Welcome to Steadfast's FY 2024 results call. Following the formal presentation, there will be a Q&A session for investors and analysts. Participants can ask both text and live audio questions during today's call. To ask a text question, select the messaging icon, type your question in the box towards the top of the screen, and press the Send button. To ask a live audio question, press the Request to Speak button at the top of the broadcast window. The broadcast will be replaced by the Audio Questions interface. Press Join Queue, and if prompted, select Allow in the pop-up to grant access to your microphone. If you have any issues asking a question via the web, a backup phone line is available. Dial-in details can be found on the Request to Speak page or on the homepage under Asking Audio Questions.
Text questions can be submitted at any time, and the audio queue is now open. I'll now hand over to Robert Kelly.
Thanks very much, and good morning, everybody, and let me acknowledge the land upon which we meet today, for the Cadigal people of the Eora Nation . But we're founded by, at the North and the West and the Nepean, up north of Hawkesbury and down to the Cooks River in the south. So we just want to pay our respects to the custodians of this land, that goes back 4,000 years, to the past, present, and the Elders and the emerging people that will continue the custodial control of this land. So thank you, everybody. I'll now refer you to slide five of the pack, and this is the group's EBITDA.
The underlying EBITDA rose to 22.7% through the period, and our underlying NPAT up 21.8%. I must say, as a group, we're very proud of that, and as we start the second decade of this business being in a public arena, the ability for us to continue to increase like that is a pride that we all who operate in this business take with great success. That success, we think, has been the product of many people that have made this organization what it's been over the past 11 years. So I want to thank all those people that work with us, our subsidiaries, and congratulate them for what we've done there.
The brokering underwriting agency growth was at the up 19.6%. And I won't refer to the slide. You'll see in the pack it says slide 21, so I won't bore you by telling you that. Our underwriting agency's underlying EBITDA up 18.9%. Our diluted EPS is basically driven by organic growth and acquisition growth. And our acquisition growth is basically all of what we do in terms of acquiring businesses. We have a aim to make sure that when we do them, they're EPS accretive, and so the acquisitions that we spent last year was AUD 957.8 million.
457.
457, I'm sorry. AUD 457.8 million. The future corporate activities allow us to have a good runway of about AUD 366 million, and that's, at that level, we still maintain our disciplined 30% gearing, and it gives us significant, along with our free cash flow, significant headroom in what we want to do. So on the right-hand side, it encapsulates that in the blue section there. And our statutory earnings, NPAT of AUD 228 million , up from AUD 189.2 million . EBITDA 22.7% , up. NPAT 21.8% , up NPATA 20% up. Diluted EPS 16.2% up. Diluted EPS NPAT up 14.4%. Final dividend up 15%, and the second half dividend up 14%.
From our point of view, we're delivering to you what we said we were gonna do. So if we can go and turn to page six of the slides or slide six. We're targeting this year, AUD 300 million in acquisitions, and we'll fund that by debt and, of course, free cash flow. The FY 2024 acquisitions, we did complete 47, okay, at a cost of, an acquisition cost of AUD 309 million, giving us an EBITDA of AUD 31.5 million. The Sure acquisition came in during that period, and we didn't include that in that 280 that we gave you a guidance on last year. So the Sure acquisition was at a AUD 148.8 million and AUD 14.4 million , annualized EBITDA.
Our current pipeline's strong, and as we're saying, AUD 300 million acquisitions we expect to do. We've completed eight so far, the AUD 83 million and AUD 8 million EBITDA. We've got 14 term sheets signed, and we're in due diligence on a further nearly AUD 120 million worth of acquisitions, and you can see AUD 13.5 million EBITDA. There are four term sheets issued, which means people want to do business with us for about another AUD 6 million and AUD 1 million in EBITDA, and there's 26 opportunities that exist out in the market that we're working on as well. The runway is pretty strong at the moment. And so again, reiterate, a pipeline of about 296 active acquisition opportunities and completed the FY 2024 with AUD 457.8 million. So going to slide seven.
This is an analysis of our track record since we started. It's an interesting slide because it shows the start. You'll see around 14, 15, our acquisitions. Across the bottom, we've given you what they are, so you've got a bit of a ledger there. And then you'll see where how we've built up and what we've done, and you can color match to what it looks like. And then if you go to the far right slide, where for FY 2025, you'll see we've put that in at the AUD 300 million mark, and you see that AUD 83 million is represented from what we've actually completed in the first two months of FY 2023.
Remember, our two aims in this business are to increase earnings per share, so when we have to do that, we want to make sure that we gain organic growth, and secondly, that the assets that we buy are EPS accretive in the first year that we get hold of them. So if you go to page eight of the slides. This is the network. This is an interesting slide. The left one is at the IPO, and the one on the right is where we stand today. Okay? At IPO, we told you what we were going to do, dual strategies: grow the network and increase our stake in the network.
We have done that with great success, and we've done that with great determination to make sure that we never waver from that original way we wanted to go about it. The Trapped Capital continues to work on, and our EBITDA that we still have the ability to buy is around the AUD 440 million mark. That's a simple extrapolation for us. We look at the revenue which you would get out of the potential sales that are still out there. We look at margin of about 30%, and then we say that circa 6% will be EBITDA, around about 30%. So that it's a very conservative way we produce that for you, but it's a very reliable one.
On the right-hand side, you can see how we've grown the AUD 6 billion there. An interesting point that Stephen always makes, and sometimes I forget to point it out, is, in the equity brokers, we own 77% of the equity brokers' revenue, and if you think about that, eventually, those equity brokers we own a part, a majority of, we will get the extra 23% of that. That roughly sits at about AUD 100 million worth of extra EBITDA that's sitting in there already.
And then if you go down to the bottom one, which is a very interesting slide, it shows that of our turnover, AUD 2.2 million, is in authorized reps of companies that we own, and the percentage ownership of those reps is quite small, but ever-increasing as people get older or want to take succession, and there's circa AUD 90 million worth of EBITDA sitting in there. Then if you go around to the non-equity GWP that we've identified in trapped capital, and that we're in the process of doing, there's another AUD 60 billion there, and then at that AUD 3.4 billion on the left-hand side of the pie chart, that's our...
That's part of what we believe we will get with that, with the one below, in terms of another AUD 190 million worth of EBITDA there. And you'll see we conservatively take AUD 2 million out of that pie chart to make sure that we are dealing with what is obtainable for us and what we believe is absolutely eventually we're gonna get the opportunity to look at. And so that's why we very conservatively pulled AUD 2 million out from that point of view.
Okay, go to slide nine, and having a look at the Australian Broking Network, and just if you have a look at the bar chart across the bottom, it shows you FY 2014, our gross written premium at AUD 4.1 billion, and then slide across, and I won't bore you by going through each one, and then the AUD 13 billion that we achieved in financial year 2024. The overall GWP was pretty well, I think, demonstrated by an increase in organic and an increase in volume. So volume was circa 3%, and price increases across the insurers in the non-statutory lines made up the other side of it. Our network still is 85% commercial and 15% retail.
That 15% retail, I'll remind you, back in 1999 was, when we first did our data analytics, was 4%. So we continue to grow retail alongside our commercial business. So again, the blue box on the right, AUD 13 billion versus AUD 11.6 billion, 9.9% organic, 2.7% out of our network. Honan's left, there was a lot of discussion about what impact Honan's would have on this organization, but we, we've highlighted that, too. So all the people who told you stories about that will be able to correct the erroneous statements that they made about the impact that that would make on this business. It was 1.7%. Add back the 1.2%, and you get your 12.1% total growth.
