcome to the Aviva Group Q1 IMS Analysts conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Mark Wilson. Please go ahead sir.
Well, good morning everyone and thank you again for joining us for our quarterly call. I have my senior team with me in the room here including, of course, our new CFO Thomas Stoddard. Now today, as usual, I will take you through the main points of the Q1 performance and then open up for Q&A.
Now, I do appreciate this is a very busy morning with many of you. And we also, of course, also have an Investor Day in about two months' time where you'll get the opportunity, I think, to dig in a lot into our strategy and ask many more questions.
So on to numbers. Overall I think this -- I'd call it a refreshingly boring quarter performance, I think, in marked contrast to the weather and the regulatory developments. Value of new business is, of course, up 13% in constant currency. This is now, in fact, our sixth consecutive quarter of year-on-year growth in value of new business.
The combined ratio though has deteriorated to 97.7% due to the harsh winter in Canada but more on that a little bit later. OCG was 0.4 billion. And regarding our balance sheet IFRS NAV per share is up 6%, 2.86p. MCEV is up 1% to 4.69p and the economic capital surplus is £7.8 billion.
Now our improved cash position at the Group's end has allowed us, as you know, to repay 240 million of, quite frankly, very expensive hybrid debt. And this is, of course, entirely consistent with our deleveraging plan.
So now on to a bit more detail. There has been tangible progress in our turnaround businesses where we are gaining up lost ground. Italy, Spain and Ireland doubled their VNB to £26 million. In particular progress in simplifying our Italian business is well ahead of plan. And the expanded distribution agreements with UniCredit and UBI, following our restructuring, should improve margins there going forward further.
And our cash generators, I think that's a bit of a mixed story frankly. Our UK VNB was down 22% with annuity VNB driving this decline. Now on this subject, annuity volumes are down 21% in the quarter. So, just to be clear, the volumes are down 21% in the quarter and the VNB is down 43%. I wouldn't want you to get the impression this was all from the budget at all. We were tracking with lower annuity volumes before the budget announcement on March 19 as margins had tightened in that sector and we had deliberately reduced our capacity.
Looking at the performance in Q1, though and the impact of the budget changes going forward, it looks like annuity VNB we think will end up at about £100 million lower in 2014. This is consistent with our previous indications. And, knowing what we're doing and what we have on at the moment, I think that would be good figure to build into your models.
With our excess capacity we will target mid-sized bulk purchase annuities. And this should offset some of the budget-driven VNB decline. Just to be clear, we are not targeting jumbo BPAs as we don't believe we can get the required margin at the jumbo end. But obviously we've been in BPAs for quite some time and we are clearly an expert in this field.
Other parts of the UK life business have shown improvement, with protection VNB up 32%. We've also had encouraging investment sales which probably surprises a few. Actually the volumes in investment sales are up 59%, in part due to the platform inflows. We've got a very good platform particularly in the broker market and we've got a lot more we're doing taking that to consumers.
Now, it's encouraging progress both on the investment side and protection, but I'm still far from satisfied with our position; although it's encouraging, I'm far from satisfied. Of course the other parts of the budget changes that are significant is that it will create significant opportunity. And opportunities will arise, in particular, on asset management. And you'll hear much more from that later from Euan at the analysts' day when we have that.
Our other cash generators; France continued its creditable performance as its VNB grew 34%. While volumes are up, much of this improvement has come through a greater mix of higher-margin unit-linked savings and protection. This is partly volume but also product mix, and again is, I think, some pretty good execution of that strategy.
The contributions from our growth markets also a highlight. Our growth market VNB collectively increased 73% and made up 26% of the Group VNB; that's up from 19% in the Q1, 2013. Poland grew 108%, Asia grew 96%; but which I think are quite adequate. On the other hand Turkey VNB declined 21% which is less acceptable. Overall, regarding the growth markets, we are seeing the shape and dynamics of the Group changing for the better. And I think we are getting in a much more balanced and simpler proposition.
Then on to general insurance. In general insurance the combined ratio deteriorated to 97.7% due to the particularly harsh Canadian winter, popularly and euphemistically known as the Polar Vortex which produced some exceptional weather losses of around 14 million.
Now regarding the UK weather, we had previously announced flood losses of £16 million in January and February this year. In fact the total weather losses for the quarter remained at below 60 million and this was after a very benign March. I should point out though these figures are broadly in line with long-term average, but also worth noting they're worse than the first quarter last year that was very benign.
We've had a fair bit of feedback already this morning that our UK weather figures are better than expected and that may be the case maybe versus peers, but it's very much in line with what we've said before.
Premiums in UK GI though were down 8% as we demonstrated, I think, some pretty good discipline in the face of soft market conditions, particularly in personal motor that remains very, very soft. However, I think there's still an optimal balance between volume and efficiency so that you get the right volume for the fixed costs there and achieving this balance is critical. And, frankly, in some business lines -- and I'm not including personal motor in that definition, but in some business lines I think we've probably push some of that rating actions in some of our UK sales a little bit too far. And Maurice is just looking at the balance of some of that now.
Outside of the UK, in general insurance premiums grew 5% in Canada and Europe in local currency. I guess I should point out that the UK, as well on the life side, actually the volumes actually grew by about 5%. So -- but to be clear, we don't chase volume, what we're chasing is VNB which is where the value is added.
On to expenses. On our expenses, despite being ahead of plan at the full year 2013 stage, I want to make it very clear that we're not showing any complacency. If you speak to any of our business units you will not see any complacency on expenses and the progress on expenses has continued into 2014.
Now, I'm not going to give figures, just the quarterly figures. We'll give expense figures and expense ratios at the full year and at the interims. But just to give you some comfort, the expenses have continued.
Restructuring expenses, which we have shown here, are 67% lower at £18 million which is nearly all related to Solvency II spend. So the restructuring, the large restructuring expenses that we're seeing year after year after year in the first quarter were very small. But I should point out though again, for a better balance, due to the nature of project spend, I would not be surprised if project spend restructuring -- I wouldn't be surprised to see a modest pick-up in some of the quarters throughout the year.
We will update you, as I said, on our expense ratio at half year and we may refine our calculations for this ratio as we go forward. I know we gave you some draft proposals at the full year and I know some of you have made some suggestions for its improvement. And Tom definitely has his own views on this subject as well.
