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.

If you'd like to ask a question, please press star then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then two. If you're on the speakerphone, please pick up the handset to ask your question. Our first question is from Siraj Ahmed of Citi. Please go ahead.

Thanks. Thanks, Andrew and Katrina. A few questions for me. First, just on the start to first second after you wind. I mean, given the four-hour update, it seems like a pretty strong start. Can you just comment on that? I mean, it looks like flows are at $1.5 billion or something, which is equal to last quarter, third quarter overall last year. And, Andrew, on the FY22 upgraded guidance, how do you think about phasing in FY21 versus 22? And would it be fair to assume that the growth is not really coming from Explore, given you'll be integrating it?

I might tackle that first Suraj. We don't have a very clear line in terms of hearing your question but in terms of the Look, we've taken a blended approach. We're confident of the growth prospects of Hub24. We're yet to own or put our arms around the Explore business, so we do have a conservative number in there for Explore. So if that holds true that we can actually increase that, we'll do that moving down the track. We absolutely like to always outperform this guidance, but largely we've based the number on the business that we know well, which is the business we're operating today, and included a conservative number for Explore in there. Can you repeat the other questions at the start? It was a little bit muffled, sir. I'm sorry.

Yeah, just from the start for second half 21, looks like the net flows to date is around one and a half billion. Seems pretty strong. Can you just give us some color on that?

Oh, okay. The flows for the second half have been very pleasing. Certainly there's a bit of market movement in there but the seasonality we normally experience in the business has sort of been thrown out the window this year. Normally we have a dip December, January, February. We've had very strong January and February is still looking very strong. So results so far are very pleasing. We haven't seen the normal seasonal dip. And that, I hope, sets us up for even stronger flows as we move toward the end of the financial year, where traditionally you do have increasing flows. So you are correct. There's been a positive start to the second half.

Andrew, just on that, so for the FY22 guidance, if you think about phasing, you know, end of June 21 versus June 22, it sounds like you're still assuming that flows will be – I mean, you're not looking at peak flows in FY21. FY22 will be pretty strong. Is that the way you're thinking about it?

We're looking at strong flows for both 21 and 22. Absolutely.

All right, I'll ask one more.

We're expecting, Siraj, that the market conditions, given what's happened during COVID, the market conditions and Wexit and some of the pipeline, you know, we're expecting growth to continue. And as we said, we've got a target here, but we always like to overshoot it. But there's a target there that reflects our confidence. But as I said, our confidence has changed from six months ago. We've increased it from six months ago. So, you know, we'll keep peddling hard for our shareholders and doing the best we can.

That's great. Just one more, Andrew. So just thinking about platform EBITDA margins, right, very good leverage this half, but you have stepped up hiring towards the end of the half. How do you think about margins both in the short term and in the second half? Do we still expect leverage half and half? And also thinking, you know, FY22, given this large opportunity that you're seeing?

So I'll take that one. So yeah, we're at 44 pips at the moment. We do expect there to continue to be some margin pressure. The last RBA rate cut was in November. So we will see a full six months of that roll through in the second half. And then we expect the margin to sort of stabilise from the second half levels going forward, depending on what happens with the low interest rate environment.

and or the mix of book, but the margin impact is largely the interest rate environment. There's a little bit in that in terms of higher balances and so forth, but it's not because revised terms of business.

Thanks. I was actually asking about the EBITDA margins rate on the cost on the OPEC side. Do we expect similar trends on that or?

Yeah, so, sorry, Suraj, I thought you were talking about the 44 bits. We are, as flagged, we are going to be investing in the second half to make sure that we're scaled up for the momentum that the business is seeing. And so we will, that will take some time for the revenue to have a full year run rate. And again, in the second half, we will do the phasing, so there will be a gradual phasing of the FTE coming in, but you won't necessarily see the corresponding full-year run rate of the revenue until next year.

So just clarifying, you're saying some operating deleverage in the second half, but that should come through next year when the revenue comes in. Is that the way to think about it?

Correct. The headcount investment for this half is relatively a small number in total for the half because it's a staged investment and so we're just outlining that we won't be holding the expenses flat as we have. We need to invest for the growth. The growth's been above expectation but it's not a large amount of money in terms of coming through and hopefully continuing growth in terms of revenue and fuel will continue.

Our next question is from Simon Fitzgerald of Evans and Partners. Please go ahead.

Good morning. Thank you for taking my questions. I'll just ask three here. The first one relates to a comment in the analyst pack that there's a mention of a new special LTI that was issued in the first half 21. I recall the previous special LTI in 2018 was a result of salary limits or at least came with salary limits and was purely FUA based in terms of its hurdles. Just wondering if you could talk about this new grant in terms of any sort of hurdles and what the FUA targets might be if that's the targets that I'm thinking about.

