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Austbrokers Holdings Limited : HY Results Annoucement

02/26/2012 | 07:01pm US/Eastern

27th February 2012

The Manager

Company Announcements Australian Securities Exchange Level 6, Exchange Centre,

20 Bridge Street

Sydney, NSW 2000

Dear Sir / Madam,

Re: Market Announcement on Results for the Half Year Ended 31 December 2011

Attached for immediate release is Austbrokers Holdings Limited (AUB) Market Announcement in relation to the results for the Half Year ended 31

December 2011. Yours faithfully,

Stephen Rouvray Company Secretary Austbrokers Holdings Limited

For further information, contact Steve Rouvray Tel: (02) 9935 2201

Mobile: 0412 259 158

ASX release

27 February 2012

Austbrokers increases interim profit

Highlights:

- Net Profit After Tax1 was $11.2 million (six months to 31st December 2010 $8.7 million) up 29%
- 17% increase in underlying Net Profit After Tax (Adjusted NPAT) to $11.5 million (six months to 31st
December 2010 $9.8 million)
- 11.8% increase in interim dividend to 9.5 cents per share, payable on 27th April 2012
Austbrokers Holdings Limited (ASX: AUB) today announced a profit1 of $11.2 million for the six months ending 31st December 2011 (six months to 31st December 2011 $8.7 million).
Shareholders will benefit from an interim dividend of 9.5 cents per share fully franked for the half year, payable on 27th April 2012. This is an increase of 11.8% on the previous years' interim dividend per share.
The Net Profit After Tax of $11.2 million included after tax profits on sale of interests in associates and controlled entities and an adjustment to the contingent consideration on the acquisition of a controlled entity. It also included an income tax credit arising from the recognition of a deferred tax asset in relation to prior years' share based payment expense. If the above mentioned items, together with the amortisation of intangibles are excluded, the net profit after tax (Adjusted NPAT) was $11.461 million in 2011 (2010: $9.799 million), an increase of 17%.
Earnings per share increased by 25% (13.3% based on Adjusted NPAT) over the prior period.
The results for the 1HY2012 were very good reflecting the contribution of acquisitions, growth in the broking business assisted by premium rate increases and including the securing of new accounts as well as further development of the Austagencies underwriting business.
Insurance broking operations increased pre tax profits by 11.9% of which 1.2% was from direct acquisitions, the remainder from growth in business including bolt on acquisitions. While increases in premium rates for property were evident, other classes did not increase to the same degree and therefore overall increases were moderate. Commission and fee income for the network increased by 15.6% and total income by 12.9% again including the contribution of acquisitions.
Three bolt on acquisitions with income totaling $1.7 million were completed during the half year and another two with total income of $1.5 million have been completed effective from March 2012. In addition a business in Gladstone which carries on both insurance broking and life insurance activities has been acquired
effective 1st January 2012. We have appointed Fabian Pasquini as General Manager Acquisitions and
Development to continue our strong focus on acquisitions.
Austagencies' commission and fee income increased by 55%, of which 38% related to acquisitions. Expenses increased by 46% as capability continues to be built up and as a result of acquisitions. Profit before tax increased by 59% of which 34% was generated by acquisitions. The acquisition of Film Insurance

1 Net Profit after tax attributable to equity holders of the parent

Underwriting from 1st January 2012 will complement the existing film and TV agency and provide an excellent platform for this line of business.
The iClose system for electronic data interface with insurers has been completed and the roll out to the brokers is currently underway. Brokers are now able to transact businesspak insurance with QBE, Allianz and CGU through this system. Vero and Zurich are working towards being in a position to transact. iClose will be expanded to enable further products to be transacted with Industrial Special Risks now being developed. This system enables underwriters to differentiate their product and, utilising other tools which are interfaced, will enhance the quality and efficiency of the broking process.
We were pleased to appoint Theo Stevens as Chief Information Officer and his role will include the successful implementation of iClose placements and further innovations in harnessing technology to achieve more efficiencies in the delivery of products and the transacting of general insurance business.
The second half year should see continuing increases in premium rates in property classes (most likely at only a moderate level) and also a contribution from the recent acquisitions. There will be some uncertainty over the amount of profit commissions to be received by the brokers following the high level of claims occurring during the 2011 calendar year. In addition, interest rates have decreased and now appear to have the potential to decrease further, which could impact investment earnings in the second half.
Last year approximately 55% of our profit was earned in the final four months of the financial year so the final outcome for the year will depend somewhat on conditions prevailing in the market at that time and economic developments.
Given the above mentioned factors, taking into account recent acquisitions and the current outlook, we now consider the growth in Adjusted NPAT for FY2012 will be in the range of 10% to 15% above FY2011 an increase on the previous guidance which was 5% to 10% growth.

