AUB Group Limited (AUB) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the AUB Group 1H '26 Results Conference Call. [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 thank you for joining us. Firstly, I'd like to say how delighted I am that Nick has been formulated as AUB Group CFO, and I'm pleased to welcome him to this, his first results presentation. Moving now to the presentation. The first half of financial year '26 has been a strong one for AUB, but more importantly, it reinforces the durability of the model we have built over many years. What I hope you take away from today is not just that we delivered another period of strong profit growth, but that the structure of the group, the way it is diversified, the way capital is allocated, and the way we are investing for the future, continues to strengthen and deliver enduring earnings growth. The key elements of first half '26 performance are listed on Slide 2. Before we move through the detailed results, it's helpful to step back and frame the first half in context. There are 3 key themes in these results. The first is resilience. The underlying net profit after tax increased by 13.9% to $90.4 million with the margin expanding to 33.9%. This margin expansion is not a function of favorable conditions. Rather, it reflects operating leverage and cost discipline applied across our portfolio. Over the past 4 years, we have delivered first half EPS growth of 17.8% per annum compounded. And this consistent profit delivery across premium rate cycles and interest rate movements is, in our view, one of the defining qualities of AUB. The second theme is capital discipline. And while we continue to grow organically, we also continue to deploy capital into acquisitions and equity step-ups that are earnings accretive and strategically aligned. The opportunity set remains deep, and we remain selective. The third theme is about positioning for the future. The Prestige acquisition meaningfully advances our U.K. retail strategy. While our early adoption of AI across the group is strengthening the productivity and capability of our brokers for the future. Each half, year-in and year-out, we are transforming the group for sustained earnings growth. We delivered pleasing results for the first half '26, and most divisions delivered very strong profit growth, while New Zealand Broking has admittedly struggled. The strong first half '26 performance delivered across most of the divisions, together with acquisitions, most notably Prestige, have enabled an upgrade to our profit guidance. We now expect underlying net profit after tax for financial year '26 to be in the range of $220 million to $230 million, representing growth of 9.9% to 14.9% over financial year '25. Turning now to Slide 3. As a summary, revenue increased 6.6% for the half. EBIT margins expanded meaningfully and the earnings per share grew in line with underlying net profit after tax, at 13.9% to $0.7754. The board has determined an interim dividend of $0.27 per share, an increase of 8% on PCP, which reflects both our confidence in the earnings profile and the strength of the balance sheet. Slide 4. Over the past 4 years, we have delivered consistent revenue growth, margin expansion and EPS growth. This performance spans a range of market environments in which premium and interest rates have moved up and down and currency has fluctuated. And through all of this, our portfolio has delivered strong, steady growth. Diversification across retail broking, wholesale broking and underwriting agencies operating in domestic and international markets provides balance, reducing volatility and allowing us to continue to deliver compound profit growth whilst also benefiting from the flywheel benefits of synergies across the group. Moving now to Slide 5. While profit growth of 13.9% was pleasing, what was more encouraging is that much of this growth was organic, delivered with improving margins, indicating we are not relying on external conditions, we are executing within the business. As I've said previously, the M&A opportunity set is intact and attractive. Acquisitions added a further 6% to profit growth, largely comprising bolt-on and equity step-ups, which are incremental additions enhancing earnings rather than reshaping risk, while FX and funding costs represented manageable headwinds. On Slide 7, as you look across the divisions, the portfolio effect becomes clear. International, BizCover, Australian Broking and Agencies, all delivered good revenue, margin and profit before tax growth, while New Zealand profits reversed. The advantage of our structure is that we are not dependent on one earning stream. Strength in multiple divisions allows the group to continue progressing even when one geography is challenged. Slide 8, Australian Broking remains the foundation of the group and has been an excellent performer over a long period. During the first half of '26, average income per client increased by 7.8%. This is an important metric and is notable given the premium rate increases have moderated to be in the low single-digit range over the past year. This result reflects deep client relationships, fee growth and disciplined service delivery. Broking margins continued to expand to 37.7% despite a lower interest income, which is the result in part of continued improvements in underlying operating efficiency. We continue to see opportunities to increase equity stakes in high-performing partners and to consolidate selectively. And this business remains structurally strong and highly cash generative. As shown on Slide 9, BizCover continues to demonstrate the scalability of a well-built digital platform with a strong and compelling client proposition. Revenues grew 13.3%, EBIT grew 22.1%, and margins expanded meaningfully. In the Blaze technology rollout, is improving onboarding efficiency and product integration and has enhanced BizCover's ability to launch