Ardonagh: Under the bonnet of the financials

For those who remember the 11th hour rescue of cash-strapped Towergate in 2015, Ardonagh’s liquidity and cashflow are rightly viewed as important indicators of the firm’s financial stability.

Ardonagh was being watched closely by rating agencies and bond traders after the nine month results in 2018 revealed the business had just £3.3m in positive cashflow, despite £42.4m banked from company sales.

The good news is that Ardonagh’s net cashflow position for the full year is a positive £67.5m.

The David Ross-led business was boosted by $225m (£172m) of freshly raised debt in November.

Around two-thirds of the debt raise was used for the Swinton purchase, if the benefits of the one-off premium finance money payments to Ardonagh, as part of the deal, are included.

This cashflow position, together with an overall liquidity of £215.6m, means Ardonagh should now be financially stable – although long-term it has £1.1bn debts that will need repaying.

The key questions in 2019 are whether Ardonagh can improve cashflow by finishing its cost savings and wind-down spend; integrate Swinton and extract the expected profits; and continue to show organic growth across the rest of the business.

Cost savings

Ardonagh saved £18.5m last year. It has identified a further £36m in near-term cost savings.

Achieving this will be crucial in improving both the financial performance and health of the business, which in 2018 had to clear between £76.6m just on interest payments and paying off an overdraft facility. 

Chief financial officer Diane Cougill says most of cost programmes will end in the second quarter, with the second half of the year showing a substantial achievement in completing cost savings and winding-down overall spend.

Cougill highlighted several areas where Ardonagh has had to invest heavily to strengthen the business: the broking IT systems for trading and handling customer documentation, the back office IT systems and cleaning up all the numerous legal entities of the business.

Backed by the might of private equity giants Madison Dearborn and HPS, Ardonagh has spent well over £700m on acquisitions and investment on the business.

Cougill said: “It was a brave decision by the investors to back significant investment in the company, in terms of its underlying systems and capability. 

“That manifests itself in so many ways in how you do business, how you transact business, and how you manage that business behind the scenes.

“It’s a benefit for the customers. It makes it easier to transact business in terms of clarity and policy documents, for example, and making sure the cover is right and that you have the right information for customers.

“It’s good for employees because it makes it easier to transact with customers. Then behind the scenes, it makes us cost efficent, and easy to transact and manage things like our cash.”

Another important aspect of the investment spend has contributed to Ardonagh improving its cash conversion to 80%.

Previously, customer money in the offices or branches was not being transferred to the group quick enough.

But with the new systems and integrated business, Ardonagh has improved this important part of cashflow management.

Swinton integration

The next question facing Ardonagh is over the Swinton integration. Before the Ardonagh takeover, Swinton’s finances had been hit by a number of costly exceptional items such as office closures and redundancies, as well as expensive investment in improved IT and back office systems.

However, Cougill stressed that when Ardonagh bought Swinton, its previous owner Covéa had actually done a lot of the restructuring work.

Although there will be some costs associated with Swinton, Cougill said Covéa had done most of the work on the branch network and spent money on improved technology.

“Swinton is finishing already where they have started,” Cougill said.

“There is going to be some costs. When we bought Swinton’s we were very transparent in saying we were finishing the closures off the branch programme, and that has an exceptional cost. Where we are merging it between Autonet and Carole Nash, there will be some cost there.”

The final important part of the financial equation is whether the underlying business are growing organically.

Ardonagh has grown 2.5% organically for 2018, with increased customer retention and new business growth.

Cougill said her 2018 priorities had been to grow organically, achieve cost savings and strengthen cashflow.

“I know we have made progress on all three, so that’s a good position to be in,” Cougill said.