Company Interview / Solid underpinnings for a rapidly evolving regulatory landscape

Key points:

Equity Trustees sees substantial growth in funds under supervison reaching $203 billionStrategic acquisitions and divestments bolster market presence and financial healthRegulatory adaptation and tech upgrades are key future focus areas

Mick O’Brien Managing Director of Equity Trustees (ASX:EQT) highlights a notable 27% increase in funds managed, totaling $203 billion for the 2024 financial year. This growth is primarily driven by its superannuation and fund services businesses, showcasing strong market leadership.

Mick discussed strategic moves like the acquisition of AET and the divestment of the UK and Ireland businesses. These steps enhance their market presence and reduce losses, contributing to a 10% uplift in net profit, further bolstering their financial health.

Looking ahead, Mick identifies regulatory changes and technology upgrades as critical focus areas. He outlines plans for a new client platform to enhance interaction and operational efficiency, positioning Equity Trustees (ASX:EQT) for sustained growth.

Full unedited transcript:

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I would like though, to put the focus on results now and this time. Equity trustees, which reported a close to 27% increase in funds under management, administration and supervision. So reaching 2.0. Well, let's call it 3 billion for the 2024 financial year. So let's get into all of the details with Mike O'Brien, Managing Director of Equity trustees. He joins me now. Mick, welcome to OBS. Thank you so much for joining us. So it's a big mouthful. But if you Emma's up at $203 billion what drove the growth. Sure. You know good morning. Thanks for having us. Um, yeah. Look, our fund's simply under supervision. I guess I would say trusteeship or supervision. Uh, and it is a bit of a mouthful. Uh, rose to just on 203 billion. So that's a about a $43 billion increase over the course of the year, which is the largest growth we've ever had Um,

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mainly it was coming from the superannuation part of the business as well as our fund services business, where we act as a responsible entity for funds managers and other asset owners. And I think, you know, just reflects, I guess, our leadership in the market, uh, in those two areas, um, the unique model that we have in providing a governance service to superannuation fund providers and fund managers, uh, and I think the regulatory load in the market is just, um, meaning that, you know, many clients are looking at our model and saying there's a lot of benefit in considering it. Yeah. Um, you know, it's the easiest question, probably one of the most difficult to answer, but can the growth continue at the clip? It is right now. Sure. Yeah. Look, I think, um, overall, even if we're not securing new clients, um, our portfolios typically are growing. They're growing with market movement, but they're also growing with funds flow that is going into various investment schemes and to superannuation funds. I don't think we can repeat that sort of

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growth. Um, you know, because that's fairly extraordinary. But we do feel confident about our market positioning, and we think that we'll be able to continue to grow each of the lines of our business, including now private client trustee lines of of business. Um, of course, our growth is also impacted by market impact and can't really predict what that will be. Uh, so, um, you know, it would be nice to keep growing at that rate, but I think it will be more modest levels of revenue growth in the FY 25. Net profit was up by 10%, part of it because of some strategic moves that Equity Trustees has made throughout the year, including the disposable of the UK and I business. Also the Eat integration. Um, talk to us about strategy. So are there more potential, um, divestments or any streamlining of the business are you looking to acquire? Yeah. Yeah. No. Good, good. Um, pointing out those two points, um, the at, uh, acquisition was done in November of 22, and we're right at the tail end of the

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integration and really, um, confident about the level of, uh, synergies that we're going to deliver on the revenue side and the expense side of that business now has been a major acquisition because it gives us a leadership in the health and personal injury sector of the market. It gives us really a lot of scale in the native title, title, trust business, and it gave us leadership in the Perth market and the Adelaide market and strengthen our position in Sydney and Brisbane as well. Um, we ended in the UK and Ireland about six years ago and we're at the tail end of exiting that. So all clients have gone. Now we just need to wind up those entities and that will remove about a $4 million per annum loss that was happening in those businesses. So those two moves are really quite significant in terms of producing synergy from at and uh, and exiting out of the loss making business. Where do we go from here? Well, you know, we're now in a position once we complete this integration, uh, that we can consider other opportunities. And, uh, we haven't wanted to do that. In the course of the last 12 months, we were focused

