Centrepoint Alliance Limited (CAF) Earnings Call Transcript

Good morning, everyone, and thank you for joining us today for the Centrepoint Alliance Full Year Results Investor Conference Call. [Operator Instructions] My name is John Shuttleworth. I'm the Chief Executive Officer of Centrepoint Alliance. And with me today is Brendon Glass, our Chief Financial Officer. We'll have the presentation today followed by the opportunity for Q&A. [Operator Instructions] So let's kick off then. So how we'll do this is I'll firstly just go through the high-level results and a business update to give you a sense of how the business is performing and what we've been working on. Brendon will then take you through some of the detailed financials, and I'll finish off with an outlook and earnings guidance. So if you look at the highlights for FY '25, look, it's been a strong year. We've delivered strong performance. We exceeded our earnings guidance. We've had market-leading adviser growth and some of the new initiatives around managed accounts and the launch of our platform is underway. Some of the detail, and I've got slides that will break this down in more, but at a headline, licensing leadership has been sustained. We had net growth of 22 authorized reps. So we've now got 571 advisers under Centrepoint Alliance licenses. So we've had the strongest organic growth in the market. Good momentum with managed accounts. Our funds under management increased 40% to $423 million, driven by distribution across 6 investment and super platforms. Our platform commercialization is underway. The last leg of it was launching the IconiQ super platform in December when advisers started returning in February. We've been onboarding advisers going through training, transition, and we'll give you an update on how that's progressing. We executed a nice tuck-in acquisition. We work very closely with industry funds. Brighter Super, Queensland domiciled industry fund divested and sold us their advice review book. That resulted in 3 advisers transitioning to Financial Advice Matters. So we've now got 22 full-time salaried advisers within the business. The other point, which I'll talk in a little bit more detail. We're making investments in technology and artificial intelligence to transform advice delivery. There wouldn't be a business that isn't looking closely at AI. And when you understand the nature of our work, we believe that we can drive adviser productivity and also improve supervision and monitoring by using some of the emerging tech. We've also been investing in cybersecurity to protect the adviser network, and I'll take you through some of the programs we're doing to secure that. The numbers at a glance, gross revenue, $326.1 million, up 13%; net revenue, $40.9 million, up 13%. Normalized EBITDA of $10.6 million, up 16%. Profit before tax $7.3 million, up 30%. Cash on hand at the 30th of June was $13.7 million. And the dividend declared, which is fully franked to be paid on the 2nd of October, $0.0175 ordinary. That takes a total of $0.03 in dividends for the year, slightly up on the $0.0275 in FY '24. I've shared this chart previously, and we've updated it with the full year '25 numbers. There's a lot of information, but I'll just walk you through it because it's a really good snapshot of the business from FY '21 through FY '25. So if we start at the top, you can see that our earnings has grown from $3.4 million up to $10.6 million. Net revenue, $28.1 million in FY '21, up to $40.9 million. Some of that is -- a lot of that's organic, but also acquisitions that occurred, the big one in -- with ClearView, Matrix, LaVista in '22 and Financial Advice Matters in '24. The number of employees, 90 to 125. We pride ourselves on our disciplined cost management. The cost-to-income ratio as the business has got more scale has gone from 88% down to 74%. PBT has gone up from 1.5% to 7.3%. We've paid dividends every year, ordinary and a few special along the way. And I've got a slide following this one on our total shareholder return. If you look at the biggest part of our business, which is obviously the licensee services, just to explain this, we've got the total number of advisers in the network, which comprises those under our license employed and also self-licensed. The dark blue bar shows that in FY '21, we had 315 advisers, took a jump in '22 with the acquisition, and we've consistently grown from there. So we now have 571 financial advisers under our license. In brackets, that's the 22 salaried advisers that are part of Financial Advice Matters, which are included in the 571 number. And on the blue bar below, in brackets, we have the number of firms, because when you think of self-license, you think more of firms, and that's grown to 199 firms with 900 advisers. So a good summary of how the business has been performing as we've executed our strategy. A new slide this year, we thought we'd just put this in because it shows the value creation for shareholders, total shareholder return of 125%. We put the table underneath, so you can see the share price movements and the dividends that have been paid. It's 5 years of data, but obviously, that 125% is over 4 years, with FY '25 as a baseline. The share price has risen from $0.22 up to $0.39. And currently, we're trading slightly above that, but that was the number at the end of June. A total of $0.145 has been -- per share has been paid, which totals $25.5 million fully franked. And so that just gives you an indication of how the business has