Steadfast Group Limited (SDF) Earnings Call Transcript

Ladies and gentlemen, thank you for standing by, and welcome to the Steadfast Group Limited FY '20 First Half Results Conference Call. [Operator Instruction] I must advise you that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Managing Director and CEO of Steadfast, Robert Kelly. Thank you.

Thank you, Edwin, and welcome, everybody, to the call. I'll refer you, if you like, to the pack and to Page 4 because we start on Page 4, and it refers to the Steadfast Group and we increased our underlying NPAT of 39%. This is the 14th time that Stephen and I have presented to the market as a publicly listed company. And when you're looking through the appendices, just go to Page 21, not at the moment, but -- and understand the pathway that we told you about in the beginning, and what's the graph and how they've gone forward from there. So our underlying earnings were up 20 -- EBITA was up 27% to $108.9 million and NPAT was 39.1% up to $53.2 million and NPATA 32.5% to $66.7 million. Our diluted EPS NPAT was up 29.7% or $0.0626 per share. So our interim dividend was up 0.12% (sic) [ 12.5% ] to $0.036 per share. Our statutory earnings in accordance with the accounting rules that confuse all of the analysts and most of the people that look at our company showed a net loss of 71.9% (sic) [ $71.9 million ] basically due to the accounting rules of expensing the acquisition of IBNA at $72.7 million post-tax and the professional service fee rebate of $60.2 million post tax. You'll see more details on Slide 9 of that and Stephen will address that for you a little bit later. The broker and agency group, if you look at the right-hand side of Page 4, the equity brokers and network aggregate EBITA was up 27.4% and our underwriting agencies in aggregate EBITA was up 13.4%. The long-term targets remain on track for the client trading platform. We've got 470 active brokers now using the platform. And our acquisition growth, we're basically made up of completing the acquisition of IBNA and the Steadfast professional service rebate plus some additional broker and agency acquisitions, which are in the normal course of that how we go about doing our business. Refer you to Page 5, which is more detailed about that. So if you have a look at the chart that we've got there with the first half underlying EBITA contribution, IBNA was $4.3 million or 5%, the Steadfast professional service fee rebate was $5.7 million or 6.6%, and the acquisitions were $6.3 million or 7.2%, giving a total underlying EBITA of $16.3 million or reflected in growth of 18.8%. For future growth, we extended our debt facility in accordance with how the assets grow in Steadfast. We're always mindful of making sure that our balance sheet is leveraged. And we went from $385 million to $460 million. We still have an unutilized debt facility at the moment of $186 million as of the 31st of December, plus of course, the free cash for the dividend flow generates out of our acquisitions and a part and full ownership. Reflecting that on Page 5 of the pack. The Steadfast network and our equity brokers. We gained growth from the IBNA and moderate price increases from our strategic partners as they correct their books as the insurers still strive to make the right profit out of their GWP that had a horrific past few months. They've touched up their reinsurance treaties in a big way. I'm not going to go over the horror run of weather events. But this -- what this means is that the trajectory that they've been on for the past 2 years to increase GWP prices will have to be maintained and the foreshadowing that there would be any easing certainly in the Australian market would be rather silly to say because we can't see anything that doesn't mean we're not going to get moderate price increases continue for the near future and short-term long future. The financial highlights are pretty simple. The Steadfast network grew in GWP to $3.9 billion or 32%, driven by the acquisition of IBNA and the new brokers who came in, continued growth from our vast range of authorized representatives network. This is an ever-increasing part of the distribution of general insurance products in the Australian market and seems to be accelerating rather than waning anyway. 6.5% organic growth for year -- for the first half of the year excludes the statutory classes, of course, and price increases and business pack and IFR and professional risks we were seeing coming through. The network GWP is 88% commercial line and 12% retail lines. I reflect back to 1996 and 1998 when we first started compiling statistics and the retail section of our GWP was 4%. So it shows that over a period of time that the consumer who everybody said would move away from intermediated advice is actually coming back stronger and stronger for intermediated advice. The gross written premium bar chart, you can see there, look pretty good. In 2013, we had $1.9 billion from the first half. And in 2020, we have $3.9 billion in GWP for the first half. So looking on the right-hand side, comparing first half '20 to first half '19: GWP $3.9 billion to $2.9 billion; organic growth, 6.5%; AR network contributing 4.6%; new brokers, 1.1%; and of course, the bringing in of the 75 brokers, who have got referred to IBNA brokers because they've joined our organization with [indiscernible] we've done at 19.6%, giving you a total of 32% total growth. Operational highlights well, obviously, the extra 75 brokers who joined bring us up to 473 brokers. 410 in the Australian network, 48 in the New Zealand network and 15 in the Singapore network. Investment activities in the Steadfast broking net in the first half of 26 new equity holdings we acquired, we increased our equity in 10 of our equity businesses. We hubbed 4 of our businesses. This is business -- BAU for us. We're doing this all the time, and we don't publicize what we're doing. We only do it twice a year at the half year and the full year, unless we buy something that is more than 5% of our net profit, and then we're bound to tell you about that. The 78 new IBNA brokerages contribute an aspiring GWP to $1.25 billion, and the client trading platform did $287 million in the first half or up 51% period-to-period for the prior. Our equity brokers and the network highlights in aggregate, we had an underlying revenue of $265.4 million or up 13.7%, organic growth of 6.9% and acquisition growth of 6.7%. Our underlying EBITA of 86.8% (sic) [ $86.8 million ] was up 27.4%, and organic growth of 7.2% and acquisition growth of 20.2%. They're outstanding