Netwealth Group Limited (NWL.AX) Earnings Call Transcript & Summary

Thank you for standing by. And welcome to the Netwealth Group Limited Full Year Results FY 2025. [Operator Instructions] I would now like to turn the conference call over to Mr. Matt Heine, CEO and Managing Director. Please go ahead, sir.

Thank you very much. Good morning, everyone, and thank you for dialing in to this morning's results call for the FY '25 year. My name is Matt Heine. I'm the CEO and Managing Director of Netwealth, and I'm joined this morning by Hayden Stockdale, Chief Financial Officer. Before I start, I'd like to acknowledge the traditional owners of the lands that we work and live on. As a business, we celebrate the stories, culture and traditions of the Aboriginal and Torres Strait Islander people of all nations and pay our respects to elders past and present. If we can please just jump ahead now to Page 7. As you can see from the numbers that loaded up this morning, financial year '25 really was an exceptional year. We saw strong growth across all of our key metrics, including net flows, income and profit. Net flows for the financial year were $15.8 billion, a 40.4% increase on the prior corresponding period. Our FUA grew to a record of $112.8 million, a 28.2% increase and from that, we generated a total income of $324.4 million, representing a 27.1% increase on the prior corresponding period. Importantly, we were able to convert that income to a strong EBITDA line of $163.5 million resulting in an EBITDA margin of 50.4%, a 3.2% increase on the previous year, and NPAT of $116.5 million, a 39.8% increase obviously, an exceptional result and reflects a lot of hard work from the team. If you move to Slide 8, please. One of the key points here is really that in addition to seeing very strong growth across all of our key revenue drivers, which we'll move to in a moment. We've got a very strong track record of actually converting not only our FUA growth, but converting our FUA growth income and ultimately to EBITDA as well. And you can see the trend is obviously very positive on that slide. On Page 9, a bit more of a deep dive into some of these key revenue drivers. So clearly, FUA is a key driver of our ongoing growth, but it's actually how we then convert that FUA growth and the net inflows into revenue across the whole range of different parts of our business. Our FUM or funds under management, which consists largely of the managed account, but also managed funds saw very strong growth from FY '24 to FY '25 with the managed account growing 33.5%. Our managed funds grew by 21.9% and the managed account, which continues to be a key driver of not only our growth, but also new client acquisition, saw an increase in the number of models on offer of 123 new models, taking the total to 799. Another area of the business that saw considerable growth throughout the course of the 12 months was our trading. And this reflects not only the introduction of a number of new services, but also the launch of a number of new features and also capabilities across the platforms that we delivered and launched to our clients, both in the established affluent and also high net worth space. Our domestic trade volume over the course of the year increased by 28.5%. We see a very large increase in our international trade volume, which was an increase of 121.9%. And underpinning all of that was really strong growth in our FX and trading margins as well. In part, this was also a result of the move to T+1 for international U.S. equity settlements, which resulted in a lot of additional trading being done on platform where historically that may have been done off platform and also was able to then increase the FX that was generated off the back of that. The other area where we saw a fairly significant step-up was in the average cash balance. So whilst the percentage of FUA stayed very flat, in absolute dollars given the growth in the FUA on the platform. We saw that increase from $4.8 billion to $6 billion. And in March, earlier in the year, we also increased our margin by 15 basis points. So as you can see from the headlines at the bottom, we also grew ancillary fee income by 32.8%, and Hayden will go into that in a bit more detail shortly. Moving on to Slide 10. The other key driver of our business and what gives us a very high level of confidence about our future growth is the increasing number of new financial intermediaries that we added to the platform. Over the course of the 12 months leading to the June FY '25, we increased adviser numbers from 3,759 to 3,971 advisers and also saw a very large increase in the number of accounts, which grew by 13.3%. As some of you would be aware that have followed the story for some time, the chart on the right-hand side just shows the impact of the business as it comes in throughout those various cohorts. So what this shows is the vintage, if you like, or the time in which financial intermediaries have been on the platform and using the platform and how those cohorts grow over time. Our installed client base, so those that have been with us since prior to '22, grew by 43% and continues to ensure that every year, we have significant growth from those existing customers. The more recent ones, we're also seeing great growth as they start to not only transition their back books and their existing business across to Netwealth, but also write good, strong organic business. And we would expect to see that continue for many years to come. If we move across to Slide 12 and just focus on strategy and products for a moment. Our strategy remains the same as in previous years, and we see this as a major advantage and a major point of differentiation to our competitors and to our peers. We believe that there's a number of really important parts to our business, and we'll continue to keep investing into them, and that includes our wealth solutions, so that is the financial products that we offer. Our WealthTech, which enables advisers to do more on the platform outside of just buying and selling assets, but includes things such as improving workflows and connectivity with their clients. Insights and Analytics, the power of data continues to become incredibly important. And really, we'll sit at the center of everything that we do and our growing list of partners and integrations that allows us to really embed ourselves into the broader wealth management ecosystem. Looking at a few of these key points. The strategic focus on our financial product on Page 13, really just shows how our product range from a financial perspective has evolved over the years and how it now provides a very diverse range of solutions for the key market segments that we operate in. So looking at the vertical axis, you'll notice that it reflects the sophistication of the needs of the individual client segments. So that is those that operate within the affluent advice space and also those operating across private wealth and broking. On the far left, you see a very simple range of financial solutions for lower balance clients with less sophisticated needs, which include our global specialist funds and also the core menus for both super and wealth, all the way through to the top right, which is our institutional high net worth and ultra-high net worth offering, which is really focused on providing exclusive investment options in over above what we do through our wealth accelerated product. You'll also notice that for the first time, there's a couple of additional items in there, and we will talk a little bit more about those in the outlook and also the strategy section, but we are in the process of building out and delivering an individual HIN reporting administration solution as well as a new offering, Netwealth Private, which is specifically tailored and focused on the high net worth and ultra-high net worth part of the market off the back of multiple inputs from clients that are operating in that particular segment. So that diversity of product, we think, is really important. And what's really pleasing about the way that the product has evolved is there's a lot of core capability that applies to both parts of the market and then we're able to stretch and invest over time into different parts depending on where we see the opportunities and where we're seeing client feedback. Equally, on Page 14 and 15, even those just some screenshots. This is our new interface. We recognize that not only do you have to have fantastic financial products that provide a high level of flexibility and capability, but the service and support needs to also be first class as does the digital experience. Over the last 12 months, we've done a major upgrade to our user interface. We're constantly improving the user experience, making it really easy for advisers and also clients to navigate around the