North America s Source for Equipment Financing

Transcription

1 North America s Source for Equipment Financing

2 Index Element s Market Focus Page 3 Demand Drivers Page 8 Building the Base Page 15 Managing Growth Page 22 Financial Highlights Page 38

3 Market Focus 3

4 About Element Element Financial Corporation is a leading non-bank supplier of commercial and corporate financing solutions to public and private sector clients across North America $2.5 billion in assets $2.3 billion in liquidity $2 billion market cap TSX composite index member 440 employees 75,000 + customers Head Office Toronto, Canada US Head Office Philadelphia, PA 4

5 Element s Core Capabilities Commercial Finance Aviation Finance Vendor Finance Fleet Management Railcar Finance Individual transactions ranging in size from $50,000 to $1.5 million Responsive credit approvals Innovative financing structures Expertise covering a broad range of equipment categories Transactions range in size from $1 million to more than $150 million Attractive advance rates based on deep asset value expertise Diversified syndication partnerships Proprietary direct funding conduits World-class vendor finance experts North American-based solutions Customized programs for dealers and distributors Private label and joint venture programs for manufacturers Canada s largest fleet management company Commercial and corporate vehicle fleets Support for asset selection, acquisition, operation, maintenance GE Capital alliance provides global fleet management solutions Seek acquisition opportunities to leverage EFN senior management experience with North American railcar manufacturers and institutional debt investors Cross Border Capabilities 5

6 Commercial Finance Transaction Lessee / Borrower: Lessor / Funder: Equipment Description: Thomson Terminals Element Financial Corporation New 2013 Western Star Highway Tractor Average asset life of 10 years Secured transaction Full credit underwriting & credit scoring process Equipment Cost: $163,616 Advance: $16,361 (10%) Term: 60 months Monthly Payment: $3,021 Final Payment: $250 (no residual risk) Yield: 8.5% (5-Yr G.o.C yield ~+700bps) End of Year Lease Amortization versus Net Realizable Value Amortized Lease Balance Collateral Value: 1 $122,570 $122,712 2 $95,704 $98,169 3 $66,463 $83,444 4 $34,638 $75,099 5 $0 $67,589 6

7 Corporate Finance Transaction Transaction Description Collateral Analysis Eagle Copters ( Eagle ) is based in Calgary, AB and has been operating for 37 years. Eagle is focused on helicopter leasing and sales while Eagle Copters Maintenance (100% subsidiary) is focused on parts sales, maintenance & overhaul services. Borrower: Eagle Copters Equipment Description: 4 ( ) AS 350 B2 Financed Amount: $5.5 Million Term/Amortization: Pricing: Element Risk Rating: 36/144 months 8% plus 50 bps in setup fee BBB Principal FMV OLV FMV derived from HeliValue$ bluebook and OLV is 85% of FMV value. Final FMV and OLV value will be confirmed via a third party appraisal. Yearly depreciation was estimated at 6%. Helicopters will be principally used for charter services in Northern Quebec to provide air medic services in Quebec. 7

8 Demand Drivers 8

9 Equipment Finance Industry The US Equipment financing market is a $742 billion industry 9

10 Equipment Finance Industry Expenditures on machinery and equipment in Canada are returning to their pre-2008 levels 10

11 Equipment Finance Industry and in the US N.A. Capex spending declines in response to the financial crisis Equipment leasing volumes decline 30% in the US European banks retrench and repatriate capital GE refocuses GE Capital on core business Membership in the CFLA declines by 24% US equipment finance industry posts 10 consecutive quarters of YoY growth CIT files for bankruptcy April 2009 Canadian Minister of Finance states Access to credit and financing is the number one issue facing Canadian businesses and appoints Advisory Committee on Financing Recovery in equipment financing takes hold with 16.5% growth in US 11

12 America s Aging Equipment 12

13 Equipment Finance Industry Quarterly new business volumes are continuing to build year over year while credit quality continues to improve. 13