new capacity and new products at speed. BizCover sits in an attractive segment of the market, and the integration of AI capabilities described later will further enhance its competitive advantage and value. Slide 10. Agencies delivered revenue growth of 10.8% and margin expansion to 42.4%. Specialty lines are performing strongly, and Pacific Indemnity has integrated well. However, strata remains challenging and was a drag on these results. Profit commissions rebounded strongly in 1H '26, following a weaker prior corresponding period. The underwriting capability within agencies strengthens our overall ecosystem, and allows us to capture additional value across the placement chain, ultimately delivering better outcomes for our clients and our brokers. Slide 11 shows New Zealand profits, which declined in the first half of '26 by 10.9% on a constant currency basis. This reflects both the broader economic and operating challenges in New Zealand, and the cost of the market share push we made, which didn't deliver anticipated results. Impacts were most evident in ICRB-BrokerWeb and NZ Brokers, where remediation initiatives are already underway. We have responded to this performance by reshaping strategy, tightening cost control and accelerating portfolio optimization. While near-term performance is muted, we remain confident in the long-term opportunity. Slide 12. This shows the strong profit growth in the International division, which was the result of wholesale cost initiatives taking effect, retail startups gaining traction, and recent acquisitions contributing positively. The strong profit growth was achieved despite FX headwinds. International remains an important growth area for the group, especially in U.K. retail over the next few years. Slide 14. Turning now to Prestige. This acquisition is strategically significant for the group, and it's worth spending a few minutes describing why. The U.K. retail broking market remains one of the largest and most fragmented in the world. Despite consolidation over recent years, there is still substantial opportunity for scale operators who can combine local relationships with centralized capability. Our ambition in the U.K. has always been deliberate. We've not sought to replicate Australia overnight. Instead, we have been assembling the structural components required to build a sustainable platform, retail broking, appointed rep networks, MGA capabilities and wholesale expertise. Prestige accelerates the strategy meaningfully. It brings national retail presence, strong regional brands established insurer relationships and experienced leadership. It also brings a culture that aligns well with ours, entrepreneurial, but with discipline. Slide 15 shows how these pieces fit together. In Australia, our strength comes from a coherent ecosystem. Retail broking supported by agency underwriting capability together with a specialty placement into Lloyd's. In parallel, leveraging aligned local insurer partners and disciplined capital management. And what you're seeing here is the development of the same architecture in the U.K. Retail broking provides direct client relationships and recurring income. AR networks extend this distribution without requiring full capital intensity. While an MGA capability allows us to enhance the client value proposition of our retail brokers, whilst also capturing additional value across the placement chain. Bringing these elements together under a coordinated structure enhances leverage with insurers, improved operating efficiency and strengthens our competitive positioning. Scale in retail broking is not simply about size. It is about influence. It improves access to capacity, enhances pricing insight and strengthens negotiating positions with benefits for clients and the business. Prestige significantly deepens these strengths. Moving on to Slide 16. With Prestige becoming our primary U.K. retail brand, we now move into a different stage of maturity. The combination of Prestige and Tysers retail creates national coverage with meaningful regional density. This density matters. It allows for operating leverage, shared service efficiency and deeper insurer engagement. One of the advantages we've learned from Australia is that scale also enhances resilience. It improves diversification across industries and client segments, and it provides the platform for further bolt-on acquisitions. The U.K. market continues to present attractive consolidation opportunities and having a scaled platform in this market, means we can act selectively and from a position of strength. As described on Slide 17, the MGA component is equally important. Owning an MGA capability enhances margin mix and strategic flexibility. By creating or investing in MGA propositions that directly support our retail broking portfolio, we are able to increase premium flow through aligned underwriting capacity, capturing additional economics across the value chain, while creating more value and differentiation for clients and brokers. In periods where insurer appetite tightens, having underwriting alignment becomes increasingly valuable for sustainability of client risk placement, Prestige strengthens this capability meaningfully. And when you combine retail broking scale with MGA depth, you create a far more defensive position in the market. Slide 18 describes the synergies we expect to achieve from the Prestige acquisition. Most of these synergies come from areas you would expect in a scaled retail platform, middle and back-office economies of scale, technology rationalization, procurement efficiencies and the removal of duplicated corporate costs. We've taken a deliberately conservative view and excluded revenue synergies from this number. Revenue benefits tend to accrue progressively rather than immediately, but they are strategically significant and very attractive with the Prestige acquisition. I'll now hand over to Nick.

