Element Fleet Management Corporation · TSX:EFN
Element Fleet Management — Element Financial — Q4 2015 Earnings Presentation
45 slides from Element Fleet Management's earnings presentation, February 2016
Slide 1: Fourth Quarter 2015 Financial Results
F O U R T H Q U A R T E R 2 0 1 5 F I N A N C I A L R E S U LT S Element Financial Corporation Q4-‐2015 Earnings Call
Slide 2: Forward-looking information
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-
Slide 3: Agenda
Agenda 1. Q4 Highlights Steven Hudson, CEO 2. Fleet Management and Commercial & Vendor Brad Nullmeyer, President; Dan Jauernig, Chief Operating Officer 3. Rail Finance and Aviation Finance David McKerroll, President Rail & Aviation 4. Financial Highlights Michel Beland, CFO 5. Separation Steven Huds
Slide 4: Q4 Highlights
Steven Hudson CEO Q 4 H I G H L I G H T S 4 Element Financial Corporation Q4-‐2015 Earnings Call
Slide 5: Q4 Financial Highlights
Q4 Financial Highlights • $0.35 per share of after-‐tax adjusted operating income versus $0.26 in the previous quarter and $0.19 in the same period last year • Q4-‐2016 benefited from a one-‐time non-‐recurring tax rate which accounted for 2.5 cents in additional post-‐tax EPS • $0.40 per share
Slide 6: Q4 Operating Highlights
Q4 Operating Highlights • GE Fleet integration proceeding on plan • Annualized integration savings estimate increased to ~US$100 million • Arrears decrease to 16 bps from 20 bps at the end of Q3-‐2015 • Closed US$1.5 billion of variable funding notes and US$ 1.7 billion of term notes through Chesap
Slide 7: Q4 Strategic Highlights
Q4 Strategic Highlights Business Separation Announced • Establish two market-‐leading public companies: • Element Fleet Management – the world’s largest publicly-‐traded fleet management company • Element Commercial Asset Management – North American leader in commercial finance • Positive stakehol
Slide 8: Originations & Total Earning Assets
Originations & Total Earning Assets Strong Year-‐Over-‐Year Growth • Strong organic currency neutral year-‐over-‐year growth led by Fleet • Seasonality impacts each of our businesses è the important measure is year-‐over-‐year growth • Total Earning Assets are the best indicator for organic g
Slide 9: Total Earning Assets
Total Earning Assets Asset Mix Dominated by Fleet Highlights Total Earning Assets • Fleet and R ail represent 78% of Total Earning Assets at December 31, 2015 25,000 consistent w ith the previous quarter • Over $2.5 billion of originations during 20,000 1,585 current quarter and $7.7 billion year to
Slide 10: Performing on Plan
Performing on Plan Highlights • After-‐tax adjusted operating i ncome per share at Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 $0.35 with the full effect of the acquired GE assets 2014 2014 2014 2014 2015 2015 2015 2015 • Introduction of Chesapeake II funding throughout After-‐tax Adjusted Operating Income per Share
Slide 11: Consolidated Revenue Mix
Consolidated Revenue Mix Highlights % of Net Financial Income 2013 2014 2015 • Fee revenue continues to grow as a percent of net financial income driven by: Total fee revenue (1) 28% 38% 40% • Growth in F leet m anagement fees • Increased advisory, syndication and other Spread revenue (2) 72% 62% 60
Slide 12: Geographic Diversification
Geographic Diversification Highlights • US market remains as the main source for Element’s earnings and asset growth • Canadian market exposure decreased from 36% to 16% over the last 12 months December 31, 2014 Earning Assets December 31, 2015 Earning Assets 1% 11% 36% 16% 73% 63% US Canada Others
Slide 13: Limited Oil & Gas Exposure
Limited Oil & Gas Exposure Highlights • Less than 8% of Total Earning Assets are outstanding w ith credits related to the oil & gas industry • AA through B B+ credits account for 75% • Fleet Management’s oil & gas related earning assets are standard vehicles w ith average duration of two years • Rai
Slide 14: Fleet Management and Commercial & Vendor Finance Business
Bradley Nullmeyer President Dan Jauernig Chief Operating Officer F L E E T M A N A G E M E N T B U S I N E S S C O M M E R C I A L & V E N D O R F I N A N C E BUSINESS 14 Element Financial Corporation Q4-‐2015 Earnings Call
Slide 15: Fleet Management
Fleet Management Highlights Q4 Q3 Q4 2014 2015 2015 • Fleet’s organic year-‐over-‐year growth in Total Financial R evenue Yield 8.4% 8.1% 8.4% Earning Assets w as 5.4% after adjusting for currency impact and excluding the assets acquired NIM Yield/NIM Yield Pro F orma(3) 6.7% 6.4% 6.2%/6.5%(3) fro
Slide 16: GE Fleet Acquisition Update
