IntegraFin Holdings PLC

Good morning and welcome to Integra Finholdings' four-year results presentation for the 12 months ended 30th September 2023. I'm Alex Scott, Group Chief Executive, and I'll kick off proceedings today with an overview of the Group's performance in the past year. I'll then hand over to Jonathan Gumby, Chief Executive of Transact, our investment platform, to provide you with an update on the performance of the platform and the market over the year. I'm pleased to confirm that Ewan Marshall, our new chief financial officer, will be starting with us on the 3rd of January. So for now, I'll also cover the financial update and guidance for financial year 24 before we open up to Q&A at the end of the session. We finished the year with record high funds under direction on Transact. Performance over the period being resilient in the context of difficult market and economic conditions, delivering continued organic growth in revenue, funds under direction, and both advisor and client numbers. Our market opportunities remain strong. we continue to gain a greater share of the growing UK advisor platform market, demonstrating the continuing strength of the Transat platform. We now have a 10% share of funds under direction in the advisor platform market. This is testament to the quality of our offering, which continues to be recognised, with Transat winning Platform of the Year at the recent Schroders UK Platform Awards. The Transat platform is strongly aligned to the new consumer duty regulations. Our high-quality service proposition provides value for money on fees, and we pass all client interest earned on clients' cash back to clients. Though the macroeconomic outlook remains uncertain, our business model continues to attract inflows and grow client and advisor numbers, while our digitalisation plan will further deliver efficiencies and operational leverage for the platform. I appreciate many of you will have seen this slide before, but I think it's worth repeating. We remain focused on our strategy and business model. We aim to be the number one provider of software and services for clients and UK financial advisors. Our business model and strategy drives growth in FUD, advisor and client numbers. We continue to believe that this is best achieved through the delivery of the highest quality customer service, delivered by highly skilled staff and underpinned by high quality in-house technology. With our focus on efficiency and quality, we will continue to deliver on profits and dividends. During the 2023 financial year, our business model has continued to deliver steady growth against a challenging market backdrop. The number of advisors and clients registered on Transact both increased by 2% over the financial year. The platform delivered strong positive net inflows of £2.7 billion during the period in the face of continuing investor caution and heightened withdrawals seen across the sector. Our average daily funds under direction for the financial year increased 2% year-on-year, growing group revenue by 1% to £134.9 million. This even after the full-year effect of the fee reductions introduced in the 2022 financial year and a slightly smaller reduction in FY23. This resulted in underlying profit before tax of 63 million, a modest decrease as expected from FY22, driven by the planned ongoing investment in software and IT infrastructure. Our profit before tax margin remains strong even with this investment, which is already delivering enhanced operational leverage on the platform. Cash generation continues to be robust and the balance sheet remains strong with no debt. This has allowed us to declare a second interim dividend of 7 pence per share, giving a total dividend of 10.2 pence per share, maintaining the total payout at the same level as FY22. Moving to slide 6, this graph demonstrates Transat's consistent track record of delivering positive organic net inflows, as seen by the dark blue bars. Our gross net inflows have been particularly strong as a share of advisor market net inflows over the last 12 months. These robust net inflows have helped grow our share of the advisor platform market, heading towards 10% over the last five years, as seen in the lower trend line. This all emphasises the strength of our proposition as we continue to deliver against a challenging backdrop. Our digitalisation programme is enhancing our proposition and making the platform more efficient, helping provide a higher quality service to our clients. In financial year 23, we have grown both online platform functionality and advisor self-serve options and advanced the digitalisation of many paper-based forms and processes. We have also hired a UK-based chief technology officer to continue to drive our platform digitalisation programme. Advisor firm uptake of our functionality has been strong, with two key efficiency drivers, but live chat and code browse usage up 25% and 41% respectively in the year. The digitalisation plan has helped enhance Advisor experience on the platform, as our client services teams have been more able to focus on the value-added tasks. We have received good feedback in our own Transact Advisor survey, as well as in external third-party surveys, ranking first for service out of the large platforms in Investment Trends Report 2023, and this is further reflected in our 95% client retention rate. Beyond the FY23 year, we expect to benefit from enhanced economies of scale, ensure all new developments are digital first, and continue to develop the interface between Time for Advice's Curo and the Transact online product. I'll now hand you over to Jonathan for the platform update. Thank you, Alex.

