HUB24 Limited

Thank you for standing by and welcome to the Hub 24 Limited FY23 results call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star one again. For operator assistance throughout the call, please press star zero. And finally, I would like to advise all... Thank you. I'd now like to welcome Andrew Alcock, Managing Director, to begin the conference. Andrew, over to you.

It is as always a pleasure to talk about this great company and what we've been building together as a team in this industry and we've got some really good results we'd like to share with you today. So thank you very much. If we move straight to the highlight slide which is the second slide in the pack in terms of our financial results. Some headlines there, we've got continuing momentum and a significant uplift in results with revenue and underlying EBITDA at a group level both up 45%. So that's $102.4 million of underlying EBITDA and that's spread across the segments there as well. So great results, great uplifts for us in FY23. Our total funds under administration for our customers is $80.3 billion and our platform or custodial throughout 30 June was $62.7 billion which is up 26% on last year. As at Thursday last week, that had risen again to 64.5 billion. As we said in our market release note, we've seen a better than Q4 run rate for net inflows so far or to date for FY24 and pleased about that as well. In terms of what that means for shareholders, we've got a final dividend at 18.5 cents fully franked, which is up 48% on PCP. and our earnings per share diluted are up 136% to 46.1 cents per share. Katrina will talk more about our financial results later on in the presentation. Moving to the next slide, we talk about Hub24 being about empowering better financial futures together. which is, of course, our purpose statement. It's what we believe in. It's how we act and behave in terms of thinking about our business and how we develop it. As part of that, we have a vision to lead the wealth industry as the best provider of integrated platform, technology and data solutions. And on this slide there's some grabs about that which we can talk about to evidence that Australia's best platform, you'll see the awards a bit later on. We have the third fastest growing superannuation fund in the country behind two massive industry funds. We have market leading SMSF admin software with class and of course market leading managed portfolio capability. And there's some other items on the slide there as well. However, with these components or ingredients will provide more efficient solutions for advisors and for their clients. and come to market with innovation that is ingredients and using technology to unlock value so that we build a sustainable proposition and we actually help customers achieve their goal and help them empower a better financial future together. Taking a look at the results in a bit more detail over some time though, you'll see again that we've consistently delivered growth at shareholder value for many years in a row with our four-year CAGR of funds under administration at 46% and underlying EBITDA for group at 61%. These are great results and reliable highlights for FY23 on the next slide and on the left-hand side there's a list of items there which no doubt we'll talk about through the presentation and we've talked about them many times before, such as our Flows or our Pipeline, My Prosperity and other items there, and in particular Class being positioned. It's about leading today, delivering customer value and growth in our core propositions across our enterprise, Class, Hub24, HubConnect, and now my prosperity. Thinking about creating tomorrow or building the platform of the future, absolutely focused on that and some of the achievements we've delivered this year are evidence to that. And the last one there is about building together or collaborating to shape the future of the wealth industry which is really about helping this industry which has undergone profound change over the last few years to develop new solutions and new ways of working to deliver advice effectively and efficiently to create more access to advice but also to use technology to build the infrastructure to support the emergence of this industry as it continues to transform. So from our perspective we're very much focused on winning and making sure we delight our customers with our propositions today but also on continuing to disrupt and lead change in the industry but also to play our part as a key industry player to work across the board to advocate for change with QAR and other items and to build solutions that quite frankly will put us in a good position as an industry to deliver on our promise to Australians. It's great. It's been a great year for recognition as well. Moving to the next slide and we talk about this quite often but really proud to say that this year we've done really well. We had a clean sweep with the advisor ratings awards, winning overall best platform and all the categories there. From an advisor sentiment point of view with Wealth Insights, equal first in terms of satisfaction from advisors and from investment trends best over all platform and another few awards there. Interestingly there, the one I like to talk about most is number one for primary advocacy for platform use, which basically means for