HUB24 Limited

Good morning everyone and thank you for joining us today for the half year results presentation for financial year 21. My name is Andrew Alcock. I'm the Managing Director of Hub24 and with me today is Katrina Shanahan, our CFO who will help me through the presentation. At Hub24 we're about making a difference in our customers' lives by connecting them to innovative solutions that is about creating better outcomes for them. Following the divestment of our Parajam business to Eastern which we'll talk about shortly and the repositioning of our technology business as HubConnect, you can see the two go forward brands there on that slide, we're absolutely committed to making that difference and continue to innovate in the marketplace. Today we're proud to talk to you as Australia's best overall platform which was announced by Investment Trends this week where we moved up from second place into first place. The key messages for today's presentation is really about talking about the growth that we've had continuing in our business. And as you can see from the charts there, we have the five-year... net flow CAGR of 31% and you can see our average monthly net flows increase there on the left-hand side chart. On the right-hand side you can see our FUA balance growth over the last five years and for the first time we've included the Portfolio Administration Reporting Service FUA as a result of our acquisition of that business from Altmanet. That's the yellow part on the right-hand side of that chart. But that five-year CAGR again is 56%. What we're saying is we're Australia's best platform. We've got consistent performance in our growth in net flows and FUA and it's a delight to talk to you about that and talk about how we're positioned for more scale and growth. We had record net flows for the half. We have a very strong pipeline and continued momentum moving ahead with the launch shortly of new institutional private labels for companies such as IWF and Clearview. We're finalising the strategic transactions that we announced to the market in October and that will help us enter new segments in the marketplace as well. We undertook some disciplined expense management in the first half of FY21. As we all know the environment was difficult, we weren't sure what was happening at a macro level and so we undertook disciplined expense management which helped us offset the low interest rate environment also arising as a result of economic uncertainty and the pandemic. The result of that is we do have an EBITDA increase. We focus on shareholder results in a difficult environment but our results and our growth during that environment are telling us it's time to prepare for even more growth as we move forward. Some highlights for the business in first half 21. Our financial results highlights. Our platform revenue is up 25% to $43.8 million. The platform underlying EBITDA is also up about 25%, 26% at $17.4 million. Our underlying EBITDA margin has increased in the half from $37.9 last half to $39.7 this half even in a difficult environment with some headwinds on those interest rates. and our underlying platform NPAT is up 39% to $7.5 million. All healthy increases in what you could argue has been a challenging environment for all businesses in the country. As at 31 December our total FUA is up 95% to $31.3 billion. Now that includes platform FUA, a historical business of $22 billion and includes the non-custody or the portfolio administration reporting service FUA that we purchased from Orbanet last year. The total FUA now has increased to $33 billion with platform FUA up $2 billion to $24 billion since we announced the February result in our quarterly. We're very pleased also today to announce a 4.5 cents dividend per share for the first half which is fully franked and delighted to be able to provide that to shareholders. Our business continues to win awards and succeed and not only are we talking to you today about The best overall platform. For the fifth year running, we've won the award for Managed Accounts Solution or having the best managed accounts functionality in Australia also from Investment Trends. We're very proud to win that award that many times. It is about exceeding in a growing market segment where we're absolutely committed to continuing to lead. In that same survey, Hub24 was ranked in the top two for 30 out of 44 practice subcategories and in the Wealth Insights survey, we're also first equal for platform services. In terms of summing up other highlights as I said we have record net inflows. They were at $3.1 billion for the first half of FY21 and our advisor numbers are up 24% on the prior corresponding period to $2,280. We've also achieved some key milestones in our growth strategy with the finalisation of the strategic transactions we announced in October. The acquisition of Audermanet for cars has been completed. The team is now onboarded as part of the Hub24 team. The eastern proportional offer closed last night, I'll have more to talk about that shortly and the approvals required for the scheme of arrangement for Explore have also been approved and we're heading towards completion. We also were successful in our cap raising and the ANZ desk facility being there to provide us further flexibility for our growth. Some great highlights for the business for the year. Moving on, we continue to grow our FUA and our market share and based on the most recent data available at 30 September 2019 from Strategic Insights, we've increased our position in the market up to 9th place from 11th place in terms of FUA. So whilst we're at 9th place, we're number two and we've maintained number two in terms of annual net inflows. So the chart on the left hand side shows you the ratio of our growth compared to our current market share. We're punching above our weight considerably being in second place for new business albeit in ninth place for market share at the moment. Our platform FUA CAGR on the right hand side for the last two years is 48% which shows you the last two years figures there. The platform FUA, Flows and also the Portfolio Administration Reporting Service FUA are showing the growth that we've had and the continued increase in market share. I'll hand over to Katrina who will now talk through our financial results.

