IntegraFin Holdings PLC

Thank you. Good morning and welcome to Integrafin Holdings' interim results presentation for the six months to the end of March 2023. I'm Alex Scott, Group Chief Executive, and this morning here I have with me Jonathan Gumby, our Platform Transacts Chief Executive and also our Group Chairman, Richard Cranfield. I'll kick off proceedings with a quick overview of the previous six months and then I'll hand over to Jonathan to do an overview of our investment platform and to provide you with a platform update and I'll cover off the financial update before moving into questions and answers. Performance over the period has been resilient in the context of difficult market and economic conditions. Our market opportunities remain strong and we continue to gain a greater share of UK advisor platform market, demonstrating the strength of the Transact platform. We now have a 10% share of funds under direction in the advisor platform market and a 19% share of the net inflows in that market. The macroeconomic outlook remains uncertain and markets continue to be volatile, but we're focused on our strategy of being number one provider of software and services for clients and UK financial advisors. The digitalization program for Transact is now well underway and is being positively received. This program will help us continue to build economies of scale. Our strategy remains clear and unchanged. Our focus is to enable the delivery of financial plans to clients by financial advisors. This is what drives advisors to use us, increasing advisor numbers, increasing our client base, supporting our inflows. We continue to believe that this is best achieved through the delivery of the highest quality customer service, delivered by highly skilled staff, underpinned by high quality in-house technology. And the best way to achieve that and maintain our position is through targeted investment in people and technology. By maintaining our proprietary systems, we can control that investment, setting the direction of development, helping control the volume of highly skilled employees we require to deliver the quality support advisors and clients seek. This delivers business growth, and then with our focus on efficiency and quality, we will continue to deliver on profits and dividends. The result is our business model has continued to deliver steady growth. The number of advisors registered on Transact has increased by 3% over the year to the end of March, helping to grow client numbers by 4% and drive net inflows of 1.6 billion. And the number of fee-paying license users on Kuro software at time for advice has also increased, up 41% over the year. Investment platform average daily funds under direction for the six-month period did fall slightly by 1% year-on-year due to negative market movements, coupled with transit fee reductions resulting in steady group revenue of £66.5 million. Allowing for exceptional items underlying profit before tax for the six months fell moderately as we continued to invest in the business. Cash generation continues to be robust and the balance sheet remains strong with no debt. This has allowed us to declare a dividend of 3.2 pence per share, in line with our full-year dividend policy of paying out 60-65% of profits after tax. The digitalisation programme for the Transat platform that we announced in half year 22 is progressing well. Just covering off some of what it will deliver. This will give us enhanced client administration straight through processing so that we can increase platform scalability and continue to deliver a premium platform service whereby client services staff are focused on value-added activities for clients and advisors. It will deliver improved online functionality for clients and for advisors, and it will enable the further development of time-to-advice escuro software and its interface with Transact Online. Our new London-based Chief Technology Officer joined in late January, and he is already helping to drive our digitalisation plan forward further and faster. We've recruited a net 25 software and IT professionals over the past year, and we expect the remaining additional IT staff that we have previously announced will arrive over the following 12 months, depending on the market for these professionals, which still remains highly competitive. Just to emphasize, there's no increase to the planned total additional headcount. Turning to slide six, this graph shows the strong and consistent track record that the Transact platform has of delivering positive net flows, which with our levels of persistence in turn increases FUD on the platform and drives our revenues. Annualised net flows were over 6% of opening funds under direction for the first half of 2023. These strong net flows have helped our market share of advisor platform funds under direction to grow over the last five years, and we are seeing solid growth in transact share of advisor platform net flows as well. Before I hand over to Jonathan, I'd like to give a quick update on some of the other developments that we've been undertaking over the last six months. As well as the previously mentioned recruitment of our Chief Technology Officer, we also completed the recruitment of a Group Chief Risk Officer. Both of these individuals joined us in January this year. And on the recruitment of a Group CFO, we have made an offer, but it is not yet finalised. Transact has already undertaken important work to ensure that we are ready for the FCA's new consumer duty regime. Our clients have always been at the core of what we do at Transact, and in preparation for the consumer duty rules, we have refined some of our processes and expanded our communications to advisors, clients, and discretionary investment managers. There is some housekeeping to do to be in accordance with the new rules. For example, we've undertaken an exercise to close some residual client portfolios where the clients have low value residual balances. This will better position us for consumer duty. It actually also helps us with our own internal efficiencies. And we have been improving the feedback loop between our staff and the board with emphasis on increased communication to employees to ensure they all feel part of an integral part of the group. We've brought in additional training for our employees to give them all the skills needed to deliver our award-winning service. And we've provided other training and facilities focused on improving their lives at work. In our efforts to become a more sustainable business, we've ensured that all new portfolios opened on the platform are paperless by default and have invested in the addition of solar panels to the roof of our Melbourne office. I'll now hand you over to Jonathan for a platform update. Thank you, Alex. Good morning.

