Steadfast Group Limited (SDF) Earnings Call Transcript & Summary

Thank you very much. And thank you, everybody, for joining us. I just -- before we start, there are some notices that we've got to point out to you. They're on Page 2 and 3 and 4 of the presentation and also we're restricted about what we can say in terms of the capital raise other than what we've publicized because this is going into some U.S. investors. So if I see -- if we seem vague on a question, it's because of legal restrictions on it. So anyway, thanks for joining us. It's -- another year has gone by. And I'll get you to go to, say, Page 7 of the pack. And I'll run through a bit of the performance. Stephen will then work on the financial. We'll talk a little bit more about the Coverforce acquisition, and then we'll go over to the questions -- Q&A. So Page 7. It's a pretty good page if you're the CEO of a public company to sit here and present that page to you. And I'd just like to say that it sometimes looks easy to the outside, but I have to pay a lot of deference and credit to the people who work in our organization that drive the spirit of what we do to get to these numbers. So there's a hell of a lot of people from finance from marketing and now frontline brokers and underwriting agencies. So our EBITA is up 17.6% to $262.7 million. The NPAT up 20.2% to $130.7 million. The NPATA, up $18.1 million to $160 million. The diluted EPS of NPAT is, as you can see there, 18.8% or 15.1 cps. They're pretty good numbers. They are fully franked dividend, up -- that's our job when we run this business is to make sure we give EPS accretion and of course, delivery from fully franked credits up $0.167 (sic) [ 16.7% ] to $0.07 and then to give it combined of 11.4. So that's up 18% on last year. It's interesting that in March last year, we pulled guidance under an abundant caution victim and that wasn't necessary and the business thrives. So just the pie chart, you can see the multicolored pie chart there on the left, shows you that we are not reliant in the distribution of our product -- in any product that's overwhelmingly #1. So it's pretty good when you look at that from our point of view, 18%, 20% in the biz pack, it's fantastic. And I think last year, when we presented, we combined the underwriting agencies and the brokers. And it didn't give a -- it looked like we were heavily slated towards Strata. And as you can see, the Strata is very important, but it's not the main game and what this gets distributed out. So on the right-hand side, our statutory profit NPAT was $143 million. We had a loss last year of $55.2 million, basically because of how we accounted for the IBNA acquisition. Our equity brokers and network aggregate underlying EBITA is up 21.5% You can see -- I won't read the slide next with, but the reference is what the slides are. Our underwriting agencies' EBITA up 13%, again, outstanding from that point of view. If you think about when the hard market started, we went up 18%. I thought that, that would come back to the 8% to 10%. The reality is that the hard market has continued and our niche expertise is coming through. And again, we had a 13% increase. And interestingly, the majority of our Australian, New Zealand brokers are using the client trading platform and it's ever increasing. Acquisition growth, we completed $172 million of EPS accretive acquisitions for FY '21. We implemented our Trapped Capital Project, which is basically where we said we have to go back to the network several years down the track from the flow and just say to them, it's a time for you to release some of that trapped capital in the asset you're sitting on. It's a time to derisk yourself. It's a time for you to come in. So I'm pleased to say that's been received extremely well by the network. It was -- the timing was correct. Our proposition was correct. So we've completed 5 acquisitions, representing $1.9 million in EBITA. If you just -- if you want to have a look at the trapped capital, go to page -- Slide 28. We've got 10 signed term sheets of which due diligence is underway on 7 brokers that represent $3.1 million in EBITA and our due diligence is about to commence on a further 3 brokers representing another $3.1 million EBITA, and 14 term sheets have been issued, representing $5.9 million in EBITA, indicating valuations for a further 25 brokers, representing a further $7.2 million in EBITA. And then 63 brokers who are -- we are still to review. Now the EBITA on that were uncertain. But what we can tell you is that the GWP today is 63, represented $753 million. So you're going to extrapolate that back with on our performance. We promised we would tell you at the full year what trapped capital meant to this business. That -- what I just gone through there is what trapped capital represents at this particular time in our journey to go through all the balance of the brokers that are part of the network. Now not every year, you get the opportunity to buy a company as well run and as well put together with such a good market share as Coverforce. So we've completed the Coverforce deal. We settled that on Friday, it was $411.5 million. It's a unique opportunity in our market to get brokers at that scale. There's not too many of them like that. And not too many of them run by somebody as strong and powerful with a finance background as Jim Angelis, a fellow who we've worked with for just on 2 decades, watching him build this tiny small business into the powerhouse that we've been fortunate enough to buy. But it isn't an attractive financial outcome and is expected to immediately give EPS accretion and excluding synergies in FY '22 on a fully funded equity basis via -- funding it via our $200 million underwritten placement, okay, of $217.8 million and set far shares to the investors. So it's an interesting thing when you look at why would Coverforce sell, well, it's a capital event for them. Okay, normally in something like this, you look at the seller and you wonder what the intention of the seller is. The intention of the seller in this space was to take nearly 50 million shares in Steadfast because he thought he was derisking himself from being invested in 1 broking operation and spreading it across nearly 80 other investments in a public company. So as I said, we completed on the 20th of August. I almost like to show at the moment anyway, and Page 8, which really gives you an indication about starting points and where we see ourselves going. Those absolute bar charts there are the way we look at the business all the time. It is our job to make sure that the network growth, underlying NPAT growth, return on equity growth, the underwriting agencies increased. Our EPS per share increase. Our trading platform is heading towards the being mark next year. Now our underlying EBITA increases. And so it's an important sheet that we've put out at a glance, you can see how is this organization going and how it's being driven. So if you go to Page 9 now, and we've tried to put together some of our strategic initiatives and impact of COVID and a bit of a flavor on what the industry is doing. So obviously, the acquisition of Coverforce, it's aligned