Finseta (LSE:FIN) — Full Year Results

0:01 Good morning, ladies and gentlemen, and welcome to the Cornerstone FS PLC Full Year Results Investor Presentation. Situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today, and we'll publish those responses where it's appropriate to do so on the Investor Meet company platform. Platform. And before we

0:32 begin, as usual, I would just like to submit the following poll. And if you'd give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to CEO, James Hickman. James, good morning, sir. Good morning, and thank you. First of all, a little bit of background. Obviously, introduced us Cornerstone FS PLC, which is in fact correct, but we've transitioned over the business to trading under the brand FINSETA. The the idea is that the PLC actually will become FINSETA at some point very shortly, but we're currently the PLC is still Cornerstone FS. So moving on to who we are, what we do.

1:18 We are a payments company, ultimately solving currency payment currency and payment challenges. And importantly, for businesses and individuals around the globe. And that's very important. Part of our part of our differentiator is that we not only service business, but we service high net worth individuals as well. Ultimately, all of our customers come through growing network of introducers. By introducers, they are accountants, lawyers, wealth managers, property agents, etcetera. And we've invested very heavily over the last eighteen months or so into growing that segment of the segment of our our revenue.

2:07 And that's through through people and and systems. And we'll come on to that in a minute. We we it's all done on proprietary technology. The business historically has been more of a software business, and we're leveraging that expertise. We've got a great platform, which we're continuing to build on. And and one of the key things that it does allow us to do is to integrate into ultimately many different payment partners, banking partners, etcetera, to allow us to offer, you'll see on the right hand side there, number of currencies and number of countries served, and that we continue to expand.

2:55 We are very much focused on providing solutions. So this is ultimately to to payment issues that both businesses and individuals have. And we we are able to provide through our through our payment network, our global payment network, a solution to those problems. And the and one of our key strategies, which we'll come on to, is is expanding out geographically to help service those needs. So that's that's FINSETA in a nutshell, sort of 2023 highlights and and a little look back to to what happened in 2023. A real turnaround year for us.

3:41 We we recorded our first maiden profitable and and cash flow positive year, a 100% growth year on year in revenue. We've as I mentioned, we've you know, in terms of people, we've very much focused on the the sales activity, and we've made a number of of key hires there. And we continue to expand that out in order to expand our our global network of introducers. Again, we've continued to expand out our global payments network in order to service those. Our operations have been significantly strengthened. One of the key key regulatory and compliance pieces of last year was the consumer duty bought in by the Financial Conduct Authority, which which actually caught many companies unawares.

4:39 But I'm pleased to say we we were very, very well prepared for that. The team did a fantastic job, and we're delighted that we we were ahead of ahead of the curve there. We we also signed a significant deal with Mastercard. This is very much a new product launch for us around commercial cards. And, I'll come on to explain a little bit more about that shortly. Finally, we we and this was post year end, but certainly worked towards in 2023 was the granting of a Canadian MSB license by FINSETAK. And, again, I'll come on to that in terms of the strategy shortly.

5:29 So there's three key areas to our strategy, and very, very clearly, I think we're execute executing against that. The first and most importantly in my mind, where we're saying future proofing the business, that really comes under people to me. And that's expansion of our our revenue capability to our sales, our our operation, our finance, and compliance. We've taken we've recruited some really key people in 2023 that will help drive the business forward in the coming years.

6:09 We are expanding our product capability, and we're expanding our geographic and market footprint. Ultimately, the the the the latter two really driving driving value in the business itself and ultimately able to or helping us able to serve our customers and our introducers more effectively. And how we got along sort of alongside our strategy, how have we performed and and what are the things that we've done against that strategy. So as I mentioned, we've we've made some key hires, one of which was a sales director for the for The UK sale for The UK business. He has bought process procedures, good KPIs to the sales team, and he's made a significant impact already and is really growing out that sales team, and we'll continue to do so throughout 2024 and 2025.

