AUB Group Limited (AUB) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the AUB Group FY '23 results. [Operator Instructions] I would now like to hand the conference over to Mr. Mike Emmett, CEO and Managing Director. Please go ahead.

Good morning, and welcome. Mark and I are delighted you can join us, and we're pleased to share the results of a very strong FY '23 performance for AUB Group. It's been a busy year with multiple strategic imperatives and our progress is a testament to the AUB team's ability to execute well and deliver the intended benefits. The results are compelling, and they're summarized on Slide 2. The first point I want to make is that every single business area has delivered revenue growth and margin expansion. And as a result, we're upgrading our earnings potential with strong momentum across the business, enabling us to upgrade our medium-term margin targets. A few key highlights. Firstly, underlying EPS increased by 33.7% to $0.1293 per share. The agencies are on track. Our strategy is delivering, and the scale-up is now ahead of schedule. FY '23 was particularly important for Strata with the acquisition of SUU. The turnaround in New Zealand is ahead of expectations. This has partly been enabled by the acquisition of ICIB; however, the strong turnaround has taken place much quicker than forecast. In Australia, a plethora of portfolio optimization activities has allowed us to refine the portfolio and enable improved performance. BizCover's midterm margin target has already been exceeded. The business continues to grow and evolve with platform scalability benefits becoming increasingly evident. And finally, Tysers is outperforming. We completed the acquisition, and we're now making great progress to implement synergies and deliver efficiencies in that business. We anticipate FY '24 will be another year of strong growth, and our expectation is to achieve an underlying net profit after tax in the range of $154 million to $164 million. This representing growth of 19.3% to 27% versus FY '23. And in determining this guidance range, we've adopted our traditional approach of factoring in the recent performance in each business area, together with the expected impact of acquisitions, both those made in FY '23 as well as known M&A activity in FY '24. Moving to Slide 4, which summarizes the financial highlights for the group in FY '23. Our underlying revenue grew by 61.2% to $1.11 billion. While the underlying net profit after tax grew by 74.4% to $129.1 million. As mentioned, the underlying EPS grew by 33.7% on the prior year, and the Board has proposed a fully franked final dividend of $0.47 per share. Slide 5 shows the growth components of the underlying profit after tax. I'd like to highlight the excellent organic growth of 12.3%, and this was complemented by acquisition growth. Excluding Tysers, this was 17.2%, with a further 44.9% net growth from the Tysers acquisition and this after allowing for increased net cost of funding. I'll now hand over to Mark to talk about shareholder returns.

Thank you, Mike, and good morning, everybody. The top graph on Slide 6 shows the pleasing EPS growth over the past 3 years of 22% in FY '21, 12.3% in FY '22 and now 33.7% in FY '23. Given the strong uplift in EPS, the Board has proposed an increase in the final dividend of 23.7% to $0.47 per share, resulting in a full year dividend for FY '23 of $0.64 per share. For FY '23, an additional metric, the 3-year average return on invested capital was added to the AUB Group long-term incentive scheme. Therefore, we have included this metric for FY '23 and the prior 2 years to assist investors. Note that each of these percentages represents the 3-year average return on invested capital ending in that year with the 3-year average return on invested capital for 2023 at 12.6%. It is encouraging to see, we are delivering a rising return on capital invested. Slide 7 shows that the underlying NPAT fully converted to cash for both FY '22 and FY '23. Slide 8 shows our funding position. On the left-hand side of Slide 8, you'll note the status of what we've highlighted in previous years, namely that the group is relatively insulated against interest rate movements. This is because the value of look-through interest-earning cash, which was $981 million at June 2023, exceeds the value of look-through debt, which was $585 million. We've also included key metrics about our debt position on the right-hand side of the slide. You'll note that the net debt position has reduced from $690 million on 31 December 2022, to $474 million on 30 June 2023. The leverage ratio has reduced to 1.71 at 30 June 2023, while the value of cash and undrawn debt on that date was $256.8 million, allowing substantial headroom for future acquisition activity. On Slide 9, we graphically depict the mix of currencies used for Tysers' revenue and expenses, and hence, the potential for ForEx exposure. You'll note that most of the Tysers' ForEx risk relates to a mismatch between Tysers' income earned in U.S. dollars required to pay expenses incurred in British pounds. To mitigate this risk, during FY '23, we entered into a multiyear series of monthly forward contracts to sell U.S. dollars for British pounds for approximately 65% of Tysers' forecast U.S. dollar income. AUB also has an additional ForEx risk, namely the translation risk to Tysers' profits arising from the movement between British pounds and Australian dollars. We are currently considering this. I'll now hand back to Mike.

