Thank you for standing by, and welcome to the HUB24 Limited FY21 results. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Andrew Alcock, Managing Director. Please go ahead.
Good morning, everyone, and welcome. Once again, thank you for your interest in HUB24. I'm very pleased to be able to present such strong results today and outline our achievements for FY 2021 and talk about our efforts moving forward to ensure our future continues to deliver great outcomes for customers, staff, and shareholders. Of course, also assist the wealth management industry to build its future shape in Australia. With me today is Kitrina Shanahan, our Chief Financial Officer, who will also be presenting our financial slides in the pack and be available for Q&A at the end of the presentation. Just turning to the next slide.
Our business this year is very different to when we spoke to you last year at this time, in that we're significantly larger and more diverse as a result of great organic growth during the year, as well as some acquisitions and some innovation as well. In terms of an overview for HUB24 at the end of FY 2021, we are a leading provider of wealth management products and services in Australia with superior functionality, market-leading managed portfolio capability, a comprehensive range of investment options for customers and advisors, and also a data and technology solutions business that supports the financial services industry. Our platform business segment is composed of the HUB24 platform and the Xplore platform as a result of that acquisition earlier in FY 2021. Our total custodial funds under administration as at 30th of June was AUD 41.4 billion.
Over 3,000 advisors using the platform. We had AUD 18 billion in managed portfolio funds under administration. With that, our non-c ustody or PARS, Portfolio, Administration and Reporting Services, to give you a snapshot, at June 30 is AUD 17.2 billion with over 7,500 accounts. In total, HUB24 has total funds under administration at AUD 58.6 billion as at 30th of June. Moving to our technology solutions segment, also known as HUBconnect, we have 92 financial services clients or customers. Two ranges of products in there, generally HUBconnect Broker, which is supporting tools and customer management tools for stockbrokers in the Australian marketplace, and HUBconnect Insight, which provides services to licensees, advice licensees, in terms of business management, compliance, and data insights.
That being, HUBconnect now being the rebranded version of our Agility business that provides data and integration to a number of financial services providers across the industry. If we move to the next slide. It's great to be able to talk about a business that's had a strong track record of sustainable growth. This chart shows 5 years of growth in terms of revenue, with a CAGR for 5 years of 36%, and underlying EBITDA CAGR of 57% at a group level for the business. Importantly, when you look at that track record, our core economic driver of the business being the custodial platform, is rated number 1 by Investment Trends and wins awards across the industry, yet only has a 3.9% market share.
With such a low market share comparatively, being the top provider in the marketplace, there's a significant opportunity to grow further moving forward. We look forward to doing that and updating you again in the future about an even stronger track record of growth. That's certainly our aim. Slide. Just some financial highlights for FY 2021, all of which are very healthy increases on the FY 2020 statistics. For example, our group revenue is up 34% at AUD 110 million or AUD 111 million, and our group underlying EBITDA are up 47% at AUD 36.2 million. Moving to Platform. Platform revenue up 36%, and Kitrina will explain some of the breakdown in the revenue margins and the components of that as we move through her slides later on. That revenue is a great result, certainly given the current interest rate cycle and its impact on the business.
Underlying EBITDA are up 32% of 37.9% or just shy of AUD 38 million for platform. Our statutory NPAT, underlying NPAT. Underlying NPAT is up 53% at AUD 15 million. Statutory obviously impacted by transaction costs, but also up 20% regardless of that at AUD 9.8 million. Very pleased to announce a final dividend of AUD 0.055, taking our full year FY 2021 dividend up to AUD 0.10 per share, which is up 43% on last year. Back to the middle of the slide there. Our total FUA at June, as I said earlier, was AUD 58.6 billion, made up of AUD 41.4 billion for custody platform. That, as at Friday evening, the 20th of August, had risen to AUD 44.2 billion, which you may recall is ahead of the forecast we had previously for FY 2022.
We had a statement in the market saying we had hit between AUD 43 billion-AUD 49 billion of custodial FUA by end of FY 2022. We are there already 12 months ahead, at the AUD 44.2 billion at the moment, that is at 20th of August. Great results, that is causing us to think very carefully about the future of the business, execution, and investing to continue growth ahead of expectations moving forward. If we turn to the next slide. At HUB24, we see our purpose and our role for the industry and our customers as empowering better financial futures together. That resonates for advisors, for advice licensees, for customers, for managed portfolio or investment managers and fund managers, for market participants, and also for technology providers in our space.
It really is about HUB24 continuing to collaborate to bring together the best-of-breed solutions, whether that be investment options or technology front ends, features, and benefits. To bring together the best-of-breed solutions to deliver integrated outcomes for customers and advisors and market participants. It's about empowering, as I said, better financial futures together. We have three strategic pillars there on the slide to give you some color on our focus. The first one of that is about delivering customer value and growth, which is really about our core platform business and continuing to update and enhance that to extend our market leadership, to meet evolving customer needs, and to continue to grow that business. The second pillar, to continue to build the platform of the future. We've always and long been focused on data and custody as the future of wealth management and building innovative solutions that bring those together.
Our footprint in Portfolio Admin Reporting Service is effectively a non-custodial admin service with our strong platform footprint. Over time, we'll be bringing that together to be an integrated platform solution. It is integrated in some ways already, but it is about us continuing to build the platform of the future. At HUB24, we don't want to be disrupted. We want to continue disrupting the industry and continuing to lead from a position of strength. The third pillar there is about us collaborating to shape the future of the wealth management industry in Australia. I think that there's a gap. There's certainly a shift in what's available in this industry in terms of data and infrastructure as traditional participants leave the industry.
There's a lack of investment in terms of how advice integrates with other solutions, and certainly some gaps there that we intend to help fill by collaborating with the rest of the industry, using our data and technology to build integration, to build insights that bring about efficiency, lowering the cost of advice, and providing more access to advice for Australians, which is good for our business and good for the industry in which we operate. Those are our three strategic pillars, and you'll see more of that as we get to the end of the pack about what we've achieved in FY 2021 in relation to those and certainly how we're focused moving ahead. Moving on to the next slide. Here's a summary of some of our highlights for FY 2021. It has been a very successful year.