Operationally, we've reviewed it. We've got 418 brokers in the network, 318 in Australia, 69 in New Zealand, 31 in Singapore. And our investment activity in the network in FY 2024, we had 30 new holdings, including buyouts, 18 step-downs. What is a step-down? People will say, that's where people are running the business and want to take a slice of the pie, and it runs in with our co-ownership model, but that's a great way to operate. You'll see, we put down step-downs. Of course, if we sell another 10% of our EBITDA to some incumbent people running the business, we've got to make that 10% up.
So when you see we do step downs and we still get organic growth in the organization, it shows you how well we manage step downs, and of course, step ups the same thing. We now have equity in 68 brokerages. Over the last decade, we've been collapsing brokers that wanted to collapse into with one another. We've put them together when it was appropriate. And of course, the client trading platform topped out at just over AUD 1.4 billion for the FY 2024 financial year. So if you go now to page 10, the underwriting agencies, I think three years ago, I said to you, the rise in the underwriting agencies can't continue. I was wrong. Okay?
It has continued, and while we look at the 13.4% increase, putting us up to AUD 2.3 billion for FY 2024, it's driven by a couple of factors. It's driven by the fact that brokers go to where they can get answers and efficient service, and secondly, that where the price can be not always competitive, but the price can be around the market price. So price and volume caused our 13.4%. Property pricing still remains strong, and the opportunities for our agencies to reposition product lines and for distribution is happening all the time. In other words, this is never a static part of our business. It's always dynamic and changing.
So again, highlighting over to the blue box on the right, GWP up from AUD 2.1 billion to AUD 2.3 billion, organic was 6.4%, and 7% was acquisition. I think to get organic growth of 6.4% period- to- period in your is outstanding in the underwriting agencies. Operational highlights in this, we continue to use robotics in the administration of the policies that we have to run through. We're using some robotics in making some of the tedious jobs being done on an automated basis. So, it's a crossover between machine learning and robotics, so we try and just talk about AI, but really, a lot of it's machine learning.
Our long-term strategy is to completely align our capacity providers with our technology and underpin our strong service asset. If we're doing the right thing, people keep coming back, and if they're making money for our capacity providers, they're very happy to keep giving us money to put a higher premium, higher premium pricing from strategic partners allows us sometimes to gain market share. Participating in the SCTP across four product lines: commercial property, ISR, strata liability, and professional line, that's growing all the time. So every time we bring something into an auto rating on the client trading platform, we get an immediate uplift in terms of sales.
It's pleasing to see that once it gets into the client trading platform, it may lapse with a specific insurer, but most times it stays within the panel on the... That's why we built that contestable platform, was to give choice to the consumer and to efficiency into the broker's operation. Our in-house data analytics capabilities is quite amazing. I mean, we get analysis monthly on what's happening in the market, not every six months, not nine months down the track or anything, and we can do period-to-period analysis instantaneously. We can explain to insurers where their strike rate is, where they're not getting business from, and realign their risk appetite.
So the underwriting agencies are doing very well, and the ones that participate in the client trading platform instantly know how they're going and which areas they should improve in or indeed sharpen their risk appetite. Now, if we go to slide 11, this is a little bit of analysis of the why of the insurTech that we actually started 15 years ago. It wasn't called insurtech back then. It was called automation. We continue to get take up of our client trading platform and our software and the technology platforms that we've got, and they are very, very helpful from an insurer's point of view. And if you go back to when we first started the client trading platform, insurers didn't want to know anything about it.
They thought competition was a poor way, but now they're seeking to have a digital platform. They're seeking to cut out the cost of doing business in a way. The client trading platform, genuinely, it's a contestable marketplace that generates access to competitive market pricing. It's. We have bespoke wordings in it, and we have the ability to market each time the policy is renewed, altered, amended. It's a very powerful tool. It aligns with the client and the broker's needs by having the same commission structure regardless of who does what. It's not volume-based in any way, and the tailored policy wordings are based on the fact that we have two lawyers and two ex-insurance brokers working on our triage team.
So every time there's an anomaly that crops up in a policy, we get it clarified. We either clarify it and amend it, or we clarify it, and we can say that definitely in that occurrence, that policy is not gonna apply, respond in the event of a claim. It's very powerful to have that triage team working over the top of the policy wordings. So we're still very focused on the SCTP. We're still very focused on the product line. We're very focused on the auto rating. Once we put an auto-rated product in there, we get an automatic uplift, and so does the insurers that participate. So we'll continue the development. We have...
One of the developments, of course, is that's been outstanding, is our quote, buy, and pay solutions, which are available on most product lines, and that can be white labeled, and if it's appropriate. We've got nine product lines operating over 19 insurers. So it's a very strong and powerful position to have that digital platform. The insurers want to be trading digitally with us, and the efficacy it gives to the client and the broker is amazing. And our insight management system, we've got 7,100 people participating. That's a lot of seats, and also 219 brokers live on it. We've actually converted, I think, to 50 brokers, but collapsed some together and gone forward.
There's an additional brokers we're working to migrate 11 extra brokers at the moment, and 15 orders in place. So AUD 1.4 billion, uplift of 20%. AUD 1 million we turned over in FY 2015, AUD 1.4 billion we turned over in FY 2024. So if you go now to page 12, this is a little bit of a operating view of where we're going, and we've put all... I'll address the subheadings, okay? In insurance and reinsurance markets, the discipline that we've seen over the past few years is remaining, and it's loss ratio driven, and you've only got to consider that over the last two years, Australia's weather events have cost AUD 2.2 billion each year.
So people forget about it that the underlying cost of insurance is predicated on loss ratio. So we, we continually get asked, "Is the-- When is the collapse going to happen? When is the waterfall going to occur?" It's not going to happen at the moment. The regulator, the regulations around the world, the impending regulations that Australia's coming under with IFRS 17 and CPS 230 means that diligence and how you go about doing stuff is still got to be maintained. So we still see that there will be accretive increases in premiums between 7% and 9% over the next 12 months. June renewals were basically in line with inflation. There were some corrections done where they needed to be corrected. And the cyclone...
The impact of Jasper and Kirrily and then the subsequent floods and the stopping of the claims at the 48 hour mark has put a question over the efficacy of the cyclone pool in terms of what it will do for reinsurance pricing. In the first instance, in the first 12 months, it's dropped dramatically, but we have to wait and see what impacts that all means. In terms of the underwriting agencies, we keep seeing a rebalance of insurers not wanting to do things. We keep seeing the intermediated market, the market, looking to get solutions from people where they get replies and when they get efficient answers on things. We acquired Sure. It's been successful for us.
It’s done exactly what we wanted, which were probably a terrible start because of what it was with the three occurrences, you know, Jasper, Kirrily, and the floods. And we are yet to take Sure out of its natural environment in Queensland, and the future for Sure is the algorithmic approach to the underwriting, which has been successful for them, taken into other jurisdictions. Okay, all of our binders got renewed. We had increased capacity come out of London, and we have a stable base with going forward. In terms of the subsidiary performance, I mean, this is something that Nigel’s been working on with his team. So, I mean, Nigel, do you want to just have a smart comment on the subsidiary performance?
Yeah. Thank you, Robert. Steadfast margins have consistently been a benchmark in the industry, and as you mentioned, large part down to the combination of co-owners and principals existing in many of our businesses, but also the capability and support provided by Steadfast. At the size and scale we are today, we've reprioritized investment at group level to welcome increased focus and sophistication of skill sets targeted at adding value to our business leaders to improve our operating performance.
