Suncorp Group Limited · ASX:SUN
Suncorp — Suncorp-Metway — FY2006 Earnings Presentation
60 slides from Suncorp's earnings presentation, Sep 1, 2006
Slide 1: Suncorp-Metway Ltd 2006 Annual Results
Suncorp-Metway Ltd 2006 Annual Results 1 September 2006 . 1
Slide 2: Agenda
Agenda • Introduction & Overview - CEO John Mulcahy • Divisional performance - CFO Chris Skilton – Banking – General Insurance – Wealth Management • Capital Management - CFO Chris Skilton • Strategy update and summary - CEO John Mulcahy • Outlook - CEO John Mulcahy • Questions 2 The agenda today wil
Slide 3: Overview
Overview Disciplined approach: • Credit quality not Challenging compromised external environment • Unacceptable risk not taken on Driving for • Required returns on profitable capital growth • Sensible management of costs 3 Most of you will have had an opportunity to see the results already this morn
Slide 4: Strategic context
Strategic context Customer Focused Profitable Market Optimised Growth Distribution The most desirable Financial Services Company Group Synergies High Performing Team Execution Excellence 4 Indeed, achieving profitable growth is at the very heart of our strategy. Many of you will be familiar with our
Slide 5: Group profit
Group profit Full-year, $m Underlying** profit NPAT +10.1% +3.9% 916 1,042 882 946 FY05* FY06 FY05* FY06 * Historical comparatives have been updated to reflect AIFRS, excluding adjustments which are subject to transitional arrangements **Underlying profit : operating profit before tax, investment in
Slide 6: Banking overview
Banking overview Profit before tax, full-year, $m 11.5% 506 454 • Focus on sensible pricing and cost / credit discipline • Lending growth improved throughout the second half • Retail deposits outperform system • Improved cost to income • Asset quality remains sound FY05* FY06 * Historical comparativ
Slide 7: General Insurance overview
General Insurance overview Profit before tax, full-year, $m 4.7% 691 660 • Uplift in risks in force • GWP growth 2.7% (3.9% excluding CTP) • Increase in price-based competition • Continued focus on price and risk discipline • Material releases from long tail classes reflect conservative provisioning
Slide 8: Wealth Management overview
Wealth Management overview Underlying profit, full-year, $m 17.4% 54 • Strong sales momentum 46 • Strong increase in value of new business • Increase in funds under administration FY05* FY06 * Estimated unaudited comparatives, fully restated under AIFRS 8 And finally, Wealth Management has contribut
Slide 9: Group profit: efficiency, ROE, EPS
Group profit Full-year Group efficiency ratio Return on equity (cash) Earnings per share 26.2% 166.6 cents 24.2% 21.4% 21.0% 160.4 cents FY05* FY06 FY05* FY06 FY05* FY06 * Historical comparatives have been updated to reflect AIFRS, excluding adjustments which are subject to transitional arrangements
Slide 10: Dividend
Dividend Dividend (full-year, cents/share) +11.5% 97 FY06 vs 87 FY05 Full-Year 70 50 45 56 June 40 half 30 75 Dec 47 half 42 26 30 FY03 FY04 FY05 Special FY06 10 The Board’s continued confidence in the underlying performance of our business has allowed us to declare a final, fully franked ordinary d
Slide 11: Key points
Key points • Competition increasing • Disciplined and measured response • Fundamentals not compromised • Volumes building 11 So, before I hand over to Chris let me particularly emphasise a few key points. The first is that competition has stepped up - we all know that. The second is that we have res
Slide 12: Agenda
Agenda • Introduction & Overview - CEO John Mulcahy • Divisional performance - CFO Chris Skilton – Banking – General Insurance – Wealth Management • Capital Management - CFO Chris Skilton • Strategy update and summary - CEO John Mulcahy • Outlook - CEO John Mulcahy • Questions 12 Let me pick up on s
Slide 13: Banking profit