It's been a year of growth and innovation and certainly delivering on strategy. We had record platform net inflows of AUD 8.9 billion. We established the PARS business or Portfolio Administration and Reporting Service with AUD 17.2 billion, as I mentioned. In terms of advisor numbers across the HUB24 group, in terms of custodial platforms, it's up 997 or 1,000 advisors, 48% on this time last year. That includes advisors using the HUB24 platform and advisors also using the Xplore platform. During the year, we completed three strategic transactions, the acquisition of Xplore Wealth, the Ord Minnett PARS business, which have both delivered FUA growth and allowed us to access high net worth segments with different capabilities.
We also divested our licensee business, Paragem, to Easton Investments and took a strategic investment in Easton Wealth, which will allow us to collaborate on technology solutions to benefit Easton and the broader marketplace in general, and of course, all licensees as well across the industry. Certainly our goal. We also continued to enhance our offer, delivering enhancements to our platform. We increased the range of investment options. We put in features and functionality that support advisors dealing with regulatory change, and a whole list of enhancements there as well. We certainly streamlined our managed portfolio offering, and we do lead the market in that space into an MIS scheme to build the future foundations for further innovation. We intend to keep leading in that space as well.
We collaborated with licensees to pilot some HUBconnect Insight features using artificial intelligence and so forth, which I'll touch on a little bit later. All of that occurred at the same time as completing a bulk transition of AUD 1.4 billion to the platform, launching 2 private labels, one of those being part of that AUD 1.4 billion. Having institutional offers in the marketplace where we outsource or we're the outsource provider for other people's product, but it's the core of it or powered by HUB24. Of course, we strengthened our financial position, and have had really positive underlying operating cash flows and increased our dividends. All in all, a year of growth, innovation, delivering on strategy with great seamless execution.
It's great to be able to deliver that, and as we turn to the next slide, to do that in the context of being recognized by the industry and our customers on the next slide as Australia's best overall platform and voted number one by advisors for customer service. If we can move to that next slide, please. In summary, we are rated by Investment Trends Competitive Analysis and Benchmarking Report as the best overall platform. We have the best platform services voted by advisors in Wealth Insights, and we're first again for the fifth year running in managed accounts, again, from the Investment Trends Competitive Analysis and Benchmarking Report. Great to be talking to you today, having those accolades in the context of all of that delivery and growth. Interestingly, if you look at the right-hand side of that slide, there's some lead indicators for further growth.
In those surveys, HUB24 has the highest advisor consideration when choosing a new platform, i.e., if there are advisors in those surveys who are thinking of changing platforms, HUB has the highest level of consideration moving forward ahead of any other platform. We also, in the 12 months, achieved the highest increase of number of advisor relationships. The third point there, advisors who use HUB24 are the least likely to look for a replacement platform in the next 12 months. We're booking it very nicely there as having the highest consideration for new users and having the lowest consideration for those to change platforms. A great result, we look forward to working very hard to maintain those positions moving forward.
Turning to the next slide, before I pass the presentation over to Kitrina Shanahan, I'd like to outline our market share and flows position as at the latest data from March 2021 from Strategic Insight. Our market share has grown from 2.3% to 3.9% over 12 months, March to March. It's actually tripled if you go back a year from that. March 2019, we were at 1.3%. We're now at 3.9% in terms of platform market share. The chart on the left shows you the ratio of net flows to underlying market share, and HUB24 features very highly there on the chart as well in second position. Interestingly, there's only four platforms gaining in market share comparatively when you look at that ratio, and the remainder are shrinking or going backwards. We are now the eighth largest platform by market share up from ninth, 12 months ago.
We've maintained our number two position for annual net inflows. Our CAGR for FUA over five years is at 66%. I'd like to hand over to Kitrina Shanahan, our Chief Financial Officer, who will take a walk through some of our financial results, and I'll return to talk a bit more about strategy and outlook before we get onto Q&A. Thanks, Kitrina.
Thank you, Andrew. If we can move on to the next slide, please. Okay, the next one again, please. That would be great. Here on this slide, we've got the group financial results. Group operating revenue is up 34% to AUD 107.8 million, with direct and operating expenses for total expenses up 29% to AUD 72.4 million. You can see positive jaws coming through at the group level. Platform revenue was up 36% on FY22, up AUD 26.9 million, with platform underlying EBITDA up 32% on FY22, up AUD 9.3 million. You can see at the group level, the underlying EBITDA from continuing operations is up 46% to AUD 36.7 million, with the underlying EBITDA margin improving to 34.1%.
We added in the discontinued business being the licensee business, which is half a million dollars worth of loss, which takes the total group underlying EBITDA up to AUD 36.2 million, which is an increase of 47% on FY 2020. Statutory NPAT is up 20% on FY 2020, up to AUD 9.8 million. Turning over to the next slide, we've got the platform segment results. As Andrew Alcock's outlined, we've shown here the platform FUA being the custody FUA and the PARS FUA being the non-custody FUA. We have platform FUA of AUD 41.4 billion at the 30th of June, and we have PARS FUA of AUD 17.2 billion, with a total FUA of AUD 58.6 billion, up from AUD 17.4 billion in FY 2020. You can see in the graph on the bottom right-hand side, the AUD 1.4 billion large transition that we had in the second half of the year.
You can also see the average monthly net inflows have increased from just over AUD 400 million in FY 2020 to AUD 600 million per month in FY 2021. Platform revenue is up 36%, up to AUD 101 million, with the total expenses up 39% to AUD 63 million. This is largely to do with an increase in sales and distribution and tech and ops to support the momentum and the volumes that we've seen coming through. The underlying EBITDA for the platform business is AUD 37.9 million, up 32% on FY 2020, with the profit before tax at AUD 23.1 million, up 5% on FY 2020. Turning to the next slide, we have the platform segment continuing. We've got the revenue and expenses. If we could just turn to the next slide, that would be great. We've got the platform segment.
