Exhibit 99.1
Hub International Increases Q1 Revenue 39%, Net Earnings Rise 80%;
Management Reiterates Expectations for $1.08-$1.17 EPS in 2003
CHICAGO--(BUSINESS WIRE)--May 1, 2003--Hub International Limited
(NYSE and TSX: HBG).
Highlights:
-- Revenue increases 39% to US$68.9 million from US$49.5 million
-- Organic growth of revenue increases to 15% from 9%
-- Net earnings rise 80% to US$8.9 million, or US$0.28 per
diluted share
-- Net margin improves to 13% from 10%
Hub International Limited (NYSE and TSX: HBG), a leading North
American insurance brokerage, today reported that strong growth in
Canada and contingent commissions helped generate a 39% increase in
revenue and an 80% increase in net earnings for the first quarter of
2003.
Revenue increased to US$68.9 million from US$49.5 million a year
earlier, while net earnings grew to US$8.9 million from US$4.9 million
a year earlier. Earnings per share grew at a 33% rate, to US$0.28 from
US$0.21, as the number of weighted average diluted shares outstanding
increased to 33.5 million from 27.5 million.
U.S. revenue increased 50% to US$45.3 million from US$30.1
million, while Canadian revenue rose 22% to US$23.6 million from
US$19.4 million a year earlier. On a percentage basis, U.S. operations
grew to 66% of consolidated revenue from 61% a year ago, while
Canadian operations contributed 34% of revenue, down from 39% in 2002,
largely as a result of acquisition activity concentrated in the United
States.
Ratios continue improvement
Margins and efficiency ratios also improved in the first quarter,
according to the company. Pre-tax margin widened to 21% from 14%,
while net margin expanded to 13% from 10% a year earlier. Selling,
general and administrative expenses declined to 19% of revenue from
22% in the prior year, while compensation expense fell to 54% of
revenue from 56%.
HUB INTERNATIONAL LIMITED
Consolidated Organic Growth of Revenue
For the three months ended March 31, 2003
(in thousands of U.S. dollars, except percentages)
Net
Adjustment
for
(Acqui-
sitions)
Revenue Total Total and Organic Organic
2003 2002 Change Growth Dis- Growth Growth
($) (%) posals ($) (%)
----------------------------------------------------------
Total
- -----
Commission
Income $54,515 $41,410 $13,105 32% $(9,206) $3,899 9%
Contingent
Commissions and
VolumeOverrides 12,364 6,158 6,206 101% (2,700) 3,506 57%
Other Income 1,998 1,916 82 4% (139) (57) -3%
----------------------------------------------------------
Total $68,877 $49,484 $19,393 39% $(12,045) $7,348 15%
----------------------------------------------------------
USA
- ---
Commission
Income $34,960 $25,043 $9,917 40% $(8,983) $934 4%
Contingent
Commissions and
Volume Overrides 8,787 3,548 5,239 148% (2,622) 2,617 74%
Other Income 1,532 1,513 19 1% (143) (124) -8%
----------------------------------------------------------
Total $45,279 $30,104 $15,175 50% $(11,748) $3,427 11%
----------------------------------------------------------
Canada
- ------
Commission
Income $19,555 $16,367 $3,188 19% $(223) $2,965 18%
Contingent
Commissions and
Volume Overrides 3,577 2,610 967 37% (78) 889 34%
Other Income 466 403 63 16% 4 67 17%
----------------------------------------------------------
Total $23,598 $19,380 $4,218 22% $(297) $3,921 20%
----------------------------------------------------------
Hub posted organic growth of revenue, which is comprised of
commission income, contingent commissions and volume overrides, and
other income, of 15% on a consolidated basis, including 11% organic
growth in the United States and 20% in Canada. Organic growth is the
equivalent of same-store sales, including only operations that have
been part of the company for 12 months or more. The company pointed
out, however, that a number of timing issues limited organic growth of
commission income to 4% in the United States.
"Our Executive Committee, which includes senior corporate managers
and the presidents of our 11 hub operations, has reviewed our recent
organic growth numbers in detail," said Martin P. Hughes, Chairman and
Chief Executive Officer. "Although the U.S. number was lower than we'd
like in the first quarter, the shortfall resulted primarily from
timing issues related to policy renewals that shifted revenue to other
quarters in 2003.
"Meanwhile, we continue to experience the benefits of our
acquisition strategy and the strong management team that we have
established throughout our operations," Hughes added. "Our people are
executing well in a challenging economy."
