HUB24 Limited (HUB) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the HUB24 Limited First Half FY '25 Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Andrew Alcock, Managing Director and CEO. Please go ahead.

Good morning, everyone. Welcome to the HUB24 First Half '25 Results Call. We certainly are working very hard in this business with our industry, our clients, customers and business partners to empower better financial futures together for Australians. And now more than ever, that is a growing need in this country. Today, I'll be giving an overview of highlights and operating review of the business, followed by Kitrina Shanahan, our CFO, coming through some of our financial results, and I'll come back after that to talk about strategy and outlook before, of course, we will take some questions from those on the line. So we'll jump straight in, but we're very pleased to tell you that on Valentine's Day last week, we had the pleasure of being the best platform for the third year running by Investment Trends as part of their 2024 Platform Competitive Analysis and Benchmarking Report. So we're delighted to be able to tell you that today that we're the best platform, again, we were, of course, last year. And we also picked up the #1 for managed accounts capability, which we've won 8 out of the last 9 years, which is one of the strongest growing part of the wealth industry in terms of investment solutions for customers. In that survey, we picked up a number of other awards, which I'll run through very quickly, Best in Product Offering, which is great to have, of course, in terms of our product offering, meeting the needs of different groups of Australian investors; Best in Decision Support Tools; Best in Online Business Management; and interestingly, Most Improved, which I thought was quite cute having been awarded first place last year, which we're very grateful and humble for to be told we improved the most, arguably means that we've extended our lead against our competitors, which we're very pleased to do in conjunction with our customers and advisers because we're very serious about making a difference in our industry and investing in the future for all of the disciplines. Along with that, on the left-hand side of this page, a couple of other things to mention. We also won an award from Sustainability Hub for having the Most Impactful New Enhancement, which was updated to our adviser fee consent process, which I might talk about a little bit more later on, but certainly key for adviser that's been a pain point with a regulatory change in the industry, how do we make that easier for advisers and their customers. For FY '25 for the first half -- sorry, at the latest data, we're #1 for annual platform and retail superannuation flows, and we've been in that position for some time now. But also the first for net flows where investors or customers choosing to switch or move to a superannuation fund on the advice of their adviser. Another one in the industry for picking up the largest amount of net inflows for those who are choosing a different solution with the help of their adviser. So very pleased to be talking about that today as well. On to some highlights from the operating review, might flip straight through to the financial highlights slide. I'm pleased, of course, to be able to determine a dividend of $0.24 fully franked for the half. And on the right-hand side of the page, you can see some of the stats there as well with that dividend being up 30% on the same time last year. Our underlying EPS is up $0.51 per -- $0.51 per share, up 41%. That's a diluted number for prior period. NPAT up as well, 40%; and stat NPAT up 54%. So great numbers there. Breaking them down, though, on the left-hand side of the pack, our revenue for the total group has been up 25% to approaching $200 million at $195 million. Our Platform up 29%; and Tech Solutions also up 9%. So we're very pleased about. And the EBITDA numbers there as well, great healthy percentages for the first half with 41% increase at a group level, up to $77.6 million underlying EBITDA. Our platform FUA, as you know, was very strong in the first 2 quarters and the first half of FY '25. And we finished the half at $98.9 billion of custodial or Platform FUA, which is up 36% on the PCP. As at 13th of February, last Thursday, it was up to $102.6 billion, representing ongoing strong inflows in January and February to date plus some market movement as well. With total FUA including our noncustodial or PARS business at just under $121 billion at 31 December. Some other highlights on the half from a business perspective. We've obviously done very well. We're getting record flows for ourselves, for the first half of $9.5 billion and that includes some large migrations but a great result for the first half. We don't think it's a testament to underlying market conditions, which are very favorable for our industry and very favorable for investors and advisers looking after customers' financial futures. We've also had an increased growth in advisers, which we'll talk about a bit later, with 361 net additions in the first half choosing to start to use HUB24. Another large migration we announced during the period with the success of fund transfer of the Clearview WealthFoundations. That's on track to complete in the next few weeks. So we're looking forward to that as well. And advocacy is building with myprosperity, signing up extra agreements with large national groups with myprosperity as well. NowInfinity and Class posting positive growth. We'll talk about that later on in the pack. On the innovation sense, we announced during the half, the alliance we have with Reach Alternative investments and hoping to access more alternative investments on the platform. Our award-winning reporting capability, which we call presented now being evolved being called Engage and it's in pilot at the moment, very exciting results for that from advisers. We continue to enhance the platform, evidenced by those investment trends awards. And a lot of work in class with significant product enhancements during the half on what we call compliance for the future or including registry fees, that's share registry fees, property title searches and document integrations that allow auditors of SMSFs and administrators to cite and see all source documents that make it easier and faster to the job of looking after the accounting for self-managed super funds. And of course, this week, the Self-managed Super Fund Association conference is