AUB Group Limited (AUB) Earnings Call Transcript & Summary

Well, good morning, ladies and gentlemen. I'm David Clarke. I'm the Chair of the Board of AUB Group Limited, and welcome to our 2024 Annual General Meeting. Could I request that you now take a moment, please, to ensure that your mobile phone is silent? Thank you very much. And also, please be aware that this meeting has been recorded. And so it's now 10:00 a.m. and as there's a quorum of shareholders present, I declare the Annual General Meeting of the AUB Group [Technical Difficulty]. As we begin the meeting, I'd like to acknowledge First Nations and Torrest Strait Islanders people on whose land we conduct our business around Australia and we pay my respects to communities, culture to elders past, present and emerging. This morning, I will provide a brief overview of our business and achievements during [Technical Difficulty]. And our CEO and Managing Director, Mike Emmett, will then provide an update on our business and key results [Technical Difficulty], and he will look to provide an outlook for the 2025 financial year. We will then move to the formal business of the meeting and the resolutions set out in the notice of the meeting. But before that, I'd like to introduce our CEO and Managing Director, Mike Emmett; Richard Deutsch, Non-Executive Director, who chairs our Audit and Risk Committee; Andrew Kendrick, Non-Executive Director; Company Secretary, Richard Bell; Peter Harmer, Non-Executive Director; Melanie Laing, Non-Executive Director, who also chairs our People and Remuneration Committee. And joining us via video, you can see there on the screen, is another Non-Executive Director, Cath Rogers. Cath unfortunately had an unavoidable timing conflict, so she's not able to be physically with us here today, but good morning, Cath.

Good morning, everyone.

