Personal Group Holdings Plc (PGH) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Personal Group Holdings Plc Investor presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself; however, the company can review all questions submitted today and will publish those responses where it's appropriate to do so on the Investor Meet Company platform. And before I begin, I would just like to submit the following poll, which will appear on your screens now. And I would now like to hand you over to the management team from Personal Group Holdings. Paula, Sarah, good afternoon.

Thank you very much. Good afternoon, everybody. What better way to spend the Friday afternoon and to listen to us and our results, but we're very delighted to be here. I'm Paula Constant. I've been the Chief Executive of Personal Group for 7 months now. I'm looking forward to taking you through my findings from the first 6 to 7 months, a little bit about the reason that I joined Personal Group and then particularly around the opportunities for us moving forward. But first, I think for anyone that doesn't know the group at all, is a very straightforward slide to explain what we do. So essentially, we are about providing affordable benefits and services. It focuses across employee health, well-being and engagement. We've got over 1.6 million employees. And we have a number of services that we provide under our umbrella banner. And so as you can see on the right-hand side, a huge part of our business, really the foundation of our business 40 years ago is around insurance. We started a number of affordable insurance policies to clients via a business engagement with an employer and then we travel face-to-face to talk to their employees about a number of insurance options. And -- in the main, we do that in tandem with our benefits platform software, but we do also supply some insurance-only propositions to clients as well, so we can be quite flexible. Our benefits platform really offers a range of discounts, vouchers, collaboration, reward and recognition, engagement tools, a fantastic well-being and health module and a number of other benefits in that space as well. And that's evolved through the history of the company to a really compelling SaaS platform that we'll talk about later. We've got a Pay & Reward consultancy division and 2 consultancies that we brought together over the course of last year that play in a broad space and offer some real differentiation in terms of digital and independent pay and reward advice. And then we have a technology resale division as well, Let's Connect. So there's lots of elements to our business, but all delivering under that banner employee well-being and support. So that's a little bit about the company. And Sarah, I think will whiz through the finances in a couple of slides just to pull out some of our key highlights. So over to you.

Yes. I'm just going to start with the summary results. So we saw a very strong performance in the second half of the year, resulting in our EBITDA growing 35% year-on-year. In a second, I'm going to take you through the different revenue streams from the divisions that Paula has just spoken about. But broadly we saw revenue growth across all of the areas outside of Let's Connect, which is our [indiscernible] division. And whilst revenues remained stable, what we've effectively done is replace some of the lower margin income that we get from Let's Connect with higher-quality income from insurance and benefits. We've also, as a company, historically, we paid out a large percentage of our profits as dividends. So around about the 80% to 85% mark. We announced a final dividend of 5.85p, in line with the interim dividend earlier in the year, taking us up to 11.7p for the full year, which is probably 10% up year-on-year. And then as a business, again, we're in a very strong financial position. We're very cash generative. At the end of December, we had cash and deposits of just over GBP 20 million and no debt and in a really good position for any investments that we want to make going forward to aide that growth. And then just before I go through the segmental results, just a quick reminder or introduction for those of who haven't been on before around the various revenue streams from each of those divisions. So insurance, very straightforward in terms of premium income that we get into the insurance policy. The benefits platform, predominantly, that's SaaS subscription, so digital platform subscriptions, either on an annual basis or a monthly basis some people using our benefits platform, but also alongside that, we also make some money from commissions from benefits that sit on that platform. That can be in the discounts, shopping vouchers and like that people can buy at a discounted rate. We obviously make the margin on that or also some of the other employee benefits such as cycle to work or salary loan, where again at the end if employee takes one of those schemes out, we make some commission on that transaction. Just in terms of Pay & Rewards or the Consultancy division. Again, a good percentage