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on what we've got, making sure that integration of I.T into our systems and exiting out of insignia systems is done on time and to play. And so pleased with that progress. Um I think that some of the major focus for us in the next 12 months is really beating down some of the technology development that we've been putting in place. Um, and, and then making the most of that. You know, how how is it going to benefit your clients? I mean, you don't have to go into all the detail. I'm sure it's a pretty, um, pretty big process. But what's what's the highlight? Like what what will translate into growth? Sure. Well, trusted companies can be, um, uh, a little bit sort of staid and conservative in their way. But this new platform that we're putting in place for our private clients, it's the biggest investment we're making, is really a major step forward, and we'll give our clients access to their information for the first time and be able to transact with us on a more, um, uh, electronic basis in requesting payments and the like

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and receiving their communication. So I think, you know, that'll be excellent for clients, um, that are also create a lot of efficiency for our operational areas, uh, in that, you know, we will have a lot of straight through processing of our high volume payments that we're making out to various cohorts of beneficiaries. So, you know, I think that's, uh, that's going to be, you know, put us in a really excellent position. Nick, what is the biggest challenge, I guess, going forward? Is it the complexity of the regulatory environment and the way in which it changes? Is it managing costs, you know, determining where to invest in the business, what sort of obsesses you?

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Your first point is absolutely spot on. It's the it's the regulatory change. But it's not just the regulatory change, which is primarily going on the superannuation side of the business and does impact doesn't really impact our fund services business or our private client business. So it's primarily superannuation. So it's the regulatory change one. But the second one is the actual um practice of the two main regulators, APRA and ASIC. Um, even if regulation is not changing, they're changing the way they, um, oversee and implement the regulation. And you know, being I guess, um, you know, much more active in terms of seeking reviews, doing thematic reviews of the industry. And almost certainly given the size of our footprint of assets, we're involved in almost all of those reviews, and that takes a lot of time and effort. Um, and, uh, you know, you feel sort of the regulators, uh, are looking for a lot of stuff. Uh, about how the industry is operating, which is fair enough to protect investors, but it

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does cost money to do that. So managing the expense space with that sort of load of work, uh, is a challenge. Um, but I think that regulatory changes are a two edged sword for us because whilst it might be difficult for us, it's more difficult for others who don't have this as their number one business. And it makes the model of outsourcing and governance and, uh, to us, a more attractive proposition.

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All right. Some shareholders did receive a dividend. Um, yeah. It's been a positive year. Um, you know, what do you say to shareholders about, you know, remaining really invested? How do they think about sort of key catalysts going forward? Mik. Sure. Yeah. Look, I think I say to shareholders, there's really two key underpinnings to our business, right? Um, on the corporate lines of business, superannuation and fund services, it's primarily the growth in superannuation assets and the increasing load and regulatory change that is on. And so, you know, that's a really solid underpinning to both those businesses. For our private client trustee business, it's really underpinned by the ageing of the population and intergenerational wealth transition that's going on and other areas where people need trustee protection. Uh, and again, those areas are growing at a quicker rate than normal GDP. So the underpinnings are really solid. This is a company that's 146 years old. We've got all the talent, the technology that we need to, uh, to be looking after

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beneficiaries. Uh, and we've got a record of delivering, you know, very consistent growth in dividends. In fact, uh, for the last eight years, we've increased dividends every year. We maintained in the Covid year. And I think we're perhaps the only financial services company who did that through the Covid year. So, um, you know, it's a it's a stock that people look at. And so it's got a consistent record and it's got a very strong leadership position in the market. Uh, and the markets are fairly attractively configured. Um, for us.