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: Market Announcement on Results for the Half Year Ended

31 December 2011

Attached for immediate release is Austbrokers Holdings Limited (AUB) Market Announcement in relation to the 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

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ASX release

27 February 2012

Austbrokers increases interim profit

Highlights:

• Net Profit After Tax [1] was $11.2 million (six months to 31[st] December 2010 $8.7 million) up 29%

• 17% increase in underlying Net Profit After Tax (Adjusted NPAT) to $11.5 million (six months to 31[st] December 2010 $9.8 million)

• 11.8% increase in interim dividend to 9.5 cents per share, payable on 27[th] April 2012

Austbrokers Holdings Limited (ASX: AUB) today announced a profit[1] of $11.2 million for the six months ending 31[st] December 2011 (six months to 31[st] December 2011 $8.7 million).

Shareholders will benefit from an interim dividend of 9.5 cents per share fully franked for the half year, payable on 27[th] April 2012. This is an increase of 11.8% on the previous years’ interim dividend per share.

The Net Profit After Tax of $11.2 million included after tax profits on sale of interests in associates and controlled entities and an adjustment to the contingent consideration on the acquisition of a controlled entity. It also included an income tax credit arising from the recognition of a deferred tax asset in relation to prior years' share based payment expense. If the above mentioned items, together with the amortisation of intangibles are excluded, the net profit after tax (Adjusted NPAT) was $11.461 million in 2011 (2010: $9.799 million), an increase of 17%.

Earnings per share increased by 25% (13.3% based on Adjusted NPAT) over the prior period.

The results for the 1HY2012 were very good reflecting the contribution of acquisitions, growth in the broking business assisted by premium rate increases and including the securing of new accounts as well as further development of the Austagencies underwriting business.

Insurance broking operations increased pre tax profits by 11.9% of which 1.2% was from direct acquisitions, the remainder from growth in business including bolt on acquisitions. While increases in premium rates for property were evident, other classes did not increase to the same degree and therefore overall increases were moderate. Commission and fee income for the network increased by 15.6% and total income by 12.9% again including the contribution of acquisitions.

Three bolt on acquisitions with income totaling $1.7 million were completed during the half year and another two with total income of $1.5 million have been completed effective from March 2012. In addition a business in Gladstone which carries on both insurance broking and life insurance activities has been acquired effective 1[st] January 2012. We have appointed Fabian Pasquini as General Manager Acquisitions and Development to continue our strong focus on acquisitions.

Austagencies’ commission and fee income increased by 55%, of which 38% related to acquisitions. Expenses increased by 46% as capability continues to be built up and as a result of acquisitions. Profit before tax increased by 59% of which 34% was generated by acquisitions. The acquisition of Film Insurance

1 Net Profit after tax attributable to equity holders of the parent

Underwriting from 1[st] January 2012 will complement the existing film and TV agency and provide an excellent platform for this line of business.

The iClose system for electronic data interface with insurers has been completed and the roll out to the brokers is currently underway. Brokers are now able to transact businesspak insurance with QBE, Allianz and CGU through this system. Vero and Zurich are working towards being in a position to transact. iClose will be expanded to enable further products to be transacted with Industrial Special Risks now being developed. This system enables underwriters to differentiate their product and, utilising other tools which are interfaced, will enhance the quality and efficiency of the broking process.

We were pleased to appoint Theo Stevens as Chief Information Officer and his role will include the successful implementation of iClose placements and further innovations in harnessing technology to achieve more efficiencies in the delivery of products and the transacting of general insurance business.

The second half year should see continuing increases in premium rates in property classes (most likely at only a moderate level) and also a contribution from the recent acquisitions. There will be some uncertainty over the amount of profit commissions to be received by the brokers following the high level of claims occurring during the 2011 calendar year. In addition, interest rates have decreased and now appear to have the potential to decrease further, which could impact investment earnings in the second half.

Last year approximately 55% of our profit was earned in the final four months of the financial year so the final outcome for the year will depend somewhat on conditions prevailing in the market at that time and economic developments.

Given the above mentioned factors, taking into account recent acquisitions and the current outlook, we now consider the growth in Adjusted NPAT for FY2012 will be in the range of 10% to 15% above FY2011 an increase on the previous guidance which was 5% to 10% growth.

