PensionBee Group plc

Hello, I'm Romy Savova, the CEO of PensionBee. Welcome to our Q3 2023 results presentation covering trading for the nine months to 30 September 2023. 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. We enable them to make contributions, to invest in line with their objectives, with money managed by the world's largest asset managers, and ultimately to make withdrawals and enjoy their retirements. Our aspiration is to build a lifetime relationship with our customers, generating predictable and scalable revenue for our company and for our investors. PensionBee operates in the vast £700 billion market of transferable defined contribution pensions, and over the course of this year, we continued to grow our market share. We added approximately 40,000 new invested customers in the first nine months of the year, taking the overall invested customer base to 223,000 invested customers. With 28% year-on-year growth in invested customers and a 95% retention rate, we grew our AUA by approximately 40% year-on-year, reaching £3.9 billion in assets under administration. We generated £22 million of revenue in the last 12 months, representing annual growth of 32%. Over the past quarter, we have advanced our strategic goals. We have spent approximately £9 million on marketing initiatives to maintain our brand awareness and drive new customer growth over the course of the year. We focused on reaching millions of customers through cost-effective brand channels, such as YouTube and TikTok. We are also proud to see our podcast nominated for two Lovie Awards. We have continued to use insights from our data platform to optimize our performance marketing channels. As a result of our endeavors, the cost per invested customer continues to demonstrate a downward trajectory in line with our expectations. Over the last quarter, we also continued to develop our product offering for our customers. We are incrementally rolling out new features that encourage our customers to engage with PensionBee. Our data shows that engaged customers are more likely to grow their pensions with us and are therefore more likely to enjoy the type of retirement they deserve. Customers can now enjoy more content in our app, including our award-nominated podcast. They can also use our updated free tools and calculators to increase their confidence in their retirement plans. We further enhanced our online withdrawal journey for customers, enabling them to pay themselves a salary in retirement. Finally, we are pleased to see our partnership with LifeSearch enabling our customers to obtain the life insurance they need to plan for a happy retirement. We have also invested in the scalability of our technology through a focus on internal automation, efficiency, security and pension transfer improvements to support productivity as demonstrated by an 11% improvement in productivity. we continue to prioritize our customers' cyber safety, having recently rolled out mandatory two-factor authentication for accounts. While automation and efficiency are a core aspect of our value proposition, we are proud to deliver industry-leading customer support, as demonstrated by live chat and phone waiting times of 16 and 23 seconds respectively. Consequently, we continue to enjoy high ratings from our customers, including almost 10,000 Trustpilot reviews supporting our excellent rating. Our customers' positive feedback gives our team great purpose and inspiration. Finally, we continue to remain focused on our investment range, learning about new developments in the area and ensuring we deliver value for money. I would now like to hand over to our CFO Christoph Martin, who will take you through the financial update for the quarter.

Thank you very much, Romy. Hello and a warm welcome to everyone. I am pleased to cover the financial section of the Q3 trading update. We have made strong progress this year as we balanced our growth ambition with our firm profitability targets. I would like to start by covering our growth performance on the next page, then elaborate on our expected year and profitability target after. The first nine months of the year have demonstrated our continued ability to grow as we reached over 3.9 billion pounds of EOE at the end of September, having added close to 900 million pounds of EOE in the first nine months of 2023. I would now like to highlight the asset growth drivers in more detail. First of all, we have driven growth through new customer acquisition, adding approximately 40,000 new invested customers with net flows from new customers representing the majority of asset growth at around 575 million pounds. Second, 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 £118 million of AOA. Net flows from existing and new customers contributed £692 million of asset growth over the period. Third, as it is customary in the markets, pension assets are invested in capital markets and we benefited from market appreciation. To summarize, cost, discipline, new customer acquisition and healthy net flows by existing customers retained on the technology platform have driven strong asset growth in the last nine months. We continue to deliver consistent and robust growth from existing customers through our high retention rates and recurring and compounding asset growth. which subsequently translates into strong revenue growth thanks to our resilient revenue margin. We are pleased to report continuous high customer and area retention rates of over 95% of existing customers who are continuing to consolidate further pots and contributing into their home pension pot at PensionBee. Similarly to previous periods, the data showed all customer cohorts delivered positive net inflows over the previous nine months. This serves as a good reminder of our long-duration compounding nature of the AOA base. With an average age of around 40, our customers demonstrate a long-term commitment to saving with PensionBee, growing the assets with us every single year. Next, we converted the compounding asset growth into recurring revenue growth thanks to our realized revenue margin, which increased to 65 basis points compared to 64 basis points in the same period last year. As a result, we converted the year-on-year asset growth of 40% into revenue growth of 32%. In summary, we continue to deliver consistent recurring revenue growth thanks to the compounding nature of our AOA, high retention rates, continuous net flows generation across cohorts and stable revenue margin. In addition to driving strong growth, we look forward to reaching our profitability target by the end of the year. On this page, we shed more light on the two building blocks that we expect will allow us to achieve our profitability objective. The first building block is to continue driving recurring revenue thanks to the compounding nature of our AOA and realized revenue margin, which we covered on the previous pages. The second building block is the operating leverage in our cost base, which can be broadly categorized into three buckets. First of all, the effectiveness of our discretionary marketing budget. We were able to achieve more with less this year by spending almost half the marketing budget while achieving stronger gross inflows in the first nine months of the year. Second, the scalability of our technology platform and other operating expenses. Our technology platform cost is a key contributor to driving operating leverage and achieving year-end profitability. The scalability of the technology platform is underscored by the fact that technology platform expenditures only grew 6% while revenue grew by 33% year-on-year. Third, money manager costs, which are variable in nature, growing only 11% year-on-year. Our scalable cost base therefore places us in a strong position to achieve our profitability objective while pursuing our growth opportunity in the vast market of defined contribution pensions. A word on our balance sheet. We have a strong cash position recording £12.5 million in cash as at the end of September. I will now hand back to Romy to conclude on our trading update with our guidance, investment highlights and further updates.