... simply put, the insights, benchmarks, and best practices we're able to mine and replicate across the business is a big competitive advantage, and we're even becoming better and better positioned to apply positive actions within our businesses moving forward.
Right. I think that summarizes it very clearly. So, we're often asked about how we go about doing our business, and I think it's that time that we actually said to you what we're doing, and Nigel's just articulated that very clearly. The next one is international. Sam, Sam Hollman is our CEO of International. We've been spending a bit of time in America, Sam?
I have, yes. Oh, yeah, I'll just give you an update on all things U.S. ISU, our U.S. acquisition, has exceeded the budgeted FY 2024 profit expected at the time of purchase. Our operational strategic review project has commenced and shows signs of support from the network. We're looking at harnessing the power of the network more. This could involve consolidating some businesses with strategic carrier partners or introducing new global carrier relationships. It's basically the ethos of coming together more as, and operating as a network more, which is the strength of how Steadfast have succeeded. ISU Group has been rebranded to ISU Steadfast. This was actually born out of the ISU Group and the U.S. industry, who saw the benefit of incorporating Steadfast brand to re-reflect the enhanced strength and value proposition.
We obviously also supported this, as it creates greater U.S. and global brand awareness for Steadfast. Strategic priorities were established and include growing network membership, expansion of our services and solutions for members, and evolving the organization so foundations are strong to continue to build from. We are approaching the vast potential of the U.S. market in a measured and considered way. It is a long-term strategy for Steadfast, but we are pleased with how things are going, both strategically, financially, and operationally in the first 10 months of ownership.
Okay. Thanks, Sam. I mean, it's a measured approach over there. We've explained that when we went and did the analysis of what we're wanting to do over the many years we were researching North America. So, we're not trying to shoot the stars out there. We're trying to build, like we did in this business back in 28 years ago, a foundation that will be accretive and will slowly grow. And yes, we'll look at opportunities in North America, but we're not out there saying we must do this. So I think Sam and the team have been working very closely with the executive. I mean, the interaction, Sam, has been really terrific.
Yeah, it's been excellent. Getting along very well. We're all aligned with-
Mm.
you know, the opportunities that we believe are there, and we're diligently working toward.
I think the best part about it was that the appeal to us was they were a very ethically run business, and that we didn't, it wasn't broken in any way, was it, the executive?
No, that's, that's correct. That they were Steadfast, sort of before we listed, that's what they are. They can see the opportunities, but now having a strong partner, we're all aligned with where we think the organization can go.
Okay, well, then, the next one's the senior management team, and I mean, this is something I'll get Nigel to talk on it. But one of the people that came into the organization that as part of that was Mark Senkevics. And I mean, Mark, Mark's around the table. Maybe just give us a bit of a rundown of your career in the insurance industry, as it's been vast, and. And this is a question without notice to Mark, so he's looking over at me saying: "What are you gonna ask me to say?" He's only been here a short time. Go. So just give him a quick. Give Mark the quick rundown on your history in insurance.
Well, thanks, Robert. Yeah, my name's Mark Senkevics. I've almost 30 years in the industry, but more recently was with Swiss Re for 20 years. During that time, I ran some of Swiss Re's operations in Asia, but the bulk of that time was spent running Swiss Re's operation in Australia, New Zealand from 2010 to 2020, and after that, I was the Chief Underwriting Officer for Swiss Re. So it lends itself quite nicely to the role that I've taken on, the majority of which is looking after the underwriting agencies. So I consider myself, Robert, to have a bit of an underwriting DNA, and I hope that I can transfer that into the business that we have here with the agencies.
You started out pretty boringly, but, you were an engineer, weren't you?
Yes, I didn't realize this was gonna be an interview, but I started out life as an electrical engineer, and that nerdiness, I think, remains, and in particular, when we focus on things like automation and data analytics, I think that, that's-
And so over the many years you and I have worked together, it's been a great, great partnership, hasn't it? And what a wonderful person you've been to work with, isn't it?
Yes, I would concur-
That's what you-
I would concur with that, Robert.
That's what... So oh, that was really nice to hear. All right. So, Nigel, just give me a brief rundown about what that means, the strengthening of our leadership and the upskilling of what we're doing.
Yeah, I think it's a great example of welcoming Mark to the team, where we're trying to complement what's worked really well for us historically and introduce new skill sets and individuals to really complement that or realign existing resources into clearer roles and responsibilities. So we obviously welcomed Mark, which is a big addition on the underwriting side. We've added a very strong EGM of Operations, Noelene Palmer, and in the new skill sets, we've had an increased level of procurement focus from a new head of procurement, EPMO, Australian Network and insurance leaders. And then we've realigned Nick Cook into the EGM of Networks and Insurer Relationships in Australasia, which gives us a chance to really get the best efficiency and effectiveness out of those three networks and insurer relationships.
We've appointed a head of subsidiary performance, and we have stronger alignment at group with our AI strategy and data and analytics strategy. So I think we've got a really good sprinkling of what we talk about as a SWAT team forming at group level. We're not looking to change our decentralized ethos and approach, but instead look to complement that and bring positive support and solutions to the businesses that we own. So all in all, just really good evolution, I think, of our overall op model. As I said, complementing what's worked well for us historically, with a strong set of new skill sets and/or role definitions.
Yeah. I mean, it's a slight transition within the business, but it's more a realigning of a lot of talent, isn't it? And then up to you.
Yeah, no, I mean, a lot of those roles are really talented individuals that we've had in the business, perhaps doing slightly different roles, and we've just reorganized ourselves to give very specific focus to these important initiatives. Like data and analytics, we've always had a strong data and analytics investment, and it's been a cornerstone to where we've come from, but we think we can even improve and increase our competitive advantage in that space. So we've spent even more time aligning on the investment and support of that function.
I asked those individuals to talk so that what may look like rhetoric when if I put it on a piece of paper, it's backed up by an incredible team behind our executive, and we all work very closely together. So go to slide 13, okay? And I mean, part of the strength of Steadfast is that we maintain a cultural alignment with our employees, or I prefer to call them our coworkers, and I'm very pleased that our engagement score was 77%. Particularly during a period that you might say of change, where we're realigning people in the business and changing a couple of things, to get a score of 77% was really exciting for me to get that.
I think our focus is on, I guess, it's cultured, grounded people with integrity, accountability, and the potential to develop as leaders within our organization. I guess that sounds like a little bit. Well, everybody would say that, but in reality, we've worked very strongly to maintain long-term people that have worked here, that are aligned with what we want to achieve. We're pleased to want to be a first-choice employer, and candidly, we had an aspirational 45% of senior women to be females by next year, I think it is, and this year, we had 46%.
So, I think we're a great organization that recognizes skill levels across a lot of people and have some fantastic women working in this organization. Our FY 2024, do you want to just talk on that, Shalome? Do you want to just talk about the carbon?
Yes. Thanks, Robert. Given the nature of the business being acquisitive, we've took the view that the metric is better to measure our intensity emissions. It's the intensity of our emissions, so it's pleasing to see we've made some progress here, that, as we're acquiring more revenue, we're seeing the intensity of our measure decrease-
Yeah
The last financial year.
Yeah. Thanks. And interestingly, we're being asked more by the network about ESG.
Yes, and so we've increased our support for the network and our subsidiaries. We've established the ESG hub, and looking at ways we can support them in reconciliation, DE&I, and carbon neutral transition.
