Thank you for standing by, and welcome to the MA Financial Group Half Year 2024 R esult Announcement. 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. Julian Biggins, Joint CEO. Please go ahead.
Good morning, and thank you for joining MA Financial Group's First Half FY 2024 result presentation. My name is Julian Biggins, and I'm sitting here with my fellow co-CEO, Chris Wyke. We also have Giles Boddy, our Chief Financial Officer, in the room, and Michael Leonard, our Director of Investor Relations. I'm pleased to provide you with an update on how we performed in the first half and our outlook for the future. Let's start on slide six and key themes. Overall, we are pleased with the result as the business performed in line with our expectations in an uncertain and cautious environment. We are pleased to report record gross and net inflows, underpinned by a rapidly expanding domestic distribution channel. We've also delivered an increase in recurring revenue over the period, as asset management and Finsure both grew their recurring revenue streams over the half.
This builds a strong foundation for the future. Both Finsure and MA Money continue to experience significant growth, with MA Money's net interest margin expanding and run rate break-even now expected by October 2024 . The breakeven point for MA Money is an important milestone for the group as MA Money starts to generate profit, which will significantly contribute to the group's earnings growth looking forward. Today, we announced the launch of two significant institutional initiatives that we believe are also important milestones for MA Financial. The first being the launch of an institutional real estate credit vehicle, targeting AUD 1 billion of capital commitments from global institutional investors. The real estate credit vehicle is being launched with Warburg Pincus, who we have been in discussion with for some time.
Warburg Pincus is a leading global real estate investor with over 120 billion of invested capital and a very experienced high-quality partner. We believe that their commitment to MA Financial is a real validation of our platform that will provide considerable benefits over time. The second initiative is a strategic partnership with flexicommercial , a part of ASX-listed humm group, to acquire up to AUD 1 billion of commercial asset-backed loans. These loans will be funded by a combination of our private credit funds and a global bank, and the partnership provides us with exclusive access to high-quality, asset-backed loans sourced by flexicommercial . Both initiatives broaden our reach in terms of either institutional investors or assets, which are both critical ingredients in building our asset management business. As expected, investment in the first half provided a headwind for underlying EBITDA and earnings per share.
Although as MA Money now turns run rate breakeven, this investment headwind is expected to significantly decrease in the second half. Overall, it's a very pleasing result in a difficult setting, and we are excited about the growth prospects for MA Financial and the new initiatives announced today. As many of you know, FY 2023 and FY 2024 are transition years for MA Financial as we move from a business more reliant on performance fees and transactional revenue to one that has a very substantial recurring revenue base. We're now in the tail end of this transition period, and we'll move through to delivering considerable earnings growth as the established businesses continue to grow and MA Money starts to materially contribute to earnings. Now moving forward to slide seven. Our FY 2026 targets remain unchanged.
We remain confident with the medium-term growth targets provided to the market last August, and the initiatives announced today demonstrate that we continue to focus on developing new products and adjust the business model as the markets move. We expect to continue to build MA Financial with a mindset of innovation and growth. Turning forward to slide eight. Slide eight provides a snapshot of our results, with the financial metrics in line with our expectations and the operating metrics up strongly on the prior period. While underlying earnings per share is down 27%, this largely reflects the strategic investment in the business and an interest rate environment impacting our real estate-backed asset classes, offsetting the strong organic growth. Our dividend has been maintained at AUD 0.06 per share, fully franked. In terms of operating metrics, assets under management up 13% to AUD 9.7 billion.
Gross fund flows up 16% to AUD 1.1 billion, was largely underpinned by a 52% increase in domestic flows. Finsure continues to grow quickly, with managed loans exceeding AUD 121 billion, up 22% on the prior period. MA Money volume growth is accelerating, with the loan book reaching AUD 1.4 billion at 30 June, up 231% on the prior period. Corporate advisory had a good start to the year, up 12% on the prior period at AUD 22 million of revenue. Overall, a very pleasing result with the operating metrics all performing strongly in what has been an uncertain and cautious market. Now turning to slide nine and our financial results in more details. Underlying revenue increased 5% on the prior period, with approximately two-thirds being recurring in nature.