been performing if you've held shares for that period or the cumulative returns depending on the time frame. Our strategy remains consistent, and we're executing against it, and it's really one of focusing on margin expansion and annuity revenue enabled by the strong distribution network. The biggest part of our business is the licensee where we've -- as mentioned, we have 571 authorized reps and then the self-licensed business. We're growing that organically. We will look at acquisitions if they come up, if they're the right one, but they've got to be the right firm for the right acquisition to give scale. The salaried advice business remains a key focus area. We think there's significant opportunities to increase productivity, look at tuck-in acquisitions, and we're absolutely focused on that business because it does make a meaningful contribution to the revenue. The building scale in asset management, really pleasing to see some of the fruits of our labor coming through now as advisers are adopting some of our managed accounts, and I'll share with you some of the performance and the flows. The platform market PILLAR 4 is huge, $1.2 trillion, approximately $1 trillion in assets. The $73.5 billion is our best estimate of funds under advice within the network. So we've only got to get a small share of that. We are an open architecture business, but we think the platform, we've got to complement some of the existing offers in the market. And then we have the lending business, 2 parts to that, the Lending Aggregation and the Lending as a Service business as well. To talk through the licensee market, this is ASIC data. When I quote numbers for those with a sharp attention to detail, you'll see some of the other numbers, say, 571. This is ASIC data. There's a lag of 2 advisers just because of timing. So because we are comparing them to other firms, we use the ASIC data -- and you can see we've got the number of authorized reps. So we're #3 in the market. You can see the appointments, the resignations and the net change. The net change is the column that is worth focusing on because we've put on 22 and had good organic growth. We've also had a very strong retention rate. If you look at the top 10, there's been around 18% resignation rate across the industry and ours is running at close to 8%. So we do a good job of holding on to the advisers we have. When we do lose some, it tends to be more due to business sales and people exiting the industry and the acquiring business has a different license, but it's rare that we lose an adviser due to service issues or other factors. So we're proud of that. We are a service company, and we stay focused on it. The managed account side, 2 parts to this. If we start on the left, we launched these iQ portfolios. They're separately managed accounts, diversified portfolios. We launched in December 2023. What we've done is these are the annualized returns since inception returns, but presented on an annual basis. So you can see the return across the different risk profiles, the investment objectives in the PDS, which is CPI plus and then the overperformance. So pleasing, these funds have been performing well, and we're getting increased adviser adoption. The whole managed account sector is booming. The chart on the right shows the total managed account, FUM. And the dark blue bar represents VMAPS, which is Ventura managed account portfolio has been around for many years, has been slowly running off. What we've managed to do with the new iQ portfolios and the FirstChoice managed accounts, we've managed to turn around the investment. And it's early days, and we really believe we can grow this, but we've got distribution now on the 6 platforms or 5 platforms for iQ and FirstChoice is obviously on CFS, but that's going to continue to grow. The other big news for us was finally over the last 12 months, launching the IconiQ platform. It's a strong, well-differentiated offer in the market. We launched super in December '24, and advisers want super and investment before they start using it. When everyone came back in February, our focus has been on training, asset transitions, completing integrations. The functionality and the tech is powerful. It's built on FNZ technology and FNZ are a global company. They've got a presence in over 30 countries, over $2 trillion in assets, and they've got an enterprise-grade investment solution. It supports investment in super and retirement products, the interface and certainly the advisers that have used it have been pleasantly surprised by the rich functionality and modern user interface. Two key differentiators, service and support and competitive pricing. Service for a platform, it's more than the tech. It's about when you've got advisers, particularly in the early adoption phases, they want to be talked to a person. They need to be helped on learning how to use the platform because they're all a bit different, transitioning. And our whole philosophy is deal with a human, not a technology bot. And so that's gone down very well with the early adopter advisers. Pricing is sharp. Designed to lower the total cost of ownership and helps with the best interest duty, low admin fees, no account minimums, no account-based fees and unlimited family grouping. Being a part of the FNZ, having them as a partner, they've been doing ongoing build and enhancements and continuing to improve the platform. There was a major release in August in that has included the data feeds for Xplan and AdviserLogic, which are going