Yeah, I mean, it's a fair job to do all that. But interestingly, if you'd have said to me five years ago that the network would, the brokers would be interested in that, I would've said, "I don't think so." But I've seen a real change across society that's coming, and luckily, we've been ahead of that for some time. Okay, what's our approach to assets? It's pretty simple. Each entity we've got has its own board. They operate under a co-ownership model. Each entity we've got competes against one another. I must say, sometimes much to the chagrin of people who lose business to another, but, I mean, competition's the DNA of business, and they must be able to compete against one another and make their own decisions.
Each entity places business with the insurance market. They choose. They choose. We do no direction of where you place anything you do in this network, and so there's sometimes people think that when you've got a vast network like this, where you own a great majority of it, that you dictate what happens, when in fact, the skill of the entrepreneurial people that co-own our businesses are what drives this business and makes it successful. But we do not direct any placement of business to any of the group's other assets, and quite the reverse, we actually have a couple of underwriting agencies that openly compete against one another in the open market. Just to reflect then on the Trowbridge Report in the Strata industry.
The report, although we paid for it, was completed by John Trowbridge. We had nothing whatsoever to do with it. We, in fact, gave him access to everything, and unfetteredly, he was able to ask any question he wanted and get any information. He produced the report, okay? And the some people say to me, do I agree with all the report? No, I didn't agree with all the report. That wasn't. The report wasn't written for me. The report was written for the market to understand the rent transparency that occurs in the strata plan, the managing agent, and the broker. And I think that the report showed that there, in some cases, that was not clear. So we acknowledged the issues highlighted, particularly in the rent transparency.
And then, so I guess to demonstrate our leadership in the strata industry and what we do, we've undertaken a review of all of our businesses, and that's been implemented. We commenced that. I'm not gonna say to you that all the businesses were absolutely perfect. We looked at what Trowbridge said, we overlaid it over our businesses, and we found, in some cases, some gaps, and we worked about rectifying those gaps. Sometimes those gaps will take 12 months to unwind, but the thrust of our business is to make sure that's done. So that's the Trowbridge report, and that's from an operating update, we need to let you know about that. Then, talking about regulation and legislation, there's been some changes.
One of the major ones, of course, apart from IFRS 17, okay, which is a new way of how to do some things, is the APRA CPS 230. It deals with the operating management of insurers, okay? And that responsibility blends down to any outsourced distribution they've got. So let me put that in more common parlance. If there's an MGA or an underwriting agency that has delegated authority, then that delegated authority must operate the same as what the insurer does. This has put a considerable amount of stress on some of the operating structure within the MGAs. We started this process 18 months ago, Stephen, did we not?
Sure.
I mean, what happened is we took a couple of percent off our one of our underwriting agencies, and people said, "Oh, are things going backwards?" No, things were going forward because we were preparing for CPS 230. So if you ask somebody in the insurance industry what CPS 230 is, and they look at you blankly, don't buy insurance off them, okay? ASIC has also prioritized the claims handling levels and as a response to natural disasters. I mean, it's been horrific what insurers have had to go and of course, we've had to go through in terms of natural disasters. So what it basically says is, the insurers have got to maintain sufficient staff to handle the claims. The pushback to that is we have to have sufficient staff to handle the claims as well.
Now, just at the bottom of that line, I'm very pleased to say that so the Minister for Better Regulation and Fair Trading has acted really efficiently and quickly and got his department to work on the strata managing, managing agents legislation by putting an amendment through Parliament. It's on the floor now, I think it's in committees while at the moment, that basically clarifies the strata manager's position in terms of transparency to the strata about the rent they receive. Now, I don't want you to think I'm bashing strata managers. We, as insurance brokers, could not operate without the efficiency created by a strata manager in working with us. It's got nothing to do with that. It's got doing...
It's got to do with the consumer understanding what rent is created by their transaction insurance and who in that process gets the rent, and do they transparently know how that all works? That's what that's all about, and we're very supportive of that bill, and we're very excited that the government seem to act in New South Wales that way. So that's just a bit of an operational update for you. I know it's a little bit verbose, but I think some of that things we needed to do, too, and I wanted the people that make this all happen to talk to you as well. So go to page 14. This is the exciting part.
You have to put up with all of what we've just said to get to the fact that the final dividends are 15% to 10.35 CPS. This is outstanding from our fully franked. This is outstanding from our point of view, to be able to each year. If you have a look at the bar charts on the right, the dividend and the diluted EPS impact, they're wonderful charts for people who run a business and develop a business and put it in. We're running the DRP again.
We do not, unfortunately, for those people who'd like to come and play with our DRP, there's no discount on the DRP because we got sick of people mucking around with our share price when they were wanting to do that. So I'm sure nobody listening to many of the fund managers did that, but some other people probably did. The key dates: ex-dividend, 3 September; record date, 4 September; DRP date, 5 September; and payment date, which is the best part for you, I guess, and me and all of us that are shareholders, 24 of September. Okay, let's just go to page 16, which is the guidance part of the program. This is interesting, because again, we're gonna give you a guide.
You know, that underlying, these are all underlying. EBITA, AUD 590 million-AUD 600 million, NPAT, AUD 290 million-AUD 300 million, diluted EPS NPAT, 12%-16%, and NPATA, AUD 340 million-AUD 350 million. Some people say: "Why do you give the range?" And I think Stephen and I ad nauseam say: "The reason we give the range is, you should be able to bank the lowest range," and there are some factors in this business which will mean that we could get more if they come to fruition. I mean, and an example of that probably was the Sure acquisition that came our way and how we handled that. But the guidance, of course, is subject to a few factors on the right, 7%-9% insurer partners growing.
Some people might say: "Is that, is that too high?" It's our experience that we're, we have picked the market and picked the pricing for the last 10 years. So I think if we say it's gonna be that in our business, that's what it looks like from our business point of view. But we do complete the AUD 300 million in acquisitions, spread by 2025, and that the key risks that we derogate in our annual report may come to fruition. Now, we got a lot of queries on the little note down the bottom last night about the share count of AUD 1.1046 billion.
I think I'll hand over now to Stephen to start the financial summary, but you might want to talk on that chart and explain that rationale, and then switch straight into the financial statement, if that's okay?
No problems at all. Thanks and good morning, everybody. The actual query, I think, in particular on the waterfall chart, was the column there that we've put dilution from capital raise, and are we about to do a capital raise? The answer is no. That dilution from the capital raise really relates to the impact of last year's capital raise in November, December. So last year, we had, you know, five months at a lower share count, seven months at a higher share count, and of course, in this next year ahead, we have the full 12 months at that higher share count. So there is just a movement in the number of shares that we utilize in the calculations of the earnings per share. So that gives that 3% so-called dilution of earnings per share, because that impacted that number.
But otherwise, we've given you the breakdown of how those, the next year's guidance is made up of, between the organic as well as the different components of the acquisition growth, get you that 12%-16% in the end. Maybe if, moderator can move to slide 18? Thank you. We'll start with our headline results, and, we've mentioned there another strong, year for Steadfast. Slide 18, please, moderator. Thank you. And so this result is in line with the upgraded guidance we provided, of course, in June 2024. We've given you there the underlying revenue, AUD 1.676 billion, up 18.9%. The EBITDA up 22.7% to AUD 528.5 million.