advisors who have a primary platform or a platform of choice, if you choose Hub24 as that platform, you have greater advocacy for us than other advisors who choose a different primary platform. It's a key indicator for us that we're doing things right but it also drives us to continue to innovate and deliver great service. In the pack for completeness we've got a slide on our managed portfolio capability. I'm not going to talk about it today but it's there for completeness for those who'd like to understand more about what we do with managed portfolios. I'm going to move on to the growth and market share slide. Hub24 today is the seventh largest platform by market share. Our custody, again, four-year CAGR of 48% custody for 48% growth as a four-year CAGR. And our market share in the last 12 months or the latest available data from March to March 23 has grown from 5.1% to 6.1%. In that same time period, we're ranked number one for quarterly and annual net inflows. But if you take a look at the snapshot of what's been going on in the industry at large and understand our success in the context of the whole industry, I've got a chart there from 2018 to 2023 with HUB's share or share of net inflows going from 12.7% in 18 to 64% in 23. Now the 64% is a statistical truth but it's an anomaly given the 101% outflow share of institutions. And so fascinating time in the industry. We're seeing it continue over time that the exodus from mainstream or incumbent traditional platforms has continued and there is a clear pack of winners in terms of the market share moving ahead. HUB has the fastest growing share of market in terms of net flows over that period and we hope to continue to lead in that space. As I said, our market share has grown to 6.1% in 23. It was 0.9% in 2018, whereas the in-store platform market share has dropped from about 75% to 64% over the last five years. It certainly puts us in a great position for having a great runway in terms of future growth potential, having 6% of the market and delivering on our promises and delivering such great outcomes in terms of products, value for clients and service. I'm being ranked the way we are, there's plenty of room to move to grow. This slide here we've got about our strong inflows from existing relationships and the opportunity moving forward. We included this in the pack at half-year to explain a little bit about how the business grows and how the flow patterns work. Typically, advisor relationships deliver flows to us as a platform for up to about six years and that's the bulk of their support for the platform and then you have ongoing organic flows from those advisors. So on the left hand side you can see the breakdown of net inflows we've had each financial year since 20 to 23 from existing advisor relationships, from new advisor relationships that were attached to a licensee in which we had an agreement with and from new licensee relationships. And so you get reliable recurring flows from existing relationships year on year with 75% of our flows in 23 coming from existing relationships. 16% from new advisors who are attached to a national group that we have a relationship with or a large licensee, and 9% from new advisors. And so we do that quite regularly. It's the pattern of our growth. Interestingly, we have relationships or access to more than 74% of the total advisor market. and that's through the agreements we have with licensees to use the platform. But in this year we increased the number of active advisors on the platform by 15%. So we have coverage to 26% of the market actively using HUB. And as I said before, hopefully in the same sense, reliable flows from existing relationships plus new flows from new relationships. So that's about 500 new advisors in FY23. Put simply, we're continuing to grow, we're continuing to grow from our existing relationships, we're continuing to build new relationships, and there's plenty of runway and room to move to create more relationships. And in testament to that, we've also increased the percentage of usage or share of wallets, if you like, from advisors who use the platform. So since June 2020, the average advisor on our platform has grown by 88% to an average of 16 million. Hard to do when you're adding new advisors to the denominator of that equation each year because they're coming on with lower amounts. Interestingly, 7% of the advisors on our platform have more than $50 million. So with an average of 16 and some advisors at 50, it illustrates the growth potential that we have in our business if we continue to execute very well. And the industry average for advisors is about $65 million just looking at some of the industry data around. As a business, we have a really, really strong opportunity to continue to grow. We get reliable flows from existing relationships. We've increased the number of relationships and we're deepening those relationships with increasing sewer per advisor. And as I said, with 7% of our advisors now more than $50 million on Hub24, illustrating the potential for ongoing growth for our business as we'd like to certainly grow up from that 6% market share. Moving on to class for a second. Great today to say that Class now has over 200,000 accounts on Class and 640,000 companies on Corporate Messenger. We've done a lot of work in Class to refresh the team. We refresh the