HUB24 Limited (HUB) Earnings Call Transcript & Summary

Thank you for standing by and welcome to the HUB24 Limited FY '23 Results Call. [Operator Instructions] And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Andrew Alcock, Managing Director, to begin the conference. Andrew, over to you.

Good morning, everyone, and thank you for joining us today at the HUB24 FY '23 results presentation. With me today, I've got Kitrina Shanahan, our Chief Financial Officer, and we'd like to walk through some of the highlights in our pack and then leave enough time for questions. So thank you for tuning in and for taking the time to hear from us today. It is, as always, a pleasure to talk about this great company and what we've been building together as a team in this industry, and we've got some really good results we'd like to share with you today. So thank you very much. If we move straight to the highlights slide, which is the second slide in the pack, in terms of our financial results, some headlines there. We've got continuing momentum and a significant uplift in results with revenue and underlying EBITDA at a group level, both up 45%. So that's $102.4 million of underlying EBITDA, and that's spread across the segments there as well. So great results, great uplifts for us in FY '23. Our total funds under administration for our customers is at $80.3 billion, and our platform of custodial FUA at 30th June was $62.7 billion, which is up 26% over last year. As at Thursday last week, that had risen again to $64.5 billion. As we said in our market release note, we've seen a better than Q4 run rate for net inflows so far year-to-date for FY '24 and pleased about that as well. In terms of what that means for shareholders, we've got a final dividend of $0.185 fully franked, which is up 48% on PCP, and our earnings per share diluted are up 136% to $0.461 per share. Kitrina will talk more about our financial results later on in the presentation. Moving to the next slide. If we talk about HUB24 being about empowering better financial futures together, which is, of course, our purpose statement is what we believe in, it's how we act and behave in terms of thinking about our business and how we develop it. As part of that, we have a vision to lead the Wealth industry as the best provider of integrated platform, technology, and data solutions. And on this slide, there's some grabs about that, which we can talk about to evidence that. Australia's Best Platform, you'll see the awards a bit later on. We have the third fastest-growing superannuation fund in the country behind 2 massive industry funds. We have market-leading SMSF admin software with Class and of course, market-leading managed portfolio capability. And there are some other items on the slide there as well. However, with these components or ingredients or foundations, we certainly are working hard to delivering on that vision to lead the industry by integrating these capabilities together and challenging the status quo and thinking about how you can reimagine wealth and provide more efficient solutions for advisers and for their clients and come to market with innovation that really does deliver value, in fact, taking these ingredients and using technology to unlock value so that we build a sustainable proposition and we actually help customers achieve their goal and help them empower a better financial future together. Taking a look at the results in a bit more detail over some time, though, you'll see again that we've consistently delivered growth at shareholder value for many years in a row with our 4-year CAGR of funds under administration in our Platform FUA at 58% growth and our group revenue CAGR over 4 years at 46% and underlying EBITDA for Group at 61%. These are great results in a reliable sense and we absolutely work hard to continue to deliver that moving ahead. Moving to some highlights for FY '23 on the next slide. And on the left-hand side, there's a list of items there which no doubt we'll talk about through the presentation. And we've talked about it many times before such as our flows or our pipeline, myprosperity and other items there and in particular, Class being positioned for future growth. Having said that, though, our focus on delivering growth is also complemented by our focus on delivering on our strategic objectives. And we talk about that in many ways. If we think about those 3 pillars, we've talked about before, it's about leading today, delivering customer value and growth in our core propositions across our enterprise Class HUB24 HUBconnect, and now myprosperity. Thinking about creating tomorrow or building the platform of the future, absolutely focused on that and some of the achievements we've delivered this year are evidence to that. And the last one there is about building together or collaborating to shape the future of the Wealth industry, which is really about helping this industry which has undergone profound change over the last few years to develop new solutions and new ways of working to deliver advice effectively and efficiently to create more access to advice, but also to use technology to build the infrastructure to support the emergence of this industry as it continues to transform. So from our perspective, we're very much focused on winning and making sure we delight our customers with our propositions today, but also on continuing to disrupt and lead change in the industry, but also to play our part as a key industry player to work across the board to advocate for change with QAR and other items and to build solutions that quite frankly, will put us in a good position as an industry to deliver on our promise to Australians. It's been a great year for recognition as well. Moving to the next slide. And we talk about this quite often, but really proud to say that this year we've done really well. We had a clean sweep with the Adviser Ratings, awards, winning Overall Best Platform and all the categories there. From an adviser sentiment point of view with Wealth Insights, equal first in terms of satisfaction from advisors, and from investment trends, Best Overall Platform and other awards there, a few awards there. Interestingly, there are the one I like to talk about most is; #1, for primary advocacy for platform use which basically means for advisors who have a primary platform or a platform of choice. If you choose HUB24 as that platform, you have greater advocacy for us than other advisors who choose a different primary platform. It's a key indicator for us that we're doing things right, but also it drives us to continue to innovate and deliver great service. In the pack for completeness, we've got a slide on our managed portfolio capability. I'm not going to talk about it today, but it's there for completeness for those who'd like to understand more about what we do with managed portfolios. I'm going to move on to the growth and market share slide. HUB24 today is the 7th largest platform by market share. Our custody, again, 