Thanks, Mark. At the start of each year, we develop a set of execution priorities. I mean these are listed on Slide 10. While I'll speak to each of these more specifically later in the context of the divisional results, I did want to highlight that FY '23 was another strong year of delivering against our priorities. Slide 11. This highlights progress with our ESG ambitions. Our natural and inherent strength relates to the governance pillar. As an organization, we are good at recognizing risks, finding a balanced approach to measuring and managing them and then taking action to govern and mitigate these risks. We were pleased during FY '23 to be once again accredited as a great place to work and also to maintain an AA rating for our ESG initiatives from MSCI. Our business model, which entails significant distributed ownership and partnership with hundreds of operating shareholders, works well precisely because we allow for differences in culture, processes, work styles, and ambitions in each of these many businesses. Our focus is therefore on critical items. In the social area, our partners are particularly strong. Our gender diversity in most businesses and at most levels is excellent. However, we have a gender issue at senior levels, which we are working on. The teams across our businesses and geographies are passionate about workplace giving and supporting those in need. And while we have adopted some corporate platforms such as the Do Good Be Better donation matching program for head office and agency staff. Every one of our businesses has an active involvement in charitable giving and a focus on diversity and equality in each workplace. Slide 13. We now move to a more detailed discussion about each division. A snapshot of the performance is shown on this slide. Now I will confess that for several years, I've been driving to be able to report all segments on this slide as a bright shining green. Earlier when I said that we've seen very strong performance across all areas of the group. Hopefully, you can see this evidenced on this slide. Revenue in different divisions has ranged in growth from 13.7% to 34.3%. While an expansion in margins across the divisions of somewhere between 140 basis points and 290 basis points, together with increases in profit before tax attributable to AUB shareholders for each division has ranged between 18.9% and a somewhat spectacular 59.4%. We're very proud to report these results to you, and I can only express great pleasure and appreciation and acknowledge each of our teams for a phenomenal set of results. Going forward, we will remove the ex-Tysers column and include Tysers as our fifth division from FY '24 as we'll then have comparatives for Tysers. Slide 14. The text at the bottom of this slide highlights another very active year in Australian broking as we continue to optimize our portfolio. Three acquisitions, 4 equity step-ups, 6 equity step-downs, 5 divestments, and 2 portfolio consolidations together with several other restructures, indicate the ongoing opportunity to optimize the broking portfolio and deliver consequential margin expansion. The 2 graphs on this slide show our track record of growing revenue while also expanding margins strongly, a trend we plan to continue for many years to come. The quality of our broking portfolio precludes me from listing individual businesses as the performance during FY '23 from so many has been exceptional. So I would like to thank our broking partners and network members who are inspirational in how they lead and grow these businesses. Moving to Slide 15. FY '23 has been another good year for BizCover, delivering further margin improvement as the platform scales. In FY '23, BizCover actually exceeded AUB's medium-term margin target for this business of 40%. And we've seen margin expansion take place both in Australia, where BizCover is far more developed as well as the early-stage international markets where BizCover is still in its infancy. In addition to the strong financial performance, BizCover continues to operate with a market-leading NPS of plus 71, while also continually adding new insurers and products to the platform, thereby enhancing the platform's future growth potential. Moving to Slide 16. In early FY '21, we communicated our strategy to build the Agency division to $1 billion of premium within 5 years, and this would be split across 3 areas of general commercial, specialty and Strata. Less than 3 years into this journey and the agency premium has very nearly reached this goal already, exceeding $900 million in premium during FY '23. During that year, agency revenue grew by 34.3%, the margin expanded by a further 140 basis points, and EBIT grew by 39.5%. In recognizing this performance, I'd like to particularly call out a few of the businesses. The SUU team, which has been a fantastic addition to the AUB family, the 360 Group, which continues to fly. While a number of our specialty agencies are performing very well, particularly construction, professional risks and technology risks. We also have some exciting new or expanded agencies, and I look forward to calling these out during FY '24. Slide 17 reflects probably our most pleasing outcome for the year. The pace at which the New Zealand operation has responded to changes made during FY '23 has been nothing short of extraordinary. The addition of the ICIB leadership team merged with our BWRS legacy business has been profound. This combined with the ongoing quality of the various broking businesses and our network business in New Zealand has resulted in excellent performance. Organic growth of 42.5% is complemented by acquisition growth of 17.9%. The further 17.9% benefit shown from New Zealand group funding cost improvements was a result of a restructure of the New Zealand debt facilities and intercompany loans and primarily changing how this item is reported. So you should not give too much weight to this item on the slide. The only wrinkle in the New Zealand performance has been with Lola, our new broking technology platform. Although we have achieved some key milestones by integrating Lola with our 3 primary insurance partners and implementing the system at 2 pilot branches, the system has not met the specifications required for sign-off. And so we are working with the system vendor to remediate these items. This does, however, mean that system Lola will be somewhat delayed until the issues are rectified. We continue to assume a net neutral financial impact from Lola costs in FY '24, although this will now arise from lower expenditure offset by lower revenue benefits. Slide 18 reflects several elements of Tysers' performance after the 9 months of AUB ownership. Tysers' EBIT margin strengthened to 26.1% over the course of the 9 months. This is a pleasing result and compares favorably with the circa 20% normalized