Generation Development Group Limited (GDG) Earnings Call Transcript & Summary

Good morning, and welcome to Generation Development Group's First Half Financial Year 2025 Results Webinar. The presentation up on the screen has been released to the ASX this morning. And from the company today, we have the CEO, Grant Hackett; and the company's Chief Financial Officer, Terence Wong. [Operator Instructions] Grant, I'll now hand it over to you. Thank you.

Great. Thanks very much, Simon, and thanks very much to all the shareholders that are jumping on today. It's been an outstanding result for the group over the first half of FY '25 and we're thrilled to report some of these numbers and the growth in all areas of our business. So I'll take you through the slide deck. I'll get Terence to take you through the financial results and the breakdown between the Generation Life and the Lonsec businesses. And then we'll talk about the momentum moving forward and the outlook for the group and then we'll take some questions at the end. So I know most people on the call know our business relatively well now. We've been doing this for a long time. When we first started off here back in 2017, we were very much a monoline product that we were selling out in the marketplace with investment bonds and trying to lead the way there. A very, very different business. The composition has changed quite materially over the last few years. And as you can see there, we're now very much a highly diversified financial services group. We're growing very, very fast in all of the key areas and sectors that we want to be in, which usually is supported by either structural or legislative changes, and that's -- whether that's investment bonds, lifetime annuities, obviously, the research and rating business on the Lonsec side. And of course, the big structural change that we're seeing in managed accounts. That's really reflected in some of the numbers that you can see on the right-hand side there. So one, we had AUD 12.7 billion to close the calendar year in Lonsec Investment Solutions, combining that with the Evidentia acquisition that we did a couple of weeks ago, that's taken us to over AUD 25 billion in FUM in the managed account space and we really are the market leader in there. We've got plenty of great ideas and already sort of executing very well with both of those teams at the moment, and I'll talk a little bit more about that in the outlook. #1 in the investment bonds in terms of inflows, you can see there, 29% CAGR over a 4-year period in terms of the sales growth. That's obviously reflected in FUM at 27% CAGR. In terms of some of the strong regulatory tailwinds, obviously, there's a big change of people going into retirement, living longer, hence, the reason we really like the lifetime annuity space. We haven't been able to get to that product quite to the scale that we would like yet. It's certainly improving. It's certainly growing in sales. We're getting more traction with financial advisers and doing the education piece that we need to in that space. But we've also got some big strategic initiatives that we're going to launch over the course of this year, which we're really excited about that we think is really going to support that product and support that category and really drive some great opportunities for Generation Life. In terms of our business model, we put up there we're capital light. The way we've structured products like our lifetime annuity, it's really just operational risk that's required from a capital point of view with APRA. So instead of being a product provider that covers both the longevity and the reinsurance or the longevity risk, sorry, and the investment risk, we just cover off the insurance piece with 100% reinsured the longevity risk and the investment is borne by the actual investor or policyholder into that particular product. So instead of having 4% or 5% of funds under management of capital that you would hold. So obviously, for every AUD 1 billion, that's either AUD 40 million or AUD 50 million. For us, it's only 40 basis points. So it's only around AUD 4 million for AUD 1 billion of fund that's held. So -- and again, that includes our internal buffer there as well. So we want to make sure we're a capital-light business because we are intending over the next 12 or 18 months to increase our dividend payout ratio. So it's certainly the business model that we see moving forward. In terms of growth within our underlying business, you can see in the life company there over a 4-year CAGR, we've had growth of 28%. It's actually 39% we've got there on brackets. You're probably wondering what that difference is. We used to have a full development fund license, which meant our corporate tax rate was 15%. And we also had a lot of tax losses sitting in entities when we joined the group. We've extinguished all of those losses. We relinquished the PDS as part of that Lonsec transaction that we did and completed on the 1st of August last year. So therefore, we're just a normal corporate tax-paying entity. So therefore, that's the sort of differential that you see between the numbers. But if all things were the same and the status quo hadn't changed with that transaction, it would be a 39% CAGR in terms of our NPAT growth over that 4-year period, but it's 28% now with that tax expense. And I'll get Terence to talk a little bit more detail just around the taxation within the group now moving forward, given that is obviously a material change to what we had this time last year. We're #1 in the research place when it comes to Lonsec. It's got a very, very strong brand recognition. I think most people know and appreciate the Lonsec brand. It's utilized a lot through the financial advice space and obviously through fund managers to be able to access distribution and get on approved product list so they can sell their funds or their products to retail clients. Just moving through to the next slide before we get into the financial overview then I'll pass it over to Terence to talk through. You can see here these are the 2 key businesses for us in the first half of FY '25. There's going to be obviously a third that we're adding given we're restructuring the group, given the growth in managed accounts and the Evidentia deal that was recently completed. But just running through the investment bond side of the business, you can see there, our FUM that we closed on the 31st of December '24 was AUD 3.8 billion or a 27% 4-year CAGR. We're #1 in terms of market inflows. We take over 50% on a 12-month rolling average. We're #2 in total FUM, which I don't really like. So I'm looking forward to saying that's #1 when we're sitting here again, hopefully in a few months' time. But that FUM continues to grow at a rapid rate in terms of the inflows that we're seeing in the market at the moment and obviously being supported by strong financial markets. And you can see there almost a 30% 4-year CAGR number for the half there, just on AUD 5.6 million in terms of underlying profit for that area of the business. The lifetime annuity, I've touched on that a little bit already. It's an investment-linked lifetime annuity. So your income for that lifetime annuity is actually attached to your chosen investments. So if you want to go anything from cash, we've got all the different asset classes, as you can see on the slide there. But if you want to go anything from cash, fixed interest all out to some of the single sector funds or high-growth funds or high-growth diversified funds, you can choose that or you can have a mixture of all 29 funds in there if that's something you want to do. And whatever that unit price appreciates to is how much your income appreciates. And if you end up living until you're 110, that capital will obviously be fully extinguished, but your income will continue to be paid at whatever that rate of return is for the rest of your life. You also get those age pension or [ settling ] entitlements, which is a discount of 40% on the assets and the income test for a lot of Australians depending on what it looks like in the means test and their overall financial assets. We're able to offer a lot of flexibility in that product compared to the traditional lifetime annuities, which is just a fixed rate of return and you're not able to really switch in between any other products or be able to really have a little bit more optionality around how you sort of set your risk profile around that particular product. So we're getting close to AUD 50 million in funds under management there. But like I've already touched on, we've got a lot of strategic initiatives that we're about to launch over the course of this year, this calendar year that is, to be able to help drive and grow that and get that up to scale. On the Lonsec side of the business, again, another great set of numbers. The team have really delivered a phenomenal result, obviously, led by Michael Wright there and Lorraine Robinson on the research side and Amanda Smerdon, who's the Group CFO, they have done a great job in leading that business. You can see they're up 25% on the prior corresponding period and their EBITDA growth to AUD 14.8 million, so just under AUD 15 million. LIS has grown over AUD 2 billion in the half, all organic growth. There's nothing that we've acquired as part of that. So that's gone from AUD 10.6 billion we closed the last financial year to AUD 12.7 billion. And you can see the 4-year CAGR number of over 70%. RA, which is really our access to research where you pay a subscription fee and you're able to utilize some of the analytical tools and portfolio construction tools in there. We've got 4,749 subscribers there and that's increased throughout the course of the half. Great strong inflows in comparison to this time last year. So the first 6 months of FY '25 compared to FY '24, we're up over 120% in net flows. So outstanding to see that the team has really been able to convert a lot of the pipeline and the work that they've done over the last 12 months and bring those new customers on board, either in SMAs or MDAs. And currently in the research space, including SuperRatings, we researched over 2,000 products. I'll pass it over to Terence now to talk through some of the financial attributions to the half year result. But I have to complement the team on this. They've done a great job in terms of not only managing the inflows and obviously the margins within the business, but also the expense management has been very, very strong. We haven't under-invested anywhere in our business to be able to drive a really strong set of numbers that I'll pass across to Terence to run through in a bit more detail now.

