Aub Group Limited · ASX:AUB
Aub — Austbrokers Holdings — Investor Presentation (March 2006)
51 slides from Aub's investor presentation, Mar 28, 2006
Slide 1: Austbrokers Holdings Limited Group Strategy Presentation
AUSTBROKERS HOLDINGS LIMITED GROUP STRATEGY PRESENTATION Goldman Sachs JBWere 28 March 2006
Slide 2: Presenters and Agenda
nT ji Presenters and Agenda Steve Ball, President - National Insurance Brokers Association (NIBA) « Industry Structure « Insurance and broking cycles e Current trends Lachlan McKeough, CEO and Stephen Rouvray, CFO - Austbrokers Limited * Group Structure, Group Strategy and Outlook Greg Arms, Nationa
Slide 3: National Insurance Brokers Association (NIBA)
National Insurance Brokers Association (NIBA) Stephen Ball, President 28 March 2006
Slide 4: The Australian Insurance Broking Industry
The Australian Insurance Broking Industry « Who is NIBA e Insurance Broking Industry Structure ~ Relationship between the insurers, the brokers and the customers ~ Major players by market share ~ Market segments for the internationals vs. SME specialists vs. retail ~ Buyer groups - Consolidators - A
Slide 5: Who is NIBA
Who is NIBA The National Insurance Brokers Association of Australia was formed in 1982 e Peak body for General Insurance Brokers in Australia e Leader of regional Insurance Broking Association, CIIBA and participating member of World representative organisation , WFII. e 494 Member firms in Australi
Slide 6: Insurance Broking Industry Structure
Insurance Broking Industry Structure Relationship between the insurers, the brokers and the customers Clients _ __ Market Cycle Broking House Brokers . _ Underwriters _
Slide 7: Australian Insurance Broking Industry Structure
Australian Insurance Broking Industry Structure Australian Insurance Braking Industry Endepondunt Industry Bory a0 vet te wen 60 nein, wb tle ‘in af cemeesneck sean Wainer base archers (hendie 4 ba» preesasns nmi ae gees arose ot af Austratia's toval ingsrinee Simines) Aine Cent 28 eerste Leh ‘insmo
Slide 8: Insurance Broking Industry Structure
Ensurance Broking Industry Structure Overview Fragmented industry but consolidating ® 700+ licensed insurance brokers; $9bn gross premiums « Consolidation has accelerated in the last 5 years » Sub Groups emerging Market seqments Major Corporate Business » Requires significant input into strategy, pr
Slide 9: Insurance Broking Industry Structure: Buyer and Consolidator Groups
Ensurance Broking Industry Structure Buyer Groups Consolidator Groups Broker Representatives Steadfast TBNA ( 264 ) (79) Austbrokers OAMPS (33) ( 106 est } NIBA (495) RIBA (18) COB (60) Organising body ~ Has no underlying equity interest in the individual brokers. Use collective scale to procure bet
Slide 10: Impact of the Cycle
Impact of the Cycle Prices rising rapidly Insurers posting losses Coverage tightened Reinsurance Prices stop rising Insurer profits increasing Reinsurance becoming more readily available Prices falling rapidly Insurer profits Underwriting peak cycle Covers breadening Reinsurance readily available Pr
Slide 11: Insurance Broking Industry Cycle: Insurers, Brokers, Customers
Insurance Broking Industry Cycle 3 different stakeholders - The Insurers, The Brokers and The Customers Premiums declining Premiums increasing Insurers High Profitability = Surplus capital = Increased competition = Decrease In premiums Low Profitability / Difficult conditions = Capital Depleted = Ra
Slide 12: Insurance Broking Industry Cycle - Reasons
Insurance Broking Industry Cycle - Reasons Fundemental cause * Substantial premium increases in 2001 — 2003 External Causes * Low inflation * Dry weather * Tort reform * Increased competition ~- new markets and specialty underwriters, increased retention Internal Causes * Good underwriting results *
Slide 13: Where are we now in the cycle?
