B.P. Marsh & Partners (LSE:BPM) — Full year results

0:01 Good morning, ladies and gentlemen, and welcome to the BPMARSH and Partners PLC full year results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the q and a tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today, we'll publish those responses where it's appropriate to do so on the Investor

0:32 Meet company platform. Before we begin, I would just like to submit the following poll. And if you'd give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to chief investment officer, Dan Topping. Dan, good morning, sir. Good morning, all. I'm pleased to welcome you to the BPMARS full year results for the financial year ending 01/31/2024. As usual, on these results, be myself presenting Dan Topping, chief investment officer and John Newman, our finance director. This set of results is is our strongest since the business floated on AIM in 2006. As such, we're very pleased to present them to the market. I'd like to take this opportunity to thank all the members of the BPMARSH team and the wider portfolio for their efforts in allowing us to achieve them.

1:18 We've set out the key metrics of this year on Slide three, sets out the consolidated profit before tax for the year of GBP 43,600,000, significantly up on last year, 01/31/2023, at GBP 27,600,000. Our net asset value, which is we feel the key barometer of performance, has increased by GBP 39,700,000 to GBP $229,000,000, a 20.9% increase and the underlying portfolio over the year has increased by nearly 36%. This delivered a total shareholder return for the year of £41,700,000 up from £23,900,000 in the prior year. At present, for the financial year, available capital of £81,200,000 which has increased by £29,700,000 on the year prior.

2:10 Aggregate dividend per share for the year of 10.72p, up from 5.56p for the financial year 01/31/2023. By 2026, pounds 24,800,000 of dividends will be distributed since 2010, which is an aggregate of 70.68p per share or equivalent to 50% of our flotation price. We're delighted with the overall results and the performance of the group in the year, which is a continuation of prior year's positive results. We try and show our long term approach and the results it delivers on Slide four, which sets out a consistent long term net asset value growth, which I believe speaks for itself. Slide five shows the dividend strategy that we've pursued since 2010, the aggregate. We deal with this further in the presentation.

3:04 And the significant event for the year was the sale of CVC, which we deal with in Slides six and seven. Talking to CBC, we see this investment and disposal as another example of our unique investment approach and our ability to produce bespoke investment situations, which provide the opportunity for significant returns. As can be seen from the slides, in 2017, we invested £3,500 alongside a loan facility of circa £4,000,000 for a 35% shareholding, which increased over time to a final shareholding of 43.8% in the CVC. At completion, which took place post year end, BPMarch received initial consideration of 42,100,000 for our shareholding, which delivered an IRR of 44%.

3:58 As Slide seven shows, during the period of our investment in CBC, the 100% value of the company increased from circa £2,000,000 to over 108,000,000 as an equity value. We're delighted with CBC. The team there produced an exceptional results, and we wish them well in their future partnership with SRG, the acquirer of that business. Turning to the disposal which occurred during the financial year, the sale of Kentro, this is dealt with on Slides eight and nine. Talking to our investment in Kentro, again, it shows our or underlines our unique approach to investment in in as much as at the start point, we took five percent shareholding for for 1,500,000.

4:46 Over the period of our investments, We increased our shareholding from 5% to nearly 20%, providing a further aggregate 15,000,000, which allowed Nexus' team to complete approximately 20 acquisitions and grow revenue and profitability by 10 nearly 10 times with adjusted EBITDA growing from £2,000,000 to north of £20,000,000 When we completed our exit of Kentro on in October 2023, the disposal delivered an IRR of 23.66% and a money multiple on equity invested of 3.41 times over a nearly ten year period.

5:31 Turning to Slide 10. This outlines the group's investment in LEBC and the agreement which we reached with Titan to sell its IFA trading asset, Espira, to Titan Wealth Holdings. This transaction completed post year end in April 2024, with BPMARS receiving all its outstanding loans we received full repayment of our outstanding loans. The sale of Aspira to Titan allowed LEBC to meet all its obligations as regards its dealings with the FCA regarding its historical defined benefit pension transfer advice. The equity proceeds from this sale will be received over a three year earn out period. Turning to Slide 11.

