Centrepoint Alliance Limited (CAF) Earnings Call Transcript & Summary

So we've got Centrepoint Alliance CEO, John Shuttleworth; and CFO, Brendon Glass. I'll pass you across a moment to John to kick off our discussion of the company's half year results. We'll have a presentation today followed by an opportunity for Q&A. If you'd like to ask a question on the call, please type it into the Q&A panel in your Zoom app. So to kick things off now, I'll hand across to Centrepoint Alliance, CEO, John Shuttleworth, Go ahead, John.

Yes. Thanks, Tim, and thanks, everyone, for dialing in to our first half results. I know it's a busy time for you, and many of you are dialing into other earnings calls. What we're trying to do is give you a really good flavor for how the business is performing. I think just over 15 minutes, we should be able to cover most of the key areas. The approach that we want to take today, I'm going to go through some of the business results and the strategy, but the lens I want to put on as we're taking you through the results, it's we hit the anniversary date of the ClearView advice acquisition in November last year. So, we're sitting here in 14 months after operating the business. We'll give you an update on how the half has performed, but we really want to also demonstrate fundamentally how this business has changed and how it's a much stronger business. So, with that, I'll just take you through some of the business results. The key message is really coming out of this is the 14 months post the figure price acquisition, we have a much stronger business and feel that we're very well positioned for future growth. We've got a management team that have demonstrated their ability to integrate M&A and drive our and extract synergies. We've had a really disciplined approach to capital management and the successful sale of noncore assets. We have been paying consistent dividends. And we've had good shareholder alignment whilst increasing our balance sheet strength. One of the things we're very focused on is commercial financing strategic issues and revenue adjacencies. [indiscernible] adjacencies I'm referring to other services we can distribute to our advisers, services that they need to procure. So, we're spending a lot of time on those some of the things I can talk about other things as we're bringing closer to launching those in the market. I'll be able to provide you with some more information. We're obviously very well positioned to capitalize on M&A opportunities in this current environment. A quick snapshot of the results, and Brendon will take you through some more detail, but gross revenue $13.38.8 million or 41% EBITDA, and this is normalized excludes the sale of the venture funds business was $3.8 million, up $143 million or 52%, gross profit of 16.4%, up 2.3% or 16%. The profit before tax of $3.7 million included proceeds from the sale of Venture. That was up 2.8% or 300%. Some of that was organic and obviously, some of that attributable to the profit. We had just over $15 million in cash in the bank, up slightly on the June period. And in terms of dividends, there's a 0.5% ordinary dividend, and we're also distributing some of the process of the sale of the insurer funds with another 0.5% special dividend, taking the total to $0.01. When you think about our business over the last 14 months, we acquire a business, and the most important thing is that you can really end up merging with a well-managed business. So, our focus over the last 14 months has really been how do we make sure we embed a consistent operating model with standard kind of business processes and standardization amongst the teams. We brought together 2 different pricing models with ClearView and the Centrepoint Alliance [ Alliance when compared ] has pricing where we now have uniform pricing. Pleasingly, we've seen a very strong service level improvement back to pre-acquisition levels, which is a really important thing to us. We are a service company. We've seen increasing adviser satisfaction. We run a Net Promoter store survey. We've introduced that. We go through that in detail, and we're plus 24%, which was up from [indiscernible] from the last survey in the numbers, we've had good adviser retention in a year that [ fazier ] has seen some advisers exit the business and just a real disciplined approach to expense management. We've called out here just a few metrics on the next slide, I've got a bit more detail, but you can see our gross profit, the 3 columns and the intention of showing this is, the first comes pre-acquisition. And it just sets a bit of a baseline, the middle column shows the first half FY '22, which was really a transitional period. There was a couple of months of preview data. But then you can see the first half, [ we'll do ] whether data is now normalized as we're running the business. So gross profit of 16.4%, pleasingly, EBITDA of $3.8 million. And when you look at the overhead number, I think one of the highlights in the results that we have absorbed and extracted synergies. So, we've managed to contain our overheads kind of effectively as we've worked through the business. There's a bit more data. I won't go through every single metric here, but there's a few call-outs. The EBITDA margin, you can see has increased. Pleasingly, the recurring revenue percentage, 95% is very pleasing. At the bottom of that revenue profile line virtual services, what virtual services are -- is we have [ licensee ] fees that we derived, but we sell other services to the adviser network. And this is the power of the network. Many advisers need power planning and virtual assistance support and some of the self-licensed other compliance services. So, we're really focused on building up that revenue stream. And the cost to income ratio has come down, obviously, as we've got more scale and manage the overhead. Overall, I think when you look at the pre-acquisition, the period of integration, where we've emerged, we certainly feel very positive about being in a strong position. I wanted to share this slide, and it shows the top 10 licensees and it includes advisers under the existing license. So, it excludes self-license. So, if you take our business, for example, we've got just under about 800 or 770-odd self-licensed advisers. So, it excludes that. It's just advisers operating under our license. But what we've done is we've taken a 2-year snapshot to say, well, what actually happens. So, you can see the number of authorized reps in the first column and some point is rank number 3. You can see what have been the appointments of new advisers under that license, what have been the resignations and what have been the net change. And as you run through the numbers, you can see that having absorbed an acquisition to be in the strong position that we're in and having retained advisers despite face and everything that has gone on. We're in a very strong position relative to our peers, and it's something we're incredibly proud about, thankful for network for their support and loyalty to the group. Our strategy, and this is a slide we've shared previously, and I'll just go through it and nothing has changed with our focus. It's all about execution, implementation. So, the first objective is we still want to grow the number of licensed advisers. And we continue to look at our organic growth. We've got a very strong pipeline, and we hope to see some further appointments over the next 6 months because there's some new advisers will advance in the pipeline. But again, making sure we have quality firms only. Self-license is a really important strategic area for us. We have a strong footprint with 194 self-licensed firms and there's around 770 advisers. We're expanding the debt-service, digitizing the service provision. So, you're going to expect to see a whole relaunch of that particular area coming up. And hopefully, that's something we can talk about at the full year update. The salary channel is important and remains profitable for us. It's really about can we find a corporate ties firm that we can absorb and we're also doing a lot of work, which also has reciprocal benefits for our advisers and investing in some of the digital advice technology to improve the efficiency of a process. I've got a slide coming up in a minute on the lending solutions. So, we, as you know, we've trying to grow the aggregation business that we've also launched last year, Lending as a service. So, I'll give you a bit of an update on that. But that still hasn't got [indiscernible] by [ mid-term ] And then the whole asset management, whilst we sold the venture funds business, the focus is very much around launching SMAs. We'll also be looking at NPAs in the market and really expanding our investment management business. We're well advanced with discussions to get distribution with some of our partner platforms of those managed accounts. And then really, I won't go through it, but we've got really strong foundations to support that. A quick update on the Lending as a Service. So just to remind everyone on the call -- Our core business was -- We're a boutique aggregator, and we have all the infrastructure. So, we have a credit license, loan application platforms, leading panels. We have all the infrastructure [indiscernible] $3 billion loaning book. In September, we launched Lending as a Service. And what we're doing is we're enabling advisers to build a lending business, and they can operate as authorized reps under our credit license. Obviously, it was launched in the back half of the year. We had some initial [indiscernible] coming on, and we're now seeing better momentum and we're really thinking out. We've got 17 firms that have signed up and participating and a big pipeline of future firms. 17 out of 535. We believe we can really penetrate that base. We've settled around 35 loan sets, total settlement and pending settlements, and we have a strong pipeline. Really pleasing when you launch a new product is the strong feedback we're getting from those early adopters of the service. And there's a couple of points there about just wouldn't hesitate to recommend and the time that interest rates are going up, providing lending services and helping advisers, through clients is certainly something that we're very, very focused on. So that's a quick snapshot of the business. I'll come back with after Brendon's some of the financials with an outlook. But I'll just pass on to Brendon now to take you through a bit more detail on the financials.

