Suncorp Group Limited · ASX:SUN
Suncorp — Suncorp-Metway — FY2008 Earnings Presentation
63 slides from Suncorp's earnings presentation, Aug 26, 2008
Slide 1: Suncorp-Metway Ltd Full Year Result 2007-2008
For personal use only Suncorp-Metway Ltd Full Year Result 2007-2008 1
Slide 2: Good morning and welcome
For personal use only Good morning and welcome I’m Steve Johnston. In addition to those joining us here at the Intercontinental in Sydney I’d also like to welcome those joining us via the webcast and teleconference facilities. The format for today is similar to our previous presentations presentatio
Slide 3: Challenging financial year and global credit crunch
For personal use only Thank you Steve and let me add my welcome to all those joining us today today. To describe the 2007/2008 financial year as challenging for all those associated with financial services would be an understatement. It’s hard It’ h d to t believe b li th thatt it’s it’ jjustt one y
Slide 4: Economic slowdown and weather events
For personal use only And of course at its heart it is working to slow domestic economic growth growth. The same is true for wealth management where the effects hit investment earnings below the line but also above the line as fund inflows and fee income reduce. In our general insurer widening credi
Slide 5: Positives: franchise, integration, people
For personal use only But there remains much to be positive about. As you will see today our underlying franchise continues to perform strongly. We have great businesses and a fantastic suite of brands. Our integration remains very much on track and on time. We have a highly engaged and motivated wo
Slide 6: Summary of the result
For personal use only So let me move to a brief, high level summary of the result. You can see here that Net Profit After Tax, Promina Acquisition items and minority interests for the year is $556 million which of course is a significant reduction on the 2007 year. While profits have clearly been af
Slide 7: Bank result summary
For personal use only Moving now to a top line summary of each of the businesses and first to the Bank where profit before tax grew by 11.2% to $633 million. The bottom line result benefited from two one off items the sale of the credit card portfolio and the Visa IPO which together contributed $36
Slide 8: Bank lending growth
For personal use only Lending growth has continued to be strong throughout the year as a result of a number of factors which Chris will work through in detail in his presentation. But let me emphasise: This lending has come at improved ROE hurdle rates as pricing has been continually adjusted to tak
Slide 9: General Insurance result summary
For personal use only To General Insurance now and here the effect of the weather events and investment market volatility is most obvious. Profit contribution before tax at $307 million represents a significant deterioration on the full yyear 2007 number. Of course a major contributor to this bottom
Slide 10: General Insurance gross written premium growth
For personal use only Let me now briefly turn to the top line and here GWP g growth across the p portfolio has been very satisfying. The Home portfolio has been the stand out growing by 7.8% in a very competitive market. The motor portfolio continues to grow strongly up by 4 4.7% 7% across the year
Slide 11: Wealth Management result
For personal use only To wealth management now and I would not hesitate to describe this as a disappointing result despite the clear impact of external factors. Underlying profit of $136 million has been impacted by the flow through effects of the equity market volatility with funds under both manag
Slide 12: Summary and handover to CFO
For personal use only So So, before I hand over to Chris, let me summarise. This has been a challenging year and one we are pleased to see the back of. Despite this we have emerged in good shape ready to tackle the future challenges and participate in the recovery when it occurs. So with that brief
Slide 13: CFO introduction
For personal use only Thanks John, and good morning everybody. As in previous years and in the interests of time I am going to keep my comments to a reasonably high level, focussing on the key P&L drivers. Instead of repeating material that is contained in our comprehensive Analyst Pack, I would lik
Slide 14: Consolidated P&L components
For personal use only But before I address the individual businesses, let me take you through some of the components of the consolidated P&L account. account John has already touched on the headline numbers for Banking, General Insurance and Wealth Management. The $37 million loss classified as “Oth
Slide 15: Minority interests and tax
For personal use only Minority interests contributed to a negative $5 million movement and these largely relate to the heritage Promina Wealth Management Business. Business Finally, to tax, you can see that the Group’s effective statutory tax rate for the year is significantly lower than the year to
