Centrepoint Alliance Limited (CAF) Earnings Call Transcript & Summary

Good morning, everyone. Thanks for joining us today for the Centrepoint Alliance Half Year Results Conference Call. [Operator Instructions] My name is John Shuttleworth, I'm the Chief Executive of Centrepoint Alliance, and with me today is Brendon Glass, our Chief Financial Officer. [Operator Instructions] But what we're going -- we've got a bit to go through today. What I'm going to do is initially just give you a high-level summary of the business results. Brendon, our CFO, is going to go through the detailed financial results, and then we wanted to spend a fair amount of the call on our growth strategy and outlook. So let's kick off. So firstly, with the business results. So overall, the highlights for the first half of FY '24, we've had a continued strong financial performance. The market conditions for advisers are positive. There's real demand for their service. We've seen positive equity markets, and through the release of the quality advice review and the regulatory change. We're seeing regulatory relief starting to come through, which advisers are appreciative of. The acquisition of Financial Advice Matters in December has created a platform to scale the salaried advice channel, and I'm going to talk a little bit about that opportunity later. We have seen continued growth of our licensed advisers and self-licensed firms in the first half, and the pipeline is very strong due to some of the disruption going on in the industry, in fact, the best we've seen the opportunity for some time. Service standards remain high, and adviser satisfaction is positive. We track how people -- how our advisers are feeling with our net promoter score. And the last survey was plus 39. Late last year in December, we launched the new iQ managed portfolios, and I'm going to talk a bit about our investment management strategy as well. And one of the new things that we're going to cover today is that we have reached an agreement with FNZ to launch a new investment and superannuation platform on global leading technology. And I'll -- again, I'll take you through what that looks like and why we think that makes sense. The snapshot of the results, and Brendon is going to go through this in detail, so I'll cover it up. Gross revenue, $140.5 million, up 5%; EBITDA normalized, excluding LTI and one-off, up 11%; the gross profit, $16.7 million, up 2.5%; profit before tax, $4.9 million, up 63%; cash of $12.4 million. Now that's down 21%. There's a slide in Brendon's pack where he goes through a cash walk, so I'll leave it to him to just explain the movements as a result of the recent acquisition. And pleasingly, we have declared a fully franked dividend of $0.01 per share. One of the things I wanted -- always like to do is just show how the changing industry landscape continues to create opportunity. You can see Centrepoint Alliance there, ranked #4 with 532 authorized reps. This is Wealthdata, which is off the ASIC Register. And we've got the number of authorized reps, appointments, resignations and net change. The period is from the 1st of July to the 15th of the second. So we've just run that on about 6 weeks to see what's happened recently. There's a lot of discussion about some of the different players. Just really briefly, AMP regained the #1 position, but that was largely because Insignia sold Millennium3. It's the first time they've been #1 since 2019, but it's not lost on me that they've had a challenging environment, and since 2019, have lost around 1,700 advisers. And there's a couple of others there, diverger and Count that are in the process of finalizing a merger. So they will come together and we'll report on that next time. But the important news is Centrepoint continues and it's been a consistent theme of showing net growth while there's been a lot of declines of advisers in some of the other licensees. I'll pass on to Brendon for the financial results. And then after we've gone through that, I'll touch on our growth strategy and some of the things we're doing. So Brendon.

