Company Interview / Netwealth lifts dividend as profit leaps

Key takeaways:

Netwealth's statutory net profit has surged by 24% this year with a net inflow of $1.2 billionEfforts to increase advisor’s efficiency and client capacity are underway to drive further growthThe potential of AI in increasing efficiency is being explored further

Netwealth's (ASX: NWL) statutory net profit has risen by 24% to $83.4 million this year. According to Matt Heine, CEO of Netwealth (ASX: NWL), the company has seen significant growth across its key metrics and has strong net inflows for the fiscal year, amounting to $1.2 billion. Despite a slight decline in share prices, Matt expresses satisfaction with Netwealth's (ASX: NWL) performance, attributing a great deal of the company's success to its financial advisors and intermediaries, who contribute to 95% of its net flows.

In continuation, Matt reveals Netwealth's (ASX: NWL) ongoing initiatives to increase their advisors' efficiency and client capacity. Currently, an advisor on average can handle 110 clients per year, but with the aid of technology and efficiency strategies, Matt believes they can manage up to 130 or 140 clients. Furthermore, he mentions the increasing growth within their retail super product and the high net worth part of the market.

Concluding his discussion, Matt outlines the company's strategic partnerships with AI Capital, a global alternative platform, and IAM, a small bond parcel service. While the company has considerable cash reserves, most of it is funnelled towards regulatory requirements and dividend payout, with an increase from last year. He also hints at the company’s interest in tapping into the AI space to boost efficiency. The focus, he suggests, is not on reducing staff but on redeploying them to higher-value opportunities.

Full unedited transcript:

0:00

Now turn back to earnings results. Net wealth has seen a statutory net profit for the year rise 24% to 83.4 million, while its reported total income is at 255 million, which is up almost 19% EBITDA, rising to 124.7 million, a margin improvement of almost 29% funds under administration, growing about 25% in FY 24 to $88 billion, while it recorded about 1.2 billion of net inflows in July. Investors will receive a total dividend of $0.28 a share, which is up from $0.24 a year ago. The company is saying it has significant cash reserves, is debt free and has low levels of capital expenditure. Well, let's get some further detail now. Chief executive of Net Wealth Matt Hind joining us. Matt, welcome back to Osiris. Thanks for joining us.

0:49

Thanks for having me. How would you describe this result? Because the market hasn't really taken to this. You are. Your share price is down quite significantly this morning

1:00

Yeah. Look we're really pleased with the result. You can never gauge what the market's going to do. But last year was a very strong year as as you just mentioned and went through. We had really big increases across all of our key metrics. We had incredibly strong net flows and we've started the year off very well. So we're really pleased and and looking forward to the year ahead.

1:21

But in place at the moment, I noticed that you have launched a number of new enhancements, particularly as far as advisors are concerned. What are you doing on that front?

1:30

Yeah. So the bulk of our business, about 95% of all of our net flows, actually comes through financial advisors and financial intermediaries. So there's a huge amount of work continuing that we've been working on now for, for many years to effectively help advisors and financial intermediaries be more efficient and to to be able to see more Australians and help more Australians get advice. So when you sort of play that out and look at a number of the initiatives that we are working on at the moment, we believe that we should help be able to help advisors significantly increase the number of clients that they can currently see. So as it stands, given a lot of compliance and a lot of regulatory sort of overhead. Uh, the typical adviser can see somewhere in the vicinity of about 110 clients per year. Uh, so by driving efficiency and deploying technology better in their firms, we believe not only will they be able to engage better with those clients, but they should be able to, over time, see 120, 130 or 140 clients. So that's a really key focus area for us. Um, and again, we think that will drive

2:30

not only significant net inflows from our existing clients, but also continue to help us attract many more advisors to the platform. What what sort of growth have you seen, particularly in relation to super and. Well, more more importantly, I guess self-managed super

2:45

uh, self-managed super is an important part of our business. So we have a very small, uh, business where we do set up and establish self-managed super funds, but for a large part of our investment product. So that is the non super product. Um, historically it's always run at about 50% of the money invested being through self-managed super funds. So uh, we see self-managed super funds. Uh continuing to be a very important part of the future. Uh, we're seeing really great growth in our retail super product, particularly in the low cost

3:14

products, since its launch back in September. But equally, on the other side of it, we've been very successful and will continue to grow rapidly in the high net worth and ultra high net worth part of the market, where we've developed some fantastic new capability and dramatically increased the range of investments, but that we're able to to offer and also administer

3:32

overall. Matt, what is your market share at the moment and what sort of pace of growth have you seen there?