7:07 In '23, we created a solutions team, which is, as I mentioned, payment solutions to both businesses and individuals that have payment issues wherever they are. We've successfully and continue to do so increased our partnership referral referral network, our partnership payment network. Ultimately, this means that we as as we grow, this will allow us to onboard and take on more and more customers and service them more effectively. We are a high touch business, high service business, and that very much feeds through to to our partnership network to make sure that we're looking after the clients they refer in in a manner that they expect.

7:57 In terms of of delivering existing product to new markets, we we've laid the groundwork to do that. We now have the ability through through investments in people and and systems to onboard internationally. As mentioned, we've been granted a Canadian license, by FINSETAK, and the groundwork has started there already to to seed that office and to start to build it out. We've added four new payment partners and a new banking partner, and we are in discussions with three other banking partners, again, to enable us to to operate more globally and strengthen our geographic presence.

8:45 Against the product capability, we have signed a a multiyear agreement with Mastercard. And on the back of that, we've hired a card expert to help drive that card card program forward. We're making very, very good progress in the setup of that, and we and we're on track to launch q three a full product launch. We we went through quite a significant vendor selection process because certainly with cards, it's very, very important to get the right partners. So we went through a significant vendor selection there and believe we've got absolutely the right partners to take us forward for for the coming years.

9:33 We've we've ultimately, being a a customer centric business, we're not just developing product because we want to. We're listening to feedback. We're we're listening to our customers and ultimately making sure that we're developing what our customers want and need. And ultimately, a, to to to hopefully achieve more revenue from our existing customer base, which I think we're seeing with an increased average transaction value at the moment, but also to promote and to increase our rate of customer acquisition. We also spent time and money streamlining and making our compliant processes more efficient and rigorous.

10:19 And as I mentioned, the implementation of consumer duty, I was really delighted with how the team rallied and and got us match fit for that. In terms of future proofing the business, which as I mentioned, is is generally around people, we're continuing to expand in terms particularly around the revenue side of things. We have increased the number of introducers that we have and therefore diversifying our payment flows around the globe. We have an increased number of payment partners,

11:00 regulatory expansion, which is critical to drive value. So it's not only having country presence, but it's the regulatory piece and also the access to local banking rails, which is very important. We're making very good progress with that. And as stated previously, we we've targeted Canada, The UAE, and we'll be targeting Hong Kong. So Canada has has now been done successfully, and we are in in process with The UAE currently. We we continue to invest in this as in the sales team, as I say, both both in The UK and and consequently in Canada ultimately as well. Just sort of a little bit of a reminder on the technology side of things.

11:47 This is all in house proprietary, so it enables us to be flexible. It enables us to connect into multi counterparty and really make sure that our our global payments network is is truly global and ultimately make sure for our customers that it's fast and commercially efficient. With that, I'll hand over to Judy on the financials. Thanks, James. Good morning, everyone. Thank you for for listening and joining us to review our 2023 results. I think you may have, heard me say before that, 2023 was a tran transformational financial year, and it's really, great to see these results published, which really, I I think, just proved that.

12:39 Dare I say, I want to smack you around the head with a couple of metrics, just just, I think, which which really, really demonstrate that. So firstly, adjusted EBITDA, 1,700,000 in 2023 compared to a 900,000 loss in 2022. A second metric I'll I'll call out here from from from this selection, 2,000,000 of cash flow from operations, compared to 1,000,000 outflow in the prior year.

13:06 Of course, that's driven by a top line growth, a 100%, growth in revenue that you've already heard, and also continued expansion in our gross margin up 250 basis points. And over the next few slides, I'll I'll I'll dive a little deeper through the detail on each of those. So starting with revenue first, 2023 revenue of 9,649,000, up a 100% year over year. I think we've covered this pretty good in previous presentations, but that growth largely driven by the expansion of our sales team and continued development of our introducer network that James has just talked about, including in our Asia team, which really went straight strength went from strength to strength in 2023.

13:52 That's further evidenced by our growth in customer numbers, up to 906 in 2023. But, moreover, I think, is is the growth in average revenue per customer. So in inferred from dividing the revenue by the number of customers

14:07 that up up 77% year over year. And I think really demonstrating that we're seeing the benefits of of that high touch, service based delivery to our clients. And in addition, as you've already heard, the average trade size conducted on our platform increasing by 33% in the year as well. Moving on to operating costs or or more accurately adjusted operating costs. So they increased in 2023 by 16% up to 4,400,000. And that 600 k growth largely coming from staff costs owing to the investment in the sales team.