Both Finsure and MA Money were strong contributors to revenue, alongside an improved contribution from corporate advisory. Expenses were up 16%, although when you remove our strategic investment spend, expenses are only up 6%, which is a good outcome in an inflationary environment. In line with expectations, investment spend in the first half 2024 provided an earnings headwind to Group EBITDA of AUD 8.6 million, or approximately AUD 0.04 per share of underlying earnings. Overall, our guided investment spend for FY 2024 remains unchanged. MA Money has continued to gain momentum with run rate break-even expected by October, which is great news after a significant period of investment. Our EBITDA margin is broadly in line with what we were expecting, and if you remove the strategic investment spend, then it would be 36.5%, a lot closer to our FY 2026 target.
Cash and undrawn facilities were almost AUD 100 million at the half, reflecting our preference to keep ample liquidity to support growth. Turning forward to slide 10, and an overview of some of our strategic initiatives. The AUD 13 million impact on EBITDA from strategic investment spend is in line with guidance provided at the FY 2023 result, and the outlined priorities are broadly the same. The brand continues to be a significant focus for the group to broaden the awareness of MA Financial, and we commenced the first digital marketing campaign in the half. The U.S. credit platform remains a significant focus as we build out the brand, platform, and preferred fund structures. Our view remains unchanged that the opportunity is very significant in asset-backed lending in the U.S.
Over the period, we've progressed our Singapore license applications and are building out high net worth and institutional relationships in the local market. Given the migration of family offices to Singapore, this market is a significant opportunity for MA Financial. As I have mentioned, the performance of MA Money has been accelerating, and we are very confident about the AUD 4 billion loan book target at the end of FY 2026. This underpins our AUD 15 million-AUD 20 million NPAT target, which provides material earnings growth over the coming years. Finally, the rollout of Middle to our Finsure broker network has continued, and we are pleased with the number of loan applications and customers that are now utilizing this technology, and continue to work on grander plans for Middle.
As we mentioned at the FY 2023 result, the strategic investment spend was expected to be skewed to the first half in FY 2024, roughly 2/3, 1/3 , or AUD 8.6 million in the first half and AUD 4.4 million in the second. This alone provides some inbuilt growth as we move into the second half. Moving forward to slide 11. On slide 11, we illustrate the financial trends for the group, and from this, you can see the transition period we've been going through over the last 18 months, as we've significantly built our foundation of recurring revenue streams and invested in the business. The business is much less reliant on performance fees than it was two or three years ago.
As I just mentioned, as we move into the second half, we expect the investment spend to halve, and the momentum in the business will support improving operating leverage. Moving to slide 12 and some divisional highlights. Asset management recorded record gross inflows in the first half, underpinned by domestic flows, which were up 52% on the prior period. In the first half alone, domestic gross flows were AUD 722 million, representing 65% of our gross flows. Growth in domestic flows continues to be very strong, with the current half annualizing at AUD 1.4 billion. As flagged at the FY 2023 result, our recurring revenue margin was expected to decline in FY 2023, and in the first half it was 150 basis points, which is broadly in line with where we thought it would be.
The reduced margin was a result of market conditions, a temporary fee waiver in hospitality, and the AUM composition. We expect recurring revenue margin expansion in the second half to approximately 160 basis points. In lending and technology, the loan book increased to AUD 1.4 billion over the period, with a NIM of 1.1%, which was up 20 basis points on second half of 2023. Finsure's managed loans increased 22% to AUD 121 billion, and brokers grew 21% to 3,453, which bodes well for Finsure's future growth. It has continued to take market share and demonstrate it's the leading aggregator in the market. Corporate advisory and equities had a good half, with over AUD 1 billion of transactions completed and generated revenue of AUD 22 million, up 12% on the prior period.
