OneVue Limited (IRE) Earnings Call Transcript & Summary

Thanks for joining us today, and welcome to the call. I'm joined today by John Harris, our CFO. I'll start today's presentation by giving a short overview, and then we can open for questions. We released a presentation on the ASX last night that I will refer to in this call. The presentation is designed to give you a better understanding of a key aspect of our strategy for OneVue, and why we're excited about the acquisition. I'm not covering areas of existing organic growth from the OneVue business, including growth in managed funds or super at this time. But instead, what I want to present in some more detail is our vision for end-to-end investment in technology infrastructure in Australia. I'm also not going to speak on current trading today, although our recent guidance for the year is intact. The acquisition of OneVue is about delivering Investment Infrastructure as a Service. With OneVue, we'll be able to offer clients seamless end-to-end and highly efficient investment infrastructure, something that doesn't currently exist in Australia. This new capability offers significant benefits to subscribers across the financial services value chain. It also provides scope for us to grow new recurring subscription revenue in a revenue pool of $3 billion from the administration costs of retail investments. So let's turn to Page 2. Now that we've completed the acquisition, we can talk more about the industrial logic of the combination. Why we bought OneVue. What it adds. And also what we're going to do with it. We've acquired the largest third-party unit registry, along with retail investment licensing infrastructure and super admin. The real value, though, is in what we can offer clients when we integrate these components with our own existing technology. By combining OneVue's managed fund registry and retail investment infrastructure with our own financial advice and trading front-end technologies, we give professional advisers the ability to directly execute investment advice from Xplan and from iOS and from other interfaces for digital advice. Integrated, seamless and technology-led execution of advice, all the way through the fund registry and other asset classes will deliver improved efficiency for all market participants. We will offer this on a subscription basis to drive recurring revenues for Iress and to reduce the cost to the end investor and other industry participants. At scale, we expect to deliver this service at margins at or above the Iress group average. For those of you who may be new to Iress or new to OneVue, I'll provide a very quick overview of the acquired business. Slide 3 shows some operational metrics of the OneVue business. It is the leading outsourced managed fund registry in Australia. It administers now more than $750 billion in assets, which reflects heightened activity in the second half. We now provide registry services to 67 fund managers. And as at the end of September, over 1,500 funds. The business successfully processes around 70,000 transactions a month, and that is a key driver of revenue. OneVue has scale in managed funds admin. It also generates existing revenue from platform services and super admin, and we'll talk more about those at a later time. On Slide 4, we summarize what this new combination of clients and technologies allows us to provide. Extending on what we already do today, we'll provide technology and investment infrastructure to allow the industry and investors to transact and report seamlessly. This is integrated and connected open wholesale technology that can be leveraged across the entire industry. It will allow straight-through processing from advice to execution across asset classes. We do that so that we can significantly reduce advisers' costs by removing execution inefficiency, make advisers' and investors' lives simpler and more productive. We have some use cases that demonstrate that later in the deck. And we allow the connection of investors in their investments with far more directness and efficiency across the value chain. And we will reduce licensee and dealer group compliance and monitoring costs in the area of investment implementation. We have a clear plan on how we'll integrate and deliver that. Our immediate priority is to integrate existing technology, Xplan and iOS, to the existing infrastructure at OneVue. This will be done in the first half of '21. We also have clear line of sight on what we'll need to do to optimize technology and services through our new Investment Infrastructure as a Service offer from '21. Looking at Page 6. Thinking about our new infrastructure and for it to be successful commercially, it needs to provide all participants with real and meaningful benefits. The same or slightly better won't be enough. We won't overcome technology and connectivity inertia in that way. So what we are bringing is something new, a new way to think about transacting, holding and reporting on investments, particularly for unlisted, and to do this at scale. We bring