site, get the information they need as quickly as possible and also make it very accessible, whether that's through data, charting or other means. Equally, we continue to invest heavily into our mobile offering, recognizing this is a key part of the broader platform and assisting advisers to deliver a digital-first experience to their customers. All of our website and also mobile can be fully white labeled, reflecting a firm's individual branding and colors. Some of the new features that are in the process of being rolled out in early release include things such as document vaults and also in-app chat, which are tightly integrated with the Microsoft suite of products, including Teams and SharePoint. And we see that as really innovative and also differentiated compared to what else we're seeing in the market and an area that we'll continue to invest into. While all this matters and hopefully, you start to understand the story here, but there is absolutely no doubt in our minds, and I think the evidence supports it, that platform quality is a strong driver of FUA net flows. Not surprisingly, the platforms that are seen to have the best technology, the best service and the best overall investment for the future are the ones that are growing. And you can see that as our FUA increases, so does our percentage of net flows. And on the right-hand side, this is really driven by the fact that we are rated #1 for ease of business, overall quality of offering, overall admin service quality and the digital service that we offer as per NMG results. And we also won a number of awards in this year's Adviser Technology needs report from Investment Trends. And this graph, I think, really does highlight just that need to not only keep investing, but to make sure that all parts of our platform are best-in-class in the key segments that we do operate. It has been successful. So from the early results, you would have seen the ongoing trend of growth. But if you look at the individual segments as well that we're looking to attract, we are increasingly focused on the affluent adviser. So that is advisers that are operating and looking after clients with account balances typically between 500 and 750 as well as the emerging affluent, which is your younger or young adults that are coming through into the system as well as the high net worth and ultra-high net worth segment. And pleasingly, off the back of our strategy, which we continue to deliver on, we've seen really strong growth across all of these key segments. And you can see that on the left-hand chart, but also really important to understand that we are not biased or we're not sort of leaning towards one or the other. We are making sure that we build solutions for the affluent adviser and also the high net worth and ultra-high net worth. And you can see in that middle chart that our business continues to be roughly split 1/3, 1/3, 1/3, which we think is appropriate and also reflects where we're spending. On Page 18, a chart again that many of you be familiar with. Our market share continues to grow. And we currently, at the end of March, had a market share of 8.7%, an increase of 1.1%, but that doesn't tell the whole story. And I'll come back to some key trends in a moment. But what this really does show is that our market share within the direct platform market continues to grow and is really reflective of that affluent advice and high net worth. The trends that matter and where we see the future though and where our market share has a very long way to go is the fact that the platform market, which is growing by $1.2 trillion, has a 2-year CAGR of 10.2%, which we're the benefactor of. But we're increasingly moving into and being very successful in the markets that sit outside of the direct platform space. We believe there's a huge opportunity still to capitalize on, which is in the affluent and ultra-high net worth space, which is around $3.3 trillion sitting off platform and also the superannuation system of $3.9 trillion. So there is plenty of room to grow and plenty of runway left ahead of us. I think the other really interesting stat that's worth focusing on and certainly that we are building capability for is the fact that by 2050, there are 7.2 million Australians with more complex financial circumstances that will be looking for advice. And currently, as it stands, there is somewhere in the vicinity of 10,000 to 11,000 advisers that are available to service that number of clients. That means that advisers need to be more efficient, that they need to leverage technology better and the opportunity for us as well as the challenge is to make sure that we can work with our customers and partner with advice firms to make them as efficient as possible so that they can continue to onboard and manage more and more clients at scale. And really, that's where we see the big benefit and that's where we're investing heavily into the future. So just to recap on many of the things that we've -- or I've talked about to date. Our strategy this year is very clear. We want to be able to create capacity, both internally and externally. Internally, that's around reducing reliance on third-party systems for core platform functionality, and we'll continue to lift that capability and build it in-house as and when it makes sense. As we scale rapidly, we'll be investing in our technology infrastructure and we'll also be investing in the capability to grow new and existing revenue streams, which we think still provides ample opportunity. Importantly, we'll also be leveraging data, AI and Agentic AI to drive efficiency, new services and scale our support. And we're seeing some fantastic wins across the business, driven largely by not only generative AI, but also Agentic AI, which will lead to not only better customer service, but better efficiency internally to manage the scale that we're seeing and the growth. We are very focused on accelerating our share of the affluent advice, and we recognize that the winners in this space will be the platforms that are investing into the efficiency and the workflows that support the advice and helping advisers bring on more customers and onboard more customers. We believe that over the next few years, we can help advisers go from an average of 110 customers per adviser to 120 to 130 to 140 and beyond, and that's where the team is spending a lot of time and thinking. We see key areas of the platform that will continue to uplift. We will keep investing and enhancing our cloud portal capability. I touched on some of the earlier points before around document sharing and in-app chat. We want to make sure that we can really support advisers to give them the best digital capability and experience for their customers in the industry. The managed account continues to deliver very significant growth and efficiency, and we'll be enhancing that. We'll be enhancing our customer service and support with a range of new services and service offerings and throughout everything that we do, we'll be embedding best practice user experience. Equally, we see huge opportunity in private wealth and broking. I mentioned some numbers before the $3.3 trillion, and really excited this year to be launching our first real products into the broking space with the introduction of an individual in administration and reporting solution and working with a number of very large brokers across the market to make sure that this is, again, a market-leading proposition. We'll be packaging combinations with our product services and functionality for this specific segment, allowing us to really leverage a lot of the work and experience that we have in the high net worth and ultra-high net worth space, but with the addition of these further services. We'll also be launching in the fourth -- sorry, the second quarter of financial year, a new product, Netwealth Private, which will be specifically designed for the ultra-high net worth and high net worth and allow us to operate slightly differently to what we are able to in the retail space. We also think there's some really interesting new distribution models, which we've been partnering with very large institutions on that we see very significant growth and already experiencing that, and we'll continue to build out and work with those institutions to refine those offerings. And as always, we'll be continuing to expand our range of investments and structures and are seeing great growth in areas such as our direct bond offering, international equity, structured products and managed accounts across all of those segments. So plenty to do, but it has really has been an exceptional year of growth across all the metrics that I've talked about as well as converting that into a great financial result. And on that note, I will hand over shortly to Hayden Stockdale, who will talk to those.

