SUN's upbeat talk eclipsed by earnings, payout cut

Company News

by Glenn Dyer

Suncorp (ASX:SUN) has slashed its payout to shareholders after reporting a sharp fall in earnings for the 2021-22 financial year.

The Brisbane-based company which wants to sell its regional bank to the ANZ, revealed Monday that its annual net profit fell 34.1%, driven by investment market volatility and the cost of the record wet weather and floods in the final months of the financial year.

Suncorp reported a net profit of $681.0 million for the year to June, down from $1.03 billion a year earlier.

Suncorp’s cash earnings fell 36.7% to $673.0 million.

Dividends were slashed – the final of 17 cents a share was down from a 40 cent per share payout and an 8 cents per share special for 2020-21.

The lower final for 2021-22 took the full year payout to 40 cents a share, almost half the 74 cents a share paid for 2020-21.

Investors didn’t like that and sent the shares down 4.6% to $11.11 yesterday. That’s where the shares were in early July, before the ANZ bank sale proposal was announced and boosted the shares.

CEO Steve Johnston was all upbeat in commentary, saying that “in a challenging year, the company had maintained momentum delivered on its key strategic initiatives.”

“We are proud of what we have delivered this year and the hard work we have done over the past three years means we are able to reaffirm our FY23 targets,” he said.

No where in the strategy statements from the company was there an objective to report a lower profit, but the company’s insurance arm (mostly AAMI, GIO, APIA) was hit hard by storms, floods and rain.

That had a dramatic impact on Suncorp which said the prevailing La Nina weather pattern across Australia and New Zealand had led to 35 separate weather events and around 130,000 natural hazard claims in the year to June 30.

“This resulted in the Group exceeding its natural hazard allowance by $101 million, with significant recoveries made under the Group’s reinsurance program.

“Volatile investment markets, including rapidly rising yields and widening credit spreads, drove mark-to-market losses across the Group’s $14.9 billion investment portfolios.

The net loss from investment market volatility was $190 million compared to a profit of $453 million in the prior year. Given the Group holds its fixed interest investments to maturity, the majority of these FY22 accounting losses are expected to unwind to profit over coming periods, meaning an upturn in contributions from its portfolio.

“At the same time, we have maintained our focus on executing our strategic initiatives and this has allowed us to offset increasing inflationary pressures, particularly in home and motor vehicle repairs.

“A highlight of this result is the GWP (Gross Written Premium) growth that has been delivered and the increased underlying ITR, which demonstrates that we can meet the needs of customers and make good progress against our strategic initiatives.

“We are proud of what we have delivered this year and the hard work we have done over the past three years means we are able to reaffirm our FY23 targets.”

Insurance Australia delivered full year GWP growth of 9.2%, excluding portfolio exits, which was broad based across all portfolios.

Suncorp’s New Zealand insurance business delivered GWP growth of 14.1%, with “growth in both Intermediated and direct distribution channels.”

Mr Johnston said the decision to sell Suncorp Bank to ANZ Banking Group, announced on July 18, followed a comprehensive strategic review. The sale remains subject to regulatory and government approvals, with a targeted timeframe for completion of approximately 12 months.

“The strategic rationale for the sale is compelling. With the ability to focus exclusively on our insurance businesses, Suncorp will become a leading trans-Tasman insurer and have a louder voice in advocating for greater resilience and mitigation measures to better protect our customers and the community.”

“Our insurance strategy is delivering and once the sale process is complete we will be able to do more, and faster,” he said.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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