2004 ANNUAL REPORT Suncorp-Metway Ltd ABN 66 010 831 722 VISION To be the most desirable financial services company in Australia - For our customers to do business with - For our employees to work for - For the community to be associated with - For our shareholders to invest in Business Banking client David McNamee and his family operate a beef fattening operation near Millmerran,Toowoomba. With David is Suncorp’s Wallaby Wendell Sailor with an aspiring Wallaby at Geoff Magoffin (left) and Greg Leahy (right). the Suncorp Fan Day, Suncorp Stadium. CONTENTS Vision Statement IFC Company Profile IFC Financial Highlights 1 Chairman’s Letter to Shareholders 2 Managing Director’s Letter to Shareholders 6 Group Executive 13 Retail Banking 14 Claudia Rose Worland – Attends the Hear and Julie Miller, Business Banking Officer, Cairns. Business Banking 16 Say Centre. General Insurance 18 Wealth Management 22 Our People and the Community 24 Board of Directors 26 COMPANY PROFILE Suncorp is one Corporate Governance 27 of Australia’s 30 largest listed companies, with a Directors’ Report 34 market capitalisation of around $7 billion, Summary of key financial information 40 183,000 shareholders and 537 million shares on Statements of financial performance 41 Statements of financial position 42 issue. Our head office is in Brisbane, Queensland. Statements of changes in equity 43 We are Australia’s sixth largest bank and the third largest insurance group Statements of cash flows 44 with assets of more than $43 billion and $11 billion funds under Notes to the financial statements 45 management. There are 8,000 staff nationally. Directors’ declaration 134 The main businesses are retail and business banking, general insurance, Independent audit report 135 life insurance, superannuation and funds management with a focus on Definitions 136 retail consumers and small to medium businesses. We have 3.8 million customers across Australia and strong market shares in most of our Shareholder information 137 insurance business classes including Compulsory Third Party, home Key dates 142 and motor. Metropolitan Building Society Trust 143 Our two brands are Suncorp and GIO, which is our main insurance brand Contact details IBC outside of Queensland. FINANCIAL HIGHLIGHTS Suncorp 2004 ANNUAL REPORT 1 CHAIRMAN’S LETTER TO SHAREHOLDERS ‘We achieved record profits for the Company as a whole, record results in each of our operating divisions and announced a record dividend, so by any measure this is an outstanding financial performance.’ JOHN STORY, CHAIRMAN Dear Shareholder, The 2004 year is significant in the We entered into our third phase of history of Suncorp. It is the year in development under the outstanding which we have clearly entered into leadership of John Mulcahy, and The financial year ending the third phase of our the very effective management 30 June 2004 has been an development. In the first phase, team that he has, in a short time, important year for Suncorp. following the merger in 1996, welded together. This phase It has been a successful year in Suncorp was focused on the represents the consolidation of financial terms, as evidenced by integration of the three merger what has gone before and the the bottom line profit and the parties. This was a formidable realisation of the potential and substantial increase in dividend. challenge, but was well executed. opportunities that had been More significantly, it has been a In the second phase, Suncorp created. This in no way implies that successful year in operational acquired and integrated the we have been standing still. The terms, and that success has not businesses of GIO. The acquisition diversified financial services only led to this year’s financial of GIO was of enormous strategic strategy announced in June 2003 result but has provided a sound importance for Suncorp, but the is in the course of being base for confidence for integration was a further formidable implemented and applied. The future years. challenge. This strained our organisational structure and resources, and had implications leadership roles and positions have with respect to growth across the been comprehensively reviewed, entire organisation. It has, however, and detailed operational proven to be a highly successful improvements have been acquisition, and the operations of introduced throughout the GIO are now integral to the organisation. The change business of the Company. John Story meets with shareholders at the 2003 Annual General Meeting. 