Thanks, Grant. As you can see from the results, all the good strong performance is reflected in a good set of financial results there. What you see there is the 2 consolidated columns, so that's the actual results that we've achieved. But as a new separate section you see on the far right in relation to H1 half year '24 base 100% of Lonsec. So that's just for comparable purposes so that you would get a better feel for how we performed if we had Lonsec for the full period in 2024, which we didn't. So if I were to focus just on the actual consolidated amount, we had good set of financial results. You can see operating leverage coming through with revenue growing much faster than the expense growth. The resulting impact was a 152% increase in underlying profit after tax from AUD 4.9 million up to AUD 12.3 million. We've held the dividend steady at AUD 0.01 to what Grant alluded to earlier. We'll look to upping the payout ratio in FY '26 after the Lonsec payout once we know what the amount could be. What's driving the great results in terms of the investment bond business, you can see strong fund growth there. That's through a combination of very strong sales as well as strong investment markets. So that's resulted in an increase of 31% in investment bond flows. In terms of capital for the business, we remain very well capitalized. You can see we had gross cash equivalents of AUD 38.6 million, Lonsec had about AUD 17 million of debt there. So we will have net debt equivalent of just over AUD 21 million in second half '25. So we remain really, really well capitalized. If I will move on to the next slide, I'll talk through the earnings for the investment bond and annuity business in a bit more detail. Pleasingly, you can see revenue growth there of 37% and expense growth fairly muted at 23%. That resulted in underlying profit after tax benefit increase of 99%. So we've been very happy with that result. In terms of income tax expense, we relinquished a PDS last year. So we now pay income tax expense there. But one thing to note for the first half FY '25, there were some timing differences inherited from last year. So by way of, I guess, analyzing it, the second half earnings for FY '25 were to double, the interest -- the income tax expense will probably increase about 50%. It will not double. So there's some timing differences where we paid a bit more tax in the first half for income tax. We continue to contain costs within the annuity business. You can see that's quite flat. So the overall underlying profit for the investment bond was AUD 3.6 million, including the annuities business investment. Moving on then to Lonsec, to what Grant alluded to earlier, again, very, very strong set of results from Lonsec. You can see underlying profits growing by 35% there and that's through a combination of both research going really, really well as well as strong growth in the LIS business. Thank you. Back to you, Grant.

