Suncorp Group Limited · ASX:SUN
Suncorp — Suncorp-Metway — H1 2007 Earnings Presentation
61 slides from Suncorp's earnings presentation, Feb 20, 2007
Slide 1: Suncorp-Metway Ltd 2007 Half-Year Results
Suncorp-Metway Ltd 2007 Half-Year Results 20 February 2007 Good afternoon. I’m Steve Johnston, General Manager, Communications, Investor and Government Relations. Let me welcome those joining us here in Sydney and remotely via the video conference and web cast. 1
Slide 2: Agenda
Agenda • Introduction & Overview - John Mulcahy • Divisional performance - Chris Skilton – Banking – General Insurance – Wealth Management • Capital update – Chris Skilton • Update on Strategy and Promina merger - John Mulcahy • Outlook - John Mulcahy • Questions 2 The agenda for today will be simil
Slide 3: Agenda
Agenda • Introduction & Overview - John Mulcahy • Divisional performance - Chris Skilton – Banking – General Insurance – Wealth Management • Capital update – Chris Skilton • Update on Strategy and Promina merger - John Mulcahy • Outlook - John Mulcahy • Questions 3 Thank you Steve and good afternoon
Slide 4: Overview of the result
Overview of the result • Builds upon growth reported at full-year • On track to deliver on full-year outlook • Measured and disciplined approach is paying dividends • Confirms the great opportunities available to the Suncorp-Promina merged entity 4 Most of you will have had the opportunity to see th
Slide 5: Group profit
Group profit Half-year, $m Underlying* profit NPAT 589 +19.7% +16.1% 527 492 454 Dec-05 Dec-06 Dec-05 Dec-06 *Underlying profit : operating profit before tax, investment income on shareholder funds in GI, JVs and WM, investment income on capital and retained earnings (statutory funds) and one-off it
Slide 6: Banking overview
Banking overview Profit before tax, half-year, $m +13.3% 289 • Growth momentum maintained • Focus on sensible pricing and 255 cost / credit discipline • Some margin compression - as foreshadowed and within expectations • Retail deposits outperform system • Improved cost to income • Asset quality rem
Slide 7: General Insurance overview
General Insurance overview Profit before tax, half-year, $m 383 +16.1% 330 • Material releases from long tail classes reflect conservative provisioning and favourable claims experiences • Claims cost reduction projects delivering benefits • Flat GWP growth impacted by declining CTP premiums and pric
Slide 8: Wealth Management overview
Wealth Management overview Profit before tax, half-year, $m 54 28.6% 42 • Strong increase in value of new business • Good investment earnings • Strong increases in funds under administration and funds under management Dec-05 Dec-06 8 And finally, Wealth Management has contributed profit before tax o
Slide 9: Group profit
Group profit Half-year Group efficiency ratio Return on equity (cash) Earnings per share 94.4 cents 22.4% 25.9% 21.4% 25.5% 82.9 cents Dec-05 Dec-06 Dec-05 Dec-06 Dec-05 Dec-06 9 Turning now to our key performance ratios and you can see that they remain in great shape. Our group efficiency ratio, wh
Slide 10: Dividend
Dividend Dividend (cents/share) 10.6% 1H07 vs 1H06 50 45 June 40 half 30 75 52 42 47 Dec 30 half 26 FY03 FY04 FY05 Special FY06 FY07 10 To dividend now and the Board’s continuing confidence in the underlying performance of our business has allowed us to declare an interim, fully franked ordinary div
Slide 11: Key points
Key points • Competition remains intense • Franchise is in good shape • Fundamentals not compromised • We remain focused and equipped to tackle the opportunities that await 11 So, before I hand over to Chris I do want to emphasise a couple of points. The first is that the intense competition that ha
Slide 12: Agenda
Agenda • Introduction & Overview - John Mulcahy • Divisional performance - Chris Skilton – Banking – General Insurance – Wealth Management • Capital update – Chris Skilton • Update on Strategy and Promina merger - John Mulcahy • Outlook - John Mulcahy • Questions 12 Thanks John and good afternoon. I
