Suncorp Group Limited · ASX:SUN
Suncorp — H1 FY2008 Earnings Presentation
68 slides from Suncorp's earnings presentation, Feb 28, 2008
Slide 1: Welcome and introduction
For personal use only Good morning, I‟m Steve Johnston, General Manager for Communications, Investor and Government Relations at Suncorp. Its my pleasure to welcome all those joining us here in Sydney at the Intercontinental Hotel and those joining us via the video links in to Melbourne and Brisbane
Slide 2: Presentation agenda
For personal use only Thank you Steve and good morning Ladies and Gentlemen. Let me start by running through the agenda for today‟s presentation. As you are aware in addition to presenting our interim result we will also provide you with an update on the excellent progress we have made in integratin
Slide 3: Context for the result
For personal use only But before we begin a detailed discussion of the result I thought it important to briefly put the result in context. The past six months have been extraordinarily challenging and demanding - perhaps the most challenging and demanding in Suncorp‟s history. There have been a numb
Slide 4: Headline group results
For personal use only So first to the high level numbers. And net profit after tax for the half year to December 2007 is $382 million. Profit before tax and with the Promina acquisition items removed is $616 million, a reduction of 20% on the December 2006 half year. Let me briefly run through the h
Slide 5: Bank result
For personal use only To the Bank first. and here the numbers are very satisfying with profit contribution before tax increasing by 6.2% to $307 million for the half year.
Slide 6: Bank profit and strategy
For personal use only Profit before tax and bad debts increased by 9.9% to $323 million which includes the impacts of increased funding costs flowing from the global credit crunch which we estimate has had a negative $8 million impact on the half year. The Bank has a very positive trajectory. It has
Slide 7: General insurance result
For personal use only To general insurance now and here the effects of weather and investment markets are starkest with profit contribution of $172 million down 75% on the prior corresponding period. But driving below this to the underlying performance and it‟s clear that despite the multiple challe
Slide 8: Wealth Management result
For personal use only And finally to Wealth Management, where profit before tax is $125 million. On an underlying basis, total wealth management profit improved by 9% to $85 million. Again while overall results were negatively impacted by lower investment returns the underlying business performed st
Slide 9: Interim dividend
For personal use only So, wrapping it all up… the Board‟s continued confidence in the underlying strength of the business has allowed us to maintain a fully franked, interim ordinary dividend of 52 cents per share despite the impact of the events on first half earnings. In order to provide us with a
Slide 10: Integration synergy numbers
For personal use only Turning now to the high level integration numbers. And as we announced on February 1 the economics that underpinned the merger have improved significantly with annualised synergies now $325 million at a one-off implementation cost of $375 million. The original estimate of $225
Slide 11: Synergy timing and implementation costs
For personal use only This slide illustrates the timing profile of synergy benefits and one-off implementation costs and presents a P&L view of the portfolio. In the analyst pack and as an attachment to this presentation we have also provided you with a detailed breakdown of how we anticipate the be
Slide 12: Major synergy themes
For personal use only To the major synergy themes now. And we‟ve taken a targeted approach to this Integration focusing on the areas of greatest opportunity. Broadly, there are three categories of benefit: Home and Motor claims (short tail) Opex reductions, and Reinsurance Within each category each
Slide 13: Integration summary
For personal use only So before I hand over to Chris let me re-iterate with regards to Integration: These numbers have been built from the bottom up and reviewed from the top down; They have been subject to rigorous analysis and assessment; KPMG has confirmed that appropriate processes and controls
Slide 14: Divisional results handover
For personal use only Thanks John and good morning. As we have a lot of ground to cover today I am going to keep my comments at a relatively high level, focussing on the key drivers of the result, rather than each line item. Of course, all the detailed information and supporting commentary you need
Slide 15: Profit and acquisition items
For personal use only As John has already mentioned Profit before tax and acquisition items was $616 million. As I did at the full year results in August I would like to draw your attention to the items that sit below the line that relate to the merger with Promina as they are material and obviously
Slide 16: Bank
For personal use only So, moving to the divisional results and first to the Bank. 16
Slide 17: Bank profit result
