FY2018 Results Presentation and Strategy Update · 2018-08-22 · FY2018 Results Presentation & Strategy Update. 3. $5.5m EBITDA. excluding one off expenditure up 4% from FY17. Capital

FY2018 Results Presentation and Strategy Update

23 August 2018

DISCLAIMER

This presentation is for general information purposes only and should be read in conjunction with the Annual Financial Report and the Appendix 4E lodged with theAustralian Securities Exchange by Centrepoint Alliance Limited (ASX:CAF) on 23 August 2018. This presentation does not provide recommendations or opinions in relationto specific investments or securities.

This presentation has been prepared in good faith and with reasonable care. Neither CAF nor any other person makes any representation or warranty, express or implied, asto the accuracy, reliability, reasonableness or completeness of the contents of this presentation (including any projections, forecasts, estimates, prospects and returns, andany omissions from this presentation. To the maximum extent permitted by law, CAF and its respective officers, employees and advisers disclaim and exclude all liability forany loss or damage (whether or not foreseeable) suffered or incurred by any person acting on any information (including any projections, forecasts, estimates, prospects andreturns) provided in, or omitted from, this presentation or any other written or oral information provided by or on behalf of CAF.

It is not intended that this presentation be relied upon and the information in this presentation does not take into account your financial objectives, situations or needs.Investors should consult with their own legal, tax, business and/or financial advisers in connection with any investment decision.

All numbers are as at 30 June 2018 unless otherwise stated. Numbers may not add up due to rounding.

2FY2018 Results Presentation & Strategy Update

FY18 Summary


$5.5m EBITDAexcluding one off expenditure up 4% from FY17

Capital management8m executive shares to be cancelled*; no final dividend declared

($6.3m) statutory loss after tax impacted by one off adjustments and a change to the deferred tax asset

Ongoing adviser recruitment37 High Quality firmsRecruited (26 to Corporate License and 11 to Self Licence)

Stronger adviser and employee engagementNPS above industry average and solid employment satisfaction

Neos Life Product LaunchJune 2018

Launched TechnologySolutions Hub to focus technology as a core enabler of our future business model

($6.4m) in one-off adjustmentsrelating to legacy claims, restructure and Royal Commission related activities

$4.1b in fundsunder Management and Administration up 11% from FY17

$6.4m Cashflowfrom operation, an 18% increase, highlighting strength in the underlying business

*Subject to shareholder approvalSources: NPS data – Core Data Survey, May 2018; Employee engagement scores – internal Employee Engagement Survey, May 2018

Strategy update


FY2018 Results Presentation & Strategy Update 5

My priorities since joining as CEO in April

Stakeholder engagement including advisers, shareholders, our people, industry partners and regulators

Completed portfolio review of all business units, with strategic options assessed

Initiated Strategic Refresh program to review all operating units and market positioning

Completed organisational re-structure to simplify operations and align to future strategy

Against a backdrop of the Royal Commission and the significant industry uncertainty and disruption unfolding

Significant, multi-faceted disruption presents challenges and opportunities


(Baby) Boomers: those born between 1946 and 1965HENRYs: High Earners Not Rich Yet

Other areas of the wealth value chain have experienced significant change, where to for the traditional dealer group?


• FOFA reforms, enshrining of best interest duty• Historical product revenue and commission incentive structures removed with some grandfathered• FASEA launched – significant uplift in education standards• Emerging fin-tech and robo-advice new entrants

• Margin pressure across Asset Management• Rise of passive investment thematic / active boutiques• New investment structures: ETFs, MDAs, SMAs, LICs• Insourcing of investment capability within larger Industry Superannuation Funds

• Consolidation and scale winning• Technology innovation with new entrants and existing players making large capital investments• Significant margin pressure and unwinding of historical badge arrangements• Large SMSF market remains

Product

Platform

Advice

• Traditional role of the dealer group as an aggregator for aligned distribution increasingly less relevant

• Significant consolidation and now disaggregation of licenses and move to self-licensing

