Centrepoint Alliance Limited (CAF) Earnings Call Transcript & Summary

2023 Annual General Meeting of Centrepoint Alliance Limited, open. Thank you, everyone, for attending today. The technology you're logged into allows shareholders and proxyholders 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. Written questions can be submitted at any time. To ask a question, submit the Q&A icon at the top of the page on the virtual meeting platform, type your question in the text box then press submit to send. Please note that while you can submit questions from now on, I will not address them until the relevant time in the meeting. Please also note that your questions may be moderated, and if we receive multiple questions on the one topic, amalgamated together. Finally, due to time constraints, we may run out of time to answer all of your questions. If this happens, we'll answer them in due course via e-mail or on our website. For those shareholders who wish to ask a verbal question, an audio question facility is available during this meeting. To use this service, please follow the instructions below the broadcast window on the virtual meeting platform, and the moderator will facilitate your participation in the meeting at an appropriate time. You'll be able to listen to the meeting while waiting to ask your question. Prior to asking your question, please state your name and the name of the shareholder you represent. If you have any issues using this system, please refer to the online meeting guide available at www.computershare.com.au/virtualmeetingguide or contact Computershare in Melbourne on 03 9415-4024. I encourage shareholders to submit questions and/or request to address the meeting as early as possible. In the event that I am disconnected from the meeting and cannot immediately rejoin due to technology failure, George -- sorry, Georg Chmiel will assume the role of Chair of this meeting. I'll ask the company secretary, Kim Clark, to act as moderator for the meeting and read out any critical questions or advise any shareholder or proxy holders with verbal questions received by the online platform. Finally, due to time constraints, we may run out of time to answer your questions. If this happens, we will answer them in due course via e-mail or by posting responses on our website. We'll certainly give our best efforts to answer everyone's questions. Voting today will be conducted by way of a poll on all items of business in order to provide you with enough time to [Audio Gap] I will shortly open 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 the list of resolutions and 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 until the time I declare the voting closed. I now declare voting open. I'd like to introduce you now to the directors of the Board, Martin Pretty; and Georg Chmiel as well as our Chief Executive Officer, John Shuttleworth. Attending from the Centrepoint Alliance executive team as our Chief Financial Officer, Brendan Glass; and Company Secretary, Kim Clark. In addition, we have our senior management in attendance as well as company auditors being represented by Mr. James. BDO will be available to take questions on the audit report later in the meeting, if so required. John Shuttleworth and I will now provide a company update prior to commencing the formal business of the meeting. So ladies and gentlemen, since our last AGM, Centrepoint Alliance has continued to develop substantially and your company now commands an enviable position in a rapidly evolving industry as a leading provider of licensing, financial advice, business services and technology solutions for Australian financial advisers and their clients. Over the past 12 months, Centrepoint Alliance continued to demonstrate its capacity to support financial advisers and enable practice owners to focus on their core business in the face of rising costs and compliance pressures. Centrepoint Alliance has always placed advisers at the center of what we do. This is reflected in our continuing improvement in service levels and has led to an expansion of the network of self-licensed practices and continued growth in a difficult environment in the number of licensed advisers in our dealer group networks. The net growth marks Centrepoint Alliance out as an increasingly favorable destination of choice for advisers and reflects positively