north america’s source for equipment finance · investor presentation - may 2014 key performance...
TRANSCRIPT
Investor Presentation - May 2014
North America’s Source for Equipment Finance
Investor Presentation - May 2014 2
Certain information in this presentation is forward-looking and related to anticipated financial performance, events and strategies. When used in this context, words such as “will”, “anticipate”, “believe”, “plan”, “intend”, “target” and “expect” or similar words suggest future outcomes. Forward-looking statements relate to, among other things, Element Financial Corporation’s (“Element”) objectives and strategy; future cash flows, financial condition, operating performance, financial ratios, projected asset base and capital expenditures; Element’s anticipated dividend policy; anticipated cash needs, capital requirements and need for and cost of additional financing; future assets; demand for services; Element’s competitive position; and anticipated trends and challenges in Element’s business and the markets in which it operates. The forward-looking information and statements contained in this presentation reflect several material factors and expectations and assumptions of Element including, without limitation: that Element will conduct its operations in a manner consistent with its expectations and, where applicable, consistent with past practice; the general continuance of current or, where applicable, assumed industry conditions; the continuance of existing (and in certain circumstances, the implementation of proposed) tax and regulatory regimes; certain cost assumptions; the continued availability of adequate debt and/or equity financing and cash flow to fund its capital and operating requirements as needed; and the extent of its liabilities. Element believes the material factors, expectations and assumptions reflected in the forward-looking information and statements are reasonable but no assurance can be given that these factors, expectations and assumptions will prove to be correct. By their nature, such forward-looking information and statements are subject to significant risks and uncertainties, which could cause the actual results and experience to be materially different than the anticipated results. Such risks and uncertainties include, but are not limited to, operating performance, regulatory and government decisions, competitive pressures and the ability to retain major customers, rapid technological changes, availability and cost of financing, availability of labour and management resources and the performance of partners, contractors and suppliers.
Readers are cautioned not to place undue reliance on forward-looking statements as actual results could differ materially from the plans, expectations, estimates or intentions expressed in the forward-looking statements. Except as required by law, Element disclaims any intention and assumes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.
Investor Presentation - May 2014
North American Equipment Finance Experts
• $4.2 billion in assets
• $1.4 billion in available liquidity
• $2.5 billion market cap
• TSX composite index member
• FTSE Global Equity Index member
• 420 + employees
• 84,000 + customers
• Head Office – Toronto, Ontario
• U.S. Head Office – Philadelphia, PA
• Fleet Management Office – Mississauga, Ontario
• Aviation Office – Montreal, Quebec
3
Investor Presentation - May 2014
Leadership with a Proven Track Record
4
Steven Hudson FCA, B.B.A.
Chairman & CEO
Bradley Nullmeyer B. Comm., CA.
President
Bruce Smith B. Comm., CA.
President Element (Canada) & Chief Operating Officer
Michel Beland BBA, CA.
Chief Financial Officer
May 2007 founded as a
private leasing
company
Element Financial Corporation is becoming a North American leader in providing equipment financing and management services in selected
asset categories
Investor Presentation - May 2014
Positioned in a Growth Industry
5
2012 Results 2013A 2014E
2.8%
(Real)
2015E 2016E 20127E
US GDP
US Equipment
Investment
Equipment Finance
Volume
8.0%
Growth
16.4%
Growth
1.9% 2.8% 3.1% 3.1% 2.4%
• Average equipment replacement cycle of 8 years
• Growth led by various transportation segments including Air, Rail & Autos
• Propensity to finance increasing with competing calls on capital
US Commercial Finance is one of the fastest growing financial services sectors
Source: US Federal Reserve Bank of Philadelphia
Investor Presentation - May 2014 6
Transactions: $10,000 to $5 M Originations: Direct relationships Referrals Regions: Canada US Expertise: Transportation Construction Commercial Hospitality Healthcare Technology Industrial Energy Golf
Transactions: $5 M to $150 M Originations: Direct relationships Manufacturer
referrals Regions: Canada US Expertise: Civil Aviation
Medium & Heavy Lift Helicopters
Business Jets Turbo-prop
Aircraft Flight Simulators
Transactions: $10,000 to $5 M Originations: Manufacturers Dealers Distributors Sponsor Referrals Regions: Canada US Expertise: Sales aid finance
programs for: Dealers Distributors Manufacturers VARs Sponsors
Programs sourced from Direct
Commercial Finance relationships
Transactions: $500,000 to $40 M Originations: Direct from
manufacturers Regions: Canada USA (through GE Fleet) Expertise: Corporate Fleets Municipal Fleets Industrial Fleets Fleet Services Strategic Consulting
Transactions: $150,000 to $200 M
Originations: Manufacturer
program Regions: North America Expertise: Covered Gondolas Hopper Cars Industrial Tank Cars Petroleum Tank Cars
Corporate Services
Fleet Management Commercial Finance & Vendor Finance Canada & U.S.
