Steadfast Group Limited (SDF) Earnings Call Transcript & Summary

Thanks very much, and welcome, everybody, and thank you for joining our call this morning. I'll start with the pack. And what we'll do, as is usual, we'll refer to the page we're speaking to. The first page I will speak to will be Page 3, which is roughly a track record of a range of graphs that we put together since we start -- since we focused. The interesting part of that for all the astute analysts who look at this is that we've dropped off FY '13. So before you start asking in the call why we did, the reality is that FY '14 was the first year we're a listed entity. So we cropped that off to take any confusion out of that. So for the [ being we feel that we'll ] go away is FY '13 dropped off because we weren't listed on the ASX at that time. The reason we give you a summary on that sheet there is to actually show you the direction we feel the business is going in. And just to reaffirm to you that those steps that we see there are what we, as a group, strive to do every year. Everybody that’s involved in this enterprise, in its public environment, works towards those graphs to make sure that we keep being accretive in so. Let's go to Page 5. So Page 5 gives you a summary of where we are. The underlying NPAT rose to 22.6%. And again, it'd be wrong for me not to take some time talking about COVID-19. And think about when I took everybody out of our main office and all around Australia offices went home under the threat of what the world could look like in the Australian economy and indeed the world economy. And I'm pleased to say that, as we've shown and explained to the market every month since March and now, finally, as we release our results, we've got through the COVID-19 issue. So underlying earnings, EBITA, up 15.5% to $223.5 million. NPAT, up 22.6% to $108.7 million. NPATA, up 19.3% to $135.6 million. And diluted NPAT, up 13.4% to $0.127. Fully franked dividend for the half year, up 13.2% to $0.06 and up 12.9% to $0.096 for the full year. The fee and commission structure that we put there shows you the business mix that we've got and gives you an indication of the type of businesses -- the types of products that our businesses sell and indeed, our strengths. So if you look to the right-hand side of Page 5, I'll address the statutory earnings, okay? The statutory loss is $55.2 million, as we flagged in our FY '19 results that will be coming. Now if you could see what that was made up of, we elected when we purchased the IBNA network to not take it -- to take it through our P&L, which meant that we would have to take the cost of that into our statutory churn. So the intent -- we decided this year, under abundant caution, that we would also look through businesses that we've owned for several years. And with an uncertain weather ahead with what the impact of COVID might look like to take across the whole set of the old businesses that we've got at roughly around $25 million, $26 million worth of impairment. And if you add back to that, the impairment that was created -- I'm sorry, the cost that went to the P&L for the acquisition of IBNA, that gives you the $40.7 million mark. In terms of what we received from the government grant that went out, we were -- over the whole group, received roughly about $2.9 million, over 70-odd businesses. If you look at whether that increased our profit from any point of view, then consider that we lost $2.5 million by canceling our conference. So the net guide to us was about $400,000 on that. Looking -- referring then to the product and underwriting agency growth, equity brokers and network aggregate EBITA up 23.9%, and to see the full mix of that, please refer to Slide 16. So that you can just take a note of that when we get there, the rationale behind that is -- the underwriting agency EBITA up 14.7% again, Slide 17. And from that point of view, the majority of our brokers are now using SCTP. And the slide coming will further explain what that looks like. Our acquisition growth as of the last 12 months. And we've -- we bought -- we've addressed the IBNA situation. And the fact that we needed to change, in our view, the way our professional service fee which remains. And we deplete that as of the last year to actually, the 1st of July this year, from anything to do with any form of turnover or [ down to ] or anything to do with that. So in other words, we made the professional service fee and we'll get through that absolutely linked to the services we provide on behalf of the insurance that they have to provide if we didn't exist. And then we have moderate levels of investment in our equity brokers. So our future growth is pretty well contained at the beginning of this calendar year. Stephen increased our debt facility from $385 million to $460 million in the ratio of our assets to increase. And we have at the full financial year, $181 million worth of available free flow cash in our debt facilities. And just on the IQumulate debt, we actually were able to secure that for a period of time. We'll make it a reference that will be made [indiscernible] If you go to Page 6, okay? And then you have to address the COVID-19 impact on our businesses. And I guess, the main thing we did was to look after our staff all around Australia. And we moved on the 24th of March, everybody out of Bathurst Street, which is our main area, where we have just sub-400 people. And we started people working from home remotely, and a testament to our IT division, how they were able to get everybody up and operational and working from home within about a 48-hour period. We were lucky that we had done a lot of work on that before, and we were changing a lot of the systems, actually, without having any knowledge of COVID. But looking at the results that happened where we could move a lot of move the staff offside, and we did that with a success. So working remote has worked absolutely efficiently. It's actually helped a little bit in our travel and entertainment and sponsorship. We have reduced costs on that over the few years past. And interestingly, that the business has gone on and working away from home where all around Australia has not had any impact on any cash collections. The cash collection, as I've said before at the conference, took $2.5 million straight out of our bottom line. And the aggregate government lease of $2.9 million that we've got and was [ explained on the page ] before. So Steadfast Network and equity brokers, premium rises by the insurers in June 2020 continued, partially offset by our lower volumes. And you shouldn't see that as a negative thing. They were sub-2% in volume differential over the year, but our profit was higher and the volume was higher that we sold. So that was pretty good from that point of view. We had -- interestingly, there was a huge amount of discussion about what impact the deferred payment premium by the insurers would have on the broking industry. There was a lot of stack that's made all around, most of them were absolutely completely wrong. And I'd tell you, there was very little, negligible, even. It doesn't even raise an interest in the amount of clients who took the deferral by the insurers. It was really a nice offer, but what it did was create a big problem 6 months down the track, rather than a small problem by paying it monthly, and I'll address that with the key [indiscernible] So underwriting agencies. Across most agencies, premiums continue to rise and volumes remained pretty consistent during the June quarter. So firstly, IQumulate, which is the old Macquarie premiums funding. Product innovation allowed our brokers to help distressed clients pay monthly premiums and take advantage, if required, of the insurer's offer to the first payments for 6 months. So the interesting part about the IQumulate is that it's a litmus test on how society is going. Because