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

Welcome all to the FY '24 results overview and business update. My name is Brendan Malone, the Managing Director and CEO of Raiz Invest Limited. On the call today, we'll run through the highlights of the FY '24 results and also provide an update on our announcement today of the placement and strategic relationship with State Street Global Advisors. It won't be a very long presentation because as you can see, we have lots of momentum going on. And I can't like to get back out there with the team and keep getting forward. My agenda today will be to run through a few slides of the FY '24 financial results investor presentation that was released on the ASX earlier this morning. And then I will ask Katie Mackenzie to help moderate the Q&A session at the end to answer any questions you may have regarding the FY '24 results or the strategic relationship. To ask any questions, please type your questions into the Q&A chat. Katie will help moderate questions at the end, but please also remember that any questions can be asked through our investor hub portal, which has now been up and running over the last month or so with some great questions being asked and creating the transparency that our investors deserve. As I said, we have a lot of great news today, huge momentum. So let's get started as we turn to Slide 4 of the presentation. Solid revenue growth with $1.3 million EBITDA from Australian operations. That's a pretty strong headline for us, especially the turnaround that we've seen. Whilst the revenue was up to $21 million or up 19% year-on-year, I note that's total revenue, which includes the other financial services revenue that were in the FY '23 year. So as shown on Slide 10 of the presentation and our study accounts, the total Raiz platform revenue was up 23% year-on-year. The EBITDA -- positive EBITDA of $1.3 million for the Australian operations, which is a significant improvement from the FY '23 year, which was an EBITDA loss of 2.4%. It's great. I'm very pleased to announce the split out of the P&L and the EBITDA numbers to give the transparency to the investors. As we all know through our 4 Cs, the cash flow appendixes that we do on a quarterly basis, we've had 4 consecutive quarters of positive operating cash flow. On our net cost line, we have a stable cost base with total expenses down 4% year-on-year. There were some significant decreases in professional fees of 25% and employee benefits of 14%, which helped reduce the cost base. We do note that marketing was up 30%, which includes the Seven West campaigns, which totaled $2.7 million this year, up from the $1.9 million in the FY '23. We also have a $1.4 million remaining credit with the Seven West, which will be utilized towards the end of this year. Our core focus for the last year was the solid growth on the Australian operations and our exit from Southeast Asia. We did some significant product innovation with the Plus Portfolio being one of the most innovative products in the investment arena in Australia over the last 12 months. We also have released our Automatic Rewards, which is a game changer here in Australia. But not only that, not only did we close the -- or exit the Southeast Asia business, we did continue innovation in the Australian business, and that includes things from the Consumer Date Right, improving the interface and general improvements right across the platform and the example being pending dividends or letting our customers have a voting page for which investment choices they would like to see through this Plus product. What we are trying to do is create the -- and improve the transparency and across our app for our customers and our numbers for our investors, and I believe that's what we've achieved in these last 12 months. Looking forward into FY '25, there's a few key pillars here, which we'll talk about later, but that is focusing on the strategic partnerships, launching a white label products, which include huge innovation and product development coming forward and continued revenue growth all improving our earnings. On a few slides down, we'll touch on the strategic relationship and the placement to State Street Global Advisers and the opportunity for our retail investors to join in through the SPP. As we can see, we had strong performance across all key metrics. And this -- I think this is a very good visualization of what we've achieved over the last 3 years and 4 years of financial year-ends with all metrics heading in the right direction. What I'm pleased to see is that not only have active customers have increased, the FUM significantly increased. The average of balances has increased. That bring in the Raiz platform revenue to increase as well, up to over $21 million. Our gross margin, as we reduce cost and stabilize our cost base has also improved, and our CapEx expenses are down, and I'm expecting further CapEx expenses to come down in the coming 12 months. We have got great momentum into the FY '25 and our active customers as of last Friday, we see 39,933 with a FUM of huge $1.464 billion. And you can see those numbers from the graph above active customers are up 3,000-plus and FUMs up over $50 million. So there's massive momentum going into this new year. Strong uptake of our new products. One of the biggest challenges that I am very happy that [indiscernible] achieved this year is the retention. We've gone deeper and we're building stronger relationships with our customers. And as you can see the Raiz Plus, the Raiz Super, the Raiz Kids and the Raiz Property portfolios have all had significant increase in percentages year-on-year, not only for active accounts, but also their FUM with Raiz Plus up $177 million -- with FUM of $177 million, up 66% year-on-year. Our Raiz Super had a cracking year with accounts up 24% and FUM up 28% and Raiz Kids, 44% in accounts with a 121% increase in FUM and our Raiz Property, as we've added our 12th property towards the end of July down in Victoria. We've had a 98% increase in accounts, but also a 32% increase in our FUM. Now I'll just pause there. All of those products have been developed further and better in this FY '24 year as we continue to innovate and change not only the actual product but also the interface to give a superior experience to our customers. And I'm very delighted to see these numbers all going in the right direction. Now on to the strategic investment by State Street Global Advisors. As we announced this morning, there's been a strategic relationship formed with State Street Global Advisers that has been going on for a good number of years. We are both committed to growing our core Australian businesses through ongoing product innovation and improving the financial literacy of retail investors, something that we both believe in passionately. The strategic relationship with State Street Global Advisers enables us to accelerate our activities in both these areas. According to an ASX Investor study in 2023, 34% of Australian investors said they need to know which source