Tuesday 5 March 2019 8:53 am

Direct Line operating profits slip as it warns on impact of no-deal Brexit


Reporter covering retail and property. Email stories to seb.mccarthy@cityam.com

Reporter covering retail and property. Email stories to seb.mccarthy@cityam.com

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Direct Line posted a fall in full-year earnings this morning, with the blue-chip insurer striking a cautious tone over threats of a "disruptive Brexit".

In outgoing boss Paul Geddes’ final annual results statement for Britain's largest motor insurer, operating profits dipped during the 12 months and the total dividend payout was slashed.

"The increased focus on own brand products is the main driver of today’s numbers, with the end of Sainsbury and Nationwide Home insurance partnerships hitting premiums and profits," according to Nicholas Hyett, equity analyst at Hargreaves Lansdown.

Hyett added: "In the long run an increased proportion of own brand sales should be good news though – the lack of commission payments to partners means own brand sales are potentially higher margin and direct access can also make them stickier customers."

Read more: In for a Penny: Direct Line promotes finance chief to top job

The figures

Operating profit dipped 6.4 per cent from £642.8m in the 12 months to the end of 2017 to £601.7m last year.

The firm declared a special dividend of 8.3p, marking a 44 per cent drop from 15p a share declared last year.

As a result, total dividends fell to 29.3 pence per share for the year, down from 35.4 pence per share.

However, pre-tax profits hit £582m in 2018, rising 8.1 per cent on the year before, with the group saying that the decrease in operating profit was “more than offset by the non-repeat of finance costs in relation to the debt repurchased in 2017”.

The board also announced a final dividend of 14p, marking a 2.9 per cent rise on the year before.


Direct Line also reiterated its target for 2019 and over the medium term of achieving a combined operating ratio of between 93 per cent and 95 per cent.

 

What Direct Line said

Paul Geddes, the outgoing chief executive of Direct Line Group who is currently among the executives tipped for the job of chair at John Lewis, said: "I am pleased to announce a strong set of results driven by our resilient business model which performed well in a highly competitive market. We have added a million direct own brand policies since 2014 showing that our customers value our brands, propositions and service.

"We enter a pivotal year of operational delivery in 2019. This includes starting the roll-out of the latest generation IT systems for personal lines, following the successful launch of our new systems for small businesses in 2018, which we believe will deliver benefits for customers, colleagues and shareholders over the coming years. This aims to provide the springboard from which to deliver a step change in both capability and efficiency to help to grow the contribution from current-year profitability.

"This gives us the confidence to continue to target a combined operating ratio of 93% to 95% in 2019 and over the medium term.

"It gives me great pleasure to be handing over to Penny James as our next Chief Executive Officer with effect from the annual general meeting (AGM) in May. Penny's expertise as our Chief Financial Officer and the breadth of experience she brings from previous roles will be invaluable as she leads the business. I've worked closely with Penny for over twelve months and have been impressed by her drive, energy and ambition for the Group. I am pleased to be leaving the Group in such experienced and capable hands."

 

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