Steadfast Group Limited · ASX:SDF
Steadfast — H1 2015 Earnings Presentation
60 slides from Steadfast's earnings presentation, Feb 16, 2015
Slide 1: Half Year Results & Equity Raising for Acquisitions
& EQUITY RAISING FOR ACQUISITIONS 16 February 2015 Presenters Robert Kelly, Managing Director & CEO Stephen Humphrys, Chief Financial Officer Steadfast, the Steadfast logos, Strength when you need it, None of us is as good as all of us, SVU and Steadfast Virtual Underwriter are registered trademarks
Slide 2: Important notice
Important notice This presentation has been prepared by Steadfast Group Limited (“Steadfast”). Summary information This presentation contains general information in summary form which is current as at 16 February 2015. This presentation is not a recommendation or advice in relation to Steadfast or a
Slide 3: Important notice (cont'd)
Important notice (cont’d) No representation or warranty, express or implied, is made as to the accuracy, adequacy or reliability of any statements, estimates or opinions or other information contained in this presentation. To the maximum extent permitted by law, Steadfast, its subsidiaries and their
Slide 4: Summary
Summary • 1H FY15 NPATA (cash profits) in line with guidance and slightly ahead of update on 29 January 2015 • Calliden acquisition completed on 23 December 2014 • Acquisition of two underwriting agencies (UAA and CHU) and one insurance broker from QBE and one Steadfast Network Broker (“Acquisitions
Slide 5: 1H FY15 Highlights
1H FY15 Highlights1 Strong growth despite softening market Adjusted Pro-forma Six months ended 31 Dec 1H FY152 1H FY144 % growth Fees & commissions ($m) 78.2 52.4 49.3% EBITA post Corporate Office ($m) 34.9 29.8 16.6% NPATA ($m) 21.0 18.8 11.5% Cash EPS (cents)3 4.18 3.75 11.5% • Interim dividend of
Slide 6: Network Brokers' GWP
Network Brokers’ GWP Network Brokers Network Premium split 1,2 Gross Written Premium (GWP) by Insurer (FY14) 4.5 $4.1b 4.0 $3.9b 1H CGU 2H 17% 3.5 Others $3.4b $3.0b 35% 3.0 $2.8b 2.1 2.0 $billion $2.4b 6% 2.5 1.6 QBE 2.0 $4.1b 15% 1.5 1.0 2.0 2.1 1.8 NTI 1.5 2% 0.5 Allianz AIG Chubb 10% 2% 0.0 3% Z
Slide 7: Underwriting Agencies
Underwriting Agencies 2 Steadfast Underwriting Agencies Split of Top 15 underwriting agencies 1 Gross Written Premium (GWP) based on GWP placed by Steadfast Network Brokers Catlin Brooklyn A&H Mecon Axis 2% 2% 2% 160 4% 3% $145.4m Global 14% 140 QUS 1H 4% 76% $million 120 Australis 2H NTI 87.7 4% 10
Slide 8: Network Brokers' GWP Growth Drivers
Network Brokers’ GWP Growth Drivers 2.4 $0.17b $(0.14)b 2.2 $2.12b + 4.6% new $0.09b $2.00b 8.6% (7.1)% broker growth 2.0 4.6% 1.8 1.5% net + 1.5% organic $billion growth growth (price 1.6 2.0 2.1 2.1 and volume) 1.4 1.2 6.1% total 1.0 1 1H FY14 New Broker Volume Price Growth 1H FY15 Growth Growth •
Slide 9: Earnings growth
Earnings growth 1H FY15 vs 1H FY14 20% 16.6% Growth in GWP, 15% 11.3% 11.5% F&C, M&A Fees, 10% EBITA and NPATA 5% 1.5% 2.6% despite decline in 0% -7.1% premium rates -5% -10% Price Broker Organic M&A Fees EBITA NPATA (premium GWP F&C growth rates) Note: Non-IFRS financial information including Adjus
Slide 10: Defensive SME customer base
Defensive SME customer base Steadfast1,2,3 Network Brokers’ GWP mix • 87% of Steadfast Network Brokers’ Corporate Personal 2% customer base relates to small to medium 11% size enterprises (SMEs) less GWP pricing volatility Medium enterprises • Focus is on advice 34% • Low exposure to Corporate and P
Slide 11: Australian General Insurance Statistics
Australian General Insurance Statistics1 Houseowners/householders Commercial motor vehicle Domestic motor vehicle Premiums and Claims by Class of Business Y ear End Sep Y ear End Sep Y ear End Sep Y ear End Sep Y ear End Sep Y ear End Sep 2013 2014 2013 2014 2013 2014 Gross written premium ($m) 7,20