Thank you, John. Looking at the financial results summary and the key themes under keynotes. Our gross revenue of $134.3 million was principally driven by the ClearView Advice acquisition as well as organic adviser fee growth. Our gross profit had similar to that in terms of that 16% upward as well as some offsetting investment margin runoff. Our management expenses are up 9% on PCP, which is due to principally $800,000 increase in employment as a result of the acquisition. The cost-to-income ratio has improved to 77% on the back of that gross profit increase and the carried over [ SNMs ], which we realized in the second half of last year. Our EBITDA of $3.8 million is up 52%, excluding LTI, the one-off transaction costs from ClearView on the asset sale of Ventura. And that's mainly driven by the [indiscernible] advice gross profit inquiries and that organic license fee growth I mentioned. [ Profit ] before tax of $3.7 million. It's up $2.8 million on PCP of which $1.5 million is a one-off from the asset sales. Now, looking at the revenue and expense analysis in a little bit more detail on the revenue side. Our adviser fees have grown by $0.5 million for the period. That's on the back of more recently acquired advisers, being transitioned to a full rate card. We've had a reduction in investment margin revenue of $1.3 million, which is attributed to $750,000 in CFS platform rebates, which ceased in June 2022. That's $200,000 in Venture sales, which are no longer attributed on the back of the sale of the business as well as $200,000 in lower [ BMF ] margin. Our ClearView Advice acquisition revenue has increased by $3.5 million. Now, we had 6 months of combined earnings for this half as opposed to 2 months for the half in FY '22, the first half FY '22. From an expense perspective, the expenses were up $1 million or 9%. They were driven by employment costs of $800,000 or 10% increase due to 7 FTE for the period. Now notably, the Clearview Advice revenue contribution for the period was $5.2 million. So, that clearly demonstrates the scale derived from the acquisition. Subscriptions are up $200,000 from the acquisition on the back of advisers increasing to over 500 advisers. The professional fares were down $100,000 due to the cessation of expenses from the venture of sale, and our travel marketing and other costs were up 5% due to the resumption of spending once the Covid pandemic restrictions were lifted. Looking at the balance sheet as of 31 December 22, our cash of $15.4 million was up 700 on June 20. That sure a $2.9 million in net cash from operations and somewhat offset by over the [ $3 ] million in dividends paid in the half. Our claims revision at the end of December, we had 16 open claims in comparison to 11 open claims at the end of June '22. So, still very manageable and acceptable number of open clients. Our net assets increased primarily due to $3 million in net profit after tax for the first half, offset by [indiscernible] unpaid. Now looking at the cash movement for the half in a bit more detail. The growth of $700,000 for the period was principally driven by $3.8 million in gross cash from operations. We had $400,000 in final one-off transaction costs for the ClearView acquisition. We reduced accounts payable by $3 million for the period, which is principally adviser payments, which is a timing matter. We derived $1.5 million, as we've mentioned, from the venture asset sale, and we -- there was no going up $2 million for dividend stake. And then we had $0.5 million in outgoing to other items, that's largely made up of rents and lease [indiscernible] payments of the 300,000. Looking at the balance sheet snapshot and the trajectory business in the last 2 years, you can see the robust balance of $15.4 million without debt and the [indiscernible] left to replenish to $9 million on the back of improved operating profit. Loan redemptions from the [ Neos ] loan, which was repaid in the last financial year, the noncore asset sale in [ Shellac ], and that's enabled $8.8 million of 40 [indiscernible] dividends to the return to shareholders in the last 2 years. We still have $12.5 million in [ tanker ] credits available. And in the last 2 reporting periods with the combined business with delivered dividend yield of circa 6%. You can also see earnings per share growth. And in the reported period for this first half, we've seen double-digit return on equity. So where the business at the moment where we've got gross revenue running at $134 million for the half and circa [ $270 ] million annualized. The ECL to gross revenue ratio is just 0.01%. So that reflects the normal credit risk in the business and the fact that we receive our cash upfront for earnings. The clients' payments have pleasingly continued to reduce. So, for the first half of F '21, we paid out in claims, $900,000. And in the first half of this financial year, we paid just $100,000, which is a low. So over to you, John.