if people don't pay or in fact, if people are dragging the chain in any way, we know instantly in the premium funding side of it. And I can tell you the arrears and the defaults are less than what they were last year. So that's, again, testament to the fact that in tough times, people make sure that they insure themselves and they make sure indeed that their policies are current. So going to Page 7. This was a fundamental change. This was the fundamental change that we made last year. We started Steadfast in 1996 on the basis of not going to insurers to ask for override commission. We went to insurers to say if we're going to build a sustainable business over many years, we want to build it on best-in-class policies and service that we provide to the insurer. Unfortunately, I was last down in those boardrooms [ based on ] by saying we didn't know what we were talking about insurance have done on price. And that if we're going to spend more money, they give us more commission. We never took that deal from 1996 on. What we did do in those days, was say, "If you want to do something for our brokers, do it directly with the broker, not with us." So over the years, we would pay a remuneration for supplying a whole of the services. It was inadvertently linked to turnover. We've never guaranteed that turnover, and that turnover was never predicated in advance. It was just if you -- if we sell these policies that we've made, then we will get a marketing and administration fee for making the policies, marketing the policies and administrating the policies. And that was probably fairly sustainable in the '90s, okay? But the reality is that as insurance broking from 1986 became much more sophisticated and then [ lastly ], in 2003, I mean with the changing in the legislation, which was really an upgrade of the 1986 legislation, not a rewrite of the whole legislation, the services that we built up within Steadfast to provide best-in-class for our brokers were costing considerable amount of money. And so we've lost the disconnect between getting marketing administration fee out of the top and actually the services we provide. And the Hayne Royal Commission gave us a same way to say, we need to change the way we get remunerated. We need to provide the services that you would provide as an insurer, and we need to charge you for those services. Because, candidly, if you want to touch 11,400 people in the Steadfast Group, none of you can do it. None of you can check what we're doing. None of you can comply with what we're doing. We have a service team that's good at this and does it. So what do you get from that, okay? Where you get by engaging with our clients, by engaging with the insurers, by looking at legislation, we make sure that the professional services that we offer are best-in-class, okay? In fact, I think that they are a guiding light for the industry. And we've been doing this for -- we started them in 1996. And now, what we've got now makes us very able to turn from marketing administration fee into the delivery of a professional service model, which really, the professional services include: number one, consumer advocacy. The ability for us to be able to act quickly, expeditiously in any consumer complaint that comes forward as a result of a Steadfast broker in the network servicing a consumer. We have 5 in-house lawyers, okay? We have an expert team to do that. And we've built up a reputation with the insurer, okay? We also run a claims triage team, which means that we're not out there asking for people to actually pay [indiscernible] clients, we're doing a critical analysis at the approximate cause of decline and why the quantum was reduced or indeed, the claim was rejected. And we put a reasonable point of view to the insurer about why it should be altered or indeed paid. The corollary [indiscernible], if, in fact, it shouldn't be we emphatically tell it shouldn't be paid, okay? We had great success with that into the '80s, and then we think it comes across there too that that costs huge money to run. We have a detailed ethics evaluation and monitoring program. Some of you might be snickering out there, yes, the insurance entities ran on ethics. Okay? It's ran on utmost good faith, it's run on people trusting to pay you for a premium and get the delivery of something at the time of a claim. And we find that insurance payments, with insurance partners need to be monitored, where best practice is being avoided. And indeed, when the consumer is not getting protection for what they're going to file. We also have developed through our services model, exclusive policy wording that are tailored to what the triage team finds in problem and indeed, what our [indiscernible] remissions program find are creating issues. They're not designed over cue for the insurer. They're designed to clarify an occurrence when it occurs. And to make sure the consumer can rely that if he buys one of our policies that they will, for the most part, respond for most occurrences in the market that they expect to get from that point of view. So with -- on top of this, of course, digital transformation, we started digitally transforming this business further in years ago. And so we developed our own market-leading insurance broking technology, which created a contestable digital platform, which take places, the benefit of what we do for our clients well before. The brokers and the insurers have the ability to maintain an insurance program with confidence, with competitive pricing and know exactly what the market looks like. That also provides us with the data analytics that allows us to be able to talk with great and clear analysis of the premiums, the quote, the buying rate is, the business written, the retained business, where the market is moving for, okay, and indeed, where the claims are being met and not met. It's very powerful that [indiscernible] analytics. We have a fully integrated self-regulatory process that complies with [indiscernible] obligations and aligns with -- aligns our own Chief Risk Officers, audit and processes. Indeed, we're about to announce next month, an expansion of that system from a client efficacy point of view, which will be groundbreaking in the insurance industry. We have fully operating broker compliance control systems. Absolutely, our staff have trained, that compliance ratio is best-in-class and runs out through the whole industry. And of course, we run an education compliance training programs periodically across Australia and New Zealand. We run broker education forums. We run a convention, the Steadfast Convention, professional development days, our 4 town hall meetings, which we have here at Capital City, usually safe to take. We do monthly webinars around regulatory changes, compliance and marketing and business growth. And of course, we have a fully integrated marketing communications and support program. So when we talk about professional service model, that's a taste of what our professional service model gives to the insurer, to the clients of the brokers. And indeed, with the DNA, we started back in 1996 with this business, not about give us more commission if we give you more money, more GWP. But, hey, give us some marketing administration fees to build the best in class policy, to give you services that [indiscernible] So pay debt. We got growth, obviously, from IBNA and continued moderate price increases across the network. So highlights, our GWP went up 34.8%. Now I just refer you to the right-hand side of Page 8. So that blue square there. Of that 34.8%, we've broken it down. 21.6% was from IBNA, 1% were from new brokers who joined outside IBNA, 5.9% came from our AR network and 6.3% came from organic growth within the Steadfast Network. It's pretty fantastic when you think that that's the sort of growth we got. We've got our new IBNA members. We continue to have growth