Wonderful. Thanks, Matt, and welcome, everyone, to the financial part of the presentation. Yes. Welcome, everyone, to the financial part of the presentation. So as Matt pointed out, this has been a truly standout year, an exceptional year. And I'm actually really very excited to share some fantastic numbers with you all today. So if we just jump straight in, starting on Slide 24. Now Matt hit the high notes of these earlier, but I do want to really reinforce these because they are truly stunning. And to begin with, you'll see that we delivered a record $15.8 billion in FUA net inflows. That's a 40% increase year-on-year. That drove total FUA past the $100 million milestone to $113 billion, which is up 28% and generated a similar 27% rise in revenue to more than $324 million. That's an almost $70 million improvement in revenue. And most importantly, all of this growth that's coming through has actually flowed straight through to the bottom line, where our NPAT surged by 40% to $117 million. On the next slide, we can dive into this revenue a little bit more. And here, you'll see our various key revenue components and how the base of that revenue has been broadening over time. The one thing I want to point out on this slide is the growing strength and importance of our emerging revenue streams being in transaction fees and management fees, which were up 48% and 31%, respectively. And that was following some targeted investment we made in both those product offerings. But also, as Matt pointed out a little earlier, we were also the beneficiary of some strong market tailwinds as well, in particular in transactions. Now it's one thing to diversify a revenue base like this, and it's actually another to ensure that, that diversification is actually profitable. And that's exactly what we've done as shown on Slide 26. Here, you'll see the earn rate on our growing cash ancillary and transaction revenue streams has actually been expanding. And our overall earn rates has been maintained fairly steadily at 31.5 basis points. Now we did see a 1.5 basis point contraction in our admin fee earn rate, which is about 10%. But if you also consider the market movement in our average FUA between FY '24 and '25, that was also around about 10%. So given the impact of caps and tiers and the like, you can see that the underlying admin fee earn rate was reasonably robust. So I think we've actually been very successful in maintaining and broadening the profitability of our revenue base. And this is important, right, as we're not just getting bigger, we're actually also getting better. So as Matt pointed out earlier, too, we've improved our market share. We've improved our recurring revenue base, the level of our diversification, the resilience of that diversification, but also the number of accounts and the number of advisers. And as you'll see here on this slide, the average FUA per account and the average revenue per account we've also increased. And that means that our customers are growing too, right? And critically, if we want to turn to Slide 27, we've also been improving our operating leverage. So here in the year just gone, while we grew revenue by 27%, expenses only increased by 23%. So that's $70 million of higher revenue on $30 million of additional costs or an incremental EBITDA margin of 56%, okay, proving that we're actually generating very high returns on our investments. Now that operational efficiency enabled us to expand our EBITDA margin, as Matt pointed out, by 150 basis points. And we did that with efficiencies achieved literally across the whole business. So we got 60 basis points of efficiency in our product and tech function, where we actually -- the higher revenue in FY '25 was spread across the fixed investment that we had budgeted for at the start of the year. We got 40 basis points of gains from the way we deliver our product to our customers, and that was despite seeing some higher regulatory burden as well during the year. We got 30 basis points from our G&A, even though we invested here to help us scale even more efficiently in the future. And we also got 20 basis points from revenue outperforming our sales and marketing costs. So the net impact of this is shown on Slide 28 with EBITDA jumping 31% to $164 million and a truly world-class EBITDA margin to 50.4%. And also in a sign of how consistently clean our accounts are, just like last year, over 100% of our EBITDA converted into pretax cash, this time was about $168 million. So we've been very prudent with our costs. We are investing, but we're investing very smartly. And all the while, we're actually getting more efficient, too. And this means we're actually delivering strong returns to our shareholders, as you'll see on Slide 29. So in line with NPAT, EPS is up 40%. And today, we declared a final dividend that is 50% higher than a year ago at $0.21 a share, and that equates to about a 90% payout ratio. I also want to draw your attention on this slide to probably my absolute favorite metric, and that's our Rule of 40 score. So the combination of 27% growth and 50% margins gives us a Rule of 40 score of more than 77, which is amazingly strong. It's clearly best of breed in our peer group, and it actually does underscore the sustainability of our high growth, high margin and also a highly cash-generative business model. So all up, I think a great set of numbers and something we're extremely excited to be announcing today. The final point I wanted to make today is on the following slide, Slide 30. And that's the underlying flavor of the investment that we've been making for the future. So here, we added just over 80 employees in the year just gone. That excludes acquisitions, with about 55% of those being in what I classify as growth forward initiatives. This includes technology, distribution, product and marketing. Now if you compare this to FY '24, where that growth forward percentage was 28%, being 17 out of the 60 new heads that we had that year. So what that means is we've actually had an effective doubling of our growth increment in new headcount from 28% to 55%, that's actually focused on generating growth itself, right, rather than headcount costs that it is growing proportionately as we scale. And that really underscores not only the opportunities that we see that Matt pointed out, but also the confidence that we have in the future. Okay. So thank you. I won't go through Slides 31 and 32, but I'll just close off on Slide 33, if I may, which is a summary. And that is we're in an excellent financial position. We're growing rapidly. Momentum is strong. We've got structural tailwinds and installed base of customers that continues to expand. We've got opportunities in existing and new markets. We've got high-quality recurring revenue, strong operational leverage. We're actually generating very high returns on our investments and a P&L that's very clean with cash conversion above 100% and also a rising dividend. That's all showing through in our Stellar Rule of 40 score that's north of 77. And I think most importantly, as I said, we're confident in the future. And I think we're investing really well to match that confidence. So on that note, I'll pass to Matt and Paul there.

