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.

Thank you Katrina. A few words about our strategy and outlook and then we'll open up to some questions. Certainly in this industry we've seen phenomenal amounts of change over the last decade or so and it's continuing. In fact there's been lots of change and we've embraced that change, run with it and tried to secure opportunities resulting from that change and in many extents Hub24 has created some change as well. It is continuing. We're not sitting still. We're not sitting still with just market leading products. We intend to embrace some of the themes in the industry. and continue to consolidate our leadership position. So on this slide, just a few key trends there, a couple I'll talk about. The licensee model in Australia is continuing to evolve. We used to talk about how aligned distributional licensees are moving away from institutions and moving to third parties or boutiques or getting their own license. That's certainly continuing evolving with the rise of new aggregators of those who left in store alignment, building aggregation or purchasing groups or groups of advisors who are working with well-known asset consultants to build a great solution for their clients and choosing a great platform solution as well. We're also seeing a continuation of disaggregation from institutions with some recent announcements of late. This opens up opportunities for us to continue to grow our footprint. And particularly as well with the quality of advice review where the delivery advice should become easier with some of the changes coming through around SOAs and fee consents, allows us to help advisors become more efficient and hopefully help them deliver advice to more clients. On the infrastructure front, absolutely there's demand for integrated tech and data solutions. Data doesn't work well in this industry. There's lots of point solutions. We need to get them to talk together to make life more easy or efficient for advisors and clients. And there's a critical need for investment to do that in wealth management given the change in players over the last few years. And of course cyber security is very, very important as well in terms of trends moving forward. On a demographic front we're also seeing shifts with an ageing population. There is a need for effective retirement product solutions with longevity-based risk as well as sequencing risk involved in that in terms of having the right solutions so that retirees don't run out of money too early. and with that will come an intergenerational wealth transfer as well whereas you're looking at solutions that can help a family deal with the transfer of wealth from retirement through to those who are starting out as an intergenerational transfer. But with that demographic change you've also got client demand for personalisation, preferences, ESG, millennials and others with different views on how they invest and as a platform provider we need to deal to those changing demographics and make sure our solutions can cater for them. As well, the growth in SMSFs is coming about through increasing demand for millennials as well. So Hub24, if we look at the next slide, we have a great group of assets or businesses in our group that allows us to play to those trends and link different solutions together to build a range of solutions that cater for those. You can see on the right-hand side we have an architecture diagram about the business with MyProsperity on the top providing secure customer single view portal capability. The other Hub platform and Class and now Infinity services, linking into that moving ahead. And then integration across the industry with data. So we're building a really great ecosystem with secure commission-based data sharing to deliver on that goal of delivering those trends and helping customers get a complete view of wealth. So some of the things that we want to take advantage of in there, we certainly are collaborating with retirement solution providers to extend our product set. We're increasing the range of investments on our platform, looking at alternative investments. and unlisted fixed interests to deal with different marketplaces, enhancing the customer experience and certainly we'll be involving our non-custody reporting or as we call it present, our single wealth reporting, evolving that to an admin service as well on the Hub20 platform, quite separate to the institutional grade portfolio or non-custody portfolio admin service that we provide to brokers and their high net wealth clients as well. What does that all mean? We translate that to the market and the offers. A bit of a complex slide here, but just to give you an outline of how we think about the market and how we have different products positioned over different life stages for different markets, being the high net wealth broker and private wealth market, mass affluent markets, and the mass market where we intend to do some more work. So certainly got a range of products and services that deal with different life stages for those who are starting out, those who are growing wealth and those who are retiring and or downsizing and then the intergenerational wealth transfer. Particularly with SMSF access helping people get a portable vehicle at a younger age at a sensible price but also at the end of their time as running an SMSF having a simpler product solution to allow them to keep that portability and deal with intergenerational transfer. So we cut across several segments with several solutions and we're certainly working on more as well. Having said that, we have a digital solution which we took to market with Aberdeen which is really a digital device solution with a really core set of investments as well that we've got in the can and we're looking around the corner at what we do with that given QAR and other changes as well. So it's certainly focused on clients, life stages and segments and taking the best we've got of the ingredients in the Hub24 stable in an integrated sense to continue to lead the market moving forward. So from an outlook perspective for Hub24, what does it all mean? We certainly see growth momentum. We certainly see ourselves continuing to deliver customer and shareholder value. A few snippets there on the slide, absolutely have a coherent strategy that's driving competitive advantage. We want to maintain and extend market leadership in our core propositions. We want to get growth and we intend to get growth from both our existing and new relationships and also enable industry transformation and advice delivery by taking data and technology and playing our bit to sort out some of those gaps that we have in the industry given the profound disruption that's occurred over time. We're focused on integrating our group capabilities to accelerate the growth of the platform and extend our leadership moving ahead. So the updated guidance we've got today as part of that momentum and delivering that growth and shareholder value, we've updated a guidance statement there for the end of FY25 to have platform FUA excluding past, so custody FUA in a range of $92 to $100 billion for FY25. So that's the end of the presentation formally today. Be delighted to take questions and talk to those on the line. And we'll hand it back to you, Paulie. Thank you.

