suncorp reports record 1 billion dollar profit

SUNCORP POSTS RECORD $1.064 BILLION NPAT,
PROMINA INTEGRATION “ON TRACK”
KEY POINTS
• 16.2% increase in net profit after tax to a record $1.064 billion (includes 15
weeks’ contribution from Promina).
• Bank profit contribution before tax up 12.5% to $569 million.
• General insurance full year profit before tax of $835 million with all insurance
brands performing strongly.
• Building scale in wealth management with profit before tax of $229 million.
• Promina integration “on track” with the Group’s new business model and senior
management appointments confirmed, $55 million annualised synergies locked
in.
• Final ordinary dividend payment of 55 cents per share, fully franked.
Diversified financial services group Suncorp today reported a record net profit after
tax (NPAT) of $1.064 billion for the full year to 30 June 2007 and confirmed the
Promina integration was progressing well with the merged Group’s new business
model and senior management appointments finalised, and $55 million in annualised
synergies locked in.
The consolidated result included a contribution from Promina for the period 21 March
to 30 June 2007. On a standalone basis, Suncorp’s underlying profit increased by
10.3% to $1.149 billion.
Highlights of the result included:
• Bank profit contribution before tax increased by 12.5% in line with guidance,
featuring strong lending growth and continuing robust credit quality.
• General insurance full year profit before tax (including Promina result) of $835
million despite the Queen’s Birthday weekend storms in New South Wales
which cost the Group $160 million net of reinsurance recoveries. Removing
the Promina contribution, Suncorp’s general insurance business delivered an
insurance trading ratio of 19.6%, ahead of the 16 - 19% guidance.
• Promina’s general insurance business maintained its enviable growth profile,
with overall gross written premium up by 4.3%. Growth was particularly
strong in the highly competitive home and motor classes.
• Wealth management profit before tax increase (including Promina result) of
$229 million. On a standalone basis, Suncorp’s wealth portfolio performed
particularly well, increasing its contribution after tax by 28.2%.
Suncorp Chairman John Story said the strong result across the broad portfolio of
businesses was further confirmation of the strategic rationale underpinning the
merger with Promina.
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“This result highlights the complementary nature of the Suncorp and Promina
businesses, as well as the huge opportunities available to us by successfully
integrating them,” Mr Story said
“We have demonstrated our ability to remain focused on maintaining business
momentum throughout the commencement of the integration process and are
committed to ensuring this transition is as seamless as possible for our shareholders,
customers and employees.”
“Our operating performance for the 2007 financial year means that we are able to
pay an ordinary final dividend of 55 cents per share. This takes the full year ordinary
dividend to 107 cents per share, an increase of 10.3% on the previous financial
year,” he said.
“In addition, the entitlement offer used to partially fund the merger benefited our
shareholders by giving them the opportunity to share in the growth available to the
merged group at an attractive discount to the market value of Suncorp shares or to
cash out their entitlements.”
John Mulcahy, Suncorp’s chief executive, said the company had performed well
despite continued intense competition across the financial services sector.
“The 2007 financial year was particularly eventful for Suncorp given the successful
completion of the Promina merger, one of Australia’s largest ever financial services
transactions; post-merger integration activity; and severe storms in New South Wales
and Victoria that impacted the enlarged insurance group,” Mr Mulcahy said.
“In this challenging environment, during which competition in the financial services
sector continued to intensify, Suncorp’s businesses maintained their momentum by
focusing on fundamentals around credit and risk, leaving us in a very good position to
compete across our business lines.”
Mr Mulcahy said the integration of Promina’s businesses was on track with the
Group’s new business model and senior management appointments finalised.
“Since the day we started planning the Promina transaction, Suncorp has been
methodical in identifying all of the necessary milestones and challenges, and
disciplined in the way we have worked to achieve them,” he said.
“We are taking the same approach to integration and have achieved all of our internal
milestones to date. Since the transaction was completed in March, we have
appointed the group executive team, finalised the Group’s new business model,
vision and purpose and already locked in $55 million in annualised synergies.
“The group executive team has appointed their direct reports and the business units
are progressing numerous initiatives that will capture additional synergy benefits as
part of the design phase of integration,” Mr Mulcahy said.
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“At the conclusion of the design phase, we are confident that we will have built an
organisation that combines the best of the former Suncorp and Promina businesses
and which will deliver significant benefits to shareholders, customers and
employees.”
The merged group achieved $105 million of immediate diversification benefits
following a review of outstanding claims liabilities, which has offset the cost of
aligning risk margins to achieve a uniform level of sufficiency of approximately 94%.
“Our decision to increase the level of sufficiency of the former Promina businesses is
a conservative but prudent approach to take following a major transaction,” Mr
Mulcahy said.
Outlook
Mr Mulcahy said it is likely the Reserve Bank will continue to use monetary policy to
address inflationary pressures and he would expect this to have a moderating impact
on credit formation, particularly in the retail mortgage market. He also said that,
while Suncorp had no direct exposure to the sub-prime mortgage market in the
United States, the secondary impact of tightening liquidity and widening credit
spreads could impact credit markets in Australia.
“Suncorp is well positioned to manage through these scenarios effectively and we
continue to have confidence in the long term direction of the equity markets,” he said.
Mr Mulcahy forecast banking profit before tax and bad debts would increase by
approximately 10% for the year, assuming there were no major changes in market
conditions.
Mr Mulcahy restated the guidance for both the Suncorp (ITR 16% to 19%, excluding
major weather events) and Promina (ITR 10+%, excluding major weather events)
general insurance businesses. This would result in an ITR for the merged group in
the range of 13% to 16%, excluding any major weather event.
He also said underlying profit in wealth management, which excludes investment
returns on shareholder funds, was expected to grow by greater than 10%.
Mr Mulcahy said a review of the Group’s capital structures was being undertaken
following the merger with Promina in order to optimise its capital potential.
“Following consultation with rating agencies, we expect the Group will be well placed
to consider its capital management options by the end of June 2008.”
ENDS
For more information, analysts/investors should contact:
Karen Cush - 0404 881 517
Media enquiries should be directed to:
Jamin Smith – 0409 170 035
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