INVESTOR PRESENTATION · 2015 Q2 2015 Total fee revenue (1) 28% 38% 40% 42% Spread revenue (2) 72%...
Transcript of INVESTOR PRESENTATION · 2015 Q2 2015 Total fee revenue (1) 28% 38% 40% 42% Spread revenue (2) 72%...
elementcorp.comElement Financial Corporation
I N V E S TO R P R E S E N TAT I O NA U G U S T 2 0 1 5
elementcorp.comElement Financial Corporation
Element Overview
2
elementcorp.comElement Financial Corporation
Forward Looking Statements
3
Certain information in this presentation is forward-looking and related to anticipated financial performance, events and strategies. When used in this 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’s competitive 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 of Element 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 of adequate 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 reasonable but 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 actual results and experience to be materially different than the anticipated results. Such risks and uncertaintiesinclude, but are not limited to, operating performance, 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, Elementdisclaims any intention and assumes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.
elementcorp.comElement Financial Corporation
Harold D. Bridge (1) (5)
CA, MBA, FCA, CF, ICD.D
Pierre Lortie (1) (4)
BSc. Appl., P. Eng., MBA
Richard E. Venn (1) (2)
Vice-ChairmanBASc, MBA
Paul Stoyan (1)(3)
LLB, ICD.D
Steven HudsonFCA, BBA
Gordon D. Giffin (1)
BA, JD
William Lovatt (1)
ChairmanCFA, FCPA, FCGA
Joan Lamm-Tennant (1)
PHDThe Hon. Brian Tobin (1)
Corporate Governance – Board of Directors
4
Note(1) Independent Board member(2) Chair of the Risk Committee(3) Chair of the Corporate Governance and Compensation Committee
Former Executive Vice President and CFO of Great-West Lifeco Inc., London Life and Canada Life (35 year career with Great-West Life)
Global Chief Economist and Risk Strategist of Guy Carpenter and Company, LLC, the reinsurance and risk advisory operating company of Marsh and McLennan Companies
Chairman of DBRS; Former Senior Executive Vice President at Canadian Imperial Bank of Commerce (40 year career with CIBC)
Chief Executive Officer, Element Financial Corp.; former founder and CEO of Newcourt Credit Group
Chairman, Gardiner Roberts LLP; Corporate board member
Vice Chairman of BMO Capital Markets; former Federal Minister of Industry, Premier of Newfoundland and Labrador and Member of Parliament
Former U.S. Ambassador to Canada; Senior Partner at McKenna Long and Aldridge LLP (Atlanta); Corporate board member
Former senior partner at Deloitte and Touche for 32 years specializing in financial advisory, audit, corporate finance and M&A
Senior Business Advisor at Dentons Canada LLP; previously the President of Bombardier Transportation, Bombardier Capital, Bombardier International and Bombardier Aerospace Regional Aircraft
(4) Chair of the Credit Committee(5) Chair of the Audit Committee
elementcorp.comElement Financial Corporation
market capitalization
$5.8 billion
$7.5 billion
Element at a Glance
5
Offices across North America
• Toronto, ON (Corporate)
• Montreal, QC (Aviation)
• Mississauga, ON (Fleet, Commercial & Vendor)
• Philadelphia, PA (Commercial & Vendor)
• Baltimore, MD (Fleet Head Office)
• Stamford, CT (Structured Finance)
• Chicago (Rail)
Core business verticals
Commercial & Vendor Finance
Aviation Finance
Rail Finance
Fleet Management
total assets
$15.3 billion
$21.9 billion
employees
1,700+
2,700+
June 2015
June 2015 Pro Forma
date
* common shares issued and outstanding at $19.13 (TSX close as at August 13, 2015)
elementcorp.comElement Financial Corporation
Proven Asset Quality
Element is delivering quality asset growth from four proven North American business verticals
Correlation to US Economy
US commercial and industrial activity drives Element’s organic growth in earning assets
Increased Leverage Potential
Increased leverage with lower funding and operating costs drive increased ROE
Fee Income Growth
Growing fee income complements money-over-money returns and drives increased ROE
Investment Highlights
6
Earning Asset Growth
Industry consolidation presents opportunities to acquire quality businesses and asset portfolios
Tax Benefits
Accelerated tax depreciation on rail car assets provides 15+ years of tax deferral on net income
