Ladies and gentlemen, welcome to the Analyst Conference Call on the Acquisition of the Spanish Insurance Company, Caser by Helvetia. I am Alessandro, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session. The conference must not be recorded for publication or broadcast.
At this time, it's my pleasure to hand over to Mr. Philippe Gmoore, Group CEO. Please go ahead, sir.
Thank you. Ladies and gentlemen, welcome to our conference call. We are very pleased to be able to inform you today that we reached another milestone that perfectly fits with our current strategy. Helvetia is acquiring a majority stake in the Spanish insurer, Cather. This acquisition will considerably reinforce the European business as a second pillar of the group.
We will be gaining substantial market share in Spain and together with Cafer, we will improve our positioning to a meaningful number 7 in Non Life. Moreover, we will not only be significantly strengthening our core business, but also improve the business mix for the group through a higher share of Non Life and the more balanced geographical mix. Elbitz is also significantly improving its distribution channel mix by increasing its presence in the area of bank distribution. Caser operates very successfully in Spain. We see Spain as a very promising growth market and market economics for Spain look positive.
We repeatedly emphasize that an acquisition in Spain would be very interesting and now we are seizing the opportunity offered to us. For our shareholders, the good news is that Caser will also immediately make a significant profit contribution and the acquisition is EPS accretive. Furthermore, Helvetia will be preserving its strong capital position. I will provide you with more details of the acquisition on the following chart. Let's move to Slide 3.
As I have already mentioned, the acquisition of Casera is a unique opportunity to strengthen the European business as a second pillar of the group. Our business in Spain has developed very well in recent years and will be additionally reinforced by this transaction. Helvetia will significantly increase its market share in Spain, which also substantially increases the importance of our European activities. The acquisition of Caser perfectly fits with Helvetia's strategy. Gaser also is strongly focusing on the attractive non life business, which made up 68% of Gather's premiums in 2018.
Gather has a balanced product portfolio, offering product and services in all retail insurance segments. Helvetia is also opening up valuable new sales channels in the area of bank distribution. CasaR has had distribution agreements with Iberkacha, Unikacha and Liberbank and further banks for a long time. The bank distributors will remain as minority shareholders and the distribution agreements will be continued. Hence, Helvetia is gaining important new strategic partners in Spain.
Ibercaja, Unicaa and Liberbank are present across Spain with around 3,100 branches, serving more than 7,000,000 customers. Both Cather and Helvetia focus on customer centricity and digitalization. In addition, Cather, like Helvetia, is developing new business models to further diversify the business. With Kather, Helvetia gains access to attractive ecosystems in the health and old age sector with stable fee income. Among other things, Calcea operates nursing homes and hospitals.
Given the demographic development, this offers further growth opportunities. The 2 companies complement each other in a perfect manner, be it business wise, be it culturally. Furthermore, Caser will also immediately make a significant profit contribution. Finally, we see additional potential to realize synergies over time. On the next slide, our CFO, Paul Norton, will provide you with more details on the structure of the acquisition, the financing structure and the financial implications.
Thank you, Philip. Good morning also from my side. CARTA is owned by a group of shareholders, most of whom are banks with distribution agreements with Carta. Helvetsi has reached an agreement with a group of these shareholders on the sale of their share packages. Avetsa will acquire up to 70% of CARSA.
Purchase price for a stake of almost 70% in CARSA is €780,000,000 and is close to the book value of Carta. AVEZTA intends to finance 2 thirds of the acquisition of Carta by issuing hybrid bonds and 1 third by issuing new shares. This financing mix enables efficient capital management and contributes to a balanced capital base. The Annual General Meeting on 24th April 2020 will vote on the issuance of new shares. Until the capital transactions are completed, the acquisition will be financed with existing liquidity.
Alvetsi's capital position remains solid after the transaction. The SST ratio will remain within the target range of 180% to 2.40 percent. Alvesty has already had confirmation for the S and P rating of A will remain unchanged, subject to completion of the transaction financing actions. In addition, as Philip already mentioned, the acquisition will be EPS accretive. At the moment, the full IFRS numbers remain provisional because CASA reports under local GAAP.
We will obviously give you more details once the acquisition has been completed. And as with the National REITs acquisition, we report the impact of acquisition accounting in the future results so you can see the underlying results. We expect the transaction to be concluded in the first half of twenty twenty. With that, I will hand back to Philip, who will provide you more details on the CASA of the company.
Thank you, Paul. Slide 5 shows that together with Caser, Helvetia will become an important player in the Spanish non life market. While Helvetia currently ranks number 20, the combined companies will advance to a number 7 position, an excellent market positioning and basis for future growth. This premium volume in Spain even exceeds the non life book we have in Switzerland. Also in the life business, Helvetia significantly improves its positioning.