Thank you, John. Just taking a look at the financial results summary. Our gross profit was up 2.5% on PCP. Our management expenses were flat on PCP and down 2% -- 2.4% on PCP excluding the FAM acquisition. Our cost-to-income ratio of 75% improved over PCP due to that gross profit increase. Our EBITDA of $4.1 million, excluding one-offs, was up 11% on PCP, again driven by the gross profit increase. Our profit before tax of $2.4 million, whilst down $1.3 million on PCP, was primarily due to a one-off sale of the asset business from Ventura in PCP. Now normalizing for that PCP sale, the PBT was up by $300,000. Just take a look at the revenue and expense analysis in more detail. Our adviser fees are up $0.6 million. This was driven by the adviser firm revenue from the recently acquired advisers transitioned to a full rate card during the first half and some fee growth in self-licensed network. Our investment income was down $0.5 million, primarily due to $400,000 in lower fees from the final cessation of platform agreements. And from the FAM acquisition completed 1 December '23, we had strong contribution of $0.5 million for that first trading month. Now looking at the key expense movements versus PCP. Excluding the impact of the FAM acquisition, our expenses were down by 2.4%, and that's driven by a reduction in our employment costs. So notwithstanding the labor and inflationary pressures in the market, we've managed to reduce our FTE, excluding FAM, from 104.5 to 94.8 in the first half, and we'll see some ongoing savings from the second half as they materialize in that full half. In terms of subscriptions, we're down 16% or $200,000 due to ongoing cost savings. Now looking at the balance sheet. We had 17 open claims at the end of December compared to 16 at the end of June 2023. We had just 5 open claims where we attributed value to them on the balance sheet. In relation to our debt, we drew down $4 million from the $8 million specific facility for the FAM acquisition and $4 million from the total overall facility available of $10 million. Our net assets marginally increased, primarily due to $4.9 million in net profit after tax generated during the half, and some are offset by the $0.02 dividend paid in August of $4 million. Now we had a fair bit of movement in the cash position over the half. So the opening position was $15.6 million. The key drivers of the change in the cash -- so we had gross cash from operations of $4.1 million. We had $0.7 million in one-off costs being $0.6 million in redundancy costs and $100,000 in acquisition costs for the FAM transaction. We paid out $300,000 in claims for the half. We retained $1 million in term deposits from the FAM acquisition. The FAM acquisition result required a net cash outlay of $7.6 million. As I mentioned, we drew down borrowings of $4 million, and we paid out dividends of $4 million to arrive at the closing position of $12.4 million at the end of December. Now in terms of the financial -- the snapshot, I have mentioned the head count changes. In relation to the employment cost ratio, you can see that our employment cost ratio has reduced from 56% 2 years ago to 52%. And that's due to the organizational structure changes we made post the ClearView Advice acquisition and further integration efficiencies showcasing how we've acutely managed the transaction post integration. We've seen consistent reduction in professional fees over the last 2 years, driven by lower consulting costs and diligent management of post -- management of cost post the ClearView Advice acquisition. And by the nature of our business as a licensee collecting adviser fees upfront, we've got normal credit risk in the business. A few other key call-outs is that we have franking credits of $10 million available pre the $0.01 interim dividend in March. That franking credit balance will reduce to $9.1 million after the payment of the dividend. We've delivered consistent ordinary dividend yields in the range of 6% to 7%. We've had EPS accretion over the last 2 years, and we've delivered double-digit return on equity. We've also got some unrecognized income tax losses available of $15.8 million, and we continue to assess our forecast earnings each reporting period, and we progressively bring on those assets on the balance sheet as we assess our earnings. So over to you, John, for the growth strategy and outlook update.