• Industry structural changes, with limited evolution of actual dealer group business models

Dealergroup

There remains a large and attractive market for the right network of advisers


>2xincrease in licenses

granted in 2016 & 17 than in the previous 2 years; driven by self-licensed

practices

10%decline in advisers at the ‘big six’ in the 12 months

to July 2018

1/3Generation transition:up to 1/3 of advisers

could exit the industry within 5 yrs, driven by demographics and new professional standards

requirementsUnderlying need for financial

advice remains

Advisers are moving away from the ‘big six’

This transition will require support

millionAustralians intend to turn to a financial adviser for

advice within 2 years

3

Note: Big six refers to the four major banks and AMP and IOOFSources: Estimation of demand for financial advice – Investment Trends 2017 Financial Advice Report; Adviser movements - analysis of ASIC financial adviser register, data as of 1 July 2017 and 1 July 2018; Increase in licensees – analysis of ASIC licensee register, data as of 16 August 2018; Adviser exits – ABC News interview of industry expert; 26 June 2018

Centrepoint is well positioned in a changing industry environment


Product manufacturer owned# of advisers

Other# of advisers

Note: AAP network includes advisers of self-licensed practices to whom Centrepoint offers some servicesSources: Adviser numbers – analysis of ASIC financial adviser register, data as of 1 July 2018 excluding Dover Financial advisers and Wyndham Vacation Clubs; Centrepoint data

10% decline in advisers at the ‘big six’ in the 12 months to July 2018

>2x increase in licenses granted in 2016 & 17 than in the previous 2 years; driven by self-licensed practices

Centrepoint’s advice network


Centrepoint solves two categories of problems for financial advisers


Note: SMEs refer to businesses with 199 or less employees and includes sole traders (as per ABS definition) Sources: SMEs in Financial and Insurance Services – ABS 8165.0 Counts of Australian Businesses, including Entries and Exits (June 2017); Adviser, licensee, average adviser numbers – analysis of ASIC financial adviser register, data as of 1 July 2018 excluding Dover Financial Advisers and Wyndham Vacation Clubs; Client numbers - Business Health Insights Survey June 2017