Let us move to Slide 6 that provides you with an overview on Caser's business. Founded back in 1942 in Madrid, Caser is a Spanish composite insurance company that is active in non life and life. The company has a strong focus on the non life business where it holds a top ten position standalone. In 2018, Gaffer generated on a local GAAP basis revenues of 1.6 1,000,000,000 and a profit of EUR 87,000,000 Non life business accounts for 62% of the revenues. Alongside the insurance business, Caser has developed nursing homes, hospitals and real estate services to diversify its operations.
As you can see on the right side of the slide, the company has also built up comprehensive bank distribution networks. Gasser has non life distribution agreements with Iberkaja, Unigaja and Liberbank and other banks. These cooperations will be continued, and Helvetia is gaining important new strategic partners in Spain. Let us move on to Slide 7. Slide 7 shows Casaere's business mix with 68% of premiums coming out of the attractive non life business.
Because Casair reports based on local GAAP, its figures are only comparable to Helvetia's numbers to a limited extent. However, Gaser contributes significantly to the top line figures in Spain and improved the share of the Non Life business from a group's perspective. In addition, Caser generated €141,000,000 of revenues with fee income from the ecosystems in the health and old age sectors, offering future growth potential. On Slide 8, we will provide you with further information on the bottom line impact. Also here, I would like to emphasize that due to the fact that Zscaler reports based on local GAAP, its figures are only comparable to Helvetia's numbers to a limited extent.
However, they can give a broad indication of the impact of the acquisition. Any numbers in this presentation related to the acquisition and its impact on Helvetia Group are preliminary and will only be finalized after the completion of the conversion of Kasser's number to IFRS and the related acquisition accounting. Nevertheless, it is already apparent today that Cafer will also provide a substantial positive bottom line impact. With that, I move on to Slide 9. Caser will continue to operate in the Spanish market with its existing well established brand as will Helvetia Seguros in Spain.
The management teams and locations of both companies will also remain in place. Helvetia aims to combine its strengths with Gaser. For this particular reason, a joint management committee will be set up after the transaction has been completed in which members of Helvetia Spain and Kaffir will be represented. The Joint Management Committee will coordinate common activities in the market, also with the aim of realizing synergies. Moreover, it ensures the exchange of knowledge and experience.
Let's move on to Slide 10. Helvetia has reached an agreement with the main shareholders on the sale of their shares in Kaser. Other shareholders have the opportunity to sell their shares at the same conditions to Helvetia. Helvetia expects to acquire a stake of up to 70% in Kaser. By last night, we have a contractual commitment of 67.1%.
We expect the remainder within 1 week's time. The above mentioned 3 strategic bank distribution partners will each remain invested with around 10%, underscoring the importance of these strategic cooperations. On Slide 11, you see that the acquisition of Gaffer supports Helvetia's growth ambition without compromising its financial targets. It is very important for me to emphasize that together with Cafer, Helvetia will reach its volume ambition of EUR 10,000,000,000 by the end of 2020, but without jeopardizing profitability. To the contrary, the transaction supports our strategy of profitable growth.
Let's end our presentation with a summary on Slide 12. To sum up, with the acquisition of Gasser, Helvetia is, 1st, achieving its strategic aim of reinforcing its position in Europe and strengthening Europe as a second strong pillar of the group 2nd, strengthening the core business and exploring new business models and third, creating shareholder value by acquiring a successful insurance company under financially attractive conditions. Now Paul Norton and I are ready to answer your questions.
We will now begin the question and answer The first question comes from the line of Peter Eliot from Kepler Cheuvreux. Please go ahead.
Thank you very much. I'll try and limit myself to 3 questions initially. The first one was on earnings. I mean, I guess given your comments, you can't give us a better indication of the underlying IFRS earnings. But I was wondering if you can sort of give us any idea sort of quantification of the synergies you expect and also whether you can quantify the one off in CASA's 2018 numbers.
The second one was on capital structure. I'm just wondering whether you're happy with the sort of financial leverage as it will be after this deal or whether you might look to sort of decrease that over time and whether it leaves you with any capacity for further deals? And then the third one was just on the dividend. I'm just wondering whether it has any implications for the dividend policy given this should increase your earnings if you kept the dividend policy unchanged and I guess your payout ratio would go down a little bit. Just wondering if you can comment anything at this stage.
Thank you very much.
