1H12 Results Investor Presentation

Transcription

1 1H12 Results Investor Presentation 27 February 2012 SFG Australia Limited is a company listed on the Australian Securities Exchange; ASX Code SFW. It was formerly known as Snowball Group Limited.

2 Important Notice & Disclaimer This presentation is for general information purposes only and should be read in conjunction with the Appendix 4D lodged by SFG Australia Limited (SFG) with the Australian Securities Exchange (ASX) (ASX: SFW) on 27 February SFG was formerly known as Snowball Group Limited (ASX: SNO). This presentation does not purport to provide recommendations or opinions in relation to specific investments or securities. The merger of Shadforth Financial Group Holdings Limited (Shadforth) and SFG (then Snowball Group Limited), and the relative size of Shadforth compared to SFG meant that the merger was treated as a reverse acquisition for accounting purposes. This means that the prior comparative period results in the statutory income statement reported by SFG is the statutory income statement results of Shadforth only, but the statutory balance sheet reported by SFG is the statutory balance sheet of the Combined Group in both periods. However, the financial performance of SFG on a stand alone basis for the prior comparative period is reported in the Appendix 4D lodged with the ASX on 27 February To provide a more meaningful overview of the Group going forward, this presentation primarily illustrates the Pro forma result of the merged group for the prior comparative period, as if SFG and Shadforth had been combined for the periods disclosed in this presentation. This presentation has been prepared in good faith and with reasonable care. Neither SFG nor any other person makes any representation or warranty, express or implied, as to the accuracy, reliability, reasonableness or completeness of the contents of this presentation (including any projections, forecasts, estimates, prospects and returns, and any omissions from this presentation). To the maximum extent permitted by law, SFG and its respective officers, employees and advisers disclaim and exclude all liability for any loss or damage (whether or not foreseeable) suffered or incurred by any person acting on any information (including any projections, forecasts, estimates, prospects and returns) provided in, or omitted from, this presentation or any other written or oral information provided by or on behalf of SFG. 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 31 December 2011 unless otherwise stated. 2

3 Agenda 1H12 Results Key Highlights Synergies Update Market Conditions Group Overview 1H12 Results 2012 Strategic Initiatives & Operational Update FY12: Looking forward Appendix Share Register Profile Definitions Reconciliation to Appendix 4D Revenue drivers 3

4 1H12 Results Key Highlights Sound result in continued weak market conditions, assisted by acquisitions Merger of SFG and Shadforth effective 26 June 2011 first trading period of merged entity Operating EBITDA, Underlying NPAT and EPS assisted by cost savings and synergies achieved in 1H12, and acquisitions completed Reported NPAT and EPS includes tax benefits not present in 1H11 and not likely to continue in the future 2 Interim dividend of 1.00c per share determined, fully franked. Dividend guidance re-stated to 50 70% of Underlying NPAT 3 Consistent with the broader industry experience, weak sentiment and a relative deterioration in market conditions continue to impact FUMA balances and normal organic growth spot close ASX All Ordinaries Index down 15% on 1H11 1H12 Results 1H12 1H11 Pro forma Net Operating Revenue 1 $57.8m 2% Operating EBITDA $19.9m 5% Underlying NPAT $13.6m 5% Reported NPAT 2 $13.5m 42% Underlying EPS % Reported EPS % DPS (fully franked) 1.00c 33% FUM $4.0bn 6% FUAdmin $9.2bn 7% FUA $10.8bn 9% 1. Net Operating Revenue differs from Statutory Reporting see Appendix for reconciliation. 2. The tax benefits are associated with the Purchase Price Allocation of the merger and Rights to Future Income (RTFI) legislation. We note the Government is currently considering selective & retrospective RTFI legislation reversal, which may result in a reversal of the RTFI benefits booked by the Company. 3. Note, previously stated post merger as 60 70% of Reported NPAT. Refer slide 18 for explanation. 4

