HUB24 Limited (HUB) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the HUB24 Limited 2020 Full Year Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Andrew Alcock, Managing Director. Please go ahead, sir.

Good morning, everyone, and welcome to the FY '20 results presentation for HUB24. Thank you very much for your attendance and interest in our company. I'm Andrew Alcock, the Managing Director. And today, with me, I have Debbie Last, our interim CFO, who will also be presenting with me. So as we said, we will do our presentation and then leave sufficient time for questions and answer them. Just moving to the next slide. And I do trust -- it's our standard statement here about our purpose, but I do trust, as you see, as we present today, how we, across our 4 brands, do connect our customers to innovative solutions, and that's what HUB24 is about. It's about continuing to innovate to create value and transform the landscape we're in and, of course, create value for customers and shareholders. I'm going to move on to the financial highlights slide and give some high points from that next. Financial year '20 has been a successful year of growth for us. We have seen impact across the economy and had economic factors that impact businesses in general and, of course, COVID-19. But in that context, HUB24 has continued to grow and performed very well. As you can see, our platform revenue is up 37% year-on-year at $74.3 million. And our platform underlying EBITDA and our group underlying EBITDA are both up around 60%, platform being $28.7 million and our group at $24.7 million. Underlying platform EBITDA margin is also up from 33.3% for FY '19 to 38.6%, so seeing expanding profitability margins in the business as we grow moving forward. Our underlying NPAT is $10.1 million, up 49% on last year. And Debbie Last will talk us through a reconciliation from our EBITDA to the NPAT figure and the statutory NPAT figure when we get to her part of the presentation. We finished the year with $17.2 billion of FUA, which is funds under administration, which is up 34% on FY '19. Currently, as we see it on Friday afternoon, we were at $18.5 billion of FUA. That's an unaudited number, of course. But that's representing some market movement and a great start to FY '21. Good result in terms of the FUA number. As you may see later on in the pack, we were impacted by approximately $1.1 billion of negative FUA movement in the second half of FY '20, which, if you added that back, would have us at $18.3 billion, $18.4 billion. So a great year in terms of financial highlights. We're delighted to be able to present that to you in a marketplace that's challenged very much. So we think the business is doing extremely well, and we're very positive about our future. Turning on to the next slide. Today, we'll cover a few things about our continued strong business growth, the opportunities we're seeing, touch on our strategy and how we're delivering that, and also, of course, talk about our managed portfolio leadership and innovation in that space. The business has demonstrated resilience through COVID with growth and our market-leading solutions actually proving themselves to advisers and customers that they really can make a difference in troubled times or volatile times. And we'll talk a little bit about that as we go through as well. And we'll also talk about how we're positioning HUB24 for the future. You'll notice that we've updated our FUA guidance. We've now got a guidance statement for FY '22, which is we're targeting FUA of $28 billion to $32 billion for the end of FY '22, obviously, on the basis of stable markets, our ongoing business terms and no further unexpected or significant unexpected impacts of COVID that may affect things. However, we're very, very positive. We've seen the business respond and continue to grow through the COVID situation to date. And that guidance statement is effectively adding $6 billion to our guidance range and rolling out one year from the statement we previously had, which was $22 billion to $26 billion for FY '21. Moving ahead a couple of slides, I'm turning to the business highlights slide with the graphics on it. In terms of reviewing our scorecard for the year, and we'll drill down on some of these as well as we go through the presentation, but we've absolutely maintained our focus on our customers and our people during COVID-19, and I've got a slide to talk about that next. We've continued to be awarded and recognized in the industry. We'll break that down a little later as well. The business has a very strong pipeline across multiple parts of the marketplace, across some emerging advice markets in Australia as well as boutiques and institutions and so forth. So we've got a continued strong pipeline. We are seeing activity. Things haven't fallen off the edge of a cliff through COVID. There are interesting conversations going on across the board for HUB24. We've maintained our second place for the year in terms of quarterly and annual net flows. And we've, obviously, maintained our market leader position in managed portfolios, which I'll also talk about in a few minutes. The year was a record in terms of annual net inflows of $4.95 billion. We've progressed further with our technology initiatives in launching HUBconnect and launching some advice documentation compliance tools we've got in pilot, which we aim to help advisers and licensees manage their compliance burdens as well as build advocacy for the HUB24 platform. In Paragem, we had 13 new advice practices as well. So that's a snapshot of our scorecard for the year. I'm now turning to our specific slide on the impact of COVID-19, and HUB24 has continued to grow while adapting to COVID-19. It's certainly been a bumpy road for us all in many ways, but I'm pleased to say that our business is performing exceptionally well and continues to grow in that context. Even yesterday, we saw the opposition spokesperson for financial services commenting on the growing advice gap in Australia, the demand for advice is increasing, which is a good point in terms of HUB24 being a platform that clients use with advice. More and more, there is demand for our type of solutions and demand for advice in the marketplace regardless of the conditions we're finding ourselves in. On the right-hand side of the slide, just drilling down briefly, in terms of our customers and our team, we seamlessly transitioned to a remote working environment without interruption to clients at all. We maintained service levels and, in some cases, we absolutely exceeded them in the context of materially increased trading volumes and customer inquiries. There were days where we had multiples of trades 10x our normal trading volumes during the height of rebalancing during March when COVID hit, and our business performed exceptionally well without interruption, meeting those service levels and helping our customers manage their portfolios. Absolutely, during the time, we also demonstrated the value of our solution with advisers and clients being able to efficiently rebalance if they were using HUB24 managed portfolios, very different to -- if you were using managed funds or were taking advantage of that portfolio capability, we could rebalance clients very effectively. We can also take advantage of some tax optimization technology we have to maximize or minimize outcomes -- tax outcomes for clients and give them the best opportunity moving forward. Our distribution team has been actively supporting advisers and helping them leverage our technology to help their customers as well as work remotely. We've been very much focused on our customers and, in fact, the investment