MA Financial Group Limited

Ladies and gentlemen, thank you for standing by, and welcome to the MA Financial Group FY22 Result Briefing. I would now like to turn the call over to Julian Biggins, Joint Chief Executive Officer. Please go ahead.

Thank you, and good morning, and welcome to the FY22 Full Year Result for MA Financial Group. My name is Julian Biggins, Joint CEO of MA Financial Group. I'm joined here today by my fellow joint CEO, Chris Wike. Also in the room for today's conference call is Brian Lello, Chief Financial Officer, and Michael Lennon, Head of Investor Relations. Before we commence this morning, I'd like to acknowledge the traditional owners of the land and pay our respects to elders past and present. I'm pleased to report another record result today, building on last year's momentum and performance. I'll now turn to slide seven and some of the key highlights. Our key financial statistics have all grown significantly over the period. At the group level, underlying revenue exceeded $300 million for the first time, up 41% on the prior period. Underlying earnings per share is up 29% to $0.383, and this underpins an 18% increase in fully franked dividends to $0.20 per share. Over the last two years, the group has increased underlying earnings by 60%, Our dividend has doubled from $0.10 to $0.20 per share. Our divisional metrics were also strong with AUM up 13% to $7.8 billion underpinned by record growth inflows at $1.5 billion. The strength of these flows is obviously very pleasing when considered against the variable market conditions and demonstrates the strength of our diversified alternative asset offering and our unique distribution channel. Residential and specialty loans doubled as we continue to benefit from the relationship between our credit investing and lending and technology businesses. We expect this number to grow quickly as we accelerate our growth in the $2 trillion residential lending market. The underlying performance of Finsure has been very pleasing with the quantum of managed loans increasing to $91.1 billion over the period, up 37%. Corporate advisory and equities delivered a resilient result given market conditions with some timing differences in closing transactions impacting the overall result. The numbers demonstrate that MA Financial is delivering on a well-executed strategy and the diverse nature of the business provides us with the ability to navigate cycles. Turning forward to slide eight and some of the detail around our results. The FY22 result was strong across all group metrics. 41% underlying revenue growth was underpinned by a nearly 50% increase in asset management revenue which was driven by continued growth in base management fees, a strong performance fee contribution, and the settlement of FinShore in February 22. Underlying earnings per share was up 29% after allowing for ongoing investment in future growth opportunities and building out the platform. Expenses increased 36% over the year. We see the level of expense growth moderating as we gain the benefits of scale, especially in the asset management business. MA Financial remains well capitalised with nearly $100 million of cash at the bank at the end of the year and the addition of a $40 million working capital facility adds extra flexibility. I'll now turn to slide 9 which illustrates our track record of growth. The financial metrics on this slide all validate our strategy to pursue growth. We're very focused on scaling the business whilst also maintaining a level of investment to support future growth and this has been reflected in our growth to date. with some periods of very strong growth and periods of consolidation. Now turning forward to high-level divisional performance on slide 10. One of the main highlights on this slide is asset management EBITDA growth of 78% on the prior period, and also the division contributing nearly 80% of the group's EBITDA. We'll save the detail on each division for later in the presentation and turn forward to slide 11. We continue to focus on executing on a consistent strategy At the end of December, our recurring revenue run rate from asset management was $138 billion per annum, up 22% on the prior December. This, coupled with Finsure's run rate of $24 million, provides over $160 million of recurring revenue to start FY23, which provides us with a great foundation to start from. Growing our recurring revenue has been a core strategy for the group from the beginning, and the results demonstrate that we are executing well on this strategy. The uniqueness of our distribution platform delivered again with record gross flows of $1.5 billion and non-migration related flows up 70% to $1.3 billion. In FY22, less than 18% of our gross flows were from migration related investor channels, which demonstrates the diversity in the distribution channels and our ability to adapt to changing conditions. We've always chosen to build out deep operational expertise to manage the assets we invest in, having in-house operational expertise delivers better results to investors. We've done this in both hospitality and real estate and also credit investing, where we have originated over 75% of our credit investments in-house, or over $2 billion of loans for our investors. Our lending and technology platform supports the credit investing team with deep insights and operational expertise that both provide access to new products and enhances decision-making. Over the last decade, we've invested a lot of time and money into building out a scalable asset management business. We're starting to see operating expense growth moderate in asset management as we now have the investment strategy teams largely in place, our distribution platforms scaled