8 April 2019
QUARTER 3 2019 RESULTS
20 November 2019
QUARTER 3 2019 RESULTS 20 November 2019 8 April 2019 Disclaimer - - PowerPoint PPT Presentation
QUARTER 3 2019 RESULTS 20 November 2019 8 April 2019 Disclaimer This presentation (the Presentation) has been prepared by The Ardonagh Group Limited (Ardonagh or the Group) and is its sole responsibility. For the purposes
8 April 2019
20 November 2019
2
This presentation (the “Presentation”) has been prepared by The Ardonagh Group Limited (“Ardonagh” or the “Group”) and is its sole responsibility. For the purposes hereof, the Presentation shall mean and include the slides that follow, any oral presentation by Ardonagh or any person on its behalf, any question-and-answer session that may follow the oral presentation, and any materials distributed at, or in connection with any of the above. The information contained in the Presentation has not been independently verified and some of the information is in summary form. No representation or warranty, express or implied, is or will be made by any person as to, and no reliance should be placed on, the accuracy, fairness or completeness of the information or opinions expressed in the Presentation. No responsibility or liability other than that implied by law is or will be accepted by Ardonagh, its shareholders, subsidiaries or affiliates or by any of their respective officers, Directors, employees or agents for any loss howsoever arising, directly or indirectly, from any use of the Presentation or its contents or attendance at any presentation or the question-and-answer session in relation to or in connection with this document. Ardonagh cautions that the Presentation may contain forward looking statements in relation to certain of Ardonagh’s business, plans and current goals and expectations, including, but not limited to, its future financial condition, performance and results. These forward looking statements may be identified by the use of forward looking terminology, including the words “aims”, “believes”, “estimates”, “anticipates”, “expects”, “intends”, “may”, “will”, “plans”, “predicts”, “assumes”, “shall”, “continue” or “should” or, in each case, their negative or other variations or comparable terminology or by discussions of strategies, plans, objectives, targets, goals, future events or intentions. By their very nature, all forward looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond Ardonagh’s control, including but not limited to insurance pricing, interest and exchange rates, inflation, competition and market structure, acquisitions and disposals, and regulation, tax and other legislative changes in those jurisdictions in which Ardonagh, its subsidiaries and affiliates operate. As a result, Ardonagh’s actual future financial condition, performance and results of operations may differ materially from the plans, goals and expectations set out in any forward looking statement made by Ardonagh. All subsequent written or oral forward looking statements attributable to Ardonagh or to persons acting on its behalf should be interpreted as being qualified by the cautionary statements included herein. As a result, undue reliance should not be placed on these forward looking statements. The information and opinions contained in the Presentation have not been audited or necessarily prepared in accordance with international financial reporting standards and are subject to change without
should be considered in addition to IFRS financial measures, but should not be considered a substitute for results that are presented in accordance with IFRS. The information contained in the Presentation, including but not limited to any forward-looking statements, is provided as of the date hereof and is not intended to give any assurance as to future results. No person is under the obligation to update, complete, revise or keep current the information contained in the Presentation, whether as a result of new information, future events or results or otherwise. The information contained in the Presentation may be subject to change without notice and should not be relied on for any purpose. The Presentation is solely for informational purposes and does not constitute or form part of, and should not be construed as, an offer to sell or issue securities or otherwise constitute an invitation or inducement to any person to purchase, underwrite, subscribe to or otherwise acquire securities in Ardonagh or any of its subsidiaries nor does it constitute an invitation or inducement to engage in investment activity under section 21 of the Financial Services and Markets Act 2000 (“FSMA”). The Presentation does not constitute an invitation to effect any transaction with Ardonagh or to make use of any services provided by Ardonagh. The distribution of the Presentation in certain jurisdictions may be restricted by law. Recipients of the Presentation should inform themselves about and observe such restrictions. Ardonagh disclaims any liability for the distribution of the Presentation by any of its recipients. This document is for distribution only in the United Kingdom and the Presentation is being made only in the United Kingdom to persons falling within Articles 19, 43, 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended), to persons who have professional experience in matters relating to investments or to persons in the United Kingdom to whom this document may otherwise be lawfully distributed. This document is being supplied and the Presentation made to you solely in that capacity for your information. This document may not be reproduced, redistributed or passed on to any other person, nor may it be published in whole or in part, for any purpose. By accepting the Presentation, you agree and acknowledge (i) that the Presentation and its contents may contain proprietary information belonging to Ardonagh and (ii) to be bound by the foregoing limitations, undertakings and restrictions.
4
1) Q3 2019 vs. Q3 2018 2)
3) Operating Cash Conversion Q3 2019: Adj. EBITDA less working capital movement and maintenance capital expenditure, over Adj. EBITDA
(2)
(3)
“Best of the Best” Broker Award (Ardonagh) Commercial Lines Broker of the Year – SME/mid-corporate Business to Customer Marketing Campaign of the Year (Carole Nash) Business to Business Marketing Campaign of the Year (Paymentshield)
Ardonagh Today
Won five Health Insurance & Protection awards, including Adviser of the Year Gold Trusted Service Award; for client service excellence, 5th year running (Footman James) Awards won in last 12 months:
UK Broker Awards - Ian Donaldson won Broker Personality of the Year URIS received Investor in Customer (IIC) Gold Standard for Customer Experience
5
Ardonagh Total Income LTM (£ millions) 323.4 363.3 411.2 461.2 513.8 524.5 527.1 556.8 592.7 629.0 661.4 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q3 2019 Pro Forma 21% 26%
21% 21% 21% 19%
(2) (1) Creation of
22 June 2017
1) Pro forma for all material acquisitions and disposals including; acquisition of Swinton (31 Dec’18), acquisition of Nevada 3 Businesses MHG, HIG & PfP (31 Jan’19), disposal of Claims business (16 Oct’18), and disposal of Commercial MGA (1 Jan’19). Includes annualisation of IFRS 16 impact, cost savings from completed actions and actions expected to be completed during next 12 months
18% 18% 22% 30% Reported Income Reported Margins Q3 2019 Pro Forma
Ardonagh Today
24%
(1)
Q3 2019 Pro Forma
(1)
6
Ardonagh Today Global scale and unparalleled diversity
Resilient and steadily growing market backdrop
Compelling strategy to optimise placement through scale and data
Disciplined and highly selective M&A strategy
Market leader in numerous specialist niches
Consolidation into three industry leading platforms to accelerated core organic growth
7
£2,903 £905 £820 £695 £663 £661 £579 £335 £325 £253 £169 £152 £135 £119 £114 £100 £80 £80 £78 £74 £73 £65 £64 £61 £58
Source: IMAS Corporate Finance and Insurance Times Top 50 Brokers 2019 and Business Insurance Broker Profiles & Rankings 1) Pro forma for JLT 2) Pro forma for Miller 3) Includes income from PCW operations 4) LTM Q3 2019 Pro Forma Income 5) Based on 2018 Insurance and Financial Services segment per 2018 Annual Report. Not included in Insurance Times Top 50
Scale & Diversity Ardonagh Today
Top UK Insurance Brokers by UK Revenue 2018 (£m) Global Insurance Brokers by Global Revenue 2018 ($bn)
Personal Commercial Diversified (3) (4) (2) (1) (5)
$16.8 $10.7 $8.4 $5.1 $2.1 $2.0 $2.0 $1.7 $1.7 $1.4 $1.4 $1.1 $1.1 $1.1 $0.9 $0.9 $0.8 $0.6 $0.6
(1)
International Risk Advisory Group UK Commercial Lines Brokers Major US Commercial Lines Brokers
8
Scale & Diversity Ardonagh Today
GWP by Class of Business(1) GWP Exposure by Carrier(1)
significantly limits reliance on single markets/ macro drivers
carriers (more than 10 years on average)
1) Estimated Q2’19 LTM GWP pro forma for all material acquisitions and disposals including; acquisition of Swinton (31 Dec’18), acquisition of Nevada 3 Businesses MHG, HIG & PfP (31 Jan’19), disposal of Claims business (16 Oct’18), and disposal of Commercial MGA (1 Jan’19)
placed outside the UK
by Lloyd’s newly opened Brussels office
GWP by Geographical Region(1)
9
Resilient market Ardonagh Today
Dot.com Bubble (48%) decline in MSCI World Index1 Financial Crisis (55%) decline in MSCI World Index1 Source: ABI, Lloyd’s Statistics, MSCI, ONS 1) Peak to trough decline in MSCI World index Mar-00 - Sep-02 & Oct-07 - Feb-09
Lloyd’s and ABI broker channel GWP £bn, 1996-2017
c.3% p.a.