The bias remains to M&A, although equity capital markets are showing some green shoots. Turning forward to slide 14 and our post-balance date activity. Momentum in the asset management business has been retained, with gross flows of AUD 323 million in the first seven weeks of second half 2024, and net flows of AUD 169 million. Strong flows continue into private credit, where we have large, diversified strategies with proven track records. Today, we announced the launch of the AUD 1 billion real estate credit vehicle, which I'll expand on shortly. As announced yesterday by humm group, we have established a strategic financing partnership that will provide our funds and a global bank with exclusive access to asset-backed loans originated by flexicommercial up to AUD 1 billion.
MA Money volume growth continues to accelerate with AUD 245 million of loan settlements completed by mid-August, taking our loan book to AUD 1.6 billion. Finsure's growth has continued with strong settlements in July, and our expansion into New Zealand commenced with our first broker groups on the platform. Corporate Advisory has completed or materially de-risked several mandates in the first seven weeks of second half 2024, representing an additional AUD 11 million of revenues or fees. We announced two deals this week in real estate and general industrials, and there has been a spread in our mandates this year across the various industry groups. Overall, the business has started the second half well, although market conditions remain variable. Now, turning forward to the institutional real estate credit vehicle and Warburg Pincus announcement.
Today, we announced the launch of an institutional private credit vehicle that will raise capital from global investors to invest in real estate credit. The vehicle's mandate will be more expansive than our current real estate credit strategies, and therefore, we see this fund as broadening the real estate credit offering. The vehicle is to be launched in partnership with Warburg Pincus, and we will both market it globally to Warburg Pincus funds and institutional investors. For those who are less familiar with Warburg Pincus, they're one of the highest pedigree private equity fund managers globally, with a significant focus on real estate and presence in Asia. They have been active investors in Australian real estate and understand the landscape well. The initial launch will seek to raise a minimum of AUD 700 million, with a target of AUD 1 billion.
The offer is expected to close before the end of the financial year, and a number of the Warburg Pincus funds have indicated an intention to invest. MA Financial is committed to co-invest in the vehicle up to a maximum of AUD 20 million. As part of the alignment of interest between MA Financial and Warburg Pincus, we have agreed to issue Warburg Pincus up to 5 million MAF shares at a strike price of AUD 6 per share, upon certain capital raising and deployment hurdles being met. We believe that this initiative and partnership with Warburg Pincus will help broaden and build deeper relationships with institutional investors globally. We are positive about the outlook, although markets remain cautious and the short-term economic conditions uncertain. Notwithstanding this, MA Financial is in a strong position to deliver on its medium-term targets and deliver earnings growth for investors.
As we move from first half to second half 2024, the Group's underlying earnings per share will benefit from growth in MA Money as it transitions to positive earnings. In asset management, we expect the current inflow trends to continue. The launch of the institutional real estate credit vehicle is expected to increase second-half inflows with a target of AUD 700 million-AUD 1 billion, although this will be committed capital and will only contribute revenue once deployed. We're also undertaking a capital raise in the MA Marina Fund to acquire additional assets in the second half 2024. Recurring revenue margin is expected to improve in the second half to approximately 160 basis points. Performance and transaction fees are expected to be in line with FY 2023. MA Money to be monthly run rate break even by October 2024.
The current trajectory of MA Money supports it to be on track to deliver AUD 15 million-AUD 20 million of NPAT in FY 2026. To remind investors, this compares to a negative NPAT contribution in FY 2024 as we invested to scale the platform. Although a break-even now imminent and a loan book of AUD 1.6 billion, there is a clear path to the FY 2026 target. In Corporate Advisory, we've currently completed or largely de-risked AUD 33 million of revenue year to date, and retain a target of AUD 1.1 million-AUD 1.3 million per executive, with variable markets pointing towards the lower end of the range. Our investment spend remains unchanged, with approximately AUD 13 million EBITDA impact in FY 2024, with a skew to the first half, with an impact of AUD 8.6 million. The EBITDA impact is expected to roughly half in second half 2024.
