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&A session. You can register for questions at any time by pressing Star and One on your telephone. For operator assistance, please press Star and Zero. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Mr. Philipp Gmür, 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, Caser. 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 Caser, we will improve our positioning to a meaningful number seven 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 a more balanced geographical mix. Helvetia 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 emphasized 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 three. As I have already mentioned, the acquisition of Caser 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. Caser also is strongly focusing on the attractive non-life business, which made up 68% of Caser's premiums in 2018. Caser has a balanced product portfolio, offering products and services in all retail insurance segments. Helvetia is also opening up valuable new sales channels in the area of bank distribution. Caser has had distribution agreements with Ibercaja, Unicaja, 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, Unicaja, and Liberbank are present across Spain with around 3,100 branches, serving more than 7 million customers. Both Caser and Helvetia focus on customer centricity and digitalization.
In addition, Caser, like Helvetia, is developing new business models to further diversify the business. With Caser, Helvetia gains access to attractive ecosystems in the health and old age sector with stable fee income. Among other things, Caser operates nursing homes and hospitals. Given the demographic development, this offers further growth opportunities. The two companies complement each other in a perfect manner, be it business-wise, be it culturally. Caser will also immediately make a significant profit contribution. 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, Philipp. Good morning also from my side. CASER is owned by a group of shareholders, most of whom are banks with distribution agreements with CASER. Helvetia has reached an agreement with a group of these shareholders on the sale of their share packages. Helvetia will acquire up to 70% of CASER. Purchase price for a stake of almost 70% in CASER is EUR 780 million and is close to the book value of CASER. Helvetia intends to finance two-thirds of the acquisition of CASER by issuing hybrid bonds and 1/3 by issuing new shares. This financing mix enables efficient capital management and contributes to a balanced capital base. The annual general meeting on 24th of April 2020 will vote on the issuance of new shares. Until the capital transactions are completed, the acquisition will be financed with existing liquidity. Helvetia's capital position remains solid after the transaction.
The SST ratio will remain within the target range of 180%-240%. Helvetia has already had confirmation that the S&P rating of A will remain unchanged, subject to completion of the transaction financing actions. As Philipp already mentioned, the acquisition will be EPS accretive. At the moment, the full IFRS numbers remain provisional because CASER reports under local GAAP. We will obviously give you more details once the acquisition has been completed. As with the Nationale Suisse acquisition, we will 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 2020. With that, I will hand back to Philipp, who will provide you with more details on CASER as a company.
Thank you, Paul. Slide five 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 seven 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. In the life business, Helvetia significantly improves its positioning. Let us move to slide six, 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 10 position standalone. In 2018, Caser generated on a local GAAP basis revenues of EUR 1.6 billion and a profit of EUR 87 million. 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. Caser has non-life distribution agreements with Ibercaja, Unicaja, 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 seven. Slide seven shows Caser's business mix with 68% of premiums coming out of the attractive non-life business. Because Caser reports based on local GAAP, its figures are only comparable to Helvetia's numbers to a limited extent. However, Caser contributes significantly to the top-line figures in Spain and improves the share of the non-life business from a group's perspective.
In addition, Caser generated EUR 141 million of revenues with fee income from the ecosystems in the health and old-age sectors, offering future growth potential. On slide eight, 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 Caser 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 Caser's number to IFRS and the related acquisition accounting. Nevertheless, it is already apparent today that Caser will also provide a substantial positive bottom-line impact. With that, I move on to slide nine.
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 Caser. 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 Caser 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 Caser. 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 Caser.
By Helvetia, we have a contractual commitment of 67.1%. We expect the remainder within one week's time. The above mentioned three 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 Caser supports Helvetia's growth ambition without compromising its financial targets. It is very important for me to emphasize that together with Caser, Helvetia will reach its volume ambition of CHF 10 billion by the end of 2020, 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 Caser, Helvetia is first, achieving its strategic aim of reinforcing its position in Europe and strengthening Europe as a second strong pillar of the group.
Second, strengthening the core business and exploring new business models. 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 session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. 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 three questions initially. The first one was on earnings. I guess given your comments, you can't give us a better indication of the underlying IFRS earnings. I was wondering if you can sort of give us any idea of, or sort of quantification of the synergies you expect. Also whether you can quantify the one-off in Caser'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. 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. I am just wondering if you can comment anything or whether at this stage? Thank you very much.
Okay. Thank you, Peter. Let me answer question number three 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. Instantly there is no change in dividend policy. 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 have all the steady as you go increase in dividends. With the Nationale Suisse transaction, we increased dividends due to synergies. I'll come on to that in a minute with synergies. Obviously Caser will bring additional net income to us, which is available for dividends. It may or may not have an impact on the payout ratio. 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 at the moment to give you guidance on the underlying earnings under IFRS until we've gone through the details.
The one-off was in the CHF 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 Nationale Suisse deal was. Having said that, we do know of areas where we will, over the next few years, be able to achieve them, but we're being very conservative and are not saying anything at the moment. I hope 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 CHF 150 million of senior because we just didn't need it, and it would help structure a little bit.
You've seen, hopefully today, S&P have confirmed our A rating and taken off the credit watch, including the impact of Caser, because we spoke to them about it last week. They're saying, as far as we're concerned, if you succeed with the financing of the transaction as you propose. We think the capital structure is absolutely fine. 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 Caser, we're talking about future acquisitions, it's probably a bit too soon.
