Raiz Invest Limited (5HK.F) Earnings Call Transcript & Summary

Good morning. My name is Harvey Kalman. It's my pleasure as Chair of the company's Board to welcome you to the Raiz 2021 Annual General Meeting. I'm pleased to be joining you from Raiz's office in Sydney, having joined the company as Chair of the Board last month. You can tell it's coming to towards the end of the month of November as my mustache, which is in 8th of November, a cause which I've supported for the last 17 years is clearly evident. It's now 11:00, and there being a quorum, I declare the meeting open for business. I confirm that the meeting has been properly constituted. In opening the 2021 AGM, I'd like to introduce my fellow directors, George Lucas, Managing Director and joint group CEO; Brendan Nelson, Executive Director and joint...

Brendan Malone.

Brendan Malone, sorry. My apologies. Our Executive Director and joint Group CEO; online, Kelly Humphreys Non-Executive Director; and David Gordon, on my right, our Non-Executive Director. Also joining us today are James Poon, the Chief Product Officer; Alex Gao, Chief Financial Officer; Tim Aman from BDO, the company's auditors; and Andrew Palfreyman, the company Secretary. As everyone would appreciate, given the current restrictions and ongoing observations of social distancing, the directors of the company have decided to conduct the 2021 Annual General Meeting as a virtual meeting using the Lumi platform. This allows shareholders, proxies and guests to attend the meeting virtually. All attendees can watch a live webcast of the meeting in addition to shareholders and proxies having the ability to ask questions and submit votes. Online attendees can now submit questions at any time. [Operator Instructions] Please note that your questions may be moderated or, if we receive multiple questions on 1 topic, amalgamated together. [Operator Instructions] You will listen to the meeting on this page while waiting for your question. If you have any issues using this system, please return to the Lumi platform. Finally, due to time constraints, we may not get to all questions or answers to all questions. However, if this happens, we will answer them in due course by our e-mail posting responses on our website. Voting today will be conducted by way of poll on all items of business. In order to provide you with enough time to vote, I will shortly be opening voting for all resolutions. At this time, if you are eligible to vote at this meeting, a new voting tab will appear. Selecting this tab will bring up the list of resolutions and present you with the voting options. To cast your vote, simply select one of the options. There is no need to hit submit or enter a button as this vote is automatically recorded. You do, however, have the ability to change your mind up until the time I declare the votes closed. And I now declare voting on all items open. The voting tab will soon appear. Please submit any votes at any time, and I will give you a warning before I close the voting. The agenda for today's meeting will be as follows: we will shortly commence the formal matters to be considered at the AGM; at the end of the formal business prior to closing the poll, we will take questions; and finally, George and Brendan will then provide the CEO presentation. We'll now move to the formal business as set out in the Notice of Meetings and addendum to the Notice of Meetings. The notice of the Annual General Meeting was provided to all registered members on or around the 27th of October 2021, and the addendum was provided to all registered members on or about the 12th of November 2021, both are taken as read. Voting on all resolutions will be conducted by poll. Shareholders who have already submitted a vote by proxy should note that all -- that your votes will already be counted towards the poll. You do not need to lodge another vote unless you wish to change your proxy instructions. Shareholders who have not submitted a vote by proxy and wish to vote on the resolution being put to the meeting can do so by following the instructions provided in the Notice of Meeting. There is a link in the Notice of Meeting to the Lumi online voting portal and instructions of how to vote. Voting exclusions apply as set out in the Notice of Meeting. As disclosed in the Notice of Meeting and addendum, all unrestricted proxies or open votes that have nominated to the Chair of the meeting as the proxy will be cast in favor of each resolution. For the purposes of the poll, I appoint [ Barry ], as a part of Computershare Investor Services, the company's share registry, who has examined and prepared summaries of the proxy forms received to act as the returning officer and to conduct the poll. I now declare the poll open. The polling icon will soon appear on the voting portal. Please submit your votes at any time. After the last resolution, I will give you a warning before I close the voting. Also, the votes that have been counted and audited, the results of the poll, will be announced at the ASX, and will be published on the company's website. We will now proceed to the business and resolutions as set out in the annual general notice and addendum. The first item of business is the financial statements and reports, and the first item is to receive and consider the annual financial company -- report of the company for the financial year ending 30 June 2021 together with the declarations of the directors, the directors' report, the remuneration report and the auditor's report of the financial year. There will be no vote on this item as it is a discussion item only. The company auditor for the 2020 financial year, Tim Aman is here at BDO Australia, is available to take questions on the conduct of the audit, content of the audit report, accounting policies adopted by the company and the independence of the audit in carrying out the -- the auditor in carrying out the audit. Shareholders are invited to ask questions, which will be addressed at the end of the meeting. We will now proceed to the resolution as set out in the notice of Annual General Meeting and the addendum. Resolution 1, remuneration of -- remuneration report. Resolution 1 is as follows: to consider and, if thought fit, to pass the following resolution as an ordinary resolution. That for the purpose of Section 250R(2) of the Corps' Act and for all other purposes, approval is given for the adoption of the remuneration