in Melbourne, which we're presenting and talking more about those enhancements during the week. We've also been investing in the future with automation for quality and service, building out our infrastructure and our people and their capability to ensure we're growing and able to support the future growth that we strongly believe in, and of course, doing some -- a lot of work in the AI space and automation to solve challenges for our industry. A bit more about that later. We'll take a look back at our growth over time. And we put this slide in each pack just to show the reliable and consistent growth and shareholder value. And that is the way we think about how we run and drive the business and how we approach investment and margin expansion and expense management in the business with corresponding revenue growth. Key value driver for the business being funds under administration with a 4-year CAGR of 53% and group revenue with a 42% CAGR over the last 4 years and underlying EBITDA at 47% and that 47% CAGR is above the platform CAGR, which is about 40% for the same period, indicating that we're getting results coming through from our Tech Solutions business, giving us diversified revenue and ongoing earnings growth for shareholders. In addition to some of the awards on investment trends I mentioned earlier, the next slide is not unfamiliar to those of you who follow HUB24. There are some other accolades there from the Investment Trends Adviser Technology needs report, which is a different report, which is about #1 for satisfaction, which means customers are choosing HUB24 and are advocates for us with our great Net Promoter Score and all the tools there, also having and still maintaining best overall advice platform for adviser ratings in 2024 and Wealth Insights as well, which is a sentiment award as well. So great accolades there. It's good to be recognized that we're doing what we believe in very much, and that is about making sure we put our customers in the center of our business and build solutions that are sustainable for the future and meet their changing demographics and continue to lead in the marketplace. We're very, very pleased to play that role. If we look at how that translates into market share over the last period over the last 12 months, we can see that HUB24 has gone from 6.6% market share to 7.9% market share. That's the largest market share gain in our industry as researched by Plan for Life. And we currently rank at #7 in FUA at 7.9% in the top 10 platforms there. Also, pleasingly, the industry has grown over the last 12 months or the industry as measured by Plan for Life with 17% FUA growth, reflecting market growth and inflows into the business. And so whilst that's the current platform industry, our addressable market, of course, is far broadened that with the net casting further out from what is currently on platform as evidenced by some of our growth as well. So good gains in market share. A great result there, hopefully, from your perspective as well. Moving on to the adviser story, if you like, or the adviser lens on HUB24. Since 1H '21, we had 11% advisers using the platform. It's now at 31%. So strong adviser growth, which you'll see in the next slide is an indicator for future opportunity as well with the average usage or the average fund under administration per adviser in that same 4-year period going from $10 million per adviser up to $20 million. So we've more than doubled the number of advisers. We more than doubled the usage per adviser in our platform business. In the same time period, market share, having grown from 2.3% to 7.9%. There's a lot of potential long way to go in this industry as a market leader to continue to grow and a great opportunity for us to keep working on, as you'll see in the next slide. We break the lens down to look at the opportunity for that further growth. On the left-hand side, for the first half of '25, you can see the outlined box there that 86% of our flows for the first half have come from existing licensees and adviser relationships, 12% from new advisers in those relationships and 2% from new relationships. Given that's the first half, that number will bounce around a bit as advisers who started using the platform or with us for the full year, and you'll see that revert back to the normal trend there. It's a great result with us continuing to get flows from existing clients and picking up new ones as well. Typically, adviser relationships can deliver transition flow benefits on the platform for a period of up to 6 years. And so when we consider that we had 361 advisers on the right-hand side of the slide, 361 net additions in 1H '25, the average for the past 3 years was 277. So there's been an increase in advisers signing up to use the platform of this half, which is indicated in the future flows should we continue to have great products and service. The FUA per adviser having doubled, as I mentioned earlier. Interestingly, the average FUA per adviser in the industry is about $75 million. So lots of room for us to continue to grow that usage. And 11% of advisers, we've actually got up to $50 million or more than $50 million on HUB24. So the slide is painting a picture about if we look at the lead indicators for adviser relationships, there's much more for us to do, much more opportunity to continue to grow and continue to exceed in the marketplace, looking at those stats. And before I pass on to Kitrina Shanahan, I have a quick snapshot of our other businesses with our Tech Solutions business and myprosperity delivering consistent growth. Class maintained its position of second largest market share and growing at system, with about 30.4% market share, more than 210,000 accounts with Class software solution. Interestingly, the self-managed superfund establishments has increased, and we'd expect that to flow through these numbers in the next 6 months as well. And NowInfinity the growth in -- 810,000 companies using corporate Messenger and NowInfinity growing at 1.7x system. So great leadership there from those 2 businesses. And on the right-hand side, the penetration into myprosperity is increasing. There's more to do. It's still early days. We had 18,000 new households sign up in 1H '25, and 23 new practices using the solution. And you can see the activity stats there is all the log-ins from customers and firms, a number of documents stored on the system as indicators of further usage moving forward. Kitrina Shanahan, our CFO, will then take us through some of the financial results.

