After two years of suffering from weak investment markets and heavy insurance claims, motoring and insurance group RAC bounced back last financial year with a $41.3 million surplus.
The stars were aligned for RAC, which enjoyed strong investment returns, low insurance claims and an improved operating result from its club and motoring services.
In the previous 2002-03 financial year, RAC reported a net profit of just $980,000.
Group chief executive Terry Agnew said short term results were inherently volatile and the group focussed on long term performance.
The company generated a total return of 13 per cent on its $380 million investment portfolio 2003-04, compared with negative returns in the two previous years.
In the past five years, RAC’s annualised investment return was 6.8 per cent, which Mr Agnew said was just ahead of the benchmark set by the group.
The strong investment return in 2004 contributed directly to the high profit, as $11.9 million of unrealised gains was taken to revenue.
The good investment return also allowed the group to add $20.0 million to its asset revaluation reserve, which had fallen to zero in the previous year.
RAC Insurance - a house and car insurance joint venture with national firm Promina - also contributed to last year’s higher profit.
Mr Agnew said the 2003 financial year had been one of the stormiest of the past decade whereas the 2004 financial year was much more benign.
As a result, RAC’s profit from the joint venture rose from $4.2 million to $15 million.
RAC’s main source of income was once again membership subscriptions and entrance fees, which rose 15 per cent last year to $34.7 million.
The increase reflected higher membership of almost 449,000 and higher fees.
RAC’s motoring and services segment, which includes the breakdown service, continued to be a drain on the group.
It incurred a loss of $10.7 million, down from the previous year’s loss of $13.0 million.
The financial services business, which provides consumer and property lending, posted a steady profit of $2.9 million despite rapid growth in revenue.
Mr Agnew said 2005 would be a major milestone for RAC, which will celebrate 100 years and will move to a new headquarters in Wellington Street.
The group will focus on building some of its emerging business lines, such as mortgage broking, home security and consumer finance.
It also anticipates redundancies in some of its operations, with an unspecified provision created last year to cover restructuring
expenses.