report as contained in the company's annual financial report for the financial year ending 30 June 2021. The vote on this resolution is advisory only, and does not bind the directors or the company. Shareholders are invited to ask questions, which will be addressed at the end of the meeting. The proxies received to date are on the screen in front of us. And I won't go through the numbers, but approximately 93% in favor; 0.5% against and there's a few still open. I now put the motion, shareholders can vote on this resolution via the online portal. Resolution 2, election of Brendan Malone as a Director. To consider and, if thought fit, to pass the following resolution as an ordinary resolution, that Mr. Brendan Malone, a Director appointed as an additional Director and holding office until the next Annual General Meeting of the company after his appointment in accordance with the company's constitution, be elected as a Director of the company effective immediately. Shareholders are invited to ask questions, which will be addressed at the end. Proxies received are on screen, and again, approximately 95% are in favor, with minimal against, and minimal abstained. I now put this motion. Shareholders can vote on this resolution via the online voting portal. Resolution 3, ASX Listing Rule 7.1A approval for future issue of securities. To consider and, if thought fit, to pass the following special resolution, that for the purposes of ASX Listing Rule 7.1A and for all other purposes, the shareholders approve the issue of equity securities up to 10% of the issued capital of the company at the time of issue, calculated in accordance with the formula prescribed in the ASX Listing Rule 7.1A2, otherwise on the terms and conditions set out in the explanatory statement, which accompanies perform and forms part of this Notice of Meeting. The shareholders are invited to ask questions, which will be addressed at the end. Proxies received in relation to this resolution are as follows. Again, I put the motion. Shareholders can vote on this resolution by the online portal. Resolution 4, ratification of prior issue of Tranche 1 placement shares. To consider and, if thought fit, to pass the following resolution as an ordinary resolution, that for the purposes of ASX Listing Rule 7.4 and for all other purposes, the shareholders ratify the allotment and prior issue of 5,466,667 placement shares issued on the 6th of May 2021, and otherwise, on the terms and conditions set out in the explanatory statement, which accompany the form part of this Notice of Meeting. Again, shareholders are invited to ask questions, which will be addressed at the end. The proxies received are on screen as now. Again, a high acceptance of over 91%. I now put this motion. Shareholders can vote on this resolution online. Resolution 5, ratification of prior issue of Tranche 2 placement shares. To consider and, if thought fit, to pass the following ordinary resolution, that for the purposes of ASX Listing Rule 7.4 and for all other purposes, the shareholders ratify the allotment of shares of 1,333,333 placement shares issued on 20 of May 2021, and otherwise, the terms and conditions set out in the explanatory statement, which accompanies and forms part of this Notice of Meeting. Again, questions can be asked at the end, Proxies as received on screen with over 92% accepted. I put the motion now and shareholders can vote on the motion via the portal. Resolution 6, ratification of prior issue of Superestate shares. To consider and, if thought fit, to pass the following ordinary resolution, that the purpose of ASX Listing Rule 7.4 and for the other purposes, the shareholders ratify the allotment and prior issue of 5,300,000 shares issued on the 29th of July 2021, and otherwise on the terms and conditions as set out in the explanatory statement, which accompany and forms part of the Notice of Meeting. Shareholders are invited to ask questions. The proxies are as received on screen, over 94% accepted. I put the motion and shareholding -- sorry, shareholders can vote on this resolution via the portal. Resolution 7, approval to increase the maximum aggregate amount for non-executive directors' fees. To consider and, if thought fit, to pass the following resolution as an ordinary resolution, that for the purposes of listing Rule 10.17 and for all other purposes, the maximum aggregate amount of remuneration that may be paid to the company's non-executive directors in any financial year increases by $137,000 from $270,000 to $407,000 effective immediately. Again, shareholders are invited to ask questions. The proxies as per the screen, over 91%. I now put the motion, and shareholders can vote this resolution via the online portal. Resolution 8, approval of grant of options to Mr. George Lucas, Director of the company under the long-term equity incentive plan. To consider and, if thought fit, to pass the following ordinary resolution, that for the purposes of ASX Listing Rule 10.14 and for all other purposes, the shareholders approve the issue of the allotment of 500,000 unlisted options under the long-term equity plan to Mr. George Lucas, Director of the company or his nominee, and otherwise on the terms and conditions set out in the explanatory statement, which accompany then form part of this Notice of Meeting. I invite shareholders to ask questions as required. Proxies are on screen, over 92% in favor. I now put this motion. Shareholders can vote on this resolution by the online portal. Resolution 9, approval of grant of options to Mr. Brendan Malone, Director of the company under the long-term equity incentive plan. To consider, if thought fit, to pass the following ordinary resolution, that for the purposes of ASX Listing Rule 10.14 and for all other purposes, the shareholders approve the issue and allotment of 300,000 unlisted options under the long-term equity incentive plan to Mr. Brendan Malone, Director of the company or his nominee, and otherwise on the terms and conditions set out in the explanatory statement, which accompany and form part of the Notice of Meeting. Again, I invite shareholders to ask questions. The proxies received are as on screen, over 93% in favor. I now put the motion. Shareholders can vote on this resolution via the online portal. Now as I'm standing for election, Resolution 10, I will now hand over the chair to my fellow director, George Lucas, and George takes the chair.

