MA Financial Group Limited

I would now like to hand the conference over to Mr. Julian Biggins, Joint CEO. Please go ahead.

Good morning and welcome to the FY24 result for MA Financial Group. My name is Julian Biggins, and I'm Joint CEO of the company, along with Chris Wyke, who is sitting next to me. Also in the room is company's Chief Financial Officer, Giles Boddy, and Michael Leonard, Head of Investor Relations. Let's get straight into the result and some of the key highlights on slide six. We're really pleased with the progress of the company over the last year. In FY24, we delivered gross flows into our investment strategies of $2.7 billion. This includes the $500 million subscription into the real estate credit vehicle, which was allocated in September of 2024, and $2.2 billion of gross inflows for the year. This is up 27% on the prior year. Flows were again dominated by strong growth in the domestic channel, which has been an ongoing theme for us since diversifying into this channel in 2018. MA Money's growth continues to accelerate. Its loan book increased 155% over the year to $2.1 billion and the business turned a small profit in the second half. The continued growth trajectory of MA Money is very pleasing given the investment over the years and provides another validation of how we invest to create long-term shareholder value. Finsure expanded its market share as its technology offering, coupled with a strong growth culture, continued to outperform its competitors. We believe that the divide between Finsure's offering and its competitors continues to widen, and that bodes very well for Finsure's future. Over the last 12 months, we've further diversified our asset management distribution channels meaningfully. Diversifying and growing distribution channels is a core focus as we attempt to open up new growth opportunities. Typically, new channels involve new product launches, such as the MA Credit Income Fund and the Real Estate Credit Vehicle with Warburg Pincus, where we're at final stages of closing out $1 billion of subscriptions. Next month, we'll list the MA Credit Income Fund, which offers investors a diversified exposure to our private credit offering. The significance of this fund is twofold. Firstly, it provides the group with access to the deep-listed market, including retail investors, and further diversifies our capital sources. Secondly, it provides our clients with a single fund exposure for our private credit offering. This simplifies our business from both a product offering, distribution focus and an operational perspective. MA1 is available in an unlisted format as well as providing investors access to our private credit platform as opposed to specific product. We strive to continually simplify our business. We think this is good for strategy. At the half year, we talked about the benefit of the Warburg-Pinkers partnership in validating our investment capability and materially opening doors with institutional capital. We have now experienced this benefit and whilst institutional capital takes longer to commit, we believe that our path forward is much clearer now. We remain confident that the remaining $500 million of the partnership will be committed to shortly and look forward to updating the market. All the good work of many years delivered strong second half earnings growth of 35% compared to the first half and we see a continuation of this momentum into FY25. Now turning to the following slide and some of the macro trends that we are trying to play into. On this slide, we take a step back to focus on some of the macro trends that we expect to provide significant long-term structural tailwinds. As you can see on the slide, we have a number of investments or business plans playing into these tailwinds. We think it makes sense to build businesses around those macro tarwinds and have consistently followed this philosophy over the years. We all know the strength of the Australian superannuation system and the strong tarwinds that a mandatory allocation provides for the domestic asset management sector. Whilst this is not a unique observation, it is a very significant tarwind if you can get it right. In relation to product, we've focused on defensive yield as this plays to the ageing population and the transition from investment phase to retirement phase. We also believe that products with more defensive characteristics are good for our long-term proposition. Another high conviction thematic is the Australian residential market. The investment fundamentals, supply and demand, have always been very attractive to us. Investments into this thesis are multiple, including FinShore, MA Money or our real estate credit business. We also focus on alternative assets or private asset classes. We believe an asset manager has to add significant value through origination capability, due diligence and asset management capabilities. We believe that direct sourcing origination is key to deploying capital and we've invested in a number of unique platforms that provide investors with unique access to certain asset classes. Think pubs, marinas, real estate, credit and structured finance. Private wealth in Asia and the region continues to grow very quickly. Australia is well placed to participate in this growth as we have demonstrated. the funds that have flowed to date remain a drop in a very large ocean. So turning forward to our FY26 targets and how we are tracking. These targets were first published in August 2023 at our half-year result, and we were very pleased with how the company is tracking against them. At the end of FY24, AUM sits at $10.3 billion, which was up 12% on the prior year. This excludes both the listed investment trust and the $1 billion Warburg Pincus residential partnership, which if closed and deployed would place us north of $11.5 billion. Both Finsure and MA Money are quickly growing and are on track to make their targets. The corporate advisory market is improving and we continue to expand the coverage, including the hiring of the metals and mining team last year, who have been a great addition to our platform and have well and truly hit the