Steadfast Group Limited (SDF) Earnings Call Transcript

Good morning. Thank you for standing by, and welcome to the Steadfast Group FY '22 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Robert Kelly, Managing Director and CEO. Please go ahead, sir.

Thank you very much, and good morning, everybody, and thank you for joining us. It's always nice to start one of these by saying our underlying NPAT increased by 29.3% last year. So it's always a bit easier when you see how amazing [ direct ] to the start your briefing that way. So we'll run through the pack and then take questions. I'll refer you to Page 7, if you like, of the pack and just -- let's run through it. The NPAT is up from FY '21 from $143.0 million to $171 million outstanding from our own point of view. Then our underlying earnings, EBITA up 29.5% to $340.4 million; NPAT, up 29.3%, $169 million; NPATA, up 28.3% to $205 million and our diluted earnings per share is up 16.5%; the fully franked, [indiscernible] up 11.4% or 7.8 cents for second half, giving us a total of 13 cents per share dividend, fully franked. If you look at the bottom of that and have a look at Page 7, you see this roughly our revenue came 55% from the broking side and 45% from the underwriting agency side. So just down the right-hand side of the page, you'll see that the equity brokers and the network aggregate underlying EBITA was up 23.6%. We've put the slide next to that so that's for your reference. So if you want to look -- go down a bit on Slide 20. Our underwriting agency is contrary to what we've been saying for the last couple of years, increased their EBITA to 22.5%. We -- about 2 years ago, I said I thought that the growth of 18% is not continuing or they would be -- achieved and I've improved [ role ] on that. And then Stephen can certainly sort of look up into the second half that FY '22 would be slow in the underwriting agencies, and that we're both wrong on that. We keep -- we have an excellent suite of underwriting agencies, and they seem to be able to provide and fulfill a hole in the market that people are looking for. So the client training platform has also gone from lease and down over 20%. So the broker in our underwriting agency group is very solid and growing very strongly. Of course, going back to FY '13, when we decided that we would put the IPO together in August 2013. It was on -- it was predicated on that we would be an acquisition company that would acquire its network process over periods of time and be a succession for the network. We've done that very successfully on the past last 9 years. And of course, a bit last year was FY '22 where our capital initiatives was absolutely typical of what we want to do. We completed $552 million worth of EPS-accretive acquisitions, including the large one [indiscernible], which has produced outstanding results for us and has [indiscernible] into our network, really, really smooth and its performance is well in line with what the management forecast, and the promising ways that we still haven't been able to reach into cover for because of COVID at the time but we see a great run rate coming further on that. And then that leads me to insurance plans in Australia, which is the prime target of that being insurance [indiscernible]. One of the truly great independent broking operations or, should I say, financial service conglomerate, so still less independent or was, I should say, I should put that in the front, less [ far end ] -- it's the acquisition of Insurance Brands of $301 million. It includes the $25 million deferral, which is performance both. It's a fantastic diversified group, I'll speak a little bit further about that in the deck. We expect it to be easier to [ EPS-accretive ], excluding synergies in the first full year, and we will endeavor and we [indiscernible] towards the 23rd of August completion, right on that. Trapped Capital, the initiatives that we started and formed about 2 years ago, we started rolling out about 18 months. We've still got a pipeline of over $400 million or around the $400 million mark. And that's at the EBITA multiple of 10 times -- and we anticipate that during FY '23, we should complete somewhere around the $220 million of that $400 million. It leads me to the reason why the capital raise -- we're doing the acquisition of Insurance Brands out of our current facilities. But because we had this group of Trapped Capital acquisitions coming through, we elected to raise $225 million per day, the book build going on today and also, that's fully underwritten, not be unwritten and we put into the retail sector, another $25 million. So that just gives you a quick summary of the group. And if you -- and then you then step over to Page 8, you'll see that the Trapped Capital is extrapolated a little bit for you. So we completed in FY '22, 23 acquisitions with an annualized EBITA of $44.4 million and an acquisition cost, as I alluded to before, of $525 million. If you then step into FY '23, and we're into that already, we've completed 2 acquisitions for $1.4 million to the EBITA and $12 million of acquisition cost. And then which leads us to the IBA acquisition, which is, of course, completing on the 23rd of August. The estimated annual EBITA was $21.2 million and the purchase price of versus $301 million. As I said, there's an adjustment with -- if the business doesn't achieve what it's predicated to do. However, the performance in the business over the year and that we will truly anticipate in time adjustment. We actually have 9 term sheets out signed, and we've completed that due diligence on those. And that's another $10.7 million worth of EBITA at an acquisition cost of $117 million. And the 6 term shares issued, which is the next phase before we start to do due diligence again $4.2 million worth of EBITA and $40 million worth acquisition costs. Further to that, there's another 50 opportunities where people are working with us and our M&A team is lining up the process of getting that into a more formal flow of acquisitions of net $24.8 million and $243 million worth of expenditure. So that just gives you a bit of a synopsis of Trapped Capital. Reflecting on Page 9 on the actual IBA acquisition overview. It was a company that was established in 1983 and it has grown to be one of the leading [indiscernible] insurance distribution firms in Australia, insurance professions that work within that group across 70 locations. It's quite an amazing business. It also further strengthens our position as the leading general insurance broker network in Australia. The acquisition is for 100% of Insurance Brands Australia. The enterprise value of $301 million. And again, as I alluded to before, we're paying $276 million upfront with a further earn-out for $25 million. That will be the best check that we can write because it all mean to achieve that $301 million price, and that [ increases ] our bottom line. Of course, that will be done after the FY '22 results, and we look forward to doing that. Just on the adjustment, you can see there we put down there top if we hit the 21.2% by the end of '25 we get the 19.5%, there's no adjustment. And so it's a great business. We're very pleased to have our EPS accretion in the first year excludes synergies. And as I said before, it's scheduled to complete on the 23rd of August. If you then tick over to Page 10, we give you a bit of an analysis of our sustained growth through the network. And it's quite simple to look at from the point of view of that the network GWP grew 13.1% to $11.1 billion, which is a fine test at an amazing section of the Australian mediated market [indiscernible] is up around the 36% to 37% of the intermediated market. And interestingly, we highlighted 86% of that is commercial lines and 14% is retail. Just reflecting on that [indiscernible] when we first started this business, our retail percentage was 4%. It just shows that the consumer is still reaching in for any immediate results or find out to reinsure house [ and car ]. The bar charts on the left show the growth. It's an outstanding