numbers for any test, and I have to say that the effort that the team here goes through to make sure that we are on top of this all the time is actually outstanding and very helpful to be able to guide a business like this. So I go to Page 6 and looking at the underwriting agencies. We had record GWP and record, of course, underlying EBITA growth. The Steadfast underwriting agencies grew 21% in the first half of the financial year 2020, meaning we did $673 million. It was primarily driven through price and volume uplifts and then is 2% attributed to HMIA, which was an underwriting agency in heavy motor that we purchased. Property lines still remain strong and are ever increasing. And as reflecting back the amount of property damage that's been done by the floods, the hail and the bushfire isn't helping the ability for property lines to [indiscernible] in any way on a new feature. Opportunities for the agencies increasing all the time as insurers choose to reposition their product lines and their approach to distribution. We are agile, we are intelligent, we understand what we do, and people come to us to get risk solutions done, and that's represented by the fact that we're up at 21%. Our underlying EBITA of 49.1% (sic) [ $49.1 million ] is up 13.4% for the underwriting agencies. And if you look at the bar chart showing the GWP, you go back to financial year for '14, we did $58 million. And if you have a look at -- go to the half -- first half of 2020, we did $673 million. It's testament to the fact that we have expertise, skill and the ability to execute in our 26 underwriting agencies. And also the way the team is led by all our CEOs, and then the ability to be able to interact with them and make sure that we can see -- continually present some best-in-class solutions for the people in some of the agencies. On the right-hand side, you'll see first half '20 versus first half '19. Again, I reiterate, $558 million versus $673 million, 19% organic growth and there's that 2% acquisition growth for HMIA, giving a total of 21% total growth. The operational highlights. We do run 26 agencies with over 100 niche products. The strong performances are due to our long-term strategy of closely aligning capacity providers with our technology and our products to benefit the higher-premium pricing from our strategic partners. In other words, when the market moves and hardens, we don't have to necessarily follow that. We price for the capital we're given by our capital providers to make sure we give a return. Increasingly, the return on investment in greenfield has paid dividend. You'll see we have 2 or 3 greenfield operations at the moment but the maturing of our merchants in the cyber area, as shown a 41% growth in GWP, and shows that if you've got a dedicated team and you start something from scratch and you know what you're doing, you can do very well with it. The London super binder continues to be very effective. Any pressure we had was absorbed last year on remuneration, but we were given more capital. So we wrote more volume so, in fact, revenue didn't falter at all from that point of view. And 4 of the super binder insurance classes are now live on the client trading platform. That's an easy statement to make, but it's quite an incredible position to be and probably one of the first to see that anybody would bring some of the London capital or Lloyd's capital into the Australian market on a contestable platform basis and have it offered alongside the traditional insurances that the local market writes. Going to Page 7 and rating our insureTech, which basically revolves around the client trading platform and INSIGHT. There are 8 business lines, 13 insurers and underwriting agencies live on the Steadfast client trading platform, a difficult thing to secure. The variations to get further insurance over 8 business lines connected and operational. I may write a book on when we -- when I finish in my career because it's -- it shows the difficult way general insurance has transacted around the world and how we've been able to cut through that with the digital solution that facilitates ease of the insurer's hand and ease of the broker's hand and, of course, facilitates a better deal for the client. So it's a contestable marketplace. It was -- the client trading platform was designed well in advance for Hayne Royal Commission with the Hayne Royal Commission in mind that it would come eventually, and what it would say and what it would do. The contestable marketplace generates improved pricing. The coverage is best-in-class and each time a policy is quoted or renewed, it can go to market with a flick of a switch. 80% of the Steadfast network GWP could potentially go through the client trading platform in Australia. Our aim for that is to get around 60% and to be targeted over the next 4 years with the client trading platform. The addition of the 78 IBNA brokers brought in another $1.25 billion, which will increase over the next 12 to 18 months our target of the ability to place more business through that platform. Usage is up 41%, as you can see, on the client trading platform, and there are now 470 brokers using it. The latest developments being investing in the development of auto-raters for liability and PI and the continuation of our rollout through our New Zealand [indiscernible] is an outstanding job that our team on the ground is doing in New Zealand. INSIGHT, our broker management system or CRM, as you would -- some people would refer to it, provides the back office for 128 brokers at the moment and over 3,000 licenses. So it's from the dream 12 years ago, it's now a fully functioning and operating business. Remember, we set up INSIGHT as a cost-recovery business so that when people come to Steadfast, they get a better deal than what they can get in the market. Additionally, we've got another 50 brokers committed to go on the platform as we talk at this moment with another 162 in development. Just the highlight down the right-hand side, $287 million transacted, up 51% and 470 brokers. And then if you have a look at the bar chart, you can see from nothing it's growing $16 million, $39 million, $91 million, $190 million, $287 million, it starts to exponentially accelerate really quickly as more and more come on to it. That's just a quick snapshot, and I'll hand over now to Stephen to start on Page 9 and congratulate him and his team to the ability to be able to [indiscernible] business consolidated, put it all together and then get [indiscernible] come through and review it and then get it all ready. Welcome, Stephen.