Slide 13: Banking profit
Banking profit Half-year, $m Dec 05 Dec 06 Ì% Net Interest Income 422 454 7.6 Non Interest Income 73 75 2.7 Total Income 495 529 6.9 Operating Expenses (225) (235) 4.4 Profit before Tax and Bad Debts 270 294 8.9 Bad Debts (15) (5) (66.7) Contribution before Tax 255 289 13.3 13 Starting with the Bank
Slide 14: Lending performance
Lending performance 41.8 Bank lending assets (half-year, $b) 38.8 36.5 34.8 32.6 Total 30.3 18.5 Other 17.2 16.1 15.3 14.4 Business 12.2 Housing 20.8 22.4 18.9 19.6 (incl sec) 17.2 17.6 14 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 To lending first and you can see from this high level summary the con
Slide 15: Lending performance
Lending performance Home lending, one month growth 2.0% 1.4% 1.1% RBA 0.9% 0.9% 0.9% APRA Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 15 To the Home portfolio and this slide graphs our monthly lending growth compared to both RBA and APRA system data. As you can see, we have achieved a gradual build-up
Slide 16: Home lending performance
Home lending performance Receivables by state, $m Receivables by channel (including securitisation) (including securitisation) 4.0% +12.2% LJH 14,036 12,513 37.9% Indirect +16.6% 58.1% 4,225 +9.8% 3,624 Direct 2,353 2,584 +34.9% 1,136 1,532 Dec-05 Dec-06 Dec-05 Dec-06 Dec-05 Dec-06 Dec-05 Dec-06 NSW
Slide 17: Business lending performance
Business lending performance Receivables growth by segment, half-year, $m +22.1% +22.8% 4,123 4,071 3,376 +11.1% (2.3)% 3,314 3,050 3,020 2,950 2,746 +6.0% +39.4% 2,301 2,171 2,022 1,450 Dec-05 Dec-06 Dec-05 Dec-06 Dec-05 Dec-06 Dec-05 Dec-06 Dec-05 Dec-06 Dec-05 Dec-06 Corporate Commercial (SME) Le
Slide 18: Lending snapshot
Lending snapshot • Growth momentum maintained • Initiatives put in place during 2005/06 are bearing fruit • Home lending above system • Business portfolio varies by segment but overall strong performance • Well diversified and secured book 18 So, the lending snapshot is: • Momentum maintained, with
Slide 19: Deposits performance
Deposits performance Retail deposits twelve month growth 15.5% 14.9% RBA 13.8% 13.4% 13.4% 13.2% APRA Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 19 Turning now to funding and the slide shows retail funding compared to APRA and RBA system growth rates. Core retail deposits, net of Treasury, grew by 14
Slide 20: Net interest margin
Net interest margin Net interest margin, % 2.12 -0.03 -0.07 -0.04 0.03 2.03 0.06 -0.04 December 2005 Asset Funding Securitisation Pricing Increased Sub debt December 2006 mix mix volumes free allocation capital 20 If we now turn to interest margin. Our net interest margin was 2.03% for the half year
Slide 21: Total income growth
Total income growth Half-year, $m 1H07 vs 1H06 6.9% 529 495 502 459 475 75 +2.7% Total 73 76 Non 72 76 Interest Income + 7.6% Net 454 403 422 426 Interest 383 Income Dec-04* Jun-05* Dec-05 Jun-06 Dec-06 * Historical comparatives have been updated to reflect AIFRS, excluding adjustments which are sub
Slide 22: Bank efficiency
Bank efficiency Bank efficiency ratios, half-year, % 1.06% Cost to assets 0.99% Dec 06 vs Dec 05: Total income 6.9% 45.5% 44.4% Operating expenses 4.4% Dec-05 Dec-06 Banking cost to income ratio 22 Turning now to expenses and the growth of 4.4% primarily reflects increased investment in human capita
Slide 23: Credit quality
Credit quality Half-year, $m Gross non-performing 1.70% loans, % of gross loans 1.48% 1.12% 1.17% 1.00% 1.01% 318 0.73% 0.60% 0.64% 0.48% 0.42% 0.50% 0.51% 286 0.37% Past 90 269 253 days 242 149 230 232 228 156 91 96 187 185 145 104 174 94 133 71 71 133 129 121 105 Gross 55 impaired 67 53 169 162 as
Slide 24: Provision for impairment
Provision for impairment Half-year, $m 233 216 206 General 92 116 • Conservative LVRs Reserve for 82 Credit Loss • Loan book well secured • Increase in specific provision balance reflects Collective small increase in total 103 103 94 provision impaired assets Specific provision 21 21 23 Dec-05 Jun-0
Slide 25: Credit quality – impairment losses