both protection starting with FY '14 and running up to FY '22, the book at $4.1 million in FY '14, it looks like it's getting much bigger than that, there's going to be difficult to do, and as you can see, $11.1 million. So on the right, FY '22 compared to FY '21; GWP, $11.1 million to $9.8 million; 10.2% organic growth; 7.7% in price; 2.5% in volume. And we always highlight coming through the AR network and new brokers, giving us a total of 13.1%. The operating pilots are pretty good. There's 447 brokers in the network. You may also say is that less than last year where there's been an amalgamation of both, we put them together. So we've got 355 in the Australian network, 50 in the New Zealand network and 22 in Singaporean network. And our investment activities for FY '22 have been near -- we have [ 60 ] new equity holdings. We did 14 bolt-ons. We call them bolt-ons as well as [ 15 ] equity brokers by the small base of business or another small broker. And we did set a [ few ] step down. It's important to explain what a step down in equity means, which is it means we're bringing in partners contained within the firm that we own, mainly in the management team and making them part of our equity ownership and it works really well for us. It challenges us in some ways because if we sell down $3 million worth of EBITA, then we've got to get that $3 million worth of EBITA back before we could status quo over the 5 years. So when we get -- when we do the step down, you'll see that -- and we produced the number that we've got now, we see our dynamics, the network is excellent and how we execute these in the broker. We're now at on 67 brokers out of the network. And interestingly, the client trading platform, which is actually growing the revenue growth and giving the consumer base change, and we had a 19.2% increase. We didn't quite make the $1 billion mark this year. That is basically because of the competition in the general insurance and not in the general insurance per se, but in the house and car market, where the direct insurers are a really interesting out there, capital [indiscernible] another and earning their profit. So we're happy to watch and do that, and we're happy to receive away from that market to come back to a more sensible prior to [indiscernible]. And just the set of equity brokers, their underlying EBITDA is $260 million to $270 million were up 23.2%. Again, over further Slide 20. And if you go over to Slide 11, the underwriting agencies. It's an amazingly strong and powerful group. This refers to the bar chart on the left, and you see the growth and the compounding growth that we've achieved in these underwriting agencies, up 19.9% to $1.8 billion. If you have a look at that impact on the insurance market in Australia, and say we have a group of 28 underwriting agencies doing $1.8 billion, and then look around some of the insurers in the [indiscernible] in the Australian market, it shows actually the incredible size that we've got the -- most of that increase was driven by price and by volume uplift. Property lines still remain very strong, and the opportunities that come by insurers repositioning their risk appetite and repositioning their views about how they approach some lines through distribution. The underlying EBITDA, other than $42.4 million, again, up 22.5%. So just to the right in the blue box, FY '22 to '21, up from $1.5 billion to $1.8 billion in GWP; organic growth, 17.1%; acquisition growth, 2.8% gets to 19.9%. There's 28 agencies, 100 niche products, the use of robotics across some of our networks is increasing and dramatically taking the tedious part out of underwriting. And in fact, we're making it more efficient from the underwriters in the agencies. And of course, delivering to our consumer to both markets, a more effective way of doing business; [indiscernible] higher pricing has allowed us to increase our market share as the market continues, it's -- I guess, [ hard ] to improve profit line and that has to be done on port increase in premium prices. And the effect of reinsurance hasn't -- it's compounding effect that the cost of the insurance of new business is getting higher and higher. We also implemented this year a market segment -- segmentation team to drive our presence and awareness through all the Steadfast underwriting agencies that's been successful. And it allows us to dissect -- what sectors we're doing, which -- where we're allocating our capital to work on. So also the participation in the client trading platform by the underwriting agencies cross [indiscernible] commercial property and IFR [indiscernible] liability professional and professional [indiscernible]. And lastly, of course, the motor fleet again, started to compound our turnover every month. There's 28 days as I say, if we only work for intermediated markets, we work for the entire market. So not one of our agencies works just for Steadfast. In fact, as the whole market uses about 54% of our turnover is done through Steadfast; about 46% of it's done by the whole open market and we will never be an exclusive to Steadfast brokers [indiscernible]. So Page 12, the final dividend, up 11.4%. That's our job that we have to do we have to run the business to create accretive distribution of dividends to you. The FY dividend, as I alluded to before, is up 11.4%. Still put this if you have a bar chart to the right up around -- if you have a look at the 2 colors there. We've got underlying earnings per share and then our dividend per share -- and we're still always saying around that 75% distribution. The key, there's no discount for the dividend reinvestment plan. There's a [indiscernible] base, there's ex dividend, 22nd of August. The record date is 23rd, DRP is 24th and then payments will flow on the month of September. So we hope that, that's a very pleasing slice of [indiscernible] invested in our business, and we will continue to drive shareholder returns along that line as we have done since the close. So just a little on Page 13, if you just add a quick look at our businesses and run through them. You see the Steadfast Group, we've rolled out, ensured a value score system. This is where we have a look at who we do business with, what value they bring to the organization, in terms of density for the clients and risk appetite. And ultimately, how we can best serve the people that this group has to look after. We continue to roll out of our suite of risk management. We enhanced them all-the-time product solution in their system. They're world-class. They're absolutely outstanding, and we're very proud of it. We've seen our team and experts and find that as we further get into this program of enhancing what we do, we have to lift the level of expertise into our automotive risk transfer and our risk mitigation evaluation system, and we've been able to attract some very good people in that area. We made a strategic investment in client security international. This is an amazing business that we own a slice of, along with the University in New South Wales and along with some very clever people in technology. It's something that is groundbreaking. It's something that we will give more and more view to as it comes through, but it certainly runs in line with our ESG. A lot runs along in line with how we can mitigate risk and it allows the consumer to have some alternative ways that they can mitigate the risk of -- just on the FTC. We continue to roll out more insurer offering. We improved the policy wordings all the time. We make sure that integration capacity from building insurers is getting simpler. Our year-on-year growth is circa 20% on this. Our product lines get extended all the time. Our [indiscernible] panels extended. And I'm very pleased to say that New Zealand is coming online to the New Zealand insurer so we're docking SCTP as a seamless way we do business with our network over there. In terms of international expansion, we use Steadfast a bit of a sleeping giant. We've had certainly -- COVID certainly [indiscernible] help us to get that through there. We've