Praemium Limited (PPS) Earnings Call Transcript

Welcome, everyone. So we will start this webinar for the Q2 FY '26 update for Praemium Limited. I'm joined today by our CFO, Emma Stepcic, and we want to just take you through about 10 pages of this presentation to give you an update of how the business is traveling, both from a strategic execution sense and from the growth of the business. I do just want to also say I acknowledge that this presentation through a technical glitch has not yet loaded on the ASX website. We apologize. We normally try to get it up in advance of the meeting to help people formulate questions and the like rather than just having to see the slides live for the first time. But we -- as I say, through a technical glitch, we haven't been able to do that this time. I'm pretty confident the slides will be up well before market open today. At Praemium, we acknowledge the traditional custodians of country and pay our respects to their elders past and present. When the presentation is live, there is the usual disclaimer that I draw your attention to, although obviously, as usual, I won't read through it word for word. As I said, joined today by Emma Stepcic and myself, Anthony Wamsteker. We will, as I said at the start, go through the update on strategy and the execution of our strategy, and then I'll hand over to Emma for a more detailed understanding of our flows and the growth rate in the business. In terms of the strategy execution, we talk each time about the 5 key priority areas that we focus on. And the biggest initiative over the last quarter and the thing that we are most excited about is the announcement of our acquisition of the Technotia business. Technotia are market leaders, both in machine learning and design-led development. And that's very important because it greatly expands our development capability and our ability to draw on some very exciting UX initiatives that we're working on with Technotia and which we will be rolling out progressively over the next quarter -- over this quarter or so. So our clients should expect us to come to them in the near future with some ideas about how to improve the way our system is made available to them and improve the user experience. But the relationship with Technotia has been going for a long time now over 18 months. We enjoy working with them. They're a good, very good group of people as well as being very hardworking and highly talented and market leaders, as I said, in what they do. What it also allows us to do is we will be able to develop an end-to-end superannuation platform rather than relying on a different administration system from the underlying investment engine. And I think that's very important. Superannuation has always been by far the biggest segment in the wealth management market in Australia. But it's in a stage now where through recent events, there's a lot more focus on how superannuation should be offered to the market. Everyone who's involved in the superannuation market is making strategic decisions about how they go about making that offer available to the market. Some are contracting the way they offer superannuation. Others are looking to bring more in-house. And so our view about superannuation being one of our 5 big focus areas I think is indicated by how much is going on in the superannuation market. And our relationship with Technotia gives us a development capability that we've never had before to expand the way we offer that to the market. So we think that's a very important change. And the relationship with Technotia covers all 5 areas. It will impact on all 5 areas because of the characteristics of that business that I mentioned before and the expansion that it gives us in our development capability, expansion both in the magnitude of what we can develop and the quality of what we can develop. And everyone's heard me talk before about how pivotal this time is in terms of technology and the way technology is able to power far more of the business than it ever has before. So we're delighted to have formed that relationship and proceed to the transaction that we've announced. Elsewhere, the strategy execution is proceeding to plan, and we are optimistic on the progress on all of the other areas as is shown on that slide. But the big objective of a lot of that is growth and the growth -- the rubber hits the road on growth when we release our net flows as we're doing today. So I'll now hand over to Emma to discuss the growth on the past quarter.