Thank you. So going to Slide 9. There is a fair bit to NPAT this year with a few different transactions that have had an impact on our accounts. It's a long story and, of course, another strong uplift in our underlying profits for the business with contributions from the major initiatives that we have previously announced. We have previously highlighted that the IBNA transaction and the PSF relate offer would cause a statutory loss as the cost of those accretive transactions were expensed in the account. So we've highlighted upfront that reconciliation of the statutory loss to get to the underlying profits of the business. Firstly, when you look at the IBNA transaction, we had 100% acceptance rate for our Steadfast Group. There was a $72.7 million post-tax loss for that acquisition in our accounts. Our current estimate for FY '20 of the benefits of this transaction on underlying basis is $8.3 million, with a slight bias towards our first half. If you move to the Steadfast rebate offer, we had an acceptance rate of around about 70% funded roughly 50% by way of shares and 50% by cash. The consolidated results showed a $60.2 million post-tax loss for the transaction but an estimate of benefits to EBITA is now $10.7 million and again, with a slight bias of earnings towards the first half. The result we've shown here is the impact on to the consolidated numbers. As you'll know that some of our equity brokers took up the offer and so whilst the Steadfast network pays less rebate out, the equity brokers will receive less rebate income. So we have to net the 2 off to come up with these numbers. With the earnings from both these transactions now actually commencing 1 July 2019, we have now actually adjusted our underlying EPS share count as if the shares were also issued on 1 July 2019, even though they are actually issued later, to ensure that we actually don't have a mismatch between the income start date and the share issued for those transactions. So we've highlighted the share count 849.5 for first half '20 and 857.2 for the full year guidance when you dial up the capital raise that we did in August, September 2019. Moving to Slide 10. For our underlying results, we've laid down a significant uplift in earnings as a result of the positive trading environment we're in as well as our earnings-accretive transactions. We've also had a nice uplift in our shareholding in Johns Lyng Group, and they have continued to outperform since December. That investment is a longer-term strategic investment that has created significant volatility in earnings, pleasingly a positive uplift for the half year and further uplift since 31 December. However, we believe it's appropriate to take the share price volatility out of their earnings going forward as we don't control the share price of this company. So you see later in our guidance statement, if we move the Johns Lyng like-to-like adjustments totally from our FY '20 guidance statement being both the first half impact as well as any impact in the second half. So that is roughly 3% to 5% of earnings growth we've actually now removed. Because we've not previously flagged its result, I'll try to show you the results both on inclusive basis on the left-hand side and an exclusive basis on the right-hand side. If you did include the uplift of John Lyng, we'll be reporting a 39% uplift in net profit after tax and a 29.7% uplift in EPS. By removing that JLG, it's a 29.5% uplift in NPAT and a 20.7% uplift in EPS. Again noting, we've changed the share count to that more conservative that data on 1 July. To analyze the business in the following slides, I've actually reverted to a Johns Lyng exclusive basis. A little side note, the new leasing standard has now been applied for the first time, which resulted in a small reduction in how we calculate earnings for the first half '20 to around about $0.5 million pretax against us. Our cash flow was very positive as we expect in the first half as we collect the seasonally higher May and June revenue. We had some further noise in our cash flow from operations because of our premium funding, which we now report for the first time in our numbers, because they had some balance side mismatch because they collect the loan premiums right in the last couple of days of December and then they repay their facility in January. We've taken that noise out and to give you a more reflective $82.8 million cash flow from operations, which is a [indiscernible] to our NPATA. As I've said many times previously, our profits convert to cash on a very timely basis. We move to Slide 11. We've introduced the change in the reporting deck for our view of the broking operations and network, of course, does not exist without broking at its core. So we've now included its results together with the equity brokers. It is the right time to do it because the broker results were doing few where previously they had rebate income and now with the rebate offer, all of a sudden, that lot of revenue started to fall away. Similar to agency, we've also removed profit commissions to analyze position more consistently on a period-to-period basis. So this is the aggregate view of our businesses as if we own 100% of each and every business to allow full like-for-like comparison. A weighted average ownership of our equity brokers is a touch over 60% and, of course, we own 100% of the network. So our effective ownership of the income on the slide is