Thank you, Mike. Slide 20 has our current and pro forma funding position. Our leverage ratio increased from 1.97x to 2.49x at the end of calendar year 2025, reflecting a $239 million increase in total debt. This additional debt-funded acquisitions across the group, most notably the purchase of a further 30% interest in Pacific Indemnity and an additional 6% interest in AUB 360 announced in conjunction with the January institutional equity raise. It also funded the final earn-out payment relating to Pacific indemnity. In January, we completed a $400 million institutional equity raise and secured an additional AUD 200 million debt facility. These funds will primarily be applied to the $432 million acquisition of Prestige with the surplus directed towards the repayment of existing debt. On a pro forma basis, after allowing for transaction and hedging costs, available cash and undrawn funding increases to $300 million and leverage reduces to 2.41x. This provides us with the financial flexibility to continue to deploy capital in a disciplined manner over time. As shown in the table in the bottom left of the slide, $500 million of our existing syndicated facility matures in January 2027. We intend to commence refinancing discussions in March, well ahead of maturity. On the right-hand side of the slide, we present total interest-earning assets and interest-bearing debt on a look-through ownership basis. This period, we've also disclosed the currency composition of both debt and interest earning assets to provide greater transparency around the potential interest rate mix. In aggregate, interest-earning assets are broadly aligned with look-through debt and both are predominantly floating rate. However, 24% of our interest-earning assets are denominated in U.S. dollars, while we currently have no U.S. dollar-denominated debt. In addition, Australian-dollar-denominated debt exceeds Australian dollar interest earning assets by approximately $360 million at December 2025. Accordingly, our principal interest rate exposure arises if the Australian dollar and U.S. dollar base rates move out of alignment. Turning to foreign currency sensitivity. As outlined on Slide 36, our most material exposure relates to unhedged U.S. dollar brokerage income from our international operations. Among our currency exposures, GBP is largely neutral after allowing for our U.S. dollar to GBP hedging program. While there is some residual exposure to euro and other currencies, these are either relatively immaterial or Australian dollar based. The unhedged component of our U.S. dollar income is our primary currency exposure. As noted in our outlook, approximately $36 million of U.S. dollar brokerage income remains unhedged in the second half of 2026. A 1% movement in the average realized Australian dollar to U.S. dollar exchange rate relative to our outlook assumption would result in approximately a plus or minus 0.3% movement in the midpoint of our second half UNPAT guidance. Importantly, our outlook guidance incorporates the impact of our U.S. dollar to GBP hedging program with the average GBP to U.S. dollar rate disclosed on Slide 36, under this program, we typically hedge approximately USD 60 million to USD 100 million forward over the next 12 months and $30 million to $50 million forward over the subsequent 12 to 24 months. providing a degree of earnings stability while retaining some participation in currency movements. I'll now hand back to Mike.