now started to integrate our management team in the second half of FY '22. And with more particularly, that will take -- will ramp up a bit further in early next year. We've had some of our people working aligned with the [indiscernible] team. I must say they've taken to that very nicely through all of the facets of what we do over in Australia and money parallel from them. So the next phase of what we're doing in the middle of doing that is the analysis of the international insurers and the potential for SCTP to expand that way with our insurance partners in Australia, who are represented internationally around the world. And we've also launched the Steadfast Group service [indiscernible]. We did that at their Independence Day Conference in New York, a couple of months ago. It was taken up with both use. And the product that we've built in this division here are very able to be used on a worldwide. They're built on a worldwide plan and not whilst they particularized for Australia, they're not unique only to Australia, only the ESG, the environmental, social, governance side. We are looking at how we can establish and give a transition plan to become carbon-neutral. We will have that in place and rolled out by the latter part of calendar year '22. And we'll then use the framework of what we've done there to start [ talking ] through the network so that the -- what we've learned and the systems we've got, and we now run out through 2,000 offices in Australia. This Steadfast Client Solutions, we commenced that. It's delivering client solutions to some Steadfast brokers in particular, in areas [indiscernible] and also 2 of our under [indiscernible] 3 coming up to 3 at our underwriting agencies. It's been a successful start. And again, we're resourcing that as a build. On the marketing and communication team, we've extended our branded tracing system. So we understand more and more how Steadfast is considered in the general public, from the consumer and the SME area. We've also finalized our broker choice analysis system, which gives us a position of what the consumer thinks about the name of Steadfast and their broker, and we chase that all the time. I'm pleased to say it increases our understanding of what the market thinks about it. It also allows us to target some of the areas that we need to increase to make sure that there's more awareness done. And of course, we rolled out as the Steadfast difference to -- for our network broker. That's an analysis of how when somebody asks, what is the benefit for you to be an independent broker, but to be part of the Steadfast Group. It allows them to plug in all of what we do into a presentation to their client. The broker service team, we've extended our contractual liability help line. This is an amazing good system. It's just about every consumer in the SME market or any other market is asked to assign a contract and to commit their balance sheet to that signed contracts. This does analysis of contracts and put the consumer right ahead of just making a decision on their behalf. And of course, allows the broker that comes to and get the service contractual liability help line, the ability to tailor and protect them through this, [indiscernible] any liability that may be assumed on the contract. We've also extended our hard-to-place hub in London and Australia. This is now a go-to hub that not -- doesn't necessarily say that Steadfast agencies can solve the problem for them, but what the world market and the local market can do in regard to various hard to place risk and it's a conglomerative information, which we keep up to date all the time. And of course, last year, we extended our professional development as both in the context and the way we put through. And we're getting an incredible amount of support for those, not uncommon for us to trend between 3,000 and 4,000 people a year through that and it's extremely well as we see at all time. And lastly, with Gold Seal, with the audit system we've commenced the rollout, which is an onerous task [indiscernible] and necessary task. And of course, integrate to that is the Steadfast contract, which is run in parallel and supportive to the lever [indiscernible] and corporate to Steadfast position, which particular to in the past. So if you go to Page 14, we talk about insurTech. And basically, the continued take-up of the broker platform is quite astounding. And basically, we look at what the SCTP delivers for the client and it covers several aspects of what a brokerage job should be by giving -- and particularly, that plays deference [indiscernible] what the state about what a broker role with the consumer should do. It's a genuine contestable platform. It generates at competitive pricing. It's a big platform by insurers between 9 and 11, participate in some of the policies that are on there. And the coverage is allow the insurer to bid on a whole range of products in the whole range of our GWP [indiscernible] as a particular sector. that further aligns the client that brokers interest because there's a fixed commission payer regardless of turnover and you do a dollar on it, you get to say commission, if you do $100 million. It's a wonderful system and delivering exactly on particularly under what we call our tailored policies. We run a thing called Triage, which is when clients occur and there are expectations not met by the policy, that the consumer thought we're going to get. So our Triage team, which is the considerable event, works on the policy wordings to take the ambiguity out of the policy work that a consumer can buy with great confidence, over top of that, insurance broker can advise the [indiscernible] confidence about the [indiscernible] and what the policy will be. And then we push that back into the policy wordings that are put out through the client trading platform. We continue to remain focused on adding more product lines, more insurance, expanding our all [ go ] rating systems in it. And in the latest developments, we're looking at our capabilities in that area for liability and PI. And the next commercial product, we're developing are farm. And just to give you an idea, our farm products are around $440 million, so it's [indiscernible]. There are 9 business lines and 16 insurers and the underlying agency partners, and we have also come online with the client trading platform. So just to finish out here, the inside broker management system, which is -- of which it supports the brokers in how they handle their back office, how they handle their customer relationships, and of course, the trial training platform can fit in seamlessly into that area. We've done 210 broker conversions, which is resulting in 182 brokers live because we, as I said, we've converted some brokers, we've converted growth in 3 into 1. And after merging brokers, we had 182 lives and 4,400 active users using our systems. We have another additional 21 brokers that are very keen to join on, and we've got 75 that we're lining up as well. So just to the right-hand side, that's the growth of the acquired training platform. So someone's going to ask me, am I -- disciplined point of view disclosed factor or should it be better? I'm just pleased that we get to look at the bar chart there and tell me to grow a business from 0 to $1 billion with annual growth of between 9% and 21% in order to be [indiscernible]. Finally, I refer to Page 15. We call this our brag page, I know that sounds arrogant and self-centered but it is, because that's the fact of what we've done. Going back to FY -- Slide 14, GWP growth, underlying agency growth, underlying EBITA growth, underlying NPAT growth, NPATA growth, underlying EPS growth, EPS growth, [ Steadfast Client ] [indiscernible] and our return on capital. I'm not going to bore you with the exact numbers, but please have a look at [indiscernible] have a sharp look and they vary as a group, as a management team, please [indiscernible]. So now I'll get off, as you probably sick listening to me. And I'll hand you over to Steve and to start on the financial comments.

