Steadfast Group Limited (SDF) Earnings Call Transcript & Summary

Welcome to Steadfast Group's 2025 Half Year Results Presentation. [Operator Instructions] I will now hand over to Robert Kelly, Managing Director and CEO.

Thanks very much and good morning, everybody. And thank you for joining us for the call. I will refer to page numbers so that we don't get ahead or behind ourselves. If you go to Page 3, that's really just an analysis of our track record since we started. Please read from left to right, not from right to left, and then you will get a true picture of what we look like. So we'll go over to Page 5 now. And this is just a little bit of an operating update of what we see about the market, starting with the insurance and reinsurance markets. December 31, '24 renewals were probably more in favor of insurers than what we have seen in the past. But as you have witnessed all around the world, the CAT events that have impacted over the whole of the world at the moment, it leaves a little bit of a shadow over to whether those favorable conditions will remain through a strong and constant through 2025. However, we are seeing more competition coming into the mid-market, definitely into the corporate market. But personal lines and small business seem to remain really stable from that point of view. Premium rate increases seem to be moderating to mid-single digits at this particular time. And typically, we are getting volume uplift. That always happens the same when there's some competitiveness in the market that the brokers seem to write more volume. And of course, the underwriting agencies are always on the cutting edge of that. Pricing variations is not consistent between insurance classes. What we mean by that is that our motor fleet went up by 13%. Our households went up by 10%. Our dispatch went up by roughly 7%. So you can't throw a blanket over premium rates and say that the axe is falling by that and it varies for each particular class. The regulatory environment is interesting to watch at the moment. Implementation of the Mergers and Acquisitions Reform Act in 2024, which will come into effect in April and January next year. But from July this year, everybody has been invited to come to the right with the ACCC and understand where they are coming from. We probably have been doing that since late last year. So we are hopefully in a very good position to have the ACCC clearly understand what we have done since 2013 and what we continue to do. So we are very happy with that engagement and the way it's working. The Strata Managing Agents Legislation puts a huge onus now on the strata managers. That was the conflict that we discovered and in fact, investigated by the Trowbridge report starting 3 years ago. It's a fairly simple regulation. It's a state-based regulation for New South Wales, which simply says the managing agents, if they're going to supply a product or a service that they arrange and there's any remuneration involved, they have to take that to the corporate first, and they have to get permission to operate that way. Just on that, there's no reference at all in any of that to the insurance brokers position. And in fact, the federal government has reaffirmed quite dramatically and emphatically that there will be no change in broker commissions. CPS 230 brings in some interesting complex for APRA approved insurers. And of course, underwriting agencies have to make sure that they are operating in the same discipline that the APRA interaction that the insurers are having in regard to how they are treating CPS 230 flows through to that. So we have been working on that probably for 18 months. We knew this was coming. Our major underwriting agencies are locked and loaded for CPS 230 compliance. And the whole industry, I think, will probably come to a bit of an awakening in July this year when it comes into effect. And some of the smaller insurers have had some respite put into bringing it in and going forward. But we are very confident that the work we have been doing and the way we interacted with our capital providers will see us in good stead. Senior management team, we have been strengthening it to improve and enhance our resources in operations and our risk and internal audit and also the major appointment of the Chief Technical Officer to lead Steadfast Technologies has been an interesting move and David joins us from Allianz, a very high position there. The group operating performance, we have been working now for a full solid 12 months on improving margins with the view that if there is a softening in the market that we have actually got our expenses under control. We have had some good successes in travel, IT and technology, for example. And also, we have completed $180 million in the first 6 months of the financial year of acquisition, including further equity stakes in our existing subsidiaries and some international acquisitions. The subsidiary performance, we have put a lot of resources into that, optimizing our broker and underwriting agencies performance and expense ratios. That's showing bearing fruit for us. And we continue to identify opportunities like helping people and making sure that our brokers benefit from the cost synergies and also the increased benefits that is for customer satisfaction by having smaller businesses going to a larger business that are sometimes more effective in the way they treat the consumer. Steadfast underwriting agencies, well, there's still a rebalance going on between insurers and underwriting agencies that continues. And of course, as we grow, we focus carefully and with great patency on margin improvement in the underwriting agencies. There is a very successful section of our business. Looking at the international side, ISU Steadfast, the acquisition we made last year in North America is really working out well for us. It's driven by a great expense discipline that's being taken forward by the executive over there. The executives that are working with us there are terrific. We are finding staff and executives really performing terrific. And we have had higher profit shares and membership fees and interest income and the consolidation that we have spoken about, about getting more people into our consolidation and our master agencies is working well with most of the major new people that have joined us in increasing our consolidation percentage straight away. We expanded into London by buying H.W. Wood. We bought their London and the Athens operations and also their French operation. It's been a great success. And if you want some more information on that, we will cover that a little bit later. And we have also got a number of new opportunities in the London market. There are a couple of sections of H.W. Wood where we would like to be stronger, and we're seeking out opportunities. So if I can take you over now to Page 6. This works on the Australian broking networks. We have had sustained growth and we have made further brokerage acquisitions, which has resulted in first half 7.9% increase in GWP to $6.5 billion. Little note down the bottom saying that we have restated our GWP for Honan and Resilium who have exited the business. So this gives you a true comparison year-to-year. The network GWP still runs at about 85% commercial and 15% mainly SME and 15% retail. And as you can see by the bar chart below there, we are every year been successful in growing our business from that point of view. If you look on the right side there, first half '25 to '24, we got 5.2% organic growth in the network and 2.6% organic growth in the ARs, plus just 0.1% growth in new brokers joining. So that gave us our 7.9% organic growth. The highlights, we changed the Australian network together with new brokers. We're now down but we've merged brokers. We put them together into hubs, and we now have a base of 409. If you have a look at Page 30, that will give you a more interesting view on that. Our investment activities across the network in first half of '25, 16 new equity holdings, including bolt-ons, 5 step downs, explaining a step down is when we want to bring people that are running the business into equity participation with us. Our model always is to encourage people to share and run the businesses. And we did 9 step-ups. That is people, we may have had, say, 80% to 70% of the business and that business may be twice the size of when the people came into it. And so they might want to sell 10% of that business, take some money off the table and still maintain a nice slice of the pie there. We have equity interest now in 68 brokers across the network. Now turning to Page 7. This is our international business. And I'm pleased to say that we're sitting in the room here. I've got our CEO of International, Sam Hollman, and we just completed a trip to Sam and I to London and New York and Greece on the way home. So Sam, do you want to just give a quick rundown on the international on Page 7?