For personal use only ..which has delivered a very strong result, lifting profit before tax by 6.2% to $307 million for the half. Profit before tax and bad debts grew by 9.9%, in line with our full year guidance, and this is very pleasing given this included the additional funding costs, which we ha
Slide 18: Lending growth
For personal use only If we look at lending, growth has generally been impressive, with housing, consumer and business loans all achieving improved growth rates over the corresponding half. In the Home portfolio, growth in home lending receivables, including securitised assets, was 12.9%, comfortabl
Slide 19: Net interest margin
For personal use only To net interest margin and you can see that it has reduced by 27 basis points over the year to 1.76%. The waterfall chart provides a summary of margin movements net of yield changes and assists in understanding the key factors contributing to the outcome. The changing asset mix
Slide 20: Funding and liquidity
For personal use only With continued dislocation in credit markets likely throughout 2008, we will be focussed on maintaining funding diversity and liquidity Total funding (excluding securitisation) grew by 27% to $48bn at Dec 07 up from $37.85bn in Dec 06. As a proportion, retail funding has fallen
Slide 21: Credit quality
For personal use only Moving now to credit quality. You can see that at 31 December, although there is a very slight upwards trend in non performing loans they remain at only 70 basis points of gross loans and advances. If you look at the slide you will note that while in absolute terms there has be
Slide 22: Impairment losses and exposures
For personal use only Impairment losses were $16 million for the six months to December 2007, an increase of $11 million on the prior year. I should mention however that losses have been positively impacted during the half by a $16 million revision to the collective provision as the Bank continues t
Slide 23: Bank result summary
For personal use only So to quickly sum up the bank result We‟ve seen strong lending growth across the portfolio, Excellent growth in total revenue, Despite margin contraction and a challenging external environment Continued tight control of expenses And Disciplined approach to credit 23
Slide 24: General insurance
For personal use only Moving onto the general insurance result 24
Slide 25: Insurance trading result
For personal use only As flagged in our announcement of 1 February 2008, the general insurance trading ratio is 5.1% for the half. This equates to an insurance trading result of $151 million. The ITR is made up of a number of elements, these are: Net earned premium – up 3.0% Net incurred claims – up
Slide 26: Gross written premium by product
For personal use only Moving to a breakdown of Suncorp‟s GWP by major product lines Motor insurance represents around 35% of Suncorp‟s GWP. The portfolio delivered above system premium growth of 5.7% for the half, with customer growth and pricing discipline being the key drivers. Importantly, custom
Slide 27: Net incurred claims
For personal use only Net incurred claims for the year increased by 21.7% on the corresponding period. However, you need to delve deeper in order to get a true understanding of the underlying dynamic Short tail claims expense increased by 25% predominantly due to the $280 million of significant weat
Slide 28: Long tail claims
For personal use only Looking at the long tail claims expense in more detail and as you know there are a number of factors at play: The first is Current accident period strain which occurs when you adopt a more conservative claims reserving basis than the premium pricing basis. That difference has r
Slide 29: New Zealand business
For personal use only Within this result we have called out our New Zealand business for the first time. The business has reported an ITR of $28 million for the half year to December 2007, equal to an ITR ratio of 9.3% Here we see personal lines premiums increasing by nearly 10%, driven largely by r
Slide 30: Investment income
For personal use only To investment income and on February 1 we identified the $85m unrealised loss that resulted from the „mark to market‟ impact of increased credit spreads on our fixed interest portfolio. I‟ll reiterate that we have no direct exposure to sub-prime markets in this portfolio and th
Slide 31: General insurance summary
For personal use only So, in summary for GI, Despite this being one of the worst six month periods for the general insurance sector in recent times, due to event frequency and volatile investment markets We have a strong underlying business which, when combined with the benefits of integration and a
Slide 32: Wealth
For personal use only Now to wealth… 32
Slide 33: Wealth Management profit
For personal use only Net profit after tax and minorities for Suncorp‟s wealth management business was $103 million. This was down 25.4% on the corresponding half but equalling the result of the June 07 half. Total underlying profit which excludes the impact of investment income on shareholder asset
Slide 34: Wealth result elements
For personal use only To quickly run through the key elements of the result. Life Risk – down 24% to $38 million due to growth in planned profit margins off-set by a decrease in experience profits from $20 million to $2 million. This shows that our experience is now closely matching our assumptions.