we had in expanding our distribution team over the first half, and we finished recruiting that team in December, that investment has actually helped us provide support to advisers and continue to grow the business and prospect. We actually delivered some service enhancements for advisers as well around pension drawdown rules to make it easier for advisers and customers to implement those rules to suit their circumstances rather than some others in the industry who just had a one-size-fits-all approach and caused issues for clients and advisers. At HUB24, we're about giving people choice and flexibility, and we certainly did that by rapidly implementing technology changes. And of course, we had the timely payment of early super release requests. A lot of people ask us about how impactful that was at HUB24. It's less than 0.1% of our FUA -- of our funds under administration, minimal impact. But moving to the left-hand side of the slide, in terms of the impact of the business during COVID, look, we still had record net inflows for June quarter. There was a slow start in April as advisers bunked it down and had to start working remotely and supporting their customers, but we saw an improvement in May and June, ending the year with record annual inflows of $4.95 billion despite the impact of the pandemic. Of course, there was volatility and significant market movement during the second half, the impact of $1.1 billion negative FUA movement in that half, but also in that context, still finishing the year up very high with FUA at $17.2 billion. The growth in the number of the advisers continued in quarter 4, in the June quarter. So even though the market was distracted, we still managed to have 110 new advisers during the June quarter and still signed 34 new licensee agreements. So business development has continued in the context of COVID. And as I said earlier, our pipeline is strong, and the drivers for selecting HUB24 and specialist platforms are continuing in the marketplace. That hasn't changed. The shifting advice proposition in the market, the shifting need for best solutions hasn't changed, and we're seeing that drive flows continually to the platform. We were, of course, impacted by lower interest rates that have offset -- that have impacted our revenue in terms of cash account fee income. That's partially been offset by higher trading volumes as people balance their portfolios and also higher cash balances in the business. I'm pleased to say that our success in our financial results are not reliant on any government or third-party concessions, and we've not entered into any deferred payment arrangements. The business is standing well and operating well on its own. And profitability continued to increase in the second half with our underlying EBITDA for the second half up 11% on the first half in the context of the pandemic. So overall, in summary, though the impact of the pandemic is uncertain, we're continuing to grow. Our business is robust. We've demonstrated our product capabilities and how they can help in situations like this with clients. And there's some interesting case studies and facts we can share with you later on about that. And we've shown operating -- operational strength, actually winning award or winning a survey in terms of advisers seeing us having performed very well during the pandemic. So we've had some adviser advocacy growth in this period as well. Moving on to the next slide. We're continuing to be recognized by the industry for functionality and customer service, I'll talk more about our managed accounts awards in a few slides' time, but for the fourth year running, we've won the first place award for the Investment Trends Managed Accounts Report. In the Platform Comparative (sic) [ Competitive ] Analysis and Benchmarking Report also from Investment Trends, we've received first place for our product offer and integration and equal first place for service. In the Planner Tech adviser sentiment report, we've got second place overall for satisfaction and advocacy. In fact, we were ranked #2 in 17 -- ranked in the top 2 in 17 out of 25 categories in that report. So HUB24 is continuing to be well received by the marketplace by independent researchers and by surveys of adviser sentiment as well. On to the managed portfolio slide. We absolutely are continuing to lead the market in managed portfolios, and we're continuing to innovate and invest in this space. On the left-hand column, just drilling down on that, some of the specific awards, first for functionality, first for our managed accounts reach, first for primary relationships and the highest adviser satisfaction for managed accounts functionality in those particular surveys and reviews. During COVID-19, we've seen how managed portfolios can absolutely come into their own and really showcase how they add value or can minimize cost and fees for clients when they do need to transact. So we're very proud to say that in this environment, we've actually helped advisers and clients rebalance their portfolios very efficiently, and that's one of the core propositions of managed accounts, delivering real tax optimization benefits. There are examples where we're using HUB24's tax capability in terms of picking tax parcels when rebalancing compared to other propositions in the marketplace who don't provide that flexibility. Thousands of dollars of benefit to clients with that functionality alone being proven time and time again during this period. Also transaction cost savings where, if people are rebalancing their portfolios, they're only buying or selling the underlying stocks that they're rebalancing as opposed to buying or selling an entire managed fund with a buy/sell spread. And so we've seen that as well in this marketplace and receiving accolades from advisers about how this functionality has really come into its own and proven that it actually creates value for clients. So we'll shortly be in the market with a campaign quantitatively highlighting some of these benefits. We've done some research with Milliman on the benefits of HUB24 managed portfolios, and we'll be taking that research to market in the next few weeks. We do provide the leading solution in the market with extensive choice. We added 108 portfolios in the year, and we're continuing to invest. And we're currently in the process of streamlining our managed portfolio structure. We are moving our existing portfolios into an MIS scheme. We do have 100 MIS scheme portfolios already. We're streamlining that to be the foundation for future innovation, and we're talking through that with the market right now. On to the next slide in terms of market share. On the right-hand side, you can see that on a quarterly and an annual basis, and the latest data is available as at end of March '20, we've maintained our second place in the market in terms of annual net flows and second place in terms of quarterly net flows, which I think is a phenomenal result considering we started the year with 1.3% market share, yet we are the second highest rank in terms of flows. On the left-hand side, just a ratio chart there, you can see HUB24 punching above its weight. Effectively, this is our share of new net flows compared to underlying market share. And you can see the trend there on the left-hand side of the chart that specialist platforms, generally, on the left-hand side are performing well above expectation with increasing market share with institutional platforms continuing to decrease in market share. Our market share in the period has grown -- the period to March 31, 2020, has grown from 1.3% to 1.9%. I'll now hand over to Debbie Last to present our financial results.