and have commenced along the path of digitising our systems. The balance sheet remains well placed to take advantage of opportunities and we continue to actively manage our assets. Over the period, we sold 30 million of Red Cape Securities which provides seed capital to support the growth of new initiatives in the business. We continue to hold an $85 million investment in the fund, and this is a great example of recycling capital to support growth. Talent is key to what we do, and whether it's providing the best amenity, the right development program through MA Academy, or the best performance-based incentive structure, we're always thinking about how to ensure we retain the absolute best team and culture. We spend a lot of time on people and have deep talent across the business to drive shareholder outcomes for long-term. Turning forward to slide 13. The momentum from FY22 has rolled into the first six weeks of FY23. Asset management has had a good start with flows into our funds continuing at a record pace. In the first six weeks, we've received $252 million of growth inflows, which compares to $111 million in the prior period. and our AUM hit $8 billion in February. The credit funds continue to receive strong interest from a variety of investors, both domestic and international, and covering investment platforms, wholesale and institutional investors. We continue to look to open up new markets to distribution and are well-progressed in opening a Singapore office to focus on marketing our products in the region. Within the Asian region, Singapore represents a significant opportunity for us with the target market very familiar with Australian alternative assets. MA Money has commenced offering a suite of products to the broker market and we have seen significant interest from brokers and end customers. In the first three weeks of February, we have settled 20 million of residential loans and currently have over 80 million of loan applications. This is a very good start for MA Money and hopefully bodes well for it reaching scale quickly. Our middle technology offering has been well received in a pilot program and we expect to move to a broader rollout shortly. In corporate advisory and equities, the start of FY23 has benefited from a couple of deals that were largely completed in FY22, although will be booked in FY23. The transactional pipeline remains strong, with one notable engagement being our advisory role on the sale of Sun Cable. Equities have started the year better with volumes up, and general market sentiment more positive than last year. We should support equity capital market activity, which was materially down in 2022. Finally, earlier this month, we were pleased to announce the appointment of Giles Bodie as the new Chief Financial Officer for the group. Giles is a highly credentialed financial executive, and we look forward to him commencing with the business in March. He replaced our current CFO, Graeme Lally, who has been a tremendous asset to the business, and we thank him greatly for his efforts over the nearly six years. We'll hear from Graeme a little later on the financials. Turning to slide 14 and the outlook for the group. In terms of FY23, the momentum in the business is strong and we have invested materially in future growth options. In regards to the various divisions, we make the following comments on outlook and will provide additional clarity as the year progresses. In asset management, we anticipate recurring revenue to continue to grow underpinned by invented revenue growth from last year's inflows. and an expectation for inflows that grow off the FY22 base. Performance fees are expected to normalise in FY23 and return to levels more akin to prior years. Our pace of investment in asset management is slowing and we expect to see some scaling benefits in FY23 and more in FY24 and beyond. In lending and technology, the pieces of the lending ecosystem are largely in place and we're now accelerating the launch of our products and tech offerings to the market. Finshaw continues to attract brokers and grow its loan book, and coupled with our technology offering, is well-placed to grow. From a market perspective, we expect the Finshaw platform to benefit from the $350 billion of fixed-rate mortgages maturing in FY23. In the second half of FY22, we invested significantly in rebuilding MA money and see this investment peaking in FY23 at a $7-8 billion EBITDA loss. We anticipate MA money should be breakeven on a run rate basis in early FY24, and the target for MA money is for it to deliver 15 to 20 mil of MPAT to the group by FY26. We're targeting 1.1 to 1.3 million per head in corporate advisory. Our business has been incredibly resilient over the last 14 years, and our track record of achieving this target or thereabouts is strong. We see equity volumes bouncing a bit in FY23, which should support a strong contribution from our cash equities business. Overall, the business is trading well and we look forward to updating the market as the year progresses. So turning forward to slide 16 and a deeper look into asset management. Before we dive into the financial performance, I just wanted to spend a moment on some of the core philosophies in our asset management division. We are active managers of alternative assets. We've always focused on building deep operational expertise in the assets we manage. Whether it's MA hotel management and hospitality, rep pro and real estate, or lending and technology and credit, we have deep operational expertise in the underlying investment. We manage alternative assets that generally have longer investment horizons that benefit from this operational capability. We're generally not traders of assets. We originate