Thanks, Hayden. Just to wrap up the call before we go to Q&A. From an outlook perspective, you may have noted that the year has started off very well. So total for at the moment is $118.5 billion, which is up from the $112 billion that I mentioned earlier. We're seeing good flows. We're seeing great conversion across all of our customer segments that I've touched on earlier. We're seeing new adviser and licensee relationships being secured and continue to see good strong account growth. Our pipeline also remains very full. And as always, it is very well diversified across not only geographic regions, but also across the segments that we're focused on. We're excited about our new offerings. We're excited about the investments that we're making into our key market segments, including individual in and our new Netwealth Private products. And we believe that it's going to be another very good year. From an outlook perspective, we think that the FUA net flows will be similar to what we've experienced throughout the course of the last 12 months, which were obviously very strong. Total operating expenses in absolute dollar terms as opposed to percentages, we would expect to be similar, and there is a very small increase to our CapEx of $1 million on the second half '25 run rate. As per current -- sorry, previous year, we remain highly profitable with very strong EBITDA margins. There is a very strong correlation, as Hayden mentioned, between our EBITDA and operating cash flow, which results in strong cash generation. We've got very high levels of predictable recurring revenues, which we will continue to diversify and enhance. And we've got significant cash reserves and have no debt. Before we Throw Over to Questions, though, I'd also like to thank Tim Antonie, our outgoing Chair, for his incredible guidance and leadership over the last decade. Tim has been a fantastic mentor to me and really has guided the business through not only our IPO, but to ensuring that we are a very well-established and also respected ASX-listed organization. Thank you, Tim, and I really appreciate all of your efforts over the last decade. I'm also extremely excited to welcome Michael Wachtel as our incoming Chair from the 1st of September. Michael brings considerable global experience in organizational leadership, M&A, finance, risk management and governance, which he's gained over the last 35 years, but also through the various Board roles that he has. So again, welcome, Michael, and thank you, Tim. On that note, we will hand over to question and answers if anyone would like to ask one.

