Centrepoint Alliance Limited (CAF) Earnings Call Transcript & Summary

Thanks for joining us. Where we're going to take you through the Full Year Results. [Operator Instructions] What we're going to do is we're going to run through the presentation that will take roughly 20 minutes, and then that will be followed by a Q&A session. [Operator Instructions] So what we're going to cover today, I'm going to go through the business results, give you a snapshot of how the business has been performing. Brendon is going to cover the financial results. And then we're going to go through a bit of a strategy update and run you through the outlook of how we're seeing the business going forward. Firstly, on the business results. Look, the key messages for FY '23, we've had a strong year with revenue and profit growth. Our balance sheet remains strong. We paid a final dividend of $0.02, which takes the full year to $0.03. We're a clear #3 in the market. We're a scalable and efficient business post integration. We'll run through some of the new initiatives that we've launched, which are building momentum, and that's lending as a Service and managed accounts. Pleasingly, the industry is actually showing signs of growth. And I'll take you through some of that information to help you understand that. And we're just in the process of finalizing a $10 million debt facility that will assist funding some of our organic growth in M&A, coupled with a strong balance sheet. So let's kick off and get into some of the details. So the snapshot for the year, gross revenue of $271.6 million, EBITDA $7.6 million, gross profit of $32.5 million, profit before tax of $6.6 billion, and we had $15.6 million cash in the bank, and the dividends, $0.02 and $0.01, $0.03 for the year, as previously communicated. What I wanted to do is just start off and go through how -- what's happening in the industry. And there's a bit of information on this chart, that what it really shows is that were adviser numbers have stabilized, and we're actually seeing some green shoots that we're hopeful we'll see the business start to aggressively turn around. If you go back to September 2020, there was just over 21,000 advisers in the industry. What this chart shows is if you look at the bar charts and the darker part, the terminations of advisers leaving the industry and the lighter blue above the line shows new appointments. So the industry is at around 15,600 and we've actually seen progressive improvement over the last few quarters. Now the little graph, which is the infill, which sees PY graduates. That's a professional year graduate. And what we're seeing is those are starting to increase, and we're certainly seeing a significant number within our own network of advisers and people returning to the industry. And the other thematic is the quality of advice review has seen some positive changes. And in addition, recently, the government announced experienced pathway, which is really legislation that recognizes prior experience exempting advisers from the new education standards. So that may actually result in some advisers reentering the industry and certainly prevent some of the terminations that have occurred in the past. So positive from an industry and the best it's felt for some time. I'd just like to always show how we're performing and what is -- this is wealth data where they extract information on adviser numbers from ASX register. And it's over a 2-year period. You can see Centrepoint here is ranked #3 in the market at the end of June. The 2 years a bit of a perspective of some of the appointments, resignations and the net change. So we have been performing very well relative to peers. Now I'm going to pull some of that apart just in relation to our own data a little bit later because when you see the number of resignations, you can think that that's a whole of advisers leaving, an actual fact that a lot of that is people exiting existing practices rather than us losing practices as well as advisers hiring within that. But I'll break that down for you. One of the things that we advised -- the reason advisers use us is in addition to operating under our license and the compliance, we provide a whole lot of services to them. We track all those services. In fact, over the year, we had 34,000 cases that came through on Salesforce. And now it range from educational requests to technical advice to anything around governance and standards or investment research. We are a service business. We focus very much on our response times. They improved 27% year-on-year. And pleasingly, 60% of all our cases resolved within a day. So we have first day, 1-day resolution as a key target, and we continue to see improvement on that. So service standards have been improving, which is great. What that has driven. Now there's the quality of service and also the timeliness of services, improvements in adviser satisfaction. In August last year, we launched an internal NPS survey. We sent it out to licensed advisers as well as self-licensed advisers. You can see the progressive improvement in NPS. This is embedded across the business. We look at all the results, the abatement scores. We bring advisers if they have been detractors and ask what we can do better, and we're really driving a real service ethic across the business. And it's pleasing to see the constant improvement in that NPS results. I mentioned earlier that the recruitment pipeline, just talking about applications and new advisers onboarding and advisers leaving. And I just wanted to run through this. Firstly, on the left-hand side, we have a strong pipeline of prospects that we're talking to. That's broken up into the authorized reps that operate under our license and the self-licensed firms. We're in the process of onboarding 15 and like or -- that was only 15 authorized reps and 5 self-licensed firms. And since the start of the year, we've appointed 16, in fact, it's just ticked over the 17 and 6 self-licensed firms. Now on the appointments, what I wanted to show here is, over the year, there was 64 appointments. But of those, a lot of the ARs that are appointed, half roughly are coming from new firms that join the group. But a lot of the authorized reps are existing firms growing and appointing authorized reps. So it's important to see that because we've got a healthy network with advisers and they're growing. Equally interesting is when you look at terminations because you can misread some of the data and think there's a whole lot of advisers coming and going and switching licenses. Well, in actual fact, when you look at it, a lot of the exits have been advisers leaving a particular firm, but we retain the firm. So the firm hasn't left. They're just changing their workforce. We had about 28% left because of the exam requirements, post to your exam requirements. Some have sold their business and through the sale that can often mean that they leave. But if you look at how many firms actually left as a result of just wanting to change AFSL only 2 firms over the year left for reasons that we would say they wanted to move to a competitor. So we've got a very healthy pipeline, and we're doing -- the team are doing a great job of retaining advisers. Now I look a little bit different to the play, but I wanted to run through this cybersecurity is in the press all the time. Centrepoint places an incredible importance on data management, privacy and data security to safeguard client data. With the adviser practices, we've mandated measures for IT and infrastructure. We have mandated training. We have our practices now participating in external cyber reviews and mandating secure methods of communication using things like client portal rather than e-mail, which is unsecured. In terms of our IT infrastructure, we -- I've mentioned in previous updates, we are all cloud-based Microsoft, Azure, Office 365 with big users of Salesforce. We have all the work filtering ongoing management, the anti-malware protection and everything you would to expect. We're also doing third-party cybersecurity reviews on an ongoing basis, and ensuring that all of our infrastructure is as buttoned down as it could be to minimize the risk of data or privacy breach. Now what I'm going to do now is just pause here. I'm going to pass on to Brendon Glass, our CFO, who will take you through a bit more detail on the financials. And then I've got a few slides to just help you think understand where we're heading as a business, and how we're thinking about the growth. So over to Brendon.

