Earnings Release. Investor Relations HIGHLIGHTS. Brasil Insurance discloses its 4Q10 results

Transcription

1 Investor Relations Bruno Padilha de Lima Costa Investor Relations Officer (55 21) Q10 Earnings Conference Call Thursday, March 31, 2010 Portuguese 10:00 a.m. (BR); 9:00 a.m. (US-EST) Phone: (55 11) Password: Brasil Insurance English 1:00 p.m (BR); 12:00 p.m. (US-EST) Phone: (+ 1(877) (US only) + 1(412) (Other countries) Password: Brasil Insurance Website Address Av. Das Américas, Bl.19 Sl. 301 Barra da Tijuca Rio de Janeiro - RJ Cep Brasil Insurance discloses its 4Q10 results Rio de Janeiro, March 30, 2010 Brasil Insurance Participações e Administração S.A. (Bovespa: BRIN3) one of the largest and most diversified insurance brokerage company in Brazil, composed of 29 companies with strong presence in the key markets in the country announces today its results for the fourth quarter of Our consolidated financial statements were prepared in accordance with accounting standards generally accepted in Brazil, based on the Brazilian Corporate Law and CVM regulation. HIGHLIGHTS Quarterly results reflect only the operations of November and December, 2010, since the 27 brokerage firms became subsidiaries of Brasil Insurance only in November 4 th (settlement of the IPO) Net income of R$16 million, note that in October the Company was in pre-operational phase Consolidated financial results audited by Ernst&Young Capital increase of R$336 million following the Initial Public Offering held on October 28, 2010 Adoption of International Financial Reporting Standards (IFRS) Centralization of backoffice functions: accounting and cash management Standardization of brands at brokerage companies Acquisition of Enesa and Classic brokerage companies in 1Q11

2 OUTLOOK Brazil's insurance market offers very positive prospects for 2011 and the following years, with annual growth estimated at over 12%, which shows the industry's potential for increasing its share of Brazil s GDP from 3.1% in 2009 to between 4% and 5% by The better income distribution, an environment conducive to full employment, the high and growing pace of auto production in Brazil, the expansion in consumer credit and the prospect of high investments in infrastructure due to the federal government s growth acceleration plan (PAC), and the World Cup and 2016 Olympic Games to be held in Brazil are the key drivers of Brazil's insurance market for 2011 and the subsequent years. On the other hand, recent year s statistics show a clear routing by the insurance companies in increasing investments in improving techniques and methodologies for product pricing and underwriting, which has led to a reduction on claims ratio of their major portfolio clients during this period. This process has, inclusively, led the way so that, in a rapidly growing Brazilian market, a share of these profits are transferred to brokers commissions. Also, a strong competition for market share has been, driven by new players that recently entered the insurance market, especially after the reinsurance monopoly ended. These movements were also corroborated by recent results disclosure by the insurance companies. Given its capillarity, Brasil Insurance currently represents an important channel of distribution of insurance products in Brazil, with proven technical capacity and experience in various segments. By strengthening our business units and implementing a strategy of consolidation through acquisitions, the Company is well positioned to capture the many positive trends in the Brazilian economy, and in particular, the insurance market. The data from the graphics below are in billions of reais and were taken from CNSeg reports. Insurance Sector % %

3 General Lines Life % % % % Health Pension % % 7% 16% Capitalization % 12% ADOPTION OF THE IFRS The Company adopted International Financial Reporting Standards (IFRS) for its annual financial statements, in accordance with prevailing law. There were no material changes from the adoption of these principles. We comment on some of these effects below. Earnings per Share Earnings per share is calculated based on the period results attributable to the Company s controlling shareholders and the weighted average of common and preferred shares outstanding in the respective period. Diluted earnings per share is calculated based on the average outstanding 3

4 shares, adjusted by the instruments potentially convertible into shares, with the dilution effects in the period presented in accordance with CPC 41 and IAS33. These values are presented as: Earnings per Share: 16,87 Diluted Earnings per Share: 16,61 Business Combination Regarding CPC 15 Business Combination, we evaluated the operation to consolidate the insurance brokerages controlled by the holding company Brasil Insurance. The ownership restructuring that resulted in the creation of Brasil Insurance was based on characteristics intrinsic to a process involving the pooling of interests, under the leadership of a catalyzing agent, in our case, the Gulf group. The swap rights process did not involve the acquisition of any insurance brokerages by the holding company Brasil Insurance that characterized a Business Combination, in accordance with CPC 15. More details are available in the Notes to the Financial Statements filed at the Securities and Exchange Commission of Brazil (CVM). OWNERSHIP STRUCTURE Founding Brokers FIP Gulf II Free Float 100% Verona BIB Participações 15,25% 22% 51% 6,75% % amount over total capital 4

