Suncorp Undersells Results

Suncorp (SUN) can be its own worst enemy – yesterday’s news releases about the result spun the wrong points – the 100% payout wasn’t the big news, nor was the multitude of profits reported – it was that the company had withstood a pretty savage whack from natural disasters in 2014-15 and had lived to tell the tale.

On top of that it also performed well in banking, as well as in its previously troubled life business (which seems to be back on track) and had improved returns from its operations in New Zealand.

And while the company did point out in yesterday’s statement that it had withstood the impact of more than a billion dollars from the chain of natural disasters, especially from last November onwards in its insurance business, the resilience of that division and the company as a whole was underplayed.

Suncorp also fixed up the reinsurance problems that the chain of claims from those disasters had caused – there was a small cost, but the company says the situation had been fixed and reinsurance is in place for the current year.

Suncorp had to pay out for some big natural disasters (storms, floods and fires) in its insurance business (AAMI, GIO, Suncorp, APIA and Shannons). In fact the company said the net impact of natural hazard events of $1,068 billion was the worst ever for the company – bigger than in 2010-11 with the Brisbane and Queensland floods and a couple of cyclones and flooding in Victoria.

Naturally that battered the earnings in the insurance business which reported net profit after tax of $756 million, down from $1.010 billion in 2013-14. The group’s regional banking operation, Metway, which had been a blackhole after the GFC, is now fit and healthy.

Bank net profit after tax rose more than 50% to $354 million from $228 million, while the bank’s net interest margin of 1.85%, was up on 2013-14’s 1.72% (despite two interest rate falls during the year).

Suncorp Life earned a net after tax profit of $125 million (up from 2013-14’s $92 million) “with an underlying NPAT of $113 million (FY14: $84 million) due to positive claims and lapse experience,” according to Suncorp.

And the Suncorp New Zealand Operations, across General and Life Insurance, reported an after tax contribution of $A175 million, up sharply from the $A110 million earned in 2013-14.

Suncorp didn’t help itself by reporting confusing profit figures: “Group net profit after tax (NPAT) of $1,133 million (FY14: $730 million),” one line said, while another said, “Profit after tax from business lines of $1,235 million (FY14: $1,330 million)".

The company said the result for the year has left it with $152 million in excess franking credits and $570 million in capital “above its operating targets”. Much of that is in the insurance business and the company says it will continue to return surplus capital to shareholders wherever it can, as it has done for the past three years with special dividends of 30, 40 and 12 cents a share.

"Simplification initiatives have delivered $225 million in cost savings in the 2015 financial year and this will increase to $265 million in the 2016 financial year,“ Suncorp said yesterday, holding out the prospect of earnings again being helped by cost reductions and savings in restructuring the businesses.

"Building on the successful Building Blocks and Simplification programs, a further $170 million of efficiency benefits will be delivered in the 2018 financial year under the Optimisation program. The Group will invest $75 million for the Optimisation program of work to deliver these efficiency benefits,“ Suncorp promised.

Directors said it would target an ordinary dividend payout ratio of 60% to 80% of cash earnings, before any capital returns or special dividend payments.

No forecast about earnings growth, lending, etc was made yesterday and will come at the AGM in September.

And if anyone noticed, Suncorp reported more than two weeks early because of changes to its business systems and will hold its AGM earlier than in previous years and pay the final and special dividends to shareholders a lot more quickly as a result.

The shares rose 1.5% to $14.55.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

View more articles by Glenn Dyer →