circa 75%. So the key takeouts here are that there was roughly 7% growth in the revenue in line with the GWP movements we saw throughout the network and that's translated through to the bottom line. Revenue increase was consistent both in Australia and New Zealand. The growth was in line with, I think, what other insurance participants have generally commented on about the -- how the market conditions are prevailing. This revenue growth flowed through the bottom line to a significant acquisition growth in the section of business, which is mainly the PSF rebate and the IBNA transactions working their way through. That provided a further 20% growth in our bottom line earnings. Going to Slide 12, the agencies who we own around about just over 90% of the earnings that we've shown here, they continue to trade ahead of expectations with solid performances across all the businesses. The hardened market continues to provide great opportunities to close and the price and volume movements across the different agencies, and this translated into bottom line organic earnings accretion of 11.2%. There's a run rate uplift from the HMI acquisition in FY '19 that flows through to the additional 2% acquisition growth that you've seen here. Turning to Slide 13. So the last couple of slides showed the impact on the vast majority of our businesses. There is, of course, the premium funding and other ancillary businesses and our other corporate office costs to be overlaid, there is a little increase in corporate office for our expanded business and the fact they've got -- our FY '20 guidance, the numbers we've got are slightly higher STI, LTI coming through. This is a slide which shows the overall impact on our [indiscernible] numbers. So we looked at each of our 100-odd businesses and factored their earnings into each of these different columns we've given you to give you an insight over what drove our results. Bringing it all together on a consolidated basis, you now see the components of the 21.4% uplift in our underlying EBITA. This, of course, as I say, we excluded the impact of Johns Lyng, which actually in this side would have added a further 6% growth. So the 6.3% organic growth across our businesses, when you take account of all revenue lines and all the corporate office expenses, which we expect to continue in the second half, with some offset by the additional IT spend this half compared to 1 half '19 and the increased amortization of computer software, which I previously flagged, would come through. Note that we consider the amortization of software to be a normal running expense to conduct the technology side of our business, and therefore, reduces our EBITA. This spend is in line with our commentary, and we'll continue on, particularly in the second half as we look at integrating the IBNA network into our numbers and into our business. In fact, the IBNA column that we've shown you there on the acquisition side, that is before any IT expenditure, which we've put the IT expenditure into the organic growth side because it's just too hard to dissect what is probably even lost further if the business, as Rob said, isn't doing a lot of business. The quantum of acquisitions in this half, if you exclude IBNA and PSF rebate, which kept us very busy, was relatively small, about $7 million spent on the acquisition. So much on the acquisitions from the new businesses that you see here is the run rate from prior years and that will, of course, have a much smaller impact on the second half earnings. They contributed 7.2% in the first half. We've also shown the first half impact from IBNA and PSF, and knowing that it's slightly biased towards the first half, as we previously mentioned. Going to Slide 14, to our balance sheet. We now have the full impact of IQumulate to focused receivables book and its funding now coming through our balance sheet as we expected. We conducted our $100 million odd capital raise in August, September and have now refinanced the corporate debt facility with both 3-year, 5-year and now even some 7-year tranches that you see on the right-hand side. Our total corporate debt facility is now $460 million, which better reflects our debt capacity if you were to take our gearing to the Board-mandated maximum figure of 30%. As of 31 December, we just showed a 21% view when you exclude the premium funding and had $186 million available for future growth. So plenty of ammunition in the tank for the right acquisitions that meet our strict criteria. Slide 15. We've shown here the balance sheet where you strip out the IQumulate business. So you can actually see what the pro forma balance sheet, that third column, looks like without IQumulate when compared to 30 June. And as I said, you can see the capital raise coming through less the impact of the statutory loss that we had on the PSF rebate offer. Our corporate debt covenant exclude IQumulate figures. So this gives you a view, if you like, on that third column of how we and financiers consider our debt leveraging. The IQumulate debt is ring-fenced. It's secured against its own financials, with no recourse to the rest of Steadfast Group other than monetary investors. The IQumulate business has a very good collections record with credit risk mitigated by the cancel policies, trade credit insurers as well as, of course, its own collection and credit price hedges. On that point, I'll hand it back to Rob to talk through it.