through our authorized representative network and 6.3% growth was pretty sensational. Our network is 88% commercial and 12% retail. It's interesting to reflect on that 12% figure because when we started this business, we didn't do any analytics for 2 years. So if you think about in 1998, for the 1998, '99 financial year, our retail were 4% of our GWP. So what it’s done is it has gone from 4% to 12% during a period of time when people said that nobody wanted to talk to anybody to buy a house, car, travel, buy motorcycles. And what we've proved is that actually, people will look around, but what they really eventually want to do is to talk to somebody who can evaluate what they should or shouldn't do. So the graph there on the left shows you clearly, the first and second half growth from FY '14. FY '14, we were $4.1 billion. FY '20, we are $8.3 billion. So operating highlights, 393 brokers in Australia, 49 in New Zealand, 16 in Singapore. Okay. We did numerous changes within our equity brokers. And our 78 new brokers came in by IBNA and our client training platform completed $638 million or up 45% on the prior year. Then going to Page 9 and looking at the underwriting agencies. We have record organic GWP and underlying EBITA growth. Not hard to do, you might say, in a hardening market where people are looking for alternatives. But I can continue you to run a sustainable group of 25 underwriting agencies, and continue to have coverage of capital providers, you have to make sure that you're doing the right thing by your capital providers and insurers. So that growth wasn't created by a couple of dropping prices, by debt dealing deals, which are not sustainable. They were done by building relationships with our capital providers, which are sustainable and which are tremendous. Probably still remains the strongest section, okay? Primarily our increase in GWP was both price and volume driven. And we were able to take advantage of insurers repositioning themselves in product lines. And that's what we're there for to do that. So again, underlying EBITA, up 14.7% to $105.8 million. And then on the bottom there of that graph, you can see the growth of our underwriting agencies over that period of time. And I can tell you, the company is not interested in growth without profit. The 2 are interlinked. We don’t do things to get bigger or just because it looks good. We do things to put profit into our bottom line. So over on the right-hand side, it's '20 versus '19. GWP, $1.33 billion versus $1.17 billion, up 12.1% organic, 1% by acquisition growth. 25 agencies. Most agencies got uplift performance because of our long-term strategy, our debts articulated. We benefited from the increased pricing. We had some pressure on our remuneration because of London constricting some of the commission rates. Luckily, we were not in the upper end of those commission rates. So our following correction has been miniscule in that area. And the last bullet point there, which I don't think a lot of people. We -- all our agencies operate for the entire market, we do not do anything exclusively as Steadfast. So anybody in the market can use our agencies and do business with our agency. So getting back to insurTech on Page 10. The client trading platform, you've got 9 business lines and you've got 14 insurers participating on it. Yet, it's still [ right to think ] around a $700 million market, okay? Prior the part of what we think is a market of around $5.5 billion to $6 billion. So okay, we're not where we want to be from that point of view. But the second bullet point highlights of where we're going. There were 10,168 active brokers using the client trading platform. And just for a bit of color, 3,219 of those 10,168 accessed the client trading platform through our own bespoke policy servicing system INSIGHT. Brokers then -- 5,450 brokers access the client trading platform through Winbeat. And 1,499 brokers access other broking systems. I must say, most of those broking -- other broking systems are also integrated like INSIGHT’s integrated. So we're capable and able to integrate with any broking system through the client trading platform. So it delivers strong client outcomes. And it addresses simple issues raised by the Hayne Royal Commission. Remember, we started this program 13 years ago. We didn't start it last year because of the Hayne Royal Commission. We started it because we felt we had a genuine contestable marketplace. We felt we had to have a fixed commission so that anybody who wanted to quote on the client trading platform wasn't at an advantage over anybody else. The same commission runs through everybody. And that means that the client position was clear that they will offer the market, everybody contested independently for it and everybody paid the same commission rate regardless of $1 or $100 million worth of turnover. And of course, the client trading platform really serves our clients, our new professional service model, okay? You'll notice that we've removed on Slide 7, the previously published SCTP targets. We're very happy to tell you each time you meet with us what we're doing in SCTP. But the relevance of that is that the professional service model we've got now pays no cognizance whatsoever to turnover, okay? It's completely irrelevant to turnover. So this is the point we're putting in, we're doing more business here and trying to link that to a turnover and a remuneration, okay? So Steadfast, we are focused on adding more products to the line. That auto-ratings seems to be the way that services our debt, and we could keep running out. Our latest developments, of course, are auto-rating, which we're rolling out further and further for liability and for professional indemnity. And an interesting development is the fleet motor going live. And we've got fleet motor expanding into 6 insurers and most of the integration will be completed by the start of financial year '21. Certainly, by the end of calendar year '20, we'll have probably 4 of those in line and operating and our New Zealand rollout continues. So INSIGHT broker management system, we got 144 brokers live, over 3,000 licenses, as I pointed out above. And we've got an additional 36 brokers contracted and 100 that are fishing -- 109 fishing around the corner. So just on the right-hand side of Page 10. There’s the graph of where we're gone from. So it's slow, but it jumps up between 40% and 60% each year so you just have to look at the lines there, 45% up last year. So I know Stephen’s champing at the bit to get me to shut up and start doing the really important stuff. But just let me finalize my last slide, okay? And this is what we say we want to deliver, okay? We believe we run this business as a public company business who do the best for the clients that we service and also the investors that put money into this business we're making [indiscernible]. So our final dividend is up to 13.2% for this half. The overall full year at 12.9%. Our target payout ratio from 65% to 85%. We did 76% % for this year. So I want you to know that if we make the money, okay, we have to do 2 things. We have to develop the business. We have to remunerate the people who work within it. We have to acquire business and we have to make sure that we pay out our net profit to you guys in a ratio -- and girls -- guide you to be a generic [ time ]. So now I have to be very careful about that. [ Thanks for this ]. It seems that make a -- somebody not -- I’m not encapsulating everybody in the audience. I'm trying to do that, okay? So then our ex-dividend date is the 1st of September. Our dividend record date is the 2nd. And the DRP, which is [$0.02] that Stephen will address, on the 3rd, and payment will be on the 25th. So I'll leave you on this and hand you over to Stephen to do the financial summary now and come back at Q&A and when we finish. So thank you for your time.