10
GWP Clients UK position Established Higher barriers to entry Customer understanding Specialist knowledge Partnerships Higher retention Strong client relationships Stickiness of specialist products Higher margin Under-served markets Specialist products not available from major insurance companies
IFA Advised Home £120m 350k Van Agriculture Caring Professions Specialist Haulage Classic Car £95m 170k £80m 40k £65m 55k £45m 10k £25m 90k #1 #1 #1 #2 #1 #1 1992 1998 1981 1982 1974 1983 SME Healthcare £245m 25k #1 1907
Market Leader Ardonagh Today
11
Core Growth Ardonagh Today
cross-selling opportunities
breadth we have built
management expertise and “cross-fertilisation” of intra-group best practice Benefits from consolidation: Retail Paymentshield Schemes & Programmes Insurance Broking Specialty MGA Operating segments: Industry leading platforms: Advisory Retail Specialty
LTM Q3 2019 Revenue: £661m
Lutine
Assurance Services LimitedRevenue: £141m Revenue: £207m Revenue: £307m
Note: Specialty and MGA businesses will continue to operate as separate segments
12
panel of selected strategic carriers, including risk mapping, pipeline management, underwriting and
development
carrier agreements and have ongoing discussions with several other potential partners
products across multiple segments by leveraging our deep market understanding and access to information
product facility by December 2019 with line of sight on several additional prospects for 2020 and beyond
alternative/ non-traditional capital providers to improve our offering to customers and insulate our distribution platforms from disruption in the value chain
expected to accelerate throughout 2020 Carrier Management Broker Facilities Alternative Capacity
Placement Ardonagh Today
APS is articulated across three pillars:
13
Selection Closing Integration Very robust, systematised process for identification and delivery of income and cost synergies within 12-24 months from acquisition Deal team highly focused on synergy assessment from early stages of the transaction Recent developments (incl. consolidation and APS) will create levers for additional synergies Strong track record of delivery as evidenced by recent Carole Nash and Swinton acquisitions Proven discipline on pricing and ability to move quickly combined with highly flexible and evolved structuring capabilities Highly experienced internal deal team leveraging an established panel of market leading external advisors Proven track record of completion post non-binding offer/ exclusivity (>90% completion rate) Thorough understanding of regulatory processes resulting in 100% success rate
Unparalleled reach into a highly fragmented market which will continue to consolidate due to financial and regulatory pressure Excellent network of relationships ensures early access to potential acquisitions, often on a bilateral basis Large scale, presence across multiple products and channels, private
Ardonagh a compelling “home” for target businesses Robust selection and evaluation process ensure a highly efficient deployment of resources on high likelihood/ high value targets
M&A Ardonagh Today
15
1) Reported result includes acquisitions and disposals from the completion date 2) Pro forma for all material acquisitions and disposals including; acquisition of Swinton (31 Dec’18), acquisition of Nevada 3 Businesses MHG, HIG & PfP (31 Jan’19), disposal of Claims business (16 Oct’18), and disposal of Commercial MGA (1 Jan’19) 3) Including £21.4m pro forma for annualised cost savings 4) 2019 results are set out post IFRS 16 implementation and 2018 results have not been restated to reflect this revised accounting standard in line with IFRS guidance 5) £9.7m IFRS 16 impact relates only to YTD Q3 2019; £13.0m expected for FY19
Overview Financial Update Reported Result Q3(1) Pro Forma Result Q3(2) LTM LTM Variance Variance Pro PF Adj. £m 2019 2018 £m % 2019 2018 £m % Forma(2) Q3 2019 EBITDA(3) Q3 2019 Income 168.0 131.7 36.3 27.6% 168.0 165.4 2.6 1.6% 661.4 Staff Expenses (82.0) (73.1) (8.9) (12.2%) (82.0) (82.0) (0.1) (0.1%) (313.7) Operating Expenses (43.3) (34.6) (8.7) (25.3%) (43.3) (48.3) 5.0 10.4% (185.0)
42.7 24.0 18.6 77.5% 42.7 35.1 7.6 21.7% 162.6 184.0 Margin % 25.4% 18.3% 710 bps 25.4% 21.2% 420 bps 24.6% 27.8% IFRS16 Adjustment 3.5
3.5
9.7 13.0
46.1 24.0 22.1 91.9% 46.1 35.1 11.1 31.6% 172.3 196.9 Margin % 27.5% 18.3% 920 bps 27.5% 21.2% 630 bps 26.1% 29.8% Staff Costs as % of Income 48.8% 55.5% 670 bps 48.8% 49.6% 70 bps 47.4%
25.8% 26.2% 50 bps 25.8% 29.2% 350 bps 28.0%
16
£592.7 £629.0 £661.4 £32.1 £1.0 £4.4 £32.4 (£1.2)
LTM Q2'19 Reported Income Acquisitions & Disposals FX/ Accounting Back-book Organic Growth LTM Q3'19 Reported Income Annualisation of Acquisitions & Disposals LTM Q3'19 Pro Forma Income
(1)
Acquisitions: Swinton (3 months) Nevada 3 (3 months)
1) Reported result includes acquisitions and disposals from the completion date 2) Pro forma for all material acquisitions and disposals including; acquisition of Swinton (31 Dec’18), acquisition of Nevada 3 Businesses MHG, HIG & PfP (31 Jan’19), disposal
+6%
Q2’19 reported
+12%
Q2’19 reported
Disposals: Claims (3 months) Commercial MGA (3 months)
(1) (2)
Acquisitions: Swinton (3 months) Nevada 3 (4 months) Disposals: Claims (0.5 months) Commercial MGA (3 months) Organic growth +4.6% in Q3 2019
New producer hires delivering growth +£1.3m FX impact in Price Forbes Hedge accounting Accounting standard changes Income Financial Update
Q3 2019 LTM vs. Q2 2019 LTM Income Bridge (£m)
17
Income Financial Update
1) For specific KPI definitions by operating segment see relevant operating segment slide in Appendix. Includes acquisitions and disposals from completion date
Substantial Further Upside from Specialty New Producer Hires Retention and # Policies Growth Q3 2019 vs. Prior Year Q3 2018 Q3 2019