14:47 We also saw a modest increase in rent and IT costs, firstly, from moving to new corporate premises in q four twenty twenty three and some of those investments, into our CRM systems and compliance systems that James just touched on. But I think, you know, this is really demonstrating the operating leverage in the business beginning to drop through to the bottom line. So adjusted costs as a percentage of revenue decreasing 33 percentage points year over year to 4046% in in 2023.

15:21 And then moving on to the next slide. Turning to profitability, it would be remiss of me. I don't have a slide on it, but not to mention the the continued gross profit margin expansion. So increasing to 63.4 in 2023. Improvement really driven by two factors. One is the decreasing revenue attributable to our historic white label partners. That decreased in the year to 5% of our total revenue compared to 22% in the prior year.

15:53 Secondly, we restructured, the commission arrangements with one of our largest revenue generators, so that flowing through there. And and and the top line growth combined with that margin expansion and controlling costs really mean that, you know, we're we're seeing exceptional growth profitability. So you you can see, as I say, 1,700,000 in in 2023 adjusted EBITDA at a margin of 18%.

16:22 I think moreover, the the the extremely impressive number is for h two number of 1,500,000 of adjusted EBITDA. And moving on to the next slide, I just wanted to give some air cover to, our accounting to adjusted measure, results. The reason for doing this is is really just to to point out that we we do take quite a prudent approach to that adjusted EBITDA measure. I think, you know, adding back share based compensation and acquisition relating related costs is a pretty well well trodden path. But we did recognize in the year a 207 k profit on disposal of our Velhaos subsidiary under the IFRS profit measure that we have excluded for the basis of adjusted measures.

17:12 And as I've already mentioned during 2023, we moved into new, group premises. They are under a three year lease. So under IFRS, we actually have no rental costs. It's all amortization related. So, again, from a prudent perspective, we've actually increased the adjusted cost to add back the the the effective cash rent costs. It's not very significant in 2023 because we've just got one quarter, but will be more significant in 2024.

17:41 Then as we as we move over on on the right onto over into the right hand side, in our adjusted measures, we also exclude interest earned on client cash balances. That's on the basis that we can't control the interest rate climate, So not something we want to predict in terms of a recurring, kind of measure that we could control. But as you can see at three hundred fifty k into in 2023, that would have had a material improvement, in our adjusted measures had we included it. Lastly, on this slide, just wanted to highlight an item below adjusted EBITDA. During 2023, we recognize the deferred tax asset of 818 k, in respect of tax losses That follows our transition to profitability during 2023 and therefore increased visibility on our ability to consume those tax losses.

18:36 So at the end of twenty twenty three, we had carried forward losses of 3,300,000,

18:42 and we do expect to be paying our our kind of first cash tax, in September 2026 in respect to the second half of twenty twenty five. Moving on last two slides, on on cash flow, and I wanted to highlight that we really have very strong cash conversion, cash from operations, a 115% of adjusted EBITDA in 2023. And you can see despite that rapid growth of of the top line, we really are are not a a working capital intensive business, just point 1,000,000 outflow in working capital in in 2023.

19:21 And on the last slide for me, that really strong cash generation in 2023 means we we close the year in a net cash position at the end of 2023. So gross cash of 2,300,000 less the 2,200,000 in nonconvertible loan notes, as I say, meaning we we ended the year point one in in in net cash. So we're really in a very strong balance sheet position now to to push forward knowing we we can kind of reinvest the the cash that the business is throwing off.

19:54 So before we move on to questions, just in summary, fantastic year 2023 maiden profitability and cash generation.

20:06 Again, we've been investing in our sales team for for growth now and for in the future. One of the key things is expanding our global payment network and our introducer network, which we're doing successfully,

20:24 signing our Mastercard agreement for a new for the new product launch, what can't be underestimated. That is a significant milestone for the business, we're delighted to have Mastercard as a partner. And finally, the licensing Canada receipt of receipt of the regulatory approval by FINSETAK, I think, gives an endorsement to the business and the rigors and the regulatory compliance that we have in place today. So overall, 2023 was a a significant year for the business and I think sets us sets us up and and gives us the groundwork for the next few years of of significant growth.