Here, we've got a five-year trend for the platform revenue and expenses, overlaid with the group cost to income ratio. Here, you can see that the revenue continues to be strong, driven by the net flows, with the expenses growing at a slightly lower rate and the cost to income ratio coming down year by year. We've got a five-year platform underlying CAGR of 65%. Revenue this year has been impacted by the RBA rate cuts, which you can see has slightly reduced the jaws coming through in FY 2021. Moving to the next slide. On the next slide, we've broken out the composition of the platform custody FUA. Here, with the acquisition of the Xplore portfolio, we've acquired private wealth and high net worth segments.
We've broken out the platform custody FUA into 3 segments being retail, institutional, and Xplore Super admin, with the core retail book representing 81% of the FUA this year, 100% last year. Underneath on the right-hand side, you can see the revenue margin by the customer segments with the total over the whole portfolio at 36 basis points compared to 49 basis points in FY 2020. I'll talk more about that when we get to the next slide. Xplore transaction was completed in March 2021, so you can only see 4 months worth of the revenue margin compression in FY 2021. The institutional segment includes the private labels and the private clients, combined for HUB and for Xplore. Moving to the next slide, we've got the platform revenue.
Here again on the next slide, you can see the platform revenue is up 36% to AUD 101 million, with the admin fees up AUD 11.7 million year-on-year, the cash and trading up AUD 6.4 million year-on-year. On the bottom right-hand side, you can see the walk for the platform revenue margin. We did the first half result, we did a walk from 49 basis points at 30th of June, FY 2020, then we walked down to 44 basis points at the first half. There's 1 basis point coming from admin and 2 basis points coming from the RBA rate cuts. You can see that the admin fees have continued to reduce as the drawdowns with growing and tiering from the rate cuts kicks in, you can see a full second half impact of the RBA rate cuts of 2 basis points coming in in the second half.
Trading volumes were down on FY20 as they normalize back to pre-COVID levels, which takes the pre-Xplore revenue margin to 37 basis points. With the Xplore composition, as I talked about on the previous slide, having a 3 basis point drag on the margin with the margin for FY21 closing at 36 basis points. The RBA rate cuts had about a AUD 9 million impact on the revenue and a 4 basis points impact on the margin. Moving to the next slide, being the group expenses. As Andrew mentioned, we're ahead of plan for the full. We had a guidance statement of AUD 43 billion- AUD 49 billion, and as at 20th of August, we're at AUD 44.2 billion. Given this and the momentum that we've seen to come through, we've continued to invest, and you can see that coming through in technology, operations, and sales.
Expenses from continuing operations is up 26% to AUD 87.74 million. We've got abnormal items of AUD 8.1 million increase in the total expenses to AUD 95.5 million. The graph on the bottom right-hand side shows the breakup of the expenses, with employment expenses being the largest increase up to AUD 57.2 million, with headcount increasing to 391 up 49% on last year, with 85 of those coming through from Xplore and the Ord Minnett acquisitions. Moving to the next slide, which is a walk of our underlying EBITDA to our NPAT. There's a few moving pieces in here. You can see the underlying EBITDA from the continuing operations of AUD 36.7 million on the bottom left-hand side. Once you add in the Paragem discontinued operations, that takes the underlying EBITDA down to AUD 36.2 million.
Depreciation and amortization has slightly increased this year up to AUD 7 million. That's seen previous years' capitalization on the balance sheet coming through the NPAT this year. There's a slightly lower number capitalized onto the balance sheet, about AUD 1 million lower spend capitalized onto the balance sheet this year. You'll see when you look through the annual report. We've also got share-based payments coming through of AUD 6.2 million, which recognize the increase in the funds under administration and the probability of the employee share-based plans increasing of those vesting. This year, we paid tax to the ATO for the first time, and we have an income tax expense of AUD 8 million, taking the underlying NPAT to AUD 15 million. That reduces for the AUD 7.5 million for the strategic transaction for due diligence and implementation costs.
We have the AUD 1.4 million gain on sale from the Paragem licensee business, and we have AUD 1.5 million offset to the tax for the transaction costs. With that, I'll hand back to Andrew.
Okay. Talking about strategy and outlook, if we can flip forward a couple of slides, please. Quick look at our core market segments on the next slide there. I thought we'd outline the size of the market and to mention our share of the market in different cases. The superannuation market, which is largely fueling wealth management in Australia, is growing at 11.3% per annum, on a CAGR basis over the last 20 years, I think that stat is. As part of that market in the white on that donut, if you like, the SMSF and the retail and corporate market is really where HUB24 participates as addressable market in superannuation. It's a AUD 1.5 trillion market. That market in itself is fueling our core segments to the right of that. Just before I jump onto those, there is also a non-super personal investments market.
That's another AUD 2 trillion, which is relevant for HUB24 as well. If we move to the second slice of the second part of the slide there, the Australian investment platform market has a total market about AUD 915 billion as at end of March 2021, and we have a 3.9% market share there. It is a core marketplace for HUB, being the top-rated platform, we certainly hope to extend or increase our penetration into that market and increase the market share. The managed account market, which is in somewhat a subset of that market as well, is expected to grow at a very high rate. In fact, 49% of incoming flows is expected to go into managed accounts for advisors that currently use managed accounts. By 2025, 23% of all advisor flows are expected to move into managed accounts moving ahead.