Banking profit Full-year, $m Jun 05 * Jun 06 ê% Net Interest Income 786 848 + 7.9 Non Interest Income 148 149 0.7 Total Income 934 997 +6.7 Operating Expenses (452) (460) 1.8 Profit before Tax and Bad Debts 482 537 +11.4 Bad Debts (28) (31) 10.7 Contribution before Tax 454 506 + 11.5 AIFRS impact *
Slide 14: Lending performance
Lending performance Bank lending assets (half-year, $b) 38.8 36.5 34.9 32.6 30.3 27.7 17.2 16.1 Other 15.3 14.4 12.2 11.3 Business 20.8 19.6 18.9 17.6 17.2 Housing* 15.5 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 *Includes securitised assets 14 So, first to lending and you can see from this high leve
Slide 15: Lending performance: home lending monthly growth
Lending performance Home lending monthly growth, % 1.49 1.14 0.99 System (APRA) 0.84 0.83 0.84 0.76 System 0.68 (RBA) 0.65 0.53 0.47 0.47 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 15 Let me start with the Home portfolio and this slide graphs our monthly lend
Slide 16: Home lending performance
Home lending performance Receivables by state, full-year, $b Receivables by channel (including securitisation) (including securitisation) +10.5% 4.1% 13,212 LJH 11,952 35.6% Indirect +10.1% 60.3% 3,873 3,518 +4.2% Direct 2,324 2,421 +21.8% 1,071 1,304 Jun-05 Jun-06 Jun-05 Jun-06 Jun-05 Jun-06 Jun-05
Slide 17: Business lending performance
Business lending performance Receivables growth by segment, full-year, % +14.3% +8.2% +11.8% +2.4% +6.1% +48.7% Jun-05 Jun-06 Jun-05 Jun-06 Jun-05 Jun-06 Jun-05 Jun-06 Jun-05 Jun-06 Jun-05 Jun-06 Commercial Corporate Lease Fin Agribusiness Devel Fin Prop Invest 17 (SME) To Business lending now and g
Slide 18: Lending snapshot
Lending snapshot • Volumes building through 2nd half • Home lending exiting year at system • Business portfolio varies by segment but overall strong finish to 2005/06 • Good pipeline for Q1 2006/07 • Well diversified and secured book 18 So, the lending snapshot is: • Lending volumes building through
Slide 19: Deposits performance
Deposits performance Retail deposits year on year growth, % Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Suncorp System (APRA) 19 Turning now to funding and the slide shows retail funding compared to APRA system growth rates. Core retail deposits, net of Treasu
Slide 20: Net interest margin
Net interest margin Net interest margin, % 0.01 (0.08) 2.17 (0.04) 0.03 2.09 June 2005* Asset mix Funding mix Pricing Free capital June 2006 * Historical comparatives have been updated to reflect AIFRS, excluding adjustments which are subject to transitional arrangements 20 If we now turn to interes
Slide 21: Fee income
Fee income Half-year, $m Fee Income 6mths to: Dec04* Jun05* Dec05 Jun06 Other Fee ‘Like on Like’ 58 58 65 64 +11.2% Income FY06 vs FY05 Lending Establishment Fee adjustments - Revenue 21 18 - - - Expense (12) (14) - - Interest Net Banking Income Fee Income 67 62 65 64 (AIFRS) Dec04* Jun05* Dec05 Jun
Slide 22: Total income growth
Total income growth Half-year, $m FY 06 vs FY05 6.7% 495 502 459 475 Total 73 76 +0.7% Non 72 76 Interest Income Net 426 403 422 + 7.9% Interest 383 Income Dec-04* Jun-05 * Dec-05 Jun-06 * Historical comparatives have been updated to reflect AIFRS, excluding adjustments which are subject to transiti
Slide 23: Bank efficiency
Bank efficiency Bank efficiency ratios, full-year, % 1.17% Cost to assets 1.07% FY06 vs FY05: Total income 6.7% 48.4% 46.1% Operating expenses 1.8% Jun-05 * Jun-06 Banking cost to income ratio * Historical comparatives have been updated to reflect AIFRS, excluding adjustments which are subject to tr
Slide 24: Credit quality
Credit quality Half-year, $m Gross impaired assets, % of gross loans 0.90% 0.67% 0.75% 0.61% 0.55% 0.61% 0.46% 0.28% 0.31% 0.26% 0.20% 0.21% 0.20% Gross impaired 169 162 146 assets 130 124 126 116 114 99 78 68 69 62 Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05
Slide 25: Credit quality: past 90 days
