AUB Group Limited (ASX:AUB) has today announced a 1.8% increase in Adjusted Net Profit After Tax (Adjusted NPAT1) to reach $17.0m, up from $16.7m in 1H18, including costs relating to the Austbrokers Canberra fraud of $1.6m. Excluding costs relating to this matter, Adjusted NPAT1 grew 11.4%. The continued focus on diversifying revenue streams and developing holistic risk-ancillary services further advances the Group’s Total Risk Solutions strategy.
AUB Group CEO and Managing Director, Mark Searles, said: “Strong revenue and profit growth has been achieved in Insurance Broking in Australia and New Zealand, and also in SURA, our underwriting agency business. This has been driven by a combination of organic growth and anticipated premium rate increases, together with increased cross-collaboration across our businesses.”
On an Adjusted basis, earnings per share increased to 25.9 cents per share, up 0.23% over the prior comparable period. Good performances in Australian and New Zealand Insurance Broking and Underwriting Agencies were partially offset by the one-off revenue effects of a challenging NSW workers’ compensation market, costs relating to Austbrokers Canberra, and planned investment in Risk Services, which will catalyse the future growth of the division.
Consolidated Net Profit After Tax (Reported NPAT) decreased 16.5% to $19.8m in 1H19 (1H18: $23.8m) due to adjustments to carrying value of investments, and other non-cash accounting adjustments relating to mergers and acquisitions.
The company has declared an interim dividend of 13.5 cents per share fully franked (1H18: 13.5 cps), payable on 5th April 2019.
Half Year Results Summary:
- Adjusted NPAT1 $17.0 million (1H18: $16.7 million) up 1.8%, which includes costs relating to Austbrokers Canberra fraud of $1.6 million.
- Adjusted earnings per share 25.9 cents up 0.23%, with 1H18 TERP2
- Organic growth the key driver of business performance.
- Reported Net Profit After Tax $19.8 million (1H18: $23.8 million), down 16.5%.
- Interim fully franked dividend of 13.5 cents per share, up $1.3m in cash terms.
- The Group expects Adjusted NPAT to be in the lower end of the previously announced range of 7-12% growth over FY18.
Highlights of the 1H19 results by operating area include:
- 11% increase in profit contribution from Australian Broking in the half. Australian Broking contributed $22.6m (1H18: $20.4m) to the Group in the period. Excluding costs relating to the Austbrokers Canberra fraud, pre-tax profit contribution increased by 21.9%
- Organic growth was delivered through increases in client numbers, policy numbers and an improvement in cross sales.
- Commercial lines insurance premiums increased on an average basis by mid-single digits over the period.
- 15% increase in profit contribution from New Zealand to $3.2m (1H18: $2.8m), primarily driven by strong organic income growth partially offset by investment in NZ group management and infrastructure to support growth.
- Organic growth has been delivered as a result of increases in new clients and premium funding income in a positive premium rate environment.
- The market strength of NZbrokers has been further enhanced and NZbrokers now manages in excess of NZ$675m GWP, building on its position as the largest broking management group in NZ.
- 11% increase in profit contribution from Underwriting Agencies to $5.1m (1H18 $4.6m) with strong organic growth in revenue (up 14%) driven by increased policy count (+6.7%), and average mid-single digit premium rate increases.
- Positive revenue and profit impact from most businesses, in particular AustRe and Strata.
- The implementation of the new underwriting system will deliver improved operational efficiencies, governance and service delivery in future years.
- Profit contribution from Risk Services was $1.8m (1H18: $4.3m).
- Revenue was down 1.2% due to headwinds relating to changes in NSW Workers Compensation.
- Costs have increased 10.6% due to strategic investment in new ancillary risk and injury management services across states. The investment in new propositions, national capability and quality service models provides a positive outlook for growth in the medium term.
- Revenue growth outside NSW continues with new panel appointments and expanded client base.
Group Services and Corporate Costs
- The Corporate cost base was flat compared to the prior comparable period
- Net assets at 31 December are $474.5m (FY18: $357.2m) up due to the equity capital raising towards the end of the reporting period.
