AUB GROUP LIMITED — Interim / Quarterly Report 2012

Feb 26, 2012

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27[th] February 2012

The Manager Company Announcements Australian Securities Exchange Level 6, Exchange Centre, 20 Bridge Street Sydney, NSW 2000

Dear Sir / Madam,

Re: Presentation on Results for the Half Year Ended 31 December 2011

Attached for immediate release is Austbrokers Holdings Limited (AUB) Presentation on results for the Half Year ended 31 December 2011.

Yours faithfully,

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Stephen Rouvray Company Secretary Austbrokers Holdings Limited

For further information, contact Steve Rouvray Tel: (02) 9935 2201 Mobile: 0412 259 158

AUSTBROKERS HOLDINGS LIMITED

First Half Year 2012 Results Presentation

Monday 27[th] February 2012

Lach McKeough CEO Steve Rouvray CFO

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Agenda

• Overview

– Business Overview – 1HY 2012 Business Highlights – 1HY 2012 Financial Highlights

• 1HY 2012 Financial Performance

• FY 2012 Outlook

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1

Business Overview

• Austbrokers is one of top four insurance broking networks in Australia

• Over $1.5 billion in gross written premiums (including charges) placed

• Over 1,600 personnel engaged in the business

• Wide geographical spread over 110 locations

• Regional presence

• Solid SME base

• Corporate capability

• Owner / driver model

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2

Business Overview

• Insurance Broking owner-driver model

• 42 member broker firms

  • 22 50% owned

  • 17 51% - 90% owned

  • 3 100% owned

• 2 stand alone financial services firms

  • 1 100% owned

  • 1 75% owned

• Underwriting agency business

• Entities are authorised to write business on behalf of licensed insurers – no underwriting risk

• Austagencies

  • Writes $130 million in premiums annually

  • Specialist underwriting agencies

  • General property, liability agencies

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3

Business Overview (con’t)

• Joint Venture with IBNA – A&I Member Services (AIMS)

• Approximately $2.8 billion premium and over 120 businesses (combined Austbrokers / IBNA)

• AIMS value proposition to underwriters to develop products and closer relationships

• Quality products

• PI insurance program

• Centralised support for broker network

• IT services and centralised DataCentre

• Strong risk management and compliance processes and systems

• Austbrokers Business Centre to provide back office services where required

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4

1HY2012 Highlights

• Broking Business

• Increase in premium rates – property classes

• – Achieving organic growth

• Acquisitions

• Acquired general insurance broking and life insurance agency business based in Gladstone QLD effective 1[st] January 2012 with income of $1.2 million

• Acquisitions in Network

• Austbrokers Countrywide (50% owned) acquired 80% of Hamilton & Hamilton on 1[st] October 2011 - $0.7 million income

• Austbrokers RWA (60% owned) acquired insurance businesses in Tamworth and Coonabarabran both with income of $0.5 million

• Country Wide Insurance Brokers (50%) in Perth is to acquire a portfolio with income of $0.3 million effective 7[th] March 2012

• MGA (50% owned) is to acquire a portfolio in Adelaide with income of approximately $1.2 million effective March 2012

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5

1HY2011 Highlights

• Equity Movements

• Divested 10% in Austbrokers City State (now 90% owned) to reinstate owner driver

• Underwriting Agencies

• Increased commission and fees income by 55% (17% excluding acquisitions)

• – Developed new agencies

• Acquired Film Insurance Underwriting Agency 1[st] January 2012 – complements existing film and TV business

• Synergies / Efficiencies

• Centralised back office continued development of support services to allow smaller businesses to focus on their business

• IT

• Roll out commenced of iClose - system for new business quoting and placement for businesspak business using predetermined work flows through electronic data interface with insurers

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1HY 2012 Financial Performance Highlights

$’000	1HY 2012 1HY2011 Change
Net Profit after Tax attributable
to members	11,214 8,695 29%
Underlying	11,461 9,799 17%
Net Profit after Tax after adjusting
for profit on sale of equity interests,
profit on adjustment of contingent
consideration and tax credit relating
to prior years & excluding amortisation
of intangibles (Adjusted NPAT)
Earnings per share (NPAT)	20.4 cents 16.3 cents 25.2%
Earnings per share (Adjusted NPAT)	20.8 cents 18.4 cents 13.3%
Dividend per share	9.5 cents 8.5 cents 11.8%

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1HY 2012 Financial Performance Highlights