All right. Good stuff. Thanks, Terence. Yes, it's great to see that the business has performed so well across all of its key metrics. So I'll deep dive now a little bit more into the Generation Life business and some of the key metrics that we really look at in terms of, I guess, not only the first half, but some of the forward-looking indicators around that business. So just moving on to the scoreboard. On the next slide, you can really see that we're up on FUM 31% year-on-year. So we're up almost AUD 1 billion to AUD 3.8 billion to close out the calendar year. Sales, we were bullish about sales coming into this year. We felt like we had really good momentum. The more tax discussion around tax reforms, whether that's super, whether that's trust, any other areas that the government intends on changing tax income, particularly for highly affluent high net worth individuals or high marginal tax-paying individuals. That certainly helps and supports our businesses because financial advisers recognize that they can't just utilize the traditional structure that they have or just put money into superannuation anymore because the goalpost just continued to shift. Now we had an all-time record quarter in Q4 of FY '24. Then we went into Q1 thinking that a lot of the pipeline might be dried. It resulted in an all-time record for Q1. Then we hit Q2, and it was an all-time record again. So we had 3 in a row, which is an unbelievable result that the sales team and the entire business, and obviously, Felipe Araujo, who leads that business now as the new CEO from the 1st of January this year, have really driven a phenomenal result, about AUD 460 million in total investment bond sales. It was only a few years ago, we cracked AUD 400 million for the first time. So to see that sort of number in the first half was certainly well above our plan and what we anticipated. And I can say that momentum has continued into this calendar year, which is great to see as well. The other product, obviously, sitting within the life company, almost AUD 12 million of sales in the annuity product. And we've also been able to pick-up a bit more momentum in that particular product coming into this calendar year as well, resulting in a very strong market share result, which I've touched on over 50% on a 12-month rolling average. We have plenty APL coverage, approved product list that is. So that's up 8% over the half, so to 751. So access to distribution to be able to sell the products through the intermediary channel through financial advisers and practices and the dealer groups. The product ratings, you can see on the right there that allow us to be able to get on to those APLs. One of our real key metrics is active financial adviser numbers. So that's if they bring one or more products with us on a 12-month rolling average. So you can see that's up 16% on the first half of last year, which is great because that baseline has grown a lot. And it's not like we've seen a lot of reforms come through in terms of the quality adviser review be legislated, which really support the growth in financial adviser numbers in the industry. We would love to see a lot more of that and we certainly support that and support those reforms and we want to see more Australians being able to access financial advice. But to see that up 16% when we had a huge amount of growth in active financial advisers in 2024, it's great to see that that momentum has continued. And again, that flows through to new bond numbers up 42% to over 18,000. You can see savings plan, regular savings plan, which is just a direct debit that we do on a monthly basis is up 10% to AUD 52.1 million. You can see the investment options that we have there. We've also got our income funds that are very, very tax effective and also the life income, which is the investment-linked lifetime annuity product with 29 investment options there. And what's really great about every dollar that we receive on what I'll call our platform, it has an average life cycle of 14.6 years. So a very, very long time in terms of the maturity profile. And you can really see that coming through when we do our quarterly updates on our FUM results, just on the last one in Q2, not only did the percentage come down quite materially on opening FUM, which is the way we look at it, but the actual quantum year-on-year came down even though we had almost an extra AUD 1 billion worth of business sitting there just in the investment bond space. I think it was AUD 44.9 million and it was down to about AUD 40 million over that quarter in terms of both withdrawals and also debt maturities as well make up that number. Now just moving through to the next slide. This just talks through to the competitive landscape that we're in. So you can see Generation Life there in the yellow bar chart, taking the lion's share of the inflows followed by Australian Unity and maturity. The line chart there goes to total market share. So you can see we're very, very close to AU. We were #1 in that space, but AU acquired the Insignia investment bond book about 18 to 24 months ago. So therefore, they overtook us in total market share, but you can see we've closed that gap relatively quick. And I think within 6 months' time, given the momentum, touch wood that remains within the business that we have right now, we feel like we'll be able to take the #1 position in both of those areas of inflow and total market share. Moving through to the next slide. This just really talks about the trajectory of the business over the past few years. So you can see there on the left-hand side, that makes up kind of 4 different things, half year, full year inflows and then you can see gross inflows as well as net inflows. We had a phenomenal year from FY '21 to FY '22 where we saw almost a 57%, 58% uplift in sales from AUD 404 million to AUD 639 million. I'm guessing these numbers because my [indiscernible] and I can't see anything here on the screen. So I hope I'm getting them right. And you can see we came down a bit when inflation was going through the roof, interest rates were jumping up every 5 minutes, sales came off a little bit, markets were a little bit shaky, but we still did over AUD 0.5 billion in '23. You can see we got back to record highs in FY '24 to that AUD 657 million. It really was the second half of the year you can see that split in between the bar chart there that really drove that result. And then we've sort of just kept growing from there on moving forward into the first half of FY '25 with a massive result of AUD 460 million of gross inflows. And like I said, Q3 has certainly kicked off very, very well and we feel really confident that we're able to continue on a really strong trajectory in terms of our sales. On the right-hand side there, it's a really nice looking picture. It's one I want to maintain for the next few years and continue to accelerate that where we can. That's our total FUM that sits on the investment bonds. The nice thing about this business, when you look at it from December '23 through to December '24, we've almost tripled the FUM there, but we've had no margin compression whatsoever in that. Even in fact, in some of our products, we've even had a slight bit of margin expansion. And you can see that coming through the numbers from some of the life company results that Terence just spoke through. So great to see that massive uplift from December '23 through to December '24. Now just jumping on to the Lonsec business. Again, this is a very, very strong brand in the marketplace. I don't think there's a single person that doesn't know the Lonsec brand in financial services. Obviously, it's been really leading the way over the past 3 decades in terms of qualitative research. It's been #1 in there for many, many years. It's had the paper-based portfolios, which then in 2015 moved into managed accounts, which is of course, Lonsec Investment Solutions, got a very strong brand in SuperRatings and then IRA. And you can see here, we -- over the course of the first half of FY '25, we completed the acquisition, the other half of Lonsec. We've slowly been moving up our equity from about September 2020 up to that 3rd of June where we did the capital raise and then completed that on the 1st of August where we took 100% ownership in that asset. They've delivered some phenomenal numbers again in the first half of this year. You can see revenue up 14% on the prior corresponding period to AUD 35.5 million. EBITDA growth there to AUD 14.8 million, which is 25% up on PCP and also that operational leverage really starting to flow through in the business. You can see there up to AUD 8.7 million or 34% on the prior corresponding period. And they continue to have great momentum, not in any particular part of the business, but the overall business. So we can see that really on the research side, there's a big pipeline of products and new products that we're starting to research as well as the existing products that we're already doing research on. And there's