HUB24 Limited (HUB) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the HUB24 Limited FY '21 Results. [Operator Instructions] I would now like to hand the conference over to Mr. Andrew Alcock, Managing Director. Please go ahead.

Good morning, everyone, and welcome. Once again, thank you for your interest in HUB24. I'm very pleased to be able to present such strong results today and outline our achievements for FY '21 and talk about our efforts moving forward to ensure our future continues to deliver great outcomes for our customers, staff and shareholders and, of course, also assist the wealth management industry to build its future shape in Australia. With me today is Kitrina Shanahan, our Chief Financial Officer, who will also be presenting our financial slides in the pack and be available for Q&A at the end of the presentation. Just turning to the next slide. Our business this year is very different to when we spoke to you last year at this time in that we're significantly larger and more diverse as a result of great organic growth during the year as well as some acquisitions and some innovation as well. So in terms of an overview for HUB24 at the end of FY '21, we are a leading provider of wealth management products and services in Australia with superior functionality, market-leading managed portfolio capability, a comprehensive range of investment options for customers and advisers and also a data and technology solutions business that supports the financial services industry. Our Platform business segment is composed of the HUB24 Platform and the Xplore platform as a result of the acquisition earlier in FY '21. And our total custodial funds under administration as at 30th of June was $41.4 billion, over 3,000 advisers using the platform, and we had $18 billion in managed portfolio and funds under administration. With that, our non-custody or PARS, portfolio admin and reporting services, to give you a snapshot, at 30 June is $17.2 billion with over 7,500 accounts. In total, HUB24 has total funds under administration of $58.6 billion as at 30th of June. And moving to our Technology Solutions segment, also known as HUBconnect, we have 92 financial services clients or customers, 2 ranges of products in there generally, HUBconnect Broker, which is supporting tools and customer management tools for stockbrokers in the Australian marketplace; and HUBconnect Insight, which provides services to licensees, advice licensees in terms of business management, compliance and data insight. And that being HUBconnect now being the rebranded version of our Agility business that provides data integration to a number of financial services providers across the industry. We move to the next slide. It's great to be able to talk about a business that's had a strong track record of sustainable growth. And this chart shows 5 years of growth in terms of revenue with a CAGR over 5 years of 36% and underlying EBITDA CAGR of 57% at a group level for the business. Importantly, when you look at that track record, our core economic driver of the business being the custodial platform is rated #1 by Investment Trends and wins awards across the industry, yet only has a 3.9% market share. So with such a low market share comparatively, being the top provider in the marketplace, there's a significant opportunity to grow further moving forward. And we look forward to doing that and updating you again in the future about an even stronger track record of growth. That's certainly our aim. Next slide. Just some financial highlights for FY '21, all of which are very healthy increases on the FY '20 statistics. For example, our group revenue is up 34% at $110 million or $111 million, and our group underlying EBITDA are up 47% at $36.2 million. Moving to Platform. Platform revenue up 36%, and Kitrina will explain some of the breakdown in the revenue margins and the components of that as we move through her slides later on. And that revenue is a great result, certainly given the current interest rate cycle and its impact on the business. And underlying EBITDA are up 32% at $37.9 million or just shy of $38 million for Platform. Our statutory NPAT -- or underlying NPAT, underlying NPAT is up 53% at $15 million. Statutory obviously impacted by transaction costs, but also up 20% regardless of that at $9.8 million. Very pleased to announce a final dividend of $0.055, taking our full year FY '21 dividend up to $0.10 per share, which is up 43% on last year. Back to the middle of the slide here, our total FUA at June, as I said earlier, was $58.6 billion, made up of $41.4 billion for custody platform. That, as at Friday evening, the 20th of August, had risen to $44.2 billion, which you may recall is ahead of the forecast we had previously for FY '22. We had a statement to the market saying we'd hit between $43 billion to $49 billion of custodial FUA by end of FY '22, where they're already 12 months ahead at the $44.2 billion at the moment, and that's at 20th of August. So great results, and that's causing us to think very carefully about the future of the business, execution and investing to continued growth ahead of expectations moving forward. We turn to the next slide. At HUB24, we see our purpose and our role for the industry and our customers as empowering better financial futures together. And that resonates for advisers, for advice licensees, for customers, for managed portfolio or investment managers and fund managers, for market participants and also for technology providers in our space. It really is about HUB24 continuing to collaborate to bring together the best-of-breed solutions, whether that be investment options or technology front-end features and benefits, to bring together the best-of-breed solutions to deliver integrated outcomes for customers and advisers and market participants. It's about empowering, as I said, better financial futures together. We have 3 strategic pillars there on the slide to give you some color on our focus. The first one of that is about delivering customer value and growth, which is really about our core Platform business and continuing to update and enhance that to extend our market leadership to meet evolving customer needs and to continue to grow that business. The second pillar, to continue to build the platform of the future, we've always and long been focused on data and custody as the future of wealth management and building innovative solutions that bring those together. Our footprint in portfolio admin and reporting services, effectively