5 After the financial settlement of the Initial Public Offering (IPO) at the beginning of November 2010, Brasil Insurance has become the holding company with a 99.99% interest in 27 brokerage firms founded by partner brokers with vast industry experience and excellent track records. During the ownership restructuring process, two brokerage firms merged, so that Brasil Insurance ended the year with 26 subsidiaries. The 4Q10 financial statements reflect the effects of the IPO and the consolidation of the 26 subsidiaries in November and December Covert Partnership Agreements In 2010, several BI brokerages were created under the scope of the ownership restructuring of Brasil Insurance and were in the pre-operational phase, in view of the need for registration at the commercial registry and registration at the Private Insurance Superintendence (SUSEP). In view of the contractual commitments to transfer all activities, including client portfolios, and in order to guarantee the normal course of the business, it proved necessary to maintain part of the operations of the former brokerage companies of Brasil Insurance s founding partners until the BI Brokerages became operational. In this light, covert partnership agreements were signed to enable the flow of funds from the former brokerages of the founding partners to the new BI Brokerages during this period. The Covert Partnership Agreements, which are composed of an overt partner (the former brokerages of Brasil Insurance s founding partners) and a covert partner (the new BI Brokerages), enabled the transfer of funds between the operations of the existing brokerages and the new operations controlled by Brasil Insurance. Based on the previous agreements signed between Brasil Insurance and the partners of the brokerages whose operations were temporarily maintained, the flow of funds from the operations amounted R$5.9 million. This amount was recognized in the line Results from Covert Partnership Agreements. OPERATIONAL HIGHLIGHTS Integration and optimization of the structure Initiatives to increase cross-selling among the Brasil Insurance brokerage firms were intensified during the fourth quarter. An assessment coordinated by the Holding company, identified 220 priority accounts of large and midsized corporate clients that offered opportunities for the acquisition of a wider range of products. Actions were initiated to expand the participation of the Brasil Insurance brokerages in the integrated risk management of these clients. Various opportunities are being transformed into success stories during this integration process. The Company s Management has been consistently working to standardize the processes and operational systems of all the brokerages. In the last few months, 9 operational companies underwent the implementation and training process, expanding the consolidated operational system from 33% to 60%. In addition, the payroll operations were centralized and management approved the deactivation of 5 offices, in tandem with the unification of regional operations and the consolidation of the Excellence Centers, which were reduced from 33 to 28 offices. 5

6 Integration of brands The new visual identity of the logos for the holding company and all subsidiaries of the group was developed and approved. This effort aims to strengthen the overall perception of all Brasil Insurance companies before consumers, especially in the B2B segment, which offers the best cross-selling opportunities, as well as in the insurance market as a whole. The Implementation Plan for this new visual identity for the entire Group was also approved and has been implemented. NET INCOME On the 4th quarter of 2010, the cash generation as measured by EBITDA reached R$12.7. The benefits of the consolidation process were already noticed, as the income grew due to a very favorable economical environment, quarterly GDP growth estimated around 5%. In addition to that, the centralization of the back office had a positive effect over our financial economic performance through the reduction of expenses. Many other initiatives have been implemented, resulting in cost savings in the 4Q10. However, we estimate that the development of our operations will give us increased opportunities to work with decreasing marginal costs. In terms of cash management, Brasil Insurance presented positive financial results of R$ 5.3 million in the 4Q40, due to the proceeds raised within the IPO. On December, 2010, the Company had R$ 324 million in cash. Additionally, it is worth noting that our brokerage companies have strong cash flow generation and demonstrated solid financial performance powered by micro 6

7 and macro economic favorable environments. In addition, we emphasize that our financial placements are short-term oriented and placed in first-tier banks with daily liquidity. We accrued an average profitably equivalent to 101.4% of the Interbank Deposits Certificates during the 4Q10. As a result from the above, the 4Q10 the Company reported net income of $ 16 million, reflecting the operation of November and December, Prior to the Initial Public Offering, the Company was in pre-operational phase. CAPITAL MARKETS The Company's stock is listed on the Novo Mercado special corporate governance segment of the BM&FBovespa S.A. - Securities, Commodities and Futures Exchange under the ticker BRIN3. In 4Q10, Brasil Insurance stock appreciated 47% since its IPO (versus a 1.44% loss of Ibovespa), closing the quarter at R$1,980.00, in comparison to R$1, on the first trading day. The Company's market capitalization on December 31, 2010 was R$1.76 billion. In 4Q10, 306,300 shares were traded and the average daily trading volume was 7,500 shares, including the volume on October 28, 2010 (IPO date). The Company's capital stock is composed exclusively of common stock, and on December 31, 2010 was represented by 936,216 shares (46,811 of which held in treasury), with 100% tag-along rights, in accordance with the company's Bylaws and the Novo Mercado Regulations. In the same period, the free float of Brasil Insurance stood at 51% of its capital stock. 7