4-year CAGR of 48% custody FUA, 48% growth over -- as a 4-year CAGR and our market share in the last 12 months or the latest available data from March to March '23, has grown from 5.1% to 6.1%. In that same time period, we're ranked #1 for quarterly and annual net inflows. But if you take a look at the snapshot of what's been going on in the industry at large, and understand our success in the context of the whole industry, we've got a chart there from 2018 to 2023 with HUB's share or share of net inflows going from 12.7% to 64% -- in '18 to 64% in '23. Now, this 64% is a statistical truth, but it's an anomaly given the 101% outflow share of institutions. And so it's a fascinating time in the industry. We're seeing it continue over time that the exodus from mainstream or incumbent traditional platforms has continued and there is a clear pack of winners in terms of the market share moving ahead. HUB has the fastest-growing share of market in terms of net inflows over that period and we hope to continue to lead in that space. As I said, our market share has grown to 6.1% in '23. It was 0.9% in 2019 whereas the inflow platform market share has dropped from about 75% to 64% over the last 5 years. It certainly puts us in a great position for having a great runway in terms of future growth potential, having 6% of the market and delivering on our promises and delivering such great outcomes in terms of products, value for clients and service and being ranked the way we are, there's plenty of room to move to grow. In this slide here, we've got about our strong inflows from existing relationships and the opportunity moving forward. We included this in the pack at half year to explain a little bit about how the business grows and how the flow patterns work. Typically, advisor relationships deliver flows to us as a platform for up to about 6 years and that's the bulk of their support for the platform. And then you have ongoing organic flows from those advisors. So on the left-hand side, you can see the breakdown of net inflows we've had each financial year since '20 to '23 from existing adviser relationships, from new adviser relationships that were attached to a licensee and which we had an agreement with and/or -- and from new licensee relationships. And so you get reliable recurring flows from existing relationships year-on-year with 75% of our flows in '23 coming from existing relationships, 16% from new advisers who are attached to a national group that we have a relationship with or a large licensee, and 9% from new advisers. And so we do that quite regularly. It's the pattern of our growth. Interesting, we have relationships or access to more than 74% of the total adviser market and that's through the agreements we have with licensees to use the platform. But in this year, we increased the number of active advisers on the platform by 15%. So we have coverage to 26% of the market actively using HUB. And as I said before, hopefully in the same sense of reliable flows from existing relationships plus new flows from new relationships, so that's about 500 new advisers in FY '23. Put simply, we're continuing to grow. We're continuing to grow from our existing relationships. We're continuing to build new relationships, and there's plenty of runway and room to move to create more relationships. And in testament to that, we've also increased the percentage of usage or share of wallet, if you like, from advisers who use the platform. So since June 2020, the average adviser who are on our platform has grown by 88% to an average of 16 million. Hard to do when you're adding new advisers to the denominator of that equation each year, because they're coming on with lower amounts. Interestingly, 7% of the advisers on our platform have more than $50 million. So with an average of $16 million and some advisors at $50 million, it illustrates the growth potential that we have in our business if we continue to execute very well. And the industry average for advisers is about $65 million, just looking at sort of the industry data around. So as a business, we have a really, really strong opportunity to continue to grow. We get reliable flows from existing relationships. We've increased the number of relationships and we're deepening those relationships with increasing FUA per adviser and as I said, with 7% of advisers now have more than $50 million on HUB24, illustrating the potential for ongoing growth for our business as we'd like to certainly grow up from that 6% market share. Moving on to Class for a second. It's great today to say that Class there has over 200,000 accounts on Class and 640,000 companies on Corporate Messenger. We've done a lot of work in Class to refresh the team and we refreshed the growth team or the sales team, if you like. Certainly, continuing to focus on customer service and really made some interesting progress with increasing engagement with customers across the industry. We've been working actively in the industry as advocates with thought leadership and training and we're really focused on that core market in terms of supporting the industry and to grow the market. So for all intents and purposes, Class is performing to our expectation, but we've put in place the foundations of further growth. And we're starting to see that come through at the moment. So build momentum and positioned for growth and, of course, Class is helping us with our platform of the future strategy on how we integrate a lot of the assets we have inside our group to actually create new innovative products that deliver value and lead change in the wealth management industry. None of this is possible without our talented team of people. And we really, really understand that we've got a great team and our success is the result of all of us working together. 86% of our people are dedicated to customer and innovation functions, product, tech, business development, customer service, and our engagement this year has gone up 2% to 74% across our employee group. We're absolutely focused on investing in our people as they do deliver that value and its key for us as we grow and continue to grow to keep that edge with our customer service cycle. We're enhancing our employee value proposition to attract and retain and develop people. We have a new Chief People Officer focused on working on our employee brand and strengthening HUB24 as a great place to work and we're attracting talent through many channels. Certainly investing in learning and development, and really striving to build on our purpose driven diverse, inclusive, and high-performance culture. We really want to support employee retention and advocacy as that's what makes the edge in our customer service. So thank you to our team and absolutely committed to building the best team as possible in this industry and living our values that are on this slide as well. I'm going to hand over to Kitrina Shanahan to give us some snapshots and talk through our financial results. Over to you, Kit.