growth team or the sales team if you like. Certainly continue to focus on customer service and really made some interesting progress with increasing engagement with customers across the industry. We've been working actively in the industry as advocates. We thought leadership and training and really focused on that core market. in terms of supporting the industry and to grow the market. So from all intents and purposes Class is performing to our expectation but we've put in place the foundations of further growth and we're starting to see that come through at the moment. So building momentum and position for growth and of course Class is helping us with our platform of the future strategy or how we integrate a lot of the assets we have inside our group to actually create new innovative products that deliver value and lead change in the wealth management industry. None of this is possible without our talented team of people and we really, really understand that we've got a great team and our success is the result of all of us working together. 86% of our people are dedicated to customer and innovation functions, product tech, business development, customer service and our engagement this year has gone up 2% to 74% across our employee group. We're absolutely focused on investing in our people as they do deliver that value and it's key for us as we grow and continue to grow to keep that edge with our customer service and so forth. We're enhancing our employee value proposition to attract and retain and develop people. We have a new Chief People Officer focused on working on our employee brand and strengthening Hub24 as a great place to work. And we're attracting talent through many channels, certainly investing in learning and development and really striving to build on our purpose-driven, diverse, inclusive and high-performance culture. We really want to support employee retention and advocacy as that's what makes the edge in our customer service. So thank you to our team and absolutely committed to building the best team as possible in this industry and living our values that are on the slide as well. I'm going to hand over to Katrina Shanahan to give us some snapshots and talk through our financial results. Over to you, Kit.

Thank you Andrew. So I'll now run through the financial results. So here on this slide you can see we have a snapshot of the group, the platform and the tech solutions segment showing the revenue underlying EBITDA at $180 million and the underlying EBITDA worth $102 million. with the platform representing 75% of underlying EBITDA and the custody for representing 97% of the platform revenue. And as Andrew mentioned, just over 4,000 active advisors using the platform. Tech Solutions, which represents the Class and the HubConnect parts of the business, revenue grew to just under $68 million and underlying EBITDA was just under $22 million. And there are just over 6,000 financial practices using the class solutions. So then moving on to the next slide, again, we have the group financial results. And you can see in the table on the left-hand side where we have the operating revenue, operating expenses, and the underlying EBITDA, all growing 45%. which is driving a strong performance in the underlying EBITDA margin as well where we've held it flat to 36.6% and that's in the context of the macro environment that we've got but also the changes that we made to the class capitalization policy for the software which you can see in the graph on the right hand side. During the first half of this year we aligned the class policy to the group policy where we only capitalised technology development costs. Prior to that change the group underlying EBITDA margin grew 1.8% to 38.4%. Moving on to the next slide, we've got the platform segment. And again, you can see Andrew was mentioning total FUA grew 23% to $80 billion, with the custody FUA up 26% to $62.7 billion, and the non-custody past FUA up 11% to just under $18 billion. The revenue was up 30% to $209 million, and operating expenses up 26%. This difference in the growth between the revenue and the operating expenses saw strong platform operating leverage come through, which gave us 2% uplift in the underlying EBITDA margin to 40.8% in the year. On the right-hand side, you can see the walk of the FUA composition from the $65.6 billion of full year 2022 to the $80 billion at 30th of June this year. There was $9.7 billion of net inflows from continuing business before the Explore Super Admin discontinuation and there was $4.3 billion of market movement in the custody portfolio and $1.7 billion of market and net inflows in the non-custody part of the portfolio. Moving on to the next slide, we have a five-year trend for the platform segment and there's just a couple of things that I'd call out on this slide. We've got a walk here from full year 19 to full year 23 and you can see that the underlying EBITDA margin over that period has increased 7.5% over the five years and the underlying EBITDA margin from a dollar perspective has grown 47% compound annual growth rate from 18 million back in full year 19 to 85 million. in full year 23. So this slide is basically demonstrating the scale and the operating leverage that we have coming through on the platform segment. So then moving to the next slide, we have the composition of the platform