6:20 This addresses our distribution policy to shareholders following the realizations mentioned above. As I said earlier, by 2026, we'll have distributed over £24,000,000 in dividends since 2010, equivalent to half what we floated at, I. E, pounds 1.40 per share in 2006. Following the announcement of our disposal of CBC, BPMARSH paid a special dividend of £1,000,000 in May. Alongside this dividend, we announced the following: a final dividend of £2,000,000 for the year ended 01/31/2024 to be paid in July 2024 and further dividends of £4,000,000 per annum for the next two financial years. We believe this rewards our shareholders for their patient support of the company whilst also providing and retaining significant firepower for new investments and also to support the existing portfolio.

7:13 The group has an exciting pipeline of new investments. We talk as to the numbers in the financial year just ended on Slide 12. We have the opportunity to execute on these subject to us, obtaining the terms that we require to allow us to deliver a successful investment. Given the group liquidity on the back of recent disposals, we clearly have more capital to deploy, but we're not going to change our investment approach. It'll still be within the metrics that we we've used to date. We aren't going to increase the amounts we invest or this type of deal we're looking at. We we believe we're the investor of choice for start ups and SME and the insurance distribution and wider financial services sector, we won't be changing our approach. We do have more capital to deploy to the existing portfolio, which which I think is a continuation of what we've done in recent times as evidenced by what we did with Kentro.

8:11 And so that's something that we'll look to continue. Over the year, we undertook three new investments, Pantheon Specialty, Verb Risk Services, and AI Marine. Looking at Pantheon on slide 13, This is an opportunity to once again partner with Rob Dowman, an individual with over thirty years' experience in the sector, having been CEO of Besso when we invested an investor in that. And Rob and his team were recognized as leading London market casualty brokers, specializing in complex placements throughout the world. Since investment, Pantheon has grown exponentially.

8:57 Year to date performance is over £7,000,000 of revenue and £2,400,000 of EBITDA in the seven months year to date, and the business is forecasting to produce over £18,000,000 of revenue and in excess of £10,000,000 of EBITDA in its first financial year. Following the year end, we acquired a further at least 7% stake in Pantheon for consideration of 7,300,000, lifting our shareholding to 32%. It's been a tremendous investment already, and we see, you know, great opportunities for shareholder returns from Panopin. Moving to Verb on Slide 14. This is an underwriting agency that specializes in professional management liability in the insurance space for insurance companies, insurance sales, and insurance brokers.

9:49 We backed an insure experienced management team, guys of Scott Simmons and Alan Lambert. They were a unit in another business which we provided the finance for them to conduct a management buyout from. Again, a strong start for them and continued opportunities for growth. So we're delighted with how Verve has started its life in the BPMARSH portfolio. Turning to Slide 15. AI Marine was the newest investment completed in the year. AI Marine, an underwriting agency specializing in marine hull, and it underwrites a global portfolio business with a strong focus on UK and Europe, Middle East, APAC regions.

10:41 Founded by Charles Dalton and Tom Fulford Smith, experienced marine practitioners with a track record of building up companies. They previously had their own insure marine broking company, Latitude Insurance Brokers, which they successfully built up and sold. They've recently AI Marine has recently secured Lloyd's cover holder status, so it's got multiple lines of capacity and is doing very well, and we see really good upside again with AI Marine. Post year end, the group invested in Devonshire Underwriting Limited, Slide sixteen, an underwriting agency that specializes in transactional risk insurance, what some would term warranty and indemnity insurance.

11:28 We've backed an experienced management team of over thirty years of experience in transaction liability.