Thank you, Anthony. As these results show, total FUA is growing, supported by the -- supported in the quarter by the continued adoption of Spectrum, strong Powerwrap inflows and onboarding of new Scope+ portfolios. At the end of the quarter, total FUA was $70.5 billion, 5% higher than last quarter and 14% higher year-on-year, which is a very good outcome despite the flat market movements for the quarter. Focusing on platform FUA, this increased 8% year-on-year to $32.5 billion, supported by the growth in Spectrum. At $462 million, the platform net inflow has held up in the quarter despite gross outflows of $361 million relating to exiting advisers, the level of which we expect to see diminish as time goes on. Spectrum's FUA was $3.6 billion, up from $3.3 billion at the end of September with net inflows of $266 million in the quarter. And if we adjust for the OneVue adviser exit from Spectrum, which is set out in the tables on the last slide, the adjusted net inflows were $312 million, that's 9% of the quarter's opening FUA. We are pleased that Spectrum has achieved over $1.4 billion of new business gross inflows since launch just over a year ago, demonstrating the strength of the solution and its increasing traction amongst high net worth advisers. We have also seen retention of customers from OneVue choosing to stay with us based on the strong offering of the Spectrum platform. The pipeline for Spectrum is encouraging, and we will monitor trends over the financial year to inform a view on long-term performance expectations. SMA's net inflows of $24 million for the quarter was impacted as a result of related outflows for a long-standing transition related to a former client group. FUA lifted to $14.6 billion, an increase of 18% year-on-year with a transfer of $933 million from OneVue. Future growth with the Morgans onboarding remains a key priority for the business. Powerwrap performed strongly in the quarter with elevated gross inflows, reflecting the strong engagement and growth across the existing adviser base. Alongside that, the adviser exits from Powerwrap were minimal and outflows reflected a more normalized rate. As a result, net inflows were $302 million for the quarter, which is the highest we have seen since the first quarter of the 2022 financial year. [ Powerwrap FUA ] was up 6% year-on-year at $14.3 billion. And whilst we expect to see new growth flow to Spectrum, the headwinds for Powerwrap have subsided. Finally, the OneVue transition was completed in the quarter with the final FUA transferred to SMA. Further in the quarter, we also closed the final earn-out for OneVue and FUA under the earn-out threshold with no full payments was required to be made. Moving to the portfolio business. Non-custodial Scope+ FUA was up 19% year-on-year at $37.9 billion, with 2 new advice groups added and an increase in portfolios to [ 10.7000 ]. The previously announced Bell Potter win for Scope+ resulted in additional portfolios this quarter with the initial onboarding phases completed, whilst the final phase is expected to be completed by the end of Q3. We have included the usual detailed tables for your reference, and we appreciate that there is a bit of noise in the floor movements this quarter between net flows, market movements and transfers between platforms. So we've included on a one-off basis, new tables on the last slide that step through those detailed movements by platform. Back to you, Anthony.

Thanks, Emma. So just in light of the fact that our challenges in getting this presentation to the ASX on time today, I am going to go to that last table, and then I will come back and leave the presentation on this table. But just to show the final table, and as Emma said, we don't plan to distribute this every quarter. It's a very detailed view. And in our view, it's unnecessary longer term because we will start to just report our overall platform. But given that it's basically been about a year since the both OneVue transition started to happen and Spectrum launched, it's been a bit over a year for both those. But the real activities happened in this last calendar year. So what this table does, and I'll leave it up for just a moment, but allows you to see for each of the platforms, the internal activity that happened. So taking the Praemium SMA as an example, you can see that there was transfers from the OneVue platform of 933 over the last quarter, and there was some money flowed out of SMA into Spectrum of 39 -- now that's why that SMA is up $1 billion. Basically, the market moves were small. The net flows were relatively low compared to prior quarters for SMA, but the $1 billion growth is essentially the OneVue transition. And of course, if you go to the OneVue part of that chart, you see that, that flowed out. So I think it may now be up on the ASX. But in due course, you'll be able to look at that in detail, and you'll see the internal flows between our respective platforms. So I think it gives a good understanding of what the internal flows are. And it's part of us transitioning to, as I say, in the not-too-distant future, maybe next quarter or maybe the quarter after, just talking more about the overall platform. So I will go back to the overall platform, and I'll leave that slide up. I can't add any color to it other than what Emma has said already, which was a very good summary of what has gone on over the last quarter. But because it's only just gone up and people might not have had the chance to see the numbers, I will leave that up for a moment in case there are any immediate questions that come from that. But obviously, as I say, one of the 5 areas that we focus on in our business as a strategy is to grow. I've said before in these forums, growth is a strategy in itself as well as an outcome of our overall strategy. The reason that growth is a strategy is because as everyone acknowledges, these businesses are very technology heavy. And the more we can spread that technology over a larger and larger by [indiscernible] base and revenue base, the better. So clearly, I think everyone who's invested in Praemium understands that we are in a market where the valuation multiples are heavily driven by the growth rate of the incumbent, and we acknowledge that growth has to be both a strategy as well as an outcome of all that we're trying to achieve. So I'm just going to leave it there. I'll leave the call open for a minute or 2 and happy to take some questions.

