The broker reported a record quarter for organic growth

Ardonagh Group is aiming to reach positive free cash flow territory by 2020, chief financial officer Diane Cougill told Insurance Times today.

The company’s latest results, released last night, revealed a £26.4m negative free cash flow for the year-to-date third quarter, rising to a £62.4m loss when debt purchase and regulatory costs were factored in. 

But Cougill pointed out that when looked at on a 12-monthly basis, including the fourth quarter of 2018, negative free cash flow was only a £1.1m loss. 

”When you look at Q4, it will be cash flow positive because there are no interest payments,” she said. 

Some of the costs this year are from the Swinton merger and acquisition (M&A) and some of the Nevada 3 assets which Ardonagh bought in January 2019. An £18.7m cost related to a change in equity structure does not reflect the everyday running of the business, she pointed out.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) for the first three quarters of the year were up 61.4% to £144.4m, however free cash flow remained in negative territory.

This, however, was an improvement on the year-to-date cash flow figure for the previous year (£38.5m).

The group posted 4.6% organic growth for Q3, a record figure.

Cash inflow

During the first nine months of 2019, the Group generated positive cash inflow from operations, despite significant investment in finalising the Transformation and Swinton site closure and integration programmes.

In addition, the Group benefitted from the Commercial MGA disposal on 1 January 2019; £31.5m was received, of which £30m represented the initial consideration for the sale with an additional £1m of contingent consideration received in May 2019.

This was primarily offset by interest payments of £93.7m (no further interest payments on the Notes are due in 2019), capital expenditure as part of the transformation programme and payment of transaction costs in relation to the $235m USD notes issued in 2018.

The insurer’s quarter three trading update also revealed that the Group’s total income has improved by 25.3%, or £101.9m to reach £505.4m in 2019 compared to £403.5m in 2018. Pro forma, to reflect material acquisitions or disposals, total income showed a £2.2m loss, from £508.6m in 2018 to £506.4m in 2019.

Reported EBITDA has jumped up to £88.2m in the nine months to 30 September – a £37.2m difference from the £51m EBITDA figures reported in 2018.

Ardonagh further reported a 4.6% increase in organic income growth for Q3 of 2019, a 28% reported income growth, a 28% EBITDA margin and a 106% Q3 operating cash conversion.

Positive stance

Ardonagh Group chief executive David Ross said: “2019 is a year of execution and delivery for the Group. We’ve had a real focus finishing off our significant infrastructure projects, integrating Swinton and delivering organic growth and high-quality earnings.

“Insurance is a people business, and our best ever quarter of organic growth is a testament to a culture which attracts and retains the best people from all parts of the industry. We face the future as a business without parallel for diversity of products, customers and distribution channels at global scale.”

The results cap a good few weeks for Ardonagh, with the judge overseeing the staff poaching case brought against it by rival broker Gallagher ruling in its favour.

Collective success

In May, Ardonagh’s private equity backers MDP and HPS ramped up their stakes in the business, snapping up more shares and valuing the business at £1.9bn.

In its six-month results, including the Swinton acquisition, which completed at the start of this year, Ardonagh reported income growth of 25% for the quarter rising to £179.9m from £143.9m at 2018 Q2. 

EBITDA for quarter two of 2019 was £57.1m, compared to £38.5m at 2018 Q2.

Pro forma for all acquisitions and disposals, income grew by 0.5% from £179m at Q2 2018 and EBITDA grew 7.7% from £53m at Q2 2018.