11:36 Again, we believe that Devon Shares are a perfect fit for our diversified investment portfolio, backing an exceptional management team with great opportunity for upside shareholder returns. These four new investments all exemplify BPMarch's style of investments, offering unique structures, which attract motivated and entrepreneurial management teams. Turning to our overall insurance position on Slide 17. This indicates the aggregate size of the premium produced or underwritten within the portfolio. As you'll see, it's GBP 1,270,000,000, up from 1,050,000,000,

12:22 not evenly split, but almost evenly split between underwriting agencies and broking investments, which gives an idea whilst we're on, you know, not an extra large investor. The portfolio, it is quite significant from a premium standpoint, and it's not something we bang the drum for, but it does show the size of the BPMash portfolio from an aggregate standpoint. The full portfolio is set out on 'eighteen and 'nineteen in terms of how much cost of investment was alongside our most recent valuation and returns on investment. We tried to draw out the larger ones within the portfolio, ATC, LPR, Lilly Plumber Risk and Stuart Specialty Risk Underwriting.

13:12 XPT on Slide 20 is now the group's largest investment, which is no mean feat given we invested in it as a start up in 2017. Actually, it now produces just under billion of gross written premium, employs over 300 people in 22 office locations across The United States and has made 16 acquisitions since we invested. 2023 was an adjusted EBITDA of 15,200,000. 2024 was a budget EBITDA of in excess of 22,000,000. So it's been a tremendous investment, and we see even greater upside as this business takes advantage of the economies of scale it's developed since we invested.

13:59 Over the course of the year, BPMARSH lent XBT a further £4,900,000 to pursue its acquisition strategy, 800,000 of which has already been repaid. The most recent acquisition by XPT is an underwriting agency based in Florida, Flood Risk Solutions, which unsurprisingly specialize in insurance solutions for flood risks. Turning on from there, slide 21, ATC, an Australian underwriting agency, one of the largest Lloyd's underwriting agencies in Australia. This has more than doubled in size from premium and profitability standpoint since we invested in 2018. We folded one of our existing portfolio companies, MB. Prestige Holdings into ATC, and now, you know, from where it was when we invested, it's, you know, targeting to get to 250,000,000 of GW gross written premium with a long term three to five year strategy of getting to 500,000,000, which would put it as one of the largest independent underwriting agency in Australia, and we certainly feel that the management team displays all the potential to deliver on that.

15:12 Moving on from ATC, Lily Plumber Risk, slide 22. The marine the Lloyd's marine broker that we backed as a hive off from a separate transaction, this is now growing from just marine to non marine. When we invested, it had approximately 500,000 of brokerage. This is now growing to north of 10,000,000 of brokerage and circa 5,000,000 of EBITDA in the period since we invested. A tremendous investment, a very capable management team. And again, this is another investment that we'll look to deploy capital to, to allow it to continue on its growth trajectory. Turning to Slide 23.

16:01 Stuart Specialty Risk Underwriting.

16:06 A standout within the portfolio from an equity investment standpoint, this was a company that we only invested $17 or £19, sorry, $30, which we now value at nearly £12,000,000. It was a start up when we invested. It's now, for the year ending 2023, produced 80,000,000 Canadian dollars of premium income and should surpass 100,000,000 in 2024. From one man in a business plan, this has grown to become one of the largest owner operated underwriting agencies in Canada. Again, we see continued opportunities to support this investment in its growth. Moving on from the portfolio to the wider insurance sector, Slide '24.

16:55 I don't intend to give a presentation on insurance price changes, but we have given a bit of narrative in terms of where pricing is going. Rates continue to rise, property casualty sector but at a slower pace, and we are seeing financial lines ratings come down. Again, I'm not looking to give a presentation on that, but happy to answer any wider questions post this presentation.

17:22 In drawing my part of the presentation, before I hand over to John Newman to go through the financial metrics, as I said at the beginning, we're delighted with the results that we've achieved, and thanks to our partnership with the portfolio companies and the team at BPMARSH, we're delighted with the results. But also to emphasize, whilst we've seen a number of realizations, significant, our modus operandi remains the same, being that we continue to identify businesses with strong management teams and even stronger growth potential. We feel that we're uniquely placed to help fund, support and develop these companies so they can deliver on the opportunities. And by doing this, this produces returns on our investments to our shareholders, which we deliver via a combination of equity growth within the portfolio and regular returns of capital to our shareholders via dividends and or share buybacks.