So as Alex mentioned, we had record closing FUD as funds under direction of 55 billion, which was up 10% on prior year. And we also obviously note our average daily FUD, which was a tad lower because there was quite a lot of volatility markets throughout the year. Advisor and client numbers are both up, which bodes very well for the future. And the reason it bodes well is because our client retention is very good, our clients are happy, and therefore they tend to bring more family members to the platform and also top up their portfolios, which you'll see later. We did undertake a review in financial year 23, whereby we actually closed quite a lot of small portfolios, about 4,000 small portfolios. Often these have got small residual amounts in. It could be a dividend that arrived after the portfolio was closed. So we wanted to enjoy the operational efficiencies of not having these small portfolios. So we closed 4,000 of those, and there was associated with that about 250 advisers. As I say, that should help improve operational efficiency. In terms of net flows, you can see from this chart that we came second for the financial year 23 in terms of net flows at 2.7 billion. And the important thing to note here is that it's entirely organic. So we weren't buying firms or buying companies. in any way. This is all organic growth. And we ranked second with a market share of net flows of around 20%, which is obviously very pleasing. Thank you, Luke. Then on this chart, on the left-hand side, you can see the long-term track record of our growth in funds under direction and client numbers. Clearly in 2022, as stock market volatility was high, you can see there was a drop there. But overall, you can see that nice, steady growth in funds under direction and client numbers over time. And then on the right-hand side, this shows the source of our flows. and you'll see that the dark blue box, 55% of our inflows, this is existing transact supporters amongst that 7,000. who are actually bringing more clients to us. And that's because they're pleased with the transact service and therefore bring more clients to us. So that's very pleasing. And then on the box, which is 41%, the chunk of the pilot is 41%, this is existing clients actually bringing more money to us, topping up their ISAs, pensions, etc. So that's very pleasing. And you can see from this chart that in terms of the funds under direction league tables, we are one of the largest now at ranking third with a share of around 10%. So that's very good. And you'll also notice that we are one of the few with proprietary technology. Our award-winning service and the fact that we've always been very aligned with the consumer duty requirements has really helped us become a large platform and ranking third there. And we see the technology as a key differentiator. It means that we can... Adjust things, change things, we listen to advisors and we change our software, we change functionality based on the feedback we receive, which goes down very well with advisors. And this means that we can now deliver benefits of... Well, we benefit from the economies of scale, and that means we deliver this very good margin of 47% in the year. And remember, over the years, we've also reduced... prices to clients as we share the economies of scale that we're enjoying. So you can see more here, more evidence of our award-winning service. So by focusing on advisors and their client needs, we continue to be highly rated in the quantitative studies and to win awards. So investment trends and core data, these are both large quant studies that that are obviously totally independent. And then also there are various awards which tend to be expert panels, etc. But we do well in both of those. And, you know, despite our size, we remain very focused on advisors' requirements. I personally speak to advisors almost every day. I personally present at every one of our roadshows to IFAs throughout the UK. and I encourage all of my colleagues to stay very close to the market. When we get the results from this research and client feedback, then we share that amongst the management team. So when they're considering changes in their functional area, the requirements of the advisor and their clients is always front of mind. Of particular note is the high level of satisfaction amongst our regular users. So this is the fourth bullet point, and it's from Platform, which is a research company, and we get the highest satisfaction rating from primary users of any platform. You can see there, which is particularly pleasing. So we continue to meet advisor needs. We continue to meet client needs. On charges, we aim to provide value for money. And as Alex mentioned, we always pay 100% of cash interest to our clients. In fact, many, many of our clients, about a quarter, actually have their entire transact charges offset by the interest that they're earning on that small percentage that's in cash on their portfolios. And on service, we continue to rank top for platforms with over £10 billion of funds under direction. And we like to reference the independent research rather than anecdotal feedback and a very much evidence-based approach to considering how well we've done. And please note our number one ranking for supporting advisors, and that's because we are providing a wide range of wrappers, we provide a wide range of assets, we provide a wide range of discretionary investment managers. So we're helping support the advisor's proposition overall. We do a lot of work, technical support, and the way we allow families to link their portfolios, even move money between family-linked portfolios. So we're helping advisors who often think of their clients as the household, not just mum or dad, but the entire household. So we help them in fulfilling their proposition. This is some data from Fundscape, a third party who provide these estimates of the growth of the platform space. And you can see here that their midpoint is 11% growth over time. which results in very, very strong growth in the platform sector, adding something like $350 billion over the next few years. So we feel we're in the right place because there's all these assets moving to platforms, and we want to remain the best player in the right space. We've always been very aligned to the consumer duty requirements. We've always paid all cash interest to clients and our current rate is around 4.9%. We manage this very actively across seven highly rated UK banks and as we're allowed to within the Client money rules, we hold some of this on 7 days, 14 days, right up to 90 days, so that we can return really good interest back to clients. Currently, it's about 7% of our funds under direction that's sitting in client cash, so whether that's in an ISA or a pension wrapper or whatever, there's this higher percentage than normal sitting in cash, earning these very good interest rates. We actually rank, we're market leading for this. So there's various league tables produced by Citywire and others and we're always right at the top there. So we have a very clear, transparent charging model. We believe in providing fair value, no hidden charges. We don't have complicated menus like some people might, often called Ryanair-type pricing. We just don't do that. It's very transparent, very clear, and we aim to provide value for money. We have a very wide range of wrappers, the widest in the platform market. So as well as the mainstream areas like SIPs and ISAs, we have things like Section 32s, insurance bonds, both onshore and offshore. So we're giving the advisor the widest range of wrappers so that they can meet the requirements of their customers. we've seen an increase in the use of third-party discretionary investment managers over the last few years and we're agnostic to which discretion investment manager advisors select in fact we have over 120 different discretionary managers on our platform and over a thousand models there to choose from we do have um A relationship with BlackRock, where we partnered and we do provide a BlackRock model portfolio service, which is extremely well-priced, exceptionally good value, and that is exclusive to Transact. And in all of our communications to clients, you know, a big requirement under consumer duty, we try and make it as simple as possible and really keep our literature easy to understand so clients know exactly what they're getting with Transat. Okay, thank you. I will pass back to Alex now to provide the financial update.