Credit quality Half-year, $m 1.70% Gross non-performing 1.48% loans, % of gross loans 318 1.17% 1.12% 1.00% 1.01% 286 0.73% Past 90 0.48% 0.50% 0.51% 0.60% 253 0.42% 0.37% days 242 149 230 232 228 156 91 96 187 185 174 104 94 133 71 133 71 129 121 105 Gross 55 67 53 impaired 169 162 146 assets 130 1
Slide 26: Specific provisions
Specific provisions Specific provision balance, $m 21 21 • Conservative LVRs 18 • Loan book well secured 17 • Specific provision remains unchanged Dec-04 * Jun-05 * Dec-05 Jun-06 * Historical comparatives have been updated to reflect AIFRS, excluding adjustments which are subject to transitional arr
Slide 27: Credit quality - BDD
Credit quality - BDD Charge for bad & doubtful debts, half-year, $m BDD charge, % of RWA (bps) 12.81 12.15 11.27 AIFRS impact 7.73 24 24 5.85 6.01 23 4.09 • Collective Provision replaces General Provision 18 14 16 • Change in calculation 15 15 17 6 • Increased volatility 10 10 16 6 12 10 9 6 Specifi
Slide 28: Banking summary
Banking summary • Strong bottom line result • Improved home lending volumes • Tight control of costs • Robust credit quality 28 So, that’s the Bank story: A strong bottom line result with… • a very solid total revenue outcome • improving momentum in volumes in the last quarter • tight control of cos
Slide 29: General Insurance profit
General Insurance profit Full-year, $m Jun 05* Jun 06 ê% Gross Written Premium 2,542 2,611 + 2.7 Net Earned Premium 2,420 2,456 + 1.5 Net Incurred Claims (1,710) (1,709) (0.1) Operating Expenses (521) (583) + 11.9 Investment Income – Technical Provisions 244 310 27.0 Insurance Trading Result 433 474
Slide 30: General Insurance profit growth
General Insurance profit growth Profit before tax & funding costs (full-year, $m) +6.1% Excluding discount rate adjustment 728 686 y.o.y 51 53 Man Scheme / JV / Prop Sale Inv Income SHF 203 Insurance Trading Result 484 200 ITR margin 39 11 252 474 315 433 124 19.3% 209 17.9% 14.4% 113 10.4% 6.3% FY0
Slide 31: Premium revenue growth by product
Premium revenue growth by product Total growth Gross written premium (full-year, $m) FY06 vs FY05 2.7% +3.9% (excl. 2,542 2,611 CTP) 2,430 Total 2,262 753 5.2% 716 663 Motor 641 464 514 548 6.6% Home 431 698 754 771 2.3% Commercial 642 CTP 519 580 540 (1.9)% 530 Other FY03 ** FY04 ** FY05 * FY06 * H
Slide 32: General Insurance ratios
General Insurance ratios* Full-year, % Excluding discount rate adjustment Combined 98.3 96.2 92.2 93.3 Loss 76.8 74.2 69.6 70.7 Acquisition 11.5 12.2 12.7 14.3 Expense Opex 10 9.8 8.8 9.4 FY03 ** FY04** FY05 * FY06 * Historical comparatives have been updated to reflect AIFRS, excluding adjustments w
Slide 33: Claims expense
Claims expense Net incurred claims (half-year, $m) Excluding discount rate adjustment Loss ratio 71.4% 72.1% Full year 69.9% Loss ratio 67.0% 69.6% (down 1.6%) 870 888 840 821 Dec-04* Jun-05 * Dec-05 Jun-06 * Historical comparatives have been updated to reflect AIFRS, excluding adjustments which are
Slide 34: Short tail ITR
Short tail ITR Insurance Trading Result, % 12.6% 9.3% 5.9% 1H 2006 2H 2006 FY 2006 (ex Larry) (ex Larry) 34 So to short tail first and storm activity had a significant impact, most particularly in the second half, due to Cyclone Larry which cost $80 million net of re-insurance recoveries. Excluding
Slide 35: Long tail claims expense
Long tail claims expense Not drawn to scale, indicative only Half-year Base claims Current accident Risk margin Central estimate Reported claims Expense period strain strain release Expense 35 Let me now address claims expense in long tail classes which is also the most challenging part of the prese
Slide 36: ITR adjustment
ITR adjustment $m $m Insurance Trading Result 474 Releases at central estimate (337) Add back superimposed inflation (assumed to be sustainable) 82 (255) 219 Add strains on current year profits Net risk margin strain 53 Current accident period strain 80 133 ITR excluding strains 352 Add back Cyclone