Multiple Sources of Growth
Hughes said first quarter results reflected the combination of
business transactions and timing issues in the brokerage business.
Among the specific developments in the first quarter:
Consolidated revenue increased 39% to US$68.9 million from US$49.5
million. Of this increase, approximately US$12.1 million, or 62%,
resulted from acquisitions, including the 2002 purchase of two hubs:
Hooper Hayes, now part of Hub California, and Hub Indiana (formerly
Fifth Third Insurance). The remaining increase of US$7.3 million, or
38%, resulted from organic growth.
Consolidated commission income for the quarter increased 32% to
US$54.5 million from US$41.4 million. Contingent commissions and
volume overrides, paid by insurers on the basis of prior-year
profitability and volume of business, increased 101% to US$12.4
million from US$6.2 million. Other income, including fees and interest
income, rose 4% to US$2.0 million from US$1.9 million.
Hub achieved organic growth of 9% in commission income, while the
strong gains in contingent commissions and volume overrides brought
consolidated organic growth of revenue to 15% for the quarter. Organic
growth of revenue includes the benefit of US$1.2 million, or
approximately two percentage points, due to the strengthening of the
Canadian dollar against the U.S. dollar. In recent periods, relative
shifts in the value of the two currencies have not been nearly as
substantial as they were in the first quarter of 2003.
U.S. Results Reflect Profitable Insurer Relationships and Timing
U.S. revenue increased 50%, or US$15.2 million, to US$45.3 million
from US$30.1 million a year earlier. Of this increase, approximately
US$11.7 million, or 77%, resulted from acquisitions and US$3.5
million, or 23%, resulted from organic growth.
U.S. commission income grew 40% to US$35.0 million from US$25.0
million a year earlier, while contingent commissions and volume
overrides rose 148% to US$8.8 million from US$3.5 million. Organic
growth of commission income was 4%, while organic growth of U.S.
revenue was 11%.
"The strength of contingent commissions and volume overrides
reflected enhanced relationships with insurance companies, sharply
higher premium rates, better loss experience for insurance carriers in
2002 versus 2001 and, in some cases, earlier payment of these annual
commissions by insurers." Hughes said. "Of the US$5.2 million increase
in contingents and volume overrides, approximately US$1.8 represents
payments received in the first quarter of this year, whereas similar
payments in the prior year were received in the second quarter of
2002.
"Similarly, the relatively small rate of organic growth of
commission income includes a number of timing issues, including a
US$1.9 million shift of revenue from the first quarter to subsequent
quarters as a result of changes in policy renewal dates. Adjusting for
these issues, organic growth of U.S. commission income would have been
approximately 11%."
Canadian Results Benefit from Strong Currency, Access to Insurers
Canadian operations posted a 22% increase in revenue to US$23.6
million from US$19.4 million, reflecting both a stronger exchange rate
versus the U.S. dollar and organic growth augmented by higher
insurance premium rates. Canadian commission income grew 19% to
US$19.6 million from US$16.4 million, while contingent commissions and
volume overrides grew 37% to US$3.6 million from US$2.6 million.
Canadian operations posted organic growth of 18% in commission
income, and 34% in contingent commissions and volume overrides.
Canada's organic growth of revenue for the quarter was unusually
strong at 20%, or 14% without the impact of the favorable exchange
rate.
"Our Canadian operations benefited from our continued access to
insurance markets, helping us pick up some market share from other
firms that were not as capable of meeting client needs," Hughes noted.
"We have emphasized frequently the importance we place on
relationships with insurers and our first-quarter results in Canada
demonstrate the returns that these relationships can provide."
Earnings Expectations Maintained
After reviewing quarterly results, Hub management reiterated its
expectations that diluted earnings per share for 2003 will be in the
US$1.08-$1.17 range, from US$1.06 in 2002. The 2002 results included a
one-time gain of US$2.6 million, or US$0.09 cents per share, resulting
from the sale of Old Lyme Insurance subsidiaries in the second
quarter. Shares outstanding also increased substantially as a result
of the company's U.S. initial public offering in June 2002 and the
issuance of shares to execute acquisitions.
"Although we are quite pleased with first quarter results, Hub is
not a quarter-to-quarter company," Hughes noted. "We have great
confidence in our people and our growth strategies, both of which have
performed well over the past few years. We continue to benefit from
our strong access to insurance markets, making us a more important
partner to middle-market companies and to brokers who rely on Hub to
obtain coverage for their own clients. This access has recently
enabled us to build market share in Canada and it is fundamental to
the growth of our wholesale operations."
