Centrepoint Alliance Limited (CAF) Earnings Call Transcript & Summary

Good morning, everyone. Thanks for joining us for the Centrepoint Alliance Half Year Results Investor Conference Call. [Operator Instructions] My name is John Shuttleworth, I'm the Chief Executive of Centrepoint Alliance. And with me here today is Brendon Glass, our CFO. We'll have the presentation today followed by the opportunity for some Q&A. [Operator Instructions] So let's kick off and get into the details. So I'll kick off and just run through the high-level results and the business update, and then I'll hand over to Brendon who will take you through some of the detailed financials. So overall, the highlights for the first half of FY '25. It's been a good half. We've had strong financial performance driven by organic adviser growth, the full year impact of the acquisition of Financial Advice Matters and disciplined cost management. Our Licensee Services growth, despite tightening recruitment conditions, and we'll talk a little bit more about that, we ended the year or the half with 556 advisers and a net growth of 7 over the 6 months. Really pleasing, we measure our Net Promoter Score, and we're at an all-time high of plus 47, which reflects a high level of satisfaction, and I'll take you through a bit more detail in one of the slides in the deck. FAM has been completely integrated with all employed advisers operating under a unified model. The big news also in the first half was we launched the IconiQ Investment and Superannuation Platform in November with VIML, that's Ventura Investment Management Limited, as the operator of the IDPS and promoter of the Super Wrap. Now, we've been working on that for about 2 years. So it was a major milestone partnering with FNZ to get that live. And the other good news is the iQ portfolio, as part of our investment strategy, we've got just over a year performance, and it's outperformed its investment objective in 2024, and we're starting to see inflows building now that we have distribution across 5 platforms. So it's been a good half for the year. The snapshot of the results, gross revenue up $19.2 million or 14% on PCP. Net revenue up $3.4 million or 20%. EBITDA normalized, which excludes LTI and one-offs, up $1.2 million or 29%. Profit before tax, $4.6 million, down $300,000 on the first half. And Brendon will go into some details, but it's primarily driven by the group transitioning to a taxpaying entity. Cash closed at $9.2 million in December. And again, I'll get Brendon will run through some of the detail and give you that. And we've announced a $0.0125 ordinary dividend for the half. Consistent with many of the updates, we include the top 10 licensees because it gives you a good feeling for what's going on in the market. And there's been quite a bit of change, and I'll walk you through some of the highlights. So you can see there highlighted Centrepoint Alliance, #3 in the market. You'll notice that there's a slight difference sometimes with the number 559. This is of the ASIC register as opposed to the 556, which is our internal data, and that's just a timing difference to those of you who have some detail and I'll pick that up. But it's been over the 12 months, we're looking at because we thought it's good to just look at the whole year, given we closed that out in December. And Centrepoint had net growth of 39 advisers. The big news was a new group emerged, which is Entireti, which was the Fortnum Group, had previously acquired the Australian Unity business and then acquired AMP. What we've done there is we've mapped out the appointments, the resignations to the net change. So from that 1 January, although the transaction concluded later, so you can just see the full year impact, which is consistently what we've done across all of those numbers. You can see Count in #2 with 671 advisers. And the big news there was the acquisition of Diverger, Centrepoint, I've mentioned, and then you've got Wealth Today. The other one worth mentioning is Rhombus. That's the spinout from Insignia. They decided to divest their licensee business into a separate entity and retained some equity ownership and retained the salaried advice business. I think the key message here, and I'll elaborate on the next slide, we certainly feel that when it comes to net growth, we've consistently over several years, been one of the best-performing licensee groups. Our success is really underpinned in the high quality of services we provide, all of which are in-house and the satisfaction levels that we're actually getting from advisers, which is key to retaining the clients. Just on that, to give you a little bit of a look underneath and think what's driving it. As a licensee, we provide a whole lot of services to advisers from training and education to practice development to technical queries. Over the half, we've got just under 23,000 inquiries. We track all of these through Salesforce from the first touch to final resolution. Our average turnaround time reduced to just under 1.3 days, and that compared to just over 2 days in the prior period. And we closed all inquiries out -- or sorry, not all, but 90% of inquiries are closed out within 2 days and a lot, much faster than that. The Net Promoter Score, which many of you would be familiar with, and it has a range of minus 100 to plus 100. Our overall result was an all-time high at plus 47. The licensed advisers plus 52 now. In the footnote there, the prior comparative period, we were plus 42, so it's been a strong jump. The self-licensed is hovering around similar levels, 3 down. It was 33 in the prior comparative period, and 30. So we're strong across the board, but really strong with our licensed advisers, which is a testament to the quality of our team and the