PensionBee Group plc

Hello, I'm Romy Savova, the CEO of PensionBee. Welcome to our Q4 2023 results presentation covering trading for the 12 months to 31 December 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 2023, we continue to grow our market share. We added approximately 46,000 new invested customers, taking the overall invested customer base to approximately 230,000 invested customers. With 25% year-on-year growth in invested customers and an over 95% retention rate, we grew our assets under administration by approximately 44% year-on-year, reaching £4.4 billion in AUA. We generated £24 million of revenue in the last 12 months, representing annual growth of 35%. Our annual run rate revenue increased to £28 million. Over the past quarter and year, we have advanced our strategic goals. We spent approximately £9.7 million on marketing initiatives in 2023, bringing our total investment in the PensionBee brand to £55 million. As a result, we maintained our brand awareness and drove new customer growth. We focused on reaching millions of customers through cost-effective brand channels such as YouTube and TikTok. We have continued to use our insights from our data platform to optimize our marketing performance channels. As a result of our endeavours, the cost per invested customer continues to demonstrate a downward trajectory in line with our expectations and we recorded a cumulative cost per invested customer of £241 and a 2023 cost per invested customer of £212. Over the last quarter, we also continue 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-winning podcast. They can also use our updated free tools and calculators to increase their confidence in their retirement plans. We've further enhanced our online withdrawal journey for customers, enabling them to pay themselves a salary in retirement directly from the app. 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. We continue to prioritise our customers' cyber safety and we are pleased to have re-certified to the world-leading ISO 27001 Information Security Standard at the end of the year. 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 15 and 23 seconds respectively. Consequently, we continue to enjoy high ratings from our customers, including over 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. We will soon begin our annual investment plan review, assessing our plans and their alignment with our customers' needs and expectations. I would now like to hand over to our Chief Financial Officer, Christoph Martin, who will cover the financial update for the quarter and year.

Thank you very much, Romy. Hello and a warm welcome to everyone. I'm pleased to cover the financial section of the Q4 trading update. First and foremost, we are very pleased to deliver on the important profitability milestone over the fourth quarter of 2023 by generating adjusted EBITDA of more than half a million pounds in that quarter. In addition to achieving this important profitability target, we also delivered on another year on strong growth. Those achievements reflect our deliberate efforts to balance profitability with continuous high growth of the business. I would like to start by covering our growth performance on this and the next page, then elaborate on our profitability after. Last year, we demonstrated our continued ability to grow as we reached 4.4 billion pounds of AOA at the end of December, having added close to 1.3 billion pounds of AOA in 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 46,000 new invested customers with net flows from new customers representing the majority of asset growth at around £729 million. The average age of customers joining our platform was approximately 40. and the average account size of each invested customer was approximately £16,000, representing an increase of more than 50% to 2022. 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 £127 million of AOA, Net flows from existing and new customers contributed 857 million pounds 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, both cost-disciplined new customer acquisition and healthy net flows by existing customers retained on the technology platform have driven strong asset growth in 2023. We continue to deliver consistent and robust growth from existing customers through our high retention rates, 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 AOA retention rates of greater than 95% of existing customers who are continuously consolidating further pots, contributing into their home pension pots at PensionBee. Similar to previous periods, the data showed all customer cohorts delivered positive net inflows in 2023. This serves as a good reminder of the long-duration, compounding nature of our AOA base. With an average age of around 40, our customers demonstrate a long-term commitment to saving with PensionBee, growing the asset with us every single year. Next, we converted the compounding asset growth into recurring revenue, thanks to our resilient, realized revenue margin of around 64 basis points. As a result, we converted the asset growth into revenue growth of 35%. In summary, we continue to deliver consistent recurring revenue growth thanks to our compounding nature of our AOA, high retention rates, continuous net flow generation across cohorts and stable revenue margin. In addition to driving strong growth, we have delivered on our long-standing goal of achieving our profitability targets in Q4 2023. consistent with guidance since our initial public offering in 2021 and despite substantial macroeconomic volatility we have witnessed over the previous few years. The achievement of our profitability objective underscores the predictable nature of our business model. On this page, we shed more light on the two building blocks that allowed us to deliver on our profitability objective and the implications into next year, where we expect to deliver full-year profitability for the financial year. The first building block is to continue driving recurring revenue thanks to our compounding nature for EOE and resilient, 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, effectiveness of our discretionary marketing budget. We were able to achieve more with less in 2023 by spending almost half the marketing budget while achieving higher gross inflows compared to previous year. Second, the scalability of our technology platform and other operating expenses. Our technology platform costs are a key contributor to driving operating leverage and achieving ongoing profitability. The scalability of our technology platform is underscored by the fact that technology platform expenditures only grew by circa 9%, while revenue grew by 35% year on year. Third, money manager costs, which were variable in nature, growing only 16% year on year. Therefore, we delivered strong growth while at the same time demonstrating the ability for cost control to deliver our profitability objective. This also serves as a read-across for 2024, where we expect to deliver a profitability target with strong growth driven by net flows from new and existing customers, coupled with continuous strong cost discipline thanks to ongoing automation and efficiency improvement efforts. A word on our balance sheets. We have a strong cash position, recording £12.2 million in cash at the end of December. I will now hand back to Romy to conclude on our trading update with our guidance, a look back on 2023, our 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 £20,000 to £25,000 in their pensions, creating a revenue opportunity of about £150 million in the long term. At the same time, having invested in our brand and technology over many years and having achieved ongoing adjusted EBITDA profitability in the final quarter of last year, we are poised to continue delivering increasingly profitable growth over the medium to long term. Our primary financial goal for 2024 is to deliver full year financial profitability by the end of the year, being also clear that we will consider this goal on a full year basis rather than a quarterly basis. 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 £700 billion 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. Before we conclude the presentation, I would like to take a moment to reflect on PensionBee's journey and to put 2023 into the context of our history. 2023 was a year of transition and also a year of transformation. Having established the company almost a decade ago and having grown to 4.4 billion pounds in assets under administration on behalf of approximately a quarter of a million invested customers, we are delighted to have achieved our long-standing goal of ongoing adjusted EBITDA profitability. As we look forward to our 10-year anniversary later this year, we will very much reflect on the change we have brought to the UK pensions industry on behalf of consumers, celebrating the longevity of our business and our vision to live in a world where everyone can look forward to a happy retirement.