It is a rapidly growing marketplace. We are a market leader there, having 19% of that market share when you add together HUB24's leading footprint as well as Xplore Wealth's. With our market position, we have 19%. I think that's about AUD 18 billion-AUD 19 billion out of that marketplace, which as I said, is expected to grow quite rapidly. In the Portfolio Administration and Reporting Service market, this is HUB24 data and our estimates of the size of that market. Again, I think as solutions arise in this marketplace, you'll see that market grow as well. There are trillions of dollars of un-portfolio or investments held by Australians that aren't in any portfolio service. We've estimated that market to be AUD 149 billion, and we have 12% market share of that.
We expect it to grow, as I said, as more and more private clients and high-net-worth individuals look at portfolio services moving ahead and as solutions emerge, and we certainly intend to keep building out our solutions for that marketplace as well. All in all, we're very well-positioned to capture future market opportunities, being a leader in managed accounts and having a small market share in the platform market, yet with our rating and with our establishment of our PARS service as well. Let's move on to the next slide. I'll briefly touch on a couple of trends here. Some of these I've talked about already, so I won't labor those points, but some key trends shaping the industry on that next slide.
Privately owned licensee segment is growing, with now just under 70% of the adviser market either self-licensed or in a privately owned licensee, as opposed to the inverse of that a few years ago. Before Hayne and the Royal Commission, you saw most licensees, or most advisers aligned to an institutional licensee. That's also representing the trend and the growth in specialist platforms, in that we have the best offer and we're on the APLs of those privately licensed businesses. Compliance burden also continues to be a great challenge for advisers. At HUB24, we absolutely build as much flexibility and as much optionality into our platform business to support advisers when regulations change, whether that be through online consents or fee consents and so forth. The demand for financial advice is expected to increase, with 2.6 million non-adviser Australians reportedly seeking financial advice in the future.
That's very good news for a business like ours, we absolutely want to work with the industry to make advice affordable and accessible. They're some of the key trends driving growth in the platform industry. Moving to the next slide. I'll just touch on a couple of items in this slide. During FY21, we have continued to deliver on our strategy in these 3 strategic pillars. In particular, in terms of our core platform business and customer value growth, that we have launched a managed portfolio academy to help educate and help advisers learn or work how to use managed portfolios, given it's going to be such a high growth area. We're also continuing to enhance our brand awareness. The other items in that pillar I've talked about earlier. I'll move to the next one.
We've also, in terms of building a platform for the future, we've done the acquisitions, we've done some transitioning and some integration work, but we've certainly also expanded our platform with options with other providers in the industry for retirement solutions, and we'll continue to do that. We think as the industry shifts, there'll be more and more demand for retirement solutions, and we're certainly investing in that vein as well. In terms of collaborating for the future of the industry, we have, in the last 12 months, developed some machine learning models that support licensee compliance. They're in pilot and rollout with over 4 licensees and really making a difference in those licensees in terms of them tracking compliance or key responsibility indicators, such as fee disclosure statements and so forth.
We're using AI and machine learning to interrogate a whole lot of advice documents to provide those insights and really change the face of how licensees and advisers work, so they can get back to focusing on delivering outcomes for clients whilst being comfortable their compliance obligations are being looked after. Moving to the next slide. In terms of moving forward, we'll continue to deliver on our strategy to underpin our growth. We certainly are prioritizing our future growth opportunities. As we flagged in our fourth quarter results, and as Kitrina and I mentioned, we're actually ahead of where we thought we'd be in terms of FUA and growth for the business. We are investing in even creating a bigger business. I actually have announced recently the recruitment of a chief product officer, and there'll be another executive team member that we recruit moving ahead.
We're expanding our distribution team, again, to take advantage of sales opportunities, and we're certainly going to continue to develop customer propositions and increase our brand awareness and recognition across the industry. We'll continue to build a platform for the future. We're going to continue to integrate the transactions that we've undertaken and invest in technology to build scale, and absolutely committed to building a fully integrated best-of-breed solution for custodial and non-custodial platform and PARS solutions moving ahead. In terms of the third pillar, we will expand our HUBconnect data sources during the year, and we'll do that integration of best of breed. We're going to continue working on our single view of wealth capabilities that hopefully will create the drive for an increased market across that PARS piece, especially.
All leading to us wanting to and being committed to leading the wealth industry as the best provider of integrated platform technology and data services. Those investments will occur, but we'll still expect to have our cost-to-income ratio improve in FY22 and our underlying EBITDA margin to increase as well in the context of that increased investment. Finally, on my last slide, the outlook for HUB24 is very positive. If we can move to the next slide, the outlook slide. We are positioned very well for ongoing success, and we'll continue to position the business in that way through investment and integration and collaborating with the industry. We're going to pursue growth.
We've got great pipeline and great current licensee and adviser relationships, we'll absolutely be moving to secure new relationships as we increase the number of headcount in our distribution function. We're going to leverage the new product capability we've got with the combined HUB24, Ord Minnett, PARS and Xplore books to cross-sell into each customer segment, the different overall solutions that we'll bring to the table. We expect to have continuing strong financial results, leverage growth and business scalability to deliver shareholder value and increase profitability. Pleased today to be able to advise that our platform FUA goal or FUA target, we've got a target here for FY 2023, which is in just under 24 months. The current number, as I said earlier, was AUD 44.2 billion. We're aiming to get to between AUD 63 billion and AUD 70 billion in platform FUA target.
That's custodial FUA, not including the PARS FUA in that. The reason we do that is that the custodial FUA is the economic driver of that part of the business. The PARS FUA is actually driven by accounts. Once again, a platform FUA target for FY 2023 of AUD 63 billion-AUD 70 billion, excluding PARS FUA. That's an uplift of about AUD 20 billion based on the statement we have made for FY 2022. We're taking the target out a year and we're adding AUD 20 billion to that target in terms of putting that out there into the market. Once again, thank you very much for your attention and interest. I'll hand back to our facilitator and happy to take some questions.
Your first question comes from Nicholas McGarrigle with Ord Minnett. Please go ahead.