Yes, sure. ISU Steadfast, the network we have in the U.S., is performing really well in the first half of the year. As Robert mentioned before, the reasons we're pleased with that opportunity so far are not only the cultural alignment between the management teams of the U.S.A. and us but also the fact that we still see and believe in the strategic opportunity to expand in that region. The other operational highlights are that we've had an increase of 27 new agents join the network; 19 left the network, but the 27 that have actually come into the network have contributed a higher amount of gross written premium and consolidated revenue into the group of approximately USD 700,000. So that's pleasing. The members that we're bringing in are contributing more to the group. We had a CEO who was an internal replacement, who had been operating in that role for 6 months, and it is going well. We rebranded the group to ISU Steadfast instead of just ISU Group. That was a call from them as an operation, seeing the significance of having the Steadfast brand aligned with them and feedback from the market. We're also now sitting at the top 3 of independent insurance agencies by revenue of members within the agency, awarded a 5-star network alliance, which we're continuing to build on for marketing to attract new members into the group. We continue our efforts in visiting the numerous members across the U.S. We have conducted 50 member visits now to explain what our concept is of our opportunity to develop trapped capital in the U.S. and explain it's not familiar with a lot of them at the moment as to how that operates with the skin in the game model. We're developing more and more recognition and support of what that initiative means. And then, of course, our latest acquisition was H.W. Wood and HWI France. That was a strategic move to expand our operations in the U.K. We had Steadfast Placements already established, a very small team helping our Australasian networks place business into the London market. We needed to decide that we either had to grow that significantly to support not only our Australasian networks but also our new U.S.A network, which would be a lot of business opportunities coming into Lloyd's market. In fact, the #1 or #2 top providers of business to those U.S. members are on Lloyd's paper. So we do see a great opportunity there. And of course, UnisonSteadfast is the other network that, now that we have a Brexit solution through the U.K. acquisition, we're now able to invite business from the UnisonSteadfast network into that London operation as well. So it will serve us well to expand our placement opportunities, expand servicing of our global networks and also provide us with the opportunity to bring our binder businesses in-house that's currently been outsourced for the last few years. We'll bring that in-house over the 2 years, which will provide the revenue stream straight back into the group rather than outsourcing it.

