Financial services & solutions provider, Suncorp Group Limited (ASX: SUN) has published its financial results for the half year ending 31 December 2018.
The company reported net profit after tax of $250m, (down by 44.7% from $452m in 1H18) which includes a $145m write-down of goodwill on the sale of Australian Life. Profit after tax from ongoing functions declined 11.0%, impacted by $220m in natural hazard costs above allowance, a $140m negative impact on the prior corresponding period (PCP) from investment market movements and unanticipated regulatory project costs, $10m.
Adjusting for these external factors Cash ROE was 9.7%. Insurance (Australia) profit after tax declined by 43.2% to $133m due to the impact of natural hazards costs above allowance and investment market movements. Net reserve releases of $172m, $47m above PCP and the long-run expectation of 1.5% net earned a premium. It also included doubling of regulatory project costs to $39m which for Prior period included $36m accelerated investment in strategic programs.
The cash earnings were $413m, down 12.5% from $472m in 1H18. The fully franked ordinary dividend was 26 cps with Total pay-out ratio of 81.4%. Group underlying insurance trading ratio was 12.2 %, up from 9.4% in 1H18. BIP net benefits stood at $95m. Group top-line growth of 3.2% was driven by solid gross written premium (GWP) growth in Australia, steady growth across all New Zealand portfolios and 2.4% growth in Bank lending assets.
Insurance (Australia) Net profit after tax stood at $133m, down 43.2% from 1H18. The Home and Motor portfolios achieved GWP growth of 3.0%, with increases in average written premium more than offsetting a reduction in units. Total investment income was $122m, representing an annualised return of 2.0% for the half year. The Australian Life Business was held for sale after-tax profit of $23m, down 45.2%, which reflects reduced experience profits, partially offset by one-off adjustments in the Wealth business.
Banking & Wealth Net profit after tax stood at $183m, down 1.1% from 1H18. Home lending grew 2.2% within a competitive and slowing mortgage market. Business lending grew 4.3%, reflecting growth in commercial lending and a reduction in the agribusiness portfolio.
SUN’s New Zealand business Net profit after tax stood at $111m, an increase of 82.0% from 1H18. Reported insurance margins improved with an ITR of 20.6%, up from 12.4% in 1H18. GWP grew by 9.2% to A$768m, driven by premium increases across all portfolios and supported by unit growth. New Zealand Life in-force premium grew 4%, supported by strong policy retention. New Zealand’s life insurance Profit after tax was $17m, with underlying profit increasing 14.3% driven by continued growth of in-force premium and underlying investment performance. Planned margins were $17m, up 6.3% on the PCP driven by in-force growth.
Group’s total operating expenses (excluding FSL) were $1.3bn, down 2.4%. In 1H18, the investment in BIP drove an increase in operating expenses of $32m. In 1H19, BIP delivered a net operating expense benefit of $38m for the half, driving a total improvement in Group operating expenses of $70m. These benefits were partly offset by an increase in regulatory spend from $21m to $39m, a $19m increase in commission expenses, primarily driven by strong top-line growth in New Zealand. Following changes to the NSW FSL scheme in 1H18 the fire service levies (FSL) increased by 37.1% to $85m.
On the capital position front (as at 31 December 2018), the Group issued $600m of subordinated debt through SUN as part of its capital management strategy, which was fully deployed to the Bank as Basel III-compliant Tier 2 capital.
SUN intends to pay 12-month dividends based on a target payout ratio of 60%-80% of the cash earnings. The Group’s profit results and strong balance sheet position for the half year has led to a fully franked ordinary dividend of 26 cents per share, which equates to a pay-out above the target range at 81.4% of cash earnings. The Group intends to acquire existing shares to satisfy the Dividend Reinvestment Plan for the interim dividend. The interim ordinary dividend will be paid on 2 April 2019. The ex-dividend date is 20 February 2019.
By the end of the trading session (as at 14 February 2019) the share price of the company stood at A$12.980, down by 3.781% or 0.510 points.
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