Finseta (LSE:FIN) — Investor Update

0:01 Good morning, ladies and gentlemen, and welcome to the Cornerstone FS PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the Q and A tab that's 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.

0:32 Before we begin, I would like to submit the following poll, which will just appear on your screens now. And I would now like to hand you over to CEO, James Hickman. James, good morning, sir. Good morning, and thank you for joining us today. Today is very much around results of 2023 or sorry, trading update of 2023 and specifically around the strategic direction of the business for 2024 and beyond. And we just wanted to give investors and potential investors an update of direction of travel. So if you can move on to the next couple of slides, please. So by way of introduction, my name is Jane Tickman. I'm the CEO. Judy, you will have probably seen before, but, Judy, over to you. Yeah. I'm Judy Halper.

1:22 I'm the CFO. I've been with Cornerstone now for just over three years, so full pre IPO and post IPO journey.

1:29 And a new face, Jordana Curtis, who I'll let her introduce herself, our COO. Hi, everybody. Nice to meet you all. I also, as soon as Judy, have been here for just over three years, so the the full journey. I look after a variety of different things, but all of our back office functionalities, including our compliance assessments pieces as well as our technology product and then people in HR functions.

1:55 Thank you. Next slide, please. So just a brief recap of of Cornerstone and exactly what we do. We are a payments business essentially, predominantly involved in international payments and currency exchange, but ultimately, we provide payment solutions to our customers, both individuals and businesses around the world. We do this via a proprietary technology platform that we've developed over the last ten years. We we offer currency risk management

2:30 and account services, which is specifically important because we are offering our customers effectively IVANs, etcetera, to allow them to to pay, receive locally around the globe. One of our one of our key USPs is very much serving the underserved, and that means that, you know, a lot of the tier one banks, the high street banks, overlook particularly individuals and smaller businesses, and they're very, very badly served by by those financial institutions, and we're very much here to make sure that they are getting that service. We've invested very heavily in our onboarding and our compliance capabilities, which allows us to do this,

3:20 and we're building out and and this is a continuing theme. We're building out our payment capabilities across the globe. And you'll see these sort of numbers as key metrics as we go along in terms of the key currencies that we provide and also the number of countries that customers can send money to. Next slide, please. Joanna. So we have our own in house technology platform. It's a full service offering, so it allows our customers access to a front end system where they can self-service if they wish, but it also provides the entire back office suite for our compliance and our settlements teams as well as our technology teams to actually manage the client flow and that process. It's built in a stable and scalable system.

4:08 It's containerized,

4:09 and it runs in multiple instances at any one time. So we ensure that we have redundancy and also the capability to grow without affecting the core structure of our technology. We've always utilized the highest grade of technology and security such as JW tokens and and some of that OAuth two authentication. Next slide, please. So just going back to 2023 and some of the highlights. Obviously, we'll come on to the numbers in a little bit in Judy's section, but obviously, revenue growth with EBITDA positive. One of the key key things for me in 2023 was to get the business on a on a firm footing, and that included obviously growing the revenue, and we put a lot of focus into that, but also maintaining the cost base. And we've been been very much on cost control mode, and that will continue, by the way.

5:08 And and as you'll see, that's very much fed in through to the bottom line. We we focused on increasing the number of payment corridors that we're able to service, and that's done through counterparties and partners. We've increased our referral network. Now another sort of slight differentiation with our business is we don't do very much marketing. So Cornerstone is a Cornerstone FS as a brand is not a high street brand in any way. All of our customer acquisition is done through a partnership or affiliate marketing or referral, and this typically is accountants, solicitors, property agents, and such like.

5:56 The benefits of that actually are are twofold. Obviously, you know, marketing can be a very, very expensive proposition and and, you know, unless you you've got a a very clear idea of of cost per acquisition and and all the metrics that you're working to. Many businesses actually don't have a very clear

6:21 clear visibility of actually the return they're getting from their marketing dollar. We are very clear in exactly what we get from our affiliate network and our partnership network. It's all based on trust. We make sure that we're serving their customers in an exceptional way, which which means that we're getting more and more referrals. So it's so from a business point of view and a commercial point of view, that's that's a real benefit to us. One of the highlights that I will mention for 2023 was on the regulatory side. We've I've I've touched on we've spent, you know, particularly around our people. We've we've increased the number of of compliance and and regulatory people we have both in terms of number and quality.