ground running. In early 2025, we've also added a new senior resource in the power and utility sector. As the group EBITDA margin whilst lower year-on-year at 28.4%, if adjusted for our strategic spend, would be close to 35%. When we released these targets, we had MA money on the runway, although the US private credit platform was a subsequent addition to our strategic growth initiatives. Given the specific nature of the investment spend, we view the EBITDA margin target as a measure against our mature or established businesses. and therefore believe that adjusted 35% EBITDA margin is the right one to benchmark against the 40% target. We're very focused on expense management, although equally on rewarding our most valuable asset, our people. Obviously investment spend is important and we'll continue to provide a transparent view into how much we're spending and what the opportunity is. The objective of the spend is always to create new revenue streams in the future. So the foundations are set for the next two years and we look forward to updating the market as we aim to either deliver on or outperform our targets. Our vision stretches far beyond FY26 and we are very optimistic over what can be achieved in the medium and long term. Now turning forward to some high level performance stats on page nine. The clear standout on this page is the continued growth across all the operating metrics for each of the businesses. All areas are performing very well. AUM up 12% to $10.3 billion in the period, underpinned by record gross fund inflows. Finsure's managed loan book increasing by 26% to $139 billion, over doubling what it was when we acquired the business three years ago. MA Money's loan book increasing one and a half times over the year with growth accelerating. Corporate advisory revenue up 16%, despite the average headcount being 8% lower year on year. These numbers really capture the momentum in the business which has been a consistent thread over the last three or four years. Turning forward to the financial result on slide 10. I'll leave the result with you to digest, although it's consistent with expectations and where we saw the business heading this year with strong growth in the second half after a period of consolidation and investment. Strong revenue growth was prevalent across all of our divisions, whilst investment spending supports future earnings growth impacted expenses. As I mentioned earlier, MA money generated a small profit in the second half, which bodes well for a stronger contribution in FY25. Recurring revenue continues to build, and as MA money scales, this will contribute to a stronger recurring earnings base as well. Turning forward to slide 11 and some commentary on our strategic spend. In FY24, the majority of our investment spend related to MA money and the US credit platform. We'll touch on the case study for MA money on the next slide, although clearly we're very happy with its progress this year and what the future holds. The MA brand is an important asset for the group and we continue to invest in advertising to build its profile. Establishing the listed MA credit income fund will give us broader exposure, especially in the retail and listed markets. It opens a new frontier for the group, which we think can be very meaningful. It may also lead to other products in the listed space where it makes sense. In the US, we see the opportunity as being very material, although we are obviously only at the start of the journey and need to be prudent in our investment approach. We have product approval in the US, probably three to six months behind our initial expectation, and have been approved by one of the major US retail investment platforms. We find many similarities in the US to the advised network in Australia and are following a similar approach. We have our distribution team in place and are working with some initial investors to commit to the fund and are hopeful that we'll have some early wins. We like to think that we're at or near maximum earnings headwind in FY25, and from here, revenue will start contributing, reducing the earnings headwind. The middle technology has been further integrated into our financial offering and is currently processing around $100 million per day in applications. This represents about one quarter of all loan applications which is gaining the attention of the retail banks. Remember, we do about $6 to $7 billion of applications per month via FinShore. In this regard, we have commenced project integration with our first Australian bank, which will result in middle being the customer processing technology embraced by that bank for their customers. This is a very important gate for middle, as we have meaningful discussions with a number of banks on similar fronts. It's too early to make projections, although we feel like the middle technology has passed another important milestone. Core to our DNA is innovation and growth, and sometimes that takes investment. Our principle has always been measured investment and prudent risk management, and we have a 16-year track record of delivering on this approach. Turning to the next slide and MA Money. The MA Money investment grew from the strong belief in the Australian residential market and our unique ability to leverage capital from the asset management business alongside distribution and data from FinShore. The investment aligns with our approach of identifying large addressable markets where we have capability or edge that can differentiate us from the competition, which provides a path to establishing a sustainable, valuable business. The numbers on this page tell the story of MA Money as it went through trough earnings in second half 23 before revenue started to contribute and offset the initial investment. This is how every story starts, including our founding, the establishment of MA asset management, building a private credit business or diversifying our distribution base domestically. In the US, we believe we are through the front end investment phase and revenue will start offsetting the cost base as we move forward. For MA money, we are well and truly through the model