5 Synergies Update Integration on track & synergies upgraded some renovation spend to come in 2H12 Confirming expect to achieve stated cost savings and synergies from the merger: $5m in annualised synergies per annum, gross of integration costs, by FY13 $1.8m cost savings benefit in FY12 (compared to prior year) Re-estimation has resulted in a net increase in expected synergies of approximately $3.7m in Operating EBITDA per annum, predominantly as a result of re-negotiation of the Group s portfolio administration supply contracts In 1H12, SFG has achieved $1.2m in cost savings (FY12 run rate of $1.8m) and $0.7m in synergies, and expects to achieve $3.7m in total in 2H12 In addition, the Group has achieved some incremental savings which are likely to be largely offset by some business renovation spend throughout FY12 Synergy Upgrade FY11 cost savings Synergies stated at merger $10.5m p.a Total Synergies & Savings $m Synergies & Savings achievement timetable FY13 synergies to be achieved FY13 benefit of FY12 achievements 2H12 expectation 1H12 achieved 5

6 Market Conditions Performance of ASX All Ordinaries expected to impact average FUMA in 2H12 / FY12 The majority of the Group s asset based fees (c. 80% of revenue) are calculated using monthly portfolio balances ASX All Ordinaries Index For personal use only 5,100 4,900 4,700 4,500 4,300 4,100 3,900 1H12 monthly average 8% on 1H11 monthly average 1H12 monthly average 12% on 2H11 monthly average ASX All Ordinaries spot close 1H monthly average 2H11 monthly average 1H12 Spot: 15% on 1H11 12% on 2H11 3,700 FY11 monthly average Period end spot close 6

7 GROUP OVERVIEW

8 Group Overview A unique, quality financial advice & wealth management firm Four complementary, quality, HNW, professional, fee for service advice business models Shadforth: private client focus; Outlook: corporate solutions; Affiliate model (Western Pacific); and B2B Advice Services Integrated advice implementation services across the entire client value chain including portfolio administration, portfolio construction and management, insurance (general and risk), finance broking, stockbroking, corporate superannuation and other related services Significant scale, footprint and industry presence Experienced management team, with strong transaction execution and integration credentials Aligned interests of management, advisers and staff with shareholders Unique adviser footprint 1H12 FUMA 1H12 Revenue by State 1H12 Revenue by Type $4.0bn $9.2bn $10.8bn VIC WA NSW QLD TAS Financial Advice Fees Portfolio Administration Income Insurance, Mortgage Broking Fees Portfolio Management Income Stockbroking Fees Associates, License & Other Fees SA FUM FUAdmin FUA 8

9 End-to-end Business Model Group branding initiatives being deployed to be launched progressively in 2012 HNW Clients Affluent Clients Dealer groups, practices & advisers Leading Professional Advice Model Affiliate Advice Model B2B Advice Services Model Private client focus 116 advisers, employees 13 offices nationally Corporate Solutions 5 Relationship Mgrs 17 practices & 37 advisers nationally Adviser Services, Platforms & Funds Client, Adviser, Practice & Dealer Services IP Group Support Services & Products Integrated client implementation capability across the value chain Portfolio Construction & Management Platform Services Insurance Services Stockbroking Corporate Services Note: Use of Cortex, Actuate Advice Solutions, Mosaic Portfolio Advisers, finhq Financial Scoreboard and SFGc Corporate Services are subject to trademark approval. 9

10 Quality Financial Advisers The Group s Financial Advisers have excelled in recent industry awards Awarded to: Charles Badenach Shadforth Private Client Adviser based in Tasmania 10