All right. Thank you, Rob. So we'll go to Slide 13 next. As I might open by saying, I'm not sure optometrists agree with economists because optometry would say that 2020 is clear vision and economists probably don't think the same way about 2020. But despite that the pandemic, we were still able to deliver full year underlying earnings at the high end of guidance that we indicated at the half year, with a strong third quarter and a moderate growth in that fourth quarter despite the state of the global economy. But before we analyze the actual underlying numbers, we need to unpack the reconciliation of statutory earnings to the underlying earnings. So we previously highlighted that the IBNA transaction and the PSF rebate offer would cause a statutory loss as the costs of those accretive transactions were expensed into the account. The IBNA add-back amount is the same as you saw in the half year. There was a further $2.9 million spend on the rebate offer in the second half, taking that rebate off the total spend to $63.1 million. The rebate offer was ultimately accepted by 74% of our network in FY '20. We intend to make a final cash offer in FY '21 to that remaining 26% of the network brokers as we amend our professional services revenue and rebate models. So you'll see a further expense in the FY '21 year, which we would again normalize. Given that the IBNA and the PSF rebate offers had the impact of adding to earnings effective 1 July 2019, we also adjusted our underlying weighted average share count to also come into effect from 1 July '19 for any shares issued in respect to those transactions. There's also an impairment of $41 million on selected intangibles, which we added back to derive our maintainable underlying earnings. We applied a whole range of much more prudent assumptions to our future cash flows in assessing the carrying value of each and every one of our businesses this year to reflect the uncertain COVID-19 economic conditions we're currently trading and particularly, thinking of Victoria where there's a lockdown at the moment. We have also called out a number of income items that we always normalize out. So Steadfast profits, deferred consideration reestimates on earn-outs and profits on sale of portfolios of businesses. And of course, some of the impairment really is economically reversing some of those deferred consideration reestimates in some part. We also called out the Johns Lyng Group mark-to-market adjustment. You'll recall at the half year, we indicated we would remove this from maintainable earnings numbers going forward. So in the full year numbers, we removed $3.2 million of post-tax profits. Had we retained that profit in our numbers, we would have actually been above our guidance numbers on the underlying earnings. So Slide 14, turning to the underlying results. We've laid down a significant uplift in earnings over FY '20 with double-digit increases in every metric. So revenue up 20%. EBITA, up 15%. NPAT, up 23%. Earnings per share, up 13%. If we had to include the Johns Lyng mark-to-market adjustment, we would have had 16% earnings uplift rather than the 13%. These results came after a few items, which we just need to call out. There was about $900,000 pretax of additional expected credit loss provisions. So we now hold 3.5% provision against our broking or agency receivables, and 1% provision against our premium funding receivables who, of course, has that extra layer of trade credit coverages protection. With the cancellation of the convention due to COVID, we had that $2.5 million that Rob called out, and we also got some offsetting benefits from the government stimulus measures, the payroll tax relief and job keeper, et cetera, for $2.9 million. We also had a final tax square up for prior years that hit our NPAT by $2.3 million. There was no real material impact from the new accounting standard for leases, apart from what you see on the balance sheet where we've grossed up those assets and liabilities. The FY '20 uplift in earnings arose really from both organic growth measures and the acquisition growth. The acquisition of PSF income from IBNA and the buyout of the 74% of the Steadfast rebate payments were the main acquisition growth uplift factors. There were numerous changes in equity investments during the year. Because the majority of our acquisitions in FY '20 impacted from 1 July, we ultimately reported a 47%, 53% seasonality first half, second half. Given we've made acquisitions already in July and August this year, we'll probably, next year, be a little bit more skewed towards the second half. Going to Slide 15. We show you the waterfall there and how we analyze the EBITA growth for the year. So net -- 1.3% net organic growth and 14.2% acquisition growth for the year. If you look at that organic growth, it's 4.3% growth on the underlying businesses. And then with the expanded network with 78 new IBNA members, we uplifted that we would spend more on our IT initiatives in the second half, which we have done, and that will flow through, of course, into next year. We've also recorded the increased amortization of the previous IT spend. We also had acquisition growth, as I said, dominated by those 2 major transactions with IBNA and Steadfast rebate offer. The IBNA transaction was slightly first half dominant as expected, and the Steadfast rebate offer ended up equally weighted as a result of a couple of brokers who accepted the offer in the second half. As expected, the impact from other acquisitions was quite first half dominant. There was minimal acquisition spend in the second half with the initial impact of the pandemic first playing out. But given the resilience of the broking businesses, we're now confident to acquire again, and we've spent already, as I said, $70 million on new acquisitions with various retention and earn-out protection mechanisms. Those acquisitions were really a combination of many months or you might say, years of acquisition of due diligence negotiation.

