Suncorp Metway's first-half profit jumped 41 per cent to $364 million, but the Brisbane-based financial services group has cut its dividend to preserve cash.
The interim result was driven by a rebound in insurance markets and helped by a drop off in claims.
Earnings results from today and throughout the season
Shortly after the market opened this morning, Suncorp stock was down 41 cents to $8.80.
Still, Suncorp's bank – which was last year split into a “good” and “bad” loans book was barely profitable, returning cash earnings of just $4 million for the half.
The latest result falls in the the middle of the $355 million to $375 million profit guidance range Suncorp issued earlier this month. However the interim dividend payment of 15 cents a share for the half was 5 cents down on the same payment a year ago. Most analysts had tipped Suncorp to deliver an interim dividend of 20 cents.
Suncorp chief executive Patrick Snowball said that while the increase in profitability was pleasing, the financial services group would maintain a cautious and conservative approach to managing its business over the short term.
“Although there is still a lot of hard work ahead of us to ensure Suncorp realises its full potential, this result has laid a sound foundation for the Group’s future success” Mr Snowball said.
The recently appointed Mr Snowball said he had achieved his immediate priority of stabilising Suncorp’s position, while topping up capital and reserves while overhauling executive ranks.
“Our priority now is to drive improved financial results from all of our businesses.” Mr Snowball said.
Suncorp's general insurance, business which operates brands such as AAMI, GIO and Vero delivered an interim profit of $347 million which was up 89 per cent on the previous corresponding period. The result was backed by improved investment returns and a lower claims environment with reduced frequency of storms, floods and fires compared to last year.
The insurance trading result was $401 million or 12.8 per cent of net earned premium.
Suncorp today detailed plans to sell its 50 per cent stake in the two joint venture insurance operations of the Royal Automobile Club of Queensland (RACQ) and the Royal Automobile Association of South Australia (RAA) back to the respective motoring clubs.
“While the joint ventures have proven to be good investments for Suncorp, the next phase of our development requires a full time focus on our core operations,” he said. Suncorp will exit the RACQ and RAAI joint ventures in accordance with the shareholder agreements that are in place," Mr Snowball said.
He did not disclose the amount expected to be raised from the sale.
The profit of $4 million from Suncorp's banking arm was well down on last year's first-half profit of $97 million, as bad debts continued to play havoc with its lending book.
However the core bank - or widely known as the lower risk good bank - delivered pre-tax profit of $224 million. This was largely offset by a loss of $211 million in the non-core bank which has been placed into run off.
Suncorp said credit quality across the $37 billion core bank portfolio remained sound, reflecting its high security, low risk nature.
Net interest margin in the core bank portfolio was 1.76 per cent for the half-year to 31 December 2009, an increase of four basis points over the margin for the fourth quarter of the 2009 financial year.
The non-core bank which has $15.6 billion worth of loans mostly focused on commercial property and corporate exposures, suffered significant increases in term funding costs as Suncorp attempted to lengthen the maturities of its funding book. Non-core impairment losses for the half year were $272 million.
Mr Snowball said the banking split and funding overhaul has been crucial to helping restore confidence in Suncorp’s prospects.
"Although this initiative will have a short to medium term impact on earnings, it is absolutely essential for the long term viability of the Group,” he said.
Elsewhere, underlying profits across Suncorp's life insurance business dropped 15 per cent to $86 million, mostly as returns came under pressure following a decision last year to de-risk its operations.
Suncorp’s board continues to be overhauled with two long-serving directors, Martin Kriewaldt and Cherrell Hirst, flagging their intention to retire.
Former Commonwealth Bank senior executive Stuart Grimshaw recently joined Suncorp's board.
ejohnston@theage.com.au