Slide 16: Bank contribution, revenue and expenses
For personal use only So, now to the Bank, which grew its total contribution before tax by 11.2% to $633 million for the full year which is inclusive of the one off benefits of the sale of the credit card portfolio and the issue of shares in the Visa IPO. Total revenue increased by 12.6% reflecting
Slide 17: Bank lending growth
For personal use only Moving now to lending, gross banking loans, advances and other receivables, including securitised assets increased by 22.1% to $56 $ billion. Now, this is a very strong result and some would say at odds with what they have seen from many of our competitors who have reported slo
Slide 18: Core franchise growth and FY09 lending
For personal use only So I would encourage you to take these factors into account when you compare the growth achieved by the respective Bank’s over the course of the year. Also in reviewing growth over the course of 07/08 we have determined that between 80 - 85% is from what we would describe as th
Slide 19: Development Finance lending segment
For personal use only Turning now to our specific segments of lending, and I don’t propose to go through this in detail as there is more information in the analyst pack. However, I would make some specific comments about the Development Finance book as this is usually the one of most interest to the
Slide 20: Net interest margin
For personal use only Net interest margin for the year to June 2008 was 1.79%, representing a contraction of 18 basis points compared to the prior year result result. You may remember at the previous results presentation I mentioned that we expected to see margins stabilising or even improving sligh
Slide 21: Credit quality and non-performing loans
For personal use only To credit quality now and total non-performing loans have continued to increase from historical lows to finish the year at $627million representing 112 basis points of gross loans, advances and other receivables, a level which is still below historical peaks. Gross impaired ass
Slide 22: Credit cycle and security
For personal use only I would point out that this is due to the fact that Suncorp has always had limited exposure to unsecured lending and our high level of security across the portfolio ensures that in the event that a loan becomes non-performing, losses are limited by the extent of security underp
Slide 23: Retail deposits
For personal use only Before we discuss the Wholesale Funding portfolio portfolio, let me mention that in a highly competitive market we have seen an 18.3% increase in retail deposits when looking at the aggregate of retail term, transactions and investment accounts. I think this is a strong perform
Slide 24: Wholesale funding
For personal use only Now to wholesale funding and over recent years the Bank has been following a strategy of diversifying its wholesale funding base which has enabled funding to continue to meet balance sheet demands over the year to June 2008 during a period of intense market dislocation. In fact
Slide 25: Funding markets and Europe roadshow
For personal use only Next month we will be roadshowing these results in Europe and if there is an opportunity to issue in that market following that then we will take it. it But as I stand here today I would have to admit that the short term potential for a Euro issuance is low. For all intents and
Slide 26: Bank summary
For personal use only So, to summarise: The Bank has performed solidly in a very challenging environment. Lending and deposit growth has been strong but will moderate going forward. Wee success successfully u y managed a aged ou our way ay through oug the e funding u d g cchallenges a e ges aand d o
Slide 27: General Insurance result overview
For personal use only To the General Insurance business now and to say it has been an eventful year would be a major understatement. Profitability has been impacted with the pre-tax contribution falling to $307 million for the full year to 30 June 2008. The ITR was $607 million for the year, equival
Slide 28: Gross written premium
For personal use only Taking a closer look at GWP over the year and again, I won’t go through all the portfolios in detail as there is a lot of information in the analyst pack But there are some key points to make: Both Home and Motor grew strongly over the year and this largely reflects stronger ra
Slide 29: Short tail claims and weather events
For personal use only To claims expense and starting with short tail: The key factor here has clearly been the effect of major weather events totalling $405 million, excluding the $10 million reinsurance reinstatement premium, which as you know is far in excess of our usual allowance of $200 million
Slide 30: Long tail claims
For personal use only Moving now to long tail where claims expense has increased by 7.3% to $747 million. Again, there are many moving parts here. Firstly, the central estimate releases have contributed $251 million for the year, less that half of the reported $540 million in 06/07, very much confir