11 1H12 RESULTS

12 1H12 Financial Performance $m 1H12 1H11 1 1H11 1 2H11 Net Operating Revenue % (3%) Net Operating Expenses 2 (37.9) (37.3) 1% (3%) Operating EBITDA % (1%) Underlying NPAT % (2%) One-off items (1.5) (0.9) 61% Acquisition costs (0.9) (0.9) 9% Amortisation expense (2.1) (2.5) (14%) Notional funding cost (0.5) - n/m Tax impact % Reported NPAT % Basic EPS (c) % Underlying EPS (c) % DPS (c) (33%) 1H12 Operating EBITDA assisted by savings and synergies achieved to date, and acquisitions completed 3 Change on 2H11 results shown here as an indication of direction (but note expected incremental Operating EBITDA and market conditions on slide 15) Underlying NPAT considered a meaningful indicator of the underlying performance and cash generating capability of the Group Reported NPAT and EPS include tax benefits predominantly associated with the Purchase Price Allocation of the merger, and RTFI legislation not present in 1H11, and not likely to continue into the future 4 One-off items consist primarily of integration costs Acquisitions costs relate to acquisitions in the pipeline, executed, and those discontinued Future amortisation expenses expected to be materially in line with 1H12 result (ex future acquisitions) Notional funding costs relate to the deferred payments on the acquisition of the Symetry revenue rights two payments remain and due in FY14 and FY16 1. Note: 1H11 is presented as Pro forma. 2. Net Operating Revenue and Expenses differ from Statutory Reporting see Appendix for reconciliation. 3. Acquisitions completed include Western Pacific Cleveland Practice (Cleveland), the Symetry Portfolio Service platform revenue rights (Symetry), and the Melbourne based wealth management practice ( Jeena ). 4. We note the Government is currently considering selective & retrospective RTFI legislation reversal, which may result in a reversal of the RTFI benefits booked by the Company. 12

13 FUMA by Segment Market conditions continue to be weak spot close ASX All Ordinaries 15% on 1H11 Group achieved weak but positive FUAdmin net inflows in 1H12 Newly launched Strategic Fixed Interest Trust FUM net inflows of $637m, up from $592m 1, from existing clients/fua $3.8bn $9.9bn $11.9bn % $4.0bn % $9.2bn % $10.8bn FUM FUAdmin FUA FUM FUAdmin FUA 1H11 1H12 End-to-end adviser model Affiliate adviser model B2B Advice Services model 1. As at 30 September Note: The Group acquired the Western Pacific Cleveland practice effective 1 January For 1H11, the Cleveland practice FUMA was included in the Affiliate model for reporting purposes, and in 1H12 it has been included in the End-to-end model. 13

14 1H12 Segment Operating Revenue 87% of the Group s Net Operating Revenue is generated by the End-to-end model $m End-to-end adviser model Affiliate adviser model B2B Advice Services model Financial Advice Fees Insurance, Mortgage Broking Fees Portfolio Administration Income Portfolio Management Income Stockbroking Fees Associates, License & Other Fees Net Operating Revenue Total Note: Future segment reporting may further segment the business by value chain segments, which will split out revenue that is ultimately attributable to clients of the adviser models. 14

15 Operating EBITDA Assisted by achievement of cost savings, synergies & acquisitions Expected 2H12 incremental Operating EBITDA % Net +$2.0m (0.5) (1.8) Net organic impact + $0.1m Assumes average FUMA levels in 2H12 as in 1H12 $m 1H11 Operating EBITDA Organic Contribution 1H12 Savings & Synergies Acquisitions Contribution Organic 1H12 Operating EBITDA Inorganic 2H12 Net Platform Margin Uplift 2H12 Incremental Savings & Synergies 2H12 Net Expected Incremental Costs 15

16 Net Operating Revenue Weak markets impact on asset based fee lines, offset in part by other diversified revenue streams 56.4 (1.5) 0.3 Assisted by small positive net inflows Growth in general insurance sales Increase in FUM & Fixed Interest Strategic Trust (0.5) Impact of acquisitions Financial Advice Fees: Cleveland Jeena Portfolio Admin Fees: Symetry Jeena 2.5% 57.8 $m 1H11 Net Operating Revenue Financial Advice Fees Portfolio Admin Fees Organic impact 1.1% Insurance & Other Fees Portfolio Mgmt Fees Stockbroking & Other Fees Inorganic impact 3.6% Financial Advice Fees 1 Portfolio Admin Fees 1H12 Net Operating Revenue 1. Note: Includes minor risk and accounting fees also associated with acquisitions. Note: 1H11 Net Operating Revenue has been re-stated to exclude Mosaic Portfolio Advisers expense recoveries. The fund related expense recoveries are reported in (Gross) Operating Revenue going forward. See Appendix for reconciliation. 16