Sure, I can and outline, referring you to the AGM notice of meeting the full details were in there. This target is, sorry, this LTI is about a five-year performance period attempting to, intending to lock in executives or provide a retention or reward mechanism for executives over a five-year period. It does involve the extension of notice periods from executives to a 12-month notice period to also create retention and hopefully keep the team together and protect shareholders from a market where there will be competition for good resources moving forward. And it also involves FUA targets ranging from $50 billion to $60 billion, which can be adjusted and will be adjusted based on the acquisitions that we've made. So pre-acquisition, there was FUA targets between $50 billion and $70 billion over that five-year period with the need for a five-year performance period and exchanging that for longer notice periods for executives.

Okay very clear. The second question relates to the IOOF private label agreement. I'm just trying to think about how we should think about this agreement a little bit further just in terms of is this like a number of private label deals that IOOF will look to put in place or is there something more we should think about here just given the sort of change in relationship with their previous provider Panorama?

Well, we can't speak on behalf of Vital Wealth apart from what's in the marketplace, and they have decided to appoint Hub24 as a strategic partner moving ahead. It is their product. It's a private label, so they'll be operating as a product issuer. I'm not sure that they'll, you know, that seems to be a considerable investment and focus on wanting that to work if they're going to the trouble of actually being the trustee and the issuer. So, look, you know, from that perspective, I think ItemWeb want to be an open architecture business. Renato talks about it all the time. And Hub24 is now able to participate in that. And I think it's a shift from their existing relationships to a go-forward platform that provides great utility for advisors and customers.

Sure. And just the final question in regards to Explore. This sort of comes off the first question that was asked, but If I look at the hub business in terms of its growth over that six-month profile from when we first talked about those strategic transactions in the release versus where the Explore business has grown, can you just talk a little bit about the growth between the two businesses? I mean, Explore's obviously got a very higher institutional component, but it does look like a slower-growing business in terms of fuel. I'm just wondering if you had any comments in regards to that.

Look, I can't comment or explore. That's for their board and for them to comment on. And in a week's time, we'll hopefully... Sorry, in a week's time, we'll be taking the reins of that business. Look, you can see by unpicking the information that's released to market at September, I think Explore was at $16.5 billion and if you unpack that and unpack some of the pieces there, you can see that the business is growing slightly but it's not growing in the trajectory of HUB24. our acquisition is because of the key clients there and what we think we can take to those clients to get enhanced growth from that business and the capability we can leverage here. But until we have our arms around the business, we're not really able to talk about that. Moving forward though, those products and services will blend so we will be talking about it as a combined entity over time as we integrate and so the distinction will blur in any event.

Okay, and just one final question which comes off from that. Are you thinking about sort of enhancing your disclosures in any way in terms of maybe revenue from non-custodial services versus custody?

Look, absolutely. Once we get on board with these acquisitions, we'll certainly be looking at how we disclose, how we report on our segments. We're still to do that. We don't own... explore yet and so for this half we've gone with our traditional method but as a business we'll be looking at what's the right way to disclose and report that and I think you'll see that sort of break out.

Excellent, thank you.

Our next question is from James Bassinella of Shore and Partners. Please go ahead.

Hi Andrew and Katrina. Firstly, congrats to you and the team on your results. So just in terms of that updated FUA number in the middle of Feb of $24 billion, Does any of that $2 billion increase come from the Clearview wealth transition of $1 billion that's expected over the second half?

No, at this stage not. The Clearview transition will come in in a large lump or a single transaction over the weekend. The project is tracking well. It's still on track to be done in the second half. So whilst Clearview are writing new business with Hub through the white labels they've launched, none of that is the transition.

Great, thank you. And just one more from me, just around the competitive landscape, just wondering how you're seeing that generally speaking and sort of whether customers are demanding sharper pricing as a result of some of your competitors sort of sharpening their admin fees, especially across their back book.

Look, I think that's a response to competitive tension that others have to deal with, not ourselves. We've not had a back book issue. We've not had to respond to competitive pricing of anything. I think pricing has settled down. We've typically been a price leader in the marketplace and even those institutions who have adjusted price, it hasn't changed their outcomes in terms of flows. I think advisors are thinking about value as much as about price and what you get for price. We're not seeing a lot of pressure there. Certainly when you're talking about large opportunities, let's say like a private label for an institution like IWF, you're going to have a sharp rate card. But you also have better cost profiles for that sort of volume of business. So generally speaking, competition in the market isn't creating price pressure that we're experiencing to any large extent today in effect. And you can see that from our flows being up. In a marketplace which should have had headwinds and challenges because of COVID and so forth, we've had record flows above what we would have budgeted at the start of the year, ignoring COVID. So the results speak for themselves at this point in time and we're not seeing that price pressure.

