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

Thank you all very much for being online and being here to hear us talk about the results. As always, we appreciate your support and interest. We've released the results and the presentation. I won't go through each of the slides. Josh and I will share the workload this morning. And I'll start by just talking about where we are as a business. We remain, in some ways, completely unchanged where broking and underwriting agency business or a broking and specialty lines business. And we've been that same business since we listed and prior to listing. We continue to focus on being the best that we can, and that's producing great results. We believe that continuing to focus and stick to what we do well will go on producing great results into the future. We do continue to evolve though. And our goal is to be a business that finds places where we can compete for clients to provide services where our ability to compete is partly off-size, but largely of the capability and expertise of our people. And the results you're seeing today is a product of the outstanding skills and capability of the people at the front of the business serving clients, their leaders and the leaders of those leaders. And as we build that group and the capabilities of that group will continue to grow and deliver growth in earnings and results. We want to be a globally significant broker and specialty business. We think of ourselves more akin to the traditional broking model around the world, which is more Gallaghers and Willis. Australia has got a number of listed people who play in the broking or the insurance intermediary markets and there, we're all quite different. We're the most similar to how businesses operate around the world, as I said, Gallagher's or Willis or an Aon or the one that's most front of line at the moment, Marsh because we recently competed against them to try and bring the Honan's business into PSC. And they're all in the same way, dependent on the capability of their people. And as I said, that's a model that works well. We believe we do it well. We think the results reflect that. We think the results going forward will continue to reflect that. And as I said, all of those are results of the product of the capability and expertise of the people at the front of the business, their leaders and the leaders of those leaders. It's been an interesting year for us. We had to go at a couple of big steps forward. One was Tysers and the second was Honan. Unfortunately, neither of those came off. We remain disciplined in how we want to invest our money because we're all shareholders here, but invest the money of shareholders. And once again, that discipline saw us not be able to get to the finish line being first to the finish line and the race for Honan. But it's been an interesting exercise and a good exercise for us. But notwithstanding that, we still deployed over $50 million to bring new groups into the business to go on building that capability and expertise that I talked about previously. As a group, we continue to focus on organic growth, and that's delivered a great -- made a great contribution to the result this year, and we'll simply do so going forward, and we've got a strong acquisition pipeline. We've had some of those $50 million worth of those during the '23 year, and we'll continue to do that in the '24 year. I'll let Josh talk a little bit about our funding capability later on. So the 23 result, really good step-up in EBITDA, nearly 20% growth to $111 million, 23% growth in the after-tax profit, 15% increase in earnings per share, and we've lifted the annual dividend over the prior year by 13%. We have wound back the dividend payout ratio, as you can see by the comparison of those numbers a little. We've said we're about at the end of that process, but maintaining a bit more cash for acquisitions has made sense as our franking percentage has declined. So the next slide really just summarizes what I've been talking about. It's a strong financial performance, really good organic growth, we've got a business that's really well placed. We're operating now in a number of locations around the world, Australia, New Zealand, Hong Kong. The small step into Hong Kong has been delivered great results. Our usual approach to entering areas that we're not familiar with, we might understand the industry, but not that -- not the particulars of that particular area. We manage the risk by managing the amount at risk and we've entered gently. The results from that have been terrific, a real tribute to the people up there led by Hei Wong. And we continue to look for other -- now starting to look for other opportunities, given that it has been successful. But again, we'll be careful about managing the amount at risk. We operate obviously in the U.K. and also in Ireland, a small step into Europe and maybe a small stepping stone that we think about building from in future years. We also operate in Bermuda. So we're really well placed for continuing to grow. Our acquisitions through the year performed well. And one of the most exciting parts for us is that we're also starting to -- as those acquisitions got expensive and we -- the hit rate for our success fell a little bit, we started looking around for other ways to continue to drive growth, and we found some great businesses to seed or to get into in the very early stage of life. And it's been a great year for that -- the '23 year has been a great year for that. Next slide is just a reminder of the track record of growth. And I'll hand over to Josh.

Yes. Thank you very much, Tony, and good morning to everyone. As Tony has said, 2023 was a continuation of our very strong track record. This is a slide, as most of you know that we like to put in each year. Just to remind you of that and what a great business this is. There's recurring revenue. It's a world-class and leading profit margins with really great cash conversion, and the businesses grow both organically and M&A via acquisitions. So just a reminder what a great business and industry this is, reflected by compound annual growth rates in the core earnings measures of revenue, EBITDA and NPAT over that journey of the best part of 25%. So a continuation of that into this year as well. So next slide, thanks, Bresha. As it relates to this year, specifically, revenue up 17% to a little under $299 million. EBITDA up 19% to $111 million and underlying net profit after tax before amortization, up 23% to a little over $78 million. As Tony has sort of said, the organic growth for the year was good. So organic growth at 11%, and the acquisition growth contributed $7 million for the year. Tony has touched on that a little bit. As an absolute dollar amount, a little lower than prior years, we still deployed over $55 million in acquisitions across generally smaller deals where the accretion and alignment are higher. The activity internally was a hell of a lot more than that, as Tony sort of said we -- we were not far away from the Honan's acquisition, and we were working with AUB for a period of time on the Tysers Retail JV, what we've sort of seen in the period is that the bigger transactions are certainly very competitive and quite expensive. So our strategy for the last 10 years really focusing on those smaller accretive transactions was probably the key point for this year. As Tony said, earnings per share up strongly by 15% to a little over $0.22 per share. As it relates to the reported results, up materially from the prior year to $56 million. And there are nothing unusual in the usual adjustments for this year to the underlying being things like the fair value changes in our investments in particular, BP Marsh changes in the deferred consideration values and some costs relating to our acquisition activity. So I'll hand back briefly to Tony for the next slide. Thank you.