underlying margin we announced as part of the acquisition announcement in May '22 and is ahead of our internal forecasts for the 9 months of 23.7%. On the right-hand side of the slide, an analysis of revenue shows that 76% of income was from the wholesale part of the business. And of that, 70% of the wholesale income originated from North America, the U.K., and Europe. While only 2% of the income originates from Australia and New Zealand, this is obviously an area where we envisage significant growth prospects. This mix of geographic revenue sources leads to a more complex ForEx management requirement. The foreign exchange impacts are summarized in the 2 tables on the left-hand side. The top table indicates the benefits from tailwinds arising from the depreciation of the Aussie dollar against sterling. Tysers' EBIT reported in AUD increased by $4.5 million, while the EBIT of $78.7 million was $9.2 million higher than the original AUB forecast developed at the time of the acquisition. The second table indicates the benefit of the USD hedging program implemented by AUB during FY '23. As Mark mentioned, the hedging program comprises monthly forward cover contracts for the sale of USD for sterling and runs until October 2025. During FY '23, the hedging program generated GBP 2.9 million of benefit according to this table. The various business units in Tysers continue to perform well. Marine is performing exceptionally. While non-marine has picked up in several key areas to mitigate the reduced income in several international jurisdictions that we have mentioned previously. I'd call out entertainment and contingency, which is well ahead of plan, while retail continues to perform nicely as we focus on the opportunities to replicate AUB's broking success in Australia and replicate this in the SME and mid-market segments of the U.K. Andrew Kendrick is a welcome addition to the AUB Group Board and to the Tysers' Board as Chair. Andrew has recognized and experienced London insurance executive and his experience and energy will be of great value as we progress with our London and wholesale ambitions. Over the past few weeks, we've announced the launch of Tysers Live, a global business unit focused on servicing the insurance needs of the sports, entertainment, film, and television industries. This combines multiple teams in Tysers and strengthens our ability to support global clients in these industries. We anticipate this change and this focus will accelerate the momentum we are currently enjoying in entertainment and contingency. On Slide 19, we reflect progress during FY '23 with the implementation of synergies and efficiencies in Tysers. You'll recall at the time of acquisition, we communicated overall cost and revenue synergy targets of $25 million per annum. $15 million of this target was attributable to cost synergies and efficiencies, while further synergy target of $10 million was attributed to the potential for increased income. On the cost side, during FY '23, we've achieved $2.9 million of savings, which will deliver annual run rate savings of $7.6 million going forward. On Slide 19, we reflect progress during FY '23 with the implementation of synergies and efficiencies in Tysers. At the time of acquisition, we communicated overall cost and revenue synergy targets of $25 million per annum. $50 million of this target was attributed to cost synergies and efficiencies. During FY '23, we've achieved $2.9 million of cost savings, which will deliver annual run rate savings of $7.6 million going forward. Further synergy target of $10 million was attributed to the potential for increased income arising largely from the placement of individual risks and binders by members of the AUB network. During the latter stages of FY '23, Tysers has earned $0.4 million of income from AUB brokers placements of risks, totaling $2.5 million in client premium. In addition, we've earned a net incremental income of $2.6 million from the investment of Tysers cash funds. Note that this normalizes the impact of market rate rises and reflects the benefits of a different and more disciplined approach to investment adopted by AUB. We are confident about achieving the revenue and cost synergy targets during FY '24. Already in early FY '24, 4 binders have been placed by Tysers for AUB agencies. The total premium of $90 million for these binders has resulted in increased capacity and additional insurers for the agencies. And for the cost synergies, we have already implemented actions that deliver more than 50% of the annual savings target, while the various additional cost actions have been identified for implementation to deliver the balance of the cost target on a run rate basis during FY '24. Slide 21 reflects the margin expansion achieved in each division during FY '23 as well as the medium-term margin targets. Given the strong momentum across the business and the great progress made over the past few years, we've taken the opportunity to revisit the targets and have increased these for 4 of our 5 divisions. The targets for Australian Broking, New Zealand and Tysers have been increased by 2% each, while the target for BizCover has been increased by 10% to a new target of 50%. The target for agencies has been left unchanged. The matrix shown on Slide 22 reflects how the operating model for AUB Group will evolve over the coming few years. We anticipate in future to coordinate the business across 3 global divisions, Retail Broking, Wholesale Broking and Agencies. As a consequence, we will seek to appoint key leaders to each of these roles over the coming 12 to 18 months. When we acquired Tysers, Clive Buesnel and I agreed that he would assist with the transition to AUB ownership and deliver a set of key outcomes. Given the excellent progress that we've made with this transition, Clive and I have agreed that he will step down as Tysers CEO and leave the business at the end of this month. With effect from 1 September, I shall subject to regulatory approval, take up the role on an interim basis with the intention to appoint a new Global Head of Wholesale Broking based in the U.K. during FY '24. I'd like to thank Clive for the tremendous support and assistance he has provided me and AUB since our first engagement with Tysers. On Slide 23, we show the forecast underlying net profit after tax range for FY '24 of $154 million to $164 million, this representing growth of 19.3% to 27% as compared with FY '23. This represents strong growth across all parts of the group and a continued focus on delivering synergy benefits in Tysers. The profit contribution from acquisition activity of 3.9% aligns with our traditional approach to include only those M&A activities that are already executed or are known with very high certainty. I'd now like to hand back to the moderator for questions. Thank you.