assets, underwrite risk, and then monitor and actively manage the assets to maximise and realise the potential for our investors. We have access to a diversified pool of funding, whether it's banks, balance sheet or third-party investors. We've been focused on diversifying these sources over time to ensure that we can navigate through the cycle. We value diversity from a risk perspective and appreciate that market cycles occur, and the appeal of certain investment strategies will also fluctuate through the cycle. Asset management has been built on these fundamentals, and we believe that it ultimately delivers investors better outcomes in terms of performance, which builds our track record and enhances our reputation. Let's now talk to the financials on slide 17. Asset management has had a great year delivering 78% EBITDA growth year on year. Recurring revenue is up 36% underpinned by significant inflows into our credit funds. The credit thematic is expected to continue to benefit from macro tailwinds and a higher interest rate environment and demand for fixed income products as the population ages. Performance fees are also a highlight for the year with a significant performance fee earned in hospitality as the assets benefited from strong operating performance and transaction evidence supporting valuations. As a note of detail, there have been a few adjustments in the way we classify our credit fund income this year, with the priority income fund revenue and expenses moved from lending to asset management, and the real estate credit origination fees moved from transaction fees to recurring credit fund income. In relation to the priority income fund, the change reflects the fact that the income all relates to the third-party managed fund, and therefore it belongs in asset management. In regards to the real estate credit origination fees, the nature of this revenue stream and the tenure of these loans makes these origination fees more recurring in nature, as the fees will be earned if the funds remain in place, and therefore we've incorporated a recurring credit fund income. Now turning forward to slide 18. Our assets under management continue to grow in a diversified way. Our four-year AUM TAGO is in excess of 20% granite, all organic growth. and we have been able to do so while maintaining or growing our base margin of 1.1% to 1.2% of AUM. Turning forward to slide 19, funding flows were very pleasing over the period, and especially when you consider the uncertain market conditions and how our peers performed. As we mentioned, credit funds attracted nearly $1.1 billion in gross flows over the period, nearly double that of last year. Hospitality flows recommenced after delisting red tape in October 2021, and relaunching the private fund structure. Real estate fund flows were impacted by a number of divestments and our cautious position on the real estate market, especially in the first half of FY22. In the second half of the year, we acquired Allendale Square, opportunistically, and raised $70 million in a closed-end fund. From an investor channel perspective, the diversity in our distribution channel is delivered again. Gross domestic flows are up 26% on the prior year, with broader platform access delivering strong flows into our credit strategies and hospitality being reactivated post delisting. International non-migration flows doubled over the year to be in excess of 500 million. The momentum continues in this channel and it's very exciting to see the success of the strategy to diversify our distribution capability internationally. It really is a very unique and valuable channel. Migration flows were low on the back of COVID disruptions in China and Hong Kong, which impacted processing applicants. Migration flows accounted for approximately 18% of gross flows and 15% of net flows. Institutional flows were $141 million over the year, which was pleasing given we were still in the early phase of addressing this market. Despite this, we are pleased that our track record and investment strategies are appealing to a number of institutional clients. This slide highlights the diversity and uniqueness of our asset management business. Our funds are being established to attract long-term capital looking to invest in alternative asset classes where we have deep operational expertise. Now turning forward to an overview of our AUM by investor channels. Diversity is the key again with the wagon wheel demonstrating that AUM continues to both grow and diversify. So now turning forward to slide 21. To close out the asset management section, we just wanted to spend a moment on how credit investing and lending and technology work closely together to provide a unique offering to our investor base. As we've talked about, the credit investing business has grown very strongly in recent years as we've honed our strategy and built scalable funds with track records. Since 2017, the AUM has increased sixfold and we've witnessed its growth accelerating in recent years. We believe this trend will continue. The ability to originate assets in-house is an important one. Of the $2.5 billion of credit investments, we've originated over 75% in-house. By originating assets, we ensure the risks are intimately understood and our underwriting standards are adhered to. In regards to how this works with lending and technology, we've built our platforms that provide access to products, insights into credit quality and market conditions or real-time data to provide in-depth analysis. We have deep operational expertise in the assets we manage, with the goal being to deliver superior outcomes to our investors. I'll now pass over to Chris to talk through the next couple of sections of the presentation.