17 Net Operating Expenses Business renovation has led to some increases, offset by cost savings & synergies % 37.9 (1.2) (0.7) Run rate of benefit relative to the prior year expected to be in line with stated $1.8m $m Organic impact 1.9% 3.3% 1H11 Net Operating Expenses New staff costs, CPI increases Occupancy, IT, Mktg, Other Cost Savings Synergies achieved in 1H12 Contribution from acquisitions 1H12 Net Operating Expenses Organic Inorganic Note: 1H11 Net Operating Expenses have been re-stated to exclude Mosaic Portfolio Advisers expense recoveries. The fund related expense recoveries are reported in (Gross) Operating Revenue going forward. 17

18 Underlying NPAT, EPS & DPS Target payout ratio re-stated to 50 70% of Underlying NPAT Previous payout ratio guidance post merger was 60 70% of Reported NPAT Re-stated guidance takes into account significant non-cash items (amortisation, notional funding costs) that will have an ongoing impact on the Group s Reported NPAT; proposed capital adequacy regime for Responsible Entities; potential reversal of the RTFI legislation; and the Group s acquisition strategy Group prepared to undertake appropriate gearing levels as and when required Underlying NPAT 5% Underlying EPS 2% DPS (fully franked) 33 % (on pcp) $m c c 1H11 1H12 1H11 1H12 1H11 2H11 1H12 18

19 Balance Sheet Current ratio improved on 2H12 $m 1H12 Current assets 34.3 Non-current assets Current liabilities 22.3 Non-current liabilities 15.2 Net assets Contributed equity Retained profits 18.8 Reserves 0.1 Total equity Net Cash Net cash of $11.3m, however note: Interim dividend payment of $7.3m to come Increased regulatory capital requirement of $5m for the Responsible Entity business effective 1 November 2012 Deferred tax amount is subject to change, pending the outcome of the government s announcement on RTFI (refer further explanation in Appendix 4D) All outstanding bank debts extinguished and banking facility implemented for capacity of 1x Operating EBITDA Purchase price allocation (subject to potential legislative change on RTFI), resulting in increased deferred tax benefit of $3.5m and reduced amortisation cost of $1.0m in the current period 1. Adjusts for $2.8m in cash held on trust for clients. 19

20 2012 STRATEGIC INITIATIVES & OPERATIONAL UPDATE

21 Integration Update on track Annualised savings & synergies of $10.5m now expected in FY13 1 Completed 1-Jan Mar Jun Sep-12 Governance structure Corporate Services integration Best Advice (internal & external focus) Best Advice team formed Review of advice tools and services completed Development of enhanced support services in progress Portfolio Management Re-branded to Mosaic Responsible Entity of and re-branded Mosaic Strategic Trusts End-to-end Advice Model Co-location of advisers Re-targeted client segments APL s merged Portfolio Administration Stocktake of all admin offers & support Uplift in margin achieved post scale consolidation Shadforth & Outlook integration Integrating & scaling of RE function Optimising platform scale IT ongoing Best Advice Services re-launch Enhanced Segment CVPs launch Defining go-forward solutions Review & implementation F of back office support services Client transition to enhanced offers Development of finhq platform interface 1. Gross of integration costs and includes stated $5m synergies target, $3.7m net upgrade, and stated $1.8m in cost savings achieved to 30 June

22 Strategic Initiatives Update SFG is uniquely positioned in the industry 2012 Strategic Initiatives Mergers & Acquisitions Continue successful integration execution Refinement of Mosaic strategy including Group multi and single sector portfolios and cash-plus portfolio Extend Managed Portfolio Service (MDA type product) and Dynamic Portfolio Update Service to all advice models; Mosaic performing strategic asset allocation, manager selection and fund selection duties for the MPS Deliver enhanced segmented service value propositions to clients, advisers and practices, and begin migration of clients Group brand refresh to enhance recognition and leverage Broaden services to capture organic growth Funding facility in place at 1x Operating EBITDA Acquisition parameters: Strategic Value accretive Within risk appetite Tuck in pipeline remains Integration at a stage where the Group can now review transformational deals deal ready Enhance scale & synergies from consolidation 22