To the balance sheet. IFRS book value is up 6% to £2.86 per share. Improvements were as a result of profit in the quarter and positive movements in our pension fund, partially offset by negative Forex impact. Now whilst the market may view this book value growth positively, as it was an issue we had last year, part of this increase is due to the vagaries of IFRS pension accounting which I have certainly discussed with you before.
But following -- nevertheless following a period of dislocation between the operating earnings and book value growth, we are very keen to see that book value grows with earnings and is not eroded, as it historically has been, by restructuring costs, or investment variances and other below-the-line items.
Now as part of this, to make it more predictable, we have somewhat de-risked the pension scheme which is one of the benefits you've seen flowing through in this quarter. Our economic capital surplus of 7.8 billion is quite adequate. And the Group center liquidity of £1.5 billion is -- I guess, is pretty strong, is boosted by disposal proceeds.
We have continued to restructure the business with disposals of the boutique asset management in the U.S., that's River Road in the U.S. South Korea and Turkey GI have also been announced as well as quite a major restructuring of our Italian business.
So I think that's the summary. But in summary, despite some, I guess, little metaphorical headwinds, the Q1 results I think are a testament to the benefits of focused diversification; diversification in some core markets with multi line being general insurance, life insurance and asset management. And this means that the group’s despite the headwinds, the Group results are quite satisfactory indeed.
However, despite some of the areas of outperformance, there are, frankly, still many areas of disappointment or underperformance which we are addressing. As I keep on stressing internally to my team, Aviva remains a turnaround story and there is much to do. And on that note, operator, I think we can open it up for some questions.
(Operator Instructions). And we will now take our first question from Blair Stewart from Bank of America.
Blair Stewart – Bank of America
I've got a couple of questions. And you touched on some of these points in the commentary Mark, but just possibly on operational cash, how do you feel about the outlook for that, given any seasonality aspects in relation to the 0.4 billion you've put out in Q1. Secondly, just maybe further on your responses to the UK annuity changes or the UK market changes, you mentioned SME bulks as one response. I wonder if there's anything else in the hopper, to the extent you want to talk about that at this stage. And maybe also your view on the guidance debate and how you expect that to pan out.
And maybe, if possible, just some further comments around the product mix changes that you're pushing through in Europe which seem to be having an effect. Thank you.
That's quite a list and I'll go through some of those and I'll also get some of my colleagues to comment. The OCG, as you know, the key issue of cash, OCG isn't cash but it's certainly one of the stages to get there. The real measure is what we get in which frankly can be a bit lumpy throughout the year. And we're not going to give you -- I'm not going to give you the figures yet, but to say that the -- we have -- obviously now getting cash in from the UK life business. But we're not going to put those figures up; we'll give you that at half year.
OCG is a good guide, but the real measure is cash. I know in fact Tom's come in and looked at the OCG and thinks we can make it clear and much more transparent with how we go forward. Tom do you want to, perhaps, comment on that?
Sure. Well again I'm relatively new here having just joined a couple of weeks ago and about a month after the quarter end, but I'm looking at a lot of things and looking at a lot of different things going forward.
Blair, I think as you look at OCG, on a quarterly basis, to try to read that across, it has been affected by weather here. But I think, we all know, OCG is an imperfect guide to cash flow. So we'll be looking at trying to improve measures here to give you a better sense as to how we see cash flow. But I think here the correlation between the quarterly OCG and what we're going to end up with for the year on cash flows is not that strong.
If that helps. Secondly your question – in fact, that you take the product question last. In all of our -- something we didn't do that well on product is a few things. We have never really packaged product before which we're doing now and we've never managed product mix as actively as we are. And we do that partly by taking capital away from various cells and putting it to other cells and that's very deliberate. We do that tactically quarter by quarter and we do it yearly. So some of the drop in annuities was just a tactical pull-away because we didn't think we could get the returns and we didn't want to use that much capital in there.
And France is a good example of what they've done moving to higher-margin products. And in the UK moving to protection products, for example, helps with capital usage, it helps with value in new business, it helps with cash flow. So all the stuff is coming together and it's very deliberate.
And, frankly, I think we've only started that. Although I said some nice things in my opening remarks about what we've done on protection, frankly I still think our protection sales are entirely unsatisfactory. And the team's working hard on that and hopefully over each quarter you'll see those increase.
On annuities, just to be clear, I don't disagree with the annuity changes. We were surprised, like we have announced, but all it did was speed up some of the other stuff we were doing. Just to be clear, the annuity volumes were down 21% in the first quarter, but I wouldn't want to put that all down to the budget because it simply wasn't. The budget only came out on March 19, didn't it? We have got a lot of products that we've been -- products such as drawdown products which are quite interesting. We have our platform which is growing very, very fast, which accounts for the growth in the investment products you've seen, 59% growth, is going in the right direction.
And the other part of it, of course, is on Euan's product range now. Now I will hand over to Euan to talk a bit about that and David might then add some comment. I don't want Euan to pre-announce the strategy that you're going to see in the analysts' day, but Euan do you want to add some color on the products and your multi-asset product and things like that as well?
Yes. No, I think it's very helpful for me to be able to piggyback on the back of the drawdown platform that David's already built. We already have a lot of interesting Aviva investor propositions there; volatility controlled funds, called our emission range. And in actual fact we've got some high-quality income propositions, equity income, distribution funds, fixed income funds that can sit on that platform.
But Mark's quite right, I'm working busily on a range of outcome-orientated funds that will go very directly for the outcomes that are important to clients, which are clearly generating good levels of income with low levels of volatility and good levels of return with low levels of volatility. So that's all in hand. But as we stand at the moment I genuinely believe we've got a platform and a fund range that's as good as anyone else in industry.
And it is actually Euan, you also made -- we made an announcement yesterday of a senior hire that you've made to assist in that process. David did you have a comment?
Yes. Blair, just to add to your thoughts on the European product mix, firstly in France our focus has been largely on unit linked. We've shifted the unit-linked mix of savings from 18% in 2013 first quarter to 25% this quarter. Italy we've led the market in reducing guarantees on with-profit. And in Spain we've dialed back significantly on financial annuities that were value destroying. But I'd also echo Mark's point, I think there's still a hell of a lot of upside for us on protection across all of the European market.
So, now the last point was your point on the advice, Blair. As you only can see how this develops. The FCA is working on it; I've had discussions with them. I would hope we get to a place where advice can be online; it can be over the phone. It doesn't have to be face to face. That would be our contention because I think it's just impractical for anyone, and way too expensive for the consumer as well, to be -- just to do the face to face. And we're working with them and from what I can see I think the FCA will do the right thing and be pretty pragmatic. So hopefully that answers all your questions.