Thanks, Julian. So, turning to the lending and technology division on slide 23. During FY22, we continued to make significant investment into our lending and technology platform. The strategy behind this investment is to create a tech-enabled, highly scalable, lending ecosystem that generates fee-based income, spread income, and delivers primary origination investment product to manage funds. And this strategy is consistent with our overall strategic framework that we talk to every year, which is being a builder of valuable businesses in large addressable markets. And the Australian mortgage market is large. It's in excess of $2 trillion. And our lending and technology platform touches over 350,000 borrowers by 2,640 brokers and 80 lenders. And it sees loan segments of around about $3.5 billion per month. As Gillian mentioned, we have a strong history and expertise in credit and lending through the asset management and advisory platforms. Again, I reiterate that these platforms generated over 75% of our $2.5 billion in credit fund investments. This ability to source capital from our managed funds gives a considerable advantage to scale our lending activities in a capital-like manner and manufacture credit products for investors with powerful data and market insights from our lending ecosystem. On slide 24, you can see a graphical representation of how we view the components of the ecosystem that we have built all working together. On the outer wheel, all the various business initiatives we have, These all contribute to delivering the key components of the ecosystem, which are the data insights, technology and service, capital management and efficiency, and asset creation from direct lending. This integrated ecosystem is difficult to replicate and powerful. The components work together to better drive revenue generation across our various businesses, fund management and transaction fees in asset management, fees and white label commissions within FinShore, fees from the middle software, and spread income with MMA money. Now turning to financial performance of lending and technology on site 25. Now it's important to remember that the build-out of this platform continued during FY22, including the $160 million acquisition of FinShore and MMA money in the first quarter. As such, there are a few moving parts behind the underlying EBITDA movement from 21 to 22, which are easier explained by looking at the components of technology and lending separately. So on slide 26, this sets out the underlying financials for the technology platform, which comprises Finsure and Middle. As Finsure was purchased in FY22, and Middle was in product development and cap expanded FY21, there was no underlying P&L impact from this business in the financial year for 21. FY22 reflects 11 months of Finsure performance and some minor expenses from middle as it moved from development stage to operational. We've been very pleased with the performance of the financial business since acquisition. The underlying EBITDA has performed better than expected, driven by strong growth in managed loans, which are up 37% year-on-year, broker numbers, which are up 24%, and the revenue per broker on the expanded broker base marginally up. Slide 27 shows a longer-term graphic of these measures in addition to the broker market share that Finshaw has, which has more than doubled since December 2016 to sit at just over 14% as at December 22. This success underpins our belief that Finshaw offers a differentiated customer proposition for the brokers with value-adding service innovation and technology. Now moving to our lending platform on slide 28. This includes our specialty finance activities, as well as our residential lending operation, MA Money. There's been a fair bit of evolution and investment in this business during 22. So I'll spend a bit of time explaining the two key changes in the year. The first key change was in specialty finance, where we successfully executed our strategy of using our balance sheet and platform to originate assets for our credit funds. The impact of recycling these assets into a credit fund is that less spread income has been made for the year, as the asset returns now go to managed fund investors, hence the decline in spread income from specialty finance from $13.8 million down to $7.3 million. You can also follow the associated reduction in our balance sheet below in the performance drivers. the average invested capital that we had across our lending platform declined from 54 million down to 13 million. Although this capital made less return in absolute dollars, it worked more efficiently for us in FY22. As you can see, the return on average invested capital in specialty finance increased from 19% to nearly 63%. The second key change has been in MA money. The increase in spread income from FY21 to FY22 stems from the acquisition and full consolidation of MA money from March. I'll also call out the expenses increase in FY22, which drove the associated EBITDA loss for the year. The increase in expenses largely relate to the cost of platform transformation with MA money that we incurred. It was around $4 million for the year and has led to the complete brand refresh and digitization of the platform with a revitalized and enlarged team. So a fair few moving parts on this slide leading to the overall EBITDA decline given the loss of income from the asset recycling into managed funds and increased expenses given the investment into the platform. The understanding of these moves hopefully gives insight into the uniqueness and power of our business model. And you can see this more graphically represented on slide 29. The combination of the asset management business and our lending business allowed our loan book to increase 98% to 393 million and our invested capital to decrease by 81% to close the year at $8 million. The ability to tailor-make product for our asset management clients and considerably grow our lending activities in a capital-like model or flexible model is highly synergistic and efficient. I'll also step through the corporate advisory and equities performance for the year. On slide 31, you can see the underlying divisional financials. The underlying EBITDA was down 37% on FY21 to $13.9 million. This was largely due to challenging equity capital market conditions and equity of market volumes. Corporate advisory fees were, however, resilient despite this weaker ACM activity, but ended up down 7%. This represents revenue per executive of $1 million, which is slightly below our target productivity range of $1.1 to $1.3 million. The business advised on $13.9 billion of transactions during the year, up on $5.8 billion from FY21. As you can see on slide 32, activity was broadly spread across industry segments, highlighting the increased breadth of capability in the business following recent key hires. Expenses were in line with the prior year, despite average advisory headcount growing from 51 to 58 employees. We'll continue to develop and grow the corporate advisory and equities business, but we'll remain selective in our approach to hiring, always paying regard. for the maintenance of the revenue per executive target range, cost discipline, and a consistency of productivity in the business over the long term, which you can see on slide 33, expressed in terms of revenue per executive, going back 13 years to 2010. At this point, I'll now hand over to our CFO, Graham Lillo, for a more detailed summary of the financials.