£15-20m incremental income from investment to date
2017, 2018, 2019 cohorts rapidly approach income maturity
months, with c. 50% gross contribution
talent and strong proposition to ensure high conversion rate Retention
87% 92%
+500bps
Insurance Broking Specialty Retail
1,645k
+200%
Sep’18 Sep’19 # Policies Under Mgmt. Paymentshield
462k
+4.6%
Schemes & Programmes
431k
+2.0%
(1) (1)
Total Retail
2,538k
+80%
551k 441k 422k 1,414k
18
£136.9 £155.5 £162.6 £184.0 £13.2 £0.7 £4.7 £7.1 £21.4
LTM Q2'19 Reported
Acquisitions & Disposals FX/ Accounting Growth & Net Cost Savings Q3'19 LTM Reported
Annualisation of Acquisitions & Disposals Q3'19 LTM Pro Forma for Completed Transactions Annualised Cost Savings & Synergies Q3'19 LTM Pro Forma Adj. EBITDA +14%
Q2’19 reported
(1)
+19%
Q2’19 reported
+34%
Q2’19 reported
£4.8m gross cost savings delivered, Organic growth
inflation and back-book FX cash impact in Price Forbes Hedge accounting Accounting standard changes
(1) (2) (2)
3) Post IFRS 16 implementation in 2019. 2018 results have not been restated to reflect this revised accounting standard in line with IFRS guidance 1) Reported result includes acquisitions and disposals from the completion date 2) Pro forma for all material acquisitions and disposals including; acquisition of Swinton (31 Dec’18), acquisition of Nevada 3 Businesses MHG, HIG & PfP (31 Jan’19), disposal
Acquisitions: Swinton (3 months) Nevada 3 (4 months) Disposals: Claims (0.5 months) Commercial MGA (3 months) Acquisitions: Swinton (3 months) Nevada 3 (3 months) Disposals: Claims (3 months) Commercial MGA (3 months)
(3)
(3)
(3)
(3)
EBITDA Financial Update
Q3 2019 LTM vs. Q2 2019 LTM Adj. EBITDA Bridge (£m)
(3)
19
EBITDA Financial Update
underlying reported EBITDA as the result of income growth and successful delivery of cost savings programme
in Q3 2018 to £165.2m in Q3 2019
to £69.4m in Q3 2019
costs) representing 39% of LTM reported Adj. EBITDA in Q3 2019, a significant reduction vs. 61% in Q3 2018
costs, excluding Swinton and the one-off ETV provision adjustment in the quarter LTM Reported Adj. EBITDA Commentary
1) Reported result includes acquisitions and disposals from the completion date and the impact of IFRS 16 Sep’19 YTD
20
Delivered Savings in Q3 2019 Annualised Savings for Actions Complete at Sep'19 Annualised Savings for Actions Complete at Sep'20 Q3'19 Pro Forma Adjustment
TWG Transformation 1.2 3.9 1.7 5.6 Original Synergies 0.8 0.6 0.6 1.3 New Synergies 0.3 0.9 1.5 2.4 Other Cost Reduction Plans 2.5 9.0 3.1 12.1 Total 4.8 14.5 6.9 21.4
£26.1 £21.4 (£4.8)
Q2'19 Pro Forma Adjustment Cost Savings Delivered in Q3'19 Q3'19 Pro Forma Adjustment
Pro Forma Adjustment for Future Benefits from Cost Savings and Synergies: (£m)
£21.4m as at Sep’19 (11% Pro Forma Adj. EBITDA), has been reduced from £26.1m at Jun’19 and £36.2m as at Dec’18 (20% Pro Forma Adj. EBITDA), as cost savings are delivered
primarily from Towergate transformation plan and central support services restructuring – 89% Advisory sites completed a full annual renewal cycle on Acturis by 15 Nov’19 – MGA restructuring savings post Commercial MGA disposal – Benefits from London footprint consolidation, central management and support services restructuring – Specialty operating structure and process efficiencies
annualisation of benefits from completed actions as at 30 Sep’19
annualisation of benefits from actions expected to be completed during the next 12 months to 30 Sep’20
cost savings and cost synergies
EBITDA Financial Update
21
EBITDA Financial Update
Annualisation of savings from initiatives already underway:
actions already completed
initiatives are completed Additional cost opportunities under final stage of review:
platforms to increase group-wide operational efficiency
further structure simplifications to drive next wave of cost down opportunities
1) Reported Adj. EBITDA margins, excluding benefit from IFRS 16 implementation in 2019, set out on page 30
Further Margin Improvement Expected
(1)
(80)bps
Retail
33.5% 32.7%
Paymentshield
63.2% 61.3% (190)bps
Schemes & Programmes
21.9% 27.1% +530bps
Insurance Broking
20.7% 25.7% +500bps
Specialty
13.8% 20.6% +680bps
MGA
1.4% 11.5% +1010bps
Q3 2018 Q3 2019
Ardonagh
18.3% 25.4% +710bps
22
1)
2) Free Cash Flow defined as cash flow after proceeds from disposals, investments and interest, but before ETV costs, M&A and other financing cash flows 3) Movement in Available Cash as set out on page 7 of Ardonagh Report to Investors for the Nine Months Ended 30 September 2019
and £1.4m Project Capex for Q3 2019 made up of: – £6.0m invested in Ardonagh cost savings programmes during Q3 2019, including business change resource, property footprint changes and redundancy costs – £6.0m invested in Swinton during Q3 2019 to close remaining 11 retail branches and accelerate integration
Insurance, discretionary equity buy-out, appointed representative buy-outs and Swinton transaction/ financing costs
claimants over the next 12-18months
Available Cash of £63.2m, and with £90m Available RCF as at 30 September, a total Available Liquidity of £153.2m
Cash Financial Update
Q3 YTD Q3 £m 2019 2018 Var 2019 2018 Var Adjusted EBITDA(1) 42.7 24.0 18.6 134.7 89.5 45.2 Working Capital Movement 2.8 16.1 (13.3) (31.4) (24.3) (7.1) Maintenance Capex (0.3) (0.6) 0.3 (1.4) (1.5) 0.0 Operating Cash Flow 45.1 39.5 5.6 101.9 63.7 38.2 Operating Cash Conversion 106% 164% (59%) 76% 71% 4% Transformational Hires (3.2) (3.4) 0.2 (4.5) (14.1) 9.5 Project Capex (1.4) (3.1) 1.7 (6.6) (12.2) 5.6 Business Transformation (10.7) (6.2) (4.5) (34.2) (18.0) (16.2) Investment Spend (15.2) (12.7) (2.6) (45.3) (44.3) (1.1) Legacy Costs and Other Non-Recurring (3.0) (7.2) 4.3 (18.5) (22.6) 4.1 Interest on Notes and RCF (47.1) (38.7) (8.4) (90.2) (77.8) (12.4) Disposals (0.0)