Thank you, Andrew. So I'll now run through the financial results. So here on this slide, you can see we have a snapshot of the Group, the Platform and the Tech Solutions segments showing the revenue, underlying EBITDA, and the customer numbers. So for the Group, you can see that the revenue was $280 million and the underlying EBITDA was $102 million with the Platform representing 75% of the revenue and Tech Solutions representing 24%. Platform had a very good year with $209 million of revenue and $85 million of underlying EBITDA and the Custody FUA representing 97% of the Platform revenue. And as Andrew mentioned, just over 4,000 active advisers using the Platform. Tech Solutions, which represents the Class and the HUBconnect parts of the business, revenue grew to just under $68 million and underlying EBITDA was just under $22 million. And there are just over 6,000 practices, financial practices using the Class solutions. So then moving on to the next slide, again, we have the Group financial results. And you can see in the table on the left-hand side where we have the operating revenue, operating expenses, and the underlying EBITDA, all growing 45%, which is driving a strong performance in the underlying EBITDA margin as well, where we've held it flat to 36.6%. And that's in the context of the macroenvironment that we've got, but also the changes that we made to the Class capitalization policy for the software, which you can see in the graph on the right-hand side. During the first half of this year, we aligned the Class policy to the Group policy where we only capitalized technology development costs. Prior to that change, the Group underlying EBITDA margin grew 1.8% to 38.4%. Moving on to the next slide, we've got the Platform segment. And again, you can see Andrew was mentioning total FUA grew 23% to $80 billion with the Custody FUA up 26% to $62.7 billion and the non-custody PARS FUA up 11% to just under $18 billion. The revenue was up 30% to $209 million and operating expenses, up 26%. This difference in the growth between the revenue and the operating expenses saw strong Platform operating leverage come through, which gave us 2% uplift in the underlying EBITDA margin to 40.8% in the year. On the right-hand side, you can see the walk of the FUA composition from the $65.6 billion in the full-year '22 to the $80 billion of 30th June this year. There was $9.7 billion of net inflows from continuing business before the Xplore Super Admin discontinuation. And there was $4.3 billion of market movement in the custody portfolio and $1.7 billion of market and net inflows in the non-custody part of the portfolio. Moving on to the next slide, we have a 5-year trend for the platform segment. And there's just a couple of things that I'd call out on this slide. We've got a walk here from full-year '19 to full-year '23. And you can see that the underlying EBITDA margin over that period has increased 7.5% over the 5 years. And the underlying EBITDA margin from a dollar perspective has grown 47% compound annual growth rate from $18 million back in full-year '19 to $85 million in full-year '23. So this slide is basically demonstrating the scale and the operating leverage that we have coming through on the Platform segment. So then moving to the next slide, we have the composition of the Platform Custody FUA. And you can see in the donuts on the right-hand side, the Xplore Super Admin last year represented 3% of the FUA and 1% of the revenue. This year, we had just 1% of the revenue in the custody part coming through Xplore Super Admin as we discontinued it and at the end of the year, retail represented 86% of the $62.7 billion of Custody FUA and institutional large clients represented 14%. The graph on the bottom right-hand side shows the composition of the custody revenue margin, which grew 4 bps in the year. This 4 bps increase was largely due to the RBA rate increases that we saw in May and June '22, which took us to the upper end of our cash management fee. The admin fee compression has been very small this year. That's a factor of volatility in the market and the scale of the portfolio with quite a large portion already at the various tiers and caps in the portfolio. The retail margin grew from 37 bps in full-year '22 to 40 bps and the institutional margin held relatively flat for 14 bps during the year. Moving on to the next slide, I won't talk on this one very much. It's here just in case people want to have a look at the half-on-half movements in the Platform revenue. You can see that in the top right-hand side and again, that links back to the RBA rate increases back in May-June '22. So then if we move to the next slide, we have the Tech Solutions result. As Andrew was mentioning, you can see here that the Class accounts grew 2% to just over 200,000. Class document orders grew just over 173,000 and companies using the Corporate Messenger service grew 8% to just over 645,000. You'll see the revenue, operating expenses and underlying EBITDA growth rates are very large this year. That's because we've recognized Class for the full 12 months this year. And we acquired Class in February last year, which was only 4.5 months recognized which is why we've got such large percentage growth rates. On the right-hand side, you can see the underlying EBITDA margin walk. So for full-year '22, Tech Solutions' underlying EBITDA margin was 39.2%. And then we had the $13.9 million pillar represents the full 12 months recognition. We have an incremental $3 million worth of cost synergies cost savings in the Class business. This is on top of the $1 million of cost savings that we recognized in full-year '22. And then we had an uplift in HUBconnect expenses. HUBconnect technology supports the reporting to present and reporting functionality and the data. And so we've had an uplift in some costs there and some great feedback on that functionality. Those walks would take the underlying EBITDA margin in the Tech Solutions segment to 39.4% to relatively flat year-on-year and then you have the $4.8 million worth of alignment to the HUB24 capitalization policy. Moving on to the next slide, we have the Group expenses. So here, you can see that group expenses grew 33% year-on-year which is partly represented by having Class in there for 12 months. The largest part of the expense base is the employee expenses of $133 million, which is up $42 million year-on-year. This is driven by the headcount increases to service the clients, support the technology business, including the cyber uplift this year. We've also got increases in HR and our risk and compliance functions, which supports our larger business and larger scale that we have. Then moving on to the next slide. We have a walk of our increasing profitability from underlying EBITDA to underlying NPAT and statutory NPAT. We have the underlying EBITDA of $102 million, up 45%. We then have $11 million of share-based payments, $11.5 million of depreciation and amo and then $19 million in tax, which takes you to the underlying NPAT up 64% to $59 million. And then moving from underlying impact of statutory impact, we have the strategic transactions and project costs, which includes Xplore integration, which is circa $6 million. We have the SMSF Access project -- product that was launched, myprosperity acquisition, costs in there. And we also have large transitions. We announced the EQT $4 billion live transition. We'll also continue to work on other opportunities in there as well. Then we have the impairment of $3.3 million for diversion that we recognized in the first half, and we have the tax on the notable items. I will just make a brief comment on our effective tax rate, which was 21.7% this year. There's some benefits in there for R&D. So we have a higher R&D recognition in the full year '22, tax return that was completed during the year and we also get to recognize the benefits of purchasing treasury shares on market to service the employee share schemes that are out there, which are the 2 things that are driving the effect -- the lower effective tax rate this year. Then when we move on to the final slide in the finance section. Today, we announced a share buyback of up to $50 million over the next 12 months, starting 11th of September this year. So this recognizes our strong balance sheet position and our strong cash reserves with 97% of the group's underlying EBITDA converted to operating cash flows, and we're expecting that trend to continue. We believe that the share buyback will increase shareholder returns, but also enable us to keep the flexibility to invest in opportunities and continue to invest in the business. And with that, I will hand back to Andrew.

