Prime Financial Group Limited (PFG) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to Prime Financial Group Limited's FY '26 Financial Results. My name is Natalie Simmons, the Chief Operating Officer of Prime, and I'm joined today by Prime's Managing Director and Chairman, Simon Madder; and Chief Financial Officer, Sharon Papworth. Before I hand over to Simon and Sharon for the formal presentation, I just wanted to remind everybody that this webinar is being recorded, and there will be opportunities for Q&A at the end of the formal presentation. [Operator Instructions] I would like now to hand over to Simon.

Great. Thanks, Nat. Much appreciated. Welcome, everyone. A really pleasing set of results again for FY '26, another significant step in our growth trajectory. I look forward to running you through all the key financial metrics and what's happening operationally. So I might jump to the first slide, if we can, please, Nat. So a few of you won't be necessarily aware as to what we do. But I think the best way to describe our business is as a market-leading integrated advice and investment firm, intentionally for ambitious clients. A lot of our clients operate their own business or they have a particular wealth management need. And I think where we do our best work is when we combine those 2 things together through our one business, which is our OneConnected Prime philosophy. We currently have about $1.9 billion of funds under management, 197 fantastic team members, and we have been in business for 28 years. Next slide, please, Nat. So let's touch on some of the key and most important financial highlights. A really impressive increase in our revenue, up 22% to $60.5 million. That really does go to that growth mandate that we've got and that trajectory. Impressively, also, our team from an FTE point of view, generated $276,000 per FTE. That's up 25%, which again is great. It's showing that we are driving that efficiency, that productivity consideration and moving the business in the right direction. In terms of EBITDA margin, stable with the previous year FY '25. We're looking to increase that through '27 and '28. Underlying EBITDA, again, whether it's reported or underlying EBITDA, up between 17% and 18%, again, really pleasing result there. Another mainstay of the consideration for us is operating cash flow. So again, we were happy to see our operating cash flow improve, up 47% to $4.3 million for the year. So overall, a really good set of numbers in terms of that top line and that bottom line. And I'm going to hand over to Sharon, who's going to touch on a few other items for us.

Thank you, Simon. Our profit measures require some context this year. The decline in reported earnings was primarily tax related, while the underlying adjusted earnings trajectory continues to improve year-on-year. Excluding the effect of the tax rate change, which changed from 25% last year to 30% this year, NPAT would have increased 11% to $5.1 million. NPATA would have increased 22% to $6.6 million, and reported earnings per share would have increased 5% to $0.0196 per share. This context provides a clearer view of the underlying operating performance of the business. Debt to underlying EBITDA was 1.5x compared with 1.3x in FY '25, reflecting acquisition payments and continued investment in growth. Finally, it's a pleasure to confirm that the Board has declared a fully franked dividend of $0.092 per share, bringing the fully franked dividend for the full year to $0.0172, an increase of 4% year-on-year.

