PensionBee Group plc

Hello, I'm Romy Savova, the CEO of PensionBee. Welcome to our first half trading update for 2022. For those of you who are new to the PensionBee story, we are a leading online pension provider in the UK. We exist to make pensions simple so that everyone can look forward to a happy retirement. We enable our customers to combine their pensions into one new online plan with money managed by the world's largest asset managers. We aspire to build a lifetime relationship with our customers, thereby generating predictable and scalable revenue streams for our company and for our investors. Reflecting on the first half of the year, markets have, as is widely understood, exhibited unusual volatility during the first six months of this year. And yet, the need for retirement planning and pension ownership is in fact now more important than ever. Despite the very challenging market backdrop, we are pleased to see excellent growth momentum in invested customers, having added 41,000 new invested customers in the first half of this year. We are further pleased to have delivered this growth in combination with a declining cost per invested customer in the second quarter, as we continue to drive the company to full profitability in line with our anticipated timeline of 2023. not only did we deliver resoundingly high customer growth we also maintained excellent customer satisfaction throughout this period we recorded a customer retention rate of 97 and ongoing strong net flows from our existing customer base despite a very challenging cost of living crisis that has impacted everyone across the country As a result of the strong new customer growth and ongoing contributions and consolidations from our existing customer base, our AUA remained resilient, enabling us to reconfirm our medium-term financial guidance. Turning to our financial and operational highlights for the first half, I am pleased to report that our assets under administration held steady at £2.7 billion, continuing to reflect a compound annual growth rate of over 80% since 2018. We are particularly pleased to have achieved this level of stability despite the S&P 500, our main invested index, being down approximately 20% for the year to date and the FTSE 100, our second most relevant index, being down approximately 5%. We are also pleased to have attracted approximately 250,000 active customers and to have approximately 160,000 invested customers. Our registered customer pipeline is now very close to the 1 million mark. Thanks to our predictable revenue model and high retention rate of 97%, the growth in assets has translated into similar growth in revenue. Our annual run rate revenue is £17 million, also reflecting an annual growth rate of about 82% since 2018. Taking a closer look at the first half, I am pleased to report that we have added more than 40,000 invested customers, reflecting a year-on-year growth rate of over 70% and year-to-date growth of 35%. We are pleased to see the asset and revenue base each increasing by approximately 35% over the past year, despite substantial market volatility that impacts all investments. As always, our results are testament to our strategy and proposition, which continue to resonate in the enormous market of pension savers. We have previously communicated that, guided by our data model, we plan to deploy a substantial part of our marketing budget in the first part of the year. I am therefore pleased to report a deployment of about £12 million in advertising for the first half, representing a majority of our budget for the year. We deployed our budget across our prevailing top channels, search, TV and out of home. Thanks to our data, we were able to respond rapidly to a changing market environment, which affected consumer sentiment among the over 50s in particular. Our more mature target audience was less likely to take financial action this quarter, and therefore we focused on a slightly younger customer base, delivering an average new customer age of 37 compared to 39 in the first half of last year. This was achieved through deliberate changes in our paid search strategy. We deployed a greater proportion of our budget in the app store, where we tend to attract a younger audience. We leveraged our enormous brand campaign in the first quarter to support our digital acquisition activities for the second quarter. As a result, our cost per invested customer decreased to £259.60 for the quarter, in line with our expectations and guidance. We expect to continue focusing on delivering a strong reduction in our cost of customer acquisition throughout the year. Our product initiatives continued with the launch of Easy Bank Transfer in our Web Estate. Easy Bank Transfer makes it possible to contribute to your pension in 60 seconds and is now available across our product. We continue to develop our regular withdrawals feature for over 50s, which is now in the prototype phase with launch expected towards the end of this quarter. Finally, the team deployed the stronger nudge to guidance for over-50s, considering withdrawing from their pension, an important regulatory initiative. To support our ambitions, we have continued to invest in the ongoing performance of our industry-leading technology platform. We delivered further transfer efficiency improvements, internal automations and information security enhancements to support growth, productivity and information security. This is evident in our increasing efficiency with invested customers and revenue per FTE demonstrating strong annual improvements in line with increasing operational leverage. Many of these improvements were designed to support our customer service team, enabling us to continue delivering a high quality of service despite substantial growth and exceptionally volatile markets that impacted our customers' pension balances. We are pleased to have maintained our excellent ratings across Trustpilot and the app stores. With regards to our investment offering, as previously communicated, we have been searching for an innovative and distinctive impact-led investment plan and after rigorous customer testing, this search has now concluded. We will provide more details soon regarding the anticipated launch timeframe. And now I'd like to hand over to our CFO, Christoph Martin, who will take you through the financial outcome for the first six months.

