I N V E S TO R P R E S E N TAT I O N. J A N U A R Y, elementcorp.com

Transcription

1 I N V E S TO R P R E S E N TAT I O N J A N U A R Y,

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. 2

3 North American Equipment Finance Experts Element Financial $10.5 billion total assets $4.0 billion market capitalization TSX composite index member FTSE Global Equity index member 1,750 employees Canadian Head Offices Toronto (Corporate) Montreal (Aviation) Mississauga (Fleet, Commercial & Vendor) US Head Offices Philadelphia, PA (Commercial & Vendor) Baltimore, MD (Fleet) Stamford, CT (Structured Finance) 3

4 Corporate Governance Board of Directors Additions William Lovatt 40 year career in investment management Executive Vice President & Chief Financial Officer of Great-West Lifeco $1 Trillion in assets GWL, Canada Life, London Life & Irish Life Bank of Canada, Department of Finance Richard Venn 40 year career in commercial, investment & merchant banking Chairman & CEO CIBC s investment bank Led CIBC s Corporate Development Group for 10 years 4

5 Investment Highlights Why is EFN ranked Buy by 12 out of 12 analysts? 1. Element is delivering quality asset growth from four proven business verticals 2. Growth is geared to US commercial, industrial, transportation & manufacturing sectors 3. Increased leverage with lower funding & operating costs are driving rising ROE 4. Annuity-like cash flows from credit-worthy customers across diversified industries 5. Fee income is enhancing money-over-money returns from finance assets 6. Industry consolidation continues to surface acquisition opportunities 7. Management is very experienced and personally invested in the Company 5

6 Element s Business Model We work closely with our funding partners (lifecos & banks) to align their investment objectives with Element s lending criteria & process. Validating investments for annuities, structured settlements and group life and health products Alternative asset class not correlated to commercial or residential real estate Capital friendly Duration Currency Interest Rate Secured lending 48 to 60 month fully amortizing Forward commitments Manufacturer remarketing support High barriers to entry Service differentiation 6

7 Total Assets Element s Growth June 30, 2014 September 30, 2014 $47 Million $428 Million $1.8 Billion $4.2 Billion $10.5 Billion Toronto Stock Exchange listing under EFN Alter Moneta Capital Aerospace Team TLS Fleet Co-Active Capital Partners Nexcap Finance EFN added to the TSX Composite Index GE Capital Canadian Fleet Services Bush Truck Leasing Trinity Industries Alliance expansion Celadon Group Bridger CargoJet PHH Acquisition 3.47:1 Tangible Leverage $1.2 billion originations GE Capital Helicopter Portfolio Trinity Industries Alliance 7

8 Strategically Positioned in Four Verticals FLEET MANAGEMENT RAILCAR FINANCE COMMERCIAL & VENDOR FINANCE AVIATION FINANCE 8

9 Return on Equity by Vertical Fleet Aviation Rail Commercial & Vendor Consolidated Portfolio Allocation 59.1% 10.5% 10.4% 20.0% 100% Financial Revenue 8.50% 6.65% 7.44% 7.52% 8.00% Debt Cost 1.86% 5.10% 4.26% 3.93% 2.68% Net Interest Margin 6.71% 3.33% 4.25% 4.18% 5.63% Operating Expenses 3.38% 0.70% 0.92% 2.00% 2.57% Net Income Yield Before Tax 3.33% 2.64% 3.32% 2.18% 3.06% Advance Rate 96.0% 65.0% 75.0% 85.0% 88.4% 9

10 Factors Driving ROE Growth in 2015 Organic Origination Growth Gross Average Yield Average Cost of Funds Average OPEX Loss Provision (20 year average) Tax Provision (deferred for 20 years) Return on Assets Fee-based Income Leverage Return on Equity 10

11 Growth of the North American Equipment Finance Industry Equipment Leasing Industry to Exceed US$0.9 Trillion by 2014 New business volumes grew 9.3% in 2013 over 2012 Independent lessors grew new business volumes 17.2% in 2013 versus 11.3% for captives and 6.2% for Banks New business in the small-ticket segment grew 14.3%, in the mid-ticket segment by 8.5% and the large-ticket segment by 6.8% 1 9.3% Growth in US New Business 17.2% Independent Lessor New Business Growth 14.3% Small-ticket (US$25K to US$250K) New Business Growth Source: 2014 Equipment Leasing & Finance Foundation 2014 State of the Equipment Finance Industry Note 1: Small-ticket - US$25,000 to US250,000; Mid-ticket - US$ 250,000 to $5,000,000; Large-ticket - more than US$ 5,000,000 11

12 North American Equipment Finance Industry Strong Demand for New US Industrial Capacity Momentum in the US economy is strengthening. Meanwhile, in response to increased confidence and rising demand, business investment is growing more rapidly. Bank of Canada Monetary Policy Report October 2014 The US industrial machine is facing very tight capacity at the same time as growth is ramping up. This has unshackled investment, and this time, it s no day pass. Export Development Canada Global Export Forecast Fall