Excellent. Thank you, Andrew. So I'll now run through the financial results. Here on the first slide, we have a snapshot of the group platform and Tech Solutions with revenue, underlying EBITDA and customer numbers. So the group revenue of $195 million and underlying EBITDA of $77.6 million, with the Platform delivering 79% of the revenue, Tech Solutions delivering 19% of the revenue and the corporate segment, which holds the strategic investments and also have the corporate interest income in there, being 2% of the group's revenue. Platform revenue for the half was $154.2 million, and underlying EBITDA of $66.7 million. Custody FUA and net flow still being the main driver, which is 97% of the Platform revenue. The customer base, as Andrew mentioned, just under 5,000 advisers. We've got 4,886 active financial advisers using the platform. And on the Technology Solutions side of the business, underlying EBITDA of $13.8 million for the half and revenue of $38 million with a customer base of 6,500 accounting practices using the Class solutions. Then if we move to the next slide, we have a snapshot of the group financial results with operating revenue up 25% to the $195 million. Operating expenses, up 16% in half-on-half comparing to December '23, growing 16%, with revenue growing significantly faster than operating expenses, underlying EBITDA is up to $77.6 million, up 41% over the PCP. Underlying EBITDA margin has grown 4.7% from 35.1% to 39.8% this half. And we also have the underlying NPAT up 40% to 42.6%, and stat NPAT up 54% to 33.2%. You can see on the graph on the right-hand side, the contribution from the Platforms, Tech Solutions and corporate businesses with a platform operating revenue up 34% on the PCP and Tech Solutions up 3.2%, underlying EBITDA platform delivering $19 million of the underlying EBITDA growth of the platform. Moving on to the next slide. We have more details on the Platform segment with the total FUA up 33% to just under $121 billion, $120.9 billion. Custody FUA at the 31st of December was $98.9 billion. As Andrew mentioned, on the 13th of February, we gave an update $102.6 billion. So we crashed through the $100 billion mark. Non-custody was up 17% to $22 billion, and Platform net inflows of $9.5 billion in the 6 months, which included $8 billion of underlying net inflows and $1.5 billion for EQT large migrations that were completed in the half and the EQT opportunity being $5 billion in total and we've got another $1 billion expected to come through in the second half '25, which will close out that large migration and the $5 billion that we called out. Underlying EBITDA is up. The underlying EBITDA margin is up 3.3% to 43.2% in the half. And you can see the bottom -- the graph on the bottom right-hand side shows the walk of the FUA with net inflows of $9.5 billion and market movements of $5 billion in the custody side and the noncustody growing $1.7 billion in the half. Okay. Moving on to the next Platform slide. So on this slide, we give a bit more detail on the Platform revenue margin with the revenue margin reducing 1 bp in the half to 32 bps, which you can see on the bottom right-hand side graph. There were strong markets during the half, which meant that average balances were increasing and people were moving into slightly higher tiers. The percentage of custody FUA with fee-paying clients remained steady in the half, and you can see that in the analyst and investor pack. The average cash as a percentage of the custody FUA remains stable in the half at 7%, although we did see that dip down when we came out at an exit run rate at the 31st of December, it was more around the 6.5% mark. Moving on to the next slide. We have the composition of the platform revenue and platform FUA. So here on the graph on the right-hand side, you can see that the composition with 86% of the custody FUA held in retail, which is up 1% on first half '24 and the institutional portion of the custody FUA is down 1% to 14%. The retail flows have been really strong over the last 12 months, which has offset the growth in the institutional FUA plus the large migrations from EQT going into institutional FUA. The graph on the bottom right-hand side shows the movements in the retail and institutional revenue. And you can see the 1 bp reduction in the total custody FUA from 33 bps to 32 bps with the 1 bp reduction coming from the retail side of the portfolio, 37 bps down to 36 bps, and institutional revenue margin remaining stable at 13 bps. Okay. So then moving on to the next slide. We have the platform underlying EBITDA margins. They have grown to 43.2%, up 1.7% on the second half '24 and up 3.3% in the 12 months to December '24. You can see that in the graph on the bottom right-hand side. All of the growth on the platform side is coming from operating leverage and growth in net flows and strong markets. We then have the graph on the right-hand side, which shows the previous 5 halves with the revenue and consistently increasing underlying EBITDA margin steadily ticking up to that 43.2%. The 4-year compound annual growth rate for the platform underlying EBITDA is 40%. So fantastic growth in the Platforms division. Moving on to Tech Solutions. So it's been a really strong half with underlying EBITDA of $13.8 million, up 37% on first half '24. And the underlying EBITDA margin has grown 7.3% on PCP to 36.4%. You can see the growth in all of the key metrics for Class with Class counts growing 3% to just over 210,000. Class accounts growing at system. Class document orders up 10%, just over 200,000 in the 6 months. And companies using the Corporate Messenger Solutions up 17%, which is significantly above the system growth. Operating expenses are up 2% on first half '24 and -- sorry, down 2% on first half '24 and slightly up on the second half '24. The operating leverage that we're seeing come through in the core businesses has enabled reinvestment new capabilities for the Class customers. Moving on to group expenses and underlying EBITDA margin. You can see the graph on the right-hand side, expenses are growing 16% to $149 million or up 17% if you're excluding the amortization related to acquisitions. So employee expenses is the main driver with $9.3 million increase half-on-half in employee-related expenses. FTE has been relatively flat half-on-half with 883 first half '24, 882 first half '25. This reflects very disciplined cost management. However, we do have increases in customer-facing FTE supporting the growth that we're seeing come through in the businesses. So you can see in the commentary there, we've got customer-facing FTE increasing 20, and we've got corporate roles in areas like risk and compliance and HR increasing 9. However, this has been offset by the closure of the Xplore integration and the wind down of some of the large migration activities with the bulk of the EQT migration being completed. And then the graph on the right-hand side just shows you the contribution to the underlying EBITDA margins from the various areas, Platform delivering 2.3% of the underlying EBITDA margin growth in the half. Moving on to the next slide. We have a walk of the underlying EBITDA to the underlying NPAT and statutory NPAT. Both underlying EBITDA and underlying NPAT are up 40%, 41%. So the underlying EBITDA of 77.6%, reduced by $6.7 million of share-based payments, $9.5 million of depreciation and amorts and then $18.8 million of interest and tax, taking us down to $42.6 million of underlying NPAT. And then the acquisition amortization on things like the Class acquisition, Xplore acquisition, net of tax, $9.4 million, taking us to 54% growth in statutory NPAT. We've also in this slide, given you a bit of an indicator of the depreciation and amortization for full year '25 will be somewhere around $19 million to $21 million. And then the acquisition amortization for full year '25 is expected to be around $26 million. There has been a bit of an uptick in the effective tax rate up to 28%, 25% first half '24. So a bit of an uptick there. That's mainly related to movements in our deferred tax balances that relates to things like the purchase of the treasury shares and the timing of using those treasury shares and R&D claims. And then moving to the final finance slide. We've got a recap here of the dividend with a 30% growth on the dividend and a dividend declared of $0.24 per share in the half. You can see that on the graph on the right-hand side, a 4-year CAGR in the dividends of 52% and a 48% 4-year CAGR on the underlying diluted EPS, which was $0.51 per share in the half. We've also called out here the strong operating cash flows. So we have operating cash flows of $67.1 million in the half, which is an 86% conversion of EBITDA to operating cash flows. And we've also given you a bit of a list here of a few things or what do we use the cash for. Ongoing investment expected to be around $20 million of CapEx in the half. We've got employee share schemes, purchasing treasury shares on market to service those employee shares schemes. And we've also got the operational risk financial requirements for the HUB24 Super Fund with the Super Fund growing and the offer reserve expected to increase as well and potentially a loan there with the trustee to service the offer. So with that, I will hand back to Andrew to talk about the strategy and the outlook.