Stable Matched Funding
Deep access to stable funding sources is matched to asset duration, currency and interest rate
Experienced Leadership
Management is very experienced and personally invested in the Company
elementcorp.comElement Financial Corporation
What We Do
We work closely with each of our funding partners in the life insurance and banking industries to align their investment objectives with our lending criteria and origination processes across each of our four business verticals
7
Our Funding Partners Want We Deliver
Finance AssetsMatched for
• Duration
• Currency
• Interest Rate
● Secured lending
● 48 to 60 month amortizing commercial assets
● 40+ year rail assets (to estimated residual value)
● Forward commitments
● Manufacturer remarketing support
● High barriers to entry
● Service differentiation
● Validating investments for annuities, structured settlements and guaranteed savings products
● Alternative asset class not correlated to commercial or residential real estate
● Capital friendly
Element Financial Corporation
Business Verticals
8
Return on Average Earning Assets (quarter ended June 30, 2015)
Portfolio Allocation 49.0% 15.7% 21.4% 14.0% 100%
FinancialRevenue 8.2% 7.4% 8.9% 8.6% 8.3%
Net InterestMargin 6.6% 4.1% 5.8% 5.8% 6.0%
OperatingExpenses 3.4% 1.1% 1.9% 0.8% 2.4%
Net Income Yield Pre-Tax 3.2% 3.0% 3.9% 5.0% 3.6%
AdvanceRate 96.0% 75.0% 85.0% 65.0% 87.0%
EFN CONSOLIDATEDAVIATION FINANCERAIL FINANCEFLEET MANAGEMENTCOMMERCIAL & VENDOR FINANCE
Element Financial Corporation
AVIATION FINANCERAIL FINANCEFLEET MANAGEMENT COMMERCIAL & VENDOR FINANCE
• US$ 3 Billion AAA rated US facility, with $1.1 billion in revolving commitments
• Total combined advance rate in US 96%
• Revolving CAD$ 1.83 billion AAA rated Canadian facilities
• Q2 2015 Secured Debt
• Access to the US ABS market
• April 2014: US$ 340 million
• March 2015: US$ 405 million
• Q2 2015 Secured Debt
• Revolving US$ 0.6 billion US Bank facility
• Combined LifeCo & Bank Commitments of CAD$0.8 billion
• Combined Advance rate in Canada 104%
• Q2 2015 Secured Debt
• US$ 150 million US Bank facility for helicopters
• US$ 128 million S&P rated facility
• Initial advance rate of 80%
• Q2 2015 Secured Debt
Current Funding Facilities
9
billion
$5.3billion
$0.9billion
$1.4billion
$0.3
Senior Line $2.15 B ($0.8 B Outstanding)
elementcorp.comElement Financial Corporation
Financial Performance
10
elementcorp.comElement Financial Corporation
Proven Track Record of Growth- Earning Assets
49.0%
15.7%
14.0%
21.4%
11
Fleet Management
Commercial & VendorAviation
Rail
2011$231.5 million
2012$1.3 billion
2013$3.0 billion
2014$9.7 billion
Q2 2015$11.5 billion
Alter Moneta acquisition
TSX listing
Aerospace team acquired
TLS Fleet Services acquired
CoActiv Capital Partners acquired
Nexcap Finance acquired
EFN added to the TSX Composite Index
GE Capital Canadian Fleet Services acquired
GE Capital helicopter portfolio acquired
Trinity Industriesalliance established
Trinity Industries Alliance expanded
PHH Arval acquired
elementcorp.comElement Financial Corporation
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015
$ m
illio
ns
Rail Aviation Fleet Management Commercial & Vendor
Proven Track Record of Growth- Originations
12
elementcorp.comElement Financial Corporation
Portfolio Quality
13
99.7%
0.30%
Current Past Due
99.4%
0.60%
Current Past Due
Contractual Delinquencies
As a % of Finance Receivables as at June 30, 2014
Contractual Delinquencies
As a % of Finance Receivables as at June 30, 2015
elementcorp.comElement Financial Corporation
(1) Reduction due to additional equity raised for PHH Arval acquisition (4) Convertible debentures as both equity and debt(2) Adjusted Operating Income on Average Earning Assets (5) Convertible debentures as debt only(3) Adjusted Operating Income on Average Common Shareholders' Equity (6) Pro forma leverage excluding capital raises at June 29, 2015 for M&A transaction - 4.6:1
Performing on Plan
Highlights
● 15% growth in per share free cash flow over Q1
● 10% growth in per share operating income over Q1
● Leverage ratio increases to 4.6:1 (excluding additional GE Fleet equity raise / 4.19:1 with GE Fleet equity raise included)
● Pre-tax ROA increases 25 bps to 3.55% over Q1
● Pre-tax ROE increases 125 bps to 12.26% over Q1
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Q12014