3:39

So market share at the end of March, which is the latest figures that we've got, we're sitting at 7.7%. So that's about a 1% increase on the on the prior year. Um, and as you uh, as you would have seen from the numbers, we record $11.2 billion net inflows. But that was actually off the back of a gross inflow or a record gross inflow of $22 billion. So, uh, all of the all of the metrics are certainly heading in the right direction. And we're feeling very good about the year to come

4:09

How are those revenue margins looking at the moment?

4:12

Uh, At revenue margins. You would have seen again from the results. Uh, we recorded for the second half just shy of 50% EBITDA margin. Um, and you certainly whilst we're expecting a small increase in our expense line, uh, this financial year, um, we're also continuing to grow the business. Well, when you look at where you're at right now, then, Matt, what are the, uh, what are the opportunities that growth opportunities you're seeing at at the same time? What are the biggest risks?

4:39

Uh, so we do currently only have 7.7% of the market. Uh, so as the specialist platforms continue to grow market share, we think the significant runway or upside just within the existing platform market, which currently sits at about $1.1 trillion, uh, we're also looking at expanding the addressable market quite significantly outside of the platform market with a range of the new products. So, um, with non-custodial assets, uh, we're able to tap into pockets of the market which haven't traditionally sat on, on, on the platform before. So, uh, just from an organic perspective, um, very significant upside, uh, particularly as that thematic of specialist platforms growing market share continues to grow. It wouldn't be a presentation without mentioning AI, but we are certainly very excited about the opportunities that AI presents for us as a business. Um, and whilst we've we've had AI projects running now for a number of years, we're really starting to see many of them come to fruition. So we're seeing really good opportunities, uh, from an efficiency perspective. We're doing a lot of document automation, data extraction

5:39

using AI techniques. We're seeing some really huge advances in customer service and that ability to provide much better customer service through AI, prompting an AI assistance. Um, as well as being able to deliver, um, some, some great new initiatives around that client facing technology. So using plain English to describe what's going on within client portfolios as an example. So I, uh, what streamlining offers you flexibility. You also likely to reduce perhaps your headcount as a result if you it's more sort of automated. Yeah. I think just because of our current growth profile, it's unlikely that we're going to see a reduction in headcount. Uh, where we see AI becoming very beneficial is that as we continue to automate more and more of the back office people that may have been doing manual tasks historically. They're going to be able to move on to higher value opportunities. So headcount is continuing to grow. Some of that will be the redeployment of existing staff into new roles, as well as obviously attracting new talent to the business. Now you do have a number of strategic partnerships, uh,

6:38

and integrations any more slated? How's that looking?

6:43

Uh, yeah. So the big one that we announced throughout the year was a partnership with AI capital. So our capital is the the global leader or the biggest alternative platform, um, and provides access for our clients directly into a lot of foreign investments that aren't broadly available in the Australian market. So that might be direct access into private credit funds, private equity venture capital out of the US, Luxembourg or other parts of the market. And we see that as really the next frontier for Australian investors. Uh, as it stands, we lag as a country about our allocation to private market investments, where we're probably sitting in sort of 2 or 3% for for high net worth clients, compared to 17 plus percent overseas. So we'll be doing a lot with our capital over the course of the next 12 months. We also launched a partnership with IAM, which is a small bond parcel service for investors where rather than having to to buy $500,000 bond parcels to get into the market, we can effectively, um, break those down into smaller parcels and allow clients to buy

7:43

$50,000 lots. Um, so therefore for 500,000, you can actually build a very diversified portfolio of bonds. Um, and we've seen that, um, become really popular on the platform, particularly given where interest rates are and, and where rates might go. So, Matt, I did mention there at the top you are debt free. You've expressed you have low levels of CapEx at this point. Is it fair to say you are cashed up? If so, where are you spending that?

8:07

Uh, a lot of the cash that we actually have on a balance sheet, um, is for regulatory purposes. So, uh, we tend to, to hold what we need to, for regulatory purposes as well as, uh, you know, some spare cash flow, but most of it's been distributed. Uh, so you would have seen that we've increased our dividend payout again, uh, for this year. Uh, but outside of that, no plans.