also been expansion in terms of if you received on the Lonsec sort of stamp being highly recommended for 5 years or more, which is quite a significant achievement for any product manufacturer or any fund manager to be able to do and to have that sort of stability. So there's other sort of product initiatives and research initiatives that we're doing to be able to grow that business moving forward. So we've got a very, very strong pipeline of opportunities coming into the second half of this year. And also the pipeline sitting in Lonsec Investment Solutions is also particularly strong given the amount of pitches that we've done to various financial practices over the course of not just the last 6 months, but even last 12 months is starting to convert into FUM and to new opportunities, both across the SMA side and the MDA side of the business. Moving on to the next slide that just gets into the breakdown of some of those numbers in a little bit more detail showing the 3-year CAGR numbers. So you can see revenue over a 3-year CAGR up just over 20%, EBITDA 35% on a 3-year CAGR. So again, very consistent in terms of performance and improving year-on-year. That's flowing through to gross profit, almost a 20% CAGR over the same period. And of course, that operational leverage reflected in the NPAT there a 41% CAGR and a big jump from first half of '24 through to '25 and an NPAT result of AUD 8.7 million. Moving on to the next slide, which starts to talk about the breakdown by division. So there's 2 core divisions that sit within Lonsec. Again, I know there's a lot of people that understand that business, but there's also a lot of new investors that have come onboard, particularly with the recent capital raise that we did on the 10th of Feb this year. You can see the breakdown on the first half of FY '24, 62% of the revenue was driven by the research and ratings business and the other 38% driven by the asset management or the LIS business, Lonsec Investment Solutions. When we reflect on the first half of this year, we can see that composition has changed slightly to increase to 40% of the revenue contribution there from the LIS business, and obviously, 60% therefore on the research and ratings business. Now to be totally honest, and I probably said this on the full year results call, given the growth that we're actually seeing in Lonsec Investment Solutions to over AUD 2 billion just over the first half of this year and it's all organic, I thought that revenue composition might change a little bit more. I thought it might be around sort of 42% or 43% before these numbers kind of got verified and we went through the detail of it. But you can see there that the research business has done an incredible job led by Lorraine Robinson, Peter Green and all the team there to be able to not only get new products onboard, but to do a lot of out-of-cycle research, which again provides a little bit of increased margin per product that they can do there and also some of those other initiatives that they've also driven in the research business as well. So they've been able to continue to grow that business. And so therefore, that change of revenue split probably hasn't happened as dramatically as we thought it would have. And you can see there on the gross profit split down to 33% and 67% on the research and ratings side of the business. Moving through in a little bit more detail just around the research and ratings business. You can see the revenue for the first half of '24 and first half of '25, up 10% to over AUD 21.3 million. You can see the revenue split there just on the pie chart, just the breakdown across the 3 key services that we see in the research and ratings part of the business. So obviously, the lion's share of that is Lonsec Research. We can also see SuperRatings now make up 20% of that and then a small amount of IRA. Really, I sort of talk about this being more like the Apple sort of products. Once you're into one access to Lonsec Research, you obviously get on and subscribe to IRA, you then start looking through IRA and looking at some of the analytical tools there. And then it also takes you into looking at managed accounts and obviously some of the SuperRatings side within that business. So you start to do sort of more business with Lonsec and that obviously enhances the, I guess, barriers to exit in terms of utilizing a brand like Lonsec if you're dependent on their research or any other products that you might be utilizing. You can see the transfer of revenue going down to gross profit there. Again, the leverage coming through the business. That's up 16% half-on-half compared to '24 and '25. And then obviously, the composition and the breakdown within the gross profit split there. So here's just the research and ratings business in terms of -- you can see there on the left-hand side from FY '21 through to FY '24, just the blue part. So that's year-on-year. So that's the 12-month growth that we've seen. The half year growth is only 6 months of growth in that. That's why the proportion is not quite as wide that you're seeing in comparison to the other parts of that particular graph. So we've been able to increase our research by over 50 new products and I can share that the pipeline for the second half of this year is particularly strong. So we expect to see more growth coming through towards the end of this financial year as well. Moving to the SuperRatings side there. So what you can see in the green line there -- sorry, if we could just go back one slide. What you can see in the top right-hand side there, just in the green part of that particular graph on the line chart there, that's the consolidation of the super funds. That's pulled up quite a bit. We know APRA were encouraging that quite a few years ago to see a lot of those smaller funds consolidate and obviously some member benefits flow through because of that consolidation and the scale or the hyperscale of some of those big super funds that they have. That slowed down a lot now. So we've seen that number flat line, which you can see as part of the line chart there in the green bit. What Kirby Rappell and the team have done there in SuperRatings exceptionally well is they've been able to do more consultancy, more products with each of those super funds and really become another limb of their business. And you can see that's meant we've close to a 25% uplift in revenue per client. So you can see that big jump from FY '24 half year, full year annualized number in the sort of gold yellow part of that bar chart. So it's great to see less clients, less opportunity, but more revenue per client. You can see in RA subscriptions there. That's gone slightly up compared to FY '24 in the first half of this year. And the green part of that particular line chart is just really a reflection of registered financial advisers out in the industry. So it's great to see the contraction from the Royal Commission of that sort of 40%-plus that we saw coming down to that 15,000 or 16,000 advisers in Australia started to flat line. And like I've already touched on throughout this presentation, we'd love to see more reforms from the federal government that encourage people to go into financial advice, particularly when so many Australians are entering into retirement. We've got the biggest -- one of the biggest pension pools in the world and we want to make sure that people are getting sound financial advice, everything from tax through to estate planning and making sure that they've got income that will see them out for their retirement. Moving on to the next slide. This was a big part of the investment thesis originally into Lonsec. So if we go back to June '20, where you can see that AUD 659 million worth of funds, we saw a great opportunity in the managed account sector. We saw that a lot of financial advisers were looking at this structure to be able to manage their clients' FUA, the funds under advice. There's more tax advantages there. It's easier from a compliance point of view. They're able to scale up their business a lot more. And it just gives them a lot more time back where they can actually spend more time either growing their practice or spending more time with their clients. So we really saw that change happening. Lonsec has been a big beneficiary of that and we've obviously invested a lot of time and effort and energy into that. And the sales team have done a phenomenal job in converting that into funds under management for the group. And you can see there, the organic growth is the blue part of the chart. So that's the SMA part of the business. We did an acquisition that was completed in August of '22 of implemented portfolios, which is the managed discretionary accounts or the MDA part. And you can see that's grown over time. That's more of a tailored bespoke solution for your high net worth clients, but a high margin business for us. It's close to 40 basis points there. So as much as the growth, the organic growth is not as much as what we're seeing in the