Thank you, Andrew and Katrina, for the presentation. And at this time, I would like to remind everyone, in order to ask a question, please press star, then the number 1 on your telephone keypad. And we'll pause for just a moment to compile the Q&A roster. And your first question comes from the line of Brendan Carrick from Macquarie. Your line is open.

Good morning, Andrew and Katrina. Maybe just quickly starting on the flows or the FUA update that you've provided. I guess given the market sell-off leading into the 17th of August, it looks like a reasonably strong run rate, but just wanted to maybe get some additional colour on whether the correlation held up to the market and sort of how we should be thinking about the fewer run rate. And is there anything for EQT in the flows to 17 August?

Thanks, Brenda. There's nothing for EQT there. We are working on the first of a series of phase transitions. The team are working hard on that, but nothing in those numbers to date. In terms of correlation, I might just explain that quite often or typically there's a correlation of market movement for us point to point but at times there are trading activities that actually confound that or it doesn't sound true. So you might have advisors buying into the market or out of the market at the top or the bottom and that actually changes that correlation. So certainly there has been a shift in pure correlation if you like. The guidance we've got is that our flow rate so far this year is ahead of the run rate for quarter four but not strictly correlated if you were doing mathematics at 60% or 70% to the ASX movement. It hasn't tracked that. There has been movement within those peaks and troughs and crystallisation or purchasing. That means it's not strictly correlated but we've had flows ahead of run rate to date and that's very pleasing, a run rate for quarter four.

Okay, that's clear. And then just on the FY25 FUA target, is it the same market assumption of that circa 5% market return in there? And so then the range is sort of, if I'm calculating correctly, about 11 to 15 billion of net flows per annum, including the EQT over the next two years?

Yep, that's correct, Brendan. So we obviously do sensitivities, but the standard baseline assumptions market sort of 5%. And yeah, you're sort of right, including the equity of $4 billion. In that first year, you're definitely looking at $14 odd billion, and then there could be some sensitivities plus minus to that.

Okay. And then I'll just ask on the tax rate and then I'll jump back in the queue. Maybe just, Katrina, could you provide some more colour around your expectations on where this might be going forward? It sounds like maybe some of them are repeatable benefits to the tax rate, but maybe some were one-off, if I'm interpreting what you said correctly.

Yeah, that's right. So the... The R&D benefits, you would expect given the nature of HUB24 and CLAS that we'll continue to get R&D benefits, so you'd expect that to continue to come through. We were probably a little bit conservative in our estimates when we did the full year 22 estimates and when we completed the tax return, obviously that gave us a bit of a benefit. Then the treasury shares, so historically we used to The employee share schemes were serviced by issuing shares on market, and that was non-deductible from a tax expense when the share-based payments were booked. Our capital management plan now and our policy is largely that we look to purchase shares on market to service those employee plans and you get the tax deduction from that because you're using resources, company cash resources to do that. And so there was a bit of a catch up this year just from that because that's a change of tax treatment when you demonstrate that that's your purpose going forward.