Thank you, Rob. And I'll start with Slide 17. First of all, good morning, everybody. This is, as Rob said, our ninth year in a row of as an ASX-listed company and our ninth record profit. And as you probably already looked ahead, aiming for -- to complete the perfect team for the decade. So when you combine the results with another large acquisition, a substantial capital pipeline and a couple of raise, there's never a dull day around Steadfast. So let's start with the reconciliation of the statutory results to the underlying, where we called out the usual accounting items that flow into our stat earnings. As per usual, we've removed the profits related to our Johns Lyng investment. And as part of our Trapped Capital acquisition, we acquired further interest in our associates taking them to subsidiaries. We remove that profit that resulted as we revalue those initial interest in the associates. We also reversed out that first half impairment of our sports underwriting agency, which we detailed at the half was one of those businesses impacted by COVID in particular. In essence, we take Steadfast profit $171.6 million, and we dial down to that $169 million, a 29% uplift on the prior year. Moving to Slide 18. We'll now focus on the underlying results. We've laid down a very significant uplift in earnings over FY '21 with very strong double-digit increases on every bottom line metric. We recorded total revenue of over $1 billion for the first time with a 26.2% increase on top line to $1.135 billion or $1.136 billion. Embedded in this, of course, is the acquisitions we did in FY '22, of which Color Force is the largest, but we're also, of course, the benefactor of their continuing hard insurance market. There have been, of course, some cost pressures with a tight labor market and the return of much of that discretionary spending, the marketing, the conventions, the sponsorship, travel, entertainment, particularly in the second half. However, margins were generally maintained or improved. The cost increases were more than offset by that revenue growth leading to those very solid uplift that you see there with the EBITA up between 29.5%; NPAT up between 29.3%; our earnings per share up 16.5%; cash earnings up 28.3%; cash EPS up 15.6%. We experienced a further uptick in volumes and certainly a harder market in the second half, which is why most of our metrics were above those reported in the first half. The EPS increase was towards the top end of our guidance range, with the share count from that FY '22 capital raise, obviously, impacting further as we anticipated in the first half commentary. The price rises were a touch above our assumed 5% to 7%, 7.5% range, with price momentum really didn't get a pace as we closed out the year. So we achieved the results at the top end of our range, even though we enacted a few management sell-downs that Rob talked about to lock in the key management to some of our businesses. The organic growth ended up at the very top end of our guidance range when we operated in February 22. The acquisition growth was held back by some of those Trapped Capital acquisitions being played into FY '23. Excluding Coverforce, our acquisition multiples for insurance intermediaries have been between at 8x and 10x. We actually averaged at 8.5x when you exclude Coverforce. Our Trapped Capital acquisitions, as you know, are trending now around about that 10x mark to 10x what you might call the typical brokerage. Seasonality of earnings this year was impacted by our acquisitions with a strong second half. We ended up with about 45% first half, 55% second half seasonality. Next year will potentially be even more heavily skewed with insurance brands being a heavier second half and the expectations of the Trapped Capital acquisitions throughout FY '23 will also naturally favor that second half. Moving to Slide 19. So this slide detects our 29.5% EBITDA growth in some of the key components, showing organic growth, very solid 13.3%, acquisition growth of 16.2% and both components were ahead of the original full year guidance expectations when we announced our first half metrics. The technology component we previously disclosed here was a mere 0.6% headwind and we've now incorporated that into the organic growth section. We also removed -- I think perhaps investors were focusing on perhaps on the cost side of the technology as opposed to the strategic and the revenue-generating benefits that we get by having that technology. The acquisition growth contains, obviously, the results of Coverforce, which has delivered underlying results in line with our purchased EBITA expectations. We've also received positive benefits to our other businesses who relish the opportunity to cross-sell to them now that they become an equity business. The amount we capitalize on our balance sheet for technology, was a just a touch higher than prior years. A portion of that from our subsidiaries, investing into technology improvements. That is also a result of our increased spend, which we did flag you in February that we would invest a touch more in our technology suite. There's also been, of course, significant salary increases in that sector, which we've started to transmit through the second half and obviously flows through to next year. Slide 20. We show the results for the broking -- the agency slides as if we own them all 100%, and we take away any profit shares for the agencies to analyze the position more consistently year-on-year. For the brokers and the network combined, our blended average ownership here of these results you see in the page is around about 75%. We own about 100% of the pure network, of course, and around about 69% average investment in our brokerages. For the year, there was roughly 10% organic growth in revenue in line with what we saw across the network and, of course, in line with the hard market conditions. Given that about 70% of our revenue is commissioned, which is leveraged to that GWP, that gives you a circa 5%, 6% revenue growth, and the balance of that growth was due to some excellent volume growth that we've got through on the broking side of about 4%. As foreshadowed, we said there would be some additional costs coming back into the business after really not much increase at all in FY '21. And in particular, we processed 2 [ lots of way ] rises on July 21, after no increases in the prior year. The revenue increases certainly exceeded the cost increases, which was our aim. Hence, we showed a 7% uplift in the bottom line profits with strong momentum in the second half. In addition, we, of course, have the significant acquisitions particularly in that first half, where we concentrated into the broker space, adding 16.6% bottom line EBITA growth. This has been our largest spend on acquisitions in years with over $550 million invested in a continued pipeline of opportunities. The acquisitions in FY '22 will have a further 2% EPS accretion into FY '23, which we'll tell you as we get to that guidance slide. Slide 21 on the agency where we own approximately 92.5% of the earnings you see on this page. For the fourth year in a row now, they continue to trade ahead of expectations throughout the year with solid performances across most businesses. The second half performance actually mirrored their first half as the hard market conditions strengthen perhaps even a touch further, providing continued opportunities to quote and win that business. This subject only in a very few minor instances on some capacity constraints. Price movements, volume movements spending on different agencies all came through and translate into significant top line organic revenue growth, as you see there, of 16.9%. There were some cost increases processed, but there was still actually some margin expansion as we reported bottom line accretion of 20.7%. Going to Slide 22. Our businesses continue to convert the profit into cash [indiscernible] to touch higher than typical with a couple of timing differences, well over 100% of our $205.4 million NPATA coming through as cash. Our debtor days continue to be better or equal to the historical levels. Our premium funding collections have continued again without concern, which we think is a great limit [indiscernible] for SME business. Arrears continue to be better than the pre-COVID levels. Our $139.1 million of free cash flow has, obviously, been invested into our ongoing acquisition activity. And obviously, last year, we combined that with a capital raise to complete all that we do. Moving to the balance sheet. Besides our acquisition activity, which we financed partially by the new capital, we also reset our debt facilities. We have increased our debt facilities to $660 million, up from $460 million at very competitive margins with an additional $300 million of accordion facility, should we activate that. These facilities extend now up to November 2026, as you can see on the slide. And as of today, we have $315 million of undrawn facilities that can be accessed through our corporate purposes. Our gearing ratio, when you exclude the premium financing is 19%, with the new acquisitions and capital raise it's, of course, will ebb and flow. And so we'll revisit the gearing on Slide 33 to give you a position of what happens after these key transactions. However, I would make the comment that we stay relatively conservative with respect to gearing given the current economic environment. And importantly, in a period of rising interest rates, investors need to be aware that we actually have more cash on deposit than we actually borrow. So should interest rate rise and let's assume that the amount we can get on deposit mirrors the increases we get on our borrowing, that should actually be a net benefit to our profit and loss statement. Turning to slide -- I'm going to go back to Rob now I think, actually, on talking about the key events we are now going through.