Slide 12: Australian General Insurance Statistics
Australian General Insurance Statistics1 Fire and ISR CTP motor vehicle Public and product liability Professional indemnity Premiums and Claims by Class of Business Y ear End Sep Y ear End Sep Y ear End Sep Y ear End Sep Y ear End Sep Y ear End Sep Y ear End Sep Y ear End Sep 2013 2014 2013 2014 201
Slide 13: Financial information
Financial information <$> Steadfast STRENGTH WHEN YOU NEED IT
Slide 14: Strong growth from acquisitions
Strong growth Click to Edit Title from acquisitions Adjusted Pro-forma Year-on-year Organic Growth from Six months ended 31 Dec 1H FY151 1H FY14 growth % growth % acquisitions % Fees & commissions ($m) 78.2 52.4 49.3% 6.6%3 42.7% EBITA pre Corporate Office1 ($m) 37.9 33.0 14.5% -3.8% 18.3% NPAT ($m)
Slide 15: Statement of income (Adjusted IFRS view)
Statement of income (Adjusted IFRS view) Click to Edit Title % growth Pro-forma % Organic from Six months ended 31 Dec, $ millions 1H FY15 1H FY14 growth growth % acquisitions • Increase in underlying Fees and commissions¹ 78.2 52.4 49.3 6.6 42.7 earnings due to acquisitions M&A Fees 15.6 13.7 13.8
Slide 16: Track record of earnings growth
Track Click to record Edit Titleof earnings growth Defensive nature of business model demonstrated by track record of earnings growth 1,2 1,2 Full year EBITA Half year EBITA pre and post Corporate Office expenses pre and post Corporate Office expenses 80 40 37.9 70.4 70 34.9 62.3 35 33.0 61.1 58.5 5
Slide 17: Contributions to EBITA
Contributions Click to Edit Title to EBITA Breakdown of the growth in EBITA pre Corporate Office expenses1 40 • Larger consolidated brokers 2.2m 37.9m experienced greater impact 4.1m 0.0m (0.7m) from premium rate reductions 35 33.0m 0.1m (0.8m) • Underwriting agencies recorded $ million significant
Slide 18: Cash flow statement
Cash Click toflow statement Edit Title Six months ended 31 Dec, $ millions 1H FY15 1H FY14 Cash flows from operating activities • Strong conversion of profits into 163.2 cash flow Receipts from customers 90.1 Payments to suppliers and employees, and member -146.5 -88.4 • Additional $54m cash and cas
Slide 19: Balance sheet
Balance Click to Editsheet Title $ millions 31/12/14 30/06/14 Cash and cash equivalents 54.6 38.6 Cash held on trust 116.7 76.7 • 3 year Corporate facility of Receivables & other 139.2 152.7 $130m Total current assets 310.6 268.0 Equity accounted investments 145.7 148.8 • Utilised $113m at 31/12/14
Slide 20: Fully franked interim dividend of 2.0 cents
Fully franked interim dividend of 2.0 cents • Fully franked interim dividend of 2.0 cents per share, up 11% year-on-year • In line with dividend payout ratio target of 65% to 85% of net profit after tax and a minimum of 50% of net profit after tax before amortisation and impairment of intangibles •
Slide 21: Acquisitions
Acquisitions <$> Steadfast STRENGTH WHEN YOU NEED IT
Slide 22: Acquisition Summary
Acquisition Summary • Two QBE underwriting agencies – UAA (100% with 10% on sell to UAA management) and CHU (100%) • Two brokers – BCB (100%, owned by QBE) and IC Frith (94% effective ownership) • Adds annual historical GWP of ~$575 million and historical normalised EBITA of ~$40 million¹,2 • Estima
Slide 23: QBE underwriting agencies
QBE underwriting agencies • Transformational acquisitions that make Steadfast Underwriting Agencies the largest underwriting agency group in Australasia • Minimal integration: stand-alone businesses • Recurring revenue: long-term contracts • Long standing relationships with Steadfast: ~20 years • St