Thank you, Kit. As you know, our industry has been undergoing transformation for quite some time, and it is continuing and is continuing in a way that is allowing HUB24 to be uniquely positioned to capture significant opportunity for growth. So for example, we've seen the emergence of advice networks over the last couple of years since the exit or the realignment of advisers away from institutionally aligned with 90% of our advisers now being privately owned licensees and then the emergence of advice networks working together to build sustainable business models. We've recently seen 2 large wealth institutions exit their aligned advice businesses out into separate business pools, that being AMP and Insignia. The investment or the lack of investment in advice infrastructure following the exit of wealth from the banks is continuing, and there's continuing uncertainty about the ownership of some traditional institutionally owned platforms with that being very topical in the media at the moment about ownership -- ongoing ownership platforms and indeed ownership for those institutions as well. And with cybersecurity risk driving up demand as well. So from an industry perspective, there's a lot of change which is ongoing from the transformation that's been happening since right about 2013, and we're very well positioned to deliver into that industry change. And on the customer point of view, the demand for advice is increasing with 2.3 million Australians unmet advice needs. We've got a huge groundswell of Australians looking to transition from accumulation to retirement over the next decade, about 3.6 million Australians doing that. And close to $5 trillion of assets looking to have transferred into generationally over the next few decades as well, which is changing the need and the design for products in our industry to include more retirement products, but also to think about products intergenerational wealth transfer and so forth. And the need for that requires -- or to do that, you require data integration, great systems, great solutions, and increased profitability for financial advisers and customers by leveraging technology, which is certainly what we're about at HUB24 as well. So the industry and the customer need to continue to shift, and we are uniquely positioned in our view to continue to deliver into that. We can break that down into 2 opportunity sets, if you like, or how we look at that through 2 lenses. One is about us growing our market leadership today. On the left-hand side of the slide, they're just talking about our established businesses being HUB24, Class and NowInfinity, well regarded as market leaders and having that strong position. So we're well positioned to continue to grow those businesses. And on the right-hand side of the page, to continue to transform the industry, and as we like to say sometimes, create tomorrow through technology and data solutions that leverage our capabilities to drive efficiency for professionals and get better outcomes for customers. So taking advantage of harnessing our footprint to deliver more products to more customers and strengthen our relationships across our customer groups, across those existing business models. Hence, 2 large opportunities to grow our current market-leading businesses, but also to create additional revenue and shareholder value through building technology and data solutions that will increase advocacy for both and with both of those opportunities creating both synergies for each other. If I look at that from a footprint perspective on the next slide, our business footprint supporting the strategy, we are the best -- our goal is to be the best provider of integrated platform, tech and data solutions. You can see in the middle of the slide, that footprint with our market-leading businesses. Taking that footprint with our strategy of leading today, creating tomorrow, and our very deep rooted attitude of working together and collaborating with our industry to build an open architecture, choice-based industry and also thinking about the future, we certainly hope to deliver change and deliver needs that meet customer -- deliver solutions being needs across the life cycle, but get some great outcomes in terms of one way of doing business with access to market-leading solutions, a single view of wealth for customers and professionals, which is sadly lacking in our industry. Efficient access to an ecosystem of technology providers that will enhance productivity and allow advisers to see more customers and make advice more accessible for Australians. Again, great flexibility in insights for businesses and for advisers as well. And so we talked about before in terms of our strategy in those 4 pillars, and we are continuing to work in that direction. A little bit of a snapshot of some things that we're working on, on the next slide before we get on to our outlook slide. Certainly, we're going to continue to deliver solutions for evolving customer needs. And that is we're enhancing our retirement functionality to allow pension payments or allocated pension payments to be more flexible and paid at different times of the month. We're also working with Challenger in enhancing their user interface and how it works with our platform and looking at other solutions to help people transition from superannuation to retirement or accumulation to draw down. We're further enhancing our integrated or single view wealth view of custody and noncustody solutions with our market-leading platform. We're working on also a wholesale [ PDS ] or offer for the high net wealth market to give access to different ranges of asset classes. So whilst we have great products that service that industry as well, we're going to work on a discrete or separate product offer targeted at that marketplace with broader access to different solutions and asset classes. And of course, with our Discover offer on HUB24, we're enhancing the range of investment opportunities, which is for those with simpler needs or smaller balances. So playing at the entry-level part of the industry as well as the high net wealth part of the industry and all the way in between where we certainly are excelling in our superannuation investment capabilities there. On the productivity side, we'll continue to deliver enhancement for HUB24. We are, as I said, evolving our present reporting capability to a new product called Engage. We're enhancing payments function, that's actually being able to pay third parties out of your investments through our cash management facility. Additional data feeds and integration to Class, which I mentioned earlier, making it easier for those with a self-managed super fund to have the source documents required to finalize their accounts to data lodgements and auditing, and allowing that to work much more smoothly in the future. Continuing to collaborate with large licensees and customers to build that open architecture wealth system or ecosystem where HUB24 components and other components be merged together to simplify and have better straight-through processing, end-to-end, cyber secure, multifactor authentication, consents and so forth through a whole ecosystem. We certainly have been working with productivity with our business partners as well. And lots going on with AI and robotics and automation. For example, the fee consent award we got for the best innovation earlier is using AI to look at fee consent forms coming from customers to make sure they pass, must do the jobs. We've got automated template through that individually and in bulk, all sorts of things with AI in terms of compliance, using large language models, which we've been doing for some time now to read unstructured documents to help licensees with compliance on SOAs, dashboards, predictive analytics, lots going on in that space with our dedicated innovation lab as well. And we'll talk more about that as we continue to extend in those areas safely and robustly to protect consumers, of course, but certainly making a difference in terms of productivity and outcomes. So that's a bit of an idea of some of the things we worked on as always. And turning to our last slide, in summing up the presentation today before we move to questions. HUB24 continues to have a significant opportunity for growth and of course, to create value for customers and for shareholders. We have updated our FUA guidance. This is the guidance we gave for the end of financial year '26 when we did our FY '25 results in August of last year. We had set a target of $115 billion to $123 billion of custodial FUA. We've updated that due to the great half we've had and the opportunities in the pipeline we've got right now and some of the market movement to a range of $123 billion to $135 billion for the same time period. So for financial year '26, we're giving guidance that we expect our custodial FUA to land in that range. The lower bound of that range actually being the higher bound when we published that guidance 6 months ago. So a great result to be able to update than in a period of 6 months' time. And that's based on the strong start, as I said, to the financial year, net inflows of between $11 billion to $15 billion per annum, excluding large migrations. Some of the known migrations we've got are potentially factoring in some outflows of discontinuation of the Xplore MDA business, which we announced in our recent quarterly and a range of market assumptions. So on the left-hand side, a similar story. Look, we are in a structurally growing marketplace, and we intend to leverage that and the demand for the integrated solutions with the great footprint we've got. We've got strong growth from existing relationships and a strong pipeline of new relationships as well. The platform is particularly positioned to grow significantly, having won those recent awards with nearly a 10-point gap between us and the highest ranking traditionally institutional-owned platform and a 30-point gap between some of the others. And so that's a great accolade for us. We intend to capitalize on our unique footprint and capabilities to unlock value for customers and shareholders. That's in terms of investment options, efficiency, information and insights. Our operations, of course, are scaling, you're seeing that through some of the results that Kitrina outlined with margin expansion. And we're very, very well positioned from a capital and cash flow perspective. So thank you very much for tuning in today. Of course, we always are thrilled to have the support and the interest of shareholders and analysts in the market alike. And thank you for joining us. We'll open up to questions now.