Credit quality – impairment losses Impairment losses on loans and advances, half-year, $m Impairment losses, 13.7 12.9 % of RWA (bps) 11.9 8.2 24 24 6.2 6.3 23 4.3 • Revision to Collective Provision 1.8 • Impairment losses equate to 1.8 18 16 bp of RWA 14 15 15 17 6 5 • Total provisions equate to 43
Slide 26: Banking summary
Banking summary • Strong bottom line result • Solid revenue growth • Strong lending volumes • Good expense management • Robust credit quality 26 So, that’s the Bank story: A strong bottom line result with… • a very solid total revenue outcome • strong lending volumes • tight control of costs whilst
Slide 27: General Insurance profit
General Insurance profit Half-year, $m Excluding discount rate adjustment Dec 05 Dec 06 Ì% Gross Written Premium 1,290 1,275 (1.2) Net Earned Premium 1,231 1,246 1.2 Net Incurred Claims (888) (816) (8.1) Operating Expenses (280) (303) 8.2 Investment Income – Technical Provisions 146 135 (7.5) Insura
Slide 28: General Insurance profit growth
General Insurance profit growth Profit before tax & funding costs (half-year, $m) +18.1% Excluding discount rate adjustment 412 379 Total 48 Dec06 356 349 27 V Mgd scheme / 23 330 Dec05 JV income 24 30 87 102 Inv Income 122 SHF 116 88 265 262 211 212 209 (21.0%) ITR (21.6%) ( ITR margin) (17.6%) (17
Slide 29: Premium revenue by product
Premium revenue by product Gross written premium (half-year, $m) Dec 06 vs Dec 05 1,290 1,321 Total 1,287 1,275 (1.2%) 366 380 373 (1.6%) 374 Motor Home 258 273 275 4.0% 284 Commercial 387 367 404 353 (3.8%) CTP (1.9%) 269 262 268 257 Other Jun-05* Dec-05 Jun-06 Dec-06 * Historical comparatives have
Slide 30: CTP reforms benefit customers
CTP reforms benefit customers CTP Premium Rate, $ 380 360 340 GIO 320 300 Suncorp 280 Se 3 4 Se 4 5 Se 5 6 Se 6 M 4 M 5 M 6 N 3 Ja 3 M 4 N 4 Ja 4 M 5 N 5 Ja 5 M 6 N 6 6 l-0 -0 l-0 -0 l-0 -0 l-0 0 -0 -0 0 -0 -0 0 -0 -0 0 -0 0 0 0 p- p- p- p- n- n- n- ov ov ov ov ay ay ay ar ar ar Ju Ju Ju Ju 30 This
Slide 31: Premium revenue by product
Premium revenue by product Gross written premium (half-year, $m) Dec 06 vs Dec 05 1,290 1,321 Total 1,287 1,275 (1.2%) 366 380 373 (1.6%) 374 Motor Home 258 273 275 4.0% 284 Commercial 387 367 404 353 (3.8%) CTP (1.9%) 269 262 268 257 Other Jun-05* Dec-05 Jun-06 Dec-06 * Historical comparatives have
Slide 32: General Insurance ratios
General Insurance ratios Half-year (%) Excluding discount rate adjustment 93.3 94.9 91.1 91.7 89.8 Combined 71.4 72.1 67.0 65.5 Loss 69.9 Acquisition 12.5 13 13.9 14.7 14.7 Expense Opex 8.7 8.9 8.9 10.0 9.6 Dec-04* Jun-05* Dec-05 Jun-06 Dec-06 * Historical comparatives have been updated to reflect A
Slide 33: Claims expense
Claims expense Net incurred claims (half-year, $m) Excluding discount rate adjustment 71.4% 72.1% Loss ratio 69.9% 67.0% 65.5% 870 888 840 821 816 Dec-04* Jun-05 * Dec-05 Jun-06 Dec-06 * Historical comparatives have been updated to reflect AIFRS, excluding adjustments which are subject to transition
Slide 34: Short tail ITR
Short tail ITR Insurance Trading Result, half year, % 12.6% (ex Larry) 11.7% 5.9% 2.2% Dec-05 Jun-06 Dec-06 34 So to short tail first and claims expense for the half was down on the prior December half. The key drivers were: • Storm related claims cost were significantly lower than the prior Decembe
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: First, we continue to see favourable claims frequen
Slide 36: ITR adjustment
ITR adjustment Half year, $m Dec-06 Insurance Trading Result 262 Releases at central estimate (120) Add back superimposed inflation (assumed to be sustainable) 41 (79) 183 Add strains on current year profits Net risk margin strain 4 Current accident period strain 59 63 ITR excluding strains, and 246
Slide 37: General Insurance summary
General Insurance summary • Strong and profitable business • Long tail classes benefit from favourable claims experience • Strong performance in short tail ITR • Continued benefits from claims cost reduction projects 37 So, in summary for GI, we have: • a strong and profitable business • benefiting