Thanks, team. Just a quick correction to that. It is Nicholas McGarrigle at Barrenjoey now. Just a quick one on the FY 2023 FUA guidance. It is obviously a great target compared to, I think, where the market was expecting you to be by then. Can you talk about the building blocks that get you from 44.2 today to that range?
Sure. It's really quite simple, Nic, and thank you for the question. You might have registered, your registration, I think says Ord Minnett, but we are with Barrenjoey. It's really quite simple. If you look at the flow rate that we had in FY21, and you think about some growth for that. If you think about an AUD 9 billion-AUD 10 billion flow for FY22 and FY23 and some market movement with some sensitivity analysis, you can see that we land squarely in the middle of that range with hopefully some upside and some protection there in terms of if we don't quite hit those flows. We're very confident in that. As usual, we like to put a range out there. We absolutely aspirationally hope to achieve more than that.
In terms of a target, it's based on that sort of analysis, taking our current starting point, FY 2021, and adding in some assumed flow numbers, which we have the building blocks, if you like, or a bottom-up build in terms of pipeline with our relationships and certainly with the investment in salespeople to give us confidence in publishing that range.
Just in terms of the component of that increase that is attributable to, say, large transition clients, and you've split up some of the FUM between institutional, retail, and others, but just the sort of assumed mix in that, just to give us a sense on what the revenue run rate might be by then?
We don't have any identified significant transitions in that number. It's based on a bottom-up build of organic growth. Bearing in mind, we do have a very new private label relationship with one of the largest advice providers in the country. We haven't assumed a lot of upside in that for any large transitions at this point in time. If that was to occur, we'd hopefully outperform that. It's based simply on the number of relationships, the advisors, and the product range we've got today.
Great. I think in the presentation, there was some separation between institutional retail and the third category, I can't recall. Just in terms of if maybe Kitrina can give us a better idea of what the exit rate on the margin, on the revenue margin was heading out of FY 2021. I think the second half was 34 basis points, but I imagine the exit rate might have been a bit different.
Yeah. Hi, Nic. Yeah, that's correct. On one of the slides, there was composition of platform FUA, the bottom right. There was a graph that showed the basis points per segment and a call-out that Xplore was in there for four months, given the transaction completed in March. You'll expect to see next year. There's no impact, really. There's been no changes significantly to the pricing of either HUB or Xplore. The thing that will drop the margin in full year 2022 is just the 12 months worth of consolidated group. If you take the composition on that slide and you apply it to the FUA that we have today and then slice it by the categories that we've given you could probably do bucket math to get you to about a 30 basis points margin in full year 2022.
That's helpful. Thank you. Just while we're on the flows again, if you look at the market movement for the financial year to date, we net that off against your AUD 44.2, I'm calculating almost an AUD 1.8 billion-AUD 2 billion net inflow for those first 7 odd weeks. Am I missing anything material there?
No, that's correct.
Roughly about that. If you do the extrapolation of where we were in market movements in the order of those sort of numbers.
Yeah, that's great. That's a great outcome. Just on the cost side, I think you signaled at the quarterly that there might be some additional costs going into executive sales and tech. I just wanted to get a sense on the cost to serve reduction that we might expect into FY 2022. You had a sort of 2.4 percentage point improvement in 2021, which was good. Just trying to get a sense on, is it a reinvestment year where maybe that reduction in cost to serve is-Not quite as material as that for a year or two, and then we resume sort of natural state of affairs?
I think the way to think about it is that the volume growth, you'll continue to see the same level of increases in the expenses around the volume. There's no change to that, and that will grow at the normal level. There's probably an additional somewhere around 20 to 25 FTE that we're expecting, given the sales momentum that we're seeing coming through, the increase in FTE and technology to support the scalability of the size of the FUA growing. There's a couple of group executive roles coming on board as well, given the size of the company and the focus on specific areas. It's roughly about 20 to 25 FTE increase over and above the normal cost ratio that you'd expect to see come through.
Based on timing and recruitment, Nic, that will come through. You'll see more on that in the half when we'll be able to talk about the uptake of that.
Yeah. We should still expect a reduction in cost to serve in 2022?
Correct. Yes.
Cool. Just in terms of synergies, because it's related, I guess the just progress on actual realized synergies in 2021 and then maybe what the profile might be on, I think you put a chart in. Just wanted to confirm that the numbers in that table were what you'd expect to realize in those given years or are they annualization increments?
No, they're the ones that we expect. You're talking about the table that we put in the analyst and investor pack. They're the numbers that we expect to see in those years.
In terms of your realized savings within that year. That'll sort of act as a bit of an offset to that additional FTE going in.
Correct. That's right.
Yep. One last one from me.
Just one last one, Nic.
Yeah, last one. Last one, I promise. I've only asked three broad questions. They're broad, very broad. Just the last one around.
I'm glad we can count.
They're sub-questions as well. Just on the cash spread agreement, obviously your largest specialist competitor has had their termination or the agreement's been triggered. What's the sort of current status of your renegotiation and maybe what are some of the strategies to avoid further deterioration in the cash spread post the RBA move, but trying to avoid maybe the bank repricing as well? Just what kind of strategies are you pursuing there?
I'll just start by saying the environment remains fluid in terms of different providers and what they're willing to offer, and certainly the view on interest rates and the cycle and so forth does remain fluid. The market's well aware that our current arrangement with our major provider completes in December 2022, we still have some 15, 16 months before that might occur. That fluidity is actually making it interesting in terms of crafting solutions. We've long been saying we absolutely think that this isn't about just replacing revenue or fees for shareholders. It's also about rethinking about the market and the product offer for consumers. If we are going to have a protracted low interest rate environment, what are the solutions that you can offer through a platform to make it easier for advisers and customers to maximize or get the best outcome possible?
We certainly are thinking about that and different ways to offer different cash style investments, Nic. At this point, unable to really put more color on it other than we're working through that, as we have said. That in itself might either increase volume of investment on the platform in cash. It might create different options. Certainly we'll be changing the way we approach things as opposed to just trying to ameliorate any concern that the bank spreads may change. I think that environment remains fluid as well, and there's a bit of water to go under the bridge about that. It's the best answer right now. We're absolutely aware that there might be some pressure with long-term spreads from banks.