Fantastic. Thank you, Sharon. I'm now going to jump into some of the operational highlights. If we can jump on to the next page, please, Nat. So really think about our business operationally across these 4 key sleeves. So simplification, M&A and integration, growth sales and ideal clients and technology as an enabler. So simplification has probably been the biggest theme that we've been working to over the last 12 months and will be a continuing theme into FY '27. So that is about having fewer services available with greater concentration. Let's do more of the things that we're really good at and continue to drive that part of our business and identify clients that really have a need for those services where we are experts. We're also making sure that we have a very clear enterprise view of our customers through our enterprise CRM that has been deployed and the team are actively using now. We need to make sure that we've got complete visibility over our customer base and make sure that we're clear what they're buying from us, what they need and what they might need for the future. Another key measure of simplification is reducing the transactional revenue in our business. So I was super impressed to see an increase in our recurring revenue to 85% from what was previously 70%. That is a huge uptick. That's a 21% uptick over the course of the last 12 months and goes to the discipline of that simplification process. Another key consideration, which kind of migrates between simplification and also some of the things that we've done from a divestiture point of view is, we did actually reduce our cost base because we have actually divested some clients that didn't meet our ideal client profile. So you'll see when you receive the accounts and you have a good read of them, that we divested about $4 million worth of revenue. And people ask what's an ideal client look like for us and why were those clients non-ideal? They are typically clients where we couldn't generate the margin that we're seeking to achieve and where they don't necessarily need multiple services. Our ideal clients value what it is that we can do across the totality of our offering, and we are able to then deliver to them at a margin that is appropriate for our business. So when we did reduce our customer base and sell some of those clients to colleagues within the industry, we were able to reduce our cost base, and that particularly occurred within Q4. Another key consideration for us has been on the recruitment front. We were wrapped to bring into our team in the last 12 months, 2 new leaders across both business and wealth that we're able to bring with them $1.7 million in annualized revenue that contributed to FY '26, and that will be more in FY '27. That's part of our Acqui-hire growth model, which I'll talk to in a little bit more detail later on. Another key consideration for us around M&A and integration and deep integration has been around the Lincoln Indicators business that we acquired back in May 2025. That was our largest acquisition that we have done in the last 6. And I'm pleased to say that, that is deeply sitting in the middle of our wealth segment, and we are actively delivering additional value and services to that customer base. In terms of growing our business, sales, account management, the thing that we're really wrapped about in terms of this year that's just gone is in 3 core growth areas across wealth, SMSF and accounting. These are impressive numbers. Those areas grew somewhere between 14% and 44% for the year. That includes acquisitions. But importantly, it shows that when we do focus on those key things that our clients need and where we can grow, we can deliver some fantastic outcomes. That bodes really well for FY '27, '28 and through to '30 and our goal of getting to $100 million of revenue by FY '28 to '30. But we are very much obsessed with making sure that we do deal with what we consider those ideal client profiles. When we are focused on that, it means that our sales, account management and servicing procedures are better, more defined, and we can deliver more value for our customers. And part of that customer journey is making sure that we do enable technology. And I've said this before, we're not first off the bench to launch into technology, but we are making steps forward. We do have a fantastic team internally that are partnering up with external providers in partnership to make sure that we are enabling and simplifying our business so that we can scale and deliver better customer service. But a key component of our technology strategy is making sure that we have got our data consolidated. Data is king in terms of what we do and being able to manage our business efficiently and to be able to achieve that road map of growth that we desire. So data consolidation is important to make sure that we can manage our workflows. We can introduce AI in a very acceptable and risk- governed manner. So we've got a lot of work that's going on around data consolidation. Thanks, Nat. So what are the key themes that continue to drive our business forward? So firstly, M&A and business succession, whether it's occurring in our own industry and our industry is very active at the moment across professional and financial services. Almost a month doesn't go by without seeing some sort of M&A, whether it's in accounting, whether it's in wealth or asset management. It's a very active space where private equity are playing an increasingly large role. One thing I'd just highlight is that in the U.S. recently, Grant Thornton, one of the larger accounting firms actually spent over $5 billion buying what was the largest listed accounting firm in the U.S. So things are active. We're in the right space at the right time, and we think we have a really important role to play in what takes place over the next 3 to 5 years. So M&A business succession in our own industry and for our clients is super important. And that plays to part of that intergenerational wealth transfer conversation. It is increasingly on the radar for our clients, and we are lucky that we can deliver more value under the one roof for a lot of our clients, whether that's passing on portfolios or other assets and making sure that it's structured correctly and that there's a trusted adviser that can support or whether or not it's selling a business and what that succession might look like. And where we're positioning ourselves and our ideal client profile and brand is in that mid-market opportunity. That's why we're precise about ideal clients, about the clients that we might otherwise divest that we respect, but to other participants in the industry. And a really key theme that we've seen play out post budget is the need for advice. Clients have needed advice all the way through, but probably even more so in the next 12 months than ever before across accounting, structuring, wealth management. There are a lot of conversations and a great deal of need that we look forward to supporting our clients with over the next 12, 24 and 36 months. So there are some of the key themes driving our growth. I'm now just going to touch on a few of the things in relation to our financials. So we might just jump on to the next slide, if we can. I'm not going to dive into detail that either myself or Sharon already covered. I'd just highlight probably the 2 top points, the revenue of the Wealth segment and the revenue of the business segment. Yes, impressive to see the Wealth segment up 37%, but we're probably doing the business segment a bit of a disservice there by suggesting it's only up 2%. The business segment combines both what we do in accounting and also in capital or corporate finance, which is what we're deemphasizing, the capital and the corporate finance part of what we do. So that was down. It's not a focus for us. We will do that for particular instances for clients, but that's probably muted some of the fantastic results of that business segment, which has included our accounting operations being up 25%, which was a really impressive outcome. So we might jump on to the next slide, and I can dive into a little bit more detail if we can. So total revenue for the year, as suggested, $60.5 million, up 22%. And in terms of our contracts with customers, up 20%. I'm going to keep restating this. Have a look at that bottom left-hand corner of this slide. Wealth, up 44% and a really positive trajectory that seems pretty consistent. SMSF up 14% and accounting up 25%. We're going to do more of this. This will be a focus for our M&A for our Acqui-hire. Acqui-hire is simply M&A by a different term. It's when someone or a group of people join you with a client base, but not the legacy of the structure that might otherwise come through an acquisition. So we'll focus our attention in those 3 key areas. As I said, capital is important, but it's transactional revenue and not an area that we want to focus. Our focus is on recurring revenue. And as I said before, that's up 21% for the year to 85% of our total revenue. We will continue to hone in on that target we gave 3 or 4 years ago, which was to get to $100 million. I think when we gave that target, we're at circa $25 million of revenue. So our business is very much growth minded, but we are focused for the majority of the time, not just on the revenue, but the quality of the earnings that comes from that revenue and the margin that we could actually achieve from it. So overall, you're seeing there some focus areas, some deemphasis, and if you look at the top part of that graph, you can see a real consistency on how we've grown our business, and we believe we can continue to scale and to do that increasingly at better margins with improving operating cash flow. On that note, I'm going to hand over to Sharon, who's going to touch on some of the margin-related issues.