Thank you, Kitrina. A few words about our strategy and outlook, and then we'll open up to some questions. Certainly, in this industry, we've seen phenomenal amounts of change over the last decade or so, and it's continuing. In fact, there's been lots of change, and we've embraced that change, we run with it and we try to secure opportunities resulting from that change. And to many extent, HUB24 has created some change as well. It is continuing. We're not sitting still. We're not sitting still with just market-leading products. We intend to embrace some of the themes in the industry and continue to consolidate our leadership position. So on this slide, just a few key trends there. A couple I'll talk about. The licensee model in Australia is continuing to evolve. We used to talk about how aligned distributional licensees are moving away from institutions and moving to third parties or boutiques or getting their own license. That's certainly continuing evolving with the rise of new aggregators with those who left FUA alignment, building aggregation or purchasing groups or groups of advisers who are working with well-known asset consultants to build a great solution for their clients and choosing a great platform solution as well. We're also seeing a continuation of disaggregation from institutions with some recent announcements of late. This opens up opportunities for us to continue to grow our footprint and particularly as well with the quality of advice review where the delivery advice should become easier with some of the changes coming through around SOAs and fee consents. It allows us to help advisers become more efficient and hopefully help them deliver advice to more clients. On the infrastructure front, absolutely, there's demand for integrated tech and data solutions. Data doesn't work well in this industry. There's lots of point solutions. We need to get into talk together to make life more easy or efficient for advisers and clients. And there's a critical need for investment to do that in Wealth Management given the change in players over the last few years. And of course, cybersecurity is very, very important as well in terms of trends moving forward. On a demographic front, we're also seeing shifts with an aging population. There is a need for effective retirement product solutions with longevity-based risk as well as sequencing risk involved in that in terms of having the right solution so that retirees don't run out of money too early. And with that will come an intergenerational wealth transfer as well, whereas you're looking at solutions that can help a family deal with the transfer of wealth from retirement through to those who are starting out as intergenerational transfer. But with that demographic change, you've also got client demand for personalization preferences, ESG, millennials and others with different views on how they invest. And as a platform provider, we need to deal those to those changing demographics and make sure our solutions can cater for them. As well, the growth in SMSF is coming about through increasing demand from millennials as well. So at HUB24, if we look at the next slide, we have a great group of assets or businesses in our group that allows us to play to those trends and link different solutions together to build a range of solutions that cater for those. And you can see on the right-hand side, we have an architecture diagram about the business with myprosperity in the top providing secure customer single view wealth portal capability, the other HUB platform and Class and NowInfinity services linking into that, moving ahead. And then integration across the industry with data. So we're building a really great ecosystem with secure permission-based data sharing to deliver on that goal of absorbing those trends and helping customers get a complete view of wealth. So some of the things that we want to take advantage of in there. We certainly are collaborating with retirement solution providers. To extend our product set, we're increasing the range of investments on our platform, looking at alternative investments and unlisted fixed interest to deal with different marketplaces, enhancing the customer experience. And certainly, we'll be evolving our non-custody reporting or as we call it, present testing or single wealth reporting, evolving that to an admin service as well on the [ HUB20 ] platform. Quite separate to the institutional grade portfolio or non-custody portfolio admin service that we provide to brokers and their high net wealth clients as well. What does that all mean? If we translate that to the market and the offers, a bit of a complex slide here but just to give you an outline of how we think about the market and how we have different products positioned over different life stages for different markets, being the high net wealth broker and private wealth market, mass affluent market and the mass market where we intend to do some more work. So certainly, we got a range of products and services that deal with different life stages for those who are starting out, those who are growing well and those who are retiring and/or downsizing and then the intergeneration of wealth transfer, particularly with SMSF Access, we're helping people get a portable vehicle at a younger age at a sensible price. But also at the end of their time is running an SMSF having a simpler product solution to allow them to keep that portability and deal with intergenerational transfer. So we cut across several segments with several solutions, and we're certainly working on more as well. Having said that, we have a digital solution, which we took to market with Aberdeen, which is really a digital advice solution with a really core set of investments as well that we've got in the can. And we're looking around the corner at what we do with that given QAR and other changes as well. So we're certainly focused on clients, life stages and segments and taking the best we've got of the ingredients in the HUB24 stable in an integrated sense to continue to lead the market moving forward. So from an outlook perspective for HUB24, what does it all mean? We certainly see growth momentum. We certainly see ourselves continuing to deliver customer and shareholder value. A few snippets there on the slide. We absolutely have a coherent strategy that's driving competitive advantage. We want to maintain and extend market leadership in our core propositions. We want to get growth, and we intend to get growth from both our existing and new relationships and also enable industry transformation and advice delivery by taking data and technology and playing our bit to sort out some of those gaps that we have in the industry, given the profound disruption that's occurred over time. We're focused on integrating our group capabilities to accelerate the growth of the platform and extend our leadership moving ahead. So the updated guidance we've got today as part of that momentum and delivering that growth and shareholder value. We've updated our guidance statement there for the end of FY '25 to have Platform FUA excluding PARS and Custody FUA in a range of $92 billion to $100 billion for FY '25. So that's the end of the presentation formally today. We're delighted to take questions and talk to those on the line and we'll hand back to you, Poole. Thank you.