Thank you very much, Romy. Hello and a warm welcome from me to everyone. I'm pleased to cover the financial section of the first half trading update. The first half has demonstrated the strong resilience of our EOE. We generated close to half a billion pounds of net inflows over the period. While this would have resulted in an AOA base of more than 3 billion pounds and close to 20 million pounds of ARR for June, as is many other companies in the wealth industry, poor markets have reduced the AOA by approximately 15% in our case, resulting in a stable asset base for us relative to the end of last year. Next, I would like to highlight the asset contributors in more detail. First of all, we have driven growth through new customer acquisition. Our agile marketing approach enabled us to onboard more than 41,000 new invested customers representing the majority of asset growth over the period at £353 million. The average consolidated pension pot was slightly smaller than usual, owing to market volatility that reduced pension pots around the country, as well as reflecting a younger average new customer. Overall, the average pot size was approximately £17,000 at the end of H1. Secondly, we have driven asset growth through existing customers who have continued to accumulate pension savings with PensionBee. Growth from existing customers over the period represented 128 million pounds of AOA. Net flows from existing customers together with new customers contributed circa 481 million pounds of asset growth over the period. We will comment on the quality of lifetime value generating, on the back of our strong retention rates and continuous net flows from existing customer base, more specifically on the next page. Lastly, as previously mentioned, we have been impacted by market volatility. As it is customary, pension assets are invested in global capital markets, which have been impacted by a number of macroeconomic factors, including increasing inflation, rising interest rates and geopolitical tensions. Global market volatility reduced the area by circa 15%. In summary, our area demonstrated resilience against the backdrop of market decline and exceptional volatility thanks to strong net flows from new and existing customers. As a long-term business, the lifetime value of our customers is of great importance. Lifetime value is predominantly driven by a high retention rate and recurring and compounding asset growth from existing customers. First, as you can see on the charts on the left-hand side of the page, we are pleased to report a continuous improvement of our customer retention rate, which is in excess of 97% for 2022. Secondly, on the right-hand side of the slide, we demonstrate cumulative net flows excluding market growth by customer cohorts. All customer cohorts delivered positive net inflows in 2022, even the very early cohorts acquired in 2016 to 2018. This serves as a good reminder of the long-duration compounding nature of the underlying business. With an average age in the late 30s, our customers demonstrate a long-term commitment to saving with PensionBee, growing their assets with us every single year. In summary, generating lifetime value on the recurring and compounding asset growth from existing customer cohorts is evident in both high customer retention rate and continuous net inflows across all cohorts. We have turned our asset growth into a recurring and predictable revenue stream thanks to our resilient contractual gross revenue margin. By way of reminder, the contractual gross revenue margin is the annual fee charged to customers before applying any discount for pension pots over £100,000. This again remained resilient across the first half at 69 basis points. As already communicated, we executed on our plan to accelerate marketing expenditure in the first half, priming us for lower-cost marketing growth for the rest of the year. On a trailing 12-month basis, we have seen an improvement in adjusted EBITDA to negative 152%. Looking at profitability, we reconfirm the guidance around adjusted EBITDA profitability being profitable before marketing investment by the end of 2022 and adjusted EBITDA profitability by the end of 2023. To conclude, we have converted asset growth into revenue growth thanks to the resilient contractual gross revenue margin and we have continued to scale the business operations. The majority of proceeds we raise during the IPO were earmarked for marketing spend and therefore close monitoring of that spend is critical. We routinely evaluate the attractiveness of marketing expenditure within the unit economics return framework, which includes a cost and return component. On the cost side, we measure cost per invested customer, which represents the unit cost of our marketing investment. I will cover the cost side on this slide while the return or lifetime value component I will cover on the next. As guided, we accelerated marketing deployment in Q1, which saw a temporary increase in CPIC to £268. As guided, we brought the CPIC down to below the £260 mark and expect the CPIC to continue to reduce over the course of 2022 for two reasons. First, a reduction in the velocity of marketing expenditure we expect the marketing deployment over the next quarters to be significantly below the h1 costs as we expect to have spent 60 to 70 percent of our total marketing budget in h1 Second, the impact of the upfront marketing investment, meaning that conversion into invested customers has a longer time period to take effect for the remainder of 2022, thereby reducing CPIC as we approach year end. In summary, as guided, we expect CPIC to have peaked at the end of the first quarter and we are now focused on continuing to reduce the cost of customer acquisition with more moderate marketing spending levels and an increase in lower cost marketing activities and capitalize on our growing brand awareness. It is very important to view the cost of acquisition together with the expected return on that investment in order to evaluate the return potential of the marketing investment as shown in the illustrative unit economics example. The unit economics framework includes a cost and return component and the multiple of return over the cost guides to the attractiveness of the marketing investment. With regards to the cost component, we pay a one-time cost to acquire a given customer to come to our technology platform, which I covered on the previous slide. With regards to the return component, once on the platform, a customer builds their pension savings with the company over the long term, evidenced in the high retention rate. This translates into a recurring and predictable revenue stream over many years. We then pay to our money manager partners and bear the cost to serve customers on our scalable technology platform. The remaining profit accrues to PensionBee and generates lifetime value. The illustrative unit economics of the return over cost calculation with simplified assumption indicates that PensionBee deploys marketing capital with attractive returns of mid to high single digit multiples. I will now hand back to Romy to cover guidance, investment highlights and further updates.