on the Centrepoint Alliance's ability to meet the changing needs of financial services industry. The company has worked hard to retain high-quality advisers and attract new culturally aligned professionals, both organically and by acquisition. Centrepoint Alliance achieved an EBITDA of $7.6 million, representing a year-on-year growth of 5.6% over FY '22. On the 23rd of August 2023, the board declared a fully franked dividend of $0.02 per share. That takes dividends paid in relation to financial year $0.23 to $0.03 per share fully franked. This includes a special dividend of $0.005 at the half year. This exhibits our robust capability to invest to expand Centrepoint Alliance's service offerings while also returning excess capital and delivering consistent value for shareholders. At the beginning of the current financial year, Centrepoint Alliance undertook a strategy refresh to ensure that our strategy is relevant to the times in which we operate. We reaffirmed that the adviser is at the center of what we do and that we will strive to improve both the quality and breadth of services that we provide. In addition, we'll increase our focus on advocacy for financial advice and financial advisers. In an environment marked by increasing regulatory scrutiny and political focus on our industry, it is evident that the pendulum has swung too far towards overregulation. Both regulators and policymakers recognize the need for simplification in financial advice processes to make quality financial guidance accessible to all Australians, regardless of their means. We are encouraged by the government's commitment to implementing 14 of the 22 recommendations from the Quality of Advice Review with plans to address the remaining 8 soon. The core objective of our advocacy will be to achieve the simplification of the processes around financial advice as well as reducing some of the financial burden placed on financial advisers through unnecessary costs and regulatory processes. Achieving economies of scale is fundamental to Centrepoint Alliance, just as it is for financial advice practices. By building scale, there'll be more time and more financial resources for Centrepoint to deploy for the benefit of financial advisers. For financial advice practices economies of scale allows investments in systems and processes to make them more efficient so they can spend more time in front of clients. This will also lead to more efficiencies so that they can improve -- both improve and maximize the financial situation of their existing and new clients. Australia has one of the world's most complex financial environment for individuals to navigate, and almost all Australians need support to do so. All of this means that the future will revolve around building economies of scale and capability, particularly in technology, in our core licensee operation, developing revenue adjacencies that enhance our offer and improve margins while differentiating ourselves through high-quality services that we can deliver to Centrepoint's adviser community. We finished FY '23 with a strong balance sheet with a closing cash balance of $15.6 million that will support the continued execution of the company's growth strategy. In the year ahead, we will continue to improve our business and the services we provide to our clients and provide them better scale that generates growth in revenue and increasing profitability for years to come. Throughout the last financial year, Centrepoint Alliance's management, employees, practice principles and licensed advisers and seized opportunities in what has been a challenging operating environment for financial services. I'd like to thank the team for their ongoing dedication. At this juncture, I'd also like to acknowledge the significant contribution of the recently retired Chair, Alan Fisher, as well as director, Sandy Beard, both of whom retired from the board at the end of September 2023. On behalf of my fellow directors, I'd like to thank both Alan and Sandy for their dedication and support. Finally, I'd like to thank my fellow Board members and shareholders for their commitment and continuing support. I'll now hand over to our Chief Executive Officer, John Shuttleworth, to provide an operational review of the year just ended and more importantly, to articulate in more detail our strategy for FY '24 and beyond.

