HUB24 Limited

Thank you for standing by and welcome to the HUB24 Limited 1HFY23 results call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Andrew Alcock, Managing Director. Please go ahead.

Good morning everyone and welcome to our first half financial year 23 results presentation. Great to have you with us and absolutely certainly pleased on behalf of our great team here at Hub24 to be able to present some really solid results to the market this morning. We absolutely work very hard and are very focused in Hub24 and committed to what we do. We really believe in the value we're creating for our customers and shareholders and it drives us to absolutely try and challenge ourselves and deliver in the marketplace. And we do that, if we turn to the next slide again, and as you will all know, we're about empowering better financial futures together. And now more than ever the together is important for us, given we've made acquisitions over the last couple of years that bring into our stable a whole lot of capability that allows us to continue to lead in the marketplace create change, disrupt the market, provide better solutions and opportunities to extend our lead from a market competitiveness point of view but more importantly to create opportunities for customers and unlock value for them, real opportunity and real value based on us working together across our capability in the business which is core to our overall strategy. But of course working together with the broader marketplace, fund managers, financial advisers, licensees, other technology providers, We certainly believe in an integrated open architecture world, that's what we're about and we think that's underpinning the great results we've got today and we'll do so more and more in the future to build a longer term sustainable growth pattern for the business. If I move to our financial highlight slide this morning it is great to be able to talk about these numbers. From a revenue perspective the total HUB24 group had $138 million. up 69% and our underlying EBITDA just shy of $50 million but also up 68% on first half FY23. Breaking that down for the platform, it's $102.7 million for the platform up 33% and the underlying EBITDA there up 38% at $41.4 million. And Tech Solutions having had class in our business for a full six months for this half Our tech solutions revenue increase is obviously large from prior to that acquisition at $33.4 and $10.5 million underlying EBITDA. Leading to a statutory MPAT for the group of $15.5 million, that's up 85% on the prior corresponding period. The underlying MPAT up 26.6, again a large increase, 87%, and underlying MPAT is taking out some transaction costs for or integration costs for the Explore integration which I'll talk about later and some investment in what we call Hub 24 SMSF access which we're very excited about and there's some acquisition and amortisation out of that which is the difference between statutory and underlying impact but great stats there. Our dividend, we're really, really pleased to be increasing the dividend. It was 12.5 cents last half and I think 7.5 prior corresponding period. We're up 87% at $0.14 fully franked with a diluted EPS of $0.189 per share. So great results, we'll move on. Katrina Shanahan, our CFO, will talk through the detail of this a bit later on in the pack. Some of the other key metrics here, our total FUA is 73 bills. FUA having finished at $31.12 at $55.8, now up at $58.5. Of course there's some market movement there. We've tracked just below market movement in that first few weeks of the year so that will help everyone think about the flow patterns to date and our paths through are pretty stable at 17.2 but all in all a very solid result and it's great to be able to say that once again that's consistent with our track record. If I move on to the next slide we've got the five-year picture there in terms of our funds under admin being a core revenue and profit driver of the business. and that's got a five year CAGR of 60% which we're very, very proud about and the chart there has the portfolio admin reporting service, a non-custody admin there as well as the core platform. On the right hand side we've broken down the revenue so you can see it a bit differently to our normal presentation of the slide. You can see tech solutions and platform revenue and corporate and licensee and that's in the bars on that particular chart so of course licensee we sold Paragem to diverger at the end of 1H21 so you see that dropping off there, that's the blue that disappears but you also see the yellow coming in at the end of the chart which is the acquisition of class. So giving you a picture of the revenue change in the book mix or the footprint but clearly you can see the continuity of the trend in platform revenue being the dark blue and how that is driving results and coming through consistently in the business with about $138 million in revenue altogether. And the EBITDA line, the group EBITDA lines, they're just shy of 50 mil as I said earlier for first half FY23 and you can see the trend back there five years. So great growth over five years. We hope to continue doing that. Certainly our focus on our strategy, our execution, our client service is intending to keep delivering in that way. If we have a look at the actual market share and growth in market share for the Hub24 platform business and also for class, So the growth in the