of that is straight consultant fee income, but they also have some digital products to do with pay benchmarking, evaluation type tools, but they also sell on the SaaS model, so annual subscription coming into play there. And then finally, the other end benefits, Let's Connect, is essentially a retail sale. So we will make a retail sale of a laptop or something for the employer gets the retail margin essentially on that sale and then the end user, the end employee with then have a separate salary price arrangement with their employer. That's just a brief overview of the different revenue streams. So just looking at the performance in the year. So you can see the breakdown by those 4 key areas. In terms of insurance, we had a record year for new insurance sales, which is fantastic, GBP 11.8 million. And alongside really strong retention rate year-on-year retention rates, in particular, for our existing policyholders, we saw the size of the insurance book increased to GBP 31.6 million, so 13% growth since the end of the previous year. And the majority of those policies are on weekly or monthly rolling contracts and we collect the premiums through payroll deduction with employers make payroll deduction and pass those premiums on to us. So a very steady and reliable income flow. And then in terms of the contribution from insurance. The loss ratio on the insurance book remains stable at 27%. And then we also saw in our insurance expenses relatively stable. We've got the field sales team up to the level that we need to get out now. So an increased margin coming through from insurance with EBITDA of 24%. Moving on to the benefits platform. So this is a combination of our Hapi platform that we sell to enterprise clients and SME distribution channel that we use Sage to sell Sage employee benefits. So again, the annual recurring revenue there up to GBP 6.1 million at the end of the year, relatively equal growth seen across the Hapi and the SME solutions. And then revenue in year up slightly more than that growth because of the commissions I spoke about a second ago that come to the platform, we've seen more of those coming through in 2023. In terms of EBITDA margin, up 34%, and again, any scale we can get on to that benefits platform, there's obviously an element of fixed cost associated with it. So the more we can grow the top line is the best the margin should be over time. Pay & Rewards. So the consultancy division probably didn't have quite the year we were hoping it would have. You may have seen a set for RNS that came out at the same time as our results around the -- a new contract win with our major airline. That's the biggest contract win that, that division has ever had. It basically was slightly later than we were anticipating. So in year 2023, not quite as good as we were hoping, but obviously setting up on a very good footing for 2024. And then other own benefits, so Let's Connect. So any of you that have been on our presentations before will know that this time last year, we spoke about Let's Connect losing sort of major clients. So that business is significantly downsized during the year resulting in sort of 33% decrease in their revenue. I think in terms of profit, it probably hit the numbers we were expecting it to hit. Obviously, with the loss of that major client, we did operationally downsize that area to make it as efficient as possible. And then just in terms of some of the other areas on there. In terms of other, so really, the increase there is because of the increased interest rates, so the cash and deposits that we hold for the insurance subsidiaries obviously benefited from increased interest rates during the year. And in terms of group admin central costs, we have seen an increase year-on-year. No one thing individually coming into play there. I think probably we spoke this time last year about [indiscernible] acquisition costs coming into play. We obviously had a change of CEO during the year, which has resulted in sort of one-off additional costs. And then generally inflationary costs around salaries, insurances, our own group insurances and the like, also individually contributing to the increase there. But just before I leave this slide, probably just to highlight the red box on the left-hand table, and that GBP 38.3 million, the combination of all the recurring type revenues that we have across the business. Obviously, at GBP 38.3 million at the end of the year and the start of 2024 is giving us really good visibility of the specific income we've already got in the bag, I guess, or banked that we can get good visibility of our results coming into 2024. So that's probably the summary for me. I mean just to call out the highlights, really, we've seen the underlying growth continue, and the recurring revenue streams are up significantly across both insurance and the SaaS subscriptions. The insurance contribution is continuing to strengthen and push up our EBITDA number, and we're in a very strong financial position from the investment of future growth. So I will now hand it to Paula to talk a bit [indiscernible].