The margins improved about 90 basis points, excuse me, from about 30.5% margin to 31.4%. The underlying impact was up 21.8%. That dials down to about 16.2% when you dilute from the share count, from the capital raise on the earnings per share. The cash earnings was up 19.9%. That's the NPATA number, and that dilutes down to 14.4%, taking account that share raise. So if I can make some perhaps opening remarks on the results. Yes, the hard market insurance definitely continued through the year, which drives some of the revenue increases across the group.
Of course, for FY 2025 is the continuation of those above inflation trends for premium, which seems to accord with the statements from all the major insurers in this last week, indicating also about that mid to high single digit increases coming through. Secondly, our acquisition program was executed in line with our guidance expectations. We guided AUD 280 million for FY 2024. That came in at AUD 309 million, plus the Sure acquisition. We had a couple of acquisitions which we were wondering which side of the fence we would have landed in. One of them landed on the FY 2024 side. There's been a little bit of conjecture again about why did the EBITDA not uplift as much as maybe what the bottom line numbers did?
If I can just emphasize that every so often in our trapped capital, we give you a view of opportunities, and every so often, we will acquire stakes as what we call a step-up. You might say have a 60% stake in a business, and then you acquire another 20% to get to 80%. Because we've already recorded all the EBITDA of that business in our numbers, you don't get an EBITDA uplift. What you do is you reduce the non-controlling interest, and so your bottom line increases even though your EBITDA doesn't uplift. So that really explains where some of that growth has gone. The actual impact of interest rates obviously helped dial up our revenue and our EBITDA, but of course dials up our cost of funding....
In November 2023, we upgraded our guidance on the back of the solid organic growth to October, but also the impact of the Sure acquisition and the capital raise. In June, we really did upgrade on the back of the continued organic growth throughout the second half. So the EBITDA margin, as I said, improved by close to 90 basis points, notwithstanding some of that forward investment we made for that CPS 230, and that we continue to make. So we do anticipate another 40-50 basis points improvement in the year ahead, despite the fact that we'll continue that investment as we further also leverage our corporate infrastructure that Nigel's mentioned across that expanding portfolio.
As advised in February, we said to you that the contributions of acquisitions was more heavily skewed to the second half, and that was partly due to the timing of acquisitions, including Sure, but also because the profit for ISU in America was all second half biased. So the results actually came in at or above our original acquisition expectations for both Sure and for ISU. We gave you perhaps a 43%-57% skew in terms of the seasonality. The final result was coming in at around about 42%-58%, again, on the back of that strong second half. Now, it's early days yet, of course, but we would be subject to forecasting between 42 % and 43% skew for the first half, second half in FY 2025. Of course, that'll be subject to the timing of the acquisitions that we make them.
But just moving to slide 19, where we reconcile these statutory earnings to the underlying. The key movement here we've called out here, the largest item there is the AUD 18 million, where we have ended up paying more for some of the businesses under the earn-out arrangements than what we expected, and we actually have to call that an expense in the accounts, and of course, we normalize that out. We've always highlighted that's not a bad adjustment to have, because it means those businesses have actually performed better. We, of course, also remove out all the things to do, the standard items on the Johns Lyng Group investment share price movements, the profit or losses on any sell downs and equity stakes or stamp duty or other costs to acquire.
There's also, of course, the adjustment this year that relates to the accounting for the earn-out of the Sure acquisition. So when we acquired Sure, we booked a very full potential earn-out, which also lifted the value of our intangibles in our balance sheet. With the two cyclones and the flood event, after we bought it, we now believe it's unlikely to gain the full uplift in FY 2025 profit, particularly because of those profit shares, and that's been factored into the guidance. So now we're still expecting the Sure business to produce higher profits as each year progresses, including FY 2025 being ahead of FY 2024, given its strong core business model. It's just that it's a little bit less than we first assumed when we told you, as we outlined in November. So we've written down that obligation to pay the earn-out.
That goes in the statutory accounts as profit, and we also wrote down the value of the investment, which goes in the statutory accounts as an impairment. But when you net the two things off, you've got around about a AUD 2 million adjustment in the books. There's also another weird item called the net present valuing. We have to take the deferred earn-out and actually present value it, and then unwind it as time progresses. We've taken that out of the numbers as well. So in summary, our view of the Sure earn-outs is we're now estimating we'll be paying circa half of the previously published amounts, but we do expect profits, as I said, for 2025 to be higher than that for 2024. Of course, the final amount will be dependent on the FY 2025 results, which we'll... In Slide 20, we've got a... U.S. earnings.
The organic growth has been generated through a combination of factors. So yes, we had the continued hard market conditions, where the price increase is circa 7.5% in our businesses, and the volume increase is roughly 3% across our equity brokers. We had growth in the agencies, and we showed at the Investor Day broadly how agencies generally, and of course, our agencies, in particular, have gained market share off insurers over recent years, and that's continued. We do benefit from the higher interest received on our trust and operating bank accounts. Particularly, that was notable in the first half, and so that those interest rate increases actually gave us AUD 26 million of the organic EBITDA growth.
If you would exclude the impact of interest rates from all the analysis, our organic growth rate in the second half was stronger than that of the first half. It actually grew from around about 5% ex interest to 7.4%, and our guidance assumes that that second half growth rate, excluding interest, carries through into FY 2025. Now, given we've got a fairly natural hedge of having funds on deposit as well as corporate borrowings, as well as all the different arrangements in play for our deposits, we anticipate only minor impacts to bottom line results should interest rates shift during this year ahead. With acquisitions continued throughout the year, as we said, 309 for the Trapped Capital program against the 280 assumption.
And as we said, some of those acquisitions were a little bit right at the tail end of the year, so of course, they're gonna be more impactful into FY 2025 than they would be in FY 2024. And of course, we acquired Sure on top of that. If you look at the multiples, we averaged at about 9.8 times EBITDA. I said we'd probably coming in under ten, and it was 9.8 for the AUD 309 million of trapped capital acquisitions, and Sure was completed at 10.33 times. If you take out America, then the domestic trapped capital acquisition multiples averaged at about 9.4 times EBITDA.
You'll see in our guidance that we've got AUD 300 million of acquisitions for FY 2025 built into that guidance, and we've done AUD 83 million as of today. Now, that is, in that AUD 300 million, there is no expectations whatsoever of any acquisitions in the U.S. It's they're all non-U.S. related acquisitions. And so those acquisitions, we anticipate, will give another 3% growth into this year, and that actually, depending on the timing, provide maybe another 3% growth into the FY 2026. Now, if I can move forward to the just slide 21, please.
These next two slides really try and convey what I call the industry dynamics and the financial themes across our businesses as if we owned 100% of all the broking businesses, or in the next slide, 100% of the agency businesses. And as Rob explained, we don't own 100% of the businesses. In fact, they're all, most of them have a co-owner model, which means they have local management on the ground, directing each local decision to keep them competitive. So this is all about the themes that run across these different areas.
So if you look at broking, first of all, we actually own roughly 77% of the EBITDA that we have here, which is, if you're going to split it up, 73% of the pure broking assets and 100% ownership of what we might call the network assets. That is, the business of being a network in Australia, Singapore, New Zealand, and of course, now America. But for the period, there was 11.7% of organic growth in the revenue, and a strong result reflecting those hard market conditions, but also the volume growth as well as the interest rate rises. As you know, we don't set those premium rate rises; that's done by the insurers, but the fact that our portfolio rose by similar amounts to what the insurers are reporting highlights that is seeking to uplift pricing together.