13 US Energy Production/Consumption Lower energy benefits US industrial growth U.S. production will average 9.3 million barrels a day in 2015 up from 8.6 million in U.S. Energy Administration December 12, 2014 U.S. gasoline demand is climbing at a rate well above its recent five-year average. Amrita Sen Oil Economist December 10, 2014 Everyone in (US) manufacturing is smiling at the moment because manufacturers benefit twice from cheaper oil it costs less to run the plant and input materials cost less. Institute for Supply Management Wall Street Journal December 2,

14 Portfolio Diversification Mitigates Sector Risk * Petroleum industry represents < 4% of Earning Assets 14

15 Growth Drivers Equipment Age/Efficiency 15

16 Growth Drivers GDP & Capital Investment 2013 Results 2014E 2015E 2016E 2017E 2018E 2015 is poised to be a breakout year for the U.S. economy, with growth expected to top 3% The U.S. economy has not attained this rate since 2005 Overall, we expect the strengthening labor market to propel GDP growth to 3.3% in 2015, which is slightly above consensus forecasts Equipment and software investment increased 9.3% in Q3 of 2014 after expanding 9.6% in Q2 Looking ahead, we expect growth in equipment and software investment to moderate somewhat, as it is unlikely to keep up the strong pace seen in Q2 and Q3 We expect growth to be 5.9% in 2014 and forecast 6.0% growth in US GDP (real) US Equipment Investment Equipment Finance Volume 2.2% 4.6% 9.3% 2.2% 3.1% 3.0% 3.0% 2.7% Source: International Monetary Fund ; Equipment Leasing & Finance Foundation; US Department of Commerce 16

17 Growth Drivers GDP & Capital Investment The (US) Commerce Department revised up its estimate of gross domestic product growth to a 5-per-cent annual pace, citing stronger consumer and business spending than it had previously assumed. Reuters December 23,

18 US Commercial & Vendor Originations 293% CAGR 18

19 North American Portfolio Diversification 19

20 Balance Sheet Capacity 20

21 Portfolio Quality Allowance for Credit Losses as a % of Finance Receivables Contractual Delinquencies As a % of Finance Receivables September 30,

22 Larger scale drives growth across all verticals Increased Balance Sheet Scale Railcar Finance, Aviation Finance, Vendor Finance to benefit from balance sheet scale Raises overall transaction size limits and single obligor limits Higher commitment capacity to take deals off the street and deliver commitments and advisory services More on balance sheet financing with annuity income versus lower up front returns from syndication RAILCAR FINANCE Bridger $220 million driven by railcar expertise VENDOR FINANCE Celadon $100 million driven by size, scope and products AVIATION FINANCE CargoJet $100 million driven by aviation expertise 22

23 Increased Leverage & ROA Drives ROE Annual Return on Average Assets Leverage 2.3% 2.5% 2.75% 3:1 9.2% 10.0% 11.0% 4:1 11.5% 12.5% 13.8% 5:1 13.8% 15.0% 16.5% 6:1 16.1% 17.5% 19.3% 23

24 2015 Outlook 24

25 Fee Income Revenue Streams Business Verticals FLEET MANAGEMENT 40% fee / 60% finance Fuel, maintenance, data + 3% OPEX 48% fee / 52% finance Enhance services New service offerings Toll roads, telematics. cameras ~3% OPEX STRUCTURED FINANCE UNIT (3 rd Party Funds) N/A Managed & advisory funds for investors Transportation assets (rail/aviation) EFN pari passu 10% to 15% $10 mln to $200 mln transaction size Fund size - $500 mln to $2 bln Minimal OPEX <0.5% Placement, structuring & management fees ~$20 million per annum 25

26 Balance Sheet Outlook December 31, 2015 (estimated) Finance Assets & Operating Leases $12.5 billion Other Assets $1.5 billion $14.0 billion Debt $10.8 billion Equity $2.9 billion Leverage 3.72:1 Tangible Leverage 4.35:1 26

27 Balance Sheet Outlook Increase Leverage and Lower COF Increase senior bank line to $2 bln by year end 2014 Exit 2015 with tangible leverage at ~4.4:1 Secure additional IG rating Diversify funding with access to rated MTN market Bring overall average cost of funds down by 10 to 15 basis points 27

28 Organic Originations 2015 Outlook FLEET MANAGEMENT RAIL FINANCE COMMERCIAL & VENDOR FINANCE AVIATION FINANCE ~ $2.6 billion 40% ~ $1.3 billion 20% ~ $1.6 billion 25% ~ $1.0 billion 15% $6.5 billion Up 36% over

29 2015 Outlook Origination Distribution & Seasonality 29

30 2015 Outlook Earnings $0.99 Operating EPS $1.33 Pre-Tax EPS 30

31 Q U E S T I O N S