Thank you. So the first slide was one that I took to investors when I first met them in September a couple of months in. I think it's just coming. And one of the questions that was on people's minds was, what's great about the business and what did you like through interview and how has that proved true when you finally arrived in the business? So the good news is it has proved true, and it continues to prove true. I don't know if it's showing through on people's screens. But hopefully, we'll get there. There we go. So -- and there are many great things about the business, but the things that struck me when I was looking at the business through interview were a super strong insurance business. And as you can see from the results, we have a very high level of year-on-year retention. We're happy with the studying claims, churn rates. And last year, we hit our best-ever month, day, week, hour, every possible permutation that you could think of, which is really good news, but also gives us a lot of hope and ambition moving into this year that we can do more. And we possibly did that on the background of some good analytical data, but not the kind of level of data that I would expect to be working with in the business given my heartland of various kind of operational and COO jobs coming up through, particularly my telco days, and particularly my time at BT and Openreach. So we've now built a big suite of data that we are exploring at pace, and it tells us a lot about the field force, which I will answer on the next slide, and hopefully weave in some of the questions that are coming through this, and there's a good question there. And without that dimension in the field force, I'll touch on them. Probably the best thing though about the business, I mean it's great that it's repeatable revenue, repeatable custom and it's fantastic that we've made the progress that we've made with a lot of hard work and great that we've got more insight to do more. But our clients and customers are consistently saying, this is affordable, dependable insurance. It really reaches a sector of the organization where insurance really matters. And insurance isn't necessarily available and presented to them by employer scheme. So we're very confident that it addresses an important need in society. So very happy that we have a strong insurance business, and we continue to grow at pace. Secondly, I was very excited about running another SaaS platform that we own and build in-house. I've run a number now over the course of my career, and this is a great piece of engagement software. We're very proud of what we've delivered now with the upgrade to Hapi 2, from Hapi 1. When I met investors in September, we have gone live internally with our new platform, and we were just laying the groundwork to accelerate through migration, which is great enough to say that we've migrated over 600-plus of our Sage clients, it will actually be double that number by the end of the day. But I didn't manage to get that number in time for the presentation. And we've got over 200 clients -- new clients, predominantly Sage clients and some of our Hapi clients live as well. So -- and it's been great to go live with no customer pain. So very, very happy with the progress so far and looking forward to accelerating the rest of the migration through the course of the year so that we can get on to the next stage of our strategy. It's good that we've won our first of what I hope as many technology business awards for our solution. And I think the research that I'll just share in the next few slides show that we really have something that's highly applicable to SME and enterprise not just as a complete offering with insurance to bigger enterprise players, but also really strong contender in the SME space. So we're very happy with the direction that we are going in with Hapi and more to do it with anything. And then finally, the Sage partnership. We are over 4,000 clients now onboarded and that gives us access to about 60,000 employees. It's a brilliant proof point for us that we've got access to the SME market at scale as well as proof point to other partnerships that don't play in the same space of Sage and aren't at the same scale. We're very proud of our Sage relationship, and we're looking forward to completing the migration and then looking at the opportunities going forward. So that gives you a sense about the kind of key things that I thought could be great opportunities for growth in the business and are proving to be so. Okay. Moving on to our next slide. So 6 or 7 months in, what have I been focusing on? These are the three areas that we certainly talk about very broadly in the business is the three priorities for us to really press into and fix. So firstly, on strategy, it's clear to me from our employees and from our shareholding base that we now need to look at what is the big opportunity for the business. We're very stable, we're very dependable, we're very predictable. Where could we get to in the next 3 to 5 years' time? So I'm busy gathering data and insight to answer that question. Sarah and I have just completed a really thorough market segmentation exercise across benefits and insurance. And we've started there clearly because they're big areas of the business and particularly because we haven't invested in insurance activity other than organic growth of face to face in the last few years. So clearly, the questions are, what more of the market is there to go at and what more could you do in insurance? And then the same question for benefits. So we'll be working through the rest of the business strategy in course through the year. And on the sales side, there's been lots of forensic work around both B2B and B2C. So B2B are the conversations that we would have with employers, predominantly HR directors and other senior members of businesses, full benefit from insurance as well as separate conversations for Pay & Reward and Let's Connect but we've been really focusing on the benefits and insurance B2B journey. So we've got a huge deal of segmentation now across every channel. We're very clear about the channels that we should be using that will have the maximum impact for benefits and for insurance and lots of metrics about our lease opportunity, opportunity to conversion. So I think the groundwork on the numbers is done and now we can be very focused and targeted. On insurance and more of the B2C conversation, we've got a huge suite of data now, which looks at the portion of time that we spend on various activities and really helps us to help our employees to optimize conversations around both benefits and insurance. So as you can imagine, there will be conversations around customer care and other