Yes. Thanks, Brendon. Look, what I wanted to do now is really take some time and run through our growth strategy. And I often say to the team here, it's just a great time to be at Centrepoint. We've been working hard on a lot of these things over the last couple of years, and they're all starting to come to fruition. So the way to think about the business is we have 5 strategic pillars of growth. There's obviously the biggest part of our business today, which is the licensee business. So we're trying to grow the licensed and self-licensed advisers off a strong base and whether that's acquisition or organic. We want to grow our salaried advice network, and I'm going to talk about the FAM acquisition. We want to build scale in asset management. Today, we have $310 million in FUM, and we see a big opportunity to grow that. We're announcing the launch of a platform that will compete in the broader $975 billion platform market. And the lending business as well, we're aiming to grow that, and I've spoken about lending as a service and a couple of other things. Given the short time we have, I thought I would spend some time on things that we have not gone into in detail, which is the salaried advice, the asset management scale and the platform. Before I do, what I wanted to just show people is a key strength of Centrepoint is the size of our community and the estimated $2 billion in revenue generated across the value chain within the network. We estimate, and we've got some of the workings there on the left, $67 billion in funds under advice, which is simply, if you take the size of advisers we have in our network, the 1,338 advisers times $50 million, you get to a number of $67 billion. Now I won't go through all of these, but obviously, if you look at the first couple, if you look at advice fees, those advisers that we have, have roughly 120 clients is the modeling. And if you multiply that by an ongoing fee of around $2,900, you get to $464 million. Obviously, the platform opportunity, if you just looked at our revenue -- sorry, the $67 billion and you took an average platform revenue of 30 bps, you get $200 million. And the rest you can see and I won't go in, but it's a huge opportunity across the market. Now what I wanted to do is just break it down. And in addition to the importance we place on running the licensee business just to show you what we're doing and why. So we announced last year that we acquired Financial Advice Matters. The transaction was completed on 1 December. FAM is one of the largest corporatized financial planning groups in Queensland and services over 1,500 households. The business has funds under advice of $1 billion. It's got 8 offices. We've been a corporate authorized rep looking after that business since 2015, and the acquisition has increased the number of advisers we have to 19. Francis Rigby, who has been with the business for some time, a qualified financial adviser who moved into a leadership role, has joined our executive team as the Group Executive Financial Advice because of the importance we place in this sector and our aspirations to grow it. When you think about the acquisition, the way I talk to people is, don't think about we've just got 15 advisers. What we've done is we've bought a business that has a real capability. So it has a high-performing team that can manage and grow the practice. We've got very good quality advisers that have joined the business. Importantly, we have systems and processes, all the core infrastructure that you need to run an effective business, paraplanning and the risk management. We have a business that's very good on attracting and retaining clients, and they have relationships with key referral partners. So if you take the 4 advisers that we had, the 15 gives 19, but we will be looking at additional acquisitions, we'll be looking at organic growth if we find the right business. And so what we have now is we really have the infrastructure to grow where before we were subscale in this segment. Now I just wanted to show the economics of the potential of salaried advice. And these are illustrative numbers, but if you start with the first column, around $8.1 million in revenue, 19 advisers, $425,000 in revenue, around 110 clients per. Our operating margin is actually about 25% to 30%. We've used 25% for this illustrative example, and a contribution of circa $2 million. Now what does an optimized business look like, and there's a range of different practices, but we believe that we should be able to run around 140 clients and lift the operating margin to 35%, which increases your contribution to around $4 million. Now on the right-hand side, think about if we could add 10, 20 or 40 advisers, what does that do to the underlying earnings? So at 10, obviously, if you're doing $630,000 revenue per adviser and you're making 35%, you get $6.3 million in revenue, $2.2 million in earnings. At the other end of the scale, if we could find several businesses or a business that we could acquire, then that's $25 million in revenue and around $8.8 million in revenue. So this segment is highly attractive. It's highly profitable, and it's, going forward, going to be a key area of focus for us. Now where do you find these firms? The short answer is you've got to look in your own backyard. We had 536 firms between our licensed and self-licensed businesses. And the type of firms we're looking for are corporatized practices. In other words, they have employed advisers working within the business. They've got aligned culture and values, very high integrity, the sort of people that always want to do the right thing by customers and enjoy the difference it makes to people's lives, providing advice. And genuine succession. Some of the business owners are looking to exit. And if we find the right business and we've got the infrastructure and capability to take those on, we will. So that's one of our very exciting growth pillars that we're working on. The next one is building scale in asset management. Now the managed accounts market, people refer to these SMAs and MDAs, has -- really continues to show incredible growth. And the forecast by the Institute of Managed Accounts Professionals is that it will reach around $280 billion by 2026. The drivers of growth are many advisers want to have a portfolio focused more on the strategic advice. And what's happened is platforms have improved the functionality. The number of managed account offerings has improved, and they've got real benefits for advisers who want to have practice efficiency to lead the investment management to professionals. So