I would now like to hand the conference over to Melanie Hill, Head of Investor Relations. Please go ahead.
Thank you. Ladies and gentlemen, good morning. My name is Melanie Hill. I'm Head of Investor Relations at Australian Ethical. I would like to begin by acknowledging the traditional owners of the country on which we work, the Gadigal people of the Eora Nation, and recognize their continuing connection to the land, waters, and culture. We pay our respects to their elders past, present, and emerging. On behalf of Australian Ethical, welcome to our results presentation for the full financial year ending 30 June 2021. Before we get started with the presentation, I would just like to reiterate some brief housekeeping points. Note that today's presentation is being recorded, and a recording will be made available on the Australian Ethical website. The slides used in the presentation are also available on our website. We may also have media in attendance this morning.
I'm joined this morning by John McMurdo, CEO and Managing Director of Australian Ethical, and Mark Simons, our CFO, who will be sharing our results with you. The agenda this morning is as follows. John will go through the business highlights. Mark will cover off the financials and give an investment update, and John will finish with the business update. Just another reminder that there'll be an opportunity for Q&A at the end, so please submit any questions via the ask a question box. I'll now hand over to John.
Thanks, Melanie Hill, good morning, everyone. Let me first acknowledge that as we deliver this presentation, half the country is currently locked down, on behalf of Australian Ethical, we do hope you're all keeping safe and well. It's very gratifying this morning to share with you confirmation of another record-breaking year. In fact, record-breaking on nearly every dimension, despite the ongoing challenges posed by COVID. I want to acknowledge at the very outset the extraordinary efforts of the Australian Ethical team, many of whom are listening this morning, in achieving the results Mark Simons and I will now share. Mark Simons will go through the financials shortly, these are, of course, a very pleasing set of highlights.
At our half year results, I said the pandemic had reinforced our investment philosophy and shown that ethical investing can deliver strong investment outcomes with positive impact in many market conditions. Six months later, this has been further reinforced. Our ethical approach is continuing to gain popularity for its inherent tilt toward quality, resilience, and long-term capital appreciation. Particularly pleasing were record net flows, up a full 56% on the prior year to over AUD 1 billion. These flows, combined with strong investment performance, have driven material uplifts in operating revenue, NPAT, underlying profits, all at new record high levels. Notably, we've ended the financial year with AUD 6.07 billion in funds under management, up 50% in a single year.
What we're seeing is a convergence of factors that are driving our growth, including the seismic shift in consumer behavior, the ongoing relative outperformance of responsible and ESG funds, combined with the results of the strategic investments we've made in our business to strengthen investment capability, distribution, and brand awareness. Our company results are underpinned by the continuing outperformance of our award-winning investment team. The team continue to produce excellent results for our investors, testament to our unique investment process and our experienced team of investment and ethics professionals. In November, we were recognized by Morningstar as one of just six global leaders for our commitment to ESG and the only one in Australia. The report singled out our Australian Shares funds as setting the ESG standard for Australian domestic equity strategies.
To receive global recognition for our authenticity is especially important as ESG becomes the biggest buzzword in investing and even the most cynical of investment managers jump on the bandwagon as new products get launched and older funds are rebadged to sustainable. The raft of local accolades reinforces our position as Australia's leading ethical investor. Whereas once an ESG award might have been seen as alternative or even quirky, as competitors and other investors rush to capitalize on this method of investing, these ESG awards cement our established leadership in what has become the fastest-growing part of the sector. Where investing is at the head of our business, ethics is undoubtedly at the heart. With ethics embedded in the investment process, excellent investment performance goes hand in hand with positive impact for people, the planet, and animals.
Here lies the real point of differentiation for Australian Ethical, a competitive advantage that's hard to imitate. Other companies may talk about the positive impact they make, is it really at the company's core? Does it add meaning to the day-to-day experience of their employees? Does it result in real-world outcomes for an expanded group of stakeholders? Too often, these efforts feel tangential, with purpose statements so generic that they do little to change business as usual. Our success and our impact prove that when purpose is part of your corporate identity and embedded in your strategy and your governance, it's possible to deliver impact that can be measured and managed. Our market-leading returns come from investments in companies that are less carbon-intensive and more impactful towards the UN Sustainable Development Goals.