Q22014
Q32014
Q42014
Q12015
Q2 2015
Free Operating Cash Flow Per Share
$0.13 $0.14 $0.21 $0.25 $0.27 $0.31
After-tax Adjusted Operating Income per Share
$0.10 $0.11 $0.16 $0.19 $0.21 $0.23
Tangible Leverage (4)
1.81:1 1.53:1 (1) 3.47:1 3.72:1 3.92:1 3.07:1
Tangible Leverage (5) (6)
1.81:1 1.84:1 (1) 4.07:1 4.32:1 4.51:1 4.19:1
Before Tax Return on Assets (2)
3.13% 3.30% 3.06% 3.36% 3.30% 3.55%
Before Tax Return on Equity (3)
7.04% 7.90% 9.69% 10.93% 11.01% 12.26%
elementcorp.comElement Financial Corporation
Fee Revenue Momentum
Highlights
● Revenue mix continues to shift in favour of fee-based income
● All fee components increased over the previous quarter
● Trending to 45% fee revenue/55% spread revenue by year end
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2013 2014Q1
2015Q2
2015
Total fee revenue (1) 28% 38% 40% 42%
Spread revenue (2) 72% 62% 60% 58%
Management fees and other revenueQ1
2015Q2
2015
Fleet management fees $38,586 $39,850
Advisory, syndication & other fees $14,387 $23,060
(1) Management fees and other revenues(2) Interest income and rental revenue, net of interest expense
elementcorp.comElement Financial Corporation
Funding
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Balance Sheet Capacity to Fund Planned Growth
● Committed facilities amounted to $12.8 billion
● At June 30, 2015, the Company had $3.2 billion in available financing to fund ongoing originations
● Committed facilities are supplemented by access to the ABS market to fund both rail and fleet verticals
● Tangible leverage lower due to convertible debt and preferred shares issued on May 29, 2015 in connection with potential M&A transaction
$1 2.8B
3.07X
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
$-
$2
$4
$6
$8
$10
$12
$14
Q4
-20
11
Q4
-20
12
Q1
-20
13
Q2
-20
13
Q3
-20
13
Q4
-20
13
Q1
-20
14
Q2
-20
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Q3
-20
14
Q4
-20
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Q1
-20
15
Q2
-20
15
Bill
ion
s
Cash & Equivalents Senior Facilities
Warehouse Facilities Committed Funding Facilities
Unsecured Convertible Debt
Tangible Leverage
elementcorp.comElement Financial Corporation
Geographic Diversification
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As at and for the three month period ending
Q22014
Q22015
Q2Pro forma GE Fleet
CDA US CDA US Oth. US
Originations 58% 42% 26% 74%
Net Financial Income 59% 41% 29% 71%
Earning Assets 59% 41% 31% 69% 30% 70%
US Commercial & Vendor Originations($ millions)
6494 113
160213 225
259 268
428
Q22013
Q32013
Q42013
Q12014
Q22014
Q32014
Q42014
Q12015
Q22015
+ 60%
Highlights
● US market remains the dominant influence over Element’s originations, earnings and asset growth
● 74% of originations
● 71% of net finance income
● 69% of earning assets
● US Commercial and Vendor originations grew 60% over the previous record quarter
● Post GE Fleet closing, US market represents 70% of earning assets
elementcorp.comElement Financial Corporation
GE Transaction
18
Element Financial Corporation
How Fleet Management Fits
● Stable customer base with high retention rates and strong credit profile
● Very low credit losses with readily saleable collateral with predictable values
● Efficient capital structure with high advance rates
● Disciplined competitors
● High barriers to entry
● Excellent pipeline visibility with stable and growing “annuity like” cash flows and returns
● Expandable sources of high margin fee income provide earnings and increased customer penetration
● Proven cross-selling wins and opportunities
● Platform built to realize consolidation opportunities
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Element Financial Corporation
• Acquisition of GE Capital Fleet Services Canada
• Established in 1987
• Portfolio purchase and strategic Canada / US cross‐border fleet management alliance
• Portfolio compromised of ~650 regionally diversified customers with low turnover
• Acquisition of TLS Fleet Management from Scotiabank
• Established in 1980
• Superior credit experience and fee revenue (40%)
• #3 market share in Canadian automotive fleet
• Acquisition of PHH Arval
• Established in 1946
• Acquisition of U.S. and Canadian assets and operations of PHH Arval
• Acquisition of GE Capital Fleet Services US, Mexico, Australia and New Zealand
• Established in 1987
• Leading North American position
