Centrepoint Alliance Limited (CAF) Earnings Call Transcript & Summary

Good morning, everyone. My name is Alan Fisher, and I am the Chairman of Centrepoint Alliance Limited. And on behalf of the Board of Directors, it is my pleasure to welcome you all to our first virtual Annual General Meeting of Shareholders for 2020. As there is a quorum present, I declare the 2020 AGM of Centrepoint Alliance Limited open. The app that you are logged in to allow shareholders, proxy holders and guests to virtually attend the meeting. All attendees can watch a live webcast of the meeting. In addition, shareholders and proxy holders have the ability to submit questions and vote. Questions can be submitted at any time. [Operator Instructions] Please note that while you can submit questions from now on, I will not address them until the allowable time in the meeting. Please also note that your questions may be moderated or if we receive more questions on one time and all related together. Finally, due to time constraints, we may run out of time to answer all of your questions. If this happens, we will answer them in due course via e-mail or on our website. In the event that I am disconnected from the meeting and cannot immediately rejoin due to technology failure, Georg Chmiel will assume the role of Chair of this meeting. Voting today will be conducted by way of a poll on all the items of the business. In order to provide you with enough time to vote, I will shortly offer voting for all resolutions. At that time, if you are eligible to vote at this meeting, a new polling icon will appear. Selecting this icon will bring up a list of resolutions to present you with voting options. To cast your vote, simply select one of the options. There is no need to hit a submit or enter button as the vote is automatically recorded. You do, however, have the ability to change your vote up and until the time I declare voting closed. I will now declare the voting open. I would like to introduce you to the directors of the Board: Martin Pretty; Georg Chmiel; and Alexander Beard; and our CEO, Angus Benbow. In addition, we have senior management in attendance as well as the company's auditors, Deloitte Touche Tohmatsu, represented by Partner, Jon Corbett and Senior Manager, John Rogerson. They will be available to take questions on the audit report later in the meeting, if so required. Angus Benbow and I will help provide a company update prior to commencing the formal business of the meeting. Over the past 12 months, Centrepoint Alliance, as a leading provider of licensing, advice, business services and technology solutions for Australian financial advisers, has felt the ongoing structural changes within the financial services industry. Like many businesses today, the COVID-19 pandemic has also impacted on our business. However, we have mitigated the impacts as well as could be expected, given our move away from provider rebates to a fee-based revenue model, which is both scalable and recurring. This decision, taken a few years ago by the company, has given us a first-mover advantage during a time of industry disruption. Making this change has allowed Centrepoint Alliance to grow our reputation for leadership and integrity during a pivotal time. Adoption of this new payment structure has been well received, and we have retained nearly 83% of advice firms over the past year, which is a great result, particularly given the operating environment in the second half of the year. We have also welcomed nearly 80 new advisers to our ranks, and that number exceeded our record achieved the previous year by 16%. We increased our licensed adviser base by 6% to 317. This was achieved despite a 13% contraction of advisers in the market during the financial year. Centrepoint Alliance achieved an 11% increase in gross revenue during F '20 and earned a second half gross profit of $1.1 million. In parallel, management expenses were reduced by 7%, demonstrating our commitment to creating value for shareholders. We believe these achievements validate our strategy and underline the success of Centrepoint Alliance as it focuses on its core business of providing much-needed services to financial advisers. We are pleased with these results midway through a 3-year strategic refresh of our operations. We will continue to look at ways we can optimize the business to provide the services that our clients need and provide them in a way that generates revenue and achieves the level of performance that our shareholders expect over the years to come. To complement our improved business model and optimize performance, we continue to invest in technology to help us extend our offering to financial advisers. This included our acquisition of leading financial planning software solutions provider, Enzumo, just prior to the end of the financial year. This was part of the strategic refresh I mentioned earlier and accelerates our ability to deliver a scalable, recurring revenue model. The acquisition of Enzumo has helped Centrepoint Alliance to grow its adviser base, further increase our recurring revenue and add to the value we offer to our clients through Enzumo's capabilities in implementing Xplan, which is an industry-leading software platform for the financial planning and wealth sectors. Acquiring Enzumo was a natural fit for Centrepoint Alliance, given our shared culture of providing services and support to financial advice firms to allow them to share that knowledge with their clients. Acquiring this business allowed Centrepoint Alliance to more directly meet rising demand for technology support services from both authorized representatives and self-licensed businesses. The integration of Enzumo is now complete, and we have already seen success in going to market with a joint offering for Centrepoint Alliance licensed services and an Enzumo advice technology to a large wholesale licensee client. We look forward to delivering this improved service to our new and existing clients. We continue to assess partnerships and other acquisition opportunities as well as looking at ways in which we can deliver stronger financial results and enhanced shareholder value in the years ahead. We finished F '20 with a strong balance sheet, with a closing cash balance of $12.2 million, representing a 54% improvement on the previous year. Looking ahead to FY '21, we will continue to execute our plan to attract high-quality finance advice firms and individual advisers to our ranks to help ensure the financial services industry continues to provide the very best service to its many clients. We will also actively explore consolidation opportunities, which is a fragmented industry, but one which continues to improve and strengthen. I will now hand over to our CEO, Angus Benbow, to provide an operational overview of the year and the company's outlook for the year ahead.