Thank you very much, Christoph. Given the performance to date, we are pleased to reconfirm our medium-term financial objectives. We continue to experience high double-digit revenue growth and consistent revenue margins. Over the short term, we expect market volatility to continue to play an important role in the revenue outturn. We had previously stated that we expect revenue to exceed £20 million given stable markets, and since markets have been very unstable, we believe it prudent to consider a range of market outcomes for the rest of the year, including further declines in our main indices, the S&P 500 and the FTSE 100. we are pleased that our revenue remains resilient against this backdrop with an expectation of 17 to 20 million pounds under a range of different market scenarios reflecting an extraordinarily high retention rate and strong net flows from new and existing customers We will continue to manage our marketing budget flexibly and with a return-oriented mindset, making that expenditure work even harder to acquire new customers. Our priority continues to be the achievement of near-term adjusted EBITDA profitability by the end of 2022 and overall adjusted EBITDA profitability by the end of 2023. As you can see, PensionBee continues to take advantage of the vast and growing UK defined contribution market. Our differentiated customer proposition and scalable technology platform have been designed to serve an enormous customer base. Our successful brand building and customer acquisition activities have enabled us to grow with a clear path to profitability and I and the rest of the executive team are committed to continuing on this path to serve our customers. We look forward to engaging with investors and to the publication of our interim results in September. Thank you for your time today.

If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. We will pause for a moment to assemble the queue. We'll take our first question from Jonathan Richards of Barenburg.

Good morning, everyone. Thank you for taking my questions. Two questions quickly, if I could, please. The first one is, could you talk a little bit about the increased efficiency that you are sort of looking for over the next six months with respect to utilizing your platform to sort of increase uh operating leverage in your business and also keep your costs under control just given the inflationary environment and then the second question is just around your increasing retention so it's It's great to see that retention has sort of increased to 97%. Could you give us an indication of sort of what the sensitivity is of the customer lifetime value around increasing retention? So for every one percentage point increase, how would you think about that impacting the lifetime value on a per customer basis? Thank you.

Good morning, Jonathan, and thank you very much for your questions. Perhaps I'll start off and then Christoph will come in with some additional color. With regards to increasing efficiency, you can certainly see that we've made great strides in increasing the invested customer per FTE ratio. A lot of that progress has to do with product developments and improvements. and automations that we have been processing in the background over the past year. They make it easier for us to do what we need to do for our customers, whether that's serving them in the form of customer service or whether that's transferring their pensions in the back end. A lot of those automations, those incremental automations, have been very, very successful for us. And so with regards to increasing efficiency into the second half of the year, we expect to continue to see that progressing along nicely. We expect to continue growing the invested customer base at a faster rate than we grow the employee base. And that is very much in line with the guidance that we provided around adjusted EBITDA and profitability. So I'll I'll pause there on the first question and see if Christoph wishes to add anything regarding that increased efficiency before we turn to retention.