Slide 38: Wealth Management profit
Wealth Management profit Half-year, $m Dec 05 Dec 06 Ì% Life Company Planned profit margins 15 17 13.3 Experience profits 3 8 166.7 Investment Income 15 17 13.3 Unit linked and other profit (net) 2 4 100 Contribution from Life Company 35 46 31.4 Contribution from Funds Management 7 8 14.3 Contributi
Slide 39: Funds and annual premium growth
Funds and annual premium growth Half-year, $m Funds Under Funds Under Risk Annual Administration Management Premium 6,788 13,698 136 6,172 12,995 119 105 5,678 12,305 Dec-05 Jun-06 Dec-06 Dec-05 Jun-06 Dec-06 Dec-05 Jun-06 Dec-06 39 Contributing to this increase was: • Strong growth in funds under a
Slide 40: Value of new business & EV
Value of new business & EV Half-year, $m Value of New Business Embedded value of Life Company 625 576 14.9 492 484 11.9 Dec-05 Dec-06 Jun-05 Dec-05 Jun-06 Dec-06 40 On the left of this slide you can see the strong improvement in the value of new business, which was up 25.2% to $14.9 million, compare
Slide 41: Capital update
Agenda • Introduction & Overview - John Mulcahy • Divisional performance - Chris Skilton – Banking – General Insurance – Wealth Management • Capital update – Chris Skilton • Update on Strategy and Promina merger - John Mulcahy • Outlook - John Mulcahy • Questions 41 Turning now to an update on our c
Slide 42: Capital position
Capital position 31 Dec 30 Jun 1 July 06 31 Dec Target 2005 2006 Adjusted 2006 General Insurance 1.69x 1.79x 1.79x 1.83x 1.6x MCR coverage Bank Capital 10.79% 12.31% 11.90% 11.34% 10%-10.5% Adequacy ratio Bank ACE 5.44% 6.07% 5.59% 6.09% 4.5%-5% 42 The Group’s capital position remains extremely stro
Slide 43: Entitlement offer - overview
Entitlement offer - overview Summary • Fully underwritten entitlement offer to raise approximately A$1.15 billion • Prospectus expected to be lodged on 12 March 2007 • Record Date expected to be 16 March 2007 Offer Structure • Accelerated pro rata entitlement offer incorporating an institutional off
Slide 44: Summary
Summary • Strong growth momentum and disciplined credit approach • Improved risk selection, claims cost reduction and a relatively benign claims environment • Strong increases in funds under administration and the value of new business • Capital position remains strong 44 So, to summarise, we have a
Slide 45: Agenda
Agenda • Introduction & Overview - John Mulcahy • Divisional performance - Chris Skilton – Banking – General Insurance – Wealth Management • Capital update – Chris Skilton • Update on Strategy and Promina merger - John Mulcahy • Outlook - John Mulcahy • Questions 45 45
Slide 46: Building stakeholder value
Building stakeholder value Powerful Corporate “Corporate Successful Corporate transformation” “Secure synergies” Performing “Sum of the Under - Parts” Performing “Discount to Sum of the Parts” 46 Thanks Chris. When I first outlined our strategy in 2003 Suncorp was at the start of a journey which was
Slide 47: Suncorp model
Suncorp model Strategy Key Elements Of Results Foundation the Suncorp Model Line of Business Excellence Embedding a Customer Generating Orientation increased Sustained value to the Optimising our Inherent Customer & customer and thereby + Advantages Investor Value value to the Generation Competitive
Slide 48: Competitive cost position
Competitive cost position Banking Cost to Income Ratio General Insurance Expense Ratio (%) (%) 47.5 28.0 44.4 24.3 Average Big 4 & STG Suncorp IAG Suncorp FY to June or Sept 06 1H07 FY to June 06 1H07 Source: Suncorp data; Company Reports 48 I’ll start with our cost position and we’ve achieved a ban
Slide 49: Logical cross-sell opportunities
Logical cross-sell opportunities Queensland Home Insurance Penetration Consumer Credit Insurance Penetration into Home Loan Customer Base into Personal Loan Base 63% 79% 69% 72% 31% 35% 23% 8% 10% Suncorp ANZ CBA NAB WBC FY04 FY05 FY06 1H07 12 months to September 2006 Source: Roy Morgan Research Pty
Slide 50: Products per customer