At the same time, it does remain fluid and we've got some different ways of thinking about how we mix up the product offering rather than just maintaining the status quo and changing the different spreads in there. It's the best answer we can give. We've got a long runway to go. We focus and have got some tech being built and working with multiple providers as to different ways to approach the market in that regard, and we'll have more to say when we get closer to that time.
Great. Thank you. One last one, actually. The percentage of FUA in cash, because I guess that may have changed with the Xplore combination. I think it used to be sort of 10%-11%. What would that be running at at the moment with that combination?
I think we used to talk about a range of 8%-13%, it does bounce around. In this climate where returns are not high or nothing in terms of cash on platform for investors, it's at the lower end of that range. Around about the 8%. Not giving too much away. We tend to not publish it, that's where it's at. That's where you'd expect it to be. It does move around based on flows into the business. Cash percentages for HUB24 increase when you've got a large amount of inflows because it's transactional cash before it gets invested, it's in that sort of range. I don't expect that would change in a low interest rate environment as advisers seek to get the best marginal increase they can for consumers. Thank you, Nic, very much.
Hopefully, that answers your questions, and we'll move on.
Great. Thank you.
Thank you. Your next question comes from James Bisinella with Shaw and Partners. Please go ahead.
Congratulations on the result. Just on platform gross margins, it looks like they've risen from 75% in the first half to 78% in the second half. Can you give us a sense of the drivers of that increase and perhaps whether that second half level is considered sustainable moving forward? Thanks.
Thanks, James. You're looking at the analyst and investor pack on that. From the platform perspective, yes, we would expect to get some more leverage coming through, but it just won't be as large as you'd expect given the investment that we were talking about. Yeah, that is a sustainable level.
Okay, great. One more from me, just around the LTI plan. Can you just confirm the performance period for the FUA component? Does the 100% award of that infer AUD 102 billion of FUA by FY 2024? Just given that CAGR translates to an increase of AUD 43 billion over the next 3 years.
James, we might come back to you. There are multiple LTI plans with different dates and rates. If you're applying a CAGR to a current FUA balance, it is based on custodial FUA, not total FUA. I'm not sure what you're referring to. Unless we can clarify it really quickly here, we might have to take that offline with you.
Yeah, no problems. Happy to take it offline. Thanks very much. Congrats again. Cheers.
Thank you very much. Cheers.
Thank you. Your next question comes from Simon Fitzgerald with AMP. Please go ahead.
Hi there. Thank you for taking my question. One of the trends we're seeing recently is probably a bit more open architecture, but in a real genuine sense. Obviously you've got the IOOF agreement as well. I was interested to know some of the inroads you're making with aligned financial planning groups and whether you really need to see financial planners actually leaving some of these groups in order to grow. I'm just interested in your comments around that.
Look, we do have inflows with some aligned groups, and we have had for some time. In some cases, it's because advisors are looking at best interest duties for customers and asking the alliance group to allow them to deviate from what might be known as their Approved Product Lists. In other cases, the groups are actually encouraging or welcoming best-of-breed solutions to sit on the shelf alongside their own solutions, and so forth. In the IOOF case, the actual product is actually IOOF's product. They are the trustee and the operator, trustee of the super fund and the operator of the IDPS, yet we do the administration using our market-leading capabilities to build a tailored product for them. There are inroads coming. To answer your question, I don't think that it needs to have people leave, but that's happening regardless.
The last remaining groups in the marketplace with strong alignment are AMP and IOOF. IOOF have made it clear about their future strategy. AMP have a new leadership team. I'm sure they'll keep considering that. The trend is that people are leaving anyway. We don't have to. We are making inroads, and we look forward to continuing to do that. I think in the context of having a great product and a great solution and the community test and the expectations and the regulator view that our clients are looked after properly, I think that puts us in good stead regardless of the source of advisor relationship.
Great. Then the second question just relates to the PARS FUA. I'm just wondering a little bit more explanation in terms of how I can sort of see the revenue line there. I mean, it's all sort of mixed up into one sort of platform revenue, and I understand that non-custody pieces are charged a little bit differently. I'm just wondering if you could sort of explain that in a little bit more detail on how we should be thinking it from a modeling perspective.
Good question, Simon. You're right that we haven't split it out separately. The only place we have put it on the presentation under the platform revenue, there is a call-out that the combined contribution from the Xplore and the Agility Applications acquisitions was AUD 10.4 million during FY21, and obviously I know that includes the Xplore custodial FUA. It's a little commercially sensitive at the moment, so we're not breaking it down lower than that.
Okay. I'll ask you a question maybe a slightly different way then. If that was to grow in excess or at a faster rate as the rest of it, there would obviously be a drop in the overall sort of revenue margin. Would that be a fair call? Because it's priced on a sort of.
As a total, yes.
Yeah.
The revenue breakdown that we've given the platform revenue margin bits go of 34%, 36% at full year 2021. That purely relates to the custody portfolio. If you did a platform revenue margin at the total including PARS, absolutely it would be lower because the services look or simpler on the PARS.
My comment on that, though, the costs and the expenses backing that are far different. You're not paying a trustee, you're not paying custody costs.
Yeah.
It's a much simpler thing. You're getting still good margin per account, and the accounts are charged based on a fee per account. It's a different model altogether from revenue right through to EBITDA. Yes, it might change a composite revenue margin, but certainly the upside will be there in the expense reduction as well.
Okay. Just a final question from me. I understand that you don't disclose this in terms of the mix of, say, FUA growth or FUA outcomes between existing financial intermediaries and new ones. Presumably it takes time for financial planners to get all of their FUA across once they've signed up, and that would give you, I would have thought, pretty good visibility of your future growth. Is there any sort of comments you could touch on in terms of anything like that in terms of new and existing?