2 Suncorp 2004 ANNUAL REPORT within Suncorp during 2004 management, we have realistic While it is clearly an excellent has been profound. grounds for optimism. result, the headline numbers can be skewed by external factors such The outcome is a company of as the strength of the sharemarket, which we may all be proud. In Financial Results which affects our investment offering diversified financial returns, and by one-off profits services, with the strength of its Overview during the year, such as the sale operations in banking, general of our investment in the Cashcard insurance and wealth management, The Company has reported a full business for a $31 million pre-tax and with the strength of those year profit of $618 million after tax, gain. If we exclude those items to operations throughout Australia, which was up 61 percent from get a better understanding of Suncorp is unique. In its third $384 million in 2003. Profit for the underlying performance, we see phase, Suncorp is emerging as a last six months to June increased earnings still increased by great Australian company, with a by 47 percent to a record 34.7 percent to $784 million, strong focus on meeting customer $337 million. before tax. So the core profitability needs. But we also recognise that Cash earnings per share for the full of the Company has improved we have our base and our roots in significantly over the year. Queensland, and we will retain our year increased 51 percent to market position and community $1.24 per share, and return on As indicated in the table, each role within Queensland. shareholders’ equity, before of the operating divisions has goodwill, was a respectable produced a commendable increase 2004 has been a great year for 17.5 percent. in earnings. Suncorp, and as we enter the third phase of our development with The financial results are The Banking division lifted profit by sound, effective and professional summarised in the table below. 16.7 percent to $371 million, with the highlights being a rapid recovery in home lending, the Year ended continued outperformance of our business banking operations, Jun-04 Jun-03 Variance maintenance of margins and the $m $m % very sound credit quality of Profit Overview the entire book. Banking 371 318 16.7 In General Insurance, the result General Insurance 465 233 99.6 rose by almost 100 percent to Wealth Management* 66 41 61.0 $465 million. Operating conditions Other 43 9 377.8 in the industry have recovered significantly over the past two Profit before tax and goodwill 945 601 57.2 years as insurers have adopted Goodwill amortisation (60) (62) (3.2) more disciplined pricing practices, Tax (267) (155) 72.3 and as legislative reforms have Net profit 618 384 60.9 reined in escalating claims costs. * Excludes Life and Super policy owners’ interests, and tax Suncorp 2004 ANNUAL REPORT 3 Suncorp has a strong focus on meeting customer needs, and in response to customer demands we opened a number of new branches during the year, including Victoria Point, Queensland. Consequently, the industry as a Wealth Management similarly has credits only have value in the hands whole is now earning a level of enjoyed a strong improvement in of the shareholders. The increased profits which is more appropriate investment earnings, contributing dividend helps us to pass more of for the risks involved. The to a 61 percent increase in profit this value through to shareholders. improvement simply reflects the to $66 million for the year. The payout ratio for the full year fact that the industry in prior remains at 63 percent, and was periods was recording very poor 66 percent for the second half, profitability, which ultimately led to Dividend which is a prudent position, having the demise of some participants, or regard to our capital needs for the withdrawal of some insurers The strength of these results, future growth, and our goal of from markets such as public combined with the underlying delivering good returns for liability. The improved profitability of performance of the Company, has shareholders. the industry is a good thing for all given the Board the confidence to consumers, because it means that announce a significant increase in they can be much more confident the final dividend to 40 cents per that their insurance provider is Outlook share, up from 30 cents for the strong and secure, and will be June half of 2003. That takes the there to pay claims when needed. Your Board and Management are full year dividend to 70 cents per optimistic about the future. The Suncorp insurance business, share, fully franked, which fresh from the merger with GIO, represents a 25 percent increase In general terms, the business has been well positioned to benefit in the dividend for the full year. environment continues to be from that structural upturn in the conducive to growth. The economy The increase in dividends reflects industry. Our results show the remains resilient, inflation remains the significant step-up in our business has been operating well in check, unemployment is low earnings profile during the past efficiently, and generating and interest rates are not expected year as we have reaped the full satisfactory underwriting results. to increase sharply in the near benefits of the GIO acquisition and The profit has also been assisted term.