Centrepoint Alliance Limited (CAF) Earnings Call Transcript & Summary

Good morning, everyone. Thanks for joining us today for the Centrepoint Alliance Half Year results investor conference call. [Operator Instructions] 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. We'll have the presentation today followed by the opportunity for Q&A. [Operator Instructions] All right. So what we're going to cover today is the highlights for the first half of 2026. And then go dive into some different areas and try to give everyone a good background on the business. So we'll start out, look at the licensee growth and our pipeline and compare what's happening with us to some other licensees. Salaried advice business has been a key contributor to an uplift in revenue and earnings, and we'll go through what we're doing with that business. Our managed accounts and IconiQ platform, while still early days, is starting to grow. And we've got some early adopters and will run you through what those numbers are looking like. We announced last week a divestment of our lending aggregation business and retention of lending as a service, and I'll take you through some of the details of that. And importantly, artificial intelligence, which we see as creating really significant tailwinds for ourselves and advisers, we'll just give you a sense of what we've been doing in that space. I'll hand over to Brendon, who will take you through the detailed financial results, and then we'll finish off with an earnings outlook. So if we kick off. Look, we've had a strong performance, two things that have really driven it, we've had market-leading adviser recruitment and strong earnings from the Salaried advice business. So for the half, we delivered EBITDA of $6.2 million, which was a 17% increase. Pleasingly, we have also increased our market ranking to the #2 licensee in the market, which has been driven by our continued strong adviser recruitment and strong retention. Our adviser network at the end of December had 587 licensed advisers, which was a net growth of 14 for the 6 months. But as of the 20th of February, which was last Friday, we've added 15 more advisers who have joined the group and a further 16 advisers have signed and progressing through onboarding. So we've got good momentum at the moment. Our investment and platform adoption is increasing, and we've had 72% growth in the combined over the period. And as of December, we've had $565 million. We have a platform transition pipeline that we've built of $1 billion. And look, when I say a pipeline, it's not a loose, we're having conversations, but it's actually firms that have committed to moving money into bespoke managed account portfolios, which have been developed in conjunction with Morningstar and Lonsec, and that money will transition. The salaried advice business, we increased revenue by $1 million or 24%. Part of that was driven by the Brighter Super acquisition. And we've also been repricing some of the underlying clients to reflect the service scope. And the final thing is we partial divestment of the lending aggregation business just to really sharpen our focus on licensee services advice and the platform. Here are some of the financials. I'll only touch on a couple of these briefly because Brendon when he does the detailed financials, will pull them apart, but gross revenue up $19.8 million or 12%, net revenue up $1.4 million or $7 million EBITDA I've mentioned, and we have declared an interim dividend of $0.125. I'll get Brendon to run through the net profit before tax and the -- explain the difference between the statutory and the normalized and also run through our cash side of the business. Now turning our minds to the licensee side. For those that have been on a few calls, we often show this table. So this is ASIC data, and there's a company wealth data that analyzes the ASIC register. So you can see the number of authorized reps, the appointments, the resignations, the net change and Centrepoint at 587 has put on 14 advisers. Now you'll notice there's a difference by one adviser. This is ASIC data, the other stuff we quoted in the statutory accounts. We quote our internal data, and there's a slight timing difference, if you're wondering why some of those numbers are slightly different. So look, it's been a strong performance. We've just overtaken account, which was pleasing after they did an acquisition some time ago in entirety, still #1, but we've got strong momentum. As of the 20th of February, we now have over 600 authorized reps under our license and sort of sustaining and hopefully, we'll grow the gap to our -- #2 position in the market. A slide that I thought I would just pull together to show what's actually happening in the market and I'll focus your attention on the left-hand side, sort of pie chart, and what this is showing is of all the advisers that have been switching in the market from the beginning of July 2025 to the 20th of February, where -- which -- where did they end up in the top 10. So it's looking at all switches going to top 10 licensees. And Centrepoint is actually getting 24% of those switches from the broader market. So if you say what is our share just off the top 10 licensees, we've got about 13.5% of the advisers, but we're getting 24% of the switches, which is pleasing because it shows we've got a strong proposition in the market. Our recruitment pipeline has 16 confirmed transitions underway. So there's -- the offer has been accepted. They're in the process of onboarding. We onboarded for the period of 1 January to the 20th of February, 15 advisers and we have another 100 advisers in the pipeline when we've submitted a proposal or we're in the middle of due diligence. So it feels like a strong year of recruitment for us. I mentioned earlier about the strong first half performance of our salaried advice business, which was financial advice matters that we acquired a couple of years ago. And what we've seen is improvements to advice productivity and also the integration of Brighter Super. Now what we've been doing in the business is we've been looking client by client and adjusting fees to make sure they align to service. We've done integration with Brighter Super. So those advisers now operating within the business. We've had to rationalize unprofitable clients, and we're also trying to improve productivity. We've