Thank you very much, Christoph. We are pleased to reiterate our guidance, confirming that we aim to deliver sustained high revenue growth. While we have demonstrated significant growth to date, we remain of the view that our focus on the mass market of pension savers will enable us to deliver substantial further growth as we pursue a market share of 2% of the £700 billion transferable pensions market over the next 5 to 10 years. we are preparing to onboard approximately 1 million invested customers with 20 to 25,000 pounds in their pensions, creating a revenue opportunity of about 150 million pounds in the long term. At the same time, having invested in our brand and technology over many years, and with our expectation to achieve ongoing adjusted EBITDA profitability this coming quarter, we are poised to continue delivering increasingly profitable growth over the medium to long term. As you can see, PensionBee is a leading online pension provider, solving genuine problems for its customers as they prepare for retirement. We operate in the vast £700bn transferable pension market, serving a broad consumer opportunity. Our household brand name status, the result of years of investment, is enabling us to grow while reducing our cost per invested customer. Our scalable technology platform leaves us well positioned to deliver on our financial ambitions. Our simple long-term business model demonstrates growth and increasing operating leverage as we move into adjusted EBITDA profitability this year. Our committed leadership team is here to serve our customers and our investors.

Thank you. If you would like to ask a question, please press star and then one on your touch-tone phone or on the keypad on your screen. You will receive a confirmation tone that you have joined the queue. If you wish to withdraw your question, you may press star and then two to remove yourself from the question queue. Participants can also submit a question using the ask a question button on the webcasting page. We will pause for a moment to assemble the queue. The first question we have is from William Hawkins of KBW. Please go ahead.

Morning, Remy. Morning, Christophe. Thank you for taking my questions. Three, please. As we trend towards the end of the year, are there any issues of seasonality or volatility into the fourth quarter that you think we should be aware of in terms of customer numbers, flows, or other kinds of spend issues? You know, it seems very clear that you're trending towards the target that you've talked about for adjusted EBITDA profitability. I'm just wondering about the nuances getting to the full year. Secondly, please, yeah, your marketing spend. In absolute terms, what do you think happens to your marketing spend in 2024? And then maybe around that, can you just talk industrially a little bit about how you're thinking of deploying your marketing into 2024? Is it just more of the same or do you have any ideas about how marketing should be evolving commercially? And then thirdly, please, if I'm right, there's been a very useful dip in your technology platform costs third quarter from the run rate of the previous couple of quarters. which is quite remarkable to see given the wider inflationary pressures and ongoing need to invest in technology. So if I'm right in that observation, what's the direction of travel from here? Because, again, it is quite remarkable that your technology platform costs seem to be falling through the year for a business that's growing so successfully. Thank you.