Where are we now in the cycle? The Insurance and Broking Cycles ercial Lines: 60% "99 = 02: . “103 = 05: increased : 5 Technical sophistication of ; correction to pricing.models. — overheated.prices. 50%. 94 ~ 98: Lack of. sophistication in pricing dels Commercial Motor Public & Product Liability ‘m
Slide 14: Insurance Broking Industry Cycle - Now
Insurance Broking Industry Cycle - Now Market Cycle ~ Current position Overall perception Falling Domestic +/-5% Statutory classes minus 5 - 10% Commercial Zero - minus 20% Larger Corporate minus 20% + Underwriters and Brokers agree Further reductions in 06 ~ 07 but slowing down
Slide 15: Current Industry Trends - Major issues for Brokers
Current Industry Trends - Major issues for Brokers The top 10 Issues FSRA compliance issues 44% Continued cansolidation/competition 44% Attracting right people to industry 33% Maintaining technical pricing 33% Sensible underwriting / regulatory supervision 22% Tort reform 22% Customer service standa
Slide 16: Current Industry Trends
Current Industry Trends Demographics - Aging members, Recruitment of experienced staff, availability of Trainees Professional Developrnent, Remuneration strategies, Aging custorners, Growth of Franchise movement / schemes, Globalisation? Regulation - Monitor FSRA Refinements, maintain internal cormp
Slide 17: Austbrokers Group Structure, Strategy and Outlook
<All> a@ustbrokers Austbrokers Group Structure, Strategy and Outlook ~~ Lachlan McKeough, CEO and Stephen Rouvray, CFO
Slide 18: Outline
Outline * Group Structure Ownership Structure Organisational Structure Regional Network and Specialist area’s Net Income Split * Group Strategy Owner Driver Model and strengthening the distribution channels: 5 point growth strategy « Acquisitions * Systems and cost efficiencies’ ~ * Targeting and bu
Slide 19: Austbrokers Group Structure: Ownership Structure
Austbrokers Group Structure ous le Ownership Structure Equity interest Equity interest (typically 50%) typically 85% but may be more) Equity interest typically 60-1009) Representative Entity* NOTE: 1) Fer the prodsion of fe Imurance and euperarustin pretucts ard sevice, . 33 Member broking fi rms op
Slide 20: Austbrokers Group Structure: Organisational Structure
Austbrokers Group Structure one Organisational Structure ~ Average over 25 years experience in insurance industry
Slide 21: Austbrokers Group Structure: Regional Network
Austbrokers Group Structure ous le Regional Network : = Geographic premium split — diversified regions : .~ Underweight.imQueensiand (partly rectified — Premier Austpac acquisition) che Sttong in regional'areas — 41% of premium outside capital cities
Slide 22: Austbrokers Group Structure: Premium Split
Austbrokers Group Structure Premium Split Personal 15% Large Corporate 10% SME 75% 7 " 7 Large corporate — premiums over $50,000 + Personal lities — in part related to SME business <All> a@ustbrokers
Slide 23: Austbrokers Group Strategy: Owner Driver Model
Austbrokers Group Strategy ous le Owner Driver Model * Basis of strategy but only for significant businesses * Existing owner driver absorb smaller 100% acquisition * Reinstating the model after buyirig'100% of a broking business * Advantages — commitment, alignment of interests / rewards * Challeng
Slide 24: Austbrokers Group Strategy: Profit Growth Strategy
Austbrokers Group Strategy 5 point profit growth strategy 4, Acquisitions Acquisition multiples, earn out methodology and ROIC Trends in acquisition multiples Strategic (geographic) and to increase scale Options - “Owner Driver Model”. or immediate exit ACCC oS Not target number of members ~. ongoin
Slide 25: Austbrokers Group Strategy: Cross-sell and Premium Finance
Austbrokers Group Strategy ous le 4. Leverage relationships and cross sell Life Insurance, Superannuation and Financial Services products ~ Opportunities —- Develop capability in Network Members and promote marketing ~ Financial planning has potential-but only in early development where skill availa