23 Summary of key proposed regulatory aspects Response For personal use only Reform responses Update Tactical & Strategic responses: need final legislation to determine optimal solutions Future of Financial Advice & Stronger Super Best Interests duty Disclosure of fees & Opt in renewal of advice agreement Abolish commissions, volume rebates & other conflicted payments Enhance scaled advice / make advice more accessible SFG advice businesses have always operated from a client first perspective Program in place to develop internal procedures and checks to implement for 1 July 2012 Client service proposition means regular contact with core client base and already transparency of disclosures Working on bottom end of client base value propositions to ensure relationships stick under opt in, some revenue at risk over time Specific grandfathering applies to opt in Grandfathering proposed to apply but details scarce Commissions no longer a material component of revenue Mosaic now RE of the Strategic Trusts, removing exposure Symetry arrangements provide optionality to become trustee and /or operator of administration platform if desirable Further response scenario planning need finalisation of MySuper and FoFA in relation to the Group s Corporate Super FUA SFG has historically targeted HNW and Affluent segments of the market, providing full service advice Group currently enhancing scalable advice offers, utilising the same infrastructure, for low end client balances and Corporate Superannuation clients Expected impact Immaterial impact increased administration Strong client relationships and grandfathering provide mitigation, but some residual risk to revenue Response / Options in hand need to see final legislation in order to implement optimal solutions Pending final details, Group is well placed to exploit the future opportunity 23

24 FY12: LOOKING FORWARD

25 FY12: Looking forward A leading non-aligned financial advice & end-to-end wealth management firm, well positioned to capture upside when market conditions improve High quality, client focused financial advice business with a robust and flexible business model Platform and portfolio solutions distinguishes the Group from all smaller competitors Breadth and depth of client relationships distinguishes the Group from larger competitors Cyclical headwinds but industry fundamentals underpin long-term growth Scale and diversification 1H12: $10.8bn in FUA; $9.2bn in FUAdmin; $4.0bn in FUM Upgraded synergies: on track to deliver $10.5m in annualised cost savings and synergies in FY13, gross of integration costs 1H12 savings and synergies achieved of $1.9m, and 2H12 expected to be $3.7m Assuming 1H12 FUMA levels, 2H12 Operating EBITDA expected to be net $2.0m higher than 1H12 (including benefit of savings and synergies) Well prepared but cautious regarding final outcomes of the regulatory reforms, and effect on the value chain as a whole Net non-leveraged balance sheet (clarification on RTFI required) and strong operating cashflows Experienced management team ready to capture opportunities, implement regulatory reform responses and, with the integration on track, deal ready to consider further transformational transactions 25

26 APPENDIX

27 Share register profile Current market capitalisation equal to $241m, assuming a share price of $ Clawback shares (12.5m) released from escrow in January 2012 and further 173 million shares to be released from escrow in July 2012, with last 173 million in July 2013 A large number of SFG shareholders are employees of SFG, and the dealing in these shares is governed by the Employee Securities Trading Policy (lodged with ASX) Trading window following this announcement open from 28 February to 10 April 2012 Not likely to complete a Company-led managed selldown process in current market conditions Register Composition 2 6%0% Shadforth Advisers 11% 14% 29% HNW / Retail Board & Management Institutional Employees WPFG Advisers B2B Relationship 18% 22% Escrow release profile, # of shares 53% 76% 100% Non-escrowed shares Escrow release 557 Current nonescrowed July 2012 July As at 24 February Composed from Top 500 Shareholders, which account for 99.4% of total shares outstanding. 27