Our inimitable ethics research team, led by Dr. Stuart Palmer, engaged with over 500 companies last year, lending our ethical voice to support others' initiatives, engaging with companies directly, and filing and voting on shareholder resolutions in pursuit of a better world. When we began in 1986, our constitution provided that we would give 10% of profits to charitable, benevolent, and conservation causes. Thanks to this virtuous construct, it means the better we do as a company, the more we can support great causes. This year, the Australian Ethical Foundation has allocated a further AUD 1.8 million for donation to charitable and philanthropic initiatives at a time when the pandemic continues to disproportionately affect the world's most vulnerable. We're also using the power of philanthropy to ignite early-stage, high-impact ventures and have recently launched a new visionary grants program, which is open and looking to fund innovative climate solutions.
While we do this for genuinely altruistic reasons, it's another proof point of our authenticity that sets us apart from others. Mark, can you update on our financials and investment performance?
Thanks, John. Good morning, everyone. I'm delighted to run through the FY 2021 financial highlights, another incredible year. John has already run through some of the key highlights. I'd like to focus on some other excellent financial results. Net profit after tax attributable to shareholders was up 19% over the last year. This was driven by strong revenue growth, with operating expenses growing at a similar rate as we continue to reinvest in our business. Operating revenue was up 18% to AUD 58.7 million, which included a performance fee of AUD 2.9 million that was earned on the Emerging Companies Fund, which significantly outperformed its benchmarks. Adjusting for this performance fee, our operating revenue was up 21%. This strong revenue growth has been driven by strong year-on-year fund growth of 50%, partially offset by impact of fee reductions in FY 2021 and late FY 2020.
In the year, we had a deliberate increase in our operating expenses to drive business growth. We invested AUD 4.6 million in the business through various initiatives, with total operating expenses up 18% to AUD 43.6 million. Excluding the impact of this investment, operating expenses were up 5%. It's pleasing to see how our investment is yielding strong results in flows and fund growth. A final dividend of AUD 0.04 per share has been declared, plus a AUD 0.01 special performance fee dividend. This brings total dividends to AUD 0.08 for the year, representing a 33% growth over the prior year. We have maintained a net profit margin before tax of 26%, or a cost-to-income ratio of 74% after performance fees during this year. In the year, we passed through another fund milestone, ending the year on AUD 6.07 billion.
Since 2017, our fund has grown at a cumulative annual growth rate of 30%. Our portfolio investment performance for the year was just below AUD 1 billion, at AUD 0.99 billion, as compared to negative performance last year, impacted by COVID market shocks. Our advisor channel now makes up 20% of our fund, up from 19% last year, and passed through the AUD 1 billion fund milestone, ending the year at AUD 1.2 billion, 54% growth from last year. Advisor net flows grew by a huge 168%. This uplift follows our targeted investment in growing this important channel. Direct fund now represents 73%, compared to last year at 74%. On a product view, superannuation makes up 64% of the portfolio. However, with managed funds growing at a faster rate in line with our strategy, this is down from 67% in FY 2020.
This is to be noted, 51% of our portfolio is invested in domestic entities. Customer numbers now exceed 70,000 and grew by 23% in the year. managed fund customers increased to 31%, and super members expanded by 22%. Platforms fund grew 75% in the year, and I note each platform is regarded as only one customer. We are starting to see strong traction from our recent investments in the business. managed fund net flows were up 122% to reach AUD 420 million, whilst in super, net flows were AUD 610 million, a 31% increase over last year. These flows were achieved despite AUD 41 million in outflows relating to the federal government's changes to early release super conditions. We continue to have one of the lowest super outflow ratios in the industry. We have customers who love what we stand for and know that their money is doing good.
Our average revenue margin for the year was 1.04%, following fee and threshold reductions implemented in October 2020 and June 2021. At the end of June, our revenue margin was 1%. Our fee strategy is to ensure ethical investing is as accessible and competitive as possible. We'll continue to make strategic fee reductions to share the benefits of scale with current customers, along with expectations that this investment will assist with new customer flows. While ensuring our fees are competitive, we believe returns and impact are even more important. Our 18% revenue growth is driven by the increase in our fund. Fund-based revenue, pre-performance fees, increased by 21%, compared to the average fund growth of 31%. Comparing revenue with last year, our growth has come from both managed funds and super fund-based revenue.
The performance fee generated by the Emerging Companies Fund, while slightly less than last year, was still a very strong AUD 2.9 million. FY21 operating expenses increased 18%. The primary driver of this cost increase was our strategic investment to strengthen our distribution, marketing, and investment team capability, our refreshed brand identity, and the successful execution of strategic projects to enhance the customer experience. The increase in fund-related costs was driven by growth in our customer base and our fund, and costs associated with implementing regulatory changes. The increase in external and other costs relate predominantly to increased third-party costs, depreciation, and insurance premiums. Seasonally, we continue to strengthen our balance sheet with no debt and a strong cash position. We've been through many of the metrics that you'll see in the next few slides.