Thank you, Andrew, and good morning, everyone. I hope you all are staying safe in these COVID times. On Slide 13, we present the group financial results. The group financial results for the year 30th of June 2020, show an increase in group revenue of 14% to $110 million, up from $96.3 million in comparison to the prior year. The majority of this increase has come from our largest segment, the Platform business, which is up 37%, which we'll talk about in a bit more detail below. Revenue from our licensee, Paragem, was $29.6 million, down 16% on last year, due to a number of practices moving to a self-licensing model. This is offset by direct costs. However, during the course of this year, 13 new practices joined Paragem, reflecting the continuing migration of advisers away from institutional licensees. The IT Services segment revenue was $6.4 million, down 9% from the prior year. This is reflective of IT services spending more time on internal development activities, including HUBconnect. After completing a strategic review of the IT Services business, HUB24 has decided to no longer provide technology hosting services to new clients. However, it will continue to service existing clients. We will look to closer align the agility services with the platform business and the broader financial services market. After direct costs, gross profit has increased 32% to $61 million, up from $46 million in the prior year. This has increased our gross profit margin from 48% to 55%. The group continues to invest in the business to support growth, and this has resulted in group operating costs increasing by 18% to $36.2 million, and I'll talk about this on the next slide. The results of this is a group underlying EBITDA of $24.7 million, up 60% from the prior year, which has been largely driven, as I said before that, from the segment, the Platform segment. Underlying impact was $10.1 million, up 49% on FY '19. Continuing profitability has meant that for the first time, HUB24 is able to issue a fully franked dividend. This has resulted in a full year dividend of $0.07 per share, up 52% on prior year's. This is in line with our Board's previously disclosed target payout ratio of between 40% and 60% of annual underlying impact. It is expected that now the company is profitable and all tax losses have been fully recouped, but in line with our policy, future dividends will be franked to the maximum extent possible. Turning to the next slide, group operating costs. The breakdown of the growth in group operating costs half-on-half show that we have invested in people to support our growth initiatives. We saw an increase in headcount of 18% or 41 individuals up to 263 staff as at the 30th of June 2020. This reflects an investment in our sales and distribution team, underpinning growth in net flows, but also an investment in the innovation lab, which is focusing on data management and integrated solutions and our IT development team. Growth half-on-half reflects the timing of when staff were recruited. And whilst we will continue to invest for growth, cost growth will be constrained in FY '21 given the COVID environment. The decrease in premises costs reflects the adoption of AASB 16, the new accounting standard, with premises leases now being capitalized and amortized. Now turning to Slide 15, you will see the Platform results on a stand-alone basis. As Andrew has mentioned before, funds under administration grew from $12.9 billion in the prior year to $17.2 billion at the 30th of June 2020, with record annual net inflows of $4.95 billion, despite the challenging and disruptive markets. At the close of last week on 21st of August, funds under administration stood at $18.5 billion. This growth in FUA and inflows has been driven by transition opportunities as well as organic flows. The new business is being generated from national key accounts, mid-tier licensees, self-licensees and brokers. Platform segment revenue has increased 37% to $74.3 billion, and we'll talk about the drivers of that revenue on the next slide. This has led to gross profit for the Platform segment at $55.7 million, up 38%. You will again see the investments in growth in our people impacting operating expenses. The result of this is an underlying EBITDA for the Platform segment of $28.7 million, up 59% on the prior year, with an underlying EBITDA margin increase of 6% on the last year to 39% at June 2020. Now turning to Slide 16, Platform revenue, you'll see a waterfall of the Platform fee income as a percentage of FUA. Platform revenue margin was compressed -- has compressed from 50.4% in the second half of FY '19 to 47.8 % in the second half of FY '20. Even though equity markets were negatively impacted by COVID, the FUA on the Platform is not fully correlated to the movements in equity markets. This is due to a number of factors, including the asset mix of the FUA and also our tiered rate card. FUA impacts admin fees, which has seen admin fees fall by 1.6 bps in the second half. However, market volatility has also seen a significant increase in asset trading volumes, driving increased transaction fees and higher client cash balances on the platform, which has resulted in higher-than-expected cash account income. Cash balances remain at these higher levels. Turning to Slide 17, you will see the Platform growth delivering economies of scale. We show here that consistently, there's been strong growth trends not only in Platform revenue but in gross profit and underlying EBITDA, and this trend has remained unbroken since 2013. Turning to Slide 18, you will see the key movements between our underlying NPAT, which forms the basis of our dividend payout ratios and underlying EBITDA. Share-based payments of $4.4 million in FY '20 have increased by $2.3 million compared to the prior year. This is largely due to the initial recognition of a special LTI, granted in December 2018 in recognition of capping executive salaries. The performance hurdle of this scheme is 33% FUA on a CAGR basis over 4 years, and it vests in June '22. Given the growth in the business and our confidence in the future FUA growth, we have taken the view that this performance hurdle is more likely than not to be achieved and has, for the first time, started to recognize an expense in the profit and loss account. Amortization and depreciation of $5.3 million has increased year-on-year by $2.7 million. This growth reflects the continued development of our platform as we've invested $6.4 million in IT development, which has been capitalized. $1.7 million relates to lease depreciation in accordance with the adoption of AASB 16. The abnormal items, which Andrew has touched upon, includes $900,000 of deferred consideration in respect of our purchase of the Agility business in 2017. This is offset by an impairment of the Agility business following the strategic decision to no longer provide technology hosting solutions to new clients as we look to align this business closer to our platform business and the broader financial services market. The restructuring cost of $1.8 million are in respect of 2 key strategic initiatives, the first being the change of trustee from Diversa to EQT, which has been executed effective 31st of July this year. The second is the implementation of the managed investment scheme structure to streamline existing IDPS and superannuation managed portfolios. I'll now turn back to Andrew.