SMA space, a very high margin business and also the product set within there, obviously, you can get a more tailored and direct equities and the exposure that you can get there at an individual client level is quite unique. So we want to continue to see both of these areas obviously grow, but a great looking graph there. And again, similar to the life company, Generation Life, we've seen that trend continue coming into this calendar year as well. Just touching on a bit more of a breakdown in terms of the financial sort of profile and results on the next slide there. You can see that the revenue numbers have obviously jumped up on the back of that growth in funds under management. So you can see there, we've got a 65% CAGR, I think it says there on the slide, over the course of the last 3 years to almost AUD 14 million of revenue driven in that part of the business, an 87% CAGR growth in terms of gross profit. Again, the economics within that business are very similar to a normal funds management business where a lot of the operational leverage will come through, and that's obviously started to come through quite materially in that business. And we will see that accelerate as we bring Lonsec Investment Solutions and Evidentia again together in the managed accounts. So this will bring me to my last slide and then we can stop hearing from me and we can throw it back to Simon for questions. But really, the outlook for the group at the moment, we feel really, really positive with everything that we've got going on at the moment. We've got a lot of big initiatives that we're starting to already execute this year. We've got a new PDS coming out for the bond business, which is going to be a new bag of goodies that advisers are going to be able to use for strategies for their clients, which we're pretty excited about. We continue to leverage off any sort of discussion from the Federal government around tax reforms and being one of those stable, steady structures and obviously giving a great sound alternative for financial advisers. We're also a big beneficiary in terms of estate planning requirements and needs. And again, that sort of almost AUD 5 trillion of wealth that's transferring to the next generation or bypassing the generation over the next 30 years. It's unequivocal that the bond is one of the best structures to do that. It's tax-free upon debt and it goes to that beneficiary regardless of who it is and not one of those have been overturned, just to give you a bit of an insight on why it's so good from an estate planning point of view. We want to continue to capitalize on the structural changes in wealth management. So obviously, a lot more adopters of managed accounts. Obviously, the opportunity there to be able to bring the #1 and #2 player with Evidentia and Lonsec Investment Solutions together to create a really large #1 player in that particular sector in managed accounts of over AUD 25 billion of funds under management and all the scale benefits that will come through, not just for our business and shareholders, but most importantly, for clients on the other side that utilize these products and the product differentiation that we actually have by covering off everything from implemented portfolios through to tailored solutions for either a dealer group or a financial practice or off-the-shelf sort of products where you can get an SMA depending on what your risk profile looks like of a hub or a net wealth platform for maybe some of those smaller practices that don't really need that high level of tailoring. So we continue to see that sector grow. The numbers that we saw from June this year in terms of the total market was about AUD 206 billion. That's intended to grow under the data from both IMAP and the research from NMG Consultancy to AUD 474 billion by 2030. So if you look at our market share of sort of 12%, 13% of that sector and the fact that we're taking a lot more than our natural market share, you can sort of work out what the number would look like the FUM if we continue to execute as well as we are today or to continue to improve and grow and be better. That's going to be quite a material number in the Generation Development Group business over the next few years. We want to continue to build and grow opportunities in the research division. There's a lot of opportunity, particularly when we look at private credit has obviously been massive over the last couple of years as interest rates have driven upwards. We see private assets is another big opportunity for us. We've got more products coming out in that space in the research and ratings business that will continue to see revenue uplift. Obviously, there's more real assets and other areas of high net worth individuals that we want to continue to really look at and start to be able to provide research around and be able to give people reassurance that the products that they're looking at are supported by a business of credibility such as Lonsec Research. We're looking at further embedding, obviously, the new operating structure post the acquisition of Evidentia. So as part of that announcement, capital raise that we did a couple of weeks ago, we really want to make sure that we set-up a structure moving forward that continues to deliver great performance, but also optimize accountability. It's really important that we note that, optimizing accountability, and for any CEO, any executive within each of our business, if they turn the dial, they get rewarded for that. And there's also consequences for poor performance. We're very open about being a high-performing organization and we set our structures up to reflect that and we set our reward and recognition system up to reflect that as well. So we want to be a high-performance business across the board regardless of what sector or what area of product that we're in. So what we've done around that, I know a lot of people know that structure moving forward. Obviously, there's the listed entity, GDG. What sits beneath that is the life company led by Felipe Araujo. Also under the research and ratings business transitioning to be the CEO of that business is Lorraine Robinson, who's going to run research and ratings. And then we're going to be putting Lonsec Investment Solutions, the managed account business together with the Evidentia Group and combining that business and that will be run by Peter Smith and Michael Wright. And of course, Michael has got a very big brand as does Peter in the market given what both of those individuals have been able to achieve. So we've been doing joint pitches to a lot of wealth groups in recent times since we've done this acquisition and obviously the merger of those 2 groups already and we've refined that pitch. And it really feels like we've built a very, very strong team in that sector and we feel very confident about bringing that whole sort of relationship between those 2 groups and the integration of that together and we've already started doing that, and it's been positively reflected by the team and the cultures in there that have really aligned, but also making sure that the research business has that level of independence. One of the nice bit of feedback that we've received so far is they really like the fact that, I guess, the asset management business that had certain funds that were a part of the managed accounts that could be rated on the research side, even though there was very, very clear walls that were set-up in between those 2 businesses, even where they sit in the office building, we're on separate sides, that's how much we wanted to make sure that those businesses were set apart. But actually having a whole new entity there with a different CEO running that business I think has really reinforced the independence and credibility of the Lonsec Research. So it's been nice to hear the feedback of the new structure that we're reshaping at the moment and putting in place. And that should fully be in place by the time we get to the new financial year and then hopefully be up and running. And yes, the focus right now is really just finishing off this year with some good set of numbers and continuing to grow the momentum in the business and making sure that that reshaping and restructuring of the business is done the right way. That's it from my end, Simon. I know there was a lot to digest in there in that result, but there was a lot of good stuff to go through. And a big congratulations, I have to say, to the team that have produced these numbers across all of our businesses, the commitment from all of our staff and all the sales and all the support around that has been quite phenomenal and the passion and the culture within the business has been really strong. So hats off to them, they're the ones that have got this result. So -- and thanks very much to all the shareholders who've obviously supported GDG over the past few years and believed in what we're doing and the way in which we're doing it. So with that, back to you now, Simon. Thank you.