elements that we can direct to different parts of the business. And just ways to try and reduce unnecessary activity on necessary travel and make the experience brilliant for employees as well as for customers. So lots of opportunity to go up there. Lots of opportunity to look at the kind of presentation level, the kind of conversion level at every stage of our organization. So what do we expect from people coming in at the beginning? And what do we expect from people that have got experience? And we've also cut that information by sector as well. So it's very clear to us to see what level of competence serves, what level of sector, et cetera. So we are surrounded by data in the moment and regularly that will help us make some really good decisions going forward. We have just under 50 face-to-face sales executives, and that number has kind of varied between low 40s to high 40s, I think, over a number of years. And with an organization of that size you can clearly understand the individuals in the business that we would also as well as going out on the road, see in a quarterly business review as well as other business events. So coming from an operations background, I've taken quite a bit of time to go out with different people in different areas and really understand the path of a day in the business and how the conversations progress. And I've been really pleased with what I've seen. But clearly, there's more we can do around processes and technology and et cetera, as well as coaching and other techniques. So I think, as always, with any operation, there's always more to do. And it's been great to see our operation engaging so proactively with a slightly new approach and a new set of data and a new Chief Operating Officer that came in at the beginning of January and primarily to focus on all of those things. And then lots of analysis around how we onboard customers for Sage. We've got numerous different routes of customers onboarding. Once they've had the initial conversation, some onboard through digital channels, some onboard through welcome calls. So it's just been really good to understand the right approach, the right size of the business and lots more to do in all of those spaces as there always is in any business. And then finally, on simplification, I've talked about my new Chief Operating Officer. I have a number of other new people around my table and some moves of my existing leadership and some moves out. And we're now just thinking about any other roles and capability that we need to plug in the business going forward, but particularly really now about where have we got rework, where can we remove work, where can we make lives simpler for everybody. And then it may sound quite straightforward, but a set of financial and operational objectives that cascade from top to bottom always helps people drive in the right direction. So lots of activity and lots of energy operating a lot pace with some pleasing results coming through. Okay. On to the next slide. On -- sorry, there's 3 slides now, and then that's the kind of the end of the presentation and these are probably quite information-heavy. So -- but please try and ping some questions as we go through and I'm trying to read QA in parallel and with some help from Sarah. So I think I've probably answered bits of your questions, Ed, but I will come back and answer more as we go through. The questions we were trying to answer on the analysis that we did on the benefits platform were, where and why do we need a benefits platform in a conversation where we've got an opportunity with insurance. And then also, where does the benefits platform play in its own right and the findings are really pleasing. So to summarize a 200-flight pack in one simple slide for you in 5 minutes. Essentially, we're very pleased that we've got a very strong offer, particularly for SME and mid enterprise. So it's clear that we will continue to play in those areas and be very specific about our focus. We set up a number of online interviews for SMEs and then engage the same company that sets up the online interviews to conduct face-to-face interviews with a number of bigger enterprise customers that either use our services or used competitor services. So we were happy to see that over 50% of SMEs strongly recognized and/or used the Sage Employee Benefits, which is obviously our product and super positive feedback about the features and functionality and the use in the business. But there was equally a strong recognition, although to a lesser percentage across SMEs and enterprises of the Hapi brand in its own right alongside competitive brands. So that was very pleasing for us. A number of the other questions also addressed the features and functionality. So asked what's great about Hapi, what's great about competitor products? And it was good to see that our reward and recognition capability, our strong account management and of course, what we've now built in Hapi, which is extremely strong app user experience were very, very favorable. So we're very clear how we can win in the market, but also against specific competitors, which is super helpful. So I think we've got a strong proposition. Secondly, there's plenty to go at. 50% of SME customers have no proposition or cobbled together potentially technology, potentially not technology solutions. So there's some white space there that we should be very well positioned with our success with Sage. And there's some clear segments that will appeal to us, particularly where there's an insurance opportunity as well. And then I think finally, clients are sticky, 90% of SME customers say that once they bought a platform, they're not that willing to change. It's an expensive transition to change. It's a lesser percentage for enterprises, but it's still quite high, 50% to 70%. So we're clearly looking at opportunities to increase stickiness for our base, but also to be relevant for competitor bases where we are more likely to gain from providing our services potentially going head-to-head to win a customer from a competitor. So I think -- and that's not an unknown feature, I think, in the marketplace, and there will be other competitors that have come to the same conclusion as us on that. So -- and there's always opportunity for us with the real individual characteristics of what we have in insurance to be useful to other benefit platform providers as well, especially in sectors where we would typically play. Moving on to the insurance slides, and then I'll just come back and try and address any questions. So two questions that we try to answer in insurance. The first was, is there headroom to play in the same way that we're doing today with face-to-face insurance? And the answer to that