25.7 42.4 (16.7) Free Cash Flow pre ETV, Equity, M&A(2) (20.2) (19.0) (1.2) (26.4) (38.5) 12.1 M&A, Equity, Debt Purchase (5.6) (7.6) 2.0 (18.7) (13.6) (5.1) Financing and Associated Costs (0.2) (4.3) 4.2 (7.5) 58.9 (66.4) Regulatory (incl. ETV redress) (7.5) (2.1) (5.4) (9.8) (3.5) (6.3) Net Cash Flow(3) (33.4) (33.1) (0.3) (62.4) 3.3 (65.8) Opening Available Cash 96.6 94.5 2.0 125.6 58.1 67.5 Closing Available Cash 63.2 61.4 1.7 63.2 61.4 1.7
23
1) Available Cash as set out on page 7 of Ardonagh Report to Investors for the Nine Months Ended 30 September 2019; Excludes all TC2.4 restricted cash 2) USD 520m SSN at hedged USD/ GBP FX rate of 1.2742; USD 235m SSN at hedged FX of 1.2979; Note that Q3 2019 Interim Report translates USD debt at balance sheet FX of 1.2298 3) Pro forma interest excludes RCF commitment fees 4) RCF capacity agreed at £120m as at March 2019, £90m cap to permissible drawings as at 30 Sep’19 5) Available Liquidity defined as Available Cash plus Available RCF 6) Pro Forma Adj. EBITDA excluding benefit from IFRS 16 implementation in 2019 7) Pro Forma Adj. EBITDA includes 13.0m and interest includes £6.2m expected full year IFRS 16 impact
Leverage Financial Update
£m Pro Forma at Dec'18 Jun'19(6) Sep'19(6)
Sep'19(7) Available Cash(1) 125.6 96.6 63.2 63.2 Adjustment 20.0
145.6 96.6 63.2 63.2
553.3 553.3 553.3 553.3 USD Senior Secured Notes(2) 589.2 589.2 589.2 589.2
996.9 1,045.9 1,079.3 1,079.3
4.6 4.5 4.6 4.6 Lease Liabilities
1,001.5 1,050.4 1,083.9 1,127.4
186.5 181.1 184.0 196.9 Interest on Senior Secured Notes and SSRCF(3) 93.3 93.3 93.3 99.5 Net Secured Leverage 5.3x 5.8x 5.9x 5.5x Total Net Leverage 5.4x 5.8x 5.9x 5.7x Interest Cover 2.0x 1.9x 2.0x 2.0x Undrawn SSRCF (4) 120.0 120.0 120.0 120.0 Available Liquidity (5) 215.6 186.6 153.2 153.2
24
Operating Cash Conversion Free Cash Flow
Income and Organic Growth
3.5% 4.6% 2.5%
Target 4-6%
19% 26% 21% 30%
(1)
1) Pro forma for all material acquisitions and disposals. EBITDA includes annualisation of cost savings from completed actions and actions expected to be completed during next 12 months and includes IFRS 16 impact of £13.0m expected for FY19 2) Q3 2019 vs. Q3 2018
(1)
3) Ardonagh target organic growth 4) Adjusted for pro forma interest of £33.6m as no interest on SSN issued June’17 paid in 2017; excludes round-tripped interest from bond raises
(2) (3) (1)
Organic Growth:
>15% Adj. EBITDA Reported Reported
Disposal proceeds
Summary Financial Update Target >30% Target
(4)
25
Summary Financial Update
27
Segmental
1) Reported result includes acquisitions and disposals from the completion date 2) Pro forma for all material acquisitions and disposals including; acquisition of Swinton (31 Dec’18), acquisition of Nevada 3 Businesses MHG, HIG & PfP (31 Jan’19), disposal
3) 2019 results are set out post IFRS 16 implementation and 2018 results have not been restated to reflect this revised accounting standard in line with IFRS guidance
Reported Result Q3(1) Pro Forma Result Q3(2) LTM
Income £m 2019 2018 Variance (%) 2019 2018 Variance (%) Pro Forma(2) Q3 2019 Q319 v Q318 (%) Q319 v Q318 (£m) Advisory (Insurance Broking) 50.6 45.7 10.7% 50.6 48.7 3.9% 206.5 4.8% 2.2 Retail Operating Segment 56.5 21.2 166.3% 56.5 58.9 (4.2%) 215.3 (2.4%) (0.5) Paymentshield 10.8 10.5 2.9% 10.8 10.5 2.9% 41.2 13.1% 0.9 Schemes & Programmes 13.9 17.8 (21.5%) 13.9 14.1 (1.3%) 50.4 (0.4%) (0.1) Retail 81.2 49.5 64.1% 81.2 83.6 (2.8%) 307.0 1.0% 0.4 Specialty & International 27.4 22.5 21.9% 27.4 22.5 21.9% 104.8 15.8% 3.5 MGA 7.8 12.9 (39.4%) 7.8 9.5 (17.8%) 36.0 (11.6%) (1.1) Specialty 35.2 35.4 (0.4%) 35.2 32.0 10.1% 140.8 7.9% 2.5 Corporate 1.0 1.1 1.0 1.1 7.1 0.4 Income 168.0 131.7 27.6% 168.0 165.4 1.6% 661.4 4.6% 5.5 Reported Result Q3(1) Pro Forma Result Q3(2) LTM Adjusted EBITDA £m 2019 2018 Variance (£m) 2019 2018 Variance (£m) Pro Forma(2) Q3 2019 Advisory (Insurance Broking) 13.0 9.5 3.5 13.0 10.1 2.9 56.5 Retail Operating Segment 18.5 7.1 11.4 18.5 16.7 1.8 58.7 Paymentshield 6.6 6.7 (0.0) 6.6 6.7 (0.0) 25.9 Schemes & Programmes 3.8 3.9 (0.1) 3.8 3.1 0.7 10.5 Retail 28.9 17.6 11.3 28.9 26.5 2.4 95.1 Specialty & International 5.6 3.1 2.5 5.6 3.1 2.5 21.8 MGA 0.9 0.2 0.7 0.9 1.7 (0.8) 5.6 Specialty 6.5 3.3 3.3 6.5 4.8 1.7 27.4 Corporate (5.8) (6.3) 0.6 (5.8) (6.3) 0.6 (16.4)
42.7 24.0 18.6 42.7 35.1 7.6 162.6 IFRS16 Adjustment 3.5
3.5
9.7
46.1 24.0 22.1 46.1 35.1 11.1 172.3
28
1) Reported result which includes acquisitions and disposals from the completion date 2) Pro forma for all material acquisitions and disposals including; acquisition of Swinton (31 Dec’18), acquisition of Nevada 3 Businesses MHG, HIG & PfP (31 Jan’19), disposal of Claims business (16 Oct’18), and disposal of Commercial MGA (1 Jan’19)
Quarterly Summary Segmental
3) 2019 results are set out post IFRS 16 implementation and 2018 results have not been restated to reflect this revised accounting standard in line with IFRS guidance
Reported Result(1) Pro Forma Result(2) Income £m Q1'18 Q2'18 Q3'18 Q4'18 2018 Q1'19 Q2'19 Q3'19 YTD Q3'19 Q1'18 Q2'18 Q3'18 Q4'18 2018 Q1'19 Q2'19 Q3'19 YTD Q3'19 Advisory (Insurance Broking) 47.6 51.3 45.7 45.8 190.4 49.6 56.7 50.6 156.8 50.4 56.7 48.7 48.7 204.5 50.5 56.7 50.6 157.8 Retail Operating Segment 18.1 22.8 21.2 16.5 78.6 52.1 58.3 56.5 166.9 59.2 60.5 58.9 48.4 227.0 52.1 58.3 56.5 166.9 Paymentshield 10.4 10.7 10.5 10.2 41.8 9.3 10.9 10.8 31.0 10.4 10.7 10.5 10.2 41.8 9.3 10.9 10.8 31.0 Schemes & Programmes 15.4 18.1 17.8 12.2 63.5 11.0 13.3 13.9 38.3 11.8 14.5 14.1 12.2 52.6 11.0 13.3 13.9 38.3 Retail 43.9 51.6 49.5 38.8 183.8 72.4 82.5 81.2 236.2 81.4 85.7 83.6 70.8 321.4 72.4 82.5 81.2 236.2 Specialty & International 24.0 22.7 22.5 26.0 95.2 24.9 26.5 27.4 78.8 24.0 22.7 22.5 26.0 95.2 24.9 26.5 27.4 78.8 MGA 12.1 15.4 12.9 11.4 51.8 8.9 11.4 7.8 28.1 8.4 11.0 9.5 7.9 36.7 9.0 11.4 7.8 28.1 Specialty 36.1 38.1 35.4 37.4 147.0 33.9 37.8 