Yeah, nothing specifically to add. The only incremental point is potentially on some of the cost phasing and obviously one of the bigger cost items, so to speak, on marketing have been very clear that the first half is where we spend most of that cost base. And then on some other costs within the technology platform, other costs are slightly front loaded. So I think that we would expect some further efficiency gains for the second part of the year.

And then coming back to the second question around retention and the impact on the LTV. Obviously, we are very pleased to see increasing rates of retention, especially in what has been an incredibly difficult external economic environment. i think that that is a huge testament to the levels and the quality of customer service that we provide um one of the reviews and we we at pension b we read every review that our customers give us but one of them mentioned that we are a throwback to the days when customer service levels were really, really good in the country. And I believe that the customer service that we provide to our customers, being available to them on the phone, on live chat, being timely in our responses is incredibly important for maintaining that level of retention. In terms of the lifetime value, I think, Christoph, if you'd like to add any points on that.

Yeah, I'm very happy to. I think the way of how we typically think about the economics when represented in the trading upgrades is relatively simplified assumptions. So to make it a little bit clearer of how we're thinking about it. And I think the way, when you think about the retention rate of greater than 95%, which implies the 5% churn rate, and then if you inverse that, it would mathematically suggest holding on to an average customer for about 20-year period. And actually, if you would be able to reduce that retention or increase that retention rate by just one additional percentage point of death, like reduce the attrition rate by one percentage point, that can have a quite significant impact because it would suggest that you hold on to the customer for a few additional years and capture that additional lifetime value as well.

That's very helpful. Thank you both.

Before we go to the next question, just a quick reminder, participants can also submit questions to the webcast page using the ask a question button. We'll take our next question coming from Philip Middleton, calling of Thanks, America.

Yeah, good morning and thanks for taking my question. I wondered if you could talk a little bit more please about the average pension pot size given that fell about 24% compared to last year, whereas markets fell about 15%. I understand the point about younger people bringing in smaller pots. But on the other hand, there's a countervailing factor in new flows from existing customers, which kind of ought to inflate that number. So can you talk a little bit more about the dynamic of that, please? If you could just say a bit about where you think we are with the pensions dashboard and what that might mean for you.

Good morning, Philip, and thank you very much for the questions. Perhaps we'll do the same where I start off, especially on the first question, and then Christoph can add any incremental color on average pension pot sizes in particular. So the average pension pot size, as you rightly point out, is a function of several different things. I think first, there is the impact of markets on the stock of AUA. and the market volatility that we have seen is incredibly well publicized and well known and our main country exposure on the equity side is US markets and those markets were down about 20% as at the end of the first half. So certainly markets have had an impact, and I think the point to make is that they have had an impact on us, but they have also had an impact on others in the pensions industry. And so, you know, the asset allocations that we maintain at PensionBee reflect the global flagship products of some of the world's largest asset managers, and therefore they reflect the asset allocations of the majority of other pension schemes. in the country as well. And so every pension has been impacted by market volatility, which means every pension transferred into pension B has been impacted by market volatility. And that really, we believe, accounts for the vast majority of the change in the average pension pot size. The second dynamic to mention is that our average age of new customer in the first half has been around 37 versus 39 in the first half of last year. And that has been a deliberate change in acquisition strategy that we updated on in the first quarter and very much reflects what we believe to be the most productive way to acquire customers during times of great market volatility, when individual investors who are perhaps in their 50s and 60s often tend to think about delaying their retirement plans as they wait for the economic environment to play out. And so our marketing activities tend to resonate more with a slightly younger audience. And you may be wondering, well, what's the difference between 37 and 39? That's only two years. But in a world of automatic enrollment, every year is approximately £3,000 of additional pension contributions. And so on balance, when we consider how that impacts the lifetime value of the customers that we generate, we don't believe there is an impact because a younger customer may have a couple of years less in terms of pension contributions. However, they are likely to have a longer lifetime with us. And with the retention rate of 97%, we feel very confident that we will be able to enjoy a very long lifetime with them. Christoph, would you like to add anything on this?