Cath, we will now turn your screen off and will join us later for Resolution 2b, which is a resolution dealing with the proposed reelection of [Technical Difficulty]. Also with us today is our Joint Company Secretary, Elizabeth McGregor; representatives of our auditor, Ernst & Young, led by Mike Wright, Renay Robinson. Representatives of [Technical Difficulty] services are here seated in the audience, senior executive [Technical Difficulty]. In addition to receiving the financial report statement, there are 8 further items of business, and I'll just run through which those are. So the first is the adoption of the remuneration report. Then we've got a number of reelections of Directors being Peter Harmer, Cath Rogers, Melanie Laing, and then also the election of the non-Board endorsed candidate, director candidate being Mr. Stephen Mayne. Stephen has self-nominated as a director because he believes that our recent capital raises were unfair to retail shareholders. We'll discuss this resolution during the formal business of the meeting. And then we go on to the third area -- third matter, which is an approval to increase the directors' fee cap. Fourth being the issue of performance shares to our Chief Executive, Mike Emmett. And fifthly, finally, a refresh of our placement capacity for issue of Institutional Placement Shares. There will be an opportunity for questions on each resolution and also during the [Technical Difficulty]. At our meeting today, Mike and I will report to you on AUB Group's performance and also during the general [Technical Difficulty] and the outlook for the year ahead. This is my eighth year as the Chair of this company, a year of continued success and change with an execution focus aligned to our strategic agenda and an excellent financial result for AUB Group Shareholders. Financial year 2024 was marked by another year of success, underscored by, as I just mentioned, robust financial performance and significant strategic accomplishments. Our underlying net profit after tax increased by 32% compared to previous year financial year '23, and our net profit after tax reached $171 million. This growth reflects our dedication to delivering strong returns and while maintaining financial resilience. We, as I'm sure you're aware, maintained a strong balance sheet, with the corporate entity remaining cash generative and access to $470-odd million cash and available debt funding as at 30 June, 2024. Furthermore, we successfully raised $225 million in equity through a $200 million placement to institutional shareholders announced in May '24 and then a $25 million in a share purchase plan, which is referred to as an SPP, which was announced in June 2024. These initiatives support our acquisition pipeline, and they fund further growth opportunities. We determined a fully franked final dividend of $0.59 per share, which together with the interim dividend of $0.20 per share, this brings the total final full-year dividend to $0.79 per share, which was an uplift of 23% from the prior year. This growth reflects our strong earnings and very healthy cash flow. Our earnings per share for FY '24 was $1.56 per share, which was an increase of 21% compared to the previous year, further underscoring the successful execution of our strategic priorities and our ongoing commitment to enhancing shareholder value. As you may remember, back in September 2022, we acquired the London and Lloyd's broker, Tysers. The vendor was a private equity firm, Odyssey Investment Partners. As part of the consideration for Tysers, AUB Group issued just over 9 million shares to Odyssey. The shares were subject to a 2-year escrow period until the 30th of September 2024. Odyssey have recently sold those shares to institutional shareholders via a managed sale process. So any idea that there was an overhang from those shares has now been dissipated and those shares are in the hands of what we hope are long-term institutional shareholders. The successful execution of our strategic priorities has been a key driver of the financial performance. And in financial year '24, we completed several strategically significant and accretive acquisitions. The integration of Tysers has granted us valuable access to Lloyd's and opened opportunities for new markets through its extensive client base and distribution network. This strategic acquisition has established a strong foundation for further expansion in both existing and prospective markets, aligning with our objective to leverage Tysers to optimize the value chain and unlock our next phase of growth. Our agencies portfolio remains a critical growth driver and surpassing our financial year '24 target of $1 billion in premiums, it represented a 19% increase compared to the previous year. Additionally, the acquisition of Pacific Indemnity, which is another agency, was completed and took effect on the 1st of July 2024. So it's not included in the current results, but it further strengthens our position. Looking ahead, financial year '25 will see an increased focus on building out our U.K. retail capability. We also remain committed to enhancing our strategic investments, optimizing Tysers' wholesale broking operations and driving further growth across our key markets. Our strategic priorities will continue to center on leveraging those acquisitions to maximize value and capitalize on further emerging opportunities. I'd like to just mention our commitment at this stage to environmental and social and governance practices. And it still, as you would imagine, remains a priority. We implemented several key initiatives and have outlined further plans to further strengthen our ESG footprint. Some of the highlights during the course of the year, we were recertified as a Great Place to Work. Our giving and community support programs continued to be rolled out. We also, through donations and sponsorships, supported community organizations throughout Australia through our network of brokers across the country. We commenced our assessment of our approach against the first stage of the Australian Sustainability Reporting Standard, and we implemented measures to address gender pay equity, with women representing 52% of our workforce, 52% of promotions and 56% of new hires. One final item, which we're very proud of is the trust that is generated by our broker partners with their customers, and we measure this by the retention of the business, which is in the 90s -- low 90s, 93%, and has been at that level for some time, which is considered to be high. As part of the Board's succession planning, we're pleased to announce the appointment of a new Director, Tonianne Dwyer as a Non-Executive Director, and Tonianne will become a Director at the conclusion of today's meeting. You might ask why this particular item was not in the Notice of Meeting, but we hadn't finalized the appointment of Tonianne by the time in which the Notice of Meeting had to be dispatched to shareholders. So you will get a chance to vote on Tonianne's election at this time next year. Tonianne brings an exceptional value to the Board. So I just want to give you some facts about her background. So that experience includes serving as a Non-Executive Director of ASX-listed companies, company ALS Limited, Growthpoint Properties Australia, Incitec Pivot. She's also the Deputy Chancellor and member of the Senate of the University of Queensland, a Director of the Sir John Monash Foundation. And previously, in her 23-year executive career, she was in investment banking and real estate in senior roles with Hambros Bank, Societe Generale in the U.K. So we warmly welcome Tonianne and look forward to benefiting from her considerable expertise and insights. In addition, I'd like to take this opportunity to confirm my retirement from the AUB Group after 10 years, 8 of which were as Chair and extend my heartfelt thanks to my fellow Board Members, shareholders, the management team and AUB's partners -- business partners and teams for their support and collaboration. Together, we've achieved remarkable growth with a compound annual increase of 17% per annum in profit and 10% compound growth in our earnings per share over that period. And so I'm honored to have been part of this journey and leave with great confidence in AUB's future, knowing it's well positioned for continued success. Peter Harmer, our current Director, will succeed me as Chair. Peter's extensive experience and deep knowledge of the insurance industry make him ideally suited to guide AUB Group as it moves towards its future aspirations. So my retirement from the Board and Peter's appointment will be effective from the conclusion of today's meeting. So in conclusion, this year has been an outstanding year, marked by significant achievements and a steadfast commitment to our strategic priorities, underscoring both our strong market position and importantly, our future potential. In closing, I'd like to extend my sincere appreciation to our dedicated employees and partners for their unwavering commitment and hard work, which have been instrumental in achieving the results that I've just talked about. I also wish to express our deepest gratitude to our clients and shareholders for their continued trust and support. And as we move forward, AUB Group, I believe, is extremely well positioned to build on our success and address the opportunities and challenges that lie ahead. I would now like to hand over to Mike to give you an update on your business and the key results as well as look forward to the financial year 2025. Thanks.