platform custody market, we've gone up from 4.6% market share 12 months ago or as at September, that's the latest data available. It does lag three months. So in the 12-month period to September 22, our data which came out in early Jan, it's up 1.1% to 5.7%. So consistently increasing market share in that order every year. We are the seventh largest platform provider by market share. Certainly we're delighted to be the fastest growing in percentage terms in that our net inflows as a percentage of our FUA is the fastest growing in the market, punching above our weight and ranked number one now for two quarters in a row for net inflows into the business. Still ranked number two on an annual basis but for the last two quarters we've had the highest inflows of any other platform in Australia at rank number one for that. Again the CAGR is there. The platform custody for one year is 52% over five years. The earlier slide was that including PARs, so 52% for the platform over five years. In the class space, class has a market share of 30%. That's been fairly stable. The business is ticking along and growing up and there's been some growth since the start of the year as well. Ranked number two in market share, so a really strong market position and since 1H18 there's been 26% growth in class. Talk a bit more about CLAS later on but in terms of being a very welcome and complimentary business in Hub24, very strategic for us, absolutely delighted with the business and what we're seeing happen there and our plans for the future. Okay, turning on to the next slide, we're really, really pleased to have been able to announce this morning, I think we've got it in line with the release from Investment Trends. that we are rated Australia's best platform overall having achieved the number one position that was announced this week from the recent survey from Investment Trends. So we are Australia's best platform as rated by them and we certainly believe we're well positioned for future growth. As I said earlier we've been first for quarterly net inflows for two quarters in a row. Interestingly We're the first for net inflows into superannuation on platforms. We have the highest level of inflows of any platform in our superannuation product set, which is a subset of the overall. And we've been first there on a quarterly and an annual basis. And that's been fairly consistent. We do have a large superannuation footprint and we're growing very steadily. If I expanded that out, if you look at the whole superannuation industry beyond just platforms, you consider industry funds and public sector funds, We are third in Australia for net inflows in superannuation behind AussieSuper and Australian Retirement Trust. So a great result for HUB24 there. With the other number ones there on the slide, as I said, best overall platform, best managed accounts or managed portfolio and product offer, number one for advice and that's from investment trends, also from investment trends, number one for reporting and online business management. They're the results out this week and in that particular research from Investment Trends we are first in 22 of 46 categories and obviously the platform with the most number ones in that particular research. So number one there for those. In terms of the Investment Trends Tech Report, still number one value for money, that's a different report. advisor ratings, best investment options and advisor experience, SMSF investment platform, try saying that fast, from Core Data. So great accolades there, well positioned for growth given that positioning. It means we're doing something right. We worked very hard to do that and we know we need to keep working to maintain those ratings but Certainly in terms of thinking about the future, we are leveraging the combined capabilities or together, Hub24, Class, now Infinity, are working together to expand the SMSF market with the launch of SMSF Access. We are actually launching it in a more broader launch this week at the SMSF conference. Our team are up there launching it to a whole lot of SMSF advocates being advisors and accountants. And so we're going full swing with that product now and we really do hope to create another choice and expand the market i.e. this will create opportunities for advisors to advise clients they didn't have solutions for previously as well as provide a lower cost, simpler solution to the marketplace. Again, talking about how we work together in our group to reduce friction, innovate and create new opportunities. We are obviously continuing to invest in the platform with enhancements of efficiency and choice and flexibility. You may be aware that in December, January we launched our ESG ratings capability on the platform so advisors can actually look at the investments for their clients and get rankings and ratings on how those rate in terms of ESG categories to help support choice for consumers who are looking at utilising their preferences and their investment capability. Enhanced model portfolio capability. and we've got ongoing enhancements to HUB24 Present which I'll talk about a little bit later in the pack. Of course we continue to progress the Explore wealth migrations including the discontinuation of the superannuation administration business which was non-core to us when we purchased Explore. That's substantively complete. We've been doing SFT migrations onto HUB and we've done quite a bit in the first