Blair Stewart – Bank of America
Would you expect that to be provided, or is your position that that could be provided by the insurance companies themselves, Mark, on that last point?
Yes. And I've discussion with them. I think they certainly recognize that we are part of this process, definitely. We have obviously the biggest network of brokers and we're also -- in the UK we're tied up with most of the key banks and one of the reasons that you are seeing the protection sales increase -- I'll back up a step. One of the reasons last year protection sales were lower is because after RDR the banks just got scared of providing any advice on anything. And frankly we and the regulators had to coax them back into the market on protection.
You're seeing the early stages of that happening now. So some of them have put people back in the role, just in the last quarter so you're seeing that come out and we are the ones with the contracts with all the large ones and -- so it will take us some time but that's what you're starting to see. You're starting to see the protection sales pick up because the banks are being coaxed back in the market, and rightly so.
And we will now take our next question from Ashik Mussadi from JPMorgan. Please go ahead, sir.
Ashik Mussadi – JPMorgan
A couple of questions. First of all on your protection, you seem to have said that you're not very satisfied with your protection sales. Now, how should we think about it? You grew by around 20%, 30% in protection in this quarter and one of your competitor is saying that the growth expected from protection is roughly 5%. So how should we think about where do you want to land up to in terms of protection and what does that mean for cash and net cash in the short term. So that's the first thing.
Second thing would be on economic capital surplus. Now you are among the very few in the UK to disclose economic capital surplus. How confident are you on this economic capital surplus number given that Solvency II is coming down the road? And thirdly, if possible, can we get the split of the book value movement? Thank you.
Okay. So the first one, just on protection. Yes, I am aware there are comments in the market. We're playing in a slightly different dynamic because frankly I think we have massively underperformed for our client base and our distribution over recent years in protection. And so this was a deliberate strategy to get back into it last year. And our key -- there's a couple of key things, cross-sell on the base, particularly on direct [ph] is starting to show some I'll call them encouraging or surprising results; it's early days but we'll see. And the banks are starting to get back in.
So I would have thought our growth rate in protection should far outstrip the market because currently at the moment we don't have our natural market share. And I think that's unacceptable and it's a product range that David and I and the Group like. And so this is an area that we're going -- and we're bringing in some extra talent from outside.
We've only just started, so the results you've seen have been the start of what we're seeing now. Could it go up again in each quarter? Of course it could. So I'm not making any predictions; I'm just saying that I'm really disappointed with it. But I'm just putting it that strategically because we have a lot of work to do, but that is where you can see an upside particularly in the UK, but not just the UK.
Now the second thing on economic capital. So we disclosed -- and as you know we're one of the few -- on economic capital. Now economic capital versus others in the market we're the closest thing, I guess, to Solvency II. It isn't the same; I said last year that I thought the outcome of the Solvency II work was satisfactory.
Just to be clear, there's still some mist on the horizon. Anyone that says that they know all about Solvency II then doesn't know anything about Solvency II because you've got the Tier 2 text that we still haven't been given. We think it's going in the right direction. We think we are well positioned versus peers for it. Could have had -- frankly, on the current text, we'll have ups in some countries and down in others and that's fine.
But -- and the other key thing that we all need to do, and we need to do like everyone else, is we need to get our internal models approved by the regulator. And we've got some time on that and we're working hard on that. And, as you saw, it has cost us a fair bit of money in the first quarter as we signaled it would. But that's progressing, I think, quite adequately, but there's a lot of work to do. So there's no doubt that us being on economic capital -- and we disclose that stuff to the market -- I think is particularly helpful. It's not exactly the same but there is a lot of similarities in that.
Is there any -- Tom or John want to add any comment to that?
I'd just comment that the way we run the Company is based on an economic capital basis. That's the way we think about managing businesses and allocating capital and ultimately the cash flows that we produce for shareholders. So that culture is very comfortable here. And again, as Mark says, there will be differences as we migrate to Solvency II and we get our project teams to react working on that.
But I wouldn't lose sleep either, put it that way; that's my job. The other thing was split of book value. We don't provide profit numbers on a quarterly basis and obviously that was -- if we split it. So no, we won't split it on the quarter.
And we will now take our next question from Andrew Crean from Autonomous. Please go ahead, sir.
Andrew Crean – Autonomous
Three questions if I might. Firstly, in simple terms, could you explain what the restructuring in Italy is about? I noticed last year that you had operational cash generation of 88 million and only 12 million came up to Group. So whether you could explain what the potential is there.
Secondly, could you say whether there was any growth in your new business profit, if you look to the 2013 new business profits on the economic assumptions which the 2014 were based on? And thirdly, I wonder whether you could -- I see in your statement you say there's quite a lot of disposals come through and you're looking at the business now as being much simpler. Should we take it that the current portfolio of businesses is largely the ones you're going to be running with and there won't be much further in terms of disposal?
Okay, so three questions. First restructuring, definitely this is something that we signaled about throughout the year. Italy was, I guess, typically Italian; it was our most complex business. It was holding companies that then had JVs with one party that had JVs under that with other parties. And it also had some cross-holdings in the banks; non-traded, non-listed cross holdings which we didn't think fitted our risk profile, frankly.
And so the restructuring was done for a number of reasons. It was done so we could control those businesses. Because of the JVs a couple of levels down we couldn't control what products were in there and, because of that, they were making negative VNB. Now because we've sold them you're not going to see that, I guess, in the positive year-on-year on VNB because you take it out of both, but in actual fact it adds positively to the Group. So it's going to add to the growth rate, although you won't see it in the growth rate, if that makes sense.
So we did it so that we could get rid of the cross holdings, so that we could maintain and in fact expand distribution and we could control our product mix. And then that allows the cash flows to come up to the Group because some of the -- two levels down they had too much cash. So, in fact, cash was trapped and we couldn't get it out. We aren't going to give you any guidance about what that means for the quarter, but I can tell you it's helpful.
David who did all that hard work --
I think the only thing I would add is as well as unblocking and enabling the cash, the other thing that we're doing here is trying to improve the product margins and stabilize the distribution. So we've expanded our distribution with UBI by another five years and we're refocusing our UniCredit distribution much more on protection. And the expectation is that that will enable us to significantly improve the margins and drive the VNB as well as cash.