Thank you Andrew. So to run you through, this slide is on the group financial results and so the group operating revenue is up 18% to $62.1 million. Direct expenses are up 4% to $26 million on the first half 20. And our operating expenses are up 22% on first half 20 to $20 million, however, held broadly flat to the 30th of June second half 20 result. The combination of this leading to an underlying EBITDA of $16.4 million, up 4.7 million and 41% on first half 20. And an underlying EBITDA margin of 26% compared to 22% in first half 20. Statutory NPAT is $6.1 million, held broadly flat to the prior half, to first half 20, and underlying NPAT is $7.5 million, up 39% on the first half 20. On the right-hand side you can see the graphs that show the operating revenue and the underlying EBITDA, with the platform segment driving the increases in the revenue and the underlying EBITDA. I'll talk more to that on the later slides. IT services, on the bottom graph on the right-hand side, these underlying EBITDA increase 1.5 million from increased revenue from new clients in the pipeline and lower costs with the technology focus being on the platform. Again, I'll talk through that in more detail as we get to those pages. Turning to the next page, we have the platform segment results. So as previously mentioned, the strong net flows of 3.1 billion this half have seen the fewer growth. combined with the market movement of $1.7 billion. So FUA is up 25% on first half 20, driving the revenue of $43.8 million, up 25% on the first half 20. Direct costs for the platform segment are 10.8 million, an increase of 18% on first half 20, with the gross profit margin of 75%, up 1% on first half 20. Operating expenses have increased to $15.6 million from the first half of 2020, however, again, held broadly flat to the second half of 2020 of $15 million. On the right-hand side, we have the platform funds under administration showing the platform floor of $22 billion and the breakout of the net flows of $3.1 billion growing 24% on the prior period and a market movement of 1.7. The average monthly net flows for the six months have been just above $500 million compared to $400 million for the full year 2020. There have been no new transitions this half. The net flows and the average monthly net inflows is continued momentum in the portfolio driving the growth. Moving to the platform revenue slide. Platform revenue increased 25% to $43.8 million. On the right-hand side, you can see the makeup of the various fees driving the increase, with the net flows and the FUA leading to a $3.1 million increase in fees. And then in other fees, we have the trading and the cash. Trading volumes have been high, with average daily trading higher this half, offset slightly by the low interest rate and the cash margin. On the bottom right graph, you can see the platform revenue margin has gone from 47 BIPs in the second half last year to 44 BIPs this half. Portfolio administration fees are slightly down, with the average account balances continuing to grow and the tiered rate cards reducing margins. However, revenue continuing to grow off the back of the higher FUR and the average balances, and the other fees is down largely again to do with the cash rate and the low interest rate environment. Moving to the next slide, so we have the summary for the platform segment on this slide. As demonstrated in the graph on the top left-hand corner, the gap between the platform revenue and the expenses remains strong, despite the low interest rate environment. Disciplined cost management this half has been maintained, holding the OPEX flat to the second half 20 levels. Direct expenses have continued to grow in line with the volume increases. However, the strong net flow momentum and the confidence in the platform, we do expect to see operating expenses increase for technology and operations in the second half. The underlying EBITDA margin for the platform segment is 40% this half, up from 38% in the second half of last year and 39% in the first half of last year. Moving to the operating expenses, we have a breakout here. of the first half 20 going into second half 20 and first half 21. So I've called out the operating expenses for the total group have been held flat at 20 million compared to the 19.9 million in the second half last year, and then up from the 16.4 million in the first half of last year, largely being employment costs related to technology and operations and growing with the size of the business. The headcount this half has increased to 281, with the increase being in direct expenses and 12 additional FTE onboarding into Hub24 following the acquisition of the augment net portfolio. And then moving to the final financial slide, the underlying impact. the underlying EBITDA to underlying MPAT, statutory MPAT. So we have a walk in the graph at the bottom and the one-off items called out at the top. So underlying EBITDA of $16.4 million this half, walking down to an underlying MPAT of $7.5 million, with share-based payments increasing up to $3 