a non-custodial admin service with our strong platform footprint, over time, we'll be bringing that together to be an integrated platform solution. It is integrated in some ways already, but it is about us continuing to build the platform of the future. At HUB24, we don't want to be disrupted. We want to continue disrupting the industry and continuing to lead from a position of strength. And the third pillar there is about us collaborating to shape the future of wealth management industry in Australia. I think that there's a gap. There's certainly a shift in what's available in this industry in terms of data and infrastructure as traditional participants leave the industry. There's a lack of investment in terms of how advice integrates with other solutions and certainly some gaps here that we intend to help fill by collaborating with the rest of the industry, using our data and technology to build integration, to build insights that bring about efficiency, lowering the cost of advice and providing more access to advice for Australians, which is good for our business and good for the industry in which we operate. So those are our 3 strategic pillars. And you'll see more of that as we get to the end of the pack about what we've achieved in FY '21 in relation to those and certainly how we're focused moving ahead. Moving on to the next slide, here's a summary of some of our highlights for FY '21. It has been a very successful year. It's been a year of growth and innovation and certainly delivering on strategy. We had record platform net inflows of $8.9 billion. We established the PARS business or Portfolio Admin & Reporting Services with $17.2 billion, as I mentioned. And in terms of adviser numbers across the HUB24 Group in terms of custodial platforms, it's up 997 or 1,000 advisers, 48% on this time last year. That includes advisers using the HUB24 Platform and advisers also using the Xplore platform. During the year, we completed 3 strategic transactions. The acquisition of Xplore Wealth, the Ord Minnett PARS business, which have both delivered FUA growth and allowed us to access high net worth segments with different capabilities. We also divested our licensee business, Paragem, and took a -- to Easton Wealth and took a strategic investment in Easton Wealth, which will allow us to collaborate on technology solutions to benefit Easton and the broader marketplace in general and, of course, all licensees as well across the industry. It's certainly our goal. We also continued to enhance our offer, delivering enhancements to our platform. We increased the range of investment options. We've put in features and functionality to support advisers dealing with regulatory change and a whole list of enhancements there as well. We certainly streamlined our managed portfolio offering, and we do lead the market in that space into an MIS scheme to build the future foundations for further innovation. And we intend to keep leading in that space as well. And we collaborated with licensees to pilot some HUBconnect Insight features using artificial intelligence and so forth, which I'll touch on a little bit later. All of that occurred at the same time as completing a bulk transition of $1.4 billion to the platform, launching 2 private labels, one of those being part of that $1.4 billion. So having institutional offers in the marketplace where we outsource or we're the outsource provider for other people's product, but it's the core of it or powered by HUB24. And of course, we strengthened our financial position and have had really positive underlying operating cash flows and increased our dividend. So all in all, a year of growth, innovation, delivering on strategy with great seamless execution. And it's great to be able to deliver that. And as we turn to the next slide, to do that in the context of being recognized by the industry and our customers, on the next slide, as Australia's best overall platform and voted #1 by advisers for customer service. If we can move to the next slide, please. So in summary, we are rated by Investment Trends' Competitive Analysis and Benchmarking Report as the Best Overall Platform. We have the best platform service as voted by advisers in Wealth Insights. And we're first again, for the fifth year running, in managed accounts, again, from the Investment Trends' Competitive Analysis and Benchmarking Report. Great to be talking to you today, having those accolades in the context of all of that delivery and growth. Interestingly, if you look at the right-hand side of that slide, there's some lead indicators for further growth. So in those surveys, HUB24 has the highest adviser consideration when choosing a new platform, i.e., if there were advisers in those surveys who are thinking of changing platforms, HUB has the highest level of consideration moving forward, ahead of any other platform. We also, in the 12 months, achieved the highest increase of adviser -- number of adviser relationships. And the third point there, advisers who use HUB24 are the least likely to look for a replacement platform in the next 12 months. So we're booking it very nicely there as having the highest consideration for new users and having the lowest consideration for those to change platforms. A great result, and we look forward to working very hard to maintain those positions moving forward. Turning to the next slide. And before I pass the presentation over to Kitrina Shanahan, I'd like to outline our market share and flows position as at the latest data from March '21 from Strategic Insights. So our market share has grown from 2.3% to 3.9% over 12 months, March to March. It's actually tripled if you go back a year from that. So March '19, we were at 1.3%. We're now at 3.9% in terms of platform market share. The chart on the left shows you the ratio of net flows to underlying market share, and HUB24 features very highly there on the chart as well in the second position. Interestingly, there's only 4 platforms gaining in market share comparatively when you look at that ratio, and the remainder are shrinking or going backwards. We are now the eighth largest platform by market share from ninth 12 months ago. We've maintained our #2 position for annual net inflows. And our CAGR for FUA over 5 years is at 66%. So I'd like to hand over to Kitrina Shanahan, our Chief Financial Officer, who will take a walk through some of our financial results. And I'll return to talk a bit more about strategy and outlook before we get on to Q&A. Thanks, Kitrina.