acceptance phase, including product demand from consumers. The strategy moves into a scaling phase and we expect to see the benefit of that turn into material earnings over the coming two years and beyond. MA money is one of many stories that have followed this path at MA and demonstrates our ability to identify opportunities and build meaningful businesses over time. Now turning forward to slide 13. This slide shows that after a period of consolidation and investment, our financial metrics are starting to materially grow again. The skew to the second half is expected to be present in FY25 due to the seasonality in our business and the investment into the US private credit platform being front-ended. Turning forward to slide 14 and some quick highlights from the division. As I've mentioned, asset management flows continue to be strong, underpinned by performing investment strategies across private credit and increasing interest in real estate. Net flows are up 3% over the year as we dispose of a number of assets and a greater portion of our AOM is in open-ended liquid strategies, which resulted in higher redemption rates. These numbers exclude the $500 million subscription for the real estate credit partnership that we received in FY24 from Warburg Pincus. Recurring margin increased into the second half to 161 basis points, largely reflecting a skew in the second half in terms of real estate credit deployment. The importance of diversifying our distribution channels should not be underestimated when you consider the growth options for the group. Further opening up the institutional channel with the establishment of the Warburg Pincus partnership and accessing the listed ASX market are important milestones. In lending and technology, MA money loan bulk growth accelerated through the year. We're very excited about MA money, although I'm mindful of how competitive the residential loan market is and how market conditions can change quickly. NIM improved to 1.3%, which is consistent with expectations. We'll continue to balance loan growth with NIM, and depending on the opportunity, may flex up or down. Finsure continues to grow market share, adding 600 brokers to its platform, taking the total count to 3,746 brokers. It's been a fantastic continuation of growth for Finsure as it dominates the growing residential broker market. Corporate advisory had a good year in difficult market conditions with revenue up 16% despite a decrease in headcount. The corporate advisory result was largely underpinned by M&A activity and capital solutions advice with ECM activity improving off a very low base. In summary, all divisions delivered very strong results in an uncertain market and the strength of the diversified business model is evident here where they work together for the greater good. Turning the post balance date performance on slide 16. It's been an exceptional start to FY25 with gross inflows of over 600 million in the first seven weeks of the year. We've convinced marketing the US private credit fund in the US and are hopeful of some early wins. The hospitality business has gone from strength to strength with the redemption queue now cleared Asset level performance being very strong, underpinning 25% growth in distributions for Red Cape investors over the last 12 months. The performance of this fund through a very tough period is something we are proud of, and again reflects our proactive nature to deal with markets as they change. Very few real estate-backed funds could claim that they have managed the interest rate cycle as well as Red Cape, and we have put growth back on the agenda for this fund. In lending and technology, growth momentum continues for both Finsure and MA Money. As announced last week, we closed a $700 million RMBS public term issuance, which was priced very competitively, which reflects the quality of the loan book and MA money platform. In corporate advisory, we've started the year well, although it's very early days. We recently undertook the $290 million capital raising on behalf of GDG and concluded the accolade transaction with Pernod Winemakers. We're looking to hire in this business selectively and only yesterday announced the commencement of an NB to cover power and utilities. Whilst we're positive about the advisory pipeline, market conditions remain variable and timeframes elongated to close out deals. Turning forward to slide 17 and some commentary on the outlook. We continue to see growth in our flows, especially with new markets or channels opening up for us. Our recurring margin is expected to improve in FY25 to around the second half FY24 run rate. Transaction-based revenue remain uncertain and below trend, especially performance fees. In relation to the Warburg-Pinkers partnership, we're in very progressed discussions with a number of institutional investors that represent in excess of the remaining 500 million of the initial target. We're confident of this being achieved shortly and are well-progressed in regard to commencing capital deployment. We expect MA money to continue on its path to 15 to 20 mil of NPAT in FY26. although the investment remains front-ended and therefore growth in FY25 will not be linear. We continue to invest in Finsure with a focus on technology, which we believe differentiates us from the competitors. We're continually looking at this space through a technology lens, including the application of middle, our automated loan processing platform. In corporate advisory, consistent with the past, we look for selective hires where we can find high quality bankers that can be effective in our platform. Strategic investment spend is expected to reduce to $10 million in FY25 from $13 million last year. Approximately $8 million of this is earmarked for the US private credit platform, where we've largely put the infrastructure in place to raise funds. And with the fund now approved for distribution, the path ahead is securing commitments for the fund. As we've talked about previously, we believe the US is a very large opportunity for MA Financial. So to summarise our outlook, we believe that the company continues to gain momentum in