[Operator Instructions] Your first question comes from Tim Lawson with Macquarie.

Just a couple of quick questions. In terms of in the Agency business, you're obviously quite close to the original target. I think you alluded on the slide that maybe that's something you can raise. I mean, what do you need to do to get that through that $1 billion? And what could margins do should you achieve that?

Yes. So as you referenced, we have the premium growth in agency has been quicker than we expected. I think to get to where all 3 legs of the agencies operate that 45% or so margin target. We need a few things. Firstly, we need balance of our general commercial agency group has grown faster than the others and then secondly, Strata. So we need specialty to scale up. So I think you'd see that actually Strata and general commercial are the higher of the 3 margin areas. And so now we need our specialty areas to expand as well. But broadly, it's really more of the same. I mean, I don't want to -- for those in our agencies, listening to me, I don't want them to so I think this is not an ambitious and aspirational piece. I think we genuinely can reasonably set our sights on a much higher premium target over the next 3 to 5 years. And so we're working on what should that number be. But I think the short answer is to achieve the margin target, we need our specialty agencies to accelerate their growth in parallel with the growth we're already achieving in Strata and general commercial.

Just a quick question on debt. Since you've got about $50 million organic debt reduction. I mean there's obviously some first [indiscernible] timing on dividends. But the potential to keep reducing debt organic run rate at that sort of level versus sort of dividend increases?

I think, Tim, it's all about the balance of opportunities, right? So I think the key thing is that at any point in time, we're evaluating acquisition opportunities. Some of those are bolt-ons that optimize particularly our broking pieces. So I think the reality is it's all about the opportunities in front of us and the best way to deploy capital. We're very conscious about generating strong returns for shareholders. But equally, the fact that in the medium to long term, what we're trying to do is invest the funds in a way that generates a return for shareholders.

And just final one for me. You obviously called out the New Zealand tech and so just some sort of delay there. Can you just expand on the situation and what sort of outcomes you're happy to see?

Yes. So pretty much typical of standard practice in large technology projects. So the good is that we've got it running and working and operating as the exclusive broker management system in 2 brokerages, they were identified as our 2 pilot sites and the interface for all the personal lines product is live directly into the insurers. So that's very good. Those are complex achievements, so that's tick and tick. However, some of the functionality in the system is not working the way -- when you develop a system like that, you have pilot sign-off requirements and you have user acceptance testing. And inevitably, at this stage of a project that identifies issues around how the technology is performing both from a systems performance as well as a user testing and functionality piece. So we've been working with the software provider and partner to now for them to address these issues before we're comfortable to sign off to move into official rollout phase, which is then when we roll out to. So I guess it's really just being explicit about where we are in the project. And I think our assumption is this is going to take a little bit longer than our original implementation plan suggested. As I referenced, from a financial point of view, our assumption is continued net neutral impact simply because in FY '24 will have lower costs because we're rolling out -- we're deferring the rollout, and we'll have lower revenue because we're deferring the rollout, and those will neutralize each other.

Your next question comes from Elizabeth Miliatis with Jarden.

The first one is just on the AU Broking margin. Obviously, for the full year, you continue to expand. But just looking at the half year, the EBIT margin actually stepped back from what I can tell, revenue was still fairly robust at around 13%. The cost growth was actually fairly elevated at around 15% versus 7% in the first half. Given that the majority of your costs, employee costs and they typically, as far as I understand, locked in at the start of the financial year. Can you just sort of unpack that higher cost growth? And is that something we should continue to expect in the near term?

Yes. Elizabeth, so firstly, I think the first half to second half always difficult to compare. And the reason is, candidly, a big part of -- as you rightly say, our 3 biggest costs are people premises and insurance premium. On the people and insurance premium, the cost -- a big part of what the people costs are related to bonuses and performance incentives, et cetera, although we accrue through the year, obviously, we assume a certain level of performance early in the year. And then as -- not by design, but I think this recently would have been our 10th upgrade consecutively. So the business continuously is performing better than we forecast, which means, obviously, you end up with a back-end loaded set of assumptions around bonus provisions, which means that in June, now our remuneration costs are always higher than the rest of the year because of that assumption. Now in some cases, we might have an over-accrual, not intentionally, but an over-accrual for bonuses, et cetera, which we then would reverse in the first quarter after the financial year. So what do you have in FY '23 is sort of coincidentally a combination of these 2 things, where the FY '22 bonus accrual was slightly more than we actually ended up paying, which means you had a net reversal, i.e., an understatement of cost in the first half. And then we believe we've got a robust bonus accrual at the end of FY '23, which means that it looks half-on-half as if the cost is matched. The second piece is that we have -- our insurance premiums run from May to April. And so again, as the insurance costs go up, we have some estimates around it, but there tends to be a normalization. Now we do have a captive. So some of the accounting as the analysts on the call will know better than I do, the accounting for the provisioning and the captive is quite complex. But nonetheless, we have a well-funded mature captive. And so some of the costs related to the insurance provisioning and the captive in the fourth quarter were quite material and more than -- whereas in the first quarter -- sorry, the first half, you wouldn't have that new accident year provisioning. So broadly, I'd say, what you should look at is that the margins for Australian Broking, unlike I did read some of the early views, the margins are improving, not deteriorating. I think people are reading into something that doesn't exist. Probably as an aside, I would mention that I think we first published our margin targets in February '22, 18 months late and we said the targets were for the medium to long term at the time I was asked, what does that mean? I said 3 to 5 years. 3 to 5-year margin target for Australian Broking, it was 35%. We've just exceeded that margin target after 18 months. So the fact that we've upgraded that target twice now, now to 40 shows that we have great confidence about the future margin target improvement.