Okay. Resolution 10 is as follows, it's on the screen. To consider and, if thought fit, to pass the following resolution as an ordinary resolution, that Mr. Harvey Kalman, a Director appointed as an additional director and holding office until the next Annual General Meeting of the company after his appointment in accordance with the company constitution, be elected as a Director of the company effective immediately. Shareholders are invited to ask questions, which will be addressed at the end of the meeting, the proxy procedure on the screen. So I now put the motion, and shareholders can vote on this resolution via the online voting portal. And I'll hand it back to Harvey.

Thank you. And thank you, George. That concludes the resolutions to be voted on today. As noted, we are conducting a poll on all resolutions, and I note that poll is already open. At this point, we will address the questions to shareholders. And if I can ask the company secretary to indicate any questions, we will then hand them to the appropriate director to address.

Thanks, Chair. There are a couple of questions we've got here, which I'll read out for everybody's benefit. The first one is from Mr. [ Joan Langmore ], has the company looked at developing an investment bond for people looking for a tax-effective investment product to put money away for their kids?

At the moment, we haven't looked at doing that. We -- from our investigation of the market, there's not really that many tax-effective products out there, especially for our target market, putting away money for kids. And so we're very -- we're doing a lot of work now on improving Raiz Kids, so that it's a much better user experience for our customers. And hopefully, in the next month or so, a new Raiz Kids will be available to everyone. And we think that in itself will stack up nearly as well as any tax-effective products that are out there.

Thanks, George. There's 2 questions actually from Mr. [ Edward Bacigalupo ]. The first one is around ETFs and whether more ETFs will be added for investing, particularly around green investing and crypto.

