making capital work tm - element fleet · 2014-06-04 · investor presentation ‐june 2014 key...

Investor Presentation ‐ June 2014

Making Capital Work TM


Certain information in this presentation is forward‐looking and related to anticipated financial performance, events and strategies. When used inthis 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’scompetitive 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 ofElement 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 ofadequate 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 reasonablebut 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 actualresults and experience to be materially different than the anticipated results. Such risks and uncertainties include, but are not limited to, operatingperformance, 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 andassumes no obligation to update any forward‐looking statement, whether as a result of new information, future events or otherwise.


North American Equipment Finance Experts

• $4.2 billion in assets• $1.4 billion in available liquidity• $2.5 billion market cap• TSX composite index member• FTSE Global Equity Index member • 420 + employees• 84,000 + customers• Head Office – Toronto, Ontario• U.S. Head Office – Philadelphia, PA• Fleet Management Office – Mississauga, Ontario• Aviation Office – Montreal, Quebec

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Making Capital Work TM


Transactions: $10,000 to $5 M

Originations: Direct relationshipsReferrals

Regions: CanadaUS

Expertise: TransportationConstructionCommercialHospitalityHealthcareTechnologyIndustrialEnergyGolf

Transactions: $5 M to $150 M

Originations: Direct relationshipsManufacturer referrals

Regions: CanadaUS

Expertise: Civil AviationMedium & Heavy Lift HelicoptersBusiness JetsTurbo‐prop AircraftFlight Simulators


Originations: ManufacturersDealersDistributorsSponsor Referrals

Regions: CanadaUS

Expertise: Sales aid finance programs for:

DealersDistributorsManufacturersVARsSponsors

Programs sourced from Direct Commercial Finance relationships


Originations: Direct from manufacturers

Regions: CanadaUSA (pending PHH close)

Expertise: Corporate FleetsMunicipal FleetsIndustrial FleetsFleet ServicesStrategic Consulting


Originations: Manufacturer program

Regions: North America

Expertise: Covered GondolasHopper CarsIndustrial Tank CarsPetroleum Tank Cars

Corporate Services

Fleet Management Commercial Finance & Vendor FinanceCanada & U.S.

Aviation Finance Railcar Finance

Vendor finance leads

Four Selected Business Verticals


Strict acquisition screening including business purpose and fit into strategy

Fit into existing business verticals

Credit standards and expected credit loss profile must be within existing limits

Rigorous due diligence completed including outside resources (Credit, IT, Legal)

Target must fall within Element Management’s area of expertise

Valuation must be accretive to both consensus earnings and consensus ROE

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Element Acquisition Criteria

PHH Arval Transaction


PHH Arval Transaction

A North American Fleet Management Leader• Founded in 1946 • US$4.6 billion in total assets as at March 31, 2014• US$4 billion net investment in fleet leases• Annual originations of US$1.7 billion in 2013• Strong management team• Exceptional customer service culture• Pristine credit quality• Efficient established funding sources


PHH Global Alliance

7

Mexico

BotswanaGhanaLesothoMozambiqueNamibiaSouth AfricaSwaziland

JapanJapanThailand

CanadaUSA

Avis Fleet Services

AustriaBelgiumBrazilCzech RepublicChinaDenmarkFinlandFranceGermanyGreeceHungaryIndiaItalyLuxembourgMoroccoNetherlandsPolandPortugalRomaniaRussiaSlovakiaSpainSwitzerlandTurkeyUnited Kingdom Australia

New Zealand

Ireland

Mareauto S.A.

ColombiaEcuadorPeru

Comercial Ariete


PHH Fleet – Key Financial Metrics

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• Increasing segment profitability since the credit crisis has been driven by increased fee income, service revenue, and lower funding costs

Note: Consolidated U.S. and Canada

$1,649 $1,593 $1,646 $1,617 $1,642

$0

$500

$1,000

$1,500

$2,000

2009 2010 2011 2012 2013

(in U

S$ m

illio

ns)

Revenue

$54 $63

$75 $80 $88

$0

$20

$40

$60

$80

$100

2009 2010 2011 2012 2013

(in U

S$ m

illio

ns)

Pre-Tax Income


Transaction Impact

Key Benefits For Element• Expands domestic fleet management vertical into US• +10% accretive to Element shareholders in 2015 and 2016• Adds US$600 million of tax deferrals• Extends cash tax payable horizon to 15+ years• Increases Element’s total assets in 2014 to ~$10 billion• US$3.5 billion of debt assumed on closing• Expands established securitization programs• Increases tangible leverage from 1.8X to 4X at closing• Opportunities to offer North American‐wide fleet solutions to customers in

other business segments• Improved economics for each of Element’s business segments


Element/PHH Pro Forma

May 2007 founded as a

private leasing company


Growth Drivers

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2012 Results 2013A 2014E

2.8% (Real)

2015E 2016E 20127E

US GDP

US Equipment Investment

Equipment Finance Volume

8.0% Growth

16.4% Growth

1.9% 2.8% 3.1% 3.1% 2.4%

• Average equipment replacement cycle of 8 years

• Growth led by various transportation segments including Air, Rail & Autos

• Propensity to finance increasing with competing calls on capital

US Commercial Finance is one of the fastest growing financial services sectors

Source: US Federal Reserve Bank of Philadelphia


2014 YTD Milestones


2014 YTD Milestones

JANUARY• Targets $3.8 billion in originations for 2014• Completed purchase of US$396 million of leased railcars from Trinity