Austbrokers Half-Year Results breakdown (six months to 31[st] December 2011)

Revenue from operations Expenses from operations - Expenses Borrowing Costs Profit from operations Profit from sale of interests in associates and controlled entities Profit on adjustment to contingent consideration Profit before tax Income tax expense Net profit after tax Profit attributable to non-controlling interests Net Profit attributable to equity holders of the parent	1HY2012 $’ 000 1HY2011 $’ 000 Variance % 58,988 53,477 10.3 (42,432) (39,520) 7.4 (1,241) (1,224) 1.4
	15,315 12,733 20.3 0 249 398 0
	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

Notes

1. The after tax profits for 1HY 2012 include a profit on adjustment of contingent consideration for an acquisition of $0.4 million. Profits or losses may occur in future years where actual contingent payments vary from amounts originally estimated.

2. The after tax profits include profits on sale of interests in associates and controlled entities in 1HY2011 of $0.2 Million (1HY2012 Nil). These profits result from restructures in equity holdings and may occur from time to time.

3. Income tax expense includes a credit of $0.6 million resulting from the recognition of a deferred tax asset in relation to prior years’ share based payments expenses.

4. Revenue 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.

Analysis of underlying profits

A more informative representation of Austbrokers’ performance is seen after removing:

• Profits on sale of interests in associates and controlled entities and adjustments to contingent consideration relating for acquisitions

• Amortisation of intangibles

• Tax credit arising from the recognition of a deferred tax asset on prior periods’ share based payments expense

Reconciliation of reported Net Profit after Tax attributable to equity holders to Adjusted NPAT is set out below:

Net Profit after tax attributable to equity holders of the parent Less Profits after tax on sale of interests in associates and controlled entities Less Profits from variation in contingent consideration Less income tax credit relating to prior years Net Profit from operations Add back Amortisation of intangibles net of tax Adjusted NPAT	1HY2012 $’ 000 1HY2011 $’ 000 Increase % 11,214 8,695 29.0 0 (165) (398) (631)
	10,185 8530 19.4 1,276 1,269 0.6
	11,461 9,799 17.0

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

To give a more comprehensive view of the performance of Austbrokers and its associates, the following table aggregates 100% of the equity accounted brokers’ and underwriting agencies revenues and expenses with those of the consolidated brokers before deducting other equity interests.

Insurance broking revenue Insurance broking expenses Net profit Profit attributable to other equity interests Austbrokers net profit from insurance broking Underwriting agencies net income Underwriting agencies expenses Net profit Profit attributable to other equity interests Austbrokers net profit from underwriting agencies Net profit before corporate income / expenses Corporate expenses Corporate finance costs Corporate income Net corporate expenses Net profit before tax Income tax expense Adjusted NPAT	1HY2012 $’ 000 1HY2011 $’ 000 Variance % Contribution to profit increase % 121,213 107,392 12.9 (87,616) (77,673) 12.8 33,597 29,719 13.0 (14,301) (12,478) 14.6
	19,296 17,241 11.9 14.7
	9,390 6,140 52.9 (7,038) (4,848) 45.2 2,352 1,292 82.1 (353) (33) 107.3
	1,999 1,259 58.8 5.3
	21,295 18,500 15.1 20.0
	(4,793) (4,317) 11.0 (3.4) (968) (907) 6.7 (0.4) 1,005 851 18.1 1.1
	(4,756) (4,373) 8.8 (2.7)
	16,539 14,127 17.1 17.3 (5,078) (4,328) 17.3 (0.3)
	11,461 9,799 17.0 17.0

Analysis of results

Adjusted NPAT for 1HY2012 increased by 17% over the corresponding prior period:

• Growth from the existing broker network, including bolt on acquisitions made, was the main driver for this profit growth contributing growth in Adjusted NPAT over the corresponding prior period of 14.7%. Direct acquisitions contributed 1.5% of this before funding costs.