Thank you, Andrew and Kitrina for the presentation. [Operator Instructions] And your first question comes from the line of Brendan Carrig from Macquarie.

Maybe just quickly starting on the flows or the FUA update that you've provided. I guess, given the market sell-off leading into the -- leading into the 17th of August, it looks like it's a reasonably strong run rate. But I just wanted to maybe get some additional color on whether the correlation is held up to the market and sort of how we should be thinking about the FUA run rate and is there anything for EQT in the flows to the 17th of August.

There's nothing for EQT there. We are working on the first of effects series of phase transitions. The teams are working hard on that, but nothing in those numbers to date. In terms of correlation, I might just explain that quite often or typically, there's a correlation of market movement for us point to point. But at times, there are trading activities that actually confound that or [ it doesn't, true ]. So you might have advisers buying into the market or out of the market at the top or the bottom, and that actually changes that correlation. So certainly, there has been a shift in FUA correlation, if you like. The guidance we've got is that our flow rates so far this year is ahead of the run rate for quarter 4, but not strictly correlated if you were doing mathematics at 60% or 70% to the ASX movement. It hasn't tracked that. There has been movement within those peaks and troughs in crystallization or purchasing. That means it's not strictly correlated. So but we've had flows ahead of run rate to date, and that's very pleasing, run rate for quarter 4.

And then just on the FY '25 FUA target. Is it the same market assumption of that circa 5% market return in there? And so then the range is sort of calculated correctly, about $11 billion to $15 billion of net flows per annum, including the EQT over the next 2 years?

Yes, that's correct, Brendan. So it's the -- we obviously do have sensitivities, but the standard baseline assumptions in market is sort of 5%. And yes, you're sort of right, including the EQT of $4 billion in that first year, you're definitely looking at $14-odd billion, and then there could be some sensitivity plus/minus to that.

And then I'll just ask on the tax rate, and then I'll jump back in the queue. Maybe just Kitrina, could you provide some more color around your expectations on where this might be going forward? It sounds like maybe some of them are repeatable benefits to the tax rate, but maybe some were one-off if I'm interpreting what you said correctly.

Yes, that's right. So the R&D benefit, you would expect, given the nature of HUB24 in Class that we'll continue to get R&D benefits. So you'd expect that to continue to come through. We were probably a little bit conservative in our estimates when we did the full-year '22 estimates and when we completed the tax return. Obviously, that gave us a bit of a benefit. Then the treasury shares. So historically, we used to the employee share schemes for service by issuing shares on market and that was nondeductible from a tax expense when the share-based payments were booked. Our capital management plan now on our policy is largely that we look to purchase shares on market to service those employee plans. And from a -- you get the tax deduction from that because you're using resources, company cash resources to do that. And so there was a bit of a catch-up this year just from that because that's a change of tax treatment when you demonstrate that, that's your purpose going forward.

So the tax rate going forward, how should we be thinking about it?

So the tax rate going forward, look, it's probably going to be anywhere between, say, 25% to 30% depending on their movements in the year.

Your next question comes from the line of James Bisinella from Unified Capital Partners.

Yes. Congratulations on the result, Andrew and Kitrina. Just a couple for me. Maybe just on the split of gross inflows versus gross outflows, just noting the heightened outflow environment recently. Just wondering if there's been any shift in that over the past 1.5 months that you're seeing.

Do you want to go, Keith? It I think that we'll -- sorry. Generally, you might feel me a bit but generally, there's been a reduction recently in outflows to IDPS, but it's too early to be a trend, but that might be less people running to term deposits or cash and looking for stabilization or ready to invest, James. So in terms of the mix, we did see a slight uptick towards a bit later than one of our peers, where we did have some exit of discretionary or IDPS funds, a higher level of outflow rate. But certainly, in superannuation, that's not necessarily changed its pension payments. So our outflow rate is fairly consistent across the board. But at a deeper level, when you look at IDPS, we did see some money leaving certainly in the high net wealth space in recent months. That seems to have slowed down in the last few weeks. But I'm not sure whether that's a trend, but it seems to have gone back to more close to normal. Is that a fair comment, Keith?

Yes. It is.

And just another one, just around the environment and pipeline for large transitions just in terms of what you're seeing currently in the market.

Always in discussions. We are very comfortable with the EQT transition where there are other opportunities in the market. We continue to prospect and work on those. So certainly, there is opportunity out there. I know that people don't count that we actually sign off them, and we don't talk about it until we sign off them, and some of them just stay and some of them don't. But we're comfortable with that. And certainly, you saw from our guidance statement, that's really taking the '24 guidance we had and adding, what is that, $9 billion to $11 billion range to that. So we're comfortable that there's opportunities out there. Certainly working on EQT, and we've got others talking we're to, James. So it hasn't dried up. They're difficult to get. But at the same time, I would expect to think you should see us land some of these every year or so. So that's the best guidance I can give you at this point.