Thanks, Samantha. There's a great strategic opportunity with the ISU network, UnisonSteadfast. The acquisition pipeline that exists potentially in the U.S. is amazing. Also, our London wholesale broker, as you mentioned, has the potential to buy further MGAs there, and of course, the agency buys the business. It's a very strong section of our development at this stage and is happily handled by Samantha Hollman and her team. So turn to Page 8, which is our Steadfast Underwriting Agencies. We had a stellar first half of '25, up 11.7%, and gross written premium was $1.22 billion. This basically focuses on retaining business and having a service offering for new businesses that people want to do business with us. Our pricing adequacy also remains strong in the market, which means that we're able to produce profit but also be competitive in the market with the subject of how much we place in various policy types. Over to the right, if you look there, '25 to '24, GWP up to $1.22 billion from $1.1 billion, 7% organic, good and 4.7% acquisition gives a total growth of 11.7%. Our long-term strategy is closely aligning ourselves with our capacity providers, both in technology and underpinned by our service and our ethics. Our service is one of the best in the market. Of course, the long-standing performance we have done by actually servicing brokers for what they need. It's a very exciting part of our business. We have benefited from higher premium pricing from the market, and we have gained shares as a result of that. The participation in the client trading platform by our underwriting agencies increases as well. So we're very happy with having Commercial Property, ISR, Strata, Liability, Professional Indemnity, and Fleet Motor now, for which we get a slice of that pie. We've enhanced our in-house data and analytics capabilities for the underwriting agencies, which means now in many instances, the underwriters are coming to us and asking us the statistics and performance of various policy classes. We continue to, although it's in its infancy stages, enhance the use of robotics in the efficiency of how we handle mundane transactions. I think when we talk next year, we'll probably talk less about robotics and more about the automation created by some of the copilot-type underwriting systems that will start to exist and simplify the process. The 30 agencies, 100 niche products. Slide 40 gives you a picture of what that is. All agencies remember that they are available to the entire market. So they're not Steadfast agencies for Steadfast brokers. They are Steadfast agencies for the entire market from that point of view. Just on Page 9 now, our insurTech is still built on the basis of the client trading platform and insight. We continue to add capability. Auto rating capability automatically projects us further into product lines. We've got auto rating liability on liability, Professional Indemnity, Farms coming and Commercial Motor Fleet. We also rolled out a quote and bind solution for all product lines, which will also enable white labelling in specific areas and allow some brokers that deal in large volumes to offer quote and bind on a digital basis and white label. We have 11 insurance lines, 23 insurers, and the underwriting partners currently trading on the client trading platform. Insight, 226 brokers, 7,500 seats, we've got an additional 14 brokers that are in the migration stage and another 28 in discussion about scheduling when they might come on. So it's pretty good. The GWP, just under $800 million for the first half, growth of 13.9%. Rolling 12 is running at $1.5 billion as of December. I can tell you that it's improved quite well since the report and 15% growth in the rolling 12 months. And the bar chart there gives you a demonstration of that. So turning to Page 10. We completed $198.9 million of acquisitions in the half year. It's interesting, that we did 3 new acquisitions, including Wood, but we also did 9 step-ups, which resulted in $7.4 million worth of EBITDA. I mentioned that because the EBITDA realignment that Stephen did is really counterbalanced by the fact that $7.4 million, we don't get any value because we've already taken up in the top line. We did 15 bolt-ons for $3.8 million, and we did 5 step downs. So step-downs are good where we want to give people who are running our businesses to participate in the business with the ownership. So we completed just under $200 million year-on-year, and our acquisition pipeline is very strong going forward. Flipping over to Page 11, working on the Strata was I guess, the thing that we were focused on a little bit last year. I even toss-up that we even put anything about this in this time because it's passed, it's over, it's finished. But we did do an internal review. The internal review says nothing of any evidence of channeling of incentives between Steadfast-related entities or deliberate actions or inactions relating to noncompliance with regulatory or legislative assemblies. Just the review objectives were to confirm or establish appropriate disclosure of Steadfast-related entities on a transactional basis, confirm the appropriate of any existing client partnership models, analysts analyze the risk and compliance culture, including our executive engagement, the appropriateness of internal processes, and procedures to ensure consistent compliance with policies, and procedures reviewed the preferred supplier panels for potential conflicts of interest and review Steadfast network membership agreements, to assess if any of these require upgrading. That was the basis upon which the internal review went out and the comment from the internal review as just related before. It's interesting just to remember, and we'll reiterate this, we've done it before. Steadfast equity brokers handle around 14% of the registered strata plans in Australia, while Steadfast equity underwriting agencies wrote on behalf of insurers. Remember, we act on behalf of insurers, 31% of the registered strata plans in Australia. we've completed good actions on the right there. John Trowbridge completed his independent review of strata practices, and that was put into the market. We finalized our operating expectations to enhance the disclosure and meet the reason test when dealing with the consumer. Our operating expectations have been adopted by specialist brokers and strengthened further by having the appointment of an internal audit and governance function with the new role heading that up. So what I'm trying to say to you is there was nothing wrong with what we were doing. The allegations that we controlled and manipulated markets were 100% wrong. The statistics supported that. And secondly, the independent evaluation that we had done confirmed our statements to that point. Now actions are underway, but we'll keep revising the group conflicts of interest policy, put the framework together to enhance our code of conduct, introduce all other Steadfast-related entities to the operating expectations that we expect to commence and implement with our subsidiaries, review the Strata subsidiaries implementation of our operating expectations, keep monitoring that and make sure that the governance and compliance framework works. And then further, the expansion of our internal audit activity and governance function under the head of internal audit. So I think our discussions on strata are complete and finished. And I think that at the full-year rate, there will be very little for us to mention. So turning now to Page 13. And I'll bring Steve here, he's been sitting patiently in the forum.