However, it is worth noting the strong compound annual growth rates, referred to as CAGRs, across all these metrics. Our underlying profit, which takes out one-off items, has a four-year CAGR of 27%, or 22% if exclude the impact of performance fees. Our shareholder dividend has grown at 32% CAGR over the same period. I'd like to now touch on the excellent investment performance in both managed funds and superannuation in our next three slides. Starting with our Balanced option, which is our wide super product, it has achieved top quartile performance over three, five, and seven years, and was the only retail fund to make the top 10 list for 10-year performance. Our Australian Shares, which returned 43.1% for wholesale investors this year, and has a track record for outperformance for all time periods for more than 20 years.
Our emerging companies fund, which returned 51.1% for wholesale investors. It is also worth noting that D iversified Shares, Australian shares, and Emerging Companies Funds have all produced top quartile performance for periods of one year and longer. Because we only invest ethically, it means our customers can be sure that regardless of the product they're in, they're making their money matter by investing for a better future. In keeping with our ethical charter, our largest sector positions this year align with the forward-looking sectors of the economy in areas where our team has deep domain expertise. We've seen the healthcare and information technology sectors make significant contributions to our outperformance of our funds with companies such as Cogstate, Immutep, and Janison doing well, as well as Pilbara and Orocobre, which are important players in the transition to renewables.
I'll now hand back to John, who will go through the business update and outlook.
Thanks, Mark. As a board and management team, we're acutely aware that the business and global context we operate in continues to evolve, and quite quickly. two weeks ago, the IPCC released its latest report, which laid out in no uncertain terms how the window of opportunity to address climate change is diminishing. Faced with this code red for humanity, never has it been so important or urgent to invest for a better world. While we're seeing a revolution in the way people invest, quicker progress is needed. We must make ethical investing the mainstay of our economy rather than an option. In last year's annual report, we laid out our medium-term strategy. Our ambition is to remain as Australia's leading responsible investor as we move towards a low carbon world, and we identified four strategic pillars to help us get there.
Success, we said, would depend on how we turn our ideas and ambition into tangible solutions that generate financial returns and a sustainable future. 12 months on, Rather than delaying or negatively impacting our ambition, the ongoing pandemic and other global challenges have accelerated our plans. Unlike other investment managers, we are emerging stronger from the pandemic. Strategically, we've seen the green shoots we reported in our half year results continue to grow, which gives us confidence about the path our business is on. These green shoots are evident across our business, from operations through to investments, and from marketing through to customer services. These wins, combined with the extraordinary momentum we're seeing, tell us now is the time to extend our leadership. There's a confluence of factors that point to the opportunity that is ahead of Australian Ethical.
We've seen our addressable market frankly explode on every measure and every independent research study we see. Today's investors are increasingly seeking access to strategies across asset classes that are designed to deliver positive impacts for people and the planet, as well as deliver investment performance. With climate change driving activism at all levels, capital markets are getting behind finding viable solutions, and the economics of climate change are shifting for the better. As Australia's largest pure play ethical investment manager and globally recognized for our approach, we have a considerable head start over our more recently converting competitors. As a purpose-driven organization, we have an unmatched authenticity in wanting to invest for a better world. These factors alone, combined with our products, people, strong balance sheet, and positive momentum, already position us for success.
We will be more ambitious to safeguard and grow our market share on what we know will be a more heavily contested market. To future-proof our leadership position and amplify our positive impact, we are pursuing an aggressive growth strategy. Our goal is to build a much bigger, more impactful business, and we will be reinvesting strongly in particular aspects of the business to achieve this ambition. I'm certainly not attempting here to give 5-year earnings guidance, but what I can say is that we've enjoyed 30% Compound Annual Growth over the last few years, and even better in the last 12-18 months. We clearly have great momentum. Of course, continuing that growth rate off a higher base is more challenging, and we do expect competitive pressure to intensify. Our addressable market has exploded, a once in a business lifetime explosion.
With our current market positioning and planned investments, if we execute well, we do believe it's possible to continue our current growth trajectory and grow our business three to five times over the next four or five years. Australian Ethical may be 35 years old, a veritable veteran in responsible investing terms, but we are certain that our biggest opportunities are yet to come. We will move at speed to capture the full growth opportunity for our stakeholders in the face of imminent competition. As such, our expense growth in the short term will reflect the reinvestment we will make into our business to realize these ambitious growth aspirations. We expect profit growth to be modest during this time. Our baseline assumption is that we will continue to grow profits, probably at high single digits to low double digits.