of information to trust that was their top investment challenge in the last year. Raiz will leverage State Street Global Advisers trusted global brand to broaden market awareness and financial literacy to all its customers in Australia and accelerate customer acquisition and FUM on the Raiz platform. So the placement was put to State Street at 4.8%, with a premium of 9.3% to the close on Thursday and also an 11.4% premium to the 5-day VWAP to Thursdays or the 22nd of October. So I'm delighted to get that away. We also -- it's important that we have a very, very strong and loyal retail customer base, and we're delighted to offer an SPP or share purchase plan to raise up to another $2 million to eligible shareholders and there'll be further information coming out of that in the next couple of days. So I'm very happy to be partnered with a relationship with strategic -- with State Street Global Advisors. It's going to not only increase our awareness, but increase our trust and relationships with our customers here in the Australian business. So while the common questions will be, what are the funds used for? As I've always said, we not necessarily needed any cash. I think we've got a strong balance sheet with the cash that we have here in the Australian business. But the use of these funds will help build out 3 sort of pillars in our strategy going forward, and that's the AI and data development -- product development and looking for and completing some of these strategic opportunities and partnerships that we currently have in the works. On the product side and the development, as you would have seen in the business commentary, we have a significant build-out of our own AI marketing tool, which is helping digitalize and reengage our active customers or our inactive customers. And it's important here that one of the key drivers is to look at the customer acquisition, not only for our new customer acquisition, but also the organic and the inorganic processes and partnerships that we have in place. And there's been significant work over the last 2 or 3 months on this marketing toolkit, which is starting to take full effect. We want to continue our customer satisfaction, cross-sell, as I said, and retain our customers through this period. And as you can see, the customers are moving up our value chain and going to the products that we put in front of them, which creates that trust and brand awareness. We've got increased operational efficiencies, which will come from the use of technology as we continue to automate a lot of our processes here. On the product development, so I'm quite excited to talk about the white label solution for the wealth management industry. We're also working with State Street on some other products, including our retirement income strategy, which will go into a pension phase of our superannuation product as we only have an accumulation phase now. So we're looking forward to building that out over the next 6 to 9 months and also looking at some trends in data with State Street and State Street's Global experience in markets and knowledge of the industry to help us work out where to target and what message is to make sure we give the right messages to the right customer at the right time through their financial services journey. As always, we continue to look at strategic opportunities. That's both organic and inorganic, and there's partnerships coming out in the next couple of months, and I'm quite excited to release all that will drive and increase the reach of Raiz into their customer base so that we can help benefit them. And this includes the Wealth Management business, but also the Raiz app that we have, where we can make sure we attract new investors, both at the high net worth individual all from the beginning and run through the financial services journey of their life. We've got kids at this end, and now we're going to have a retirement income strategy the superannuation pension phase offering on this end. So we're going right through the age gap. Moving on to our results. I'll quickly pass through these because I did cover a lot of these points at the start. But some of the things I would like to highlight, as I mentioned, the Raiz platform revenue is up $21 million. So that's a great increase on our revenue year-on-year. We see -- we achieved a positive EBITDA of $1.3 billion, which is a significant change from the $2.4 million loss that we had last year. And then again, on the expenses, I do note that the marketing expenses did go up and that was up 30% to $4.7 million. That did include $2.7 million from our Seven West media campaigns, and we have a balance of [ $1.462 ] to be used by the end of this year. This is the first time a lot of people would have seen the financial performance split out by country. So the Australia, Malaysia and Thailand and Vietnam businesses there are what we call our continuing operations as at 30 June 2024. There has been a few announcements out there regarding our Malaysian operations, which it has been agreed that we will divest from there, and we're working very closely with the Malaysian regulator and the team up in Raiz Malaysia and our partner to make sure it's an orderly close down of the business over the coming months, and we anticipate this to be finalized in this calendar year. And just noting there that the loss from the Malaysian business is at $804,000 contributing to the loss of the continued business overall. The balance sheet is a pretty strong balance sheet. There's a few things that I would like to point out here, one of them was the $973 million preference shares issued in Malaysia and the joint venture partner in November, December last year. They will be removed as we close down the business and paid back. So with quite a strong balance sheet, this balance sheet here excludes any cash coming in from State Street Global Advisers that was announced today. But the Australian business is very healthy with $8.5 million in cash, which is up $1.7 million year-on-year. So as we divest from the Malaysian business, we will take the Malaysian balance sheet out of this as well. And the statement of cash flows, there's been -- we put out our 4 Cs on a quarterly basis, so it's pretty important that these numbers are seen again, we've had a good turnaround in the net operating activities of the business. I think we've all seen those numbers before. So positive momentum in Australia and moving into the FY '25. I think it's important that I'd like to reflect on, as I said at the beginning, we've had a massive year. We've had a big year on product development and setting the product, but also at the back end of that business up and running to have the momentum that we have today. And I think it's important that we think about what we have achieved in Southeast Asia over the last 12 months, the overall turnaround in both the expenses and the cash position of the business. But the fact that we did also deliver on some innovation and product developments here in Australia. And I call this the flywheel of Raiz