7:09 Consumer duty was a was a, for for our industry, particularly, a very big thing, and and quite rightly, the FCA were, you know, very strong on it. And I'm I'm delighted to say the team did a fantastic job in preparation of that, and and we were, as I say, match fit for the introduction of consumer duty. So I was very, very pleased with that. We've agreed the sale of capital currencies, and that currently is going through FCA approval at the moment. We did complete on the sale of Avila House. We we did some variation on some of the incentivize incentivization agreements. That's more with internal staff that that a, help our cash flow, but also locked people in for longer.

8:02 So so really a real benefit. And as a byproduct of that as well,

8:07 we we can pay out on the the loan agreements early in cash if we if we so choose. So certainly a benefit for the company. And finally, I will will mention, and I have mentioned before in terms of people, you know, in any business, people are the core of it and the success of it, and we very much heavily invested in in key areas. Compliance, I've mentioned, but also on the revenue side within the sales side. So increasing our partner network or affiliate referral network, but also in terms of direct sales as well. So that that very much, and you can see that's come through in the numbers throughout 2023. Next slide.

8:54 That's over to me. So just a few short slides for me, and I'm sure you'll appreciate we only issued a trading update. So I am limited in in what I can say in regards to the 2023 results. And throughout the next three slides, you'll see this reference to p provisional, which effectively is the balancing number from the h one interims versus the the disclosed numbers for for in our in our trading update. So for example, 5998 being the balancing figure between the $360.02 revenue at the half year and the 9,600,000 revenue announced in the trading update. But I'm pleased to put pleased very pleased to say that that h two number, huge year over year growth over a 100%, a 105% up year over year, and the 67% sequential growth.

9:45 A lot of that is is coming from that growth in the referral network that James mentioned. We've seeded that over a number of years and really coming to fruition. Embryonic, I would say, from from some of those, you know, esoteric currencies that we've talked about before and the growth of the counterparty network and also the investment in people. So the growth in the sales team, including some tuck in acquisitions that we did in 2022. You can see that the active customer number, 906 customers traded with us during 2023. That's up 13% from the prior year. So you you can infer from that, indeed, as it says on this slide, the real growth is driven by by by having effectively a larger revenue per client.

10:31 And that's, again, reflective of of kind of that move towards some of the the high the higher ticket customers and and, you know, reflective of our strategy. Strategy. Move on to the next slide, please. A brief look at profitability. Again, that same theme of of being the balancing figure. So h two, pleased to say our margin gross margin has increased to 64%. That's, you know, comes off the back of three halves that stabilized around 61%. But the uplift in the second half really is a result of that change in incentivization agreements as as James referred to,

11:15 particularly for Robert O'Brien, the the head of Asia and APAC. That that combined with the fact that we have now virtually managed out all of the tail of the white label business where we kind of originated from and now firmly focused on on direct revenues. So, typically, when we're paying 70 to 75 percent away to those white labels, having managed that down, that that's now, as I say, pushed up our margin for the second half up to 64%.

11:46 Adjusted costs, I've got in at 2,600,000 to get to the EBITDA figure of 1,400,000. We're saying at least 1,400,000 at this stage. Clearly, we'll update that when we release our our full results, but you can really see the step up in profitability having, you know, continued to to sweat the asset of the technology and those investments in in in into onboarding, into people,

12:12 really paying dividends in as I say, that massive step up in in profitability to 1,200,000 EBITDA in the second half. If you can move on to the next slide, please. Lastly, on cash, and and this is exceptionally pleasing to say. So at the year end, we we finished at 2,300,000 in cash. That means we actually finished with a net cash position of point one after the 2,200,000 loan notes. And really, again, kind of the cash conversion from EBITDA, exceptionally strong. So 1,300,000 of cash in the second half

12:51 contributing to to that 2,300,000 closing closing balance. In total, in in 2023, we generated 1,400,000 of operating cash flow and a total 1,600,000 cash inflow, the difference between the two effectively being that the r and d spend that kind of developing our platform offset by the the sales proceeds from the sale of the house. So, really, I I guess, yeah, as I say, just a few highlights for me, but I think it's very clear that we are now in an exceptionally strong position to keep on continuing to call the control the costs with selectively investing for growth in into the future. And and and, really, we should see the the profitability growth fast outpace the the the top line growth now.

13:46 So sort of the next section is very much around the strategy and and the 2024 and beyond. The one of our key strategic objectives is expanding our geographic and market footprint.