Aviation Finance
Railcar Finance
Vendor finance leads
Focused on Selected Business Verticals
Investor Presentation - May 2014
Origination Volume
Transaction Yield
Funding Costs
Operating Expense
Financial Leverage ROE
Credit Expense
• Strong organic growth
• Vendor-based originations
• Economic recovery
• Replacing aged equipment
• Acquisition of core platforms
• Build the base
• Fee-based income
• Vendor-based originations
• Pricing based on structure and service
• Enhance senior line & capital markets funding vehicles
• Diversify capital structure/sources with new commitments
• Maintain matched funding discipline
• Increase operating efficiency
• Acquire stand-alone portfolios
• Transformational acquisitions
• Deliver integration savings
• Third party oversight
• Total lifecycle provisioning
• Vendor support
• Low industry credit losses
• Accretive use of equity
• Fund organic growth & tuck-in acquisitions from existing capital
• Activate balance sheet for transformational acquisitions
Key ROE Drivers
7
Investor Presentation - May 2014 8
2014 YTD Milestones
Investor Presentation - May 2014
2014 YTD Milestones
JANUARY
• Targets $3.8 billion in originations for 2014
• Completed purchase of US$396 million of leased railcars from Trinity
FEBRUARY
• Announced $997 million of originations for Q4-2013
• Issued $125 million of cumulative 5-year rate rest preferred shares
MARCH
• EFN added to the FTSE Global Equity Index
• Completed purchase of US$118 million of leased railcars from Trinity
April
• Entered multi-year equipment financing agreement with US-based Celadon
• Accessed rated ABS market for US$340 million to fund rail assets
May
• Signed US$220 million transportation equipment financing facility with Dallas-based Bridger
9
Investor Presentation - May 2014 10
Financial Highlights
Investor Presentation - May 2014 11
Quarterly origination growth continues to build …
… with very strong growth from US-based Commercial & Vendor Finance
Portfolio Growth
Investor Presentation - May 2014 12
Portfolio Diversification
Investor Presentation - May 2014 13
Portfolio Quality
Investor Presentation - May 2014 14
Balance Sheet Capacity
Investor Presentation - May 2014 15
Business Units
Investor Presentation - May 2014
Commercial & Vendor Finance
Commercial & Vendor Finance
• 120 employees
• 5 Canadian & US offices
• Transaction size from $10,000 to $5 million
• Key Customer Segments
Transportation
Construction
Industrial & Commercial
Office & IT Equipment
Healthcare
Franchise Capital Campaigns
16
2014 Growth Drivers • Continued US commercial & industrial recovery • Deferred equipment replacement cycle • Favourable C$/US$ exchange for Canadian equipment manufacturers
Investor Presentation - May 2014
Fleet Management
17
Fleet Management
• 204 employees
• 5 Canadian offices
• Largest fleet management company in Canada
• US alliance with GE Fleet
• Transaction size from $500,000 to $40 million
• 40% of revenue comes from fleet management services
• 1,300 plus fleets
• More than 54,000 vehicles
2014 Growth Drivers • Deferred vehicle replacement cycle • Strong growth in 2009/2010 fleet registrations drive 2014 replacements • Expansion of fleet management services offering • Continued commercial & industrial recovery in Canada
Investor Presentation - May 2014
Aviation Finance
• 11 employees
• 4 offices in Canada and US
• Transaction size $5 million to $150 million
• Medium and heavy lift helicopters, business jets, flight simulators & training aircraft
• Element Equipment Fund & Irish subsidiary in place
• Key vendor/program relationships with leading manufacturers:
• Eurocopter, Bell, Agusta Westland, Robinson
• Bombardier, CAE, Textron, Piper, Gulfstream, Falcon
Aerospace Finance
18
2014 Growth Drivers • Continued US commercial & industrial recovery • Demand for energy to fuel US economic growth • Retrenchment of key competitors • Engagement of US-based helicopter team • Deep relationships with key manufacturers
Investor Presentation - May 2014
• 2 employees
• Based in Toronto Head Office
• Strategic relationship with Trinity Industries
• US$2 billion over two years
• US$100 TO us$200 million per quarter
• Trinity contracted as portfolio servicer
• Transaction size from US$75,000 to US$175,000
• Debt advance rate of 75% to 80%
Railcar Finance
19
2014 Growth Drivers • Continued US commercial & industrial recovery • Demand for energy to fuel US economic growth • Deep relationships with leading NA railcar manufacturer • Opportunities to acquire third party portfolios
Investor Presentation - May 2014 20
Growth Strategy
Investor Presentation - May 2014
Strategic Vision
21
• Become a North American Leader in Commercial Finance with increasing focus on North American transportation markets
• Grow our diversified portfolio within our verticals by $10 to $12 billion by 2016
• Enjoy market leading positions (Top 3) in Transportation Verticals by 2015:
• Fleet Services & Road transportation
• Civil Aviation
• Railcar
• Element is now well positioned to execute on key elements of our vision:
• In Canada, we enjoy market leading positions in Commercial Finance and Fleet Management Services
• In the U.S., we have the platforms in place to realize substantial strategic growth
• Internationally, we continue to execute only on customer specific needs within our Aviation Finance group
Investor Presentation - May 2014
Acquisition Strategy
• Strict acquisition screening including business purpose and fit into strategy
• Must fit into existing business verticals
• Credit standards must be within existing limits
• Rigorous due diligence
• Element Management area of expertise
• Valuation:
Must be accretive to both consensus earnings and consensus ROE
Analysis based on normalizing target’s financial information with an appropriate advance rate and
Element’s cost of funds
22
Investor Presentation - May 2014 23
2014 Outlook
Investor Presentation - May 2014
2014 Originations
24
Investor Presentation - May 2014
North American Portfolio Distribution
25
Canada USA
Portfolio Mix
2012 Actual 81% 19%
2013 Actual 74% 26%
2014 Outlook 58% 42%
Originations
2012 Actual 98% 2%
2013 Actual 69% 31%
2014 Outlook 50% 50%
Investor Presentation - May 2014
Key Performance Indicators
26
Financial Revenue
Financial Expense
Operating Expense
Pipeline Aviation & Rail
Total Originations
Average Net Financial Margin
879 bps
238 bps
265 bps
$1.8 billion
Q2-2013
$397.9 million
640 bps
857 bps
269 bps
249 bps
$2.0 billion
Q3-2013
$410.4 million
588 bps
Q4-2013
830 bps
272 bps
558 bps
226 bps
$997.2 million
$2.0+ billion
Q1-2014
790 bps
255 bps
535 bps
222 bps
$1.1 billion
$2.4 billion