[Operator Instructions] The first question we have will come from Nick McGarrigle of Barrenjoey.

That was a good run through. Just -- I'm not sure if you wanted to give us the actual number of the flows, just given sometimes that market move can be a bit erratic. I guess on our assumption, it looks like maybe $2.5 billion across custody and non-custody.

Probably won't give you the exact number, but it was in the vicinity of about 45%.

That's helpful to have that info. I guess the other element there, I guess, on the revenue side around the trading fees that were elevated, I mean, was that predominantly around April? And then on the international side, do you think that, that indicates maybe a bit of a boost in activity as people kind of get set in different products? And does that taper off? Because that was obviously a pretty big increase in the revenue on the international trading?

Yes, there's actually a whole lot of reasons for it. Hayden, do you want to provide?

There's a whole lot sitting behind it. There is some natural growth there in the percentage of FUA that is in international equities, that's growing steadily over time, which has been positive. But we did get some very significant tailwinds, as Matt pointed out, the shift of U.S. equity trading to T+1 drove a lot of trading and associated FX onto platform that was otherwise off platform. And without a doubt, there was a very significant elevated volatility, which is a natural driver of transaction volumes in any period, but we saw very elevated levels that we benefited from, in particular, in the second half.

Okay. Great. And then maybe just the last one for me around the client cohorts. Obviously, the bulk of your flows came from those pre-FY '22 clients, which is great that there's such a strong base of flow. Do you kind of have a view on the BAU flow rate from those clients and maybe the point at which those flows mature once they've decided to move on to Netwealth? I think on a call earlier this week, there was someone that speculated 6 years. Just how you think about that cohorting and the kind of natural organic growth in flows from the older clients that you've got just on them adding new business?