Thank you, Debbie. Turning to strategy and outlook. I'm going on to Slide 20. And the market dynamics are absolutely creating opportunity for HUB24, and we're absolutely committed to taking those opportunities. Things haven't sat still, and they continue to change. We've seen that with what's happening in the marketplace, with even more uncertainty in bank-based businesses, with the announced sale of Colonial, with the strategic review of the wealth businesses at Westpac and the potential sale of Panorama in the wealth business there, and with MLC also deciding with the announcement that Colonial had sold, that they would try and do a trade sale for MLC with NAB announcing that as well. Lot's happening in that space. There's continuing platform switching. I'm in column 2 here. And it's surging. And you've got to be maintaining market leadership and functionality to win in that space as HUB24 is. So we're seeing the continued switching and the continuing evolution of platforms. Specialist platforms are consolidating their position. We're continuing to increase market share. And there is increasing demand for noncustodial reporting services, managed account solutions and the type of features at HUB24 spending time on in terms of the personalization of managed portfolios so that client value could be created by allowing tailoring within a portfolio, and it can also allow fund managers use technology to tailor outcomes for different cohorts of clients, something that wasn't possible with managed funds, that hasn't been possible with managed portfolios in the past, HUB24 leads the market with creating that execution alpha, if you like, in that space. Back to column 1. The demand for advice is increasing. I mentioned earlier that it's hit the political landscape. We've realized as a nation we've created a gap with some of the regulatory change, and we need to close the gap. To help do that, we're looking at how we can help with advisers service customers with low balances. And so there's an advice gap there in terms of how do you provide good advice to clients with good investment outcomes and good asset administration. That trend is growing. There's an increased demand for tools to help clients take greater control and have an integrated view of their wealth as well, and there's an increasing demand for solutions that provide value and support client best interest duty, which I think a lot of our proposition naturally leads to. Column 3. We're seeing a shift in how the advice market works. There is certainly a trend increasing in self-licensing. In fact, in quarter 2, there were many advisers still leaving or changing where their licensing is. I think it was up to 700 advisers shifted in the third quarter even in the context of COVID-19, with the bulk of them moving to self-license or privately owned licensees. That's continuing. That is the sweet spot for HUB24 in that that's where most of our advocacy has come in the past. However, we're also seeing the rise of new advice collectives and new private advisory segment, where you've got businesses with 10 to 50 advisers starting to arise, share a license. They're large enough to operate differentiated advice offering, but it seems to be a growing segment. We're very well positioned there, having established relationships with some of those groups to date. And that grouping in the market is forecast to grow in terms of the adviser servicing of $100 million of funds under administration or advice per adviser to $200 million by 2025. So it's a new growing segment. We've got our fingers on the pulse, and we're certainly active in that space at the moment. Licensee structures and services are continuing to change. Hence, our investment, that I'll talk about in a few minutes, in technology and data to help licensees and advisers meet their compliance obligations. Those licensees can no longer rely on product margin subsidies, grandfatherings ending that. They have challenges in getting quality data, and they really need to be able to retain flexibility for advisers whilst investing in processes that can help them meet their obligation. So there's a shift happening there, and HUB24 is certainly providing solutions to help with that. So turning the page to how we're positioned to leverage these opportunities. In terms of the growing advice gap, we are working with Aberdeen Standard Investments to build an integrated platform. We call it Hub Access, which is a simple, low-cost platform solution with investment managed portfolios to work with a bionic advice or robo advice solution integrated to help advisers service that growing gap where clients may have smaller balances and they need better and more efficient ways to service those clients. We're leading the charge with that, and we'll shortly be implementing that in pilot mode with a couple of advice practices. The continued evolution of retail platforms. Of course, HUB24 is continuing to invest in product innovation. We're continuing to lead change and challenge the status quo. We're developing our whole of wealth reporting solution being HUBconnect, and we're integrating with more data solutions. It's working for us as a business strategically. It's allowing us to grow FUA on the platform. We're progressively signing up new customers to HUBconnect, and we're certainly looking at extending the functionality moving forward. And in order to support the shift to platforms like ourselves, we have the capability to help us do bulk migrations, which is helping us grow the business and will certainly help us with the ClearView opportunity, which we've talked about previously. The demand for managed account solutions is growing, and I wouldn't be surprised if it continues to grow, given the experience of advisers and customers during COVID and the utility that managed account solutions have provided in that market of disruption. We are leveraging our market-leading position, and we are continuing to build market share. We're delivering enhanced portfolio reporting, enhanced research tools and comparison tools. We're going to market with that white paper that we've worked on with Milliman, which talks about the quantitative benefits of a HUB24-managed portfolio, really helping advisers and clients understand the benefits they can get from our platform and demonstrating that not all platforms are equal, not all managed accounts are equal, and certainly HUB24 is actually adding value to client outcomes with good investment advice and the use of the platform appropriately. And we're also going to be providing education and implementation expertise. We have a new head of managed portfolios on our team that's working actively with licensees in the market to educate advisers about the uptake of that solution. Technology innovation and greater connectivity. We have our innovation lab, as Debbie has talked about, which is looking at how we leverage emerging technologies. They're using some artificial intelligence capability right now, already working with some licensees in pilot mode to see how we can help do that or help licensees with compliance burdens in looking at standards of advice. That builds advocacy for our platform. It also helps our key clients' licensees. And also, we hope to generate new revenue streams for our technology services business in that regard as well. And this ongoing investment in us building new data sources from new product providers through our Agility product set and also through HUBconnect as well. In terms of advice transformation, I've mentioned we're partnering with licensees to help them with compliance activities, and we've been continuing to grow Paragem, including building an adviser community and rolling out some practice consulting services. Turning to the next slide. Just a couple of points here because we've mentioned some of these earlier, but in terms of building foundations for growth, and Debbie mentioned that we have changed trustee for HUB24 Super. That happened on the 31st of July, and we're very excited about working with EQT moving ahead as they support our business growth and our strategic objectives moving forward. We're also, as we've mentioned, streamlining our managed portfolio capability. We're building foundations to allow us to innovate and add more features to customers through that, that are better served through an MIS scheme moving ahead, and we've certainly done a review in our Agility or IT service -- sorry, IT Services business. We've got new executive leadership over that business more aligned with the Paragem business, and we're sharpening our focus there on how we can add value to financial advisers beyond the traditional stock broking clients, how we can build new services like the compliance service I was talking about as well. So looking forward to seeing that business grow more and more in the future. Turning to our outlook slide. We're absolutely committed to continuing to create customer value and shareholder value moving forward. We are positioning HUB24 for ongoing success by supporting advisers and customers, showcasing our capabilities and demonstrating to them value that our solution adds in the marketplace to a next level of detail rather than just talking about the managed accounts. Let's show you why and let's show you how that benefits to your clients. And of course, we will continue to innovate to support ongoing growth. We are pursuing growth. We're leveraging existing relationships and also leveraging our current strong pipeline to do that. And we are seeking new opportunities actively across the current licensee and adviser segments as well as the emerging segments I touched on earlier. We're extending the IT Services model to the financial advice market, and we're also looking at providing services to emerging technology and data providers. As you may know, we have very robust data access integration level that we use to support other technology providers in the marketplace. We're looking to extend that to other clients moving forward as well. And of course, we'll be evaluating securing opportunities in the market -- evaluating appropriate opportunities in the market and securing them for our future in terms of adding to our service mix or to our business model. So we're actively in the market looking at those opportunities at the moment, and we'll continue to do so. We expect the business to have continuing strong financial results. We expect to leverage our FUA growth as we have with scalability and increased profitability. And as I said earlier, we're targeting FUA now $28 billion to $32 billion for FY '22, subject to market conditions, our terms of business and unexpected impacts from COVID. And as I failed to mention on the first slide and Debbie touched on, we have determined a dividend of $0.035 per share, which is fully franked, as part of our final dividend for FY '20. As always, we look to balance cost increases in the business with revenue increases to build profitability, and so we expect to be careful with cost growth in this period but without constraining growth of revenue and constraining growth of opportunities there. So we had an investment in the first half of FY '20, which has come through in the run rate for FY '20, as Debbie said. And we made that investment deliberately because we see the prospects of the business growing forward. Obviously, that has been impacted by COVID with lower FUA and cash rates. However, we're comfortable that this year, we're well set moving forward to grow the business, and we'll be applying appropriate restraint to cost growth subject to accelerating investment for new opportunities if and when they arise. And we're very confident that we have new opportunities coming as well. So from that perspective, thank you very much for your attention today and for dialing in. I'll hand over to our moderator to take questions.

