PSC Insurance Group Limited (PSI) Earnings Call Transcript & Summary

Good morning. Stephen Abbott, Company Secretary of PSC Insurance Group here. Welcome to the 2021 Annual General Meeting of PSC Insurance Group Limited. So just some preliminary information for this meeting. As many shareholders logged into today's meeting, this will be their first virtual meeting. So just a few points of guidance here. This meeting is being conducted by audio only with a web presentation. Shareholders who have not already voted by a proxy should now have obtained the card. All resolutions will be decided by poll. You can vote on any resolution at any time. You do not need to wait for each resolution to be read. Voting will remain open for 5 minutes after the conclusion of the meeting. If you are a shareholder and have already proxy voted, you can revoke that vote and vote again if you so wish. Also, please ensure you submit your votes before exiting the meeting. The other thing is that on the notice -- as per the Notice of Meeting, the Chair will be voting all open votes in favor of the resolutions being put. Our details of voting on each resolution will be announced to the ASX as soon as available after the meeting has concluded. You may, however, have an indication of the outcome of each resolution from the Chairman's proxy position on the bottom of each resolution slide. To ask a question during the meeting, there's the Ask a Question button on the web portal. We ask that questions be kept relevant to the meeting today and also endeavor to answer all relevant questions. Thank you, and I'll now hand over to our Chairman, Brian Austin.

Thank you, Stephen. And good morning to all our shareholders, and to shareholders in the U.K., good evening, and welcome to the Annual General Meeting of PSC Insurance Group Limited for 2021. My name is Brian Austin, and I am the Chairman of PSC Insurance Group. We were optimistic until early August that we would have been able to get back to holding a physical meeting this year. As we have all experienced in the last 18 months or so, circumstances can change quickly. Thank you to all our shareholders who have joined this virtual meeting. All things getting back to normal, we anticipate we will be holding a physical meeting this time next year. On the line here today are my fellow directors of the Board: Paul Dwyer, Deputy Chairman; Tony Robinson, Managing Director; Tara Falk, Executive Director; John Dwyer, Executive Director; Mel Sims, Non-Executive Director; Joanne Dawson, Non-Executive Director; James Kalbassi, Executive Director. Welcome to my directors, and especially Mel, Tara and James have joined us from the U.K., and we thank them for being available late on a Sunday night. It's about 10:30 p.m. Sunday night in Melbourne. I'd also like to welcome the attendance of some of our senior management team: Joshua Reid, CFO, who will be speaking today; David Hosking, CEO of Australia and New Zealand and Hong Kong; Noel Lenihan, our CEO from PSC U.K.; Angus McPhie, Managing Director, Paragon U.K.; Julia Mitchell, Group Manager, Governance and Compliance; Rohan Stewart, Group Manager, People and Innovation; Patrick Miller, CEO, PSC Insurance Brokers; Adam Bergess, CEO, Agency & Wholesale; and Tony Walker, CEO, PSC Connect. Welcome, everybody, for our virtual meeting. I would also like to welcome our auditor, Tim Dring from EY, who is in attendance. I am pleased to advise that your company has once again been able to achieve another record underlying earnings results for the financial year ended June 2021 as our company continues to grow. We came into the financial year '21 with very challenging times, which I'm sure shareholders would appreciate. The challenges that we have faced have been far greater and longer than we first estimated. However. we have endured as a community various government-imposed lockdowns and restrictions, which have given us more challenges. Added to this, we have had a hard market for insurance with our broker finding placement capacity restricted and underwriting -- or underwriter response times extended. Financial year '21, however, proved a testament to the resilience of our clients, the quality of our businesses and the agility and determination of our staff. I and the Board are very proud of our people, both employees and ARs across all of our offices in Australia, United Kingdom, New Zealand and Hong Kong. We have made a number of acquisitions throughout the year across in all regions in which we operate, and I now take the opportunity to welcome all of those to PSC Insurance Group. Tony will talk in more detail about some of these acquisitions that we have done over the past 12 months, and Josh will cover the financial results. Thank you to my fellow directors for their continued commitment and support. And together, we thank all our PSC staff, ARs for their continued and passionate support in delivering for our customers. We also thank our clients for their loyalty, and I will now hand over to Tony Robinson and will join you again to run through the day's formal part of the business once we have heard from the Managing Director and the CFO. Thank you.