So Italy is -- it's still on the turnaround camp, just to be clear. I don't want to let them off though very easily, but to be fair the progress has been faster than we had anticipated. Your second one, growth in VNB, now look the main growth in VNB is product mix and volume. There's no fundamental changes and assumptions. There might be little concern this is -- it goes up and down I might add, but no fundamental changes. We're not -- there's no games being played in VNB. It's simply some basic product mix and volume.
Andrew Crean – Autonomous
Mark, on that, I was just saying, if you look at the quarterly VNB, last year it goes 209 million, 217 million, 193 million and then 285 million in the fourth quarter, presumably when the economic assumption changes reflected higher interest rate. And so I suppose, if that were spread over the quarters, I just wondered whether the 224 million this year, first quarter actually would have been higher than first quarter last year on the same economic assumptions?
No that's just seasonality. The business still quarter by quarter is quite seasonal, as you know, which is why we do the comparison quarter-by-quarter. There's no fundamental changes in that. It was -- by far the biggest impact was mix, was mix and margin, by far the biggest impact. There might have been some stuff around here, but that wasn't major. We check all those -- we control all those things at Group center, just to be clear. So it's -- yes, that's the way we've been landing up.
But the thing that has changed -- so, France, as David said before is quite an easy one to look at. So France the mix to unit linked just went up dramatically because there was a deliberate change. And then because of that the sales also increased and because of that the margins increased. So you're seeing those sort of impacts more than anything else.
In Asia you're seeing quite big product mix changes as well. We've fundamentally changed the product in China which has gone, I think, we might be seeing] 100% odd or something just because we changed the product mix. It's fundamental changes in product mix which has impacted our margins. And Aviva has never done this stuff before and we've got a number of years where we need to optimize this year and I wouldn't want you to think we're close but we've had some quarters of growth, I guess but we've got a long way to go.
Now the last one was your point on the simpler portfolio. So obviously we are a lot simpler. We're getting that feedback from everyone which is good. Again comments, some views on that where we're still not, which makes sense. Have we got any others to sell? We have got a few, still modest ones to sell. We've got still -- as I've said before, we have still some more restructuring in Spain. We're in another arbitration with one of the banks; I've said that before so that's more restructuring there.
We've still got a few small bits and pieces that we need to give up; that will still give us some cash but they're pretty modest -- they're very modest in terms of earnings or they're negative in terms of earnings, just as an aside. So it won't have any impact on earnings, but we've got still some that will free up some capital we'd rather allocate to other places.
Our objective is to be -- to diversify but be very focused. We want a small number of larger businesses that can dominate a market and that can have pricing power in those markets and that we can have scale or we can get scale. So Indonesia was an example where we believed we can get scale quickly.
And so central to our discussions at the moment, and we're having a lot of these discussions right now, is where we allocate capital and where we take it away and that's the way we're doing business. So we're getting close; we're not there yet, Andrew. We've still got a few more. And frankly I've still got to complete, or Jason and his team have got to complete the ones we've announced and get the money and the cash on our balance sheet.
And we will now take our next question from Gordon Aitken from RBC. Please go ahead, sir.
Gordon Aitken – RBC
Three questions please. First of all on annuities and bulks, the Chairman said, it's probably about 18 months or so, that now you couldn't make the profits on bulks work. Now, post the budget we're seeing consultants talking about more competition; that's what they're expecting. And also we've got some evidence of some of the providers reducing rates post the budget. So I was just wondering really how you square those two.
And the second one on pensions, one of the other -- pre-RDR Commission peers reported this morning and announced the 20 million to 25 million hit due to the new pensions pricing cap. I was just wondering would you be of a similar order to that. And the third thing on pensions in the UK again. You've got flat volumes; I was just wondering what net inflows into that business were. Thank you.
So three questions. So the first one on bulks, what the Chairman actually said was the large BPAs and I also clarified that, I think it was mid-year last year. So what we said was we were out of the jumbos. And in fact last year we wrote about 60 BPAs and about -- at about a value of 400 million, just to be clear. That will increase this year.
Now, we're not going to be in the jumbo ring because we don't believe we can make the margins. And I know some people in the market are saying that the margins aren't going to decrease on bulks. In actual fact I disagree with that. I think, with competition, the margins on BPAs, although they will still be a key part of the market, I think the margins will decrease which is why we only want to play in the mid-end and we've traditionally been one of the strongest players in bulks.
The reason why we’re doing more is with less of the personal annuities we had more capacity; we got more capacity to back it up with the assets that we back up with. Yes we've got commission on mortgages and equity release and stuff like that, so we have more capacity to back it. So that's why we'll do it but we're very cognizant of the margins. So I think the margins will decrease; I think that's inevitable. And we will only play in that market as much as we can get the margins. We're not going to chase it because we don't need to. That's why we diversify our business.
Pension cap impact, I saw the release you're talking about. For us it -- a lot of our stuff is below that pension cap anyway, and certainly the new stuff for some time has been. So I can tell you it's got an immaterial impact on our earnings. We have got another lever we can pull on that as well and this is one that will give us some material -- because of course we can pull trail commissions. We have a very large level of experience around trail commissions and one of the levers we can pull is to – give with the trail commissions. So the impact for us is, I would say, modest.
If I can just say, we have taken a hit in our MCEV so it's – (multiple speakers)
It's 150 million to 200 million, is built in (indiscernible). So with the -- Gordon what was your third question?
Gordon Aitken – RBC
The third question was just about you reported flat volumes in pensions in the UK. I was just wondering what the flows were in that business, net inflows? So just the growth versus the inflow, yes.
We don't actually disclose flows at -- now I can tell you that, for the Group, non-investment funds flow will be at a -- is a critical measure inside the Group. At the half year we're going to disclose it to you for the first time in the detail and that is a critical measure. It's also one of Euan's critical measures in his business, so it's something we're very focused on and we will provide some good detail for you on that. That is a metric you will find us being very focused on.
And we will now take our next question from Abid Hussain from Societe Generale. Please go ahead.
Abid Hussain – Societe Generale
I have three questions as well. The first one is on Turkey, can you just talk about the challenges in Turkey and the outlook for that market? The second one slightly technical question, can you just talk about what was your thinking in applying a liquidity premium to your participating products? Was that driven by peers or do you have more clarity on in terms of where you’re heading with that? And then finally, a question on capital, what's your capacity to redeploy freed up capital towards -- for an attractive ROE into either Europe or Asia? Thank you.
