Centrepoint Alliance Limited (CAF) Earnings Call Transcript & Summary

Good morning, everyone, and thanks for joining us today for the Centrepoint Alliance Full Year Results Investor Conference Call. My name is John Shuttleworth. I'm the Chief Executive Officer of Centrepoint Alliance. And with me today is Brendon Glass, our Chief Financial Officer. [Operator Instructions] But needless to say, if you don't have an opportunity, you can be get in touch with myself or Brendon after the conference call, and we're more than happy to answer any questions that you might have. So let's jump into the agenda. So what we'll do is I'll kick off with a highlight of the business results and share some industry data. Brendon is then going to step you through the financial results in detail before passing back to me, and I'll just cover our growth strategy and overall outlook. So kicking off with the business results. So the highlights for the year, we've had a strong result, as you would have seen from the ASX release we put out. Continued strong financial performance with EBITDA of $9.1 million, up 20% on the prior year. We've also very pleasing -- and I'll give you a breakdown in some slides later on -- had the highest net growth with 38 advisers, which was double the nearest competitor, and that's advisers under our license. We completed the acquisition of Financial Advice Matters in December, and we've got 7 months of revenue in these results, and it contributed $3.6 million, $1 million in EBITDA. With the additional advisers, we -- service is what we do, whether it's technology, training, education, research, we get lots of queries. We've had a 20% uplift in service requests, all tracked by our sales force, and pleasingly, we've responded to those [ best ] service standards and our Net Promoter Score is at an all-time high at 41. We also launched some new iQ Managed Portfolios in Ventura as part of our turnaround of the asset management strategy, and we're starting to see some flows there. And we're on track to launch the new IconiQ platform, which will go live initially with investments in October and followed by a superannuation before the end of the calendar year. The snapshot of the results: gross revenue, $288 million, up 6%; net revenue, $36.1 million, up 11%; the EBITDA $9.1 million, up 20%; profit after tax, $7.8 million, up 24%. Cash at $12.2 million at the year-end, down on prior year, but that was largely due to the cash used as part of the FAM acquisition. And the dividend of $0.0175 ordinary takes the total dividend for the year, including the interim to $0.0275. Now last year, we paid $0.03, but in that $0.03, there was a $0.05 special due to the asset sale of the Ventura funds. Now one of the charts that I thought it's worth going putting in is just to give some context about the team that's been running the business certainly for the last 3 years and some have been there for longer. And we've had really disciplined execution of the business strategy that's resulted in strong growth. I've used FY '21 as a baseline. And then really the pivotal piece was when we moved away from being a subscale player, and we acquired the ClearView Advice business, which included Matrix and LaVista. And you can see how our EBITDA has grown from $3.4 million up to $9.1 million, up 168%. The net revenue has also grown from $28 million to $36 million. What you don't see in those numbers is that we had over those years certainly sort of 2022 and a bit from year '23, and the last of the asset, the platform rebates and asset management rebates. So Brendon will go into the details, but we've done, we think, a good job of replacing that high-margin revenue that we couldn't keep due to regulatory reasons with a more sustainable model. I'll put the full-time employees in the cost-to-income ratio. So you can see a pretty disciplined job that's gone up obviously by 25 FTE in '24 as a result of the acquisition. Pleasingly, the cost-to-income ratio, diligent management of expenses is coming down. The profit before tax numbers gone from $1.5 million progressively up to $5.6 million. The $6.6 million, just to remind people on the call, we did have a divestment of the Ventura business for $1.7 million. That was in the FY '23 numbers. The dividends -- this is dividends paid not declared, but we've been a consistent payer of dividends. And right at the bottom of the slide, what I've tried to show here is the growth. And the light blue bar is the authorized reps under our license, and just in the brackets included the employee advisers that are salaried advisers within our company as opposed to running their own business, and you can see the self-licensed advisers growing in the number of firms. Now the thing I should say there is that whilst that business has been -- we've been growing advisers, the market is actually contracted by 19%. So the team have done a great job growing business. I've always include this because there's a lot of interest in us as where we sit relative to others. And this is at the 30th of June. So it shows the number of authorized reps and the net change. And you can see that Centrepoint ranked #4, 551. The numbers are slightly different to some internal data because this is off the ASIC Register, and there's a slight timing difference where you'll see a number of 549 on some of the others, but that's just timing external register versus internal. So we experienced the largest growth in the market, and you can see double the nearest. Sequioa and Lifespan have shown growth but a lot of declines from some of the other players. Now M&A activity is quite disrupting -- disruptive for other businesses, and there's been quite a lot going on. We've had Fortnum acquire Australian Unity and then recently announced AMP and with a new brand called Entireti. WealthToday by the M3, which was part of Insignia account completed the demerger transaction, and Infocus recently bought Maddison. And the other piece that's happened is Insignia have divested their licensee business. They've spun that out. They've just kept the sales force and reduced salaried advisers. So you'll see on a chart coming up, that shows what it now looks like. So what I've done just out of interest. We've said what does this market now look like? When you take into account the -- assuming the AMP transaction completes, which there's no reason to assume it wouldn't, and they will be the largest player with 1,183. There's CountPlus then us, and you can see the other players. Now if you wind back a few years, we had an advised market that was largely banks, AMP, Insignia. The market has completely changed to independent businesses and the exit of institutional players. Now one of the things I did want to say, if you draw your attention to the box in the bottom right-hand corner, we look at the ASIC Register, we look at what's going on with different licenses and we look at the attrition rates as well as licensees putting on the firm. So what we've done here is we've taken 3 of the businesses that have -- are in the middle of doing transactions that announced. And we looked at the June quarter attrition rate, loss of advisers and we annualized it. And down the bottom, you can see the 7.3% attrition at the industry. Now attrition is offset by recruitment to give you the net number, but what you can see is as soon as you do a transaction, the attrition rates increase. Now why that is interest to us is that quite often, advisers will take the opportunity when business merged to look for a new home, and I'll go into further detail later on. So what I'm going to do now is I'm going to just pause, hand over to Brendon, who will go through the detailed financial results, and then I'll go through our growth strategy and give you a bit more context on some of those comments about.