14 The Competitive Landscape is Changing GE Revenue Mix % of Total Revenue Source: Bloomberg 14

15 Building the Base 15

16 Business Components Key ROE Drivers Strong organic growth Vendor-based originations Economic recovery Replacing aged equipment Acquisition of core platforms Fee-based income Vendor-based originations Exploit competitor funding issues Pricing based on structure and service Accretive use of equity Fund organic growth & tuck-in acquisitions from existing capital Activate balance sheet for transformational acquisitions Origination Volume Transaction Yield Funding Costs Operating Expense Credit Expense Financial Leverage ROE Engage Senior Line & Equipment Finance Fund Diversify capital structure/sources with new commitments Maintain matched funding discipline Increase operating efficiency Acquire standalone portfolios Transformational acquisitions Deliver integration savings Third party oversight Total lifecycle provisioning Vendor support Low industry credit losses 16

17 An Experienced Leadership Team Steven Hudson - Chairman & CEO FCA, B.B.A. Founded Newcourt Credit Group in 1984 and grew it to become a worldwide leader in equipment finance before selling the business to CIT Group, Inc. in 1999 Served as a director of Altamira e business Funds, Altamira Investment Services Inc., The Altamira Funds, The Altamira RSP Funds, CHC Helicopter Corporation, AGRA Inc. and Newcourt Inc. Earned a Bachelor of Business Administration from York University Fellow of the Institute of Chartered Accountants Named one of Canada s Top 40 Under 40 in 1996 Bradley Nullmeyer - President B.Comm., CA. Co-founder of Newcourt Credit Group with lead responsibility for acquisitions and vendor finance programs and joint ventures Served as President of Vendor Finance for CIT USA until 2001 and recently as Co-CEO of OTEC Research Limited. Currently serves as chair of the Audit Committee of the board of directors of Davis + Henderson Corp. Earned a Bachelor of Commerce degree from McMaster University in 1982 and became a member of the Institute of Chartered Accountants of Ontario in 1984 Bruce Smith - President Element (Canada) & Chief Operating Officer B.Comm., CA. Served as the Managing Director and Senior Vice President of Vendor Finance at CIT Financial Ltd. ( CIT ) from 2006 to 2011 Served as the President and General Manager of Dell Financial Services in Canada Appointed to several senior management positions at Newcourt Credit Group. Earned a Bachelor of Commerce degree from McMaster University and became a member of the Institute of Chartered Accountants of Ontario in l985 Michel Beland - Chief Financial Officer BBA, CA. Served as COO and CFO of MMV Financial Inc., a private equity-backed speciality finance company from July 2007 to 2011 Served as Senior Vice President and CFO at Isacsoft Inc. from 2003 to 2007 Appointed CFO of Rogers Wireless, a division of Rogers Communications Inc. Served as Vice President Finance of Newcourt Credit Group and SVP Operations and CFO of Newcourt Group Inc. U.S.A Earned a Bachelor of Business Administration from the Universite du Quebec and became a member of the Comptables agrees du Quebec in l984 17

18 Building a North American Leader Experienced Team Manufacturer Alliances Robust Systems Broad Equity Base Forward Lifeco Funding Recovering Market 18

19 Through Strategic Acquisitions Acquired GE Capital s Canadian fleet operations June 2013 Acquired technology finance capability of Nexcap Finance Jan Nov Acquired CoActiv Capital Partners to establish US-based vendor finance platform Jun Acquired TLS Fleet Management to establish vehicle fleet management capabilities Jan Acquired GE Capital Canadian Aerospace team to focus on large-ticket equipment finance transactions Aug Acquired Montreal-based Alter Moneta with back office systems and administration staff 19

20 with a Growing Equity Base Six equity financings over 24 months raised $926 million June 2013 $301 million November 2012 $110 million February 2013 $173 million June 2011 $80 million October 2011 $175 million May 2012 $87 million 20