So three questions. So Turkey, one of the joys of emerging markets is you will get quarter by quarter volatility. Now I think results in Turkey are actually quite unacceptable. I don't like a growth market being down, but simply it's as you know because you had some political issues there which impacted credit, which impacted -- when you impact the credit you don't get the same life insurance impact. So the whole market seemed in that quarter quite a bit drop and we weren't immune to that.
I can guarantee with absolutely certainty the emerging markets. You'll get more of that in some quarter. So I'm not overly concerned about it, you might get a flood or you might get political tension in some emerging markets and so it happens. It doesn't change our position in the market but I see Turkey as an attractive market with very attractive margins, we have a fabulous JV partner and we have a very strong leadership position.
David anything to add?
Yes I think another thing is our position is quite diversified in Turkey. We've got a strong (indiscernible). We've got the biggest direct sales spots in the market and we're also starting to tap some of the other the banche [ph] assets, some of their retail ventures with the likes of (indiscernible). So I think that could mark -- I think 2014 first half really, really quite choppy on the back of credit but certainly the medium to long term outlook for that market is very attractive.
Yes I mean at some stage in the future it won't be this year, but sometime in the future I'd like to get the analysts down to have a look. I think it's a market that has all the characteristics of Asia 15 years ago, and I can prove that with numbers. So I'm a big fan.
And now your second question, sorry I don't know this. I don't know technical questions. I'm going to hand over to John.
So the liquidity premium we'd change that to bring that in line with our European peers and of course as we move into solvency to the volatility adjustment, I will have done this, it's just bringing it all in line apart from having a total impact on our numbers.
Now the last ones on capital, redeploying capital. As I mentioned at the full year, that's just something that we're getting much more active and we've made a lot of improvements. We are making decisions. We saw that in annuities in the first quarter, you saw it in Personal Motor in the UK. We're making decisions but tactically quarter-by-quarter and then more generically through M&A and exits in countries.
What's our capacity to redeploy capital? Well of course -- I see that as part of my and frankly Tom's key job is deploying capital around the Group. Let's be clear, we're not doing that at expense of cash flows of the group or dividends, just to be very clear on that. Investment pieces is cash flow and growth. We can get -- we're going to put the money in the markets where we can get the highest ROE's and look day by day, I had some of the discussion with one of the business cells heads yesterday. Day by day we're having some fairly some rigorous debates on the allocation of capital and some of the cells that are falling below what we believe is reasonable, we're saying well we want you to give us capital back, and we'll reward them for that. And you can give it back in dividends or you can give it back by selling pieces of the business or you can give it back by just stopping and selling new business and we take some of the surplus. So, this is very active as part of our management meetings at the moment.
Not a lot to add to that. Obviously we've got our business leaders making decisions about how their deploying the capital within their business, around different products or that level, that kind of capital allocation is happening all the time and then at a much higher level there are tactical decisions as Mark has indicated. I would say we are growing in Asia. We have the new joint venture in Indonesia, so we are redeploying capital around the Group already. And again, coming in new one of my tasks here is to improve the financial flexibility of the Group so that we have much more opportunity to do that and that's one of my key areas of focus.
And we will now take our next question from Oliver Steel from Deutsche Bank. Please go ahead.
Oliver Steel – Deutsche Bank
I've got two main questions. One is about the change in preparation on the embedded value which has added about 500 million to your embedded value. Can you break down the effect of the three things you've done, which is effectively adding retail fund management in the UK, adding health and also the changes to the liquidity premiums? And also could you tell us to what extent that has actually helped your economic surplus because logically, if you've added 500 million to the EV that is also coming through into the economic surplus?
That's the sort of rather long question one. Question two is on the UK non-life side. You sort of said in your statement that there was a balance between cutting or lifting prices and volume or at least I think that's the impression that's given, that it is a competitive market. How do you see that panning out going forwards?
So just to be clear the changes that we did was just to bring us in line with peers and so we're entirely consistent and on the growth rate comparisons we put them on both just to be absolutely clear. So the growth rate comparisons we put them in last year's and this years, so it's not the case just put them in this years to show growth, we just put them in both. So it's a very fair comparison. I don't think we've broken this down any further, John do you want to?
We haven't broken it for the market but it's a couple of hundred million on the extension of the scope to include the collective business and 300 million on the --
So it helps to be vague and didn't help with BNB's, does that make sense?
Oliver Steel – Deutsche Bank
Yes, no I mean I get the comparatives and the comparatives look good certainly versus my forecast, whichever way we looked at it. I was actually more concerned about the economic capital effect. Has that added 500 million to the economic capital surplus?
No, no it hasn't rolled through into the economic capital numbers at all.
Oliver Steel – Deutsche Bank
Okay. And will it ever or was that in there already?
It wasn't in there and we'll see where Solvency II goes but it's not in our ICA numbers or our economic capital numbers.
I think the answer is a crook that we need to seek what Solvency II with the final text is to see whether it does or not. Now second question, Maurice do you want to take that?
As you know our UK – UK's balance trend doesn't exist over £4 billion and we have a diversified book, we look at it in a sell basis so it's certainly -- the modest (indiscernible) has which has been incredibly competitive, prices in the first quarter are down about 7% and over the last 12 months, depending on which source you use, are down sort of 15 to 20. Now our overall reduction in net written premiums is down, it is in-line with our major peers. I think if you look at our other styles with virtually our home cell, our small medium enterprise, our corporate risk, some of those sells are actually in fact growing. So we do look at the volume and profit tradeoffs. When the market falls as it has so steeply in the Motor market, we get to a point where there's not positive economic margins to be made and we're certainly not going to chase volume.
I think this year we'll look in the medium term, but certainly growing this business is key. We've got a number of strategies and I think we'll discuss that at the upcoming analyst's day.
It's going to be a long day by the sound of it.
And we will now take our next question from Fahad Changazi from Nomura. Please go ahead.
Fahad Changazi – Nomura
Just a question on annuities and your guidance of 100 million drop in UK in VNB, could you just give us your underlying assumptions again on the GAO's et cetera and also in terms of the business you retain on individual annuities, are you assuming constant margin from this point onwards?
And just another question for simple algebra’s sake, in absolute terms, Q1 UK VNB is down 25 million in Q1, 2013, and we haven't had the impact of the budget yet, so times for 100 million, so I'm just thinking all the other comments you made about protection sales and so on, will they be compensating enough so that's why you feel comfortable giving the guidance of 100 million drop? Thank you.