business with scale and multiple revenue streams that truly aligned with the whole way we want to buy and acquire businesses in Steadfast. The implementation of the Trapped Capital Project, which I articulated to you. We've got it in the market. We've got -- we've got it operationally where it is. We've moved into some alternative risk transfer opportunities with the formation of Xenia Mutual, established to operate a discretionary mutual fund for the protection of the hospitality industry and property. There's been a tremendous variation in pricing for property for the hospitality industry. And the reason for that variation is pretty simple to explain. There's a huge difference between the quality of people that seek to get property insured. What Xenia is set up for is to work with the people who have invested many, many millions, sometimes hundreds of millions of dollars in this sector and risk management problems, put two together way so that they can mitigate having losses and put them into a mutual so they can share in a better claims ratio and be convinced that when they budget for cost of property insurance that they're not going to ride the highs and lows of the market outside this. Also moving into our claims solutions, okay, Steadfast has always done an incredible amount of work in claims. We've now built our claims solutions system, which will improve the customer in direction that the brokers do and of course, the ultimate delivery of customer expectations is epitomized when you have a claim. Also Steadfast Accelerate is a joint venture that we've done to take out robotic interactions to another level. We're not trying to get rid of people with our robotics. We're trying to take out of the operating structures of the business, the mundane, the things that people find difficult to do and allow the frontline underwriters and brokers to be able to service the clients as best as possible. We uploaded our percentage in unisonSteadfast to 60%. It was always our intention to get to a situation of control in unison. We didn't want to start building that business until we had control because we didn't -- we knew that we would make a difference once we got hold of it and we didn't want to have to pay for that differential. So we're now in a position with unisonSteadfast, providing we can move around the world with COVID and what it is to actually start developing that business into another powerhouse. We've expanded our Risk Management division, and we've launched a competitive suite of risk management tools for our network that absolutely delineates us from the rest of the market. They're world-class tools. They're tools that we can transport around the world and they're out and operating now. Our London joint venture with Howden's is in its infancy stages that will reap dividends over the next 12 months. And the acquisition of Gold Seal puts our customer experience and our [indiscernible] in knowing that the whole network is performing in accordance with the statutory obligation at the pinnacle of anything that we've ever done before. And we've, of course, launched the Steadfast Nine Positions, which is what aid to what the customer can expect to get out of dealing with a Steadfast broker and not only an equity broker but somebody within the network. We've worked very strongly with the network to make sure that everybody bought into these. We've looked at the Hayne's royal commission, what they're trying to achieve and produce these 9 products that the consumer can rely upon in doing with a Steadfast broker. Looking at COVID impact, our brokers have survived brilliantly. We told you, we told the market that we are resilient. We said that in hard times, insurance brokers survive. They have and they do and they will. So Steadfast and the network's ability to be able to lockdown for 17 months produced the profit then for FY '20 and the current profit for FY '21, regardless of the perceived impediments to our operating model because of COVID, okay? Some financial things. Our collection of cash that remained unaltered, okay? We did benefit from the rate cycle. It was -- it has continued to keep hardening. You've only got to look at the results of the insurers to know and listen to what leading insurers are saying. And IAG's view, the market has to keep driving back more and more towards getting a technical rate. And if you understand how the metrics of an insurance company has put together, they have the cost of distribution, they have the cost of management, they have the cost of capital management and the cost of reinsurance and they've got to pitch all that together. What's happening is all the fundamentals are the claims are increasing in volume and timely events such as catastrophe cover occurrences. They're not predictable anymore. And cost of operating are going up, wages, which was a huge cost, are going through the roof for insurers. And of course, ultimately, the reinsurers who helps reflect the castaway and help to manage the capital base for APRA, they're putting their process up. So whilst those factors continue to impact the insurers' bottom line profit, and they will for some considerable time, the hard market's here and it's staying. We did get some volume uplift. That was certainly accelerated by increased pricing. And Steadfast underwriting agencies had solid growth during the year because of their performance. And interestingly, against the flow of what everybody would think accumulate, the premium funding company we own, it has the lowest default it's ever had in the 12 years that we've operated that business. On the industry update, NIBA's Insurance Brokers Code of Conduct, which we support and is about to be rolled out. And the insurance companies continue to drive rate to offset claims inflation that I've just articulated. They're not getting there. And with the potential impact of the BI claims, there's so much uncertainty about how that may roll at this time. They're all pretty well reserved for it, but nobody can understand that with the COVID business interruption claims, whether there's going to be an increase in further claims. It doesn't look to be to us, but the differences in COVID have just -- are yet to be tested and also the impact of the government assistance have greatly helped people get through the bad times. So sometimes, one will look at and wonder what the quantum of the BI claim may actually be from that point of view. So turning to Page 10. We're seeing -- we still consider to see moderate increases from our strategic partners in the broking network. So 8% organic growth for the period. This excludes statutory classes, which we don't report on because we're -- not in our hands. Our GWP rose by 18.3% to $9.8 billion. We may sit there and wonder, and I'll talk a little bit further about that. GWP is 88% in financial and 12% in retail. And so the bar chart there show the network's gross written profit extrapolates up to what we've done first half, second half there with FY '21 at $9.8 billion. If you look on the right-hand side, you'll see the FY '21 to '20. And you'll say, if you got 8% organic growth, why didn't you get -- why was it lower when you