Netwealth Group Limited (NWL) Earnings Call Transcript & Summary

Okay. Good afternoon, and welcome to the 2023 Annual General Meeting of Netwealth Group Limited. My name is Tim Antonie, and I'm the Chair of the company. As is now 3:00 p.m. and a quorum is present, I declare the meeting open. Let me begin by acknowledging the traditional owners of the lands that we work on. Our office here in Melbourne is on the traditional lands of the Wurundjeri people of the Kulin Nation. We celebrate the stories, cultures and traditions of the Aboriginal and Torres Strait Islander people and pay our respects to the elders past and present. I would now like to introduce your Board of Directors. I'm joining the table from my left by our CEO and Managing Director, Matt Heine; Sally Freeman; our Founder and Executive Director, Michael Heine; Davyd Lewis; and Kate Temby. Also joining us today are our Group CFO and Joint Company Secretary, Grant Boyle at the end; our Chief Risk Officer and Joint Company Secretary, Jodie Henson, at the front there; our Chair of Netwealth Superannuation Services, Rita Harris and Director, Lewis Bearman, who I think might be online. Lani Cockrem, our lead audit partner, from Deloitte is also here. I also thank the executive committee and other team members for their attendance. Today, we have 6 items of business: the receipt and consideration of the 2023 annual report, the adoption of the remuneration report, the reelection of myself as a Nonexecutive Director, the reelection of Michael Heine as an Executive Director, the grant of rights to our CEO and Managing Director, Matt Heine, and the increase in the nonexecutive director's aggregate fee pool. Before we turn to the formal business of the meeting, Matt Heine and I would like to take the opportunity to discuss the 2023 financial year and an update on recent performance. We're happy to take any questions any questions on the presentations when we consider the annual report. Now turning to my presentation. The 2023 financial year was another record for Netwealth building on the strong momentum from prior years. The Australian platform industry grew by 7.2% to $993.3 billion funds under administration as at 30 June 2023, driven mainly by positive financial market movements with historically low industry net inflows of $10.6 billion. With this backdrop, Netwealth increased its market share by 1.1% over the year, resulting in a 26.3% increase in FUA to $70.3 billion as at 30 June 2023. In FY '23, Netwealth delivered record annual gross inflows of $18.7 billion and pleasingly, industry-leading net inflows of $9.9 billion. Funds under management increased by 22% to $16.5 billion, with managed accounts increasing by 23.5%. Income increased by an impressive 21.6% to $214.7 million, driven by the substantial increase in FUA and a significant uplift in ancillary income. The substantial increase in income enabled Netwealth to absorb the annualized impact of the FY '22 significant investment in our platform road map, system scalability, security and service offering and the continued investment in FY '23 to deliver a leading offering to our clients and accelerate our whole of wealth road map and vision. EBITDA exceeded $100 million for the first time at an EBITDA margin of 46.9%. Our NPAT increased by 20.9% to $67.2 million and annual dividends increased by 20% to $0.24 per share. Our financial condition is excellent with net cash balances, high levels of predictable revenue, strong EBITDA margins and a high correlation between profits, cash flows and dividends. Our return on equity post-tax again increased to 59.1% for FY '23. The company is very well positioned to sustainable growth, and Matt will provide an update on recent performance, including strategic initiatives. Netwealth was again recognized by the industry for its leading platform offering and service levels, including the 11th consecutive year, Netwealth rated #1 in overall satisfaction by advisers. Our governance and sustainability objectives have been significantly progressed through the year, and I encourage you all to read our annual report for more details or our corporate sustainability report. We uplifted our executive committee's capability during the year, with the external appointments of Jodie Henson, our Chief Risk Officer; and Shanyn Payne, our Chief People officer; and the internal promotions of Matt West, our General Manager of Product and Strategy; and David Sutherland, our General Manager of Investment Operations and Managed Accounts. I congratulate all Netwealth team members for their recent promotions and appointments. I would like to particularly thank Matt Heine and the Executive Committee for their outstanding leadership and our dedicated team across Australia and Vietnam for living our values and delivering record results. Rita Harris and her fellow Netwealth superannuation services directors and management team for the effective discharge of their obligations and execution of their strategic objectives. My fellow directors for their expertise, diligence and governance, and our shareholders and clients for your continuing support. We look forward to working with you again this financial year for what we hope is another successful year for all. I will now hand over to our CEO and Managing Director, Matt Heine.