Great. Okay. So for green investing, yes, it will be adding more ETFs. And I think the last ETFs, we added one of them was a green -- for [ one ] of a better word, green, but we have to be very careful about using that word, but it was definitely a socially responsible [indiscernible] conscious bond index so that you have more options. And we'll be constantly looking and constantly getting our feedback from our customers to add more ETFs, and we're doing -- improving our operations so that we can deal with more and more ETFs in the custom portfolio. On the bitcoin side, we probably won't -- we may not list an ETF on crypto, and I don't think there really are any ETFs quoted on the Australian Stock Exchange on crypto. They are ETFs quoted on companies that deal with crypto, but not actually crypto itself. But there is a possibility that we will be able to add something like Ethereum into the portfolio mix in the future. But that would be a direct exposure rather than through an ETF exposure.

Thank you, George. And the second question?

The second one is around whether the standard models will be changed, especially for super where you can customize the portfolio.

Okay. Over to me. We would love to be able to bring the customized portfolio into -- under a super [ wrapper ]. At the moment, obviously, all our portfolios, including customer -- customized portfolio has been going to self-managed superfund. We are definitely doing a lot of work to get into a position that we will be able to bring more standard portfolios but also our customized portfolio into our super product. And hopefully, we'll be able to make more and more releases about that and where we're up to on that progress. All I can say it is an aim, and we are working on it.

Thanks, George. And the final question we have is from Mr. [ Stephen Grossman ]. There's a couple in here. He's asking about the plans for the growth of Superestate. We might go to them one by one. So do you want to expand on any plans for Superestate?

Yes. So there are a couple of reasons why we did the purchase on Superestate. One was because of the FUM and the number of customers we got, and we have to nurture those customers and keep growing that business. The second one is that they bring across some great technology on how to manage a residential real estate REIT. And the idea -- and we're actually quite a long way down the track, is to be able to bring a residential real estate option like we have, an ETF option for STW or Australian stock market into the Raiz portfolio. And that will probably appear as a standard portfolio as well as in customized. And so our customers will be able to do direct investment into residential real estate into a REIT-type product. And so that's kind of like the second part of why we got Superestate. But they also bring a great technology along with them called Vali, which allows us to do valuations and compete with a lot of products which are on the market now like a domain valuation system. And it's got over 13 million or 14 million properties scanned into it. And that, not only allows us to risk manage and find value when we manage a REIT, but it also allows us to offer our customers the ability to look at the value of properties. If we can then link into what we're doing in home loans, in Raiz home loans, to assist our customers, not only can they -- direct -- invest directly into residential property through a REIT, but we'll also be able to assist our customers in getting mortgages, not only what a mortgage [indiscernible] has, what has to have value, where can you find a better valuation, et cetera, et cetera. And we're doing a lot of work now also in integrating this valuation product into our home ownership product.

Thanks, George. Just second question is related to an earlier one around, any improvements to the accounts for children. Are there any improvements in process?

Yes. There are improvements. We have beta versions of it. We're testing the beta versions at the moment. Currently, Brendan's got 300 siblings, children at the moment. So we have to cut that back on his testing, but we are definitely testing it. So hopefully, by early new year, we will be able to actually deliver the production version of it. We're just really going through and ironing out all the bugs at the moment.

And then just finally, now that you have reached $1 billion, what is the next target?

Well, we have a couple of targets. So our first target really wasn't the one to begin target. Our first target was to be cash flow positive in Australia, and that was very important to us. And that was actually quite a big goal for a fintech anywhere globally, especially in wealth management, to be cash flow positive after such a short period of time. And now for 8 quarters, we have actually been cash flow positive in the Australian business. Then we set ourselves a target of the big in fund under management, which, in some ways, is more of a glossy target, but we've reached that. And we're very proud of what we did, and I'm very proud of what the team did to get there, and that's really just from the Australian business side. And then we have other targets that we're setting ourselves as well. We're setting ourselves to get 200,000 customers by the end of the year in Indonesia. 100,000 customers in Malaysia, and we are working on the targets that we're going to set for Australia for the next 12 months.