had 18% growth. What we try to give you there is we try to give you the pcp value so that you can look at it. So we wind out new additions. We wind out new people coming into the business and look at the business at the start and the end from that point of view. So we had 8% organic growth. The AR network continues to grow with 7.7%, and we had new brokers contributing 2.6%. So in terms of that's how you get to the 18.3% and the 8%, it's very, very exciting figures. Our operational highlights 457 brokers. We had numerous mergers. We had numerous sales, and Slide 53 gives you a complete figure on that. So we've got 19 brokers in Singapore. We've got 52 brokers operating in New Zealand, 386 in the Australian network. And in our investment activity for FY '21 in brokers, 7 new equity holdings, including bolt-ons and 16 changes in equity in the holdings. So we're continually merging. We're continually putting brokers together so -- pardon me. Our M&A team is working all the time, both in the businesses, on merging the businesses, on changing the business around and also looking at new opportunities. Our program with merging brokers, as I said, it's represented by the fact we've now got 59 equity brokers and the network they're delivering an EBITA of $218.2 million. That's assuming 100% ownership. It's up 21.5%. The client trading platform rose, again, 24% last year to just underwrite $800 million, a tad under $800 million. I said we would do more than $800 million. What I didn't take into account was the competition that would come into the client trading platform for the retail house and car and the impact of claims on that sector. So we had a vast -- so we are very agile in that platform. We can adjust the pricing very quickly, and we do. And sometimes the direct insurers are behind our pricing. So instead of getting 12% and 14% or 15% increase on the prior year, we got roughly between 4% and 6% for the last 3 months of the FY '21 year. So going over to Page 11, the underwriting agencies. GWP growth of 11.5%, that's both price and volume driven. And if you go down the left-hand side, we're up 11.5% in GWPs of $1.5 billion. We had 13% underlying EBITA increased to $119.5 million. So year-on-year, $1.3 billion to $1.5 billion, 11%, 0.5% organic growth. And again, if you look at the bar charts there, you'll see the first second half and you'll see how the latter of growth goes up that side. On the right-hand side, 24 agencies offering over 100 niche products. Property lines pricing remains strong. It still hasn't waned probably the pricing is going up all the time. We continue to implement our robotics into the underwriting agencies. And that's been incredibly successful for us because it takes the mundane. So instead of having our experienced underwriters, frontline underwriters doing mundane things in order to get a position of many other claim, the robotics have allowed in some circumstances and they're ever increasing that we look at the ability to present the proposition to the frontline broker who can sit there and underwrite it quickly. That does mean 2 things. The mundane goes, they can quote more business and they're more attuned to not having to do stuff that really isn't their core operating. It's more functional about getting the business to a stage where they can quote on it. So it's very, very important. So we've continued to align our long-term strategy with our capital providers, both by using our technology. And it's very important that you understand that we had given $1.5 billion worth of capital, and we put it into the market. So we would be viewed -- acutely aware of that responsibility. We've benefited from the higher pricing and that our strategic partners are putting out and our market share gains. So it's a pretty good story. Pressure on remuneration from London still exists. We've probably come down, I would say, 3.5% over the last 3 years in our top-end remuneration of our binders, but they still get renewed. Our capacity is still strong, and we're still doing well, as you can see out of that. But there is capacity constraints in some of the lines, and that's due to the restructuring of Lloyd's internally and their business plans. All agencies, remember, are available to the entire market. They're not bespoke and kept to us in any way, shape or form. We do business. We do roughly 45% of our business in the agencies outside the Steadfast Network. So just on Page 12, our insurTech is -- we've been rebuilding that over the past 2 years in the silos of how we go about doing it. The client trading platform is performing extremely well. And we -- it helps us dramatically with some of the points of view that Hayne had about commission, upfront payments, bulk payments, anything that revolves around inducing you to do business because of price, because of commission is completely alleviated by the client trading platform. It's a genuine contestable marketplace. And it's a lot -- so it's aligned with the consumer and the brokers' interest by having a fixed fee regardless of what transaction goes through. Steadfast still remains very important in its improving the SCTP. We continue to add new lines, still we continue to automate and develop auto rating. Our liability and PI and motor fleet is rolling out as we talk now. And our introduction of the SCTP into New Zealand has been hailed by the brokers there. It's just amazingly, the increases coming through there. We have 9 business lines and 17 insurers and underwriting agencies partnering on it. The last bullet point there is really interesting. We've got 18,000 active users, okay, of which 6,000 access INSIGHT and 11,000 access through Winbeat and 925 access through other broking systems. So the automation that they, brokers, get onto the client trading platform via our INSIGHT is one part of it. But the fact that it's very, very well taken on by other broking systems and more particularly Winbeat is testament to its success. So INSIGHT itself, okay, 181 brokers live on INSIGHT, okay? That were at June, we're over 3,000. We're heading towards 3,500 licensed users at the moment. Additionally, 30 brokers have committed to migrate on to INSIGHT, and we've got a further 95 brokers in negotiation to come on. And if you have a look on the right-hand side there, as you can see, nearly $800 million, 24% up on last year. And you can see the bar chart showing how it's growing exponentially every year. So very excited to see that. And then Page 13, and I'll hand over after this to Stephen. The final dividend, up 16.7%, okay? That's why you invest in this business, and that's what our job is, is to make sure we keep doing that. So for FY '21, $0.07 and $0.06, up 16.7% as I've said. The DRP operates for the final '21 dividends. There's no discount on -- required this year. Key dates will be, as you see, the ex dividend, 19th of August; the dividend record date, 20th; and the DRP, 23rd; and payment on the 10th. On the right-hand side, the bar chart represents what we did from the beginning to now and how we've grown the return in dividends here. So I'll come back a little bit later, but I'll hand over now to Page 15 and Stephen. So thank you.