Thank you, Tim, and good afternoon, everyone. As you've just heard, we've had another fantastic year. Our funds under administration as of the 20th of November 2023, are [ $74 billion ] and our products, including our market-leading managed account, continues to perform well. As you can see from our 12-month growth figures up to the end of September, our platform FUA increased by 23.9%, managed funds by 22% and managed account grew by 23.5%. Given the adverse market conditions, we've been navigating we are really pleased with this growth rate and provides a solid foundation for the next 12 months. Moreover, we have also successfully delivered a wide range of new products, features and functionality based on client feedback and a sustained a high level of service that we pride ourselves on. We're also very proud of the Banqer primary program, which we fully fund for school kids around the country. This year was a special and also a noteworthy year because for the first time, the aggregate number of children going through the program exceeded 100,000 children. We believe that the Banqer program and our support for it, has made a significant difference to these children. And there is no doubt it's better to teach good money habits early to avoid trying to change them as adults when it's often too late. It's also pleasing to see that many of the industry's top research houses have rated us as #1 across a range of metrics. This includes Investment Trends 2023 Adviser Technology report, where we were ranked #1 for overall satisfaction as well as overall satisfaction for mobile access and best value for money platform. Looking forward, we maintain a positive outlook for the future and the opportunity ahead of us is significant. There are a number of major macro trends and factors that are causing widespread change in the industry, consumer wealth needs and how they interact with technology digital channels. With change, we believe comes significant opportunity. As wealth, health, technology and service expectations change, we've tried to reflect that in the design of our products, including our updated Super and Wealth Accelerator, which catered to the requirements of the emerging mass and established affluent. From a technology perspective, it would come as no surprise that the environment is changing extremely fast and innovations in artificial intelligence, especially with the rise of generative AI offers some incredible opportunities to improve efficiency, productivity, client engagement and also service. Equally, the investment landscape is changing rapidly. We're seeing increased demand on ESG, impact on sustainable investments. And we're working hard with our new strategic partner, iCapital, to bring a new and differentiated range of alternative investments to Australia for very first time. We believe with reference to global markets where alternative investments have a far greater allocation in client portfolios. Investments in alternatives is the next big megatrend -- megatrend for investment markets and advice practices in Australia, particularly in the high-net-worth space. From a business model perspective and following the quality of advice review, regulatory change is also underway, which will lead to changes in the way advice is provided. New regulations, which we expect to reduce red tape, will allow advisers to see more clients and to better serve their clients. We believe this will enable more Australians to seek financial advice, and we want to ensure we continue to support the industry to deliver on this vision. Let us now look at how we're taking advantage of the opportunity in front of us. Our team has worked diligently to deliver our strategy, ensuring alignment with the current and future needs of our clients and the trends that we are seeing that are relevant today and importantly, tomorrow. Strategically, we dedicated significant attention to data and software integration, aggregating client and business data sources to enhance efficiency, generate insights and elevate the overall client experience. Recognizing the importance of catering to the evolving needs in diverse client segments, we ensure our technology remains flexible and is adept at responding swiftly to change. Uniquely, we are also leveraged to new tools, such as generative AI, and others in ways that set us apart. While technology is a pivotal aspect of our success, we understand that market-leading services equally crucial. Our platform has been decently rated #1 across various research houses and our exceptionally strong Net Promoter Score, NPS, underscores our commitment to excellence. Our aim is to also provide investment solutions that address a broad spectrum of needs beyond the single segment or client demographic. We offer a diverse range of investment options and establish partnerships with both global and also local specialists. From a holistic perspective, we believe that data technology, security and people constitute the core of our platform and connect and enable strategic areas outlined here. With a comprehensive focus on these elements, we aim to expand into areas that deliver substantial value to advice firms, also to industry licensees, multidisciplinary firms and most importantly, our end clients. This strategy spans 4 key areas, business