Thank you, John. Looking at the financial results summary. The revenue trajectory has been covered by John. From an EBITDA perspective, 20% up to $9.1 million. That was mainly generally FAM acquisition and organic license fee growth for the year. We had $0.9 million in one-off costs, of which $600,000 were employment redundancies and $300,000 is acquisition-related costs. As John mentioned, the net profit before tax of $5.6 million was down $1 million on PCP. But when you back out the asset sales input from F '23, the increase is $700,000. Now looking at the revenue and expense analysis in some more detail. The adviser fee growth was $1.6 million which was driven by the transformation of advisers -- transition of advisers coming in from 2023 onto a full rate. Cut in 2024, we had the final cessation of platform rebates of $0.9 million. We had the ClearView partner program revenue of $0.5 million running off, and we derived $3.6 million from the FAM acquisition in the first 7 months. From a expense perspective, when you exclude the FAM acquisition, the expenses were down 2% on PCP, and that's principally driven by a 10% reduction in both subscriptions and general and administration costs. And from the FAM acquisition, we incurred $2.6 million for the 7 months in operating expenses. Now looking at the net revenue growth for the last 3 years. So notwithstanding we've had a 41% reduction in that noncontrollable runoff of platform rebates, we've seen a change in business mix, and we've changed to an annuitized more controllable revenue profile. And so across the group, we've had a 9% uplift in group revenue. In the adviser fee area, we've had a 23% CAGR uplift, and we've had an $11 million absolute increase. Of which, that's been leveraged from the ClearView Advice acquisition, and importantly, a $3.7 million contribution from net organic growth. We've had 63% growth in the salaried advice leveraging the ClearView Advice acquisition. Obviously, more recently, the FAM acquisition. And the Lending Solutions business has driven a 10% growth, and that's principally from the Learning as a Service initiative, which was launched in 2023. Now looking at the operating leverage of the business, you can see those increasing positive jaws with the business. So there's been a change in, as I mentioned, the business mix of the business. We've seen the runoff of adviser of higher-margin grandfathered rebates being replaced by sticky annuitized fee for service revenues. Now that's coming at a reduction in gross margin. But notwithstanding that, the EBITDA margin of the business has grown from 12% to 25%. And that's by virtue of higher margin contributions from our salaried advice business, material labor synergies from those acquisitions of ClearView Advice and FAM and ongoing discipline around our cost management. In terms of balance sheet, there's been a few changes in the balance sheet mix this year. So I'll just call out the key highlights or key call-outs. The intangibles have increased by $8.7 million. It's $4.8 million attributed to the goodwill from the FAM acquisition as well as $4.7 million from the FAM from customer identifiable relationships that we attribute to the business, and it's been partially offset by $1 million of amortization of those customer relationships. Employee entitlements have increased by $0.5 million on the back of the FAM acquisition, and we have another provision increase of $1.5 million, of which $1.3 million is the FAM deferred consideration, which is -- will be assessed at the end of the first 12 months and due for settlement on the basis that the earn-out is achieved. So that will be assessed at the end of November. From a loan perspective, the loan payable at the end of June was $3.2 million. We drew down $4 million of the $10 million facility in the first half of '24 for the FAM acquisition, and we've repaid $800,000 in the second half. Our net assets increased by $2.1 million, really primarily driven by the net profit after tax of $7.8 million and somewhat offset by those $5.9 million dividends that have been paid. Now looking at the cash movements for the year, the material callouts. The gross cash from operations derived was $9.1 million. I've mentioned the outflow in the one-off costs. As the business has scaled to circa $300 million, we see some timing differences in the business from month-to-month. So the movement to the year was $0.7 million in outflows. From the FAM acquisition, the net cost of that acquisition was $6.3 million, factoring in the cash that was derived and inherited at integration. The contribution in net terms from the bank borrowing from NAB was $3.2 billion. We've had those dividend payment outflow, as I mentioned, is $5.9 million. And in that other bucket of $2.4 million, the material drivers of that outflow was we had capitalization of initiatives of $0.9 million, and we had repayment of lease liabilities of $0.8 million. And then on to the financial snapshot. So from an expense management perspective, you can see the strong metrics showcasing how we've effectively scale the business. From a risk management perspective, by the nature of our business is the licensee and collecting revenue up-front from our clients, our ECL to gross revenue ratio is nominal. The number of claims paid out. Whilst it has increased from '23 to '24, importantly, the claims paid out on average over the last 2 years is less than $20,000. From a balance sheet perspective, the closing cash -- the cash decreased by $3.4 million. As John mentioned, that's been principally driven by the FAM acquisition. From a debt perspective, we've gone from a 0 debt position to $3.2 million at the end of June. The repayment process is -- cycle is what will be required in the next 2 years, $1.6 million per annum. And from a shareholder returns perspective, the -- we've got some really robust metrics there. Our ordinary dividend yield has been in the range of 9% to 10% in the last 2 years. Our ordinary dividend paid have been increasing year-on-year. Our basic earnings per share has grown, and we've been delivering annualized return on equity. So over to John for the strategy update and outlook.