Thank you, Andrew. If we can move on to the next slide, please. Okay. And then the next one again, please, that would be great. So here on this slide, we've got the group financial results. Group operating revenue is up 34% to $107.8 million with direct and operating expenses for total expenses up 29% to $72.4 million. So you can see positive jaws coming through at the group level. Platform revenue was up 36% on full year '22, up $26.9 million, with Platform underlying EBITDA up 32% on full year '22, up $9.3 million. You can see at the group level, the underlying EBITDA from continuing operations is up 46% to $36.7 million, with the underlying EBITDA margin improving to 34.1%. We've then added in the discontinued business being the licensee business, which is $0.5 million worth of cost, which takes the total group underlying EBITDA up to $36.2 million, which is an increase of 47% on full year '20. Statutory NPAT is up 20% on full year '20, up to $9.8 million. Turning over to the next slide, we've got our Platform segment results. As Andrew has outlined, we've shown here the Platform FUA being the custody FUA and the PARS FUA being the non-custody FUA. So we have Platform FUA of $41.4 billion as at 30th of June, and we have PARS FUA of $17.2 billion with a total FUA of $58.6 billion, up from $17.4 billion in full year '20. You can see in the graph on the bottom right-hand side the $1.4 billion large transition that we had in the second half of the year. And you can also see the average monthly net inflows have increased from just over $400 million in full year '20 to $600 million per month in full year '21. Platform revenue is up 36%, up to $101 million, with the total expenses up 39% to $63 million. This is largely to do with an increase in sales and distribution and tech and ops to support the momentum in the volumes that we've seen coming through. The underlying EBITDA for the Platform business is $37.9 million, up 32% on full year '20, with the profit before tax at $23.1 million, up 5% on full year '20. Then turning to the next slide, we have the Platform segment continuing. We've got the revenue and expenses. If we could just turn to the next slide, that would be great. We've got the Platform segment. Here, we've got a 5-year trend for the Platform revenue and expenses overlaid with the group cost-to-income ratio. Here, you can see that the revenue continues to be strong driven by the net flows with the expenses growing at a slightly lower rate and the cost-to-income ratio coming down year by year. We've got a 5-year Platform underlying CAGR of 65%. Revenue this year has been impacted by the RBA rate cuts, which you can see has slightly reduced the jaws coming through in full year '21. Moving to the next slide. On the next slide, we've broken out the competition of the Platform custody FUA. So here, with the acquisition of the Xplore portfolio, we've acquired private wealth and high net worth segment. So we've broken out the Platform custody FUA into 3 segments being Retail, Institutional and Xplore Super Admin with the core retail book representing 81% of the FUA this year, 100% last year. Underneath on the right-hand side, you can see the revenue margin by the customer segments with the total over the whole portfolio at 36 bps compared to 49 bps in full year '20. I'll talk more about that when we get to the next slide. Xplore transaction was completed in March '21, so you can only see 4 months' worth of the revenue margin compression in full year '21. The Institutional segment includes the private labels and the private clients combined for HUB and for Xplore. Moving to the next slide, we've got the Platform revenue. Here again, on the next slide, you can see the Platform revenue is up 36% to $101 million with the admin fees up $11.7 million year-on-year and the cash and trading up $6.4 million year-on-year. On the bottom right-hand side, you can see the walk for the Platform revenue margin. When we did the first half result, we did a walk from 49 bps at 30th of June 2020 -- full year '20, and then we walked down to 44 bps at the first half with 1 bp coming from admin and 2 bps coming from the RBA rate cuts. You can see that the admin fees have continued to reduce as -- hearing from the rate cuts kicks in. And you can see a full second half impact of the RBA rate cuts of 2 bps coming in, in the second half. Trading volumes were down on full year '20 as they normalize back to pre-COVID levels, which takes the pre-Xplore revenue margin to 37 bps. And with the Xplore composition, as I talked about on the previous slide, having a 3 bp drag on the margin with the margin for full year '21 closing at 36 bps. The RBA rate cuts had about a $9 million impact on the revenue and a 4 bps impact on the margin. Moving to the next slide being the group expenses. As Andrew mentioned, we're ahead of plan for the FUA. We had a guidance statement of $43 billion to $49 billion. And as of 20th of August, we're at $44.2 billion. So given this, the momentum that we've seen to come through, we continue to invest, and you can see that coming through in technology, operations and sales. So expenses from continuing operations is up 26% to $87.4 million. And then we've got abnormal items of $8.1 million, increasing the total expenses to $95.5 million. Graph on the bottom right-hand side shows the breakup of the expenses with employment expenses being the largest increase, up to $57.2 million with headcount increasing to 391, up 49% on last year with 85 of those coming through from Xplore and the Ord Minnett acquisitions. Then moving to the next slide, which is a walk of our underlying EBITDA to our NPAT. With a few movements into in here, you can see the underlying EBITDA from the continuing operations of $36.7 million on the bottom left-hand side. Once you add in the Paragem discontinued operations, that takes the underlying EBITDA down to $36.2 million. Depreciation and amortization slightly increased this year, up to $7 million. That's, in previous years, capitalization on the balance sheet coming through the NPAT this year. There's a slightly lower number capitalized onto the balance sheet, about $1 million lower spend capitalized on the balance sheet this year that you'll see when you look through the annual report. We've also got share-based payments coming through of $6.2 million, which recognized the increase in the funds under administration and the probability of share-based employee -- share-based plans probability increasing of those vesting. This year, we paid tax to the ATO for the first time, and we have an income tax expense of $8 million, taking the underlying NPAT to $15 million. That then reduces for the $7.5 million for the strategic transaction, for due diligence and implementation costs. And then we have the $1.4 million gain on sale from the Paragem licensee business. And we have $1.5 million offset for the tax for the transaction costs. And with that, I'll hand back to Andrew.