$’000	1HY 1HY % change
	2012 2011
Broker Revenue(net of commission	121,213 107,392 12.9
Paid)
Brokers & Agencies Profit	21,295 18,501 15.1
(AHL share)
Profit (before tax and amortisation	16,539 14,128 17.1
of intangibles and sales of businesses)
NPAT (before amortisation of intangibles	11,461 9,799 17.0
and sales of businesses) – Adjusted NPAT

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Agenda

• Overview

• 1HY2012 Financial Performance:

• Income statement – as per ASX reporting

• Reconciliation to Adjusted NPAT

• Profit and loss statement – detailed

• Balance sheet

• Funding

• FY 2012 outlook

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Income Statement 1HY2012

Revenue from ordinary activities Expenses from ordinary activities Borrowing costs Profit from sale of interests in subsidiaries Adjustment to contingent consideration Profit before tax Income tax expense Net profit Profit attributable to minority interest Net profit attributable to members	1HY2012 1HY2011 Variance % $’000 $’000 58,988 53,477 10.3 (42,432) (39,520) 7.4 (1,241) (1,224) 1.4
	15,315 12,733 20.3 - 249 398 -
	15,713 12,982 21.0 (2,821) (2,856) (1.2)
	12,892 10,126 27.3 (1,678) (1,431) 17.3
	11,214 8,695 29.0

Extracted from Consolidated Financial Statements for Half Year ended 31[st] December 2011

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1HY2012 Reconciliation of Reported NPAT to Adjusted NPAT

Reported Profit attributable to members Profits on sale of interest in associates and controlled entities Adjustment in contingent consideration on acquisition of controlled entity Tax credit relating to prior years Profit from ongoing operations Amortisation of intangibles net of tax Net profit after tax from operations before amortisation of intangibles (Adjusted NPAT)	1HY 2012 $’000 1HY 2011 $’000 11,214 8,695 - (165) (398) - (631) -
	10,185 8,530 1,276 1,269
	11,461 9,799

• This information has been extracted from the consolidated financial statements which have been subject to review by the company’s auditors

Elimination of the items above provides a basis for analysis of the underlying performance of the company. These items may or may not recur and can distort underlying performance compared to prior periods

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11

NPAT Growth 1HY 2007 - 2012

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12000
10000
8000
NPAT
6000
Adjusted NPAT
4000
2000
0
2007 2008 2009 2010 2011 2012
% increase NPAT 28.3% 25.1% 14.3% 7.2% 21.3% 29%
% increase Adjusted 14.6% 38% 12.6% 7.1% 25.9% 17%
NPAT
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Adjusted NPAT – Net Profit after tax attributable to members

Net profit after tax before amortisation of intangibles before profits on business / portfolios sold, adjustment to contingent consideration for acquisitions and tax credit relating to prior periods

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Earnings Per Share 1HY2007 - 2012

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25
20
15
NPAT cents per share
Adjusted NPAT cents per share
10
5
0
2007 2008 2009 2010 2011 2012
NPAT cents per share 9.3 11.7 13.3 14.1 16.3 20.4
Adjusted NPAT cents per share 9.3 12.9 14.5 15.3 18.4 20.8
Adjusted NPAT calculated on same basis as Basic Earnings per share
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13

1HY Compared to 2HY

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25
$M
20
15
Adjusted
2HY
NPAT
1HY
10
5
0
2007 2008 2009 2010 2011 2012
Financial Year
2HY 65% 59% 60% 61% 59%
1HY 35% 41% 40% 39% 41%
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13

14

Dividend

Interim Dividend

• 9.5 cents per share fully franked – up from 8.5 cents last year (11.8%)

• In line with adjusted NPAT eps growth of 13.3%

• Eligible for DRP

• DRP shortfall not proposed to be underwritten

• Shares will be issued at 2.5% discount to five day VWAP

• Closing time to make elections – 5pm 9[th] April 2012

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15

Increase in NPAT 1HY2012 vs 1HY2011

$’000

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12000
11500
11000
10500
10000
9500
9000
8500
8000
1HY2011 Corp Exp Tax Borrowing Costs Corp Income Austagencies Broker Profits 1HY2012
Interest
9,799 (333) (26) (43) 108 518 1,438 11,461
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Increase in Pre-Tax Share of Broker Profits 1HY2012 from 1HY2011

$’000

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19500
19000
18500
18000
17500
17000
16500
16000
15500
FY2011 Other Premium Funding Interest Earnings Increase in Other inc FY2012
Income net of exps
17,242 (170) 372 382 1,470 19,296
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17

Insurance Broking Results

• Commission and fee growth is 15.6% (12.7% excluding direct acquisitions)

• Expenses up 12.8% (9.6% excluding direct acquisitions)

• Total income up 12.9% (10.2% excluding direct acquisitions)