Slide 37: ITR adjustment
ITR adjustment $m $m Insurance Trading Result 474 Releases at central estimate (337) Add back superimposed inflation (assumed to be sustainable) 82 (255) 219 Add strains on current year profits Net risk margin strain 53 Current accident period strain 80 133 ITR excluding strains 352 Add back Cyclone
Slide 38: General Insurance summary
General Insurance summary • Strong and profitable business • Long tail classes benefit from favourable claims experience • Strong improvement in short tail ITR • Further upside from claims cost reduction project 38 So, in summary for GI, we have: • a strong and profitable business • benefiting from
Slide 39: Wealth Management profit
Wealth Management profit Reconciliation of underlying profit to contribution to profit before tax Full-year, $m Jun 05* Jun 06 ê% Contribution to profit before tax 98 81 (17.3) Less investment earnings: Life Company (29) (23) (20.7) Funds Management (6) (6) - (35) (29) (17.1) One-off items (17) 2 (1
Slide 40: Sales growth
Sales growth New business sales (full-year, $m) +19% 782 FY06 vs 658 FYo5 601 543 FY03 FY04 FY05 FY06 40 New business sales were up strongly by 18.8%, to $782 million for the year, largely driven by strong Suncorp branded super and investment product sales. Collectively, sales of these products grew
Slide 41: Value of new business & EV
Value of new business & EV Full-year, $m Value of New Business Embedded value of Life Company 576 492 29.5 439 347 16.0 16.6 14.4 FY03 FY04 FY05 FY06 FY03 FY04 FY05 FY06 41 On the left of this slide you can see the strong improvement in the value of new business, which was up 78% to $29.5 million, c
Slide 42: Agenda
Agenda • Introduction & Overview - CEO John Mulcahy • Divisional performance - CFO Chris Skilton – Banking – General Insurance – Wealth Management • Capital Management - CFO Chris Skilton • Strategy update and summary - CEO John Mulcahy • Outlook - CEO John Mulcahy • Questions 42 Let me now turn to
Slide 43: Capital position
Capital position Half-year 30 Jun 31 Dec 30 Jun 1 July 06 Surplus Target 2005* 2005 2006 Adjusted $m General Insurance 1.88x 1.69x 1.79x 1.79x 1.6x MCR coverage Bank Capital 11.51% 10.79% 12.31% 11.90% 10%-10.5% 373 Adequacy ratio Bank ACE 6.85% 5.44% 6.07% 5.59% 4.5%-5% 155 Franking credits 366 Str
Slide 44: APRA adoption of AIFRS
APRA adoption of AIFRS Effective 1 July 2006 Treatment Impact on CAR • Part eligibility of Collective Provision - 29 bps for inclusion in "General Reserve for Credit Losses" • Software assets (intangible asset) - 24 bps deducted from Tier 1 capital • Other impacts + 12 bps _____________________ Expe
Slide 45: Capital position
Capital position Half-year 30 Jun 31 Dec 30 Jun 1 July 06 Surplus Target 2005* 2005 2006 Adjusted $m General Insurance 1.88x 1.69x 1.79x 1.79x 1.6x MCR coverage Bank Capital 11.51% 10.79% 12.31% 11.90% 10%-10.5% 373 Adequacy ratio Bank ACE 6.85% 5.44% 6.07% 5.59% 4.5%-5% 155 Franking credits 366 Str
Slide 46: Capital management activities 2006/07
Capital management activities 2006/07 • Reset of $250m preference shares (2001) to current market rate • $100-150m lower Tier 2 issue by General Insurer (estimated completion Sept 06) • Capital distribution (Dec 06 quarter) • $250-300m Tier 1 instrument (Dec 06 quarter) 46 Moving now to the capital
Slide 47: Agenda
Agenda • Introduction & Overview - CEO John Mulcahy • Divisional performance - CFO Chris Skilton – Banking – General Insurance – Wealth Management • Capital Management - CFO Chris Skilton • Strategy update and summary - CEO John Mulcahy • Outlook • Questions 47 Before I move on to strategy and outlo
Slide 48: First half re-cap
First half re-cap General Insurance: • Releases and ITR • Short tail performance Banking: • Bank lending volumes • Non performing loans • Investment 48 At the half, market commentators highlighted some specific areas in our performance that I trust we have addressed today. I hope that the level of d