this segment of the market, we just see, is continuing to grow. We have over 28 managers on our approved product list, and there's around 175 portfolios, and we've got very strong demand for these portfolios. What we are doing is we're launching our own range of managed accounts, the iQ portfolios. And they are arranged to cater for various structures. There's real benefits to clients, as I've mentioned. We've got those currently available through VMAPS, Ventura Managed Account Portfolios and FirstChoice. Macquarie was one of the first to go live in December with our iQ portfolios, and we're seeing some initial demand coming through. And those portfolios have a range of growth and defensive -- effectively diversified portfolios. We're working with some of our other platform partners to get distribution. In addition to the retail offering I've mentioned and the proprietary portfolios we're launching, we're also looking at a range of bespoke portfolios using asset consultants. And there's a lot of demand from larger practices to work with asset consultants. And with Ventura and our responsible entity and our capability, we'll be working to bring some other managed portfolios into the market. The next growth pillar is our new platform we're launching. Now one point I just want to reiterate is Centrepoint is an open architecture business. And our commitment is to be open architecture. We provide advisers with a broad choice of platforms and investment managers and have a very expansive approved product base. What we are doing is we're partnering with FNZ. FNZ are a global leader in wealth platforms. They have over $2 trillion in assets under management, around 30 countries. They've done 650 implementations. And as I've previously outlined, Centrepoint Alliance has a large community and significant scale so the partnership makes complete sense. The brand that we're launching it under is going to be IconiQ. If you think about the derivation of that brand, Icon, the pillar of strength and iQ as intelligence, and we're referring to it as intelligent portfolio management, and we're proud of that brand and think it will resonate in the market. To bring it to life, this is an example of the IconiQ brand with our configuration on the FNZ technology, and you can see the main one is a holding -- client holdings screen. The orange will be an area where fund managers can log in through [ X hub ] and create and rebalance managed account portfolios and models. And the bottom here is an investor view of what they would see. So we're very happy with how this is developing and looking. Now a few key points. The anticipated launch is quarter 3 this calendar year, and we'll provide further updates as we get closer to that. There's some regulatory approvals and things that inevitably we have to go through, but we're well advanced on all of that. We have competitive pricing when we launch. I'm not disclosing it today, but close to launch, but it will be a low administration fee, obviously, have aggregated pricing for household groups and capped fee structures. And we'll have an extensive range of managed accounts along with managed funds and equities. Now if you think about the commercialization of the platform, modest penetration can drive significant FUA. If you look at the Plan for Life data, their latest release is that they estimate the platform market to be a $975 billion market. Our funds under advice and the $67 billion is a subset of that because most of the money is on platform, $67 billion, the 1,300-plus advisers. So 1% penetration of our network would drive around $675 million. If we've got 5%, it would be over $3 billion. And given the size of the market, a 1% share of platform market is just under $10 billion. So a terrific opportunity. So finally, the last thing I wanted to cover off and then we'll just see if there's any questions online is our outlook. So as I said before, it's a good time to be an adviser, and it's a good time to be at Centrepoint. So we're very positive about our market business momentum, very positive conditions for advisers. Nearly all the firms talk about how busy they are, significant demand for services. We've seen positive equity markets, which is always good when you're an adviser to see people's balances increase. And pleasingly, the quality advice review is in the process of being implemented, and we've seen the first tranche of some regulatory relief coming through. The dislocation in the market, which I spoke to earlier, is creating opportunities to accelerate recruitment within the license business. We're seeing probably one of the healthiest pipelines we've seen for some time as some firms are opting for a business that has stability and a reputation for good service. We've got a focused team that is delivering outstanding service to advisers, and that remains a key area of focus for our business. We are a service company, and we need to really differentiate ourselves on the quality of service. The strategic initiatives that I've outlined have been very much focused on higher recurring margins, and we look forward to providing further updates as we progress on the commercialization of some of those. And we're just announcing an earnings upgrade for FY '24 in the range of $8 million to $9 million of EBITDA. So that is the update. So hopefully, that was useful and informative. I might just go through now and see if there's any questions on the line. So we have Rahul on the line. Rahul, have we got any questions from anyone on the call?

There's one question for you, John. Just a brief comment on whether you had any engagement with COG Financial post their equity stake announcement?

Yes. Look, of course, COG, roughly a 19.9% shareholder, and I've obviously met with COG. And as we do with any other shareholder and post these results, we tend to get on the call and we'll have discussions with those investors, and we'll continue to do so. So there's probably not more to update than we've had discussions with them. But yes, that's probably it. Yes. Any other questions, Rahul?

Not yet.

We'll just give it a couple of minutes and see if there's any. No more questions?

No.

Okay. Well, look, thanks very much, everyone, for dialing into the call. For investors on the call or potential investors, we appreciate their support. As I said at the start, it's a very exciting time to be at Centrepoint Alliance, and I hope the investors also feel the same way. And we look forward to providing you some more information as things progress. With that, we'll just end the call. Thanks for dialing in. Thanks.

Thank you.