18:21 We feel that we've got the blend about right on that, and certainly, the portfolio and new business pipeline give me great confidence for the year ahead. Given the strong cash position, our current portfolio, we believe that the group is in a very positive position moving forward. We, a team at BPMARSH are very much excited by the future, and myself as Chief Investment Officer share this sense of excitement given the opportunities available to us. Such opportunities should have a positive outcome on the company, and ultimately, what we're all here for, the share price, which in the long run is the scorecard for us as a listed business. Before handing over to John and, actually, repeating myself for the final time, all of this could not be achieved without the team at BPMARSH and our partners within the portfolio, which I'm grateful to all. I can now hand over to John to talk through in more detail his thoughts on the financial performance indicators within our results, after which we'll deal with any questions any of you may have. Thank you, Dan. So I'm pleased to present the key financial highlights for the year to 01/31/2024.

19:33 So we've clearly had an excellent year. Overall, our NAV has increased by 39,600,000 or 20.9% for the year compared to a 22,900,000 uplift or 13.8% in the previous year. Our NAV now stands at 229,200,000, which is equivalent to 629p per share or 626.9p on a diluted basis. That equates to a total shareholder return of 22% for the year, including dividends of 2,000,000 that were paid in aggregate in 2023. Overall, our group's delivered consolidated profit before tax of 43,600,000 for the year. That's versus 27,600,000 in the previous year, an increase of 58%. So the majority of the profit relates to the increase in valuations of the investments, as Dan has covered earlier, with the equity portfolio rising by 35.9% this year versus a 9.1%

20:29 increase in the previous year. That's adjusting for any additions and realizations, and the equity portfolio now stands at a 165,400,000. On an underlying basis, the profit before tax was 100,000 for the year. However, I should note that Sala Kentro delivered a net gain of 36,400,000, which as it was sold at the valuation brought forward at 01/31/2023, no profit on disposal was recognized in the income statement for the year as the gain has been recognized by unrealized fair value movements over preceding years and is just shown as a transfer from the fair value reserve to retained profits within the financial statements. A final dividend of 5.3p per share or 2,000,000 has been proposed to be paid in July 2024, bringing the total distribution since the year end to 10.72p per share or 4,000,000, including the 2,000,000 paid in March and May this year.

21:23 So turning to the next slide. Since flotation, the group has achieved compound growth of 9.4% per annum and 12.1% since inception. That's after all expenses, tax, and distributions and excluding any capital raised. So this slide sets out the key investments, realizations, and loan portfolio movements during the year. So we've invested 3,400,000 in equity in the year, including 2,900,000 into XBT in The US and 500,000 into three new investments. We also received 53,100,000 in proceeds from realizations. 51,500,000 was received from the sale of Kentro, delivering this 36,400,000 gain. In addition, we also received 800,000 from the exercise of a share option with CBC and 700,000 from the redemption of preference shares from Leddy Plummer.

22:13 Turning to the loan book. This increased from 11,500,000 at January 23 to 28,900,000 at the year end. We granted 20,300,000 in new loans during the year, including 8,800,000 to CBC and Alchemy as part of the preparation for CBC for a sale, 4,900,000 in XPT to enable them to make a new acquisition, and 4,700,000 to Pantheon, has enabled them to expand so rapidly. We also received 2,600,000 in loan repayments over the year, including 1,600,000 from XBT repaying part of the loans we lent to them earlier in the year. So given we don't set exit clauses and we're a medium to long term investor with an average holding period of over seven years, we often structure our investments as a mixture

22:59 of equity and debt. So this enables a yield to be received on the investment that covers our operating costs, and debt repayments help to replenish our capital funds rather than having capital funds tied up until an eventual exit. The full breakdown of the loan portfolio is set out in the appendices, and all are up to date and valued at par. I can confirm the weighted average interest rate charged for the year was circa 9.7%, which was up from an average of 8.6 charged in the year to 01/31/2023. Turning to the next slide. At the year end, we had 40,500,000 in cash, up from 12,100,000 at January 2023 due to the investment realizations and loan movements I've just discussed and following 2,000,000 of dividends paid.