Slide 49: Strategy Update
Strategy Update Customer Focused Profitable Market Optimised Growth Distribution The most desirable Financial Services Company Group Synergies High Performing Team Execution Excellence 49 Turning now to Suncorp’s strategy…. At the outset, I would point out that Suncorp’s strategy is about much more
Slide 50: Strategic Levers: customer focus
Strategic Levers Customer Focused Profitable Market Optimised Growth Distribution The most desirable Financial Services Company Group Synergies High Performing Team Execution Excellence 50 Customer focus - that’s service AND solutions, remains critical for Suncorp. We have invested heavily in custom
Slide 51: Strategic Levers: distribution
Strategic Levers Customer Focused Profitable Market Optimised Growth Distribution The most desirable Financial Services Company Group Synergies High Performing Team Execution Excellence 51 We have already touched on our distribution channels, and the dynamic manner in which we drive growth through d
Slide 52: Strategic Levers: high performing team
Strategic Levers Customer Focused Profitable Market Optimised Growth Distribution The most desirable Financial Services Company Group Synergies High Performing Team Execution Excellence 52 We have put in place a number of initiatives focused on developing high performing teams. In a tighter labour m
Slide 53: Strategic Levers: execution excellence
Strategic Levers Customer Focused Profitable Market Optimised Growth Distribution The most desirable Financial Services Company Group Synergies High Performing Team Execution Excellence 53 We continue to streamline our processes and systems to achieve execution excellence. An example of this is the
Slide 54: Strategic Levers: group synergies
Strategic Levers Customer Focused Profitable Market Optimised Growth Distribution The most desirable Financial Services Company Group Synergies High Performing Team Execution Excellence 54 Finally, we continue to derive value from group synergies - both cost and revenue. As we have already discussed
Slide 55: Strategy on track
Strategy on track 3 year TSR against peers 50% 42% 40% 35% 30% 25% 23% 23% 22% 21% 20% 20% 20% 18% 17% 10% 7% 0% PMN QBE BOQ SUN ADB IAG BEN ANZ CBA WBC SGB NAB Source: IRESS 55 The strength of our strategy can be demonstrated by reference to our performance against our peers since its inception. As
Slide 56: Summary
Summary • Competition increasing • Disciplined and measured response • Fundamentals not compromised • Volumes building • Strategy on track 56 Just to summarise…. Suncorp has delivered a strong result in a highly competitive environment. We have taken a disciplined and measured approach - focusing on
Slide 57: Strong returns for shareholders
Strong returns for shareholders 10 year TSR against peers 25% 24% 23% 21% 21% 20% 20% 19% 18% 18% 16% 16% 15% 10% 5% 0% SUN QBE CBA ANZ WBC ADB BEN SGB BOQ NAB Source: IRESS 57 This year marks the 10th anniversary of the merger of Suncorp, QIDC and Metway Bank. Over that period, Suncorp has had a re
Slide 58: Agenda
Agenda • Introduction & Overview - CEO John Mulcahy • Divisional performance - CFO Chris Skilton – Banking – General Insurance – Wealth Management • Capital Management - CFO Chris Skilton • Strategy update and summary - CEO John Mulcahy • Outlook • Questions 58 But looking to the more immediate futu
Slide 59: Outlook
Outlook Bank – Continue balancing price / volume mix – Cost control – No trigger for material loan losses – Grow banking profit by approx. 10% Group General Insurance • Good growth momentum – Continued CTP premium reduction – Benefits from claims cost reduction • Strong operating performance program
Slide 60: Suncorp-Metway Ltd 2006 Annual Results
Suncorp-Metway Ltd 2006 Annual Results 1 September 2006 60