Yes. Thanks, Brendon. So what we'll do in the last sort of probably take about 10 minutes. I thought Just run you through our growth strategy. I used to use this chart at the half year update, and I think it's just a nice simple representation of what we're doing and how we're tiring to grow the business. So the way to think about it is by the 5 pillars that we're working on to grow the business. And the first is growing the licensee side of the business, which is the largest part of our business with the authorized reps and self-licensed. It's growing, the salaried advice business and the FAM acquisition was a pivotal one, which are looking to build on. We want to reverse the trend line in the asset management and focus very much on building sustainable revenue through managed accounts and investment management margin. We are entering the platform market. It's a big market, and I'll talk more about that, and we're on track for that. And then the lending business, we've been a lending aggregator for a period, and we've introduced Lending as a Service, and that's growing, and I've got a slide on each of this, and I'll just walk you through them to give you a bit of a feel of progress on each of those. So the first pillar, growing the licensed and self-licensed business. Look, we think we're really well placed with the acquisitions that are going on and some of the disruption in the market. So the total market has around 15,300 advisers. Normally, there's a 6% to 7% attrition rate, which is about 1,000 advisers that you're competing for. But history suggests that -- or it doesn't suggest, it shows that switching accelerates when there's merger activity. And those recent large M&A involves about another 1,800 advisers. So we think that it's going to be quite a lucrative recruitment market for the next 12 to 18 months and very focused on growing that. Now how can we benefit? Well, if someone switches license, they go to 1 or 2 areas, they have to find another licensee or they decide to become self-licensed or join a self-licensed. Now we're uniquely positioned that we have a really strong business in both. So licensed business, 549 advisers, we get a lot of referrals from the network. Our services are in-house. We're profitable. We're a full service provider and a good brand reputation, and the Net Promoter Score that's widely used, which we do internal surveys on, we're plus 41. So our network is happy with the services we're providing happy to refer. Our self-licensed offer, probably less well-known, but we're #1 in the market. It's a very fragmented industry. We've got 203 firms comprising 820 advisers. In the last 12 months, we led the market in AFSL applications, helping firms get their license from ASIC to establish, and we have a full suite of licensee solutions. So the sort of governing thought of this slide is that we're well placed and the disruption should provide a bit of a tailwind for further recruitment. The acquisition of FAM, the second pillar growing salaried advice, completed the transaction in December. We've done a great job between the 2 businesses that are now one, standardizing the technology, the operating model. It's 7 months trading in the results. The revenue was $3.6 million and the EBITDA contribution of $1 million, and we expect on an annualized run rate. It will do around $1.5 million to $1.7 million. FAM is earning around a 28% EBITDA margin, and we're on track to get it to 30%. So higher margins than the traditional licensee business, and with the salaried advice business is expected to contribute roughly 30% of total EBITDA. So that shows you with 19 advisers if we build this what a profitable business it can be, and we're looking to grow further by the acquisitions and book buys and continue to grow that because it's a highly attractive segment. The asset management, Pillar 3, it's all about managed accounts and it's all about building distribution. The chart there is from IMAP, the Institute of Managed Account Professionals. It shows the huge uptake of SMAs, MDAs, diversified portfolio. A lot of advisers are using them because they're just highly efficient portfolios to operate their business and helps them manage more clients. We have a big distribution network with 28 SMA managers and 200 portfolios. And some of the names are there. We announced at the half that we launched our iQ portfolios, which is by Ventura as we have a separate Ventura AFSL. And you can see we've got 4 accumulation portfolios and 3 defensive. We've got distribution on Macquarie Hub and in the late stages of discussions to secure distribution with the other major platform providers. Now Pillar 4 is new, and we've been working on this for a couple of years, and it's pleasing that we're getting to the stage where we'll be launching this. And it's a new investment platform that will go -- will invest in and super platform and the investment will go live in October '24. So it's branded IconiQ. We've partnered with FNZ. The status of the investment is we completed the final technology release in July. We got the Ventura a license varied, so it can be the operator of the IDPS which is the legal structure for investment. We've completed all the disclosed documents due diligence. We're doing final testing in the live environment with actual money to bed down all the operational processes and we should go live with that in October. Now the investment IDPS, you run non-super but you