Thanks, Brendon, for that update. The final slide I wanted to just give everyone a bit of sense of what are we seeing? How does it feel? Previously, we're feeling incredibly positive about where the business is at. We've got strong financial performance, having got through integration, got the uniform operating model and what we have tried to demonstrate in this brief call show the benefits of scale coming through. We've got a really good foundation. Our sales pipeline is strong and the conversion of that should see some really good growth in organic growth advisers. The strategic initiatives -- And look, we have a range of initiatives. The approach we take is when something is about to launch, we can talk about it. But we don't want to pre-empt too much stuff, but there's quite a few things that will come down the pipeline, and we're hoping to be able to update either just prior to or during the full year investor call, but we're getting good progress in building scale or momentum with Lending as a Service and the managed accounts and the building out of our investment management business is incredibly important. If you talk to advisers in our network, nearly all of them are expensive and incredibly strong demand. They're looking to grow their business. Several of the firms have been appointed new authorized [indiscernible] their practice. And it feels like our advisers are in a good place. And with just the demand there. The best guidance we can give at this point in time is that our second half for FY '23 will be in line with the half we've just delivered, excluding anyone else. So, that's really a snapshot. That basically concludes the presentation. I'm going to hand back to Tim now and just see whether or not there's any questions from those who have dialed in.

