Netwealth Group Limited (NWL) Earnings Call Transcript & Summary

Good morning, and welcome to the 2024 Annual General Meeting of Netwealth Group Limited. My name is Tim Antonie, and I'm the Chair of the company. As it's now 9:30 a.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 in. 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 of all nations and pay our respects to their elders, past and present. I would now like to introduce your Board of Directors. On my right, our CEO and Managing Director, Matt Heine; Sally Freeman; and Sarah Brennan. And on my left, our founder, Michael Heine, Davyd Lewis and Kate Temby. Also joining us today are our Group CFO and Joint Company Secretary Grant Boyle for the last time in an official capacity; our Chief Risk Legal and Governance Officer, Jodie Henson; our Chair of Netwealth Superannuation Services, Rita Harris; and Independent Director, Lewis Bearman; and our lead audit partner from Deloitte, Lani Cockrem. I also welcome all Netwealth team members with us today either in the room or online. Today, we have 6 items of business, the receipt and consideration to the 2024 annual report; the adoption of the remuneration report; the reelection of Kate Temby as a Director; the election of Sarah Brennan as a Director; the grant of performance rights to our CEO and Managing Director, Matt Heine; and the increase in the nonexecutive directors' aggregate fee pool. Before we turn to the formal business of the meeting, Matt and I would like to take the opportunity to discuss the 2024 financial year recent performance and outlook. We're happy to take any questions on the presentations when we consider the 2024 annual report. The 2024 financial year was another year of milestones and impressive performance for Netwealth. Throughout FY '24, inflation steadily declined and global equity markets rebounded from their first quarter lows, and bond rates moderated. These market dynamics drove a 10.3% increase in the Australian platform market FUA to $1.1 trillion at 30 June 2024. Net inflows for the industry were modest at $10.3 billion. Netwealth further increased its market share by 0.9% to 7.9% with solid custodial FUA net inflows of $10.9 billion. Netwealth's’ total FUA increased by $17.7 billion or 25.2% to $88 billion at 30 June 2024. Funds under management increased by 28.4% to $20.5 billion, with managed accounts increasing by 29.4%. Total income for FY '24 increased by 18.9% to $255.2 million predominantly driven by the growth in FUA from existing and new clients. EBITDA margin increased by 190 basis points to 48.8% due to strong income growth and moderate expense growth of 14.5%. This resulted in an impressive 23.8% increase in EBITDA to $124.7 million. NPAT increased by 24.1% to $83.4 million. The Board adopted a slightly lower payout ratio and dividends increased by 16.7% to $0.28 per share. High cash conversion continued with a 19.8% increase in operating cash flow before tax of $127.3 million. Return on equity post-tax further increased by 320 basis points to 62.3% for FY '24. Our balance sheet is in excellent shape with a net cash balance and minimal financial liabilities. Strong governance is paramount to our success. We continue to actively manage and enhance our risk management and corporate governance practices to meet regulatory changes and exceed the expectations of our stakeholders. We made significant progress on our sustainability objectives, with particular focus on those important to our stakeholders and where we believe we can make a real difference. I highlight some of our FY '24 achievements on screen and I encourage you all to read our corporate sustainability report which you will find on our website. Following 4 appointments to the Executive Committee in FY '23, the enhanced breadth and capability of our executive team was clearly evident throughout FY '24. The consistent delivery of record annual results over the past 10 years is a testament to the exceptional leadership of our executive team and the talent, agility and dedication of our Netwealth team, now 600 plus. Grant Boyle commenced as CFO just prior to our IPO in 2017 and has been critical to Netwealth's’ incredible success as a listed company. I thank him for his significant contribution and wish him all the best. I welcome our new CFO Hayden Stockdale who is actually sitting next to Grant, and Hayden commences next Monday. So welcome aboard. I thank Rita Harris and Lewis Bearman, their fellow NSS directors and the trustee team for their effective discharge of their obligations and their strategic execution. Thank you. I thank my fellow directors for their dedication, insightful advice and governance. I take this opportunity to welcome Sarah Brennan to the Board, and you'll hear for Sarah soon. Sarah brings extensive industry experience and complementary skills. And I can assure you she's immediately added significant value. Finally, I thank our clients and shareholders. We look forward to working with you all in FY '25 in what is shaping as another successful year. I will now hand over to Matt.

