AUB Group Limited (ASX:AUB) has today announced a 10.3% increase in Adjusted Net Profit After Tax (Adjusted NPAT) to reach $44.6 million, up from $40.4 million in FY17. Drivers include growth across all operating areas and the strengthening of profit generation through diversification. The strong results stem directly from the successful execution of the Group’s long-term strategy.
The Group also announced today that CEO and Managing Director Mark Searles informed the Board of his intention to step down from his position in October 2019, following the completion of the FY19 financial year.
Discussing the results, AUB Group CEO and Managing Director Mark Searles said, “I am pleased to report another strong set of financial results from AUB Group. The Group continued to build on our strategic intent, ‘to be the leading provider of risk management advice and solutions to clients’ with each operating area growing and our corporate costs being well-managed. The Group’s results were driven primarily by organic growth. Focused execution of our strategy, including continued and increasing collaboration between our partners, and the rising premium rate environment, will further support the Group’s financial performance going forward.”
The company has declared a final dividend of 32.0 cents per share fully franked, bringing the dividend for FY18 to a total of 45.5 cents per share; an increase of 8.33% (FY17: 42.0 cps).
FY18 results summary:
- — 10.3% increase in Adjusted NPAT to $44.6 million (FY17: $40.4 million), with growth across all operational areas. Adjusted earnings per share increased 10.3% to 69.8 cents.
- — 41% increase in Reported Net Profit After Tax of $46.5 million (FY17: $33.0 million): an increase on the prior comparable period due to growth across all operational areas, adjustments to carrying value of investments in FY18, and other non-cash accounting adjustments relating to mergers and acquisitions.
- — All operational areas grew and Group cost-to-income ratio reduced.
- — Organic growth the key driver of business performance.
- — Underlying EBITA up 9.0% on prior year.
- — Final fully-franked dividend of 32.0 cents per share, bringing the total declared dividends for 2018 to 45.5 cents per share, up 3.5 cents per share, up 8.33% on prior year.
Highlights of the FY18 results:
- 8.7% increase in profit contribution from Australian Broking over the period. Australian Broking contributed $53.5 million (FY17: $49.2 million) to the Group, in a market where commercial lines insurance premiums increased on an average basis by low-mid single digits over the year.
- Organic growth was a key driver of the result. This included increases in client numbers and policy count, and increased cross-sell, in turn enabling margin improvement and growth in profit.
- Good growth in premium funding operations of 8.6% in part due to the joint venture relationship with Hunter Premium Funding.
 NPAT excluding adjustments to carrying values of associates, profit on sale and deconsolidation of controlled entities, contingent consideration adjustments, impairment charge and amortisation of intangibles. Performance measure used by management to assess underlying business performance.
 Underlying EBITA represents an aggregate of 100% of all business partners’ revenue and expenses before deducting non-controlling interests and after AUB corporate costs.
New Zealand Broking
- 18.5% increase in profit contribution from New Zealand to $6.5 million (FY17: $5.5 million), reflecting strong organic growth and the contribution from acquisitions during the year.
- Organic growth has been delivered as a result of increases in new clients, life income and premium funding income supported by a hardening premium rate environment.
- The market strength of NZbrokers has been further enhanced with four new members joining the network which now manages in excess of NZ$625 million GWP, building on its position as the largest broking management group in NZ.
- Despite potential headwinds (previously-flagged) relating to changes in NSW Workers Compensation, the division surpassed expectations to record a 9% increase in revenue.
- Revenue growth continued throughout the year as businesses expanded geographically and into new services. The impact of investment in resources to support new services ahead of revenues partially offset revenue growth.
Underwriting Agencies (SURA)
- 11% increase in profit contribution from Underwriting Agencies ($13.9 million vs FY17: $12.5 million) driven by increased policy count (+4.2%), average mid-single digit premium rate increases and focus on strategic execution. During the period, two agencies were divested. This was partially offset by the full year impact of the Fleetsure acquisition. EBIT margins remained strong at 35%.
- Portfolio rationalisation continues within the Agency business. This will lead to decreased reliance on profit commissions going forward and continued strong operating margins.
- The implementation of the new underwriting system has commenced and will roll-out over the next three years. The system will deliver improved operational efficiencies, governance and service delivery in future years.
Group services, people and corporate costs
- The Group’s focus on managing the overall cost base resulted in a decrease in the cost to income ratio, which improved to 18.9%3.
- The Group continued to invest in people initiatives to improve the ‘bench strength’ of our talent. Outcomes include new courses offered by the AUB Academy, and increasing participation.
- Net assets at 30 June are $357.2 million (FY17: $345.8 million), up predominantly due to underlying profit growth less dividends offset by a reduction in retained earnings resulting from transactions with owners in their capacity as owners. A change in ownership interest without loss of control is accounted for as an equity transaction.
- Gearing increased to 25.3% (FY17: 21.6%) as a result of drawdowns for acquisitions. The parent entity has cash and undrawn committed facilities of $59.5 million at 30 June 2018. A new Group lending facility was put in place in the first half of FY18.