Thanks Rob. So Slide 13, everyone. And we've laid out on that page as you see some really solid double-digit growth numbers. I won't go through line by line to read them out. But it was a combination of both organic and acquisition growth as we expected that contributed to the results. Maybe some opening remarks. It's well-documented. There was some moderation in the pricing as we know in the December quarter. But we actually had plenty of other revenue uplifts or expense-saving initiatives throughout the group to counter that. Our bottom line results were actually slightly ahead of our internal budgets. So we actually did expect budgeted moderation in the second half when we originally produced those FY '25 guidance in August last year. So hence, you'll see why we're reaffirming guidance going forward. We did execute slightly early on some of our capital acquisitions, which delivered some strong results. Some of those acquisitions that Rob has mentioned have actually been in the form of acquiring additional equity stakes in our existing subsidiaries. Now the accounting for that means that you actually don't show any further EBITA in your P&L because when you partially own a subsidiary, you already do show 100% of its revenue and expenses and you take out the co-owner stake in the noncontrolling interest line. So as you step up the equity stakes, the only impact is actually to reduce the noncontrolling interests. So had that money be invested into new businesses, then you would get the uplift in EBITA. So the reduced EBITA in the first half as well as forecasting in the second half is really completely offset by the reduced noncontrolling interest. So that's why you find that the guidance metrics we're about to show for the bottom line, NPATA, and earnings per share are actually completely unchanged. You'd be aware that we have obviously seen the further impact of the uplift in the interest rates for the last half, both for interest received and interest paid and the last of our fixed rate hedges has now ceased in January. We did originally predict maybe a 42%, or 43% skew in the first half. Given the acquisitions we made and the current trading conditions, we're now thinking more along 43% to 44% for the first half. But that, of course, is subject to any acquisitions we make in the second half. The original guidance for EPS growth for FY '25 was 3% from acquisition growth and the balance being organic growth. And those key components are effectively being reaffirmed today. Moving to Slide 14. We always show this reconciliation of the nontrading items. We have the typical adjustments here for earn-out estimates and the carrying value of assets shown here. You'll notice that we have adjusted further for sure insurance. We now expect it to trade at roughly about the same level as what did in '24. So we've reduced our earn-out to assume we don't pay anything further, but that we don't claw anything back on that earn-out structure. We've also excluded the movement in the Johns Lyng Group share price, actually, if you go back historically, we disposed of for a healthy $13 million post-tax profit. But we've removed that, as you know, every single half year in the last few years. We've also adjusted a New Zealand broker rebate offer, which was akin to what we did in FY '20 for the rebate offer here in Australia. And we also had a stamp duty and the like on acquisitions, but that's all in that bottom line, $4.1 million, where we've reflected that change in value and/or other movements there on that bottom line. Moving to Slide 15. The growth in EBITA has, again, as I said, come from those 2 things, both the organic growth of 9.1% when we're talking about EBITA and acquisition growth of 5.5%. The organic growth has been generated through a combination of factors. You've got the price increase. We still actually are, by the way, increasing prices just moderated. That's had a positive impact on revenue growth. We've highlighted the continued growth in agencies, higher interest received on our trust, and operating bank accounts. But also want to call out the expense discipline across the business with various levers pulled through the first half. We indicated in August that we expected the head office costs would be leveraged across the entire extended business, and that indeed was the case. We had savings in employment, IT and other discretion items and also good growth in things like the premium funding in our ancillary businesses like Risk Group, the claims area and our technologies area. So some of those areas don't show up on the slides we're about to show on the broking and agency, but they actually contribute quite significantly to the fact that we got this overall 9.1% growth across the group. The acquisitions continued throughout the year, $181 million in the first half. As of today, that's now climbed to that nearly $200 million mark. And as I said, some of that was buying further stakes in existing businesses. So that actually doesn't show up in this graph here because it shows up lower in the line on the P&L. Because that $200 million of trapped capital actually occurred a touch earlier, we do expect that, that acquisition growth will meet that original forecast. There's numerous opportunities in the pipeline that Rob has talked about. So we could go either side of that $300 million number. But because we've got that earlier start to it, the earnings for this year, we do expect to be providing that 3% growth. The acquisition multiples for FY '25 overall, we still anticipate to be averaging out around 10x EBITDA. Smaller acquisitions, you tend to get a little bit under 10x. The larger acquisitions can be that touch higher. But 10x is probably the working assumption. On Slide 16, so this is where we try to show for investors the major industry dynamics and financial themes across our business areas, and we provided this for broking and for agencies as if we owned 100% of the businesses. What it doesn't show is the economic impact of us spending money on those additional equity stakes in those existing broking businesses. And if we could have shown that on this slide, you'll see on the callout box there on the right, we would have actually had another 3.5% acquisition growth, which comes from the fact that we've now moved from an average -- weighted average 76% of ownership stake in first half last year to now an 80% average stake as of now. The headline organic growth numbers also need just a little bit of analysis to get a better read on what's going on here. We've got a couple of business areas, which we're going against as we budgeted for it. But as you see the half-on-half actuals, you've got a little bit of areas in the reinsurance broking, corporate broking or M&A specialists like warranty and indemnity where they're more what we call transactional based, and they can be -- you can have a -- if you have a redefined fee or a loss of a client, it can impact those results. New Zealand obviously has a softer market conditions in Australia and probably more subdued economic conditions. There was also a couple of one-offs in there that you had, for instance, one of our large businesses had a 14 fortnight payroll in there rather than the standard 13. We had a conference that was held every 2 years happened to be in this particular half. So we thought we would dial those figures out so that you get a better impression of what you might call the standard Australian GI type broking business doing, having that 6.6% organic growth in their numbers. Now as I said, we did previously budget for a moderating second half on the revenue side, and we also have a moderating expense growth matching that in the second half as well. So the Slide 17 on the agencies. Here, we own roughly 88% of the earnings that we're showing here. They traded solidly throughout the period, particularly a good call out for some of the consumer lines and a solid performance for the commercial lines in a slightly tougher environment. As flagged, we did say we'd be putting additional resources into agencies in FY '25 and both people and systems. And we've absorbed that and still achieved that 7.6% organic growth. The CPS 230 regime, of course, commences 1 July 25 for the major insurers, and we are well positioned now for that. Slide 18. Our businesses, we say it all the time, turn profits into cash flow. This is no exception. The only key variable can be the timing of the tax payments. Here, you see that the free cash flow this half was $32.5 million. Our debtor days continue to be tracking at historical levels. There's no worrying signs in the arrears books of the premium funder. The SME sector is certainly displaying resilience as far as we see it. Turning to the balance sheet. Our gearing levels at 31 December was 24.8% and that corresponds to about a 1.3x EBITDA to debt ratio. The Board has actually just approved an increase in our mandated maximum gearing level from 30% to 35%, which provides us with a greater flexibility on capital management and allows the next range of acquisitions to be funded via debt to further assist our EPS growth. And typically, with a 30% cap, you're probably used to the fact that you get 27%, 28%, you start thinking about doing an equity raise, you go down to, say, 18%, 19%. You kind of oscillate either side of 24%, 25%. By having this uplift, we can really, I guess, uplift that oscillation point around that 30% averaging and get that extra 4%, 5% leverage on the balance sheet. As of today, we have $195 million of cash or access to facilities for corporate purposes. And if we needed to, we could under this 35% gearing maximum actually access $365 million additional debt, of which we currently have an accordion facility for $300 million if we needed to access that one. So we're well placed for the funding of that acquisition pipeline that remains strong, as Robert mentioned. So back to you, Rob.