GE Fleet Acquisition Update Highlights • Integration is on track and on budget • Updating targeted annualized integration savings of US$90 to US$95 million within 18 months to US$100 million by the end of 2016, as follows: • Cost of funds reduction -‐ $18M, completed; to be realized beginning Janua
Slide 17: Fleet Asset Returns - 2016 Target
Fleet Asset Returns -‐ 2016 Target Fleet Management’s Path to 4%+ ROAA Exiting 2016 As expected, Debt Costs negatively i mpacted Fleet’s Q4 2 015 ROAA by 3 0 bps since the acquired GE Fleet business was funded by Element's bank facility prior to the l aunch of Chesapeake II on December 1 6, 2 015 1
Slide 18: Fleet Management Services Opportunities
Fleet Management Services Opportunities ● Fleet Management fees increased to $101.3 million i n Q4 2 015 (49% of Fleet’s net financial i ncome) from $ 39.0 million i n Q4 2 014 ● Lease revenues are term in nature ● Service revenues are annuity l ike due to value created and i ntegrated i nto c lient
Slide 19: Element's Key Strengths in Fleet
Element’s Key Strengths in Fleet • Combined offerings of financing, services and exceptional consulting are best in class and provide a compelling value proposition • Significant purchasing power, scale, and leverage combined with an extensive North American supplier network • Largest and most compr
Slide 20: Element Fleet Leadership
Element Fleet Leadership Experienced Leaders in Fleet Management and Technological Transformation ● Kristi Webb -‐ experienced fleet business leader with fleet product innovation expertise, former President & CEO of GE Fleet Services ● Jim Halliday -‐ deep international Fleet experience with exper
Slide 21: Commercial & Vendor Finance
Commercial & Vendor Finance Highlights Originations Q4 Q3 Q4 ($ millions) 2014 2015 2015 • Increased US originations from – Q4 2014 by 24% year-‐over-‐year U.S. 258.8 459.3 322.0 • Reduction in originations from Q3 as a result of: – Reduced funding activity i n a single vendor program to Canada 11
Slide 22: Rail and Aviation Finance Business
David McKerroll President – Rail & Aviation A V I A T I O N F I N A N C E B U S I N E S S R A I L F I N A N C E B U S I N E S S 22 Element Financial Corporation Q4-‐2015 Earnings Call
Slide 23: Aviation Finance
Aviation Finance ● February 16, 2016: Announced discontinuing Element’s “On Balance Sheet” aviation business and focus on asset management capabilities On Balance Sheet W ind Down Starting Q1 2016 Approximate wind down during 2016 ● Rationale for w ind down: $1.3 billion 100% — Low R OE and small m
Slide 24: Transition to an Asset Manager
Transition to an Asset Manager ● Element’s Aviation advisory business has demonstrated ability to originate, structure and launch F unds w ithin the commercial aviation sector: -‐ ECAF I Ltd w as Element’s first commercial aircraft fund that launched during Q2 2015 – US$1.6 billion § Element struc
Slide 25: Aviation Finance
Aviation Finance Highlights Q4 Q3 Q4 2014 2015 2015 • Aviation originations are generally strongest in Originations Q4, but were down year over year (C$ millions) 397.2 83.7 305.5 • Q4 sequential improvement in Revenue Yield versus Q3 due to syndication fees • Element will increase focus on advisory
Slide 26: Rail Finance
Rail Finance Highlights Q4 Q3 Q4 2014 2015 2015 • Q4-‐2015 Financial Revenue Yield benefited from Originations gain on sale of a lease to assist with portfolio (C$ millions) 136.7 358.4 197.6 diversification • Completed original program with Trinity during Q4 2015 and established meaningful scale Q
Slide 27: Key Attributes of Element's CBR Railcars
Key Attributes of Element’s “CBR” Railcars Young Age • The average age of the CBR cars in Element’s rail portfolio is 1.7 years Leased to Solid Credits • The CBR lessees in Element’s rail portfolio are with large, highly rated industry players Long Lease Durations • The average remaining lease term
Slide 28: Financial Statements
Michel Beland Chief Financial Officer F I N A N C I A L S T A T E M E N T S 28 Element Financial Corporation Q4-‐2015 Earnings Call
Slide 29: Financial Statements: Income Statement
Financial Statements Income Statement 3 Months Ended GE Fleet Acquisition Impacts Operating Results ($ thousands) Q4 Q3 Q4 2014 2015 2015 • Financial revenue increased by 58% over Q3 2015 Financial revenue 175,703 258,521 409,240 • Interest expense increased by 62% over Q3 2015 Interest expense 50,0
Slide 30: Financial Statements: Yields