and our operations and how we grow active customers. We have great customer service and experience. That adds to the growing revenue per user and keeps -- we keep delivering new products and services for improved engagement and retention, and it keeps going. And that's what we've done. By just highlighting a few of the new products here that I mentioned, that should be Consumer Date Right, which is the open banking, and that's working now linking in a lot of the millennial bank accounts for their transactional data, which also helps drive our automated rewards, the more customers we have in there with their bank accounts linked. We can drive automatic rewards, which I'm quite excited about, which will be a bit of a game changer for not only our retention, but also the benefit of our customers. And what that means is as long as your bank accounts linked for roundup purposes through screens scraping, we will automatically pay rewards. So we're looking for some great increases in our revenue there, but also assisting with our retention. And then we're also in the pipeline now of an improved interface, and the team is quite excited here. We haven't made all that many changes to the interface over the last 5, 6 years. So we're looking forward to refresh there to keep customers engaged and excited and make it easier for them. As we have seen in the previous slide, all this innovation and change as well as Southeast Asia, but we did continue to grow our active customers for the year at 3.7%. Well, that's not exactly where I'd like to be. I think we've set the system up to reengage and chase the inorganic and organic activities in customer acquisitions over the coming 12 months. We have great customer service and experience, the team service our customers superbly, and we can see that through our customer satisfaction surveys, but also our Google play store ratings. And as the game -- the aim of the game is to increase our customer relations and customer relationship and which all drives our revenue, which our ARPU has grown year-on-year of 16%. You would have seen that our annualized revenue per user for the 4 Cs on a quarterly basis being annualized, we're sitting at $72.7 and we're currently running at 70% across the full year of FY 2024. So huge momentum there and really, really excited about getting forward and as well as getting back out with the team now to crack on. We've had a refreshed marketing through our AI strategies and new partnerships. We believe and we know that it's not just organic growth that we need, we need some inorganic growth. So while we've set up the systems and the internal systems now, which are ever improving on the organic growth, with the AI capability, focusing more on the digital marketing boosted campaigns through the likes of platforms of Meta and LinkedIn and Instagram, but also the re-engagement to drive cross promotion. And that internal system that we've built is real time, and we can change and adjust our messages to make sure the right messages, the right products gets in front of the right customer at the right time of their life cycle. There's a huge opportunity with our strategic partnerships now that we've got a steady and consistent customer base who know -- who do tell us what they would like to see, and we've reached out to numerous partners here, and we're working on some strategic partners to have access to their customer base but also their product offerings that will only benefit our customers. And there's a few names there. State Street Global Advisors, we continue working with Channel 7, and there's a lot more marketing and campaigns running through the 'Raiz Your Game' campaign and The Morning Show between now and the end of the year, especially in the grand final 4 C season that starts sort of next month. So there's lots going on in that partnership space, and I'm looking forward to getting a few of these across the line to really enhance our customer reach. So why Raiz? What are our top highlights? And why would you think about or consider about Raiz? With our positive 2024, we're looking even more positive for FY '25. And there's 6 key points here that I'd just like to talk about, strengthening the Australian operations with positive momentum in key metrics and a scalable business model. We know the system works. We know our customers are there. We keep delivering for what the customer needs, and we continue to retain them and go deeper in the relationships with them. We have, as announced today, a strategic relationship with State Street Global advisers to enhance product innovation and customer acquisition. The breadth and depth and the toolkits that State Street bring along to us will really help us with our content and getting the right messages as I said, the right messages and the trust messages out to our customers. There's been refreshed digital marketing strategies incorporating AI to drive organic growth. It's something that is massive. And I've spoken previously that we have about 700,000 customers that have been on the platform with money in their accounts at some stage, and we have 310,000 active. There is a massive opportunity there to reengage and our systems are starting to prove that. So we've spent a lot of time and effort on that. We've also launched the innovation of Automatic Rewards, which went live at the last week of June, and we're still in the pilot testing system in July. So we're looking forward to that to generate new revenue streams, but also increase the reengagement and the retention of our customers. That's a key part because just think about it, we're keeping it in the ecosystem, there's a relationship with customers. They put -- they spend their money, they get a reward and that comes back in the FUM. So it's a continuous circle and it keeps everybody in the ecosystem, which I believe is strong for the retention exercises. And as we do here with Raiz, we continually strive to innovate and we're coming up with -- the launching of white label solution for the wealth management industry. And if I just pause there and think about that, I believe there's a lot of investors out there that believe they're day traders. But on average, they're doing 1 or 2 trades a month. So we are now in the position through our fast portfolios that we can engage these customers. And I believe there is a good 70% to 80% of customers out there that are trading on other platforms that can be better and more costly effective service through the Raiz platform. So there's going to be a strong drive this financial year to get that product out there because that technology is good. Our technology is scalable and it brings it right down for a cost-effective way to service these customers. And not only were we well funded the Raiz of $2 million from State Street is a very well-funded business to continue to execute and maybe fast track some of these partnerships in product development moving forward. Katie -- I think I'll leave it there for the formal presentation and hand back to Katie for some Q&A through the system.