Thank you all for your time today. As Centrepoint Alliance's CEO, I would like to give an overview of our business and our achievements during the past financial year and also provide some insight into our plans for the year ahead. As you may be aware, Centrepoint Alliance provides technical, compliance and business management support to financial advisers across Australia. We provide our services to more than 160 self-licensed financial advice businesses as well as about 320 individual advisers who utilize our license, and this totals over 1,000 advisers throughout Australia. These advisers in turn provide advice to thousands of businesses and individuals seeking advice on personal and business-related financial matters. We see ourselves as well positioned to take full advantage of strengthening tailwinds for the advice industry. These include ongoing industry dislocations, which are prompting a flight-to-quality licensees, new technology which empowers us to deliver services at scale, new market opportunities emerging and an Australian community in which demand for financial advice remains strong. We are proud of our points of difference, which add value both for advisers and investors. Our capital flexibility and strong cash balance positions us to take advantage of growth opportunities. And we have grown to attract the largest network of financial advisers outside of IOOF and AMP. We remain focused on providing our adviser community with autonomy and flexibility, along with industry-leading advice and governance support as well as advice [Audio Gap] a relative winner compared to our peer group as the impact of the Royal Commission and COVID-19 have blown winds of change through our industry. During the past 12 months, our services have included more than 60 education webinars and master classes, 6,500 coaching interactions and providing advice on more than 10,000 advice technology inquiries and 4,000 technical or regulatory inquiries. This level of interaction demonstrates our focus on creating a community for our members and providing them with the support, services, technology solutions and opportunities that allow advisers to deliver the best quality advice to their clients. We provide tools and technologies and offer in-house technical, research and professional standards experts to this community, and this means that our members can provide the very best service to their clients. Back in the second half of 2018, we set about implementing a new strategy under the banner of Strategic Refresh, repositioning the business to ensure we could offer a full suite of services to our members. This suite encompasses governance and compliance, advice tools, technology and services, business management services and support, client growth templates, guides and methodologies. This strategy was designed to help us more deeply engage with our member base and grow this community to ensure that we remain the leader in the field. As part of this strategy, we transitioned to a fee-for-service model that sees advisers pay service fees for accessing our services and support. More than a year on from implementing our new revenue structure, FY '20 saw us achieve a large increase in adviser fee revenue, which increased 61% to $10 million. The average annual adviser fee also grew substantially to $33,000, up 75% from the prior year. We expect these subscription fees to bring revenue that is substantially recurring in nature, given that the advisers in our network have an average tenure of 11 years, underpinning the resilience of our new service model. We will continue to transition existing self-licensed firms to our new fee structure progressively through FY '21. In other key results for FY '20, Centrepoint Alliance posted gross revenue of $131 million, an increase of 11% year-on-year. This was led by our strong growth in new advisers and an increase in the average gross revenue per advice firm. Our ability to reduce management expenses by 7% during the year was notable given the uncertain environment created by the COVID-19 pandemic. This was achieved mostly through reducing employment costs and reductions in travel and marketing. Our cost-to-income ratio reached a 3-year low of 78% in second half '20 through disciplined cost and execution management. This is really important in enabling us to achieve sustainable growth in years to come, and we plan to continue this disciplined approach to maintain our cash position. Due predominantly to an increase of $3.4 million in legacy claims in FY '20 to lodge ahead of the extension, the Australian Financial Complaints Authority's jurisdiction closed out on the 30th of June 2020, our net loss before tax was $2.2 million. However, the AFCA window on legacy claims is now closed, and we expect that all legacy claims have now been lodged. We look forward to resolving the $3 million in legacy claim provisions on our balance sheet as of 30th of June 2020. Despite these challenges, we achieved positive EBITDA of $0.1 million in FY '20. Removing legacy claims, this would have been $3.7 million. So I'm encouraged that our strategy has put us on a path for improved performance in years ahead. As mentioned by Alan, we finished the year with a strong cash balance, which will empower us to grow quickly and take advantage of new opportunities in the year ahead. I am proud of what we have achieved over the past year, given the economic and operating difficulties and uncertainty many businesses have faced. As we look to the future, we see new opportunities. While our customer base is strong and growing, Australia has a licensed financial advice market of more than 16,000 advisers with an addressable revenue pool of about $800 million in licensee fees. We want to leverage our reputation for leadership and offer the very best services by tapping further into this market, allowing us to gain further scale. In FY '21, we plan to attract more advisers to our services, either as individuals or self-licensed firms. We are continuing to explore opportunities for industry consolidation and further acquisitions to build and enhance our services and customer base. Given what we've achieved in a challenging setting of FY '20, I feel we are well placed to achieve our targets and look forward to providing updates on our progress throughout the coming year. I thank you for your time today and your interest in Centrepoint Alliance. Alan and I will now address any questions.

