The Suncorp Group Ltd (ASX: SUN) share price will be in focus today after the release of the insurance and banking giant's full year results for FY 2020.
How did Suncorp perform in FY 2020?
For the 12 months ended 30 June 2020, Suncorp delivered a group net profit after tax of $913 million. This was up $738 million or 421.7% on the prior corresponding period.
However, this includes the profit after tax on the sale of Capital S.M.A.R.T and ACM Parts to AMA Group Limited (ASX: AMA) of $285 million and a $89 million non-cash impairment charge relating to the core banking platform.
It is also worth noting that the prior corresponding period was impacted by a $910 million after tax non-cash loss on the sale of the Australian Life business.
The company's cash earnings came in at $749 million, down 32.8% on the prior corresponding period. This was the result of lower prior year reserve releases, higher reinsurance costs, and the impact of the low yield environment in the general insurance businesses.
Also weighing on its cash profits were significantly higher credit provisioning in the banking business and higher operating expenses.
How did its segments perform?
It was a difficult year for much of the Suncorp business. Both its Australian Insurance and its Banking & Wealth businesses posted heavy declines in profits.
They recorded profit declines of 33.9% to $384 million and a 33.5% to $242 million, respectively, in FY 2020. Positively, its New Zealand business performed better and delivered flat profits of $245 million.
COVID-19 impacts.
Management advised that COVID-19 had a $140 million pre-tax negative impact on the company's FY 2020 result.
The pandemic had a positive $20 million impact on its Australian Insurance business thanks to lower motor claims frequency due to mobility restrictions. However, this was partially offset by lower new business volumes and customer relief packages.
The Banking and Wealth business was negatively impacted by $160 million. This was the result of COVID-19 impairment losses driven by a significant increase in its collective provision.
Finally, the pandemic had a neutral impact on the New Zealand business. The benefits of lower motor claims were offset by provisions for premium relief and hardship funds.
Dividend.
Unlike a few of its banking peers, Suncorp will be paying a final dividend in FY 2020.
The Suncorp board has determined a fully franked final dividend of 10 cents per share, bringing its total FY 2020 dividends to 36 cents per share. This reflects a payout ratio of 60.7% of cash earnings.
Management advised that the company remains well capitalised, with excess common equity tier 1 (CET1) of $823 million after adjusting for the final dividend.
Outlook.
The company warned that the operating environment remains highly uncertain as a result of the COVID-19 pandemic and the associated economic impacts. As a result, no guidance has been given for FY 2021.
In addition to this, management explained that while the board remains committed to its long-standing ordinary dividend payout ratio policy of 60-80% of cash earnings, this cannot be guaranteed. Future distributions will be informed by the outlook for the economy, the results of stress testing, and the operational needs of the business.