Sure. It is spread across the book based on the age of the relationship. You'll find that we have advisors who've been using HUB for a period of time will have a greater level of usage of HUB comparatively to those who are recently using HUB. It does take some time. Actually, we don't want advisors to move every single dollar or every single customer over. It needs to make sense for the customer, and they need to make sure that it does make the best interest test. Certainly, we've got a great solution for a broad range of customers. We intend to keep increasing that out, but it does take time.
In looking at that, we know that around about 50% of the inflows we had last year came in through transition arrangements where we're helping advisors to, where it makes sense, help them move customers over. 50% of the flows were coming off from different ways of doing business. There's a long runway to go. If you did the averages and so forth, you'd see that the penetration level across the book is not significantly high at all. It does take time. The leading indicators for growth are there, and that we will still have productivity from our relationships for several years ahead of the existing relationships we've got. Some of the older relationships still generate positive net flows. They absolutely generate positive net flows. Some of them that mature, you see a slowing down of that.
The beauty of this kind of business is it's not all overnight, it is compounding. Year on year, we pick up a higher level of book and higher level of growth. There's a lot more that can happen with our existing customers.
Great. Thank you for taking my questions.
Thank you.
Thank you. Your next question comes from Siraj Ahmed with Citi. Please go ahead.
Andrew, hi, Kitrina. Just three questions from me. Just the first one. Regarding the start to the H1 or the Q1 , the AUD 2 billion inflows that you spoke about. Can you just talk to the contribution from the new private label that you launched with IOOF?
Not significant.
Not significant.
It's early days for that, and that goes to my earlier point. It does take time. We've worked with the issuer of that product to train about 60 or 65 people in their business who are BDMs who are out in the field and working with advisors. We're certainly aware that the product issuer has goals for what they want to achieve in the next 12 months. It's early days in terms of FUA there. We do have FUA. We had FUA in the first day. It's early days. It's not a large contribution. I think there's more upside to come from that relationship. The flows are generally coming from other customers.
Great. Thanks. The second question, just on the revenue margin outlook, looking two years out. As Kitrina, as you mentioned, next year, thinking around 30 basis points as you include Xplore. Andrew, if you're saying that your FUA guidance for FY 2023 is primarily driven by retail and not really institutional, should we then think that 30 basis points is sort of a trough and that should actually blend up if your retail goes up?
Possibly. It will depend on the shape of the book. To be clear, part of the growth in that two-year period will include some institutional, and we include the private label for IOOF as institutional. Whilst I said it's early days now, that will be in the mix. It will depend on the mix, Siraj. It's a question we'd have to model out. It's conceivable. Kitrina, you're likely to comment. Certainly, the current margin state is impacted greatly by the cash outcomes. If that were to change, it would tick up anyway as well. There are drivers that could cause that composite margin to go up. Kitrina, have I sort of nailed the question?
Yeah, it covers everything. It's the cash and the mix of the book are the main things that will move it.
Yep.
Got it. Last one, just confirming, just on the cost outlook for next year. Is the understanding that you're adding 20 to 25 FTEs in total next year? Because I'm a bit confused, as you said, normal run rate plus 20 to 25. Just trying to understand that.
Look, it's hard to pin down, and it's incremental on top of our normal run rate, but you'd say, what is the normal run rate? Every year we talk about, hey, we're ahead of plan, or every second year I go, "Hey, I'm ahead of plan. Oops, I've got to hire more people to put fuel in the tank." It's really hard to get a normalized run rate when our expectations of growth keep being exceeded. It is incremental in that. In a normal year, we'd hire two to three sales people. For the last few years, we ended up hiring 10 a year. It's hard to bifurcate that, Siraj, but it's generally supposed to be incremental. Certainly the two exec roles are, yes. Yep. We'll have more to say on that at the half.
I know that's a long way away once we get our skates on with the recruitment and the timing of that.
Yep. That's all good. Very helpful. Thanks, Andrew.
Thanks, Siraj.
Thank you. Your next question comes from Nic Burgess with Ord Minnett. Please go ahead.
Yeah. Morning. Oh, afternoon, Andrew , Kitrina. Just two or three quick questions. Just on the institutional margin, revenue margin at nine basis points, is that a reasonable guide moving forward? I guess that's pre-IOOF, just looking at any guidance there in terms of how that moves.
This is the real Nic from Ord Minnett. Yes.
Correct.
Did you not know I got through?
I think so.
Yeah, that's correct, Nic. Yeah.
Yeah. 9 basis points is a good base to work off. Okay. Just circling back to one of the previous questions on PARS revenue. PARS is included in the platform revenue segment as it stands now?
Correct. That's right.
Would it have actually provided a boost to the platform revenue margin over the half, given that it's in the revenue, but clearly not in the denominator in terms of funds?
I've had this question in the background via email through a few people, so it's probably worth clarifying. The revenue margin in the basis points by customer segment, and when we talk about the 36 basis points for FY21 purely relates to the custodial business. It takes the custody revenue over the average FUA for custody FUA. It doesn't include the PARS FUA or the PARS revenue.
Interesting. The reason it's in the same segment as platform is purely because we talk about the platform of the future and the blurring of custody and data platforms. That's what's going to happen. We thought we should start there in terms of reporting the dollars there. It is sensitive to break that out given the relatively small number of clients in that mix. As the book enhances, we might actually break it out further, but the basis points margin is actually custodial only, but the dollars includes that business as part of platform because we see the two converging over time.
Okay. That's clear. Thank you. Just lastly, Kitrina, just circling back on operating costs. Gross profit margin should continue to improve, albeit not as great perhaps as the last 12 months. Just in terms of perhaps some comments on the shape of the EBITDA margin in that platform segment at sort of 30 or just below 36, taking everything into account that you've mentioned on operating costs, does that improve over the next 12 months or remain sort of stable at this point?
