Acquisitions and organic growth bolster Hub’s revenue

The first six months of 2005 culminated to a sharp rise of 37% in revenue to US$112.7 million from US$8.2million a year earlier, for Hub International Limited (TSX:HBG), reflecting both the benefits of acquisitions and strong organic growth.

The Company’s net earnings declined, as expected, due to the impact of a non-cash stock based compensation charge resulting from the 2004 acquisition of Talbot. Second quarter net earnings decreased 63% to US$4.3 million from US$11.6 million a year earlier. Excluding the Talbot charge and foreign currency effects, net earnings increased 11% to US$12.6 million.

Despite a declining rate environment, Hub continued to build revenue organically, posting an organic growth rate of 7% or 4% when foreign exchange benefits are excluded. Organic growth, which includes net revenue increases for businesses owned at least 12 months, was 3% in the United States and 13% in Canada. Excluding the impact of foreign exchange gains, contingent commissions and other income, Hub’s core commissions improvement in organic growth rates, rising to 3% in the second quarter of 2005 from -2% in the fourth quarter of 2004.

Canadian revenue increased 8% to $34.1 million from $31.5 million, including the impact of acquisitions, divestitures and foreign exchange. Organic growth of 13% in both revenue and core commission income included a benefit of nine percentage points from a stronger Canadian dollar.

Cash compensation expense increased 46% to US$61.4 million from US$42.1 million a year earlier and rose to 55% of revenue from 51% in the second quarter of 2004. The increase in compensation relative to revenue reflected higher compensation expense ratios at Talbot, acquired July 1, 2004. However, the company also experienced excessive compensation ratios in hubs that have failed to meet their budget projections and operating ratios. Non-cash stock based compensation rose to US$10.7 million from US$1.7 million in the second quarter of 2004, largely due to the Talbot charge of US$8.7 million.

For the first six months of 2005, revenue increased 45% to US$234.4 million from US$161.6 million. Organic growth was 8% for total revenue and 5% for core commissions. Foreign exchange effects added three percentage points to revenue growth rates in the first half.

Canadian revenue increased 11% to US$68.7 million from US$62.1 million, including the impact of acquisitions, divestitures and foreign exchange. Organic growth of 15% overall and 12% for core commissions included a benefit of nine percentage points from a stronger Canadian dollar.

Cash compensation expense increased 51% to US$125.3 million in the first half of 2005 from US$82.8 million a year earlier, rising to 54% of revenue from 51% in 2004. Higher relative cash compensation ratios at Talbot and in some other hubs were partially offset by the benefit of higher contingent income.

Non-cash stock-based compensation rose to US$19.7 million from US$3.3 million, including US$15.9 million for the Talbot charge. Absent the Talbot charge, non-cash stock based compensation increased 13%.

Net earnings decreased 2% to US$20.7 million from US$21.2 million a year earlier. The decrease in net earnings resulted from the Talbot charge, offset by higher contingent income, forgiveness of debt on a loan from an insurer and gains on disposal of assets.