MA Financial Group Limited (MAF) Earnings Call Transcript & Summary

[Audio Gap] Shaun Kendrigan representing KPMG, the company's auditors; and Rebecca Maslen-Stannage representing Herbert Smith Freehills, the company's lawyers. In an unlikely event that we need to evacuate the building, please note the location of the exits. And I would ask that all mobile telephones be switched off until the conclusion of the meeting. Janna will shortly outline procedures for voting and questions at today's meeting. I'll then make a short address and invite Joint Chief Executive Officer, Chris Wyke, to do the same. Following this, we will proceed with the conduct of the formal business of the meeting. I'll now hand over to Janna to outline the question and voting procedures.

Thank you, Jeff. I'll set out the voting and question-and-answer procedures that we will use today. Firstly, in relation to voting procedures. As you registered today, you were issued with a purple, orange or white-colored card. Purple cards are for shareholders entitled to speak and vote at the meeting. Orange cards are for shareholders who are entitled to speak but not vote. And white cards are for visitors attending the meeting today. The notice of meeting sets out information regarding the resolutions to be put to today's meeting. There are 5 items on the agenda, 4 of which require shareholders' vote. Details of the direct votes and proxies received for each item of business will be shown on the screen after discussion on that item of business. The Chair is holding open proxies in his capacity as Chair. It is his intention to vote all available proxies in favor of each resolution. Each item of business at today's meeting will be conducted by way of a poll. The Chair will ask you to cast your vote at the relevant time on each item of business but only to hand in your voting card to the Boardroom representative on conclusion of the meeting. The results of the vote will be available later today on the ASX and the MA Financial Group website. Please note that only shareholders, proxy holders or shareholder representatives may vote. Moving on to the procedures for questions. We ask that shareholders who wish to ask questions on the various items outlined in the notice of meeting do so when we reach the relevant agenda item in the meeting. We will endeavor to answer as many questions from shareholders as we can. This microphone I'm addressing you from will be used for shareholder questions. Would shareholders wishing to address the meeting please approach the microphone once the Chair invites questions for that agenda item. Please state your name and show either your purple or orange admission card. As a courtesy to all shareholders, please also state your affiliation if you are not here today in your personal capacity. Please note that in order to enable all shareholders a reasonable opportunity to be heard, all speakers are asked to limit their comments and limit their questions to no more than 2 questions per resolution and no more than 10 questions in total. Please limit each question to no longer than 2 minutes. I would remind shareholders that questions must relate to the item of business under consideration. I will now hand back to the Chair.