First question is from Simon Fitzgerald at Jefferies.

Just I was interested to know a little bit more about your understanding in terms of the size of the investment bond category. I mean, Slide 3.3, 32% as of September 30, suggests that the industry would be around about AUD 12 billion worth, which also sort of tells me it's been fairly static over the last sort of few years. So I guess, I'm interested to know how far you think you can take your market share if the investment bond market is not sort of going to grow significantly? And I guess, what's your sort of view in terms of what needs to change to see the investment bond market become a much larger category?

Yes. No, it's a really good question, Simon. So there's a couple of aspects to it. One is that's the reported data. So not everything is captured in that AUD 12 billion. The last 2.5 years, it's actually grown more. I've been a part of this business since 2017. So it's actually a double-digit growth over the past couple of years as a sector. So it has increased in recent times. So we're of the belief that even if things like Division 296, which is a double taxation of superannuation for balances above AUD 3 million and on the unrealized component, even if things like that don't happen, it's the fact that regardless of what side of politics, we know that the liberal government put the caps in superannuation back in 2017 that financial advisers have to look for alternatives, and we're a great after-tax alternative. So we think the sector will continue to grow and probably accelerate. It's not massive. It's like you said, it's AUD 12 billion, it's probably overall closer to AUD 14 billion or AUD 15 billion. We potentially think it could be a AUD 50 billion or AUD 60 billion sector one day. And if more changes come through around things like trust or other tax reforms that will obviously drive that. The other part that will drive too is if we see more financial advisers come back into the industry or more come through into the industry. The reason that that's probably important for a business like ours is because there's a bit of complexity around the product. And it's not complex because it's hard to understand once you get it, it's just that there's so many features around it because it's governed by both the Tax Act and the Life Act. And that's why a lot of advisers. So we did an 8-figure bond the other day that was purely for estate planning purposes, not for a tax arbitrage, but estate planning only. So we see a lot of that. And also in terms of growing the industry, we take it upon ourselves as probably the market leader and the educator of after-tax investing. So as much as that industry is not huge, we're going to take it upon ourselves to really be the market leader and the educator to make sure that we grow that pie to see it bigger. Also the other limitation, and I don't know if Terence has got anything to add beyond what I've just said is, you need a life license to be able to distribute this product. So as you can imagine, a lot of the large life insurance companies, they're focused on other areas where their products are much bigger, much more scaled up and they're known for. You can see from our competitors set that even a lot of those competitors in their Centuria is fundamentally a property business. AU have got a very diversified financial services business focused on retirement. So they've all sort of got conflicting priorities probably within their group that make more money for them. So the fact that you need a life license, the competitors have a lot of other products which are the key focuses, makes it hard to get it into the mass market. But the other nice thing that we've seen through our figures is even though we haven't done much in the direct investment bond space, that is still growing for us year-on-year and I think at a double-digit rate as well.

I think one of the important factors is that we are the ones growing the market. So any sort of growth that we see in the above market share growth, it's all untapped markets that we are the ones growing. So if you look at our peers by winning market share, we are not exactly eating their market share, they just aren't growing. So on that basis, it's almost untapped from our perspective. So as long as we can continue to be innovative and generate new products and a great focus on after-tax return, we will continue to grow that market and we will capture all that growth. So there's nothing in there right now to suggest that we can't continue to grow, if not accelerate, the rate of growth that we've experienced today.

And just while we're still on investment bonds, there must be some competitors down the bottom towards the stack that aren't really committed to the category, would you think?

Yes. I mean, they have still distributed new PDSs and changed things and add more investments and various things like that. There's been even some estate planning stuff that's been added. So they're still committed to it. But if there was an opportunity to acquire one of those books, I think the 2 major things we'd consider. One would be, is it going to be worth the time given the organic growth that we have. If we're doing close to AUD 0.5 billion in a half now, is acquiring AUD 0.5 billion or a AUD 600 million book really worth the time and distraction and the cost to be able to do that. And also the whole migration of that piece too, sometimes that can be -- well, most of the time, that's a really costly exercise. And so I think if we can continue to grow at the organic rate that we are, I think we would mainly focus on that. But anything at the right price and if it was a simplistic deal, we would certainly look at and review.

And just one more question from me, perhaps for you, Terence. Just in terms of any sort of help for us thinking about the tax rate in the second half?

Yes. So in terms of tax rate, there were some anomalies in the first half. So the true-up from last year where there was an increase of PDS. So I think if you've got half the tax rate growth, it will be about right. So for example, if profits were to double, the tax rate might -- the tax -- effective tax will be about half that increase. So whether that's doubling the tax expense, that will increase tax expense by about 50% if profits double.

The next question is from [indiscernible]

A couple of questions from me, if I may. The first is on the Evidentia acquisition. And just wanted to better understand the momentum since the transaction has been announced. Often adviser groups are now all aware of you guys taking over the business. Can you just talk to some of the feedback? Has the pipeline changed at all? Are the discussions that they were having with potential new big groups, are they still all going according to plan?

[Indiscernible] it's a good question. To be totally frank, it's actually been very positively received so far. And it's quite funny, we said there was a mild amount of overlap of a couple of clients that were in tenders with between Evidentia at that particular point in time. We've managed to not only get together with that team, work out what the joint pitch actually looks like moving forward between the 2 groups, but we've actually managed to win a couple of those clients as well now as a collective group. So any of the sort of momentum, any of the sort of tenders or pitches that we had have all maintained throughout the process. And anyone that were sort of close to being sort of executed and won, we've been able to deliver on those as well. So yes, the momentum within the business, I'm not going to sort of sit here and say it's accelerated just as yet, but it certainly hasn't gone backwards. And recently, just this week, we've had a couple of really good wins, which both teams were pretty pumped about, which is exciting, right, because it feels like we're already winning together. So that's been good to see. And it's good that it's actually happened so quickly.

Got it. And can I just follow-up on the SuperRatings average revenue per client discussion that you had. How should we be thinking about this? Is this a step change in the profile of that business or is it -- are there components of that step-up more one-off in nature?

In terms of the overall products there, we would see that level at least being maintained at a minimum. There are other opportunities for us to expand that. So there's a few, I guess, strategic initiatives that actually sit within the SuperRatings pipeline that could potentially grow the revenue from that pie, probably not to the same extent that we saw from FY '24 to '25, that's on that annualized number. But we would expect to still see growth in the SuperRatings area, but just not by probably that much.

Your next question is from Joseph Michael with Morgan Stanley.

First question I had was just around Division 296. It looked like it was dead in the water before Christmas. It looks like it's made a revival in recent months. Just keen to get the latest on that bill, what you're hearing out of Canberra?