Thank you, Tim, and good morning, everyone. My name is Matt Heine. I'm the CEO and Managing Director of Netwealth. As you have just heard from Tim, we've had another fantastic year in the last financial year. And pleasingly, this financial year has got off to a great start in terms of FUA growth. As of the 18th of November, FUA is now $98.6 billion, a 12% increase in FUA from 30th of June 2024. As you can see from the charts here, we have consistently delivered FUA, FUM and account growth. FUA increased to $95.4 billion at 30th of September, a 4-year compound annual growth rate in excess of 29%. For this September quarter we had a record level of FUA net inflows of $4 billion, 93.5% higher than the September quarter last year. A key takeaway from these charts is our successful expansion into key market segments, the emerging affluent, the mass affluent, and the established affluent. All of these segments continue to grow as we build out features that appeal to the relevant market segments and the advisers that service them. The platform composition is now very evenly spread between our client segments but also our product segments including retail, wholesale and super accounts. From a product perspective, of the $95 billion in FUA that we recorded at 30th of September, and following a very successful launch of the updated product, we saw an increase in accelerator core to 4.5%. This was the result of a $655 million net inflow for the 12-month period to 30th of September, an increase in flows of 319% compared to the prior 12-month period. This next slide is an important slide and really highlights the success of the Netwealth strategy and also the rotation from legacy platforms. As a result of this ongoing trend, our market share at the end of June has grown to 7.9%. And you can see in the chart the dominance of the specialist platforms, including Netwealth, compared to the legacy platforms which, despite significant market share, have experienced negative net flows. We believe this trend, which started some time ago, will continue for many years to come. Moving on to our strategy. As the platform and the industry continues to evolve, it's been really important for us to make sure that we have got a very clear focus on what it is that we're delivering to our customers. And in addition to adding a significant number of new features, the recent acquisition of Flux and Xeppo are an important part of our strategy and future by providing access to new data sources and clients. To further ensure we capitalize on the opportunity in front of us, we have also evolved our offering across four key domains which all work synergistically with each other and collectively enhance the value we can offer to our customers. The domains that we're focused on are wealth solutions, which consists of the financial products that we offer, including our flagship Super and Wealth Accelerator products, our managed account and also our global specialist funds; the WealthTech platform includes our web-based and mobile native client and partner portals as well as our underlying and customer-facing technology which provides our people, investors and wealth professionals with client and data management, transactional and administrative capability; insights and analytics, which includes practice and business dashboards from Xeppo as well as market leading client reporting can be heavily customized to meet the varied and bespoke needs of investors and wealth professionals; and finally, partners and integrations, which accessed primarily through our Wealth Exchange product, provides access to a wide range of data and software integrations as well as access to new partnerships, including iCapital that was announced last year and is now live. We believe our ongoing investment into these domains is a powerful differentiator in the market. And looking forward, we will continue to develop and invest into our core capabilities and systems, including in some areas which we have previously outsourced, to ensure we maintain our market leadership and can scale in line with our ambitious growth plans. From a broader 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 gen AI offer some incredible opportunities to improve efficiency, productivity, client engagement and service. We are leveraging the capabilities of AI to create innovative solutions and optimize processes across the following key areas: back office, customer service, client products and services, engineering and developer efficiency and cybersecurity. As Tim discussed earlier, we are in fantastic financial shape with growing revenue and profits, no debt and strong thematic tailwinds driving our current and future growth. We have a very high level of confidence in our net outflow outlook for '25, which is supported by our new business and transition pipeline. And importantly, our conversion rate on new opportunities, across all geographies and market segments, is very high. We plan to continue our significant investments in our people, product, security and technology capabilities to ensure that we capture the substantial number of existing and emerging opportunities in the market. As already noted in our financial year results, this ongoing investment will result in a small percentage increase in the rate of expense growth in FY '25 compared to FY '24. Thank you very much for your attendance today and thank you to the fantastic Netwealth team, executive and Board for your commitment and hard work, and to our clients for your ongoing support. I'd also like to take this opportunity to thank Grant Boyle, our outgoing CFO. He has been an incredible part of our success, and I have enjoyed working closely with him over the last 7-plus years. He will be missed, so thank you again, Grant. I will now hand back to our Chair, Tim Antonie, for formal proceedings.