Slide 35: New business and funds under management
For personal use only Life Risk new business has increased by 22.2%, the third straight half of growth in new business, with growth in premiums for Group Life being the key driver. Retail investment new business sales increased by an impressive 40.6% over the half. Changes in legislation drove extra
Slide 36: Wealth Management summary
For personal use only So, in summary for Wealth Management we have: An increase in underlying profit for the half Growth in funds under management Healthy growth in new business sales across both the Life Risk and Funds Management portfolios 36
Slide 37: Capital
For personal use only Finally, to Capital 37
Slide 38: Capital ratios and management
For personal use only The table above sets out Suncorp‟s Capital ratios compared to their targets. As you can see we are comfortably ahead of our target bank capital adequacy and Group MCR coverage is slightly ahead of target, which should come as no surprise given we upstream surplus GI capital to
Slide 39: Financial wrap up
For personal use only So, let me wrap up by saying: This has been one of the most challenging periods I have experienced in 25 years in the finance sector. We have almost had a perfect storm (pardon the pun) with the combination of: The credit crunch The incidence of major weather events Volatile in
Slide 40: Integration update
For personal use only BACK TO JOHN Thanks Chris, let me now return to integration and give you more detail around our program. And I‟ll also let you hear from some of our Group Executives who are accountable for making it happen. SLIDE 40
Slide 41: Integration plan phases
For personal use only We are now almost one year in to what we expect will be a three year journey towards integration and we are well on our way towards realising the benefits of bringing together Suncorp and Promina. Immediately following completion of the transaction we laid out a detailed plan w
Slide 42: What integration must deliver
For personal use only We now have a clear view of what we expect Integration will deliver. There have been the obvious benefits which came with completing the transaction, such as: strengthening our market position; expanding our distribution footprint; the opportunity to further diversify our reven
Slide 43: Additional integration benefits
For personal use only Before I hand over to each of the Group Executives to provide an overview of their themes of work, I want to take a moment to talk about the additional benefits which Suncorp will realise as a result of Integration but which are outside of those defined in our transaction econo
Slide 44: Integration update agenda
fe) Agenda SUNCORP 1. Integration update - John Mulcahy and Group Executives a. Home and motor claims — Robert Belleville b. Business technology — Jeff Smith c. Operational efficiencies — Bernadette Inglis d. Reinsurance — Mark Milliner e. Governance — Mark Blucher 44
Slide 45: Home & motor claims
SUNCORP A. Home & motor claims D Enhance existing claims processes across the Group to deliver ongoing improvements in quality, cost and timeliness that exceed customer service expectations + Managing repair costs and service outcomes by: + Exchanging best practice processes/systems + Sharing IP and
Slide 46: Integration update agenda
fe) Agenda SUNCORP 1. Integration update - John Mulcahy and Group Executives a. Home and motor claims — Robert Belleville c. Operational efficiencies — Bernadette Inglis d. Reinsurance — Mark Milliner e. Governance — Mark Blucher 46
Slide 47: Business technology
B. Business technology SuNCORP D> A transformed IT environment DESIGN > IMPLEMENT CENTRES OF EXCELLENCE INTEGRATION PROJECTS Claims Pricing Customer portal Intermediated portal > ENHANCE CUSTOMER EXPERIENCE Simplified Aa ervironmenss Shareholders: We drive superior retums through innovation Group: B
Slide 48: Integration update agenda
fe) Agenda SUNCORP 1. Integration update - John Mulcahy and Group Executives a. Home and motor claims — Robert Belleville b. Business technology — Jeff Smith d. Reinsurance — Mark Milliner e. Governance — Mark Blucher 48
Slide 49: Operational efficiencies in business units
SUNCORP C. Operational efficiencies in business units Share best Practice processes Remove duplication —Lift processing productivity by implementing ‘best of both' practices —Reduce attrition in contact centres and processing units —Implement a new project delivery and support model —Eliminate dupli
Slide 50: Sourcing and scale initiatives
SUNCORP Dp Activities and initiatives identified to take advantage of increased scale and purchasing power Telecommunications Sourcing + Renegotiation of telecommunication contracts to obtain best price and volume benefits will realise an estimated ongoing reduction in Group telecommunications costs
Slide 51: Centres of excellence and organisation redesign
SUNCORP C. Centres of excellence and organisation redesign Centres of Excellence Organisation redesign — Provides specialist advice across the Group — Aggregated expertise with localised service — Aligns work being undertaken by the Lines of Business to Group business model Brands Lift opportunities