The premium increases really across most property lines have continued, and with 70% of our revenue being commissioned, a commission that's leveraged against our GWP, kind of gives you around about 6% revenue growth from those 8% price rise, price rises, and the balance of the growth was really that volume growth and that interest. The cost increases, particularly important here in FY 2024, were in line with what we expected, and maybe the trajectory of that cost of labor increase is starting to moderate a little bit at present. And we've, we have invested a little bit further in capabilities in the broker network in the year ahead, but we do see that trajectory of cost pressures moderating, particularly as we go into calendar year 2025.
And on top of that, of course, we had the acquisitions giving a further growth to those numbers. Slide 22 on the agencies. Here, we own roughly 89% of what we show. The agencies, again, traded really solidly throughout the period, had a really good second half as well, and as highlighted on our Investor Day, that superior client service and product offering has meant increasing market share for agencies generally, and for ours particularly, and that has continued again this year. We told you about the additional resourcing, particularly in people and systems, getting ready for CPS 230, and even with that investment, we have shown a nearly 10% uplift in organic EBITDA growth.
Now, we intend to continue to invest in those areas just to be ready for that one July 2025 start date, and we actually believe that's a great opportunity for us to further promote why we are a great co-owner for agencies in that new regulatory landscape. Page 23, please, moderator, on the cash flows. Our businesses do turn, of course, our cash flow, approximate cash flow each year, and apart from a square-up of last year's tax, you can see again how we've converted earnings into cash, which of course, we've utilized to pay dividends and put to our acquisition program. So we still have, you know, circa over AUD 120 million of free cash flow that we enjoy. The debtor days continue to show no deterioration. We've seen no signs of problems in the premium funding.
We gave you a hint of that at the Investor Day. So another continued strong sign for the SME sector. So moving on then to slide 24, on our balance sheet, we have a very conservative, you might argue, 20% gearing at the moment as a result of the capital raise last year, so it's well within our 30% gearing level. Our actual return on average capital employed, during the year, I calculate to be 13.8%, if you use NPATA as the, as the profit number, and we project that to climb another circa 60 basis points if you look at the midpoint of next year's guidance.
Our debt facilities of AUD 860 million, they extend out to 2026 to, in part, but, a lot of them to 2028, as you can see on the right-hand side of that slide. The most important thing here to remember is that, as of today, we could borrow AUD 260 million from the facilities for acquisitions, but I could actually borrow further another AUD 160 million. That is, I could borrow another AUD 366 million and stay within the 30% maximum gearing ratio.
If you look at the year ahead, AUD 366 million of debt capacity plus, say, AUD 120 million of cash flow, let's call it AUD 480 million worth of firepower over the next 12 months, and we are saying to you that there is AUD 300 million of acquisitions that we expect to be completed, of which we've done 80, so there's only 220 to go. You can see my earlier comment. We're not anticipating to actually raise further capital this year, instead using debt and our free cash flow to execute the acquisitions that we see in front of us. I think at that point, I'm gonna hand back.
All right. Thanks, Stephen. It's a comprehensive view, I hope, of what you saw, and so I think... Are we going to questions now? I think. There's a couple of questions come up on the screen that I can answer.
Thanks, Robert. Just as a reminder, to ask a text question, select the messaging icon, type your question in the box towards the top of the screen, and press the Send button. To ask a live audio question, press the Request to Speak button at the top of the broadcast window. Follow instructions on screen to join the queue. If you have not yet submitted your text question or joined the live audio queue, please do so now. I will introduce each caller by name and ask you to go ahead. You will then hear a beep indicating your microphone is live. And our first question comes from Julian Braganza from Goldman Sachs. Please go ahead.
Good morning, guys. Just a couple of quick questions from me. Just pointing to the slide, slide 16, just on the guidance, just specifically on the organic growth, 9%-13%. Just interested in understanding the drivers of that range, and is it related to the premium rate increases that could eventuate over FY 2025? I just wanna understand what could pull you to the bottom end of that organic growth range into FY 2025.
Yeah, sure. There's... Yes, price rises and will always be an influence on the top line revenue, and therefore, the EBITDA growth that we achieve. But, of course, our guidance is made up of 100 different businesses, all who can win business, lose business, every day. So, there's always going to be, you know, where does those volumes finally end, for the year? They're probably the key things. Every month, obviously, we look at the results to see how that's performing, but you do have to look across the whole portfolio.
I mean, I think, Julian, constraints on expenses and efficiency in how we operate also add greatly to the organic growth side of it. So it's not all predicated on growth. If it's-- You see, when the hard market or the current pricing regime starts to wane, okay, emphatically, we don't think it's gonna drop. All right? It might drop in a couple of product lines that have been grossly overpriced over the last few years, D&O, and maybe that, and perhaps one could argue cyber falls into that.
But the reality is, when you are a sales organization, which is what insurance brokers are, they're an advice sales organization, and when you're in that paradigm, and the pricing starts to alter, then what happens is you actually increase volume quite dramatically sometimes because there is a gap in the insurance distribution networks around the world, where some people are asleep and others are awake, and they take advantage of any blip that might occur. And so there's many factors, as Stephen just put out, and there's many, many areas of niche that we do. So it's not just a simple. I'd like to say it's pragmatically, it's a simple paradigm.
You can run out and say, "If premium re-rates start to ease, then this will be the sole factor." All I can say is that we floated this business in the lowest market in the world and made increased profits each year, demonstrated by our slides. I think, and I think that the fact that we've put in 7%-9% really is indicative of what we know the pricing's doing at the moment, and. The fact that our June figures were strong and others have said their June figures were weak, I can't explain, except to tell you we know what our businesses were doing. We know what the markets were doing.
We know, we know that the main insurers that we deal with, the main nine insurers we deal with them, not one, not one has said to us that they're gonna reduce prices. They've actually said the complete reverse, that they have to keep driving rate. So when you hear when somebody says to me that some underwriters are saying that the prices are gonna come down, and our peers are saying, "Oh, there hasn't been increases," we, with about 32% of the intermediated market in Australia at the moment, are not seeing that in our businesses, and we're not seeing it with our insurers.
Okay, thank you for that. That's very clear, Rob. And maybe then just touching on the margins for both broking and agency into FY 2025. I think you're still flagging a bit more investment in agency into next year. Just want to understand, should we be seeing margin improvements there, even despite that investment? And then also, I guess, when does that investment come off? Is it next year or the last year, where you sort of beef up sort of resourcing and compliance?
Yes. As I tried to point out, we did see a really good EBITDA growth, despite that forward investment in 2024, and we expect that to continue. I think the margins for agencies should hold, if not improve, next year. As I said, on the overall picture, we're seeking roughly 50 basis points improvement in the margin across all businesses.
Okay, great. Thank you so much for that, Rob, and team. Thank you.
Thank you. Our next question is from Andrew Buncombe from Macquarie. Please go ahead.
Hi, guys. Thanks for taking my questions. Just two from me, please. The first one is on the AUD 300 million expected payment for trapped capital in FY 2025. Can you just remind us whether that's a gross or a net number of the sell downs? Thanks.
That is AUD 300 million of acquisitions. That is, if you look at our slide on 16 for the guidance, that AUD 300 million relates to the acquisitions new column, and we have separately shown that there will be some sell downs in that 1% where we sell a few equity stakes to the co-owners as a separate exercise. That is a gross figure.
Excellent. Thank you. And then the other one from me was just on the implied multiples from that trapped capital number. The shorter-term-
Yep
Numbers look closer to high eights to low nines, but the back-ended pace was closer to 10. Is there anything unusual in the short-term pipeline for those multiples?