Slide 26: Austbrokers Group Outlook
Austbrokers Group Outlook oul * On track to meet prospectus forecast * Insurance Premium rate cycle uncertainty - oy * Costs and synergies achieved to date in line with forecast * Acquisitions made and fuirther opportunities being explored . Broking market remains competitive, e “Cross selling oppor
Slide 27: Austbrokers Operations Insights
<All> a@ustbrokers Austbrokers Operations Insights | Greg Arms, National Operations Manager 11
Slide 28: Outline
Outline eal > a@ustbrokers * The insurance broking business ~ Current environment ~ Key issues facing operators * Key issues when making acquisitions . ~ Challenges in finding new and appropriate. members. ~ Considerations when structuring acquisitions ~ Acquisition Case Studies * SME Market Competi
Slide 29: The Insurance Broking Business
The Insurance Broking Business Current Environment * Current impact of insurance premium rate cycle on Broker earnings ~ Premiums down overall by 5% ~ New business expansion offset by rate decreases ~ Not ail down — some Brokers increasing business / income * Trend in SME demand for insurance produc
Slide 30: Key issues when making acquisitions
Key issues when making acquisitions aust Challenges in finding new and suitable equity members ° e ° * e * Competition for businesses Austbrokers versus OAMPS as a purchaser.— owner. driver or 100% Buying groups (Steadfast, IBNA) have.no solution for succession Motives for selling — succession, part
Slide 31: Acquisition Case Studies
<All> a@ustbrokers Acquisition Case Studies 15
Slide 32: Acquisition Case Studies
<i> Acquisition Case Studies austbrokers Regional * Owner driver acquires 100% portfolios — Austbrokers Central Coast * Owner driver acquires 100% - Peter Brown Wagga. Wagga * Owner driver sells — new owner driver introduced M&F Bega Capital City examples > Owner driver — Premier Auspac = Brisbane ~
Slide 33: SME Market Competition
SME Market Competition 4 Obstacles preventing the International brokers from further penetrating the SME market * Relationship business ~— local businesses * Multinational brokers don’t have extensive Regional Australia coverage * Cost structures — profitability an * Ability to service 17
Slide 34: Expansion into Financial Services
Expansion into Financial Services austbenlcars Leveraging client relationships What are Austbrokers current cross-selling capabilities - 21 Financial Services Companies ~ Some owner driver joint ventures ~ Income now around $8.5 million per annum in total Plans to roll new capabilities out to,other
Slide 35: The Austbrokers Model in Practice: Case Studies
<All> a@ustbrokers The Austbrokers Model in Practice Case Studies Austbrokers Stateplan - Geelong . Development | Acquisitions — Austbrokers - Stateplan Austbrokers Sydney John Skidmore 49
Slide 36: John Skidmore
John Skidmore <i> a@ustbrokers 27 Years NZI Insurance — last 3 National Manager responsible of ABIA connection. (NZI owned Broker Network) 3 Years Austbrokers Holdings — Regional Operations Manager Board representative on brokerages 5 Years Managing Director — Shareholder Geelong Broker - Austbroker
Slide 37: Austbrokers Stateplan - Geelong
«tL Austbrokers Stateplan - Geelong austbrokers 1. Acquired 30% Geelong Business from Retiring Shareholder — Single Office $800k income in 2000 2. Established as Austbrokers Stateplan — Offices Geelong, Bendigo,.Taralgon,.. Albury, Ballarat, Maryborough, Wodoga approximately $9-million income by 200
Slide 38: Austbrokers Sydney
<i> Austbrokers Sydney austbrokers . Pre Restructure — AEI, Adept, Wilburtins . Restructure 1 January 2006 ~ 3 Businesses into one - Restructured Staff — 141 General,-16 Life & Super. 7. Divisions plus -2 Branches Canberra & Nowra . - 1 AFS License . - Conversion to one coriputer system - 1 Procedur