Thank you, Janna. I'm extremely pleased with how the MA Financial Group has weathered a challenging year in 2023, a year characterized by rising interest rates, increased geopolitical tensions and volatile investment markets. Our business has demonstrated its resilience and the benefits of a deliberate strategy to diversify our [ revenue ] streams. Record client inflows into our Asset Management funds, accelerating growth in MA Money's loan book and the continued growth of Finsure's mortgage aggregation platform highlights that we are on track to deliver our medium-term growth ambitions. I would like to take this opportunity to thank all of our people for their effort and commitment in delivering continued growth in our business platform in the face of challenging operating conditions. Group earnings per share in 2023 was down 32% on the previous year. However, lower revenue and its impact on EPS can be attributed to a number of industry-wide related factors such as depressed corporate advisory activity and weak investment markets that materially reduced performance fees relative to a very strong performance in 2022. These 2 factors underlie the market-related and less predictable nature of such revenues relative to our more predictable and growing recurring revenues. Revenues that we consider to be recurring in nature increased 23% year-on-year, driven by record inflows into our managed funds. In 2023, 66% of the group's revenue was derived from sources that we consider to be recurring in nature, well up from 48% in the prior year, thus significantly improving the quality of our earnings year-on-year. Continued growth in recurring revenue and the group's operating metrics such as our assets under management provides the Board with strong confidence in the medium-term outlook for the business. This, combined with the group's strong financial position, allowed the Board to hold its 2023 dividend distribution in line with the prior year at $0.20 per share fully franked despite the earnings decline. Joint CEO, Chris Wyke, will take you through in more detail the financial highlights of our business divisions shortly. The growth of MA Financial has been the result of many years of ongoing investment in our platform and our capability. Our track record demonstrates our ability to deliver on these strategic investments. The significant client inflows that our Asset Management business is currently receiving into its private credit fund strategies, $1.7 billion in 2023, are the result of initial investments we made in building our capability in this asset class way back in 2017 and 2018. Understanding back then that growing investor demand for yield-based returns aligned with regulatory change for banks would drive a new lending and investment opportunity in the years to come. As a result of our foresight and investment, we have built a strong team with a fantastic track record that can continue to capitalize on the opportunity in private credit and deliver solid and consistent returns for our clients. In a similar vein, we continued to invest in strategic opportunities in 2023 that we believe will significantly benefit the future growth of the group. This comes with a near-term earnings impact, which in 2023 was equivalent to $0.05 per share of earnings. However, we very firmly believe in the value of investing today to reap the rewards in the future. The opportunities in which we are investing are significant: building the capability and scale of our residential mortgage lender, MA Money; expanding into select offshore markets; and growing our marketing, brand and distribution capabilities. Our investment in residential mortgage lender, MA Money, represents a near-term earnings drag of the business but offers a significant opportunity to deliver highly scalable earnings growth over time. It harnesses a valuable opportunity to scale into Australia's $2 trillion residential mortgage market by leveraging the pre-existing strategic strengths of the MA platform. MA Money's loan book growth accelerated over the 2023 year and is now over $1.1 billion. This business is on track to deliver an anticipated net profit after tax of $15 million to $20 million in 2026. During the year, we expanded our offshore asset management distribution capability, opening a new office in Singapore and establishing a digital distribution platform in Japan. In addition, Finsure expanded its operations to New Zealand and has recently signed one of New Zealand's largest mortgage broker groups to its platform. We expanded our private credit business into the U.S. with a successful acquisition of Blue Elephant Capital Management in May and have begun building our own distribution capability in the U.S. This represents a multibillion-dollar opportunity in the world's largest credit market. In October, we announced a significant milestone in the evolution of MA Financial Group, unveiling a new, strong, clear and more recognizable logo. We believe this refresh is important as we expand into new markets and strive to become a trusted household name. Since our inception in 2009, we have always embraced change, seizing new opportunities for growth and adjusting as necessary to market dynamics. Evolving our look and feel is a natural progression in our journey, and we believe this investment in our brand will play a crucial role in positioning us for future success. Our mantra, we invest, we lend, we advise, succinctly describes our multifaceted but complementary activities, providing clarity to our clients about the focus of our services. We're constantly balancing the need to invest for growth while delivering returns to shareholders in the near term. The group is building several highly scalable business platforms in deep markets, both in Australia and offshore, that we believe will deliver significant growth over the medium term. The quality of our people remains the key to our ongoing success. We've invested in the retention and development of our key personnel and talent during a challenging year. Acknowledging that attracting, developing and retaining the best people is essential to the group's long-term success. We continue to refine our remuneration structures to provide appropriate incentivization for senior staff that aligns with positive shareholder outcomes over the medium term. Remuneration outcomes to senior executives were lower in 2023, reflecting the weaker earnings performance. However, the Board also pays attention to strategic progress and platform growth when determining executive remuneration outcomes, and we wish to encourage decision-making that delivers strong and consistent earnings growth over the medium to longer term. As MA Financial's activities grow and diversify, the Board continues to enhance its focus on sustainability. Our third annual sustainability report reflects our maturity in environmental, social and governance practices. In 2023, we developed a Climate Change Action Plan, taking steps that will enable us to advance our emission reduction targets in 2024. Simultaneously, we made significant investments in cybersecurity and other risk controls, corporate governance and training. After adding 3 independent directors to our Board in recent years, I'm delighted with the performance of the Board during 2023. Our independent directors bring a diverse range of skills, greatly contributing to the governance and oversight of the MA Financial Group. I'm extremely pleased with the blend of skills, contribution and rhythm and harmony between all of your directors, and I believe we are positioned very well as a Board to oversee the growth of the business. I extend my gratitude to our Board, senior executives and all employees for their continued hard work and dedication during 2023. And I'd like to thank all of our shareholders for your ongoing support and confidence in MA Financial Group. I'll now ask Chris to address the meeting. Chris?