The 100 million, while it account for 100 million and we're not going to break it down because that's -- we're giving indications of what is there in guidance, we're saying that's our best estimate and I think that estimate is built in the models. There is a few reasons for that. BPA's haven't come through and we've got a pretty good idea what's in the pipeline, so BPA's haven't come through in those first numbers, so the budget impact to be clear, the budget impact is only down 21% in terms of volume and that -- since the budget, but it varies between 20% and 30% odd.
So our decline in volumes, it appears to be a bit less than market but I want to be clear, it's way too early to tell and so it's a bit hard to make too many assumptions. I don't know why we're going a bit less than the market, maybe it's because when there's less people going for it they maybe tend to go for the big brands or something. That's the only reason I can possibly think of. We don't think the margin on the individual annuities -- and I'll look over the data, they may want to comment on that, but we don't think the margin in individual annuities is going to change much.
I do think the margin of BPA's will come down and -- but I'd just make the point, the 100 million is because of all the mitigating actions that we know we can take on that so we're just trying to give you an open indication of where we think it will end up and so far we've been proven to be pretty right. David do you want to pass some --
Yes I think really the legal detail with regard to margins and the individual market at the moment is just too early to tell. On BPA that's a market that's growing strongly. We're pretty confident and as Mark said we're building a strong pave way. One of the things of interest is, we’re pretty sure that annuities are some form of guaranteed income products, are going to remain a very popular choice for customers because they removes a lot of uncertainties for them and how that level actually plays out we need to wait and see. We're pretty well placed whichever way it goes though because we've got a range of guaranteed income products there now and we've also launched flexible (indiscernible) products which means that people want to remain invested then we can satisfy that to the platform which is going really well.
So we'll wait and see. I guess if more people turn to the bulk purchase market, maybe there'll be some pressure there, but it's a growing market, and we think we can make good use of it in the small to medium size cases where we've got a very strong franchise.
And just to be clear. Our results in the first quarter it's very easy to blame a budget which is a nice sound bite for the media isn't it, but frankly we don't think that's the case. Ours was a deliberate choice on capacity. So we didn't want the capital or to back it with the investments that we needed for those sort of margins, because the margins had come down. They are going to get worse I don't think it will get much worse on the individual stuff, but that was a deliberate choice.
Now as we have more capacity we can source some of that with BPA's, which I think is really what we're trying to say here.
And as to what happens with the budget, well, you will be able to guess as well as us. We seem to be doing okay.
And we will now take our next question from William Elderkin from Goldman Sachs. Please go ahead.
William Elderkin – Goldman Sachs
Just two follow-ups really, the first one just, can you give us a sense of how we can translate that guidance in terms of UK VNB development, the 100 million, into the impact on IFRS earnings and OCG, or at least what we should be thinking about? And then second just on UK Motor, I just wondered if you had a view as to the likely direction of industry pricing over the next 6 to 12 months?
Okay, yes, we gave the full year results -- straight after -- we gave a bit of an indication on that. It's not major for us, partly because this finance it's very small single digits is what we'll tell you. So I wouldn't read too much into this, it's not a major factor for us, its small single digits. So small I'm talking percent wise, so that's first. On the Motor question?
Yeah all I can really add William, the prices indicate to come down, they're down seven and a quarter, down 15-20, depending on the source over the last to last year and if you look at the industry results as a whole, you'd certainly expect that at some point that's the bottom out and to increase, but at this point I certainly don't want to signal what that may be, but certainly expect at some point that has to be the trend. There are some other potential developments, the Competition Commission, it's containing a look at the Motor products, certainly Aviva supports that effort, we still think there is lots of costs in the system, we would support things like a wider band of referral fees, particularly areas like credit hire. There is discussions around the small claims track, so those would be largely neutral or slightly positive because obviously that would be offset in terms of claims cost.
So that's the only sort of slight red herring without further reform I think at some point we need to expect the Motor result to move up because the overall industry is also on that line.
In fact we have a company view and Maurice is driving this, but we have a company view that you should go to a no faults system here. I think the Motor in the UK I think the motor insurance system is flawed, fundamentally, and because of that you get so many claims, farmers and other intermediaries in that mix and I think it's poor for UK consumers and I think it would be good for the industry to go to a no fault system and therefore it will get the industry into far more balance. But we will be active in pursuing that and we'll see how good our lobbing is.
And we will now take our next question from Andy Hughes from Exane BNP Paribas. Please go ahead.
Andy Hughes – Exane BNP Paribas
I've got three questions if I could. The first one is on non-life insurance again I'm afraid. Had someone who previously commented on his price, how resilient the top line was in UK GI, I probably should ask you for a bit more information when it falls quite a bit. On the UK Motor stuff that you seem to be signaling as a key driver of this, I thought that was only less than 19% of the UK GI business, and I think you were pointing out that you've grown the household business which is actually almost twice as big as the Motor book.
So maybe you could give us some granular to add to that? Which segments are growing and which segments are shrinking, in particular the change from Q4 to Q1? And the comment about returns being forwarded, are you kind of prepared to tolerate a lower return than perhaps your hurdle rates were before because the market won't accept that to maintain expense ratios going forward?
Second question is on Europe and the Life business. Obviously one of the things that the results highlight is the fact that controlling your own distribution for the Life side is very important to the Group because it means you can certainly your life [ph] business, but what does this mean for the strategy? Does this mean that you want to expand the Asian business across Europe and perhaps not expand some of the other existing flagship distribution arrangements you've got? And the third question is on investment business in the UK, particularly the platform business. Obviously 59% growth in UK and Ireland, investment sales, how much is sort of platform related and how much money are you making on that platform because it looks to be very low charge business? Thank you.
So, the first question on the non-life I'll hand over to Maurice.
We'll probably end up reporting an awful lot more detail on that at the upcoming analysts session, but let me give you a little bit of color. You're right in thinking that the Motor business is broadly about 20% of our books. It's certainly been driven down pretty significantly in terms of the rates. For us that particular line is down well into the mid-teens. We've decided not to chase volume there, certainly at some of the levels and some of the tough segments, is actually dilutive and we're not making a positive economic margin.
We're actually holding our own in the home area. Home rates are down very, very low single digit, probably you're seeing a bit of a shift of capital at Home, because one would have expected with all the storms that since October that they would have probably been some inflationary pressure in Home but given the alternative of Motor Home we've seen that come down a little bit. I think the one thing that we have given guidance on previously that has been dilutive in terms of margin and certainly has an accretive in the Commercial Motor. Commercial Motor continues to be a focus. We have tactically by design exited many under-performing sub-segments, such as taxis, and certain fleets and in areas just to give a little bit of color that it is growing and growing quite positively for us and continues to be our large commercial.