million, which is largely to do with the special LTI in 2018. and recognising the payroll tax for the specialised TI issued this half. Depreciation and amortisation have been held broadly flat to last half, leading to an underlying EBITDA impact of $7.5 million. On the right-hand side, doing the walk from underlying impact to statutory impact, we have the agility acquisition. With the new deed of amendment for the share sale for Agility, we have reversed the fair value gain of 1.6 million, and this has been offset by an increase of share-based expense payments of 1.1 million, the difference of 500 million expected to be booked in the second half of 2020. Transaction and due diligence costs of 1.7 related to the strategic transactions that we announced at the end of October. has seen the statutory MPAT walk down to $6.1 million. And with that, I'll hand back to Andrew.

Thank you Katrina. In summary we've had a very pleasing result with accelerating growth, increasing our net flows to record levels and delivering good positive outcomes on all our financial measures in the context of a challenged or difficult environment as a business we're positioned well to move forward and as such I'd like to take a deeper look at the strategic transactions we have underway which will be announced to the market in October and we're providing updates along the way. The first one of those is the acquisition of Explore Wealth. via scheme of arrangement. And Explore has a total FUA of $16.6 billion as of 31 December, and the acquisition is for $60 million. All necessary approvals have now been received from shareholders, option holders and the Federal Court and completion is on track for the 2nd of March which is next week. Some of the next steps underway there, we are engaging with the Explore team and starting to think about the transition to Hub 24. We're about to put in place an interim operating model to move forward with that business and certainly engaging with Explore customers moving ahead as well. Our approach to integration or our lens for integration is really about looking for growth opportunities and leveraging the enhanced capabilities of the group across both sets of clients as our lens to think about how we integrate the businesses. Absolutely being conscious of the fact that the capability that comes with Explore and the capability that comes with Hub24 will resonate with our individual client bases and there's opportunities there for those clients and for the group moving forward. The Ordmanet acquisition of PARS, or Portfolio Administration Reporting Service, completed last year. It had $9.1 billion of FUA, and the acquisition price was $10.5 million. As we said, the transaction's completed. The team are on board. There's a little bit of work to do, some system separation from Ordmanet's technology systems. And we also as part of that intend to look at future product development to enhance that offering to the market in combination with the portfolio admin reporting service we will pick up with Explore, bringing those together and investing in that with confidence given the size of the business and intending to be the market leader in that particular segment and grow that market share. Finally the Eastern investment of up to 40% in Eastern, we can tell you that we've landed at about 31% with the offer having closed last night. So the offer closed on the 22nd of February and in that mix of transactions we also completed the divestment of our licensee business Paragym to Eastern and the Paragym team has transferred over to Eastern. Moving ahead we're going to be looking at the market opportunities that can come about through the technology partnership and distribution agreements that we have with Eastern and we'll also be looking to finalise our second new director recommendation for Eastern as a result of our shareholding in that business. So what does this mean? Our business profile after the completion of Explore will position us as the leading provider of integrated platform data and technology services in Australia. We'll have a total FUA of $48 billion. That includes custodial and non-custodial FUA including the current HUB24 FUA and numbers for Explore at 3112. So looking at it from a platform point of view that's $33 billion in platform for HUB24 which we are the market leading platform, number one overall, managed portfolio solution being the best. We've got broad choice and an innovative capability. that unlocks value for clients. We intend to keep doing that with Explore and help people together moving forward. Our technology solutions and services business will see us being a market leader with non-customer admin or portfolio and reporting service admin. We're at about $15 billion of FUA. That includes the OrbitNet and Explore portion of that and other services for data integration and technology solutions for stockbrokers, licensees, advisors and other market participants. As a result of these transactions we are positioning Hub24 for ongoing success. We're strengthening our market