Okay. Talking about strategy and outlook, if we can flip forward a couple of slides, please. A quick look at our core market segments on the next slide there. So we outlined the size of the market and dimension our share of the market in different cases. The superannuation market, which is largely fueling wealth management in Australia, is growing at 11.3% per annum on a CAGR basis over the last 20 years. I think that's steady. As part of that market, in the white on that donut, if you like, the SMSF and the retail and corporate market is really where HUB24 participates as addressable market in superannuation. It's a $1.5 trillion market. And that market in itself is fueling our core segments to the right of that. Just before I jump on to those, there is also a non-super personal investments market. That's another couple of trillion dollars which is relevant for HUB24 as well. But if we move to the second slide of the -- the second part of the slide there, the Australian investment platform market has a total market of about $915 billion as at end of March '21, and we have a 3.9% market share there. It is a core marketplace for HUB. And being the top-rated platform, we certainly hope to extend or increase our penetration into that market and increase the market share. The managed account market, which is in somewhat a subset of that market as well, is expected to grow at a very high rate. In fact, 49% of advisers using managed accounts -- sorry, 49% of incoming flows is expected to go into managed accounts for advisers that currently use managed accounts. And by 2025, 23% of all adviser flows are expected to move into managed accounts moving ahead. So it is a rapidly growing marketplace. We are a market leader there, having 19% of that market share when you add together HUB24's leading footprint as well as Xplore's. So with our market position, we have 19%. I think it's about $18 billion to $19 billion out of that marketplace, which, as I said, is expected to grow quite rapidly. And in the portfolio admin and reporting service market, this is HUB24 data and our estimates of the size of that market. But again, I think as solutions arise in this marketplace, you'll see that market grow as well. There are trillions of dollars of -- or investments held by Australians that aren't in any portfolio service. And so we've estimated that market to be $149 billion, and we have a 12% market share of that. And we expect it to grow, as I said, as more and more private clients and high net worth individuals look at portfolio services moving ahead and as solutions emerge. And we certainly intend to keep building out our solutions for that marketplace as well. So all in all, we're very well positioned to capture future market opportunities being a leader in managed accounts and having a small market share in the platform market yet with our rating and with our establishment of our PARS service as well. Moving to the next slide, I'll briefly touch on a couple of trends here. Some of these I've talked about already, so I won't labor those points, but some key trends shaping the industry on that next slide. Privately owned licensee segment is growing with now just under 70% of the adviser market either self-licensed or in a private owned licensee as opposed to the inverse of that. A few years ago, [ in '14 ] in the Royal Commission, you saw most licensees either -- or most advisers aligned to an institutional licensee. That's also representing the trend and the growth in specialist platforms in that we have the best offer and we're on the APLs of those privately licensed businesses. Compliance burden also continues to be a great challenge for advisers. At HUB24, we absolutely build as much flexibility and much optionality into our platform business to support advisers when regulations change, whether that be through online consents or fee consents and so forth. And the demand for financial advice is expected to increase with 2.6 million non-advised Australians reported to be seeking financial advice in the future. That's very good news for a business like ours, and we absolutely want to work with the industry to make advice affordable and accessible. And they're some of the key trends driving growth for the platform industry. Moving to the next slide. I'll just touch on a couple of items in this slide. During FY '21, we have continued to deliver on our strategy in these 3 strategic pillars, in particular, in terms of our core platform business and customer value growth in that we have launched a Managed Portfolio Academy to help educate and help advisers learn or work how to use managed portfolios, given it's going to be such a high-growth area, but also continuing to enhance our brand awareness. The other items in that pillar, I've talked about earlier. So I'll move to the next