Products per customer Average products per customer 3.5 Suncorp 3.0 2.5 Average of Big 4 2.0 Average of regional banks* 1.5 1.0 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 12 months ended * Regional banks defined as St George, Bank of Qld, Adelaide Bank, Bankw
Slide 51: Customer satisfaction
Customer satisfaction Banking customer satisfaction Suncorp 78.8% 80% 75% 70% Big Four 67.7% 65% 60% 55% Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul-06 Aug- Sep- Oct- Nov- Dec- 05 05 05 05 06 06 06 06 06 06 06 06 06 06 06 Six month moving average Source: Roy Morgan Research Pty Ltd., Austr
Slide 52: Promina merger - strategic context
Promina merger - strategic context 2 1 Promina 3 2 Value 1 GIO 1 Integration 3 2 Organic growth 3 Corporate Development Suncorp 2 1 Metway QIDC 1996 2001 2006/07 52 So you can see from this presentation that having successfully integrated the GIO business our focus has been on building our three lin
Slide 53: Merger update - key milestones
Merger update - key milestones “The combination of these two highly successful companies has Suncorp and Promina significant strategic merit and will create a vigorous and dynamic sign Merger competitor in the Australian and New Zealand financial services Implementation market place.” Agreement John
Slide 54: Merger update - key milestones
Merger update - key milestones Queensland state “The Queensland government has indicated its willingness to government prepared to propose amendments to the Facilitation Act to enable the change legislation appointment of [Promina directors] to the Suncorp Board…” (14 December 2006) Promina Group sc
Slide 55: Merger update – next steps
Merger update – next steps 5 March 2007 Promina Shareholder vote 12 March 2007 Expected date of Court hearing for approval of Scheme 12 March 2007 Expected date of lodgement of prospectus for Entitlement Offer with ASIC 13 March 2007 Effective date of the Scheme 16 March 2007 Scheme record date 20 M
Slide 56: Outlook
Agenda • Introduction & Overview - John Mulcahy • Divisional performance - Chris Skilton – Banking – General Insurance – Wealth Management • Capital update – Chris Skilton • Update on Strategy and Promina merger - John Mulcahy • Outlook - John Mulcahy • Questions 56 Before I conclude I would briefly
Slide 57: Outlook – Suncorp stand alone
Outlook – Suncorp stand alone Bank – Continue balancing price / volume mix – Maintain cost control – No trigger for material loan losses – Grow banking profit before tax and bad Group debts by approx. 10% • Maintain growth momentum General Insurance – Benefits from claims cost reduction • Strong ope
Slide 58: Not for release in the United States or to US Persons
Not for release in the United States or to US Persons This release does not constitute an offer of securities for sale in the United States. Securities may not be offered or sold in the United States unless they are registered under the US Securities Act of 1933 or an exemption from registration is
Slide 59: Suncorp-Metway Ltd 2007 Half-Year Results
Suncorp-Metway Ltd 2007 Half-Year Results 20 February 2007 So, before I pass back to Steve to moderate the questions, I’d like to introduce the Group Executive team who are sitting in the front row. First, Mark Milliner, who heads up our GI - Commercial lines business and David Foster, Group Executi
Slide 60: Appendix: Entitlement offer structure
Appendix: Entitlement offer structure • Accelerated pro rata entitlement offer incorporating an institutional offer and a retail offer • Offer price and entitlement ratio to be determined shortly before prospectus is lodged • New shares not taken up by shareholders will be offered for sale through t
Slide 61: Appendix: Detailed entitlement offer timetable
Appendix: Detailed entitlement offer timetable Last trading day to acquire Shares that will participate in the Entitlement Offer Friday, 9 March 2007 Trading halt in Suncorp securities commences Commencement of trading on Monday, 12 March 2007 Institutional Offer opens 10.00 am Monday, 12 March 2007