A typical SME• employs less than

20 staff

• engages > 15 vendors

• works with 9 regulators

• finds cashflow management to be the biggest of many pain points

~200k SMEs in financial and insurance services

~34k of which have less than 20 staff

Running a smallto medium sized

business

A typical advice firm• employs on average

8 advisers with each adviser servicing ~250 clients

• engages > 15 vendors

• works with 6 regulators

• needs training, technical and compliance support

2,911 licensees

24,606 advisers

Operating as a financial adviser

Centrepoint services clients’ needs as financial advisers and business owners


Running a smallto medium sized

business

Operating as a financial adviser

Licenseeservices

New AFSL setup

Responsible manager training

Governance&

Compliance

Advice services

Businessmanagement

services

HR/legalsupport

Business coachingCashflow

tools

Clientgrowth

services

Licensee reviews

File audits

Acquisition and

succession

Peer group facilitation

Lead generation

Client marketing

Client-facingadvice tools

Client segment-ation and

pricing

Website design and

development

Research services

Technical support

Adviser education

Training/ webinars

Advice technology

Centrepoint’s future offer will have 4 key elements


LICENSEESERVICES

ADVICESERVICES

BUSINESS MANAGEMENTSERVICES

CLIENT GROWTHSERVICES

Centrepoint’s future offer will have 4 key elements


LICENSEESERVICES

NEW AFSL SETUP

GOVERNANCE AND COMPLIANCE

RESPONSIBLE MANAGER TRAINING

LICENSEE REVIEWS

FILE AUDITS

ADVICE POLICY & PROCEDURE

AFSL AUDITS

ADVISER EDUCATION

CLIENT COMMUNICATION

TECHNICAL SUPPORT

RESEARCH SERVICES

INVESTMENT SOLUTIONS

TRAINING/WEBINARS

ADVICE TECHNOLOGY

ADVICE HELPDESK

ADVICESERVICES

BUSINESS COACHING

ACQUISITION AND SUCCESSION

PARTNERED SERVICES

DASHBOARD REPORTING

HR SUPPORT

LEGAL SUPPORT

PEER GROUP FACILITATION

CASHFLOW TOOLS

CLIENT MARKETING

CLIENT FACING ADVICE TOOLS

WEBSITE DESIGN AND DEVELOPMENT

CLIENT EDUCATION

LEAD GENERATION

CLIENT SEGMENTATION AND PRICING

BUSINESS MANAGEMENTSERVICES

CLIENT GROWTHSERVICES

Centrepoint’s new business model will be oriented around four principles

Solving advisers problems through expertise, insight and scale benefits

Standalone adviser community, not controlled by a product manufacturer

Harnessing data to generate insights and create network effects

Underpinned by a service culture of trust, transparency and quality advice


Financial results


FY18 Financial Results


Total

$m FY16 FY17 FY18Revenue 116.5 129.4 123.2 Adviser fees and commissions (84.5) (97.1) (90.9)Gross Profit 32.0 32.3 32.3 Management Expenses (27.5) (27.0) (26.8)EBITDA core continuing operations 4.5 5.3 5.5Cost to income ratio 86% 84% 83%Legacy claims - (4.0) (5.4)Other one-offs - - (1.0)Depreciation, amortisation, impairment (2.1) (1.1) (1.7)Profit/(loss) before tax continuing operations 2.4 0.2 (2.6)Tax 0.4 (0.3) (3.7)Profit after tax from discontinued operations (premium funding) 1.5 6.6 -Net profit/(loss) after tax 4.3 6.5 (6.3)

• EBITDA excluding one-off adjustments grown by 4% to $5.5m

• Revenue continuing to transition from rebates

• Cost to income ratio improvement year on year

• The FY17 result reflects sale of Premium Funding

• One-off cost impacts resulted in a loss after tax of $6.3m

One-off adjustments


One-Off'sLegacy Claims ($5.4m)Restructure Costs ($0.3m)Royal Commission ($0.7m)RFE impairment ($0.9m)Reduction in Deferred Tax Asset ($4.5m)Total One-off adjustments ($11.8m)

EBTIDA excluding One-Off's $5.5m

Loss after Tax ($6.3m)

• Legacy Claims relate to a historical period (pre- 1/7/10). The provision was increased by $4.7m during the year

• Restructuring costs represents the costs associated with replacing the CEO, the one-off costs associated with reviewing and updating the strategy, and the restructure of the business

• Royal Commission costs represent the costs associated with responding and actioning issues associated with the Royal Commission

• RFE impairment reflects a decrease in the holding value of RFE as a result of the business focussing on profit and reducing revenue forecast

• Deferred tax reflects a reduction in tax losses held on balance sheet, moving off balance sheet to unrecognised tax losses. This change is a reflection of the outlook which is impacted by regulatory and market risk in addition to the implementation of the new strategic direction

Group balance sheet


$m 30/06/17 30/06/18

Cash & Term Deposits 31.2 9.5

Intangible Assets & Goodwill 2.2 1.7

Other Assets 26.5 27.5

Total Assets 60.0 38.6

Other Liabilities 18.4 19.1

Total Liabilities 18.4 19.1

Net Assets 41.6 19.6

Net Tangible Assets 30.4 13.3

Net Tangible Assets (cents per share) 19.4 8.5

Off Balance Sheet

Revenue losses 29.6 24.0

Capital losses 36.0 36.0

• Simple, clean balance sheet

• Other Assets includes $4.6m in deferred tax assets, down from $9.1m in FY17 reflecting the $4.5m reduction in tax losses

• Unrecognised tax losses increased by $4.5m, and a review of historical tax items reduced Revenue losses to $24m