14:01 The other you know, we're not resting our laurels in terms of our platform. We will be enhancing our product capability through the platform. Now that doesn't mean spending gazillions of pounds on on all sorts of stuff. It's very much around customer centric requests. So our ultimately, all of our development is done because our customers are requesting it or we see a significant gap in the market and a significant revenue opportunity for us. One of one of the within the the sort of Cornerstone platform, one of the key missing areas is is the is the carve aspect of it. Ultimately, as as I've said before, I see this just as another payment rail, very much like bank to bank.

14:50 So so we are imminently close in in signing terms on on a carve program, which I'll look forward to updating the market as soon as I can do. And thirdly, and by no means least, future proofing the business as well. Next slide, please.

15:09 So with regards to expanding our our geographic footprint, we've we've done a number of things already, and we're intending to do within 2024. One of the things we did in 2023 was restructure our UK sales team and created a solutions a customer solutions team, which effectively means that customers come to us or potential customers come to us with specific payment problems, and ultimately, we will try and solve those problems for them. Now that mean that may mean that we do it we are able to do it ourselves or alternatively through our network of partners, we're able to provide a solution for them.

15:58 There there are a number of benefits to doing that. Ultimately, we're we're we're attracting customers in a a far less competitive environment. These are very specific regions, specific sectors, and specific currency issues, and it does mean that we're able to attract customers and onboard customers with the the possibility and potential then of attracting more of their FX and payments flow. We as part you know, to do that, we're we're expanding out our our counterparty and partnership relationships across the globe. We've we've, as I mentioned, invested heavily in our onboarding capabilities and which means now that we can onboard customers globally and expanding out the Cornerstone payment network, which is ultimately multiple partners, making sure that we're selecting best of breed within country to ultimately for both speed and cost, which then obviously is a direct benefit to our customers.

17:11 Next slide, please. So within 2024, we're we're looking to, as I mentioned, launch card program. We're very much around the customer focused product growth, and any product that we are developing will be in relation to or in answer to our customers' needs. And with the compliance system, we're certainly not resting on our laurels. In financial services, compliance is absolutely imperative. Without without a robust compliance process system, really, you haven't got a business, and that will continue onwards. And we've got some excellent people here. We invested within 2023 on a number of people, and that will continue throughout 2024 and beyond.

18:02 Next slide, please.

18:06 Within our sort of global expansion or or footprint expansion, one of the key differentials for our business is the service aspect, and we still service many of our clients via telephone, face to face, rather than via platform. And it's very important to have a local representation of where our introducers and where our customers are. To that end, we've submitted license requests in both Canada and The UAE, which we we would expect to hear relatively shortly. And then for 2025, we will be looking at Hong Kong license as well. And as I say, that's specifically in answer to customer and partner network, and it will allow us to not only service those customers more efficiently, but also attract more customers and attract more introducers.

19:07 We will continue to to invest in people internally, and we have done throughout 2023, and that will continue through 2020, 2024 and beyond as well. And finally, in terms of the diversification, which is very, very important for a business like ours, so we're not single currency or or currency corridor reliant. We will be continue to expand our our payment capabilities and and diversify our revenue streams. Next slide, please. So in summary, we're a profitable business now. I'm delighted to report. We have all the regulatory permissions and expertise.

19:53 We've made, as you can see and seen throughout 2023, significant progress. I believe genuinely that the the strategic direction we're going in is absolutely right. I think we've got the right people on board to do that, and we'll continue to add. And we are innovating through partnership rather than burdening the business with a lot of cost for jam tomorrow. We want the jam today, and that's exactly how we're building the business. Next slide, please. I think that might be it. Thank you. James, Judy, Jordan, if I may just jump back in there. Thank you very much indeed for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the top right hand corner of your screen. But just while the team take a few moments to review those questions that were submitted already, I would like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard.

20:58 James, Judy, Jordana, as you can see there in the q and a tab, we have received a number of questions that were both presubmitted ahead of today's event as well as those that have made their way through during your presentation this morning as well. So firstly, thank you to all of those on the call for taking the time to submit their questions. And Judy, perhaps if I may just hand over to you to chair the q and a there, if I could just ask you just to read out those questions and give your responses where it's appropriate to do so, and then I'll pick up from you at the end. Thank you. Sure. Thank you, Jake. So it's actually quite a lot for me. So I'll read it to myself. Can you please give more information about the customer customer mix and what percentage of revenues are recurring? So we haven't given that level of detail for 2023 as of yet. In the first half, we were majority high net worth driven.