Thank you, John. I'll just start by providing some more context to the financial results summary that John has previously referenced. So our gross revenue of $271.6 million was up 19% on the PCP, and that was an equal contribution from the organic license adviser growth as well as the ClearView acquisition. The gross profit was up 4% on PCP, and that was driven by the same revenue levers as gross revenue and was partially offset by the investment margin run-off. Our management expenses were up 4% on PCP, and that was primarily driven by higher employments and marketing and travel costs offset somewhat by some lower technology costs. Our EBITDA of $7.6 million was up 6%, and our profit before tax of $6.6 million was up $4 million on PCP. That was due to $1.8 million in derivation of the asset sales from insurer as well as $1.7 million in lower LTI and one-off costs, and $0.4 million contribution from increased EBITDA. Now looking at the gross profit and expense analysis in a bit more detail. The key revenue movements from a PCP perspective is the adviser fees are up $1.3 million on the prior year, and that's because of the newly recruited advisers transitioning to full rate card in 2023. Our investment income was down $2.5 million, due to $1.7 million in lower platform margins with the cessation of platform rebates. We had $0.3 million lower gross profit contribution from the Ventura asset sale, which was completed in July 2022. And we had $0.5 million lower VMAPS margins, mainly from outflows -- with outflows, reducing from $380 million to $300 million by the end of the financial year. In the other category, we had a reduction of $800,000. That was principally driven by the loss of a key client, certainly from Ventura of $0.5 million as well as a slight reduction in salaried advice of $0.2 million. From the ClearView Advice acquisition, we derived an extra $3.1 million from the full year trading. From an expense perspective, our employment was up $600,000 primarily for the full year of trading from ClearView. Importantly, our headcount was down by 3.8 to now 100.3 FTE by June 2023. Our marketing and travel was up $400,000 due to the resumption of spending post the easing of COVID-19 restrictions. And as I mentioned, we had a small reduction in technology costs. From a balance sheet perspective, our cash flows of $15.6 million at the end of June. We had a $4.8 million inflow from -- of net cash, and that was offset by -- somewhat offset by the $3.9 million in dividends paid in the year. From a claim's perspective, we had 16 open claims at the end of the year. And when you exclude the 0 value claims on the balance sheet, we only had 7 open claims at the end of the year compared to 6 in the prior year. Our net assets increased primarily due to $6 million in net profit after tax, generated throughout the year and again offset by those dividends paid to some degree. Now looking at the cash movement throughout the year. You can see that we had a strong gross cash from operations of $7.6 million. We had some outgoings for the final redundancy payments to ClearView as well as some M&A activity. Now with the revenue in the business, the gross revenue being $270 million, we saw a movement in working capital, trade payables and trade receivables movement of $2.7 million. On the back of the rate rises -- interest rate rises in fiscal year 2023, we saw $0.5 million in other income, which is principally from interest income. We derived $1.5 million from the Ventura asset sale in July '22. I've mentioned the dividends paid. And in the other bucket, we had $1.3 million of outgoings of which circa $700,000 was for lease payments. The financial snapshot showcases the transformational activity in the business in the last 2 years. The employment cost ratio has decreased from 60% to 52% since 2021 on the back of the organizational structure changes since ClearView acquisition, and that's been further pronounced in 2023 financial year post integration. We've had a key focus as well on professional fees, which is have reduced by 52% due to a lower reliance on external consulting costs and ongoing diligent management are going to cost those. Due to the nature of our business and the fact that we collect cash upfront on behalf of our advisers, we have nominal credit risk in the business. And quite importantly, you can see the material reduction in our claim's payout from 2021, where we had $1.1 million after the -- after extension window closed in June 2020 to a new low of $200,000 in 2023, which is predominantly recovered from the advisers. From a balance sheet perspective, we've got a robust cash balance with no debt. Our net tangible assets have built up to $10.1 million on the back of improved operating profit, loan redemptions and noncore asset sales, which has enabled $7.8 million of fully franked dividends to be returned to shareholders over the last 2 years. We have franking credits available of $11.7 million. And you can see that we've had strong EPS growth and dividend yields as well as double-digit ROE for the period. So over to you, John, for the strategy update and outlook.