Thank you, David, and good morning, everyone. I'm pleased to share AUB Group's outstanding financial year '24 results, with strong performance across all divisions. This year marked significant milestones in revenue growth, margin expansion and profit growth, underscoring our collective strength and strategic execution. Financial year 2024 represented a pivotal moment as we completed 5 full years under our ambitious strategic mandate. With a revitalized leadership team, bold ambitions and clearly defined priorities, we've achieved substantial growth, boasting compound annual underlying net profit after tax growth of 34% per annum and with earnings per share growth of 22% per annum. This pleasing performance has been ratified by our investors who have supported significant growth in the AUB share price over the same period. Today, AUB Group manages over $10 billion in premiums on behalf of our clients, having expanded beyond traditional broking to include a diverse portfolio of underwriting agencies, insurtech businesses and a strong presence in wholesale broking, particularly within the Lloyd's market. Our global reach now spans 16 countries, with approximately 5,500 dedicated professionals serving 1 million clients, expertly placing and managing risks with the world's leading insurers. Over the past 5 years, AUB Group has been one of the fastest-growing broking groups globally and is currently ranked as the 18th largest insurance broking group in the world. Despite this growth, our unwavering commitment is to clients and partners, and this remains at the core of our operations. Our owner-driver model, integral to our success, allows key partners to maintain substantial equity stakes in their businesses, preserving the entrepreneurial spirit and fostering a sense of family within the AUB Group. With a portfolio of approximately 100 unique brands, each with its own history and culture, united under the AUB Group umbrella, our proven go-to-market strategy continues to deliver exceptional results across multiple jurisdictions year after year. In financial year '24, the underlying revenue grew by 20% to $1.33 billion, while underlying net profit after tax increased by 32.5% to $171 million, benefiting from further EBIT margin expansion to 34%. All divisions contributed to this growth, with revenue increases ranging from 8.5% to 26.5%. Margin expanded between 170 basis points, up to 740 basis points, while profit before tax attributable to the AUB shareholders rose depending on each division between 14.7% and 59.2%. As David noted, our EPS grew by 21.2% compared to the prior year and our 3-year average return on invested capital ending on the 30th of June 2024 was 12.7%, while cash and undrawn debt at the end of the year amounted to $471.3 million, providing substantial headroom for future acquisition activity. I'd like to describe some of the divisional results in more detail now. Australian Broking remains the engine room of the group. We continue to optimize our portfolio, making 8 bolt-on acquisitions and 1 disposal, restructuring a broking portfolio and investing in 5 equity step-ups, while continuing to support succession planning by reducing our equity in 4 brokerages. This division continued to deliver strong revenue growth, with widening margin jaws achieved through effective cost management. BizCover delivered another strong year, achieving revenue growth of 15% and significant margin expansion to 42%. The business continues to invest in enhancing its platform, ensuring sustained growth and customer satisfaction. Notably, the insurer panel was strengthened with the addition of Chubb and HDI, expanding the range of insurance options available to customers, while the relaunch of BizCover's cyber insurance offering has shown encouraging growth. The Agencies division made an impressive contribution. As David mentioned, we crossed the milestone of $1 billion in premium while making significant progress towards our medium-term EBIT margin target of 45%. Additionally, the strategically important acquisition of Pacific Indemnity, which enhances our scale and capabilities, will further bolster our growth in financial year '25. All components of the division performed strongly, and this addition of Pacific Indemnity from 1 July will enable us to extend this growth. New Zealand. New Zealand's operations continue to deliver remarkable results, with another year of strong revenue growth at 25.6%, compounded by a 740 basis point margin expansion, resulting in EBIT growth of 57.4%. FY '24 organic profit growth of 26.3% was bolstered by 10.5% in profit growth from acquisitions, together contributing to an underlying profit growth of 59.2%. Our ongoing focus on growth in New Zealand is underpinned by 9 acquisitions made during the year, alongside portfolio acquisitions, including 1 equity step-up and 2 equity step-downs. Financial year 2024 also marked our first full year of Tysers' ownership, with the performance from this division contributing positively to our overall results. On a normalized basis, the Tysers' EBIT grew by 14.1% to $99.4 million in FY '24. We successfully achieved stated run-rate revenue and cost synergy targets during the year, whilst also making good progress to restructure the Tysers operations. The ability to leverage Tysers to access the Lloyd's insurance market to the benefit of the clients of our broking and agency networks is a significant competitive advantage, which will increase the growth potential of AUB Group in years to come. The operating model -- we've restructured the operations acquired as part of the Tysers acquisition, splitting the business into 3 clear components, namely wholesale operations, which continue to use the Tysers brand, the retail branches, which have been combined with recent retail investments in Movo and Momentum to form a new U.K. retail unit, while the underwriting agencies will now operate as part of our global Agencies Division. As a result, the new AUB International Division will comprise Tysers, the new U.K. retail operations, Mexbrit/Forte, our Miami-based brokerage and MGA acquired last year, as well as other acquisitions we anticipate making outside of Australia and New Zealand in FY '25 and in the years to come. On the back of these changes, I'm pleased to congratulate Tom Wilson on his recent appointment as CEO of Tysers, as well as Bob Pybus as CEO of U.K. Retail Broking, who will both report to me in my capacity leading the International Division. I'm also pleased to announce the promotion of Gurbaj Pawar to AUB Group Chief Strategy Officer, and welcome him to the AUB Group Executive. Gurbaj has been an important part of the transformation of AUB Group over the past 5 years, and I'm pleased to be able to recognize his contribution and his potential with this promotion. Outlook and progress. AUB Group's strong momentum from financial year '24 has continued into the first quarter of FY '25. As a result, we reaffirm our full-year guidance provided earlier in the year. We anticipate underlying net profit after tax in financial year '25 to be in the range of $190 million to $200 million, representing growth of 11.1% to 16.9% on underlying net profit after tax in financial year '24. I'd like to reiterate that we anticipate a split of profits of 39% in the first half of '25 and 61% in the second half of '25. In closing, we've made substantial progress over the past 5 years. As we look to benefit from the foundations we've built and the opportunities that increasingly present themselves in our target geographies, we believe we are poised for an exciting next phase in the evolution of the group. Financial year 2024 was a year of numerous priorities and initiatives, and our strong progress is a testament to the AUB team's remarkable ability to navigate complexity and consistently deliver on our strategic objectives. I extend my deepest gratitude to our clients for their continued trust in us to manage their most critical business risks, to our teams for their unwavering dedication and hard work, to our business partners for their loyalty and commitment to our success and to our shareholders who continue to demonstrate support for the AUB Group. In closing, I would like to acknowledge the tremendous guidance and support I've received from David Clarke since I joined AUB Group. He has been an excellent Chair. David, thank you for your wisdom and mentorship, and best wishes for the future. Subject to Peter being re-elected by shareholders today, I look forward to working closely with him in his next phase -- in this next phase of AUB Group's evolution and growth. Peter is a seasoned insurance executive with extensive international experience and is well qualified to become Chair of AUB Group, having already made an excellent contribution since joining the Board a few years ago. Thank you. And I'll now hand back to David.