More questions?
The next question comes from the line of John Urwin from UBS. Please go ahead.
Hi, guys. Good morning. Thanks for taking my questions. Well done for getting this over the line. It looks like it was quite competitive. I guess from our perspective, as Peter's 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, 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? We've all put out our calculations this morning, which invariably will be wrong given the accounting differences, but any just rough steer there would be really helpful. Just on the funding structure, it looks like you could have done this potentially just from internal resources, given where you are in the solvency range.
Maybe there's differences from a credit rating perspective, but is the funding structure that you propose to give you more powder for future M&A going forwards? Thank you.
Okay, Johnny. Thanks. I would like to hand over for answering the two questions to Paul.
I understand your need to get more direction on the earnings and the EPS. I really, at this stage, would not like to give you anything there. The EPS will be very mildly accretive at the moment. We don't foresee a huge EPS accretion. Given the differences, and we're also dealing here, by the way, there's a small amount of revenue which is not under IFRS 17 or four for insurance accounting. It's under IFRS 15 for revenues from the various hospitals and nursing homes and all the sort of ecosystem health business. At the moment, I really wouldn't want to give you any steer 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&A deals, because this is going to take us some time to integrate.
Just with Nationale 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. That's why we didn't want to do it out of existing funding.
That's great. Thank you.
More questions?
The next question comes from the line of Simon Fössmeier 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? Second question is on the life book. Is this a book with guarantees? Third, if you have any estimate on what your costs 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 return on equity ratios. We think it will actually be not much different, actually. It will be probably slightly positive, given that 2/3 funding is in 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. What was your third question, Simon?
On the life guarantee.
Yes. There are guarantees. It is a traditional book. It is relatively small. We have to do the acquisition accounting for it and so on. We think we can manage that book of business and make sure that it is more than adequately reserved. 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 take its share of the extra shares. That was the first question. I may be out of luck with the other two, but you've 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 broadly on your calculations? The final one, again, I might be pushing my luck, but in terms of the hybrid, you mentioned under 2%, but are you thinking Switzerland or euros for that, or possibly just can't say? Thank you.
I start with answering the first question, whereas Paul is afterwards answering the second question. With regard to our major shareholder, you probably are referring to Patria Genossenschaft. 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 always were supporting Helvetia's strategy, and we are pretty confident that they would do so also with this transaction. Paul?
On the SST, there will be a reduction within the SST, but not hugely. A lot of it depends on, obviously, the calculations, and we're having to take Solvency II numbers and translate them into SST at the moment. There will be, as I say, a reduction. I don't want to give you the exact amounts or estimates at the moment, but it won't be as we're getting to the bottom end of the range at all. Certainly not going to get into what will happen. In terms of the funding, it'll depend. We probably will use euro loans, which may mean we may have slightly over 2%, but at the moment, indications are pretty good. We have to see what the market is. The Swiss range is well below 2%, so Swiss franc range, and the euro is probably closer to the 2%.
Our general feeling is that we prefer to, or my feeling is I prefer to raise the money in EUR so that we have liabilities backing the assets. We'll have a look at the exact mix closer to that time.
Great. Thank you.
The next question is from René Locher from MainFirst. Please go ahead.
Yes. Good morning, everybody. 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. I was wondering why you have not touched a bit of this EUR 0.6 billion for the funding. That's my first question. The second one is on the equity, this 33%, which is roughly EUR 270 million-EUR 280 million. I mean, that's more or less a yearly dividend. Looks to me a little bit like left pocket, right pocket. What was this thinking behind it? Thank you very much.
Thanks, René. I hand over to Paul.
Well, I'm glad somebody's now reading our NEDC disclosures. That's good to. The NEDC is only one part of the equation, René. You're right, it is there partly for dividends and partly for growth. You also have to look at the solvency, the SST, and the two are interconnected, but not directly. You could have a situation where you effectively use up capacity, which affects the solvency but doesn't affect the NEDC and vice versa. That's the first point. Solvency and S&P rating, obviously, are very important things. 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, we will explain more about our dividend policy.
At the moment, we'll leave it as it is, and you'll get more information later on that. What was the other one? Let me see.
The equity financing.
The EUR 280 million.
If that's left 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 one year's dividend, and with that, you could have financed the equity.
Aha
part of the deal.
Yeah, I mean, don't forget that's part of the connection between the NEDC and the solvency and the S&P rating. You can't just make that simple connection. Also, I don't think you'd be too happy if we scrapped a year's dividend.
That's right.
We can still pay a dividend, and we think that the ongoing capital structure is really important to maintain that balance as to give the resilience going forward.
No, that's fine. Can I just, on this page or slide 57, you show a hybrid capital of EUR 1.5 billion. That means everything equal, you just add EUR 500 million to this EUR 1.5 billion, hybrid is going up to EUR 2 billion and you have a leverage of roughly 35%?
Roughly that, yeah.
Okay.
We paid back EUR 150 million of senior debt.
That's right. Mm-hmm.
Last year.
Okay, great. Thank you very much.
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Are there more questions?
There are no further questions at this time.
In order to come to an end, thanks a lot for your interest in Helvetia and in our recent acquisition of Caser. 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.
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