We do have some questions starting to come in. We will try to avoid answering the same question twice. And so occasionally, we might combine some questions. But there has been a question just about the Bell Potter. As we said, Bell Potter is -- it's not all completed yet. It's well on the way that we've seen some good growth in the Scope+ portfolio because of the Bell Potter onboarding, but there's more to come, and we would expect that to complete over the coming quarter. And -- but we can't speak more highly of the Bell Potter business and delighted to be a supplier to them and to help them with the objectives that they have in their own strategy. I've been asked just given there were some outflows on SMA, just to recap, we're not -- we're trying to get away from splitting the SMA into here's what happened with A, B and C in terms of clients, and we try to preserve an element of client confidentiality. But what we do -- what we have said this time is we've given a number in there of the outflows that have occurred because of advisers who have either left firms or firms who have left the platform, in one case, a firm that left the platform more than 5 years ago. And I won't do it, but everyone probably knows who I'm talking about a major bank who left the platform many years ago. And some of the outflow came from them and some of them were from depart advisers who have left. So they are -- and we can see how much is left from all of those people that left. And a lot of it was the OneVue adviser who had already notified us that they were going to leave. So collectively, there's a range of factors that we don't regard as ongoing, and we're starting to see them reduce somewhat in terms of the magnitude. But they all -- together, they added up to the number that we mentioned of $361 million over the last quarter. There's some questions about the newer relationships, and they continue to -- there's quite a few newer relationships. We've had quite a few wins that we've been asked about in the past and our onboarding for all of those progresses, but there's also more to come. Bell Potter, we did call out on Scope+, but all of the other important relationships that we've got are onboarding at various rates. There's some of those flows in here. Again, we don't break it into each of the individual clients. We are in a competitive market and our competitors will tune into these calls, and you're all welcome. I pay my acknowledgment to you, but we're not going to give too much away, but onboarding is progressing in -- at various rates of pace. Still quite a few questions just asking for a bit more detail about some of the names that have been in the public domain that have chosen to work with us, not just Bell Potter Morgans, Euroz Hartleys, Taylor Collison and the like. So as I say, I'm not going to go into any more detail on this call. We do think a lot about how much we can say, but we are very -- we're both respectful of the client relationships that we are delighted to have those -- the quality of firms that we've got as clients, but we also are sensitive to our competitive position and the fact that everyone wants to know how they're going -- all our competitors wants to know how they're going as well, and we don't particularly want to give that out. So we've said as much as we will say about the individual rate of progress of the individuals. There's a question about the Morgan Stanley departures. Morgan Stanley, again, I won't go into too much detail, but Morgan Stanley obviously are a client of our noncustodial part of our business. The -- some of their advisers are leaving, but Morgan Stanley is still an amazingly strong business. And again, it's another relationship that we greatly value. In terms of the OneVue exit advisers, I was asked, have they been the 361. They are part of the 361 and they're the biggest part of the 361, but they're not the whole 361. Some of the 361 is still adviser departures, either firms or advisers who left firms many years ago. But the lion's share of the 361 is the OneVue, which we expected as part of the -- that was based on the earnout was that people have told us that they were leaving and that continues to happen, although it is -- there's less to go. There's a question about the OneVue synergies, and we'll say more at the half, but we -- there's no change from our expectation on the contribution that OneVue can make to our business in terms of EBITDA. We always talked about a $3 million number, and we're still talking about that number, but we'll do an update at the half year if we think it's moved from that. But we're not expecting it to move significantly from that. There's questions about the individual components like Powerwrap and SMA and Spectrum in terms of the overall platform going forward. The way we think about it is our leading product from a sales perspective, but not our only product is Spectrum. We wouldn't sell any new advice firms into Powerwrap because Spectrum is a superior product, but the Powerwrap clients