Thanks, Nick. Slide 22. A I'd now like to spend some time discussing artificial intelligence, both what we are doing today and the benefits we see for our insurance broking business more broadly. As I mentioned earlier, AUB has been an early adopter of AI tools. We view AI not as a defensive measure, but as a growth enabler and operational accelerator. Across the group, we have now implemented or are in the process of implementing more than 35 AI solutions and tools. And these span BizCover, retail, agencies and wholesale, and they are designed to improve both the speed and the quality of service delivered to clients. BizCover is where we have seen some of the earliest and most visible benefits given its digital architecture and predominantly micro SME client base. But AI adoption is not confined to BizCover. It is embedded across underwriting, broking operations, including customer engagement, compliance and claims processes, each solution is designed to enhance broker effectiveness, augmenting rather than replacing expertise. These tools provide timely, relevant insights, industry-specific coverage analysis, product comparisons, identification of wording gaps and benchmarking aligned to a client's specific risk profile and operating environment. In practical terms, AI is reducing administrative friction and improving technical precision. It allows brokers and operational teams to spend more time advising and less time processing. Slide 23 illustrates one of the more visible examples of this philosophy, the new BizCover ChatGPT app. Through the screenshots, you can see a scenario where a prospective client interacts directly with the application in natural language. And the app has been lodged for review and approval, and we are currently awaiting what we hope will be imminent approval from OpenAI for release. We believe this will be a market-leading application. It enables clients to explore commercial insurance options conversationally, understanding differences between products in their own context, and dynamically comparing quotes. And if they choose to proceed, they can then bind the policy via a direct link to the BizCover platform. Importantly, this is not about bypassing advice. It's about improving accessibility and engagement within our ecosystem to clients who currently wish to navigate through digital channels and seek products that are less reliant on personal relationships, trust and advice. Usefully, the functionality shown in these screenshots will also be available through a new AI voice agent to be launched in the coming months, which will significantly extend the capacity and operating hours of the BizCover call center infrastructure. In addition, this capability will be released to brokers as part of the ongoing rollout of our new Australian broking platform, ensuring that our adviser network benefits from the same analytical capability. Let me briefly address the broader discussion around AI in insurance broking. There's a narrative suggesting AI will automate advice disintermediate brokers and commoditize the industry. I take a different view. Insurance Broking, particularly in SME and commercial segments, is built on judgment, advocacy and trust. These qualities matter most at claim time. They are contextual and relational and they remain human. What AI does is elevate capability. It enables brokers to analyze data faster to identify emerging exposures earlier and benchmark clients more precisely. It automates routine tasks, freeing brokers to focus on program design, negotiation, relationship management. It sharpens technical insight through policy wording analysis and coverage comparison and it strengthens compliance oversight. AI handles the repetitive, brokers handle the consequential. Now some might ask, if we believe brokers won't be disrupted, why are we launching a ChatGPT powered debt, the answer lies in understanding client segments and points of need. BizCover operates in the micro SME market where many clients prefer digital engagement and transactional simplicity for those customers accessibility and speed matter most. Our app meets that need within our own ecosystem. This is very different from mid-market and commercial clients where complexity increases and advice becomes more valuable and more valued particularly when claims occur, or risks evolve. So they are complementary. We are using AI to improve digital distribution where it makes sense and to enhance broker capability, where advice is critical. AI doesn't remove the broker, it makes good brokers better. Within AUB, we see AI as a capability multiplier, a super power that amplifies the expertise already in the group. As noted earlier, we have been an early adopter of AI tools and are constantly assessing how we can implement these across our businesses. Our focus now is to ensure our teams continue embedding these tools into daily practice to deliver better outcomes for clients. Slide 25, depicts a waterfall chart with our upgraded financial year 2016 underlying net profit after tax guidance. We now expect underlying net profit after tax for FY '26 to be in the range of $220 million to $230 million, representing growth on FY '25 of 9.9% to 14.9%. This reflects strong first half performance, equity step-ups and the expected contribution from Prestige. We expect the acquisition of Prestige will settle on or before 1 May and we are actually pleased to confirm that we received FCA clearance for this investment late last week. The assumptions underpinning guidance, particularly FX rates and interest rates are set out on the slide. In summary, we believe the group remains well positioned, operationally strong, strategically aligned and financially sound to continue to deliver compounded earnings over time. Thank you, and I'll now hand back to the moderator for questions.