Yes. I mean up to Page 25, [indiscernible]. Thank you. Okay. The -- we want to make sure that the -- obviously, the IBA acquisition, this is a substantial acquisition. And the reason that we're doing is for me, it's a highly successful business. It's very much aligned with our other businesses. It's an existing network broker. It's got a terrific management team. And it's demonstrated the ability to take adversity well. They had a fairly severe cyber attack, which they've gone over, got through, held them back in terms of [indiscernible] not on profit, but in the developing. And they've got on top of that, and put in systems that are fantastic and the ability to grow that business has been outstanding from our point of view. They've got some very trusted brands throughout us, okay. It's a mainly SME business. It's not a business that's got any one client that's going to dominate it. I'll show you the revenue streams in a minute on the next page as they diversify. It's again, another capital-light business. It converts cash quickly. And the strategy is founded on delivering great client outcomes and making sure that they look into how insurance is distributed. From that point of view, I had this incredible web called insurance.com.au, which had just launched in August and it's been in the gestation period for some time. And it allows the consumer to have access to a brand that is run by a broker, but look, but in many ways, it looks like a direct brand. And they've got great support from the insurance industry to do it. And the fact that their management team took steadfast script, it's very similar to what happened with the Coverforce acquisition where -- but the major owner and key employees took Steadfast through pretty much along with the way we think. Its initial consideration of [ 276 ] gives us protection in terms of nonperformance of the business. As I said, the best check, we're right, we'll be sending to another $25,000 -- $25 million or did I say $25,000? I would be very happy to hear that. And we're buying at a roughly 14.2% EBITA. That was some synergies and some stuff we can do, we think that we can work that back to about $13.4 million. The synergies are estimated to be about $1.2 million and GWP for the group of about $438 million. It should immediately give us a 2% EPS accretion, excluding any synergies. And of course, we expect to work that up more than the 2%, up to 2.5% on the full loan rate, and a little bit further as we get further into the [indiscernible]. $56.1 million of our script has been issued in the acquisition. So a large part of the $276 million, picked up by that $56.1 million. And the premiums charged by insurers is expected to increase. So we see that there will be a natural increase in GWP. It's a pretty good business. So go to Page 26. And then just give you a bit of an overview of what Insurance Brands means in terms of its diversity of income and what it does insurance [indiscernible], a very well-established 1983 business, active [indiscernible] in may works in a whole range of SME area, good footprints in the farm area. You've got the underwriting agencies and [indiscernible] -- they are well-respected in the market, but with respect not developed to the tender will be, they will file under Steadfast underwriting agencies and we will work alongside them to develop their product line and spread their product line through our distribution. But it even in those first 2 insurance, out a CAGR of 14%. You see the line again, 7% CAGR on the underwriting agencies, which is pretty good during the COVID era. And then the authorized rep side, they have a niche part of authorized rep, run by a very experienced guy we've worked within over 3 decades in other iterations. He attracts people. He's got a good point into the rural area. And again, [ private ] growth of 8%. And then the digital platform is ensure.com.au. Just in this infancy stages being under development work, well backed by insurer support, and we will get behind those as well. And then, of course, the life side of the business is one that really adds solutions to self-employed [indiscernible] new people. They got product lines that includes group income protection. This is to move as well. If you have a look at the bar chart and then more effectively on the right, insurance [indiscernible] 64% of revenue; 18% underwriting agencies; 7% digital, AR, 7%; and the like 4%. So it's a nice spread of revenue. It's a great spread of risk. It's a great footprint across Australia. It's [ 70 ] locations, $438 million worth of turnover. And then if you then have a look at Page 27, it's record -- it's a strong record of growth and operating leverage. You see the bar chart and the [indiscernible] points to what we're looking at and why we like this business, and why this business is going to be accretive, is accretive and fits in to our product brands with what we want to do from that point of view. You go to Page 28, it's pretty simple. It enhances our earnings growth. The acquisition, it adds to what we do. It's got a strong alignment with the way we do business. Culturally, it's aligned with this that the platform that they use is our platform and will increase. As you can see there, we've got the annualized excluding synergies and includes cost synergies and giving you a bit of a format of what it looks like with a couple of key assumptions there. It's a great business. We're incredibly pleased to get it. And just to reflect on our Trapped Capital acquisition and what it looks like. If you go to Page 29, we haven't established rethought of acquiring businesses in the key operating structures that we know well, insurance broking or MGAs, underwriting agencies. The numbers speak for themselves there. That diagramatically there, you can see that we do acquire, we do run, we increase and our spend is well-supported by EPS accretion. So then if you go to Page 30, this is good because it shows that we are growing the network externally, and we're also growing our percentage. If you look at FY '13 on that first small area, we purchased roughly $1 billion of the $2.9 billion, which is the network. If you then have a look at FY '22, we have 38% of it, of the network and outside of around 62%. So we're growing that. So the $1.1 million to $4.2 million, okay? And in the pro forma, FY '22 for the network with IBA involved in what we've got,we've got to $4.5 billion and the little [indiscernible] section of the bar chart shows the 9% of identified Trapped Capital coming through, which really starts to push up heading towards the 50% of the $11.1 billion that we control. So it's a great story and it shows what it should be. Just if you go to Page 31, it's pretty simple. That's our Trapped Capital acquisition pipeline. It's circa, as we've said before, $400 million. The average price in that because that doesn't sort of include Insurance Brands Australia is circa 10%, okay? We've got $95 million debt capacity sitting in there at the moment. We've got a potential of $220 million to use. We're raising that. This gets us at institutional [indiscernible] [ $225 million ], it's fully underwritten. The SPA will loan at $25 million, we'll let that go back for the retail consumer that can -- we never want to offer any sort of offerings to the market with [indiscernible] issuing retail on [indiscernible]. And our capacity [indiscernible] institutional place have allowed us to fund a great percentage of what we've got in the past, certainly gets us to the next couple of years. So there it is, the [ 9 ] of articulated due diligence, 10.7; $170 million, [indiscernible]; $4.2 million [indiscernible] and others. So that's at $39.7 million with an estimated $400 million. So we're along -- we're going to be well and truly into it. So Stephen, just go back and -- have a look at the -- explain the financial a little bit on Page 32.