Thank you, Brendan, for the presentation. And just a reminder to everybody, if you would like to ask a question, please feel free to tie that into the Q&A tab at the bottom of your screen. So I'll kick off, Brendan, we do have a question in here on Raiz rewards. So the question here is for the Raiz rewards that go back into the customer accounts. What percentage did Raiz get from this? And does that have a potential to be a big revenue driver moving forward?

Absolutely. We'll be one of the -- if not the first, one of the first to drive the innovation of automatic rewards in the Australian business. On average, I'll step back a bit, Katie and answer the question this way. Some investors and customers ask us, what's in it for the merchant? So what we do is we're very transparent and the merchants are very happy to be on the platform because loyalty to them and you've seen the Coles, the Woolies and the Aldis out there competing for loyalty. What we do here is for the merchant is create that loyalty by them paying away and marketing their marketing fee and their marketing margin in Raiz rewards. So I go and spend and I'll use Speedo as an example. I go and buy some Speedo for $100 or might the reward or the bonus might be 10%. So I get $10 cash back. What Raiz does we keep up to about 30% on average margin of that and put the other -- the balance back into the customers' accounts that goes into their FUM account. So the more transactions and the more accounts that we have linked from screen scraping for our roundup functionality. Then what we're trying to achieve here is that surprise and delight for a customer and say, "Wow, here's an extra $2 or $3 from a Speedo or from a milk run or one of our partners, we've got 1,300 partners on there. It's a surprise and delight and creates the loyalty for the merchants. So that Brendan as a consumer, we'll come back to it, I'm going to buy that again.