quite simply on the slide is, yes, there is. There are 10 million employees that receive either no sick pay or partial sick pay. The policies that we provide today broadly fit in that sick pay category. Within the category of those that don't receive or receive very little sick pay we are prevalent today in 12% of enterprise of companies, supporting them and within those customers, we typically have around an average of 12% penetration, it does vary by client. So there's clearly some headroom. It doesn't mean that the headroom is the entirety of the 1 minus 12% of 12%, but there are many sectors and many other roads to further penetration within the clients that we have that we can explore. So we just need to be very focused about what we do first. Secondly, I think the middle column really gives a good confirmation that when we approach new customers, they're very keen to see employee benefits and insurance sold together, and they're very keen to see the use of one-to-one and face-to-face as a differentiator. So they like the fact that we put a whole benefits proposition together with insurance. They like the fact that we're very unique in having one-to-one face-to-face contact. And I think the other really strong thing is that against a sea of brands, including really big high street insurance names. The recognition of Personal Group was as high as 1 in 4 people, which was very reassuring to us that we have a well-established strong brand. So that was very compelling. And then finally, of all the sectors to go after, transport, production, logistics still remain large sectors. That's our heartland really of where we are present with benefits and insurance. Health and retail are huge sectors, and there will be specific parts of that sector that we want to play in further. So examples of customers that have got the ability to send a face-to-face engagement executive to a venue with lots of employees there. Typically, we would be looking for something around 500 to 1,000 employees in one place plus to make sense of the economics. So I think we've got some real key focuses there. And again, construction less relevant for face-to-face insurance, but clearly, a dominant sector that we could provide a digital insurance to and a dominant sector of the Sage base of customers that we serve as well. So lots of opportunity to play more in the areas that we're in and to broaden some of our sector coverage. And then finally, the questions that we asked clients were: Are you looking to broaden your benefits options with insurance and/or other elements? And if it's insurance, what are the things you're considering? So across SMEs and enterprises, there was a large majority of 80-plus customers that would want to offer broader insurance solutions. Certainly, there is definite pressure on employees to now self-fund options that obviously we provide as employee-funded. So that's a big advantage to us because we'll still be very relevant across that blue collar space. But it makes sense for us to explore how we can offer parallel services on the employer side. So that's going to be a key area that we're going to explore going forward. We've broadly looked at 3 buckets of insurance, so income protection, personal insurance and health benefits, each of which have got various growth potential. Clearly, the big opportunity for us is health benefits, both preventative and treatment options, where there's high growth, there are many options to explore. And these are some of the options on the right-hand side. Low-cost treatment cash plans would offer good adjacencies to what we do today. Low-cost PMI, larger cash plan options should also be considered. We would look at a partner to build and a buy strategy and potentially then partner with other options that might not be right for buildings. So I think all options are open to us. The key is to work really at pace now to understand what's the right building blocks so that we can expand our portfolio potentially across employer and employee funded, health and well-being benefits, particularly insurances. And there are probably many other options to consider, and that's our challenge, as I've said, to press that through pace through this year. So I think -- just to conclude, and I think I'll just see if I can weave anything else on the questions in. You can see we're very proud of the strong repeatable business that we deliver. It's fantastic to run a company with 80%-plus repeatable revenue and a strong trend of that in the past and to come. We are clearly playing in the right segments today, but there's also a large addressable target market. And there are clear options for strategic growth to maximize shareholder value. So hopefully, that gives you a good flavor of where I've been over the last 6 months, what I'm excited about and still remain excited about? And some really quite huge and exciting opportunity for us strategically going forward. The key is for us to really focus on what's going to turn the dial without doing too much. I think I've probably answered most of the questions on the operational side of the field force and insurance and I thought these were a great set of questions, Ed. So if I come back to the consumer duty elements at the end, I think -- I mean, Sarah and I are very hands-on in the business. And obviously, as you can see with a suite of numbers. We regularly meet, as I said, new hires go out in the field, encourage the rest of the organization to go out in the field, meet people at the quarterly reviews and meet people at our annual reviews as well. So we're a small business with 250-ish employees. So from that sense, it's quite straightforward. On consumer duty is something that we're obviously hugely conscious of and aware of and acting on. We've obviously increased the level of governance over the last year. In fact, probably 18 months ago, we really looked at the remuneration of our employees in the field force and brought in an even more robust set of measures that we already have regularly look at compliance, regularly surface recordings for the Board to listen to you as we did only a few weeks ago. So it's front of mind, not just with the business that we run today, but also in terms of anything that we progress in the future and be that buy-build partner and it has to be a core focus for us. We are developing a number of options just for our existing product portfolio that customers have talked about and our field force have raised to look at how we kind of enhance policies to provide more benefit. And then there will be a number of options that we continue to look at as we build a plan around affordable insurance. I don't know if you want to talk a bit more about that or that was said enough?