quality of the services we provide. We thought it was important given it's been just over a year since we have acquired the FAM business and integrated it, just to give you a bit of a business snapshot. So we had some salaried advisers previously within Centrepoint from the ClearView acquisition, and we acquired FAM. If you look at that combined, let's call it, salaried advice business, in the half it did $4.2 million of our revenue and contributed $1.4 million in EBITDA. On an annualized basis, if we take the full year, revenue of $8.4 million and EBITDA of $3 million. The profile of the business, household clients around 2,000, funds under advice, $1.8 billion. We've got 33 staff, 19 advisers and 14 direct support staff. Over the last year, we're strong believers in -- when you're running a licensee or a salary planning business, you have to integrate some companies, leave separate divisions running, we think that's very difficult to run an efficient operating model. So we've integrated the business completely. We've had very high staff retention, excellent client retention. We've standardized the advice process between the different businesses. We've harmonized the fees. So we're charging similar fee structures. Everyone is on standardized tech, and we're now looking at adopting managed portfolios to drive further efficiency. Now in terms of growth, the FAM business has good capacity within the group to service more customers based on the number of clients each adviser is managing. One of the ways we're doing that, we have very strong relationships with industry funds, and we get a lot of client referrals from industry funds. So we're continuing to work on strengthening those. So with no additional hiring of adviser, we've got capacity to further grow the revenue. We're also looking for acquisitions, but they have to be the right business at the right price. It's got to be a cultural fit and the FAM business has been a good acquisition. And so we're looking for similar types of opportunities. Given it was FAM's first 12 months performance, we thought worth pulling this out separately. So we completed the acquisition, it feels like a long time ago, but it was the 1st of December 2023. The EBITDA over the 12 months has increased by 45% to $1.6 million. In the table, you can see the revenue profile of $5.5 million, $5.8 million to $6 million. So on FY '23, the revenue up 3.5%. Good job of managing the expenses. So we've held those back at the '22 level at $4.4 million. The $1.6 million EBITDA. And the margin has gone from 20% to 27%. So overall, a pleasing acquisition and an acquisition that was earnings accretive as outlined when we first presented this to the market. The other big news is the IconiQ platform is live, and we've shifted from build to sales. The last 2 years, we've been working with FNZ, getting the platform configured and a lot of work has been done, getting all the disclosure documents. A huge effort working with our partner, FNZ. We soft launched the Investor Directed Portfolio Service, which is the investment structure, which is used for non-super money, but also self-managed super in October. But we didn't actually market it and -- because we wanted to get 2 other things launched before we did it, and that was the Super Wrap and the IconiQ SMA. There's a screenshot there. You can see the Investments, Super and the SMA just with those little kind of graphics. Just to remind shareholders of the features, it's a really functionally rich platform presented at a very competitive price, and we're certainly getting good feedback from the market. The user experience is highly intuitive. The global tech partnership with FNZ means we can deliver globally leading technology at a very competitive rate. There's a wide range of investment options. We're expanding the menu every week, adding new funds and managed portfolios. The platform caters for a great number of account structures. It has very comprehensive portfolio reporting. And one of the things that has really been attractive to the advisers we've spoken to is the competitive pricing, no minimum fees or account-based fees and all of those are outlined in the PDS. The SMA or Separately Managed Account was launched in December. What that enables us to do is provide investment managers and asset consultants an investment vehicle for managed consultants. So we're in discussions with asset managers and asset consultants to basically launch additional SMAs onto the platform. So exciting times. It will -- distribution will build slowly, and we hope to be able to demonstrate some progress when we do the next update in August. The final slide before I hand over to Brendon is the iQ portfolios. They are separately managed accounts. To give everyone the context, as a licensee, in the past, we've done paper portfolios where we've provided model portfolios to the advisers. We've taken those. We've partnered with Morningstar. We've turned those into Separately Managed Accounts. We now have a year of performance. You can see the 1-year return, the investment objective that's outlined in the PDS and the overrun performance. The other strong point, which is really important because you think generating flows is a factor of 2 things. You've got to have a good investment performance and a well-run SMA, but you need distribution. So we're on Macquarie, HUB, Expand and more recently, Panorama and on IconiQ as well. So we're on 5 major platforms with strong investment performance. So again, the 2 strategic initiatives, just for a quick update, the platform and managed accounts, both should be a source of future earnings as we gradually build flows in that space. I'll now pass over to Brendon who will take you through a bit of a deep dive on the financials.