- Previous year comparatives changed due to recognition of put option liability/reserve4.
The Board has declared a fully-franked final dividend of 32.0 cents per share, bringing the total dividends declared for the year to 45.5 cents, up 8.3% on FY17. This dividend is payable on 9 October 2018 to shareholders on the record date of 10 September 2018. Dividend Reinvestment Plan (DRP) arrangements remain suspended.
On the announcement of Mark Searles’ intention to step down, AUB Group Chairman David Clarke said: “Mark's decision creates a very manageable timeframe in which to oversee a smooth leadership transition. Mark has steered AUB Group through a period of substantial change over the past six years, to great effect. We look forward to working with him on the continued execution of the strategy.”
AUB Group CEO and Managing Director Mark Searles said: “I’m very happy with the significant success we’ve achieved to date in executing our ‘total risk solutions’ strategy, which is delivering results. I’m excited to use the coming year to focus efforts on executing the next phase, and to building upon the growth momentum we’ve achieved this year. On a personal level, I look forward to developing a non-executive career once my current role with AUB Group has been transitioned to my successor.”
 Calculated as AUB corporate costs (excluding acquisition, finance and project costs) normalised for STI at target as a percentage of net income before corporate costs and tax.
 See note 2.3 of financial statements
- The Group will continue to maintain its disciplined approach to executing our business model, operating model and strategy – factors that have contributed to the positive growth in prior periods.
- The commercial lines premium rate environment in Australia and New Zealand will continue to evidence modest average increases across all lines with our expectation that the average commercial line rate impact for the Group in FY19 and FY20 respectively will be 5% per annum. This will have a positive impact on Group revenue however there will be a degree of offset as partner businesses invest in future growth initiatives.
- 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 extend into FY19, with the impact of these changes lessened as a result of increasing diversification.
- Having built a strong distribution platform in New Zealand, the Group will look to introduce new services to the market that accord with the Group’s strategy.
- In the context of a mid-single digit premium rate environment; partner investment and a degree of economic uncertainty, the Group expects Adjusted NPAT in the range of 7-12% growth over FY18.
David Clarke, Chair, 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:68607332#
Webcast audience link:
For further information, contact:
(02) 9018 8602 email@example.com
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.
AUB GROUP FY18 PRESENTATION OF FINANCIAL RESULTS
Table 1 Financial Results Summary
1Revenue from ordinary activities includes the Group’s share of net profit after tax from associates which are companies and the Group’s share of net profits before tax from associates which are unit trusts.
2Adjusted NPAT represents the underlying profitability of the business used by management and the board to assess performance of the business. Further details are provided in the table below. Adjusted earnings per share is earnings per share calculated with reference to Adjusted NPAT.
Table 2 Reconciliation of Adjusted NPAT to Reported NPAT1
The Reported profits of the business include non-operational items, such as profits and losses on sale of equity interests, fair value adjustments to carrying values on ownership changes, changes to estimates or payments of deferred contingent consideration amounts, impairment adjustments and amortisation of intangible assets. These profits or losses are not part of the regular trading activities and can distort the underlying performance of the business. These items have been eliminated to provide a clear representation of the underlying trading performance. This measure, labelled Adjusted NPAT, is used by management and the Board to assess operational performance, and is reconciled below.
1The financial information in this table has been derived from the audited financial statements. The adjusted NPAT is non-IFRS financial information and as such has not been audited in accordance with Australian Accounting Standards.
2The Group’s acquisition policy is to defer a component of the purchase price, which is determined by future financial results. An estimate of the contingent consideration is made at the time of acquisition and is reviewed and varied at balance date if estimates change, or payments are made. This adjustment can be a loss (if increased) or a profit (if reduced). Where an estimate or payment is reduced, an offsetting adjustment (impairment) may be made to the carrying value.
3Profits on deconsolidation occur when interests in a controlled entity are sold or it becomes an associate.
4The Group sold shareholdings in certain entities over the period, resulting in profits on sale. Such profits may not occur in a future periods unless similar transactions occur.
5The adjustments to carrying values of associates or controlled entities arise where the Group increases its equity in associates whereupon they became controlled entities or decreases its equity in a controlled entity and it becomes an associate (deconsolidated). As required by accounting standards the carrying values for the existing investments have been adjusted to fair value and the increase included in net profit. Such adjustments will only occur in future if further acquisitions or sales of this type are made.
6Amortisation of intangibles expense decreased over the prior period due to some intangible assets being fully amortised. Amortisation expense is a non-cash item.
Table 3 Management Presentation of Results
A number of the businesses in the AUB Group are associates and are not consolidated in the financial statements. In order to give a more comprehensive view of performance, the following table aggregates 100% of these businesses’ revenues and expenses with those of the consolidated businesses before deducting outside shareholder interests. This provides a view as to the growth in the network without potential distortion from shareholding changes that may move entities from consolidated to associates or vice versa. The following analysis is presented on an Adjusted NPAT basis. A reconciliation of this data to the operating segments per the financial statements is included in the Director’s Report.