• Other income reduced due to trauma insurance receipt in 1HY2011 of $0.6 million (underlying increase in total income 13.5%)

• Profit growth 13% (11.9% excluding direct acquisition)

• Growth includes bolt on acquisitions

Refer Appendix 1 for detailed insurance broking results showing aggregated income and expenses for both associates and subsidiary brokers

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Broker Profits as % of Broker Income

Brokers Profits (before tax) as a percentage of Broker Income

	Including Austagencies	Insurance Broking
1HY12	27.3%	27.7%
1HY11	27.3%	27.6%
1HY10	25.2%	25.1%
1HY09	25.6%	25.4%
1HY08	25.2%	25.0%
1HY07	20.7%
1HY06	19.2%

• Commission and fee split – 65% / 35% in line with FY2011

• Commission and fees as a % of base premium down marginally from 18.0% to 17.5%

• Fees down marginally to around 6% of base premium from 6.3%

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Underwriting Agencies Results

• NPBT up 59% (25% excluding acquisitions) to $1.999 million

• Commission and fee income up 55% (17% excluding acquisitions) to $8.913 million

• Expenses up 46% (10% excluding acquisitions)

Refer Appendix 2 for detailed Underwriting Agency Results

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Funding

• Facility from St George Bank– limit $44.3 million including subsidiaries $6.4 million

• Facilities utilised at December 2011

• $27.3 million at holding company level

• $5.7 million in subsidiaries

• Facility term is 5 years to August 2013

• Estimated $4million committed for future payments for completed acquisitions will be met from cash flow

• Funding available from facility for future acquisitions around $11 million which together with free cash held of $7 million (after recent acquisitions) gives $18 million in total

• Key ratios

• Interest cover ratio – 17 times (EBITDA basis)

• Gearing 17.6%, target range 30% (debt to debt plus equity)

• Comfortably meet financial undertakings to Bank

• Borrowing by associates at 31 December 2011 not on Austbrokers balance sheet - $40 million

• Increase due largely to acquisitions

• Also includes borrowings for premium funding activities and loans to AR’s

• Interest cover ratio 13.6 times (as a group)

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Agenda

• Business Overview

• 1HY 2012 Financial Performance

• FY 2012 Outlook

• Market conditions

• Strategy

• Outlook

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Market conditions

• Premium rates increases evident in market but only moderate overall

• Interest rate reductions have put 2HY2012 cash rate below average rate for 2HY2011, likelihood of further reductions

• Timing of acquisition activity is remaining unpredictable

• Age demographics in insurance broking industry will ensure continued acquisition opportunities for direct acquisitions or portfolio / bolt on business

• Potential increased competition for acquisitions

• Economic activity has been somewhat subdued impacting SME sector

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Strategy

• Growth – acquisition activity to continue

• business development – marketing strategies

  • acquire skilled account executives

• Continue to expand underwriting agency capability

• Continue to leverage owner driver model to bring in capability in both broking and underwriting agencies

• Back office synergies and efficiencies – improvement in IT systems and DataCentre, utilising central back office where possible

• Roll out of new system for new business underwriter quoting and placement platform using iClose

• Underwriter relationship / product development via AIMS (IBNA Joint Venture) – for marketing advantage and best trading terms

• Premium funding – continued growth and development

• Life risk and superannuation - continue to develop business, particularly life risk

• Increase human resource capability through employment and training (particularly emerging leaders in broker network)

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FY2012 Outlook

• Premium rate increases are likely to continue but it now appears that these will be moderate except where claims experience or type of risk dictates higher rates

• Insurance broking industry consolidation – continuing acquisition opportunities but any new acquisition activity unlikely to contribute significantly to FY2012 results

• Organic growth in income expected to continue to emerge through broker network initiatives

• Profit commissions receivable in 2HY2012 are dependent upon underwriting results for 2011 which were impacted by weather events

• Interest rates will be down over corresponding period last year and further reductions now expected – impacts interest earnings

• Around 55% of profit earned in last four months of the year – final result depends on prevailing market conditions at that time

• Based on performance for the first half and taking into account the above we have increased our earnings guidance for FY2012 to be 10% to 15% growth in Adjusted NPAT over FY2011

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---

This presentation may contain forward looking statements relating to future matters, which are subject to known and unknown risks, uncertainties and other important factors which could cause the actual results, performance or achievements of Austbrokers and the Austbrokers Group to be materially different from those expressed in this announcement. Except as required by law and only to the extent so required, neither Austbrokers nor any other person warrants that these forward looking statements relating to future matters will occur.