Yep
- as to why they would be so different to the long-term-
Yep
Ten number? Thanks.
Yeah. The actual multiples you'll note can vary, particularly if you're buying at timing of when you're buying a larger business versus a smaller business, the higher growth business versus the more stable business. And so it can just depend on one or two months, you might be buying a few of the more, let's call it, more stable, smaller businesses that where you've paid less multiple, and then there might be a month where you've paid for a higher growth, you know, larger business, and so it just skews that in those couple of months in particular. So the general trends of acquisitions multiples really hasn't shifted over the last couple of years. It's really those two dynamics of size and growth that really dictates the multiples rather than anything else.
Thanks for the answers. That's it from me.
Thank you.
Our next question comes from Andrei Stadnik from Morgan Stanley. Please go ahead.
Good morning. Hopefully, you can hear me okay. My first question, can you just re-
Yes.
Thank you. Can you just remind us of the mix of, you know, within your clients, can you remind us of the mix of small versus medium versus larger, versus larger corporate businesses?
The corporate businesses. Well, I think you have to define what a corporate business is. A corporate business in Australia can be a business that's got 50 million assets, okay, or 500 million assets, so it's a very different area. What we say is that 85% of our business is in corporate. But if you go to slide 34, you'll see that the micro or policy size below AUD 650 in premium is 1%. The SME, okay, size, which is AUD 650- AUD 5,000, is 24%.
Okay, and then the small to medium enterprise, which is AUD 5,000-AUD 50,000, is 40% of ours, and then the medium enterprise, which we say AUD 50,000-AUD 250,000, is 15%, and then the corporate, which is over AUD 250,000 in premium, is 6% . And then retail is 14%.
... Thank you. That's helpful. And look, my other question, can you just, I mean, you already explained it, but around the short earn-out, you know, potential earn-out being lower. So it sounds like it could be the AUD 50 million level, but it shall perform better in FY 2024 versus expectations. Can you just explain a little bit more of that? Because it sounds like you're getting the best of both worlds there. Yeah-
Okay.
Just would be, yeah, just be helpful.
It's pretty simple to explain. When we bought Sure, okay, that we wanted a protection that if they got hit by some cyclones and their profit share, which was quite a valuable piece of the acquisition, wasn't able to be maintained, that we wanted a protection. Under accounting rules, unfortunately, if you're paying AUD 100 for something and you only pay 80% upfront because you don't think the 20% you're ever gonna pay, Stephen, 'cause he's really difficult to deal with, makes me have to put the AUD 100 in, and then because he's even more difficult because of accounting rules, when we take the AUD 20 off, I have to take it off. Can you explain this?
Because you've never been able to do it in 12 years to me, but successfully to convince me, Stephen.
No, I'm not gonna give an accounting lesson on this call.
Good. Thank you.
But I think to your point, commercially, yes, Andrei, I'd say, much to the shareholders too, Sure shareholders agreeing, yes, we've got the best of both worlds, 'cause we, we wanted to have a protection for any risks on the earnings, even though, of course, we believe it's a very solid business. So yes, our Steadfast shareholders get the benefit of that.
Okay. And we will be paying a proportion of that extra premium to them anyway, right?
Yeah. Yeah, because they've got a great underlying business.
Yeah.
That's performed.
Thank you. Look, if I can ask a third final question, in terms of, you know, how you're thinking about next steps for... In the U.S. by ISU, what are the next steps, you know, from here? What are some of the things, you know, kind of, you know, within your control that you'd like to do in FY 2025?
Yeah, I think the four areas of focus for us are basically market access, to develop those carrier relationships more and that opportunity for the members of ISU to place business into strategic partners of Steadfast. The other will be the network growth, to continue to grow those numbers, and make sure that we have a strong, viable network, that we're not losing too many people to private equity acquisition over there. Agency perpetuation, of which falls into our trapped capital opportunity, which will help lock them into the network, but help grow our proposition there organically and acquisition-wise. And of course, our technology solutions. What can we do with the technology platforms we have here, taking them into the US? So they're our four major focus areas.
Thank you, Sam.
Thank you. Next question comes from Olivier Coulon at E&P. Please go ahead.
Hello, can you guys hear me okay?
Yes, we can. Thank you, Olivier.
Ah, perfect. Thanks. Sorry, the audio is playing up a little bit. Just on the agency M&A opportunity, I suppose, that may play out with CPS 230. I mean, have you already had some discussions on M&A of some smaller, potentially subscale agencies that, you know, might struggle under the new regime? And is there any of that included in the AUD 300 million trapped capital?
To answer the second part, no, none is, in that... and from that point of view. To answer the first part, there's a real rationalization going on with insurers at the moment. Well, I'm sorry, let me explain. APRA approves insurers in the Australian market, and there is underwriting agencies that are being told, not that there's anything wrong with them, but that they don't want to handle smaller underwriting agencies. So yes, there is some opportunities that may come forward. You have to also be very circumspect when you get an opportunity like that, to understand what you're actually picking up.
And so when you look at a smaller agency that you're bolting on, perhaps, in the circumstances that we've just explained, then you've got to be very careful that the loss ratio that you're picking up is not gonna impact your current way you operate. Secondly, that the nuances that you've developed in an MGA's network, which are very successful and which is stringent, and which makes sure that we are very efficient for the insurer, that sometimes in a smaller agency, that agency wouldn't operate if you had to put down all those rules. So we've got to be very careful to do that. I mean, it's. It hasn't. I don't think in the Australian market, CPS 230 has actually hit a lot of the MGAs with what the onus of responsibility is.
So I think the time probably for this to start to reach whether we can or can't do something with some of those will be in probably the March to June period of next year. My experience in this industry, so would probably say it'll probably be around the fifteenth of June next year when people go: "I'm not gonna be able to comply. I, I didn't realize it's gonna impact me. I'm under pressure from my capital provider to show how we do comply." What do you think, Nigel?
I agree, Robert. I think it'll be the insurers getting themselves organized in the first instance, and then as they look to apply that to the agencies, more specifically, that an agency will identify that the investment required doesn't meet the operating margins of the business, and they'll look for an exit.
... Yeah, yeah. So we'll look for opportunities, but please, those opportunities may require, you know, we've got a very detailed way we look at an MGA acquisition, you know? And in the past 12 months, we've looked at a couple, and we don't vacillate from our known operating structure that we know is successful and our approach to the capital we're given. So this sounds a bit arrogant, and I guess it is arrogant. We're not gonna pick up scraps and put them into a very profitable business if we don't think that we can make them do what we do. And in some cases, some of these smaller agencies, they operate on a shoestring. They operate with a very limited compliance regime.
And if you put our dedicated way we do stuff over the top of them, they would die. They wouldn't like it. They wouldn't be able to do it.
Yep. Okay. No, that's perfect. Thanks for that explanation. Just a final one from me. In terms of, you know, potentially entering a declining interest rate environment, not premium rate environment, how are you thinking about M&A? And I suppose the fact that, you know, you're gonna be purchasing the interest income and paying an EBITDA multiple on that. Yeah, you know, very-
Yeah, trust me, when we evaluate an acquisition, we evaluate every aspect of the acquisition, and if interest rate came into play, we would take that into our evaluation of what we would pay for that business.
I would like to say to you, over the last couple years, as interest rates rose, is that the multiples to pay it would've come down, but the market remained as red-hot and as it was.