[Operator Instructions] Your first question comes from James Bisinella from Unified Capital.

Andrew, congrats on what looks like a pretty flawless result. Just on the net flow FUA guidance, it was sort of $11 billion plus previously. And that's changed to $11 billion to $15 billion. So you've put a $15 billion kind of upper end out there. Just interested in the reasoning for that. Is that just around strong pipeline and visibility over the next 12 months?

Yes, I'm happy to take that one, James. So look, we've given a broader range just because obviously the first 6 months of this half has been fantastic, $8 billion of underlying and $9.5 billion in total. And the pipeline is really strong, and the positive sentiment that we're seeing come from the distribution network is really strong. And equally, the market seem to be very strong as well. So if all of those things hold, it absolutely looks like it could be at the upper end. But if any of those things change, then you could be down at the back end or the lower end of that pretty quickly. And so really, the reason why there's such a large range this time and there is that lower end of it compared to where the run rates are is just because the uncertainty as to how long will this positive environment continue.

We do have a bigger base and market movement can affect that with more volatility. And should markets correct or we end up with 0 market growth over a 12-month period, you can see that changing remarkably, James. So that's the reason why. And we'd rather not be revising guidance. We're certainly very optimistic about hitting to the middle or upper end of the range.

Definitely. I guess it looks pretty strong just seeing you did kind of $11 billion on a like-for-like basis in '24. Just another one for me on large migrations. Just keen to hear what the pipeline for those look like as well and kind of are there many tenders out there in the market. Just interested because it appears the cadence in wins on those larger deals appear to be picking up to the group?

Look, there's always activity. And as we've said sometimes -- and thank you, James, for asking the question. We're very shy about giving too much away. There's always activity. In some cases, the nature of them is shifting. So once there are opportunities like that, there are opportunities to pick up large transitions as opposed to migrations from licensees or businesses who are retooling or reconsidering their future, particularly in a lot of the change that's going on in the industry. So there is certainly momentum for unplanned flows from our perspective in terms of our normal organic flow. In some cases, it might be large transitions, in other cases, it might be IT projects and migrations. But as and when we get to the end, we're certain of them, we would let you know.

Excellent. Congrats again.

Your next question comes from Siraj Ahmed from Citigroup.

I'll ask 2 questions. Just first one, Andrew, can you just clarify, I might have missed this, what the split between market movement and flows is for the third quarter so far? And I understand the range of $11 billion to $15 billion. I mean first half, as Kit mentioned, was $8 billion. Any reason you're seeing anything slow into the second half at the moment?

No, the flows have been strong to date. So as you know, we don't normally spell that out. We'll give you results at the quarter. But obviously, we had a strong quarter to December, and we had higher-than-expected flows in January. We normally budget January to be a lower month. So we certainly had higher flows than we expected in January and also in February to date. So there is quite a bit of market movement in that number. I think is it -- the ASX 200 was up 4.7% in the first 6 weeks. And so there's some market movement in there. We don't correlate totally to that. But the flows are quite healthy. They would indicate, Siraj, that the strength in the market and the customer sentiment continues in terms of advisers and customers putting money into equities and investment vehicles.

Got it. So no reason for the $8 billion to slow at this state -- at this stage, at least? Secondly, maybe one for...

Yes, we have no indicator that, but we also say we can't say that there's a trend here for the first half to continue in the second half, but it looks fairly consistent.

Perfect. Second one, maybe one for Kit. Just it's interesting that the employee numbers were down half-on-half, right? And so should that mean that OpEx growth should slow? I think you previously said maybe low to mid-teens. It sounds like this has to be low teens based on the headcount. It would be pretty helpful just to get some color on that.