Good morning, William, and thank you very much for the questions. Perhaps I'll take the first two and then I'll pass over to Christoph for the third. So the first question is about seasonality and what type of seasonality we should be expecting in the fourth quarter. Well, from what we can see, customer demand for retirement savings services and products remains very robust in the fourth quarter. And certainly some of the external news around the ongoing cost of living crisis and inflation keeps consumer minds very much focused on their finances. So We expect Q4 to be broadly similar to the other quarters of the year, which is in line with our expectation and our experiences over the past few years as well. In terms of sort of, you know, any further nuances, I suppose the only real one that I would say is that December is, of course, Christmas. And so we... You know, we do typically tend to see a bit more competition from the likes of John Lewis and other kind of Christmas oriented retailers that dampen the desire to kind of focus on your retirement savings around around Boxing Day. That starts to that starts to abate again. Overall, I think a very similar Q4 to Q3 and Q2 and so on. So hopefully that that helps to guide the model of it. Marketing, which is your second question, and just kind of, you know, what we've learned about marketing, what what the trend for next year will be and industrially, which I think means what we'll be doing with our channels. I think where we are this year demonstrates that we are very likely to be profitable on a pre-marketing expenditure basis, which if you translate what that means for next year, it means that marketing will be financed out of our revenues. And so marketing will very much be guided by those objectives of growing revenue, but also keeping EBITDA profitable for 2024. And so what you would expect, therefore, I think if you make some assumptions around the cost base and around asset growth is that marketing will be broadly similar in 2024 as it was in 2023. And we feel very confident and comfortable with that because that type of deployment will enable us to continue growing our customer base We expect that it will continue to enable us to decrease our cost per invested customer, as we saw in the third quarter of this year. And as a result of that, growing the customer base, growing customers' assets with us and decreasing the cost per invested customer, we expect that that will, you know, one, generate a profitable 2024 on a just-a-dee-ba-dah basis, but also really kind of demonstrate even better lifetime value over cost of acquisition unit economics. And so the way that will deliver that ambition is to take the best of our learnings from 2023, which is that low cost, high impact brand panels work very well. And the ones that have been particularly effective this year are, of course, our sports sponsorship with Brentford and increasingly our TikTok and YouTube advertising, which enable us to keep PensionBee fresh in the minds of UK consumers and enable us to maintain the household brand awareness that we've invested in, over the past decade. And we'll combine that with the learnings on our data platform around performance marketing and really optimize and continue to optimize our bidding strategies so that we are enabling customers to come on board for the lowest acquisition costs possible, but also focusing on ensuring we are getting customers with sufficient and healthy levels of savings and enabling those customers to grow the savings on the platform so that's really the the focus of of the marketing budget kind of um getting getting better i would say and that being reflected in the overall numbers for the business and i'll pass over to christophe for question three around the cost base yeah thank you very much uh william for the third question which was around the technology platform costs uh

optimization in Q3. And I think the first point I would like to make is that as we went through this year, 2023, what was really, really important for us was that calibration and optimization between profit and growth. And I think we did see that and have been quite pleased with some of the performance looking at the growth aspects. delivering 28% invested customer growth, 33% revenue growth, at the same time where we narrowed our losses from around 5 million in Q1 on an adjusted EBITDA to around minus 3 million in Q2, and then now in Q3 to around 1 million of EBITDA losses, which places us very, very strongly to profitability points achieved by the end of the year. So that was kind of the overall strategy of optimizing that balance between growth and profitability. And it is indeed the case that there were many aspects that we looked at, but one of them has been technology platform and other costs, where costs have narrowed even as we find us all in a quite high inflationary environment. And I think the two points I would like to make specifically on that cost point is number one, we see, generally speaking, lower technology platform costs in Q3 and Q4 as compared to Q1 and Q2. And you see that trend also in last year. But the second point is really that we achieved in 2023 a much stronger reduction this year compared to last year. And the key driver were really the investments we have made in FTE employee productivity, which I think we have visualized that on page seven, where we increased the IC over staff member by 11%. And that really helped us to bring those costs down. And then there were various other smaller aspects that we captured kind of in the concept of aggregation of marginal gains of a lot of smaller savings across the boards that then obviously aggregates up to something meaningful on the total. So those are really how we get there. And I think on your second part of the question in terms of how to think about it going forward, I think we will take those learnings that we had, you know, generated this year to optimize and calibrate the balance between growth and profitability as we are going through our transitional periods to a profitable self-sustaining business into next year. And I think it's probably safe to say that we would look very closely at the technology platform costs again. And I think numerically speaking, assuming a single digit growth in that particular cost packet for next year might not be unreasonable to assume. I hope that answers your question.