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Appendix 1

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1HY2012 Compared to 1HY2011

	1HY 2012	1HY 2011	VARIANCE	VARIANCE
	$'000	$'000	$'000	%
BROKER OPERATIONS
COMMISSION AND FEES	98,746	85,393	13,353	15.6%
LIFE INCOME	4,488	4,539	(51)	-1.1%
PROFIT COMMISSIONS	202	114	88	77.2%
PREMIUM FUNDING	9,707	9,058	649	7.2%
INTEREST	6,014	5,347	667	12.5%
OTHER INCOME	2,056	2,941	(885)	-30.1%
REVENUE	121,213	107,392	13,821	12.9%
EXPENSES	(87,616)	(77,673)	(9,943)	12.8%
PROFIT FROM BROKING OPERATIONS	33,597	29,719	3,878	13.0%
PROFIT ATTRIBUTABLE TO OTHER PARTIES	(14,301)	(12,477)	(1,824)	14.6%
AUSTBROKERS SHARE OF BROKERS PROFITS	19,296	17,242	2,054	11.9%
PROFIT FROM UNDERWRITING AGENCIES	2,352	1,292	1,060	82.0%
PROFIT ATTRIBUTABLE TO OTHER PARTIES	(353)	(33)	(320)	979.0%
AUSTBROKERS SHARE OF UNDERWRITING PROFITS	1,999	1,259	740	58.7%
PROFIT BEFORE TAX, CORPORATE OFFICE EXPENSES AND AMORTISATION OF
INTANGIBLES (AFTER OUTSIDE EQUITY INTERESTS)	21,295	18,501	2,794	15.1%
CORPORATE OFFICE
INCOME	1,005	850	155	18.2%
EXPENSES	(5,761)	(5,224)	(537)	10.3%
NET CORPORATE OFFICE EXPENSES	(4,756)	(4,374)	(382)	8.7%
PROFIT BEFORE TAX AND AMORTISATION OF INTANGIBLES	16,539	14,127	2,411	17.1%
INCOME TAX	(5,078)	(4,328)	(749)	17.3%
NET PROFIT AFTER TAX AND BEFORE AMORTISATION OF INTANGIBLES	11,461	9,799	1,662	17.0%

This presentation aggregates both associates and subsidiaries income and expenses in total before deducting interests of other shareholders – shown as profit attributable to other parties. In the consolidated financial statements associates are equity accounted and only the after tax profit is reflected in revenue

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1HY2012 Compared to 1HY2011

	$'000	1HY 2012	1HY 2011	VARIANCE	VARIANCE
				$	%
CONSOLIDATED BROKERS
COMMISSION AND FEES		30,852	28,666	2,186	7.6%
LIFE INCOME		2,468	2,465	3	0.1%
PROFIT COMMISSIONS		166	27	139	514.8%
PREMIUM FUNDING		2,684	2,630	54	2.1%
INTEREST		1,769	1,608	161	10.0%
OTHER INCOME		827	795	32	4.0%
REVENUE FROM CONSOLIDATED BROKERS		38,766	36,191	2,575	7.1%
EXPENSES FROM CONSOLIDATED BROKERS		(28,024)	(26,621)	(1,403)	5.3%
PROFIT FROM CONSOLIDATED BROKERS		10,742	9,570	1,172	12.2%
EQUITY ACCOUNTED BROKERS
COMMISSION AND FEES		67,894	56,727	11,167	19.7%
LIFE INCOME		2,020	2,074	(54)	-2.6%
PROFIT COMMISSIONS		36	87	(51)	-58.6%
PREMIUM FUNDING		7,023	6,428	595	9.3%
INTEREST		4,245	3,739	506	13.5%
OTHER INCOME		1,229	2,146	(917)	-42.7%
REVENUE FROM EQUITY ACCOUNTED BROKERS		82,447	71,201	11,246	15.8%
EXPENSES FROM EQUITY ACCOUNTED BROKERS		(59,592)	(51,052)	(8,540)	16.7%
PROFIT FROM EQUITY ACCOUNTED BROKERS		22,855	20,149	2,706	13.4%
PROFIT FROM BROKING OPERATIONS		33,597	29,719	3,878	13.0%

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Appendix 2

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30

Austagencies Underwriting Agencies

$’000 1HY 2012 1HY 2011 INCR / (DECR)

Commission and fees Profit commission Claims handling fee Interest Other income Expenses Net Profit before income tax Other shareholder interests	8,913 30 45 402 - 9,390 7,037 2,353 (354) 1,999		5,759 118 - 247 16 6,140 4,848 1,292 (33) 1,259	3,154 (88) 45 155 16 3,250 2,189 1,061 (321) 740

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