23:45 So clearly been a number of significant developments since the year end. Notably, CBC completed in March, and we received 42,100,000 in upfront consideration. Regarding investments, we provide 9,200,000 in further equity, including 7,300,000 in Pantheon, as Dan set out earlier. The loan portfolio has also moved significantly. It's reduced by just under 10,000,000 to 19,000,000 overall. 1,000,000 of new loans were granted to our recent new investments for working capital in line with their business plans, and 10,900,000 of loans were repaid. That includes 5,900,000 from CBC and 3,300,000 from LEBC on completion of their respective deals and 1,500,000 from Pantheon.

24:31 We currently have 81,200,000 of liquidity prior to any future distributions, and that equates to 35% of the quoted NAV. Turning to the next slide. To summarize, why invest in BPMush? Well, we're a leading specialist investor with an excellent track record and a team with a wealth of experience. Although we specialize in financial service businesses with a specific interest in insurance intermediaries, our portfolio is diversified in terms of product lines and geographically mitigating risk. The global insurance market offers excellent growth opportunities, which we are able to exploit through our extensive network, and we offer access through BPMARSH to unique investment opportunities.

25:16 Our investments continue to achieve attractive returns as

25:20 demonstrated by the strong performance this year growing the NAV to over 229,000,000 and by delivering 9.4% compound growth since flotation after all expenses, realizations, and distributions. We have just over 81,000,000 in cash pre any future distributions. We've demonstrated that we can successfully realize investments at or above previous val valuations with strong exit performance over the last year with the sales of CBC and Kentra. We have a strong pipeline of investment opportunities both within our existing portfolio and into new opportunities. So this concludes our formal presentation, and I would now like to invite any questions that you may have. Thank you. John, Dan, that's great. If I may just jump back in there, and thank you very much indeed for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the top right corner of your screen. But just while the company take a few moments to review those questions that

26:22 were submitted already, I would just like to remind you that a recording of this presentation, along with a copy of the slides and the published Q and A can be accessed via your investor dashboard. Guys, as you can see there on the right hand side, we have received a number of questions throughout your presentation this morning. And thank you to all of those on the call for taking the time to submit their questions. But Katie, at this point, if I may just hand over chair the Q and A with the team. If I could just ask you to read out those questions where appropriate, and I'll pick up from you at the end. Thank you. Thank you very much, Joel. So the first question that we have is from a capital allocation perspective, how do you plan to use this increased cash balance? Thanks very much, Katie. From our standpoint, I don't think looking at the capital we've got, which is meaningful and as the most we've ever had, We're going to change the modus operandi of our new investments. We're going to stick to that in terms of up to £5,000,000 for new investments.

27:22 I think we'll continue to keep one eye on dividends, and we've allocated part of the cash towards that, and we'll continue to look at that. But also, as the company is growing, the NAV has grown and the balance sheet has grown in years gone by, some investments would have potentially, for want of a better word, outgrown BPMARSH. And we would have spoken to the management team and said, look, we aren't the best capital provider for you from a balance sheet perspective because you're materially larger than we can support. With the cash we now have, without changing new business, we can look at the portfolio and deliver capital to that. So for example, if you look at Kentro would be the sort of litmus test for that in as much as when we invested, it was £1,500,000 for 5%, which fell well within our bailiwick of investment approach.

28:17 But as it grew and BPMARSH, in fact, grew, we actually deployed GBP 15,000,000 to that and grew our shareholding to 20% as the company grew significantly in size and value. When the company was smaller, that's not something we would have been able to do. And likewise, looking to the portfolio as is, XPT, we've delivered nearly GBP 19,000,000 to that investment. It's growing from a start up to staring down the gun sight to GBP 1,000,000,000 of premium, north of GBP 22,000,000 in adjusted EBITDA. We wouldn't have had the firepower to support that and would have probably said to the management team, look, we are going need to sell the business or we need to find a bigger funder.