Hughes said the company will review its earnings guidance in three
months and provide any updates in concert with the announcement of
second quarter results. He noted that second quarter results compared
to those in 2002 will not benefit from the 2002 sale of Old Lyme, and
further will be subject to the following timing issues:
-- Approximately US$2.1 million of the US$6.2 million increase in
first quarter consolidated contingent commissions and volume
overrides represents payments received in the first quarter of
2003, whereas similar payments were received in the second
quarter of 2002.
-- A US$1.9 million shift of revenue from the first quarter to
subsequent quarters as a result of changes in policy renewal
dates.
"We believe it makes sense to review our forecast with a full six
months of results. Looking beyond quarter-to-quarter variations, we
see continued opportunity to grow profitably and rapidly in the
brokerage industry," Hughes said. "While it is difficult to predict
how much premium rates will increase or where the economy will move,
it is quite clear that a strong team of professionals can handle
whatever challenges are presented.
"Our job is to bring the right people into the organization and
give them the tools to service our clients effectively. So far, that
focus has been working very well."
Earnings Conference Call and Webcast
Hub International will host a conference call and webcast at 10:30
AM EDT, on Thursday, May 1, 2003, to discuss financial results,
industry conditions and guidance. To listen to the call, connect to
www.hubinternational.com approximately 10 minutes prior to its
scheduled start, providing ample time to register and download any
needed software. The webcast will be archived on the company's
website, http://www.hubinternational.com, for approximately 90 days
following the event.
Headquartered in Chicago, IL, Hub International is a leading North
American insurance brokerage that has grown rapidly since its
formation in 1998 through mergers, acquisitions and organic growth.
Hub International provides a broad array of property and casualty,
life and health, employee benefits, investment and risk management
products and services through offices located in the United States and
Canada. Hub International's strategy is to expand its market share in
the highly fragmented U.S. insurance brokerage industry by acquiring
quality firms that focus on servicing middle-market commercial
businesses. In addition, Hub plans to leverage its decentralized
approach, differentiate its service, and capitalize on its scale to
provide broader product offerings to its clients through multiple
distribution channels. Hub International currently has eleven large
"hub" brokerages that have significant market presence in their
geographic regions in the U.S. and Canada. Each hub provides insurance
brokerage services and manages the various other Hub International
offices in its territory. The hub brokerages are responsible for
growth through sales, service and fold-in acquisitions. The hub
offices report to the head office which, in addition to monitoring the
activity of each hub, retains responsibility for identifying and
acquiring additional hub brokerages, along with integration and
coordination initiatives that increase enterprise value.
This press release may contain forward-looking statements which
reflect our current views with respect to future events and financial
performance. These forward-looking statements relate, among other
things, to our plans and objectives for future operations and are
subject to uncertainties and other factors that could cause actual
results to differ materially from such statements. These uncertainties
and other factors include, but are not limited to, risks associated
with implementing our business strategies, identifying and
consummating acquisitions, integrating acquired brokerages, attaining
greater market share, developing and implementing effective
information technology systems, recruiting and retaining qualified
employees, fluctuations in the premiums charged by insurance companies
with corresponding fluctuations in our premium-based revenue, any loss
of services of key executives, industry consolidation, increased
competition in the industry, fluctuations in the demand for insurance
products and the passage of new legislation subjecting our business to
regulation in jurisdictions where we operate. We caution readers not
to place undue reliance on these forward-looking statements which
speak only as of the date of this press release. Additional
information regarding these risks and other factors that could cause
Hub International's actual results to differ materially from our
expectations is contained in the company's filings with the Securities
and Exchange Commission. Except as otherwise required by federal