Thank you, Stephen, and thanks for going through that. I hope everybody picked it up quickly, but there's a lot of information there. Just if you go to Page 17 of the pack, the interim dividend is up 12% to $0.036, up from $0.032 last year. We continue to target a dividend payout ratio of between 65% and 85% of the underlying NPAT. That's the Board mandate, and we'll continue to work to that. The DRP, the dividend reinvestment plan, to apply to the interim FY '20 dividend with no discount there. We will buy DRP shares on market. The key dates being dividend -- ex-dividend date will be the 2nd of March. Dividend record date will be the 3rd of March. The DRP on the 4th, and, of course, payment date will be on the 26th of March, when it is distributed. The graph on the right is interesting because it shows you our intent from FY '13 and how we built -- and I mean, we -- in the prospectus, we went out and we said, we will aim to give you EPS growth each year. And I think we achieved that. That's absolutely germane to the way we run the business is to make sure that those graphs on the right, they keep going in the right directions and accede to our desire to make sure that we achieve everything that we set out back in 2013. So just quickly on Page 18, we can reaffirm our top end of underlying EBITDA and NPAT guidance. Underlying EPS growth uplifted to reflect our current guidance and the lower-than-anticipated share count. So that helped our EPS. Our guidance now excludes the mark-to-market issue, as Stephen has alluded to, of Johns Lyng. It's very difficult to bring Johns Lyng in. It's a company we have no control over and the market dictates its share price. So whilst it's very exciting and has been a very successful launch and run by a group of dedicated people. It does -- it's not something that we think we should be bringing [indiscernible]. The core business, as Stephen said, we will report on all the time. So guidance, excluding Johns Lyng: EBITDA, $215 million to $225 million -- underlying EBITDA, I mean; underlying NPAT, $100 million to $110 million; and undiluted EPS NPAT growth of between 10% to 15%. I think they're numbers that people often say that with flow you get between 10% to 15%. Because in a 6-month period, in our businesses, things can be variable. Somebody can walk through the door tomorrow, we can do some due diligence, we can secure an acquisition that wasn't in the plan to do it. So we give those guidance levels so that we don't give the market any scares or any fro. But just reconfirm the top end of FY '20 EBITA and NPAT guidance. Year-to-date EBITA a gain of $6 million, NPAT of $4.2 million as of 25th of February. The outlook assumes that we continue to drive moderate premium increases that we will continue our -- and increase our technology spend for catering for the expanded network. When you get 78 brokers who come into your network and all look into our teams and a the vast majority say when you get it then it's a juggling position to make sure we have enough capital to do that and still uphold the DNA of providing EPS growth and shareholder value all the time. So if you have a look at the key risks, go to Page 48, 52 of the annual report. And I think that's just a way. The next page is a detailed appendices that Stephen and the team have put together. So I'll hand you back to Edwin now.