• Decrease in tangible assets and cash reflects dividends paid

Cash flow


0

5

10

15

20

25

30

35

40

OpeningCash

Net Cashflowfrom

Operations

Investment inNeos Life

Loan to RFE Claims paid Restructurecosts

Dividendpayment

Closing Cash

$ m

$6.8m

$9.5m

$31.2m

$-1.5m

$-5.3m

$-15.0m

-$5.5m

$-1.2m

Closing cash position of $9.5m

• $6.8m Cashflow from operations includes core operating cashflow of $6.4m (an increase of 18%), and $0.4m for interest, dividends, property/plant/equipment

• Investments in Neos Life and R Financial Educators Pty Ltd (RFE) $6.7m

• Claims paid $5.3m

• Restructure and Royal Commission costs of $1.5m

• $15m of dividends paid to investors in the period

FY18 Cash flow

Capital management


1.00 1.002.25

1.202.20

1.20 1.20

1.20

7.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

FY14 FY15 FY16 FY17 FY18

Interim Ordinary Final Ordinary Special

Dividends

• As at 30 June 2018 there are distributable earnings of $11m and franking account reserve of $18m (equivalent to $41m of fully franked dividends)

• The Company’s dividend policy is for 50-80% of NPAT to be paid out in dividends semi annually

• Given the strategic direction of the business and dividend policy, the board have resolved not to pay a Final Ordinary dividend

Loan shares

• There are 8m loan shares owned by the Company’s Employee Share Plan Trust. Centrepoint will be seeking shareholder approval at the AGM to cancel these shares

Dividends per share (cents per share)

Strategy outlook


Regulatory and market forces that Centrepoint is actively managing


Regulatory/market force Impact

Royal Commission into Financial Services

• Royal commission has a high likelihood of impacting us, the extent to which will be unclear until it comes to a close in 2019

Professionalising Advice (FASEA)

• FASEA has imposed increased education requirements for new and existing financial advisers which will affect some of our adviser network

Australian Financial Complaints Authority (AFCA)

• AFCA expected to commence in late 2018 to provide greater consumer protection. Centrepoint has experienced a diminishing number of Legacy Claims (i.e. claims relating to 2010 & prior)

ASIC • Increased surveillance and regulatory activity; annual supervisory costs will be recovered through adviser fees

Life insurance industry changes

• Life Insurance reforms commenced 1 January 2018 overall reducing life insurance advice remuneration.

Business models in a state of flux

• Structural and pricing changes amongst the ‘big six’, and the rise of self-licensed models driving a renewed re-setting of the wealth industry landscape

Centrepoint is moving towards a new identity


FROM

Licensee and dealer group

Competing with platforms and fund managers

Industry conflict and opaqueness

Reactive follower

All things to all advisers

TO

Advice and business services

Complement to platform innovation players

Leading through trust and transparency

Proactive industry leader

Leaders in quality advice – set the standard

OPTIMISE

Centrepoint’s strategy is to grow its strong community of advisers whilst transitioning to a new service model powered through data and insight


Realign organisation to core advice business

Improve service to existing adviser community

Strengthen core enablers for industry disruption ahead

Create the future of advice and business services

Targeted packages for attractive advice segments

Harness data to build insights for the adviser community

Licensed and self-licensed advice practices

Transition current firms to new advice packages and bundles

Explore growth opportunities

RECREATEGROW

Conduct portfolio review of businesses

Implement new organisation structure

Build new relationship Service Model

Review adviser governance and standards

Design new Centrepoint Service Offering

Create new advice life-stage segments

Introduce new pricing packages and bundles

Create long-term data ecosystem strategy

Identify targeted segments for growth

Aligned (licensed) adviser community

Self-licensed business partnerships

Over the next 6-12 months, we have a clear set of priorities


H1 FY19

OPTIMISE

RECREATE

GROW

Introduce new governance and standards framework

Launch education transition support model

Harness internal data for efficiency gains

Launch new Centrepoint Service Offering

Develop ‘transition’ package for advisers moving to the new model

First stage of data ecosystem built with new Adviser Portal

New package take-up in aligned advice practises

Grow packages and unbundled offering in self-licensed advice community

H2 FY19

Questions?