Thanks, Simon. I'd like to take this opportunity to update shareholders on 4 important areas of business performance. Can we just have the next slide, please? Firstly, how we are positioned in our operating strengths. Secondly, provide clarity on how we plan to leverage these strengths and grow the business with our adviser-centered strategy as we're referring to it. Thirdly, provide an overview of the -- and strategic rationale of the binding offer to acquire Financial Advice Matters that we announced yesterday and finally, provide some guidance on our business outlook. 2023 has been a year where we've strengthened our position as a leading provider of licensee services in the market. The company is benefiting from a scalable and efficient operating model post completion of integration with standard systems, business processes and uniform pricing. Based on a ranking of advisers, we're clear #3 in the market with 511 advisers operating under our license. However, if you include our self-licensed firms there are over 1,300 advisers within our network. Our adviser recruitment and retention is one of the best in the industry, which is a testament to the quality of our people and services. Our focus on service quality delivered through an in-house team of specialists with interactions tracked by Salesforce.com underpins this result. I now want to turn to our strategy and outline a blueprint of how we plan to drive profitable growth. A key strength of the business is our incredible network of financial advisers. These firms and the advisers within, are the center of our strategy. We have 552 advice firms made up of license and self-licensed businesses. Within these firms, we have over 1,300 advisers. These advisers contribute significant revenue across the value chain in the broader financial services industry. We estimate that through the 150,000 estimated advised clients, that's over $65 billion in funds under advice and $1 billion in in force insurance premiums. Our primary focus is on driving organic growth, recruiting new forms to Centrepoint Alliance and increasing the penetration of existing services. We've also spent significant effort over the year looking at strategic acquisition opportunities to accelerate growth. Having completed and successfully integrated the ClearView advice acquisition, we know what is required to deliver an integrated business with sustainable earnings and see many acquisitions destroy value due to the loss of advisers creating dis-synergies. When we review opportunities, we look for quality firms, cultural fit, realizable synergies, similar fee structures and low claims risk. At the core of our business are the services we provide that our advisers value. These include compliance, technical advice, technology services, product and investment research, training and education, practice management consulting and importantly, the strategic partnerships we have with asset managements, platform providers, insurance companies and other service providers. We're also developing new capabilities. By leveraging the capability we have with our broking aggregation business, we've developed lending as a service, enabling advisers to build compliant lending businesses. As of the 30th of June, we had 30 firms participating. At the end of October, this has grown to 37 with a strong pipeline of prospective firms. Managed accounts remains a key priority. Whilst we have $295 million in the Ventura Managed Account Portfolios, we are finalizing distribution agreements with our partner platforms for distribution of a new range of separately managed account portfolios. Early next year, we will announce the details of a new partnership to provide a leading portfolio administration solution that will help advisers lower the cost of administration for clients. Our self-licensed business is strong with 196 firms out of an estimated 1,850 self-licensed firms in the industry, resulting in a market share of around 11%. In an industry where services are highly fragmented, our future plans include the development of key adviser infrastructure or everything you need to run an advice business in the cloud as we refer to it. And we're calling this the Advisor Cloud initiative. We're also focused on developing and partnering with fintech providers to provide new digital tools to streamline the advice process and improve engagement within clients. Now consistent with our strategic framework, yesterday, we announced that we've entered into a binding agreement to acquire 100% of Brisbane-based financial advice firm, Financial Advice Matters. FAM is one of the largest corporatized financial planning groups in Queensland with 8 offices servicing 1,450 household clients. FAM is well known to Centrepoint, having operated as a corporate authorized representative under our license since 2015. FAM provides financial planning services to these 1,450 household clients with funds under advice in excess of $1 billion. The acquisition will boost our salaried network to 19 and provide a platform with scale, allowing for further expansion. There is a strong strategic and cultural fit between FAM and Centrepoint Alliance. The key transaction details are FAM revenue approximately $6.1 million in FY '23. The full year EBIT contribution to Centrepoint in the range of $1.1 million to $1.5 million in the first 12 months of operations, total potential consideration $10 million in cash funded from Centrepoint's existing cash reserves and a newly established $10 million debt facility with the National Australia Bank, which we will partly draw down. 80% of the consideration is paid upfront and the remaining 20% to deferred incentives and performance hurdles over a 12-month period based on a minimum EBIT contribution of $1.5 million. Completion is expected by 1 December 2023, subject to fulfillment of the closing conditions. Finally, some comments on the outlook for FY '24. We remain very positive despite the volatility and uncertainty in investment markets with the wars in Ukraine, the Middle East and the large dispersion of analyst views of key economic indicators. During times of uncertainty, the demand for advice is high as customers need an investment professional to help them navigate markets and avoid making irrational financial decisions. We have seen the attrition of advisers across the industry bottom out and some growth with new professional year candidates. Practical regulatory change is progressing with the government adopting 14 of the 22 recommendations of the Quality of Advice review. The acquisition of Financial Advice Matters will accelerate our plans to build scale in the profitable employed advice channel as well as provide further benefits with the growth of our managed account offering and lending as a service. We have several in-flight strategic initiatives that are gaining traction, and we will be making future announcements at the first half 2024 earnings update regarding new portfolio administration service and progress with the Adviser Cloud initiative. Our market guidance of $7.5 million to $8 million EBITDA pre the FAM acquisition remains on track. So thank you for your time, and I'll now hand back to our Chairman, Simon Swanson.