[Operator Instructions] And our first question will come from Nicholas McGarrigle with Ord Minnett.

Just a few questions from me, if I may. You and Debbie touched on the cash balances remaining at high levels. Can you give us a rough sense on what that percentage is and if you've seen it, in terms of absolute dollar terms, tick down since the height of the fear around the pandemic when people were selling stocks?

Nick, sorry, Debbie and I are at different locations because of COVID, but we can't see who's going to respond. But Nick, certainly, it's gone up in absolute dollar levels, and the percentage is higher than average. We typically don't comment on the percentage, but it's normally between the range of 8% and 13%. It's well above the midpoint of that. But it does -- is hovering around depending on new business flows. We've not seen people taking cash off the platform to find alternative cash investments. We've seen people leaving cash in the platform to take advantage of when they rebalance and repurchase investments if they are looking at market opportunities and thinking about that. So hopefully, that answers the question for you. It is certainly higher than midpoint, and it's been quite resilient for a few months now.

Yes. No, that's fine. In terms of the FUA target for FY '22, can you just talk to us about how that gets built up in terms of being what you're including? Is it accounts that you've won that you'll continue to get more share of wallet? Does it -- obviously, it would include the ClearView transition and certain flows there. So maybe just an update on what kind of client flows you're including in that number and what your market return assumption is in that range as well?

Look, I can tell you, indicatively, the way that we think about budgeting for the businesses, we think about market returns of around about 5% per annum, and we do think about -- when we look at our growth prospects, we do a couple of different methods of analysis. We actually do a top-down based on market share, ratios and our growth historically in terms of net flows. We actually consider outflows across the base of business. So we actually think about the gross flows coming in, what level of outflows we'll have as a percentage of base of our business because as the business grows you're paying pensions and so forth, and we're thinking about that from a macro level. But we also do a bottom-up build based on our pipeline and based on client, the client opportunities to come up with that methodology. So certainly, we're looking at flows from existing clients, we're looking at flows from recently contracted clients. In that number, we're considering the ClearView transition as well. But I do have to say that it's a guidance statement. We'd love to outperform that. Generally, we have, in the past, delivered ahead of how we thought the business is going. And in fact, we've rolled the statement forward a year and said, let's add $6 billion to it. So in there, if you think about market movement and so forth, we're thinking about flows of $5.5 billion to $6 billion -- sorry, of FUA movement up in that range from '20 -- completion of '21 to the completion of '22. There's a broad range there, Nick, of $4 billion. We'd like to exceed that, but it's not hard to see. If you have those sort of run rates, $5 billion to $6 billion [ and you add ] the market movement, it gets you to those levels.

Sure. And when you say 5% market movement, do you then take your normal [ beta ] on that and comes down to like 3%? Or 3.5% or is it 5% in your numbers?

We would actually then do our correlation correctly through that in terms of looking at how correlated we are to those markets, yes.

Understood. And I think in terms of the prior year's rental expense just so -- I'm not sure if that was detailed in -- it may be a question to Debbie. Just what that was? You mentioned that it was $1.8 million of OpEx that has come out in FY '20 due to the new accounting standards. What the number would have been in FY '19 which is still included in the accounts that you published, [ if we've got it, ] so we can compare like-for-like in terms of those underlying EBITDA?

Nick, I don't have that to hand, but I'm happy to provide that data for you.

Yes. That would be great. And then maybe one last one. Just what do you think the longer-term strategic outlook for the licensee segment is given some of the ins and outs. I think it's good that you've said that there's 13 practices that have joined, but what you said a long-term future for what that business being? And if there's a risk that you potentially subsume the IT Services segment within the Platform segment over time given the losses there are sort of being relatively consistent now?

Okay. Two answers for that. Absolutely, with the licensee segment, it remains a strategic asset to us, but it isn't material to our bottom line, as you know, Nick. The -- all licensees have been hit in the last 12 months with paying their insurance premiums and asset level increases. We certainly have been trying to grow that business, but we're obviously always looking at opportunities about the future of that business and how that fits into the group. Right now it's building value for us. Some of the prototyping we're doing for group of 5 licensees is being borne out of Paragem. It's absolutely yielding value and results and advocacy for those relationships with the HUB24 platform. So whilst the business in its own -- with its own bottom line is negligible, I would -- it's absolutely adding strategic value to the business. However, we're open to the future of that and how we work with that business as we are with any of our segments. So at the moment, it's delivering strategic value for us. I think you'll see that the bottom line will improve over time. And certainly, that's a hope we're in the middle of doing some repricing for advisers and building additional services, and we're committed to growing at this point in time. In terms of the technology services business, you'll notice that the second half losses look far less than the first half loss, and we're absolutely starting to sharpen the focus there. We have distracted that business to build functionality and features for the HUB24 platform. For example, we use the resources in that business to entirely rebuild the data feeds for X plan, which is the largest client portal in the marketplace for advisers. So we've refreshed all those things, and we've actually leveraged the skills across our group for the best strategic outcome for the business. Nathan Jacobson is now heading up that business. We've absolutely got some new product ideas. We're absolutely in market now pushing those. And the marketing of HUBconnect as a data platform, when it's not used in adjunct with the custodial platform, is sitting in that business as well moving forward. So I think you'll see that business improve in terms of profitability. We have no plans at this stage to merge it in with the platform business. We just want to work close up with the platform business in terms of offering extra products and services to other providers and to licensees in the marketplace so that the 2 business segments together generate cross references and better results for each other.