Yes. Thanks, Brendon. So what I wanted to do, I've got a few slides here, but in a limited time, I just wanted to give here on a bit of a feel for where we're heading. And what I wanted to do is start with this slide that I think it sets really important context around the opportunities for the Centrepoint business. And if you -- let's just work left to right. So as Brendon has outlined our earnings, we're a business that does $32 million roughly in gross profit, $7.6 million in EBITDA, and we have cash. If you actually look at the amount of funds under advice and you take the licensed advisers, the self-licensed advisers, estimate the number of customers per adviser in the average funds under advice. As a business, we have around $64 billion in funds under administration. Now these are estimates we have derived, but we've looked at these very many ways, and now we think they're very accurate on of the business is. If you then look at what revenue do, we generate for other participants. And I won't go through every assumption in great detail, but it will give you a flavor. So $2 billion in shadow revenue. It's actually probably higher than that because there's elements like on technology spend and other things that I haven't included. But I advise that these take the number of advised clients times the average ongoing fee revenue of 2,900 in our business, and there's around $446 million in advice revenue. Most of the money is administered on a platform. If you look at average platform margins, whilst they vary. I've just taken a midpoint of around 30 bps. So you multiply that we're probably generating around -- contributing around 120 to 192 to the platform revenue. If you look at asset management and I've been somewhat conservative here, but if you strip out cash and say, direct equities and so to assume there's $52 billion in either managed accounts or managed funds, and you took an average revenue margin of $60 million. That's around $300 million in asset management. Life Insurance is a big one. The average commission per advisers around $120,000, if you gross that up, he's around $160 million in total commissions based on the commissions have been historically 20-some 10, take a midpoint of 15, there's around $1 billion in in-force premiums. And obviously, the lending side, we've -- there's a lot of detail that sits underneath this, but think about it as roughly, there's around $6.5 billion in annual loans in the network and that are in the process of being refinanced. And if you look at the 60 bps upfront on origination or refinancing in the trail, there's around $49 million in revenue. So the message here is that we -- whilst we're a small business, there's an incredible amount of revenue that this business cast off into other areas, and many of those are partners that we work through. So if you think about that and hold that thought, there's 2 key elements to our strategy. One is there's no doubt the core part of our business is to grow our network of financial advisers through organic growth and looking at M&A opportunity, if we can find the right business that we can harmonize into the network. But we're also looking at building revenue adjacencies by looking at services that are in the market. And if we think that we can provide a competitive edge or a new service and something that advisers want to use, then we're absolutely looking at that. And there are things like lending, which I'm going to talk about, virtual administration services, power planning, managed accounts portfolio management. And what I'm going to do is I'm just going to talk through, too, which is give you an update on lending and talk a little bit about managed accounts. So if you think about Lending as a Service. And as a reminder, we have a boutique aggregation business with about 80 brokers, that's the core part of the business is about $3.4 billion servicing brokers, but this was the new service we launched in September last year, where we're enabling advisers to build a lending business by operating as authorized reps under our credit license. They retain ownership of their business and they're lending our infrastructure and in-house lending specialists. So we've got good momentum in this, we've got 30 firms participating, 27 in the pipeline. In the last quarter, we were generating leads of about 45 per month. We've settled 29 million loans, and there's another 17 million in progress, and we have 100 loans in the prospect pipeline. We started with 2 brokers we just put on 1/3. And as we scale and hire more firms, we will start gradually ramping this up. But we've proven the business model and prove that this is a desirable service for many of our advisers. So we'll continue to provide updates on this lending opportunity. The second area I wanted to talk about was managed accounts, because they're a highly efficient solution for advisers and clients. Now many people go, well, what are they? And I'm sure many people on the call know this, but for those that May not, they're non-unitized managed investments that are typically diversified portfolios, professing managed the same as funds, and they tend to be -- whilst there's a few different structure, separately managed accounts and managed discretionary accounts. The managed accounts has seen explosive growth over the last 5 to 6 years to $144 billion. And the reason is they're highly efficient because not only do you have an investment manager running the diversifying portfolios, if advisers use managed accounts, then -- because they're professionally managed, they don't need to actually issue a record of advice when there's changes to a statement of advice. All clients are treated equitably, and the adviser can focus on strategic advice rather than getting tied up in execution and issuing our allays. The client benefits. They have a professional manager; they get really good visibility to look through their cost-effective and tax end and stages. Now our strategy, we mentioned earlier that we had divested some of the funds in Ventura that were noncore interest in managed funds, but we believe the growth is very much in the diversified portfolio. So our current capability and what we have today, the baseline to build from, is Ventura managed account portfolios or VMAPS as we refer to $300 million in FUA. It's been around since 2014 and has a loyal support from advisers. Over the last 12 months, what we've been doing because we have to distribute many of these through third-party platforms. We've been strengthening our governance and capability. So we have Ventura as a separate responsible entity to the adviser have for sales. We have moved to a nonexecutive majority Board. We've conducted independent reviews of governance and the management of conflicts, and we've appointed Morningstar as an asset consultant. Some of the initial progress we've made, we've launched managed accounts on the First Choice platform. First Choice had $5.5 billion in FUA. That's across their total platform, not in managed accounts. But there's a proportion of that where advisers moving towards implementing managed accounts on the First Choice platform as many of our other platforms. So we've launched those in July, and we've got 6 diversified portfolios. We are about to bring to market another range of managed portfolios that will be known as the IQ SMAs. There will be 5 diversified portfolios, Income and Core & Satellite, Ventura will be the investment. And we're in advanced discussions with many of our partner platforms that our advisers use about distributing those SMAs, which will have benefits for the adviser and their productivity and benefits for the client. So that's a couple of things that is in progress. So with that, what I wanted to do was just before we go to look if there's any questions online, finish with the views. Look, the upshot is we're very positive about the business outlook. As you would have picked up through this call, the business is in good shape. We've completed integration, uniform pricing. We're running an efficient operating model. And but many organizations that do acquisitions, keep things separate because integration is hard, but we have make sure we're in by everything that we're running as one business. Industry attrition has bottomed out post FASEA, as I indicated earlier, showing signs of growth. The regulatory change has shifted to practical changes to reduce compliance burden. Now in the pack, I'm not going to go through it, but I'll just put one slide in the appendix that people are interested in some of the changes and the benefits that, that will drive. The adviser recruitment has started strongly, and the updated figure 17 advisers joining since 1 July. We've got some new initiatives that are building momentum, and we have other initiatives that will be announced over the coming months about new capabilities. We prefer to announce things when they're ready to go in market and signal them too far in advance. And we're on track to replicate now the core earnings in the range of $7.5 million to $8 million. So that brings us to the end of the formal presentation. We'll just see if there's any questions that have come through and Rahul should be online. Rahul, have we got any questions from any of the participants on the call.