Thanks, Stephen. Thanks very much. Well, just if you go to Page 21, the Board reaffirms our previous guidance, except for the EBITDA adjustment due to the step-ups underlying EBITA $585 million to $595 million. NPAT stays $290 million to $300 million; NPATA, $340 million to $350 million and underlying diluted EPS NPAT growth of 12% to 16%. A number of the acquisitions in the first half reflect increased ownership. So that's as we've reflected on and we don't get the uplift of the EBITA from that point of view. The guidance is subject to a small -- making sure that the insurance premium cycle doesn't collapse. We have no fear that it is going to do that. But that we complete $300 million, I'm sorry, of acquisitions through FY '25 and that the principal risks that we set out in our annual report, 50 and 51 stay the same. So, the good part, if you go to Page 22, the interim dividend is up 15.6%. That's our job, we think, is to increase our dividend flow to the shareholders. Our interim first half dividend will be $0.078 and up from $0.0675 and that's how you get to 15.6%. The dividend reinvestment plan will be open. There is no discount. And the key dates for the interim dividend will be ex dividend will be 3rd of March. Dividend record date will be 4th of March. DRP record date will be the 5th and of course, we will pass our payment on the 27th of March. So I think that just about concludes this, and I'll hand back to the moderator for questions. So thank you for your attention thus far.