Appendices


Operating segment results


**excludes legacy claims costs, Restructure costs and Royal Commission costs

Funds Management and Administration

Licensee and Advice Services Corporate Total

$m FY17 FY18 % FY17 FY18 % FY17 FY18 % FY17 FY18 %

Statutory Revenue 12.6 13.1 4% 116.4 109.6 -6% 0.4 0.5 25% 129.4 123.2 -5%

Gross Profit 7.8 8.5 8% 24.1 23.3 -3% 0.4 0.5 25% 32.3 32.3 0%

Operating Expenses** 3.7 4.4 -20% 19.5 20.0 -2% 3.8 2.4 36% 27.0 26.8 1%

EBITDA ex Claims & one-off's 4.1 4.1 1% 4.6 3.3 -28% (3.4) (1.9) 43% 5.3 5.5 4%

Funds Management and Administration:

• Funds Under Management & Administration net flows, and favorable market movement drove balances and revenues

• EBITDA is $4.9m excluding $0.8m invested in Presidium, which is a 20% increase from FY2017. This investment in Presidium ceased in June 2018 following a Portfolio review

Licensee and Advice Services:

• Licensee & Advice Services gross profit is impacted by grandfathered rebate revenue run off

• Expense increase in Licensee & Advice Services includes increased costs as a result of the Royal Commission

Corporate:

• Corporate expense improvement is attributable to a reduction in employment cost (CEO vacancy)

Supporting professional advisers


Key Performance Indicator FY16 FY17 FY18

Number of New High Quality Firms (Gross) 59 39 37

Number of Advice Firms 493 483 476

Advice Revenue per Corporate Licence Firm ($k) n/a 22.6 23.1

Revenue per Self Licenced Firm ($k) n/a 28.7 30.7

Services Revenue ($k) 0 1,788 2,058

• Ongoing recruitment success with 37 high value, high potential, and partner circle firms which equates to 54 new AR’s

• Reduction in the number of Advice Firmsreflects the strategy of targeting and retaining only High Quality firms

• Improved adviser net promoter score which is better than industry average

• Increasing average revenue per firm

• Increasing services revenue through additional services to advisers

Firm segment analysis

31

• 37 High Quality Firms recruited (Corp Licence26 and Self Licence 11)

• Overall increase in adviser numbers with decline in Value segment reflecting increasing standards

• 2,097 adviser in Group (Corp Licence 338*, Self Licence 1,759)

• Self licence advisers growing strongly

• Revenue by Firm and Adviser improving

• Services revenue increasing as Advisers increase usage

Firms AR's Firms Firms Firms AR's Firms AR's

Key Performance Indicator FY17 FY17 Ceased New FY18 FY18 Variance Variance

Corp Licence 251 386 (39) 28 240 338 (11) (48)

High Quality Firms 127 254 (12) 26 141 234 14 (20)

Value Firms 124 132 (27) 2 99 104 (25) (28)

AR Fee Revenue ($k) 5,665 5,545

AR Fee Revenue firm / Adviser ($k) 22.6 14.7 23.1 16.4

Self Licence 232 1,510 (11) 15 236 1,759 4 249

High Quality Firms 83 995 (19) 11 75 1,103 (8) 108

Value Firms 149 515 8 4 161 656 12 141

AR Fee Revenue ($k) 122 122 93 93

Services Revenue ($k) 1,788 2,058

FY2018 Results Presentation & Strategy Update

*ASIC register for Corporate licence is 347 due to timing differences

Funds under management and administration


Key performance indicator FY16 FY17 FY18

Gross Funds Inflows ($m) 237 322 311

Net Funds Flow ($m) 77 125 122

Funds Under Management ($m) 804 970 1,114

Gross Platform Inflows ($m) 656 782 745

Net Platform Flows ($m) 227 222 169

Platform Funds ($m) 2,282 2,694 2,951

Total Funds under Management and Administration 3,086 3,664 4,065

Net Margin (bps) 22.9 23.2 21.9

• FUMA reached milestone of $4.1 billion growing by 11% from FY18• Managed Account FUMA continues to be well supported growing