Yes. So some of the financial metrics just to put it together. So we buy Insurance Brands Australia. We've shown you fully there if we spent the full $301 million, and that gets funded through the scrip of $56.1 million and the debt funding there, the $244.9 million. And as I said, that includes the assumption we pay out the full $25 million earn-out. On top of that, we then go into the Institutional Placement for the $225 million, which allows us to have the funding to go forward on the $220 million worth of Trapped Capital opportunities that we believe are there for FY '23. Going to Slide 33. Here, we showed 2 things: first was the impact on our gearing ratio; and then secondly, the funding capacity to execute deals now and into the future. The first is the gearing. We are currently 19% geared, as we flagged before. Post the IBA acquisition and capital rates, we dialed down to 16.7%. And as we're flagging, we'll anticipate completing $220 million of the $400 million of Trapped Capital pipeline throughout FY '23. If that was all debt funded, that $220 million, then we would go to a 23.4% gearing. With respect to the funding capacity, you'll see there that the IBA acquisition will immediately eat into $220 million of the $315 million that we have available. And that $95 million, we're supplementing that now with the $225 million worth of funding capacity, plus whatever proceeds we get from the share purchase plan targeting circa $25 million. And excluding just that SPP for a moment, that will provide $320 million, which together with free cash flow of, say, $100 million per annum, allows us to execute on that Trapped Capital program. So as was said, $220 million to be spent in the FY '23 out of that $400 million of opportunities. So to Slide 34, moving away from the balance sheet and, if you like, the cash flow onto the P&L impacts. This slide shows you the expected EBITA and NPAT to be derived from those anticipated Trapped Capital acquisitions as well as those IBA acquisitions. We've shown you the anticipated annualized profit metrics here for both EBITA and NPAT. Note that the actual EBITA in our IFRS accounts for Trapped Capital will be higher because there will be some noncontrolling interest that dialed down to what we've got on the page here, which is what I call the effective ownership or the economic interest in EBITA for our Steadfast shareholders. So the annualized EBITA, $21 million for IBA, $11 million of that goes through to NPAT. But Trapped Capital, $22 million of annualized EBITA flowing through to $12 million of NPAT when you exclude the funding costs. We've shown you there the after-tax cost of all the acquisitions there flowing through a cost of $6 million at today's interest rates. And of course, we've noted there for you all the key assumptions which we've now gone through previously on the previous slides. So Slide 35 was that -- has all that relates to the EPS uplift for our shareholders. So this slide shows you the impact that we get from completing the IBA acquisition and $220 million of Trapped Capital acquisition, and rates are down into the constituent components. In total, it shows you annualized 3% EPS growth pre-synergies. What this does not show is the fact that we'll also have in a year's time a further $100 million of debt facility, plus $100 million of free cash flow as well as the cash from the SPP to fund the next round of acquisitions, be that $180 million of Trapped Capital opportunities or, as Rob alluded to, there's still 50% of the network outside of all those opportunities that we'd like to eat into over time. So just going into the guidance metrics, I might start off and then Rob will finish on some commentary on the guidance. But our guidance metrics are the EBITA to lift from the $340 million mark up to $400 million to $420 million on the back of the acquisitions we're doing and the organic growth. Our NPAT is then guided to lift from the $169 million mark to this range of $190 million to $202 million. Our earnings per share is then guided to uplift 5% to 11%. So given all the moving parts, we've given quite a lot of metrics here on this page to understand how those components particularly impact the EPS. I mean we're often asked why we give those ranges in the guidance. And it's a fairly simple answer to say that we try and give you what we think we can actually do, which is the $400 million mark. There's so many variations that come into a diverse range of businesses that we've got and the such economic impact of what's going on around the world that we think we can do better. But we never want to shoot for the stars and not make it. So we say, okay, if you're investing in this organization, you must be able to bank a return and bank -- and know that we are solidly going to produce that return. So there's always that range. We will always adjust it. We will -- at the half year, and we've adjusted it in May, coming up to the full year, if anything moves, but we want you to be live on that page as emphatically the way we're going to run the business. So just a couple of details there. Our organic growth range is 6% to 12%. We have a fairly similar environment to that of 12 months ago. We've got a double, call it, a double pay rate type environment given the war on talent. We've got a full year impact of the return on discretionary spend. But both of those are more than countered by the price rises being pushed through at this stage by the insurers. So hence, we're able to deliver that 6% to 12% organic growth range. We've broken down the components of our acquisition growth. So you can see on the right-hand side there, we've given you 2% EPS growth from the -- our largest acquisitions that flowed through into this year. We've got 2% growth from the IBA acquisition, 3% growth from this year's Trapped Capital acquisitions, take out the 6% for the capital raise and then also dial down 2% for those management step-down. Some of that is generalization from last year and some of the new ones in this year. Importantly, there is a further 4% EPS growth anticipated going into the next year, the FY '24 year, relating to the acquisitions that we anticipate completing in FY '23, particularly that $220 million Trapped Capital program that we anticipate executing through FY '23. As Rob said, we've given a slightly wider range this year given the extent of the premium rises, a touch harder to call the economic circumstance, et cetera. We've also had to work through a number of deals to obviously come up with our $220 million target. I'd also just probably like to go on record that I anticipate that the second half growth next year, metrics would probably outweigh those in the first half. Why is that? First of all, that discretionary spend that we talk about has started to return in the second half of '22, but it wasn't there in the first half of last year. I expect it will be fully there in the first half of '23. As we adjust, of course, the wage base, we also had those additional leave accruals that will hit immediately into the first half '23. I've known already insurance brands would be more heavily second half skewed. And of course, we raised the capital upfront, but deploy it through the year on the Trapped Capital. So the earnings in first half '23 will be proportionally lower than what you expect to see coming through in that second half. So slightly heavier skew on the metrics in the second half next year at this point. And of course, the EPS growth would be slightly muted first half flowing through to that range as we've got there for the full year. Thank you. But the future slides, I don't think we need to go through to the specifics...