[Operator Instructions] Our first call today comes from Andrew Buncombe at Macquarie.

The first one is just on the premium rate cycle. You obviously changed how you're thinking about the second half of the year. Can you just give us a bit of color around how you exited the first half, what sort of price rises were going through in the fourth quarter or the December '24 quarter?

Look, I think it's an interesting scenario because there's no fixed across the board movement. I mean we saw we said 7.5% to 9%, okay? We got more towards the 7.5%. But we had some -- Andrew, we had some really strange things. As I said before, the Motor Fleet went up 13.1%. Household 10.1%. Still, the pack was running at about 7%. So what we've done now is we have assumed that there will be a moderation that will continue. Stephen, as always, in his conservative approach at back end of the second half of the financial year to show that we would get a drop. We predicated that, that we think we based ourselves on about 5% at this particular time. It's conservative. And I guess if you look at 31/12 results, you would say it's super conservative from our point of view. But we think that what we always put out is that the bottom end of our guidance is what you should be at the bank. And we feel if we set it at that 5%, see it already move the second half, as I just said, to a lower amount in our original guidance back when we did the final guidance for the full year. So it's not across the board. It's in fun areas. Cyber is a bit in the pit at the moment. And liability, we had a rise in liability. So there's no conclusion I could give you that makes sense to your analytical and spreadsheet approach to what can we do except to say...

I pump up his ties what you put out for the December quarter at about 6-ish% was not.

Yes. Well, that's the reason why when you put out 6%, I didn't bring you up and tell you, you didn't know what you're doing, Andrew. So we were seeing moderation.

Thank you. Second question, obviously, there's been a lot of discussion in this result around the noncontrolling interest movement in the P&L, but I'll give Stephen a bit of a break on this one. So I'll turn the question over to Robert. Should we expect a disproportionately high contribution to your M&A coming through the noncontrolling interest line in advance of the ACCC disclosure changes, which are due to come in, in 10 months? Is that why we're seeing an acceleration of the roll-ups?

No, no, not at all. It's just a silly timing thing. Sometimes people don't want to do it. Other times, they do. I think the thing that accelerated some of the step-ups or the roll-ups in that was basically because the cost of interest now is a lot different to what it was when people took equity and borrow money. And candidly, and this is pumping up our own tires, all the people that bought that were partners with us in our businesses, which are vast, that's our model, have made a lot of money. Some of those businesses have doubled in size since they bought in. So if they were holding 30%, then interest rates grow up on what their amortization costs are for interest and PI. And it was getting to a stage where some people were just only making the interest to pay for the loans. And so it made sense for them to take some money off the table and to still stay in. Indeed, if they had 30%, and they went back to 15%, that 15% they went back to was worth as much to them as what the 30% was when they first entered the partnership with us as a co-owner. So no, it's not that. We're not seeing any of that at the moment at all. No rush to sell or anything like that as a result of the ACCC. I have to say I don't think people have paid much attention to it. We paid attention to it because we were the subject of that terrible lie that was put out by Four Corners about this organization. And so that made an incredible focus for us, but I think it was a focus for a lot of people in the market. So maybe when it comes to fruition and when it bites in January next year, we might see a rush of people coming to do something, but not just at the moment.

And then just a final one from me to keep Stephen interested. As you continue to make more offshore acquisitions, how should we think about your effective tax rate in the second half '25 and then into FY '26?