Years, might be more relevant on [indiscernible]

If you look at the quarter-by-quarter growth in EBITA, which we gave you some details along the way, there were quite a few moving parts within the organic growth component, given the impacts of the pandemic. We really had 3 quite strong quarters of organic growth before the pandemic hit. And then, of course, to the economy impacting the fourth quarter was more of a moderate growth story. And overall, our businesses have been able to more than counter out the impacts of the struggling economy via a combination of the hardening insurance premiums and the containment of the discretionary spending. We're certainly less exposed to economic shocks than most businesses. With volumes dropping, say, 2% in that final quarter. So much less than what the GDP will do. As much of our premium protects those hard assets and is an essential risk protection tool for businesses and for consumers. The increase in earnings for our underlying businesses, which we'll get into next slide was offset by reduced profit shares across the group. And in particular, in the second -- in the fourth quarter, we actually had some callbacks on a couple of our wholesale brokering operations, which we also then put abundant caution into for the future. And of course, we had, in the second half, the cancellation of that Steadfast convention. Our IT, we've spent more, as I said, we've now got about $33 million on our balance sheet, and we capitalized a further $13.7 million, which is fairly consistent with prior year, just a touch up. We are expecting our underlying businesses to at least maintain, if not slightly grow their earnings going into FY '21, despite the economic conditions we're in. So Slide 16. So as for the half year, we now report the Steadfast Network, which we own 100% of, together with the interest in our equity brokers. And in those equity brokers, our average weighting ownership is about just over 60%. So this gives you a view of what we'll call the insurance broking operations going forward. We show the results here as if we own them all 100%, so you can see like-for-like. And we remove the impact of profit shares to analyze it more consistently on a period-to-period basis. Our blended average, if you look at this page, we own about 73% of the EBITA that you see here. So for the year, with just over 6% organic growth in revenue, in line with those GWP movements we saw throughout the network. And that translated into bottom line profits, up 7.3% organically. This revenue increase was consistent across Australia and New Zealand, and the growth was in line with other insurance participant commentary on the harder market conditions that prevail across. There was significant acquisition growth in this section of the business, which is that PSF rebate and the IBNA transactions working their way through, providing a further 16.6% growth in the bottom line earnings. The first 3 quarters showed 9% growth in EBITA and the fourth quarter was still a respectable 4.2% given the pandemic impact. So this was driven, as I said, by those moderate price rises and some expense savings that more than offset those volume losses. Turning to Slide 17. For the agencies, who we own around about 93% of the earnings that you see here, they continue to trade ahead of our expectations throughout the year with solid performances across all the businesses. The hardening market continues to provide great opportunities to quote, subject only in some instances, to some capacity risk constraints. There were price and volume movements across different agencies, and this translated into bottom line organic earnings accretion of 13.7%. There's a run rate uplift from the HMI acquisition in FY '19 that flows through into this year as well, where you see the 1% acquisition growth. The first 3 quarters actually showed 16% growth in EBITA. In the fourth quarter, we grew still a respectable 8.6% despite the pandemic, driven by some revenue growth as well as a discretionary expense savings. There was some impact from not writing some smaller lines of business that we chose to rationalize. And a little bit of reduced commission on certain agencies, but that was more than offset by the benefits from the hardening of the premiums across the portfolios, which we forecast will continue. So going to Slide 18. Again, we converted our profits into cash with over 100% of our $135.6 million of underlying NPATA being converted into $138.6 million of underlying cash flow. So any concern on collection of revenue from insurer deferral schemes or cash inflows from customers was a complete nonevent for us. Our debtor days in the fourth quarter did not move against our historical collection cycle. In fact, the collections by the premium funded, which we believe is that great litmus test for the SME business cash flow has been outstanding, with arrears actually better than our pre-COVID-19 arrear levels. Our $70 million of free cash flow has again been invested into our ongoing acquisition activity. Indeed, we've already invested that in the first 2 months of FY '21. Slide 19, turning to our balance sheet. We now have the full impact of accumulated $500 million receivable book and its funding now coming through to our balance sheet as we foreshadowed. We conducted our $100 million capital raise in August, September 2019, and we've now refinanced the corporate debt facility with a combination of 3-year, 5-year and 7-year tranches that you see on the right-hand side. Our total corporate debt facility is $460 million, which better reflects our debt capacity if we were to increase our gearing to the Board-mandated maximum 30% mark. As at 30 June, we were 21.5% geared. We exclude premium funding in that and had $181 million available for future growth. Once we pay the final dividend and complete the final payment on our acquisitions that we've got, the capacity at the moment would be about $96 million. The premium funding facilities have also been extended into July '22, using a warehouse facility structure underpinned by a AAA rating for the senior notes. So all of our major debt facilities have now been reset for the medium to longer term, with ample headroom in all our financial covenants. Importantly, for investors, our conservatively geared balance sheet, together with our continuing positive cash flow and outlook puts us in a sound position to pay out increased dividends, which Rob has taken you through. I'll now hand it back to Rob so we can cover through the outlook.

Thank you, Stephen. Thanks very much, everybody. We'll just go to Page 21. We won't take much more of your time before we get into Q&A. Just -- this is a -- we're giving guidance, okay? Our guidance is pretty simple. Underlying EBITA, we're putting out $235 million to $245 million. And our underlying NPAT, $115 million to $122 million, which give you an underlying diluted EPS NPAT growth of between 5% and 10%. Now all of you out there that are going to go, "Oh, is that all you're going to do next year?" I can tell you, I have no idea what's going to happen in the second half of FY '21 financial year. So if anybody does, please send me the notes so that I can know what to do. What I can tell you is I can refer you to Page 3, I think, and have a look at what our performance has been over the last 7 years and how we’ve tried to grow this business. We put out what we think we can actually achieve for you there regardless of the impact of what's occurring out in the market. Yes, we could possibly do better than that. And yes, depending on what happens, we could possibly do worse. All I can tell you is if we look like we're going to do a lot better, we'll inform the market. If we look like we're going to do a lot worse, we'll inform the market, okay? And I rely upon our track record over the last 7 years for you to say, can we believe these people are not, okay? So with uncertainty, okay, we give you those figures by way of guidance. And on the right-hand side, we've just invested $70 million on equity broker acquisitions. The rebate is being rationalized this year. We're hoping that -- and we can't see any way that our strategic partner is not going to see increasing prices. And we make this assertation here based on the fact that the experience we had in the last quarter of FY '20 would seem to indicate that we're on reasonably solid ground. So thank you very much for listening to us. It's taken a little bit longer than what we needed because we’ve got the uncertain times and different ways we've had to work right. We needed to be a little bit clearer on what we're doing. So I'll hand back to you now for questions. Thank you very much.

[Operator Instructions] Our first question is from Virad Mathur of Citi.

A couple of questions, please, if I may. Firstly, the -- you obviously laid out your principles behind the professional services model in quite a bit of detail on this slide. But what does it really mean for the pricing model for the SCTP going forward? And also the professional services fee more generally? Just can you share on that?

No impact whatsoever on the pricing model. None.

But I mean, I think at the last result, you mentioned you'll be moving to a fixed fee instead of charging as a percentage of premium. What's in there?

As I said, that's for the entire portfolio, the $8.3 billion that we do, not related to the client trading platform.

Right. So going forward, is there still a -- will there -- I mean, your commissions are obviously still linked to GWP though, aren't they?

Well, yes. All the commission structures are related to GWP, yes.

Yes. Fixed-rate commission.

They're all fixed-rate commissions. They're not variable rate commissions. The broker can write them back if they want to, okay? So their top -- they stick to a maximum rate. The broker can go back to new if he wishes to do.

Okay. So you haven't got any updates on the targets for the earnings uplift you can get from the SCTP? I think it's…

Well, it depends on the sales that the network does and the remuneration that they get from that. So yes, no. I mean I refer you back to Page 3 and the way that the business has grown on Page 3. And as we do more turnover, we do more profit, we do more net profit, and that's the way it's reflected. So there's no link between the professional service fee, no link between the professional service fee and I probably sound like a politician was pleasing himself. [indiscernible] Great. I won't do that again, okay? Okay?

Right. Okay. And moving on, if I could maybe try and unpack your guidance a bit more. If you're seeing flat margins and backfill from your EBITA guidance, it looks like you're allowing for around 6% total GWP growth in FY '21. I mean is that right? And is that fair to say that's a little bit on the conservative side, given you should have some tailwinds from the $70 million you spent on inorganic growth? And also inorganic growth picking up in 2H '20.

Well, bear in mind that organic growth on that, that $70 million is already contained within our sales. We are transferring from a network broker to an equity broker. So they represent -- soon will address the impact they will have on the EBITA.