The lower second-half investment impact supports underlying earnings per share growth in the second half. As most investors know, we've been moving through a couple of years of transition and investment, supporting a more stable base of recurring revenue compared to prior years, which were more reliant on performance and transaction fees. While FY 2024 remains a transition year, we can now see a return to material earnings growth from a much stronger base. I'll now run through a few divisional slides, starting on slide 21 in fund flows. Overall, we are very pleased with the inflows over the half, with non-institutional gross and net flows records for the group. Underpinning this growth was the domestic channel, which increased to AUD 722 million from AUD 474 million in the prior period, or 52%, an exceptional result off a strong base.
International flows were a bit more variable, with gross flows increasing by 7%, although redemptions increased for different reasons by category. For non-migration flows, the elevated redemptions were predominantly due to a very small number of large investors redeeming for specific reasons. Ignoring these investors, the net flows would have been close to flat. In relation to migration flows, we have witnessed an increase in processing, which has increased the number of applicants being approved into the program and the number of applicants being approved for permanent residency. Some of the redemptions relating to permanent residency may be a catch-up from prior periods.
Overall, our gross and net flows are at record levels, and we are very pleased with the distribution efforts, both domestically and internationally. As for institutional flows, these are lumpy by nature and will push our numbers around, and therefore, we've split them out from the other channels in this period. Now, moving forward to lending and technology in slide 30. The charts show the strength of growth in the Finsure business over the last couple of years, as all operating metrics have increased materially. Broker numbers typically lead revenue growth and have increased 10% over the last six months. Market share has increased, which validates the strength of the offering, being a combination of technology, systems, and service. Managed loans continue to grow and hit AUD 121 billion at the end of June 2024.
Given the growth in broker numbers, we anticipate this trend to continue and are really pleased about the performance of Finsure since acquisition. Turning forward to slide 32 and MA Money. The MA Money loan book reached AUD 1.4 billion at June, which was a 231% increase from the prior period. Average monthly net settlements in the first half was AUD 94 million. Since 30 June, this has increased to over AUD 110 million and is accelerating, which provides us with confidence to hit the AUD 4 billion target at the end of FY 2026. Importantly, the NIM has increased 20 basis points from the second half last year, and we see the competitive landscape improving in favor of the lender.
The amount of capital deployed will concertina with the warehouse facilities as we build product for the RMBS market and issue into the wholesale markets. We're very pleased with MA Money and the progress made over the last six months and the growth opportunity ahead. Moving to corporate advisory and equities on slide 34. The first half result was a solid one, given market conditions. As I've mentioned, we generated 22 million of revenue in the period, which was 12% higher than the prior period. This was generated despite a lower headcount of 48 versus 56 in the prior period. We currently see the headcount at 50, stable. In the half, we worked on a number of transactions, including being advisor to QANTM on its sale to Adamantem Capital, advisor Decmil on its sale to Macmahon, and advisor to George Weston Foods on its acquisition of Noisette.
We are cautiously optimistic about the second half, although deal timeframes remain elongated and execution risk elevated. Turning to slide 41, where we talk to our medium and longer-term investment approach. The principles that we apply to growing the business have remained consistent for some time now and are: We are 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. The business continues to deliver strong operating results across all divisions.
As we have discussed, the first half 2024 remains a transitional period as we progress through peak investment spend, and as that decreases into the second half FY 2024, we expect to see material earnings growth materialize, and this continues into FY 2025. On behalf of the management team, we are very pleased with the performance of MA Financial, and we look forward to executing our consistent strategy in the years to come. With that, I'll hand back to the moderator for Q&A.
Thank you, sir. If you wish to ask a question, please press star, then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star, then two. If you're on a speakerphone, please pick up your handset to ask your question. Again, that is star, then one to ask a question. At this time, we'll just pause momentarily to assemble our roster. The first question we have will come from Lafitani Sotiriou. Please go ahead.