No, it's really -- 32 and -- I mean, 37 and 38 really just give you the timetable and some -- and analysis of placement. So I think that it would be boring to go through and tell them what we're going to do. So I'll hand you back to the questions at this particular time.

[Operator Instructions] Our first question comes from the line of Andrew Buncombe from Macquarie.

Just 2 for me, please. The first one, you've given us a great amount of visibility on the M&A pipeline in Australia. At what point should investors expect Steadfast to start making investments in insurance brokers in UnisonSteadfast and that network globally?

I think that's a good question, Andrew, and thank you. The reality is that the potentiality of UnisonSteadfast is immense, okay? And in any bank test to look at a $40 billion business over 132 countries that are all doing business with one another and doesn't have any of the nuances that Steadfast has had to build a tight and constructive network, then what we want to do is we want to reignite the business with a lot of Steadfast systems. And we're doing that slowly. And as I say, when Sam Hollman takes control of that early -- about the end of February next year, the full, I suppose, confidence of what we can and can't do about acquisitions will be reached. I would think in the -- as we come up to the end of FY '23, we'll have a very clear picture on what that would look like. And I'm not being pursued to say it, but by that time, I think the impact of rising interest rates will have started to blunt the PE companies, the voracious appetite for running around the world offering, in some cases, rather extravagant multiples on businesses. So I think it's pretty hot around the world on acquisitions internationally. We will do it the way we do it in every other approach to buying something. We'll do it slowly, and we'll do it concisely and we'll do it jurisdiction by jurisdiction, but we will look at that, okay? And it is -- we haven't put one of our very most senior people into the CEO of our international division starting from, as I said, in February next year just because we wanted something to do. We did it because we want to actually start looking at how we can develop that side of it. So I hope that's answered this in some way to give you some pathway. Yes, it's in our horizon, but it's not planned. Emphatically, we will do this by that date at this particular time.

That makes sense. The only other question I had was again for you, Robert. Has there been any development with your succession plans? And if so, can you share the latest on those, please?

Yes, we have a -- we are transitioning our COO into a CEO position. And one way to keep them quiet is to give them the P&L and make them run that. That will get them off my back instead of doing the things I do badly, okay? And we will bring -- we are bringing in a new COO that will start on the 1st of March. I'm hopeful that I'll be able to announce who that is at the AGM, okay? The restriction of announcing it is not because of any other reason other than their current employment and their obligations to that employer at the moment. So yes, and that will open up a stream of opportunities in terms of internally who could replace me, if I had to go, if I ever go.

Our next question comes from the line of Kieren Chidgey from Jarden.

Just a couple of questions starting on the IBA transaction. That 14x multiple you quote, I think that's on '23 EBITA. Just looking at the charts on one of the slides, it does seem to be quite a strong growth expectation in EBITA from that business into '23, probably north of 25% just based on the chart. So just wonder if you can talk about how confident you are in that growth outlook for that business given it is obviously a lot stronger than the organic growth you're talking more broadly across broking and agency.

Kieren, we wouldn't have bought it if we had any doubt about what the business would operate under one's growth protection. We're very confident on it. And we know a lot more intimately about that business than what we put in, in the public arena. And the reason we wouldn't publicize that is because it's probably a bit too commercially sensitive to explain it. But I think all I would do is refer you back to that chart of our acquisition strategy and our -- and what we've done and say that we know what we're doing, and we're very confident of what we do. Also, if you've had a look at that, we have a $25 million protection. That would bring -- that would write that back under the [ 14 month -- 14 business months ].

Okay, Rob. And the margins in that business are a bit below sort of what you're achieving in your own broking and agency channels currently. Just wondering sort of why that's the case, and therefore, if there is potentially a larger synergy opportunity there down the track?

I think there's probably 2 answers: a, there is a component of their earnings that is an AR network, which is a very different margin basis to a typical broker so that when you blend that in, that does dial down the total average; secondly, yes, there are some cost synergies that we are looking to work with them to improve margin. And we think that's a -- it's certainly one of their aims, and one of our aims is to continue to do that, yes.

And some of the stuff that as an individual broker they do, they can get the benefit of what we do in head office, which will take away some of those responsibilities and allow them to free them up to do more of a market-facing side of the business, and eventually that means sort of [ reduction ] in costs. As I say, we know a lot about the business, and a lot about what we know is pretty market sensitive in terms of profitability, but your assertation is correct.

And your -- sort of just stepping back more broadly to the trends into your own EBITA margins through FY '22, further expansion in both broking and agency margins. Where do you see sort of the natural ceiling, if there is one, if you think about it that way in both those segments, particularly given the war on talent you talked about?

Well, I think we were very [ calm ]. We recognized the war on talent about 18 months ago. We recognized that we had to get all of our people up to around the 75 percentile. That seems to be the breakeven point in terms of keeping people. And so we've seen it and very smartly started feeding that extra cost into our businesses really about this time last year or a bit earlier than this time last year. So we were well aware of that. I don't think you can put a ceiling on that at all. I mean what we do is we run the business as effectively as we can. We pay people full in terms of what they get. Nobody works in any of our businesses behind the [ April ]. The problem that we've got, of course, is we are a very successful business. We are more successful than some of our competitors. And so our competitors come to try and get our staff, which I guess is a smart move. If you're not performing as well as us and you can't get the staff that you've got working for you to perform as well as our staff, then you might come and try and steal our staff. Unfortunately, when I look around, we've got the good people. We can't steal too many. So we have to make sure that we protect them and look after them.