21:11 So we have now questions. So if I read them out, and then we will sort of take them in in in order. The first one, what is the rationale behind the planned sale of capital currency subsidiary, and how does this fit how does this fit into the overall strategic direction of the of FINSETA? So capital currencies, we've actually sold the license, which ultimately was a was a small light license that that was not required by the business. Just to remind you that FINSETA has an e money license, an EMI, which which ultimately is is effectively one below a banking license.

21:58 There is is no no point point having multiple regulatory licenses in one jurisdiction. And therefore, rather than maintain that license and ultimately the cost of maintaining that license, we we decided to diversify diversify ourselves away from that and ultimately, you know, create some value from it. So that was really the the the rationale behind that.

22:24 Shall I take the second part of that question? Yes. I was just about to say. Yeah. Can you talk about the auditors' concerns regarding impairment of its carrying value? So that was really centered around the fact that you you might recall that in, in early twenty twenty three, we announced effectively a a rebasing of of the measurement periods of the earn out. So they all got pushed back a year. And, effectively, that was a trigger for remeasuring the deferred consideration defected expected on under the under the deal. So I wouldn't say it was a concern, albeit it was a a key audit area of of the auditors because, obviously, effectively, they had to reorder all of all of the kind of deferred consideration and resulting goodwill

23:12 that that arose from the transaction. And one thing I just just wanted to add in in case it wasn't inferred from what James has said, what was left in the entity that we're selling is is is the API license that James covered. But to be absolutely explicit, all of the revenue, and customers and employees have been transferred over to to FINSETA a long time ago. Next one is on strategic partnerships. Strategic partnerships solutions, how does this enhance your offer and contribute to future revenue growth? Good question. Ultimately, enhances our offering by allowing our business customers to to effectively have the option of funding.

23:59 And now we don't want to to to do funding ourselves. This is not our area of expertise. But in order to facilitate that, we did partner and have partnered with a third third party just to allow them. Ultimately, we don't we and we never saw this as as a as a product to move the needle. It's very much a value add for our customer base, our current customer base. So that's really but on the lending side, we're not gonna be going into that that area of the market. That is not within our wheelhouse. We're very much sticking to the to payments.

24:44 What's on store as far as strategy activities milestones are concerned for 2025 and '26? I ultimately, the strategy will remain the same. You know, the three key pillars will will remain the same in 2025, 2026. We don't expect to diversify away from that. The the geographical piece will take up, you know, a fair amount of effort. The the it can't be underestimated. Getting regulatory approval in these jurisdictions is hard. There is no getting away from it. If it was easy, everyone will be doing it.

25:21 Ultimately, what what it does do is create value in the business and for the business and for shareholders, but also it gives us the ability to acquire local banking relationships with which is absolutely critical.

25:40 This probably one for you, Judy. Are there any plans to start building your treasury shares holding for use in employees incentivization, share share options payment, possible m and a? I think we're probably a little bit early in our net cash generation for that. Not something, you know, I would I would want to to to therefore consider at this stage, but but definitely something we we could look at or I would expect that we would look at certainly certainly buybacks, you know, of of of the of of the share options that that are out there that that's entirely entirely likely, I would say, over over the coming couple of years once we've we've built up a bit more of a cash reserve.

26:28 I'll I'll take over to finish your while, James, if that's okay. Just give you a bit of rest. There's a couple of questions on on the same theme, so, hopefully, I'll I'll cover that. Please, can you give a little bit of color with regards to revenue in the second half of twenty twenty three?

26:45 Is there any reason why we couldn't match that level in terms of step up in h one twenty twenty four? So I think, you know, one of the things you've seen in our 2023 results is that growth in in the, high net worth individuals kind of share of our business. So that that went up 11 percentage points up to 64% from 53%. Typically, those individuals buying property, we do see that property or other large investment assets. We do see that as being a stronger stronger number stronger seasonality in h two. So I think that that is a a a big reason why we saw a a jump up in in h two as well as continued growth of that revenue line. It is more pronounced in H 2.