technology as a core skill to deliver scaled industrial solutions to allow Australian financial services firms upon. This is actually the only way to address repeated duplication. Over time, a fragmented ecosystem has led to duplication and recreation that is complex, disconnected and inefficient. So this diagram shows the complex layering that exists between investors and investment managers. The value chain has become incredibly complicated with each layer needing to be paid for the services they deliver, regardless of whether the investor is transacting. When it's all added up, the investor is paying up to 185 basis points. For the advice industry to operate sustainably and profitably, there needs to be a more direct link between the consumer and the manufacturer. Like in other industries, technology should allow automation and connectivity that delivers more efficiency from end-to-end. And it's these inefficiencies that go to the core of why we're confident that we can succeed. On Slide 7, the expectations of advisers, fund managers and investors are changing rapidly. The business model is changing, and they all want and, in fact, need technology to be at the center. Today's system is being built piece by piece to suit needs of participants at a point in time. It is certainly not how you design an efficient system today if you started with a blank sheet of paper. There exists a lack of industrial scale because technology is not at the core of the system. There is duplication and limited standardization. It's fragmented with multiple systems across advice, execution and the registry of assets. These limitations waste time and restrict growth. They create compliance risk and then inflate the total cost to transact and hold assets. The forces for change are already in motion. The whole industry is under margin pressure. Things are changing and fees are coming down. Pricing needs to be more transparent for the consumer. Industry consolidation and reorganization may well provide temporary respite through cost synergies, but the real answer is fundamental redesign of the system. And that is our plan, and that's what we're going to deliver, a fundamentally better end-to-end technology and investment infrastructure available as a service. Conceptually, that makes sense, but what does it look like in detail? Page 8 shows specifically what's in the expanded ecosystem, our expanded ecosystem and capability available to other participants through connectivity. We list out some of the technology services and investment services that we now support. It is a digital-first, cloud-first technology infrastructure and the efficiencies are in seamless connections across that value chain. Turning to Slide 9. Today, an end-to-end advice execution process doesn't exist in Australia. It exists in other markets, and we've seen firsthand the operating and price efficiency that it has delivered to participants in those markets. The ability to scale is limited when manual work is involved. This is true for any participant, an adviser, a fund manager, a super fund, a registry and a platform. The inability to scale is the common limiting factor for serviceable clients per adviser or profitable clients per adviser. And that's a crazy consideration when the ability to grow a client base and deliver mass advice is possible through end-to-end technology. That's even more true today amidst a pandemic. The ability to offer digital advice is limited, extremely limited, unless the experience to the investor is straight through, real-time and responsive. And this can only happen if advice systems are truly connected end-to-end and the advice business and the implementation is end-to-end. The end-to-end implementation is critical for advice to scale, and generate sustainable profit. Now on Slide 10, we show here some use cases across a wide variety of participants and users from asset managers to wealth managers to new entrants to investors. The opportunity to access Investment Infrastructure as a Service through technology based on scale is a new way to think about access, distribution, transacting and reporting. So in conclusion, we're absolutely excited to complete this transaction and the acquisition of OneVue, and to get underway with integration. We reaffirmed the $3 million cost synergy that we've previously advised and the $7 million investment to integrate. We already have many of the critical components needed to execute this strategy. We bring Xplan. We bring the iOS and its order network in Australia that connects advisers, brokers and fund managers. And it's with OneVue's registry and retail licensing that we can now deliver this complete end-to-end integrated service. This new capability offers timely and significant benefits to subscribers across the financial services value chain in Australia. It also provides scope for Iress to grow new recurring subscription revenues and a $3 billion per annum revenue pool, supported by structural growth in superannuation. Thanks for your time, and we'll now open for questions.

