centrepoint alliance limited capital raising (asx:caf ... › asxpdf › 20140403 › pdf ›...

Centrepoint Alliance Limited

Capital Raising (ASX:CAF)

Investor Presentation

April 2014

Not for distribution or release in the United States

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Capital Raising Investor Presentation

Disclaimer

This presentation is dated 1 April 2014 and has been prepared by Centrepoint Alliance Limited ACN 052 507 507 (Company). The entitlement offer is

being made without a prospectus under section 708AA Corporations Act 2001 (Cth) (Corporations Act) (as notionally modified by ASIC Class Order

08/35) (Entitlement Offer). The information in this presentation is of a general nature and does not purport to be complete, nor does it contain all the

information which would be required in a prospectus prepared in accordance with the requirements of the Corporations Act.

An investment in the Company’s shares is subject to known and unknown risks, many of which are beyond the control of the Company. In considering

an investment in the Company’s shares, investors should have regard to (amongst other things) the risks outlined in this presentation.

This presentation contains statements, opinions, projections, forecasts and other material (forward looking statements), based on various assumptions.

Those assumptions may or may not prove to be correct. None of the Company, its respective officers, employees, agents, advisers nor any other person

named in this presentation makes any representation as to the accuracy or likelihood of fulfilment of the forward looking statements or any of the

assumptions upon which they are based.

The Company may make additional announcements after the date of this presentation and throughout the period that the Entitlement Offer is open that

may be relevant to your consideration about whether you should participate in the Entitlement Offer.

The information contained in this presentation does not take into account the investment objectives, financial situation or particular needs of any recipient

and is not financial product advice. Before making an investment decision, recipients of this presentation should consider their own needs and situation

and, if necessary, seek independent, professional advice.

Any opinions expressed reflect the Company’s position at the date of this presentation and are subject to change. No assurance is given by the

Company that any capital raising referred to in this presentation will proceed.

To the extent permitted by law, the Company and its respective officers, employees, agents and advisers give no warranty, representation or guarantee

as to the accuracy, completeness or reliability of the information contained in this presentation. Further, none of the Company and its respective officers,

employees, agents and advisers accept, to the extent permitted by law, responsibility for any loss, claim, damages, costs or expenses arising out of, or

in connection with, the information contained in this presentation. Any recipient of this presentation should independently satisfy themselves as to the

accuracy of all information contained herein.

Not an offer in the US: This presentation does not constitute an offer to sell, or a solicitation of an offer to buy, securities in the United States. This

presentation may not be distributed or released in the United States. The securities in the proposed offering have not been and will not be registered

under the US Securities Act of 1933, or under the securities laws of any state or other jurisdiction of the United States. Accordingly, the securities in the

proposed offering may not be offered, or sold, directly or indirectly, in the United States, except in a transaction exempt from, or subject to, the

registration requirements of the US Securities Act and any applicable securities laws of any state or other jurisdiction of the United States.

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The offer

Offer terms:

a placement of approximately 8 million ordinary shares (“Placement”) to raise approximately $2.6 million gross proceeds through subscriptions from institutional investors and other sophisticated and professional investors; and

an underwritten 1 for 3 non-renounceable rights issue of approximately 35.7 million ordinary shares to raise approximately $11.4 million gross proceeds (“Entitlement Offer”).

Eligible shareholders on the register at 7.00pm AEST on 11 April 2014 will be able to participate in the Entitlement Offer

Pricing

The Placement and Entitlement Offer will be conducted at the same issue price of 32 cents per share. This is a 9% discount to the last trading price of Centrepoint shares on 31 March 2014

Underwriting

The offer is fully underwritten by Wilson HTM and will be partly sub-underwritten by two directors (John de Zwart and Matthew Kidman)

Other

Parties who received shares under the Placement will be eligible to participate in the Entitlement Offer

Shareholders taking up their full entitlement in the Entitlement Offer may apply for further shares under the top up facility

New shares issued under the Placement and Entitlement Offer will be fully paid and will rank equally with existing shares on issue