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

Can I just focus on organic growth, if I could. Your initial guidance as you sort of had a bridge that had like $11-odd to $22 million sort of organic growth. That now if you sort of add what you've done in the first half and the second half, it's sort of like close to $17 million to $25 million, but you're splitting FX out. Can you sort of talk through the sort of moving parts on that organic growth. Obviously, there's a bit of drag in New Zealand and the bolt-ons and obviously better underlying growth elsewhere?

Sure, Tim. I think the first point, and you've highlighted that there is that, when we do -- when we provide guidance or we have an outlook, we can only work with what we know. And so we base it on exchange rates at the point at which we develop the guidance or the outlook. So in effect, a very simple way of thinking about it is that when you look at our first half, in effect, the FX headwind has been a drag on organic growth. And so the outperformance of underlying organic growth is greater than we expected if you're delivering to the same overall profit. Hopefully, I articulated that, okay. So broadly, we have delivered in the first half stronger organic growth than we had anticipated, partially muted by the FX headwinds. And so calling out the FX piece for the second half is based on what we currently see, now it is plausible that the same phenomenon happens again. So I think that's the first point. So we can only call out FX. So in effect, the guidance in August we didn't call out an FX headwind because we didn't know whether it would be a headwind or a tailwind. Now we know that there was a headwind, and we know that based on the FX rates that have been sort of achieved or delivered so far or experienced so far that, that's what our outlook is. In terms of the makeup, specifically of the organic growth, Broadly, if I characterize the business, I'd say that all parts ex strata agencies and New Zealand have performed better than we expected in August. And in fact, that better performance was strong enough that it negated New Zealand and strata, which we anticipated weren't going to have a good first half, actually had a worse first half than we anticipated. So broadly, I guess, I'd say most businesses performed better than we forecast and expected, unfortunately, offset by 2 businesses performing worse than we had forecast or expected. In terms of the second half, very hard to predict specific things. We can just talk to momentum. The reality is, is that large parts of the group are performing well. We just need to make sure that we keep an eye on cost management, et cetera. And so we are very focused and disciplined about cost management and margin expansion. We're also very considered about the fact that we are trying to drive and achieve the margin targets that we've set out previously.

Maybe a follow-on question. In terms of the sort of income per client, which you called out in Australia, about 7%, almost 8% and then close to sort of flat in New Zealand. I mean how far are you away from sort of theoretical fee and commission rate. Sort of what specific outlook for that income per client line?

Yes. Great question, Tim. I think I can only answer that at a macro level, and it's best to use FY '25 numbers because the full year is an easier number to talk to. So in FY '25, our average commission -- our commission and fee income as a percentage of total Australian broking premium was 15.5%, although it varies our calculated weighted estimate of our maximum entitlement in terms of commission and fee across that premium would suggest something in the high 20% level. So somewhere between 25% and 30%. And so really, what that would suggest to you is that provided a whole bunch of levers are applied, which we possibly would never apply all in the aggregate. But broadly, if we applied all of those levers, we can move the 15.5% to say 26%, 27.5%. For me, the number itself isn't what matters. What's reassuring is we still have a long way to go before we have any form of revenue ceiling, let's call it.

The next question comes from Andrei Stadnik with Morgan Stanley.

Can I ask my first question around the ChatGPT app that you were seeking to launch. It sounds like it's going to be a bit of a marketing extension for what BizCover is already doing. So in some ways, is that actually an opportunity to broaden the reach?

Andrei, it is. I think the first point is, now obviously, when you embark on these pieces, the reality is we know that there's a portfolio of clients out there where they don't understand insurance. They aren't comfortable with insurance and even placing insurance on a well-constructed digital platform, which we generally believe BizCover is the market leader in that unquestionably, they still find that confronting. And -- but they don't feel that they -- frankly, they're too small for them to be particularly well served or targeted by brokers. And so a number of them are either direct clients of insurers or they're not quite sure what to do and how to do it and how, et cetera. So we do think that there's a segment of micro SME clients that a ChatGPT style of engagement around natural language interaction and inquiry, absolutely would be what helps them become a client of BizCover. And so we do think that there's a market opportunity. So it's not a marketing thing. It's not like we said, well, everyone's writing about AI, let's build an app, so we can say we've got one, right? We genuinely believe that there's a segment of clients that currently aren't served by our brokers and aren't comfortable or able to place business through the existing digital channels in BizCover that will benefit from using an app. Secondly, we believe that actually, there's a whole segment of clients that we can improve our servicing of them in BizCover by leveraging AI tools. Most notably, the ChatGPT app and the related AI voice agent that I spoke about. So we think that there's a piece which is about new clients, and then servicing our existing clients and just getting some of the benefits of scale, et cetera. Now clearly, some of the same tools that we're building in the broader business for brokers to use for product comparison, policy comparison, coverage, advice, et cetera, those tools, we can also connect into some of these other digital channel type front-end pieces. And so again, I've for years avoided using the word ecosystem. But nonetheless, what we anticipate is that there is effectively a technology ecosystem, and AI is a useful and important component of that, not a sole component. It's not something new, different and off on the side. It's something that adds extra power to our existing landscape. And if you like, allows us to accelerate the build-out of our digital landscape. So I think on one hand, it's of great interest, and we believe that it will be particularly useful in the market in terms of improving not only attracting new clients, but actually improving the style of service and speed in which we deal with some existing clients. But equally, I'm not going to say to you that we're going to build a whole new business off the side of it. That's not the intention.