Yes. So again, it's probably similar to the last question, quite a few responses to that. I think as a general comment, having spent a lot of time over the last month speaking to practices across Australia in excess of probably 40 or 50 clients. The general feeling out there is that most firms are writing between 15% and 20% organic growth at the moment. So that's from our existing customers. And as far as the newer cohort, as you know, when an adviser gets set up on the platform, it then takes sort of 2 to 3 years for them to migrate the bulk of their business or their back book, and then it moves into the organic. So we're seeing great organic growth, and this really reflects, I guess, that earlier stat as well with the 7.3 million Australians looking to retire by 2050. There is just huge demand for complex financial advice at the moment. Advisers have never been busier, and we're seeing that reflected in the cohorts over the last couple of years, plus the benefit of the back book consolidation and transitions that flow through from sort of year 1, 2 and 3.

And overlay on that is just the efficiencies as well that we're delivering. So as Matt pointed out, if we can have an adviser grow from handling 100 customers to 110, 120, et cetera. And clearly, we're investing in our tool set to enable our customers to be more efficient. And so that relationship is very symbiotic. We're finding that the customers we're attracting are those that are wanting to drive their own business is bigger and drive those efficiencies. And so it's a bit stronger for longer there.

Next, we have Simon Fitzgerald from Jefferies.

Matt, just when we look at the operating leverage, 150 basis points expansion there is obviously very good. And we can see that total income grew at 27% versus expense growth of 23%. I'm just interested to know or at least explore with you how you look at the sort of intersection of growth and margin versus investment. I'm just interested to know like you could have done even better with that EBITDA margin expansion by timing some of those costs, therefore. And as Hayden pointed out earlier, there was a bit of a pull forward there. So interested to know your sort of thoughts on how you manage that.

Look, I think strategically, you'd be well aware and hopefully, we've explained it pretty well in the last hour or so, there's just huge opportunity across the market, across all segments. We want to make sure that we're investing the appropriate amount to not only maximize our internal efficiencies and scaling the business, but also making sure that we optimize our ability to win new opportunities and to move into the segments that I talked about. So that's probably where we start. From a financial perspective, as you know, we are very prudent, and we make sure that we manage the business so that we get great financial outcomes as well as great growth and great client outcomes.

And look, when you've had the chance to probably digest some of the guidance that we've given for next year as well, I think you'll realize, Simon, that we will be investing further in FY '26. But we've also, as Matt pointed out in that outlook section, very clearly stated that, that additional investment is going to be in product and technology. So very, very focused on driving growth into the future.

Yes. Growth doesn't come for free to state the obvious. And when you look at that chart from earlier in the pack, we know that flows follows quality, and we want to make sure that we've got the best product in the market.

And if you look at the '25 year, and we delivered $70 million of revenue and $30 million of costs, as I pointed out, that's an incremental 56% EBITDA margin. Now that's not to say we're going to be delivering that every year. In fact, if we are incrementing up this year on our growth investment, that might not be the case. But long term, medium term, this will all be value accretive very significantly and generating those types of returns or even close to it, they're astonishing numbers.

And then I just want to explore a little bit about the revenue composition on Slide 25. Obviously, those admin fees coming down, but particularly the ancillary fees, including the cash charges on the cash accounts and transaction fees, presumably, that type of revenue just falls straight through to EBITDA. It doesn't have a margin attached to and cost attached to it like, say, the admin fee does. Could you sort of talk to me about that?

Yes, you're very right there. There are some revenue streams that we have that have a gross margin effectively of 100%. That doesn't mean that there are operational costs that sit underneath that, that do need to be taken into account. But if you're thinking in a strict gross margin perspective, that's true. I think we don't look at it necessarily as we want to drive cash or transactions or whatever. We are trying to deliver a whole solution to our customers, right? And it comes with a mixture of all of that.

And it really is a high-yield cash transaction account that is fully featured. We've just launched regular payments in the last week or 2, I believe. We do prepaid pay once. So there's actually a lot of functionality that sits around the cash transaction product. And equally with the trading, we continue to enhance and add new services. And part of that growth has actually come from the addition of a Trade Desk, which is basically offering a white box service to investors and groups that have got higher volume trading and are looking for more specific outcomes.

Yes. And just one more question here, Matt. You talked about reducing reliance on third-party systems and building an internal core system. Is this going to be a replacement of what was previously the [ Acuity system ]

There's certainly parts of it over time that we will continue to lift out. We've talked about this probably for the last year or so, things like the master client record, transactional databases. So as we continue to scale, if there's parts of [ Acuity ] that won't scale with us, we will look to lift and shift.

And next, we have Cameron Halkett of Wilsons Advisory.