And then just actually on your medium-term margin target for AU Broking. Like you said, you've increased it from 35% to 38% and now again to 40%. That's well ahead of your larger competitors that a pretty strong number. How are you confident that you'll actually achieve those kinds of margins? And what do you need to do to get there?

Elizabeth, it is actually more of what we've been doing, right? So I think some of this is all about -- so I suppose when we announced the margin, remembering that from FY '19, I think from memory, we've gone from a 25% margin in Australian Broking to a 35% margin. Now at the time, if I said we're going to improve the target we're going to improve the margin by 10%, 1,000 basis points. I think people would have -- well, I wouldn't have thought, to be honest. So I think part of this is about an evolving insight into just how powerful our combination of building and leveraging platform businesses and the consolidation piece together with the deployment of ExpressCover, together with the bolt-on acquisition strategy that we've had. And frankly, our network of businesses and our principles are incredibly good at running our broking businesses. And so as you build momentum, you realize actually we can go further and we can go harder. I use this very cheesy expression, which people ask me to comment on other people's margins and et cetera. The reality is we're swimming in our lane, and we're concentrating on our stroke and we can see it's a plausible strategy to get to 40. Now when we said 35, we could see 35 in the [indiscernible]. I've never dreamt we would achieve it in 18 months, right? Genuinely, that was never expected, but the business has just responded to the changes far more quickly than we had anticipated. And the strategy is delivering far more quickly than we expected.

Your next question comes from Olivier Coulon with E&P Financial Group.

Just on the Tysers cost out, I seem to recall, and maybe I have this incorrect. I thought you were expecting to get to run rate cost out of $15 million by the end of FY '23? Or was that not accurate? And I suppose…

No, definitely not like that. So we're ahead on cost and on revenue.

And is the expectation that you get to the $15 million run rate by FY '24 now? And is there any potential that that $7.6 million, well, that the $15 million ends up being exceeded from what you can tell?

So Olivier, the problem with -- I always think this is -- so let's take a start philosophical argument. I think the fact is, at what point of synergy stop being synergies and they simply become improving how you run and manage a business. And so our practice is we called out the synergies at the time of the acquisition. We're very confident in those. We'll deliver those. We'll report against that delivery, and then we'll move on. So we're not going to upgrade the synergy opportunity. Do I think that there are greater medium-term opportunities? Well, that's reflected by the fact that we have upgraded the margin target for Tysers, right? I mean you might recall that at the time of announcing the deal, we were challenged by people on whether the 19.9% normalized margin was a viable number. And so it's relatively soon. Since then, that we're now sitting at a 26% margin. And I actually think the 26% is artificially slightly high because their highest margin period is the third quarter. And we don't have the first quarter in the FY '23 number. So if anything, the margin apart from the synergy piece will stay flat in Tysers in this next -- as we get to a full year. But for that point, the fact is that we are very confident in the medium-term opportunity to uplift the margin in Tysers. Some of that is part of what we're calling synergies and what we called out the synergies, and some of it will just be just like the rest of AUB opportunities for us to scale and leverage the business differently.

Olivier, just to add to that and just to answer your question, I mean the $7.6 million run rate savings, that's an annualization of what's already been done. So we've got the rest of this year, financial year to June '24 to get to the $15 million target that was set in the beginning.

And just on M&A, in terms of, you've obviously given the benefit, I think, $5 million, there's a drag from businesses that were sold through FY '23. How much of the size on the positive side is FY '23 acquisitions annualizing? How much is acquisitions that have ever been already undertaken in FY '24 or that are strongly expected to be undertaken in FY '24 in terms of dollar amount, I suppose?

We're not going to give you the explicit dollar amount, Olivier. What you should assume is that the numbers in there have such high confidence you could assume that they've done, I think, is the key point.

Yes. But it'd be probably safe to say that there's a decent sense that throughout the year, you'll be increasing that…

Yes, you would have thought so. And look the reality is, if you go back over time, over the last 4 years, every year, we buy more and there is more profit that is attributable to acquisitions than we declared at the beginning. But I don't think you can factor in the unknown, right? So for us, this is a very serious matter to try and provide guidance and forecast. Equally, every year, our organic growth has been higher than the outlook. Now that doesn't mean that we, therefore, you should just take the average outperformance each year and added to the number. We take this guidance setting very seriously and it's based on bottom-up budgets. Clearly, there are opportunities for us to outperform. But clearly, and that's why there's a range. They're clearly downside risks as well. So I think this is a high confidence acquisition number based on things we know that candidly, we have completed, right? Or but for some formality they completed rather than every year we buy x, and therefore, let's assume this year, we're going to buy the same. We don't apply that type of approach to forecasting.