8 SUBSEQUENT EVENTS In accordance to the strategy of market consolidation through the acquisition of stakes in brokerage companies, Brasil Insurance recently announced two acquisitions. On March 1, 2011, the Company announced the acquisition of Enesa Corretora de Seguros. Enesa is headquartered in the city of São Paulo and is the exclusive intermediary for insurance and reinsurance for all Grupo Enesa companies, representing a total of R$15 million in insurance premiums in Grupo Enesa is formed by Enesa Participações, Enesa Engenharia and Brasil Lau Rent, which together make up one of the largest contractors in the country, focused on construction engineering solutions, especially electromechanical assembly and equipment leasing, and participates in a number of infrastructure projects across Brazil. Brasil Insurance acquired 70% of the interests representing the capital of Enesa Corretora. The value of the acquisition was R$4.2 million, plus three annual variable payments calculated using an earn-out structure based on the future results of Enesa Corretora and with Brasil Insurance entitled to a priority minimum dividend. The total price of the acquisition is estimated at R$6 million. More recently, on March 29, 2011, we concluded the acquisition of Classic Corretora de Seguros. Headquartered in the city of São Paulo and with recognized operations at the national level, Classic specializes in the mass insurance segment, with a portfolio of 6 million individuals, which was obtained through partnerships with retail and financial chains. The brokerage ended 2010 with approximately R$80 million in insurance premiums. After the approval by the Extraordinary Shareholders Meeting to be called, Brasil Insurance will hold a 99.99% interest in the capital of Classic Corretora. The value of the acquisition is R$9.2 million, plus three variable annual payments calculated using an earn-out structure based on the future results of the brokerage. The total acquisition price is estimated at R$19.4 million, of which 50% should be paid in cash and 50% in Brasil Insurance stocks. Note that both acquisitions expand the company s distribution channels, provide new cross-selling opportunities and add value to Brasil Insurance. Enesa offers various opportunities as the exclusive broker of an economic group enjoying significant growth in one of Brazil's main economic activities for the coming years: the oil & gas industry. Meanwhile, Classic is a reference in the mass insurance segment, which complements the specialty portfolio of Brasil Insurance and brings to the group an important player in the segment, which will enable Brasil Insurance to become an center of excellence in this market niche for all the group's other brokerages. 8

9 APPENDIX I Balance Sheet II Income Statement 9

10 Appendix I Balance Sheet Holding Consolidated Assets Current Assets 329,9 347,2 Cash and Cash Equivalents 323,8 328,6 Accounts Receivable 5,9 17,0 Other 0,1 1,6 Non-current Assets 9,3 6,9 Financial Assets - 0,2 Related Parties 0,1 1,7 Investiments 9,2 0,0 Intangible Assets - 3,5 Fixed Assets 0,0 1,6 Total Assets 339,1 354,1 Holding Consolidated Liabilities Current Liabilities 4,4 14,6 Loans and Financing - 1,1 Suppliers 0,5 1,1 Related Parties 0,7 0,7 Payroll and social charges - 0,8 Income tax and social contribution - 3,2 Taxes Payable 0,1 3,4 Proposed dividends 3,1 3,1 Other accounts payable - 1,2 0,3 5,0 Suppliers - 0,2 Related Parties 0,3 0,9 Income tax and social contribution - 0,8 Taxes Payable - 1,6 Allowance for contingencies - 1,0 Other - 0,4 Equity 334,5 334,5 Capital 318,9 318,9 Capital Reserve 5,7 5,7 Accumulated Profit 10,0 10,0 Total Liabilities 339,2 354,1 10

11 Appendix II Income Statement 4Q10 Net Revenue Cost of Services (38) Gross Profit Operational Expenses (1.476) Salaries (3.139) Stock Option Plan 129 Hired Services (2.267) Other (2.115) Covert Partnership Agreements Income Operating Profit Operating Margin 89% Financial Result EBT Taxes (1.834) Net Income Net Margin 112% 11