Yes. So give or take, if you break down the guidance, yes, we've got some acquisition in the PSF rebate to come through. And if you put those 2 together, that's circa 5% of EPS growth in those 2 transactions. So the rest of the guidance, if you like, the remaining 0% to 5% would represent what you might call the organic growth measures. And in that reflects a continued price rises, but we've got to be cautious just to make sure on volumes and where that will all stand. It does reflect the new PSF revenue model that we've got through, but we're also factoring in some additional IT spend and the increased amortization that comes through as well. So you've got quite a few things, if you like, that's come together to work through to the final organic growth number that will work its way through, hence the range.

Yes. Okay. Fair enough. And for -- finally, just the commission rates in the underwriting agency, which you mentioned, fell in the fourth quarter. If you could just maybe a bit more detail on that. And would it be fair to assume that would be -- that would continue to be a headwind into 1H '21?

No. I think it's pretty sensible what we've got in terms of the numbers that we put -- no, no, we've renewed everything so it won't be a headwind. It's factored into our income budget.

It's only on certain agencies as well, I would say. So -- and so it's on a smaller portion of the whole portfolio. And so we are expecting some uplift in sales across the agency portfolio. But we're also going to factor in some additional spend we will need to do as we look at things like the additional regulations that apply to insurers, which also, therefore, affect our agencies as well as [3 interesting things], and we're going to do on technology with them as well. So there's a few -- there is continued growth, if you like, there on the sales, but we're being cautious on the bottom line.

That's a revenue spot environment. The revenue -- the commissions optimize the service now heading going there. We've done all that in March.

Our next question is from Tim Lawson of Macquarie.

Just on the acquisitions, the $70 million you've called out. Just can you talk about any earnout in that, please?

What do you want to ask, Tim? Sorry, I missed it. What did you say?

So with the acquisitions, you've called out $70 million year-to-date. Can you talk about the earnout? And I assume from the comments around the guidance, it seems like it's around [ what you're talking about ].

One of them is the first -- one is a 13-year earnout -- 13 months earnout. The other one a 2-year earnout.

Yes. So we always hold back -- so we hold back a little bit, and we also provide that, what we will call a protection mechanism for ourselves to make sure that if there is massive swings down, then we've got some protection lines there as well. And also provide them with some upside should we return to normal transmission in the market.

The reason the 13 months -- line months is not 2 years is because the -- our partner in that business is going to add a substantial shareholding experience in that business. So the best lock-in you can have on an acquisition is to have the person who runs the business still stay in the business for a chunk of the equity in it.

Okay. So is the 2-year one, is that GSA? So that would be the larger, the majority?

No, no, no. Tim, Tim, Tim, we know we're not alone. I'm not going to tell you who it is. The chicanery [ split in ] just when we’re having an nice friendly conversation. You know why.

The multiple, about 10x?

No. We don't disclose that, Tim. You know that. I'll tell you what…

I can only ask.

Didn't you go to around the point, Tim? I mean we're going to got -- [ we're going have a million ], all right, Tim?

All right, I'll get -- I'll keep going. Client trading platform, you did increase capitalization in the second half to about $8 million. Obviously, the amortization is rising as well. You're very active on -- and you've called out the number of brokers, both live on INSIGHT, using the platform, et cetera. Is there a link to that level of spend and the number of brokers using the platform, INSIGHT and even the deal? Is that capitalization and spend in software also related to even the transaction?

Yes. So there's additional spend both on what we call the INSIGHT pricing as well as on the SCTP. So for instance, Slide 40, we've shown how many new lines we're adding into the SCTP and developing those wins there as well. So there's a combination of things that goes into that.

Yes. Okay. And without wanting to go back to talking about the guidance, I'm going to anyway.

Well, you can talk about -- Tim, we're happy to talk about it. I mean go on.

So EBITA, obviously just reported $223.5 million. I'm going to assume the acquisitions were done at 10x. So I'm adding pretty much most of $7 million to that number, and $10 million from the client trading platform remuneration changes, that takes us to the midpoint of your EBITA guidance. So are we effectively saying premium rises will be offset by some volume headwinds, some investment in the business to effectively have a net new outcome from -- after those 2 factors?

Yes, there is a couple of things there. There is ironically some additional costs that we actually have to fund on our own insurance side of things. If you heard all the stories about D&O insurance going up through the roof, that is very, very true. There's also the additional, say, spend on IT that we're pushing through and from the amortization. And there's also, as Rob highlighted, as we move to more of that self-regulation type of initiatives for ourselves, then that will have a little bit of standards, so investing back in the business to put that in play as well. So there's a whole range of things that have gone into that, yes.

I'm happy to put a bit of color on that for you. The program, the insurance program for Steadfast went up roughly $4.5 million from last year. So our cost for insurance for FY '21 is $4.5 million more expensive than what it was in FY '20.

Okay. Interesting. You've called out a sort of second…

Mainly because of all our -- mainly because all the cost actions as the large financial institutions, such as the bank.

Yes. You've called out a sort of second round to a new PSS -- PSF offer with only about 3/4 taking up the initial. Just checking that's not in the guidance. And also are you expecting to move to 100% in that situation? And in that, for example, how would someone like a PSC take shares in Steadfast effectively sell that income stream?

I'll start by saying it is effected into our guidance, so we announced as part of the guidance statement. So any uplift we get from that is in there. As to each individual broker's preference as to what to do, that will be up to them. The offer is there. But we understand under the royal commission model that we can't have override-type payments and rebates of override payments. That has to be changed for the future, so…

So that's our view, and we and others might have a different view. That's our reading of what we've observed of the problems we've seen that's come in to the industry as the issues that the consumer has taken to Hayne and a client's point of view on how general insurance should be transacted in the Australian market.

Our next question is from Siddharth Parameswaran of JPMorgan.

Just a few questions from me. Firstly, just on the organic growth that you show on Slide 15, 1.3%. Could you just reconcile that number against the trends that you flagged on the broker side and the underwriting side, where I think you showed much higher numbers, 7.3% and 13.7%? What was the difference?

Yes, sure. So as I said, the actual numbers that we show on the agencies and on the brokers is excluding profit shares. And particularly, in the fourth quarter, I've flagged there that we actually had some clawback on some profit shares. So that actually impacted, particularly in Q4, and we took abundant cautions and further incurred and not reported provisions for that for the future to make sure that's well established going forward. You'll also have things like, for instance, IQumulate, we put as part of those expected credit loss provisions, there's 4 -- $500,000 there that we've put in additional expected credit loss provision buffer in those accounts. That also worked its way through in terms of when you see that overall group results. So those issues like that, things like the profit shares, corporate office expenses, that type we can go through that.