also run self-managed super funds on that. So there's an opportunity to start building some flows there. Superannuation is always built and configured on top of the investment. We're in the process of configuring all the super rules and doing the development. We've finalized super trustee with, in the SuperWrap division with our external RSE, and we expect that we will be able to go live with that by the end of this calendar year. Now comments to make on the platform, partnering with FNZ has been terrific. They have completed about 650 implementations. They've got $2 trillion globally. And you can imagine all the collective development across many implementations. So it's a functionally rich platform. We've got a range of account structures, broad range of investments. Everything you'd expect to find funds, SMAs, equities, digital-first, straight through processing is a highly efficient, really comprehensive reporting that people want to see portfolio, asset allocation tax. And one of the standouts will be low fees. We're not charging a minimum or account base fee. So when we issued a PDS, you'll see the final pricing but highly compared to other offers in the market. I've showed this before, but that's an example of an adviser looking at a client with a client holding screen and bottom right is what the investor sees and things, but we will have more on the website when we go live. Now on the platform, 3 key messages on this slide. Firstly, the market is large and attractive, and a modest penetration can drive significant funds under administration. So Plan for Life measured the platform market. It's about $1.1 trillion. Our network, we estimate we've got a $69 billion under advice, and we've got a large network of 1,374 advisers, 1% penetration of network, simple math, would give us close to $700 million in FUA. If we've got 5%, it would be 3.5%. But a 1% share of the market, you can start building a meaningful platform business if we're successful. Slide 2 is sort of addresses the question, well, can you believe it? Now what's happening in the market, we've got some of the major platforms listed here. And what we've done is I've just called out, you can see the headline is that independent platforms are growing at the expense of institutional. So you had your traditional big incumbents, the CFSs, the BTs, the AMPs, the Macquaries, the Insignias, they've actually been losing market share and the Macquarie is the only exception, but the Netwealths and HUBs have had spectacular growth. But if you look down sort of totals at the bottom, you've got Centric used the FNZ infrastructure. They've now got $9 billion. So the premise that of all flows going to be incumbents is not the case, and we think there's a big opportunity. The final consideration as investors is if we're successful on building out, the trading multiples and market caps of platform players is significantly higher than pure-play licensees. So as the market starts to see that we're successful in building [ through in ] scale, hopefully, we start seeing that taking into account as people review our business. The lending -- just a quick update on lending. So the lending, I don't think we've really disclosed this. It's a small business but a growing business and got good potential. It grew from $1.4 million to just under $1.8 million in FY '24, which was a 22% increase, and our EBITDA increased 33%. So it does about $0.8 million. The main -- the core part of the business through several years was we're a boutique aggregator, and we have all the infrastructure run a lending business, so credit license, lending infrastructure, tech, the lending panel, all the things you would expect. A $3.5 million loan book, 80 brokers and $900 million in annual settlements. About 18 months ago, we built on top of that infrastructure Lending as a Service, and it provides full service lending for advisers, and we have in-house lending specialists or brokers. We've grown that. We've now got 44 firms in the network using the service. It's up 47% on the prior year. But if you look at the penetration, only 8% of the network are using it. So if we start building the penetration and increasing the productivity and writing more loans, and we did $200 million, then hopefully, that will continue to see this becoming a more meaningful contributor to our result. So finally, summary and outlook. So we think we're very well positioned to continue to grow revenue and earnings. We're going to benefit from adviser recruitment. And due to the industry consolidation, we're very focused on trying to accelerate growth in the high-margin salaried advice area. As mentioned, we've got new initiatives, managed accounts and lending starting to gain transaction, which will hopefully start building their contribution towards the business. The IconiQ platform due to go live in October for investments and by the end of the year for Super. And our underlying EBITDA guidance for FY '24 is in the range of $10 million to $10.5 million. So they were the key slides we wanted to go through. So we're feeling like it's been a strong year. Hopefully, that, as an update in addition to the material we've lodged the ASX, provides you a good snapshot of the business. I'm mindful we're pretty close to time, but I might just see if we've got any questions. And I think we've got Rahul on the line just to let us know if there's any questions that anyone has lodged that we should answer.