Thanks, Rob. So it has indeed been an eventful year for Steadfast, and we've continued to perform strongly against the background of the COVID pandemic, delivering a combination of both organic and acquisition growth, which we expect to continue into the FY '22 year. Today, here, we start with that reconciliation of the statutory results to the underlying results, where we remove what we deem to be the appropriate nonrecurring items from our statutory earnings. Most investors are aware, of course, of a significant one-off accounting adjustments we had in FY '20 for IBNA and the rebate offer. They, of course, do not repeat in FY '21. We continue to remove the uplift in profits our Johns Lyng Group investment, which, of course, performed very well in FY '22. And we also removed profits that were the result of a revaluation of our initial interest in an associate if we've now acquired further interest in that business to call a subsidiary. In essence, we took the profit of -- statutory profit of $143 million and that gets dialed down to $130.7 million, which is 20.2% ahead of last year. The growth in second half net profit after tax was very similar to the growth rate we saw in the first half. Going to Slide 16. For our underlying results, we've laid down a further significant uplift in earnings over FY '20 with high double-digit increases on every bottom line metric. The revenue was up, of course, thanks to the hard insurance market and the acquisitions. And that, combined with cost containment measures, certainly led to very solid uplift with the revenue up there, circa 9%; EBITA, 18%; net profit after tax, 20%; our earnings per share, up 18.8%; our cash earnings, up 18%; and the cash EPS, up 16.6%. As Rob said, we experienced very little downside effects from COVID with steady volumes in the first half and actually some volume growth starting to emerge in the back half of FY '21. The premium rate hardening, of course, remains strong throughout the second half as well as the first. Much of those revenue gains really did flow through the bottom line results. There was a significant reduction in the travel, the entertainment, the marketing, sponsorship, et cetera, as businesses traded under that virtual world dynamics of Team and Zoom meetings, which I'm sure you're all sick of. This commenced in, of course, in April '20. So we saw that reduction coming through in the quarter 4 of FY '20 and flowed all the way through to the first 3 quarters. Q4 of FY '21, of course, the spend was up a touch on Q4 FY '20 as the economy emerged from lockdown. That might seem like a distant memory now. Profits from acquisitions continued to emerge through the second half, mainly from the acquisitions we completed in first half. The average multiple we paid was circa 9x EBITA. Our seasonality this year is coming around about 46% to 54% first half, second half. And at this early stage, we predict similar levels for FY '22. On Slide 17. This slide affects our EBITA growth into some of the key components, which we've previously shown you, organic growth, 11.4%. The technology initiatives was a headwind of 1.5%. The acquisition growth came through at 7.7%. Our spend on IT was actually less than originally budgeted, but with great progress on our key initiatives on INSIGHT and [indiscernible] rollout as well as on the data analytics and the robotic process automation capability. The $11.4 million that we capitalized on our balance sheet was $2 million in FY '20. We are budgeting for an EBITA headwind of similar proportions into FY '22. Our acquisitions have been performing at or above expectations and contributed $17 million of our EBITA to our FY '21 results. There's a small run rate of those acquisitions going into FY '22. The organic growth is a major callout for the FY '21 results with strong headline growth and enhanced margins, which we'll now look at for both the insurance broking and the agency lines of business. So if you turn to Slide 18. We show the results of the broking and the agency slides as if we own them all 100%. We take out the profit shares to analyze much more of that consistent year-on-year period but on that basis. For the brokers and network combined, we actually own around about 75% of the earnings that you see here. 65%, if you are just looking at pure growth, of course, we own 100% of network. Our core insurance broking contributed just over half of our FY '21 ASX earnings. Our equity brokers represent $3.1 billion of the $9.8 billion net worth GWP. And of course, with the Coverforce acquisition, that will build $3.6 billion. For the year, there was just over 5% organic growth in the revenue, in line with our GWP movements given that 70% of our revenue is commissioned, which is leveraged to that GWP result. $23 million of that organic revenue uplift flowed through to the bottom line, which enhanced our margin 3 percentage points. We benefit from the reduction in cost base, as we mentioned before. We're going to dial in a little bit of that spend coming back into FY '22, but only limited amounts given the current thinking is on lockdown, but also we only visited returning to those previous spending levels. Wage rises were, of course, minimal in FY '21, but we did provide some bonuses in the June quarter for the outperforming businesses to appropriately reward staff. The competition for talent will mean some uplift to costs in FY '22, but we're seeking to maintain the margins here as we expect the hard market will continue and have positive impacts on our revenue. The revised professional service fee arrangement is also contributing factors to the organic growth in this area as well as because of the fact of the rebate offer that we did last year. The bottom line growth was a very healthy 13% uplift organically and was supplemented by a further 8.5% growth from the acquisitions. Moving to Slide 19. This is our interest in agencies, which contributed around about 46% of our FY '21 earnings. It was just short of $1.5 billion of GWP transacted by the agencies. And as a side note, if you had that $1.5 billion together with our equity broker GWP, that would mean that Steadfast, we have an ownership interest in just over $5 billion worth of GWP with the acquisition of Coverforce. The agency here that we own 93% of that earnings shown here. As for the third year in a row, continue to trade ahead of expectations throughout the year with solid performances across the portfolio. Housing market continues to provide great opportunities to quote which has led to further market share gains, subject only in some instances to some capacity constraints. There were some price volume movements across different agencies, and this translated into top line organic revenue growth of 11.5% with the bottom line EBITA growing 13%. We're expecting further modest top line growth for agencies going forward into '22, but at lower levels than the stellar growth rates for the last couple of years. Similar to broking, we again provided for bonuses in the June quarter for our outperforming businesses. We will see that cost pressure. Again, we expect to see further modest improvements into the bottom line for these area into '22. Going to Slide 20. As expected, with our CapEx and working capital-light business, we continue to convert all of our profits into cash. So we had over 100% of our $160 million of underlying NPATA converting into $172 million of underlying cash flow. Our debtor days continue to actually be better than the historic levels. There was no negative trend arising at the end of the government stimulus packages in March '21. And as Rob alluded to, our premium funding collections have also continued with those record level indicating that the SME cash flow does remain robust in the economy. To ensure that we remain conservative in our balance sheet, we've released very little of our expected credit loss provisions in our business despite the positive cash flow coming through. We, of course, have invested $111 million of free cash flow into ongoing acquisition activity in FY '21. Slide 28 later will show you our history of we've spent on acquisitions since our IPO. Going into Slide 21 to our balance sheet. No material changes in the prior year other than the recent acquisitions of businesses that we've, last year, predominantly funded by debt. Our corporate and debt and our premium funding facilities were all reset early 2020. Our gearing ratio at 30 June was 22%. And at that point, our current drawdown capacity was $163 million. However, as noted later, given the earnouts, the acquisitions in July of dividends, our free cash flow received to date, there's around about $60 million of free cash flow at the end of this week or at the end of our dividend payments. We're coming to the Coverforce acquisition shortly, but I would note that our view is that we expect to fund that acquisition fully via equity, taking our pro forma gearing ratio to 17.5% and then providing ourselves runway to utilize debt for that pipeline of acquisitions that are ahead of us, including those in our trapped capital initiatives. So before I return to Rob, we did show on Slide 8 our key metrics in our financial performance since we floated. Since FY '14, we have produced consistent EPS growth. And in FY '21, we laid down our eighth consecutive record underlying profit numbers. We've lifted our post-tax return on capital. And even if you look at just the last 3 years, that's gone up from 8.5% to 11.7%. Our total shareholder return since IPO is at 334%. And of course, we've increased dividends year-on-year in line with our earnings growth. We are very mindful of producing for our investors who funded this business. We want to drive organic growth. We're going to acquire businesses that can provide sustainable EPS to credit growth and go back and repeat it in terms of driving that further organic growth. Rob, I'll hand it back to you.