Do you mind if I just reconfirm your reply to Nick earlier, that was 45% of the uplift is flows or market?

Flows.

Moving on to the reinvestment around the guidance. So Hayden, that looks around about $190 million expected for OpEx this year, if I've got that right, maybe a bit better if [indiscernible] along.

I think if you take $160 million and add $30 million to it, you get to $190 million thereabouts.

The other bit around, I suppose, the outlook, you've called out, obviously, what OpEx is expected to be in absence of any potential impact from Shield and First Guardian. Now I know ASIC is doing the investigation to yourselves on the trustee side and obviously don't want to put you in any hot water in that. But there's various layers of the situation from the RE to certain licensees and adviser groups and trustee and platforms. So I suppose it would be helpful. Can you provide us your view on the situation and any help potentially around probability of any liability impact to Netwealth.

Look, from a numbers perspective, probably not much more to share as you would have seen from the pack. The impact of the cost to date has been immaterial. We're fully resourced and obviously working very closely with the regulator to and the industry to resolve the matter. It is a devastating situation for those that have been invested, and we're working very closely with the regulator, but also the industry to make sure that these events in the future don't happen. And that's going to require, as you touched on before, collaboration across the industry between platforms, trustees, regulators, adviser groups and licensees. So I think there's definitely more to play out, and we'll continue to make sure that we work closely with everyone for the best outcome.

Yes. And perhaps lastly, just on the flow environment, since you've obviously started the year extremely well. You've got another major incumbent peer looking to do a forced migration in the next sort of 6 to 12 months from one platform to another. As events like this as well as the sort of healthy back book and the organic market activity you're seeing underpinning the flow outlook that you've provided, I think, for the first time in a few years, at least anyway with guidance is to.

I'm scratching my head as to who you're referring to. Maybe we should take that offline. But yes, we obviously had a fantastic year. Gross flows continue to improve and are very meaningful and net flows at the sort of levels that we've received this year, we think will be a great outcome.

Next, we have Siraj Ahmed of Citigroup.

Can you hear me okay?

We can. Good morning.

I have 3 questions. Just first one, Matt, I'm a bit confused with the flow guidance, right? You think similar to FY '25. I mean you had a pretty strong start, but it seems like it's like double what you had last year. I think last year, the same time was $1.2 billion. So can you just maybe give some color on why you think it will be similar to FY '25, right?

Yes. So definitely been a good strong start to the year. As you know, these things tend to be cyclical. The guidance to a similar level as this year is based on our internal analysis and where we believe we're going to end up towards the end of the year. Obviously, if that changes, we will keep the market informed, but that's where we believe we'll land.

And Siraj, look, there's swings and roundabouts with this, too. I think if we reflect on the last quarter of FY '25, it was perhaps not as strong as we had originally sort of expected, but the first quarter has actually started stronger. So there's probably some timing differences in all of that. But what we have said and we've said it very explicitly about what our expectations are for flows in FY '26. So you rightly pointed out, that's not something that we have done in recent years. So we put a lot of thought into that, and there's a lot of thought that sits behind that number, too. That said, and I hope you're right. If it does look like it's going to continue at the pace that it is now, we'll certainly let you know.

Okay. So just clarifying, you're not -- there's no like big outflow or something that you're concerned about. It's just that giving a bit of conservatism, who knows what rest of the year does. Is that fair?

We shouldn't underestimate what a good result this year was and to achieve that again [indiscernible] method.

Got it. Second one, just on that -- on the cost guidance, right, just following up on First Guardian, Matt and Hayden. Just -- I mean, what sort of costs -- I mean you're saying excluding that, what sort of costs are you sort of -- could come through? Because it does look like you are investing in governance and that's not meaningful. Just want to be clear on what you think it could come through, right? Is there some penalty or something that potentially could happen? Or is there something else in there?

Yes. Look, Siraj, this has been an investigation that's been happening behind the scenes for quite some time now, probably had a tail associated with it before some of the press speculation. And as Matt pointed out, we have been working very closely with the regulator and the industry on it. The costs in FY '25 were not material in terms of the additional staffing up and external legal or whatever it might have been. And if it does become material, we will call that out. But standing here today trying to forecast the future on that, it's not something we can really do.

Got it. That's helpful. Just last one. In terms of -- I mean, pretty very strong adviser additions for the second half, right? And you had pretty good client growth in the fourth quarter as well. Just -- I think, Matt, you mentioned this is that sort of the mid-market offering or mass market offering is actually starting to rest. I mean is that what's driving it? And second part to it, in your similar flow outlook, et cetera, I mean, you're launching the new private wealth offering, you have the new broker offering. I'm guessing that's not baked into your flow outlook. That's potential upside if that comes through.