could stay with Powerwrap. And in that case, their organic growth will contribute to strong net flows for Powerwrap from time to time as it has in the last quarter. But it is possible. They do have the option of moving out into Spectrum, but it's not a requirement there. And most of our clients are looking at Spectrum and considering that. And it's a relatively seamless transaction for them to be able to do that if they so choose. In terms of SMA, SMA still can be the lead product for some clients. It depends on the advice firm and how they're set up. Some advice firms are set up that SMA would be the lead product for them rather than Spectrum going forward. But it's a more limited market. When we talk about the growth of SMAs, and it's the fastest-growing segment within the platform market, managed accounts, -- but it's still -- most advisers have assets that are not suited to managed accounts. So if you got a portfolio of $100 and $50 is suited to managed accounts, but $50 is not, then Spectrum would be a better solution for you. But within the Spectrum, SMA would become one of your investment options. So we expect that SMA will, in fact, grow over time. We've actually broadened the market for SMA by launching Spectrum because of those very firms. The firms that previously said it's only half my assets, so I'm not going to use your SMA can now say, well, I'll use Spectrum and therefore, half the assets will go into SMA. So we're very optimistic about the outlook for SMA, but it's -- we'll see over time just how much Spectrum money flows into managed accounts. But everyone reads the articles about how managed accounts are making up the fastest-growing section of the platform market, although they're still well under half the total market as everyone knows. [ Bert ] asked a question about future acquisitions. Look, we still have books open on some things. Indeed, the acquisition of the Technotia Labs business means that we're more confident about our ability to bed down acquisitions going forward because of the increased technical capability that we've got. But there's no acquisitions that are imminent right at the minute, but there are books open on a few things. But bedding down the Technotia relationship is a higher priority for us at the moment. In simple terms, how does Technotia improve the Super offering? That's a good question. At the moment, we run 2 systems to run our superannuation product. We run an investment system, which in the case of superannuation is our managed account engine, and we run a Super admin system, which is a system -- it would be unfair of me to call it legacy, but it is an older system, and there's more modern systems in the market now than the system that our Super runs on. So we deliberately -- the first exercise we did with Technotia was say, look, superannuation is a very challenging market and the admin is the bit that we don't do. We can fix up the investment part ourselves, but we don't run an administration platform, but it would be good if we did. And so now that we have built with Technotia a superannuation administration platform, we can combine the 2 key parts of the service proposition to superannuation, the Super admin piece of processing of contributions and pension payments and the like and the investment part, which we already do. So combining it into a platform that we control the platform end-to-end is very significant. And I think even though this is not our accounts, when we do our accounts and people get a chance to look at the CapEx of what we spent on that superannuation and compare it to the more modern systems that have been built in the market, I think it's an amazing story in terms of the CapEx we spent building compared to what has been spent in the market building out these superannuation systems, which can run into the hundreds of millions of dollars. I think it just highlights the capability that we've brought in by bringing that into our business. In terms of the return on investment from Technotia, the business case for us stacks up just on the automation possibilities alone. If all we did was take some of the automation opportunities that Technotia brings us and put a net present value on that, that would justify the investment easily [indiscernible]. We're a business that spends in our last financial year, we spent something like about $75 million running the business and another $8 million -- or sorry, $10 million on CapEx. So we spent over $85 million running our business in cash out the door, some CapEx, some operational costs. You don't have to get much saving out of automation to see that it will be a very significant return on that. But there will also be likely as long as we continue to build out or continue to deliver on our distribution side, which under [ Dennis' ] leadership, we've done an amazing job on that, I think, and keep winning clients. I think we can do even better on that because as I've said in what I had to say, it's a design-led business. It's very focused on the UX of