intelligence and analytics, the delivery and expansion of our whole of wealth platform, the enhancements of practice efficiency and advice enablement and also best-in-class engagement and service. This approach in focus, not only -- this approach and focus ensures not only current satisfaction and success through a differentiated offer, but also position us proactively to meet the evolving needs of the future. The whole-of-wealth platform has continued to evolve with enhanced features and investments tailored to a diverse market segment. This suits both cost-conscious clients through those that have all the way through to those with more complex needs. Collaborating with key industry partners, we've expanded our investment options by including both custodial and noncustodial investments, such as private debt capital called structures and foreign-domiciled or alternative funds. From a client engagement service perspective, we've been building new capabilities to improve adviser engagement with their clients. New features, which are either delivered or in development include deeper integration with datasets from Xeppo and other third-party sources, secured document sharing and rich interactions between advisers and clients and improved reporting functionality with seamless task management and communication. When it comes to practice efficiency and advice enablement, Netwealth continues to deliver efficiency and advice enablement functionality on the platform and looks to reduce the cost to serve. Lastly, business intelligence and analytics remains important for clients' practices and licensees. We've expanded the number of integrations through our wealth exchange and Xeppo partnership and provide detailed analysis and information as well as managed secure sharing of data between integrated systems. Our upgraded API developer portal also ensures that new integrations are continuously being developed in response to client needs. If we zoom out and see how this fits together, Netwealth strategy of offering comprehensive wealth solutions is what has driven strong growth in the past 24 months and which we expect will continue to drive it well into the future. This strategy is delivered to both end clients and the adviser through our desktop and client portal. Our platform today consists of 4 key components: Netwealth administered super-accelerated core and plus Series; the Netwealth administered wealth accelerator, which is our multi-asset portfolio service, also known as MAPS; adviser administered XWrap, which allows advisers to input, manage and report on assets that clients have outside of our financial products and third-party data such as bank and property feeds and a range of other data we have access to via Xeppo. In response to the evolving needs and sophistication of our clients, we've continued to enhance our product offering over the last 12 months. Notably, we have successfully introduced a new wholesale wealth accelerated product known as the multi-asset portfolio service. The key differentiator between this and our previous wealth accelerated product lies in the capacity to seamlessly integrate both custodial and noncustodial assets. This integration provides clients with a unified portfolio view and enables us to administer a broad spectrum of assets on their behalf. Examples of noncustodial assets are foreign-managed funds or alternative investments being held through iCapital or directly by a client or entity that due to their high degree of complexity or legal structure are not suitable to be held on our custodial platform. Our capabilities extend to administering diverse assets, managing capital calls, reporting on these calls and facilitating intricate transactions in foreign countries with distinct currencies. Conversely, for clients with simpler requirements, we've relaunched our superannuation and wealth accelerated core product. This revitalised offering both a substantial increase in the number of investments, including 48 managed account models alongside existing managed funds, term deposits and cash options. Since its relaunch on the 1st of October, the core product has demonstrated remarkable growth, underscoring its efficiency and meeting the distinct needs of this particular client segment. As noted on previous announcement, we find ourselves navigating a prolonged period of higher interest rates. In response to our commitment in response, our commitment is to assist clients and advisers in identifying a diverse array of options to address their fixed interest requirements. Notably, we have significantly expanded our term deposit offering, introducing 4 and 9-month terms alongside the existing 3, 6 and 12 months and also 5-year terms. These are accessible through Bank of Queensland, ANZ NAB with plans to onboard additional term deposit providers in the future. Furthermore, we have integrated challenger annuities onto our platform, increasingly available options from 3 to 8. These fixed-term annuities typically offer favorable rates and term deposits. And unlike previous offers, the advantage lies in the seamless integration of challenger annuities with other custodial held assets, eliminating the need for fund transfer. Our partnership with Income Asset Management has equally resulted in the successful launch of a small