So the marketplace we operate in remains extremely attractive. So there are significant growth opportunities for advisors and therefore for the Transact platform. The assets come into the platform from many sources, including cash ISAs, stocks and shares ISAs, workplace pensions personal pensions other assets and you can see there there's a whole array of attractive sources for money to find its way to platforms so the uk platform market at the moment for advisors is just under 600 billion which is of course big, but there's at least another two trillion that could find its way to platforms. So in short, our strategy is to be the best player in the advisor platform space to make the most of this very large market. And just to add a little bit of color to, excuse me, let's, there we are. To add a little bit of colour to this and to give you a feel for the scale, if we think of personal pensions, there's just over 30 million people with personal pensions in the UK and they can find their way to platforms. Workplace pensions. The auto-enrolment legislation was introduced and nowadays eight out of ten employees are enrolled into a workplace pension scheme. ISAs, there's just under 8 million stocks and shares ISAs in the UK, a further million junior ISAs, which we offer on the platform, and then there's 0.7 million lifetime ISAs. Again, we're one of the few platforms that offer lifetime ISAs. Now, the UK personal taxation environment is very complicated. So that's why advisors do exceptionally well in explaining pensions and explaining inheritance tax, explaining capital gains tax to their customers. Particularly in the pensions arena, we've had further changes in the spring budget. For the average man in the street, these are very confusing rules, and that's where advisors do exceptionally well. And we provide lots of tools and reports and functionality on Transact Online, which helps both the advisor and the client. So in terms of how the market may grow, the data on this chart is calculated by Fundscape, and you can see they've got projections through to 2027. The realistic scenario is 11% compound annual growth, but the optimistic is as high as 16%, and the pessimistic down at 8%. So you can see we've got a very large market. We've got forecast of strong growth, and we're the best player in this marketplace. Why do I say we're the best player? Well, we subscribe to many third-party surveys. We do our own customer surveys and our own advisor surveys, and we go through the detail to make sure we're performing in the areas where it really matters. So on the left-hand side, we can see from some platform research the areas that advisors are most sensitive to and the things that they're considering when selecting a platform. On the right-hand side, how we perform in these areas. So customer service levels, we consistently perform well in the research. The latest investment trends report, 23, we were the highest rated amongst large platforms. In terms of functionality, core data 22 research, we ranked first for functionality. Usability, we ranked second in the platform August issue. Financial stability, as part of the IHP group, we've got a very strong capital position, no debt on the balance sheet. And charges, now there's two elements to this. We've reduced our charges as we enjoy economies of scale over time, but we do it in a very cautious, responsible way. We wouldn't do it in a way that caused us to take any shortcuts in terms of delivering service. Now, the other important aspect is that we pay all cash interest to clients. Many players skim interest, so they may earn 4%, but only pay their client 2%. We don't do that. We pay every pound we earn, the client earns in interest, we pay on to them. We think it's the right thing to do. It's consistent with consumer duty, and it makes an enormous difference to the client financially. Thank you. We've developed lots of functionality over the last few years for both customers and for advisors. And we call this digital first, whereby we provide, certainly for all the straightforward things, we provide that online. But in order to help advisors, we use both live chat and co-browse. So at our head office, we have individuals that we've trained to help particularly advisors use our systems and new functionality. So you can see just how popular this is. Live chat usage has increased 18% from prior year. We have a very high resolution rate, 97%, where we actually managed to successfully deal with the question that's being asked. Co-browse, which is effectively screen share, is massively up. So that's up 64% over that period. And to give you a feel for the quantum, there was 22,000 co-browse sessions in calendar year 22. So it's big numbers. Live chat will be much higher than co-browse, by the way. And you can see how successful that's been. So of all the transactions, tasks that we're processing, 93% of those were placed by Transacts Online. So this is self-keyed by advisors, administrators, power planners, and it goes straight into our system. So no one actually touches it. So it creates efficiency for advisors and efficiencies