Thanks, George. And I can confirm that, that's all of the questions, so I'll hand back to the Chair.

Thank you. Could all shareholders voting online, please ensure that they have submitted their votes. I will allow a few moments before the poll is closed. [Voting]

Okay. I declare the poll closed. The result of the poll will be announced to the ASX once they are available. That ends the formal part of the meeting, which I now declare closed. We will now hear from George and Brendan. Thank you all for your attendance at the AGM, and for your continuing support of Raiz Invest. Gentlemen, I hand over to you.

Thank you. So just before we start and go to the numbers, which I think we said we're going to go on to Slide 5. I don't know how many but we made an announcement yesterday that Stuart Grimshaw is coming on as a Director, and we're very excited about that. But part of that announcement unfortunately, is that David Gordon, who is sitting to my right, will be leaving Raiz. David and I have been working together, I know it's hard to believe, for nearly 15 years to set up Raiz and Instreet. We set up and founded Instreet back in 2007 and which Instreet, for those who don't know, eventually was one of the main -- it was originally the joint venture owner with the U.S. in Acorn. It eventually then was restructured into Raiz when we listed Raiz and is now -- it's unfortunately just a shell company, but it's a company that helped also license for the business. And so I'd just like to say, David, for, one, putting up with me for 14 years, but two, also all the value he has added and the advice that he has given me and other members of the team in getting Raiz and Instreet, but also Raiz, to where it is today. And for supporting me when I came up with these wacky ideas like, hey, here's a great app in the U.S. that we can put $5 in and people don't really love it. Yes. Thank you very much, David.

Thank you, George.

Thank you, George. On behalf of the Board, David, thank you very much for your service. And I appreciate the support that you've given me and other directors of the Board. So thank you again.

Thank you, Harvey.

And so if we go to next page on the presentation. I think I mean this kind of speaks for itself, but I'm going to pass it over to Brendan as it's mainly Australian numbers and let Brendan talk to these key performance metrics.

Right. Thank you, Chair. Thank you, George. And David, thank you and congratulations. Just jumping into some of the numbers. I think the big one that's the front of mind for a lot of people is the target that we set in January this year was getting to the $1 billion of funds under management. We set a target by the end of December. It's been a busy year, and we hit that target on the 10th of November this year, we've released to the ASX. So leading on some of the key metrics and the key points that we have achieved this year, setting aside the strategic side of continuing to deliver the strategy that the Board and the team set 3.5, 4 years ago, we continue to deliver positively on that. As George mentioned earlier, one of the big ones was the cash flow positive state of the business and having a fintech in any industry or any country to be cash flow positive, and we managed that with having the Australian business having 8 consecutive quarters of cash flow positive, operationally, cash flow positive now, and the group has had over the last 2 quarters. So I think that's one big milestone this year. The other one on the strategic side was the acquisition of Superestate, which we touched on, which was our first acquisition. And from a business point of view, we're continually on the lookout for further developments in that space. On the active customers, I'll really quickly feed the numbers that are on the screen, having a growth of 85% to the 12 months to September '21 was quite an achievement. And I think it's important to say that we have now over 0.5 million active customers, which has grown since the September number. But it shows the reach that Raiz is getting and the purpose of us and keeping in mind we are a savings and investment platform that provides financial education, financial literacy and financial inclusion. So the active customers is key. The funds under management we spoke about, having said it, it was $970 million at the end of September. We reached the $1 billion that was released on the 10th of November. And then an important part of the business and adding to the value of the underlying business is the Raiz Super product, which we are really just starting to scratch the surface of it. It is complemented by the Superestate acquisition and then getting it up to $183 million of funds under management through the COVID period, through the challenges of the economy and something like SuperMatch in Australia is quite an achievement from the team. One of the key metrics that we talk about on a quarterly basis is our revenue, and I'm pleased to say that we're up 82% over the 12 months. And then just jumping over to the far bottom right was the run rate per customer. And this is a testament to the business model that we've created, the products that we're offering. And to break that down, if you think about our basic model of $3.50 per month is $42 per annum. We are cross-selling products to our business through our other product offerings, and we now have a run rate of $62 per person. What's key from both the business point of view and my personal goals is to get that run rate to $100 per customer. And that's our goal. And we have a very clear road map and a very clear product development to get to that, which is quite exciting over the next few months, over the next few years. Next slide, please. So that's the Australian numbers. I think what's very interesting, and people in the industry talk to me about or have rung us since the last -- since the $1 billion is that we actually have $1 billion of funds under management now. And what's more incredible is that the average account balance is now circa $3,000. So when you people take a step back and think about that, that is a lot. That is a lot, we're touching a lot particularly in Australia, and we continue to do that from the important sake of the business for our customers. I've spoken about the recurring revenue. Our margins are staying the same. I think on that point, I think the team has had a very good -- we have a very good, budgeted mindset to get that costs to a minimum, keep within budget. But the important part is the technology that we provide and the developments that we do are scalable. So as we increase this target of $100 per customer, getting it to 0.5 million Australians here, active customers in Australia, the technology and the costs will all be scalable. I will quickly touch on the cost of acquisition, but I'll pass it over to George. He tells a much better story about our cost of acquisition and the key from a business point of view of that. But we have managed to do it, and I think I'll hand it over to George being -- we're one of the world leaders in cost of acquisition to financial services customers.