Thank you, John. Looking at the financial results summary, John has already covered off the gross revenue and net revenue contribution. The management expenses were up 3%, 17%, including FAM acquisition, which is primarily driven by the expense increase from the acquisition of FAM as well as general inflation costs. The cost-to-income ratio has continued to improve to 74% and the EBITDA of $5.3 million is up 29%. That's driven by the FAM acquisition as well as ongoing organic growth in the licensee fees and adviser numbers. Our net profit before tax of $4.9 million was up $2.5 million, and that was driven by $1.2 million in growth in EBITDA and $1.3 million in the FAM contingent consideration release in the first half. Now looking at the revenue and expense analysis in some more detail. The adviser fees are up $1.7 million, and that was primarily driven by $700,000 from the licensed adviser growth from 518 in the first half '24 to 556. There was also $0.7 million derived from the license fee rate card increase effective 1 July. There was $100,000 fee growth in the self-licensed network from the fee rate card increase, and there was $0.2 million from the virtual services revenue growth, which is principally paraplanning. Conversely, there was $0.7 million reduction in other revenue, and this was evenly distributed across partner program revenue, lending and VMAPs funds margin. The FAM acquisition contributed $2.3 million revenue increase for the first half, and that's on the base of 6 months of trading compared to 1 month in the prior comparative period. From an expense perspective, expenses were up $0.4 million with a nominal increase in employment of 2% and general and administrative costs up 4%. The FAM acquisition also resulted in $1.8 million in increased expenses, again, on the base of 6 months of trading. Now looking at the continued net revenue trajectory for the past few years. What this showcases is the contribution of the acquisitions of ClearView Advice and more recently, FAM, as well as the impactful organic recruitment and license fee growth in terms of transforming the business from a non-controllable rebate-centric revenue to a more stickier recurring revenue model. So you can see that from the first half '22, the recurring revenue increased from 64% of revenue mix to 88%. The adviser fee net revenue share has grown from 57% H1 '22 to 67%. We scaled the salaried advice business from 7% in H1 '22 to 21%, driven by those acquisitions of ClearView Advice and FAM. Conversely, other revenue contributions have reduced from 36% to 12%, and that's driven by some slow downturn in the investment margin business as well as the cessation of platform rebates. Now that's been somewhat offset by the development of the partner program sponsorship. And important to note that the investment management has been relaunched in the last quarter of 2024. The EBITDA margin has grown from 18% to 26%, and that's driven by higher margin contributions from salaried advice and disciplined expense management. From an expense management perspective, over the last few years, you can see that the cost-to-income ratio is down from 82% to 74%, and that's driven by operational efficiencies from those acquisitions together with those overhead savings. Our expenses are down from 26% to 22% of net revenue despite a small increase in headcount post those acquisitions. The key callouts from a balance sheet perspective, I'll go through the cash and cash equivalents in the following slide. The claims provision has decreased by $0.3 million due to one material claim over the period of $200,000. There's 9 open claims at the end of the period compared to 10 in the prior corresponding period. The loan payable to NAB decreased by $0.8 million due to 2 quarterly repayments. So the loan payable to NAB at the end of December is $2.4 million. We have $5.6 million in this specific facility available to look at future acquisitions as well as $2 million in another facility, which equates to $10 million in a facility from NAB. Our net tangible assets increased by $0.7 million. Now looking at the cash movement in some more detail. The cash for the period closed at $9.2 million. The gross cash from operations derived was $4.7 million and the one-off costs were $100,000. Now as the business has scaled to more than $300 million, we see some movements in our working capital from month-to-month depending on the number of adviser settlements each month. So as is noted here, at the end of January 2025, that balance had recalibrated to $11.1 million. The claims paid for the period was $0.2 million. We derived $0.3 million in interest income as well as $100,000 from other recoveries. I've mentioned the $0.8 million in bank borrowing repayments. There was a final dividend payment of $3.5 million. And we also incurred $0.8 million in software development costs for our investment management initiatives, which John has mentioned. There was $0.5 million in repayment of lease liabilities, and we incurred $0.2 million in finance costs. So over to you, John, for the outlook.