In the near term, capturing growth is our primary objective, and that's primary over short-term profit growth. We do expect to see a strong increase in funds under management and revenue. Looking out to the medium and longer term, we expect to see higher levels of profitability and operating leverage from achieving great scale as we realize the anticipated benefits of investing in our business. Like all fund managers, we remain highly leveraged to financial markets at a time when COVID is still a concern and compounded by a slow vaccine rollout in Australia. We do expect market volatility to continue. Any performance fee generated by the Emerging Companies Fund, of course, is not guaranteed year on year.
As Mark said, we have a strong balance sheet, strong profitability, and even more importantly, we have a 35-year head start on the other managers who are rushing to capitalize on this moment. We are committed to leveraging our leading position and continuing to drive positive impact for people, planets, and animals at a time when it's never been so urgent. Thanks for joining us, everyone. Mark and I are very happy to take questions, which I'll remind you can submit via the text box on the webcast.
Thank you, John. My name is Tom May. I'm the Company Secretary. We've got a couple of questions, and I'll just advise everyone that we will be putting responses to these questions on the website, including, of course, this recording. John, first question comes from one of our longstanding shareholders who, I won't name, but I thank her for her support. It's, what are we doing to counter the increasing use of ETFs in the investment market?
Yeah, it's a good question. We are seeing growth in ETFs. No question about that. It's interesting to understand why. Not all ETFs, of course, are equal. Some are passive, some are certainly, probably we would argue not true to label in terms of the core underlying ethical or responsible investment approach. As we see growing customer demand for ETFs, it's certainly something on our own product development roadmap. We do expect within a few months or certainly a 12-month horizon, assuming that client demand continues, most likely to launch our own solutions in that arena.
Thank you. Another question from the same shareholder. Can the Australian Ethical Foundation look to use some of their annual distribution of funds to support protective covenanting of land for the environment?
I think it's a great question, listen, we are so excited about the Australian Ethical Foundation and the opportunities to support great causes. That particular thematic is certainly one which is on the minds of the board of our Australian Ethical Foundation. Again, I would expect us to be active in that sort of domain.
All right. Well, we don't have any more questions outstanding, but we'll stay online for just a short while to allow people to submit anything that they have in mind. Okay. Another question's come in. It's just simply, where do you see the most potential for future return? I'm going to ask John to answer that.
Look, our growth strategy will see us reinvest, as I said, where we see the most potential and future return on shareholder capital. This means building on the green shoots we're already seeing and accelerating the strategic investments we've made to date. We have a planned pipeline of initiatives for each of the strategic pillars we've identified as being key to our ongoing success. Over the short term, our focus will be on deepening our investment capability, expanding our product offering, growing our brand awareness, and fully digitizing and upgrading the customer experience, and significantly expanding our newer customer segments. We're just excited about the opportunity. As I said, with the exploding interest in this way of investing, we see real opportunity to really sensibly invest shareholder capital well and capture growth that will deliver great returns for all stakeholders.
We do imagine that creates a tremendous opportunity for us to grow the business and leverage the scale that we already have.
Thank you, John. We have a question which I believe is directed at CFO Mark Simons. Do you have any comments around the growing cash on the balance sheet?
Thank you for that. Yes, cash has grown. It's up to AUD 27 million. Having cash is obviously a good thing. We are mindful of how we return that back to the shareholders in the form of dividends. We've got a dividend payout ratio of 80% at this stage. That cash gives us opportunities. As we've said, we're reinvesting to capture the growth opportunities. We want to keep that cash to enable us to give a great return to our shareholders. We're obviously focused organically. We would consider other opportunities as they arise with that cash.
Okay. Thank you, Mark. There's two questions that are broadly the same, so clearly interest in what products we're expecting to launch over the next 12 months.
Yeah, it's a great question. As I said, we've got a growing product roadmap. The consumer testing and research we do says there's great interest for a variety of solutions we feel well-equipped to deliver on. Within the next literally few weeks, you'll see us launch a high growth opportunity within the superannuation environment and also leveraging our award-winning domestic equities capability. We'll be launching a high conviction fund. Very pleased to deliver solutions investors, advisors, and customers have been asking us for.