Thanks, Matt. 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 after the close of the meeting. A representative of our share registry, Link, will act as returning officer for the purpose of conducting 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, I'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 this meeting. If you believe that you've not received the correct card, please see Link staff at the registration desk outside of this room. After each item of business we put to the meeting, I'll 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're a shareholder or a proxy holder. Does anybody need any more time to register? Shareholders were sent a copy of the Notice of Meeting and the annual report or details how to access these documents on 17 October 2024. 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 screen the total number of valid proxies cast for that resolution and the manner in which they have been directed. These figures have been determined as at closing time for the receipt of proxies, which was at 9:30 a.m. Australian Eastern Daylight Time on Monday, 18 November 2024. I would like to advise the meeting that all eligible undirected proxies given to the Chair will be voted in favor of those resolutions and this number will also be displayed on the screen. I'll now turn to the first item of business, which is to receive and consider the 2024 annual report. It's not a requirement of the annual financial report and the reports of the directors and auditor for the year ended 30 June 2024 to be formally adopted. However, all shareholders will have the opportunity to receive and consider them. We will now take questions on the 2024 annual report and on the earlier presentations for 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? Thank you. 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 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 adoption of the remuneration report be taken. Please fill in your yellow voting card in respect of this resolution. I'll now move to Item 3, the resolution for the reelection of Ms. Kate Temby as a Director. I will now invite Kate to address the room and make some brief comments on her reelection.

Thanks, Tim. Good morning, ladies and gentlemen. Thanks for those who are in the room and those that are online. I'm Kate Temby, and I'm very pleased to offer myself for reelection today. I was appointed to the Netwealth Board 3 years ago, and it has gone quickly. I was Chair of the Investment Committee, of which I transferred that to Sarah Brennan as of July '24, and I now serve as Chair of the People and Corporate Sustainability Committee. I currently hold an executive role as well with MetLife Investment Management. Many of you know MetLife is a global insurer. I lead their global sustainable strategy group across all of their assets, not only in Australia, in the U.S. and in Europe. I'm also on the Board of Conscious Investment Management, which is an Australian impact investment manager. My experience spans investment management, sustainable investment, client engagement, governance and people leadership. I am very honored to be put forward, to be part of and continue my role to serve on the Netwealth Board. I really have enjoyed overseeing the executive who have worked very hard to build this business into what I think we'd all agree is one of Australia's leading platforms that really does deliver solutions that is in line with the business values which we've set out in our annual report. It's a privilege for me to offer myself for reelection today. And I'm confident I've got the skills and experience to make a really valuable contribution not only at the Board level but also at a subcommittee level. And also, with your support, I look forward to continuing my involvement in the organization. Thank you, Tim.

Thank you, Kate. The Board, excluding Kate Temby, unanimously recommends that shareholders vote in favor of this resolution. 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 Kate Temby be taken. Please fill in your yellow voting card in respect of this resolution. I now move to Item 4, the resolution for the election of Ms. Sarah Brennan as a Director. I will now invite Sarah to address the room and make some brief comments on her election.