28 Definitions & classifications notes Term / Note pcp FUA FUAdmin FUM FUMA Net Operating Revenue Net Operating Expenses Operating EBITDA NPAT Underlying NPAT or UNPAT Segment reporting changes RTFI Definition Prior corresponding period Funds under Advice: funds balances upon which the Group derives a share of the advice fee Funds under Administration (FUAd or FUAdmin): funds balances upon which the Group derives a share of the administration margin Funds under Management: funds balances upon which the Group derives a share of the management margin The collective term for Funds under Advice, Administration and Management Net Operating Revenue comprises Operating Revenue less cost of goods sold expense items to derive Net Operating Revenue to the Group. The Appendix 4D reports Operating Revenue As above, excludes cost of goods sold type expense items Earnings before interest, tax, depreciation and amortisation, before one-off and non-operating items Net Profit After Tax Underlying Net Profit After Tax. Underlying NPAT excludes amortisation and one-off, non-operational items. SFG considers this to be a meaningful indicator of the underlying performance and cash generating capability of the Group The segment reporting illustrated in this presentation is how the Group intends to report the business segments going forward. These differ to how it has been reported in the Appendix 4D, but it is envisaged the FY12 Appendix 4E will reflect this segment reporting, or potentially illustrate the results segmented by the all of the applicable value chain segments, which will split out the non-advice revenue that is ultimately attributable to clients of the adviser models (as presented in the current segment reporting) Rights to Future Income legislation 28

29 Reconciliation to Appendix 4D 1H11 $m Operating Revenue per Appendix 4D (Gross) 61.9 Less administration fee -3.7 Expense recovery (& re-statement) Mosaic -1.8 Net Operating Revenue (per presentation) H12 $m Operating Revenue per Appendix 4D (Gross) 63.7 Less administration fee -3.3 Expense recovery (& re-statement) Mosaic -2.6 Net Operating Revenue (per presentation) 57.8 Operating Expenses per Appendix 4D (Gross) 42.8 Less administration fee -3.7 Expense recovery (& re-statement) Mosaic -1.8 Net Operating Expenses (per presentation) 37.3 Operating Expenses per Appendix 4D (Gross) 43.8 Less administration fee -3.3 Expense recovery (& re-statement) Mosaic -2.6 Net Operating Expenses (per presentation)

30 Revenue drivers Advice fees Financial Advice Revenue 1H12: $29.8m One-off Financial Advice Fees <10% >90% Ongoing Financial Advice Fees One-off Fees (End-to-end model 100% retained) One-off Fees Affiliate model (20% retained) Ongoing Fees 100% retained by group Ongoing Fees 20% 1 margin retained by SFG End-to-end model $9.0bn Core Clients >88% of FUA Corporate Super <12% of FUA Affiliate adviser model $1.2bn of FUA F U A Statement of Advice Fees Other Plan Fees Net flows Market impact Outflows Inflows Asset Allocation New clients Existing clients Equities Property Securities License Fees (% of revenue) 1H12: $0.12m Financial advice revenue of B2B partner B2B Services model $0.6bn of FUA $10.8bn of FUA Fixed Interest Cash 1. Subject to incentive arrangements agreed with Western Pacific, where growth in revenue above a certain benchmark attracts a 10% dealer margin on revenue growth, maintaining the 20% dealer margin on the benchmark revenue. 30

31 Revenue drivers FUAdmin & FUM Portfolio Administration Income Portfolio Management Income Portfolio Admin Income 1H12: $17.2m End -to-end adviser model earn 100% of share of margin $6.5bn Affiliate adviser model earn 100% of share of margin $0.9bn B2B Services model share income earned F U A D Net flows Market impact Portfolio Mgmt Income 1H12: $1.4m 1 Mosaic Strategic Trusts $2.9bn Multisector funds $0.6bn Other funds $0.5bn End-to-end adviser model $3.5bn Affiliate adviser model $0.4bn B2B Services model $0.1bn F U M Net flows Market impact Portfolio construction Asset allocation $1.8bn $4.0bn of FUM $9.2bn of FUAdmin 1. The fund related expense recoveries are now netted off in Net Operating Revenue. See slide 29 for reconciliation. 31

32 SFG Australia Limited Contact details: Tony Fenning Managing Director Level 18, 50 Bridge Street Sydney NSW 2000 Telephone: Tony.Fenning@sfgaustralia.com.au