Thank you, Angus. I'll just check out to see whether we received any questions from shareholders. Marty?

Yes, Mr. Chairman, we have. We have received the following questions. Considering the cash balance of $12.2 million, would the company consider an on-market buyback or equal access offer market buyback like that of Easton?

Thanks, Marty. Yes. Well, we're just at the moment, given the -- what's happening in the marketplace with the changing environment, we are looking at opportunities both organically and inorganically to grow. And at the moment, if we consider we do have surplus cash flow, then we'll obviously look at that opportunity. Any other questions, Marty? Hello, Marty? I think you're on mute. Hello?

I'm sorry, Mr. Chairman. No other questions.

All right. Thank you. Thank you. It's a slight technical hitch. Okay. Well, thanks, Angus and Marty. We'll now move to the formal business of the meeting. The notice of meeting has been circulated to shareholders, and copies have been made available to those attending today. So if there is no objection, I'll take the notice of meeting as read. The agenda items of the meeting are shown on the screen. Where a vote is required on a particular item, the valid proxies received in advance of the meeting for the proposed resolution will be shown on the screen to enable shareholders to view them as each item is considered. These figures may be varied if the shareholders submitted their proxies attending the meeting today and as they provide their proxy. I will address each resolution and any questions received in respect of each resolution during each item of business. I note that as Chair, I intend to vote undirected proxies held in favor of each resolution. The first item of business is for shareholders to receive and consider the 2020 Annual Report, which contains the financial statements of the company for the year ended 30th of June 2020, together with the directors' statement and report and the auditor's report on those financial statements. The 2020 Annual Report has been published and was circulated to shareholders in October 2020 and is available on the company's website. I trust everyone has had an ample opportunity to [ consider ]. No shareholder vote is required in relation to this item of business. If there is an appropriate time to raise any questions on those reports, or on our business in general, to raise them now. This is also the appropriate time to raise any questions you may have on the auditor, which are relevant to the conduct of the audit, preparation and content of the audit report. Marty, have we received any questions in respect to this item of business?

No questions, Mr. Chairman.

Okay. Thanks for that. There being no further questions, we'll move on to the next item. The next item of business is the adoption of the remuneration report for the year ended 30th of June 2020. The motion before the meeting is to consider and, if thought fit, pass the following resolution in accordance with Section 250R(2) of the Corporations Act, that the remuneration report for the year ended 30th of June 2020 be adopted. The remuneration report is contained within the company's 2020 Annual Report. The voting on this resolution is advisory only and does not bind the directors of the company. The proxy details are displayed. As you can see, proxies have been appointed for over 7% of shares on issue and over 10.5 million shares, 90% of proxy votes, have been voted in favor of the resolution. I would highlight that in accordance with the Corporations Act, no votes may be cast on this resolution by or on behalf of a member of the company's key management personnel or their closely related parties. I refer to these people collectively as prohibited voters. A prohibited voter may vote directed proxies where they do so for another person who is not themselves, a prohibited voter. As Chairman, I may also vote undirected proxies for a person that is not a prohibited voter in accordance with my stated voting intention to vote all available proxies in favor of this resolution. For the purposes of this resolution, a prohibited voter includes a member of key management personnel named in the remuneration report. Marty, have we received any questions on this item of business?

No questions, Mr. Chairman.

Okay. Please submit your votes in respect of this resolution. [Voting]