Element’s Fleet Business Consolidation
20
Element Fleet Management - Cumulative Growth in Net Earning Assets (C$ billions)
201520132012 2014
$0.4 $1.0
$5.4
$13.1
Element Financial Corporation
GE Transaction Overview
21
● Element Financial has announced the acquisition of GE Capital’s Fleet Operations in the United States & Mexico and Australia & New Zealand (“GE Fleet”) for C$8.6 billion
● In a related transaction, the sale of GE Capital’s European fleet portfolio to BNP Paribas / Arval strengthens Element’s global fleet management alliance
● Element has been GE’s North American Fleet partner for ~2 years after Element acquired GE Fleet Canada
Operating Regions being Acquired by Element
• North America: U.S. and Mexico
• Australia and New Zealand (“ANZ”)
Transaction Value • C$8.6 billion (including working capital, premium and transaction expenses)
Accretion • ~20% accretion to annual EPS based on fully annualized synergies in the range of US$90-US$95 million
ROE • Annualized ROE expected to reach ~13% by Q4 2016 based on fully annualized synergies in the range of US$90-US$95 million
Leverage • Tangible Leverage of 4.3:1 pro-forma (3.9:1 as of Q1 2015) pursuant to bank covenant and approximately 5.3:1 according to other market convention
Financing • Required equity and equity-linked capital of C$2.7 billion raised in May 2015
• Senior line increased from US$2.0 billion to US$8.5 billion
Credit Rating • Kroll affirms BBB+ rating (stable outlook)
Pro-Forma Assets • Element’s fleet net earning assets to increase to over C$13 billion; total assets to increase to over C$21 billion
Timing • North America expected closing end of Q3 2015; ANZ expected closing Q4 2015
Element Financial Corporation
Leveraging Global Capabilities Post Transaction
22
On closing of the two transactions, the Element-Arval Global Fleet Alliance will be capable of managing customer fleets in more than 40 countries
CANADAMontrealMississaugaCalgaryEdmontonVancouver
USASparksHoustonPlantationDenver
MEXICO
Austria BelgiumBrazil Czech RepublicChina Denmark Finland FranceGermanyGreeceHungaryIndiaItalyLuxembourg Morocco NetherlandsPoland PortugalRomaniaRussia Slovakia Spain SwedenSwitzerland Turkey United Kingdom
AUSTRALIA
NEW ZEALAND
Element Financial Corporation
23.9%
13.1%
23.1%
11.1%
8.7%
8.6%
5.8%
2.5% 3.3%GE Fleet
Element
ARI
LeasePlan
Enterprise
Wheels
Donlen
Emkay
Others (5)
42.9%
31.0%
9.2%
5.6%
4.2%
2.6% 4.5%
Element
ARI
Foss
Pattison
Emkay
Wheels
Others (4)
Creating the North American Fleet Leader
23
● Element is continuing its strategy of consolidating the North American fleet leasing and services industry
Source: Automotive Fleet, 49th Fact Book
Leading U.S. Fleet Lessors Market Share (1)
Source: Automotive Fleet, 2015 Fact Book
Leading Canadian Fleet Lessors Market Share (1)
(1) Converted from AUD to CAD at 0.94
Element Financial Corporation
$5.249.0%
$1.715.7%
$2.321.4%
$ 1.514%
Fleet
Rail
Commercial &Vendor
Aviation$13.874.2%
$1.47.5%
$2.111.0%
$1.37.0%
Fleet
Rail
Commercial &Vendor
Aviation
Attractive Net Earning Assets Profile
24
● Fleet to comprise 74% of Element’s total pro-forma net earning assets
● Element will become the largest fleet company in North America
● Fleet and Rail to comprise over 82% of total pro-forma net earning assets
Element Net Earning Assets (as of June 30, 2015)
Pro-Forma Element Net Earning Assets (as of June 30, 2015)
C$11.5 billion C$18.6 billion
Element Financial Corporation
Shared Strengths - Element & GE
25
● Shared Strengths:
— Deep domain expertise
— Compelling value proposition to “reduce total cost of ownership”
— Robust vehicle acquisition, management and transaction processing technology
— Full suite of fleet management service products, and
— Committed to continuous product improvement
● Element has a deeper strength in Strategic Consulting and Accident Management
● GE Fleet has better analytics and customer reporting tools than Element
● Combined Element Fleet will be the leading North American Fleet Management Company with best in class:
— Fleet management service products
— Customer reporting tools, and
— Analytics and strategic consulting services
Element Financial Corporation
GE Capital Fleet Overview
26
● GE Fleet provides commercial car and truck financing, and fleet management services
— Established in 1987 and based in Eden Prairie, Minnesota