hired a new head of ops and we're streamlining all the operational processes. So if you then look at the waterfall in the first half of '25, the business did $4.2 million. Through some of the fee increases we've added $0.3 million, Brighter Super, $0.6 million and then $0.1 million. So we've put on -- we're now for the first half finished it, $5.2 million. Now what I wanted to do is just illustrate the benefits of productivity in an advice business. And I'll just explain again start on the left-hand side, this is an illustrative chart. So what we have here is on the left-hand side, we have what is the average individual adviser revenue. So back in the full year of FY '25, our average revenue across the business was $447,000 per adviser. We've actually, through some of the initial productivity uplifts and fee increases, lifted that, and that forecast is $524,000, which is a combination of the first half and what the current run rate is but if we could lift this business to equivalent to the top quartile of fees, then we should be able to get $750,000 per adviser. And if you just multiply that $750,000 by 20, you get the $15 million potential, which is in the far right-hand bar. So it shows the revenue walk from $8.5 million to $10.5 million to further upside potential as we continue to lift the productivity. The same information, the main difference on this slide is we've added the margins and the sort of gross contribution that we're making net of direct costs. So the business was running at 32%, we've lifted it to 38%. And we think with further scale, there's a potential to get this business up to the mid-40s in terms of margin and making it a more significant contributor to our overall profit. Turning our mind to the managed accounts and the IconiQ platform. The combined FAM through is up 72% on PCP. What I've done in the bar chart, I've just broken this down to give a bit of a feel. So we have Ventura managed account portfolio, that's what VMAP stands for. We've got First Choice managed accounts, which is on the First Choice platform. We've got the iQ portfolio and then at the bottom of the stack bar chart, we've got the IconiQ platform. So I'll just make some comments about the IconiQ platform. So we've got 55 early adopter advisers who have an estimated $5.5 billion in funds under advice. As of February, we've lifted that to $79 million in funds under administration. We're targeting $1 billion plus in total funds under administration by June 2027. And what we're actually seeing is of the money coming across 70% is moving into separately managed accounts, and we're running bespoke SMA portfolios. As mentioned in the opening slide, we have $1 billion in transitions from cared accounts moving into SMAs, and we've been building out the investment menu and the feedback has been extremely positive. So if you look at any platform that's been commercialized, the year-over-years are always a little bit slow, but we can really see the flywheel is starting to turn, and we're expecting some significant increases in the growth of the funds under administration. Managed accounts is one of the fastest-growing segments in the market or separately managed account portfolios. The market is now $256 billion and growing. Our farm-in managed accounts at the end of the half was $501 million, so that was up 51% and we expect to see that also continue to grow significantly. And the underlying managed portfolios have had continued strong investment performance and the appropriate governance and oversight. I mentioned the lending aggregation business. So we basically had two parts of the lending business. One was a broken network, which was sort of small subscale 75 advisers, and then we have the lending as a service, which is an in-house panel. But the piece that we've divested is the lending aggregation business to Astute Financial. They're a Queensland-based firm that we have partnered with for a number of years that we're doing our back office and so we've divested that. What we're actually doing is we're retaining the back book margins. So effectively, the way to think about it is we've sort of sold the distribution rights going forward is an easy way to think about it. It enables us to focus on our core long-term strategy. An important point is we are retaining lending as a service because it is a service that the advisers use. So we will retain the license and the brokers and -- continue to run that business. The transaction will be earnings accretive and from FY '27, we expect it to contribute about $400,000 in EBITDA up from the FY '27 year, which includes some important cost savings and we've obviously signed the binding term sheet and expecting completion on the 31st of March. The final slide before I hand over to Brendon, Look, the investment and time we are putting into AI is significant like many businesses. And I would describe it as a structural tailwind for our business. Some people talk about, is it a threat to your business model. I think it's the exact opposite. I think it's going to create incredible productivity and benefits. We've been rolling out this sort of 3-phase road map. The first over the last 12 to 18 months, we've been building the infrastructure. So we've rolled out Microsoft CoPilot. We've been training staff and senior leaders, even teaching them how to use agentic AI. We've been building AI policies and governance and focused on controlled internal capability build. The next phase is how we can scale up and deploy proven AI agents for audits, advice generation and compliance, how we can integrate AI with core operating systems. And that's really the focus. And then Phase 3 is we're always mindful of the transformational nature of AI. So the sort of enablement that we're doing, a lot of it is around efficiency and automation, things like automating statements of advice or records of advice, improvements in reporting, monitoring, data analytics, building AI-driven service bots to complement the existing teams and the compliance being able to integrate it into audits and pre-vet and even our audits that we do with advisers. So it represents a huge efficiency gain. So you'll hear a lot more about AI going forward. So with that as a bit of a snapshot. I'm just going to hand over to Brendon to take you through some of the financial results in a bit more detail.