It's all part of it.

Yes. As I said, Siraj, we've put a lot of thought into that guidance that we provided on the flows, and that includes all of the initiatives that we have in front of us that we're planning to undertake.

Okay. And just the adviser adds and stuff, is that the traction that you're getting in that sort of mass settling affluent?

It just remains a very, very dynamic market, and we're seeing really good wins across the country, as I touched on, and that ranges from advisers servicing the emerging affluent and the affluent style of client as well as the high net worth. We're seeing a lot of M&A activity, which we've been the benefactor of and there's plenty of transition opportunity. So it's just been a really good year that we obviously expect to continue.

[Operator Instructions] The next question we have will come from Tharan Jeyathasan of JPMorgan.

Firstly, just on revenue margins. You only saw about 50 basis points of revenue margin compression year-on-year. I think you described there being some offset from transaction and ancillary fee contribution growing in the period from elevated volatility and things like that. Can you help us understand to what degree you think these improvements will be continuing into FY '26? Just want to form a view on how we should be thinking about revenue margins into '26.

Yes. Look, good question. I think you'll probably see some continuing trends of the past. That said, -- we have called out, in particular, in transaction fees that we did benefit from what we believe were some one-offs in the year just gone. So 48% growth that we saw there, we are not expecting to replicate that. But directionally, we are expecting transactions to be good for us from a basis point earn rate perspective. Likewise, cash and ancillaries, in particular, with cash in the year just gone, we only had 4 months' worth of the benefit of the higher margin. This year, we'll have an additional 8 months. But we are also expecting there to be continued pressure on the admin fee, and that's just a mixture of market pressures, but also to the extent that there's market movement and the impact of customer tiers that will have a compressing effect.

Yes. I understand. That's helpful. Just maybe a second question on your EBITDA margin expectation. I think you quoted in your guidance that you're expecting that to be -- or you're targeting for that to be better than 50%. I just want to understand on a longer-term basis, how you guys are thinking about that trending over the next 10 years? Can we expect that to push above 55% maybe? Or how are you guys thinking about that number over the medium term?

Not able to comment on that for obvious reasons. But as we've sort of talked about, our investment program really reflects, I guess, the opportunities that we see in the market and where we feel the need to invest. And at any given time, we've got a number of strategic levers. We can let the EBITDA margin close up. We can pass it back to strategic pricing to large groups or we can make additional investment into our technology to grow the business. So at different times, we'll pull on those different strategic levers.

Yes. And just underlying that, don't forget that we have market share of less than 9% of the platform market. So there's enormous opportunity there. And as Matt pointed out, capturing that growth doesn't come for free. But also the returns that we are getting on that investment are very, very significant. So it is something that we need to balance as to -- where exactly that is in terms of EBITDA margin, we will guide the market as appropriate at the right time, I believe.

I understand. That's clear. And just the last question, an easy one. Just on your net flows expectations, you're saying not to materially differ from '25. I just want to understand, is that on a dollar basis? Or should we be thinking about that as a percentage of opening?

No, I think we're very clear on that. It's a dollar basis.

The next, there is Lara Tufegdzic of Bank of America.

I just had a quick one strategically on Retirement Solutions. A lot of your peers have been investing.

Sorry, I think you've dropped out there.

Sorry, able to hear me.

Yes. With that back again.

Sorry, I'm not sure what happened. I was just wondering strategically on Retirement Solutions, if you have any plans here and how the focus is here, especially considering a lot of your peers are investing heavily in this area.

Yes, great question. So we constantly monitor what's happening in the market. We've got a very broad range of retirement solutions. So obviously, we run a pension, and that's a key part of our offering. Our advisers generally like to manage the portfolios to meet longevity requirements. And we've also, a number of years ago, added Challenger annuities to the platform to assist with that sort of retirement income piece. There are some new offerings coming into the market. We continue to explore them. The demand to date has not been there. We're not seeing a huge take-up across the industry of some of the newer products. We want to make sure that if we are going to invest into the retirement suite beyond what we currently do, that it is actually going to hit the market and be what our customers and end customers are actually looking for. So certainly a watching brief, but no plans to change what we're doing in that regard at the moment.

Thank you. That does conclude our conference for today, and we thank you all for participating. At this time, you may disconnect your lines. Thank you. Take care, and have a great day.

Thanks. Thank you all.