● Core and highly profitable business, but identified as part of GE “pivot” strategy announced on April 10, 2015
● ~740,000 managed vehicles in total (~580,000 excluding Europe)
— North America: ~480,000
— ANZ: ~100,000
— Europe: ~160,000
● GE Fleet’s European business to be sold to BNP Paribas (Arval partner)
(1)
$5.071%
$0.34%
$1.825%
U.S. Mexico ANZ
Net Earning Assets being Acquired (C$7.1 billion)
(1) 50% of Mexican customers are U.S. multinational companies
Element Financial Corporation
Key Metric Element Fleet Management GE Capital Fleet Services US
Total Net Earning Assets C$6.0 billion C$5.0 billion
# of Managed Vehicles ~420k ~450k
% Investment Grade 63.5% 62.1%
Historical Losses < 0.10% < 0.10%
Service Revenue as % of Net Revenue 45% 35%
GE Fleet U.S. Overview
27
Element Financial Corporation
GE Fleet U.S. Overview
28
● The GE Fleet U.S.’s portfolio ratings reflect a very close correlation to that of the current Element Fleet portfolio
● GE Fleet U.S.’s portfolio distribution comprises 62.1% of accounts with public investment grade ratings (BBB- or higher), as compared to 63.5% for Element Fleet U.S.
63.5%
21.7%
14.8%
BBB- or Higher
BB+ to BB-
Below BB62.1%
29.7%
8.2%
BBB- or Higher
BB+ to BB-
Below BB
Existing Element Fleet U.S. GE Fleet U.S.
Element Financial Corporation
Realizable Synergies
29
● Realizable annualized synergies in the range of US$90-US$95 million
— Integration expected to be completed by Q1 2017
● 20% annual accretion; 16% reflected in 2016 and the remainder in early 2017
● Revenue increases: leveraging increased scale and volume in Maintenance, Vehicle Accident Services, Fuel, Remarketing and Vehicle Acquisition and Upfitting
— Service fees from existing single point-of-contact customer service program and new business pricing discipline
● Expense reductions: combining systems and operations-enabling functions to leverage a single best-in-class North American infrastructure
— North American head office and facilities consolidation
— Risk, legal, technology and finance consolidation
— Improved cost of funds
elementcorp.comElement Financial Corporation
Integration
30
● Business to be continued under formal Transitional Services Agreement with GE, similar in breadth and performance to previous transactions
● Formal integration plan is well underway, and will be ready for execution by closing
● Oversight by Credit Committee, Risk Committee and Board of Directors
● Quarterly status reporting (report card to investors)
● Expert 3rd parties to be utilized
● Realizable annualized synergies in the range of US$90-US$95 million
— C$25 million realized on integrating of PHH Canadian operations
— Larger combined technology footprint
— Larger integration opportunities in U.S. as book is ~4x the PHH Canadian book
— Savings from cost reductions, efficiencies and procurement savings
— To be realized over an estimated 12 month period
● Valuable experience acquired from the PHH integration and prior GE Canada integration
● Areas of focus:
— Consolidation of technologies
— Merging of offices
— Consolidate operating structure and management
— Procurement opportunities
elementcorp.comElement Financial Corporation
Improved Balance Sheet Strength
31
● Element’s senior credit facility has been increased from US$2.0 billion to US$8.5 billion through a syndicate of Canadian and international banks
— Extended for a three-year term from the date of closing the acquisition
— Fleet advance rate increased from 90% to 92%, reflecting the high quality of the underlying assets
— Immediate 20bps reduction in funding costs
— Further reduction in funding costs upon Element securing a second credit rating
— Covenant pattern improved reflecting strengthening investment grade credit
— Senior credit facility will be reduced with more cost effective financing over the next 9-12 months
● Kroll affirms BBB+ rating (stable outlook)
— Views the transaction as credit positive
● Balance sheet supports further industry consolidation at the appropriate time
elementcorp.comElement Financial Corporation
Key Takeaways - Transaction Benefits
32
● Acquisition positions Element as the market leader in North America with leading product and delivery capabilities
● Will strengthen global relationship through an enhanced Global Arval offering
● Ability to provide a global solution, alone or in conjunction with partners