Thanks, Jeff. And all shareholders, welcome to our Annual General Meeting, and thank you for your attendance today. My name is Chris Wyke, and together with Julian Biggins, I'm Joint Chief Executive Officer of MA Financial Group. It's my pleasure to address MA Financial's 2023 performance today and share some commentary on the first quarter of 2024. Our Chair, Jeffrey Browne, has already detailed the strong underlying performance of our business in 2023 and the quality of the earnings results that we have delivered. Some of these highlights were record gross inflows of $1.9 billion into our Asset Management funds, 18% growth in assets under management to $9.2 billion, Finsure's loan book growing 21% to $110 billion and adding over 500 net new brokers to its platform. MA Money grew its loan book by 244% to $829 million from a virtual standing start in January 2023. Revenue from recurring sources was up 23% to $178 million. We are building a business for the medium to longer term. Our ambitions are significant, and the growth in these metrics gives us increased confidence that we are well placed to deliver on these ambitions. With this in mind, we laid out our medium-term 2026 business targets during the year, which are $15 billion of assets under management; $190 billion of managed loans on the Finsure mortgage aggregation platform; a $4 billion loan book for our residential mortgage lender, MA Money; measured growth in our Corporate Advisory business delivering $1.1 million to $1.3 million of revenue per executive; and an EBITDA margin of 40%. The group remains on track to achieve these targets, which we believe will deliver significant shareholder value over the coming years. However, some investment is required to build scalable platforms that will deliver this future growth. As the Chair has already mentioned, this investment impacted earnings by $0.05 per share in 2023. We believe this investment in the medium term is prudent, and we are constantly balancing the need to invest in future growth whilst delivering attractive shareholder returns in the near term. MA Financial Group delivered an underlying net profit of $41.6 million, equivalent to $0.26 per share. This was down 32% on the 2022 result as difficult markets impacted transactional and performance fees, coupled with the planned strategic investment I have just mentioned. This investment was into key growth areas such as a MA Money, Middle technology, our U.S. credit platform, brand and our distribution platform. In relation to more detail in the various divisions, in particular Asset Management, our Asset Management division is the major contributor to group earnings, delivering 78% of the group's underlying EBITDA in 2023. Record gross inflows of $1.9 billion, an increase of 27% on the previous year, were driven by strong growth into our 2 key private credit strategies, both of which surpassed the $1 billion funds under management mark in the year, and also investor demand for the MA Marina Fund, a new alternative asset class for the group. We further expanded our alternative real estate capability late in the year with the launch of the MA Hotel Accommodation Fund, which was seeded with the acquisition of the Vibe Hotel Docklands in Melbourne for $96 million. At our IPO in 2017, we had a total of $1.1 billion of assets under management and revenue of $107 million. Yet just 6 years later, we delivered $270 million in revenue and had $9.2 billion of assets under management. Asset management inflows in 2023 alone materially exceeded our total AUM at listing. It is very satisfying to us that our dual focus on achieving attractive earnings whilst innovating and investing for long-term growth is working. In relation to our Lending and Technology business. The development of our residential lending marketplace within the Lending and Technology division continued at pace in 2023. Our strategy is to create a technology-enabled, highly scalable lending ecosystem that generates fee-based income through its market-leading technology platforms and spread income from its lending capability. The division will leverage the group's funding advantages to grow in a capital-efficient manner. Finsure continues to strongly grow its managed loans and broker market share with a number of mortgage brokers on its award-winning platform increasing to 3,129, up 19% from the previous year. Middle, our proprietary technology platform that materially improves the digital data collection process for mortgage brokers and borrowers, began to gain traction in the second half of 2023. It is now well on its way to processing approximately $1 billion of loans monthly by the end of the current half. The group's new residential mortgage lender, MA Money, grew its loan book by 244% to $829 million at December 31, as it built momentum over the year. We will continue to invest in MA Money's product and platform, which is a near-term drag on earnings but represents a significant opportunity to scale into Australia's $2 trillion residential mortgage market. We see MA Money as becoming run rate breakeven in the second half of 2024 and on track to deliver $15 million to $20 million of NPAT by 2026, delivering a significant earnings upswing to the group. In relation to our Corporate Advisory & Equities business, the Corporate Advisory & Equities division demonstrated resilience in the face of challenging market conditions, which impacted transaction time lines and equity capital market activity levels. Despite these challenges, we successfully advised on a range of transactions totaling $3.5 billion. In 2023, the division strategically expanded by hiring senior metals and mining expertise, positioning itself to meet the increasing client demand for natural resources advisory and execution. This investment in executive talent during FY '23, notwithstanding a challenging corporate advisory environment, reflects our ongoing confidence in the Corporate Advisory & Equities business. Looking forward, we anticipate an improving transactional landscape, as evidenced by our strengthened transaction pipelines in 2024. Also comment a little bit on capital management. The group's financial position remains strong with a robust balance sheet and a strong underlying business performance, allowing the Board to maintain the 2023 fully franked dividend in line with the prior year at $0.20 per share. During the year, the group recycled in excess of $100 million from prior investments into cash whilst reinvesting a similar amount to support new growth and strategic initiatives. In 2023, the group -- in December 2023, the group successfully increased the size of its revolving working capital facility from $40 million to $80 million. The facility upside will provide the group with additional liquidity and flexibility, reducing the need to hold excessive cash balances. I'll now turn to some commentary from the first quarter of this year 2024. And in late April, we updated the market on a positive start to 2024 with the momentum in the group's recurring revenue business lines continuing into its current year. In the first quarter of 2024, the group continued to experience positive underlying business momentum, including strong Asset Management fund inflows, ongoing growth in Finsure managed loans and broker numbers plus accelerating MA Money loan volumes. However, the challenging macro environment continues to subdue transactional activity, impacting corporate advisory activity, transaction and performance fees. The group has continued to invest in future growth initiatives consistent with what was outlined in our 2023 result back in February. The impact of this investment spend on earnings will be heavily weighted approximately 2/3 to the first half of 2024 as the group builds its U.S.-based distribution capability and continues to bring MA Money's lending platform to scale. Some key highlights during the quarter were gross fund inflows of $514 million. This is up 43% compared with the same period in 2023 and the highest ever received by MAF's funds in the first quarter of the year. Assets under management grew to $9.6 billion on 31st of March 2024, up from $8 billion at the first quarter in 2023 and up from $9.2 billion as at 31 December '23. Finsure continued to strongly grow the number of brokers using its platform, increasing to 3,260 as at 31st March, up 20% on a year earlier. Finsure expanded into the New Zealand market and in April signed Vega Mortgages, one of New Zealand's largest mortgage broker groups, to its platform, adding 120 new brokers. MA Money grew its loan book to $1.1 billion by 31st March '24, up 294% from a year earlier. Competitive pressures in the Australian mortgage market remain elevated. However, MA Money remains on track to deliver a breakeven earnings run rate in the second half of this year. Transaction pipeline in the Corporate Advisory business remained strong with good activity levels in the business. However, the operating environment does remain challenging, which makes execution timing and completion more uncertain, consistent with the broader investment banking market. The group also successfully closed off a $55 million offering of senior unsecured notes, accessing Australian wholesale debt markets for the first time. The net cash proceeds from the notes were subsequently used to refinance the existing $30 million corporate bond that was due in May 2024 with the remainder going to support ongoing growth initiatives. So in summary, we remain confident about the positioning of the business and the significant growth opportunities across all divisions. We are focused on continuing to drive the positive momentum in our business to deliver on our 2026 targets and realize the scale benefits of the multiple and diverse business platforms that we have been building. We're all very excited for what the future holds for our business. We thank our clients for their ongoing support and the trust they place in MA Financial Group, and we thank our people and their families for their efforts and ongoing commitment to the growth in MA Financial. Everything accomplished in 2023 was made possible by the commitment and hard work of our team, for which we express our immense gratitude. And we extend our particular appreciation for our shareholders for their continued support and confidence shown in our Board and management team. We look forward to keeping you informed of our progress throughout 2024. Thank you.