And a partly related questions. So one slide earlier, Slide 22. You're talking about the 35 use cases and some of the benefits around claims lodgements, cancellation requests, so would you say that some of these early AI efficiency wins are helping with a better operating margins that were reported?

No, I think that they're not at the scale yet. I mean it's very hard to point to whether an AI tool delivers a better margin improvement than pure automation or the use of bots, right? So I think we see it as bluntly the AI tools enable us to more rapidly deploy some of these tech solutions. They don't necessarily give us a better outcome at the end but they certainly make -- I mean, it's simpler, it's less tech-heavy to be able to leverage AI, particularly in some of the automation spaces. And so we're really able to accelerate. But I think you could argue that this will help us achieve our margin targets over a slightly shorter time frame. I don't know if they change what the end margin opportunity is. But it certainly opened up the opportunity to do things in parallel and to automate things in parallel, where previously, we were constrained by tech capacity. That's been unlocked to a large extent.

If I can sneak in the third last question. In the international, I think you grew a commission fee income 8% year-on-year, which looks like it was pretty much the best among any of the any of the divisions, which I think there is some way towards addressing some of the concerns that the market has had in the past around local growth in international. So can you talk a little bit more about that 8% commission fee income growth that international saw?

We'll probably -- I mean, I think drawing too many direct comparisons between the divisions is hard at that piece. I think the combination -- in international, we really have the benefit of some of the acquisitions we've made and the fact that we're subscale in certain areas, et cetera. But again, that top line moves around a fair amount in international as we're reshaping the business. But certainly, if I focus on U.K. retail, that's obviously an area where we anticipate above system for want of better description, growth for the next couple of years because of what we see as our underweight positioning and our accelerated growth opportunities.

[Operator Instructions] Our next question comes from Siddharth Parameswaran.

I might just circle back to the issue of the ChatGPT app and what you're planning to do with AI. Mike, I was just wondering if you could help us understand whether there's any regulatory differences to provide advice via an app like this and how you're dealing with that and whether the regulators are on board with this? And maybe just related to that, if you could just help us understand the capabilities are of what's coming out is any different to what you already provide in BizCover or anywhere else? And also just around that, if underwriters have signed up as well. So whether the same insurers are signing up, yes.

So I think the first point is that the regulator stance is the technology doesn't matter. The accountability is with the license holder, right? So our responsibilities don't change, and we certainly can't delegate our accountability for regulated activities to an app. And so all of it has to be designed and executed in that context. Now that doesn't mean that responding to factual -- so the app doesn't give advice nor do any of our platforms, frankly, it provides fact-based comparators about factual pieces. So I can't say to you, if you said which quote is better, which insurer is better. It will play back to you facts that -- because it's not giving you advice. So it will play back to you facts about price coverage differences, maybe differences in terms of, I don't know, exclusions, et cetera. It will play back facts that could just as easily be reflected in a digital -- the website platform just represented differently because it's in a natural language sort of set of answers and interaction. So I think that's the first point. I think we're very conscious. And in fact, it is a very useful point that you've sort of surfaced, which is the complexity, scale and range of compliance and regulation is quite extraordinary, right? And so AI tools and technology give us the ability to manage against all of that complexity to ensure that we don't have any compliance failures. And so that's probably -- I think this is a real asset for us. Probably the single biggest opportunity for us is to get a handle on the scale of compliance activities that we have and the amount of effort that goes into that. I think in terms of your question around insurers, being on board, et cetera, et cetera. Probably just if I step back, I think one of the challenges for anybody, whether you're a client or whether you're a broker, et cetera, is if you take some really simple product, an average PDS, let's just go and look at the travel insurance, right? If you -- whether you use your credit card travel insurance, you buy travel insurance or whatever it is, go and look at a PDS for travel insurance. It ranges from somewhere between 60 and 110 pages of relatively technical contractual descriptions. Now anybody who says that they know all the time, the differences between every PDS just for travel insurance is sort of being optimistic. And so the ability to take important but very detailed centric pieces like that and have not only the PDS is stored in a searchable form, but actually leveraging AI so that we have -- so one AI tool could be as simple as, which it is, is enabling our brokers to rapidly compare PDS for different classes of product, et cetera. Now that's an incredibly valuable piece that informs their ability to service and support their clients or helps them themselves to be able to develop thoughts about product opportunities, et cetera. So what AI does is it gives us the ability -- is giving us the ability to accelerate the way in which we can process search, structure and present for all of our teams, all of this massive amount of data. And it just gives us a different way of doing it that we've been doing for years but it accelerates the way in which you can make it presentable and consumable.