35.2 106.9 32.3 33.7 32.0 33.8 131.8 33.9 37.8 35.2 106.9 Corporate 0.2 3.0 1.1 1.7 5.9 1.6 2.8 1.0 5.5 0.2 3.0 1.1 1.7 5.9 1.6 2.8 1.0 5.5 Income 127.8 143.9 131.7 123.6 527.1 157.6 179.9 168.0 505.4 164.2 179.0 165.4 155.0 663.6 158.5 179.9 168.0 506.4 Reported Result(1) Pro Forma Result(2) Adjusted EBITDA £m Q1'18 Q2'18 Q3'18 Q4'18 2018 Q1'19 Q2'19 Q3'19 YTD Q3'19 Q1'18 Q2'18 Q3'18 Q4'18 2018 Q1'19 Q2'19 Q3'19 YTD Q3'19 Advisory (Insurance Broking) 12.6 15.8 9.5 7.5 45.3 14.6 21.1 13.0 48.8 13.1 18.6 10.1 7.6 49.4 14.7 21.1 13.0 48.9 Retail Operating Segment 4.9 8.8 7.1 3.3 24.1 11.1 19.2 18.5 48.8 11.3 19.6 16.7 9.9 57.5 11.1 19.2 18.5 48.8 Paymentshield 6.3 7.0 6.7 6.2 26.2 5.9 7.2 6.6 19.7 6.3 7.0 6.7 6.2 26.2 5.9 7.2 6.6 19.7 Schemes & Programmes 1.8 4.0 3.9 2.3 12.0 1.0 3.5 3.8 8.3 1.0 3.5 3.1 2.2 9.8 1.0 3.5 3.8 8.3 Retail 13.0 19.8 17.6 11.9 62.3 18.0 29.9 28.9 76.7 18.6 30.1 26.5 18.4 93.5 18.0 29.9 28.9 76.7 Specialty & International 6.0 4.0 3.1 6.6 19.7 4.4 5.1 5.6 15.2 6.0 4.0 3.1 6.6 19.7 4.4 5.1 5.6 15.2 MGA (0.4) 2.2 0.2 0.3 2.3 1.5 2.6 0.9 4.9 1.0 3.6 1.7 0.7 7.0 1.4 2.6 0.9 4.9 Specialty 5.6 6.2 3.3 6.9 22.0 5.9 7.7 6.5 20.1 7.0 7.5 4.8 7.3 26.7 5.8 7.7 6.5 20.0 Corporate (4.3) (3.2) (6.3) (5.5) (19.3) (3.5) (1.6) (5.8) (10.9) (4.3) (3.2) (6.3) (5.5) (19.3) (3.5) (1.6) (5.8) (10.9)
26.9 38.5 24.0 20.8 110.3 34.9 57.1 42.7 134.7 34.4 53.0 35.1 27.8 150.3 35.0 57.1 42.7 134.8 IFRS16 Adjustment
1.9 3.5 9.7
1.9 3.5 9.7
26.9 38.5 24.0 20.8 110.3 39.3 59.0 46.1 144.4 34.4 53.0 35.1 27.8 150.3 39.4 59.0 46.1 144.5
29
Segmental
1) Reported result includes acquisitions and disposals from the completion date 2) Pro forma for all material acquisitions and disposals including; acquisition of Swinton (31 Dec’18), acquisition of Nevada 3 Businesses MHG, HIG & PfP (31 Jan’19), disposal
3) 2019 results are set out post IFRS 16 implementation and 2018 results have not been restated to reflect this revised accounting standard in line with IFRS guidance
Reported Result YTD Q3(1) Pro Forma Result YTD Q3(2) Income £m 2019 2018 Variance (%) 2019 2018 Variance (%) Advisory (Insurance Broking) 156.8 144.6 8.4% 157.8 155.7 1.3% Retail Operating Segment 166.9 62.1 168.6% 166.9 178.6 (6.5%) Paymentshield 31.0 31.6 (1.8%) 31.0 31.6 (1.8%) Schemes & Programmes 38.3 51.3 (25.4%) 38.3 40.4 (5.3%) Retail 236.2 145.0 62.9% 236.2 250.6 (5.7%) Specialty & International 78.8 69.2 13.9% 78.8 69.2 13.9% MGA 28.1 40.4 (30.4%) 28.1 28.8 (2.3%) Specialty 106.9 109.6 (2.4%) 106.9 98.0 9.1% Corporate 5.5 4.3 5.5 4.3
505.4 403.5 25.3% 506.4 508.6 (0.4%) Reported Result YTD Q3(1) Pro Forma Result YTD Q3(2) Adjusted EBITDA £m(3) 2019 2018 Variance (£m) 2019 2018 Variance (£m) Advisory (Insurance Broking) 48.8 37.8 10.9 48.9 41.8 7.1 Retail Operating Segment 48.8 20.8 28.0 48.8 47.6 1.1 Paymentshield 19.7 19.9 (0.2) 19.7 19.9 (0.2) Schemes & Programmes 8.3 9.7 (1.4) 8.3 7.6 0.7 Retail 76.7 50.4 26.3 76.7 75.2 1.6 Specialty & International 15.2 13.1 2.1 15.2 13.1 2.1 MGA 4.9 2.0 3.0 4.9 6.3 (1.4) Specialty 20.1 15.1 5.1 20.0 19.3 0.7 Corporate (10.9) (13.8) 2.9 (10.9) (13.8) 2.9
134.7 89.5 45.2 134.8 122.5 12.3 IFRS16 Adjustment 9.7
9.7
144.4 89.5 55.0 144.5 122.5 22.0
30
1) Reported result which includes acquisitions and disposals from the completion date
IFRS 16 Impact Segmental Excluding IFRS 16 IFRS 16 Impact Including IFRS 16 Adjusted EBITDA £m(1) Q1'19 Q2'19 Q3'19 YTD Q3'19 Q1'19 Q2'19 Q3'19 YTD Q3'19 Q1'19 Q2'19 Q3'19 YTD Q3'19 Advisory (Insurance Broking) 14.6 21.1 13.0 48.8 1.9 0.6 1.1 3.6 16.5 21.8 14.1 52.4 Retail Operating Segment 11.1 19.2 18.5 48.8 0.7 0.7 1.0 2.5 11.9 19.9 19.5 51.2 Paymentshield 5.9 7.2 6.6 19.7 0.1 0.1 0.1 0.3 6.0 7.3 6.7 20.0 Schemes & Programmes 1.0 3.5 3.8 8.3 0.3 0.2 0.1 0.6 1.2 3.7 3.9 8.9 Retail 18.0 29.9 28.9 76.7 1.1 1.0 1.2 3.4 19.1 30.9 30.1 80.1 Specialty & International 4.4 5.1 5.6 15.2 0.5 0.6 0.6 1.6 4.9 5.7 6.2 16.8 MGA 1.5 2.6 0.9 4.9 0.4 (0.0) 0.3 0.6 1.8 2.6 1.2 5.6 Specialty 5.9 7.7 6.5 20.1 0.8 0.5 0.9 2.3 6.7 8.2 7.4 22.4 Corporate (3.5) (1.6) (5.8) (10.9) 0.5 (0.4) 0.3 0.4 (3.0) (2.0) (5.5) (10.5)
34.9 57.1 42.7 134.7 4.4 1.9 3.5 9.7 39.3 59.0 46.1 144.4
31
Value Proposition and Growth Drivers
Largest independent UK SME insurance broker
Wide range of brands and distribution channels to meet current and future client needs
Trusted insurer partner relationships
Benefits from Acturis implementation and legacy system shut-down driving margin growth Integrated scaleable and efficient PAS platform, positioned for further growth
LTM Q3 2019 KPIs(1)
UK, and largest independent SME broker
services, focused primarily on commercial and SME
appointed representatives
Health & Protect and Riskline/YourInsurance)
with a community based approach combined with a national and international reach
Organic Growth(2)
Income
EBITDA Margin
Retention(3)
New Business
Significant increase in retention during 2019 underpinning income momentum into 2020
1) Pro forma for the acquisition of MHG and HIG (31 Jan’19) and transfer of Riskline from S&P 2) Q3 2019 vs. Q3 2018, organic income growth excludes acquisitions (HIG & MHG) and the CTM closed back-book 3) Retained income vs. prior year, LTM Q3 2019 pro forma for acquisitions and Riskline business transfer
Overview Key Brands
Advisory Segmental
32
Financial Highlights
and underpinned by +4.8% organic income growth(6) as the result of continuing improvement in retention rates (+600bps
part of the strategic move away from online third party sales to focus on the telephone advice offering which delivers higher margins
the number of carriers and deliver better outcomes for clients
growth combined with delivery of cost saving plans
Health Insurance & Protection Awards in October 2019, including Adviser of the Year Q3 2019 Key Highlights
GWP £251.5m
+23.0% (Q3’18: £204.4m)
25.7%
+500bps (Q3’18: 20.7%)