21:46 However, really, we don't make that distinction internally. It's more about the referral network, which which we very much see as as as business and therefore, current we have the recurring relationships with the referrers even though you might think the high high net worth business is one off. We we do have good visibility into our our revenues, you you know, just notwithstanding the fact that we are a transactional business. A lot of the the the kind of client mix requires a a lot of planning in terms of moving and investing funds into the The UK, for example. So there is that good visibility on that. In addition, we've made some investments, for example, into our CRM system, which, Jordana, I'm not sure if you wanna talk about. Sure. Happy to. So I think over the past year, we've done a a complete change in how we actually record our our sales prospecting all the way through to execution.

22:41 We've implemented, as you mentioned, a new CRM system and molded out across the business so that we now have more visibility around what has happened in terms of spotting trends and getting data to essentially look at what is likely to happen in the future, but also started tracking traditional sales behaviors and the events that are happening within our own sales team to start to see how things are likely to happen further down the line. Thank you. The the next one also probably for me selfishly. So why why does the broker not upgrade in the forecast for future years following your trading statement last week? I think, you know, in all honesty, obviously, the the break has very select highlights in in what our trading update gives. We're on the January 15. As a business, you know, we we have big ambitions, but I think we're right to to take things cautiously. We as as a team, we we definitely want to exceed expectations, and we are committed to updating the market as as we progress throughout the year, Jason.

23:39 I'm not sure if there's anything you more you want to add to it. No. I think I think that's right. I think we we would rather over deliver. And and certainly, you know, certainly, since my tenure, we've we've always been relatively cautious, and you can see from the the announcements we've made throughout 2023, that has been the case. And we remain we always remain conservative within our forecast and numbers. But, obviously, you know, we're as Julie mentioned, we're a very, very ambitious business and always looking to overdeliver. How do you view the potentially first real indication that traditional banks like HSBC with their Zing brand want to participate in the fintech sector?

24:30 Is it a threat to your long term strategy? Well, I think Zing's an interesting one because it sort of take it it has received quite a lot of press. In fact, other brands, other banking brands have tried this in the past. Barclays would ping it. Santander had one. Most of the major banks have actually at one time or another had a fintech arm to to try and promote a particular product or service. The there is no doubt that that, you know, there there's a lot of opportunity within fintech. Banks can see that. Whether or not they can deliver given their their legacy systems, whether they can deliver from a service point of view, I'm I'm yet to be convinced.

25:23 I think, ultimately, they they do a a very good job servicing a certain segment of the market. I mean, they set out their stall in terms of the types of business they want then they need to be sort of enterprise, very large scale businesses. Do they want transactional type business? I'm I'm not convinced. So whilst I think there's a desire there, I'm not sure whether there's a commitment. Thank you. Do you have any intention to raise more equity? I'll I'll take the first stab, and then, James, feel free to to supplement. So as you can see from our cash position, we're very confident that we have, you know, sufficient cash both to repay the the 2,200,000 of loan notes, you know, with continued delivery on on on our numbers, both to repay that and and the earn outs in in cash for the the capital currencies acquisition.

26:23 Clearly, you know, the the the loan notes have a very attractive coupon of 6%. So, really, it's a it's a question of can we do more with with with, you know, that money than than potentially repay that? And and, also, you know, can we accelerate in some of those areas that we're seeding for growth by raising more? But quite quite frankly, yeah, as I say, with our current outlook, we we have sufficient funding resources to execute on them. Yeah. I would I would reiterate that. I mean, currently, there are no plans, but never say never. If, for example, we believe we can turbocharge our growth rates through through a fundraise, then then quite possibly. If if we find there's a an acquisition target that that would be only accretive and, you know, really move the needle for our business, then possibly. But currently, as it stands today, there are no plans.

27:27 What scale of business are you shooting for in, say, three to five years' time? Very good question. I did I did do a I I was tricked into giving a number on this. And and and, genuinely, I do see this business doing a 100,000,000 plus revenue in three to five years' time. I genuinely believe we have the people, we have the platform, and we have the strategy to do that. Really, in terms of scale, not just about the numbers as well. I think, you know, creation of value with our with our cornerstone global payments network could be significant. And I think if we we have the right strategic partners and we continue on that track, again, that will that will deliver significant value.

