A N N UA L M E E T I N G OF SHAREHOLDERS T H U R S D A Y, J U N E 1 6,

Transcription

1 A N N UA L M E E T I N G OF SHAREHOLDERS T H U R S D A Y, J U N E 1 6,

2 William Lovatt Chairman 2

3 Forward Looking Statements 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 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; and the plans, strategies and objectives of Element for future operations, including with respect to the proposed separation, the expected timetable for completing the separation, the future financial and operating performance of each business, the strategic and competitive advantages of each business and future opportunities for each business. 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, the possibility that the proposed separation will not be consummated with the anticipated time period oratall, including asa result of regulatory, market orother factors, and the potential for disruption to our business in connection with the proposed separation. 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 forwardlooking statement, whether asa result of new information, future events orotherwise. 3

4 Key Governance & Compensation Practice Improvements 1. We strengthened our Board with the appointment of four new directors, being William Lovatt, Richard Venn, the Hon. Brian Tobin and Joan Lamm-Tennant (our first female director) 2. The roles of Chairman and CEO were split, and an independent Chairman was appointed to the Board of Directors 3. The appointment of an independent Vice Chairman, and the elimination of the Lead Director and Executive Vice Chair positions 4. With the implementation of the approved Share Unit Plan (as outlined in last year s proxy circular), PSUs were granted during 2015 to further promote alignment between pay and performance. Metrics were tied directly to the success of the GE Fleet transaction and all metrics are subject to an overriding achievement of targeted EPS. 5. In lieu of the two-year GE integration incentive, no 2016 annual bonus was granted to executives 6. A full review of Element s comparator group after the significant growth in the company s assets and market capitalization. It was decided in 2015 that the comparator group should be more U.S. focused, as Element has increasingly become more U.S. centric with 73% of total earning assets at as end of 2015 coming from the U.S. marketplace. 7. The adoption of an annual say-on-pay vote commencing at the 2015 AGM for which Element received an overwhelming 91.27% vote in favour of the executive compensation practices 8. The adoption of a Diversity Policy by the Board exemplified by the appointment of a new female director 4

5 Corporate Governance Board of Directors William Lovatt (1) Chairman FCA Former Executive Vice President and CFO of Great-West Lifeco Inc., London Life and Canada Life (35 year career with Great-West Life) Paul Stoyan (1)(3) LLB, ICD.D Chairman, Gardiner Roberts LLP; Corporate board member Gordon D. Giffin (1) BA, JD Former U.S. Ambassador to Canada; Senior Partner at Dentons LLP; Corporate board member Richard Venn (1) (2) Vice-Chairman MBA Director of DBRS and Bank of N.T. Butterfield & Sons Ltd. Former Senior Executive Vice President at Canadian Imperial Bank of Commerce (40 year career with CIBC) Pierre Lortie (1) (4) BSc. Appl., P. Eng., MBA Senior Business Advisor at Dentons Canada LLP; previously the President of Bombardier Transportation, Bombardier Capital, Bombardier International and Bombardier Aerospace Regional Aircraft Joan Lamm-Tennant (1) PHD Global Chief Economist and Risk Strategist of Guy Carpenter and Company, LLC, the reinsurance and risk advisory operating company of Marsh and McLennan Companies Steven Hudson FCA, BBA Chief Executive Officer, Element Financial Corp.; former founder and CEO of Newcourt Credit Group Harold D. Bridge (1) (5) CA, MBA, FCA, CF, ICD.D Former senior partner at Deloitte and Touche for 32 years specializing in financial advisory, audit, corporate finance and M&A The Hon. Brian Tobin (1) Vice Chairman of BMO Capital Markets; former Federal Minister of Industry, Premier of Newfoundland and Labrador and Member of Parliament Note (1) Independent Board member (2) Chair of the Risk Committee (3) Chair of the Corporate Governance and Compensation Committee (4) Chair of the Credit Committee (5) Chair of the Audit Committee 5