custody FUR. And you can see in the donuts on the right-hand side, the Explore Super Admin last year represented 3% of the FUR and 1% of the revenue. This year we had just 1% of the revenue in the custody part coming through Explore Superadmin as we discontinued it. And at the end of the year, retail represented 86% of the $62.7 billion of custody FUA and institutional large clients represented 14%. The graph on the bottom right-hand side shows the composition of the custody revenue margin. which grew four BIPs in the year. This four BIP increase was largely due to the RBA rate increases that we saw in May and June 22, which took us to the upper end of our cash management fee. The admin fee compression has been very small this year. That's a factor of volatility in the market and the scale of the portfolio with quite a large proportion already at the various tiers and caps in the portfolio. The retail margin grew from 37 bps in full year 22 to 40 bps and the institutional margin held relatively flat at 14 bps during the year. Moving on to the next slide, I won't talk on this one very much. It's here just in case people want to have a look at the half on half movements in the platform revenue. You can see that in the top right hand side and again that links back to the RBA rate increases back in May, June 22. So then if we move to the next slide, we have the tech solutions result. As Andrew was mentioning, you can see here that the class counts grew 2% to just over 200,000. Class document orders grew just over 173,000. And companies using the corporate messenger service grew 8% to just over 645,000. You'll see the revenue operating expenses and underlying EBITDA growth rates are very large this year. That's because we've recognised class for a full 12 months this year and we acquired class in February last year, which was only four and a half months recognised, which is why we've got such large percentage growth rates. On the right-hand side, you can see the underlying EBITDA margin walk. So in full year 22, Tech Solutions' underlying EBITDA margin was 39.2%. And then we had the 13.9 pillar represents the full 12 months recognition. We had an incremental $3 million worth of cost synergies, cost savings in the class business. This is on top of the $1 million of cost savings that we recognised in full year 22. And then we had an uplift in HubConnect expenses. HubConnect technology supports the reporting, the present reporting functionality and the data. And so we've had an uplift in some costs there and some great feedback on that functionality. Those walks would take the underlying EBITDA margin in the tech solutions segment to 39.4%, so relatively flat year on year. And then you have the $4.8 million worth of alignment to the Hub24 capitalization policy. Moving on to the next slide, we have the group expenses. So here you can see that group expenses grew 33% year-on-year, which is partly represented by having class in there for 12 months. The largest part of the expense base is the employee expenses of $133 million, which is up $42 million year-on-year. This is driven by the headcount increases to service the clients, support the technology business, including the cyber uplift this year. We've also got increases in HR and our risk and compliance functions, which supports our larger business and larger scale that we have. Then moving on to the next slide, we have a walk of our increasing profitability from underlying EBITDA to underlying MPAT and statutory MPAT. We have the underlying EBITDA of $102 million, up 45%. We then have $11 million of share-based payments, $11.5 million of depreciation enamel, and then $19 million of tax, which takes you to the underlying MPAT, up 64% to $59 million. And then moving from underlying MPAT to statutory MPAT, we have the strategic transactions and project costs. which includes Explorer integration, which is circa $6 million. We have the SMSF access project, product that was launched, MyProsperity, acquisition costs in there. And we also have large transitions. We announced the EQT, $4 billion large transition. We'll also continue to work on other opportunities in there as well. Then we have the impairment of $3.3 million for Diversion, that we recognized in the first half and we have the tax on the notable items. I will just make a brief comment on our effective tax rate, which was 21.7% this year. There's some benefits in there for R&D. So we have a higher R&D recognition in the full year 22 tax return that was completed during the year. And we also get to recognise the benefits of purchasing treasury shares on market to service the employee share schemes that are out there, which are the two things that are driving the lower effective tax rate this year. Then when we move on to the final slide in the finance section, today we announced a share buyback of up to $50 million over the next 12 months starting 11th of September this year. So this recognises our strong balance sheet position and our strong cash reserves. with 97% of the group's underlying EBITDA converted to operating cash flows and we're expecting that trend to continue. We believe that the share buyback will increase shareholder returns but also enable us to keep the flexibility to invest in opportunities and continue to invest in the business. And with that I will hand back to Andrew.