Yes, correct. So look, I think as I sort of mentioned in the call, we did have this sort of reset on integration activities and large migrations broadly completing. And so that obviously did offset the growth in the headcount that you would have seen for the volumes coming through. You can expect to see in the second half, given everything that we said today and the fact that we're still seeing this positive momentum come through, you can expect us to add headcount into the second half. And that headcount in the second half could be anywhere around the 50 to 60 FTE depending on the environment that we go into, but that's what you can expect to see. You can absolutely expect to see operating expenses. Like I said, when we came out of full year '24, I was expecting it to be in that mid-teens. I think because we have such strong growth, the variable costs associated with the platform side of the business are absolutely increasing. And you can expect -- and you've also got supplier CPI increases, salary increases in there, and you'll see some headcount increases in the second half. So I'm probably expecting it to be more in that sort of in the mid-teens, slightly above, certainly not below coming out into the second half.

That the...

Yes. Sorry,go on, Andrew. Sorry.

I was going to say the benefits of automation and the investment we've had in our operations team are being leveraged so that the amount of headcount you need for the growth is more efficient, but there is variable costs in terms of pay away third parties, and there is some headcount increase there. But we've done very well with our investment in automation to slow that level of growth.

Yes. Sorry. Just clarifying, did you say 50 to 60 people in the second half or was it 15 to 16? Sorry I missed that.

50 to 60 in the second half, yes.

Siraj, I haven't signed off on that yet, but we'll still keep talking about it.

Your next question comes from Bob Chen from JPMorgan.

I think there was a comment earlier just around the acceleration in the number of advisers you have added over the half as well. Can you sort of go into a little bit more detail on where those advisers are coming from? And do you expect that sort of momentum to continue into the second half and into next year?

I would love to be able to go into more detail because I asked the question myself, Bob, and I couldn't quite get an answer. It seems to be fairly representative of the shape of our book. So it's not from any one large account or so forth, it's across the board through all our channels and segments that we've had an increase. I think it is a testament to the investment and the work that we've been doing for some years now and indicating of the growth we saw in the first half. So nothing notable there. As to will it continue? Hard to say. It certainly is a great result and sort of surprised us to what we were expecting. And when you look at the stats in the industry, you'd have to think that at some point in time, it might slow down. But back to my earlier strategic comments, other platform providers are not catching up. We were #1 and we've now won the most improved award. We've improved more than others, but we're already the market leader. Does that necessarily mean that we're going to continue to enjoy being selected as a platform of choice? In that case, you could see it continue. But I have no other indication other than that to comment on, Bob.

And then just on the Tech Solutions business, we've seen a pretty strong pickup in both revenue and also the margins in that business. How much of that revenue growth was driven by price? And can we sort of expect further price increases to drive growth in that business into next year? And then on the cost side, it seems like there's been a fair deal of cost control there as well. Do we expect that to continue as well?

So on the revenue side, yes, you're correct, that the Class business did put through a price increase on its -- on the Class side of the business, the SMSF, not the documents and corporate messenger piece so much. I mean, absolutely, the software businesses, you can expect to see at least CPI, if not more price increases going through. Class has delivered capabilities with extra document feeds, direct feeds into share registries, et cetera, that customers are getting. So they are continuing to invest. And so yes, you will still see price increases coming through. On the expenses and the FTE and the disciplined cost management side, we did do a lot of that in the -- coming out of the second half, and you've seen the benefit of that in the first half. I think it's set at the right sort of level now. Obviously, we'll continue. We're always looking to improve, get more operating leverage so that we can reinvest to continue to grow the businesses. But I think you've seen a large chunk of that disciplined cost management already embedded in there.

Your next question comes from Cameron Halkett from Wilsons Advisory.

Just one quick question from me, please. Just around the cash balances. Kit, is there anything to highlight here on the stability relative to floor levels that you've seen? I suppose easing cash balances normalize given the healthy cadence of flows that are starting to come through rather than any perhaps meaningful roll-off of term deposits or any reallocation with asset allocation?

Yes. So we don't include term deposits, just as a clarification in that cash as a percentage of average FUA. That is -- again, that's just the transaction account cash balances when we're calling out the 7% in the -- across the second half. Look, it's difficult to say where is it going to traject to in the future and in the long term. And it does move around a lot, like if you have very strong equity markets and very brilliant equity markets and you have high confidence, which is what we're clearly seeing at the moment, you can expect -- the customer behavior underneath, you can expect to see them moving into equities. And so the cash balances naturally might come down during those economic cycles. And then when the equity markets aren't so positive and people are more nervous and if interest rates are high, then people will park more in their transaction accounts, but it does move around a little bit. I guess we have historically sort of said that it would have been around that 8% to 10% have been normal. And what we're probably seeing more now certainly for the remainder of '25 and possibly into '26, I'm probably thinking more that somewhere between 6% and 7% is more normal in this environment, but it could change.

Your next question comes from Nick McGarrigle from Barrenjoey.

Yes. Just to clarify the overall OpEx growth of kind of above 15%, that applies to the group? I mean, you kind of did a bit better than that in terms of OpEx growth in the first half. I just wanted to clarify, that's a group guidance. It will be kind of in the mid- to high teens.

Yes, that's right, Nick. That is totally at a group level. And yes, mid to high teens is exactly the right way to think about it.

Yes. And given you grew mid-teens in first half '25 on pretty flat FTE and you're adding 50 to 60 roles in the second half, how should we think about OpEx growth into '26?