And just last one from me. Just in terms of the $50 million earmarked on the -- for the buyback, potential buyback, I mean, is the intention still to continue exploring M&A and strategic opportunities or is it sort of capital management the new normal from here?

No, absolutely. We've got -- in the buyback side, we talk about retaining the flexibility to pursue strategic opportunities. And certainly, on the outlook side, we've got our eyes open. Having said that, we've got a great group of assets. Our job is to stitch them together and execute on that strategy, which we're absolutely focused on. But we're alive and we're looking at other things if they make sense for us. But we have a great stack at the moment, which we want to deliver. And so it's not about capital management in the future. It's just returning some capital to shareholders, dealing with some dilution from the acquisition of myprosperity, maintaining flexibility so we can continue to acquire if it makes sense and it would create shareholder and customer value.

Your next question comes from the line of Kieren Chidgey from Jarden.

Just a question around your product set. We've seen one of your competitors announce changes to their core product offering moving forward to try and make their product more competitive. Just wondering how you're thinking about your current sort of product positioning and whether or not sort of that's also an area you're also considering making some revisions around.

We're very happy with our core products. The fact that our competitor has the same name on their product is not misleading, but they're very different products. Our core product has a much broader range of investments at some price points with the announcement from the other provider, they're very similar. So we have a broader product and it is aimed at the mass affluent or simple needs mass affluent market and lower balances. So we're very comfortable with our core product. It's much broader than the one you're talking to. We do have, as I said, a similar product to the one that was announced in terms of just a restricted menu of portfolios or assets. We have built a very simple product for taking to market with digital advice. That's not in market because of the Aberdeen digital advice piece we've talked about many times, but we've got that capability certainly if we wanted to go there, which would be a lower balance type product, which might lead to even lower balances in mass market. So we're comfortable with our coverage and comfortable with the pricing of our core products given the value it delivers. And at some price points and some balances, it's equivalent or better than the one you're talking about. So from our core product point of view, I don't think you'll see change at all. We've been very successful there. In that heartland, we've been very successful with groups and advisers in terms of getting penetration there, and I don't think that will shift. It's been a market that we know well.

And just a second question on scalability within the Platform business. You've had reasonable margin expansion, as I think you pointed out, Kitrina. One of the slides over the last 4 years, just any sort of commentary around how we or how you're thinking about sort of cost growth or headcount more specifically within that division as we move forward with the good flow to sort of got embedded or implied within your FUA guidance?

Yes. So we've always said that we are focused on the underlying EBITDA margin and delivering operating leverage while still investing in the business. So we've always said that we'll invest ahead of where we see the growth coming so that we can maintain our strong service levels. But when we make the decisions on where we invest and when we invest, we do it with an eye on the underlying EBITDA margin and making sure that we can still deliver that operating leverage. That will continue into '24. And so we don't give expenses or underlying EBITDA margin guidance, but you can definitely take away from this that that's not going to change. We're still going to keep focused on that and look to at a minimum holder and if not improve it depending on the conditions.

Your next question comes from the line of Nicholas McGarrigle from Barrenjoey.

Maybe just a question around the new advisers that came on in the fourth quarter. Can you just give us a sense of what was driving that large pickup in the number of new advisers added?

I'd say analysis. I don't know if there's anything out of the ordinary there, Nick. I think that a couple of comments. We've all talked about how the economic conditions have been a bit challenging or softer and advisers have been sitting and waiting for investment opportunities or are using defensive assets or flows had been slower, certainly in quarter 3 and in the start of quarter 4. I think it's a result of good prospecting. The sales team is working where they can to build new relationships. There's been a lot of activity in the market with those looking for a platform and platform selection. We've had quite a few wins. I think there was a number of distribution agreements in that quarter as well. So I think it's just reflective of business development and that there was an opportunity to build relationships whilst it was a little bit softer in terms of flows during that quarter. I don't have any large swings or roundabouts that I think are noteworthy in terms of makeup or so forth. It will be across self-license, it will be across boutiques, and it'll be across larger groups as well.

And in terms of the EQT timing, I don't know if Kat or yourself can give us just a sense on when should we expect first flows there and over what time period should the initial $4 billion move over and has there been any change in the thinking on that $4 billion amount?

It's a phased transition. And clearly, we'll also be working with EQT and how they talk to the market about what's happening. So I have respect for them. I'm not going to give you dates at this point in time. We have -- we are working on the project. We're working on some build. There is a third party involved with some trust software. That's progressing well for us to deliver in '24. And I think, Kitrina, we sort of say most of it's in '24, probably.

Correct.

Correct?

Yes. Anywhere up to 3.5%.

3.5% in '24 and some will lag over and it's well known in the market that EQT need to exit some of the AET systems that were hosted by Insignia. So you should expect to see some first transitions in this half. And as and when it's appropriate and EQT are comfortable with testing out the tech and the stack and how it fits together, we'll talk more about it. So -- but certainly, we're working on the first ones in this half.

[Operator Instructions] And your next question comes from the line of Scott Hudson from MST.

Just a couple of quick questions. Could you just give us an update on the myprosperity integration?

Sure. The first piece of work we're doing with myprosperity in terms of integrating with HUB is building what we call a simple portal. We put that in the announcement on the acquisition, which is about attaching a simple version of myprosperity to the platform. That's underway and build at the moment. The design is being sorted and on the way to build. So I'd expect to be having that in market in the next few months, certainly in this half. So that was the -- so it's on track in terms of that objective, in terms of the integration of that. Interestingly, Scott, I know you didn't ask but I'm shameless, we're actually seeing great traction and interest in myprosperity and the broader HUB Group as a result of that solution in terms of what it can provide, particularly in terms of secure documents, bolts and cybersecurity. For advisers, it's allowing us to have discussions and hopefully increase share of wallet with existing clients. And people are very interested in what we're doing with that particular portal. So it's working from a business development point of view, and the first integration task is well underway.