Okay. Thank you, Peter. Let me answer question number 3 and then hand over to Paul. With regard to our dividend policy, of course, our dividend payout ratio is slightly changing according to the number of shares and all that, but we are not planning as of today to have a major change in our dividend payout ratio as we used to comment on that during the last years. So there is no instantly, there is no change in dividend policy.
Now for the other two questions, I'd like to hand over to Paul.
Maybe I can just add to the dividend policy. As you know, we have a new strategy period coming up, and we will update our dividend policy as part of the strategy. As you know, we also had orders steady as you go increase in dividends. And with the National Swiss transaction, we increased dividends due to synergies. I'll come up to that in a minute for the synergies.
But obviously, Parcel will bring additional net income to us, which is available for the dividend. So it may or may not have an impact on the payout ratio, but I think the most important thing is that we have a clear strategy, which will go forward. In terms of the earnings, you're right, it's very difficult moment to give you guidance on the underlying earnings under IFRS until we've gone through the details. The one off was in the low double digit millions net impact. As far as synergies are concerned, we have specifically not mentioned synergies.
We've said this is a deal which adds distribution to us. It's not specifically a synergy deal as the National Suisse deal was. Having said that, we do know of areas where we will over the next few years be able to achieve them, we're being very conservative and are not saying anything at the moment to have you understand that. In terms of the capital and leverage, we are very happy with that. On a small amount, you probably saw earlier, this year we repaid $150,000,000 of senior because we just need it, and it would help structure a little bit.
You've seen, hopefully, today, S and P have confirmed our A rating and taken off the credit watch, including the impact of Kartik, we spoke to them about it last week. So they're saying, as far as we're concerned, if you succeed with the financing of the transaction as you propose, And we think the capital structure is absolutely fine. So we have no intention at the moment of decreasing the leverage, and we'll look at it as we go along. Obviously, given the size of cars, we're talking about future acquisitions, it's probably a bit too soon.
More questions?
Your next question comes from the line of Jonny Irwin from UBS. Please go ahead.
Hi, guys. Good morning. Thanks for taking my questions. Well done for getting us over the line. It looks like it was quite competitive.
I guess from our perspective, as Pete has touched on, it's just quite difficult to get a feel for the financials. You've helped us with the one off, but just conceptually on the local GAAP versus IFRS point, I mean, what should we expect the direction of travel to be? Normally, IFRS is higher than local GAAP. So any comments there would be great. Any broad comments on EPS accretion?
I mean, we've all put our calculations this morning, which invariably will be wrong given the accounting differences. But any just rough steer there would be really helpful. But then just on the funding structure, I mean, it looks like you could have done this potentially just from internal resources given where you are in the solvency range, maybe the differences on from a credit rating perspective. But is the funding structure that you propose to give you more kind of powder for future M and A going forward? Thank you.
Okay, Johnny. Thanks. I would like to hand over for answering the two questions to Paul.
I understand your needs to get more direction on the earnings and EPS. I really, at this stage, would not like to give you anything there. I mean, the EPS will be very mildly accretive at the moment. It's not we don't foresee huge EPS accretion. But given the differences, we're also dealing here by the way, there's a small amount of revenue, which is not under IFRS 7 or 4.
For insurance accounting, it's under IFRS 15. For revenues, that's from the various hospitals and nursing hands and all the sort of ecosystem health business. So at the moment, I really wouldn't want to give you any stare on that, I'm afraid. In terms of the funding, we've always had a very conservative funding approach, and it's not so much about giving capacity for future M and A deals because this is going to take us some time to integrate just with National Suisse. We said, look, we're not going to do any major deals for a couple of years.
It's about making us resilient and ensuring that we have that backbone that enables us to keep going without any problems while we integrate the company. So that's why we didn't want to do that with existing funding.
That's great. Thank you.
More questions?
The next question comes from the line of Simon Forsmeyer from Bank Vontobel. Please go ahead.
Good morning. Thanks for taking my questions. I see your EPS accretion. On the other hand, it looks like the deal is slightly ROE dilutive, just directionally, is that correct? The second question is on the life book, is this a book with guarantees?
And third, if you have any estimate on what the cost will be on the hybrids that you will issue? Thank you.
Thank you, Simon. Paul?
Yes. I'm going to have to look at the EPS, the return on equity ratios, we think will actually be not much different. Actually, it will be probably slightly positive given that 2 thirds funding is on hybrid and not in equity. It should be slightly positive on there. The hybrid cost, we estimate to be under 2%.
It's pretty good at the moment. And what was your third question, Simon?
On the life guarantee.
Yes, there are guarantees. It is a traditional book. It is relatively small. We think we have to do the acquisition accounting for it and so on, but we think we can manage that book of business and make sure that it's more than adequately reserved. So we don't have a problem with that.