Thank you, Chair, and good morning, ladies and gentlemen. My name is Sarah Brennan, and I'm pleased to offer myself for election to the Netwealth Board today. As you may have seen from my brief resume in the Notice of Meeting and in the annual report, I have an over 30-year career in wealth management, investment, insurance, superannuation and investment banking. During this time, I've had three stages of my career, all of which I believe contribute to the knowledge and experience I bring to the Netwealth Board. These are initially working for small, large, domestic and international financial services companies, commencing as a customer service operator on the phone and moving through to being the COO and CEO of large institutions, including investment and platform businesses. Following this, I moved into the more entrepreneurial activities, which involved conceiving, developing, managing and divesting financial services' boutique operations in Australia. And one notable activity involved the benchmarking of investment platforms and superannuation sector, which included Netwealth, for many years; and most recently, as a Non-Executive Director of industry bodies, superannuation funds, private companies and listed entities. In addition to wealth management, investments platform and superannuation, my career has covered a range of different elements across the financial services sector, including financial planning, investment banking, retail and institutional funds management, financial market trading and insurance. I've worked primarily in Australia, but I've also had responsibility in overseeing operations in Asia as well as working on the ground in the U.S., the U.K., Asia and Europe. As a Non-Executive Director, I joined my first Board way back in 2001, and I've been an active Board member since that time. I'm an experienced Director of companies large and small, listed and unlisted, parent companies and subsidiaries, and for-profit and not-for-profit organizations. In addition, I have been a member of and chaired many Board committees, including audit, risk and investment. Most of my Board experience, in one way or another, has been related to the financial services sector. And while I'm currently on the Board of a number of other companies, including Netwealth, I can assure shareholders I have sufficient time to dedicate to my duties on the Netwealth Board and to properly carry out all of my responsibilities to the absolute best of my ability. I also do not believe I have any conflicts of interest which would impair my ability to fulfill my role on the Netwealth Board properly. I've had the privilege of being involved in the platform and superannuation sector for many years and, from this external perspective, have been an ardent follower and admirer of Netwealth, of its founders and its management for many years. Since joining the Netwealth Board almost 9 months ago, I've been impressed by the way that the Board and management approached the task of managing Netwealth, to consistently deliver on the clearly articulated aims of the business while ensuring that the company's key values are lived across the organization. I feel privileged to be part of what I truly believe is one of Australia's great companies, strong growth orientation, disciplined strategy, excellent leadership and management team, and a genuine focus on doing good for its people, the community and its investors. I'm pleased to put myself forward for your consideration. I'm confident that I have the skills and experience to continue to make a valuable contribution to your Board, and with your support, I look forward to continuing to work in your interests. Thank you so much. Thanks, Tim.

Thank you, Sarah. The Board, excluding Sarah Brennan, unanimously recommends that shareholders vote in favor of this resolution. 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 election of Sarah Brennan be taken. Please fill in your yellow voting card in respect of this resolution. Although we don't have the votes in the room, I can confidently say welcome aboard.

Thank you, Tim.

Thank you. Okay. The next item of business is item 5, the resolution for the grant of the performance rights to our CEO and Managing Director, Matt Heine. As part of Mr. Heine's annual remuneration package, it is proposed that he be granted a long-term incentive of 47,968 performance rights with a 3-year performance period. The number of performance rights that will ultimately vest will depend upon the extent to which certain gateway and performance conditions are satisfied over the relevant performance and deferral periods. Full details of the terms of the grant are contained in the Notice of Meeting. If resolution 5 is passed, the company intends to grant the performance rights to Mr. Matt Heine soon after the AGM. The Board, excluding Mr. Heine, recommends that shareholders vote in favor of this resolution. Please note that voting exclusions are part of 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 grant of the performance rights to our CEO and Managing Director be taken. Please fill in your yellow voting card in respect of this resolution. The next item of business is item 6, the resolution to increase the nonexecutive directors' aggregate fee pool from $1.3 million per annum to $1.5 million per annum. Please note that the 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 the poll for the increase in the nonexecutive directors' aggregate fee pool be taken. Please fill in your yellow voting card in respect of this resolution. Before I close today's AGM, I ask everyone to complete the yellow cards and hand them to a Link staff member who will collect the cards now. [Voting]

I now declare the poll closed. That concludes the formal business of this year's AGM, and I declare the meeting closed. I would now like to invite everyone in the room to have morning tea with the Board and management team. Thank you.