And just a last question for me. Just Tysers Live, so I may have missed it. But obviously, you already have a strong contingent business. What precisely is this initiative doing over and above that?

Yes. So we had entertainment producers and brokers and staff split between retail and contingency and then some international offices, et cetera, all operating in different teams effectively. And so what we've done is we've pulled all of that together into one global business unit with a single global MD, who is leading that business. And as a consequence, it will provide us a more seamless approach to how we go after, frankly, what are global clients. So they're not dealing with multiple different teams of people, et cetera. But it also is a stated intent about us expanding that. And so it's perfectly plausible that we will expand our teams and capabilities in different geographies as part of that. Just to be explicit, so the cost synergies, the target we set for on a run rate basis was December '23.

Your next question comes from Andrei Stadnik with MS.

Congratulations on a good result. And can I ask just initially around the EBITDA margin target? So you shift on them up by around 2 percentage points or better. What's driving that? Like is that tied into the new operating model that you're talking about?

No, it's not to do with the operating model, Andrei. It's literally just we've achieved the margin targets we've set 18 months ago quicker than we'd expected, and we can see still more runway to improve further. And so it's really a function of just an update to some of our reviews. And it's perfectly plausible that you go -- for example, we could have achieved the 40% target for BizCover and determined that actually that is the terminal margin, right? When we did this exercise, as it turns out, that's not what we concluded. But I think it's just good practice for us to be -- no, I don't intend to update them every 6 months. I don't think that's healthy for anybody. But the fact is we can see a lot more runway. And so we're really just adding to those target targets.

And can we ask your view on what you're seeing around that short premium price in dynamics around your group?

Yes. So answering that outside of Australia and New Zealand is high because we still don't have, I think there are too many moving parts in the London market in terms of things at interplay in terms of currency and commodity prices and supply and demand in terms of, I don't know, shipping, et cetera, et cetera, as well as risk rates. So I think there are too many variables there. But in Australia and New Zealand, we're seeing about 7.5% rate in Australia, and we're seeing about 9.5% rate in New Zealand.

Your next question comes from Siddharth Parameswaran with JPMorgan.

A couple of questions, if I can, just on BizCover. It seems like there's a material improvement in the second half. I think in the first half from memory, I think you were planned that you're pulling back on potentially some the international expansion. I think that from memory, the sort of concerns on rising costs of distributing on platforms. I was just wondering if you could comment on current conditions now and also just what's behind some of the increased targets that you have on a medium-term basis for that division?

So 2 separate things. I think the increased margin target is fundamentally a function of the platform of scalability benefits we get in Australia and the increasing scale in New Zealand, so I think those 2 things. But particularly the Australian portfolio is now very large. You've got this high retention benefit of existing customers and you've got still continued strong new business growth from new customers. And of course, that just adds to this portfolio of customers that renew. And then -- so the lifetime value, a big cost for -- BizCover 2 big costs are marketing or customer acquisition and technology. And so those 2 pieces, if you've got a larger and larger portfolio, let's call it sort of an existing portfolio that's renewing, your marketing cost and cost of acquisition is quite low on that. And so over time, as the portfolio enhances enlarges, you simply have improved margins unless you're going after massive increases in new business growth. So that's really the phenomenon in Australia. And that follows through in the other markets. So as New Zealand, you'll see the international margins on the slide have also improved. Now, in close to what the margins are in Australia. But the fact is that as they scale up, you get the benefits of the economies and therefore, more of that new business -- the renewal business flows through to the bottom line. And so it is -- has all the benefits of a platform business. And as a consequence, generally, if you can scale it up, the margins improve. And so, again, just like my commentary on Australian Broking, we didn't anticipate 18 months ago that BizCover would get to this point as quickly as it has. And actually, their ability to moderate marketing spend has been quite impressive in the second half. That's actually not been then dialing back marketing spent. That's been then maintaining marketing spent while continuing to grow and therefore, more of the revenue flows through as margin.

And sorry, just I asked us about conditions as well. I think that you're a bit more cautious on conditioning 6-month ago around just what was happening on the aggregator channels and things like that. I was just wondering if you could just comment on those conditions where we have changed.

Yes. So I guess what you recall I referenced is that the cost of acquisition in the aggregator channels was the highest. And so ironically, as although the revenue top line growth is slower than it was a few years ago, the margin has improved because you've almost reduced your dependence and the scale of the high cost of acquisition type channels and replaced it with growth out of the lower cost, higher margin channels. So, in a way, although you'd always take extra revenue at -- even at a lower margin percentage, the fact is that that's partly helping the margin improvement story as well as they grow through their direct channels. And obviously, although they're sharing the income with the intermediaries as they -- the new -- the customer acquisition cost through intermediated channels like Australian Broking, Austbrokers is much lower as well than through those aggregator type channels.