Fantastic. Thank you.

A reminder to ask a question, please press star then one. Our next question is from Brendan Carrick of Macquarie. Please go ahead.

Good afternoon, Andrew and Katrina. Just a quick follow-up. Maybe on Explore, Andrew, you made comments about some of those clients that are there that you wanted to have access to. Have you had the opportunity to have any discussions with those clients or do you have to wait until the completion before you can sit down with them and talk about the approach going forward?

Certainly, we did. As part of our announcement of the scheme in the first place, we did indicate we'd spoken to two key large clients. we have spoken to those. We've actually met with a couple of client groups several times. We've been involved in telephone hookups with Explore Management and large clients to start to talk about who we are and what we're about. So, yes, we've been engaging, and so far those engagements have been very positive.

Okay, excellent. And then most of my other ones are covered, but maybe just on CapEx, obviously there's been sort of seasonality in terms of the platform CapEx, historically with more of a skew to the second half. Is this something that we should, you know, this trend is something we should expect going forward, or will some of the CapEx budget be allocated more towards the new acquisitions? So will this absorb some of the CapEx budget?

I'll take that one, Brendan. So the acquisitions, when we did the announcement back in October, we announced that there would be $10 million for implementation costs related to all the strategic transactions. So from a BAU perspective, we're still expecting continued growth on the platform. And so you can expect the trend on the depreciation and amortisation and the amount of spend for capitalisation to continue.

OK, that's clear. And then just the last one, maybe just following on from Simon's question on IOOF relationship. Just thinking about how this impacts the ability for scalability in the core business, is it fair to assume that this is completely separate and given it's a bit more of a lower touch kind of a relationship and the white labelling and a lot of the effort comes from the IWF side of things that doesn't really impact your ability to scale the core?

It certainly doesn't distract our sales team from looking for new opportunities in the marketplace because I work with supporting and promoting this product to their channels. So our sales team are looking for other opportunities. So from that point of view, it allows us to, I suppose, work with IWF and actually have a relationship with advisors that we couldn't before whilst not distracting from our own growth opportunities. In terms of the operating efficiency in the business, look, it's about us continually thinking about... our staff in our call centre, our operations and our technology infrastructure for growth. We're very confident that we invest at the right time to support that growth and I don't think it will get in the way of our organic growth. That's not our intent. Our track record says that so we're absolutely delighted to be able to take this on at the same time as Clearview and to be thinking about strong organic growth.

Okay, that's clear. Thanks very much.

Our next question is from Nick Burgess of Ordmanet. Please go ahead.

Yes, good afternoon, Andrew and Katrina. Just a couple of questions. Can you remind us what the custody and non-custody split is for the Explore business?

I can remind you, I think, as at, what date have we got?

31st of December. So when we went out with the second quarter ASX announcement, it was $15 billion for Explore and there was $9 billion of custody and $6 billion of non-custody.

Okay, thank you. And just in terms of revenue margins, how should we, on the platform, how should we think about regular margins versus private label margins? I guess in particular IOOF?

The IOOF margin will be lower at this point in time. We are yet to think about how we – if we report that differently. So we're going through and thinking through that process. But it will be a lower margin. We'll have a lower expense base as well. So I think from an EBITDA perspective, it's absolutely consistent. It will depend on how much flow you get from IOOF, whether it changes the revenue margins in the short term. There's yet to be a dollar there so I don't think it will actually impact margins materially in the short term and I think we'll have more to say about that in the future as we see how the rollout goes.

Okay thank you and then finally I guess how should we think about non-custody margins compared to custody margins?

Well non-custody is driven by, it's usually an account based fee, it's not driven by FUA, it's not percentage based, it's an account based fee. And I think that if I would just think about it from a profitability point of view in terms of EBITDA margins, and I think there'll be more to say about that once we get the explore business in the stable and we look at how we report that segment. Okay, thanks very much.

Thank you. Our next question comes from Arshita Bharadwaj of Citi. Please go ahead.

Hi, Andrew Kuchina. three quick ones for me. So first, maybe I'll follow up on the non-custody EBITDA margins. Looking at the annual SPAC, it looks like your current margins are about 66%. Is that representative of future margins, or should we expect additional costs to come in?

No custody, 66%.

Yeah, so I think that's largely the augment net portfolio at the moment. And I think what I would say to that is that similar to what Andrew said, when we get the explore portfolio, we'll look at how we break that out and report that going forward.

Okay. And then maybe just on the gross margin decline in the platform segment, that decline half and half, how should we think about that going forward?

So the platform margin, are you talking about the revenue or the underlying EBITDA?

No, the gross margin.