47% to $505m in FY18• Net Flows impacted by runoff in legacy platforms and funds• Implementation of family fee discount and fee capping is impacting

margins• A portfolio review resulted in the closure of Presidium prior to launch

Lending Solutions

Salaried advice and Lending Solutions

33

• Providing access to lenders and products and distribution support for mortgage brokers

• The tightening of lending conditions has slowed growth and lowered new book volumes to $546m, in part offset by slower old book run-off

Salaried Advice

• Focused on extracting value from existing clients and driving adviser performance

• Adviser growth and retention strategies continue to be a focus

• Reduced cost base in 2H18 resulting in EBITDA improvement

FY2018 Results Presentation & Strategy Update

Accounting partnerships and insurance


• Neos Life is a new Australian life insurance business focused solely on the advised life insurance market

• Centrepoint Alliance provided seed funding of $6.75m comprising a $5m convertible note representing a minimum 30% economic interest and a further 5% equity interest was acquired via an option exercise in September 2017

• The insurance product was launched to the market on 15 June 2018; is well rated, and 100% online and is fast and easy to interact with

• Distribution agreements have been executed with more than 250 registered advisers

• More than 25 advisers already submitting business

• RFE continues to establish new joint ventures and clients

• Centrepoint has provided funding of $1.2m (12%) in a convertible note and $1.5m (15%) equity stake in RFE

• In FY18 RFE generated $1.2m in revenue and it has adjusted its business model to reduce the growth strain

• The business is expected to produce a small profit in FY19

• Centrepoint have reduced the value of the investment in RFE from $1.5m to $0.6m with a reassessment of current and projected levels of profitability

Accounting partnerships Life insurance partnerships

Claims Overview

35

• Claims Provision balance as at 30 June 2018 is $5.4m comprising $3.9m of Legacy claims* and fees incurred, an Incurred But Not Reported (IBNR) of $1.3m, and Non Legacy claims of $0.2m

• $4.7m additional provision was established during the year, in the following two tranches:

• $3.7m set aside to cater for claims by an individual former authorised representative’s business

• $1m established for strengthening of case estimate reserves for specific claims, largely those that are older and litigious

• FY18 impact on profit was $6.0m. Additional to the $4.7m provision mentioned above, there was a further $1m impact to profit from the excess of a claims/ fee payment over the estimate and $0.3m in Non Legacy claims

FY2018 Results Presentation & Strategy Update*Legacy claims relate to claims incurred prior to 1 July 2010

FY 18

Specific Adviser Legacy claims Non-legacy Total

Number $m Number $m Number $m Number $m

Opening claims 2 0.2 19 4.4 3 0.0 24 4.6

New claims 44 3.1 2 1.0 11 0.1 57 4.2

Resolved claims 26 2.0 10 2.7 6 0.1 42 4.8

Closing Claims 20 0.9 11 2.9 9 0.3 40 4.2

IBNR 0.7 0.6 1.3

Claims Provision 1.0 2.9 0.2 4.1

Total Provision 5.4

0

5 60 76

162

157

101 12

7

124

104

97 74

26 10 1944

3 1

41 2

36 2

544

2 413 13

17

30 1812

-20

30

80

130

180

230

280

330

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Claims Received by Financial Year (#)


Claims origination, lodgement and paid

Legacy claims paid has been impacted by Special claims and resolution of larger litigated claims

Legacy claims received significantly lags advice provided and given the statute of limitations is expected to decline further

310

127 17

0 244

201

53 37

10

53

7 5

6

6

1119

4 3 25 14 23 8 26 11 2 0-20

30

80

130

180

230

280

330

Claims Origination by Financial Year (#)

0.0

0.0

0.0 1.

9

2.1

7.9 8.6

8.4 9.

