--IAG net profit in fiscal 2012 slumps 17.2% to A$207 million on
UK writedowns
--But shares surge 4.4% to 2.5-year high as investors take heart
from domestic growth
--Chief executive forecasts 9%-11% gross written premium growth
in fiscal 2013
By Caroline Henshaw
SYDNEY--Shares in Insurance Australia Group Ltd. (IAG.AU) surged
to a nearly 2.5-year high on Thursday as investors shrugged off
poor results from the group's ailing U.K. business to focus on
growth in its domestic business.
IAG's net profit fell 17.2% to A$207 million in the 12 months to
June 30 after the insurer booked almost 300 million Australian
dollars (US$315 million) of writedowns from its ailing U.K.
operations. That figure was less than half the consensus profit
forecast of A$498 million by five analysts polled by Dow Jones
Newswires ahead of the result and down from A$250 million the
previous year.
Severe flooding in Thailand also helped to drag IAG's Asian
operations to an overall loss of A$59 million for the year.
But investors shrugged off the news, instead taking heart from
above-consensus growth across much of the listed insurance giant's
business.
Insurance profit jumped more than a quarter to A$832 million, up
from A$660 million a year before, while cash earnings for the year
climbed 17.5% to A$583 million, IAG in a statement. As a result,
the group will pay out a dividend of 12 cents a share, taking the
full-year dividend up one cent to 17 cents.
Group revenue for the year, measured as gross written premiums,
rose 11.7% to nearly A$9 billion. Chief Executive Mike Wilkins
forecast this will grow a further 9%-11% in fiscal 2013 as
"momentum" across IAG's Australia Direct, CGU and New Zealand
businesses continues.
Insurance margins rose 150 basis points from fiscal 2011 to
10.6%, in line with previous guidance of between 10%-12%, as the
insurer recovered after a record year for natural disasters that
ate into its profits in fiscal 2011.
At 0207 GMT, IAG shares were up 3.9% at A$3.99, outperforming a
mildly higher market to sit just below their intraday peak of
A$4.04--their highest point since December 2010.
"This is an excellent result," said Bell Potter senior analyst
TS Lim. "The outlook for the year ahead is bullish; I can see
upgrades coming through."
Macquarie analysts agreed, reiterating their outperform rating
on the stock with a 12-month price target of A$3.84 on the back of
its "high-quality result," and described the U.K. goodwill write
off as "irrelevant."
Mr. Wilkins said IAG hopes to complete the turnaround of its
troubled U.K. business before the end of the year. In total, the
insurer has written off A$297 million in remaining goodwill and
intangible assets associated with the divisions, which it bought in
2007.
Overall its specialist motor underwriting operation Equity Red
Star and brokerage Barnett & Barnett divisions posted a loss of
A$8 million for the year but are expected to swing to a modest
profit in fiscal 2013, he said.
"We're not sitting on our hands on this," he told analysts on a
conference call. "We're also looking to address the cost-base issue
as well."
Write to Caroline Henshaw at caroline.henshaw@wsj.com
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