Hi, guys, Laf from MST. I just wanted to start off with Warburg Pincus, and wanting to better understand, thinking about this partnership over the medium term, is there the hope that there will be other products, funds, that you will launch over time? And trying to understand the mix of that that will go into this new fund or vehicle. Is it anticipated that their underlying funds will represent 50%, or is it more external institutional investors that you're hoping to get in addition to some of their underlying funds? Just trying to think about the mix of the fund in that new vehicle.
A few layers to that, Laf. But, so the real estate credit vehicle really goes to launch post-announcement today. So there'll be a global roadshow through sort of Middle East, Asia, and into North America around sort of, global institutional investors to subscribe for notes in that vehicle. Warburg Pincus will market it to their funds. They've said there's an intention to invest in it. So, you know, we're highly confident about getting through the target of 700 billion, prior to Christmas, and we'd like to think that there's external investors coming into that as well. So it's a, you know, it's a full court press in terms of trying to get third-party LPs into that fund.
And what it does is also allow our institutional distributional marketing team to get out there as well with Warburg Pincus and leverage those relationships. In terms of timing, you know, clearly there's commitments of subscriptions made this side of the new year, and then we go into a path of deployment. And it's really about originating and managing those assets, right, which is what they're leaning on us to do. And that timeframe could be 12-24 months to try to get the money deployed.
And they're typically going into projects that have a life of, call it, 18 months to three years as sort of outside range. And then the money can be recycled or it can be returned to investors, and we'll just see how that plays out. In terms of other initiatives with Warburg Pincus, obviously, they've done a lot of due diligence on our platform, which gives us great confidence in sort of the, I guess, the quality of the platform we've built. And having these sort of conversations and a partnership with them allows us to build on that relationship and pitch other ideas to them and also to other institutions. So we think that does accelerate, I guess, our relationships and opportunity to build other platforms off the back of it.
Yeah, got it. Why don't I move on to the U.S. private credit and platform there, and the ambition to do asset-backed lending. Can you add a little bit more color around timing, milestones that we should expect over the next year?
Sure. We're in the process of getting our fund structuring right. That's still taking a little bit more time. We would be, you know, we'd be expecting to sort of see a bit more capital deployment and growth in that within the first quarter of next year. There's a bit of a process that we've had to go through, and we're still in to get to that start point, but we would anticipate to see a bit more deployment and growth coming through in the first quarter next year.
Okay, got it. Just a couple more from me. If we look from first half to second half, in terms of some of the big swing factors that gives you confidence in the uplift in the earnings. From first half to second half, there's the ten basis points higher in asset management. There's the halving in the investment spend that you've called out. There's MA Money hitting breakeven, and then there's the underlying net flows in asset management, not yet the new mandate, which would not yet be deployed, but would that broadly be the four big swing factors?
There tends to be a little bit of a skew in corporate advisory as well, but it's not always massive. It tends to be a bit of a skew. So I think it supports all in that.
Okay, got it. And so just thinking about financial year 2025 and the strategic investment spend, I'm not sure if it's too early, but is there any thought on whether there would be any sort of strategic investment spend-type investment you're putting into your thinking for FY 2025?
I think, like, clearly, MA Money's been a big focus for the group. The U.S. credit platform's a focus for the group, and, you know, later in the year, we'll update the market on the sort of investment spend and where we think that lands for 2025 as we go through the budgeting. It's clear to say that it's always a feature of our business to try to think about how we can grow earnings in the future, and investment has been part of that. And let us come back to update, but it won't be, you know, it won't be as material as it was this year. It could be still, probably be significantly less.
Got it. Makes sense. Thank you.
Again, as a reminder, if you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. The next question we have will come from Nick Burgess of Ord Minnett.