If you'd like to ask a question, please press star and number one on your telephone keypad. Participants can also ask questions during the ask a question button on the webcast page. We will pause for a moment to assemble the queue. We will take our first question from William Hawkins from KBW. Your line is now open.

Hi, Romy and Christoph. Thank you for taking my question. Still sort of checking through the numbers, so forgive me if there's some points of detail I've missed. But three, first of all, please. When you're talking about adjusted EBITDA profitability for this year, Can you just help me understand what you expect the marketing budget within that number to be? I'm sure I could kind of back it out, but if you could sort of help me cut to the conclusion, that would be good. And the more kind of operationally, you know, have you guys got any kind of updates about how your marketing money may be deployed this year in terms of, you know, different marketing strategies across the spectrum we've talked about in the past? Secondly, please. Again, it does look to me like your net new customers and flows kind of dipped more than I anticipated in the fourth quarter. I think you only added 6,000 people in the fourth quarter and there was a bit of a dip in the net flows as well. Now, again, I appreciate the maybe seasonality and Christmas and all that kind of thing playing out. But if you can help me sort of think about understanding what does seem to be a bit of a dip for Q and how we think about flows for this year. It seems you're strongly on the self-financing side, which is great, but I'm still trying to get clear in my mind how you're thinking about the flow growth, please. And then lastly, please, again, I think you alluded to this in your prepared remarks, but can you just help me think a little bit about other expense growth and particularly technology investment? Again, I think you've been really reassuring in the past about the limited nature of cost inflation, and you've been repeating in your prepared remarks the scalability aspect So I'm assuming it's kind of more of the same, but if you could just help me understand, you know, those kind of more fixed cost items, what the inflation outlook is for this year, please. Thank you.

Good afternoon, William. Thank you very much for the questions and happy to cover them in order. I think I'll take the first two and Christophe will take the third. I think to begin with, yes, we are very much guiding towards adjusted EBITDA profitability for the full year. financial year and we wanted to make that point quite clear because we think that opportunities will present themselves differently as we go through the seasons and through the quarters. But our overall objective for the marketing budget for this year is to be fairly similar to the deployment of last year. And we were very pleased with last year's deployment from an operational perspective because We obviously reduced the total amount of marketing spend relative to 2022 by a substantial order. In fact, it almost halved. And yet we delivered an equivalent amount of net inflows. And of course, you know, grew the customer base substantially, which is what we had intended to do. the reason we were able to do that from an operational perspective is because of the substantial brand investment that we had historically made and we were very fortunate to begin the year and to continue the year and to end the year in a position of having household brand name awareness and so that enabled us to focus a lot of the brand expenditure on some of the lower cost higher repetition channels because we had already done a lot of the hard work, kind of explaining who PensionBee are, what we do. You can consolidate pensions. And, you know, a lot of the job for last year was to keep repeating the name PensionBee so that when customers future customers were of the mindset to consolidate, we would be top of mind for them in that thought process. And so the deployment of that budget, as I mentioned, was very successful in that, although having almost halved, it delivered the same amount of net inflow. So that was really very much the objective and the supporting strategy behind it. I think on your second question, again, our focus for last year and the delivery for last year was to be adjusted EBITDA profitable on an ongoing basis, which we very much delivered in the final quarter. And so to achieve that, our objective was to reduce the marketing budget without reducing the net inflow figure. And those were the priorities that we focused on. I think your question around customer growth, we are growing very, very rapidly. We are growing more rapidly than others in the sector and similar peers who report. And we were very pleased with the growth. on the basis that it generates the net inflows that we had aspired to generate. And I'll pass over to Christoph for the third point.

