Release Date: August 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- AUB Group Ltd (ASX:AUB, Financial) achieved a compound annual impact of 33.9% per annum and an annual EPS growth of 22.1% since FY20.
- The company delivered underlying revenue growth of 19.8% to $1.33 billion and an unpack growth of 52.5% to $171 million in FY24.
- Significant revenue increases were noted in the underwriting agencies and New Zealand broking divisions, with profit before tax growth rates of 57.9% and 59.2%, respectively.
- BizCover achieved revenue growth of 15% and margin expansion to 42%, resulting in EBIT growth of 20.5%.
- AUB Group Ltd (ASX:AUB) exceeded its target of $25 million in annual synergy benefits from the Tysers acquisition, delivering $11.2 million in revenue synergies and $16.9 million in cost savings.
Negative Points
- The company faced a 3.9% headwind from higher funding costs due to increased borrowing levels.
- There was a 1.5% reduction in unpack due to the divestment of non-core assets.
- The effective commission earn rates in Australia have decreased from 16.7% to 16.2% over the past three years.
- The profit boost from reduced spending on the Lola technology platform in New Zealand is not expected to continue, with increased spending anticipated in FY25.
- The leverage ratio increased to 1.62 times as of July 31, 2024, due to acquisitions, reducing cash and undrawn debt to $337 million.
Q & A Highlights
Q: Can you provide more details on the factors driving the 52.5% increase in unpacked for FY24?
A: (Mike Emmett, CEO and Managing Director): The strong organic growth of 20.9% was significantly bolstered by profits from acquisitions, which added an additional 17% to unpack for the year. This growth was slightly offset by a 1.5% reduction due to the divestment of non-core assets, along with a 3.9% headwind from higher funding costs due to increased borrowing levels.
Q: How did the Australian broking division perform in FY24?
A: (Mike Emmett, CEO and Managing Director): We achieved strong single-digit revenue growth consistent with our long-term average. We also observed a 6% rise in premium rates within Australia broking. Effective cost management across the portfolio contributed to positive margin jaws, making solid progress towards our medium-term margin target of 40%.
Q: What were the key achievements for BizCover in FY24?
A: (Mike Emmett, CEO and Managing Director): BizCover achieved revenue growth of 15% accompanied by margin expansion to 42%, resulting in EBIT growth of 20.5%. The insurer panel was strengthened with the addition of Chubb and HDI, and the relaunch of BizCover's cyber insurance offering showed encouraging growth. Technological innovation, including AI integration, has been central to BizCover's strategy.
Q: Can you elaborate on the performance of the New Zealand division?
A: (Mike Emmett, CEO and Managing Director): The New Zealand division saw revenue growth of 25.6%, combined with a 740 basis points margin expansion, resulting in EBIT growth of 57.4%. Organic profit growth was 26.3%, further bolstered by a 10.5% profit increase from acquisitions. A reduction in spending on our major technology platform, Lola, also contributed to profit growth.
Q: What progress has been made with the Tysers acquisition?
A: (Mike Emmett, CEO and Managing Director): Tysers' underlying EBIT grew by 14.1% for the year on a normalized basis. We have realigned portfolios, enhanced broking teams, and reduced costs to boost long-term profitability. We exceeded our target of $25 million in annual synergy benefits by the end of FY24, delivering $11.2 million in revenue synergies and $16.9 million in cost savings.
Q: What are the medium-term margin targets for AUB Group?
A: (Mike Emmett, CEO and Managing Director): We aim to continue improving margins across all divisions. Our medium-term targets include achieving a 40% margin for Australian broking and a 45% margin for our agencies division. We are confident in reaching these targets by executing ongoing initiatives.
Q: What is the outlook for FY25?
A: (Mike Emmett, CEO and Managing Director): We expect another strong year of earnings growth, with unpacked forecasted to be in the range of $190 million to $200 million, representing growth of 11.1% to 16.9% over FY24. This will be driven by organic growth of 7.2% to 10.1% and acquisition growth of 6.7% to 9.6%.
Q: How is AUB Group addressing ESG (Environmental, Social, and Governance) concerns?
A: (Mark Shanahan, Chief Financial Officer): We are preparing for compliance with the new Australian Sustainability Reporting Standard 1, leading to our ESG report being audited for FY26. We were accredited as a great place to work and received a double ESG rating from MSCI during FY24. Governance remains our natural strength, focusing on recognizing and managing risks effectively.
Q: What are the funding and interest updates for AUB Group?
A: (Mark Shanahan, Chief Financial Officer): During FY24, we raised $225 million in equity and restructured our debt with a new $850 million multi-tenant facility, reducing the interest margin by 260 basis points. As of June 30, 2024, we had $171.3 million in cash and $300 million in undrawn debt, with a leverage ratio of 1.28 times, well below the covenant maximum of 3 times.
Q: What are the key profit growth levers for AUB Group?
A: (Mike Emmett, CEO and Managing Director): The top priorities offering the highest potential impact across all divisions include M&A, new business growth, and technology. Consolidation and specialization remain crucial, particularly within our Australia and New Zealand operations. Cost reduction continues to be a key focus for our international division.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