Total commission and fee income increased by 15.6% and total income by 12.9% over the prior period while expenses by 12.8%. These increases reflected organic growth in the business including premium increases, acquisitions, direct expenses related to income growth as well as inflation. If the contribution of direct acquisitions was removed and the one off receipt of a trauma insurance payment in 1HY2011, total income grew by 10.8%, expenses by 9.6% and profit by 11.7%

• Underwriting agency profits were 59% above last year due to acquisitions and growth in the business. Income overall increased by 53% with commission and fees excluding profit commissions increasing by almost 55%. Expenses increased by 45% due to acquisitions and additional resourcing to support growth. Growth in profit excluding acquisitions was 25%. Underwriting agencies contributed 5.3% to the overall growth in Adjusted NPAT.

• Corporate expenses excluding borrowing costs were 11.0% above the corresponding prior period reflecting some increased spending in information technology and other administration expenses. This reduced Adjusted NPAT growth by 3.4%.

• Borrowing costs were up marginally due to the discount unwind on the contingent consideration payments for acquisitions, reducing Adjusted NPAT growth by 0.4%.

• Corporate interest earned increased due to higher amount of cash held. This increase had the effect of increasing Adjusted NPAT growth by 1.1%.

• Income tax expense is marginally higher compared to last year due to higher non deductible items reducing Adjusted NPAT growth by 0.3%.

Assessment of results

The Group's results compared to the prior corresponding period reflect the growth that has been achieved in both the broking and underwriting businesses including through both direct and bolt on acquisitions. While operations have benefited from increasing premium rates, these increases have been relatively moderate when taken over the entire portfolio. The result achieved indicates that the business is performing well and its current strategies are delivering the desired outcomes.

Outlook

Reasonable growth in commission and fee revenue has been achieved by the broker network in the first half and this is expected to continue into the second half.

The bolt on acquisitions made so far this year together with the direct acquisitions of Country Wide Insurance Brokers made last financial year and the Gladstone business from 1[st] January 2012, will contribute to an increase in earnings in the second half.

As in the past a significant amount of insurance business is due late in the second half with 55% of profit earned in the last four months of the year. The broker network also receives profit commissions from insurers, the amount of which will not be known until later in the second half but is likely to be reduced compared to the prior year due to the higher claims occurring during the 2011 calendar year.

In addition interest rates appear likely to decrease which could impact interest earnings in the second half. Taking these factors into account the 17% growth in Adjusted NPAT achieved for 1HY 2012 is likely to moderate over the full year as it did last year. We are however increasing our earnings guidance for FY 2012 to 10% to 15% growth in Adjusted NPAT over FY2011. The previous guidance was for growth of 5% to 10%.

Dividend

On 27[th] February 2012 the Directors declared a fully franked interim dividend of 9.5 cents per share. This dividend is payable on 27[th] April 2012. Based on issued shares of 55,545,576 shares, this dividend will total $5,276,830.

The dividend will be eligible for re-investment under the Company’s Dividend Reinvestment Plan (DRP). For shareholders to be eligible for the DRP in relation to the interim dividend for FY2012 elections will need to be received by the share registry by 5pm on 9 April 2012.

If a shareholder has previously submitted an election to participate in the DRP, those instructions will apply to the forthcoming interim dividend and all future dividends. If a shareholder wishes to vary its participation

status, a notice of variation must be received by the share registry by 5pm on 9[th] April 2012 in order to be effective for the forthcoming interim dividend.

The price for Austbrokers shares allocated under the DRP will be the "price" determined under the DRP rules (being the daily volume weighted average market price of all ordinary shares sold in the ordinary course of trading on the ASX during the 5 day trading period starting on the second business day following the record date of the dividend) less any applicable discount determined by the Austbrokers' board. For the forthcoming interim dividend for FY2012, ordinary shares will be issued at a 2.5% discount to the relevant “price”. Austbrokers may determine a different discount for subsequent dividends.

Austbrokers does not propose to have any DRP shortfall for the interim dividend underwritten.

The DRP will be open to shareholders whose registered address is in Australia or New Zealand at the relevant record date.

– Ends –

For further information please contact:

Stephen Rouvray Chief Financial Officer T: 02 9935 2201 M: 0412 259 158 E: stever@austbrokers.com.au

This announcement 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.