Thank you, John. Key highlights and call-outs for the half. From a net revenue perspective, it was $21.5 million for the half, up 7% on PCP. Our cost-to-income ratio improved from 74% to 71%, enabling EBITDA of $6.2 million, which was up 17%. Our net profit before tax of $3.5 million was down from $4.9 million in first half '25, reflects a one-off release of the contingent consideration associated with the FAM acquisition earnout in the prior corresponding period. Our net profit before tax, excluding LTI and one-off costs, is $0.7 million higher, and that's principally due to the Salaried Advice net revenue increases. Our net cash provided from operations was $4.5 million. Now looking at the net revenue and expense movement in some more detail from a revenue perspective versus PCP, our salaried advice was up $1 million and that was principally driven by $0.6 million inorganically contributed from the Brighter acquisition in June '25. We had $0.4 million in organic contributions, [ being ] $0.3 million from the higher fee increases across our client base and transitioning from low fee clients to higher fee-paying clients, and we had $0.1 million in higher new business revenue. We had $0.4 million in contributions from the licensee services segment and that included virtual services and partner program. From an expense perspective, the key driver of the increase was $0.4 million in direct costs from the employment of broader acquisition through advisers and we had $0.1 million in inflationary increases in our direct employment expenses. Now showcasing the improvement in the business in the last 4 years. You can see that the EBITDA percentage has increased from 23% to 29%. Our Salaried Advice segment is up 48%, and that's from the FAM and Brighter acquisitions plus strong core business growth in our margins with our margins now sitting at 30%. Our adviser fees have increased by 7%, and that's through the market-leading organic recruitment plus some fee growth. With our other revenue, that's reduced by 10% and that's principally due to the regulatory-driven cessation of platform rebates. It's been somewhat offset by the activation of our education partner program with our key business partners as well as the investment management relaunched in the first half of '25. [ Disciplined ] cost control has been a consistent theme in the business. We can see that our cost-to-income ratio has consistently tracked down from 77%, in '23 it was 71%. And that's driven by efficient revenue scaling and mainly labor synergies from our acquisitions. We can see our expenses as a percentage of net revenue have continued to track down from 53% to 51%, and that's due to modest increases in head count post acquisition. Also noting that our overheads to net revenue has consistently tracked down from 24% to 20% over that 4-year period. We have a stable balance sheet with adequate leverage for growth. I'll cover off the cash and cash equivalents in the following slide. From a working capital perspective, our trade and other payables increased by $2.2 million from the prior corresponding period, and that's principally due to the settlement of invoices in January due to the office shutdown and business shutdown period. And there was a corresponding increase in gross cash of $2.3 million due to these timing differences in working capital. Our net tangible assets increased by $1.1 million from June '25, and our net tangible assets per share increased from $0.013 in June '25 to $0.18. Now looking at the cash provider for operations in some detail. The opening cash position was $13.7 million. We delivered strong cash from operations of $6 million. We had some small one-off costs of $0.2 million. There was a working capital drag of $1.3 million, and that was principally due to the annual settlement of our staff bonuses as well as prepayments for our March Summit for the advisers. From a tax perspective, there was outflows of $1.5 million, and that's principally driven by the enlargement of the F '25 tax return at the end of last calendar year. We had $0.8 million in net backed loan principal repayments. There was the final dividend was declared for the F '25 financial year, which resulted in a $3.5 million dividend payment and there was other outflows of $1.2 million, which is primarily the repayment of our lease liabilities for our offices. And that delivered $11.5 million closing cash position. So over to you, John, for the outlook.