27:37 Therefore, we we're not expecting certainly not expecting continued sequential growth at at that level. Indeed, we may even see a flattening off, sequentially in h one twenty twenty four. As I say, h one is is typically quieter. The other reason, I would say that H 12024, we're not gonna see that sequential growth is because we did do the final off boarding of of all of our white label clients at the end of twenty twenty three. As you as you may have seen, they contributed 500,000 of revenues in in 2023. So we're starting from a zero a zero well, we we have a zero base for that in in 2024. So, hopefully, that gives you some flavor on on that question. And just to reiterate on the white label piece, part of the reason for doing this is very much so we can focus all of our efforts on direct revenue.

28:31 Now doing white label business does take the the focus away from from what we're doing. Ultimately, it's it's an operational drain. It's a cost drain. So whilst in the very short term, yes, we we lose a small amount of revenue. In the longer term, it it sets us up to to do much more direct business. So that that's very much the thinking around of what we did there. Yep. Can you provide more information on the outstanding loan notes?

29:04 Sure. So 2,200,000 of of loan notes at the year end. 200 k of that, is due for settlement, in September of this year, so that relates to the small acquisition we did in 2022 of Pangaea FX and 2,000,000, due for repayment in August 2026. Both the loan notes are nonconvertible. It's important to note that, and both, carry a 6% interest coupon. Your clients are primarily high net worth individuals. Can you give some insight on what that means? Are they are they business people, etcetera? A wide variety. They tend to be global citizens. Well, as I mentioned, all of our clients are introduced by by the likes of lawyers, accountants, etcetera, but they tend to be individuals that are investing either in property or or art or whatever.

30:02 Yeah. And they tend to be repeat, albeit not regular repeat, but they tend, due to the nature of being high net worth, tend to have more than one transaction. So they tend not to be one offs. This is probably one for you, Judy. Why are you able to run your business with less cash on the balance sheet than your peers? Well, I can't talk talk to other other businesses, but we we typically as as you may have seen, we do not count client cash on our balance sheet. I've certainly seen, in other industry quoted peers, they have, you know, client cash on their balance sheet and then might show a net cash measure. In terms of regulatory capital, it is actually a a net asset measure, albeit, obviously, that has to be underpinned by by strong strong balance sheet. But there is no actual cash requirement, Albeit as we go into some of the jurisdictions and or geographic expansion, they may indeed require actual physical depositing of cash.

31:06 One feature I'd also probably point out is is, you know, we we we risk as risk of print principles so that, you know, we're immediately back to backing any any of our trades. So there's no concept of of kind of, risk there. Our only risk is is kind of, the small default risk if a client doesn't pay market movement. And then lastly, I would probably point to the fact that, the vast majority of our book is is done on spot. So, I think in in 2023, 97% of our business was was spot. So, again, we're we're not having to support any of our clients, for example, in margin free forwards. Can you please provide more detail on growth potential of the business over four to five years and how you plan to get there?

31:54 Very much in line with the strategy. I think creating value from from from a geographical expansion point of view is critical, allowing us to partake in revenue streams just outside The UK. And, again, how we get their regulatory approval, banking partnerships, absolutely critical to do that. Key for me is having the right people in place and and the right, certainly, country managers plus also salespeople. So, you know, it's a fine line to tread here. But, ultimately, it's about choosing the right people to to, head up head up those various jurisdictions. So critically for me, over four to five year period, creating value is very much around the the geographic footprint, but also product as well. So, ultimately, you know, the card is first of, you know, hopefully many.

32:52 There will be other product launches coming along, all to do with with payments and and very much sticking with our with our core core business, but variations on that theme. So that that's where we're certainly heading to. Will the company name change take place before the card launch? Sounds sensible. It does sound very sensible, and it and it certainly will do. And in fact, all the card approvals have been done under the branded FINSETA. And in fact, we have actually changed the the regulatory company, FINSETA PLAYMENT SOLUTIONS. That has happened. We will be changing when Companies House decide to do it, the the PLC as well. We were hoping that it will be done by now, but, ultimately, we're expecting it to be done very shortly.