Thanks, John. Kim, are there any questions in respect to these items of business?

There are no questions at this time.

Thank you. There being no further questions, we'll move on to the next item. The notice of meeting has been circulated to shareholders, and copies have been made available for those attending today. So if there is no objection, I shall take the notice of meeting as read. The agenda items for our meeting today 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 a shareholder who submitted a proxy is attending the meeting today and has revoked 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. Annual financial and other reports. The first item of business is for shareholders to receive and consider the 2023 annual report, which contains the financial statements of the company for the year ending the 30th of June 2023, together with the director's statement, annual report and the auditor's report on those financial statements. The 2023 annual report has been published and was circulated to shareholders who requested a copy and is available on the company's website. I trust everyone has had ample opportunity to consider it. No shareholder vote is required in relation to this item of business. This is an appropriate time to raise any questions on these reports on our business in general to raise them now. This is also an appropriate time to raise any questions you may have of the auditor, which are relevant to the conduct of the audit and the preparation and context of the audit report. Kim, are there any questions in respect to this item?

Simon, we have no questions at this time.

There being no further questions, Kim, we'll move on to the next item, the remuneration report. The next item of business is the adoption of the remuneration report for the year ending the 30th of June 2023. 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 of 2001, that the remuneration report for the year ending 30th of June be adopted. The remuneration report is contained within the company's 2023 annual report. The vote on this resolution is advisory only and does not bind the directors of the company. The proxy details are displayed. I'd highlight that in accordance with the Corporations Act, no vote 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'll 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 have been 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 intentions to vote all available proxies in favor of this resolution. For the purpose of this resolution, a prohibitive voter includes a key member of the -- sorry, a member of the key management personnel named in the remuneration report. Kim, are there any questions in respect to this item of business?

Simon, we have no questions at this time.

There being no further questions, we'll move on to the next item, Kim. The next motion before the meeting proposes the reelection of Martin Pretty as a director. The motion is to consider and if thought fit, pass the following resolution as an ordinary resolution, that Martin Pretty who retires by rotation in accordance with Rule 19.3 of the company's constitution and being eligible, be reelected as a director of the company. The proxy details are displayed. Kim, are there any questions in respect of this business?

There are no questions at this time, Simon.

There being no further questions. Kim, we'll move on to the next item. The next motion before the meeting proposes the approval of potential termination benefits. The motion is to consider and if thought fit pass the following resolution as an ordinary resolution. But for the purpose of Section 200B 200C and 200E of the Corporations Act and for all other purposes, approval is given for the provision of benefits under the company's long-term incentive plan where all of the following conditions are met. A, a person receiving the benefit is currently or in the future an employee with the company or related body corporate. B, the person holds a managerial or executive office as defined in the Corporations Act. C, the benefit is paid or provided -- paid or provided a, on the person ceasing to hold a managerial or executive office or position of employment in the company or related body corporate of company, or b, in connection with the transfer as a whole or any part of the undertaking or property of the company and c, the benefit is paid or provided on the terms set out in the explanatory statement. The proxy details are displayed on the screen. Kim, are there any questions in respect to this item of our business.

Simon, there are no questions at this time.

There being no further questions, Kim, we'll move on to the next item. Ladies and gentlemen, please ensure that you've cast your vote on all these resolutions. I will now pause to allow you time to finalize those votes. [Voting]

Ladies and gentlemen, I will say that voting is now closed. We will publish final voting results with the ASX and on our website. Thank you for your attendance today. That concludes the formal business of the meeting. There being no further business, I now declare the meeting closed. Thank you.