Yes. Similar to yourself actually, it feels like it's going to get up and then all of a sudden it feels like it's vaporized once again. And then all of a sudden, they're like, no, we're not giving up on this. So there seems to be some politicians and MPs in Canberra that are very, very committed to seeing this through. What I've been surprised about because it's at the margins in terms of getting the vote in the Senate to have this passed and go into Royal assent. So I thought they would negotiate something to see something go through, but it doesn't seem like there's a willingness to do that. They're still saying if parliament does sit depending on when they call an election, of course, next month, that it is going to be on the agenda, but we'll just have to wait and see. So yes, so we're not sure. But the good thing about it, every time that this piece of legislation is spoke about, positive or negative, it doesn't matter, it brings a focus back to our business because it just -- it demonstrates how a AUD 4 trillion pool now of superannuation that's going to continue to grow. A country that's got an increasing deficit, we've got to budget deficits moving forward from the projections that we've all seen from treasury that that pool of money is most likely going to be touched or people just don't have the trust that they once had for it. So we don't have that crystal ball in terms of where it's going to end up if parliament does sit next month. But we think there's going to be more changes regardless of what side of politics are in power over the next few years, which just really helps drive our business. And I want to be sort of very clear to everyone on the call, we've never had a situation where people pull money out of super and give it to us unless it's just for an estate planning purpose, and that's nearly where they're close to end of life or like a terminal yield and there's a large taxable component. So they will utilize our structure for that. But in terms of just pure taxation, we've never encouraged one person to pull it out because obviously this legislation hasn't been passed yet and it's been debated for a long time. But what it has done for our business is made advisers recognize that, hey, I can't just put more money in super. I can't just rely on my traditional structures. I've got to look at other solutions, and that's where the strategy around investment bonds has really become a lot more front and center. And the more advisers using it, as you can see that number going up 16% on the first half of last year, just means that that marketing and that sort of advocacy has been done for us as well.

Okay. Got it. And then just a question on the outlook slide around investment bonds. I think the phrase you used is you continue to build on current sales momentum. Does that suggest net inflows have accelerated into 3Q or is the trend still similar to 2Q?

I think the best way to describe it without going into too much detail or have to do another ASX update is that the trend that you saw in the last quarter has been maintained in terms of that momentum coming into this year. So that step change is definitely remained.

Definitely on a PCP basis, just not necessarily on a quarter-by-quarter basis because we do have seasonality in our sales numbers.

Yes, yes. On a relative basis, always January provides away short month obviously than February. So on that basis. But in terms of year, the actual step change for this particular time of year, that's maintained well truly coming into '25.

Okay, great. Just had 2 more questions I want to quickly sneak in. Investment bonds, anything to call out in terms of seasonality for either the revenue margin or cost base? The revenue margin was a bit higher in the first half than I expected. I mean, typically, the cost base is a bit higher in the second half. Can you just maybe talk to that, please?

The revenue margin has remained steady. I mean, we've not had any margin compression at all. Just in terms of expenses, we have provisioned a bit more for bonuses, especially for the [ BDMs ] given the sales trajectory that we're seeing. So that's probably the main thing. What we've provided for in the first half is based on our view as to where the sales will be for the full year. Naturally, I hope to provision even more in the second half should the trajectory continue. The more sales exceeds budget, the more we'll be providing for bonuses. But what that means is that we don't have a trailing commission in terms of our payment structure. We reap the benefits in the future income years where financial years where we start off with a much, much higher opening fund from higher sales numbers. So I might not get a full benefit this year because I'll be providing for more bonuses in terms of the addition sales, but yes, create upside for longer term.

Which we've seen coming from last year into this year really, like the FUM delta is quite material and that's transferred into a really good strong revenue result.

Okay. Got it. And then just last question I had was just around Lonsec managed accounts FUM growth. Like it looks like the FUM growth has been really healthy, but I guess, the trajectory hasn't changed. We haven't seen a step change. And I know there's been a bunch of wins in the tailored at scale product. So just wondering if you could comment on the growth of the FUM versus the committed pipeline. Is the pipeline actually been growing faster? And I think you sort of alluded to that the second half might be stronger. Should we start to see some of that pipeline convert into FUM over the next sort of 6, 12 months?

The first half of this year is materially better than last year. So it's up over 120% compared to the net flows of FY '24 half 1. So a lot of the work that we've done has started to flow through. Some of those new relationships that we've developed, we have won FUM that will come through. There will be a couple of probably smaller chunks that are initial transitions and then the sort of base pipeline continues to grow. So yes, we do anticipate that there should be growth in that area, all things being equal. And from what we've seen and what the team has been able to deliver, Mike Wright has done a great job there on that side. And yes, they've won more business in the first half of this financial year than I've seen in any other half. We don't disclose exactly what that number is, but it's been better than what we've had previously.

Your next question is from Nic Burgess at Ord Minnett.

I had a couple of questions just on Lonsec. So just on the research side, obviously, it looks like business is going exceptionally well there. And 10% revenue growth, I think broadly is at least a couple of percent better than perhaps what the average has been from the last couple of years. Just thinking, are there any pieces -- and I know, Grant, that you said the pipeline is very strong. Are there any bespoke pieces of work or one-offs in the first half that perhaps might detract a little bit from that 10% run rate persisting or maybe even any seasonality we need to be aware of? Just thinking how sustainable, I guess, that 10% level is?

I'll let you answer the numbers. In terms of the product side, Nic, no, that's all the business that you see there in that sort of 1,782 or 1,783 number in there. That's all repeat business. So we should be able to carry that business moving forward unless they close down one of those products or one of those funds. But I'll let Terence answer the financial side of that.

Yes. I guess, in the first half, we did see a pick-up in demand for out-of-cycle reviews. So those are higher margins. So you do the same work for the out of cycle, you can charge more. So we make higher margins for that. And the other thing coming through is that we are seeing margin improvements come through to the investments that we've done on the research systems in the last couple of years that enable us to get more operating leverage through [indiscernible] couple of more products. So the uptick in margin this year is probably a combination of 2, both from an operational margins, as well as the out-of-cycle on the revenue margin.

Yes. Maybe to build to Terence's point on that, Nic, I was actually up with the team, the research team yesterday, just looking through their software in terms of how they're doing it now and the updates and how quickly they can actually spit out research in comparison to what they could do previously. And the amount of new out-of-cycle research that's even coming this year, like it's cranked up really, really quickly. And to Terence's point, that's the good high margin stuff where people just go, I need the research rating now, I've got to get on APL, so I can start distributing my product.

Okay. That's quite clear. Your answer there just leads into my second question around EBITDA margins for Lonsec as a whole, obviously, well into the 40s now in terms of percentage EBITDA margin. How should we think about the operating margin of that business in stable to improving markets in the second half and into next year?

