Suncorp Metway announces solid profit result
Suncorp Metway has reported a solid 11 percent increase in profit after tax but before abnormals to $259 million for the year to June 30.
Profit after tax and abnormal items increased 6 percent to $247 million.
An improved underwriting performance, sharply reduced bad debts and strong investment returns enabled the company to lift earnings. This was achieved while the company simultaneously launched the new Suncorp Metway brand name and continued its major internal restructuring program.
Directors declared a fully franked final dividend of 22 cents per share, taking the full year dividend to 44 cents.
Directors also declared a $19.8 million dividend on the 100 million subordinated shares which were issued to the State Government as part of the merger of Suncorp, Metway and the QIDC in 1996.
Chairman John Lamble today announced the company was planning a share buyback of up to $300 million. This would reduce excess capital and lift return on equity. The timing and price of any buyback would be dependant on market conditions, and was subject to regulatory approval.
He said the group profit was pleasing, considering the intensely competitive environment for banking and insurance. The profit increase was achieved despite significant one-off costs incurred during the year arising from Year 2000 preparation, internal restructuring and the May launch of the group's new single brand name - Suncorp Metway. These costs totalled $82 million, compared with $12 million in 1998.
If these costs had been excluded from the results, the profit before goodwill, abnormal items, bad debts and tax would have increased by 21.5 percent to $458 million.
Managing director Steve Jones said it was especially pleasing to see that while so much effort had gone into improving the group's cost structure and operational efficiency, staff were still able to keep their momentum in the market, increase cross-sell ratios and lift profit.
He said that during the year, the company had managed the implementation of the new brand, and the accompanying restructuring of the distribution network.
He said the company also had completed the bulk of its Transformation re-engineering project, which had achieved benefits to date worth $165 million.
"These are major milestones for the company, and make us much more efficient and competitive going forward," he said.
In the year now under way, the company is focused on delivering its Allfinanz strategy. During the year to June, the group implemented Allfinanz initiatives such as its alliance with the Pivot fertilizer group in Victoria, and the move to offer home loans through the company's LJ Hooker real estate subsidiary. Recent surveys confirm that Suncorp Metway has achieved the highest cross-sell rates of any financial services company in Australia.
Mr Jones said that the current year presented challenges associated with Y2K and GST.
"We are confident the company's computer systems will come through in fine shape, because of the excellent preparatory work which has been done," he said.
"Customers and shareholders can be confident their funds and records will be safe.
Turning to the year ahead, he said he was looking forward to further earnings improvement.
"With the bulk of the improvement initiatives behind us, the benefits of these programs should start to show more clearly in the reported results," he said.
| Divisional profit, before goodwill, abnormal items and tax | 1999 | 1998 |
| Banking | 157 | 157 |
| General Insurance | 169 | 120 |
| Life, Superannuation | 25 | 23 |
| Other | 5 | 4 |
| TOTAL | 356 | 304 |
The General Insurance division produced the largest profit increase within the group, with earnings boosted by significantly improved claims management, increased premium income and strong investment returns.
While other major Australian insurance companies suffer from substantially increased underwriting losses in 1999, Suncorp Metway was able to improve its underwriting result by $59 million during the year. This was a result of an excellent reinsurance program and by reductions in claims liabilities because of improved claims management techniques.
Within the banking division, pre-tax profits were stable at $157 million despite falling margins. A considerable reduction in bad debts expense, following the review of the former QIDC investment portfolio in 1998, contributed to the result.
The banking result also was affected by one-off costs totalling $56.9 million, compared with $7.9 million in 1998. If these costs were stripped out, banking profit would have increased by 30 percent to $214 million.
Pre-tax profits within the Life, Superannuation and Managed Investments operations increased from $23 million to $25 million, which is a respectable rise. However, the figures do not reflect the significant improvements achieved in that business during the year, which included a revised product range, changes to investment strategies and a restructuring of parts of the distribution network. These changes already are leading to increased sales of new products, particularly unit trust products, which will contribute to profits in future periods.
26 August 1999