Thank you, Rob. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instruction] Your first question comes from Virad Mathur from Citi.

Just a couple of questions, if I may. Starting with guidance, your guidance at the top end of the range seems to imply that you think 2H '20 will be a fair bit better than 1H. Could you maybe unpack that a bit for us on what's driving that? And maybe also broadly give some color on where you expect this half year lift set to be with the business changes you've had?

Yes, so with regards to, I guess, breaking this conception -- sorry, Stephen here. First thing with regards to the guidance excludes Johns Lyng. So the 3% to 5% given its low share price that we removed. We've called out the impact of IBNA and PSF. And roughly, they would give you, let's say, on an NPAT basis, probably $5.8 million, $7.5 million alternative spending through. So they are, I would say, speed of the third part of the growth. And then we fully have the acquisition run rate that we've got in the first half to fall back in terms of when you take that across the whole year. So organically, we're expecting similar numbers to come through in the second half to drive that fall to 10% to 15% uplift. And as we've also moved it, our share count to be a little bit more conservative [indiscernible].

All right. And just on your revenue margin. If you look at the -- sorry, I -- yes. Yes, sorry, because I'm looking at your revenue margin, if I look at the fee and income -- fee and commission income as a percentage of GWP, and that seems to have fallen a fair bit to around 7% from around 8% in 2H '19. Just hoping to understand what drove that.

Yes, the main area is really thinking through on the agency side, which we also called out there, where we had some pressure coming on some of the agencies on the commission rate of lines we see but as we called out, we also had additional volumes that we were able to put and capacities arrived, which we really like, too. So that's where you're going to be able to impact coming through there particularly.

Virad, remember the agencies pay away a vast majority of their revenue and commissions to the facing brokers who bring business into them. So if you go to top line of 30%, just by way of example, you may only have 10% or 7.5% of that 30% to play with in terms of running the business and receiving a profit.