through. We're increasing the investment menu on a weekly basis as we add new funds and managed portfolios and the feedback from advisers has been very positive, and a lot of it is on the training and transition. Now before I hand over to Brendon to go through the financials, 2 more. The whole movement in technology and AI is transformational for many advice businesses and certainly for licensees. We have a deep understanding of the advice process, the financial services technology or fintech, and we're building capability in AI to strengthen governance and really grow the business. Three key messages on this slide, deep financial expertise. So we really understand the landscape. We publish and present regularly to advisers, the different tech tools that are available in the market. We have Centrepoint recommended. We have Centrepoint approved, and they're across everything from workflow to digital advice to generating statements advice. The next thing is a big focus on AI and robotics. We have an internal working group that is looking at how we can adopt the technology. We've been doing -- we've been an early adopter of client file note transcription, saving huge amounts of time for advisers. We're doing experimentation and advice generation and robotics and process automation. And we think that this is going to really change now. The third message, the potential to redefine governance and compliance oversight is huge. You think about AI and its ability to monitor your approved product list and look at investment performance. We do audits with the professional standards teams, but accelerating and improving the accuracy of that using AI. So we have a strategic aim to really strengthen the organizational capability in AI and certainly with the advisers. The final point before we get into the detailed financials is cybersecurity is a top risk that we spend a lot of time thinking about because we have to protect the data of our advisers and their clients and our own data. To do that, we're in the midst of going through ISO, which is the international recognition for a standard for information security management. It consists of a few different areas. I won't talk to all the points, but third-party oversight, firstly, making sure that from a data privacy perspective, we are secure and information is certainly redacted or encrypted. We mandate external cyber reviews for any of the adviser technology being used, and we have mandated cyber standards. On the systems technical, we deploy CrowdStrike. We do things like geolocation restrictions, so people can't log into systems from overseas. We redact information as part of our storage protocols. We do regular penetration testing. The biggest firewall of all is people, and we do a lot of annual cybersecurity training for staff and advisers. We do phishing simulations, and we're embedding all the cybersecurity and the risk management frameworks. And finally, we've been making sure we have good governance policies around AI to ensure ethical and secure adoption. We also have insurance and response plans in place if we do have a cyber breach and the whole business continuity and incident planning is an area of key focus for the executives. So that gives you a little snapshot of the business and how things are performing. And I'll now hand over to our CFO, Brendon, for some of the financial results.

Thank you, John. Adding to what John covered off in the financial summary slide, the normalized EBITDA of $10.6 million was up 16%, and that was mainly due to the organic licensee fee growth and the FAM acquisition. We incurred $0.6 million in one-off costs was principally the $0.5 million in one-off professional fees. Now looking at the revenue and expense analysis in some more detail. From a revenue perspective, the adviser fees were up $3.1 million, and that was primarily driven by $0.8 million from the licensee adviser growth up to 571. We derived $1.5 million from the license fee rate card reset at 1 July 2024. We derived $0.2 million of fee growth from the self-license fee network from the fee rate card reset there, $0.2 million from new advisers transitioning to a full rate card and $0.4 million from virtual services revenue growth. With out other revenue, we reduced by $0.6 million, and that was driven by reductions in legacy VMAPS funds revenue, lending aggregation and Enzumo revenue. We derived $2.3 million in revenue increase from the FAM acquisition being 12 months of operation in F '25 compared to 7 months in '24. Now looking at expenses. Our employment costs were up 4% to $0.7 million, driven by inflationary growth. Our general and administration fees were up 8% to $600,000, and that was driven by a onetime $0.3 million CapEx for cloud development project write-off, which was discontinued and $0.2 million in specific claims provisions. We also incurred 0.2 -- sorry, $2 million in increases from the FAM acquisition. Now looking at the net revenue trajectory for the past 5 years, we've experienced platform rebates that are no longer permissible in 2021 as well as runoff of insurance distribution agreements in 2022. But notwithstanding those headwinds and the 37% decrease in CAGR in Investment Solutions, our group net revenue has increased by 10%. Now that's been underpinned by a transformation in how we've -- the business mix. So we've gone from a sort of noncontrollable platform-centric business to a stickier annuitized fee-for-service business. More specifically, our adviser fees have more than doubled