Financial Statements Yields As a % of Average Earning Assets GE Fleet Acquisition Impacts Operating Results 3 Months Ended • Financial R evenue improved to 8.34% from 7.96% and Q4 Q3 Q4 8.23% reported in the previous quarter and 2014 2015 2015 comparative quarter due to higher syndication activities
Slide 31: Financial Statements: Balance Sheet
Financial Statements Balance Sheet (CAD $millions) GE Fleet Acquisition impacts Financial Position Q4 Q3 Q4 2014 2015 2015 • Total assets grew to $25.2 billion from $11.3 billion at December 31, 2014 Total assets 11,291 23,572 25,163 • Total earning assets grew to $20.5 billion from $9.0 Total earni
Slide 32: Financial Statements: Return on Average Equity
Financial Statements Return on Average Equity GE Fleet Acquisition Improves 3 Months Ended Return o n Average Equity • Before-‐tax adjusted operating income w as 12.57% Q4 Q3 Q4 for quarter compared to 11.22% and 10.93% for the 2014 2015 2015 previous quarter and comparative quarter of the previous
Slide 33: Financial Statements: Per-Share Amounts
Financial Statements Per-‐Share Amounts GE Fleet Acquisition Contributes to Increased EPS As at, and for the 3 Months Ended • Book value per share increases by $0.87 and $4.09 over Q4 Q3 Q4 the previous quarter and over the last calendar year 2014 2015 2015 • After-‐tax adjusted operating income E
Slide 34: Asset Quality
Asset Quality Low Risk Assets/Minimal Credit Losses Delinquencies as a % of Finance Receivables Q4 Q1 Q2 Q3 Q4 • Overall portfolio reflects continued quality of assets 2014 2015 2015 2015 2015 and high level of rated customers • Past due accounts at all time low at 16 bps of finance Non-‐current (>
Slide 35: Liquidity
Liquidity Excess Liquidity to Fund Operations into 2017 Consolidated (C$ millions) Sources o f Funds • As at December 31st, 2015 Element has Senior Line availability 2,135.4 $6.2B in committed and available liquidity Forward Funding Facilities 4,119.3 6,254.7 • During 2016, Element will generate $4.
Slide 36: Funding and Leverage
Funding and Leverage Balance Sheet Capacity to Fund Planned Growth $30 Committed facilities 4.53X 4.5 4.57X amounted to C$25 3.72X $25.0B 4.0 billion as of December $25 31, 2015 3.47X $21.9B 3.5 $20 At December 31, 2015, 3.0 3.07X Element had C$6.2 2.5 billion in committed and BILLIONS $15 $12.2B $1
Slide 37: Liquidity: Funding Vehicles & Liquidity
Liquidity Funding Vehicles & Liquidity ● Funding strategy: Matched funding for maturity, currency and interest rates ● Matched funding program ensures: ● No exposure to foreign exchange variations on assets ● Spread fixed over term of debt ● No liquidity events, term 3-‐year Revolving Senior Facili
Slide 38: Liquidity: Matched Funding
Liquidity Matched Funding Asset Receipts vs. Debt Repayments ● Element matches debt maturities to ($, millions) long-‐tenured asset receipts inherent 10,000 9,262 * in its business 8,000 6,602 6,100 ● Current debt facilities have an 6,000 4,385 amortizing repayment schedule 4,000 3,289 mirroring ex
Slide 39: Strategic Separation
Steven Hudson CEO S T R A T E G I C S E P A R A T I O N 39 Element Financial Corporation Q4-‐2015 Earnings Call
Slide 40: Separation Highlights
Separation Highlights • Creates world’s largest publicly traded fleet management company with stable growth, pristine credit quality and recurring high-‐margin fee income • Creates high-‐growth commercial finance business transitioning to an asset management business with a strong investment-‐gra
Slide 41: Separation - Timeline
Separation -‐ Timeline February 16, 2016 • Announcement of business separation 4th week of March 2016 • Announce leadership and governance structure 1st week of May 2016 • Supplementary disclosure on separated businesses including financial statements 2nd week of August 2016 • Supplementary disclos
Slide 42: Investors Applaud Element Restructuring
“Investors Applaud Element Restructuring” Financial Post February 18, 2016 “Split into Fleet and Capital Light Asset Management highlights exceptional value.” “Commercial Finance Unit Will Have Greater M&A Potential.” “The benefits of isolating the Fleet Management business are obvious: higher credi
Slide 43: Summary & Outlook
Steven Hudson CEO S U M M A R Y & O U T L O O K 43 Element Financial Corporation Q4-‐2015 Earnings Call
Slide 44: Summary
Summary 1. 2016 EPS guidance at $1.61 per share • F/X upside offset by tax 2. GE Fleet integration proceeding on plan • Cost savings estimate increased to ~US$100 million 3. Rail portfolio performing as planned with 99% utilization 4. Energy exposure decreased to 8% in Q4 from 9% in Q3 5. +$6 billio
Slide 45: Questions
QUESTIONS Element Financial Corporation Q4-‐2015 Earnings Call