Yes. Look, it's a good question. You can -- I would say you can take that 50 to 60 because it does depend on the timing of the phasing as to when they come in and as to the impact in '25. But if the hiring -- if the growth continues as it is and the hiring continues as we're potentially expecting because it's driven -- 3/4 of that comes from the growth and maybe 1/4 of that comes from investment into the Create Tomorrow and the strategy. So if those things continue as they are, you can expect that full run rate into full year '26. And then you've obviously got the growth. We've given you the guidance in where the net flow range could be, and you can kind of model that out normally. The unknown certainty in their piece in there is around that -- or what will the reinvestment be? And how much will the reinvestment be into operating leverage that's coming through. And we'll probably give you more details on that as we head into the year-end.

Okay. I mean given you had flat FTE first half, you're growing it in the kind of 7%, 8% range in the second half. Would it be reasonable to expect that your growth rate in OpEx is higher in 2016 than it has been, thus far, in first half '25?

I guess, I would say in '26, you can expect -- I mean, where we're at the moment, I wouldn't expect it necessarily to be -- you'll still see the operating leverage come through, but maintaining it at these levels where we've had very low headcount increase in first half. No, that -- I'm not expecting that to happen in '26, but there's still a lot a long runway before we get there.

Yes. Okay. Understood. I think you made a comment in the presentation about ongoing operating leverage and that can continue to support reinvestment at the same time, given the strength in the top line. Just wanted to get a...

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Yes. And I guess on the Tech Solutions side, it was a really strong EBITDA outcome in the first half. The 36% margin, is that something that you'd expect as the new normal? Or was there a bit of cost consolidation in there that was maybe temporary and that margin moderates off that 36%?

I think the margin will moderate slightly off that 36%. But I think it will be -- the growth that you've seen in the first half '25, you won't see that level of growth come through in the second half or into '26. But I think that the -- when you look at year-on-year, the underlying EBITDA margin for Tech Solutions, you can still expect to see a substantial growth year-on-year. But -- and I think it should be sort of around that 30%, 36-ish mark but you just won't see that level of growth come through that you've seen in that 7.3% .

Yes. Okay. And then maybe a last one for me. Tax was a bit over 28% in the first half. I understand there were some temporary things and obviously, a lot of treasury shares bought back in the half. What's the kind of tax rate that you think the business normally would track to? And does that change short term versus maybe where -- if you looked out 5 years, does it track towards a full 30% tax rate? Or is there always going to be a bit of that?

There's likely to always be a bit of that purely because we have R&D credits that come through that generally reduce the tax rate. We -- obviously, one of the other things that move the effective tax rate around is the purchase of treasury shares and the timing of utilization of those. And there will come a point in the next 2 years potentially where we will become 100% hedged on those treasury shares versus the -- utilizing the treasury shares to service the employee share gains. Once we are hedged, 100% hedged on that, you'll see less volatility from that and so it only be the R&D that is moving the tax rate around.

Yes. Okay. So maybe second half won't be quite as high as what we saw in the first half and then over time, tracks up towards the kind of 28% number, but not towards the 30%?

Correct. Yes.

Your next question comes from Scott Hudson from MST.

Maybe, Kit, could you give us a sense of what level of cost savings your investments in automation and robotics has delivered?

We -- I don't have that number to hand, and we generally don't give it out. Andrew is just calling out to me. This half, we've seen a saving of...

14 FTE in operations team, sorry, Kit. Yes.

14 FTE.

In terms of -- sorry -- for cutting cost aboard in terms of -- we haven't had to hire 14 people as a result of that automation in operations. But we haven't quantified that in dollar terms.

And that's in the operations part of the business, probably doesn't include other areas where we do the automation.

And then your comments that your FTE were flat year-over-year were complemented by a comment that average FTE was higher through the period. Can I just sort of understand, I guess, the movements in your FTE?

Yes. So the average FTE would have been higher just because of the timing of the phasing of hiring in the first half. And so -- and it's always -- it generally is group technology and its operations where we're constantly putting on extra headcount to keep up with the volumes and the net flows and the number of accounts that we're seeing come through. So Class, you would have seen the headcount reduced slightly, and you saw that come through in the cost management that we did, and that's probably normalized now. And then particularly heading into the end of the first half, you would have seen an uptick in the technology and the operations headcount, which is what's driving the average up.

Okay. And then could I get a sense of sort of what underlying wage inflation is like for your employee base?

So looking in -- we do our pay reviews between June and September. And so the pay increases take effect from the September month. Look -- and so this year, when we were putting it through, you would have seen anywhere between, say, 4% and 6%. And we'll -- we haven't got a lens on what next year will be like. But this year, you would have seen more like 4% to 6%.

So that will annualize through the second half then?

That's right, correct.

And then lastly, just myprosperity, obviously, EBITDA loss of sort of $1 million. Are we, I guess, closer to the inflection point on myprosperity when we should start to see some of those losses unwind?

I think it's taking a bit longer and there's more to do, but we're seeing the growth in that underlying business. We're certainly working on a whole lot of pilots and prototypes, but we are investing in that business and looking at new ways to go to market. So the expense line has been a bit hungrier than we would have liked in terms of the matching with the revenue. But in terms of the advocacy for the platform, the flows and the strategy, it's paying dividends. So yes, you won't see that turnaround in the very short term.

Your next question comes from Olivier Coulon from E&P.

Congrats on the results. Just on the cash balance, Kit, in terms of finishing at 6.5%, I think you said, has that lifted since in this quarter? Or is it continuing to run at around that level?

No, we've seen it more run around that level, which is why I'm currently giving you guys that steer. But even though second half '24 and first half '25 were both quite consistent at that 7%, I think with the environment that we're in and with the size -- combined with the scale that we've got, it has come down to about 6.5%, and it looks like it's definitely staying around there from what we've seen...

You're looking at riskier asset allocation, maybe because interest rates might be coming down. I think it's time to get in. But certainly, people are more risk on in this part of the cycle, which is affecting that.