Yes. The actual contribution from international is still in the less than 10% type of a range. So you're still got to start with a starting tax rate assumption of 30%, but then blended a little bit down with tax rates of 25% in the U.K., 21%, 22% type thing in the U.S. So it will if offshore becomes more prominent, you will see a slight reduction in the effective tax rate. Our tax numbers are fairly planned in the sense that you make profit, you pay tax in the countries there are, and there's no fancy manipulation or anything in particular.

The next question comes from Julian Braganza at Goldman Sachs.

Just a first one from me in terms of just the outlook and the guidance. I just wanted to understand just within retaining that NPAT number, just the different moving parts, and how you were thinking about guidance previously versus today. Obviously, you mentioned premium rate increases that's lower than what you put out previously of 7% to 9% versus mid-single digits now, but maybe there's a bit of acquisition bring forward that's contributing to that guidance number. But I just want to understand the moving parts and how you're thinking about it.

Yes. If I can start, Julian, we did in our forecast, put in a slight moderation in the second half. So there wasn't too much, call it, change in expectations to have to process around what that might mean. So in essence, the acquisition, just the fact that we're doing -- we did more step-ups changes the EBITA number, but you have that corresponding shift in noncontrolling interest. But we've literally gone through all our large businesses, 80% of our EBITA, just to get a feel for where they all stand and what they all think and where do they think the numbers will come in, what are the areas that will be plus or minus. And net for net, you actually got to the point that there was very little shift in the overall thinking on those bottom line metrics. So we are -- I've tried to give a few call-outs on a couple of areas of business that have performed ahead of expectations. We've given a couple of call-outs on areas which were a little bit behind. And just net for net, you get to the same bottom line picture as we see it at this stage.

And then maybe just a second question. Obviously, we've seen some of your peers talk about opportunities to increase fees and also just earn commissions to offset some of the rate increase pressure. Just where do you sit on that? You talked a lot about costs, but more on the revenue side, do you see opportunities there as well or not really?

That's the normal way it works in insurance broking that when the markets harden, your fee growth slows. And in some cases, it actually goes backward because you're making more out of the increased premium size and the commission that relates to that. The reverse of that actually occurs when the market softens that you will be able to offset any lack of commission that you're getting by an increase in fees. So that's really a market metrics of how insurance broking operates at this stage. We amazingly held our fees and increased our fees during the hard market. And I think what happened then was different to what it might have been in the past, the hard market hit a like a ton of bricks on the consumer that they were very anxious to get, in some cases, a competitive price in other places where they couldn't get a competitive price. So they paid the broker the fees for the extra shopping around that they had to do. I'm sure that if there was a collapse, and I don't see that there is a collapse coming at all. I'm seeing -- we've been using the word a moderation and leveling over the past probably 12 months. I think you're seeing it coming back to maybe a steady 5% that you can bank each year. And I don't think you're going to see apart from the odd policy type where there will be a collapse. But yes, you could adjust it by increasing your fees. But remember, in any competitive situation, an insurance broking is a competitive situation, you have to be able to provide the advice to the consumer and convince the consumer that the you're making for that advice that they want to pay. So it becomes a little subjective on each individual client when you're working for them. But this, the metrics of adjusting fee has been a long-standing way of making sure that insurance brokers make the same, if not more money in a soft market.

Okay. Got it. And then just a last question for me. Just in terms of margins from your divisional and also at the group level, just how you're thinking about that. You flagged a few things around improving subsidiary performance. Just the size of the opportunity there and how that can help divisional trends and also just group margins as well? Any comments on that would be great.

I'll probably restrict your comments to this financial year. So we are guiding back in August for roughly about a 40 basis point improvement in the consolidated group margin. Now that's after having put additional investment into agencies, which we said will go through FY '25. So you'll see the agency margin diminishes slightly. And you saw on the broking results that there were a couple of one-offs that just held that margin back a touch. But overall, there was a margin improvement. But that's the sort of this year margin improvement that we're looking for across the board.

Maybe I would say one more comment that obviously, we look at margins all the time and areas to improve. We've put a number of initiatives in play. We've announced a couple of mergers of businesses, quite a large business where we expect to get synergies to come through. So it's something we do all the time to continue to look at each business.

It's BAU for us.

We've set up what Nigel calls the SWOT team for business review, operational performance review. It's something we do as BAU.