bond parcel service. This innovative service allows investors entry into bonds with a reduced threshold of $50,000 compared to the usual $500,000 required for new issuances. The reception has been positive, highlighting its accessibility and also value. In the pipeline is our soon to be released 31 Day Notice Fund offering a competitive rate of 25 basis points over RBA on cash. The only condition is a 31-day notice period for redemptions, narrowing the gap between our working cash account and a 3-month term deposit. This provides investment increased flexibility for medium- to long-term needs. Importantly, we've also responded to valuable feedback from both clients and also advisers and have introduced enhanced flexibility in managing advice fees. As of last weekend, advising clients can mutually agree to adjust or exclude advice fees, expressed or specific percentages across term deposits, cash annuities or any combination thereof. This feature aims to streamline fixed interest needs without the necessity of off-platform fund transfers. We're pleased with the breadth and speed of our response to the market conditions, delivering these noteworthy innovations to the platform. We've also noted the significant potential of generative AI as a transformative opportunity for our business and that will have a profound impact on various assets of interactions with clients and internal operations. Netwealth has been actively utilizing and exploring AI, particularly in machine learning, leveraging cutting-edge technology from OpenAI, Microsoft other software vendors with whom we already collaborate. We've been fortunate to gain early access to Microsoft Copilot, which has enabled us to explore its application and its potential to reshape how we engage with services and web interfaces. We've identified 6 areas that will be early beneficiaries from the advance of AI. These are portfolio management, advice, client experience, administration, marketing and compliance and security. Multiple projects have been planned delivered are in progress and notable examples of these projects include automated portfolio commentary and insights, account alerts, real-time insights for -- real-time insights on client data and the development of an AI-driven fund manager portal to increase data interaction. Strategically, we've invested in the automation of back-office tasks incorporating document recognition with process automation. Copilot plays a crucial role in improving the efficiency by reducing development effort for our engineers, responding to emails, facilitating communication and extracting information from extensive PDF document summaries, teams and meetings. Our marketing team leverages AI to enhance social media engagement to streamline the generation or refinement of advertising, marketing and e-mail copies. Within our risk, compliance and IT security teams, AI has assumed a pivotal role in data management, risk assessment and cybersecurity by capitalizing on significant advancements in artificial intelligence tools. Following the excitement generated from our AI initiatives, we've reintroduced a much loved company-wide hackathon in the first quarter of the coming year. This exciting initiative aims to identify new use cases for the AI across the business by harnessing the rapidly evolving innovative technologies that are now readily available. So in summary, we're in a great position for both current and future growth. We have successfully launched in Q1 our strategic partnership with iCapital and Netwealth is now the exclusive Australian distribution partner for the fund sponsored by iCapital, one of the largest alternative fund providers in the world. We're excited to work with iCapital to bring global products in some of the top managers in the world to our clients via the Netwealth platform whilst also ensuring it's easy and seamless to invest into these products. We've successfully relaunched our core product it's priced very competitively and is aimed at the mass and emerging affluent segment and is available through both advisers and direct. We currently offer 48 managed funds and models, and we'll look to expand that based on feedback from clients. Our multi-asset portfolio service, which was launched in FY '23, has now exceeded $200 million in FUA and is growing well. So to conclude, our outlook remains positive with our growth momentum expected to continue. FUA reached $74 billion as of the 20th of November and our new product launches have been very well received with strong initial growth. We've increased our range of fixed interest options to meet client demand and to keep funds on platforms, and our managed account continues to grow at a very high rate. To make this current and to drive future growth, we've filled the majority of our 38 vacant roles at June '23, and we've added to our capabilities through additional senior appointments. Business conditions are inputting and our new business pipeline across all major segments and geographies remain strong with a very high conversion rate. Thank you very much for listening. Thank you to the fantastic Netwealth team, Executive and Board for your commitment and hard work to our clients and also for your ongoing support. I'll now hand back to our Chair, Tim Antonie for formal proceedings. Thank you.