Yes. I mean, obviously, you're getting the benefit on the other side free flow. So yes. And then just in terms of the reduction in headcount, can I clarify, so the 30 or 29 people that you took out from the end of migrations, et cetera, were those already included -- were those included in the underlying numbers last year? Or were they part of that $9.5 million of OpEx that you effectively treated as a like a nonrecurring item?

Yes, some of those would have been -- and a large chunk of them would have been in those underlying -- so those notable items that we did for Xplore and some large migration. And some of them might have been in the above the line, but the bulk of it would have been below the line.

Okay. Yes. Perfect. And then just on the impact on the retail margin down basis point. So is all of that just the effect of tiering and capping from market growth and I guess, the natural maturation of the book? Or how much is, I guess, like-for-like compression in margin, if any, from the front book, maybe being different to the back book?

Yes. So look, the bulk of it is coming from the tiering and the fact that the markets were really strong pushes the average balances up and people go into higher tiers. I think like I did call out on the call that when you look on Page 14 of the analyst and investor pack, we've got the spot custody fee paying FUA. That hasn't moved half-on-half. So it's not necessarily that people are ticking into higher caps necessarily, or there's probably a part of it, but not enough to materially move the portfolio. So it is people moving into different tiers. We -- I mean we obviously do have the Discover price -- the Discover menu as well, which is a lower revenue margin than our core and our choice offerings. So again, there's a small element of that, that may be in there, but no, the bulk of it is going to come from the tiering.

[Operator Instructions] Your next question comes from Siraj Ahmed from Citigroup.

Just a couple of follow-ups. Andrew, first on the Xplore NDA, how much have you sort of assume as a base case of things that could -- could be an outflow from the business?

Sorry, how much base case or?

Yes, for the base case, what have you assumed sort of could flow out, right, from the [ 2 billion ]...

I haven't assumed an allowance for that. It's about $2 billion in there. There's a range of groups there, and we are still working through those groups with transition opportunities, either into existing HUB products or helping them elsewhere. So it's -- there isn't a base case amount in their, Siraj. If you wanted to model, model half. It's the only answer I could give you. It could be that we'll retain 3/4 of it or not. But it's certainly a business model that isn't set or viable for us to continue in the way it was run.

Got it. Okay. And the second one...

We'll got till March '26, so it's very hard to give you an indication of that.

Yes. No, just wanted to check. And second one, on the pricing question from Olivier, are you seeing any increased pricing on the new deals? Because one of your competitors sort of mentioned that as a reason for increasing the cash margin, are you seeing sort of pressure on the new deals?

I have heard that, but I hadn't seen that written down. I find that an interesting comment to make. But we're not seeing pricing pressure at all in the market. Right now, it's been fairly consistent. But mind you, it's alive and kicking in, there's deals to be done for value for shareholders. We participate within reason in that, but we're not seeing any pressure that's suggesting there's a pricing movement. We did see overtures of one provider with a relatively new product, giving discounts for a period of time to try and gain market share that hasn't worked. So we haven't seen any shift where those have been doing less rational pricing have had any benefits. So at this point, although I did hear the same thing that if somebody was changing a cash margin maybe to look at other pricing, bearing in mind that since the reset of cash rates and spreads available in the marketplace. In our case, we did not pass that on to consumers. And so there was a revenue hit for Platforms a couple of years ago in that regard, which is open to change at any point.

Your next question comes from Nick McGarrigle from Barrenjoey.

Just keen for any observations on the recent Evidentia, Lonsec merger. Obviously, you guys dominate in managed accounts. And so I just wanted to see what the consequence of those 2 coming together might be? Or if you've got any observations on that? And then maybe just a follow-on, on managed accounts. What's the split between super, nonsuper managed accounts? Is it kind of evenly split? Or is it more an investment product?

I'm not sure we have that data handy, but we might find that subsequently. Certainly, I think it's a good move in the marketplace. It represents what we've been talking about for a long time that matched accounts provide better utility and better outcomes for consumers in terms of tax management, personal assets, continuity, unwrapping, rewrapping. They've certainly reduced drag and buy-sell spread from unitized investment vehicles. So I think it's a natural stage in the same way that you're seeing larger and larger advice groups come together through the merging of licensees, you'll see these managed account providers. I think it's good for the industry that you have large, robust providers doing that. So consequences, I haven't thought through consequences as such other than we obviously had a relationship with Lonsec and Evidentia, 2 very, very good relationships, and we'll continue to work on that with them. The consequence might be the impact on the value chain for investment managers, which are component parts of those portfolios. And buying power from large portfolio managers across that is one possible consequence, but early days.

Okay. And then you don't think in terms of more scale means they can try negotiate better margins if they concentrate their scale with 1 or 2 platform players?

Interesting that there are some fees that are related to portfolios, in terms of portfolio management fees, which you could argue there's volume benefits for both parties and efficiency benefits for both parties. I'm not sure that you'd see it negotiate at a platform rates necessarily because of platform relationships with licensees and investment option portfolio managers are choice based. You may not necessarily stay with the same portfolio manager, but you might stay with the same platform. So I can see on some of the fees around supervision of portfolios, there's an argument for procurement power there. And there's also an efficiency play for those of us in a platform space. I do see there being price pressure on investment managers more so than platforms. But it's a thriving market. It's a good observation, good question, Nick.

Thank you. There are no further questions at this time. I'll now hand back to Mr. Alcock for closing remarks.

Thank you very much, everyone, for coming along. We look forward to seeing those of you that were booked into for the next couple of weeks for conversations. Thank you for your interest and support. And as I said at the opening of our presentation, it really is a privilege for us to do what we're doing as a business really focused on customers and outcomes and building a new industry or working on the reestablishment of the wealth management industry in Australia. Thanks again.

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