QBE shares went for a run yesterday, rising 14% at one stage before closing up 8% (to $11.27) after the group produced a solid 2015 profit result, once you had worked your way through the impact of the stronger US dollar and the company’s cost cutting and asset rationalisation.
The company reported a 7% fall in full-year net profit to $US687 million ($950 million) from $US742 million a year earlier, raised its final dividend to A30c a share and pointed out that once you had smoothed out the impact of the stronger dollar, revenue and earnings were up by as much as 21%.
The company posted an insurance profit margin of 9% – a slight improvement on the 8.4 per cent achieved for 2014, the combined ratio was well under 100%, meaning the company earned an underwriting profit, and other costs were under control – but not the income it receives from its ‘float’ which is mainly invested in fixed interest securities, such as US Treasuries.
The latest results show more results from the sliming diet from the over expansion driven by former CEO, Frank O’Halloran. Underperforming or weakly positioned businesses have been sold – mostly in the US, South America and Europe.
Since its “transformation” program (cost cutting) began three years ago, the group claims savings of $US400 million in costs, including $US126 million last year.
QBE says it is targeting a further $US150 million cut to operating expenses, which will translate to a 1% fall in its 2016 expense ratio. It is also earmarking another $US150 million in cost savings in 2017-18, bringing QBE’s cost savings to $US700 million over the six years to 2018.
The 94% combined ratio result for 2015 was its best performance since 2010, aided by the cost cutting and getting rid of weakly performing businesses in countries such as Argentina.
“Our ongoing focus on operational excellence, coupled with a return to organic premium growth, should translate into meaningful margin improvement, positioning us well for earnings and dividend growth over the medium to long term,” MCEO, John Neal said yesterday.
QBE shares had fallen 10.5% in the past year to $10.39 at the close on Monday. Yesterday that slid was almost eliminated in a favourable investor reaction to the 2015 figures.