7

8.6

6.9

2.4

1.9

0.9

0.5

3.0

0.8

0.6 1.5

0.2

0.9 1.8 2.50.1

2.0

0.1 0.04

0.2

0.10.3 0.1

0

2

4

6

8

10

12

Claims Paid by Financial Year ($m)

0

5 60 76

162

157

101 127

124

104

97 74

26 10 194 4

3 1

41 2

36 2

5 44

2 4 13 1317

30 1812

Others Litigated over $200k Special Claims Non-legacy

Legend:

(others) 0

0

Significant, multi-faceted disruption presents challenges and opportunities

37

‘Boomers and HENRYs’

Ageing population with longer life expectancy and growing retirement needsIntergenerational wealth transfer increasing wealth of younger clientsIncreasing awareness and accessibility of financial advice services driving demand

1

‘Social licence to operate’

Royal Commission highlighting significant conflicts of interest within the industrySocietal and regulatory pressure on advice firms to maintain high ethical and professional standardsHeightened disclosure requirements creating transparency for clients on pricing and adviser renumeration structures

‘Game-changing technology’

Superannuation funds increasing advice footprint by leveraging their scale to offer lower cost adviceTechnological developments in planner tools creating efficiencies and cost savingsGrowth of robo-advice and AI enabling scalable and cost-effective advice delivery

‘Business models in flux’Loss of passive income from traditional business modelsReduction in sale multiples creating succession planning issuesMove to self-licensed models to differentiate from banks and vertically integrated models

‘Raising the bar’

Raising of adviser educational standards and codes of conduct creating barriers to remainSeparation of advice/product forcing advisers to demonstrate valueIncreased monitoring of advisers (e.g. via Adviser Ratings) surfacing misconduct and quality issues raising the bar for performance

‘Power of the iron fist’

Harsher penalties for misconductGreater resources committed to the scrutiny of the industryPotential for a dedicated body for professional discipline of licensees threatening licensee service businesses

2 3 4 5 6

Example of some of Centrepoint’s advisers and their needs


CatherineMid-thirties

>15 years of experienceBought business from previous owner~250 clients6 staff incl. 2 planners and 4 support staffAQF 7 (Bachelor’s degree)

Financial advice needs• Looking for acquisition

opportunities to accelerate growth

• Quality adviceeducation and training for new staff members

Business owner needs• Needs HR support to

manage processes, policies and changing regulation

• Technology solutions to simplify operational processes so she can spend more time with clients

MurrayEarly-fifties

20 years as a financial adviserBuilt several financial planning businesses~260 clients5 staff incl. 2 planners and 3 support staffAQF 7 (Bachelor’s degree)

Financial advice needs• Understand how

industry changes might impact if and how succession might occur

• Assessing impact of mandatory education requirements by FASEA

Business owner needs• Needs technology

solutions tailored for self-licensees to simplify operational processes and reduce friction

Legislative impact Market impact

Royal Commission into Financial Services

• Royal commission into misconduct in the Banking, Superannuation and Financial Services Industry established 14 December 2017

• Like many others in the Financial Services sector Centrepoint provided information and evidence to the Commission

• Significant industry issues identified before the Royal Commission• Possibility for reforms on Fees for no service and rebates but uncertainty

surrounds these issues• Hearings will conclude in November 2018; Final Report due in February 2019

Professionalising Advice (FASEA)

• Increased education requirements for new and existing financial advisers• Required to meet standard by 1 January 2024• New advisers must meet requirements sooner

• Enhancing the reputation of the industry• Improving the quality of advice to consumers• Encouraging succession planning for mature practices however there is likely to

be a significant decrease in the number of advisers• Centrepoint working with providers and advisers to meet standard

Australian Financial Complaints Authority (AFCA)

• Australian Financial Complaints Authority expected to commence • 1 November 2018• Increased reporting obligations for the authority and licensees• Increased monetary limit

• Greater consumer protection• Increased visibility for regulators to identify trends • Centrepoint has diminishing levels of legacy complaints

ASIC • Annual levy applicable for companies, licensees, auditors and liquidators regulated by ASIC applies to current financial year with first notices to commence 1 January 2019

• Vertically integrated institutions face conflicts of interest

• Increased surveillance and greater effectiveness from the regulator expected with increased funding