Austbrokers Half-Year Results breakdown (six months to 31st December 2011)

1HY2012

$' 000

1HY2011

$' 000

Variance

%

Revenue from operations 58,988 53,477 10.3

Expenses from operations - Expenses (42,432) (39,520) 7.4

Borrowing Costs (1,241) (1,224) 1.4

Profit from operations 15,315 12,733 20.3

Profit from sale of interests in associates and

controlled entities 0 249

Profit on adjustment to contingent consideration 398 0

Profit before tax 15,713 12,982 21.0

Income tax expense (2,821) (2,856) (1.2)

Net profit after tax 12,892 10,126 27.3

Profit attributable to non-controlling interests (1,678) (1,431) 17.3

Net Profit attributable to equity holders of the parent 11,214 8,695 29.0

Notes

1. The after tax profits for 1HY 2012 include a profit on adjustment of contingent consideration for an acquisition of $0.4 million. Profits or losses may occur in future years where actual contingent payments vary from amounts originally estimated.
2. The after tax profits include profits on sale of interests in associates and controlled entities in 1HY2011 of $0.2 Million (1HY2012 Nil). These profits result from restructures in equity holdings and may occur from time to time.
3. Income tax expense includes a credit of $0.6 million resulting from the recognition of a deferred tax asset
in relation to prior years' share based payments expenses.
4. Revenue from ordinary activities includes the Group's share of net profit after tax from associates which are companies and the Group's share of net profits before tax from associates which are unit trusts.

Analysis of underlying profits

A more informative representation of Austbrokers' performance is seen after removing:
- Profits on sale of interests in associates and controlled entities and adjustments to contingent consideration relating for acquisitions
- Amortisation of intangibles
- Tax credit arising from the recognition of a deferred tax asset on prior periods' share based
payments expense
Reconciliation of reported Net Profit after Tax attributable to equity holders to Adjusted NPAT is set out below:

1HY2012

$' 000

1HY2011

$' 000

Increase

%

Net Profit after tax attributable to equity holders

of the parent 11,214 8,695 29.0

Less Profits after tax on sale of interests in

associates and controlled entities* 0 (165)

Less Profits from variation in contingent

consideration* (398)

Less income tax credit relating to prior years* (631)

Net Profit from operations 10,185 8530 19.4

Add back Amortisation of intangibles net of

tax* 1,276 1,269 0.6

Adjusted NPAT 11,461 9,799 17.0

*This financial information has been extracted from the consolidated financial statements which have been
subject to review by the company's auditors.
To give a more comprehensive view of the performance of Austbrokers and its associates, the following table aggregates 100% of the equity accounted brokers' and underwriting agencies revenues and expenses with those of the consolidated brokers before deducting other equity interests.

1HY2012

$' 000

1HY2011

$' 000

Variance

%

Contribution to profit increase %

Insurance broking revenue 121,213 107,392 12.9

Insurance broking expenses (87,616) (77,673) 12.8

Net profit 33,597 29,719 13.0

Profit attributable to other equity interests (14,301) (12,478) 14.6

Austbrokers net profit from insurance broking 19,296 17,241 11.9 14.7

Underwriting agencies net income 9,390 6,140 52.9

Underwriting agencies expenses (7,038) (4,848) 45.2

Net profit 2,352 1,292 82.1

Profit attributable to other equity interests (353) (33) 107.3

Austbrokers net profit from underwriting agencies 1,999 1,259 58.8 5.3

Net profit before corporate income / expenses 21,295 18,500 15.1 20.0

Corporate expenses (4,793) (4,317) 11.0 (3.4)

Corporate finance costs (968) (907) 6.7 (0.4)

Corporate income 1,005 851 18.1 1.1

Net corporate expenses (4,756) (4,373) 8.8 (2.7)

Net profit before tax 16,539 14,127 17.1 17.3

Income tax expense (5,078) (4,328) 17.3 (0.3)

Adjusted NPAT 11,461 9,799 17.0 17.0

Analysis of results

Adjusted NPAT for 1HY2012 increased by 17% over the corresponding prior period:

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