Centrepoint’s directors intend to participate in the Entitlement Offer

The Entitlement Offers closes at 5.00pm AEST on 2 May 2014

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Vision and strategy

To be a leading and highly respected non institutional financial services

business in Australia

One Centrepoint team:

Delivering consistent, reliable and valued outcomes for clients and customers

Having experienced aligned people who want to deliver the best

Having a respected brand and strong balance sheet

Looking to innovate and find better, simpler ways of doing things

Foundations:

Leading non-institutional premium funder

Leading non-institutional full advice business

Independent

Capable and experienced management team

Leading advocate for non-institutional financial services in AustraliaFor

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Group structure

Centrepoint Alliance Limited

Wealth

Division

Funding

Division

Financial

Advice

Associated Advisory

Practices

Professional

Investment Services

Funds

Management

Ventura Funds

AllStar Funds

Platforms and

Administration

Investment Diversity

Premium

Funding

Centrepoint Alliance

Premium Funding

Mortgage

Broking

Australian Loan

Company

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Attractive markets with strong positions

Premium Funding Market Wealth Management Market

$5bn market grew at 5% pa between 2012 and 2013

Distributed via General Insurance brokers to SME and

corporate customers

2 large institutional incumbents with otherwise

fragmented market thereafter

Stable and attractive margins

Australian superannuation market of $1.8 trillion

expected to grow at an average of 8% pa over the next

20 years

The nature of the Australian regulatory,

superannuation, welfare, health and tax environment

ensures most Australians would benefit from

independent financial advice

Market controlled by large institutions primarily through

acquisition

Significant regulatory, customer and technology

changes are making independent full advice service

providers a better alternative for Australians to the

institutional options

Attractive margins and scale advantages

Centrepoint Premium Funding Centrepoint Wealth Management

~ $418m pa premiums funded in 2013.

Premiums funded up 23% in 1H14 compared to prior

corresponding period (pcp)

Profitability increasing with scale

Experienced and capable management team

Well supported by banking partner

Largest non-institutional full advice business

New vertically integrated strategy

Experienced and capable management team

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Growth opportunities

Premium Funding

Organic Growth

- 25% increase in active brokers in 1H14 compared to pcp

- Continue to expand share of premium funding business from those new brokers

- Benefits from efficiencies and scale

- Grow mortgage broking business

Inorganic

- Target and potentially acquire small and mid sized funding businesses

Wealth Management

Organic Growth

- Over the next 2 years the industry expects a migration of advisers from institutionally owned to independent licensees and service providers

- Increase penetration of in house solutions (platform, investment, risk, mortgages)

- Increase margins through product changes and scale benefits

Inorganic

- Target and potentially acquire additional wealth management capabilities

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Capital raising – key objectives

Organic growth The Premium Funding business is expected to

continue to grow requiring capital. Additional equity

investment will give the ability to raise further debt

The Wealth Management business is positioning itself

for growth requiring funding for further capability

development

Australian Financial Services

License Capital Requirements

A Centrepoint subsidiary is currently applying to

become the responsible entity for certain platforms

and products which are likely to have increased

capital requirements

Inorganic Growth Enable Centrepoint to participate in future

consolidation within the Australian financial services

industry

Strengthened Balance Sheet A strengthened balance sheet to support growth

Additional financial flexibility including ability to

manage current and future claims payments

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Uses of funds

Item

Premium Funding growth $5m

Wealth Management capability funding $1m

AFSL Capital requirements $3m

Balance sheet strengthening $4.4m

Capital raising costs $0.6m

Total $14m

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Risks

Centrepoint is subject to legal claims in the ordinary course of its business, with the bulk of recent claims relating to

legacy advisor issues which occurred between 2004 and 2008. Further amounts may arise beyond existing claims

provisions

Financial services businesses are exposed to a variety of risks arising from process error, fraud, systems failure, security

and physical protection, customer service, staff skills and performance

PIS, a subsidiary of Centrepoint, is subject to an ASIC monitoring program, with a final report by the independent expert

due to be delivered to ASIC in May 2014. An adverse report could lead to damage to the brand and/or penalties from