33:51 I'll I'll I'll take one here. Why was there no trading update for q one, and could could you give us an update for q one? I think, really, the the fact that we did release a a trading update for q one is really testament to the fact that we now have very good analyst coverage. So you may recall, the last quarterly update we gave, in you know, at the end of q three, actually yet to initiate, their coverage at that point. So I think now, you know, we we're working, you know, very closely with them. They're very well informed about, the develops developments within the company. So feel that the the kind of market has has, you know, pretty good insight into into where we're at. And I think, you know, not many small caps do quarterly updates, and the fact we did in the past was was more of a symptom of of the fact that, you know, market expectations were probably not fairly matched with where where our performance was.

34:50 Good question here. What do you see as your USPs in a crowded industry? Absolutely right. It's a crowded industry. Our our USPs, one of the key ones actually is is that we're dealing with not only businesses but but individuals as well. Most payments businesses within within the sector at least have have gone down the strategy of being very much focused b to b. We we actually have almost gone the opposite way. So whilst we service businesses, we also service individuals as well. And again and and this may cover another question further down. Ultimately, all coming through an introducer, a growing introducer network.

35:36 So unlike others, we do know above the line marketing. It's all relationship driven and very much focused on the relationships that we have with our introducers, which which really is a a genuine USP. This might be one for you, Judy. Do you have any mid or long term revenue goals? Thanks for that, James. I I think, you know, as as you you may maybe where, ShoreCap have have have have initiated an update on us this morning. I would say they that has modest uplifts in our in our revenue for 2024 and beyond. But, really, I would say, you know, there are plenty of of of growth opportunities in in the hopper that we're we're just we're being fairly conservative on right now. So I think, you know, that the our our view is very much we're we're proving out our our jurisdiction expansion, you know, if we can replicate that across multiple jurisdictions, which is certainly our ambition, you know, you you would very quickly see us, kind of edging to to 50 and then a 100,000,000 revenue. But, obviously, as I say, that's not something that's reflected in our analyst kind of in analyst coverage right now until we kind of we we we prove out

37:07 the success of that. And then the the final one, I think, to be covered off. Current management expectations are in line for this year. Can you give someone some comment as far as you are able on the kind of growth you expect as last year's was obviously exceptional? Exceptional. Yeah. I I I think, absolutely, we we we we're definitively not going to see a 100% growth again. I I think, you know, I I I still very much see that we're a high growth company, and I think that carries with it a a certain expectation of of of revenue growth kind of, you know, of around the the 20% mark. But but I think management expectations, again, you know, we are we're we're cautiously mapping our opportunities, cautiously spending, and and and mapping revenue in kind of at at the low end and until they're they're proved out. So I probably can't give you any more of a of definitive number, but hopefully a flavor there.

38:20 And and I will add to that. You know, as a team, as a business, we're very, very ambitious. We we believe this business can be be a significant one in the in the payment sector. So, you know, with with everything that we're doing aligned to our strategy, we genuinely believe this could be a significant business. I think that's all the questions, so I'll hand back to to Jake. Perfect. James, g, that's great. And thank you very much for your presentation and for addressing all of those questions that came in from investors. And, of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended just for you to review to then add any additional responses, of course, where it's appropriate to do so, and we'll publish all those responses out on the platform.

39:06 But, James, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments to wrap up with, that'd be great. Yep. Absolutely. Well, thank you thank you for listening today, firstly, and thank you for your support. As mentioned, you know, we we are a a ambitious business. We've changed significantly over the last few years. 2023 has really been a milestone year for us, and I think sets the scene for the future of the business. I think the name change is significant for us. I think, you know, Cornerstone, part of the reason for doing the the the name change was to allow us to own within a domain a specific name, which we we certainly have done with FINSETA.

39:58 And I think that sets us up for the future. And, you know, we've we've done a lot of hard work over 2022 and 2023 to create the building blocks for a very, very successful business. Perfect. That's great. James, Judy, thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of Cornerstone FS PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.