Thank you, Brian. The -- really, the -- we've got some very simple messages for everyone because we are a very simple business. We are in insurance broking and insurance intermediary business that never changes. We continue to find ways to grow and opportunities to grow in those areas. We operate successfully, we think, as Australia's only multinational broker. We operate in Australia and New Zealand, the United Kingdom with -- that pan out of the United Kingdom bringing premiums back from the U.S. so that we've exposure to that U.S. market as well and also in Hong Kong. And hopefully, some of our people in Hong Kong are on the line as well. So we are Australia's only multinational broker operating in those regions. Hong Kong is a small stake. New Zealand is growing really successfully as is U.K. and Australia. And as I said, one of the things that we're most proud of is the fact that we are very disciplined with our -- what we do and sticking to what we defined many years ago as the strategy of the business, which is to be an insurance broking and insurance intermediary business. Our growth aspirations, our next slide, is just talking a little bit about the growth aspirations for the business. We've got a long history of delivering, and the -- that's obviously our intent. We've spoken about doubling our earnings before interest, tax and depreciation over the next -- over a 4-year period. We're very comfortable that, that's a great stake in the ground for us. That future growth will come both as a consequence of acquisitions and organic growth. Organic growth is an incredibly important part of our strategy. It's the part that delivers the best shareholder value. And as an organization, it's also the piece that drives the culture and behaviors in the business and that the acquisitions as the cream on top of that. We always say that, the acquisition's supplement to organic growth. But there's an important part to sort of replete on the acquisitions is in our mind, that we acquired a profit stream, but we merge the business and we recruit the people. So very quickly, the people that we're bringing into the business help create that strength in organic growth, and we're always looking to make sure that when we're looking at businesses, we're confident they're going to fit in and become part of that for PSC strategy of -- and make a contribution to delivering organic growth. So again, in summary, we continue to do what we've always done, which is to be a successful insurance broking and insurance intermediary business. We're a multinational in that. We're just operating in limited regions, but they are the regions where we've got expertise. We believe we can create shareholder value, and we remain a very aspirate organization and targeting to continue to grow at the same rate as we have historically. And that includes trying to double the EBITDA over a 4-year period. And I'll let Josh now talk a little bit about that history and give you some information on how consistently we've performed. And therefore, why you should be confident about the expectations of performance in the future. Josh, over to you.

Thanks very much, Tony, and good morning to everybody. So moving on to the track record of growth slide. Tony spoke about history of aspiration and delivery and the confidence -- this gives us confidence looking forward. So this really shows that story in pictures. So we obviously like it very much. It shows that the key earnings metrics, in particular, revenue is -- net after tax, in particular, are all greater than 20%, in most cases, over 25%. So therefore, the context of the doubling in 4 years is something that is certainly in line with our history. And what this also shows is -- for the shareholders that we're a very strong income player. So it's -- we've been able to deliver strong income growth for our shareholders but also capital growth, evidenced through the growth in the earnings per share. So we think this is just a neat way to show that history and does, hopefully, give confidence for our ability to deliver into those aspirations Tony spoke of. Moving to the specific 2021 year, was another very busy and successful year for the group. In particular, some items to cover off, very strong organic growth. Also, we completed 3 U.K. retail broking acquisitions, which strongly advanced our stated strategy in this market. As it relates to the results specifically, revenue was up 17%, $207 million; underlying EBITDA, up 25% to $72 million; our net profit after tax before amortization, up 22% to a little under $46 million; and we've got a earnings per share growth of 8%, to $0.15 per share. The reported net profit after tax increased materially to $41 million from $18 million the prior year. There was very strong -- well, there was a strong operating performance, which was already touched on. But outside of that, there was strong growth in the fair value of our BP Marsh in particular, which we obviously exclude from underlying loans but was a fantastic result regardless, offset by some charges relating to the APG restructure in the U.K. Now moving on to the balance sheet. The balance sheet is and remains in a very strong fashion. During the course of the year, book equity increased $100 million, which supported our acquisition activity, that we closed some raisings in the market but also some of the vendors taking shares in the company. Of particular note, the cash conversion of 100% was a record conversion for the group, which led to a 61% increase in operating cash flow of $44 million. This was a really strong result. Target gearing, as measured by the net leverage ratio, was approximately 2x at year-end, inside our target range of 2, 2.5x. Now these metrics, they exclude the value of on-balance-sheet investments, which, at the end of the year, had a market value of approximately $60 million. For those of you that follow us closely, you would've noted those investment assets were predominantly the BP Marsh shares, about $45 million, plus the building in East Melbourne were the main items there. The balance sheet in very good shape. In particular, moving on to the next slide. We're pleased to announce today in that regard, we've announced this morning that there's -- that we have a debt facility update that was announced today. In particular, we've expanded our debt providers so that we now have 5 high-quality providers in our equity, being CBA and Macquarie. And HSBC and Citi are joining from the panel by an expanded Syndicated Facility Agreement. We're also having Pricoa which is a large, multinational debt funder and a subsidiary of Prudential, joining via a note agreement. There's been an increase in limits of -- or increase in limits to $265 million, which will allow us $90 million in future draw-down capacity. The average tenor of the facilities is increased to 5.5 years. And importantly, this will generate annual savings of approximately $3 million a year on our interest costs. Probably more importantly, it's a real feather in the cap of what we are sort of looking for in our medium-term strategy, with having those funders on board places us very well over the medium term to pursue our M&A strategy. That was all from me. Handing back to Tony to speak about the outlook.