Thanks, Jonathan. So moving on to the financials for the period. Group revenue remained steady over the financial year, increasing to £134.9 million in the face of economic uncertainty, ongoing investor caution and the full year effects of the Transat price cuts affected in July 2022. In line with expectation, financial year 23 has delivered a moderately lower underlying profit before tax figure than the previous year. This is due in part to the planned investment in additional IT staff for the enhancements to platform digitalisation, as previously discussed, as well as the impacts of inflationary pressures on salaries and other costs. IFRS reported profit before tax rose by 15% to £62.6 million. There were two key drivers for this increase from the prior year IFRS result. The first being the historical VAT cost included in FY22, which obviously doesn't recur. And the second is that we've concluded that time for advice is not meeting the stretching target thresholds required to earn the additional consideration. Hence, there's been a reduction in the non-underlying expenses as this accrual has been released. During financial year 23, there was a moderate decrease in platform revenue yield due to the effects of targeted price reductions that have been implemented. As we can see, the rate of revenue yield decrease has slowed this year compared with the prior year trend. The 2% increase in average daily FUD on the platform helped increase annual commission income to £116.1 million for the financial year. Even with the 412 months of the reduction in annual commission rate, which having been implemented in July 2022, only affected three months of that financial year. Wrapper administration fee income increased 6% year on year. This is due to an increase in the number of open tax wrappers and reflects the continued underlying platform growth. These two recurring revenue streams, annual commission and wrapper administration charges together, contributed 99% of the total platform revenue. On time for advice, the current Curo 3 software continues to attract new users. Overall, there's been a 22% increase in paying licensed users year on year and a corresponding 23% increase in revenue. This recurring license fee income is the main revenue stream for T4A. In mid-2024, we will deliver the new advanced Curo on Power Platform software to the UK market. We continue to manage costs carefully and in line with our guidance. The main driver of increase in total group costs was staff costs, which for the period increased 14% year on year. This increase in staff costs is due to several factors, the key ones being an increase in total group headcount due to the planned recruitment of additional IT and software professionals, a Chief Technology Officer and a new Chief Risk Officer, as well as proportionate salary increases for group employees to reflect the impact of inflation on the cost of living. This increase in IT and software professional headcount is an investment to support our long-term growth plans. The investment is already delivering greater operational efficiencies this year and we expect the impact to increase moving forward as more developments are implemented. Regulatory and professional fees have remained flat for the year, whilst the modest increase in occupancy costs is driven mainly by accounting treatment. Moving on to slide 22, as shown in the table on the left, the group continues to maintain a healthy liquidity position and strong cash generation. I'm pleased to announce that the second interim dividend of 7 pence per share has been declared, resulting in a total dividend of 10.2 pence per share for the financial year, The total dividends have been maintained at the same level as last year. Looking forwards, our cost guidance for financial year 24 remains unchanged and we will continue to manage our costs carefully. The staff cost increases for financial year 24 are the final element of the one-off step-up investment in our IT and software professionals as part of the platform digitalisation plan. The current investment in IT and software staff is already delivering efficiencies and operational leverage and we expect this final staff cost increase to further enhance these efficiencies. We expect the post-combination consideration cost of time for advice in respect of years 24 and 25 to reduce to £2.2 million and £0.5 million respectively, as only the deferred consideration element will now be recognised. On the revenue side, we will make two focused platform pricing changes which have limited cost to us. First, we plan to remove the platform buy commission. This is a small charge applied when clients purchase assets. This will be removed completely in April 2024. This simplifies our charging structure further for clients and opens up a small market of advisors who currently will not use Transact whilst we have this fee. Secondly, at a very low cost, we will also remove the wrapper fee on junior ISAs to encourage more intergenerational planning. as used regularly by advisors. Looking beyond financial year 24, we expect the platform digitalisation programme to be substantially implemented and deliver in operational efficiency. We expect a significant moderation in our cost growth rates as our IT recruitment is finalised and inflationary pressures start to abate. Our platform pricing will be kept under review as always. In summary, we've delivered robust results and continued growth in volatile markets amidst an uncertain macroeconomic environment. The opportunities in the UK advisor sector remain compelling, and we are well positioned to take advantage of these opportunities in 2024 and beyond. Our award-winning proposition, the Transact platform, continues to win share of Flows and FUD, delivering resilient net inflows and remaining strongly aligned with consumer duty regulation. The platform will continue to be enhanced through our digitalisation programme, improving our service and functionality whilst driving efficiencies. And we remain strongly focused on our aim to be the number one provider of software and services for clients and UK financial advisors. Thank you all for your time and we'll now open up to questions.