6 CEO Pay for Performance CEO s compensation versus EFN share price performance 6

7 Milestones 2015 Achievements January Increased 2015 Adjusted Operating Earnings Outlook to $1.05 per share February Expanded Rail Finance team March Closed US$405 million offering of Secured Railcar Equipment Notes March Appointed William Lovatt as Chairman and Richard Venn as Vice Chariman May Closed $2.78 billion offering of subscription receipts, debentures and preferred shares June Closed US$1.21 billion offering of Commercial Aircraft Operating Lease Backed Notes June Announced $8.6 billion acquisition of GE Capital s fleet management business August Appointed new senior leadership team for fleet management business September Received initial BBB issuer rating from DBRS September Closed GE fleet acquisition to become North America s fleet management powerhouse December Established US$4.8 billion Chesapeake Funding II conduit December Issued US$1.7 billion of rated ABS notes through Chesapeake Funding II 2016 February Announced plans to separate Element into two market-leading public companies 7

8 GE Fleet Integration PSU Vesting Performance Condition Vesting Performance Target Receipt of Canadian Investment Grade Issuer Rating 1/3 Canadian Investment Grade Issuer Rating from DBRS, S&P, Moody s or Fitch (resulting in annual interest cost savings under the senior credit facility of $16 million and one-time savings of $20 million) Achievement of 50% of Targeted Annualized Cost Savings through GE Fleet 1/3 $45 million of annualized cost savings Integration (1) Achievement of 100% of Targeted Annualized Cost Savings through GE Fleet 1/3 Integration and Substantial Completion of Integration (1) $90 million in annualized cost savings and substantial completion of GE Fleet integration (1) In addition to the achievement of the applicable Performance Condition, vesting is conditional upon the Company achieving its quarterly earnings per share (EPS) target (+/- 5%), as determined by Management and reviewed by the Board, in the cumulative calendar quarters commencing immediately after the grant date and concluding immediately preceding the date of satisfaction of the applicable Performance Condition. 8

9 Realized versus Realizable Compensation 9

10 Post Separation Compensation Changes Management and the Board are developing a compensation structure that reflects shareholder feedback and is right-sized to the scale of each of the separated businesses while continuing to provide strong incentive for business growth; For Senior Management, there will be no special awards linked to the split of the Company. Management will be rewarded through their equity ownership if the market views the transaction favourably; A post split compensation example based on a $1 million base salary results in an annual opportunity of $5 million to $7.5 million. Base salary is illustrative and will ultimately be sized to the business opportunity; The stretch between Target and Maximum is illustrative of an M&A opportunity. This will eliminate the need for transactional bonuses in the normal course The PSU scorecard will contain defined multi-year objectives, including a component tied to Total Shareholder Return (TSR) 10

11 Illustrative Compensation Example Base Salary STIP M/LTIP Total Annual Opportunity Paid as regular salary Final payout is based on the results of the executive s scorecard; focused on M&A activity and/or operational performance measures. PSU performance measures will be inclusive of a TSR measure, as well as other appropriate operational measures. PSU grant size can be increased above the normalized level based on M&A activity and/or exceptional performance. Including base salary, STIP and LTIP grant. Target Maximum Target Maximum Target Maximum $1,000,000 $1,500,000 $2,500,000 $2,500,000 $4,000,000 $5,000,000 $7,500, Element Financial

12 Steven Hudson Chief Executive Officer 12

13 Strong Year-Over-Year Performance As at and for the three-month period ending March 31, 2015 March 31, 2016 Total Assets $12.5 bln $23.9 bln Tangible Leverage 3.92:1 4.58:1 Return on Average Earning Assets (1) 3.3% 3.6% Return on Average Common Equity (2) 11.0% 13.9% Market Capitalization $4.5 bln $5.4 bln (1) Pre-tax adjusted return on average earning assets (2) Pre-tax adjusted return on average common equity FLEET MANAGEMENT Two Industry Leading Segments COMMERCIAL FINANCE 13

