Nikolaus Priebe

Nikolaus Priebe from CIBC World Markets asked about any dialogue between Clarios and the IRS regarding its 2024 tax filing and the expected timing for receiving the cash credit. He also inquired about the early impact of the higher mortgage insurance cap on Sagen's transactional premiums.

Answer

CFO Jaspreet Dehl responded that the Clarios tax filing is progressing in the normal course and that the company remains confident it will receive the payment, noting anecdotally that others in the industry have received payments. She also confirmed that regulatory changes, including the increased cap and extended amortization periods, drove a significant increase in Sagen's transactional volumes from first-time homebuyers.

Nikolaus Priebe asked about the potential evolution of vehicle electronic architecture away from 12-volt systems and how Clarios is positioned for that shift. He also inquired about the timeline for converting the recognized Inflation Reduction Act (IRA) tax credits into cash.

Answer

Mark Wallace, CEO at Clarios, explained that vehicles will continue to need low-voltage systems (under 60 volts) for subsystems and functional safety, leading to multiple energy storage devices per vehicle rather than a single high-voltage network. Jaspreet Dehl, CFO, stated that the business is filing its 2024 tax return based on finalized regulations and expects to receive the cash from the tax credits shortly after filing in Q1.

Nikolaus Priebe sought confirmation that CDK Global would not require a capital injection from BBU, asked about insurance coverage for potential litigation, and questioned if Clarios's full-year U.S. GAAP EBITDA would surpass $2 billion.

Answer

CFO Jaspreet Dehl confirmed that CDK is self-sufficient, generates strong free cash flow, and will not require any downstream capital from BBU. She stated that while the business has cyber insurance, it is unlikely to cover potential litigation. Regarding Clarios, she indicated that full-year EBITDA should be 'at and about $2 billion,' pending final Q4 performance.

Nikolaus Priebe inquired about the potential impact of global trade disruptions, particularly between the U.S. and China, on Poseidon Corp.

Answer

Peter Clarke, President and COO, stated that Fairfax is confident in Poseidon's prospects due to its long-term, fixed contracts and new production. He conveyed that Poseidon's management does not anticipate tariffs or economic uncertainty to have a significant effect on the business, highlighting the security provided by these locked-in contracts.

Nikolaus Priebe inquired about the potential impact of global trade disruptions, particularly between China and the U.S., on Fairfax's investment in Poseidon Corp. He asked if lower shipping demand could negatively affect charter rates at renewal and the residual values of its container ships.

Answer

Peter Clarke, President and COO, expressed confidence in Poseidon's outlook, emphasizing its long-term fixed contracts and new production. Clarke relayed that Poseidon's management does not anticipate tariffs or economic uncertainty to have a significant effect on the business, highlighting the advantage of its locked-in contracts.

Nikolaus Priebe inquired about Fairfax's potential exposure to two high-profile events that occurred after quarter-end: Hurricane Beryl and the CrowdStrike-induced IT outage.

Answer

Peter Clarke, President and COO, stated that the company expects very little impact from either event. He characterized Hurricane Beryl as an attritional catastrophe loss for Q3 and noted the CrowdStrike event's impact was mitigated by a quick corrective patch and policy waiting periods, making it unlikely to be a material event.

Nikolaus Priebe inquired about Fairfax's potential exposure to recent high-profile events, specifically Hurricane Beryl and the CrowdStrike-induced IT outage.

Answer

Peter Clarke, President and COO, stated that Fairfax expects very little impact from either event. He characterized Hurricane Beryl as more of an attritional catastrophe loss for Q3. Regarding the CrowdStrike outage, Clarke noted that while it will mostly impact business interruption policies, the quick corrective patch and policy waiting periods of 8-12 hours are significant mitigating factors. He concluded that the company has received only precautionary notifications and does not believe it will be a material event.

Nikolaus Priebe of CIBC Capital Markets asked about the strategy for U.S. index inclusion, specifically whether a change in incorporation from Canada would be considered for S&P 500 eligibility. He also questioned how a change in the U.S. tax treatment of carried interest would affect compensation structures.

Answer

CFO Hadley Peer Marshall stated that recent changes, like moving the headquarters to New York and the share exchange, position the firm well for broader U.S. index inclusion without needing to change its Canadian incorporation. President Connor Teskey responded on carried interest, explaining that since the business is global with varying tax treatments worldwide, a change in U.S. policy would not alter their global compensation approach.

Nikolaus Priebe of CIBC World Markets questioned the potential impact of U.S. regulations on cash sweeps on the Corient business, the possibility of refinancing other debt series like the 2030 notes, and whether higher CapEx was tied to the RIA office consolidation project.

Answer

Executive Kurt MacAlpine asserted that cash sweep regulations are 'not relevant' as Corient is a fee-only RIA operating under the fiduciary standard. He confirmed that refinancing the 2030 notes is an option they will continue to monitor. He also explained that higher CapEx was indeed related to the real estate build-out for office consolidations, which will create a temporary headwind from amortization as the new spaces come online.

Asked for details on Canadian retail outflows (balanced funds vs. cash products), the reason for Q1 being a seasonally slow quarter for CI, and the company's future dividend policy.

Answer

Outflows were more heavily weighted towards balanced funds. Q1 is historically slower for CI as it doesn't benefit from bank-driven or insurance platform-driven RSP season flows. The current dividend is firm, but buybacks are the current priority for capital allocation over dividend increases, though this is dynamic.

Nikolaus Priebe asked for a breakdown of the drivers behind Canadian retail outflows, specifically the relative impact of balanced fund redemptions versus cash products. He also questioned the characterization of Q1 as a seasonally slow quarter and inquired about the company's forward-looking dividend policy and any target payout ratios.

Answer

Executive Kurt MacAlpine clarified that redemptions from balanced funds were more impactful on both assets and economics than those from cash products. He explained that Q1 is historically a lighter flow quarter for CI Financial as it lacks the in-branch presence of banks or the large retirement platforms of insurers that benefit from RSP season. Regarding the dividend, he affirmed commitment to the current level but stated that share buybacks are the top capital allocation priority at the current valuation, with no fixed payout ratio target.