Hello, good afternoon. William and thank you very much for your questions. I would like to answer your third questions around the fixed costs expectation going into 2024. So I think first and foremost, I would like to just reiterate one point that I made during the presentation is that we are very deliberately and intentionally balancing the you know, implied tension between growth and profitability, such that to deliver a business that is ongoing profitable, however, that grows as quickly as we can, given the opportunity in the UK defined contribution market that is in front of us. So, and I think reflecting on 2023 and looking at some of those growth figures, you know, with IC growth plus 25%, AOA growth plus 44%, revenue growth plus 35% and ending with an ARR of 28 million pounds. At the same time, having been extremely deliberate around our cost base and reducing it overall by 13%, particularly becoming much more efficient with our marketing spend. And then with the other cost buckets being very deliberate around the profitability side of that balance and only growing the fixed cost base for 9% is something that we have done very intentionally And I think is a good way of looking of how we, you know, transitioning to 2024 and how we're thinking about managing that cost base for this year, where we try to do the same kind of driving very strong top line growth, but managing that cost base very deliberately. So having said that, in that context, I think when you do your specific question around the fixed costs item, which we ended at around a little bit north of 19 million pounds, I think the way of how we're looking at it going into 2024 is probably that we keep that cost base overall at that kind of zip code. So with just some very, very marginal potential uptake. But I think we want to continue driving operating leverage and the fixed call space next to, of course, the marketing bucket. But the fixed call space is one of those two key drivers where we do manage those. So I think to your specific question, we do probably think that it will stay at that level and very marginally increase in going into 2024. I hope that answers your question.

Thank you both. I may have a couple of other questions, but I'll give someone else a try. Thank you.

Our next question comes from Alexander Bowers from Barenburg. Your line is now open.

Hi, guys. Just two for me. I think we saw the average pot size grow from Q3 to Q4 from, I think, 17 and a half to 19. Just to get to understand the driver behind that. And then sort of secondly, on revenue and product mix, I think in the past you've talked about kind of good demand for some of the higher margin products in your product set. we really could just give a bit of kind of color around what you're seeing in terms of demand for different products in the range and how that maybe could impact revenue margin going forward.

Thanks. Good afternoon and thanks so much for your questions, Alex. I think to your first point, the increase in the average pot size per customer and also per new customer over the course of the year was very much the intention behind the marketing deployment. 2023 was a year where a lot more consumer confidence returned. Consumers and oftentimes consumers over the age of 50, I think, were more confident making decisions around their pensions and their pension pots. And therefore, we attracted a consumer with a slightly larger pension pot over the year. And we certainly also focused on that with the deployment of the marketing budget. And so you can again see that translated into the average pot size, but also into the net flow more generally relative to the absolute size of the marketing budget. So that very much bore out in line with strategy and we will seek to continue with that strategy in 2024. So that's the first point around pot sizes and pot size growth. Your second question around kind of product mix and implications for revenue margin. I mean, what I should say is that we introduce products that customers want and the pricing is very much driven based on the extent of underlying sort of asset management activity, I would say, with more actively managed products generally being more on the upper end of the pricing spectrum. So to the extent that there are revenue margin improvements, those are purely driven by customer demand for those products. And of course, by the underlying active management of the product. What we did see last year specifically to the point is certainly solid demand for our new impact plan, which is an actively managed product, and also for our four plus plan. which again is actively managed with passive building blocks, but really helps at retirement consumers to avoid some of the extreme bouts of volatility that we witnessed in equity and bond markets in 2022. So very much kind of revenue margin reflecting customer demand for the specific types of products that are on offer.

Thank you very much.

And if you'd like to ask any questions, please press star and number one on your telephone keypad. Please press star and number one on your telephone keypad. Our next question comes from William Hawkins from KBW. Your line is now open.

Hi, guys. Sorry. Not trying to hog the call. Yeah, sorry. Just back on the flow point again, because I'm really trying to get an understanding of you've got the strength of the self-financing. Now I've got to get comfortable with the growth that you can achieve around that self-financing. So directionally, given that you added 46,000 new customers in 2023, do you think that's a number that can be higher in 2024? So you're going to be adding more customers for the same marketing spend? And if the answer is yes, can you try and kind of help me think about the quantum? If I'm thinking about it in a completely wrong way, if you can sort of maybe help me on that as well, that would be good, please. And then a couple of other maybe quick questions. Since last time we spoke, there's been that kind of lifetime pensions announcement, had a lot of focus for a few days, seems to have gone quiet. There's a lot of political stuff going on. I'm just wondering if you can kind of, you know, if you've had any updated thoughts about that, you know, both in terms of the risk, but clearly it could be a big opportunity for you guys as well. So any updated thoughts on that? And again, forgive me if I missed part of the update, but just a bit of an update on where you are with life search and anything kind of interesting in terms of the momentum behind that relationship and its takeoff, please.