And sorry, just a question asked about if insurers signed up?

So well, when you say insurers are signed up, you possibly have to elaborate. I mean I think insurers are aware of what we're doing. I think the reality is that the things we're talking about are not -- you're not only launching a new product or et cetera. So fundamentally, behind the AI piece, I mean, I think sometimes people think AI tools just sort of develop the insights through osmosis. The fact is, ultimately, there needs to be integration into back-end systems to get to rating tools, et cetera. And so a lot of the infrastructure that we've spent decades building. It's almost the culmination of that, which we can now present that through these different ways of engaging from the front end, whether it's our brokers or our clients or internal support staff or compliance people, et cetera, et cetera. So the insurers aren't signed up to it in the way that you described because they don't need to -- they signed up to our other core platforms, et cetera. This is just a different way of people consuming and understanding and interrogating the information.

Okay. I might circle back later, but that's fine. I just had a second question just around pricing. Just I think you previously said that in Australia, you've seen price increases of 5% to 7% for the first quarter of the financial year. And I think you made the comment in Australia, you're now seeing low single-digit increases for the half, that would suggest quite a sharp drop. It doesn't seem to be affecting your guidance, but I was hoping, first, if you could just give us an understanding of what happened in the second quarter, firstly. And then if you could just comment on the other regions. So what's happening with particularly anything affecting the agencies and Tysers of on the rate side?

So I mean, I think broadly, I'd characterize it as New Zealand rates are roughly 0. They would be referred to as rollover rates. And in Australia, it depends on the sub class, but broadly, they are low single digit. Now if you said, Mike, they were sort of 5% to 7% and now you're saying, what are they 2% to 4%. So therefore, the second quarter must have been much worse. The problem is, and that's why I resist and always qualify these numbers, quarters are not equal. So the fact is the first quarter is a completely irrelevant quarter in the insurance Australian Broking world because all of the policy and premium rate movement happens in the fourth quarter of the year. In New Zealand, it happens in the third quarter of the year, in the second quarter, you do have a bunch of things happening in November, December. So it's much better to look at the half than to look at the quarter. So I guess I begrudgingly gave first quarter view. And that was because we didn't observe the same plummeting premium rates that some other commentators in the market had observed. On a half year basis, looking at our 12-month trailing premium rate moves. And the other thing -- and you guys will be sick of me qualifying this. But -- so if the insurance rate has gone down by 10%, but property value has gone up by 10%. What does that mean? If property has gone up 20% and insurance rates up 2%. So to measure this number, to even have an opinion on it, we take same client, same insured, same exposure or coverage. That's like such a small proportion of our client, but it's almost a meaningless number. So that's why I try and talk directionally. So the fact is directionally premium rates have definitely weakened over the last few years. No question about it. Our view is that if you look at the amount of reserve releases going on in the insurers, if you look at the commentators around attritional loss ratios, et cetera, the fact is it feels like rates are more likely to stay flat and increase then go further negative. But it's like, well, tell me -- that doesn't interest me. What interests me is what are our retention rates, how much new business are we winning? Structurally, are we well positioned for margin expansion? Are we delivering good services to our clients. What's happening to the average income per client? What levers do we have? What arrangements do we have with insurers that we can look at shifting program structures, et cetera. That's how we manage the business. The rate happens to be a comment that I make every 6 months or every 3 months, depending on how frequently, I get asked. And so I don't want to trivialize it. It's just not a key driver of the way in which we run and manage the business. But unquestionably, rates are low single digits, and it feels that probably for at least another 6 to 12 months that will persist, but it feels like the tension in the system is more for the rates to move up and move down in the medium term.