So I think at the upcoming analyst's day we'd be happy to give an awful lot more detail on those breakdowns and margins.
Okay and the second question talked about the Life side and I don't think it actually reflects the year but I'd say it's a global -- I'll give you a global answer. Our strategy is very much to be a multi-distribution company and we are already strong in many parts of distribution. We would like to rebalance that more towards own distribution levels and own distribution also includes direct of course and I can say, I'm not going to give numbers today, I will at a later date, but I can tell you our direct distributions bigger than all of you would anticipate. I'll tell you that much.
And own distribution is critical to our future. That doesn't mean we won't do bancassurance deals. We did -- because I want multi-distribution. So, Poland recently for example, we did a bancassurance deal because the majority of our distribution was tied and my view is a very simple one. You don't want to be strategically vulnerable by only having one distribution channel on the country, because if you are and the regulator or government changes are all you get wiped out because it's too risky.
So, multi-distribution but more towards tie-up and around Europe actually we do have a lot of tie-up distribution. We've got a lot in France. I mean a fair is effectively a tie-up distribution model as well. We have a lot in Poland. We do have a lot of tie-up distribution as well but we need to balance it up in some other countries. That's probably it on that question.
Platform business, I will hand over to Dave. Just an introductory comment, there is some business you need to go to make it work, it's about building for the future. Our offering in the Tech Com business is very much to the broker market at the moment and we -- again, I don't really want to preannounce stuff on analyst's calls, but we will be taking a similar consumer, direct to consumer model from what I think is actually turning into a market leading platform in terms of brokers. That's kind of the strategy.
Yes, yes Andy you known the platform as you know it's been operating from a fairly small base over the last couple of years but since the double in the first quarter over what they were last year, total sales and collectives business, as you can imagine we're not making much profit from that. At the moment there we obviously expect to be a good long-term opportunity for us and clearly the budget changes kind of play into that and (indiscernible) as Mark says, we'll get -- if an ISB [ph] platform at the moment, it's highly respected in the marketplace, hence why it's doing so well. If we don't have a DTC [ph] offering at the moment it's very much in our strategy and I think the same point I would say is you know overall the funds are on there, we're only writing about 15% of those funds -- are these investors and we think there's a significant opportunity to increase the proportion of those funds and that's something that Euan and I are both working on. So we think there's a quite – quite optimistic about improving that profitability over the next few years.
Frankly you'd expect a normal mix for that business to be double that level which then helps the investors too. So, as you can see packaging is important.
And we will now take our next question from Greg Patterson from KBW. Please go ahead.
Greg Patterson – KBW
Three questions. One is first quarter, I wonder what you -- if you could tell us what the liquidity premium you used was in the VNB calculation and what it would have been under the old basis? Second question, what would be the cost to diverse if the cap was reduced from 75 to 50? There's a review in 2017 by the Government and the Government wants to reduce the cap, so I wondered if you could quantify the effect?
And thirdly, in terms of your draw down proposition, I was under the impression that you were going to launch some kind of longevity insurance there, I wonder if it would be in the form of a VA rider, like a guarantee with a draw benefit or it would be in the form of say a non-profit deferred annuity?
Okay. So in answer to your question liquidity, no, we're not disclosing that. And second question John?
Yes it would have a bit impact but we’re not disclosing what that impact would be at this point in time.
Yes just to be clear, a lot of -- most of our new stuff is sold at that level anyway, at 50 bps, it's just to be clear, so that -- I don't think that's probably the focus but we haven't disclosed that yet. If that eventually comes then -- but just to be clear, so there's no misunderstanding, evidence of new stuff sold at 50 bps anyway. So, at 50 bps we can make it work.
Greg Patterson – KBW
You’re answering the deferred one, the longevity swap, would it be a VA type rider or deferred annuity?
Yes the -- so the third one, look we've got a whole lot of stuff lined up but I -- frankly I don't want to announce that to an analysts call because (indiscernible) and I don't want to do it to you guys first and as we announce it, we'll give all the details and what the company can do with it and stuff but I don't want to announce them on the call. And then it's a bit like -- I know a few of you are saying we want to see Euan and understand the strategy but I don't want to pre-announce Euan's strategy and he's only been here a few months as well, and at the analyst day I can promise you guys that we will provide much more detail. I'm setting Euan up now of course and David, for his products, so we will provide you much more detail but I'm not going to do it on a Q1 call.
And we will now take our next question from Chris Roberts from Barclays. Please go ahead.
Chris Roberts – Barclays
I have a couple. On the GI business, if we step back from this quarter's results a little bit and we look at what's been happening for the last few years, is this a business that's really going to grow and if so, which countries are going to be driving that? Most of us model out to 2018 and just seems like there's negative pressure on premiums and when -- at what point will that start to turn around?
And secondly if we look at the UK Motor business, I think your major strategy is to -- for this part of the cycle quite clear but could you go into a bit of detail on what your telematics offering is and whether you feel like it's more sophisticated or less than some of your other listed peers and if telematics does really take off in the next of years, are you going to be ahead or behind as a starting point? Thanks guys.
There has been negative pressure, I never look at the market as -- I never look at the globe as one market and obviously if you have a look at our results for example you've seen pressure on rates and things here in the UK. Actually in our other businesses as you’ve seen growth by 5%. So I think it’s dangerous looking at them as one because you're actually seeing some growth.
I think there is a few things that we need to do better. One is packaging the products. Historically we just haven't packed the products. As we get more into a digital world packaging the products makes a big difference and we've seen some quite interesting trends and cross sell, that are helpful as well. So that's helpful. I think there's still going to be pressure on the UK for a while frankly. Some of our other markets less so and the packaging is important now.
Now what that does mean and the group by accounts [ph] we can move capital around as we've been doing, so we're saying the sub-markets on GI, particularly some of the ones in Europe, and Asia and others, saying well actually we want you to grow because the margins are X and we can grow relatively simply and some parts of the UK market we've done that as well.
But other parts like personal motor we're saying look the rates are too soft, we're just not going to chase the rates down, it just doesn't make sense. We're not going to make a negative economic margin. So my answer to that first question is very much mixed, depends on the geography you're talking about but your point is well made in some of the markets.