Yeah, morning, guys. Thanks for taking my question. I've got a couple. So just in asset management, flows, just thinking about the trends quarter on quarter, first quarter, second quarter. So it looks like net flows have moderated a touch in the second quarter versus the first quarter update, but only very mildly, so obviously, still very strong flow there. But FUM is only up very modestly first quarter to second quarter. So what was the sort of headwind there from a mark-to-market perspective, I suppose?
So when you say FOM, you mean AUM?
Yeah, sorry, AUM, excuse me.
I called out a few things around some large investors on the net flow side and the processing of the visa sort of kicking off again. But on the AUM side, really, we've sold a few assets in the hospitality business, which is about AUD 200 million. And there's been small mark to markets, but it's not as material as some other managers that are solely focused on real estate. But there might have been AUD 50 million of other mark to markets in there, and that's really caused the headwind in the AUM number in terms of growth half on half.
Yeah. Okay, got it. So, and just related to that, so some positive comments on recurring revenue margins. Going back to sort of 160 or more, which of the sort of headwinds specifically are unwinding and which are perhaps something that we might expect a bit further down the line on that revenue margin?
I think a little bit to do with the AUM mix, and also it's to do with our range of fees coming out of the credit funds and just timing around that money being deployed. And we've been accelerating into deployment in the first sort of seven weeks of this year, and we see that. Or sorry, this half, and we see that accelerating into the sort of end of the tail of 31 December. But with the range of fees, as we've said, they're not, you know, they're sort of annual- when you annualize them, they're very predictable, but just through timing, there could be some noise in that as well.
And then underlying that is their sort of AUM mix as well, and we've sort of gone through some of the, I guess, the market impacts on some of the asset classes as well.
Okay. And so just so I'm clear on that 160 , sort of benchmark for the second half, does that include any impact from the Warburg Pincus deal? So based on what you're saying, FOM might-
That is quite. Yeah, that's the [crosstalk] So really, that's looking at the composition of our flows as we're seeing them come through today.
Yeah.
When you think about Warburg Pincus, really think about us raising the money this side of Christmas. It will not contribute revenue until we start deploying that money.
Yeah. So will it go into FUM, though, on your FUM updates or not?
It's a very good question. It will be there in FUM in some sort, but I think we need to probably rethink how we present our FUM in terms of what is allocated or subscribed for and what is actually deployed. But we'll work on that.
Yeah. Okay. Yeah. Okay, that'd be helpful. Thank you. And just lastly, on MA Money, so clearly some good momentum there. Just in terms of the profitability, sort of targets and progress that we're talking about for the second half, how should we think about net interest margins over the second half and into next year?
Yeah. So obviously, when we were in growth and ramp-up mode for the business earlier on last year, and the broader market environment was really competitive, and the net interest margins were, you know, in the 0.8%, 0.9% zip code. That's now seeing a more return to normalization to market. So the current book is around 1.1%, and we would expect a small tick up in that coming into the end of the year. And look, hopefully, it normalizes back to a more market level, where we'd like to see it be in the 1.2%-1.4% zip code, really. But it's a slow and gradual path, but it's moving in the right direction, and the volume is there.
Yeah, it continues to improve throughout the year, and I'd see there's been 1.2% for the full year is kind of where we think it will land for FY 2024.
Yeah, okay. Thanks very much. That's all very helpful. Cheers.
Your next question comes from Richard Coles of Morgans.
Yeah, thanks. So now, I just want to clarify just one of the last points that Nick just asked there. So just understanding the NIM that you're sort of targeting as part of your targets for FY 2026 in MA Money's, so that's in that 1.2%-1.4% range, is the way to think about that. Is that to get those profitability levels you're after?
Yes.
Okay, no worries. Sorry, I just wanted to clarify that. Thanks very much.
Thank you.
There are no further questions at this time. I'll now hand back to Mr. Biggins for closing remarks. Sir?
Thank you, Nick, and thank you for the time for the call and people paying attention and we'll catch up with those that we have one-on-ones with shortly. Thank you, have a good day.
Goodbye, and thank you, sir. That does conclude our conference for today.