Slide 24: Steadfast Underwriting Agencies
Steadfast Underwriting Agencies Strong focus on Hard-to-place and Marine and Building and Sports and leisure SME insurance programs complex risks including motorcycle construction industry related businesses environmental liability Specialised equipment, Community care, Professionals including Hospi
Slide 25: Underwriting Agencies of Australia (UAA)
Underwriting Agencies of Australia (UAA) • Annual historical GWP of ~$105m of which close to 50% sold through the Steadfast Network; normalised1 historical EBITA of ~$15m Market leader • Five offices across Australia, one in New Zealand; head office in Newcastle in mobile plant • Key UAA management
Slide 26: CHU Underwriting Agencies (CHU)
CHU Underwriting Agencies (CHU) • Annual historical GWP of ~$325m; normalised1 historical EBITA of ~$19m • GWP distribution split: ~60% strata managers, Significant player in ~30% brokers, ~10% direct business with owners committees and strata plans • Five offices across Australia residential and •
Slide 27: Body Corporate Brokers (BCB)
Body Corporate Brokers (BCB) • Annual historical GWP of ~$70m; normalised1 historical EBITA of ~$2m • Strong presence in QLD and NSW, four offices Specialises in across Australia insurance for • Brokerage relationships with all strata insurers bodies corporate, except QUS and Chubb and places 30% of
Slide 28: IC Frith Insurance Brokers
IC Frith Insurance Brokers • Second Steadfast Network Broker to join in 1996 • Annual historical GWP of ~$75m; normalised historical EBITA of ~$4.5m A leading • Eight offices across Australia and New Zealand insurance • Key management to be offered 10% stake in IC broker in Frith New Zealand operati
Slide 29: Equity raising
Equity raising <$> Steadfast STRENGTH WHEN YOU NEED IT
Slide 30: Acquisition funding overview
Acquisition funding overview • Equity offering to raise approximately $300 million (the “Equity Raising”), comprising: • An institutional placement to raise approximately $89 million (“Institutional Placement”) and • A 1 for 3 accelerated non-renounceable entitlement offer to raise approximately $21
Slide 31: Source & Application of Funds
Source & Application of Funds Source of Funds $millions Application of Funds $millions Acquisition of QBE entities 290 Total equity to be raised 300 Acquisition of IC Frith 30 Debt to be drawn 30 Share issue and other related costs 10 Total 330 Total 330 31
Slide 32: Impact on FY15 guidance
Impact on FY15 guidance Impact of Steadfast’s recent acquisitions means FY15 cash EPS guidance range revised upwards to 22%-25%1 Revised FY15 guidance Previous FY15 FY15 guidance FY14 (including Calliden, the Acquisitions guidance (including Calliden) and the Equity Raising) NPATA ($m) 41.2 45.5 – 4
Slide 33: Cash EPS accretion
Cash EPS accretion Acquisitions including $300m equity raising estimated to deliver FY15 cash EPS accretion of 10% on a full year basis (i.e. assuming Steadfast owned the businesses for the full 12 months in FY15) Run rate based on mid-point of Run rate based on mid-point of earnings guidance FY2015
Slide 34: Pro-forma balance sheet
Pro-forma balance sheet Click to Edit Title Pro-forma post $ millions 31 Dec 14 Equity Raise and Acquisitions 1 Cash and cash equivalents 55 68 • Target gearing ratio (Corporate) Cash held on trust 117 150 now raised from 20% to 25% Receivables & other 139 164 providing approximately $118m for futur
Slide 35: Timetable
Timetable Announcement and trading halt Monday, 16 February 2015 Institutional Placement and Institutional Entitlement Offer opens Monday, 16 February 2015 Institutional Placement and Institutional Entitlement Offer closes Tuesday, 17 February 2015 Steadfast shares re-commence trading on ex-entitlem