ASIC

The Centrepoint group’s business relies on various sources of revenue from financial advisers and general insurance

brokers. Centrepoint’s performance would be impacted if a significant number of these parties fail to meet their

obligations or terminate their arrangements with Centrepoint

The financial services and insurance premium funding industries are competitive markets, with several participants,

including those with larger market shares and resources than Centrepoint

Changes in legislation, government policy or regulation could adversely impact Centrepoint’s business performance. In

particular, proposals to make regulatory and legislative changes to the Future of Financial Advice (FOFA) legislation that

regulates the industry in which Centrepoint operates could increase Centrepoint’s regulatory and other costs

Centrepoint’s existing business has several key personnel. Any loss of these individuals may result in a loss of revenue

and consequential impact on Centrepoint’s business

Centrepoint is also subject to general risks including changes to taxation, accountings standards, exchange rates, interest

rates and other general market conditions

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Claims provisioning

• The provision for pre July 2010 advice claims is reviewed by external actuaries as at 30 June annually

• When calculating the provision, sufficient new data is required to update the projections given the high

variability of short term data. The Board has determined to therefore review the provision annually

• The primary factors which impact on the calculation of the provision includes new claims received,

settlements and average fees

• The number of new claims received on a quarterly basis can be very volatile. The number of new claims

received in the Sep 13 and Mar 14 quarters were above expected and were below expected in the Dec

13 quarter. Depending on the actuarial reports, there is a risk that the provision will increase

• Management have a number of initiatives underway to minimize the total cost of claims, including fees

including:

‐ Managing claims in-house

‐ Settling claims directly with the claimant or via conciliation with a mediator

‐ Resolving claims faster

‐ Obtaining co-contributions from advisers for claims costs

• The Board received and declined an offer for ‘stop loss’ insurance cover for these liabilities from Lloyds

UK in February and March 2014

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Premium Funding highlights – YTD

Financial (1H14) PBT up 32% to $2.5m

Premiums funded up 23% to $254m

Volumes growing at circa 3 times market rate

25% increase in active brokers in 1H14 compared to pcp

Operating Productivity gains extracted from prior year IT investment

Further capacity available to increase scale benefits

Customer experience further improved

Strong credit risk and expense management maintained

Strategy and people Successfully growing east coast business, up 38% pcp

Reducing average loan size: good for profitability and risk

profile

Building east coast sales team

Started externally facilitated staff development program

focussing on growth

Stable team with long tenure

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Wealth Management highlights – YTD

Financial (1H14) Cost reduction program executed delivering $3.6m in

annualised savings

Disposed non-core assets i.e. Malaysian advice business,

GPS

Operating Successful re-engagement with advisers

Claims management process transformed

New financial adviser desk top CRM system implemented

Significant strengthening of proposition and service

Legacy claims insurance offer received and declined

AAP professional indemnity program launched

Strategy and people Strengthened team

Customer centric capability and culture change program

underway

A new staff incentive scheme introduced

Strengthening and promoting Centrepoint brand

Acquired remaining 45% of Associated Advisory Practices

Wealth strategy designed. Implementation underway

Regulation Completed transformation of professional standards team and

processes

Ongoing monitoring program progressing well

Regulatory changes (FOFA) implemented For

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Experienced management

driving transformation

John de Zwart, Managing Director

20 years executive experience in Australian, UK and NZ financial services companies including TAL, AMP, Credit Suisse

and PricewaterhouseCoopers

Bob Dodd, CEO Premium Funding and ALCo

30 years executive experience in leading and developing UK and Australian lending distribution companies including

Lombard (Nat West Bank), GE Consumer Finance & GE Capital Commercial Finance

Soula Cargakis, CEO Associated Advisory Practice

27 years executive experience growing Australian wealth management companies including Aviva and Navigator and

founder of AAP

Anne Fitzgerald, General Manager Strategic Initiatives

20 years executive experience providing Australian wealth management and financial services consulting including AMP,

MLC and PricewaterhouseCoopers

Mat Walker, CEO Investment Diversity and Ventura

28 years executive management experience in financial services including Norwich Union Navigator and co-founder of