Okay. That makes sense. We don't have any further questions coming through there, but just a reminder to everybody on the call as well that we have recently set up the investor hub, and you can feel free to ask questions on the investor hub. We answer that. We look at that hub regularly, and we answer questions there regularly, just as I've been saying that. We have another question that come through on customer acquisition costs. This is a number that has been historically provided, but it's not included in the FY '24 presentation. Brendan, can you just talk a little bit about the customer acquisition costs?

Yes. Look, customer acquisition costs have always been consistently presented to investors on our digital cost base, what it -- through our platforms for digital acquisition. It's been a bit with the increase in spending and marketing from the Seven West campaign. We've decided not to put that number out. It has gone up over the last 12 months with inflation and also other competitiveness out there in the market. But it'd be -- I think off the top of my head, it was $21 last year, $41.60 and it's up to just over $25 now. But that is strictly for the actual cost of acquisition of the digital marketing campaigns that we chose not the Seven West campaign. So we're starting to get a bit murky, so we just thought we'd be better to remove that as we focus on our ARPU numbers as well.

Okay. We have a question here. Do you have any targets or expectations around FY '25 revenue from end customers? How do you think about the outlook for FY '25 across those metrics?

I don't have any targets that I'll talk about, but I think all of those active customers FUM and revenue will all go up. That's our goal here. We want to -- we're well funded. We've got the product and the opportunities. We've got our customer feedback. And we also have a lot of wealth management experience and feedback coming in and saying, okay, what should we do? Where should we take the product. So if we can drive active customers, and that's through our partnerships, the organic growth, the inorganic growth and the possibly acquisitions and mergers, that will drive both FUM and customers and revenue. So the goal is to drive everything up.

Okay. We have a specific question here on Seven West and the customer acquisition from Seven West. Can you talk a little bit about that the campaign and how that's tracking in FY well -- in FY '24, but I guess, generally, as a campaign?

Yes. Look, the Seven West media campaigns through the last year has done very well for brand awareness. It's very hard to attribute sort of the direct acquisition through there. But we've constantly seen reengagement and brand awareness from our customers. There's been a lot of conversation around how do we deploy those assets on the Seven West media. We worked very closely weekly with the Seven West team to make sure we're getting the right message and again, the right message to the right people at the right time. We've got some heavy investments coming up in the AFL Grand Final Series, the AFLW, I think kicks off this Friday and then into the Grand Final for that. The Morning Show, we did some clips for that, that are working quite well. And as we look to get across other assets of the Seven West campaign through the back end of this year I'm quite excited to see how that goes. But very hard to attribute direct acquisition. It's helping with the whole re-engagement and the re-awareness but also the other product offerings that we have to existing customers.

We have a question here on how you are planning to manage costs and increase margins further in FY '25? Can you talk a little bit about the cost base expectations moving forward?

Yes. So I think the cost base is pretty stable. I can always spend more money and drive the costs up, but I'm very focused. And I think my -- the track record of our cost base over the last couple of years and even these accounts showing the reduction in the costs and the cash outflow, we take it very serious to manage its cost base. I think there's still a little bit more efficiencies that we'll gain from the use of the AI and the systems that we're building internally instead of having them more outsourced or bolt-ons, and that's important from having a back end that's stable and reliable. So we've got a few more efficiencies coming there. I don't expect to have a massive CapEx blowout or expenses as we build on the systems because to me, that is part of data business and business as usual. There's a lot of innovation in the product development, not only in the back end for the white label, but also the front end and the user experience, but that's all part of day-to-day business for us. So I think the cost base is going to stay pretty stable, keeping in mind that there is some -- the Seven West campaigns in there. The marketing is probably the big one for the next year. It won't be as big as this year because we only have $1.4 million left on the Seven West campaign to expense this financial year.

And that's probably a good segue into the next question. Would you anticipate an increase in digital marketing as the Seven West marketing expenses tail off? Or as that comes off, how does that rebalance across the whole marketing budget?