14 Separation Update Separation Benefits February 2016 announcement to separate Element into two market leading public companies - Element Fleet Management World s largest publicly-traded Fleet Management Service Company - Commercial Finance North American leader in commercial finance transitioning to an asset management model. Operating as Aviation, Rail & Vendor Finance Focused Independent Businesses driven by Proven Executives - Each Company will devote 100% of its resources and focus on its core market without distraction - Element Fleet will pursue organic growth opportunities driven by a dominant service opportunities, integration savings ($100M+) and strategic tuck-in acquisitions - Commercial Finance will continue its transition to an asset management model; family of institutional funds within core verticals Improved Cost of Capital and Attractive Funding Profiles - Element Fleet will pursue improved investment grade credit ratings and benefit from the associated capital advantages enjoyed by other fleet companies - Commercial Finance will transition to an asset management business and as a result will have modest funding requirements with the vast majority of liquidity needs met by its institutional Funds 14 Element Financial

15 Separation Update Separation Benefits Proven Access to Optimal Funding - Element Fleet, through its proven funding program ( Chesapeake ) and its balance sheet - Commercial Finance, through its Family of Funds and its balance sheet Compelling Investment Thesis and Valuation - Commercial Finance with significant growth profile, management fees and institutional investor support - Element Fleet with stable growth, pristine credit quality, high service revenue, robust funding program and superior valuation Compelling Valuation Drivers - Element Fleet Management with +50% service and fee revenue, +4.0% ROAA, leading N.A. market share, deep international alliance, predictable asset growth, pristine credit quality, high barriers to entry and proven funding program - Commercial Finance with significant growth profile, management fees and institutional investor support as an asset manager Fleet s public company comparables have an average P/E multiple of 18.5x 15 Element Financial

16 Separation Announcement Impact on Share Value EFN TSX Composite Index TSX Financial Services Index Element announces business separation 35% 30% 25% 20% 15% 10% 5% 0% 16

17 Strategic Benefits What 1. Focused and Independent Businesses 2. Improved Cost of Capital and Leverage Commercial Lending Business BBB+/BBB 6:1 ELEMENT FINANCIAL (Current Business) 3. Proven Access to Optimal Funds Investment grade funds and funding $6B+ liquidity 4. Compelling Investment Thesis Pre-tax Tangible ROE 22% 2016 P/E 8.7x $ EPS > Operating Business Service/Fee Revenue Target > 50% fee Revenue IT driven A 7.5:1 ELEMENT FLEET MANAGEMENT AAA funding Investment grade balance sheet with strong demand from ABS institutional investors Available liquidity of $4.8 billion Pre-tax Tangible ROE >30% 2016 P/E 15x + ELEMENT COMMERCIAL ASSET MANAGEMENT Fund Management Business Investors Requirement for Investment Grade Yield Currently 30+ Investors BBB+/BBB 20:1* Family of committed funds Investment grade balance sheet with strong demand from ABS institutional investors Available liquidity of $1.4 billion Pre-tax Tangible ROE >30% 2016 P/E 16x * Effective leverage: investment by the manager in institutional funds 17

18 Separation Update Element Fleet Management and Board Announcements Richard Venn Chairman Steven Hudson Board Member Bradley Nullmeyer CEO Michel Béland CFO Karen Martin Treasurer Daniel Jauernig President & COO Kristi Webb CEO of North American Fleet Jim Halliday EVP of International Fleet Kathryn Parkinson Chief Credit Officer 18 Element Financial

19 Separation Update Commercial Finance Management and Board Announcements Bill Lovatt Chairman Bradley Nullmeyer Board Member Steve Hudson CEO Jim Nikopoulos Sr. Vice President & General Counsel TBD Chief Financial Officer AVIATION & RAIL FINANCE David McKerroll President Bruce Ells Chief Credit Officer COMMERCIAL VENDOR FINANCE Don Campbell President (Commercial & Vendor) Steve Sands Chief Credit Officer (Commercial & Vendor) Steve Grosso Chief Operating Officer (US) Todd Hudson Chief Operating Officer (Canada) 19 Element Financial

20 Separation Update Proposed Timetable Item Press release announcing separation February 16, 2016 Separation Q&A announcing governance structure and management teams April 5, 2016 Appointment of Board Ad Hoc Committee to oversee separation process April 5, 2016 Q Earnings Release (including supplemental disclosure on separated businesses) May 11, 2016 Targeted operational separation of two companies June 30, 2016 Q Earnings Release (including supplemental disclosure on separated businesses) Mid-August 2016 Mailing of Management Proxy Circular for Special Meeting of Shareholders Mid-August 2016 Shareholder meeting date Late September 2016 Closing - exchange of Element common shares for Fleet shares and Commercial Finance shares September/October, 2016 Press release announcing (i) closing and TSX listing date of Commercial Finance shares, and (ii) updated dividend policy Trading of shares of two public companies open for trading on the TSX Date September/October, Element Financial