securities laws, Hub International undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
HUB INTERNATIONAL LIMITED
Consolidated Balance Sheets
As of March 31, 2003 and December 31, 2002
(in thousands of U.S. dollars)
2003 2002
----------- ---------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $43,223 $40,642
Trust cash 37,927 53,648
Accounts and other receivables 102,789 136,567
Income taxes receivable 1,481 2,153
Future income taxes 4,262 3,324
Prepaid expenses 2,898 1,587
----------- ---------
Total current assets 192,580 237,921
Goodwill 290,090 281,727
Other intangible assets 43,730 44,164
Property and equipment 21,616 21,298
Future income taxes 4,254 3,715
Other assets 8,325 8,051
----------- ---------
Total assets $560,595 $596,876
=========== =========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $141,306 $187,034
Contingent consideration payable - 8,423
Income taxes payable 2,541 1,198
Future income taxes 1,368 1,164
Current portion long-term debt and capital leases 2,946 3,029
----------- ---------
Total current liabilities 148,161 200,848
Long-term debt and capital leases 69,023 69,009
Subordinated convertible debentures 35,000 35,000
Future income taxes 8,353 7,745
----------- ---------
Total liabilities 260,537 312,602
----------- ---------
Commitments and Contingencies
Shareholders' equity
Share capital 248,891 235,197
Contingently issuable shares 49 13,743
Contributed surplus 2,229 1,234
Cumulative translation account 9,583 2,185
Retained earnings 39,306 31,915
----------- ---------
Total shareholders' equity 300,058 284,274
----------- ---------
Total liabilities and shareholders' equity $560,595 $596,876
=========== =========
HUB INTERNATIONAL LIMITED
Consolidated Statements of Earnings
For the three months ended March 31, 2003 and 2002
(in thousands of U.S. dollars, except per share amounts)
2003 2002
----------- -----------
(unaudited) (unaudited)
Revenue
Commission income $54,515 $41,410
Contingent commissions and volume overrides 12,364 6,158
Other 1,998 1,916
----------- -----------
68,877 49,484
----------- -----------
Expenses
Compensation 37,019 27,690
Selling, occupancy and administration 13,099 10,860
Depreciation 1,394 1,280
Interest expense 1,367 2,694
Intangible asset amortization 801 379
(Gain) on disposal of property, equipment and
other assets (56) (42)
Loss (gain) on put option liability 27 (373)
Non-cash stock option compensation 962 -
----------- -----------
54,613 42,488
----------- -----------
Net earnings before income taxes 14,264 6,996
----------- -----------
Provision for income tax expense (benefit)
Current 5,661 2,781
Future (301) (724)
----------- -----------
5,360 2,057
----------- -----------
Net earnings 8,904 4,939
Interest on subordinated convertible debentures 471 804
----------- -----------
Diluted net earnings $9,375 $5,743
=========== ===========
Earnings per share
Basic $0.30 $0.25
Diluted $0.28 $0.21
Weighted average shares outstanding
- Basic (000's) 29,326 19,503
Weighted average shares outstanding
- Diluted (000's) 33,465 27,460
HUB INTERNATIONAL LIMITED
Consolidated Statements of Cash Flows
For the three months ended March 31, 2003 and 2002
(in thousands of U.S. dollars)
2003 2002
----------- -----------
(unaudited) (unaudited)
Operating activities
Net earnings $8,904 $4,939
Items not affecting working capital:
Amortization and depreciation 2,195 1,659
(Gain) on disposal of property, equipment and
other assets (56) (42)
Loss (gain) on put option liability 27 (373)
Non-cash stock option compensation 962 -
Future income taxes (301) (724)
Non-cash working capital items
Trust cash 15,721 9,482
Accounts and other receivables 37,080 23,830
Prepaid expenses (1,261) (437)
Accounts payable and accrued liabilities (50,508) (45,022)
Income taxes 1,962 222
----------- -----------
Net cash flows from (used for) operating
activities 14,725 (6,466)
----------- -----------
Investing activities
Property and equipment - purchases (1,493) (756)
Property and equipment - proceeds on sale 7 -
Purchase of subsidiaries, net of cash
received (11,221) -
Sale of subsidiaries 291 1,242
Other assets (24) (164)
----------- -----------
Net cash flows from (used for) investing
activities (12,440) 322
----------- -----------
Financing activities
Long-term debt and capital leases -
repayments (698) (2,309)
Share capital - issued for cash, net of issue
costs (31) -
----------- -----------
Net cash flows (used for) financing
activities (729) (2,309)
----------- -----------
Effect of exchange rate changes on cash and
cash equivalents 1,025 -
Change in cash and cash equivalents 2,581 (8,453)
Cash and cash equivalents - Beginning of period 40,642 26,979
----------- -----------
Cash and cash equivalents - End of period $43,223 $18,526
=========== ===========
CONTACT: Hub International Limited
W. Kirk James, 312/279-4881
kjames@hubinternational.com