Slide 31: Superimposed inflation
For personal use only Our discussion of long tail claims would not be complete without briefly touching on super imposed inflation. Again, I would point out that there remains some evidence of superimposed inflation emerging in Queensland CTP but that this is limited to the head of claims related to
Slide 32: New Zealand
For personal use only To New Zealand now and the business has reported a very healthy Insurance Trading Result of $74 million for the full year to June 2008, up by 15.6% over last year. The commercial insurance market in New Zealand remains fiercely competitive but a decline in commercial lines GWP
Slide 33: Investment income
For personal use only To investment income and investments on shareholder funds resulted in a loss of $232 million as global volatility impacted on domestic equities, overseas equities and listed property portfolios. Over the year the Shareholder Funds’ Australian equity portfolio underperformed the
Slide 34: General Insurance summary
For personal use only In summary, while the General Insurance Result has met guidance, the quality of the result has been influenced by a number of extraordinary impacts. Moving forward into 2009 we can expect the quality of the insurance trading result to improve as integration benefits take over f
Slide 35: Wealth Management result
For personal use only The Wealth management division reported underlying profit of $136 million for year to 30 June 2008, down 9.3% on the pro-forma result. Profit after tax was $111 million. These results were impacted directly and indirectly by poor investment markets. But as John has already ment
Slide 36: Wealth net profit after tax detail
For personal use only Looking in more detail at the Net Profit After Tax for Wealth; life risk underlying profit after tax of $78 million was a decrease of $7 million on the previous year as a result of poor experience, particularly in the second half in relation to disability and trauma in the Aste
Slide 37: Life risk new business
For personal use only Life Risk new business sales increased 19.6% to $110 million. This was primarily driven by a premium rate increases on Group risk policies. Term new business growth was positive, partly due to the continuing success of the Family Protect and Lifeguard products. During the year,
Slide 38: Funds flows and funds under management
For personal use only Funds flows were affected as investors responded to the downturn by redeeming investments and slowing applications applications. For the year, funds under administration reduced by 12.5% to $14.4 billion. Investment market dislocation reduced funds under management to $24.2 bil
Slide 39: Wealth Management summary
For personal use only So in summary So, • Wealth management has been significantly impacted by equity and credit market instability. • But life risk new business sales and in-force premiums grew. • While in funds management, management both funds under administration and funds under management have
Slide 40: Capital position
For personal use only Turning finally to Capital. 2008 has seen a number of strains on Suncorp’s capital position. The poor investment markets and weather events have materially decreased internally generated capital. Secondly the closure of the securitisation markets meant that this method of mitig
Slide 41: ACE and ATE capital ratios
For personal use only The ratio under most pressure is clearly ACE. However I should H h ld stress t as you allll kknow th thatt thi this iis nott a regulatory l t ratio ti and dhhas b been primarily used by ratings agencies. In addition, this is currently being perceived more and more as a very blu
Slide 42: Intra-group dividends and capital
For personal use only Seco d y, intra-group Secondly, t a g oup d dividends de ds from o tthe e general ge e a insurance su a ce a and d wealth ea t management a age e t businesses are down significantly. This is due to the impact of investment markets on both businesses and the weather events on ge
Slide 43: RAC Insurance disposal and capital outlook
For personal use only I also note the disposal of RAC Insurance will result in additional capital of $35 million being released. Therefore our capital position is reasonable and there should be no need to raise additional core capital in the near future. However, this is assuming we avoid an unexpec
Slide 44: Integration progress
For personal use only Thanks Chris. Let me now turn to our integration progress. SLIDE Suncorp-Metway Ltd Full Year Result 2007-2008 44
Slide 45: Integration program benefits and costs
For personal use only Our integration g p program g remains veryy much on track and on time with overall P&L benefits of $104 million in 07/08 slightly ahead of target. This slide provides an updated P&L view of the timing profile of synergy benefits and one one-off off implementation costs costs. I