Slide 39: Austbrokers Sydney: Future
<All> Austbrokers Sydney austbrokers . Divisions — e.g Austbrokers Corporate . Austbrokers Sydney Services — ALIB, Salisbury Payne Tinslay . Future - Capacity to service additional entities — (backroom services for additional brokerages) . - Additional consolidation of | processes & shift in balance
Slide 40: Appendix
<All> Appe ndix austbrokers Austbrokers * History and Divisional Detail * Earnings Growth Opportunities * Costs and Margins * Balance Sheet and Cash Flow * Financial Objectives + Risks : , * Summary P&L and Balance sheet. 24
Slide 41: History and Divisional Detail
History and Divisional Detail anll> Brief History . Commenced operations 1985 within Mercantile Mutual (ING) insurance business . Divested fram ING and listed November 2005; Market Cap $133m (@ $2.65) Core business is Insurance Broking . Top 4 insurance broking network in Australia . Client base of
Slide 42: Earnings Growth Opportunities
<All> Earnings Growth Opportunities austbrokers Key earnings drivers ° Premiums written — Directly influences commissions. (%' of premiums) ~ Underlying organic growth — new. business, increases in coverage / sums insured * Fees ~ Charged by Broker, negotiated with client * Acquisitions : : * Econom
Slide 43: Cost Structure and Margins
Cost Structure and Margins * Cost structure ~ 64% of costs employment related - Costs as a percentage of total income FY 2005 766% HY 2006 78.1% Due to seasonality of income Forecast FY 75.6% : : * Other major expenses - Premises ~ Pt Insurance - Operating costs (i.e. IT, printing, postage, ‘telepho
Slide 44: Balance Sheet and Cash Flow
Balance Sheet and Cash Flow uae Negative Working Capital * Cash held to pay underwriters (90 day terms) Gearing — Capacity for Acquisitions * Currently 14% + Facility in place for additional $43 million Equity accounting : + Cashflow through dividends received, 28
Slide 45: Financial Objectives
<All> Financial Objectives austbrokers Profit growth — 10% to 15% Gearing target —- maximum 30% Dividend Payout - 50% to 70%.of NPAT- before amortisation of intangibles Return targets — 15% ROE. 29
Slide 46: Risks
Risks ° Premium rate cycle ~ Uncertainty of timing of move upwards Insurers ~ Going direct ~ Commission rates Threat from other distribution channels _ ~ Large Brokers/internet/call centres: ~ Banks Regulatory environment / Compliance Breach _Emergence of another consolidator "Force up acquisition p
Slide 47: Summary
<All> a@ustbrokers Summary — 31
Slide 48: HY Performance
<All> HY Performance austbrokers $7000 HY Forecast HY Actual % change Broker Revenue 56,677 ~ “55,988 “1.2% 2 Broker Profit (AHL share) 7,836 : 8,083 3.2% Profit (before tax and ‘ — o amortisation of intangibles) ... 5,255 5,911 12.5% NPAT (before-amortisation ‘of NPAT (before 3.679, 4,080 10.9% int
Slide 49: Profit and Loss Statement
Profit and Loss Statement ous Half Year to 31 December (A$*000) 2005 2005 2004 Year to 30 June 2006 Actual Forecast Variance Forecast Consolidated Brokers Commission and Fees 22,278 23,047 (772) 50,280 Interest 4,204 939 262 1,821 Other Income 970 854 108 838 Revenue From Consolidated Brokers 24,446
Slide 50: Balance sheet
Balance sheet Actual Dec 05 Actual Jun 05 Assets $000 $000 Current Assets Cash at Bank 24,185 ~..46,276 Cash at Bank — Trust 25,699 32,334. Receivables 31,443 49,436 Short term investments 316 "3,938. Amounts owned by ING 1,234 Held for sale 1,576 Total Current Assets 84,442 99,381 Non Current Asset
Slide 51: Balance sheet (cont)
<All> Balance sheet (cont) austorokers Actual Dec 05 Actual Jun 05 Liabilities $000 $000 Current Liabilities Payables 56.691 79,545 Tax Liabilities 2,949 2,256 Borrowings ING Australia Holdings 6,035 21,001 Provisions 2,545 2,920 Total Current Liabilities 68,220 405,722 - Non current liabilities = P
Austbrokers Holdings — Investor Presentation (March 2006) on 6ix