29:02 And then with one of our newer investments, Pantheon, modest initial investment to say the least in terms of equity. But since then, we provided 4,500,000 of loan funding. We've acquired a further 7% for £7,000,000 So you're talking nearly 12,000,000 invested in that. But in the sort of eighteen months we've been there, revenue has gone to $18,300,000 and EBITDA of $12,000,000 It is a very sizable and successful investment that without our balance sheet, the way it is, we would we might not have supported in the way we have. So certainly, that's my view on how we plan to use the capital that we've realized from investments. Thank you very much, Dan. Another question is you made three new equity investments during the year, including one post year end. Can you talk more on the sectors or regions that these investments are focused on and the strategic fit within your portfolio?

30:05 I think I'll make two initial points to that. Firstly, we consider ourselves experts in investing in insurance distribution. So we don't need to learn about brokers or underwriting agencies in the same way as perhaps non specialist investors do. So we've got a good understanding of the sector from the get go. And an investment approach, generally speaking, we focus 99.9% on the people we're backing the management teams because we've got that breadth of knowledge and experience investing in insurance. We like to think we know what we're looking at. So that's off the bat our approach. But looking at the new investments that we set out on Slides thirteen, fourteen, fifteen, sixteen, Pantheon exemplifies this long standing connection with B. P. Marsh, previously a CEO of a portfolio company that we exited, was sold on and sold on again.

31:06 Didn't like being sold on and treated as a commodity like the personal approach that BPMash makes and and came back to us. So that was a, you know, I think, testament to our people first approach, but it's in a North American casualty wholesale broker that we've got decades of experience in investing in. Verve, again, they were part of a larger group, but were minorities, shareholders, we were able to do a leverage management buyout such that the two individuals who founded the business came from a minority to a majority in an area of business that we know well in terms of financial lines, management liability. The same with AI Marine. We've got a good background in backing marine insurance distribution with our successful investments today in Lilly Plumber Risk, you know, but an exceptional management team that are that are going to, you know, I suspect, do very well for us.

32:10 Devonshire underwriting. A team of underwriters from a preeminent underwriting insurance company that wanted to pursue a entrepreneurial approach. BPMARSH being unique in terms of backing startup management teams and insurance distribution clearly appealed to them. So, I mean, it's not a strategic fit. Our strategic approach is that we back entrepreneurial people in insurance distribution, but we think have the intellectual capacity to drive businesses forward. Thank you, Dan. Thank you, Dan. We have a technical question about LEBC. However, we'll respond to that following the meeting in writing.

32:56 And therefore, we just have one more question, which is how sustainable is the level of NAV growth given the current market conditions? I'll answer briefly, and John John can add to this. I think it's sustainable. I think the portfolio is very strong. Clearly, we've had an exceptional year, and therefore, not everything goes up in a straight line. But our approach to investing in the way we develop our portfolio suggests that it is sustainable. I suppose the only thing to add to that is we continue to see the multiples for these businesses growing each year. We haven't changed our multiples, and therefore, there are opportunities there as well. Great. Thank you very much both.

33:46 Guys, perhaps if I just jump back in there. And and Dan, John, Katie, thank you very much indeed for being so generous for your time and addressing all of those questions that came in from investors this morning. And, of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended just for you to review to then add any additional responses, of course, where it's appropriate to do so. And we'll publish all those responses out on the platform. But Dan, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments to wrap up with, that would be great. Look, it's a tremendous set of results. We're delighted with them. It's a continuation of how the business has been growing in the past year decades, so to speak. And we've got a team at BPMARSH that is fully capable of growing the business and the share price ultimately in in the same way.

34:36 And that that's what we're focused on. I would add that, you know, it's the team at B. P. Marsh, but also the wider team within the portfolio that all the banks need to go to. And finalize. We're we're delighted with the results. Perfect. That's great. Dan, John, thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of BPMARSH and PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.