the verticals it has chosen to specialise in, and every year that passes strengthens our market position. This bodes well for the future performance of MA Financial and its shareholders. The momentum in the numbers is a function of the quality of the people in the business delivering on a clear strategy that builds long-term sustainable value. I'll now jump forward to a few important slides before opening the call up for questions. On slide 22 we talk to AUM growth. The only call out on this slide is that our AUM today would be around $11 billion if we included the MA credit income fund and the $500 million Warburg Pincus allocation to the real estate credit vehicle. Sitting here today at around $11 billion and the breadth of our products and distribution channels provides us with great confidence in hitting our FY26 AUM target of $15 billion. Turning forward to slide 23. The numbers on this page demonstrate that we have continued to diversify our distribution channels and product offering. The $2.7 billion of gross capital raised, including the $500 million subscription to the real estate credit vehicle, reflects a very strong year for our distribution teams. The allocation to private credit is not surprising, given the strength of demand for that product and our market-leading position. As I have mentioned in the past, the ability to originate good deals is the key to sustaining this momentum long-term. As you would have seen in the press, there are definitely deployment pressures in the real estate credit market, and maintaining robust and prudent underwriting decisions is key to the long-term performance of that business. Our Marina strategy has continued to attract capital through the year, and we're probably not too far off being fully funded for that strategy. The Growth Ventures team continues to attract investors into the Sustainable Future Fund, which is a tech-led credit investment strategy. The fund currently has $135 million invested and we see this continuing to gain momentum with investors. In regards to redemptions, the middle of FY24 saw a peak in liquidity requests, and we've seen this ease somewhat into the back end of FY24. Notwithstanding this, net flows as a percentage of gross flows are around 60% at the moment, which is slightly better than the 50% at June, although slightly lower than the 70% we were tracking at before the growth of our private credit strategies accelerated. we see the 60% ratio as more normalized. Our distribution team is working really well together across our product classes. Now turning forward to lending and technology with our first stock being Finsure on slide 32. The Finsure business keeps going from strength to strength. The growth in the business since we acquired it in February of 22 has been phenomenal. The market share of Finsure has expanded by over 5% since we bought the business and the loan book has more than doubled. The strong focus on customer, broker and technology is a winning formula for Finsure in a market where the end consumer continues to recognise the strength of the broker offering. As we continue to invest in technology, we expect this business to strengthen further and we're excited about the potential of middle to change the consumer experience significantly in coming years. Turning forward to slide 34 and MA money. The numbers on this slide speak for themselves. The MA Money loan book has grown from $829 million to $2.1 billion over the year. The acceleration of growth over the year has been significant, and we see this continuing into FY25. Importantly, the MA financial capital allocated to MA Money represents only 1.65% of the total loan book, which reflects our focus on a capital-light model and the ability of our asset management business to invest in MA Money products. In this regard, we are always balancing earnings and capital to achieve the optimal outcome for the platform, although one significant differentiator for us is that we have the three components being FinShore, asset management and non-bank lender under one umbrella of ownership. A very powerful ecosystem as you can see through the results. Turning finally to corporate advisory and equities on slide 36 before closing out. As I've mentioned, corporate advisory had a good year generating 16% more revenue from nearly 10% less people. The year was largely focused on private and public-to-private M&A and capital structuring mandates. These transactions tend to have longer execution timeframes than ECM transactions, although are clearly less reliant on equity market conditions. Equity capital markets were subdued although showed some improvements late in FY24 and the early parts of FY25. Turning to slide 44 where we talk to our medium and longer term investment strategies. We're a builder of valuable businesses in large addressable markets. We focus on scale and diversity in distribution channels. We diversify our source of capital and we have a strong balance sheet to support growth initiatives. Our advisory capabilities provide technical edge and our stable and experienced management team is strongly aligned with investors. In closing, all of our businesses have had great momentum and have had a great start to FY25. We continue to see strong growth coming through FY25 as a result of the significant momentum in the business and the investment in MA money starting to positively contribute to earnings. We continue to invest in the business for the future, as we have always done, and the US private credit business is our priority in the near term. We believe that we have a great portfolio of businesses that are complementary, although also provide investors with diversification in different markets. We are focused on building long-term, sustainable value for our fellow MA financial shareholders. On behalf of the management team, we're very proud and pleased with the performance, and we look forward to executing our consistent strategy in the years to come. With that, I'll hand back to the motor rider for Q&A.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Today's first question comes from Glenn Wellam with Trim Capital. Please go ahead.