Thanks, Chris. I'll now turn to the first item of business of today's agenda, which is to receive and consider the financial report of the company, its controlled entities and the reports of the directors and auditor for the year ended 31st December 2023. These reports were released on the ASX as part of the annual report on 22nd February 2024. They were also published on the company's website. The text of the first item of business is shown on the screen. Neither the Corporations Act nor the company's constitution requires a vote of shareholders on these reports, but this is an opportunity for shareholders to ask questions in relation to the reports. Please note any questions on the remuneration report will be dealt with when we reach the relevant agenda item later in the meeting. I now invite questions you may have on this item of business or in general, questions about the management of the company. As mentioned by Janna, in order to enable all shareholders a reasonable opportunity to be heard, all speakers are asked to please limit themselves to no more than 2 questions at a time at the microphone. Janna, do we have any questions?

We have a pre-submitted question from [ John Subject ]. And the question asks, why is it that the Board has not allowed a fully hybrid meeting to enable all shareholders to fully participate in the AGM rather than allowing Sydney-based residents only this ability? Will the Board commit to having fully hybrid AGMs in the future?

No. I think the physical form of a meeting supported by webcast is the most appropriate for a company of this size, noting that any shareholders wishing to submit questions do have an opportunity. So prior to the meeting or to appoint a proxy to come along with the meeting.

Thank you. And one further pre-submitted question from [ Peter Tabbot ] on behalf of [ Penn Pty Limited ]. MA Money seems to be a drag on earnings at the moment. Can you tell me why the push into residential lending?

