13/10/2009 - 15:46

RAC Insurance revaluation reduces losses

13/10/2009 - 15:46

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A revaluation of the recently re-purchased RAC Insurance by the Royal Automobile Club of WA has nearly offset the investment losses it felt at the hands of the global financial crisis.

A revaluation of the recently re-purchased RAC Insurance by the Royal Automobile Club of WA has nearly offset the investment losses it felt at the hands of the global financial crisis.

RAC has posted a loss of $7.9 million for the 2009 finanical year after its investment portfolio was hit by the effects of the economic downturn but it remains confident of continuing its bounce back this year.

As one of Western Australia's biggest locally-run financial services groups, revenue increased by more than $240 million to $399 million, following the buy-back of the 50 per cent stake in RAC Insurance from joint venture partner Suncorp-Metway for $104.65 million.

The revaluation of the insurance business following the buy-back contributed $48 million to the 2009 profit including amortisation, which will continue over 10 years.

A spokesperson for RAC confirmed that the group would have suffered significantly larger losses if the revaluation hadn't occurred.

The spokesman also said the group made redundant 90 positions during FY09 as part of an ongoing review.

After nearly a decade, RAC Insurance is once again a wholly-owned WA insurer after leaving the state in 2000, RAC claims.

The group's net consolidated assets increased by $6.8 million to $638.3 million, while its total assets increased by $232 million to $1.1 billion as total liabilities increased by $225 million to $473 million.

In the past two years the RAC's investment portfolio declined because of the economic downturn and there were write-downs for the group's fund management and property portfolios.

This includes an impairment of $34.7m on current financial assets and a realised loss of $38.6m on assets sold.

RAC is confident its investment portfolio will bounce back and it has already recovered by 17 per cent in the last six months following the low point in March.

This follows strong performances in previous years with $74.3 million of realised gains in 2006/2007 after the investment portfolio was restructured.

Since 30 June the Group's investment reserves have increased by $16.7m with the portfolio generating a return of 8.1% for the September quarter.

The RAC also purchased the state's only specialised driver training facility, the Driver Training and Education Centre (DTEC) located near the Perth International Airport, with a consideration of $8 million plus contingent consideration of $2 million.

The announcement of the purchase of the DTEC, which was formerly known as the AHG Driving Centre, was made in July and presently the RAC Driving Centre offers a range of driving courses from defensive driving to four wheel drive training to both business and individuals.

 

 

 

 

Full announcement below:

RAC Concise annual report
Group CEO's Takeouts

General
oThe RAC Group has announced a loss of $7.9m for the 2009 financial year
oThe RAC remains in a financially sound position with a strong balance sheet after several years of substantial growth.
oThe Group's net assets increased by $6.8m to $638.3m.
oThe total revenue from continuing operations increased by more than $240m ($158m to $399m) on the back of the buy back of the 50% stake in RAC Insurance
oThe Group's total assets increased by $232m to $1.1bn while total liabilities increased by $225m to $473m
Investment Portfolio
oThe RAC takes a long term view of its investment portfolio and its performance over a five year period, including the economic downturn, has seen average growth of more than 5% p/a - which exceeds benchmark.
oIn the past two years the RAC's investment portfolio has declined because of the economic downturn and there were write-downs for the Group's fund management and property portfolios. This includes an impairment of $34.7m on current financial assets and a realised loss of $38.6m on assets sold.
oThe portfolio has performed strongly in previous years with $74.3m of realised gains in 2006/2007 after the investment portfolio was restructured
oRAC is confident its investment portfolio will bounce back and it has already recovered by 17% in the last 6 months following the low point in March.
oSince 30 June the Group's investment reserves have increased by $16.7m with the portfolio generating a return of 8.1% for the September quarter.

Business Investments
oThe organisation's strategy has been to invest in businesses that can add value to the RAC's membership.
oThe insurance acquisition last year was $104.65m that included $61.34 in tangible assets and $42.31m of investment value.
oThe revaluation of the insurance business following the buy back also contributed $48m to the 2009 profit including amortisation. Amortisation will continue over 10 years.
oThe RAC also purchased the RAC Driving Centre with a consideration of $8m plus contingent consideration of $2m.

Operations
oRevenue from the core businesses of motoring and insurance increased for FY09.
oExcluding the investment portfolio's movement and other one off income and costs there was an underlying profit in FY 2009 of $13m.
oThere were business restructure changes to head office management and administration roles and to smaller businesses where there had been declining demand. Services such as insurance, roadside assistance and auto services have been largely unchanged.
oRAC membership has grown by 4% and the RAC continued to deliver excellent service to members with satisfaction levels around the key products of roadside, insurance, finance and auto services remaining consistently high

Investing in people
oThe RAC's performance is underpinned by its people and we will continue to invest in developing an achievement culture within the organisation.
oThe RAC has also achieved Worksafe Gold Accreditation reinforcing progress on health and safety.
oWe have been acknowledged for our investment in young people and have received Julia Gillard's Federal Award for investment in apprentices.

Looking to the future
oThe RAC's focus is on our members and continuing to add value to membership.
oThe RAC is currently investing in technology that will enable RAC to offer better service and products to members across the board. There are three significant projects that and currently being implemented across the RAC.
oThere will be an increased focus on what the RAC does on behalf of its members and how it champions issues of concern to members when it comes to roads, cars, road safety, the environment and mobility.

 

In October last year the RAC revealed it paid $104.6 million to buy-out joint venture insurance partner Suncorp-Metway Ltd, the Queensland financial services player hit by the current credit crunch.

The cash consideration, little more than the $100 million paid by Promina for the half-share in 2001 before it was acquired by Suncorp-Metway, is revealed in the RAC's annual report to members and well below industry expectations.

In the annual report, RAC, arguably WA's biggest locally-run financial services group following the sale of BankWest to Commonwealth Bank, has also revealed its own financial hit from the financial crisis engulfing the world, with group reserves decreasing by $31.5 million.

RAC CEO Terry Agnew said the volatility in the share market had hit equity investments, but rising interest rates would help lift the value of other investments.

He said the group has also benefited considerably from rises in the commercial property market, notably its major holdings in its West Perth headquarters, an adjoining block and centres in Joondalup and Balcatta.

Mr Agnew said RAC's key business segments were typically essential services and not likely to be hit by a cut in discretionary spending, should it occur.

RAC's insurance business is focused on the home and private motor vehicle markets.

Mr Agnew added that current market conditions could create buying opportunities for the group in the next 12 months.

Net assets dropped to $631.5 million from $653.1 million, total assets fell to $879.2 million from $929.6 million and non-current, available-for-sale, financial assets fell almost 40 per cent in the financial year to $227.7 million from $369.2 million.

Net profit was down considerably at $9.7 million, though the previous year's result of $98.9 million was boosted by a $74.3 million disposal of available-for-sale financial assets and the strong share market performance.

However, the net result still reflected significantly higher costs across the board, notably a jump of almost 14 per cent in employee benefits expenses to $66.4 million from $58.5 million. Mr Agnew said this reflected a bigger organisation and investment in training and development.

"These are investments in talent which you don't get an immediate benefit from," he said.

 

 

 

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