In terms of the OpEx within the Platform segment, it was up reasonably over the period, but then obviously, when you add back the rental expense to FY '20, it was then even bigger growth number, which maybe was surprising given COVID. Can you talk about how you recruited for the team over the second half of FY '20 and what the outlook for OpEx would be given the sort of seemingly the recruitment that you've already achieved in FY '20?

Sure. Debbie, do you want to go first on that one?

Yes. Look, I think you're right, Nick, in the sense of the vast majority of the recruitment that happened in the first half. And so therefore, in essence, the second half is -- if you multiply that with 2, it's pretty reflective of where you can expect your OpEx costs going in the next year. So we have done the majority of the recruitment that we wanted for the business. And I think as we've mentioned previously, whilst we will invest for growth, we are looking to constrain costs, including FTE going forward.

To add to that, obviously, we always try to get the balance right for investing to make sure we can actually deliver the growth because you don't want to be caught short and unable to deliver. And so we've been investing and then impacted by COVID in terms of the revenue impacts there. But also in the OpEx, there is some COVID costs there. There's some costs for setting up people to work from home, software licenses and cyber security costs, increased insurance premiums; the insurance market is doing that across the board; and some additional work in terms of our product development and other compliance initiatives. So all sensible investments, and the growth there absolutely designed to support the business moving forward. And you'll see that leverage next year. We don't expect to have that level of cost growth next year subject to -- we, absolutely, will invest in pursuing new opportunities as they arise.

And one last one for me, and I'll stop hogging the call. Just in terms of -- the start to the year seems really strong. If we assume that the markets are up 5%, and your normal correlation to that, it implies that you're sort of running at a $400 million a month inflow rate, which is, I guess, similar to last September quarter. Is there anything I'm missing in that analysis that would lead to a different assumption?

If you average that, I think that analysis is robust. I think that's a sensible analysis. If you've looked at market movement and correlation and then said, therefore, your flow is that, that's a sensible number.

Our next question will come from Simon Fitzgerald with Evans & Partners.

Just my first question is a little bit more of a broader question on costs. You've talked about cost restraint in [ F4 ]. I'm more interested to know in terms of beyond that point, do you feel that you have the cost base and expense base to match the sort of $28 billion to $32 billion target of FUA in FY '23? Maybe you could sort of talk to whether you feel that the current employee base can deal with such growth. I mean Debbie just mentioned a moment ago that you've done the majority of the recruitment in the business, but interested in your comments there.

Look, from my perspective, yes, however, we do have variable cost growth or [ direct ] cost growth in terms of customer service personnel when those things happen. So that will be factored in. But in terms of investing in heavy hitters or executives and so forth, with our current strategy and our current initiatives, I don't see much of a lift there, hence Debbie's comments. But there is some variable growth based on number of customers and people to answer phone calls and so forth. Having said that, we're absolutely working on increasing those efficiencies. And every year, those ratio has come down. We've got initiatives underway that we think will allow us to grow the business and avoid hiring 5 to 8 people in our operations service center this year. So we're certainly banking on leveraging some of the investments we made in terms of electronic account opening and things like that. So I think it's safe to say that's an appropriate comment, Simon, with the caveat that it looks like we can exceed that target. That may change.

Sure. Sure. That's helpful. Second question just relates to the share-based incentive schemes. I'm just interested to know whether the additional costs were taken on a pro rata basis. Or should we expect that to increase again in '21 as we get closer to the FY '22 vesting? And maybe you could just remind us in terms of the FUA targets. Why they were set against -- sorry, whether -- why they were set against FUA targets rather than, say, revenue or, indeed, ROE or EPS?

Andrew, maybe I'll answer that and then pass to you. So the special LTI because it's the first time that we've recognized that, that it commenced in 2018, we have had a one-off pickup this year. That being said, it will have some further vesting through the quarter the next couple of years. So it certainly won't be the magnitude that you're seeing in this year's results. So you can see that as being one-off rather than run rate. With regard to why FUA, you'll see if you look at our other schemes, whether they be the rights or the options, most of them are correlated to FUA as well as ATSR, and that's largely to incentivize our staff to grow our business. I'll pass over to Andrew.

Yes. Thanks, Debbie. Look, Simon, we have usual LTI scheme that does target both growth and shareholder return being ATSR. And this particular scheme was set 4 years out or set for a 4-year period, and it was really about having executives, and there's about 15 to 20 people in the business agreed to forgo salary increases to help with cash flow and bottom line at the same time as to provide incentive for growth. That's why it was a FUA target, and it was a target on its own because it was an additional scheme to the usual scheme that has also target shareholder return.

Okay. That's helpful. Just one final question from me then. No doubt the disruptions around COVID-19 are resulting in some advisers, say, pushing back decisions about platforms. I'm interested to know whether you've seen things change at the moment, whether, say, some transitions have kick-started again and whether discussions have been reignited post sort of things settling down a bit.