Thanks, John. Thanks, Brendan. We have had a few questions coming from investors on the call. And just a reminder to everyone dialed in, please to put your questions into the Q&A panel, and we'll address them that way -- so first question has come in. Congrats on the excellent results. Could you please describe the revenue model for the Lending as a Service business?

Yes. Effectively, how Lending as a service works is that when an institution someone takes out a loan, the lending institution typically will pay 60 basis points on origination of the loan and a 15-basis point [ trail ]. What we have is we had salary brokers in-house. And effectively, what we do is we retain a portion of that revenue. And under the legal structure the arrangements of being authorized reps, the adviser can also be remunerated. I won't go through the percentages, but effectively, it is a share of the revenue on origination and trail of the loan.

Very good. And still on learning as a service, another investor asked, can you discuss the technology stack in any further detail with sort of underpin what you're delivering them?

Look, we have a cloud-based lending system rather than go through the sort of details. But effectively, what it does is it enables the brokers and advisers to log in. It's sort of a combined CRM lending system, you can basically put in customers' details around what type of loans do they want? Is it the principal and interest? Is it interest only? Do they have preferred lending institutions; they fill out some of the basic criteria. And then what we have is we have a database with many hundreds of loans across 60 lenders, it will then automatically populate or present the best lending opportunities. The broker then has a discussion with the adviser who was working with the client on the loan options and whether there's a better deal than the one they have in the market and then the broker then deals with the lending institution. So, it really is a -- Think of it as a cloud-based loan CRM, a loan origination and CRM platform that we use, which automates the kind of process. That's effectively the kind of underlying infrastructure that we have in the business.

Sounds good. Looking to the [indiscernible] last business, what levers do you have at your disposal to increase the satisfaction of advisers.

So can you I missed the first part of that, Tim.

The question is, how do you increase adviser satisfaction.

When you -- the first thing is what we do is we're a service company and advisers come to us for a whole range of services in a technical sense, they need a license to operate on. But when you provide technology services we provide training and education, we have an advice technical line. And really, when you're a service company, you have to provide quality services in a timely manner. Every single query is tracked on Salesforce. We go through each of those. We look very carefully at the response rates and the quality, and we track it, and we get feedback. So on one dimension, we're looking at how timely are we responding to queries, not just on averages, but we spend a lot of time looking for [ tails ], what's the bottom 10%? How we responded to them? What we're now supplementing that with is the net promoter surveys which in previous institutions I've seen really transformed. We make sure that everyone in the business understands how we're performing if an adviser is a detractor and sort this in less than 6. We look at not just the good stores, but pay a lot of attention to areas of improvement. Any adviser that stores a [indiscernible] 6 we get in touch with, I will personally call them or the other executives, and we work through it. And what we're really finding is that when you're a service company, you try to have consistent standards when there's dissatisfaction it usually there's been some departure from the benchmarks that we would set ourselves and we just go through and try to establish why that's the case. It's really a concerted effort that we go through to -- at the end of the day, if you're a service company you've got to communicate regularly, you've got to listen. A lot of our relationship managers speak to advisers all the time. So, we know from talking to them who thinks we're doing a good job and we're not and we need to evolve and check the service model we do. I'll cut it off here, I've rattled on too long, but it's really instilling a whole service ethic into the business and making sure that people understand that our advisers have the ability to choose. And as long as they get great service, then they'll stay with us and recommend other people have join us.

Excellent. John. Just looking at the sectors of growth. The questions come in of the reported adviser growth, can you talk to how much of that comes from the Clearview Advice acquisition? And more broadly than that, can you talk to the retention of ClearView advisers.

Yes. You want to touch the revenues [ stick ] and then ...