Right. And do you expect that to be similar in 2H '20 at around the 7% level? Or do you think that might change?

Yes. That will flow, yes.

Okay. And just finally, are you able to give some color on the rate rises you're seeing at the moment as being in a hardening phase as you mentioned? And how much longer do you expect these rate increases should continue? I know, Robert, you mentioned extending the trajectory there maintained.

2 more years for the rate increases, okay? And for people who've been following me, I said in January last year that I thought it had 18 months to run. I said in June last year I thought it had 18 months to run. I said in December now that it is probably going to have 18 months to run. And then we had what's gone on the Armageddon that we've been through on Australians and I'm saying now that looking at the working losses that insurers have had to sustain and how that hit their cat programs and how they're out in the market rebuying and refilling their cat programs. I think it's -- I'd say today, it's got at least 2 years to run. And I was in a forum with the ANZ Bank. They had a get together the other day, and one of the -- Andy Cohen, one of the affinity actuaries asked me that question from the rostrum. They said what do you think. I said I'd say 2 years, and he said I agree with you. It's not probably the first time an actuary and I are actually agreeing on something. So I'm really excited. Either the actuary is becoming dumber or I'm becoming smarter.

Your next question comes from Tim Lawson from Macquarie.

In terms of just that 6.5% organic growth you called out, can you just sort of break that out between rate units and then commission movements?

So the actual volume count was a slight uplift, but we typically get anywhere between 0% and 2% and nothing different this half. Vast majority of that 6.5% we called out really does relate to pricing.

Okay. So average commission, despite the previous question, hasn't moved a great deal?

No, no. It's pretty stable. Pretty stable.

Okay. Just the timing of the auto-rated for PI and liability, [indiscernible] consider volumes that might go through?

Like most launches of things like that. We're very much in the hands of the insurer to participate. We're actually building the radars now and giving them well, and they're giving to them. We're making sure that if they want to come on board, we can facilitate in whatever way to fill them. I would expect not to see much uplift on those auto-raters fall sometime towards the end of this year. Simon Lightbody is taking phase of that. I mean, what I -- what we understand? End of this year. So he doesn't agree with me. So I'm not around here at the moment, actuaries and the CEO, Rob, I just agree with you, that's correct.

Not towards the end of this year. I mean, the start-up, to get the insurers used to it, to get the brokers using it and then to get the happy endings, where they go, geez, these quotes look really good, and we're going to play. It takes some time.

But really for use in June, but then the usage rate would increase over time, is that what you're saying?

Yes definitely by the end of this calendar year.

And then just you mentioned that the variance of your guidance, that 10% to 15% at that EPS line talked about potential variance coming from maybe new acquisitions that come up. I mean, how much have you included for acquisitions you haven't made yet in that guidance?

We haven't included any. I guess, what Rob was saying, there's always a number of acquisitions that can come along or start changing equity holdings. There's going to be some little noise, if you like, that comes and flow through, which will kind of feed into the acquisition column. But at this stage, we're not factoring in anything that hasn't been done.

And you may be in a position where you've got some in play and then people, at this particular time of the year, will be saying, well, okay, we're in March, okay? And they are accounting for advising them whether they should settle in 2020 or they should go on the 1st of July or things like that. And then the different movements at their end, but say, well, I will be able to do something like that. So we don't bank it in at all.

Okay. And then just -- I mean, [indiscernible] but you do the large sort of deals with IBNA and the rebate offer. But other than that, as you pointed out, it was a relatively low period versus history. Is that because there's the time constraints caused by those larger deals? Or what are you seeing in the pipeline?

No, I don't think so. I think we ran pretty hard, and we still did a hell lot of work. And we merged people, we hubbed people, we did acquisitions. We did a lot of work. I have to say that in defense of our M&A team. They look busy and they, every time I go around here, they will happen to start playing something on the screen that they have a very intricate great chase and they look very concerned and very excited from time to time. So I presume they're working on a lot of stuff.