Thanks very much, Stephen. If you go to Page 23, this is just -- we're going to give a bit of color about the Coverforce acquisition. We acquired 100% of the shares and for an enterprise value of $411.5 million. Coverforce was majority owned by Jim Angelis, who I've alluded to before, 95%, 5% with his staff. We're funding it by an underwritten placement of $200 million and scrip consideration to the vendors of $217.8 million, which is escrow until our past FY '22 results. It's a strong alignment going forward between the vendor scrip and the continuing employment arrangements with the key management, including Jim, who plays a key role within the -- who will, I'm sorry, play the key role within the Steadfast operating structure going forward. Coverforce is the largest privately owned insurance broker with a great track record of strong growth earnings. And we were the natural acquirer of this business because so much of what we did was in parallel with what Jim had done. And so I think -- I don't think we were -- what I would say, had an inside running on this, but it would have been a big change for the way the business operates to move outside our network because of really many of the things that we provide that Coverforce took advantage of. So the opportunity for us now is to strengthen our relationships as the leading insurance broker network in Australasia. And it will be immediately EPS accretive. We are excluding synergies in FY '22 on a fully equity funded basis, and we completed this week on Friday the 20th. And if you go to Page 24, it really -- the bar chart just represent a period of growth and show you how strong this GWP revenue margin and EBITDA has been for Coverforce. So I'll leave that with you to do without going through it from that point of view. If you then have a look at Page 25, it's been a highly successful business, as I said before. We've been involved with Jim for nearly 2 decades. It's got a very highly experienced management team, and they've demonstrated their ability to perform to a great track record of growing the business as Slide 24 shows you. Key management are aligned to it and team management are getting escrow scrip as part of the acquisition. It's a high-margin business that achieved excellent operating efficiencies. And it is an established brand and a trusted brand in SME and in the SME and intermediary and insurance market. It's got a diverse and mixed client and product based. It's a capital-light business with very strong cash flows. It's underpinned by stable and recurring revenue. It's an existing Steadfast broker. They're experts in affinity relationships. And candidly, the benefits of being able to leverage how things we do and things they do together will make it a very strong and powerful acquisition for us and also be very exciting for the people working within Coverforce. As I say, we bought it at a 12.5% probable on the FY '22 forecast, excluding synergies. The -- once we apply synergies, we'll get that down to just over 11x. The GWP that Coverforce puts out, it's $530 million. And we -- it's expected to be immediately EPS accretive, as I said, excluding synergies. The -- we estimate 4% EPS accretion, including the full run rate of annualized synergies on a fully equity funded basis. So it's good from day 1 for us to do it. It's got potential for us to wind back some costs by working together with them. And in the $270 million is set for us, risk that we've issued to the vendors is really aligned their view about the success of their business and the success of Steadfast business, and the fact that they want to be invested in growing Steadfast by taking their capital out of Coverforce and putting in the Steadfast, which Coverforce will be a strong player within our equity businesses. Now our debt, I'll get Stephen to talk more about the funding a little bit later on. $200 million will be funded from fully underwritten institutional placement. And our debt capacity post completion of $260 million, will allow our Trapped Capital Project to continue. So basically, we've raised money to do this acquisition to give us headroom to be able to do the trapped capital, which we will do on a client terms [indiscernible] basis. Go to -- page 26, it just gives you a picture of Coverforce. I won't bore you by reading through it. It's worth reading. They're great in insurance broking. They've got -- they've done extremely well with Steadfast with -- I'm sorry, with the equity -- with Coverforce partners, that business has actually exploded. And the group income protection is the envy of many in the market and has endured for a long, long time, and their underwriting agency, Quanta, operates in a couple of areas where we are very weakened. So that works extremely strongly for us. So that just gives you a quick color to the -- what the business looks like and where it goes. The benefit to Steadfast, it strengthens our position in insurance broking Australian. We are strategically aligned for all the points I've raised. But we will benefit from extracting some synergies out of there, and we were expecting to deliver pretax cost synergies of around $4 million. So this enhances Steadfast platform offering to the brokers because there are some things there that we'll be able to offer outside of Coverforce into the general broking area. The integration of INSIGHT will allow an uplift in commission to them in some areas. And the equity raising increases our gearing headroom by allowing us to have. Just do the impacts there Stephen.