Thanks, Matt. Okay. Before proceeding further, I would like to discuss the procedures I will follow today. I propose calling a poll on each resolution to be put to this meeting. The final results of the poll will be released to the ASX and will be displayed on the company's website as soon as they are available at the close of the meeting. A representative of our share registry, Link, will act as a returning officer for the purpose of acting and determining the results of the poll. Shareholders and proxy holders who are eligible to vote at this meeting have received a yellow voting card. During the meeting, we'll advise you when it's time for you to fill in your voting cards. If you need assistance filling in your voting card, please see Link staff at the registration desk outside of this room. Link staff will collect voting cards at the end of the meeting. Shareholders who have a blue card are eligible to speak but ineligible to vote at this meeting. Guests holding a red card are ineligible to vote or speak at the meeting. If you believe that you have not received the correct card, please see Link staff at the registration desk outside of this room. After each item of business has been put to the meeting, I will ask for questions. If you would like to address the meeting on the item of business, please raise your attendance card and I will call on you. Please then identify yourself by name and state whether you are a shareholder or a proxy holder. Does anyone need any more time to register? Shareholders were sent a notice of the meeting and annual report or details how to access these documents on 19 October 2023. Unless there are any objections, I will take the notice of meeting as read. Shareholders unable to attend the meeting had the option of appointing a proxy. Before a vote is taken on each resolution, I will display on the screen the total number of valid proxies that have been cast for that resolution and the remain in which they have been directed. These figures have been determined as a closing time for receipt of proxies, which was 3:00 p.m. Australian Eastern Daylight Time on Monday, the 20th of November 2023. I would also like to advise the meeting that all eligible undirected proxies given to the chair will be voted in favor of those resolutions and this will also be displayed on the screen. I now turn to the first item of business being to receive and consider the annual report. It is not a requirement of the annual financial report and reports of the directors and the auditor for the year ended 30 June 2023 be formally adopted. However, all shareholders had the opportunity to receive and consider them. We will now take questions on the annual report and on the earlier presentations from Matt and I. Our auditors are also available to answer any questions on the conduct of the audit and the content of the auditor's report. Are there any questions? I will now move to Item 2, the resolution for the adoption of the remuneration report. The remuneration report has been made available or provided to the shareholders together with the annual report. I would remind shareholders that vote on this resolution is advisory only and is not binding on the company. Please note that voting exclusions apply to this resolution as set out in the notice of meeting. Proxies have been lodged in respect of the resolution as displayed on the screen. Are there any questions on this resolution? As there are no questions, I now direct that the poll for the adoption of the remuneration report be taken. Please fill in your yellow voting card in respect of the adoption of the remuneration report. As the next resolution relates to my reelection as a director, I'll hand over to Sally Freeman, the Chair of our Audit Committee to manage the proceedings for this resolution. Thank you.

Thank you, Tim. As Tim indicated, we have next Item 3, the resolution for the reelection of Tim Antonie, as a Director. I will now invite Tim to address the room and make some brief comments on his reelection.

All right. We're not going to [indiscernible]. Thanks, Sally. It's a privilege to offer myself again for reelection today. I've been a Director of Netwealth since 2015 and Chair since February 2021. Since joining the Board, it's certainly been a challenging and exciting period for the company, including managing through when we listed in November 2017, the outcomes of the Royal Commission, which were positive for us, I must admit not negative and COVID-19 which was certainly a challenging period. Throughout this period, the Board and the management have not waived from its core organic growth strategy of providing market leading technology and services to our client. That's been quite important. Since listing that focus has generated compound average growth in income per annum of 23% and enabled us to deliver strong profit growth over that period of a similar number while continuing to invest in our leading capabilities. While evolving, I believe we have the right mix of skills at the Board and the management team to lead Netwealth exciting next phase of growth. And so I look forward to further contributing to Netwealth for the benefit of our shareholders, employees, clients and other stakeholders. Thank you.