21 Bradley Nullmeyer Chief Executive Officer Element Fleet 21

22 ELEMENT FLEET JUNE

23 Element Fleet On separation, Element Fleet will be the largest publicly traded fleet management services company in the world More than 50% of Element Fleet s revenue is now derived from service and fee revenue as Element Fleet continues to increase its technology service offerings Scale drives costs down and increases opportunities to access the untapped self-managed segment of the market Significant purchasing power, scale, and leverage combined with an extensive North American supplier network Combined offerings of financing, services and exceptional consulting are best in class and provide a compelling value proposition Element Fleet is a leading provider of global fleet management services A Leading Service Company Strategic Vision Fleet Management Overview 23

24 Element Fleet Category Leader #1 fleet management company in North America Scalable platform providing innovative, end-to-end services and leading technology Access to multi-national corporations through global partners across 45 countries Seasoned Experts Strong management team with an average of 15 years of Element Fleet Management experience and 17 years in the industry Quality Client Base Diversified, high-quality, longtenured base of commercial customers Target fleets: > 100 units High levels of renewal and satisfaction yield long-term relationships Solid Track Record Profitable business with high margin services contribution of ~50% Lease: 50% Services, with recurring revenue streams from both clients and suppliers High levels of satisfaction yield long-term customer relationships YEARS 288 clients YEARS 74 clients YEARS 22 clients 50+ YEARS 150 clients 24 Element Financial

25 Element Fleet Service Offerings Acquisition Remarketing Financing Personal Usage & Expense Title, Licensing & Registration Rental Services Telematics Fuel Services Risk & Safety Managed Maintenance Accident Management Tolls, Violations & Compliance 25 Element Financial

26 The Element-Arval Alliance Delivering global capabilities across 47+ countries CANADA Montreal Mississauga Calgary Edmonton Vancouver USA Sparks Minneapolis Houston Plantation Denver Detroit MEXICO Colombia Ecuador Peru Third party relationships Austria Belgium Brazil Czech Republic China Denmark Finland France Germany Greece Hungary India Italy Luxembourg Morocco Netherlands Poland Portugal Romania Russia Slovakia Spain Sweden Switzerland Turkey United Kingdom Serbia Ireland Avis Fleet Services Botswana Ghana Lesotho Mozambique Namibia South Africa Swaziland Tanzania Zambia Japan Thailand AUSTRALIA NEW ZEALAND 26 Element Financial

27 27 Element Fleet is a leading provider of global fleet management services A Leading "Service Company

28 Steven Hudson Chief Executive Officer Commercial Finance 28

29 Commercial Finance Highlights Transition Commercial Finance into an integrated structuring, advisory and asset management business Rail originations from Trinity program and direct program deferred (i.e. temporarily reduced) reduced to position for portfolio and secondary market opportunities On Balance Sheet Aviation portfolio assets in run-off Aviation Fund $1.9B of assets under Management; Family of Funds underway $, millions 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Total Earning Assets Rail Commercial & Vendor Aviation ECAF 1,942 1,924 1,585 1,468 1,336 2,895 2,893 2,133 1,414 2,342 2,230 Q Q Q Element Financial

30 Commercial Finance Aviation: Transition to Asset Manager Well Advanced ECAF I ECAF II Transportation Fund I ECAF I Closed June 2015 US$ 1.6 billion 48 commercial aircraft Operating leases ABS Deal of the Year Capital Markets Deal of the Year Target IRR: mid teens ECAF II Target launch Q US$ 1.1 billion Commercial aircraft Operating leases Target IRR: mid teens US $3.2 Billion Family of Funds Transportation Fund I Target launch late 2016 US$ 0.5 billion Aviation, Rail and other assets Operating leases, finance leases, loans (i.e. across the capital structure) Target IRR: low teens 30 Element Financial

31 Questions