Yes. So we've given you here two columns here. The first one, they're both assuming it's a full year of Coverforce as opposed to, say, the 10 months that we'll own it by '22. But it just shows you that the amount of EBITDA impact we expect to get on a full year basis with or without those synergies. So the synergies are purely on the cost side. We think they can emerge over no more than a couple of years. We have got some initiatives. We think we can also work on the revenue side, but we haven't shown that here. It's purely on the cost side. We've also shown you the assumption there, we think, on the amortization of the customer list, which we need to put in to drive our impact numbers there. That's probably the key thing there. I think we've moved to Slide 28. Yes. So what we're trying to do is to show the amount of money that we've actually spent on acquisitions across the years. Obviously, the '14 year includes the float, where we put a whole stack of business together on day 1. '15, we had those large businesses, particularly coming out of QBE for the agency side of things. And we've made, in the last 4 or 5 years, quite a steady stream of $100 million to $200 million worth of acquisitions. Into FY '22, obviously, this is a large acquisition we've shown that there in red. The blue on the bottom shows the acquisitions we've already completed to date this year. The gray our expectations around where the trapped capital might come through in this year, which, of course, would be the debt-funded acquisitions that we would seek to achieve or free cash flow, so gives you a feeling, I guess, our ability to integrate businesses year after year. We're excited, of course, about the way that we can put these two businesses together. And then going forward into Slide 29. We said right from the IPO that the network was a very key part of this -- who we are and what we do. It allows us to have a pipeline of opportunities, and we wanted to, of course, keep building the network. And you can see that at FY '13, we had $3.9 billion worth of GWP. We're now up to $9.8 billion of GWP throughout the network. And at the time of float, we had net interest in about 1/4 of it. Pre the Coverforce acquisition, we built that up to 32% of the expanded network. And post Coverforce, we're getting 37-ish percent, and hope that the trapped capital, we would be able to then drive that further forward to get closer to that 40% position. On the next page, just the old sources and uses of funds. $411.5 million to the acquisition, some transaction costs there. There'll be just a small little amount left over by the time we raise the funds on the bottom, which comes from that fully underwritten placement of $200 million, and the vendor script, $ 217.8 million. Each vendor is -- Jim's is 95%. There's other stakeholders there with central role involving the management. They're all taking the same portion of scripted cash as Jim's. So they're all invested into the Steadfast position as well. And of course, the final price, we'll know by this afternoon, how that will land. The shares for the vendors will be escrowed until we've delivered the FY '22 results. So to Slide 31, this is the positioning on our debt. We've shown you the position during '21 in terms of our gearing ratio of 22% and how this particular equity raise in acquisitions takes you through the pro forma of 17.5% as we finished this week. How the cash flow works. I've mentioned before, $163 million of capacity today. By the time you take out the amount that we've got for other acquisitions that we've got lined up, some dividends coming out and dividends coming in, and some earn-outs, we have about $60 million left of the current facility. We would then seek to uplift our debt facilities from $460 million to $660 million. I do have an accounting facility within the debt structure to achieve that today on a particular terms, but we will look at whether we perhaps renegotiate and move some of the tenure of some of those debts around. But that -- if we were to do that and get that $200 million extra capacity in play, then that would take our gearing ratio back to that 30% maximum gearing ratio that we've mentioned before as our maximums. We're going to, of course, raise money through the share purchase plan as well, and that will be added to our cash flow depending on the actual prices of that not underwritten. So we'll see how that goes in the next few weeks.