- AUB Group raised $116m via a fully underwritten 4 for 27 accelerated pro-rata non-renounceable entitlement offer at $12.30 per share. Proceeds from the capital raising are being used to provide additional financial flexibility for growth initiatives and to fund further acquisitions.
- Look through gearing has decreased to 16.4% (FY18: 31.0%), the parent entity has cash and undrawn committed facilities of $117.7m at 31 December 2018.
The Board has declared an interim fully franked dividend of 13.5 cents per share. This dividend is payable on 5th April 2019 to shareholders on the record date of 7th March 2019. No Dividend Reinvestment Plan (DRP) arrangements will be offered for the interim dividend.
In light of the recent equity capital raising, the interim dividend is maintained at 13.5 cents per share. In cash terms this represents an increase of $1.3m over prior comparable period.
- The Group will continue to maintain its disciplined approach to executing our business model, operating model and strategy. The Group’s client-focused strategy accords with potential directional outcomes of the Financial Services Royal Commission.
- The benefits of acquisitions undertaken toward the end of 1H19 and in early 2H19 will benefit the Group into the future, particularly FY20 and beyond as synergies are realized.
- There are contingent liabilities with respect to the Austbrokers Canberra fraud. Due to the complexity of the matter and the ongoing nature of investigations, it is not yet possible to determine whether there is a financial exposure, and if there is, to reliably quantify the amount of any possible loss net of insurance recoveries.
- The Group remains focused on driving organic growth that accords with the strategy. Furthermore, we will continue to investigate acquisitions and start-up investment opportunities.
- We remain focused on geographic diversification and cross-sell opportunities in our Risk Services businesses. We expect the impact of the NSW workers compensation changes to lessen in 2H19, supporting a return to growth in FY20.
- In the context of a mid-single digit premium rate environment, partner investment, and the impact of Risk Services and Austbrokers Canberra, the Group expects Adjusted NPAT to be in the lower end of the previously announced range of 7-12% growth over FY18
Mark Searles, CEO & Managing Director and Mark Shanahan, Chief Financial Officer will host a webcast today at 10:00am AEST followed by a Q&A session – details below:
Direct DDI(s) for Teleconference:
Australia Access: 1800 093 431
New Zealand: 0800 452 257
International: +61 2 8047 9393
Teleconference Participant Pin Code: 60622882#
Webcast Audience Link: http://event.onlineseminarsolutions.com/wcc/r/1904799-1/3C4CE693A148450ECDE55C0DFDDCDC73
1 NPAT excluding adjustments to carrying values of associates, profit on sale and deconsolidation of controlled entities, contingent consideration adjustments, impairment charges, and amortisation of intangibles. Performance measure used by management to assess underlying business performance. Includes one-off adjustments of $1.6m in Austbrokers Canberra
2 Theoretical Ex-Rights Price
For further information, contact:
(02) 9018 8602
This release contains “forward-looking” statements. Forward-looking statements can generally be identified by the use of forward-looking words such as “anticipated”, “expected”, “projections”, “guidance, “forecast”, “estimates”, “could”, “may”, “target”, “consider”, “will” and other similar expressions. Forward looking statements, opinion and estimates are based on assumptions and contingencies which are subject to certain risks, uncertainties and change without notice, as are statements about market and industry trends, which are based on interpretations of current market conditions. Forward-looking statements including projections, indications or guidance on future earnings or financial position and estimates are provided as a general guide only and should not be relied upon as an indication or guarantee of future performance. Should one or more of the risks or uncertainties materialise, or should underlying assumptions prove incorrect, there can be no assurance that actual outcomes will not differ materially from these statements. To the fullest extent permitted by law, AUB Group and its directors, officers, employees, advisers, agents and intermediaries do not warrant that these forward looking statements relating to future matters will occur and disclaim any obligation or undertaking to release any updates or revisions to the information to reflect any change in expectations or assumptions.