Yes. Thanks, Brendan. I think maybe we're not going to go through every slide. So if we just stick to Slide 30, which is one of my favorite slides ever. It kind of does explain what we do, why we get this low cost of acquisition. And it's basically on our strategy, and we're very good at sticking to our knitting. And we know the market expects us to grow active customers, and we do that very well through our digital marketing strategy. And we are, not only in Google and Facebook, but through other programmatics. But we do get about 60% to 70% of our customers through word of mouth now. So when originally, most of our customers were coming through these digital channels, that's not the case anymore, and that's one of the main reasons why our cost of acquisition is so dramatically low. And there was a period in 2017 where we didn't actually have Google or Facebook running at all for 6 months, and it was just word of mouth that would bring customers to the platform. And one of the reasons we get this word of mouth is because of the great customer experience, not only through the app but also through when they talk to our customer service. And Brendan, I know, spends a lot of time with the customer service team, ensuring in Australia that they give an excellent service to our customers. And a lot of our work, which people don't really see is that we get feedback from our customers like, we're going to be great if you use a different font size on this part of the screen. And if we get enough of them, we actually change them. Most people don't even notice it, but a lot of our maintenance and modification and work is these minor changes, not only to make the app a better user experience, but also to make our customer service team being able to give a better experience to our customers when people ring up. And by doing that and creating this loyalty and word of mouth, we've grow our revenue. We've grown our revenue because people shift up the product chain. We've grown our revenue because their balances increase. And so they move into a percentage of basis points on FUM fee. And we do this because they buy other -- not buy, but they invest in other products, whether it be Raiz Super or they use a Raiz Rewards product because they love the brand. And we -- one of the things that we find, especially in Raiz home ownership, that a lot of customers, which we were a bit surprised about will go, ah -- because at the moment, we're more offering other banks' brands and people are going, oh, no, I actually just wanted to invest in a Raiz-branded mortgage, not into another bank or another ADI-type mortgage, not that we're in ADI. And then from all this feedback and all this customer loyalty and support, we get a road map of where -- of what new products, new services like the question before about ETFs coming in. Can we add more ETFs or when are we going to have customer portfolios in the super, and we know that we have to do that, and that's why we're working on it. So we take all this feedback and then we just start again. We grow our customer because we are listening to our customers. We keep improving our service and our user experience based on this feedback, and that helps us grow the revenue per customer. And that's kind of what we do day in, day out and what we focus on doing well. Is there anything else you'd like to add from this presentation, Brendan?

No, I think that covers it, yes.

Thank you.

Thanks, everyone.

Thank you, Brendan and George. Thank you very much for attending. That concludes the CEO update. And that concludes our presentation today. Thank you.