Yes, very happy to. And particularly around the lifetime value. So even though due to the volatility that we experienced, and our proactive response to that to adjust the marketing approach to ensure keeping a high and strong growth number. From a lifetime value perspective, even though they would come with a smaller pension pot from day one, they would stay longer on the platform. And I think on page 11, we did highlight that lifetime value generation approach a little bit specifically, where it really boils down to a high customer retention rate and existing flow of that base. And I think again, this year in the first half, we have seen strong net inflows across all of the existing cohorts. I think maybe just a third point to add to the first point market and second point, the age distribution is just on the blend effect in the way that given that we have grown the customer base by 35% year to date, we see in the existing books that average customers roughly two consolidated pots with us. And so some of those new incoming customers might not have all of the time to consolidate both of those pots. So there is a bit of a time consideration. So once the second pot comes through from those required customers as well. And so there's a little bit of the growth dynamic that would have, so to speak, a blend effect on the average pot size number that you refer to. I hope that answers your question.

Thanks. So you're saying that there's actually a bit of sort of pent-up demand from the first half that will feed through in the second half eventually from the existing customers transferring?

Yes, that's correct. So once all of the pods that they requested to transfer come through, would then generate some additional flows down the line in the second half as well.

Okay, thanks.

And I'm very happy to come in on the pension dashboard question. The dashboard continues to make progress. The dashboard is of course a government led initiative and government as well as markets have been somewhat unstable as of late. However, that being said, the legislative foundations for dashboards, the most important of which I believe is the staging deadline for pension providers to provide their data to the dashboard has been firmly laid. And so our view is that pension dashboards will proceed pretty much on the timeline that they are expected to, with a dashboard availability point in the future, in our view, being somewhere around the 2025 mark. Dashboards would be one of the data initiatives that would make it much easier for us to serve customers. We expect it would be a great boost to us in terms of enabling customers to become more aware about pensions and importantly, in terms of enabling them to find lost pensions, which is going to be one of the main use cases of the dashboard. Jo Turner- And, and so I think the dashboard is widely expected to keep to be a booster for consolidation and of pensions and, of course, we would expect to be a primary beneficiary of that and having you know effectively created the category over the past decade.

Jo Turner- That answers the question okay. David Ward, Ph.D.: : Thank you that's helpful, thank you.

Our next question is coming from the line of Paul Bryant, calling from Equity Development. Please proceed.

Hi, Romy and Christoph. Thanks very much. Two questions from my side. First one, are you starting to see any evidence of contributions from older cohorts increasing as they grow older, start earning a bit more? And on top of that, is Will there come a time where that will be a bigger focus of marketing spend? That's the first one. And then second question is, is there any change to cost profile over the next few years, more in terms of timing of spend? Obviously, with markets knocking revenue down a bit, and you're still guiding to hit the adjusted EBITDA profitability end of 2023, um or is there enough sort of play in the system that you're still comfortable hitting that target without reducing spend thank you

Thanks very much, Paul, for the questions. Perhaps we'll start with the question around contributions from older cohorts and whether we see evidence that contributions increase with age. I think what we can comment on is a couple of things. most certainly age is a factor in driving higher contributions because they become more affordable against rising salaries and so certainly within the customer base we do tend to see that older customers tend to make larger contributions into their pensions and there's no reason to believe that wouldn't persist as time goes on and our own younger customer base continues to mature and continues to increase their salaries in their working lives. So I think that that is a trend that would certainly be supported by the data that we have right now. With regards to the focus on marketing spend and increasing contributions from existing customers, the marketing spend and being visible as a brand to our existing customers will undoubtedly have an impact on encouraging them to continue contributing into their pensions. However, we believe that the most effective way to encourage our existing customers to pay into their pensions is actually through our product. and through the real estate that we already occupy on their phones and through the real estate within our own app and web app. And the focus there for us has been, as you know, on making contributions as easy as possible through our easy bank transfer functionality. We continue to launch and easy bank transfer throughout the estate, making it possible for our customers to pay into their pensions in 60 seconds through the use of open banking technology. And we believe it's that promotion within the product and also the ease of use that will ultimately continue to increase the rate at which our customers contribute into their pensions. Christophe, anything you wish to add?