My expectation would be that that remains stable over the next 12 months given the composition of the portfolio and the expenses that we're expecting to invest in.
Okay, that's clear. Thanks very much.
I think we'll take the next two questions. That will probably see us out of time for the next two participants with questions. Yep.
Thank you. Your next question comes from Brendan Carrig with Macquarie. Please go ahead.
Good afternoon. I'll make it quick. Just on M&A and the potential for inorganic, given we've obviously covered all of the organic things pretty well. Now that Xplore's more and more integrated, has the appetite now picked up again to look for inorganic opportunities, and look to integrate those? In looking for those opportunities, what are you looking for? Is it a synergy kind of an acquisition, or is it more of a technology and product acquisition?
Brendan, happy to take that on. I don't think the answer's changed from what I would normally say. We're absolutely alive to opportunities and want to be a participant in this marketplace, and we're not shy in terms of undertaking transactions where they make sense. They have to make sense in terms of shareholders. Generally, we don't look at buying books of business for consolidation or synergy benefits. We look for strategic benefits, whether that be intellectual property we can monetize or extend. For example, with Xplore, the ability to pick up some institutional clients, some product features like bonds and international managed funds to create a stronger high-net worth or private client segment was very attractive to us.
What we'd be looking for is either technology or product enhancements that actually extends our offering or enables us to cross-sell or increase the amount of services we offer to existing customers and pick up customers to which we could offer HUB24. If I say the upside synergies and product capabilities are very attractive to us, then it's something that we would certainly be looking at. Having said that, you asked the question, do we have appetite? Well, our eyes are always open. We're also very focused on our strategy, and we won't deviate from that unless an opportunity makes sense. Yes, our program for integrating Xplore is tracking well. It doesn't mean that we won't participate in other activity if it made sense.
It has to make sense, and we're absolutely focused on continuing to execute organically, and also on our innovation strategy at the same time. I hope that gives you sort of a well-rounded answer. I can't say anything else other than the market's alive and we're a participant.
That's clear. I'll leave it there. Thanks.
Thank you. Your next question comes from James Cordukes with Credit Suisse. Please go ahead.
Morning, guys. Just a question on Xplore. It's now under your ownership. Can you give us an update on whether you plan to run that as two separate platforms or whether you plan to consolidate and how you intend to go about that, if it's a successor fund transfer, or you could do some kind of private label structure of the Xplore platform?
Sure. It is evolving. There is probably 8 or 9 different product solutions in there for different customer groups, and we certainly have a target roadmap. Our goal is to bring the best solution to our combined clients and as well as part of integration. In some cases we might be stitching together capability that Xplore had that we don't on the HUB platform, but integrating it together. In other cases, we might be looking to build that in HUB. It is quite complicated when you break it down to those 8 targets. Certainly our goal is to have 1 set of integrated solutions being offered to the marketplace under different legal structures, IDPS, super, possibly MDAs and so forth as well, and different structures, even life insurance bonds, potentially. Look, there's work to be done. We don't intend to keep running the businesses separately.
They're integrated in terms of reporting lines at this point in time. There is a journey to move clients around, and we'd like to do that respectfully with clients as and when we do that. The aim of that is actually create better outcomes for customers, and better upside opportunities for customers and for the shareholders. It's a process we'll talk more about as we go through.
Yeah. Thank you. Can you just clarify, I mean, will that be a notification that might be required to a client, or will they need to give approval for a transition?
Oh, okay.
the level of notification risk potentially. Yeah.
Look, conceptually, if there's superannuation fund consolidation, that can be done with trustees signing off, looking after members' interests and us providing notifications to clients. Otherwise, it might be depending on the particular contract. It'll be different under each contract, James. I don't see it being a consent-based process where an individual client or an advisor issues a statement of advice to move customers. That's quite inconvenient for customers. We'll be working on the most streamlined way to do it, and it's different on different legal structures. Can I add to my earlier answer, though? We are already seeing the benefits of the acquisition in that we've had large inflows of funds into the PARS business in Xplore through our relationship with Evans & Partners from Dixons. We've got a white label in Evans & Partners. We've had increased inflows in key clients.
We're already offering composite product mixes where you take a HUB product and tack on a part of the Xplore offering in the marketplace. Our focus has been on actually increasing flows and actually offering products in that way in the marketplace, whilst behind the scenes, we look at the integration. I'm sorry, I can't give you an express answer. It's different. There are different legal structures and different contractual structures across those 8 or 9 different product groups. It'll be case by case, but it's aimed to be as streamlined and as efficient as possible, and we're certainly looking to get the benefits of that in the shorter horizon rather than the longer.
All right. Thanks very much. Just one final question. On Xplore, obviously, they have pooled cash as well. Can you talk a bit more now, again, that it's under your ownership, just around your options to maybe push that onto your existing provider where the rates may be higher?
Great question, Brendan. Look, we're at-
James.
Oh, sorry. We're absolutely looking at the total HUB24 group. Xplore doesn't have its own contracts at the moment, so there is a little bit of an overlap between managing the different contracts, but certainly over time, we'd expect to leverage the scale of a larger group.
That's probably not included in your 30 basis point guidance to the revenue margin?
No, it would be included. When we've modeled out the portfolio going forward based on all the information that we have, so it's fully included.
Okay. All right. Thank you.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Alcock for closing remarks.
Thank you, everyone, for your interest and attention. I know it's been a full hour now. Thank you very much for the great questions. Look forward to catching up with as many of you, from the shareholder and the analyst point of view, over the next couple of weeks as we embark on a roadshow. Sorry, it's virtual. We'd love to be seeing you in person. We've got a full schedule in the next couple of weeks. If you'd like some more information, please feel free to come back to us and make a request if we haven't got something scheduled. We'll see what we can do. Thank you again. Enjoy the rest of your day.
That does conclude our conference for today. Thank you for participating. You may now disconnect.