John, we've got one question coming in on the business model of Lending as a Service from a revenue and cost perspective?

Yes, yes. Well, how it works effectively, and I'll describe this at a higher level. When a loan is written, there's 60 basis points that the lending institution will pay to a broker. And under the model when we're in aggregate, we get a very small clip of that because the broker is really operating independently. What we have done is we have hired a couple of in-house brokers or lending specialists, and when the adviser is accredited to work and operate as an authorized rep under our license, we have a revenue share model with the adviser. So we share some of that 60 bps and the ongoing 15 basis point trail with the adviser and through the way we're running it. So our costs, we have a core technology platform. So we've leveraged a lot of the existing technology we have around all of the loan processing and the core technology infrastructure. The main costs we have are the lending specialists that we recruit and how that works is it's really the adviser building blending business, but they're using our lending specialists. So the key to this is and the reason we've been scaling this prudently is making sure that we have the number of leads and the conversions that we can build the business out. So we -- the more firms we sign up and the more revenue we get, we'll need more brokers because there's a certain productivity, but that's effectively the model. So hopefully, that provides some explanation to the person posting the question. Any other questions Rahul? No. No other questions, we'll just wait for a few minutes. Okay. I'm not sure if we've lost Rahul or not. Are you still there, Rahul?

Yes, I'm there. So -- yes, there's no further questions.

No further questions.

Yes.

All right, everyone. Well, look, thanks very much for your time, and we appreciate you dialing in. We're right on 11:30. So we'll end the call here. But thanks for your support and thanks for your interest, and we're always available separately outside of visit any of our shareholders would like further information. So thanks very much, everyone, and have a great day.