Aviva CEO says turnaround to continue as profits rise

* Final dividend 9.4 pence, full-year payout 15 pence/share

* CEO sees more business disposals in coming year

By Chris Vellacott

LONDON, March 6 (Reuters) - British insurer Aviva (Berlin: GU8.BE - news) unveiled a forecast-beating 6 percent rise in operating profit on Thursday, one year into a turnaround drive that has seen 2,000 lay-offs and sales of underperforming businesses.

Operating expenses were down 7 percent and cost saving targets for the year were ahead of plan, Aviva (Other OTC: AIVAF - news) said in an earnings statement on Thursday, although it noted a 60 million pound hit from flood losses in Britain during the first two months of 2014.

Investors cheered the performance and Aviva's shares jumped more than 8 percent, making it the top gainer on the blue-chip FTSE 100 index.

Chief Executive Mark Wilson acknowledged progress since he joined at the start of 2013 with a remit to revive Aviva's fortunes after a shareholder rebellion that led to the departure of his predecessor.

He said top performing staff could expect bonuses to be reinstated a year after they were cut and senior employees saw pay frozen in a move to appease shareholders after half of them had voted against remuneration proposals.

"We'll pay for performance... We will be paying bonuses for this year and I think the shareholders will be quite OK with that scenario," Wilson (Oslo: WILS.OL - news) said.

He cautioned, however, that he still saw room for improvement, particularly at divisions such as fund management arm Aviva Investors which saw 5 billion pounds of net outflows during 2013.

The division has a new boss, Euan Munro, who joined from rival Standard Life (LSE: SL.L - news) at the start of the year and has a remit to boost its contribution to group operating profit.

"Have we made progress? Yes, some. Is it a little faster than anticipated? Probably. Have we unlocked the full potential at Aviva? Not yet," said Wilson.

His year at the helm has seen tumultuous change, with a management shake-out and disposals of non-core assets in the United States, Spain, Malaysia, the Netherlands and Italy.

More disposals will come in the year ahead, Wilson added.

"We've still got some more disposals to do. We're making some reasonable progress. None of these are big profit reducers.

The amount of cash remitted to the group by subsidiaries - a key strategic focus for Wilson since he took over - rose 40 percent during the year to 1.27 billion pounds.

Analysts at Bernstein Research noted investors would now need to be impressed by proposed "next steps" in the turnaround.

"Aviva's longer-term structural rehabilitation will be challenging. However, we are willing to be convinced otherwise," said Bernstein in a note to clients. The brokerage has a "market perform" rating on Aviva shares.