The advisers acquired foreign [ music 4 months ago was circa 160 from ClearView. So that's, I guess, simply [ secularly ] 160 over 500 is the waiting between ClearView and Centrepoint Alliance in company advisers. And then we have had some attrition from that adviser number and there's probably a systemic of the [ Fazier ] guidelines and what's happened within the industry to John's slide earlier in the presentation around attrition and [ adviser through ] education standards. So, we have lost -- I don't have the number to hand in terms of the exact rate credit. I guess what is evident from what I said before around the contribution of revenue for the first half, it's certainly within expectations at what we purchase.

I'll give you a sense of we've obviously had new advisers joining, others leave since the merger, if I just looked at the terminations. I think there's been -- the data that I have is there's around 38 advisers that have left. But no, the reason for leaving is 10, retirement from the industry, 11, were associates who sold the business, 6 moved to their [ ranos ], so we had 5 that we took a mid-tier competitor and 2 to a small one for sale. So, what you're actually seeing is that people are leaving it's the [ static ] dynamics in the industry, it' not anything but , in fact, very rarely do we get advisers that are leaving because they're dissatisfied with the service. And we occasionally get that, it happens, but we try not to. But it's much more through just some of the restructuring of the industry as sort of [indiscernible]. So that's the number since the merger, but I just haven't had an email that someone said yesterday because we're talking about it.

That's a great result, I think. And speaking of the industry dynamics, John, another question I think is maybe somewhat tangential to what we spoke speaking about, but it's probably worth addressing that investors asking if Robo-advise is a threat or an opportunity for a business like Centrepoint?

Look, there's been a -- I see these things as -- if you break down the [indiscernible] , you're basically trying to augment price process using technology. And at the highest level, that's a great in issue and something that we would absolutely support. There's a lot of different models at [ Robo-Advise ] and some I would question whether they should be called Robo- Advise and there's some that are asset management plays where they have a website and a risk-based questionnaire, and they say, look, pilot this risk profile, and we're in a diversified portfolio for you to invest in and samples in the U.S. as the wealth front [ sediments ] and those sort of companies are there, and there's a few kind of local players in this market. The area that I think is the most interesting is that the advice process requires a lot of [ menu leafing ] getting statements of advice on engaging with the clients. So, things like digital back [ fines ] in semi of automating power planning and driving the efficiency of the advice. And there's some very interesting startups. The efficiency across the industry is something that I think the whole industry needs to look at. You have made people who use things like ExpAdviser Logic, you can tell you flow and then they have to repay all the data into the platforms after they've done the advice, and it's quite foggy. What I would say is digitizing and automating parts of the advice process is an incredible priority for us because it just means that advisers can service more clients, and we spend a lot of time. We've got a head of technology and on their core, roles working with our head of licensing services is to say, are there better processes and ways that we can enhance that advice process. So, I see it as completely positive. Even if there's clients that are lower balance clients and adviser given, they've got be capacity can service, then I see the opportunity to leverage that. And we used to use terminology about an adviser sold investment maintain concept where we can help people work out what products that they could go into. So, the answer is a resounding I think it's a great thing for the industry is still embryonic in its development.

Excellent. Good rephrasing of what's going on there. And final question that's come to us for the time being is a balance sheet one. The question is, does the provision for claims on the balance sheet relates to historic claims alone?

No is the answer to that. So, the historic claims that we had, we had 30 claims in June 2020 when at the after window was extended for 4 months. All those claims have now been settled. So, all those claims on the balance sheet now are claims that have transformed in the last 2 years.

Okay. That's all the questions that have come in for the moment. I might just give attendees a few moments just to get any final questions that they might have. Let's just give it a second, then we'll wrap things up if nothing comes through. I think we'll wrap things up there. On behalf of Centrepoint Alliance, I'd really like to thank everyone for tuning in. If we didn't get to your question today, please reach out and management, I'll be happy to discuss further off-line. We'll also look to make the video recording of this session available online. Really looking forward to the opportunity to talk to all of you again. And John, I might pass across to you now for any closing comments.

Look, I just -- thank you. I know it's a busy time of the year. As I said at the outset, hopefully, what Brendon and I have taken you through shows a business that's in a strong position and well placed, a lot of hard work over the last 14 months. We've got some exciting plans coming forward, and we look forward to being able to provide an update in future sessions and show you where we're taking the business. So thanks very much for dialing in. Appreciate it.