leadership as a specialist platform provider. We're going to have capabilities for high net wealth client segment. We've got some new key strategic relationships with new clients. We're certainly extending our single view of wealth capabilities leveraging non-custody reporting services and the existing HubConnect capability we have. We're creating a leadership position in that PATH solution and a significant revenue and scale to support ongoing investment in that segment to secure even further growth. Of course we're also investing in the evolution and enablement of low cost financial advice which is very important for this industry and very important for our customer base in Australia who are looking to secure their future for retirement. The future is very bright with some key trends being very promising opportunities for us moving ahead. There's increasing demand for managed portfolio solutions of which we are the market leader and there is an ongoing shift to specialist platforms. Some are calling it Wexit with the wealth exit from the major institutions. That is an opportunity for us to capitalise on and keep growing. There is growth in the high net worth affluent client segment, hence our acquisition of Explore is helping us target more upside in that segment as well. And of course in Australia there's expected to be increasing retirement savings as the population thinks about retirement and we move into that cycle with the age of the population and the need to be self-funded in retirement. Representing opportunities for us to innovate, deliver our services and come up with new products as well. The cost of licensee functions is continuing to rise and the cost of advice is increasing hence our investment in technology to help with that and the partnership with Eastern and the evolution of advisor licensee models, thinking about technology and thinking about hybrid and direct advice models as well are key trends that are presenting opportunities for us to grow and invest in growth and to continue leading change in this industry. We're focused on maximising the opportunities and positioning for further growth. It's about us consolidating our market-leading platform position and expanding into new segments. So we intend to continue growing platform market share by leveraging the current relationships we have and securing new clients and continuing to invest in platform capability and customer service excellence and also consolidating our managed portfolio market leadership position again through continued investment but also through delivering client and advisor benefits and we're shortly about to launch our managed portfolio academy for advisors to the marketplace as well. We'll be expanding our offer and targeting new segments by investing in new product solutions for high net worth and the PaaS solution that I've already talked about. And, of course, we're going to, on the technology front, continue to collaborate with the industry with licensees and advisors to deliver solutions that solve key advice delivery challenges that make it easier to look after clients, that actually make it easier to use Hub24 and really bring about change for the future of this industry. So we're building integrated data and technology solutions leveraging some artificial intelligence and machine learning and we're also continuing to work on delivering an integrated view of wealth through seamless transaction reporting capability across both our platform and our PaaS services as well moving forward. In summary, what does it mean moving forward for Hub24? We absolutely intend to keep creating customer and shareholder value. We expect to continue to grow our market share and our We will be commencing the integration of the acquisitions and leveraging the new capabilities that those acquisitions bring us as we transition to our future business model, positioning Hub24 for success through innovation and ongoing customer service excellence and growing financial results continuing moving forward as well. As a result of this we're pleased to increase our platform FUA guidance. FY22 which was at $28 to $32 billion. We're increasing it to $43 to $49 billion for the end of FY22 and that includes the explore business also in that set of numbers there. So all in all if you unpack that, that represents a level of confidence in the Hub24 business with about a $5 to $6 billion increase in our guidance for fuel remap business up from when we made that statement in August last year. I'm very pleased to be able to say that our growth is accelerating and we're very confident that we're able to revise that number even though we only released it to the market in August. So we are positioning ourselves as a leader of a leading provider of integrated platform data and technology services. We're very excited to have been awarded Australia's best overall platform and we're absolutely committed to creating value for shareholders and customers moving ahead as we execute on our strategy. I'll now hand over for some questions. Thank you.