FEBRUARY• Announced $997 million of originations for Q4‐2013• Issued $125 million of cumulative 5‐year rate rest preferred shares

MARCH• EFN added to the FTSE Global Equity Index• Completed purchase of US$118 million of leased railcars from Trinity

April• Entered multi‐year equipment financing agreement with US‐based Celadon• Accessed rated ABS market for US$340 million to fund rail assets

May• Signed US$220 million transportation equipment financing facility with Dallas‐based

Bridger

June• Signed US$ 1.4 billion agreement to acquire PHH Arval at 1.56 X adjusted book value• 10+ percent accretive in 2015 and 2016 with leverage at 4:1 on closing

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Financial Highlights


Quarterly origination growth continues to build …

… with very strong growth from US‐based Commercial & Vendor Finance

Portfolio Growth


Portfolio Diversification


Portfolio Quality


Balance Sheet Capacity


Business Units


Commercial & Vendor Finance

Commercial & Vendor Finance• 120 employees

• 5 Canadian & US offices

• Transaction size from $10,000 to $5 million

• Key Customer Segments Transportation

Construction

Industrial & Commercial

Office & IT Equipment

Healthcare

Franchise Capital Campaigns

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2014 Growth Drivers• Continued US commercial & industrial recovery • Deferred equipment replacement cycle• Favourable C$/US$ exchange for Canadian equipment manufacturers


Fleet Management

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Fleet Management• 204 employees

• 5 Canadian offices

• Largest fleet management company in Canada

• US alliance with GE Fleet

• Transaction size from $500,000 to $40 million

• 40% of revenue comes from fleet management services

• 1,300 plus fleets

• More than 54,000 vehicles

2014 Growth Drivers • Deferred vehicle replacement cycle • Strong growth in 2009/2010 fleet registrations drive 2014 replacements• Expansion of fleet management services offering• Continued commercial & industrial recovery in Canada


Aviation Finance• 11 employees

• 4 offices in Canada and US

• Transaction size $5 million to $150 million

• Medium and heavy lift helicopters, business jets, flight simulators & training aircraft

• Element Equipment Fund & Irish subsidiary in place

• Key vendor/program relationships with leading manufacturers:• Eurocopter, Bell, Agusta Westland,

Robinson

• Bombardier, CAE, Textron, Piper, Gulfstream, Falcon

Aerospace Finance

22

2014 Growth Drivers • Continued US commercial & industrial recovery• Demand for energy to fuel US economic growth • Retrenchment of key competitors• Engagement of US‐based helicopter team• Deep relationships with key manufacturers


• 2 employees

• Based in Toronto Head Office

• Strategic relationship with Trinity Industries

• US$2 billion over two years

• US$100 TO us$200 million per quarter

• Trinity contracted as portfolio servicer

• Transaction size from US$75,000 to US$175,000

• Debt advance rate of 75% to 80%

Railcar Finance

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2014 Growth Drivers • Continued US commercial & industrial recovery• Demand for energy to fuel US economic growth • Deep relationships with leading NA railcar manufacturer• Opportunities to acquire third party portfolios


Growth Strategy


Strategic Vision

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• Become a North American Leader in Commercial Finance with increasing focus on North American transportation markets

• Grow our diversified portfolio within our verticals by $10 to $12 billion by 2016

• Enjoy market leading positions (Top 3) in Transportation Verticals by 2015:

• Fleet Services & Road transportation

• Civil Aviation

• Railcar

• Element is now well positioned to execute on key elements of our vision:

• In Canada, we enjoy market leading positions in Commercial Finance and Fleet Management Services

• In the U.S., we have the platforms in place to realize substantial strategic growth

• Internationally, we continue to execute only on customer specific needs within our Aviation Finance group


Acquisition Strategy

• Strict acquisition screening including business purpose and fit into strategy

• Must fit into existing business verticals

• Credit standards must be within existing limits

• Rigorous due diligence

• Element Management area of expertise

• Valuation: Must be accretive to both consensus earnings and consensus ROE

Analysis based on normalizing target’s financial information with an appropriate advance rate and Element’s cost of funds

26


2014 Outlook


2014 Originations

28


North American Portfolio Distribution

29

Canada USA

Portfolio Mix

2012 Actual 81% 19%

2013 Actual 74% 26%

2014 Outlook 58% 42%

Originations

2012 Actual 98% 2%

2013 Actual 69% 31%

2014 Outlook 50% 50%


Key Performance Indicators

30

Financial Revenue

Financial Expense

Operating Expense

PipelineAviation & Rail

Total Originations

Average Net Financial Margin

879 bps

238 bps

265 bps

$1.8 billion

Q2‐2013

$397.9 million

640 bps

857 bps

269 bps

249 bps

$2.0 billion

Q3‐2013

$410.4 million

588 bps

Q4‐2013

830 bps

272 bps

558 bps

226 bps

$997.2 million

$2.0+ billion

Q1‐2014

790 bps

255 bps

535 bps

222 bps

$1.1 billion

$2.4 billion


Questions

making capital work tm - element fleet · 2014-06-04 · investor presentation ‐june 2014 key...

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