Slide 36: Outlook
<$> Steadfast STRENGTH WHEN YOU NEED IT
Slide 37: Well progressed with FY15 strategic initiatives
Well progressed with FY15 strategic initiatives • Continue to provide and enhance the Network services that our brokers rely upon Steadfast Direct MetLife partnership Steadfast New Zealand Asian presence • Formerly Allied Group Insurance • Mission: to build a similar platform to Steadfast Au
Slide 38: Calliden underwriting agencies
Calliden underwriting agencies • Acquired eight underwriting agencies Generate annual GWP of ~$130 million1 Historical full year EBITA contribution of $8.3 million Adds eight (1H/2H split ~45/55%) complementary • Strengthens relationship with Munich Re, one of agencies to the world’s leading rei
Slide 39: FY15 outlook
FY15 outlook1 • Guidance for FY15 cash EPS growth revised upwards to a range of 22% to 25%2 to include Calliden and the Acquisitions, up from previous range of 10% to 13% excluding Calliden and the Acquisitions • Expected full year cash EPS accretion of the Acquisitions and Equity Raising ~10% • Ear
Slide 40: Steadfast
<$> Steadfast STRENGTH WHEN YOU NEED IT
Slide 41: Appendices
Appendices <$> Steadfast STRENGTH WHEN YOU NEED IT
Slide 42: Post IPO acquisitions as at 31/12/14
Post IPO acquisitions as at 31/12/14 • Acquired businesses with $590m of annual GWP and $22m of EBITA (100% basis) • 12 underwriting agencies/Strategic Partners Stayed disciplined Protecsure – Dec 13 with acquisition Nautilus Marine – Apr 14 criteria and pricing MECON – May 14 multiples Wins
Slide 43: Statutory P&L
Statutory P&L Click to Edit Title $ millions 1H FY15 1H FY14 Revenue • 1H FY14 reflects five months of M&A fees 15.6 13.5 operations from IPO acquisitions Revenue from wholly owned entities 87.7 49.1 and non-recurring items Share of profits of associates and joint venture 4.7 6.2 • Adjustments to 1H
Slide 44: Reconciliation between Adjusted and Statutory NPATA for 1H FY15
Reconciliation between Adjusted and Statutory NPATA for 1H FY15 25 1.4m 21.0m 19.4m (0.7m) 0.9m 20 $ million 15 10 19.6 18.7 18.7 5 0 Statutory NPATA Write back of Due diligence and Additional purchase Adjusted NPATA executive loan restructuring costs price adjustments provisions 44
Slide 45: M&A Fee growth reflects strength of Network
M&A Fee growth reflects strength of Network Gross M&A Fee growth drivers $0.23m $(0.07)m $15.2m1 15 $1.38m + 10.1% more M&A $13.7m1 1.7% (0.5)% 10.1% products and rate increases 10 + 1.7% premium $ million 13.7 15.1 15.2 growth 5 - 0.5% premium funding contribution 0 1H FY14 Insurance Penetration In
Slide 46: Revenue and EBITA pre CO expenses
Revenue and EBITA pre CO expenses (Aggregate view) Click to Edit Title Growth % 1H FY15 1H FY14 Pro-forma Organic from $ millions GWP 1H FY15 GWP 1H FY14 growth % acquisitions Revenue Consolidated brokers 287.2 57.0 210.5 47.3 6.5 14.0 Equity accounted 268.8 72.2 259.1 71.5 0.9 0.0 Other Revenue n/a
Slide 47: Revenue and EBITA pre CO expenses margins
Revenue and EBITA pre CO expenses margins Click to Editview) (Aggregate Title Pro-forma Pro-forma Pro-forma Pro-forma Six months ended 31 Dec, $ millions 1H FY15 1H FY14 1H FY13 FY14 FY13 Revenue Consolidated brokers 57.0 47.3 45.7 96.7 94.2 Equity accounted 72.2 71.5 69.8 147.3 143.6 Revenue from b
Slide 48: P&L items
P&L items Click to (IFRS view) Edit Title Other revenue Pro-forma $millions 1H FY15 1H FY14 Variance Fee income for other professional services 8.6 8.5 0.1 Legal fee disbursements 1.3 1.4 -0.1 Other income 2.2 1.9 0.3 Total other revenue 12.1 11.8 0.3 Other expenses Pro-forma $millions 1H FY15 1H FY
Slide 49: Risks
<$> Steadfast STRENGTH WHEN YOU NEED IT