Okay. And just a final question just on acquisitions. The new ACCC regime, I mean maybe it's a bit early, but it feels like your effort to really switch to offshore and step up. Just wondering, are we likely to see anything testing the new regime? Have you done anything? Any comments on what your experience has been?

Yes, we're not -- so I mean I think, if anything, our view is it simply takes the Australian environment and matches it with the environment we're already working with quite robustly, particularly in the U.K. So we just see it as a sensible step that we need to add to our process. It adds possibly weeks rather than months. It certainly doesn't add huge amounts of cost or complexity. And so we are fine and supportive of the process that's been implemented. And we don't see it as disruptive or a negative for us in terms of M&A in the domestic market.

The next question comes from Andrew Adams with Barrenjoey.

Just can you just give me how have we treated the Tysers bonus realignment from '25 which was obviously an $11 million PAT drag on the '25 base. In the waterfall charts throughout the pack, is that captured in organic growth.

Andrew, so yes, it is. The problem is you can't simply add it. So you might recall that I probably tried to over explain it. So it's a provision based on a question around how many people will be around in 18 months' time? What bonus entitlement will they have? So therefore, it's assumed because they're all on performance bonuses linked to revenue to margin, et cetera, what the mix of performance will be, et cetera. Now you fast forward 24 months, and the -- because that impact on FY '25 was actually half '24, half '25, the reversal of that, the reason we haven't called it out is simply because we can't categorically map back the one number to the other because we've actually got a different mix of people performing different basis in which their performance has been metric. Some of them will be on bigger bonuses than they would have been, some will be on smaller bonuses, et cetera. So that's why when we put out the guidance last year, I actually said, you can't just add back all of that. I just don't know how much of it you can add back because it's going to be a chunk of it, but not all of it. And so not because it won't revert -- it's just because you can't -- it's almost like a weird accounting, can't really compare the 2 calculations. So there's absolutely been a benefit, but the benefit hasn't been add back the number and then the difference only is organic and international, for example. It's more complicated than that. And the fact is as the businesses perform better, the bonus part has grown, and therefore, the provision has increased. And therefore, the difference between the previous excess provision and the new larger provision is smaller, right? So I don't know if that answers the question.

I guess we can see in international, I guess you can see those growth numbers. You've made the acquisitions and the costs have gone down. So a chunk of it, I guess, to your words, has come back in the half. I mean, is it -- are we assuming a chunk of it comes back in the second half? And appreciate you're not going to give us the exact numbers, and we can't. But I guess, obviously, where I'm going is there was a $5 million drag on your second half numbers if that flows through in the second half? Just trying to understand what you're actually guiding to or implying for organic growth, ex Tysers, and I appreciate your explanation. But it was a significant amount, which we called out in FY '25. And even if we only get 75% of it, it's the vast majority of organic growth that you're going to get in '26.

And I think that's -- so firstly, Andrew, it's a reasonable question. I think the second piece is, unfortunately, the businesses aren't sort of a simple correlation of everything is neutral and then you just get this add back. I think there are lots of moving parts to it. So I think it's reasonable to say that perhaps assume 50% of that will be sort of, I'll use the word reversing, if that's the right word. What I'll do is I'll check with Nick and we'll come back to you if we can be a bit more precise.

All right. And then, I guess, on the same, just thinking about the outlook slides, which is 25. Just the $3.2 million funding costs dragged how are we treating the -- obviously the $400 million equity raise, and we're assuming 1 may, so we get 3 months of that benefit. Is that $3.2 million net of the benefit we're getting from holding the $400 million for 3 months? Or does that put somewhere else?

No. So it's net.

That's net. All right. Well, I'll -- I can't reconcile that number then. I might come back to you on that one.

Okay.

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

Thank you very much. Clearly, we're quietly pleased with the first half performance. Again, I'll reiterate the 3 points I made at the beginning. The first one is we're very proud of the resilient business that we've built, and we continue to build. We've demonstrated our ability to grow profits through various versions and permutations of economic environments. The business is well positioned. We've put in place a balanced set of structures, and we're very pleased about the progress we're making, particularly with the U.K. retail. And broadly, inexorably, every year, every 6 months, we are completing the jigsaw puzzle to put in place and ensure that we've got a construct that enables us to deliver strong profit growth pretty much through the cycle on an enduring basis. So again, I'd like to thank our teams and thank you very much, and I look forward to meeting and seeing many of you over the next week.

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