Thank you, Mike. I'll now turn to the formal part of the meeting. If you just bear with me, I'll take you through a few of the procedures. When I look around the room, I'm sure that many of you are -- well, I know many of you are familiar with this part, but we are obliged to go through this. So a Notice of Meeting was provided to shareholders on 22nd of September this year, and there are copies of the Notice of Meeting at the back of the room, along with copies of the Annual Report. But before moving to the -- so I will take the Notice of Meeting as -- and propose that it be taken as read. Before moving to the various resolutions, I do now -- I will briefly outline the procedures for today's meeting. So if you have a yellow voting card, you're a voting shareholder and proxyholder or corporate representative and have chosen to vote using a paper voting card. You're also entitled to speak at this meeting. If you have a blue card, you're a non-voting shareholder. And while you're entitled to ask questions and make comments, you're not entitled to vote at this meeting. And if you have a red card, you are a visitor and I'm very sorry, you're not entitled to speak or vote, but welcome. If you've not received an attendance card, then please see a representative from Link Market Services at the back of the room and we can sort that out for you. There will be an opportunity to ask questions on each resolution. Questions not related to the resolution should be held until the end of formal business when I'll open the floor for general questions and discussion. I'd appreciate it if, before you ask a question, if you could raise your attendance card and state your name. Thank you very much. A poll will be conducted on all resolutions, so votes will be excluded in accordance with the Corporations Act and the ASX Listing Rules. The proxy votes received prior to the meeting will be shown on the screen after discussion on each of the individual resolutions. As chair, I will be voting all undirected proxies against Resolution 2d and in favor of all other resolutions as indicated in the Notice of Meeting. Please complete your voting card by ticking for, against, or abstain in the box in respect of each resolution and at the conclusion of the meeting, please hand your voting card to a Link Market Services representative. To ensure all shareholders and proxyholders have the opportunity to vote, I now open the poll. Link Market Services is the returning officer for the meeting, and the results of the poll will be announced to the ASX as soon as they are available. I'd now like to turn to the formal business of the meeting. First item is to receive the Annual Financial Report and reports of the directors and auditor for the financial year, 30 June, 2024. There are copies of the Annual Report, as I said, at the back of the room. No resolution on this item is required, but I now invite shareholders and their proxies to comment or ask questions on the reports. Questions may also be asked of the auditor in relation to the conduct of the audit, content of the audit report, accounting policies adopted by the company, and the independence, of course, of the auditor in carrying out the audit. Again, before you ask a question, appreciate it if you raise your attendance card and state your name. Are there any questions or comments on this item? If there are no questions, then we'll move on to Resolution 1. So this is the adoption of the Remuneration Report for the financial year-ended 30 June, 2024. Under the Corporations Act, the company is required to present to shareholders the Remuneration Report, which forms part of the Directors' Report in the Annual Report. The vote on this resolution is advisory only and does not bind the Directors or the company. However, the Board will take the outcome of the vote into consideration in future reviews of the remuneration policy for key management personnel. Are there any questions or comments on this resolution? If there are no questions, I will now put the resolution to the meeting, and the proxy votes are displayed on the screen. I'll now move to Resolutions 2a through to 2d, which concern the election of directors. Resolution 2a is the re-election of Peter Harmer as a Director of the company. Peter is retiring and standing for re-election in accordance with the company's constitution. His details are set out in the Notice of Meeting and the Board, Peter abstaining, of course, supports the election of Peter as a Non-Executive Director of the company. I'll now invite Peter to speak briefly in relation to his re-election. Thank you.