The gross margin. Yeah, so it will be impacted by the revenue and the cash rate. So as we mentioned earlier, you'll see a full six months of the November cash rate in the second half and going forward. And then from a direct expenses perspective, it will increase in line with the volumes is our expectation. Okay. So we wouldn't, other than the pressure on the cash margin, we wouldn't expect the gross profit margin to move other than that.

Okay, thanks. And then just maybe lastly, if you can give us an update on the Clearview transition and how you're expecting that to go forward.

I think I mentioned that earlier. Look, it's on track for 2021. the second half. The project has a target date ready to go which would see a transition in this half. It seems to be going well. It's in the order of $1.3 billion depending on market movement that we would expect to move over and so our best information is on track and will deliver as planned.

Okay, thanks. That's very helpful. Thank you.

We have a follow-up question from Siraj Ahmed of Citi. Please go ahead.

Thanks. A few quick ones. Andrew, just confirming, so the FY22 guidance, that would include IWF assumptions in there, wouldn't it?

It's guidance for the combined business and all the current client relationships, yes. Okay. So at this point in time, that's based on us having confidence and having increased the platform target for HUB24 by $5 billion to $6 billion. Okay.

Got it. And on the admin pricing, I understand that you don't have a big back book and your pricing is lower. I think previously it sort of indicated if you look at a retail rate card, your pricing is quite expensive, right? Is there a need for you to adjust a retail rate card?

We keep looking at that, and at some point we probably will republish that. What we've been focused on is growth and strategy. It's known in the market, people understand how we work. We've always tailored a price based on opportunity. We will look at that moving forward, Siraj, and we'll do it as part of a larger product role. We wouldn't just do it on its own. It would be efficient for us to do that with new products or features. and do it all at once. Back to your guidance target, we absolutely believe that the opportunity we have could be greater than the target we've got. You know, we don't want to forecast what IWF may or may not deliver. I know people are excited about that. It's early days. We're yet to launch a product. But it could be a great result across any of our clients. So if that changes, we'll let you know.

Yeah, so you're saying it's there, but you're not assuming big numbers from IWF. Just last thing, I mean, one thing that surprised me on the negative is your revenue per account for the platform actually declined half on half. I mean, given higher transaction fees, et cetera, you would think the revenue per account increases. Can you just touch on that?

The revenue per account will be, and I'll hand over to Trina, affected by the cash margin. The higher transaction fees are in terms of dollar terms, not necessarily in proportion to the books. So you would have had a large amount of trading in second half 20 through the volatility through COVID. So you had a whole lot of money moving around. So proportionally as a book, you had larger volume of trading, even though in dollar terms, this half it's increased. Proportionally, it's probably less of a result, which means on a percentage basis, it actually has a different result. Is that clear enough, Katerina?

Yeah, that's fair. There's nothing else to add to that.

Okay. Thank you. Thank you. We have a follow-up question from Brendan Carrick of Macquarie. Please go ahead.

Hi, just one more from me. Just given the excess of liquidity for the banks at the moment, have you had any discussions or do you think that there's a potential risk of the potential for your deposit providers to potentially reprice lower in the current environment?

We're always in discussion with all of our providers The relationship we have with our deposit provider has a fair distance to run yet. In the marketplace it's a long runway to finish. We're always having discussions. Look, we need to think about how to get the best outcome for our shareholders and how to get the best outcome for our customers and work with providers to do that. We're committed to doing that. I think we've got a lot of runway before our current arrangement ends. Absolutely, we think that there's an opportunity regardless of that to rethink how cash products are invested and maybe come up with different opportunities for customers as well. So whilst discussions are underway, we don't think there's any short-term impact and if that changes, we'll let the market know. But our view is to come up with different opportunities and innovate in this environment.

Just on that, Andrew, maybe just to flesh that out a bit more, to innovate, does that mean that you want to potentially try to search for some higher yield in order to extract better benefits for those customers based on those departments that are sitting on account?

I think we as an industry need to think about retirees and we need to think about how we can get better outcomes. And we've got people ploughing money into equities because of low interest rate returns. There are other ways to invest in cash-related products that we think we should look at with business partners that provide choices to customers. So we may provide a choice of different opportunities. We're thinking through that at the moment, but it's early days. But our aim would be to try and help consumers at the same time as try and create some flexibility and, I suppose, ring-fence the business for future changes. We provide some upside.

Okay, that's interesting. Thanks very much. Thank you. There are no further questions at this time. I'll hand the call back to Mr Orcock for closing comments.

Well, thank you again, everyone. As I said, it's great to be here today as Australia's best overall platform. We look forward to seeing those of you on our rounds as our row show over the next couple of weeks. As always, thank you for your support and interest, and we'll talk to you again soon.