I think it's situational. I absolutely think in our marketplace that we're seeing activity. I think the adviser productivity hit that we saw in April was largely because advisers had to scramble and work on their own disaster recovery or business continuity plans as well as look after clients and rebalance. So of course, they were going to not be writing or moving business as much as looking after existing clients. I think the industry, in general, though, if you're running a good advice business and your future thinking, and that might be a proxy for your already using or thinking of using a specialist platform because you're thinking about those components, you're not sitting in the old world. You've done a good job at conditioning your clients to these kind of events. We've seen in the GFC, 9/11 and certain other events that clients and advisers had rocky roads. So I think the profession has matured, and you've certainly got customers used to these kind of events and understanding they invest for the long term. And so there's less panic and far more certainty there, and hence, we are seeing advisers still continue to move. As I said, they're moving licensees, they're moving transitions, and we're still talking about opportunities. So I've not seen, in our business, a large amount of [ lets down ] tools at all. We're seeing activity and the green shoots of ongoing activity continually. I think there might be a productivity gap in terms of advisers still rebalancing existing clients, but they are all thinking about moving forward. Their reasons for change and their reasons for selecting a platform, which are underpinned by legal obligations, remain. And so when you've got other participants in the marketplace unclear on their strategy and not investing in the future and others investing in the future, there's really a driver to look after your clients and keep moving. So in our marketplace, we're seeing activity.

The next question will come from Siraj Ahmed with Citi.

Andrew and Debbie, just have a few questions. Just starting off with the FY '21 flow outlook. I mean you've given FY '22 FUA targets, but should we assume that the previous FY '21 targets still hold or is there some delay to it?

We're updating our guidance, Siraj. So we're setting -- we're now targeting for FY '22. FY '21, look, I think we -- barring any other impacts, I still think we fit inside that guidance, but we are actually updating to the future statement for FY '22.

Okay. And Andrew, just on that, can you just give us an update on the ClearView transition? I think there was a bit of delay when you gave fourth quarter update, but just what your expectations are.

Sure. We're still working with ClearView, and ClearView is still working with their current provider being Colonial. I think the project plans are starting to form up. So I think our announcement was that we -- and our pack -- sorry, our pack certainly says it will be in FY '21. That's still our goal. We'd like to bring it in as fast as possible. We're relying on third parties. But progress is being made, Siraj. So at this point in time, I still see it happening in FY '21. And are we talking about a transition of roughly $1.3 billion.

Okay. And just looking at FY '22, Andrew, the FY '22 target, if I remember right, your LTI, which was set last year, was in the range, right, $28 billion to $32 billion for the 100% vesting? I would have thought that your outlook is a bit better now given the ClearView -- you won ClearView and grandfathered commissions coming to an end. So just can you let us know how you think about it? Is this conservatism or is this something -- or just COVID...

Look, we'd absolutely like to exceed that. And it looks like we will update the market on it, Siraj. I think we're looking in the middle of an economic scenario, and we're looking in the middle of COVID-19 that we're trying to be realistic and prudent, but not dampening our aspirations. So I think it's the context in which the statement is being made that's important to understand. And I think most companies and boards are being careful with guidance and rightly so.

Yes. That's helpful. Just a couple of things -- a couple -- 2 more questions. Just on admin fees. If you look at second half '20, there was a bit of a step down compared to first half '20. Is that now leveled out? How should about it into '21?

In terms of the admin fees on the platform, they're affected by a couple of things, but typically affected by higher balances. So as we get higher balances, it is a tiered rate card, so you will see that flow through in percentage terms, but in dollar terms, the revenue per account is increasing, did increase in FY '20. The revenue per account increased and the cost per account decreased. So it depends on the mix of business, Siraj. We haven't done any wholesale repricing. We did make tweaks to our pricing over 12 months ago in terms of aligning with where the market was at with the way GST was treated and a few other things. That might have some impact around the edges, but it actually is better margined for some clients moving forward as well. So it depends on the business mix. It's not driven by competitive pressure. It's driven by the business mix by how much FUA will be transitioned, tiered rate cards. And in some cases, it's driven by large opportunities with large groups afford us -- afford that client a better rate card, but typically, we will have lower cost profile and so the same profit margins coming through.

All right. That helps. And just lastly, I think -- I mean you sort of seem to be talking about acquisitions or just new opportunities that you are actively in the market. Can you just give some further color on that? And are these bolt-ons -- bolt-on acquisitions? Or how should we...

Look, I'll talk about how we approach them. Clearly, I can't disclose anything, but -- and look, we've said this before, we're always looking and we're always active to what's going on in the marketplace. And even our opening statement is we're looking to create outcomes for clients. And if we can do that through either building new service propositions or bolting on businesses or consolidation, we'll certainly look at that. It has to be appropriate for our business. So there is a lot of change going on in the marketplace. There's a lot of opportunities being thrown up. We're seeing consolidation in the small end, we're seeing distraction in the large end, and we're seeing a whole lot of things happening through COVID and economic impacts, where there may be opportunities for us to bolt-on technology or product additions or even to look at other types of acquisitions. So I'm not just referring to acquisitions, we're also referring to how do we grow and what opportunities are there for us to diversify or add on different services in the business. So of course -- so we look at that appropriately. We don't want to get distracted from the opportunity in front of us. We absolutely think the opportunity in front of us remains unprecedented even in the COVID scenario. It's a delight to be talking about how we performed in this particular time in the market, and we're very, very bullish and excited about the future. So we'll look at those appropriately, and we'll talk to the market if and when we do look at changing either our strategy or enhancing our value proposition or potentially acquiring something.

Sure. Andrew, I'm just clarifying. I mean previously you mentioned that you wouldn't be looking at other platforms. It will be more tech or new services. Just confirming if that's still the view or you look at smaller platforms or something?

Siraj, I think it's up to us to look after our shareholders and look at all sorts of opportunities in the marketplace. It's not that we haven't looked at other platforms in the past. We certainly have, and that's been well played out in the press. But our view has to be that it has to be earnings accretive and not distractive to what we're doing. So sensible opportunities. HUB24 is absolutely committed to getting the best outcomes for customers and shareholders. If there's a sensible opportunity across those spectrums, that's something we'd consider as well.

Our next question will come from Matt Johnston with Macquarie.

Maybe just a quick one, first up, obviously, for you, Debbie, around the $300,000 third-party claim in the provision line. Can you say what that's relating to?