one. We've also -- in terms of building the platform for the future, we've done the acquisitions, we've done some transitioning and some integration work. But we certainly also expanded our platform with options with other providers in the industry for retirement solutions, and we'll continue to do that. We think as the industry shifts, there'll be more and more demand for retirement solutions, and we're certainly investing in that vein as well. And in terms of collaborating for the future of the industry, we have, in the last 12 months, developed some machine learning models that support licensee compliance. They're in pilot and rollout with over 4 licensees and really making a difference in those licensees in terms of them tracking compliance or key responsibility indicators such as fee disclosure statements and so forth. And we're using AI and machine learning to interrogate a whole lot of advice documents to provide those insights and really change the face of how licensees and advisers work. So they can get back to focusing on delivering outcomes for clients whilst being comfortable their compliance obligations are being looked after. Moving to the next slide. In terms of moving forward, we'll continue to deliver on our strategy to underpin our growth. We certainly are prioritizing our future growth opportunities. And so as we flagged in our fourth quarter results, and as Kitrina and I mentioned, we're actually ahead of where we thought we'd be in terms of FUA and growth for the business. So we are investing in even creating a bigger business. I actually have announced recently the recruitment of a Chief Product Officer, and there'll be another executive team member that we recruit moving ahead. We're expanding our distribution team, again, to take advantage of sales opportunities, and we're certainly going to continue to develop customer propositions and increase our brand awareness and recognition across the industry. We'll continue to build the platform for the future. We're going to continue to integrate the transactions that we've undertaken and invest in technology to build scale and absolutely committed to building the -- a fully integrated best-of-breed solution for custodial and noncustodial platform and PARS solutions moving ahead. And in terms of the third pillar, we will expand our HUBconnect data sources during the year, and we'll do that integration at best-of-breed. And we're going to continue working on our single view of wealth capabilities that hopefully will create the drive for increased market across that PARS piece especially. All leading to us wanting and being committed to leading the wealth industry as the best provider of integrated platform, technology and data services. So those investments will occur, but we'll still expect to have our cost-to-income ratio improve in FY '22 and our underlying EBITDA margin to increase as well in the context of that increased investment. And finally, on my last slide, the outlook for HUB24 is very positive. If we can move to the next slide, the outlook slide. We are positioned very well for ongoing success, and we'll continue to position that business in that way through investment and integration and collaborating with the industry. We're going to pursue growth. We've got a great pipeline and a great current licensee and adviser relationships and will absolutely be moving to secure new relationships as we increase the number of headcount in our distribution function. And we're going to leverage the new product capability we've got with the combined HUB24, Ord Minnett PARS and Xplore books to cross-sell into each customer segment, the different overall solutions that we'll bring to the table. We expect to have continuing strong financial results [indiscernible] growth in business scalability to deliver shareholder value and increase profitability. So pleased today to be able to advise that our Platform FUA goal or FUA target, and we've got a target here for FY '23, which is in just under 24 months, the current number, as I said earlier, was $44.2 billion. We're aiming to get to between $63 billion and $70 billion in Platform FUA target. That's custodial FUA, not including the PARS FUA in that. And the reason we do that is because the custodial FUA is the economic driver of that part of the business. The PARS FUA is actually driven by accounts. So once again, a Platform FUA target for FY '23 of $63 billion to $70 billion, excluding PARS FUA. That's an uplift of about $20 billion based on the statement we have made for FY '22. So we're taking the target out a year, and we're adding $20 billion to that target in terms of putting that out there into the market. So once again, thank you very much for your attention and interest. I'll hand back to our facilitator, and happy to take some questions.