That's brilliant.

Thank you both. And thanks to your team for the hard work.

The next question we have is from James Allen of Liberum. Please go ahead.

Hi, morning, guys. Just one question for me, if I can. It looks like the customer service metrics, so average live chat waiting times, email cases closed within 72 hours, and the average phone line waiting time. It looks like the kind of time to answer live chats, for example, has remained broadly the same as what we saw in the first half in Q3, based on the same number of live chats. And then it's kind of similar with the email cases and also the average phone line waiting times. So it looks like efficiencies kind of remained the same, albeit very good. based on volumes incoming from customers. What can you do to get the efficiencies even better in those metrics, i.e. a lower average live waiting time, but on higher volumes?

Morning, James, and thanks very much for the question. When we look at those metrics, we really relate them very much to the quality of customer service and the rapidness of the response time. So the way we see them now is pretty industry leading and keeping them around that level is really the goal. The efficiency gains that we mentioned are perhaps better demonstrated in some of the other activities that we have been pursuing around automation. And so what you will be able to glean from that I see to FTE metric that we regularly disclose is that I see so invested customers have grown and And if you, of course, as we've disclosed in the numbers, buy 28% year on year. But if you look at FTEs, you'll notice that our FTE metrics have actually remained fairly constant, meaning that with a constant team and a rapidly growing customer base, we've maintained our excellent level of service. And the only reason that can be, of course, is because of productivity and automation in the back end around a variety of items. So pension transfers, of course, and building deeper integrations with some of the pension providers that we have existing relationships with. internal automations around processes that are becoming more routine as the customer base scales, and then just general optimization and reduction of any complexity that has crept into any sort of process that we have. And so I think the right way to look at it is to really focus on the fact that the invested customers Customers have grown by 28 percent while the FTE base has actually remained constant.

I hope that answers your question.

Just wondering whether I could actually ask a follow up. I was also wondering whether you'd seen a slowdown in transfer times from the competition through Arrigo. given I assume a few of those competitors are seeing challenges with regards to outflows and things like that in this type of environment.

You know what, we have not. And I think part of the reason for that is that consumer duty has also come into force. And one of the key principles of consumer duty is that it should be as easy to leave a product as it was to join. And in a world of automatic enrollment where the customer has to do nothing to join a pension product, leaving and transferring out should be substantially easier than it is today. And so we think that that will be a very positive catalyst for transfer time improvements. And indeed, we've seen in some of the regulators' public communication with the wealth sector that transfer times remain a very important focus. So, you know, we would expect to continue seeing improvements in transfer times kind of regardless of outflows at other wealth companies. And so that can only be a good thing for customers, which is ultimately what, you know, what we are interested in.

Great. Thank you very much.

The next question we have is from Alexander Bowers of Barenburg.

Please go ahead. Apologies, we've lost the line for Alexander. Just a reminder to the other people on the line, if you would like to ask a question, you're welcome to press star and then one. We will pause a moment to see if we have any further questions.

We have a follow-up question from William Hawkins of KBW.

Please go ahead.

Sorry, my line dropped. So I don't know if other people got kicked off. So I'm just asking a question in case anyone else is dialing back in. Maybe it's just me. Sorry. Just a very small technical question. I was slightly surprised. You seem to have had a negative market impact in the third quarter. And for me, I know bond yields went up a bit, but I thought equities, you know, the FTSE was up and I thought that would have been the biggest driver. It's a very small point. But is there any interesting observation about what we can learn from your customer mix or whatever from the fact that you had a negative market impact in the third quarter?

Yes, great, great question around market movements. Like all other pension schemes in the country, we invest on a global basis. And so the UK equity market as a proportion of the total is likely to be smaller than other larger capital markets such as the US. And so a huge driver, of course, on market movement will be the performance of indices such as the S&P 500. And of course, you know, that was a more challenged quarter, you know, for that particular index in Q3. Got it.

It makes total sense. Thank you.

Ladies and gentlemen, just one final reminder. If you would like to ask a question, you're welcome to press star and then one.

It seems we have no further questions from the conference call or any written questions. Ladies and gentlemen, I would like to hand back to the management team for closing remarks.

Thank you very much. We really enjoyed taking everyone's questions today. We're very pleased with the results and the demonstrated trajectory towards profitability by your end, coupled with very high growth. So thank you very much for taking the time to speak with us this morning.