McManus asserts that 'the world has changed' and firm is in it for the long term
Giles chief executive Brendan McManus revealed this week that there are no plans for a flotation, with patient private equity backers Charterhouse understanding that "the world has changed".
McManus was speaking after announcing Giles's 2011 results, which showed earnings before interest, tax, depreciation and amortisation (EBITDA) increased 14.7% to £24m (2010: £20.9m). Turnover rose 16.3% to £81m (2010: £69m) while operating margin remained the same at 29%.
The after-tax loss was broadly flat at £37.4m (2010: £37.1m) after booking a £24m goodwill charge and £21m interest on its loan notes. Net bank debt was £124m.
'There is no exit plan. This is a long-term game ... this is about building on organic growth'
Brendan McManus, Giles
Giles's incredible growth over the last 10 years has been fuelled by private equity backing, first by Gresham in 2006 and then Charterhouse in 2008.
Former chief executive Chris Giles, now executive chairman, told Insurance Times in January 2010 that the company would probably float in 2012.
But after the financial crisis, several years of lower growth by the UK economy have triggered a change of direction at the consolidator.
McManus said: "There is no exit plan. This is a long-term game. For us this is about building on organic growth.... The world has changed in the last few years. The traditional view of private equity was that they would turn over investments in three or four years. The reality is that this is not the case now.
“If you look at the Charterhouse investments, many have been there longer than Giles."
McManus said the company was "trading very well" and had achieved good results against the backdrop of a soft market, continuing business failures and reduced spending, and intense broker competition to replace lost income.
Giles' retail business increased its turnover by 14% to £65m (2010: £56.9m) and total EBITDA contribution by 13% to £18m (2010: £15.9m).
Its wholesale operation rose 26% to £15m (2010: £11.8m) for income and 21.5% to £8.4m (£6.9m) for total EBITDA.
On the flipside, retail costs climbed 15.1% to £47.1m (2010: £40.9m) and wholesale costs were up 33.6% at £6.5m (2010: £4.9m).
Environment remains tough
“Traditional market cycles have finished now," McManus said, "and we are looking at a time when insurance companies will manage capital acutely well. We have to manage our business in an environment that will remain tough."
McManus departed as Willis UK chief executive in October last year and took up his new role last month.
His move paved the way for Chris Giles to become executive chairman. Giles has overall executive responsibility, although he largely concentrates on acquisitions and leaves the day-to-day running to McManus.
McManus said: "I am really enjoying working with him."
McManus added that he worked closely with Giles on acquisitions. In the last year, Giles has bought the AXA Direct Book NI, Rossborough, Higgins Belfast and CBG.
This had strengthened its position nationally and in Northern Ireland, Jersey, Guernsey and the Isle of Man.
“Money is not cheap," he said. "We have to make sure we are confident that the acquisitions will deliver. That's what is really important."
He added that Giles's 2012 business model would be driven by consolidation and integration; a stronger sales focus on retail; building sales pipelines; a review of its operating model; and continuing development of sector specialisms.
On organic growth, McManus said: "Realistically, single-digit growth is going to be the maximum achievable."
We say ...
● Giles will have to divest its operation at some point, probably through a flotation. The success of this will be heavily dependent on market confidence, along with investors' consideration of Giles's debt profile and operating performance. Giles is confident that Charterhouse and the banks will remain patient.
● The division between McManus running day-to-day operations and Chris Giles heading acquisitions seems a sensible way of running the business.