Slide 52: Integration update agenda
fe) Agenda SUNCORP 1. Integration update - John Mulcahy and Group Executives a. Home and motor claims — Robert Belleville b. Business technology — Jeff Smith c. Operational efficiencies — Bernadette Inglis d. Reinsurance — Mark Milliner e. Governance — Mark Blucher 52
Slide 53: Reinsurance
fe) D. Reinsurance SUNCORP * Total benefit $47 million per annum, made up of: — Combining the reinsurance programs of the two general insurance businesses identified a cost saving of $41 million per annum — Wealth Management $4 million per annum — Commercial Insurance $2.4 million + These synergies
Slide 54: Integration update agenda
fe) Agenda SUNCORP 1. Integration update - John Mulcahy and Group Executives a. Home and motor claims — Robert Belleville b. Business technology — Jeff Smith c. Operational efficiencies — Bernadette Inglis d. Reinsurance — Mark Milliner e. Governance — Mark Blucher 54 54
Slide 55: Rigorous approach to managing change
Rigorous approach to managing change SUNCORP Prepare the organisation for change + Three phase integration plan +Strong goverance model \ *Continuous communication ‘Sustaining change Setting accountabilities creating change agenda SDefine vision and business model *GE accountability for integration
Slide 56: Strong accountability structure
Strong accountability structure SUNCORP > 7 "7 { Group Executives | f GE Business Technology } ( GE Integration J Accountable for delivering Accountable for delivering operational Accountable for process and achieving Integration outcomes while at the same synergies and supporting Business Unit over
Slide 57: Integration summary
For personal use only So I hope that has given you a greater insight into the program of integration work now underway and the drive and energy of the Executive Team in ensuring we meet the aggressive target we have set ourselves. So in summary, with respect to Integration We have planned well and a
Slide 58: Group outlook
For personal use only So let me conclude with the Group outlook. 58
Slide 59: Macro and banking outlook
For personal use only And at the Macro level we would expect that the RBA will continue to address inflationary pressures in the economy by further tightening monetary policy. While this will inevitably moderate credit growth we expect our lending growth will remain strong as we execute our Retail a
Slide 60: General insurance outlook
For personal use only In General Insurance, we will continue to drive growth by leveraging our portfolio of market leading brands. In Personal Lines we expect premiums will increase. This is the inevitable consequence of the recent incidence of major weather events as well as increased claims freque
Slide 61: Insurance trading ratio outlook
For personal use only Our full year ITR outlook which we revised on February 1 now needs to be further revised to take account of the Mackay storms which we anticipate will cost $100 million, net of reinsurance recoveries. Taking this into account and assuming weather events in the second half remai
Slide 62: Dividend outlook
For personal use only And finally At the Group level we continue to target absolute growth in dividends for the full-year. However given all the factors we have outlined today and the fact that synergy realisation will initially lag implementation costs you should expect that annual dividend growth
Slide 63: Presentation agenda
fe) Agenda SUNCORP 1. Introduction & Overview — John Mulcahy 2. Divisional performance — Chris Skilton a. Banking b. General Insurance c. Wealth Management 3. Capital update — Chris Skilton 4. Integration update — John Mulcahy and Group Executives 5. Group outlook — John Mulcahy 63 63
Slide 64: Questions
For personal use only So now I will hand over to Steve to moderate questions. 64
Slide 65: Disclaimer
SUNCORP [Disclamer * This report contains general information which is current as at 28 February 2008. * It is not a recommendation or advice in relation to Suncorp-Metway Limited or any product or service offered by the Suncorp Group. * This report should be read in conjunction with all other infor
Slide 66: Statutory funds and shareholder assets
( Statutory Funds } Interest bearing securities Equities ~_ ( Shareholder Assets ] Property Interest bearing securities Equities Other 66
Slide 67: Appendix 2: Allocation of investments
Appendix 2: Allocation of investments SUNCORP Half year, $m Dec-07 Statutory Funds* Equities 5,470 Interest bearing securities 3,082 Property 405 Other 514 Total StatutoryFunds TT Shareholder Assets** Equities 229 Interest bearing securities 188 Property 33 Other 64 ‘TotalShareholder Assets * Statut
Slide 68: Appendix 3: Significant program of work underway
Appendix 3: Significant program of work is suncor fs UNderway Activity FY 06/07 FY 07/08 FY 08/09 FY 09/10 1. Home and motor claims 2. Business technology 3. Sourcing 4, COEs and org redesign 5. Other operational efficiencies| 6. Reinsurance | 68