what they do. It's not just building out back office capability, it's UX. And once we get to the market with what we are very excited about showing to our clients, we think we can improve our growth rate. But the business case is not predicated on growing more but it is -- we would think that's a potential opportunity as well. As I say, and I don't think this should ever be forgotten, you can do more with technology now than you could ever do before. It's very powerful what you can do, but you've got to have the right team doing it. We've got a very good internal team, but this expands the capability and the quality of what we can do at exactly the right time at the time where technology is doing more for businesses than it could ever do before. So that all allows you to bring better product to market going forward, and that should drive revenue growth as well as, as I say, the business case stacks up just on the savings that you would get in terms of automation and productivity gains. About the new Super offering, we are now working with our suppliers. Our Super offering, we have key suppliers as well as ourselves because of that aspect of not being -- well, we're not a superannuation trustee, and we haven't owned a Super tech. We've never owned Super admin tech. So we're working with the suppliers of those 2 parts of the offering to get this product to market as quickly as we can. Does the addressable market materially change with the new superannuation offering? It could is the answer to that, and I expect it will long term. But what we really want to do is bring our loyal clients along the journey to give them a better offering first up. And that alone would give us substantial growth in the Super. Our Super in total is about 20% of our platform, our retail Super. There's a lot of money on our platform that's in self-managed Super, which is part of our target market is high net worth and they have more self-managed Super. But if you look at every other platform that we compete against, the Super is a much bigger percentage of their total platform. It's crucial for many of them. It's basically what the platform is. So if our Super was to grow, again, is not guidance hypothetically, from 20% of the platform to 40% as the platform itself is growing, it can drive a lot of growth for us. So yes, it will expand the addressable market, but we'll be working very closely with our existing clients first. What sort of P&L leverage can we expect from the growth in funds and is AI being looked at to improve leverage? And that's a very good question. So there are people with better analytical skills than me, but you can see that platforms that are much bigger than us have got much higher drop through to the bottom line of the revenue. Their cost to revenue line, if you like, as everyone knows, some of the cost of revenue line, costs are only about 50% of revenue, whereas costs are more than 70% of our revenue and a lot of that is scale. Some of it is because of our high net worth segment, and we do have more manual processes and that gets to the AI part. The beauty of AI is there's a lot more that you can automate now than you could automate 3 or 4 years ago. And that again is part of the power of technology. So we -- even though we are a highly customized offering for our high net worth clients, which is why it's part of the selling proposition why the platform can be a very attractive alternative for high net worth advice firms and they don't lend themselves to automation or they haven't in the past, but AI is certainly being looked at. And the way we do it is when we're using AI, we look for -- we earn the right to invest more in AI by taking cost out first. So we look for productivity improvement opportunities, and there's a lot more that can be automated with AI than that could be automated 3 or 4 years ago. So very excited about the prospects of just power of technology generally, including AI to automate more of our business. And we do expect that both the scale and the automation should see our cost to revenue ratio drop over time, but we're not providing guidance on that at this time. We will have a bit more to say when we do our actual financial results rather than our funds flow. So look, once again, apologies for not having it up right at the start of the presentation. Thank you for everyone patiently persisting with us. Thank you very much for the engagement of both tuning into the call and the questions. And we're now about a month away from our financial results, which I think they are the 2 things we really focus on the profit and the growth. Today is more about the growth and how that's tracking. But in a month, we'll be presenting more about the profit and where the revenue and the costs are going in the business. So look forward to being able to talk to you all in a bit more detail then. And once again, thank you very much for your engagement with us, and I look forward to meeting up with you all again in about a month's time. Enjoy the rest of your day.