21 and Stable Funding Sources 21

22 Managing Growth 22

23 M&A Growth Opportunities Commercial Finance Aviation Finance Vendor Finance Fleet Management Railcar Finance Tuck in acquisition opportunities in Canada and the US Market penetration opportunities in the US in selected industry verticals Transportation Information Technology Market penetration opportunities in Canada Accelerate deal flow with rated EEFF US market entry driven by acquiring US-based origination team Acquire insourced captive finance companies Acquire established vendor platforms with cross-border potential Focus US opportunities for increased market penetration in all industry verticals Leverage crossborder capability with new Canadianbased accounts Acquire US-based fleet operation Acquire North American-based railcar finance platform 23

24 Impact of Transformational Acquisitions Transformational Acquisition Impact ($ billions except as noted) Base Case Pro Forma 1 Pro Forma 2 Acquisition Size $3.00 $5.00 Total Assets $2.50 $5.50 $7.50 Total Debt $1.50 $4.20 $6.00 Total Equity (1) $0.90 $1.40 $1.70 Debt/Equity 1.7:1 3.1:1 3.5:1 Adjusted Operating Income $95 million $128 million $150 million OPEX Ratio 2.40% 2.00% 2.00% EPS Accretion $ $0.05 $0.08 EPS Accretion % 8.40% 12.40% (1) Includes preferred shares & near equiity 24

25 Corporate Finance Growth Opportunities 25

26 Commercial Finance Growth Opportunities Strategic Growth Organic Growth Transformational strategic acquisitions Leverage Cross Border Capabilities Focus on North American accounts Tuck-in acquisitions Develop new vendor relationships Vertical expansion Enhance current vendor relationships Joint ventures Transition of current direct accounts 26

27 Vendor Program Benefits Lower origination costs Quality Sold on structure & service versus rate Predictable & lower overall credit losses Improved access to business outlook Visibility Increased predictable deal flow First look at all transactions Manufacturer embedded relationships Stability High barriers to entry Long term business partnerships 27

28 Vendor Finance Growth Opportunities Replace existing captive finance companies Acquire established vendor finance platforms Replace underperforming competitors Leverage Cross Border Capabilities Transition referral relationships to full programs Engage unsupported vendors 28

29 Vendor Finance Options Full JV Partnership Profit sharing Joint sales & marketing effort Commonality of interests Integration of operations Control of transaction channeling Visibility on product development & outlook Referral (with support) Private Label Some credit support Limited exclusivity (region/product) Limited lifecycle relationship Vendor branded End of term & remarketing support Exclusive First look at all deal flow Dedicated staffing Referral (without support) No credit support Transactions shopped Second look at deal flow No lifecycle relationship 29

30 Financial Highlights 30

31 Portfolio Growth 31

32 Portfolio Growth Quarterly origination growth continues to build across all business units contributing to growth and diversification in finance asset 32

33 Portfolio Growth Allowance for Credit Losses - $10.97 million as at June 30, 2013 as a % of Finance Receivables Element Finance 0.99% Element Capital 0.14% Element Fleet 0.11% 33

34 Key Performance Indicators Q Q Q Financial Revenue 832 bps 912 bps 879 bps Financial Expense 261 bps 259 bps 238 bps Average Net Financial Margin 571 bps 653 bps 640 bps Operating Expense 316 bps 308 bps 265 bps Contractual Delinquency Rate 28 bps 25 bps 15 bps Total Originations $233.7 million $296.3 million $397.9 million Pipeline Element Capital* $1.2 billion $1.6 billion $1.8 billion 34

35 Estimates Originations $1,762 M $2,680 M Revenue $167.8 M $298.9 M Operating Profit (Pre Tax) $59.76 M $ M Book Value per Share $6.10 $6.90 Operating EPS $0.39 $0.68 Source: Reuters & Analyst Reports 35