Slide 50: Key risks
Key risks This section discusses some of the key risks associated with any investment in Steadfast together with risks relating to the Acquisitions and participation in the Entitlement Offer and Placement which may affect the value of Steadfast Shares. The risks set out below are not listed in order
Slide 51: Business risks
Business risks Access to financing • Steadfast relies on access to debt financing. The ability to secure financing, or financing on acceptable terms, may be affected by volatility in the financial markets, globally or within a particular geographic region, industry or economic sector. For these reas
Slide 52: Business risks (cont'd)
Business risks (cont’d) People risk • Steadfast is reliant on its key employees and key employees within the executive team or the operating businesses may retire or resign. Material business interruption and loss of key customer relationships may follow the loss, particularly if the individuals inv
Slide 53: Business risks (cont'd)
Business risks (cont’d) Loss of Steadfast Network brokers • Steadfast’s network brokers are able to leave the Steadfast Network at any time. When an individual broker leaves this results in a reduction in M&A fees for Steadfast. Additionally, the size and strength of the Steadfast Network is an impo
Slide 54: Acquisition risks
Acquisition risks Analysis of the acquisitions • Steadfast has undertaken financial, operational, business and other analysis in respect of the acquisitions in order to determine their attractiveness to Steadfast and whether to pursue the acquisitions. • It is possible that the analysis undertaken b
Slide 55: Acquisition risks (cont'd)
Acquisition risks (cont’d) Market risks associated with the businesses to be acquired • Increased competition in the market in which the businesses to be acquired operate, regulatory changes (particularly, in relation to the Acquisitions, in the regulation of strata title) and a general market downt
Slide 56: Acquisition risks (cont'd)
Acquisition risks (cont’d) Increased reliance on QBE • As part of the QBE acquisitions, Steadfast has agreed to enter into a transitional services agreement and distribution agreements with QBE (under which Steadfast has agreed to exclusively use QBE for distribution subject to certain limited carve
Slide 57: Offer and general risks
Offer and general risks Equity raising underwriting risk • Steadfast has entered into an Underwriting Agreement under which the underwriters have agreed to fully underwrite the Equity Raising, subject to the terms and conditions of the Underwriting Agreement. If certain conditions are not satisfied
Slide 58: Offer and general risks (cont'd)
Offer and general risks (cont’d) Dilution Risk • If you do not take up all of your entitlement, then your percentage holding in Steadfast will be diluted by not participating to the full extent in the Entitlement Offer. • Even if you do take up all of your Entitlement, your percentage holding in Ste
Slide 59: International selling restrictions
International selling restrictions This document does not constitute an offer of new ordinary shares ("New Shares") of the Company in any jurisdiction in which it would be unlawful. In particular, this document may not be distributed to any person, and the New Shares may not be offered or sold, in a
Slide 60: International selling restrictions
International selling restrictions Norway This document has not been approved by, or registered with, any Norwegian securities regulator under the Norwegian Securities Trading Act of 29 June 2007. Accordingly, this document shall not be deemed to constitute an offer to the public in Norway within th