Um, on the first point, um, nothing specifically, I think, um, just maybe to highlight the 5% underlying cohort growth from existing cohorts. That would obviously mean that, um, to Rumi's point, um, um, more mature customers contribute in pound terms a little bit more than, than youngers. But again, this, um, refers for me more like the, the, And then coming on to your second question regarding the timing

know the timing of spend and and the way that we anticipate to to phase our budgets we remain incredibly committed to the profitability uh objectives that we have laid out um we operate on the basis of budgets very detailed budgets and everything in our budget so far indicates um that the profitability objectives that we have in place um are you know are very much within our reach And that's really what we expect to focus on. We will take the opportunity to phase expenditures as we need to. And we'll be guided by kind of, you know, past our turns and any expectations we have on the future, including on markets. But those objectives remain of primary importance for us. So they're a huge, you know, they're a huge focus. And we believe we can, we have all of the stretch we need and the flex we need to meet them.

Super. Thanks very much.

There are no further questions on the conference line. We will now address the questions submitted by the webcast page. So our next question is coming from the line of Greg Patterson writing from KBW. And his question is revenue guidance is now 17 to 20 million pounds for FY22. What are you assuming here for MSC1 and your bond portfolio return in the second half of the year? What is the current level of cash at the end of 1H22?

Very, very happy to start again. Thanks very much for the question, Greg. The revenue outturn in the short term has been and undoubtedly will be continue to be impacted by markets and the way that markets behave. And certainly this year and the start of this year has been unprecedented in terms of market volatility on the equity side, but also on the bond side, as you point out in your question. And so I think it's really prudent and important for us to consider a range of different potential out turns when it comes to market scenarios and how those can impact on the revenue. Within our range, we've taken the opportunity to be more conservative. we've taken the opportunity to consider what would happen with further overall asset changes. Because we have exposure to a variety of different asset classes, we think about the returns of the portfolio as a whole, rather than attempting to forecast individual market levels of of the various indices and within that range we've taken the opportunity to consider what would happen if our overall asset returns decreased further as a result of further market volatility and also what would happen if they improved in line with the improvements that we've been seeing in many of the major indices over the last couple of days. There are various global market scenarios that um you know that align with those views on the one hand we could have further geopolitical conflict on the other hand geopolitical conflict could be resolved on the one hand we may struggle to get inflation under control on the other hand it seems that inflation may have peaked um depending on the various metrics that you use for for us what's really important is the long-term development of capital markets and we have a strong view that capital markets will continue to generate returns over the long term in the future And that's really what we remain focused on alongside that growth in the customer base so that the short-term market returns should have very little impact on us as a business when taken in the context of medium and longer-term performance. Christoph, anything you wish to add there?

Not on the first one. No, I think we covered everything. Just maybe on the second, there was one other question on the cash balance. So just on the cash balance, that is just a little bit under 30 million pounds as of June. And I think another point I would like to just highlight in that context is the adjusted EBITDA profitability target at the end of the year, which obviously gives a lot of comfort there. And that is based on a very resilient underlying revenue base. And we included page 11 specifically to highlight that point, given the high customer retention rate and the additional top ups from the existing base as well, which just speaks to the robustness of the underpinning revenue base. Hope that answers the question.

So our next question is coming from Alex, writing from Arden. And his question is, is the customer base UK only? Can it go international?

Very happy to address that. So we are very focused on the UK. The UK is the world's second largest pension market after the United States and with a defined contribution asset base of around £1 trillion, of which about 70% is dormant and therefore within the transferable market. We believe that there is huge upside and opportunity within our domestic market to continue growing the customer base. I hope that answers the question.

Thank you very much. We did have a question coming from Rob Murphy, calling from Edison, but I believe it's already answered now. It was regarding the cash position. And with that, we have no further questions submitted via the webcast page. I will now hand it over to Romy Zavula for closing remarks.

Thank you very much and thank you all for joining today and for taking the opportunity to have this discussion with us. As stated in the presentation, we're very pleased with the progress that we've continued to make in the first half of this year. We're very pleased with the growth in customers achieved against a declining cost per invested customer and a rising retention rate, which we think is truly testament to the business and the important need that we serve within the UK financial landscape. So thank you all very much again.