[Operator Instructions] Your first question comes from Nicholas McGarrigle with Ord Minnett.

Just a quick correction to that. It's Nicholas McGarrigle with Barrenjoey right now. Just a quick one on the FY '23 FUA guidance. It's obviously a great target compared to, I think, where the market was expecting it to be by then. Can you talk about the building blocks that get you from $44.2 billion today to that range?

Sure. It's really quite simple, Nick, and thank you for the question. You might have registered your registration, I think, says Ord Minnett, but you are with Barrenjoey. Look, it's really quite simple. If you look at the flow rate that we had in FY '21 and you think about some growth for that, if you think about like a $9 billion to $10 billion flow for '22 and '23 and some market movement with some sensitivity analysis, you can see that we land squarely in the middle of that range with hopefully some upside and some protection there in terms of if you don't quite hit those flows. But we're very confident in that. As usual, we like to put a range out there. And we absolutely aspirationally hope to achieve more than that. But in terms of the target, it's based on that sort of analysis, taking our current starting point in FY '21 and adding in some assumed flow numbers, which we have the building blocks, if you like, or a bottom-up build in terms of pipeline with our relationships and certainly with the investment in salespeople to give us confidence in publishing that range.

And just in terms of the component of that increase that is attributable to, say, large transition clients, and you've split up some of the fund between institutional, retail and others, but just the sort of assumed mix in that, just to give us a sense of what the revenue sort of run rate might be by then?

We don't have any identified significant transitions in that number. It's based on a bottom-up build of organic growth. Bearing in mind, we do have a very new private label relationship with one of the largest advice providers in the country. We haven't assumed a lot of upside in there for any large transitions at this point in time. So if that was to occur, we'd hopefully outperform that. It's based simply on the number of relationships, the advisers and the product range we've got today.

Great. And then I think in the presentation, there was some separation between institutional, retail and the third category, I can't recall. Just in terms of if maybe Kitrina can give us a better idea of what the exit rate on the margin on the revenue margin was heading out of FY '21. I think the second half was 34 bps, but I imagine the exit rate might have been a bit different.

Yes. Nick, yes, that's correct. So on one of the slides, there's competition of Platform FUA. The bottom right, there was a graph that showed the bps per segment and call out the Xplore within there for 4 months, given the transaction completed in March. So you'll expect to see next year, there's no impact, really, there's been no changes significantly to the pricing of either HUB or Xplore. And so the thing that will drop the margin in full year '22 is just a 12 months' worth of consolidated group. If you take the composition on that slide and you apply it to the FUA that we have today and then slice it by the categories that we've given you, you could probably -- you can do bucket math to get you to about a 30 bps margin in full year '22.