So just to note that we see a change of Chairman, Paul Dwyer stepping up to that role, Brian stepping into the role of Deputy Chair but also Chair of our Asian strategy. And it's great to have Paul in that role. There's no better seller of us as a buyer of businesses or a buyer of people's time than Paul. He's a great leader and great obviously part of the business. And I think him in that role will create great opportunities for us as he uses his network to find other acquisitions and seeding opportunities. Brian has been fantastic in that role, and I think his real interest is in seeing how we progress in Asia, and this provides him with the time to guide us through that risk-taking process carefully and sensibly. And next slide is -- I just thought we'd touch on the outlook before we dive a bit deeper into some of the parts of the results. We've provided guidance for next year. Another -- obviously, we're indicating another strong year. We're expecting a good strong year. This is before any acquisitions. For clarity, we're not factoring in anything other than what we own at the moment and the growth expectations of those and the annualization of ones we made through the last year. We're probably as excited about' '24 as any year over the last 4 or 5 years. It really does look to be a year where we've got a lot of things that have the possibility of igniting and taking off in those seeding investments. And we've got really strong leaders in each of parts of the business, and they're well aligned and engaged, and we build capabilities and strength. And I think also that we're a business that stands and just lives on its own merits in a complete way now, it's been a little bit transformative for us. It's really allowed us to focus on what we're doing well to be the best that we can undistracted by any peripheral partnerships. And I think that's also given us excitement about the opportunities available to us and for growth going into the '24 year and even beyond. But let me just sort of come back a little bit to the details of the business. And I'll hand back over to Josh.

Thank you, Tony. As Tony said, we'll just dive a little more -- in a little more detail into the group by the segments now. In summary, all segments have really contributed well to the result. So if we look firstly at our distribution group of businesses, which essentially are our Australian and New Zealand broking businesses had a really good year. Revenue up 19% to $128 million, EBITDA up 17% to $56 million. One thing I'll call out, market-leading margins at sort of 44% contribution margin is as good as you're going to see anywhere in the world, a continuation of that this year. The acquisitions in this area contributed very much to the capability of the group. Probably some highlights in that where there was essentially a start-up new office called PSC AMGI in the south of New South Wales, where we partnered with one of the ARs in our network, Aaron Stephenson and then bolted another business into his and they've been a great addition to the group performing really well. We bought a Trade Credit Risk business. Sharon Brewer and her team, a great business in its own right, but adding capability across the whole network. Just examples of the capability that Tony sort of spoke about earlier. And as usual in this segment, a lot of small bolt-in acquisitions that go into our platform. So another great year there. As it relates to the agency and specialty businesses, another really strong year. Revenue up 14% to $24 million, EBITDA up 17% to $13 million market-leading margins again in that segment -- next one, Bresha, thank you. And that growth was spread essentially between the construction business and the travel business. Tony spoke about our excitement for some of the things coming up in FY '24. That's very much the case in these agency and specialty businesses. I'll talk a little more shortly about the acquisition of the Insurance Australia business that is due to complete in November. That's going to be bringing specialty in PI insurance. So essentially, that will be adding a new growth product into the agency segment. And we're also in advanced planning for 2 other business opportunities in agency, which will add to sort of new products. So some really good time to hit on the agency side. In terms of the U.K. businesses, again, a really good result. Revenue up 15% to $142 million, EBITDA up 18% to $46 million, improved margin again. There's a few parts for the U.K. segment, which we'll talk very briefly about now. Paragon contributes a little over 50% of this entire segment. So it's a material part of it. Constant currency revenue growth of 10% and constant currency EBITDA growth of 9% in that business. So that continued to trade well. The Carrols and Breeze businesses, which are our wholesale and MGA business over there, very strong organic growth led by development of its online platform to its distribution base. Our retail businesses over there. It's been a year of integration. There's a very meaningful revenue base there of now over GBP 15 million and a really great platform for us to grow over the medium term. Our MGA businesses or our underwriting agency businesses over there, we've added insurance U.K. to the existing Chase U.K. business. So we expect really good growth in that part of the U.K. heading into FY '24. And finally, the Hong Kong segment, it's -- this Hong Kong business that sit in the U.K., we probably need to rename U.K. to international when we get to that at some point. But the Hong Kong business, as Tony has touched on, a really pleasing year. EBITDA essentially moved from breakeven to an EBITDA contribution of over AUD 2 million. It's in a really good spot, led by Hei Wong over there and a meaningful team over there. Now it's in a good spot. We acquired the Charter-Union business in there that probably contributed to half the growth, but really pleasing organic growth out of those businesses well, which we're very pleased about. Next slide. Thanks, Bresha. Thank you. Just a little bit more detail around the organic growth and acquisitions. As we said, we've called out the organic growth at a little over 11%, which was $10.6 million of the $17-odd million of EBITDA growth. That's the highest ever absolute dollar increase in organic growth in our history. So a good result there. Again, the markets remain broadly supportive. Again, broadly premium environment is supportive. Interest rate increases help us and some of the FX volatility helped us a little bit during the year as well. On top of that, we're seeing client growth numbers across all aspects of the group. Touched on acquisitions a little already, a little -- about $7 million of growth from those. As an absolute dollar amount, it is lower than the prior year as we've called out. We have deployed over $50-odd million in capital, as we said, in those smaller accretive deals, but it's certainly been part of the marketplace, the larger deals that we have really been involved in that we've touched on, have been and are super competitive and expensive. So -- but we still look at all those things. The interest expense is up a little bit. However, it's been a contributor to our earnings per share growth given the full year impact of the refinance some 18 months ago. So it continues to benefit us. And you'll notice that there's a lower average tax rate this year, which is the benefit of our offshore operations. But we do remind people and call out that the U.K. rate of company taxes increased from 19% to 25% with effect from the 1st of April. Just moving on again, Bresha. I'll just finalize my piece. I'm just talking about our funding capacity. In short, the balance sheet, yes, just back a couple of slides, Bresha. Thank you. Okay, yes. So the balance sheet is in a strong position in summary. The leverage ratio, which is the key number we look to sort of talk to that on is at 1.55x against our target range of 2% to 2.5%. So at a very high level, that means there's a notional $100 million of capacity we've got that would take us to the middle of that target range. As Tony has spoken about, our pipeline is strong as it usually is. And if you look at our balance sheet, there's closing cash of $71 million, there's $68 million in limits with our banking syndicate, and there's even more -- materially more than that potential funding from our note facility that sits alongside the sort of bank funding facility. So in short in a real good spot there. I'll hand back over to you, Tony.