half of 23 and we've got some more to do this half as well. So that's progressing really, really well. positionings for the future. If we go to the next slide what we'd like to do is talk about our pipeline and how our advisor base is working to help us harvest the opportunity for that future growth. So we've presented here in the slide some analysis of our half yearly FUA net inflows from 1H21 through to 1H23. and to demonstrate that roughly we're getting recurring flows from existing relationships in that bar chart each year. So Hub24 has reliable recurring flows from advisors who use the platform because of our great service and product features. It's reliable, in fact advisors generally transition their clients over roughly a six year period to the platform so you get ongoing growth for a long period of time with relationships you win. But on top of that flows from existing relationships. We've highlighted the flows coming from existing licensees. We might have an agreement with a national licensee but we may not have actually had flows coming from some of the advisors in that group. There might be 200, 300 advisors in that group and not all of them are using HUB. But you can see every year in that middle blue colour we are actually leveraging those relationships and getting a percentage of flows from advisors from which we have relationships with their licensee that have yet to use the platform. So we're reliably and consistently getting growth there from those relationships and that's why we invest in our key accounts process. We work strategically with licensees. We're building licensee tools like HubConnect Licensee which I'll touch on a bit later as well to help with advocacy in that space and the dark blue is new licensee relationships. You would have noticed in our release I think we had 57, if I'm wrong I apologise, 57 new licensees in that order signed up with Hub24 in the first half of this year and over 200 advisors which is our ongoing trend for a half. So there's some analysis on our recurring flows from existing relationships and showing you how well we're doing with growing new relationships from existing licensees and new ones. On the right-hand side of the slide To colour that in a bit further, there's about 15,500 licensed functional advisors currently in the Australian market. We have access to or relationships with 71% of that market when you consider that there's about 7,500 advisors, that's the bottom half of that donut, 7,500 advisors who are covered by a licensee agreement that Hub24 has with their licensee who are not yet using our platform which speaks to the chart on the left about our success in actually growing or building relationships with those advisors. So we've got access to another 7,500 but currently we have 3,600 or 3,700 active advisors using the platform. That's about 23% of the market. So ranked number one on many measures but only accessing 23% of the advice market with the ability to access more than 71% in total of the overall advice market. A great opportunity for us to keep working hard on Also the average number of advisors is growing consistently. It does move around but if you look at the long term trend and it's in our analyst pack, we're still on track. We're getting about 200 advisors each half. That hasn't slowed and that all goes well for actually getting new advisors on the platform and getting new flows on top of the recurring annual flows we get from existing relationships. As testament to how well we're doing with those relationships though, in the last two years the average advisor funds under admin on the platform has grown from 10 to $15 million in funds under administration. So not only are we adding new advisors and seeing that work for us, we're actually seeing the average FUA per advisor increasing so we're doing better at working more strongly with those advisors and picking up more of their book of business over time. Having said that there's a long way to go and a large opportunity because If the industry average is roughly $50 million to $60 million per advisor, we put $50 million here on our analysis but I actually think it's potentially higher than that, the industry average per advisor is in that order and we've got $15 million as a market leader. You can do the mathematics I'm sure to think about what would happen if you got to 50% of that market or even higher, what is the latent opportunity there with the relationships we've got? We're doing well growing our share of wallet from existing advisors. We're doing well growing advisors. We've got these relationships. There's a great opportunity and pipeline for us and of course the demand for our advisors is continuing to grow. That's creating demand for advisors and demand for our products and solutions and we operate very strongly in the superannuation segment which is systematically mandated by the Australian Government and underpinned by SGC increases which will go up as well. So really well positioned with our relationships and our strategy and the latent opportunity and the market environment for ongoing growth. Moving on to class, I'll quickly touch on class which as you know we've had for the whole half. We bought in February 22 and we've had it in these results for the whole half. Absolutely going through a process of consolidation and setting up for growth. and looking at innovation. But on the consolidation front, we have a new experienced