It will keep improving. I mean the retail margins might see a bit more upside from the investments in new systems, but I would expect continued, I guess, decent sized improvements coming through on the LIS business. It is [indiscernible] economics that I mean, if fund doubles, your cost base is not going to double on that front. So that will continue to improve. But actually as your base gets bigger and bigger, the improvement will slow down a bit, but nothing suggests that we can't keep improving margins for the business as a whole.

Maybe just a follow-up on that with one further question, but perhaps a bit of a cheeky question. The Lonsec business in terms of EBITDA is certainly doing better than when you did the acquisition or the full acquisition during the year. Any comments in relation to how that business is tracking towards the earn-out threshold? Certainly, from this point, it looks like it's tracking towards the top end. But any comments there would be helpful.

We -- all things being equal, they're definitely going to be in earn-out territory because they're performing exceptionally well. Where that ends up, we're not sure. All Terence and I are doing is making sure that we are provisioning enough if it's more at the upper end than not in terms of making sure we've got a debt facility and plenty of cash in place within the business, but we're certainly giving no guidance of where we think that ends up. Obviously, markets can change a lot in the space of just over 3 months to go 4 months with the year. So with that, we think if that remains and they continue to do what they're doing, it's definitely going to be an earn-out payment. What that looks like, we're ready for, but we're not doing any sort of projections on where that will end up.

But our preference is always to pay as much as possible. So it means that the business that we've acquired have passed about our expectations.

Yes. Okay, I appreciate your candour on that. Just one final question. Just on the annuity business, it sounds like there's some initiatives coming down the pipe for that one. How should we think about the potential financial performance of the annuity business? I guess, I'm thinking should we be thinking about additional cost in the short-term as you try and stimulate that particular product line?

No, I think we've got a steady cost base there. I mean, you've probably got CPI type increases. What will really drive the financials really is the uptick in sales. So I think it's probably more revenue driven rather than cost driven in terms of the longer term outlook for that piece because we've made the requisite investments in that space and there won't be any step changes in the cost base there.

And you're probably scratching your head thinking how they're going to drive a new strategic initiative and not spend any money, and it's not sending out Terence into distribution. But there is some stuff that we can't talk in sort of any detail around, but we feel confident will provide us more distribution opportunities to be able to scale the product up a lot quicker than what we're currently doing.

We've got our next question from Tom Tweedie at Moelis.

Just one question from me. With the consolidation of Lonsec and Evidentia, just keen to better understand what the incremental scale benefit and revenue synergies you can get from that sort of in terms of maybe volume discounts or what you do with the platform operators or what can you do on that side of it that can help those revenue synergies?

So all the things that you discussed are certainly opportunities for us. We haven't gone into any detail and quantified that openly in the market. Obviously, we've got a working group that is led by individuals on both sides of that business to be able to drive those revenue synergies and also some of the client opportunities and the benefits that come from that scale. So yes, those plans are in place and currently being executed. And hopefully, by the time we get to year-end, we'll be able to provide a little bit more detail and some of the benefits that they will provide both on the client and the business side. But yes, we don't want to quantify anything just as yet until we've really done all the work and we feel 100% confident. And obviously, there's a few conversations that need to be had before you sort of finalize elements of that as well. But yes, we've discovered quite a number of things that we can do, put it that way. And we're confident we'll do them too.

And just as a reminder, when we did the acquisition, it was low-double-digit accretive without any synergies.

And our last question is from Ross Cameron.

Good outlook, great presentation and terrific set of numbers. And Grant, I know you've acknowledged everybody else's efforts, but mate, well done to you too. It's a great set of numbers. So good on you, mate. A question that's probably different than the sort of questions you typically get. With so many people in industry funds, have you considered potentially distributing or selling even white labeling products through an industry fund which obviously is knock down the IFA sort of channel, but it's quite different. But is that something you've given any -- paid any attention to actually essentially selling your product through an industry fund even if it's white labeled and the customer doesn't know that GDG is behind it?

Yes, absolutely. And we've actually set-up our systems to be able to do that, not just on our lifetime annuity so they can cover off on the retirement income covenant, but also for the investment bond as well. So currently, what we do with some of the industry funds is we're on their approved product list. So we do sell our product through them. And if they've got an [indiscernible] sitting in that industry fund, they'll certainly sell our products. It's a [ mortgage ] accounting product, our funeral bond, which gets a discount I think of up to AUD 13,750 per product, both on the income and the assets test. So it actually provides about another AUD 1,100 or AUD 1,200 worth of additional age pension for the average Australian. It's very, very popular through a lot of those funds. In terms of the white labeling solution, we haven't done any of those yet. But I'm sure as the Federal government puts more and more pressure around the retirement income covenant, been able to provide longevity solutions for their various cohorts of members, we're definitely set-up and ready to do that and able to engage with those funds.

Grant, Terence, that concludes the Q&A segment. We've got a couple of submitted questions, which we'll get back to via emails. We ran out of time, but Grant, I'll just hand it back to you for closing remarks.

Great. Thanks very much, Simon. Thanks very much to all the supporters we've got out there. Obviously, Generation Development Group has come a long way over the past few years. Like I said at the opening, we've really diversified the product set to make sure that we're not dependent on any one product or any one business or any one channel. I feel like we've got some great opportunities moving forward. Obviously, that combination of Evidentia and Lonsec Investment Solutions going out to market and being #1 there in terms of not just FUM, but the product set and proposition that they have is going to drive further operational leverage within our business. We've got great momentum within the investment bond space. And obviously, the research business continues to grow and strengthen in terms of that brand moving forward. We've been -- started the process of obviously reshaping our business to make sure that we've got those clear accountabilities and we're optimizing all the performance of every asset that we have. And in terms of any sort of organic or inorganic opportunities or any strategic things that we'll look at doing moving forward, we're definitely not going to get ahead of ourselves. I know we've done 2 pretty big acquisitions over the last 8 months that I think have been good acquisitions for the business, the right acquisitions for the business and something that we wanted to do. But we're very, very prudent and very measured and considered on anything that we'll be doing moving forward. And we want to make sure that everything that we have done over the last 18 months is consolidated and the leadership and the executives within those teams have got those businesses absolutely humming and performing to the degree that we would like them to. Again, a big thank you to everyone that's supported Generation Development Group. We look forward to returning that vote of confidence through our performance over the next 6 months and coming years. So thanks again. And thank you, Simon and NWR for facilitating the webinar today.

Great. Thanks all for attending.