for Transact. It also reduces risk because obviously we've built lots of self-checking functionality within the system. So all of this hard work has meant that we are recognized as digital process champions in the next wealth surveys and ranking. And we'll continue that. Where we can put things online, we will. but we won't leave users to flounder. We'll give them all the necessary support. Now I just want to return back to interest. Because it's been quite topical at the moment. So to give you a feel, the annualised amount that we paid in April was 3.8%. Now we, and this is instant access cash on the Transat platform, we placed that cash with a variety of banks that meet where we're happy with their credit rating. They all have UK banking licences and we pay all of that to the clients on the Transat platform. There's various industry analysis in the last one published in February, we paid the second highest rate of growth gross interest of any UK advice platforms. But we also had the one of the widest range of banks that we use for this pooled cash. So we have an award-winning proposition. We maintain the highest net promoter score in the industry amongst users of our platform, of any platform. We received a platinum rating by Advisor Asset. We are the most considered platform when advisors are looking to switch over the next 12 months. And we have a 91% satisfaction rating amongst our primary users. That's regular users. And that's the highest satisfaction rating amongst every platform. On the bottom left-hand side, you can see our ranking in the various surveys. We often split them between all users and large platforms because sometimes you get very small platforms that can do quite well. So in the latest investment trends, you can see we were second across all platforms, but first amongst anyone over 25 billion, actually above 15 billion. And then on the right hand side, you can see this was from Core Data, where one of their areas they research is platform functionality, which is absolutely key importance. And you can see there we rank number one. So it's an award winning service proposition. Alex mentioned where we sit in terms of our ranking by funds under direction. And there you see, we sit in third place with 10% market share behind Aberdeen and Quilter. But in terms of net sales, we perform very well. And you can see here, we have the second highest net inflows across all advisor platforms in the half year to 23. 1.6 billion ahead of Aviva and AJ Bell. True potential are higher than us. That is driven by an acquisition strategy. Transacts growth in FUD and flows is entirely organic. So over time, we grow our funds under direction and we grow our clients, as you can see from the left-hand side. Now, as that client base grows, then That's really good because it means that many, many of those clients top up their portfolios. They're happy with our service. They're happy with our advisor. And therefore, they put more money on the platform. So that was accounting for just over 40% of flows is happy existing clients bringing more money to the platform. The largest area, the 56%, is advisors that are Transat supporters that continue to bring new clients to us. So they're happy with our service and they want to bring more of their clients to us. And that's the largest area of growth. And that will continue to be the largest area of growth for our inflows. So in terms of new advisors and new platforms, we're not reliant upon that. And just because of our scale these days, you'll see that that accounts for just 2% of the inflows onto the platform. So our closing funds under direction for the period was 54 billion. But you can see during the period, the average daily, which drives our charges, was 52.6 billion across that period. And that was largely because of the volatility in the marketplace. Advisors registered and using Transact has gone up 7.6 thousand. That's a lot of advisors. And we don't because we've got a large number, we don't have concentration risk. The top 125 firms, for example, that have many advisors within those firms hold less than 50 percent of Transact FUD. In terms of clients, now 228,000 advised clients, and you can see there, whilst the average portfolio size is 237,000, when we look at the family groups or household, if you like, then that's £374,000. So we're in a nice place. The average client age is 59. We have a lot of pension customers. We also have a lot of their children as customers as well. So when we think about the universe of UK advisors on the FCA register, it's about 35,000. About 22,000 are working for banks, for discretionaries, retail banks, private banks, or restricted advisors like St. James Place. So we have 7,500 over to the right that are registered to use Transact and already have at least one client with us. And then we have another 5,500 that is contestable. And we continue to penetrate that 5,500 and sign those up to use the platform. But as I mentioned earlier, most of our growth will come from increasing our share of wallet amongst that 7,600 that are already users. That's the single biggest driver of our growth.