Okay. Thanks, Brendon. So the final slide, look, we're feeling good about where we're at. We're entering the half with strong business momentum, as I've hopefully highlighted in the pack, we've got strong recruitment numbers and a good pipeline for our licensee business. We're seeing good improvement in the salaried advice businesses and productivity the managed accounts and platform. We think we've hit that sort of -- it's probably less of a start-up of that new sort of product hurdle, and we're now seeing some momentum. And we think we've got some good growth that will continue to drive the business going forward with sort of overall. So what we've done is we've just looked at the earnings guidance for the half as sort of announced to the ASX, we see us ending up somewhere in the range of $11.75 million to $12.25 million and feel like the business is certainly well placed to continue growing. So that brings us to the end of the formal part of the presentation. And hopefully, that update has helped. We'll just see whether or not we have any questions. I think we've got Rahul on the line. Rahul, are there any questions from the participants in the investor conference call?

Yes, John. A couple of queries are in. So the first one is what effective cash tax rate do you expect in the future given the presence of tax losses on the balance sheet?

I'll let Brendon have that one.

Yes. I mean that can vary, I mean just to explain the tax position. So from an accounting perspective, we've had historical tax losses. And as we've growing the business in terms of our profitability and confidence around our profitability, through the fraction testing process, we've brought on tax losses onto the balance sheet. So that lends itself to changes in the effective tax rate from an accounting perspective. In relation to the cash perspective, which is we consume the losses as we earn the revenue. The effective tax rate is around 20%. So factoring in the losses that were able to benefit from the expected tax outflow for the '26 is around $1.75 million at the current estimate, and the effective tax rate is around 20%.

Got another one for Brendon. So given the first half, LTI expense was $0.8 million. So what level of LTI should be expected going forward?

So the LTI expense works as well. So as shares issued -- long-term incentives are issued to staff, they get valued at a point in time when they get amortized over that period. So when they -- so we haven't had no new issuances to LTI. So the LTI for the first half was $0.8 million. It will be -- I don't have -- I have to take that on notice in terms of the LTI for the second half. But we amortized that over the period based on a certain point in the valuation process. Because we haven't issued any new shares at this point in time, that will run off the run rate for the LTI. So I'll take that on notice and come back to the question in terms of more specific answer.

Thanks, Brendon. That's what we had John.

Yes. All right. Okay. Well, look, thanks very much for your interest in the call. And if you do have other questions, and I would like to find out more, please contact myself or Brendon. We're really happy to do any investor updates and keep you informed of how the business is performing. So thanks for taking the time to hear how we've gone in the first half. So with that, we'll just conclude the investor update.