The first question today comes from Bob Chen from JPMorgan.

Andrew, just a few questions from me. Can you provide a little bit more color on how you plan to launch and distribute this product? I mean will it be sort of add-on or sort of opt-in by your existing users?

So we believe in open integration. And this infrastructure will be clearly integrated to our software, but it is certainly optional. As you see in the deck, advisers use a wide range of retail platforms to place investments, and they all remain relevant and integrated for their benefit. And equally, if there are other technologies or components or vendors that want to integrate into this service, then we will be delivering an open API for that to be possible. So it's certainly optional, certainly opt-in available as a service.

Okay. Great. And then I think on Slide 2, you sort of mentioned an addressable revenue pool of $3 billion there. I mean how much of that is you're sort of really targeting with this product? And maybe a little bit more color on what sort of revenue metrics we can expect from this product to drop?

Yes. So the revenue pool that we're talking about there is the total cost to administer retail investments. We're not talking about what the financial metrics are in this call, and that will be for a later day. But we've wanted to connect some of the dots as to what the strategy of the combination points to in this regard. The thing that we are saying is that the model of accessing, holding and reporting on investments will be on a subscription basis, like you would expect any as a service offering in a technology setting today.

Okay. Great. And then maybe just a final one for me. I mean you've outlined, I think, about $7 million of integration costs. I mean to deliver the full Infrastructure as a Service offering, like how much additional do you sort of expect to sort of invest to get the platform ready?

So we have a whole range of components that will go to what we envision here, and so the $7 million relates to integration and the investment to configure our components and put them together. We are thinking about that in a variety of stages, of course. And the first primary step will be to integrate the Xplan desktop and the iOS desktop through our existing network to OneVue's current infrastructure as we then reconfigure components in the background for our Infrastructure as a Service model and tech-driven access to investments. So maybe just a comment on the $7 million, that -- we see that as reasonable and fair to do what we have in sight. That's not to say that it may well be the extent of what we need to do or plan to do, but that is what we think is required to get this first stage done.

Okay. Great. And then just the timing there. I think you've noted 2021 as when all this is ready for the client. Is that the target then?

That's right. So integration of existing technology as it stands in the first half, that's Xplan, iOS and OneVue current infrastructure, and then the infrastructure capability for all sorts of participants to integrate to and leverage from '21.

The next question comes from Siraj Ahmed from Citi.

Andrew, just to clarify something from the strategy. I mean who are you actually trying to replace in the value chain? And couldn't a client essentially leveraging your end-to-end infrastructure not use and replace a retail platform? Or are you trying to be like a [ Bravura ] offering for advisers? Just a bit confused on that.

So we see what we're offering here as well suited to be the infrastructure to support retail platforms. We don't see this as direct. We see this actually as quite different. There's nothing stopping an adviser connecting directly through our tech to it. But we are going to something that is significant, scaled, simple, transparent, tech enabled. And that means that some of the services that are made available through retail platforms, we don't intend to offer. So we're offering something quite different retail -- several retail platforms are, in fact, already our clients, and we see this as a potential extension, and the ability to access unlisted investments in an efficient way is something of interest to a wide range of participants in the market. So I can see how it might be confusing. But the way that people will leverage our Infrastructure as a Service, I think, will be hugely flexible as well.

Okay. That helps, Andrew. And so essentially, I mean, when you envision the future, which participants are you actually replacing? Or is it -- is there no one there today? I mean there's different components. Who do you see this replacing essentially, the [ same play in tech ]?

Well, I think the ability for us to deliver efficiency through the value chain is what we're doing. The value chain is already under a range of pressures as we've outlined in the deck, and some of those start at what the consumer wants to pay. And it also pay for access to those investments, but also pay for advice. And our goal is to improve the efficiency for everyone so that more Australians can get access to advice. And there's an article in The Fin today that talks exactly to the unadvised population and the benefit to Australia's GDP for that. So we don't have anyone targeted. We're providing -- trying to provide scale that will be for Australians' benefit.

Sure. And just lastly, just clarifying on the time line. So you're saying the initial integration of the various components is next year? And then the API and sort of the ecosystem sort of interface is after 2021. Is that the way to think about it?

We have already done some integration from Xplan through our order routing network to OneVue as part of some hackathon projects that ran earlier this year. We will be productizing what happened in that hackathon event, and will make that available to advisers and those that use the OneVue platform in the first half next year. What work is going on concurrent to that is establishing this infrastructure platform, and that involves the reconfiguration and the repointing of certain applications that we have, services that we have. And we expect to be offering that as this service from '21. So we're not being more specific about that at this stage until we get further into our planning.