Good morning, everyone. When I stood before this meeting 3 years ago [Technical Difficulty] risk management advice at an appropriate level. In the last 3 years, that risk has continued to increase at an accelerating rate, whether it's geopolitical, technological, significant shifts in the makeup of value chain or the ever-evolving nature of regulation. Doing business is getting harder. That's why I'm proud to be part of your company, one that has continued to invest in the capabilities [Technical Difficulty] or the build-out of new agency capacity to respond to new and emerging risks, your company has been at the forefront of this challenge. [Technical Difficulty]. I've enjoyed the opportunity to bring my over 40 years' experience in dealing in international insurance markets to the table. [Technical Difficulty] I'm also humbled and very pleased that subject to your support, fellow directors have elected me to succeed David. David has led the Board incredibly well through some time and leaves this company in excellent shape. Thank you.

Thank you, Peter. Are there any questions on this resolution? If there are no questions, I'll now put the resolution to the meeting. And as you can see, the proxy votes are displayed on the screen. Thank you. I'll now ask Cath Rogers. So this is Resolution 2b, which is the re-election of Cath Rogers as a Director. I'll ask Cath to join us again on the screen. She is -- thank you, Cath. Welcome back.

Thank you, David.

Resolution 2b is the re-election of Cath Rogers as [Technical Difficulty]

Thank you.