That's helpful. And just while we're on the flows again, if you look at the market movement for the financial year-to-date and we net that off against your $44.2 billion, I'm sort of calculating almost a $1.8 billion to $2 billion net inflow for those first 7-odd weeks. Am I missing anything material there?

No, that's correct.

Roughly about that if you do the extrapolation of where we were in market movements in the order of those sort of numbers.

Yes, that's great. That's great outcome. Just on the cost side, I think it's been -- you have signaled at the quarterly that there might be some additional costs going into executive sales and tech. I just wanted to get a sense on the cost to serve reduction that we might expect into FY '22. You had a sort of 2.4 percentage point improvement in '21, which was good. Just trying to get a sense on, is it a reinvestment year where maybe that reduction in cost to serve is not quite as material as that for a year or 2 and then we resume sort of natural state of affairs?

Yes. So I think the way to think about it is that we -- the volume growth, we'll continue to see the same level of increases in the expenses around the volume. So there's no change to that, and that will grow at the normal level. There's probably an additional somewhere around 20 to 25 FTEs that we're expecting. Given the sales momentum that we're coming through -- we're seeing coming through, the increase in FTE and technology to support the scalability of the size of the FUA growing. And then there's a couple of group executive roles coming on board as well given the size of the company and the focus on specific areas. So it's roughly about 20 to 25 FTE increase, over and above the normal cost ratio that you'd expect to see come through.

And based on timing and recruitment, Nick, that will come through. You'll see more on that in the half, and we will be able to talk about the uptake of that.

Yes. And so we should still expect a reduction in cost to serve in '22?

Correct. Yes.

Cool. And then just in terms of the synergies because it's related, I guess, just progress on actual realized synergies in '21 and then maybe what the profile might be on -- I think you put a chart in. Just wanted to confirm that the numbers in that table were what you'd expect to realize in those given years or are they annualization increments?

No. No, the ones that we expect, you're talking about the table that we put in the analyst and investor pack, they're the numbers that we expect to see in those years.

In terms of your realized savings within that year. So that will sort of act as a bit of an offset to that additional FTE going in?

Correct. That's right.

Cool. And one last one from me. Just on...

Just one last one, Nick?

Yes, last one. Last one, I promise. I've only asked 3 broad questions, a bit broad -- very broad. Just the last one around...

I'm glad we can count.

They're all -- they're sub-questions as well. Just on the cash spread agreement, obviously, your largest specialist competitor had their termination or the agreement has been triggered. How -- what's the sort of current status of your renegotiation? And maybe what are some of the strategies to avoid further deterioration in the cash spread post the RBA move, but trying to avoid maybe the bank repricing as well? Just what kind of strategy are you pursuing there?

I'd just start by saying the environment remains fluid in terms of different providers and what they're willing to offer. And certainly, the view on interest rates in the cycle and so forth does remain fluid. The market is well aware that our current arrangement with our major provider completes in December '22. So we still have some 15, 16 months before that might occur. And that fluidity is actually making it interesting in terms of crafting solutions. We've long been saying we absolutely think that this isn't about just replacing revenue or fees for shareholders. It's also about rethinking about the market and the product offer for consumers. If we are going to have a protracted low interest rate environment, what are the solutions that you can offer through a platform to make it easier for advisers and customers to maximize or get the best outcome possible. So we certainly are thinking about that in different ways to offer different cash-style investments, Nick, and at this point, unable to really put more color other than we're working through that, as we have said. And so that in itself might either increase volume of investment on the platform in cash. We might have different options. But certainly, we'll be changing the way we approach things as opposed to just trying to ameliorate any concern that bank spreads may change. I think that environment remains fluid as well, and there's a bit of water to go under the bridge about that. So it's the best answer right now. We're absolutely aware that there might be some pressure with long-term spreads from banks. At the same time, it does remain fluid, and we've got some different ways of thinking about how we mix up the product offering rather than just maintaining the status quo and changing the different spreads in there. So it's the best answer we can give. We've got a long runway to go. We're really focused and have got some tech being built and working with multiple providers as to different ways to approach the market in that regard. And we'll have more to say when we get closer to that time.

Great. And one last one, actually. The percentage of FUA in cash because I guess that may have changed with the Xplore combination. So I think it used to be sort of 10% to 11%. What would that be running at, at the moment with that combination?