• Centrepoint adviser fees will recover supervisory cost

Life insurance industry changes

• Life Insurance reforms commenced 1 January 2018• Commission rates capped and increased claw-back provisions

• Reducing the perception of conflicts• Encouraging longer term insurance strategies• Potential for advisers to incorporate fee for advice

Business models in a state of flux

• Regulators reviewing Bank ownership of financial services businesses, with focus on conflicts of interest

• Banks have sold Life Insurance businesses and some are now in the process of selling/ separating their Platform and Funds businesses

• Large players in the platform market have introduced significant cuts to platform fees and price caps in response to Royal Commission inquiry

Regulatory and market forces that Centrepoint is actively managing


Definitions


Basic EPS Basic Earnings per Share is NPAT divided by average number of ordinary shares

Contemporary Business Model Includes assets and revenue in respect of self-licensed firms, Salaried Advice, Licensed Practices (flat fee model), Open Administration Platforms, Managed Accounts and Open Ventura Funds

Diluted EPS Diluted Earnings per Share is NPAT divided by average number of adjusted for the effect of dilutionDirect Costs Advice and financial product fees

EBITDA core continuing operations Earnings before interest, tax, depreciation and amortisation excluding legacy claims (claims related to advice pre 1/7/10), Restructure costs including CEO replacement costs, strategy and restructure costs, Royal Commission advice, review and actions arising

ETFs An exchange-traded fund is an investment fund traded on stock exchanges

FASEA Financial Adviser Standards and Ethics Authority

Firms Accumulated total of corporate licensed Firms and self-licensed Firms in the Centrepoint Group

FoFA Future of Financial Advice legislation

Funds under Advice (‘FUA’) Funds upon which advisers associated with the Centrepoint group provide advice to clients

Funds under Distribution Agreements (‘FUDA’) Funds under Distribution Agreements for which the business receives revenue

Funds under Administration (‘FUAD’) Funds where advisers invest clients’ monies on Centrepoint Administration Platform and Centrepoint derives fees as the responsible entity or as the promoter of badged investment administration solutions

Funds under Management (‘FUM’) Funds where advisers invest clients’ monies in Centrepoint Investment solutions including Managed Accounts and Centrepoint derives fees as the responsible entity or as the promoter of a badged funds management product

Funds under Management and Administration (‘FUMA’) Funds under Advice, Funds under Administration and Funds under Management

Term Definition

Definitions


Gross Profit Revenue received less Direct Costs

LICs Listed Investment Companies are a type of investment, incorporated as companies and listed on a stock exchange

Managed Accounts Funds invested in Ventura Managed Account Portfolio Solutions (VMAPS), which is included in FUM and FUAD

MDAs Managed discretionary account (MDA) is a service where a portfolio of investments is maintained discretion is provided to an investment manager to make decisions on that portfolio

Net Margin bps FUMA Revenue divided by Average FUMA basis points

Net Tangible Assets Total assets minus any intangible assets such as goodwill

NPAT Net Profit After Tax

Operating Expenses Expenses excluding cost of sales, interest, depreciation and amortisation

PBT Profit Before Tax

PCP Prior corresponding period

PP Prior period

Pre FoFA Includes assets and revenue in respect of Licensed Practices (excluding flat fee model), closed Administration Platforms (Mentor, Blueprint & DPM), Closed Ventura Funds and Allstar Funds

Revenue Revenue comprises financial advice and product margin revenue, service revenue and dividend and distribution income

ROCE Return on Capital Employed is Profit after tax divided by Average equity

Royal Commission The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, established 14 Dec. 2017

SMAs Separately managed account is a customised share portfolio where the assets are owned by individual investors

Wealth Funds management & administration, Licensee and advice solutions adjusted for legacy claims

Term Definition

Documents

FY2018 Results Presentation and Strategy Update · 2018-08-22 · FY2018 Results Presentation & Strategy Update. 3. $5.5m EBITDA. excluding one off expenditure up 4% from FY17. Capital