Okay, so the tax rate going forward, how should we be thinking about it?

So the tax rate going forward, look, it's probably going to be anywhere between, say, 25% or 30%, depending on, you know, movements in the year.

Okay, that's helpful. I'll jump back in the queue. Thank you.

Thanks, Brendan. Your next question comes from the line of James Bizzinella from Unified Capital Partners. Your line is open.

Yeah, congratulations on the result, Andrew and Katrina. Just a couple from me. Maybe just on the split of gross inflows versus gross outflows, just noting the heightened outflow environment recently. Just wondering if there's been any shift in that over the past month and a half that you're seeing.

Do you want to go, Kit? I think that, well, sorry, generally, you might feel me here, but generally there's been a reduction recently in outflows to IDPS, but it's too early to be a trend, but that might be less people running to term deposits or cash and looking for stabilisation or ready to invest James. So in terms of the mix we did see a slight uptick towards a bit later than one of our peers where you did have some exit of discretionary or IDPS funds, a higher level of outflow rate but certainly in superannuation that's not necessarily changed its pension payments. So our outflow rate is fairly consistent across the board but at a deeper level when you look at IDPS you did see some money leaving certainly in the high net wealth space In recent months, that seems to have slowed down in the last few weeks, but I'm not sure whether that's a trend, but it seems to have gone back to more close to normal. Is that a fair comment, Kit?

Yeah, that's correct.

Fantastic. Thank you. And just another one, just around the environment and pipeline for large transitions, just in terms of what you're seeing currently in the market.

Always in discussions. We are very comfortable with the EQG transition where there are other opportunities in the market. We continue to prospect and work on those. So certainly there is opportunity out there. I know that people don't count that until we actually sign off on them. We don't talk about them until we sign off on them. Some of them gestate, some of them don't. But we're comfortable with that and certainly you saw from our guidance statement That's really taking the 24 guidance we had and adding, what is that, 9 bill to 11 bill range to that. So we're comfortable that there's opportunities out there. We're certainly working on EQT and we've got others talking too, James. So it hasn't dried up. They're difficult to get but at the same time I would expect to think you should see us land some of these every year or so. So that's the best guidance I can give you at this point.

Great to hear. And just last one from me, just in terms of the $50 million earmarked for the buyback, potential buyback. I mean, is the intention still to continue exploring M&A strategic opportunities or is sort of capital management the new normal from here?

Absolutely, we've got in the buyback slide we talk about retaining the flexibility to pursue strategic opportunities and certainly the outlook slide we've got our eyes open. Having said that we've got a great group of assets, our job is to stitch them together and execute on that strategy which we're absolutely focused on but we're alive and looking at other things if they make sense for us but we have a great stack at the moment which we want to deliver on. So it's not about capital management in the future. It's just returning some capital to shareholders, dealing with some dilution from the acquisition of MyProsperity, maintaining flexibility so we can continue to acquire if it makes sense and we can create shareholder and customer value.

Thanks for taking my questions. I'll jump back in the queue.

Your next question comes from the line of Kirin Chigi from Jarden. Your line is open.

Morning, Andrew and Katrina. Just a question around your product set. We've seen one of your competitors announce changes to their core product offering moving forward to try and make their product more competitive. Just wondering how you're thinking about your current product positioning and whether or not that's also... an area you're also considering making some revisions around?