Thanks, Simon. Our underlying EBITDA to members increased from $7.8 million in FY '22 to $13.9 million in FY '26 and includes year-on-year growth of 18%. The growth has been achieved while reducing reliance on transactional revenue, as Simon discussed. And the FY '26 underlying EBITDA margin, while it remained at 24% and consistent with last year, was really driven through acquisition integration activity, investment in technology and systems and organizational changes undertaken during the year. During the fourth quarter, Prime accelerated its focus on operational efficiency and cost base reduction. Those actions, together with workflow improvement, automation and data consolidation are expected to support future margin improvement and operating leverage. The strategic priority for us in FY '27 is to convert the additional scale already achieved into ongoing top line growth and improved earnings conversion. Our balance sheet remains positioned to support Prime's growth strategy. Net assets increased to $61.2 million at June. Acquisition payments largely contributed to the increase in net debt of $20.6 million, which is up from $14.9 million last year. This was also reflected in an increase in net debt to underlying EBITDA to members, which increased to 1.5x, however, continues to be well below our banking covenant requirements. Pleasingly, our operating cash flow increased 47% to $4.3 million. And this improvement is really important because it does demonstrate stronger conversion of earnings into cash flow. Prime also has access to Westpac facilities of approximately $42.6 million, of which $21.6 million was drawn down at year-end. This provides us with the capacity to support working capital, existing commitments and disciplined strategic growth. Our approach remains to balance investment and shareholder returns with prudent leverage and active cash management. As mentioned earlier, the Board has declared a fully franked final dividend of $0.0092 per share. Together with the interim dividend of $0.008 per share, this brings the FY '26 full year fully franked dividend to $0.0172 per share, an increase of 4% over last year and a substantial increase of -- increase from $0.011 per share in FY '22. The final dividend record date is the 3rd of September with payment scheduled on the 28th of September. I can also confirm that the dividend reinvestment plan is available for the final dividend. The dividend increase reflects the Board's confidence in Prime's underlying business while maintaining an appropriate balance between shareholder distributions, debt management and reinvestment in growth. Thank you, Nat.

Thanks, Nat. We'll jump into strategy and the focus for FY '27. Intentionally simple. And from a growth point of view, organic growth across those 3 key areas I've already touched on that 14% to 44% growth component across wealth, accounting, SMSF. We're going to do more of it. We believe we can scale it and scale that efficiently. That cross-sell program for value for our customers will continue through our OneConnected mindset. And that will absolutely complement what we're doing in our core growth areas. Acqui-hire, I've touched on. I think we can accelerate that. We're in market talking to lots of people to make sure we find those people that want to be part of that multiple service journey for their clients, but also to have an equity interest in our business. And just as a reminder, 44% of Prime is actually owned by the team. And that's a really important alignment consideration for us to marry up between external shareholders and internal shareholders to drive the right behaviors and the right level of continuity. So finding people, whether it's through Acqui-hire, internal promotion and also selective acquisition will all form part of what we would do for the future. And that's that bridge between $60 million of revenue to around about $100 million of revenue. That's how we continue to grow our business by not doing anything outstandingly different, but to continue to do it better. And part of that better process for us is around productivity and technology. That's a core focus for us into FY '27. So those efficiency improvements that Sharon has spoken to, whether it's workflow automation, AI, making sure that you're developing your team internally are all really important to allow us to achieve our objectives, but most importantly, also for our clients. Those ideal clients will remain a focus for us, and we'll continue to consolidate our existing capabilities and keep on simplifying our business. One final word would simply be really proud of the team and what they've developed over the course of the last 12 months in terms of our business model, our target operating model and the results that have been achieved. We've got a wonderful team that works really hard to deliver value for customers, but also for shareholders. So I absolutely want to thank them as I do want to thank shareholders for their continued support. But for now, that's probably enough for myself and Sharon, and we hand back to you, Nat.

Thank you, Simon. Thank you, Sharon. Probably just a few questions. Firstly, Prime recently exited an NBIO that was in place. Can you share what was the reasoning behind the exit?

Absolutely. Thanks, Nat. If you're happy for me to take this, Sharon. So firstly, a nonbinding indicative offer is exactly that. It's an intention to do something together. We've obviously done some due diligence, and we're keen to see whether or not the businesses can fit together. Firstly, we have the utmost respect for anyone that's willing to entertain a conversation about what the future of their business might look like, particularly in that partnership model that we work to. So the respect remains even though we didn't proceed with this particular transaction, but things changed. The business looked different. There was a different risk profile, and we couldn't justify the valuation on that business based on the circumstances that were presenting to us. So unfortunately, we couldn't proceed with it. It was a long journey. We spent many months and almost a year in discussions, so we didn't make any decision lightly. But I believe we've made the right decision. We are very protective of investor capital, and we want to make sure that we deploy that to the best possible opportunities. So we thank the founder of that business, who we really do respect for taking the time to spend it with us, but it just wasn't going to work out for the future.