and at that I'll hand back to Alex to provide a financial update thank you Jonathan so moving on to the financials for the period group revenue remained resilient over the half year at 66.5 million as the effect of the geopolitical and macroeconomic environment caused average flood for the period to fall 1% year on year and the impact of transact price reductions flowing through As expected, half-year 23 produced moderately lower underlying reported profit before tax figures than half-year 22 due to the planned investment in additional IT staff for our enhancements to platform digitalisation as well as the impact of inflationary pressures. The underlying result is adjusted for non-underlying expenses of £1.5 million relating to time for advice post-combination remuneration. We expect to continue to see a gradual decrease in platform revenue yields as the effects of price reductions offset increased revenue from higher funds under direction. These price reductions help to enhance the overall transact proposition and simplify our fee structure, as well as position us well for the requirements of value for money under the new consumer duty regulations. Annual commission income has fallen slightly due to a combination of the average daily FUD for the period falling year-on-year, plus the price reductions implemented in July 2022 impacting the whole six-month period. Wrapper administration fee income increased 7% year-on-year, reflecting the increase in the number of open tax wrappers and highlighting underlying platform growth. These two recurring revenue streams, annual commission charges and wrapper administration charges, together contributed 99% of the total platform revenue. Other income fell slightly over the year as this includes buy commission. This is an amount charged to customers on the acquisition of assets in their portfolios. It only applies to smaller portfolios and is gradually being removed as a charge to clients. Time for advice revenue increased by 41% over the year, consistent with the 41% increase in licence paying QRO users. T4A also doubled its consultancy fee income year on year. Staff costs for the period increased 13% year on year. This was the main driver of the increase in total group costs. The increase in staff costs is due to a number of factors. The increase in total group headcount due to the additional IT and software professionals we've added. Pay rises for group employees to reflect the impact of inflation on the cost of living. and to a limited effect, the limited impact of a salary bonus reconfiguration effected in October 2022. Regulatory and professional fees increased as the financial ombudsman service element of regulatory fees levied on UK insurance companies went up, with ILAC, our UK insurance company, having its fees doubled over this period. There were also increases in other components, regulatory components of the fees levied. Over the past 12 months, we've added 25 new software development, IT infrastructure and IT security staff. Recruitment will continue into financial year 24, but with no increase in the previously announced planned additional headcount. And as shown on this slide, the group continues to maintain a healthy liquidity position. On time for advice, the Curo software continues to attract new users with a 41% increase in paying licence users year on year. This licence fee income is the main revenue stream for T4A and is recurring. Additionally, all live Curo licence fees were increased this year in line in response to the cost of inflation and this has now been effected into all Curo contracts such that they will continue to increase in line with inflation year on year. Moving on to guidance. During 2022, we provided greater insight into our cost guidance. We set this out again here for the benefit of clarity. There are no changes to the cost guidance previously announced in December of last year. We have added a line at the bottom with guidance on income tax relief due to shareholders, as I believe this is quite complex for modelling. And for purposes of modelling, this is expected to be around 1.1 million per year. But the final amount will always be dependent on market movements. And the guidance on slide 32 also remains unchanged. We will continue to erode the platform buy commission in future financial years to simplify our pricing structure, but there'll be no further price cuts in financial year 23. So finally, to recap, we've delivered resilient results in volatile markets amidst an uncertain macroeconomic environment. The opportunities in the UK advisor market remain compelling, and we're well positioned to take advantage of these opportunities in 2023 and beyond. Our award-winning proposition, the Transact platform, continues to win market share, delivering strong net inflows. Our platform digitalization program is well underway and being highly positively received, and we remain strongly focused on our aim to be the number one provider of software and services for clients and UK financial advisors. That concludes our presentation. We'll now move in and take questions.