We're very happy with our core product. The fact that our competitor has the same name on their product is not misleading, but they're very different products. Our core product has a much broader range of investments. At some price points with the announcement from the other provider, they're very similar. So we have a broader product and it is aimed at the mass affluent or simple needs mass affluent market and to lower balances. So we're very comfortable with our core product. It's much broader than the one you're talking to. We do have, as I said, a similar product to the one that was announced in terms of just a restricted menu of portfolios or assets, we built a very simple product for taking to market with digital advice. That's not in market because of the Aberdeen digital advice piece we've talked about many times but we've got that capability certainly if we wanted to go there which would be a lower balance type product which might lead to even lower balances in mass markets. So comfortable with our coverage and comfortable with the pricing of our core product given the value it delivers and at some price points and some balances it's equivalent or or better than the one you're talking about. So from our core product point of view, I don't think you'll see change at all. We've been very successful there in that heartland, been very successful with groups and advisors in terms of getting penetration there, and I don't think that will shift. It's been a market that we know well.

That's great. And just a second question on scalability within the platform business. You know, you've had reasonable margin expansion, as I think you pointed out, Katrina. one of the slides over the last four years but just any sort of commentary around how we or how you're thinking about sort of cost growth or headcount more specifically within that division as we move forward with the good flows you've sort of got embedded or implied within your FUA guidance.

Yeah so we We've always said that we're focused on the underlying EBITDA margin and delivering operating leverage while still investing in the business. So we've always said that we'll invest ahead of where we see the growth coming so that we can maintain our strong service levels. But when we make the decisions on where we invest and when we invest, we do it with an eye on the underlying EBITDA margin and making sure that we can still deliver that operating leverage. That will continue into 2024. And so we don't give expenses or underlying EBITDA margin guidance, but you can definitely take away from this that that's not going to change. We're still going to keep focused on that and look to at a minimum hold it and if not improve it depending on the conditions.

Great, thank you.

Your next question comes from the line of Nicholas McGarrickle from Baron Joey. Your line is open.

Thanks. Maybe just a question around those new advisors that came on in the fourth quarter. Can you just give us a sense of what was driving that large pickup in the number of new advisors added?

I don't have analysis. I don't think there's anything out of the ordinary there, Nick. I think that... A couple of comments. We've all talked about how the economic conditions have been a bit challenging or softer and advisors have been sitting and waiting for investment opportunities or using defensive assets or flows have been slower, certainly in quarter three and the start of quarter four. I think it's a result of good prospecting. The sales team are working where they can. to build new relationships. There's been a lot of activity in the market with those looking for platform and platform selection. We've had quite a few wins. I think there was a number of distribution agreements in that quarter as well. So I think it's just reflective of business development and that there was an opportunity to build relationships whilst it was a little bit softer in terms of flows during that quarter. I don't have any large swings or roundabouts that I think are noteworthy in terms of the make-up or so forth, it will be across self-licence, it will be across boutiques, it will be across larger groups as well.

Alright, great, thanks. And in terms of the EBT timing, I don't know if Kit or yourself can give us just a sense on when should we expect first flows there and over what time period should the initial $4 billion move over and has there been any change in the thinking on that $4 billion amount?

It's a phased transition and clearly we'll also be working with EQT on how they talk to the market about what's happening so out of respect for them, we're not going to give you dates at this point in time. We are working on the project, we're working on some build, there is a third party involved with some trust software, that's progressing well. For us to deliver in 24, and I think Katrina we're sort of saying most of it's in 24, probably

Correct. Anywhere up to three and a half.

Three and a half, 24 and some will lag over and it's well known in the market that EQT need to exit some of the AET systems that were hosted by Insignia. So you should expect to see some first transitions in this half and as and when it's appropriate and EQT are comfortable with testing out the tech and the stack and how it fits together, we'll talk more about it. But certainly working on the first ones in this half.

Great, thank you.

Before we move on to our next participant, if you would like to join the queue to ask a question or a follow-up, please press star one on your telephone keypad. And your next question comes from the line of Scott Hudson from MST. Your line is open.

Hi, Andrew. Hi, Katrina. Just a couple of quick questions. Could you just give us an update on the MyProsperity integration?