Yes, it's a good question. I think the partnerships that we're forming we will continue with the Seven West partnerships, but the partnerships we're forming with State Street Global Advisors, in particular, and a few other partnerships coming up. The cost base, the digital marketing cost base will increase. As I said, we've built a lot internally to drive that organic awareness and reengagement with our customer base. It's not -- we've never ever been a cost of at any cost acquisition sort of model. We monitor that. We have real-time feeds on what they cost us. So the partnerships will replace any sort of massive increase in marketing cost. So I expect the digital marketing costs to stay consistent as they were this year.

Okay. We've got a question here on CapEx. And can you define what comes under CapEx? What you're spending that on? And just a comment there seems to be a new term for Raiz. We haven't previously put that in investor presentations. But I think the question is more related to what do you spend that on?

That's coming -- a lot of that comes off the 4 C and the investing activities for the technology team, and that's the innovation that we're building in the back end there to create the efficiency and cost base. So that will come down this year with closure of Malaysia going forward. But I do expect there to be some -- you've got to spend money to invest and need to spend money to grow. So when we use the word CapEx, I still think it's part of my operating costs and business as usual. There's no massive systems or services or anything that needs to be purchased. It's more just business as usual.

We have a question here on the Super customers on the platform and how active they are and do most of those Super customers put their full guaranteed Super into the Raiz platform?

Yes. Look, I'm very happy with the Super. Now the thing is 24% growth year-on-year on customer numbers and a 28% increase in the FUM. Under app requirements, they must be active. Any inactive accounts we have to communicate and talk to if they're inactive for greater than 16 months, then we have to send them back to the ITO. So they are active. And I'd say, 70% plus would have their Super guarantee amounts coming in. I think Super, as we've always said, there is a massive opportunity in the superannuation business here in Australia -- superannuation world here in Australia. And I would love to see that sort of Super number not only double but triple. And I think the systems that we have up now, the improvement in the superannuation products, the Super Plus going live on the 27th of July, the improved insurance offering that's coming out, the superannuation business -- the superannuation product is going to be standing up for itself as we sort of cross-sell that product to our other -- to our existing retail customers. So there's a huge spotlight and a huge tailwind there for us.

We have a question here on the revenue split between the fees, the maintenance fees, the Raiz rewards in the Brendan and just to comment here that we no longer report that. And we were going to report it. So there's no reason that we were going to hide it, but I think it wasn't substantially changed, but Brendan you might have the exact numbers there, but we can certainly put that information back into the presentation. There was no reason specifically that it was missing. Just we wanted to be more precise and concise with the presentation.

Yes, you're right, Katie. There was no change in the split for this year. So that's why we removed it, but I'm happy to drop that on to the investor hub.

A question here on when does the company -- when do you see the company going cash flow positive? Are you able to provide any dividend guidance or outlook over the longer term?

Look, I think FY '25 is going to be another very strong year in moving both our revenue and our costs in the directions that we're headed. There is no guidance on dividends, sorry, guys. I think there's a lot of importance in the tech world that we need to continue to invest at this stage. But if all goes to plan, we'll be looking -- we'll have a very, very strong FY '25.

A question on Super customers. They mainly in the younger age group sort of first-time employees signing up for Super. Is that where you are finding that your new customer acquisition is coming from?

It's probably 50-50 in that younger generation. There are more substantial balances than the sort of new casual employees. We're working with employment here and elevate money from onboarding program, employee onboarding program and putting Raiz Super in front of them. So we're looking forward to elevate going live and seeing what they do. But on average, it is more that sort of mid-30s to 40s on superannuation product. And that's why I'm quite excited to build a retirement income strategy. We have an accumulation phase fund in place now. We're working on that pension phase or the retirement income strategy with our trustees and also State Street to get that right product and that right portfolio for the pension phase, which I'm quite excited to get up and running over the next 12 months.

So there's no further questions here, but just a reminder that if we have missed something or you think of a question later, feel free to type the question into the investor hub, and we will answer that. So Brendan I will hand that back over to you to round out the presentation.

Thank you, Katie. Thank you all for joining online and the continued support. As you know, we'd like to hear feedback. So as Katie mentioned, drop anything on investor hub or our IR e-mail address, and we'll get back to you as soon as we can. I appreciate the continued support. FY '24 was a big year in the restructuring of the Southeast Asian business and doing that correctly and professionally, but also there was continued innovation in the Australian business. And the team out here right to my left here are very excited about the opportunity and the momentum we've got. So watch this space for FY '25 and its not only us, but our customers already [indiscernible]. Thank you.