Okay. Great. Okay. Could you just comment on what you actually saw in terms of price rises in the market and what you're expecting for the next 12 months?

I think price rises, there is likely this time, so between the financial line side of the business as we can change. So they triple, quadruple -- some quadruple, some triple. So in the financial line side, it's particularly who do you know. People are just crazy. It wasn't a marketplace anymore. People will take what you can get if they offer it. And so pardon me, of course, we haven't had many meeting sort of live nature of growth and my habit for [ metals ]. So -- and unfortunately, in this [ mood, we put metals ], I mean I just had one. Listen, I know they chased on it. So I don't think that they -- there's not a COVID choke. This is a [ metals choke ]. It's a [indiscernible]. I'll just get -- I'll get rid of the metals because obviously, it's not used to not having one for 3 or 4 months, that's all. In terms of the balance of the market, the property has absolutely still -- that's why between can't get it, reduction in capacity and then we need to get a base increase of 10% or 15%, if we can. It's still -- in our -- in SME land, where we are, it's still a target price would be about 7.5%.

And sorry, just to be…

I mean that one -- the ones that are moving at the moment, which didn't move last year are definitely liability. It's moving and some sections of the PI market are moving quite dramatically. So I was looking at a -- to somebody the other day, I was looking at an engineering PI, professional indemnity renewal, that has gone from 110,000 to 400,000. So there is some movement in those areas.

Yes. But just to be clear, just I think 1 insurer flagged that they were pausing the rate rises, particularly on property. I was just wondering if you -- or actually, I think on SME. Maybe if you can just…

On all the right pauses? Yes.

Yes.

They've taken that completely off. They put out an advise the other day that they're not doing that anymore. Yes.

Okay. Great. Okay.

I think between you and I, I don't tell anybody else to know we're existing. They didn't do it mostly anyway, okay? Well, that wasn't one. There was a curved ball here, as I said, is applicable, okay? It's applicable, okay? So you had to prove that you would destitute and that the receivables are going to come in, and then they would hold the price rise. And for the most part, people didn't get down that track anyway. So that's how I think they got it.

Okay. Now don't tell me, Rob. Just a last question for me, just on the business interruption test case. Could you just comment on where the brokers stand on this? And in particular, whether -- I mean, your legal advice is that you're completely fine, even if there's any issues in terms of policy wording with your policies, that the brokers are fine?

I think it's an interesting point of view, okay? And the 2 test cases that are being run now will be interesting to look at rather than pathetic about how it should be held, okay? Because candidly, each advice changes and each circumstance changes. You've got the policy form, but then you've got a whole lot of circumstances that are put to the policy form. So if you then turn around and say, well, okay, if the policy had the old, well, what we would say, the pre-quarantine clause in it, which was the main one that's out there in the market, okay, then did that clause cover pandemic? And the answer is no, it didn't. So if you bought that policy with that exclusion in it, and then you've got a pandemic that occurred, did you expect it to be covered by pandemic when the policy you bought made reference to, as a fun fact, which excluded pandemic. So that's why it's coming back, that [ metal ] is coming back to a bit the -- that sort of record, okay? And then the people that have got the latest one, they're going to say, well, definitely, it doesn't cover it. And then they're going to say, well, the circumstances that I got doesn't actually apply to that. So there's a long way to go like that. Did the brokers say to their clients, do you want coverage for pandemic? For the most part, I have to say, and I can't lie to generalization, maybe they didn't, okay? But conversely, they clearly set out a policy that had exclusion for pandemic and the consumer bought them with the exclusion. Frankly, maybe because nobody knew -- SARS didn't have the impact on us, okay? None of the prior quasi-pandemic has created the problem it had. And then if you think about -- and this is from a professional identity point of view, if you think about what impacted -- I'm sorry, did COVID-19 have on trading, it probably had some impact in March, April, May and June. None of the June policies were renewed with any coverage or any heat at any coverage for global pandemic. So if you think about the client in Australia, and you think about what happened in late October, November, December, January and February, we had hail, bush fire, floods, wind storm and hail as well. So we had roughly 6 cats that came in. So a whole lot of businesses were impacted but those kept moving into the time when the pandemic started to hit. So if you look at 100% of a BI coverage, you may find that when you go back and as speaking to you about, we understand how it works. BI reflects on what the same insurers now and takes roughly 80% as your target of what the same insurers is and look at the training relationship for the prior 12 months at the time you had the claim. So when you start to do this extrapolation of what it looks like to put it together, then the loss may be feeling an issue after that 2- or 3-month period that the pandemic would have been covered under their policies expiring at the 30th of June. So it's got a ways to go. The FSA case in London will be interesting. I'm not sure it will have much reference to what's happening in Australia. The 2 -- the ICA cases that are going forward being run by Clyde & Co now, they have to put specific point of view to the policy -- to the policies: one, which was covered by HCI; the other covered by holidays. But we will be quite intimately where the people because that happens to be set up by policy. So it would be an interesting scenario. So we've got an interest in the whole thing. What will end up like? Do you think that somebody -- that some guys is going to say, well, all policies that have got these in are not covered and all policies that have got those are not covered. I doubt that's going to come down from the bench. My experience would say, there's not going to be a chance in the world that's going to absolutely say that about every other policy because every more around will say, that sounded that, that occurred, but our guide has this issue. So I think we've got a ways to go, and we watch it with interest.

Our next question is from Nick Burgess of Baillieu.

Two questions. Firstly, Stephen, just on the -- so the 26% that didn't take up the rebate offer, you've described you're going to mop that up with a cash offer. So how are you funding that? And what's an approximate cost?

Yes. So yes, the cost is circa $30 million, $40 million to do that. As I say, it will be a cash offer rather than a script offer. So we've got 96 at the moment as well as free cash flow that comes through the year. So it will come out of that -- those mechanisms.

Okay. So no additional equity issue, and that is included in guidance, everything you mentioned?

Correct. Correct.

Okay. Second question, if we can go back to Slide 7 in the professional service fee. So can I just clarify, what's the status of the professional service fee, as you defined it? Is this a proposed fee? Or has this been implemented?