Investment Diversity

The executive team have a track record in competing in institutionally dominated markets,

transforming their markets and creating significant shareholder value

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Capital management initiatives

Proposed Dividend Program

Board has an intention to recommence a dividend program effective FY 2014

Targeting a 2.2c fully franked dividend to be paid from 2014 profits in September 2014

Shares issued under the Placement and Entitlement Offer will be entitled to the dividend (if

paid)

Assumes normal trading conditions between now and the time the dividends are intended

to be declared

Thereafter dividends to be determined semi-annually based on the profit of the group

The Board recognises the strong support demonstrated by shareholders since the

GFC and intends to recommence a dividend program

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Continued strong performance and market share growth in Premium Funding

Grow revenues off the strength of Wealth Management’s independence and

quality service proposition

Deliver the next stage of ‘SMART practice’ - a combination of technology and

advice delivery solutions designed to make advisers’ practices simpler and more

profitable

Respond to wealth market changes as industry responds to post FOFA

environment

Consider inorganic growth opportunities

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Pro forma financial statements31 Dec 2013

Historical

(unaudited)

PlacementEntitlement

Offer

31 Dec 2013

Pro Forma

Historical

(unaudited)

Cash and cash equivalents 7,518 2,453 10,944 20,915

Receivables & other assets 19,686 19,686

Interest bearing receivables 152,367 152,367

Total current assets 179,571 2,453 10,944 192,968

Receivables & other assets 2,834 2,834

Intangible assets and goodwill 5,798 5,798

Deferred tax assets 6,512 6,512

Total non-current assets 15,144 0 0 15,144

Total assets 194,715 2,453 10,944 208,112

Trade and other payables 47,421 47,421

Interest bearing liabilities 108,276 108,276

Provisions 8,808 8,808

Total current liabilities 164,505 0 0 164,505

Interest bearing liabilities 364 364

Provisions 11,080 11,080

Total non-current liabilities 11,444 0 0 11,444

Total liabilities 175,949 0 0 175,949

Net assets 18,766 2,453 10,944 32,163

Equity

Contributed equity 26,385 2,453 10,944 39,782

Reserves 306 306

Accumulated losses -8,094 -8,094

Equity attributable to

shareholders18,597 2,453 10,944 31,994

Non-controlling interests 169 169

Total equity 18,766 2,453 10,944 32,163

$’000

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Unrecognised Tax Assets

Franking credits

- Ability to pay full franked dividends to:*

$29.2m

$68.1m

Tax value of revenue losses not recognised

- Potential taxable income that could be absorbed1*

$15.0m

$49.9m

Tax value of capital losses not recognised

- Potential profit on asset sales before paying tax

$8.7m

$29.1m

Fully franked dividends can be paid from current profits whilst tax losses are being

absorbed

1. Includes $36.3m of Transferred Revenue Losses which are subject to taxation provisions that will significantly slow the rate at which

this benefit would otherwise be recognized.

* The ability to utilise both franking credits and revenue losses is subject to the Company generating profits to allow those losses to be

absorbed and for dividends to be paid.

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Timetable

Activity Date*

Announcement of the Entitlement Offer 3 April 2014

Ex-date 7 April 2014

Settlement of the Placement 9 April 2014

Allotment and trading of new shares issued under the Placement 10 April 2014

Record Date for Entitlement Offer (7.00pm (AEST)) 11 April 2014

Information Booklet and Entitlement & Acceptance Form despatched 15 April 2014

Entitlement Offer opens 15 April 2014

Closing Date for acceptances under Entitlement Offer (5.00pm (AEST)) 2 May 2014

New Shares quoted on deferred settlement basis 5 May 2014

Company notifies ASX of under subscriptions 7 May 2014

Allotment of New Shares under the Entitlement Offer 12 May 2014

Despatch of holding statements for New Shares issued under the Entitlement Offer 13 May 2014

Normal ASX trading for New Shares issued under the Entitlement Offer commences 13 May 2014

*This timetable is indicative only and subject to change. The Directors may vary these dates, in consultation with the underwriter, subject to

the Listing Rules. An extension of the Closing Date will delay the anticipated date for issue of the new Shares

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