Hi again, William. Very happy to cover up on those questions. The first one is how to think about net flows in 2024 and sort of customer growth. I would say that we are very much focused on net flow per marketing pound spent. And therefore, of course, as you might expect, we are always looking to improve on our past performance. And therefore, our objective will very much be to drive improved net flow relative to marketing spend in 2024. You know, of course, subject to market conditions also being conducive for us to deliver that. So if you look at kind of, you know, how to think about that, well, you might want to think about the average pot sizes that could be coming through over the course of the year. And you also might want to think about our CPIC position and the fact that we recorded a 2023 CPIC of about 212 pounds. And so I think if you seek to optimize on those ratios, then you would very much be in line with thinking about the way we are thinking about 2024. I think that's probably the extent of the guidance that we can offer on those inflows. On the second point, which was, I believe, the life search point. Is that the second point?

lifetime pensions and then life search.

Lifetime pensions. Let's go with lifetime pensions first. On lifetime pensions, the so-called pot for life model I think would be very advantageous for us. As we previously commented, at the moment we target the £700 billion preserved DC pension market. What the pot for life model would enable us to do is to also target the remaining 300 billion of active pensions. And so what we often find with our customers is that they would very much like their employers to be paying into Pension B because they have chosen Pension B. And so that really enables them to keep their pension in one place at the moment. What our customers tend to do is they move from job to job and then they consolidate their pensions after they have moved jobs, which, of course, is more friction that they would like to bear. And ultimately, the main reason customers choose us is because they want to prepare for a happy retirement. And so we very much see this as a route to continuing to grow our customer base, but also enabling them to receive their employer contributions within Pension B. You know, I think we will probably hear more around the government's pension strategy come March, but we know that this is certainly a solution that solves a lot of problems for them. One being, of course, kind of micro pot fragmentation. which is something that they are seeking to address. And another being kind of helping to create larger pension schemes of scale, of which we, of course, would be one. And so, you know, very much look forward to hearing what more they have to say in March. And then the third point, which was on life search. We continue to offer the life insurance product within our product. We're continuing to see good uptake from customers and customer interest. And we already have a number of customers. points of optimization that look quite promising. However, as we've previously stated, our primary focus is on growing the customer base, growing pot size per customer, and then looking at additional opportunities to help our customers look forward to a happy retirement. So on the priority list and certainly growing, being optimised. But I think the primary focus is point one and point two.

That's really helpful insight. Thank you. And congratulations to your colleagues for their hard work. Thank you.

There are no further questions on the conference line. We will now address the questions submitted via the webcast page. First question comes from Alex Watson from Grindr Peak Global Advisors. Could you provide an update on the competitive landscape? Do you see any bigger financial companies making the road to this space?

Hi, Alex, and thanks so much for your question. I think over the past couple of years, we've really seen quite a focus of everyone hunkering down and being really disciplined with doing what they are good at. And so for the large incumbents, the historical pension providers, as we often call them, that has meant big being very focused on the workplace, very focused on the advisor market and very focused on their traditional lines of business. From our perspective, of course, you know, that is very positive because it enables us to focus on the area where we shine, which is, of course, consumers. And so not too much to update on relative to developments over the past couple of years.

Thank you. Our second question comes from Julian Roberts from Jefferies. Markets did well in November and December. Other consumer-facing financial services businesses had a good end to the year. Your pipeline of new business takes a few months to get through. Should we look good for good close in mid 2024?

Thank you very much for the question. And yes, we would agree that market sentiment was certainly more positive towards the end of last year. And as a result of that, we tend to see improved consumer confidence and more propensity to transact more generally in financial services products. We, of course, are deploying the 2024 budget very much in line with our expectations for the year. And so, as you will recall from the past couple of years, Q1 tends to have a sizeable deployment. as would Q2 as we run up into tax year-end and financial year-end for a consumer perspective. And therefore, I think you certainly can expect to see some of that improved consumer confidence being reflected as we roll through into 2024.

Thank you. There are no further questions submitted via the webcast page. I will now hand back over to Romy Cevola for closing remarks.

Well, thank you all very much for joining us on the call today. We were very pleased with the conclusion of 2023 and particularly pleased with the delivery of our longstanding goal of adjusted EBITDA profitability across the fourth quarter. We'll look forward to engaging with everyone over the course of the next few days. And of course, again, at the end of the first quarter, when we report back on the first three months of the year. Thank you all very much.