No. No. It's something we challenged in effect in the 1st of July. So we've informed all our insurance partners, this is the way we're going to trade from now on.

Okay. And so what is the quantum or expected quantum of that fee in terms of the overall EBIT of the group to give us a sense of how material that is?

Well, it's in our guide, it's in our revenue income, Nick.

Yes. But can you help us out a little bit?

No.

I mean you've taken the time to speak out.

Unequivocal week. Nick, unequivocal week. No.

Okay. And so what -- okay. So what about any feedback from the insurers? I mean is it being paid happily by the insurers? Has there been negotiation? Is it implemented as envisaged or proposed? Has there been changes?

No. It -- to answer this question really directly, it's very fair. It's not over the top. And people look at it with growing eyes because it clarifies a gray area of how they do business. Remember, we're not in the gas game here, okay? We're in the partnership game with our strategic partners. And candidly, the cost to run it, as you referenced Page 7, is dramatic, and they recognize that. And they also recognize that the future of intermediated business is that they provide the capital, they provide all our ratings, and they reduce their cost of distribution. This allows them to know that all of those things on Page 7 are being taken care of by somebody that they trust, and I'm not suggesting that I trust in others in the market. So I think that reference side that everybody else is hoping. But something that I can do business with, something that they -- somebody they've done business with since 1996, there's never ever that slightest complaint straight out on what we do.

[Operator Instructions] Our next question is from Jason Palmer of Taylor Collison.

I have 3 questions, if I can. So I was -- sort of go over that organic growth this year, again, if I could. If I look at the Slide 16 and 17, I think you've said that organic growth for the insurance broking businesses on Slide 17 -- 16, should I say, is 7.3%. And I think you've said that as assumed 73% ownership interest to the head entity. And then on Slide 17, organic growth of the agency business is as an EBITA line is 13.7%, which is 93%, if I heard correctly, of the agency business. In combination on my numbers, I get to $19.5 million of EBITA attributable to Steadfast shareholders. I'll note that you've got $8.4 million in the Slide 15, which I know had some offsets with Steadfast convention, but also some government stimulus, which kind of knocked each other off. And I get that you've called out a $4.5 million increase on cost of insurance for the business, which I imagine is in there, and another $1 million in provisioning across IQumulate and the broking business in combination. So that kind of leaves about $5.5 million of additional costs. I'm just trying to understand sort of how we should be thinking about that between the profit share clawback and potentially, other head office costs, which might be increases in short-term incentives. I guess the reason I'm going over is that clearly, there are some signals that the underlying business is doing pretty well that might be masked by the way it's being reported.

Yes. So the actual -- first of all, the conventional life actually does not go through the insurance broking. We keep that separate. So that actually is a delta on the overall numbers. And then I would call out and say those profit share movements that we've talked about there before. There's also the corporate office costs that we called out, so those types of things as well. So -- and then the IT spend and the -- which we call out there separately on that slide. So that's probably the key thing there, Jason. Yes.

Okay. All right. And the IQumulate…

Just to clarify that profit share clawback, it's mainly -- it was mainly in regard to the trade credit company where there was a blowout of a year when we had some clawback for a prior paid profit share. And that blowout was basically a deterioration of already made to clients. So that's just to clarify what that clawback situation was.

Okay. And just 2 more if I could, please. Just -- I know that you've spent your time going through the new professional services fees. I just wanted to check in respect to the client trading platform. I think original business case has made a 3% to 4% commission increase with an increase in the volume -- of the volume-based incentives paid through that platform. Are you saying that the volume-based incentive component of that is now brought forward with the professional services fees? Or will it still be on top of that?

No, no, no. That's gone.

Yes. So the network is gone. But if a broker continues to trade further through the SCTP, then they can also…

There's no override on the SCTP, I mean, the broker commission.

The broker commission can continue to go up if they use that platform more. Yes.

Okay. And just the last question. And you might tell me to get Nick, but…

Well, maybe now, I wouldn't say that. I'd say something worse than that, but we may have a bigger audience. So…

Yes. Okay. Luckily, it's being taped. In respect to the professional services fees, I mean, clearly, you're investing a lot in capabilities across the businesses. And I guess experience in the past says that when you invest, you're generally looking for a payback. And so if I look at those professional services fees, could you maybe help us understand the possibility for those to kind of grow as more insurers sign up to that arrangement over the next few years?

Look, look, the reality is that we will reassess them every year in terms of what we have to provide from a legislative point of view. And indeed, what we have to do because of the change of the way insurers may operate. So it's not a fixed situation. It's something that we've review on a periodic basis. And probably, we'll do it on a yearly basis. And candidly, if things flatten, then we -- and our turnover stays, roughly -- to answer your question, if we will look at the amount of transactions, not the monetary amount of business we do with an insurer in terms of those transactions. So out of that $8.3 billion, right, for the -- in terms of GWP, there are many transactions. So we're responsible for those transactions, firstly, in the execution of them. Firstly, in the legacy requirements of how we advise the consumer on that, and then we have to take responsibility for that. So the fact that we're doing $8.3 billion, and is what do we do, it's more if we did 25 billion transactions that we have to look and say, well, hang on, our exposure for all of our legislative things is much larger. We have to do a lot more work with the network. We have to build a lot more training with the network. So that would be the way we would adjust it. Certainly, not on GWP.

And yes, we're conscious of our return on investment.

Well, right there…

So in your mind, Robert, then, in your mind, is that sort of as high as it could go with the current GWP base? Or is it -- or is there scope to move as more insurers sign on?

Well, I mean, the reality is that, in our view, over the next 12 months, that the remuneration structure that we will gain out of providing those services, we're comfortable with, and that's reflected in our season budget.

Mr. Kelly, there are no further questions. Would you like to make some closing comments?

Okay. Look, thank you very much, everybody, for coming in. It's probably the most unusual time we've ever had since we started this business. The tax that we -- that they -- I'd like to talk to our competitors. And I'd like to say, if you look at our sector, if you look at the PSI and you look at AUB, we've all done well. So please, when you're prosecuting our case about insurance broking and underwriting agency, have a look at the sector, have a look at the performance during this time and then -- and say it yourself, you know what, maybe it is a robust sector to be in. And I thank you for your time, and I thank you for your questions. So look forward to seeing you on the one-on-one.