All That Investors Need To Know About Suncorp Group’s Half-Year Financial Report

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.Â

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.

Disclaimer

This website is a service of Kalkine Media Pty. Ltd. A.C.N. 629 651 672. The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine Media does not in any way endorse or recommend individuals, products or services that may be discussed on this site. Our publications are NOT a solicitation or recommendation to buy, sell or hold. We are neither licensed nor qualified to provide investment advice.