All right. Thanks a lot.
The next question is a follow-up from Peter Eliot from Kepler Cheuvreux. Please go ahead.
Thank you very much. Apologies if I missed this, but I was just wondering if your major shareholder has said anything about whether it will sort of take its share of the extra shares? That was first question. I'm maybe out of luck with the other 2, but you've given the sort of the said you'll remain within the range of the SST ratio. Are you able to give us any steer on the impact that it will have on the SST ratio very, very broadly on your calculations?
And the final one, again, I might be pushing my luck, but in terms of the hybrid, you mentioned under 2%. But have you are you thinking sort of Switzerland or euros for that? Or just can't say? Thank you.
I start with answering the first question, whereas Paul is now or afterwards answering the second question. With regard to our major shareholder, you probably are conferring to Patria Mutual. Of course, we want to get in touch with them as soon as possible. We do not know yet their position on whether they are positive or not and whether they are helping us increasing the capital. However, so far, they also they always were supporting Elevacia's strategy, and we are pretty confident that they would do so also with this transaction.
Paul? Okay. On the SST, there will be a reduction in the SST, but not hugely. It will always depend on obviously the calculations and we're having to take Solvency II numbers and translate them into SSD at the moment. But there will be, I would say, a reduction.
I don't want to give you our estimates at the moment, but it won't be sort of that we're going to the bottom end of the range at all. It's certainly not that's not going to get into the what will happen. In terms of the funding, it will depend. We probably will use probably use euro loans, which may mean we may have slightly over 2%, but at the moment indications are pretty good. It'll obviously what the market is.
The Swiss range is well below 2%, the Swiss franc range, and the euro is probably close to the 2. And general feeling is that we prefer to my feeling is I prefer to raise money in euros so they have liabilities backing the assets. But we'll have a look at the exact mix close to that and so on. That's great. Thank you.
The next question is from Rene Laucher from MainFirst. Please go ahead.
Yes. Good morning, everybody. So I'm referring to Slide 57 of the half year results, where we can see this net economic dividend capacity. And you have explained that this can be used for dividends or growth purposes. So I was wondering why you have not touched a little bit of this €600,000,000 for the funding.
So that's my first question. And the second one is on the equity is 33%, which is roughly €270,000,000 to €280,000,000 I mean, that's more or less a yearly dividend. So it looks to me a little bit like left pocket, right pocket. What was the thinking behind it? Thank you very much.
Thanks, Rene. I hand over to Paul.
I'm glad somebody is now reading our NEDC disclosures. That's good to. The NDC is only one part of the equation, NDC. You're right. It is there partly for dividends and partly for growth because you also have to look at the solvency, the SST, and the 2 are interconnected, but not directly.
So you could have a situation where you effectively use up capacity, which affects the solvency, but doesn't affect the annuity and vice versa. So that's the first point. So solvency and S and P rating obviously are very, very important things. So they're not totally connected. The NEDC, we will obviously look at as part of the dividend strategy going forward.
I mentioned earlier, we will have a new strategy period coming in, and then we will explain more about our dividend policy. So at the moment, we'll leave it as it is, and you'll get more information later on that. What's the other one? Let me see.
The equity financing.
The €250,000,000 If that's
in that pocket or right pocket. I'm not quite sure what you meant by that. Are you suggesting that we're taking it out of the NEDC to
No. I mean you could have scrapped the 1 year's dividend. And with that, you could have financed the equity of the deal?
Yes. But I mean, don't forget that's I said that's part of the connection between the NDC and the Solvency and the SME rate. You can't make that simple, simple connection. Also, I don't think you'd be too happy if we scrap the year's dividend.
That's right.
We
must pay a dividend and we can we think that the ongoing capital structure is really important to maintain that balance to give the resilience going forward.
No, that's fine. And can I just on this page or Slide 57, you show a hybrid capital of €1,500,000,000 So that means everything equal, you just add like €500,000,000 to this €1,500,000,000 So hybrid is going up to €2,000,000,000 And you have a leverage of roughly 35%?
Roughly that, yes. Okay. You paid back €150,000,000 of senior debt.
That's right.
Last year.
Okay, great. Thank you very much.
Are there more questions?
There are no further questions at this time.
So in order to come to an end, thanks a lot for your interest in Helvetia and in our recent acquisition of last night. For our group, it's a major milestone in our history, and we are looking forward to meeting with all of you in due time to discuss the whole transaction in more detail. Thanks a lot, and have a good weekend.
Ladies and gentlemen, the conference is now over.