That was my next question. But in terms of the -- I guess, the strategy behind a simple portal, is that just to get, I guess, something online and up and running relatively quickly before you expand the portal offering. So what's the longer-term strategy there?

Okay. There will be a simple portal with the HUB platform. There is the ability to upgrade that to the full myprosperity capabilities out there in the market sold on its own. So -- and we don't intend to change that. So the simple portal will have integration that will create a single sign-on or effectively over time, replace what we call Investor HUB, which is the app that investors use and give access. So it will actually embed inside the simple portal, some of the Investor HUB functionality. So it will be a hybrid offer, but the ability to take the full suite of myprosperity remains and to actually move forward to that. So we're not doing a deep integration, but that's the actual myprosperity product that can be accessible. Of course, we'll over time enrich the capability, but the idea is not to provide the full myprosperity as a bundle with the platform. It's an optional and it is sold separately in the market currently. And I think that some advisers and clients will take that up as an additional service stream and increase our revenue in Tech Solutions or increase our software's revenue. So it's in the platform segment. Sorry, Scott. But yes, the strategy is for the standard its own and be able to be purchased as the full suite with a simple one integrated with HUB. Stage 2 is to integrate that in 12 months' time with other offers like Class and others. So ideally, it could be the front end for customers on Class as well.

And then maybe could you just expand a little bit about the, I guess, evolving the non-custody reporting to include admin on the platform?

Sure. So we've approached non-custody by having large institutional clients like Evans and Ord Minnett. And we do that in a portfolio of service on a different tech stack. We've used our HUBconnect infrastructure and a product called Present to allow a single view of Wealth on the platform. So that's with feeds from Macquarie Bank. It's with feeds from the Platform. It also allows advisers to add other assets in. So you can enter in other assets now, property, other investments, equities into that asset registered to report on and get the combined reporting. So we already do that single view of wealth reporting. The next step is to it's we will be piloting, leveraging some of the capability we've got for those institutional non-custody offers, piloting some non-custody admin. So not only can you enter them in to the platform for employee but we might also do the administration on the wealth corporate actions and those sorts of things. So it will be an evolution to doing some non-custody admin. As part of the platform, a very different offer to the portfolio service, we have brokers and household wealth inflows. It's an additional increment to our additional feature on the platform. And so we'll be piling that in the next 6 months or so. And then based on that, we'll go to market with a full launch.

Have you settled on a, I guess, a revenue model at this point?

We haven't settled on a revenue model, and we'll talk about that after we've alerts from the pilots, but we certainly have ideas about the revenue model, but that will come out in due course.

Your next question comes from the line of Olivier Coulon from E&P Financial.

Congrats on a strong result. Just a question re the fee mix in the second half. It seemed like there was a decent step down when you look at that slide where you've got the walk of kind of admin and cash and other fee growth in the second half. Was most of that just a function of the higher balances driven by market performance in the second half?

Yes, I'll take that one, Olivier. So it's probably the thing to do is look on the graph on the top right-hand side of that graph. So with the RBA rate increases that came in, in May-June 2022, that took us to the upper end of our cash management fee. And so it didn't increase -- the cash management fee didn't increase past that. And so that -- you would have seen those benefits coming in first half '23, and then they said they normalized in second half '23, which is why you didn't see another large uptick in the second half of '23.

Yes, I would have thought, given the step down as you moved off ANZ onto BOQ, you may have actually seen cash decrease, but it seems like your average cash balances must have lifted a touch to offset the impact of that.

Yes, that's correct. So we did see a bit of a -- particularly in Q3, we saw a bit of an uptick in cash balances, and it's really -- it's been around that 8% to sort of 10% throughout most of the year.

Okay. And the spot like when you exited the half, was it fairly similar to the average or the year average? Is there any guidance you can give us on that?

It's been fairly similar to the yearly average. And so, look, we don't give cash numbers, but yes, has been…

I think the comment I'd make is it does move around all the time. It's just a function of money coming onto the platform and it's a function of trading not just people parking money in cash. And so a lot of the cash balance is based on new customers, new inflows coming in, in cash and superannuation, not as assets. And sometimes they take a while to trade. So lifting the hood and that's really difficult. It moves around quite regularly. Whilst you might see some softening or growth in terms of trends with economic cycles, ours moves around quite a bit given the nature of the book, and we have a predisposition to superannuation flows. So giving you a spot is probably not an indicator of what's happening given the way it works.

And just with the pilot product on the -- taking some of that reporting functionality that you've got in pause for the custodial clients, is there a view that you're going to use a little bit of that to try to push up into segments of the market where you may not have had a strong penetration, specifically, I guess, high net worth, et cetera?

Well, we do have penetration high net worth with the Evans and Westpac clients, Marquee clients from Xplore, and we have wholesale discretionary accounts in Xplore, which have high wealth capabilities, and we do offer some of those assets in those custody arrangements like bonds and others in foreign currency on the linear platform with Xplore. So we do have exposure that we haven't had on the HUB24 platform. So maybe, but we're there. It is about providing flexibility for customers and advisers so that you can have assets off platform, still have them report rather than have to crystallize them and move them into custody. It's about increasing the opportunity. People want a single view of wealth. And so our view has been -- let's help advisers do business the same way regardless of how assets are held legally. And so it's extending the utility of the platform in that regard. Yes, it might appeal to that market, it will appeal to other markets as well, but it's not deliberately behind at Wealth. It's taking capability we've got and enhancing it and rounding it out into an offer that is about building the platform of the future.