Retention(4) 92%
+600bps (Q3’18: 86%)
New Business(5) £5.5m
+4.1% (Q3’18: £5.3m)
Insurance Broking Segmental Reported Result Q3(1) Pro Forma(2) 2019 2018 Change Q3 2019 LTM Income (£m) 50.6 45.7 +10.7% 206.5
13.0 9.5 +3.5 56.5
25.7% 20.7% +500bps 27.4%
1) Reported result includes acquisitions and disposals from the completion date 2) Pro forma for the small acquisitions of HIG and MHG, completed 31 Jan’19 3)
4) Retained income vs. prior year, pro forma for acquisitions and Riskline business transfer. On a reported basis, with acquisitions and disposals included from completion date Q3’18 was 87% 5) Gross new business before introducer/payaway costs 6) Organic income growth excludes acquisitions (HIG & MHG) and the CTM closed back-book
33
Value Proposition and Growth Drivers
2nd largest UK personal lines broker in UK(1)
(Acquired: 2018)
Best-in-class digital, pricing and data capabilities enabling targeted new business growth
Attractive portfolio of leading mass-market and niche brands
Growing policy volumes and increasing retention resulting in real income momentum into 2020
Track record of digital innovation, capacity management and use of data
Overview
van and a range of niche, personal line and SME tailored products
Doncaster with c. 2,800 FTE
channels (comparison websites and direct business), complemented by traditional call centre support
motorbike broker (via Carole Nash and Swinton), leading home insurance provider through multiple channels, both direct and financial intermediaries (via Swinton and Paymentshield)
(Acquired: 2017)
Benefits from Swinton branch closures and cost savings underpinning 2020 margin growth
Income
EBITDA Margin
Retention(4)
Policies(5)
Organic Growth(3)
1) By GWP, source Insurance Age 2) Pro forma for the acquisition of Swinton (31 Dec’18) and the disposal of Claims business (16 Oct’18) 3) Q3 2019 vs. Q3 2018. Organic income growth excludes acquisition of Swinton and the Claims Disposal, the impact of closed back-books and profit shares
Key Brands LTM Q3 2019 KPIs(2)
4) Q3 2019, retained policies vs. renewals available for Retail Operating Segment and Paymentshield and retained commission vs. renewal commission available for Schemes & Programmes 5) Only includes “direct-to-customer” policies and excludes MGA and TPA customers
Retail Segmental
34
Retail Retail Segmental
Financial Highlights
Swinton, completed 31 Dec’18
new business policy growth across all three brands
Swinton, with new business policies written during the quarter significantly up vs. prior year for each of the three brands (Autonet +21.6%, Carole Nash +23.7%, Swinton +6.5%)
margin, combined with investment in new business policy growth
and integration near complete. All branches have now been closed Q3 2019 Key Highlights
1) Reported result includes acquisitions and disposals from the completion date 2) Pro forma for the acquisitions of Swinton and a small book-buy in Q1 2018 3)
4) Pro forma for Swinton acquisition. Excludes closed book of monthly products. Retained policies vs. renewals available. Excluding Swinton, policies at Sep’18 were 551k 5) Organic income growth excludes acquisition of Swinton and the Ageas closed back-book
#Policies Under Mgmt.(4) 1,645k
#Total Policies Written(4) 509k
+0.1% (Q3’18: 509k)
Retention(4) 70%
+140bps (Q3’18: 68%)
#New Bus. Policies(4) 209k
+12% (Q3’18: 187k)
Reported Result Q3(1) Pro Forma(2) 2019 2018 Change Q3 2019 LTM Income (£m) 56.5 21.2 +166.3% 215.3
18.5 7.1 +11.4 58.7
32.7% 33.5% (80bps) 27.2%
35
Paymentshield Retail Segmental
Financial Highlights
books and profit shares year-on-year variances), driven by continued strong retention rates and strong new business growth
written in the quarter +14% and total policies under management up by +4.6% vs. prior year
benefit, in terms of both volume and quality of earnings
then by sustained income growth, and finally by sustained
Q3 2019 Key Highlights
#Policies Under Mgmt. 462k
+4.6% (Sep’18: 441k)
61.3%
Retention(2) 93%
Flat (Q3’18: 93%)
#New Bus. Policies 29k
+14% (Q3’18: 26k)
1)
2) Retained policies vs. renewals available 3) Organic income growth excludes impact of closed back-books and profit shares
Reported Result Q3 Pro Forma 2019 2018 Change Q3 2019 LTM Income (£m) 10.8 10.5 +2.9% 41.2
6.6 6.7 (0.0) 25.9
61.3% 63.2% (190bps) 63.0%
36
Schemes & Programmes Retail Segmental
Financial Highlights
income declined 1.3% although Adj. EBITDA increased +21.7% vs. prior year
continues to enrich Adj. EBITDA margin, and the decline in income slowed vs. prior quarters as agreed enhanced underwriting terms in the Caravan book (agreed 22 Jun’19) flow through to income
(0.4)% in the quarter, improved vs. prior quarters, driven by Healthy Pets continued strong growth, offset by decline on the Caravan book (less severe than in prior quarters), and exit
primarily driven by continued strong delivery of cost savings (ahead of plan), including improved operational efficiency, re- platforming of PAS systems (over 90% complete), central support integration, and exit of unprofitable business Q3 2019 Key Highlights
#Policies Under Mgmt.(4) 431k
+2.0% (Sep’18: 422k)
27.1%
+530bps (Q3’18: 21.9%)
Retention(5) 75%
Flat (Q3’18: 75%)
New Business £2.8m
Reported Result Q3(1) Pro Forma(2) 2019 2018 Change Q3 2019 LTM Income (£m) 13.9 17.8 (21.5%) 50.4
3.8 3.9 (0.1) 10.5
27.1% 21.9% +530bps 20.8%
1) Reported result includes acquisitions and disposals from the completion date 2) Pro forma for the disposal of the Claims business, completed 16 Oct’18 3)
4) Only includes “direct-to-customer” policies and excludes MGA and TPA customers 5) Retained commission vs. renewal commission available 6) Organic income growth excludes the impact of the Claims disposal and profit share payments
37
Value Proposition and Growth Drivers
Extensive global presence in 100+ markets and world recognised global heritage brand