Got it. And then sorry, just last one. Just on the 2021 as a service. So I mean how exactly would the pricing -- I mean how do the economics work from your perspective? You sort of touched on that. If you just expand on that a little bit.

Yes. So this isn't the launch of the proposition by any stretch. We are approaching this with a technology mindset. And in the same way that we access Technology as a Service these days, everyone will be familiar with that, our vision is to deliver this retail Investment Infrastructure as a Service. And so the premise of that will be -- that it will be on a subscription basis per account, and there will be clear and transparent and simple usage charges for it.

The next question comes from Brendan Carrig from Macquarie.

Just 1 additional question from me. Andrew, you referred to some international markets where similar services are offered. Are you able to maybe provide a bit more color as to the markets you were referring to? And/or if any of these are what you're modeling your approach off? And how does that give you the confidence that this is going to be effective and adopted in the Australian market?

I'll give you 2 examples. They aren't prescriptive models as we think about Australia, but they do provide contrast. In Canada, there is a single co-op institution that delivers transactions on a net cash basis for unlisted funds that operates as a significant utility for the benefit of retail and institutional participants. That's 1 model. That doesn't exist in Australia. In the U.K., there are wholesale executing custodians that we integrate to on a message basis that delivers an end-to-end implementation for face-to-face advisers, investment managers that are modeling investments to clients, online clients that do direct execution or within one system sitting on our software. And that is efficient, it is straight through, it delivers value to the wealth business. And some of those wealth businesses are operating in the tens of billions of assets under management. Far more efficient than what we see wealth managers operate across asset classes in Australia. If I then contrast that to what we see here, that does not exist. There is not end-to-end adviser to investment and advice execution that exists in Australia. And in fact, there are no material examples of scalable digital advice outside of industry super today, and that needs to change.

[Operator Instructions] The next question comes from Matt Johnston from Jarden.

Can you hear me?

Yes, we can.

Great. Just maybe if you can touch on -- I can understand the process of end-to-end can reduce the cost of the adviser. Could you maybe then talk to the point that it should reduce the cost to the consumer? And then where that reduction in cost will be, if we can use Slide 6 as a reference point?

So the way that we are approaching is to more directly connect the investor with the manufacturer. The adviser is also a manufacturer of advice. So there are several manufacturers in this chain. The price that the investor pays is not something that we directly manage. What we are trying to do is deliver a technology platform that allows for efficiency for the adviser to operate profitably and sustainably so that they can deliver to the investor a better outcome. And I'll maybe play that with an example that one of the challenges that is well documented is affordability of advice or what the consumer wants to pay for advice. At the moment, it is not possible for that kind of service to be delivered digitally at a price point that would meet the conjecture that says an investor only wants to pay X hundred dollars for transactional advice or circumstantial advice. What we see is by connecting this end-to-end that, that will be feasible. And so whether it is direct, we're not suggesting that the price will come down for the kind of service that's offered today, but certainly, the ability for an advice business to scale and price point of the proposition at scale is what we want to facilitate.

Okay. So I guess the right way to think about it is the adviser can reduce its cost and generate more revenue at scale, but it may not actually necessarily bring down the cost to the consumer/investor?

Well, I think it will. If the demand for transactional situational advice is all they want to pay and that has to be in the X hundreds, not the thousands. And so we're building a system that will facilitate that. If you look at Slide 9, there is a case study that is a real case study that looks at a single adviser's experience. They manage 100 clients, and that is a limit for sustainable and profitable dealing with those clients. The kind of time and effort they spend in managing the investment implementation is described there. But there is no capacity for that one person to scale beyond that number of clients. And so what we are saying is that there needs to be more efficiency for that adviser to operate beyond 100 clients. And that is possible, must be possible with technology at the center. Otherwise, per The Fin -- article in The Fin today, there are so many people that are unadvised, and that goes to genuine wealth and genuine GDP.