And the acquisition pipeline.

The acquisition pipeline is really strong, really strong. Okay.

Just the waterfall of thought that is quite helpful and specifically calling out that IBNA and the rebate offer impacts first half, second half. But can you just call out specifically what you're already cycling for those bolt-on new and increased equity holdings already in the second half of '19?

So is your question, second half '19?

So the timing of those deals that you -- is outside IBNA and PFS, that are already making a contribution into second half there, but if we're effectively cycling them already in second half '20?

That's right. So if you look at the acquisitions we did, largely that would flow through. You've got things like IQumulate, which has a first half seasonality bias. We had a couple of months of it into the last year, so there's only 3 or 4 months going to the second half '20. HMIA was completed in first half '19, so there's further run rate coming through on that major one, and so at the end of the day worked its way through. But most of those, they are first half '20, which don't flow through that as much into second half '20.

Your next question comes from Siddharth Parameswaran from JPMorgan.

Just perhaps related to Tim's question, I was just wondering if you could help us understand just how much you actually spent on acquisitions in the period ex IBNA and Steadfast. I don't know if I missed that, whether you'd actually given that detail.

I called that out at $7 million. So very low number, yes.

Okay. So not really any impact into the second half from that. Okay, fair enough. Okay. Just on the SCTP, just -- I think when we saw the targets that you talked about a year ago, I think you're expecting to do about $1.25 billion in 2020 in terms of premiums going through the platform, you must be well short of that. And arguably, we're losing a little bit of steam. The incremental dollars that we've got in this half versus what we got in the previous half, it seems like it doesn't seem to actually accelerating. It seems like it's actually decelerating in terms of that growth rate. I was just wondering if you could give us some idea of, a, whether the SCTP is actually making money yet? And also just what might be holding it back?

Sid, you might know, we bought out the professional service fee of IBNA and Steadfast. So predicated turnover for the client trading platform and the uplift in revenue was predicated on the professional service fee. We just bought that out, okay? So the reliance upon our income in future years will not be to the professional service fee. It will be indeed in a different way of how we will sell our products on behalf of the insurer. So the reliance on that, whether it washes its face or no at the moment is that the -- it went up 51% last year. If you look at the graph, exponentially, it's jumping dramatically each year. We think it will do somewhere between $650 million to $700 million. There is not another platform in the Australian market that does anything like that on an automated basis and the contestable platform over 13 insurers with 8 product lines.

So is it making money?

Is it -- it's not designed to make money for us. It's designed to make money for the insurer -- for the broker. We don't make -- we don't charge anything on a per click basis for it. It's a cost recovery for us. So out of those 3,000 people where that's -- as I said, the 470 brokers that are using it at the moment, there's somewhere between 3,000 and 5,000 people that use it. We don't charge for that from that point of view at all. We run it on a cost recovery. So when we put a feet into a broker's office and we charge them for the seat, it's cost recovery for the software we put in, and this is adjunct to that software that they get. So yes, we don't put fees in to move money out of that.

Okay. Okay. I was under the impression that this was designed to add incremental revenues to Steadfast.

It was when we put it together 7 years ago, but over a 7-year period, the way general insurance's distributors and remunerator in this country has changed, we have changed with it and we changed well in advance of the Hayne Royal Commission of how we're going to be going about doing our business.

Okay, fair enough. Okay.

You're right. We couldn't have done the deal with IBNA without having the technology.

Yes. And I mean, part of the appeal for IBNA coming was held about [indiscernible]. So if I was looking at the chart that we put together a couple of years ago, how the earnings are expected to get. If you look at even coming through, et cetera, we've actually effectively achieved what we've seen we've had by this time. It just came through a slightly different mechanism and it is changing as the market is changing and that's how we expect to get it for the future.

Okay. Okay, fair enough. Okay. Just a question just on the comments, Stephen, that you made about the bias, I think, in terms of the earnings from the fees from IBNA and Steadfast. Why is there a bias in the first half versus the second half?