Well, I think we used to talk about a range of 8% to 13%, and it does bounce around. In this climate where returns are not high or nothing in terms of cash on platform for investors, it's at the lower end of that range. So around about the 8 percentage, not giving too much what we intend to accomplish, but that's where it's at. That's where you'd expect it to be, and it does move around based on flows into the business. So cash percentages for HUB24 increase when you've got a large amount of inflows because it's transactional cash before it gets invested, but it's in that sort of range. I don't expect that would change in a low interest rate environment as advisers seek to get the best marginal increase they can for consumers. But thank you, Nick, very much. Hopefully, that answers your question, and we'll move on.

Your next question comes from James Bisinella with Shaw and Partners.

Congratulations on the results. Just on Platform gross margins, it looks like they've risen from 75% in the first half to 78% in the second half. Can you give us a sense of the drivers of that increase and perhaps whether that second half level is considered sustainable moving forward?

Thanks, James. So you're looking at the analyst and investor pack on that. So from the Platform perspective, yes, we would expect to get some more leverage coming through, but it just won't be as large as you'd expect given the investment that we were talking about. But yes, that is a sustainable level.

Okay, great. And one more for me, just around the LTI plan. Can you just confirm the performance period for the FUA component? Sort of does the 100% award of that infer $102 billion of FUA by FY '24, just given that, that CAGR translates to an increase of $43 billion over the next 3 years?

James, we might come back to you. There are multiple LTI plans with different dates and rates. If you're applying a CAGR to a current FUA balance, it is based on custodial FUA, not total FUA. I'm not sure what you're referring to. Unless we can clarify it really quickly here, we might have to take that offline with you.

Yes, no problem. Happy to take it offline.

Your next question comes from Simon Fitzgerald with E&P.

One of the trends we're seeing recently is probably a bit more sort of open architecture, but in a real genuine sense. And obviously, you've got the IOOF agreement as well. But I was interested to know some of the inroads you're making with aligned financial planning groups and whether you really need to see financial plan is actually leaving some of these groups in order to grow. I'm just interested in your comments around that.

Look, we do have inflows with some aligned groups, and we have had for some time. In some cases, it's because advisers are looking at best-interest duties for customers and asking the alliance group to allow them to deviate from what might be known as their approved product list. In other cases, the groups are actually encouraging or welcoming best-of-breed solutions to sit on the shelf alongside their own solutions and so forth. And in the IOOF case, the actual product is actually IOOF's product. They are the trustee and the operator -- trustee of the super fund and the operator, the IDPS, yet we do the administration using our market-leading capabilities to build a tailored product for them. So there are inroads coming. To answer your question, I don't have needs to have people leave, but that's happening regardless. And the last remaining groups in the marketplace with strong alignment are AMP and IOOF. IOOF had made it clear about their future strategy. AMP have a new leadership team, so I'm sure they'll keep considering that. But the trend is that people are leaving anyway. So we don't have to. We are making inroads, and we look forward to continuing to do that. And I think in the context of having a great product and a great solution and the community test and the expectations and the regulator view that our clients are looked after properly, I think that puts us in good stead regardless of the source of adviser relationship.

Great. And then second question just relates to the PARS FUA. Just wanted a little bit more explanation in terms of how I can sort of see the revenue line there. I mean it's sort of mixed up into one sort of platform revenue and understand that non-custody pieces are charged a little bit differently, but I'm just wondering if you could sort of explain that in a little bit more detail on how we should be thinking of it from a modeling perspective.

Good question, Simon. So you're right that we haven't split it out separately. The only place we have put it on the presentation under the platform revenue, there is a call-out that the combined contribution from the Xplore and the Ord Minnett acquisitions was $10.4 million during full year '21. And obviously, I know that includes the Xplore custodial FUA. It's a little commercially sensitive at the moment, so we're not breaking it down lower than that.

Okay. I'll ask you a question in maybe a slightly different way then. If that was to grow in excess or at a faster rate as the rest of it, there would obviously be a drop in the overall sort of revenue margin. Would that be a fair call?

As we hope it will be. So the revenue breakdown that we've given, the platform revenue margin bps go -- of 34, 36 at full year '21, that purely relates to the custody portfolio. If you did a platform revenue margin at the total, including PARS, absolutely, it would be lower because the services level was simpler on PARS.