Your next question comes from the line of Siraj Ahmed from Citigroup.

I have 3 questions. Just first one on the '25 guidance for FUA. Just clarifying, are you assuming that another large transition in '25 to get to that guidance? And secondly, is it fair to assume there's nothing much of a benefit from my myprosperity in the guidance?

What was the last part? Benefits from myprosperity in the guidance? Is that the question?

Yes. In terms of flows coming into the core platform because of the enhanced functionality is suggesting you're not really achieving much from that.

Well, I'll make one comment. Then Kitrina can talk about the transition piece. Certainly, we aim to deliver a reliable guidance statement, and we'd like to always perform the best we can. And in some cases, we have achieved higher than the top end of the range. But we certainly don't want to be making bullish promises and having to revise guidance as well. So I think it's a good prudent measure with a big range. It's an additional or an increment to the guidance we had for '24. So from that perspective, it allows for additional transitions, and it also allows us to be in the range, I think, without additional transitions are subject to markets at 5%. So there's a variation of possibilities in there. So it's not that it's built on the assumption there's another large transition. We'd love to have one, and we're certainly working on them and it would put us into sort of middle territory of the range. I think, Keith, is that fair?

Yes, that's completely fair.

Second one, in terms of just myprosperity, I mean looking at the accounts, I think, $3.7 million in revenue, maybe slightly below what you mentioned at the -- when you acquired it. But just is that organic business still on target for that sort of doubling in revenue next year, in '24?

Certainly in the plan, and it's certainly what the business is gunning for. It's early days in '24, but it's certainly there, Siraj. And as Andrew mentioned earlier, the incoming calls and the inquiries that we added up indicate that the pipeline is very strong.

Last one, in terms of -- Andrew, you sort of mentioned this that change in licensees more recently from one of the largest players. Just keen to understand the impact, right? On the one hand, I'm guessing your pipeline is picking up. When do you reckon that comes through in terms of flows if you win? And secondly, does that have any impact on your white label, white label or private label given your win committee have, does that impact the institutional arrangement that you have in terms of potential flows?

We're yet to work through that, Siraj. If you were referring to Insignia, I think there are opportunities there in that group and that channel is potentially opening up. We do have an existing relationship. And so yes, working through that. But I think the sentiment is that if there's a group going to market that's separating from an institutional be it having over time, a minority shareholding from that institution, best interest and the need from advisers to have the best products and platforms will prevail. And the private label we have with that group is not a full menu service. So we'll work through that. But I think the point is that we're seeing shifts in the advice landscape, and that brings opportunities for change and opportunities for us to penetrate markets differently and have access. So first part of the question I see it as opportunity. We have to land it and we have to work through that other -- the bigger relationship, and we'll do that.

Your next question comes from the line of Nick Burgess from Ord Minnett.

2 quick questions. Just firstly on PARS, it looks like the implied revenue performance of PARS dropped off a fair amount in the second half despite FUA being up over the year and up slightly half-on-half. Is that right? Is that analysis right? And secondly, is there something other than activity levels dropping off that's impacted that?

No. I would say that the PARS revenue has been consistent actually since we first acquired the business. So happy to talk to you offline, Nick, but no, it's inconsistent year-on-year. The market, it doesn't move around too much because it's broadly a lot of the portfolios at the cap of the fee. So it is very consistent.

Yes, right. So there wasn't a second half drop-off. Okay. Second question, just on your comments around the EBITDA margin in the Platform segment with the objective of keeping that at a minimum flat and potentially expanding it, does that include the small dilutive effect from myprosperity losses this year or those comments were excluding any dilutive impact from that?

So certainly, it does depend on the market conditions and flows, et cetera. And I think we gave sort of guidance when we did the myprosperity acquisition announcement that it would be somewhere between $1 million, $1.5 million negative impact to the underlying EBITDA. And so when we look at the Platform segment, absolutely, we look to maintain and where we can improve.

Including those 1.5 million of losses. Yes.

Correct.

You have a follow-up question from Nicholas McGarrigle from Barrenjoey.

Just probably a boring one. CapEx was $16 million on -- in terms of IT CapEx in FY '23. Should we expect that it's a broadly similar amount going forward or should we think of it as a percentage of revenue? And then I guess the follow-on to that is, should we expect amortization -- normalized amortization to track towards that kind of CapEx number over time?

Yes. So Nick, on the capitalization, the $16 million includes the HUB24 and the Class, and it's after the Class change in the policy. Absolutely, that particularly on the HUB24 side, it's been very, very consistent. Obviously, Class is on a full 12 months this year. We're not expecting large changes there either. So $16 million is absolutely a normal run rate that you can expect to see for the combined. And as you say, if that continues, then all things being equal or depreciation and the capitalization will normalize out and equal over the period of time.

This concludes our Q&A session for today, and I'd like to hand the call back over to Andrew for closing remarks.

Thank you, again, everyone, and thank you for great questions. It's been a great year for us. I certainly look forward to seeing people out on the rounds with Kitrina. Thank you for your time and interest and support and enjoy the rest of your day.

This concludes today's conference call. Enjoy the rest of your day. You may now disconnect.