And with sort of the wage growth, I think you alluded to in your commentary, Stephen, on the outlook, the margins in both those sectors -- segments for '23, just given the strong sort of revenue growth backdrop we're still in, sort of what -- is the broad expectation that fairly stable over the year ahead, notwithstanding the higher cost pressures?

Yes. Certainly, you get the EBITA uplift. But yes, the margins, I think, particularly in the agency, will be perhaps slightly contracted. We had a good uplift in margins this year on a -- and we got this incredibly good back already. But I do think there will be just as some of that might revert into FY '23 given, as said, the wage pressure there. I think in broking that we can overall probably sustain what we've got and might even have a slight uplift given the positive rate pressure that we've got.

Okay. And just one final question on the Trapped Capital Project, the $400 million identified of which you're planning to execute on $220 million this year and FY '23. Just looking at the pie charts you've put out, which are quite helpful in regards to your own network, sort of probably takes you closer to 50% equity ownership if you execute on the $220 million and post IBA through the course of '23. So out of sort of the remaining 50-odd percent of the network, I mean, how much down the track is still do you regard as a viable sort of potential pool of opportunity for yourselves?

Look, I think there's varying reasons why you wouldn't get those straight away. But time is a great changer of perspective. And I think that if you were to look at the $11.1 billion, I would say that there's $2 billion of that, that we would never get, okay? And so we always write that out, okay, in terms of what we might get. So I think we've got 50% of $11.1 billion, take $2 million off the balance...

20%...

Yes -- well, probably 20% of it would be not in our sight for potential. But yes, 30% of the balance would -- we would be, I think at some time, potentially able to buy part of or secure all of those. But as I say, time allows different perspectives on people.

Our next question is from the line of Doron Kur from Credit Suisse.

Just following up on the agency and broking revenue and margin expansion. The -- in this year, it looks like, as you mentioned, agency had higher EBITA growth than revenue, whereas in broking, there wasn't that same dynamic. Is that just because the agencies, you've got 100% commission, whereas in broking, it's 70% commission, so you don't get that same leverage? I note you mentioned increased cost, but...

Yes, you get a slightly higher leverage, yes, in an agency. It's probably more like 80% as opposed to 70%. And then it really just comes down to that cost and how each particular business performed. As I said, I think where you might have had a slight imbalance this year, I expect some of that to reverse next year and normalize it all back out. So I wouldn't say there's anything what you might call fundamentally different, ultimately, if you look at over that, say, that 2-year horizon.

And also, just to give you a little bit more perspective on that, an underwriting agency can write a lot more business without necessarily exponentially having to put on more staff to do it, whereas a broker may be constrained to be able to write another 20% or 30% more business without having an impact on their expense line. So there is a different metric in underwriting agencies in terms of volume, not necessarily being followed by increasing expenses.

Hence, why the higher margins.

That's why the mark in agencies, particularly the larger ones.

Makes a lot of sense. And maybe just a bit more color, Robert, on your point there around opportunities for agencies as insurers reposition product lines and distribution.

Yes. Look, I think that there's more and more where insurers are being more finite about what they want to write and so that at some products, they're dropping out. They're not as keen to write them, but they've still got to be sold into the market that consumers still wishes to buy them. So in doing that, that allows an opportunity for an MGA to pick up the specialist line to fulfill that gap. And so -- and also in some degrees of how their reinsurance is now put together where they elect not to take certain CRESTA codes on in property, then that allows that part of the property section to go into the open market, which again allows us to more develop products to fulfill that gap.

Great, very clear. And then maybe just one on the acquisition. I know you've mentioned a great business, and there may be some extra things. We don't know about IBA. But just looking at the multiple, I don't know if there's anything further you can share on how that compares to previous ones. 14.2 looks quite high versus Coverforce's 12.5 and also the amount of scrips that the vendors are taking, municipal substantial, but it looks like it's just below 20% with Coverforce. The vendors are taking about 52% in Steadfast shares?

Yes. Bear in mind that the majority of the owners of Insurance Brands Australia were not active in the business at all. Whereas with Coverforce, the person who took the most is still very active, and the managing director of the business still drives the business. And I guess he rolled the dice on saying, you know what, I think Steadfast is a good buy. If I can get my shares at $4.53, they may go up. And I guess, if I had 80 million shares in Steadfast that I got at $4.53 and then traded at $5.50, then it was probably a wise move than the guy who took 80% in scrip.

Yes. And on a higher multiple and Coverforce was a bit bigger with higher margins, but lower multiple than you've paid today?

I mean it was a competitive bid to get it. Other people wanted that asset. And we had to pay more for it than we had to pay top of the market to get it. So with that simple -- with supply and demand, there's very -- there was probably only 3 independent broking operations like Coverforce and Insurance Brands and there's one other out there, and we like all of them. We've had the opportunity to do few of them, and we've successfully done it too. But I mean, yes, you have to pay -- at this stage, there's a premium that you have to pay if you want to get a quality product like that. We have to back ourselves similar to what we do when we did -- when we bought Whitbread. When we bought Whitbread at, I think it was 9.6x, people in the market looked like -- looked at us like we were absolutely paying far too much out of them. We knocked $1 million off their cost day 1 we bought the business. We know a lot about these businesses. So unfortunately, and I'm not being cynical about the market, people look at these businesses academically. We look at them fundamentally and absolutely forensically of what we can do with them because we know a lot about how they operate. So we have a different perspective when we buy something or pay a little bit over the odds for what we may do with it over a 2- or 3-year period.

And Whitbread would be in that 6x, a lot of it in today's earnings. And the assets that we bought in 2015 from [ CO2 ] UAA is much less than the 8x right now, it's less than half.

And I think if we were a new company coming in and saying, hey, we're going to invest in insurance brokers and we're going to raise capital and we're going to go out and say 14.2x or something, you might be circumspect. If you were a company that's 26 years old and 10 years loaded like us with the track record that we've got, then we can afford to pay up a bit more if we look at that business and forensically analyze what we can do with it.

That's fair enough. And if I could just ask the last one on the deals. Is it the dynamic for doing so many deals now and into next year, is there a market dynamic that's making it easier to do the deals? Or it's just part of the current strategic plan?

Status quo.

Status quo.

It's what we do ever day of the week.