Yes, I've got a couple of questions coming in. The first one is for Brendon. You flagged an underlying EBITDA of circa $10 million in FY '25. So should we expect a similar percentage increase in the net profit before tax?

A similar percentage increase.

Yes, which is basically like a 10% increase from this year?

Yes. Well, on the basis of cash from operations and the increase in the EBITDA being cash from operations, if you align that to the NPBT, you get a consistent alignment that, that probably answers the question without doing the math. So yes, intuitively, that would be how I'd respond to that.

Okay. We've got a second question. This is for John. Does having salaried advisers not create a conflict of interest with the client base?

In fact, it's the opposite. So when we announced we've done it, we had quite a few businesses in the network approach us and say that they're, for example, thinking about selling a business or retiring in a few years' time and quite interested in having discussions with us about how that could potentially work. And so what you actually find is we're not sort of competing in the same geographic areas probably, I mean there's other advisers. It's pretty simple job. [indiscernible] ourselves, my [indiscernible] is so busy, but they say it as a positive because we -- and our aspiration of growth is the right term, and they would be interested in having discussions, and we've got some of those discussions going on at the moment. The other thing that happens though, which is also helpful, when you run an advice business, we're almost having an opportunity to set up and run a model advice practice with the most efficient technology and business processes. And therefore, rather than being a licensee, you can sort of showcase what you're doing. So what we found is it's been a complete net positive, and I don't think we've had any concerns expressed, only positive.

Thanks, John. No more open questions as of now.

No more open questions. All right. Well, look, thanks, everyone, for taking the time and dialing in, and thanks to all the shareholders for your continued support over the year. If you do think of any other questions, please get in touch with us. Our details are on the ASX release, and we'd be more than happy to follow up with you individually. So I appreciate the support, and thanks for dialing in.

Thanks for dialing in. Have a great day, everyone. Thank you.

Thank you.