leadership team in class. We have actually had more change than we expected when we purchased the business, but that's great. We've got a great experienced team in the business. Now we've got a CEO and a good, stronger team focused on different business lines in class. We've strengthened our customer engagement greatly in terms of the way we engage with customers and service and education. We've enhanced that. and we're delivering product enhancements to improve experience and drive efficiencies. We're going through a period of time where we're consolidating the position and setting the foundations for growth. We have a whole new realigned sales team that went live in January as a result of actually putting in a new sales head or distribution head inside Class. That sales team is now coming online so we have an enhanced focus on sales and growth than the previous ownership in the business with that realigned distribution team. We've seen some uptick in the first few weeks of this year as well in terms of accounts on Class. And we're certainly working on, as I said earlier, working together in the market. We're certainly enhancing strategic partnerships. It's who Hub is, it's who Class is. We're looking at strategic relationships with Class and how we can work better together to create better solutions for customers. I think that's really sensible to work with industry leaders and build the solutions for the future and grow business. And we're enabling innovation by leveraging the class and now infinity capability with Hub24 as one of our first group-wide initiatives to launch SMSF access, which I mentioned earlier has been publicly launched to a broader launch this week at the SMSF conference. And innovation would be the third phase there. We are continuing to leverage class capabilities to build our platform of the future and the single view of wealth on Hub24, very, very key to our strategy in acquiring classes. given the amount of data that CLAS has to produce SMSS accounts and launch with the ATO. There's gold in that data in terms of thinking about providing whole of wealth solutions for consumers and making the world a far better place in terms of people being able to think about their retirement and that's feeding into and going to be feeding into more and more into HUB's Single View of Wealth portal. And collaborating with industry participants working across the industry to deliver education, insights and best practice taking a leaf out of HUB's book with CLAS working that way more and more in the future as well. Delighted with how the business is going, more to do and we're really excited about SMS of Access and the future of that. Of course I'm going to turn to people for a second and it's great to be able to talk about the wonderful team that I work with and we work with here at HUB24. We couldn't be successful and be focused on customers if we didn't have great people. and we have certainly focused on attracting and retaining talented people. We do that through our flexible workplace practices and policies prioritising employee wellbeing and support and online tools. We've relaunched some online support tools and services for employees that really are cutting edge and state of the market in terms of giving them access to third party help and wellbeing and all sorts of other great resources in the community. We invest in leadership and so forth and working on talent and graduate programs. We actually have a STEM returners program which is seeking to look at returning people who might have left us in the past and want to come back to our great business in terms of that and that's having some great success as well. We invest in our people and community very much so. We want to create the right environment for people to thrive as we have and it's really vital to move ahead. Can't underestimate that. We've hired Amy Rickson and publicly welcome Amy here to the business. Amy is our new Chief People Officer. Great to have Amy on board to help work with me, the team and the rest of the hub business to build on our great foundations of culture and help us continue to grow. Over 700 employees, 736 now, 65% dedicated to innovation, product and customer service, which is key to us, and our employee engagement at 72%. Our values are there again and we really do believe in that strongly doing the right thing, working together, having a great client focus, innovating, certainly passionate and certainly wanting to deliver excellence and go above and beyond. And of course we are supporting the community more actively. You would have seen in our results for the full year 22 our statement about ESG and the activities we've got there. We have a sustainability council up and running. We're certainly working through corporate giving partnerships, employee voluntary programs and so forth and making great strides there on a number of ESG fronts and focus areas i.e. the example of us having launched ESG Ratings on the platform to help advisors is a great example of us leading in that space and certainly working through cyber and other areas, diversity, inclusion and environmental areas in our ESG focus areas. So great to be able to talk to you about that today and how important that is to HUB today and our ongoing success. I'd like to hand over to Katrina Shanahan, our Chief Financial Officer who's going to give us a run through our financial results. Good morning Katrina.