Sure. The first piece of work we're doing with MyProsperity in terms of integrating with HUB is building what we call a simple portal. We put that in the announcements on the acquisition which is about attaching a simple version of MyProsperity to the platform. That's underway in build at the moment. The design's been sorted and it's underway in build so I'd expect to be having that in market in the next few months, certainly in this HUB. So it's on track in terms of that objective. in terms of the integration of that. Interestingly Scott, I know you didn't ask but you know I'm shameless, we're actually seeing great traction and interest in MyProsperity and the broader hub group as a result of that solution in terms of what it can provide, particularly in terms of secure document vaults and cyber security for advisors. It's allowing us to have discussions and hopefully increase share of wallet with existing clients People are very interested in what we're doing with that particular portal. So it's working from a business development point of view, and the first integration task is well underway.

Thanks. That was my next question. But in terms of the, I guess, the strategy behind a simple portal, is that just to get, I guess, something online and up and running relatively quickly before you expand the portal offering? What's the longer-term strategy there?

Okay, there will be a simple portal with the hub platform. There is the ability to upgrade that to the full MyProsperity capability. So that capability is out there in the market, sold on its own. And we don't intend to change that. So the simple portal will have integration to create a single sign-on or effectively over time replace what we call Investor Hub, which is the app that investors use, and give access. So it will actually embed inside the simple portal some of the Investor Hub functionality. So it will be a hybrid offer. but the ability to take the full suite of MyProsperity remains and to actually move forward with that. So we're not doing a deeper integration for that. That's the actual MyProsperity product that can be accessible. Of course we'll over the time enrich the capability but the idea is not to provide the full MyProsperity as a bundle with the platform. It's an optional and it is sold separately in the market currently and I think that some advisors and clients will take that up as an additional service stream and increase our revenue and tech solutions or of course our software revenue. So it's in the platform segment, sorry Scott, but the strategy is for it to stand on its own and be able to be purchased as the full suite with a simple one integrated with Hub. Stage two is to integrate that in 12 months' time with other offers like Class and others so ideally it could be the front end for customers on Class as well.

And then could you just expand a little bit about the, I guess, evolving the non-custody reporting to include admin on the platform? Sure.

So we've approached non-custody by having large institutional clients like Evans and Orbinet. And we do that in a portfolio service on a different tech stack. We've used our HubConnect infrastructure and a product called Present to allow a single view of wealth on the platform. So that's with feeds from Macquarie Bank, it's with feeds from the platform. It also allows advisors to add other assets in so you can enter in other assets now. property, other investments, equities into that asset register to report on and get the combined reporting. So we already do that single view of wealth reporting. The next step is we will be piloting, leveraging some of the capability we've got for those institutional non-custody offers, piloting some non-custody admins. So not only can you enter them in to the platform for reporting but we might also do the administration on the wealth corporate actions and those sorts of things. So it will be an evolution to doing some non-custody admin. As part of the platform, a very different offer to the portfolio service we have for brokers and high net wealth instos. It's an additional increment to our additional feature on the platform. So we'll be piling that in the next six months or so and then based on that we'll go to market with a full launch.

Have you settled on I guess a revenue model at this point?

I haven't settled on a revenue model and we'll talk about that after we've learned from the pilot, but we certainly have ideas about the revenue model, but that will come out in due course. I appreciate it. Thank you.

The next question comes from the line of Olivia Coulon from E&P Financial. Your line is open.

Hi guys. Congrats on a strong result. Just had a question, Ari, the fee mix in the second half. It seemed like there was a decent step down when you look at that slide where you've got the walk of kind of admin and cash and other fee growth in the second half. Was most of that just a function of the higher balances driven by market performance in the second half?

Yeah, I'll take that one, Oliver. So probably the thing to do is look on the graph on the top right-hand side of that graph. So with the RBA rate increases that came in in May, June 2022, that took us to the upper end of our cash management fee. And so it didn't increase, the cash management fee didn't increase past that. And so that, you would have seen those benefits coming in first half 23, and then they normalised in second half 23, which is why you didn't see another large uptick in the second half of 23.