So I'm hoping that on the way down, that it doesn't seek to go up any higher, but it actually stabilizes where it is. But, it's a competitive market, and it is.
In terms of our own borrowing, I mean, we have more than our borrowing, in most cases, on investments, so we have a natural edge. If there was a 1% drop in interest rates, then our borrowings would be.
It would be, and I think to Olivier, to the point there from, from Olivier was, you know, we obviously seek to always assess what is maintainable EBITDA, as we buy, assets. So obviously, we take that into consideration.
We don't get deal fever, Oliver.
That's right. No, thanks. Appreciate it, guys.
Thank you. Our next question is a written question from Scott Hudson at MST. Scott asks:
"Are there any U.S. acquisitions in the pipeline of AUD 296.6 million opportunities? And can you confirm what acquisitions are included in the FY 2025 guidance?
Yep. Per my commentary earlier, zero on both counts. No, U.S. acquisition is factored in.
Thank you.
Was Scott asking what were the names of the acquisitions? If he was, he can go to hell. We're not gonna do that.
I think it's Quantum.
Eh?
I think it's Quantum.
It's only Quantum, isn't it? Yeah. Okay. So it's no and no.
Perfect. The next question is also a written question from Siddharth Parameswaran from JP Morgan.
It's a three-part question. The first part: Robert, is the 7%-9% rate you flagged for FY 2025 suggesting any slowing in rates? In your broker network, you flagged 9.9% GWP growth in FY 2024, but that was down from 10.6% in first half. You flagged 3% volume growth, so implies rate increases of 7%. This full year number suggests a slowdown from the first half. Your guidance for FY 2025 assumes rate increases of 7%-9%. Is that in line with what you saw at 13 June renewals, or is it higher? And what comfort do you have about the level of rate? Most peers, including underwriters, are suggesting some slowdown in rates.
Okay. Firstly, it's not, it's not an increase in what we think it'll be. It's exactly what we did for the prior year, I guess, and the prior year and the prior year. It's our evaluation of what we think the GWP will roll at between then. And yes, Sid, I think the 10.6% back to the 9.9% and the 9% shows that there is an easing coming on, but that easing is not a slam dunk or anything like that. It's in some areas. It's not in all areas. We're property, which is a major play of what we're doing, is still being driven dramatically in Australia from that point of view. So, no, I don't think that. What do you think, Stephen? I mean, you.
Our June was as strong as anything, wasn't it?
I can probably also mention that even July continued. You know, it came in as we expected, so, on those assumptions, so there's nothing in July telling us either, let alone June.
No, nothing. Nothing. So I think it's a solid. When we give a seven to nine, okay, we're betting that it'll be somewhere about the seven mark. Okay? But we have to give a range, so if it lands in our predictions about guidance, where we always put a range of, say, seven to nine, then we're guiding at the seven, not at the nine, okay? But we're saying that's the range it could be.
Thank you.
Hang on, hang on. The peers, none of the major insurers that we place AUD 13 billion with in Australia have said their CEOs, in fact, attended, when was it, Nigel? Last month. Well, I've forgotten, were they? Yeah, last month, the major four or five CEOs attended, an intimate, meeting with us, with our statutory guys, and, they were absolutely dogmatically and absolutely clear that they have to drive rate up towards the 10% mark to get back to technical rate.
That was all done individually rather than collectively.
And that wasn't done in a group meeting, where it was done intimately, one-on-one, without the others participating in it. But what feeling did you get out of that? Did you feel that anybody was wanting to drop rates, Nigel?
I think they were very clear that there's still a lot of compound inflation in the system.
Yeah, yeah.
Relative to the headline inflation number that we all see, they're getting it in all aspects of their value chain. So it's materials, it's contractors, it's-
I think on-
-carriers, it's-
I think on that point, they were very intimate with us about their loss ratios, weren't they? And much more intimate than what they would be in public, I guess. And in reality, the compounding effect on the escalation of claims is not being reflected in the current pricing.
Then the increased complexity of what they're dealing with around natural perils or the weather, as well as things like cyber, and then, of course, the litigious environment that we live in today, the award sizes continue to increase. So I think it's a circumstance where they're continually trying to adjust to meet future price valuations.
It'd be a very unwise Australian insurer who looked around the world and had a look at the wildfires, and Canada is a good example, fires as we speak now, and said, "Oh, we're gonna have a great summer. It's gonna be terrific. We'll all go to the beach," and not actually say to themselves, "We could be in for a horror summer in terms of bushfires in Australia." So yeah, I hope that helps. Oh, hang on. Was there something else you'd asked?
Did the renewal capacity you were seeking... Sure's binders, main binder doesn't renew till the end of next year, does it, I think?
Correct.
October.
First of September.
So, 30 September next year.
And I think there's a question there about the, did they hit the EBITDA that was flagged in, when they bought it?
Oh, yeah.
So if you go back to November disclosures that we gave, and you compared what we projected to go into the numbers versus what they actually did produce, then pretty much on every count, the FY 2024 contribution or the annualized rate, then we are hitting the number we said they would get or a bit higher. What I'm flagging is what they projected for 2025 has probably got some downside to that number, but it's still an upside on what they're doing-
Upside on what we bought.
Yeah.
Yeah, still a great upside on what we bought.
I think, is there a difference in growth you're flagging between 25 versus NPAT? What drives these differences?
Sorry, thank you. I'm just trying to read these questions.
A little bit.
I'll have to get new glasses here. Is there any difference between what we're flagging for 25 EBITDA? So if you look at the EBITDA that we're projecting, I keep making the reminder on the comment that there is times when we make acquisitions, that it is a step-up of investment, which means the EBITDA has already been in our figures 100%, and what we do is we actually acquire some of the non-controlling interests, which reduces that non-controlling interest line in the profit and loss statement. So hence, that the bottom line can sometimes be ahead of what is that EBITDA line. So that's probably the key things I would like to highlight.
And I think that's all of Sid's questions.
We've got one more on the screen from Claude Walker: What is the most likely reason Steadfast earnings per share could actually go down instead of up? I guess if in fact our costs exceed our income and we watch our costs absolutely incredibly hard, no? I mean, it's-
Look, I think we've tried to give the waterfall of growth, of the growth that comes from both the acquisitions we've made and are flagging to make. They obviously contribute to earnings, particularly if you're buying at 10 x multiple, call it 10% rate of return, with a cost of debt of, say, 6%. And of course, there's some free cash flow, which doesn't have that 6% cost. So you get comfort on that. So it really then comes down to the performance of each business. And I think like we flagged before, even if the revenue wasn't to progress as it was, you do have some opportunity to move some of the, what you might call, more variable costs and consider how much do you invest in some initiatives.
So you've got a chance to vary some of your spend if you need to. So obviously, we remain confident for the going forward. We enjoy the fact that insurance, by its nature, is a defensive purchase from consumers and businesses alike, so you don't have the variability of sales that maybe other retailers need to deal with. And interest rate movements, as we flagged, don't concern us as much either. So we're not as worried about economic or factors as other businesses are.
Okay. That's what we've got off the screen at this stage. Back to you.
Thank you. Thank you. There are no further questions on the online queue. I'll now hand back to Robert. Thank you.
Okay. Thank you so much, and thank you for your time. I know it's gone a little over time, but I hope it's been helpful, and I hope the interaction between our executives and running the particular divisions and issues we're doing has helped you. So thanks a lot. Thanks for your time, and we look forward to managing your money and continue to make more profit for you.