Contrasting results from two established companies yesterday for the year to June.
Alcohol group, Fosters, produced a small rise in earnings and hopes for more this year; Suncorp Metway, the bank/insurer produced a profit, but that’s about all you can say.
Overall the results tell us that companies with good brands and lots of cash can survive self-inflicted wounds, like Fosters has with huge losses and poor returns from pouring more than $2.5 billion into wine.
Suncorp tells us that sometimes it can be a struggle to survive significant damage from lending too much to property and not only paying too much for a big acquisition ($7.9 billion for Promina).
That over-concentrated the company’s business mix in insurance, just as the sector was being hit by a string of bad weather claims, then the credit crunch and recession which destroyed returns.
The end result was that for a second year Suncorp has struggled, but 2009 was much tougher as bad debts exploded in banking and low interest rates, higher claims (and low releases from reserves) in insurance and the fall in the stockmarket added to the impact.
Suncorp lost its CEO during the year, and was forced to raise capital to replenish its financial base and cut dividend.
The upshot was a 40.3% fall in annual profit, which was roughly where the company had guided to in a statement several weeks ago.
Despite that the shares still fell 4% to $7.58, a fall of 22 cents.
Net profit for the year ended June 30 was $348 million, down from $588 million in the previous year, and at the lower end of its guidance for a result between $340 million and $360 million.
The company said in its ASX statement that profit before tax and the impact of its acquisition of insurer Promina was $799 million, against guidance of $790 million to $810 million.
Suncorp declared a final dividend of 20 cents a share, down from 50 cents a share a year ago, taking the total for the year to 40 cents. That was down from $1.07 in 2008.
The payout for the full year’s dividends will require $920 million, unchanged from a year ago.
But the final of 20 cents a share will take $523 million ($442 million for the final in 2008) because of the high capital from the share issue earlier in the year to raise capital.
The company only made $20 million in second half profit.
That will require Suncorp to dip into capital to pay the dividend.
Chairman John Story said it had been a challenging year for the Brisbane-based banking and insurance company.
"The 2009 financial year coincided with the most volatile period in Australian financial services history and, although underlying performance remained solid, each of our businesses was impacted by unfavourable operating environment," he said on Tuesday in a statement.
The banking business made a profit before tax, bad debts and one-off items of $781 million, down from the $668 million in the previous year.
It contributed a pre-tax $117 million to the overall result after weathering a full year impairment charge of $710 million, which was in line with guidance.
But that was still a shockingly high figure and came because of the heavy lending to Queensland property groups.
This represented 128 basis points of gross loans advances and other receivables. That’s more than the Commonwealth and Westpac, which both have figures of less than 1%.
Suncorp said lending growth slowed over the course of 2008-09, consistent with a slowing domestic economy and the bank’s stated objective of running off non-core portfolios.
"The bank performed solidly on an underlying profit basis, supported by a continuing focus on cost control, but this was offset by a significant increase in provisions for bad and doubtful debts," Suncorp said.
The insurance business contributed $573 million before tax, up from $307 million in the previous year.
The insurance trading result of $462 million, was down from $607 million previously, representing 7.7% of net earned premium. "Natural hazard events remained well above long-run expectations and reduced profitability by around $255 million," Suncorp said.
Suncorp Life, the business focused on life risk, saw in-force premium rise 7.3% to $733 million and life risk profit increase.
"Those results were offset by lower funds management profit" Suncorp said.
The business made an underlying profit of $122 million, down 16.4%.
Its contribution after tax, including investment income and other market adjustments, was $115 million compared to $111 million in the previous year.
Mr Story said that, irrespective of the effect of external factors, the board and management were conscious the annual result would be disappointing for shareholders.
Suncorp’s new chief executive officer Patrick Snowball starts next week on September 1.
At Foster’s Australia’s largest brewer and wine group, lifted earnings by a modest 4%, thanks to higher volumes for beer.
That offset another slump in wine earnings, a situation that is not likely to change quickly with the company warning that wine markets would remain "challenging".
Foster’s, which makes Beringer, Penfolds and Lindemans wines, said net profit before one-off items for the year to June 30 rose to $741.5 million from $715 million the previous year.
The annual result incl