And just a second question for me. Just on the interest rates and how they're impacting some of your businesses and targets. I just wonder if we move to a lower interest rate environment. Would that, in any way, change your target? So if the cash rate was to pull from here, would that change these targets and renew the targets?

In terms of the margin target, well, it wouldn't change them. I mean it would slow our pace to get there, but no, it wouldn't change them. Obviously, at a group level, the cost of debt is higher than the cost we get. So at that core net -- that one page that Mark spoke to, on that roughly $500 million of debt, obviously, the cost of that is much higher than the equivalent return we get on an equivalent $500 million invested. So from a group point of view, ultimately, depending on the mix, while we insulated to increases in interest rates, there is still a benefit to lower interest rates on the core debt.

Yes. No, actually the reason for asking the question is, if I look through the divisions, it looks like roughly in most divisions, it's the interest component is adding an extra, let's say, 7%, 8% to your EBIT margins and just the fact that we're in a higher interest rate environment. Just wondering if that -- if I'm interpreting that correctly or if there's anything else that I'm missing?

It's definitely increasing. The 7% to 8% sounds too high. We'll come back to you separately, sir.

Yes. I just take your interest revenue and divided by your EBIT there, so yeah, okay. And just a final question maybe just on just the acquisition multiples that are out there at the moment. I just I can't understand, if you could help us understand it. The rising fall, we've seen quite a lot of transactions recently. Some of them are quite large. Just the ones that you're looking at, how is it multiple?

Well, I mean, same thing. So most of our acquisitions are in that sort of small to medium size. We still see the average of between 7.5% to 9.5% depending -- I mean, obviously, the key factors are, how big is the business? How quickly is it growing? What margin does it operate at? And are you buying control or not? I think those are the key factors in a broking business. 7.5x to 9.5x is the range depending on those factors. I read with intrigue some of the press about some of these business multiples, et cetera. I can understand for very big ones. Look, we've never paid -- if you put BizCover to one side, we've never paid above 12, I don't think. I think -- so the reality is that we're not seeing that manifest itself in the transactions that we are involved with. But certainly, you read the same press I do in terms of some of these lofty multiples for some of the big runner process ones. But most of the time, we're looking at businesses that we are wanting to partner with in the medium to long term, and we're buying them at what we think are fair prices for us and for the seller.

Your next question comes from Jason Palmer with Taylor Collison.

Just in terms of the agency binders, Mike, the renewals with Tysers appears to have been quite modest in terms of the extra capacity you've been able to get there. Are you able to maybe brag a little bit more, if you could, please, to use a term on the benefits that's providing your specialty agencies?

Yes. Well, Jason I suppose first point is it's very early on, but 3 factors I'll share that I don't really brag, I don't think, but let's adopt that term. So the first one is that the 3 binders that we've renewed -- so remembering we had an exclusive arrangement with another partner for our sure-branded agencies until 1 July. So in roughly 7 weeks since then, well, we didn't have any binders that renewed in July, frankly. So the ones that renewed in August, we have placed $90 million worth of premium. Now the old binder value of those was $80 million. So the capacity increase was roughly 10 on 80. So that's the first piece. For me, that's not so much about bragging. It's about proving when we said that there was a price of somewhere between $130 million and $140 million of binders that could be placed through Tysers. That's evidence that in a 3-week time frame, effectively, we've placed 70% of that number. So that's more a proof point. That's the first thing. I think the second one, though, is that we have got some bind is where what we've been able to do is actually increase either the product or add a new risk class to the binder with Tysers assistance or we've been able to bring new insurers onto the binder, which reduces the risk of the binder. Because if you've got one insurer on a binder and they change their mind about their risk capacity or the risk appetite about a particular geography or a pricing view, you're very beholden to the sort of foibles of that one insurer. If you have 5 insurers on a binder, you have much less beholden on them and replacing a 20% line on a binder is much easier than 100% line. So having more insurers signed up to binder terms, et cetera, genuinely works well for the agency. So on the binder that we've got a few new binders that we are launching with Tysers assistance. We've got existing capacity that we've placed. It's increased the capacity. It's increased. So for example, the one binder is a technology risk binder for sure technology risks. That has a new product or risk line that's been added to it. And we have 2 new insurers on one of the binders that we renewed. So it's sort of all of those. Jason, hopefully, those are the points that you were interested in?

Yes. No, that's wonderful.

Sorry, I've just been corrected by my auto Q, it says that it's 20 million increased capacity on the 3 binders is not 10 million. So sorry about that.

And so how far through in terms of the initial 130 to 170, i.e. I mean, it sounds like your very early days and those expectations around the revenue synergies it could be quite light.