28:16 So very difficult to put a number on these things, but, you know, we're a very, very, very ambitious business. I do genuinely believe that we can create significant value with our current strategy. Thank you. Do you expect the growth trend to continue and for h one twenty twenty four revenue to be greater than h two twenty twenty three revenue. Again, nice nice try nice trick try there. Clearly, we don't give half year guidance. We do very much expect growth to continue year over year. And, you know, I think naturally for any business going into to the first half, are conservative, but we do have just the the kind of seasonal headwinds. For example, you know, Chinese New Year, Easter, those have a relatively big impact kind of in number of trading days, I would say, particularly for the first quarter. So that that that may influence our our kind of our readiness to update the market just purely in the number of trading days.

29:25 And if you No. I I mean, yeah. It's very difficult to say anything when we haven't released anything. Yeah. Okay. I think onto the pre submitted questions. Can you please outline the competition risks for the business, particularly from the banks and why they aren't competitive in this space? I mean, from a bank's point of view, I mean, they've they've they've clearly laid out the type of customers they want and the the the revenue they expect per customer. We've seen in places like Ireland, for example, you know, from from the from the individual for an individual person, you know, a lot of the accounts that have been shut down. It is very difficult still for a UK business or an individual to to get a bank account, and it's a long time consuming process.

30:16 That hasn't changed certainly in the twenty years that I've been involved in in payments. Why would it change now? I do I do think, ultimately, the banks are looking at our sector and the FINTECH sector and seeing, you know, my god, they are doing things very well, and they are taking market share. So at some point, you know, they they may well try and develop as we've seen with HSBC propositions to try and counter that. How successful they are in that is anyone's guess. What I can tell you is the payment space is growing significantly as a market opportunity just generally. We are taking market share in certain areas, and I still believe there's a huge, huge potential in a growing segment of the market within payments to to acquire more customers and more market share. So even with the banks coming in and if they do decide they want to be more competitive, I still see as a as a growing segment of the market, there's plenty of opportunity for a business like ours.

31:30 Money supply is tightening, liquidity or seriously slowing down. Legendary investors are warning about hard hard landing due due to geopolitical issues. But but but how will Cornerstone maintain its high growth and secure its share price under such circumstances? I think I mean, we can't do really anything about macroeconomic events, you know, that that that's for for for people way above our pay grade. Ultimately, what we can do is focus on what we do and what we do well, which is providing our customers with a fantastic level of service and a good product mix. Again, I'll I'll reiterate the payment space is is a growing segment of the market irrespective of what what is happening on a macroeconomic environment.

32:24 You know, payment global payments are not going away, and and revenue forecasts and any number of of forecast with the that we've seen from from a number of institutions, all are showing significant growth over the next three years. That ultimately, we we will be able to participate in that. So irrespective of macroeconomic conditions, I genuinely believe Cornerstone can flourish. Thank you. And the last one, it looks like. You talked of selective growth. What are the top three areas for this selective growth? Card referrals or number of countries? Well, selective growth, the the three areas that we and you quite rightly touched on, the the referrals our referral network is definitely one of them.

33:22 You know, that is absolutely critical, and you what we find is a a snowball effect. The more referrals we get, the more referrals we get, and the more cost therefore, the more customers we get. And that continues as it grows, it then exponentially grows. In terms of countries, we very much set our stall out in terms of the regulatory piece in The UAE and Canada for this year. And I think that's for a business like ours, that is a a good target in terms of number of countries from in terms of payment network that that we will continue to deliver through partnerships, and that will continue. So very much absolute priority.

34:07 And then finally, on the on the card, that's something for the for for h two next year for this year, I apologize, that that, again, we will certainly focus on. But there's probably above all those is the people and making sure that that we continue to have the right people driving the business because as I said before, people are the critical bit. Without without people, we won't have a business. So, really, my number one is people and then above those three, absolutely. James, Judy, Giordano, I may just jump back in there. Thank you very much indeed for being so generous of your time and addressing every single question that came in from investors this morning. 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.

35:10 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. Yeah. I mean, while whilst we sit here and reflect on a a a transformational 2023, you know, there there is no doubt in my mind, the business has completely turned the corner, and we're a very different business to where we were this time last year. You know, we we're not resting on our laurels. We are continuing to deliver on our strategic objectives. And again, we're a very, very ambitious business and looking to deliver significant value for shareholders.

35:55 So that will continue through 2024 and beyond. Perfect, James. That's great. And 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 management team of Cornerstone FSPLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.