Slide 46: Integration: claims, technology and sourcing
For personal use only Initiatives in the Home and Motor claims portfolio are aimed at lowering cost, improving customer services and leveraging expertise across the insurance brands. The Group has made a good start on realising benefits in this portfolio despite the distractions of the external even
Slide 47: Integration: centres of excellence and efficiencies
For personal use only In Centres of Excellence and Organisation Redesign the restructuring activities have been completed delivering greater than expected benefits. While specialist services have been aggregated thereby eliminating duplication and enhancing capabilities across the Group, we believe
Slide 48: Responding to the external environment
For personal use only There is more that we can and should do in order to respond to a deteriorating external environment. In framing our budgets for this financial year we have made conservative assumptions about revenue growth given the likelihood of a continued slowing of the economy. But we have
Slide 49: Accelerating end-state business model
For personal use only This includes: • continuing to aggregate specialist services to the highest level practicable to inform our organisational structure and thereby further remove duplication and enhance capability across the Group • Implementing technology capability across the Group in order to
Slide 50: Bank end-state business model
For personal use only I’d now like to turn to the Bank and the steps we’re taking to bring forward the delivery of the end state business model for that business. SLIDE Suncorp-Metway Ltd Full Year Result 2007-2008 50
Slide 51: Merging retail and business banking
For personal use only As you are aware the Bank has been relatively untouched by the integration program program. The banking divisions have instead focussed on refreshing their overall five year strategies and you have already seen a number of initiatives flowing from this work. Growth and profitab
Slide 52: Unified banking team focus
For personal use only The unified banking team will focus on: • Simplifying and streamlining banking operations under one shared platform • Improving governance, prioritising capital usage and projects • Improving products and service as the middle office is streamlined • Maintaining a clear focus o
Slide 53: Benefits of integrating banking divisions
For personal use only Integrating the retail and business banking divisions provides some efficiency quick wins and longer-term benefits. We’ve already started to reduce discretionary spending. The longer-term savings of a single focussed bank structure will be driven out as we deliver changes. We e
Slide 54: Management changes
For personal use only Now to the management changes we announced this morning morning. SLIDE Suncorp-Metway Ltd Full Year Result 2007-2008 54
Slide 55: Bank leadership appointments
For personal use only David Foster has been appointed as the Group Executive to lead the integrated Bank. David has done a fine job leading the Retail Bank to date and we are confident that he will lead the bank through the next phase of its development. Robert Belleville has made a decision to reti
Slide 56: Personal Insurance and Centre Functions appointments
For personal use only Bernadette Inglis has been appointed to run Suncorp’s Suncorp s Personal Insurance business. Bernadette has consistently delivered in her Group Executive role here at Suncorp. She has worked closely with Robert throughout integration h an iin-depth has d th kknowledge l d off t
Slide 57: Outlook
For personal use only Moving onto Outlook and in the interests of time I will only provide a high level summary. The full details are available in the Analyst Pack. SLIDE Suncorp-Metway Ltd Full Year Result 2007-2008 57
Slide 58: FY2009 outlook by division
For personal use only In the Bank we expect profit growth before tax and bad debts will be in the high single digits. In General Insurance we are forecasting an ITR in the 10% - 12% range assuming weather events remain within our new provisioning level and there is no widening of spreads across the
Slide 59: Dividend outlook
For personal use only Rolling this all up the Board remains confident in the underlying performance of the business and the excellent progress being made on integration. Therefore based on the Group’s outlook the Board anticipates the Group’s ordinary dividend for the full year to June 2009 will be
Slide 60: Questions
For personal use only So with that I will hand over to Steve for questions. SLIDE Suncorp-Metway Ltd Full Year Result 2007-2008 60
Slide 61: For personal use only
For personal use only Suncorp-Metway Ltd Full Year Result 2007-2008 61
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For personal use only Suncorp-Metway Ltd Full Year Result 2007-2008 62
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For personal use only Suncorp-Metway Ltd Full Year Result 2007-2008 63