Yes. So well, the reality is that we are in month 1 of an 11-month portfolio. But the things that are -- so the positives I'd point to, so you might recall we said $200 million and 5% commission gives you 10 million of revenue, and it would start in July. So we had $2.5 million, $400,000 of income already in the fourth quarter. That's 18% commission, okay? So 3.5x the estimate on some of it. We've had $90 million of -- and you might recall that out of the $200 million, I said roughly 2/3 binders and 1/3 direct risks or other facilities for brokers. So on the direct risk, the income percentage is much higher than our assumption. On the binders we're already $90 million of, I don't know, 2/3 to $140 million, so $90 million of $140 million. So we really just need a couple more binders and the binder job for the year is done. But we also have -- what's been interesting for us is they've been -- some of that $2.5 million is net new business for us brokers. So this is not business that we've moved from one wholesale and to Tysers. This is actually a new business that AUB has never been able to win before place before. And so although we're getting 18% income into Tysers, we're also getting some other income for the brokers in Australia. And so all in all, I'm very enthusiastic at the size of the price. So I'm very confident about our $10 million income synergy target.

So it sounds like you've compared to where you thought you would be. You're sort of ticking boxes over and above on the way. Particularly in terms of the core debt, what sort of -- now you've done the placement and the core debt has come down. Obviously, you've talked to how you sort of added money with the current interest rate rises because of the cost of the core debt. What mechanisms do you have to now do to kind of bring the margin down on that?

Well, the short answer is we need to renegotiate. Obviously, at some point, there's an opportunity for us to renegotiate our facility. And as you point out, Jason, it is an expensive facility. The margins are higher than we believe we could source in the market if we were doing that now. And so clearly, that's something we'll be exploring.

And just the last question, if I could, please. Just in terms of the project Lola, I think you might have spent $4 million or $5 million this year, correct me if I'm wrong, please PBT in the New Zealand numbers. And I think you're saying you think it will be net neutral in FY '24. Does that mean there's $4 million to $5 million of savings after those revenues to come through in FY '24? Or does that mean that, that spend still maintains that run rate?

No. So it means the spent will dial back a lot, and we will have some income increase flowing through from the 2 brokers that are live. And also, we're obviously assuming further rollout later in the year. It's really just that it's delayed.

Your next question comes from Scott Hudson with MST.

Just a couple of questions. I guess, in terms of your comments around the U.K. retail landscape, would you be deploying capital to expand your footprint in that channel?

Probably, Scott. I think, again, the reality is that our tactic and strategy will be the same, right? And I'd almost reference the New Zealand market. So the way we've expanded in New Zealand has really been around let's make sure that we have a network that delivers services to members and then let's take our scale and put it into that network so that both our equity businesses and the network benefit from that scale. And then let's look at ways in which we can invest in either other existing members of that network or bring new equity businesses in. But do it in a way that we're bringing synergies so that whatever investment we're making, the synergies mean that the multiples are acceptable and the cost of the investment and the return is within our normal sort of profile.

And then the, I guess, the uplift to the Tysers' medium-term margin target, how much of that would be, I guess, maintaining ownership of the retail business? And how much of that is sort of, I guess, uplift in your general expectations for the wholesale business?

Look, there's a little bit about maintaining the retail business or retaining the retail business. And then there's a bit, which is about -- candidly, I think the improvements in Tysers are -- they are gathering momentum faster than we had anticipated. So I think some of this is about pace. If you said to me, are we now talking about a terminal margin that's higher than what we actually internally thought, no. We were just being discrete about sharing that externally. But we've always had quite a lot of confidence about this sort of margin or better. It's just that it's -- the improvements are flowing through more quickly than we'd anticipated.

Then last one for me. I guess, express cover is the volume of business going through that helping push your medium-term margin target higher?

It is, although the margins are good, the volumes are still not exciting. The nice thing of coming off small bases is the volumes increase by, I don't know, 50% a year or something in terms of the volume growth. So the growth is nice, but still in absolute terms, it's still a very small part of our portfolio. And I guess the optimist to me says, well, that's fantastic because we're going really well. It's growing 50% a year. And if that gives us a steady tailwind for the next 10 years, what we do.

There are no further questions at this time. I'll now hand back to Mr. Mike Emmett for closing remarks.

Thank you very much. So firstly, thank you very much for joining us. As you can tell from the presentation, we're really delighted with the results. And I just want to thank our teams everywhere. I mean, literally, there isn't a single business that hasn't improved and beaten all of the forecasts and the targets we set for them at the beginning of the year or even as recently as the half year results. And so that's an extraordinary performance. And so I just want to thank our teams. It is hard out there. The fact is that insurers and the combination of losses they faced, reinsurance costs, et cetera, means that placing insurance requires more work than ever. But the great thing is that, that also means that the need and the importance of a broker and a professional adviser increase rather than decrease. And so we're very enthusiastic about the progress we've made. But equally, as you've seen from the increase in our margin targets, our views on medium to long-term opportunities and upside remain quite bullish. So we look forward to the year ahead. We look forward to continuing to deliver our slightly tongue and cheek reference, I think, the 10th upgrade. Please don't build in further upgrades automatically. As I said last time, don't upgrade my upgrade. But we are confident, we're focused, and I'm really happy to share these results with you and look forward to the conversations over the next 1.5 weeks. So thank you very much, everybody.

That does conclude our conference for today. Thank you for participating. You may now disconnect.