The next question is a text question from Andre Stadnik at Morgan Stanley. Andre says, 2 questions, please. First, on U.S. tech platform build-out, what broker tools have you delivered so far? And what is in the pipeline? Plus what will the new Head of Tech add? And second, on London and H.W. Wood, what cash premiums does Steadfast Group direct into Lloyd's market currently?

Well, I'll answer the last one. We put roughly $400 million into the Lloyd's market at the moment, and we will see a transition for H.W. Wood of sort of in the next 12 months, probably somewhere between $150 million and $200 million would go in. And in the next 12 months, again, somewhere between $150 million to $200 million would go in. So over the next 2 years, we'd expect to probably have a firm base of $300 million more turnover going through our binder business into HW Wood rather than the way we've been doing it in the past. And then the first question, I'm sorry, was what broker tools have we put into ISU was it? Because that was -- have I got that right, Sam? The reality is we don't need to do that.

Yes, sure. We've looked at the scenario of transporting Insight, our AMS management system into the U.S. and also the Steadfast client trading platform. At this stage, there is other tech platforms available in the U.S. that we see that we could use as a base to jumpstart any development we do for technology there by at least a few years. We're actually going down that route and angle now of looking at what we can do there to streamline that business. We do have an established quote and buying system. It's a white label system for ISU network currently in the market. And we're looking at adding on an adjunct system so that we can scrape the data of the members on a daily basis, providing us the intel that would be valuable to negotiate further discussions with carriers and business and product development from that point of view. So there is still a desperate cry out for a more advanced AMS system, but we believe building on existing systems that already exist and tailoring it for the specific needs of the U.S. market and the U.S. network is the more strategic position that we will run with.

The next question is from Siddharth Parameswaran at JPMorgan. Siddharth asks, how much organic growth are you assuming in your guidance for FY '25 and in particular, the second half? What are the components? -- revenue growth versus expense growth and by division?

I won't give all that level of detail, I don't think on the call, but it's fair to say that the organic growth expectations for the full year mirror what we already had intended to put in, which is on an EPS level of that 9% to 12%. We do see that the overall organic growth rate percentage-wise might slow down a touch in the second half, but still provide that overall growth rate, particularly when you have those contributions from the areas that not specifically agency or brokers, but those other areas that I called out. So nothing too particularly -- I'm not going to get probably more specific than that, I don't think.

A second question from Siddharth who asks, we saw organic growth in the network of 5.2%, which suggests GWP growth rate plus exposure plus network growth grew less than the 7% to 9% rate growth you assumed for FY '25 originally, now reduced for the second half to mid-single digits. What has made up the gap in the assumptions? Is it expense control or performance of noncommission revenue sources?

So the actual 5.2% is a figure for the network as a whole as opposed to our particular equity businesses. You'll note that in that figure, there was also 2.6% for authorized representative networks. That 2.6% is actually 2.6% of the entire network. So if you're looking at AR as a single segment, its actual organic growth rate is ahead of the 5%. So that's where perhaps just how to interpret those figures is probably the key to that point. But it is fair to say that, yes, we are -- we have a slightly more moderated revenue growth, but I'll also point out again that the moderated expense growth and discipline is also very much part of our thinking.

The next question comes from Anthony Hoo at CLSA. Anthony asks -- what is the reaction of the ISU brokers to your business model of taking partial equity stakes? What sort of time frame would you expect to commit capital in the U.S.?

Yes. So I think as I mentioned previously, the model of that skin in the game scenario is not a model that is widely known by the agency networks over there. A lot of them that are selling their businesses to private equity are just selling their entire business. We do have a lot of members in the ISU network that want to stay in their businesses and continue. So the concept is new, and that's why we've had Nick McKee, who's the COO of International, visit over 50 members over 4 months to literally get in their offices, understand more about their business, create that trust, create that relationship. You need to remember, we're a new player into this of 18 months. So it is very much a case of them getting trust in us and familiar with our model, which we believe that we are making inroads into. We have not put anything into our budget for an acquisition in the U.S. this year from a member taking our trapped capital scenario being conservative, but we're continuing to work with all of the agents in that space to see what opportunities that there are.

There are no further questions. I'll now hand back to Robert Kelly.

Okay. Thank you very much. Thank you for your time. Thank you for your questions. I think we delivered what we said we were going to deliver and in many ways, a bit ahead of what we should do. The business is strong. It always remains strong. The network is very cohesive, the way it pulls together. And the international footprint that we've developed under Sam is going to be an incredibly interesting and fascinating time over the next few years. So thank you for your time. Look forward to seeing you on the one-on-ones.

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