In terms of where we do have an advantage and again we'll show you this in more detail, we do have an advantage in terms of out predicted analytics. That's clearly worked we can prove that with data, we're bringing that more to the UK now than it's ever been and in particular on fraud prevention and underwriting. We've just launched a major new system, a new -- a whole new system for our commercial business in fact in the last 10 days, called Guidewire, that's been a massive expenditure and a whole lot of work. Reduces our costs in that business, makes our underwriting quicker and better. So there's a lot of stuff happening in there but I'm very conscious that there's no point in me telling you it needs to come through those results. And on that point I'm going to hand right over to Maurice to talk about that and the telematics.
A couple of points Chris. I think if you look at our general insurance business, we’re actually gaining market share in most of the countries that we operate in, so in the European market we've been growing between 5% and 6.5% for the last three years. I think if you look at our peer group in the first quarter our growth is just over 5%, in local currency is actually positive versus our peers. We had decent growth in France and other European operations. So if you come back to the UK, actually that's also broadly in line with our peers that are responsible in terms of managing the process.
And I think if I look forward we definitely have unique advantage in UK, we have an incredible multi-distribution platform, we have the strongest partners in the market, as Mark alluded to we’re bringing -- we're ready, we're good at predictive analytics, we're strengthening that from our Canadian business. We're investing in latest technologies such as Guidewire that just went live and we're also very quickly expanding our digital footprint to actually get true leverage out of the composite. So I actually think the growth for our insurance business is something that we feel quite good about looking forward.
If you think about telematics, we've had a long standing partnership with one of the global leaders, that's being progressive. We were an innovator here in the UK, recently with the albeit rather black box systems, we now have -- we now use something called MyAviva Drive App, we've got hundreds of thousands of installations of that. We've just signed a deal in the Canadian market. I still think that that's probably the future, it hasn't taken off in many jurisdictions around the World but I would -- suffice to say we're poised if and when it does.
Chris Roberts – Barclays
And could you say anything about the take-ups of telematics, let's say to the under 25 drivers or anything like that? Have you got any numbers you could put behind that?
Why don't we take that as something we'll bring forward at the analysts day, actually break it down by the various segments and
I should say for the first time ever in our history a few months ago, we launched in the UK a single view of a customer, so we now look at a customer across all of our businesses and all of our products and I believe we're not, I know that sounds very simple, but we've never done that before. I can tell you the take-up rate of that has exceeded our business case in the first few months. So the cross sell value to start with has been pretty helpful. The take-up rate I can tell you the cross sell rate won't give you the actual numbers, but I'll tell you the percentage is 300% up what it was before. Just to give you a sense of the early stages, it appears to have a far better business case than we had anticipated.
And we will now take a follow-up question from Andy Hughes from Exane BNP Paribas. Please go ahead.
Andy Hughes – Exane BNP Paribas
It's a follow-up on UK GI again I'm afraid. It's about the current answer to the previous question where I asked about the outlook for the UK GI. I'm just trying to think if -- obviously you mentioned that some areas including the large commercial can grow, obviously a couple of years ago when David Hall joined the group I raised a note saying Aviva's going to grow its large commercial business, it's going to achieve a 95% combined share and you said that in a trade press, he recently left the Group, but what's really changed and can you outline why the figures, large commercial growth, didn't really work? I guess what I'm trying to do, is get a view as to where we're going to be in terms of the GI revenue at the end of the year because it kind of feels like a 7% decline we're seeing year-on-year albeit largely happening in Q1, makes it below in Q2 and then remains to be some sort of recovery towards the end of the year, but overall with a sort of 7% decline for the year in premiums. Does that sound unrealistic?
There are several questions which I'll take. There seems to be a lot of focus on UK today, last time I looked around the UK, we weren't a UK Group which I think we’re one of a UK-based Group, just to be clear, and I think that shows through in the results and the growth rates you're seeing across the overall group.
Particularly on -- I will talk first on the CSR and the results of the CSR we haven't disclosed that separately, so the results from the CSR are quite good. That was a while, and when you are leaving you change the group and you change what you want some people fit and some people don't or I'll say that much. But that shouldn't be a reflection on the results because the results in that area actually were quite acceptable.
Yes I think, your characterization of what will happen in the UK results in terms of GI are probably right. I think you'll see it -- you won't see a lot of growth in the first half and I think we'll see that hook up in the second half. That's our plan and we're working towards that. Our packaging and starting to see some results out of that, but I think that would be a pretty good characterization what you said. CSR, we are planning -- CSR is a big name for what it is frankly, I'll call it sort of corporate large commercials/corporate business rather than CSR and those results are actually going quite well. It's near, we've grown, and as a result that the area with the loss results are actually a bit ahead of plan for what we thought it would be. Does that think answer them?
Andy Hughes – Exane BNP Paribas
Thank you very much. Roughly how big is the CSR in the UK?
It's a £600 million give or take. We can get you the exact figures later, but it's about £600 million give or take.
Thank you. We will now take up a follow-up question from Andrew Crean from Autonomous. Please go ahead.
Andrew Crean – Autonomous
A slightly pedantic question but the operating cash generation of 0.4 billion obviously rounding to 1 billion, can hide a lot of sins. It could mean that operation cash generation was down 22% or it could be up 28%, depending on the rounding’s, could you actually guide and give us a bit more detail as to what was operating cash generation? Was it up or down and materially either way?
Andrew I definitely will give you more detail, but it will be at the half year. But I can -- what I can say is the -- you can look at the underlying numbers and actually I haven't given you expenses either but as I said we've made more progress there. We are confident of our cash flow plans. I'll tell you that much. I'll just leave it at that. I mean obviously in OCG I think the only thing that's -- there's some areas thankfully we're ahead of where we thought we'd be on OCG, but the only negative really in OCG at the moment is the Canadian weather thankfully, and if you can predict that I should talk to you later because I'll get you to insure some for me but the Canadian weather, the only negative impact on OCG we have and there's a number of upsides. I'll tell you that much if that helps you and gives you a bit of comfort.
Yes there's currently no further questions over the audio.
Okay thanks everyone. Thank you for joining us. I guess I'll repeat my previous comments. Despite the turmoil politically and regulations and weather, I think this has been one of our quarters with the fewest surprises on results, which is I think somewhat refreshing. So on that note thank you for joining us.
Thank you. That will conclude today’s conference call. Thank you for your participation ladies and gentlemen. You may now disconnect.
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