Well, simply because of the upside. The residential market in Australia is the largest credit market and offers a significant scale opportunity to grow given our preexisting capabilities. We have strong expertise in credit and lending, distribution capability in Finsure and a strong technology enablement. MA Money, as I said earlier in my address, is targeted to deliver between $10 million and $15 million in net profit after tax in 2026, delivering a very strong return on our initial investment, most of which is made in the 2023 year. Any further questions? No further questions.

In relation to item 2a on the agenda, it's obviously appropriate that I hand over to our Vice Chairman, Andrew Pridham. Andrew?

Thanks, Jeff. Item 2a on today's agenda is the reelection of Jeffrey Browne as a director of the company. The text of the resolution is shown on the screen together with the details of the voting already received on this item. Jeffrey Browne is offering himself for reelection at this meeting. Jeffrey is the Independent Chair and Non-Executive Director appointed to the Board of the company on 27th February 2017. He is also the President of the currently seventh ranked -- rated Collingwood football club. Premiers as well. So I'll just throw that in. He was a senior executive Nine Network Australia from 2006 to 2013, including Managing Director from 2010 to 2013. He was previously Chair of carsales.com and holds a degree in arts from the La Trobe University and a degree in law from the Monash University. The Board recommends, with Jeffrey having abstained, that shareholders vote in favor of item 2a. And I would now invite any questions that we may have on this item of business. No questions. All right. Thank you. As there are no further questions, if you could please complete your voting cards on item 2a. And I'll now hand back to Jeffrey. [Voting]

Thank you, Andrew. And if we don't win the Premiers again this year, I hope you do. But [ hopes we might ] play off. It'd be a very tense week. Thank you for that endorsement by shareholders in relation to my reelection. I feel great, feel very privileged to serve you and this company. Item 2b on today's agenda is the reelection of Alexandra Goodfellow as a director of the company. The text and the resolution is shown on the screen together the details of the vote already received on this item. Alexandra is offering herself for reelection at the meeting. Alexander is an independent non-executive director, chairs the Nomination and Remuneration Committee and was appointed at the Board of the company on 19th August 2020. Alexander is the Vice Chair of Korn Ferry Australasia and has 35 years' experience in executive search and human capital consulting, advising clients at Board, CEO and C-suite level, assisting with organizational strategy, assessment and succession, executive search and leadership development. The Board, with Alexandra abstaining, recommends that shareholders vote in favor of item 2b. I now invite any questions you may have in relation to this item. Janna, any questions? No questions. Okay. We move to item 2c, which is the reelection of Simon Kelly as a director of the company. The text of the resolution is shown on the screen together with the details of the voting already received in relation to this item. Simon is offering himself for reelection at this meeting. Simon Kelly is an independent non-executive director, chairs the Audit and Risk Committee and was appointed to the Board of the company on 21st April 2021. Simon has over 30 years' experience in strategic, financial and general management in Australian listed and unlisted consumer businesses. He's Chief Executive Officer of technology start-up NoahFace and has previously held C-suite-level roles at Ardent Leisure, Virgin Australia, Nine Entertainment Company, Aristocrat Leisure and Goodman Fielder. Simon holds a bachelor of economics and accounting with honors and is a member of the Chartered Accountants of Australia and New Zealand and a fellow of the Institute of Chartered Accountants in England and Wales. The Board, with Simon abstaining, recommends that shareholders vote in favor of item 2c. And I now invite any questions that you may have in relation to this item. Janna, are there any questions? No questions. Thank you. I now move to item 2d. Item 2d on today's agenda is a reelection of Kate Pilcher Ciafone as a director of the company. The text of the resolution is shown on the screen together with details of the voting already received. Kate is offering herself for reelection at this meeting. Kate is a non-executive director and was appointed to the Board of the company on 19th August 2020. Kate is the Chief Operating Officer and a founding member of Moelis & Company. Kate has over 20 years of experience as a banker and operating executive in investment banking. She commenced her career with UBS before joining Moelis & Company in 2007. Kate holds a bachelor of science in commerce with distinction from the McIntire School of Commerce at the University of Virginia. The Board, with Kate abstaining, recommends that shareholders vote in favor of item 2d. Janna, are there any questions on this item?

Yes, it's a presubmitted question. Tony Waters from QVG Capital asks the following question. It's common to see ASX company Boards with directors lacking executive experience in the company's specific industry. Given this, what benefits does MA Financial gain from having Moelis & Company representatives on the Board?