Thanks, Steven. And then to Page 32, this is what everybody is interested in. We continue to deliver growth in earnings and meet our guidance, and that's something which we, between Steve and I, pride ourselves on the ability to be able to conservatively put out what we think we're going to do. If something changes, we come back to the market and tell that this has changed, and we've done that 3 or 4 times so far. So the FY'22 guidance range, underlying EBITA, $320 million to $330 million; underlying NPAT $159 million to $166 million; and underlying diluted EPS between 10% and 15%. There's some key assumptions there. Strategic partners continue to require moderate price increases. I think that's pretty well locked in, and $39 million of EBITDA in FY '22 from the acquisition of Coverforce and interest in network brokers, including the trapped capital. Our equity raising of $408 million. No further technology -- I'm sorry, investments and no negative impact of COVID, which is similar to what we said last year. Across the bottom there, you can see the FY '20, FY '21, the organic -- the inclusion of Coverforce and then how we get to that FY '22 10% to 15% underlying diluted EPS. So I wanted to be -- the next 2 pages there show you the details of the equity raising. I think they're pretty straightforward and pretty clear. I don't...

I'll just make one comment there just to clarify. So the closing share price was $4.69 on Friday. take off the $0.07 dividend, $4.62, and then the floor price represents a 5.8% discount against that $4.62 price. And then as you say, Rob, the diary...

The diary shows what we're doing. And good luck for those, we want to bid on our stock today. And I'm sorry, we've run a bit over time. So I'll hand back -- thank you, Steve. And I'll hand back straight back for Q&A.

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

Just really one question on that.

Tim, we've got no choice. You were the first one in. So we've got to take it. So welcome. It's nice to hear from you.

Thank you, Robert. Just in terms of the Slide 28, where you've got the acquisition of that bar chart just on that -- the track capital amount. Can you just talk about what the timing and the size of the acquisitions in that gray assumption are? I mean, you've given the sort of various steps of detail of how close you are to various parts in the up capital, but what's actually in that number?

So it's progressive during the year. Obviously, so the blue represents what we already have done. The gray represents that trapped capital and other acquisitions to go forward through the year. And I'd probably refer you back to Slide 27 and Rob has shown you some details of how many businesses that we've got on the DD and the term sheets and the size of those acquisitions that are there. And obviously, the acquisition multiple is there are typically in the range of 9 to 10x to give you a flavor of how we expect that. But basically, that will progress through the year. A number of discussions are in play right now.

So on that Slide 7 where you've indicated that EBITDA on 5 completed [indiscernible]. So which of those [indiscernible]?

Yes. So there's a whole rate. Look, there's 30-plus different businesses forever on our list at the moment. So rather than try to name every specific one, there's a whole range and we do expect that to emerge through the year.

But they are annualized.

Okay. And so how much is in the guidance from trapped capital?

So if you look at the at the guidance side, you'll see that there is a -- the acquisition includes a trapped capital component as well as the Coverforce. So that's on Slide 32, which we're saying collectively between those things and the ones we already have done. It's about 6% of our earnings growth, if you like, that comes from the combination of those things. And I guess if you were...

You are not splitting those out?

We haven't split those out because otherwise, you have exactly every single number in my budget. But you've got -- we've tried to give you a feel for what Coverforce will bring which is Slide 27. Obviously, there's 10 months of that. And then you've got the rest of the trapped capital and a smaller run rate from last year. That makes up what you see in that column for the -- on Slide 32 on the guidance of the 6%.

Your next question comes from Virad Mathur from Citi.

Just a couple of questions from me, please. just staying on the theme of the guidance. I was wondering if you could maybe talk about 4% to 9% you have for the organic growth and what sort of just unpack that a little bit, given I think your organic growth was 10% in FY '21. So and the rate environment still seems quite strong. So why you're expecting that to perhaps slow a little?

Yes. [indiscernible] means, as I said, the revenue side, we expect to continue through the cost side, obviously, we've had some wonderful growth last year in terms of cost out, but also obviously very careful on the wages. And as you can imagine, in financial services, there's a little bit of wage pressure now to effectively deliver 2 years [indiscernible]. So we've got to factor that through, and that's why we've moderated down that organic growth rate for the year ahead. That really is the key changes that we've got to get on the cost side.

Sorry, I assume you're not allowing for any further COVID given the locked-in environment we're currently in?

No, no. In fact, if anything, we've to assumption there might be a little bit returning. We're not having like for 12 months.

But we're hoping, Virad, it doesn't go on for another 6 months. We rounded -- we certainly rounded back -- Stephen rounded back.

And I think it's fair to say that the half year will give us a better feel for how that will flow its way through for the year. And it's too hard to crystal ball at this stage, obviously, lockdown.

That seems like we said the same thing to you last year at the same time last year.

And I think, Robert, you're saying you're expecting the rate environment to stay strong for at least the next few years, and I think you've been saying that for more than that. Just wondering if you have an update on that comment.