Yeah, I would have thought, given the step down as you moved off ANZ onto BOQ, you may have actually seen cash decrease, but it seems like your average cash balance must have lifted a touch to offset the impact of that.

Yeah, that's correct. So we did see a bit of a, particularly in Q3, we saw a bit of an uptick in cash balances. And it's been around the 8% to sort of 10% throughout most of the year.

Okay. And the spot, like when you exited the half, was it fairly similar to the average or the year average? Is there any guidance you can give us on that?

It's been fairly similar to the yearly average. And so, look, we don't give cash numbers, but yeah.

I think the comment I'd make is it does move around all the time. It's a function of money coming onto the platform and it's a function of trading, not just people parking money in cash. And so a lot of the cash balance is based on new customers, new inflows coming in in cash in superannuation, not as assets. and sometimes they take a while to trade. So lifting the hood and that's really difficult. It moves around quite regularly. Whilst you might see some softening or growth in terms of trends with economic cycles, ours moves around quite a bit given the nature of the book and we have a predisposition to superannuation flows. So giving you spot is probably not an indicator of what's happening given the way it works. Yeah, no, I appreciate that.

And just with the pilot product on the, you know, taking some of that reporting functionality that you've got in PARS for the custodial clients, is there a view that you're going to use a little bit of that to try to push up into, you know, segments of the market where you may not have had as strong a penetration, specifically, I guess, high net worths, etc.? ?

Well we do have penetration high net worth with the Evans and Westpac clients, marquee clients from Explore and we have wholesale discretionary accounts in Explore which have high net wealth capabilities and we do offer some of those assets. in those custody arrangements like bonds and others and foreign currency on the linear platform with Explore. So we do have exposure that we haven't had on the Hub24 platform. So, you know, maybe, but we're there. It is about, you know, providing flexibility for customers and advisors so that you can have assets off platform and still have them reported rather than have to crystallise them and move them into custody. It's about increasing the opportunity. People want a single view of wealth. And so our view has been let's help advisors do business the same way regardless of how assets are held legally. And so it's extending the utility of the platform in that regard. Yes, it might appeal to that market. It will appeal to other markets as well. But it's not deliberately for high net worth. It's taking capability we've got and enhancing it and rounding it out into an offer that is about building the platform of the future. I got it. Perfect. I appreciate that. Thanks.

Your next question comes from the line of Siraj Ahmed from Citigroup. Your line is open.

Hi, Andrew. Hi, Katrina. I have three questions. This question on the 2025 guidance for four, this is terrifying. Are you assuming that there's another large transition in the 2025 to get to that guidance? And secondly, is it fair to assume there's nothing much from a benefit from my prosperity in the GANs?

Was the last part benefits from MyProsperity in the guidance? Is that the question?

Yeah, it doesn't flow as coming to the core platform because of the enhanced functionality status and you're not really assuming much from that.

Well, I'll make one comment and then Katrina can talk about the transition phase. Certainly, we aim to deliver a reliable guidance statement and we'd like to always perform the best we can. In some cases, we've achieved higher than the top end of the range. But we certainly don't want to be making bullish promises and having to revise guidance as well. So I think it's a good prudent measure with a big range. It's an addition or an increment to the guidance we had for 24. So from that perspective it allows for additional transitions and it also allows us to be in the range I think without additional transitions. are subject to markets at 5%. So there's a variation of possibilities in there. So it's not that it's built on the assumption there's another large transition. We'd love to have one and we're certainly working on them and it would put us into sort of middle territory of the range, I think. Is that fair?

Yeah, that's completely fair.

But second one, in terms of just my prosperity, I mean, looking at the accounts, I think 3.7 million in revenue, maybe slightly below what you mentioned when you acquired it. But just that organic business still on target for that, you know, sort of doubling in revenue next year in 2024?