over the period in absolute terms, $40 million uplift, and that's been driven by impactful organic revenue, fee increases in the F '22 ClearView Advice acquisition. The salaried advice business has increased by more than 50% -- 56%, and that's been driven by the ClearView Advice transaction and more recently, the FAM acquisition. And our Lending Solutions business has increased by more than 6%, principally from the Lending as a Service business, which launched in 2023. So we're now executing our strategic plan to grow the investment management business, as John has mentioned, to complement the strong foundations we have in place with our fee-for-service income lines. In terms of our balance sheet, I'll talk about the cash in the next slide. Our intangibles were up $0.7 million for the year. That's primarily due to $1.8 million in tax effect Brighter acquisition accounting, $0.6 million from the IconiQ acquisition and somewhat offset by $1.7 million in annual amortization of the existing customer relationships, and they range from 8 to 14 years in amortization depending on the investment type. The employee entitlements and other provisions have decreased by $1 million, and that's primarily from the $1.3 million contingent consideration release for the FAM earnouts, somewhat offset by $0.4 million in employee provisions, which are mainly long service leave. Our income tax payable is $1.6 million at the end of F '25. And Centrepoint commenced becoming a paying income tax entity in the 2024 year -- '25 year, I should say, in relation to '24 financial year. In terms of the -- that's all from a balance sheet perspective. In terms of the cash movement, the closing position was $13.7 million at the end of June. We derived $11.4 million in cash provided by operations. $9.7 million was the gross cash from operations. We've derived, as I mentioned -- sorry, there was $0.6 million one-off costs, as I've mentioned previously. As the business has scaled to more than $325 million in gross revenue, we experienced timing differences in terms of our payment of advisers and receipt of advisers. So for the cutoff at the end of June '25, there was a timing benefit of $2.4 million. The income tax paid was $1 million. We incurred $0.7 million for the F '24 income tax return, and we've incurred $0.3 million in F '25 for PY installments year-to-date. We incurred $1.2 million in outflows for the Brighter acquisition, net of GST as well as $6 million in dividend payments. In the other bucket, we've had $2.2 million in outflows, of which there was $0.7 million from the IconiQ platform, $1 million from the repayment of office lease liabilities and $0.5 million of interest payments. Now looking at the financial snapshot, that showcases some very strong metrics in terms of how we've grown the business at scale as well as adequately and managing risk in a disciplined manner. From a profit and loss management perspective and a risk management oversight, the headcount has remained well managed. We -- for F '25, the headcount was down slightly, notwithstanding the 3 advisers brought on from the Brighter acquisition. Our employment cost to net revenue has continued to improve, down to 51.7%. Our EBITDA margin has continued to improve from 23.4% to 25.9%, and our claims payments continue to be well managed with a lower 3 claims paid for 2025. You can see some very strong and robust shareholder return metrics. Our ordinary dividend yield is in the range of 7% to 10%. Our ordinary dividends paid have increased progressively from $2.9 million to $6 million. Our cash flow per share has increased from $0.021 to $0.0512 per share, and we've got very robust return on equity in excess of 20%. So over to you, John, for the outlook.

Yes. Thanks, Brendon. So the final slide, where are we at? We feel that the business has got strong momentum. And you could see on that early chart where I sort of showed we've just had this consistent growth. So we're feeling good about our market position. We're seeing good momentum in adviser recruitment. That's being helped by industry consolidation and what we believe is a very competitive value proposition. I've spoken in the past about we provide a lot of services in-house, and we are a service company and the service quality and quality of service matters. The rollout of the strategic initiatives. When you look at that chart, Brendon presented, and you can see how the Investment Solutions business has turned around. If we can continue to sustain the growth of the licensee business and start delivering meaningful flows into our managed accounts and platform, then that will have a really positive impact over the next few years, and we're getting good early traction. We've integrated the Brighter Super planners across. As mentioned, tech is an absolute focus, AI-driven efficiency, disciplined cost management and supporting margin expansion. And I think that I often talk with the team that if there's one capability, us differentiating on tech is really where we need to take the business and the next evolution of the business. The earnings guidance for FY '26, normalized EBITDA in the range of $11.5 million to $12 million. So that's it for the update. What we might do now is we'll just see if we've got any questions that have come through in the chat. And I think we've got Rahul online. Are there any questions, Rahul, from anyone on the call?

No questions so far, John. So just probably wait.

Yes, we'll wait. Just give it 30 seconds if someone has a question. If not...