Thank you Andrew. So I'm going to start off with a quick snapshot of the group revenue and underlying EBITDA mix which is calling out the platform and tech solution segment contributions. You can see from the data in the middle that the platform segment remains the main driver with 75% of the group revenue driven by the platform segment and 25% from the tech solutions segment which now includes the acquisition of class. Platform underlying EBITDA was $41.4 million and tech solutions was $10.5 million. The slight difference between the total for the group and the platform of Tech Solutions is the corporate segment, which includes interest income offset by group overheads and the underlying EBITDA for the corporate segment was negative $2 million. You can see in the donuts in the charts that the platform segment, 97% of the revenue is driven by custody and 3% is driven by non-custody. And on the tech solutions side, you can see 80% is driven by the software subscriptions, and 10% by document sales, and 6% by HubConnect, et cetera. So then moving on to the next slide, we have the group financial results. And you can see the strong growth across all the metrics. Operating revenue and expenses are both up 69%. with group revenue being $138 million, operating expenses being $88 million. Underlying EBITDA has improved to $50 million, $49.9 million for the half which is up 68% on the first half of last year. The underlying EBITDA margin and the cost to income ratios have remained relatively stable with the underlying EBITDA margin being 36.2%. You can see in the graph on the bottom right-hand side that when you look at first half 22, the underlying EBITDA margin was 36.4%. And then the core businesses have delivered, Platform has delivered 11.4 million of underlying EBITDA, and Tech Solutions has delivered 12.7 million. And then the corporate area, a negative 900K for costs. That would take the underlying EBITDA margins for the group from 36.4% to 38.4% prior to the alignment of the class capitalization policy, which is the $3 million on the right-hand side of that graph, which is at the upper end of the disclosures that we put in the Q2 market update. It's still in line with those disclosures. And so you can see the group underlying EBITDA of 49.9 million in that graph on the right. The fully franked dividend, as Andrew mentioned, was 14 cents for the half, which is up 87% on the prior period, on the first half last year. And then the earnings per share of 18.89 per share is up 59% on the same period. And so then if we just move to the next slide, we've got the platform segment results. And so you can see that the total FBUA has grown to 73 billion. with 55.8 billion at the 31st of December for custody FUA and 17.2 billion for the non-custody FUA. The platform revenue is up 33% to $103 million, operating expenses in the platform segment up slightly less than the revenue, which is up 30%, delivering a strong growth in the underlying EBITDA of 38% to 41.4 million for the half. The underlying EBITDA margin in the platform segment has improved 1.5% on PCP, up to 40.3% this half. In the graph on the right-hand side, you can see the walk of the various movements for the FUA. You can see that we have the $5.8 billion for the underlying continuing business. We have the $1 billion, circa $1 billion, for the Explore super admin business, which is largely discontinued now. And then there was some positive market movement of 1.3 billion in the platform and in the non-custody segments. So then when we move to the next slide, we're continuing with the platform segment results. And you can see the last five halves, the underlying EBITDA margin, the underlying EBITDA in dollars, revenue and expenses. And so you can see at the bottom of the graph in the bullet points underneath, the platform underlying EBITDA from a dollar perspective has continued to grow every half over the last five halves, growing from 17.4 million in first half 21, growing to the 41.4 this half, which is a 53% five-year CAGR across that part of the business. and the underlying EBITDA margin improving from 39.7% first half 21 growing to 40.3%. The drop in the second half 21 reflects the low interest rate environment at that point in time and then you can see the RBA rate increases since then has strengthened the underlying EBITDA margin and driven the revenues in that area. When we move on to the next slide, we're continuing in the platform segment, and we've got the composition of the platform custody FUA. So you can see in the donuts on the right-hand side, this is where the Explore Super Admin business has largely been completed. On the custody FUA side, 85% is now retail clients, 15% is institutional clients. You can see the revenue for the first half does still include 1% from the Explore Super Admin business. Some of the FSTs were in December. You'll see that reduced down to zero in the second half of this year. When you look at the revenue margin, the composition in the bottom graph, you can see that the revenue margin has improved from 32 bps at full year 22 to 37 bps this half. I'll talk a bit more about that on the next slide. But you can basically see that the institutional margin is slightly