Yes. Thanks, Brendon. So the final slide, just to sum up the presentation. Look, we feel that the group's strength in our core business, as we've shown for a number of years of the Licensee Services, combined with the new strategic initiatives that are in market, and we're focused on driving revenue and growth position us well for the future. As mentioned in -- when I went through that summary of the top 10, there's a lot of dislocation in the market as people have made acquisitions and brought businesses together. That typically is a catalyst for advisers to look around at other opportunities, and we're in discussions with a number of different firms and have got a very strong pipeline. So confident that we'll finish the year in a strong position. We've got the strategic initiatives that are launched in market. That whole strategy, as outlined in previous updates, is how do we get higher margins, recurring revenue, participate in other aspects of the value chain. And you've only got to look at some of the other trading multiples of platform providers and others to see if we can get this right, what that can do for the business. Our earnings update for FY '25, we've just tightened the range a little bit, reflecting confidence in the numbers. So we're reflecting EBITDA for the full year of $10.25 million to $10.5 million. It was previously $10 million to $10.5 million. And the other key point is our corporate tax obligations commenced in the second half of FY '25, and that's in relation to the FY '24 earnings. So overall, we feel like we're in a good place. The business has got good momentum. And hopefully, the update gives you a bit more detail into how the business is performing. So with that, I might just see if we've got any questions online. So Rahul is there. Rahul, have we got any questions that people have entered into the Q&A?

Yes, John, there are a couple of questions. So the first one is for you, John. It's basically on the managed accounts distribution. So the question goes like, the iQ portfolios are distributed on the other platforms in addition to the IconiQ platform. So what is your thinking about the benefits of keeping managed accounts distribution exclusively to the IconiQ platform to help grow it?

Look, our view is, philosophically, we are an open architecture business. And I believe very strongly in -- if you have a platform or you have managed portfolios, we have to be open architecture, and we have to give advisers choice of what platform to use. The last thing that I want to do is say, look, if you want to use the iQ portfolios, you have to use them on IconiQ, because quite often that involves someone transitioning assets for a client, and they have to look at the client best interest. So our strategy is very much around open architecture. We don't have every single platform, and we ensure we have quality investment options. So we don't have all managed accounts, but very much focused on making sure that you can access them across any platforms. And to that point, we would like to add them. There's a couple of major platforms that we're not on yet and would certainly be chasing to get distribution on those as well.

Thanks, John. The next one is for Brendon. Does the guidance range include the once-off FAM release of $1.3 million?

Yes. So we normalize any expense or income-based or contributions to the business. So that's -- the earnings update today includes backing out the release of that FAM earnout. So that's already embedded within the numbers.

Okay. Thanks, Brendon. The next one is Netwealth is absent from the distribution list. Will this be added at any time in the near future?

Yes. Look, we would love to have Netwealth on the platform. I mean Netwealth are a major -- they're on our approved product list. We've progressively gone through the different platforms. It's taken us a while to get distribution. We've got a new Head of Distribution, and we're in the process of having discussions with Netwealth, I believe. Because, as I said, we want to have it broadly available. And being a major platform, we want to ensure that they're also included. So that's in progress. And so if there's any Netwealth people on the call, we'd love to hear from you and help get these portfolios on the platform.

Thanks, John. That's it. No more questions.

All right. Terrific. Well, thanks very much, everyone. I appreciate you dialing in, and we'll keep you posted as the year progresses. So I just wanted to thank all shareholders for your support. We know you have options and appreciate the support you continue to give to Centrepoint. So with that, we'll finish up on the call. Thanks, everyone.

Thank you, everyone.