I just wanted to spend a minute just talking about insurance. So the -- it's a PI specialty business. The reason I think it's worth calling out is partly because it fits into our underwriting agency or specialty lines area. The person who runs that is Adam Burgess, and he's an enormously capable person. And putting -- giving him the leadership over an extra set of capabilities and capacity is a really sensible investment by us. He's delivered a great outcome over a long period of time in building Chase without any acquisitions at all. So what we're getting here is a great platform for growth. We're very confident that Adam in conjunction with Tom Kent is coming over with the acquisition, will drive that business really successfully. It's one of the ones we're getting in -- what we would put -- we would describe as getting in the early stage of it. We're not -- it's not a startup, but it's equally -- it's a small business relative to what it can be, and we're really confident that we've got the capability and the reach to ensure that it is the best that it can be and should be a significant contributor to our performance in future years. A good contributor in '24, but a more significant contributor in '25 and '26. And again, a good reminder about that we're always looking not just for the next year, but how we are ensuring that we can continue to drive growth in subsequent years. I'll skip over right to the end because we'll start to cut through to you guys to see if you've got any questions about our results. So just going to that summary slide. Again, I think that it's been a really terrific year. And the '24 one is exciting as any of the recent years. We're really looking forward to it as a year. We're well placed. We've got great capability in the business. One of the interesting things about the Honan's opportunity and looking at the Honan's opportunity was it caused us to work with our M&A team in Paragon. And they're enormously capable group. We actually have to try and create a new insurance solution to a particular -- to address a particular risk because we're obviously, as we now know, competing against a giant. And there were some issues associated with funding and settlement that we thought we could solve with insurance. But it was a new idea and the Paragon M&A team took up the idea and ran with it and found a party that was willing to underwrite that risk. So the year has been interesting for lots of reasons. The Honan's acquisitions and the acquisitions we made -- the Honan's opportunity and what has caused us to see about ourselves, and that illustration of Paragon is only one part of it. It's also reminded of us that we're risk-takers, and we're happy to be bold, but it's obviously within boundaries because we want to always remain disciplined. I've said that we want to continue to grow as a business. We want to be a globally significant broker. We only want to be globally significant if we can do that in areas where we can compete as a consequence of our expertise and capability. But what we're finding is that as our achievements grow, our ambitions grow. And it's a really pleasing outlook, I think, for shareholders as a consequence of that. And again, just to reconfirm that our expectation for '24 reflects all of those words. Maybe that's a good place to stop and see if anyone's got any questions.

So just on the questions, you can submit them online by sending a note or raise a virtual hand if you'd like to speak.

Well, clearly, we've done a very good job explaining where we are and what the outlook is. I'm not getting any sense as any questions coming through from anyone. I hope that's not a technology failure.

Going through the questions here.