I've been saying it every 6 months for nearly 2 years now, sales becoming the reality is, and I think I'm not suggesting that I think the market's forgetting that the cost of the insurers are rising dramatically as well. So there -- if you happen to get their costs of what they allocate from head office to run the business, they're going incredibly high. And I feel sorry for them for about 100th of the second, right? But their cost of labor is going bourke. And so they're getting -- they've got -- the cost of distribution is reasonably static to them so they can buckle boots. Our costs are not going up very much at all to them. Their labor costs are going through the roof. Their technology is equated and they've got to keep spending a lot of money in their technology. They're getting hit with the [indiscernible] client, we're going to hit with CAT. And then ultimately, you've got [indiscernible] looking at them and carefully saying, what are you doing with your capital. Make sure you're pricing it correctly, or will come in and look at you more stringently what we do. And then over the top, the balancing factor is , as you're well aware, the reinsurance, it's rising. So their cost to put it buck out in GWP is ever increasing all the time. So the -- what you might have looked at 2 years ago as a technical rate that's achievable, they're paying catch up all the time on that technical rate, and it hasn't called up at this particular time. I think it's got another 2 years to go right at this stage then -- and I said the same bloody thing this time last year, but it's not improving.

Yes, makes sense. And I think you just mentioned that you're expecting will get the acquisition multiples you're paying to be about 9 to 10x for the equity brokers. I think that's gone up a bit over recent years. Just wondering if you could maybe make some comments on where you expect that to trend from here?

Well, I can't answer that because I have no idea. From our own point of view, okay. We think it's choppy for a small to medium entered broker to pay them 10x. However, we will pay 10x, and we've publicized that for the right business, with the right percentage of profit notable that fits into what we want to do. But, I mean, if you think about -- there's a lot of pressure now for acquisitions. There's not just ourselves and Austbrokers in the market. You've got PSC. You've got one of our broker network, the Adviser Group being funded by Macquarie to go out and acquire businesses. And then you've got PSC still there. You've got Austbrokers. You've got Gadigal. You've even got to now. You've probably got Aon coming into that market because of the WTW failure. And of course, you've got -- the led by Paul Lyneham, the [indiscernible] Group coming out of London. So if you look at all that and you look at the small pool of Australia, then it's just an economic factor of cost push inflation. They're going to get more money out of it. So you want to participate and or you go, well, I'm not going to play in that market anymore. So I think we're fortunate enough to be able to do things like Coverforce because of our balance sheet and our success that we've done. So who knows where this is going to end as these relationships within the network as well.

I think Stephen hit the point, the reality is that most people that are happy where they want to stay where they are when they sell, okay? And Candidly, the vast majority of the brokers that we're dealing with in trapped capital would prefer to sell to us because we are a safe home. We've been a safe home since now a 96 or well -- So yes, it will keep increasing. I don't know whether it will stop. Eventually, it will stop because we'll go, well, okay, we've got 40% of the Australian intermediated market. And we'll let others fit over the balance of it. But at the moment, we can survive and thrive.

Yes. And on a related question with project trapped capital, could you maybe give us some -- an idea of roughly how far along the project you are in terms of the runway? So obviously, you've made a start. You mentioned all those numbers with the due diligence you're currently doing. Roughly what -- how far along are you? Do you think it's just...

We're roughly 34% into it, is a fair way to go.

Yes. Fair enough. All right. And having provided a GWP of what that...

It's not a 1-year deal. It's not a 1-year deal. I mean, if you have a look at Page 7, okay, and then you have a look at the math we've done there. And then you look at the ones we own, and you can see -- you can start to draw some figures about what it could look like and I won't speculate. I could give you a figure there, but then that might be -- might be crazy to give you. So I won't -- but you can do some we got back on that. When because you guys can't go out and have those big, long launches anymore because of COVID, you can spend a bit of time doing that facts doing that.

Your next question comes from Scott Hudson from MST.

Just a couple of questions. In terms of the -- in the press release, you talk about Coverforce technology. Could you maybe just expand a bit on what guess that come.

Yes. They've done a lot of stuff internally of some -- I wouldn't say adequate systems, but of some systems that are known that are that are very well supported by INSIGHT. So when we convert them over to Insight, which is in the program, and in fact, within the program before the acquisition came up as a possibility, there'll be tremendous efficiencies that will be either give to them. And conversely, some of the add-ons that they've been able to put into their business will create efficiencies back to us. So it's quite good from that point of view. It's being together of two systems will allow them to get rid of some of the cake architecture that they're running some really good solutions internally on. And conversely, we won't have to do the development of some stuff that we would have liked to do.

So there will be some edtech that you can roll out across the network.

Yes. Yes.

So Stephen, just on Page 27, and then in terms of the timing of...

Yes. So first point, like most of what you've seen with us is obviously we'll be little bit of seasonality towards the May and June, of course, -- So July and August is not as big as the sand month. But in terms synergies we're saying on 2-year basis, we expect to be able to extract those as I say, they are the cost synergies only, and they're not any of the revenue opportunities that we're looking for.

So $5 million -- or $4 million run rate by the end of FY '23. Is that how I think about it?

Correct.

And then Robert, just in relation to, I guess, the -- your comments around the costs for, I guess, underwriters -- Is there any downward pressure on, I guess, on distribution costs?

Is that a nice way of saying they're trying to cut our commission back, Scott? Okay?