Yes. I mean I think from the consumer duty element, we are serving a market that probably underserved from an income protection perspective and the way that we sell face-to-face is probably the only -- one of the only ways that we can actually get that audience and for them to have access those insurance types. So it does come out of costs, which obviously in turn means that our loss ratio it has to be slightly lower plus to be profitable overall. But I think also the FDA isn't directly going to be setting prices. The other piece to bear in mind is that the premiums are very low. So I mean our typical policy of GBP 50 cover probably the cost of coffee a week. So they are very low value, low premium products, which can still pay out significant benefits if somebody were to go to hospital for a period of 3 months, can get thousands of pounds. I can probably just answer the other one actually quickly on the Sage because the Sage, I think we announced in February '22, but it was a 5-year contract with them.

Yes. I mean, I think there's a question about excitement about the opportunity ahead. I mean, clearly, I hope this explains that there's more ground to go out in the benefit space, and there's certainly lots of different avenues that we can go down and all additive in the insurance phase and probably the feedback from our investors has been even with those 2 dimensions alone, there's a lot of things that you're talking about. So let's see that really fine-tuned pallet of options now going forward for the rest of the year, which we'd hope to share back to investors in due course. Opportunity for wider insurance sales, travel house insurance. I think our conclusion from the work that we've done is neither SMEs nor enterprises put in a personal insurance higher up on their agenda. And obviously, we would want to exercise a level of caution, particularly around consumer duty about the areas that we went into. So we'll certainly be surfacing personal insurance offers by partners on our platform. but it's unlikely to be an area that we move into from a buy-build perspective.

Yes. And last couple. I guess there's one there on the onboarding new insurance clients. I think it depends is the reality depending on what kind of organization the field sales team are going into. But on average, we expect our policies to last around 5 years, and it's probably broadly around the year mark before we get the sort of payback on having somebody out there face-to-face, just the cost of the salary and commission of the car and all the infrastructure that goes with it. That's broadly that one. And in terms of success rate, I mean, we have various levels of presentations that take place. So the individual sales guys will go out and sit down with an individual employee talking through their benefits platform. I think broadly about half of people, they will go out unavailable to them will sit down and talk about the benefits platform and half again will sit down by insurance and half of those will actually then [indiscernible].

[indiscernible] answer the question. We're fighting over question-answering here. Okay. Any more questions?

[Operator Instructions] And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended, just for you to review to then add any additional responses, of course, where it's appropriate to do so, and we'll publish all those responses out on the platform. But Paula, perhaps before really just looking to redirect those on the call to provide you their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments to wrap up with, that would be great.

Okay. I mean, I think I probably already stolen my own thunder. So I'm hugely excited with the opportunity ahead, brilliant, strong, repeatable business super growth in the last year. We're excited about the trajectory this year and lots of options to crystallize and focus on to deliver more. So thank you very much.

[Operator Instructions] Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of Personal Group Holdings Plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.