Thank you, Tim. The Board, excluding Tim Antonie, unanimously recommends that the shareholders vote in favor of Resolution 3. Proxies have been lodged in respect of this resolution as displayed on the screen now. Are there any questions on this resolution? As there are no questions, I now direct that the poll for reelection of Tim Antonie, be taken. Please fill in any yellow voting cards in respect of the reelection of Tim Antonie. Thank you.

Thank you, Sally. I now move to Item 4, the resolution for the reelection of Michael Heine as a Director. I will now invite Mark to address the room and to make some brief comments on his reelection.

Thank you, Chair, and good afternoon, shareholders. My name is Michael Heine. It's my pleasure to offer myself for reelection as a Director of Netwealth. I'm the founder and a major shareholder of Netwealth. And I've been a director since Netwealth's establishment in 1999. I was Managing Director and then Joint Managing Director until October 2022, when my son, Matt took over as CEO and Managing Director. I've been proud to have overseen the establishment and substantial growth of Netwealth from a company of just 3 staff in 1999 to the substantial and successful company it is today. This has been made possible by the passion, professionalism and hard work of the executive team and all the Netwealth staff, and I express my thanks and gratitude to them. Netwealth success is the result of our commitment to our clients, our innovation, our leadership in technology and our service standards. One key highlight among so many of the Netwealth success stories was the listing of the company on the ASX in November 2017. I have got great confidence in the ongoing success of Netwealth and look forward if reelected today to continuing to make a contribution and be part of the future of Netwealth. Thanks, Tim.

Thank you, Michael. The Board, excluding Mr. Heine, unanimously recommends that shareholders vote in favor of Resolution 4. Proxies have been lodged in respect of this resolution as displayed on the screen. Are there any questions on this resolution? As there are no questions, I now direct that the poll for the reelection of Michael Heine be taken. Please fill in your yellow voting card in respect of the reelection of Michael Heine. The next item of business is Item 5, the resolution for the grant of performance rights to our CEO and Managing Director, Matt Heine. As part of Mr. Heine's annual remuneration package, it is proposed that Mr. Heine be granted a long-term incentive of 41,450 performance rights with a 3-year performance period. The number of performance rights that ultimately vest will depend upon the extent to which the performance conditions are satisfied over the performance period. If Resolution 5 is passed, the company intends to grant the performance rights to Mr. Heine soon after the AGM. The Board, excluding Mr. Heine, recommends that shareholders vote in favor of Resolution 5. Please note that voting exclusions apply to this resolution as set out in the note of the meeting. Proxies have been lodged in respect of this resolution as displayed on the screen. Are there any questions on this resolution? As there are no questions, I now direct that the poll for the grant of performance rights to the CEO and Managing Director to be taken. Please fill in your yellow voting card in respect of the grant of rights to the CEO and Managing Director. The next item of business is Item 6. The resolution to approve an increase in the non-executive director's aggregate fee pool from $1 million per annum to $1.3 million per annum. Given the interest of directors in this item, the Board makes no recommendation in relation to Item 6. Please note that voting exclusions apply to this resolution as set out in the notice of meeting. Proxies have been lodged in respect of this resolution as displayed on the screen. Are there any questions on this resolution? As there are no questions, I now direct that the poll for the increase in the non-executive directors' aggregate fee pool will be taken. Please fill in your yellow voting card in respect of the increase in the non-executive directors' aggregate fee pool. Before I close today's AGM, I ask everyone to complete the yellow voting cards and hand them to a Link staff member who will come around and collect the cards now. I now declare the poll close. That concludes the formal business of this year's AGM, and I declare the meeting closed. I would like to invite everyone to share in an afternoon with the Board of Management. Thank you very much for your attendance.