So when we are, in our Platform business, processing different client transactions, et cetera, time to time, there will be third-party claims that are made. You can imagine in a COVID environment with high transaction volumes that -- the propensity of that to occur in a COVID environment is higher. That being said, our long-term trend has been very low. So I think the way to look at it, Matt, is that we've been conservative here recognizing that these claims often will occur but may not eventuate until after year-end. It's broken up between specific and general, but our long-term experience and our overall experience through COVID has been very, very strong.

Okay. And as a follow-up to that, given the volatility and as the business grows, do you feel that HUB will need to invest, I guess, process or trading, given that it probably gives you a good look at what the future trading might look like?

The way that I'm really looking at that is to see how the performance of team, the client service team has been through COVID. When we look at the March, April period when the volumes were 300% above what we normally have, I think the call-outs were that a lot of the automation that we'd already done absolutely came to the fore. The relationships we have meant that the communication was really strong. And we came through it relatively unscathed at all. And in actual fact, we maintained our service standards all the way through. So I think this is, of course, something that you always want to keep an eye on, and you continue to want to get straight-through processing wherever you can, but today, it's been a very good performance.

Matt, it's Andrew here. We progressively think about these things. So whether it be trading or any other key processes, we're continually looking at our process, and we've had to, to grow with such good results and with such good customer advocacy over the last few years. So we progressively look at all of the key processes in the business and fine-tune them on an ongoing basis. We -- as a testament to us, we had trading volumes off the charts, and we still deliver them in time within service standards with people working from their homes. So there's no need to have a radical shift in our approach or to change the way we think about investment administration. It's just an ongoing part of our DNA that we keep looking at improvement.

Okay. Great. And then maybe just a quick comment on the difference between the MIS structure and the IDPS structure from, I guess, an operational perspective.

Sure. From an operational perspective, there's really no change for customers or advisers. It's a disclosure document change. So there's no change to our business processes. Generally speaking, it's a disclosure change. There's a wrap-up being put around the portfolios. That then allows you to include in those portfolios things like other unlisted or wholesale investments because you've got a RE in MIS scheme. It allows us to look at some of the future development we're doing. So really, it's about disclosure documents. There's operational changes in how we account for this for back-end accounting and scheme property and so forth. But from a client or an adviser perspective, there really is no change.

Okay. And final one for me. Just with the change to equity trustees, can you comment on any capital requirements or any differences in the fees versus Diversa?

Sure. Look, the fees are pretty much line ball. There might be some benefits there as we grow that we didn't have with Diversa, but they're pretty much line ball. The capital requirements, as per our accounts, we do have, let's call it, statutory capital, but there's an operating risk financial reserve that APRA requires for all superannuation funds. We do fund part of that, and the super fund itself from the members also fund part of that depending on provisions and so forth. So there is a requirement there to fund that, and hence, you'll see loans disclosed in our accounts for that. There was a loan to Diversa that was repaid, and there was a loan from us to EQT to fund that, and we will continue to have to fund that as we move forward.

Okay. And just on that, is it the same amount between the 2?

In terms of the funding?

Yes.

Well, it's a statutory amount of 25 basis points. So it's a legal requirement. So it will be at the same ratio and the same amount. Had we stayed with Diversa, the outcome would be to exit the same as going to EQT. It's a reserve that's held by the trustee or in the fund in case there's some sort of issue where members need to be made whole. We've never had a claim or use of the reserve. It's just there to protect members. It's the same rate regardless of trustee.

Our next question will come from James Cordukes with Crédit Suisse.

Just a quick one on the LTIs and just more broadly on remuneration. So the special LTI grant that's related to those 15 employees, you also say that, that was to cap fixed rem for the 3 years to September 2020. So just interested in what's happening after that and whether those staff will leave us the kind of step-ups or whether we'll see another special LTI. And I guess if you could wrap that into a comment, I understand there was a broader remuneration review as well that kind of went on based on the annual account -- sorry, the annual report notes. So just what's going to happen to the employees post September 2020?

I've talked about our remuneration principles. And obviously, as a company, we need to secure, retain and develop talent in the marketplace. In our business and absolutely in terms of the growth profile we've got, we do have a remuneration process that's annual. Those employees have not been excluded from that process this cycle. Having said that, holistically, we've used a similar percentage increase that we do across the business each year. So any lift for individuals in that mix will be based on market salary rates. We do, do market reviews. We look at ranges. So if there is an increase, and yes, some of those people will have increases, it's within the means of the business and its normal spend on remuneration reviews across the board for the business and our budget. So we have an annual review process and the percentage we allocate to staff has not changed for FY '21 as has for FY '20. So we're certainly living with our means and making it work.

All right. And just a quick one. I mean CapEx actually declined year-on-year for the whole business in FY '20. I mean should we take that as kind of a we've reached the peak in CapEx kind of going forward?

Debbie or...

Andrew, would you like me to answer that?

Yes.

Look, James, we have got a young platform, which we continue to invest and grow, and constantly, there are new products and new requirements which would look for us to constantly be wanting to drive innovation across that platform. So whilst obviously we have to be [indiscernible] of liquidity and costs [indiscernible], we'll continue to invest in the platform as we see the right opportunities and the right innovation to keep that market-leading position that we hold.

James, if we do change strategy or want to invest differently, we'll let the market know, but we do have an ongoing investment program.

There are no further questions at this time. I will now hand back the call to Mr. Alcock for any closing remarks.

Thank you, everyone. In summary, FY '20, we think, has been an amazing result for our business, certainly given the environment in which we've operated in, in the second half. To have a business of this size punching above its weight, exceeding service standards, getting accolades from clients through turbulent economic times and still growing profits and still growing our FUA, we're very proud of that. The outlook is positive from our perspective. Yes, we've given statements about guidance. We always aspire to do the very best for our business. And some of our answers to questions today are based on where we are today. But as opportunities arise, we'll let you know. We're absolutely looking at different opportunities all the time. And we're very confident about our future. So thank you again for your attendance. We're very proud to be paying a fully franked dividend for the first time for HUB24 moving forward. I look forward to meeting with you guys or some of you virtually with Debbie as we do investor rounds over the next few weeks. Thanks very much.

That concludes our conference for today. Thank you for participating. You may now disconnect.