lower. It's lower than the retail margin. So institutional is 16 bits, this half, with retail at 41 bits. From an underlying EBITDA contribution, they broadly deliver the same underlying EBITDA contribution as the servicing levels for institutional clients, and the average balances are different to the retail part. So then if we move on to the next slide, this is where we're talking about the platform revenue. And you can see the bottom right graph, we've got the walk for the platform revenue margin. Second half, 21 with 34 bps. coming down to 32 BIPs across the whole of full year 22, which reflected the explore part of the portfolio coming in. And then this half, we've got the 5 BIP increase from the higher RBA rate, which, as we've talked about before, mean that we're at the upper end of our cash management fee and driving the 37 BIPs in the platform revenue margin. And then we've had very little admin fee margin compression this half, which has also contributed to a strong revenue margin and we've had very stable trading volumes and no movement in the revenue margin for trading or admin fees. Then when we move to the next slide, we have the tech solution segments. We have a quick snapshot of the tech solutions. As Andrew mentioned earlier, Class was acquired in February 22, so when you look at first half 22, we've only got the HubConnect part of the business in there, and so most of the growth in this part of the business is driven by Class. In the chart on the right-hand side, you can see that the normal part of the Class business contributed $12 million of underlying EBITDA. There was $2 million of cost synergies following the acquisition of CLAS, which included the removal of listed entity costs, and we did a restructure of the CLAS business in second half 22. And you'll see the $2 million incremental cost synergies there. You'll see a bit of an uptick in that as we head into the second half and get another six months' worth of cost synergies coming through. We've also got $1.3 million that we've called out for HubConnect. Uplift, so this is an investment in the hub connect infrastructure and technology that's been booked for expenses not capitalized on the balance sheet. Examples of these costs include the present feature that Andrea will talk about a bit more when we get to the latest slides, but we've got the present feature which is built on the HubConnect data and technology stack and it supports the advisors that are using the Hub24 platform, so very complementary services there. We've also scaled the Hub24 licensee reporting and dashboards for licensees to use. Again that's building on the HubConnect data and tech stack but again it's supporting the flows that we're seeing come through on the platform side of the business. And then just to round out the graph on the right-hand side, you can see again the $3 million of class capitalization policy alignment there. So the pre-the-cap exchange, the underlying EBITDA margin in this segment was 46.6, coming down to 31.4% after the $3 million of capitalized software change. Then if we move to the next slide, here we have the group expenses. of $114.5 million, which is the total statutory group expenses included in the P&L. This includes $88 million of operating expenses that you would have seen in the group's underlying EBITDA presentation. The $88 million of operating expenses is up 69% on first half 22 that you would have seen in the earlier slides and it's up 25% on second half 22 and the main driver of that is employment related expenses. with employee expenses growing 25 million up with, as Andrea mentioned, FTE growing 36, FTE from second half last year growing to 736. Also included in the 114 mil of expenses is 4.4 million of share-based payments related to the employee share schemes. We've got the $3.3 million of impairment in diverger and $15.8 million of notable items, including strategic transaction costs of $4 million, acquisition amortization of $8.5 million, which includes both explore and class acquisition amortization. And so then that's it on the expenses. I'm sure there'll be some questions on that when we move to Q&A. Moving to the final finance section of the slide, we've got the increased profitability, where we have a walk of underlying EBITDA to underlying MPAT. The group's EBITDA of $49.4 million includes the 4.4 mil share-based payments, which is slightly down on first half 22. It's about 1.5, 2 million down on first half 22 because we have the catch-up of SPAS. In the prior period, we've got the normal depreciation and amortization of $5.6 million and then we've got the underlying MPAT of $26.6 million after tax effect. Then we've got a walk from underlying MPAT to statutory MPAT, which includes the $4 million for strategic transaction and project costs. which is largely Explore integration and the launch of the SMS active product that Andrew mentioned earlier. And then we've got $8.5 million of acquisition amortization relating to Explore and Clust. And the $3.3 million for the impairment of the diverger carrying value. And that takes us to a 15.5 statutory impact, which is up 35% on first half 22. So with that, I will hand to Andrew to run through strategy and outlook.