Certainly in the plan, and it's certainly what the business is going for. It's certainly days in 24, but it's certainly their surrage. And as Andrew mentioned earlier, the incoming calls and the inquiries that were added indicate that the pipeline's very strong.

Okay. Last one. In terms of, Andrew, you sort of mentioned this, that change in licensees more recently for one of the largest players. Just keen to understand the impact. On the one hand, I'm guessing your pipeline's picking up. When do you reckon that comes through in terms of flaws if you win? And secondly, does that have any impact on your white label or private label arrangement that you have? Does that impact the institutional arrangement that you have in terms of potential flaws?

Could do. Yet to work through that, Siraj. If we're referring to Insignia, I think there are opportunities there in that group and that channel potentially opening up. We do have an existing relationship. and so working through that but I think the sentiment is that if there's a group going to market that's separating from an institution or having over time a minority shareholding from that institution, best interests and the need from advisors to have the best products and platforms will prevail. and the private label we have with that group is not a full menu service, so we'll work through that. But I think the point is that we're seeing shifts in the advice landscape, and that brings opportunities for change and opportunities for us to penetrate markets differently and have access. So, you know, first part of the question, I see it as opportunity. We have to land it, and we have to work through the bigger relationship, and we'll do that.

Thanks, Andrew. Thanks, Jim.

Your next question comes from the line of Nick Burgess from Ordmanet. Your line is open.

Yeah, good afternoon, Andrew and Katrina. Thanks very much. Two quick questions. Just firstly on PARs, it looks like the implied revenue performance of PARs dropped off a fair amount in the second half despite FUA being up over the year and up slightly half on half. A, is that right, that analysis right? And secondly, is there something other than activity levels dropping off that's impacted that?

No, I would say that the past revenue has been consistent, actually since we first acquired the business. So I'm happy to talk to you offline, Nick, but no, it's been consistent year on year. The market doesn't rebound too much because it's broadly a lot of the portfolios at the cap of the fee, so it is very consistent.

Yeah, right. So there wasn't a second half drop off. Okay. Second question, just on your comments around the EBITDA margin in the platform segment with the objective of keeping that at a minimum flat and potentially expanding it. Does that include the small dilutive effect from my prosperity losses this year or those comments were excluding any dilutive impact from that?

So certainly it does depend on the market conditions and flows, et cetera. And I think we gave sort of guidance when we did the MyProsperity acquisition announcement that it would be somewhere between $1 and $1.5 million negative impact to the underlying EBITDA. And so when we look at the platform segment, absolutely we look to maintain and where we can improve.

Including those $1.5 million of losses, yeah.

Correct.

Okay, that's clear. Thank you.

You have a follow-up question from Nicholas McGarrigle from Baron Joey. Your line is open.

Thanks. Just probably a boring one. CapEx was $16 million in terms of IT CapEx in FY23. Should we expect that it's a broadly similar amount going forward, or should we think of it as a percentage of revenue? And then I guess the... to that is should we expect amortization, normalized amortization to track towards that kind of capex number over time?

Yes, so Nick, on the capitalisation, the 16 mil includes the HUB24 and the CLAS and it's after the CLAS change in the policy. Absolutely that, particularly on the HUB24 side, it's been very, very consistent. Obviously CLAS is a full 12 months this year, not expecting large changes there either. So 16 mil is absolutely a normal run rate that you can expect to see for the combined. And as you say, if that continues, then all things being equal, your depreciation and recapitalisation will normalise out and equal over the period of time.

Awesome. Thanks for clarifying. Thank you.

This concludes our Q&A session for today, and I'd like to hand the call back over to Andrew for closing remarks.

Thank you again everyone and thank you for great questions. It's been a great year for us. I certainly look forward to seeing people out on the rounds with Katrina. Thank you for your time and interest and support and enjoy the rest of your day.

This concludes today's conference call. Enjoy the rest of your day. You may now disconnect.