● Strengthens a key division of Element’s business and is in line with communicated strategy
● Expansion of “blue chip” client base
● Provides stable, predictable and low risk cash flows with high barriers to entry
● Service revenue on fleet assets allows for enhanced margins while meeting ROA & ROE targets
● Provides significant synergy potential from platform combination and back-office integration
● Under Element's ownership organic growth potential could be expanded
● Provides scale benefits and synergies on costs and revenue
elementcorp.comElement Financial Corporation
Growth Strategy
33
Element Financial Corporation
Growth Drivers
Equipment Investment Annual Growth Forecast
34
Source: Equipment Leasing & Finance Foundation - 2015 U.S. Economic Outlook
-2%
0%
5%6%
8% 8%
10%
12% 12%
14%
16% 16%
-8%
-6%
1%2% 2%
4%
6% 6%7%
8% 8%9%
-10%
-5%
0%
5%
10%
15%
20%
Mining &Oilfield
Equipment
AgriculturalMachinery
Computers MaterialsHandling
Equipment
RailroadEquipment
Software MedicalEquipment
OtherIndustrial
Equipment
ConstructionMachinery
Ships & Boats Aircraft Trucks
10 Year Average High Estimate Low Estimate
Element Financial Corporation
7.37.47.57.67.77.87.98.08.18.28.3
2005 2006 2007 2008 2009 2010 2011 2012
4.64.74.84.95.05.15.25.35.45.55.6
2005 2006 2007 2008 2009 2010 2011 2012
Growth Drivers
35
6.2
6.4
6.6
6.8
7.0
7.2
7.4
7.6
7.8
2005 2006 2007 2008 2009 2010 2011 2012
4.0
4.2
4.4
4.6
4.8
5.0
5.2
5.4
2005 2006 2007 2008 2009 2010 2011 2012
Info Processing Equipment – Average Age
Industrial Equipment – Average Age
Transportation Equipment – Average Age
Source: US Bureau of Economic Analysis
Aircraft Equipment – Average Age
elementcorp.comElement Financial Corporation
Industry Consolidation
36
How the NA Commercial Finance Industry has Evolved since 2008
• Absolute decline in new business volumes and number of industry participants
• Weak participants fail, reorganize or are acquired at opportunistic valuations
• Capex replacement decisions deferred by customers
• Market demand for new equipment financing declines by more than 30% from 2008 to 2009
• Deferred capex spending comes back to the market
• Market demand for new equipment financing expands by +16% per year from 2010 to 2012
• Regulated participants remain constrained from acquisitions
• Balance sheets restored to health
• Experienced new participants funded with private equity and public markets
• Little bank liquidity provided to the industry
• Banks and pension plans able to acquire and provide liquidity to the industry
• Market demand for new equipment driven by US economic expansion
• Manufacturer expansion requires optimized capital allocations
• Strong buyers meet strong sellers to drive economies of scale
• Banks and pension plans begin to acquire commercial finance companies (e.g. CIT; Huntington)
• Specialty finance companies seeking economies of scale (e.g. GATX/GE boxcar fleet, Bohai Leasing/Cronos, AerCap/ILFC)
2008 - 2010 2011 - 2013 2014 - PRESENT
Retrenchment Renaissance Consolidation
elementcorp.comElement Financial Corporation
Drive Fee Income Growth
● Lease revenues add “stickiness” due to lease term
● Service revenues add “stickiness” due to value created from consultation and demonstrated savings
● Element Fleet fee vs. finance revenue mix at 45%
● GE fee vs. finance revenue mix is less penetrated at 35%
● Newer service offerings include telematics, tolling and violations processing
● Service offering enables access to the large untapped segment of the self-funded/managed fleets
37
Fleet Management
Service Fee RevenueLicensing, Fuel, Accident,
Remarketing, Maintenance, and Other
Lease Revenue
Element Financial Corporation
Opportunity for Further Value CreationTr
adin
g M
ult
iple
/ M
arke
t C
ap
Increasing Scale, Capabilities, FundingPristine Balance Sheet and Growth in
High Margin Service Fee Revenue
Well Diversified Traditional Leasing Company
Opportunity to grow high margin service fee revenue
Consolidation of North American Fleet with Continued Strong Presence in each Vertical
Pro-Forma GE Fleet Transaction
Value creation from scale effects / synergies
Driving Higher ReturnsGrowth in high margin
service fee revenue and platform to pursue
additional consolidation opportunities
Leading North American Leasing Company
Fleet, Rail, Commercial & Vendor and Aviation
38
elementcorp.comElement Financial Corporation
Thank you
39