Thank you, Josh. And it's also a tribute to Josh who did really all of the work in drawing that debt facility together. And it's a wonderful strengthening of our capital position. So the outlook. We've had a strong first quarter of trading across all businesses. We're ahead of budget in the first quarter. The debt refinancing will reduce the cost of funds to the group and increases our confidence of the after-tax profit range we've previously provided to the group. The recent acquisition of Alliance has added strength to our Australian broking businesses, and we welcome the Alliance team to the group. As I've said before, we acquired the profit streams but merged the business and recruit the people. And I know that we've got a great group of people joining us as part of that process. All that means, we're very confident of the previous guidance of underlying EBIT (sic) [ EBITDA ] in the $84 million to $89 million range and an underlying net profit after tax of $54 million to $58 million. So with that, I'll hand back to Brian.

Thank you, Tony. I'll now move on to the formal part of the meeting, and see if the slides will follow me. Yes. As per the Notice of Meeting, the following are the formal agenda items for today's meeting. The nonvoting agenda item is to consider the financial statements for the year ended 30th of June 2021. The ordinary resolutions to be voted upon, resolution 1, remuneration report; resolution 2, election of nonexecutive director, Joanne Dawson; resolution 3, election of executive director, James Kalbassi; and resolution 4, reelection of nonexecutive director as well as Deputy Chairman, Mr. Paul Dwyer. Special resolution to be voted on is resolution 5, which is amendments to the constitution: virtual meeting and rotation of directors. So we'll move on with the resolutions. First item on the agenda is to receive and consider the financial report and the reports of the directors and the auditor for the financial year ended 30th of June 2021. This item does not require a vote. However, the reports are open for discussion. I now invite shareholders to comment or ask questions on the reports.

No questions, Mr. Chairman.

No questions. Our auditors, EY, have not received any questions directly either on this. Thank you. The remaining items of business are all ordinary resolutions and one special resolution. The first resolution -- and I'll read it for us all, that for the purposes of Section 250R(2) of the Corporations Act and for all other purposes, approval is given by the shareholders for the adoption of the Remuneration Report, as set out in the Directors' Report for the year ended 30th of June 2021. Voting exclusion. The company will disregard any votes cast by the company's named -- or key people named in the Remuneration Report and closely related parties, except where they hold properties for shareholders eligible to vote. Does any shareholder have any questions on this resolution? And I might add that the proxy vote percentage should be up on the slide or they will be. Are there any questions? No questions. For shareholders attending that have not already cast their vote on this resolution, I now call upon them to vote on this resolution. [Voting]

We move to resolution #2. The second resolution is that for the purposes of clause 15.6 of the Constitution and ASX Listing 14.4, elect as a director Ms. Joanne Dawson, appointed as the nonexecutive director since the last Annual General Meeting and, being eligible, offers herself for election. So does any shareholder have any questions on this resolution? And again, the proxy votes should be on the slides.

No questions, Mr. Chairman.

No questions. For shareholders attending that have not already cast their vote on this resolution, I now call upon them to vote on the resolution. [Voting]

Resolution 3 is the election of executive director, Mr. James Kalbassi. The third resolution is that for the purposes of clause 15.6 of the Constitution and the ASX Listing Rule 14.4, elect as a director Mr. James Kalbassi, who was appointed as an executive director since the last Annual General Meeting and, being eligible, offers himself for election. Does any shareholder have any questions on this resolution? And again, the proxy votes already up -- should be up on your slides. No questions?

No questions, Mr. Chairman.

No questions. Okay. For shareholders attending that have not already cast their vote on this resolution, I now call upon them to vote on this resolution. [Voting]

We move to resolution 4, the reelection of nonexecutive director, Mr. Paul Dwyer. The fourth resolution is that for the purpose of clause 15.6 of the Constitution and ASX Listing Rule 14.4 and for all other purposes, Mr. Paul Dwyer, being a nonexecutive director who retires by rotation and being eligible, offers himself for reelection and be reelected as a director of the company. Does any shareholder have any questions on this resolution? And again, the proxy votes should be up on the slide. No questions.