Independent, market leading expertise and experience, with ‘in-house’ claims function
New producer hires not yet at full income maturity driving income momentum into 2020
Strong insurer relationships, built on direct interactions and proactive knowledge sharing
Leveraging end-to-end digital platform, ‘Edge’ tool for clients, markets and brokers already in place
diverse range of geographies and markets
alongside challenger proposition of Bishopsgate
with specialist market expertise in; US Property, International Property, International Casualty, US Casualty, Aviation, Marine (incl. re-insurance)
attractive proposition for talent
Property & Motor, Agriculture, Political Violence, and ATE
Organic Growth(2)
Income
EBITDA Margin
Client Tenure(3)
New Hires LTM
Standardisation of processes and digitisation of front end portfolio offerings
1) Pro forma for the acquisition of PfP (31 Jan’19) 2) Q3 2019 Organic income growth excludes acquisitions and disposals, accounting standard changes, profit share and other non-recurring items and is stated at constant GBP:USD FX: 1.3052 3) Average client tenure, weighted by income for Price Forbes
LTM Q3 2019 KPIs(1) Overview Key Brands
Specialty Segmental
38
Reported Result Q3 Pro Forma 2019 2018 Change Q3 2019 LTM Income (£m) 27.4 22.5 +21.9% 104.8
5.7 3.1 +2.5 21.8
20.6% 13.8% +680bps 20.8% At Constant Forex & Excluding Hedge Accounting: (2) Income (£m) 26.0 22.5 +15.8% 105.1
5.6 3.1 +2.5 20.3
21.4% 13.8% +750bps 19.3%
Financial Highlights
+15.8% (at constant FX rate), driven primarily by new producer hires
driven by driven by growth from new producer hires and existing portfolios within Aviation, Casualty and Property
generating income for Q3 with US Healthcare onboarded and expected income in Q4, which further emphasises our strategic vision to invest in top market talent, key clients and growth in niche and specialist areas
Insurance Brokers now completed to complement existing APAC regional strategy
specialism offerings whilst also forming the foundation towards modernising our operating model through process standardisation, consolidation, digitisation and automation Q3 2019 Key Highlights
Client Tenure 7.6 years New producer hires Q3’19 LTM: 15
Specialty & International Specialty Segmental
1)
2) Stated at constant GBP:USD FX: 1.3052 - Actual GBP:USD FX: average 1.2249 for Q3 2019 and 1.3052 for Q3 2018 (85% Q3 2019 income in USD), and removing the impact of hedging £1.3m
39
Financial Highlights
loss-making Commercial MGA business (1 Jan’19)
down 11.0% as the result of continued focus on operational efficiencies, resulting in margin down 680bps in the quarter although only down 240bps YTD given income seasonality
year, impacted by a decline in Agriculture income, as planned rate increases are implemented contributing to a decline in renewals, combined with a contraction in Solis Re, our US MGA, which is now an asset held for sale
quarter vs. prior year, a trend that is expected to continue as the segment transitions towards maturity
within Personal Lines, despite challenging market
Q3 2019 Key Highlights
GWP(4) £56.2m
11.5%
+1010bps (Q3’18: 1.4%)
Loss Ratio(5) 67.1%
Headcount(4) 348
MGA Specialty Segmental Reported Result Q3(1) Pro Forma(2) 2019 2018 Change Q3 2019 LTM Income (£m) 7.8 12.9 (39.4%) 36.0
0.9 0.2 +0.7 5.6
11.5% 1.4% +1010bps 15.5%
1) Reported result includes acquisitions and disposals from the completion date 2) Pro forma for the disposal of the Commercial MGA, completed 1 Jan’19 and the small acquisition
3)
4) Excludes Commercial MGA and includes internal transfers in both periods 5) Ultimate Loss Ratios, including paid, reserved and IBNR (incurred but not reported) claims and calculated on a calendar year basis with the same methodology applied across each year; excludes investment hire lines as insufficient claims experience to date – number as at Q2 2019 and excludes Commercial MGA and internal transfers in both periods 6) Organic income growth excludes acquisitions and disposals, accounting standard changes, profit share and other non-recurring items
40
The Group presents results to investors using alternative performance measures (‘APMs’). Pro Forma for Completed Transactions information seeks to present the results as though the acquisitions of Swinton, Nevada 2 and a small book purchase as well as the disposals of the Claims and Commercial MGA businesses had occurred on 1 January 2018. The Group presents EBITDA and Adjusted EBITDA as important APMs for both reported and pro forma results. The objective of presenting APMs is to facilitate readers’ understanding of progress irrespective of the capital structure and before deduction of significant business investment and transformation costs, which have been a key element of the Group’s fix, build and grow strategy in recent years. This slide presents the reconciliations between the IFRS comprehensive gain/(loss) for the year and the key APMs. The full IFRS results can be found in the Ardonagh Group Report to Investors for the six months ended 31 June 2019 on the website www.ardonagh.com. EBITDA and Adjusted EBITDA measures may not be comparable to similarly titled measures used by other companies. EBITDA, Adjusted EBITDA and EBITDA margins are not measurements of financial performance under IFRS and should not be considered as alternatives to other indicators of the Group’s operating performance, cash flows or any other measure of performance derived in accordance with IFRS. The Group adopted IFRS 16 by applying the modified retrospective approach, which requires the cumulative effect of initial application of IFRS 16 to be recognised as an adjustment to the opening balance of retained earnings on the 1 January 2019 date of initial application, without restating prior years. As such, the 2018 profit and loss has not been restated.