Again, we have two questions that have come from independent sources, but around the same theme, and they're both asking about whether M&A is part of the growth strategy to hit the FY 2025, 2026 fund targets.
I'll take that. As John has mentioned, we are reinvesting for growth, and that is an organic strategy. We're looking out, and we see the multiples of our business three to five times. We can see a pathway quite clearly up to the three times. We will consider and are considering opportunities as they arise. When it comes to inorganic, we do look at what may add value to the shareholders.
Yeah, look, let me add to that. The board has a willingness and preparedness to execute on inorganic opportunities if and when the right opportunities present themselves. Clearly, we have the financial capacity and balance sheet to entertain those sorts of ideas. That said, we are even more excited about the organic opportunity for us, given, as we said, that explosion in the addressable market and the momentum we have in our core business. Nice to not have to need to do M&A but have the ability to do that where it accelerates our opportunity and our growth journey.
Okay. Mark, I might throw this one to you. It's about the SMA. How has that performed over the last year?
Thanks, Tom. The SMA is an additional product that we've added to our product suite. It is a product that the advisors like to sell. The returns on the SMA have been fantastic. The actual fund growth is still in its early stages, and we believe that it's a great product to have to on-sell our great ethical investment.
Great. Thank you. There is a question about targeted advertising by competitors in this particular space, the responsible investing space.
Yeah.
How do we intend to deal with this sort of competition?
Look, we expect, as I said, competition to intensify. You don't get this sort of seismic shift in the addressable market and those interested in this style of investing and competition not look to participate in that. In many respects, we welcome it. Where those competitors are bona fide in their responsible or ethical approach, we think that's good for the market to have a strong ethical approach. We do, of course, warn and counsel about greenwashing and those who will dress themselves up as something without perhaps the authenticity and DNA of a company like ours with 35 years of track record in this area. Look, we are just delighted with our own ability to market in a direct way. The core and mainstream of our business has been strengthened in direct-to-consumer acquisition.
It's very strong, as you can see in our growth rates, plus 56% on net flows over the last year. We're very pleased with our own ability to compete well in an intensifying competitive market.
Great. There's a follow-up question, and succinctly put, why not forget profit growth and reinvest more aggressively?
Look, it's a great question. We actually think given our momentum, we can reinvest very strongly and capture exciting opportunities and capture that growth, and still continue to deliver profit growth. I think the question has the right bias. If the board and we feel as we go, there are even more opportunities to capture growth for the medium and longer term benefit of all stakeholders, we are certainly prepared to do that. Look, we think we have a great opportunity to reinvest, to get great return on that investment, and continue to deliver strong profitability for our shareholders.
Great. Drilling down a little bit on that, it has been noted that employee expenses are relatively stable. What can we expect on that front, Mark?
Yes. With the employee expenses, as we've discussed, reinvesting to capture the growth opportunity is across a number of different initiatives, and one of those is in investing in our capability. As we build out our principled investment leadership, we will be investing in the investment team to drill down and deepen the expertise. We'll also be building out our BDMs, our distribution capability, and our customer experience platform operational capability. As a result, we are planning to invest for the growth to capture the growth opportunity in strategic initiatives plus employee expenses.
Thank you. Perhaps coming out of the detail back to the strategic level, the question is how do we view our competitive marketplace in Australia and the U.S., and what do we see as our company moat?
Yeah, I think as I've alluded to, we expect that competition to grow and intensify. Again, as I said, we welcome that where that's from legitimate people doing the right thing. Our moat is two things in my view. I think I'll go back to Morningstar and their global assessment of the best ESG providers globally where we were one of six. That points to two things. It points to our genuine authenticity. Ethical investing is our DNA. It's all we do. It's everything we do. It's not an add-on. It is our purpose. It is the reason our organization was founded, and that's what Morningstar and others recognize. That is a very difficult thing to imitate in a short period of time.
Of course, we combine that, and the other part of that moat is just the outstanding investment returns we have delivered for investors and our superannuation members. Mark referred and highlighted the 3-year numbers, which are extraordinary. We now have a 20-year track record of outperformance in our main fund. This is something where we have deep domain knowledge and expertise and comes from a genuine place of authenticity and strength. That's a significant moat, which part of the strategy is investing to continue to accentuate those strengths and build on them.
Thank you, John. That brings us to the close of questions. It's an extremely busy day, and I'm sure people have left or need to leave to go to other briefings. I will say there has been one question about a particular investment opportunity, which I'll respond to individually to that person.
Thanks very much for joining us, everybody, and have a good day and keep safe.
Thank you.
Thank you.