1) Reported result includes acquisitions and disposals from the completion date 2) Pro forma for all material acquisitions and disposals including; acquisition of Swinton (31 Dec’18), acquisition of Nevada 3 Businesses MHG, HIG & PfP (31 Jan’19), disposal of Claims business (16 Oct’18), and disposal of Commercial MGA (1 Jan’19)
3) 2019 results are set out post IFRS 16 implementation
Reconciliation to IFRS
Reported YTD Q3(1) Pro Forma for Completed Transactions YTD Q3(2) 2019(3) 2018 2019(3) 2018 Reconciliation of the IFRS Loss for the period to EBITDA and Adjusted EBITDA Loss for the period (67.7) (48.9) (65.9) (68.2) Eliminate: Items excluded from EBITDA Finance costs 84.0 63.9 84.0 81.3 Tax credit (6.8) (19.9) (6.9) (20.1) Depreciation, amortisation and impairment of non-financial assets 71.4 54.9 71.6 61.3 Derecognition of assets following sale of business 0.8
0.6
4.6 1.2 4.6 1.2 Foreign exchange movements 1.4 (0.3) 1.4 (0.3) EBITDA 88.2 51.0 90.2 55.2 Eliminate: Items excluded from Adjusted EBITDA Transformational hires 4.0 14.2 4.0 14.2 Business transformation 32.1 16.4 32.1 37.7 Legacy and other costs 6.0 16.0 6.0 16.0 Regulatory costs 9.3 (2.0) 9.3 (2.0) Acquisition and financing costs 4.1 1.3 2.8 1.3 Adjustment to gain on disposal of associate 3.3 (7.5) Gain on disposal of business (2.5)
144.4 89.5 144.5 122.5 Reconciliation of IFRS loss for The Ardonagh Group Limited for the period to Alternative Performance Measures (£m)
41
Shareholding
held by certain minority shareholders – following completion of the transaction, HPS and MDP increased their combined ownership in Ardonagh from 86% to 96%(1)
not entered into any other prior agreement which required them to enter into such transaction. The transaction was executed in accordance with the Shareholders’ Agreement and the other constitutional documents for The Ardonagh Group Limited
1) As disclosed in the press release “Acquisition of Minority Equity Interest in The Ardonagh Group” on 21st May 2019. Look-through shareholding as defined in the Shareholders’ Agreement
Shareholding % Dec'18 Current HPS 52% 54% MDP 33% 43% Other Shareholders (incl. KKR and Bain) 15% 3% Total 100% 100%
42
This investor presentation contains non-IFRS measures and ratios, including Adjusted EBITDA and Pro Forma Adjusted EBITDA, that are not required by, or presented in accordance with, IFRS. Non-IFRS measures are defined by us as set out below. “EBITDA” defined as earnings after adding back finance costs (including from 1 January 2019 effective interest on lease liabilities), tax, depreciation (including with effect from 1 January 2019, depreciation of lease right-of-use assets), amortisation, impairment of non-financial assets, profit/loss on disposal of non-financial assets (except for right-of- use assets in the year of transition to IFRS 16), foreign exchange movements and dividends received. “Adjusted EBITDA” or “Adj. EBITDA" defined as EBITDA after adding back discontinued operations, restructuring costs, Transformational Hires, Business Transformation Costs, Legacy Costs and Other Costs, regulatory costs, acquisition and financing costs, profit/loss on disposal of businesses or investments, share of operating profit/loss from associate, reduction/increase in the value of contingent consideration, as applicable. Adjusted EBITDA is stated before exceptional costs and one-off items as determined by management. “Pro Forma Adjusted EBITDA” or “Pro Forma Adj. EBITDA” defined as the Adjusted EBITDA of the business as adjusted for certain cost saving initiatives and cost synergies. “Pro Forma for Completed Transactions” defined as meaning adjusted to: (a) include the results of new acquisitions from the first day of the comparative year, (b) remove the results and gain or loss on disposal of discontinued operations, and of other business disposals from the current and prior year, where they have occurred prior to the end of the reporting period, and (c) reflect financing transactions as if they had occurred on the first day of the prior year. “Adj. EBITDA Margin” defined as Adjusted EBITDA divided by total income. “Organic” defined as excluding the impact of acquired or exited businesses and other non-recurring items and is set out at constant FX. “LTM” defined as the arithmetical sum of the last twelve months results, it should be noted that the 2017 results have not been restated for IFRS accounting standard changes. “Transformational Hires” defined as net losses associated with new joiners hired to drive transformational business growth in the Insurance Broking, Specialty & International
related costs, this is no longer a Management Reconciling Item). “Business Transformation Costs” defined as costs (other than restructuring costs) incurred in transforming the legacy Towergate business, in realising synergy benefits from acquired businesses by reorganising management and business structures and by implementing new systems and processes, in reorganising group structures, in transforming business processes, in terminating contractual arrangements, and in driving a cost base that is the right size for the Group. “Legacy and Other Costs” defined as pre-2016 or non-repeatable costs arising from retention payments to key staff so as to provide long-term stability to the business, from insurer loss ratio performance for legacy underwriting disciplines and decision making, from external reviews and process improvements in cash and liquidity reporting, from write down of legacy IBA balances, from remediation work in the Finance function, and from commercial disputes.
Glossary
43
“Operating Cash Conversion” defined as Adjusted EBITDA less working capital movement and maintenance capital expenditure, over Adjusted EBITDA. This excludes one-off costs, other capital expenditure and exceptional costs related to cost saving and income growth initiatives. “Free Cash Flow” defined as cash flow after proceeds from disposals, investments and interest, but before ETV costs, M&A and other financing cash flows. “Available Cash” defined as total unrestricted own funds plus ETV restricted funds. “Available Liquidity” defined as Available Cash plus Available RCF. “Available RCF” defined as available and undrawn RCF (Revolving Credit Facility).
Glossary