EQT Holdings Limited (EQT) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to this presentation of EQT Holdings half year results to 31 December 2021. I'm Mick O'Brien, the Managing Director of the company, and I've got with me Philip Gentry, our Chief Financial Officer and Chief Operating Officer. First, I'll go through the agenda for this morning. I'm going to give you an overview of the results for the half year. Phil will walk through the detailed financials and the details of each of the segments. And then I'll come back and talk about strategy update and the outlook for the company, and then we'll take questions at the end. So firstly, let me give you an overview of our half year results. So we are really pleased with this set of results. The key points are that all the measures are moving in the right direction. Our under management administration and supervision, which is a really key driver of revenue, was up 18.5% on first half '21. So that's really solid growth. Part of that from markets with a lot of organic growth and has translated through to revenue growth, which was up 15.8% on the previous half, so $55.9 million and net profit after tax of $12.7 million is 29% up on the first half of '21. But if you look at the underlying result, it's 19% up on the underlying net profit after tax from the first half of '21. So a really solid set of results. The Board have decided to declare a dividend of $0.48 as the interim dividend, that's $0.04 on the previous interim dividend and $0.01 up from the last final dividend of last year. So a really strong set of results and the balance sheet remains in a really healthy position. I think the half year really has continued to show that we've got a competitive edge in what we were doing in providing trustee services, just reminding shareholders that our focus and strategy is to be a specialist trustee in all the areas of the market where we can provide trustee services and that really is underpinning this growth. The funds flow that you saw on the previous page has flowed through to revenue and that has flowed through to earnings and we've had really tight management of expenses. We have continued to invest and Phil will talk about some of the key people who have come on board through the period and technology, and we'll be ramping up some of that technology stream as we move forward into the next 12 months. But certainly the independent model of trusteeship in the superannuation market, but also in the equity market is becoming the preferred industry standard, and we have a really strong position in both of those markets. The regulatory environment has continued to be intense through the last 6 to 12 months. That's a little bit too extreme for us and in one respect it makes it harder for others. And sure, we've got to live up to that regulatory standard ourselves, but it is our core area of expertise. And it does make the outsourcing of independent trusteeship more attractive than [indiscernible]. So that is a long tailwind for us. And we'll continue to fulfill the purpose of this company dramatically, which is to care for people and look after others and contribute to the broader community. Let me just show you now on this slide the growth in Funds Under Management Administration and Supervision. I use all those terminologies because in some cases where the trustee is supervising assets, sometimes we're a custodian overseeing assets, as an investment manager or administrator in different types of arrangements. So this captures all of those funds. And you see that really is a pretty stunning progress over all of those periods. The only downturn in that set of numbers is in the COVID impact in second half '20, but this growth to $151 billion is an 18% growth on the previous half in the previous financial year. And it's coming from new business, both in Superannuation and in CTS, and a little in TWS. New clients that we've secured in those areas, funds flow to our existing funds and schemes. And the equity markets have also contributed, both the Australian equity markets impacting particularly our private client business, but the global equity market impacting our corporate trustee services which is a really an ideal set of numbers, which drives the revenue. So just look at each of the segments in a little bit more detail, you can see consistent results in growth, particularly on the previous first half '21, but it's particularly strong in corporate trustee services and also in the superannuation area of the business. But just to talk on corporate trustee services, there's been a lot of new manager appointments that we've taken on. Our existing managers have been establishing new funds, that funds flow has been going into those funds. We've seen -- we've expanded our service in the last year to offer dual registry quoted funds, that is a big trend in the funds management industry, and we expect it to continue. And we've also continued to build the corporate trust side of the business, both on the debt side as well as the custody side. If I turn to superannuation, the funds under supervision are up 21% on the prior corresponding period. We've picked up a number of new funds in that time period. We've also had some of our funds growing at a pretty quick rate. We've got a very diversified portfolio. So some of superannuation funds we have, if you like, are not growing as strongly as some others in the market, but there's a number of platform clients in this portfolio that have been running really strongly. And there's no question that independent trustees on superannuation is a growing trend, and we are at the forefront of putting that proposition to other superannuation trustees and superannuation for clients. Now I'd just turn to Trustee Wealth Services, our client business, our Funds Under Management Administration Supervision are up 6.6%. There's been good growth in new clients into a number of the segments. Our in-house asset management is managing just under $4 billion of those funds and they continue to perform really strongly throughout the period. And we finalized a single large estate, and that's why you see the funds there goes from $9.8 billion, down to $9.7 billion. So that was of the order just under $0.5 billion of that particular stat. So the reasonable organic growth are there in that business. Yes, we've used this framework for quite a number of years to focus everyone in the company on delivering for all of our stakeholders. So we've prided ourselves on ensuring that our focus is on our clients and beneficiaries. It's on our employees are engaged in delivering value for shareholders and an impact on the community. With employee engagement, obviously, it's been challenging times not having our employees in the office, but pleased to say they are coming back next week in a hybrid type of fashion. And our #1 priority has been their health and safety throughout 2021. I'm really pleased with the job that we have done on that. We'll do our next survey of employees to understand their engagement with us very shortly. We have done -- recently done our risk culture survey, which is so important to the organization, a trustee company and our results there increased from 83% to 85%. So that was a pleasing result. On the client satisfaction side, we're changing and enhancing the way we go about surveying our clients. So for the first time, we'll be surveying superannuation members and that's really to increase the focus on member outcomes for the members in the superannuation portfolio. And we'll also have a really specialized survey of particular client segments, where you can understand our trustee business, in areas of estate management and potentially testamentary trust management. But the service proposition is a different proposition because the trustee often hasn't been selected by the client and so we want to focus it to ensure that we've really got great service in those areas. Shareholder value, which obviously everyone in this call is interested in, earnings per share is up to $0.6047, that is $0.133 increase really, saw the increased dividend, as I mentioned before, up to $0.48, a $0.04 increase. And on the community side, we just recently launched our fourth Annual Giving Review, celebrating and trying to show the market how we've provided $96 million of grants into the for-purpose sector of the Australian community. And we have a dedicated team doing that and they're first class in ensuring that every dollar of that is going to really worthwhile causes. I'm also really proud when the bushfires hit Australia 2 years ago, we established 2 purpose-built trusts for those bushfires. $7 million was raised for community rebuilding, which has all being deployed, and another $4 million or just over $4 million for volunteer support to the families who lost volunteers in those fires. And I'm pleased to say that those -- that money is now starting to go to those families. I'll move on and just focus on the shareholder results here, and you can see earnings per share in the top block there. The statutory result is up 28% on the prior corresponding period. If you look at the underlying results, bearing in mind, we had a major expense in the previous result. The underlying result is up 18%, so really solid results on earnings per share. And in this business our earnings really do translate to cash flow, and that cash flow does allow us to be clear with the way we set our dividend policy. And you can see there the increase in the dividend in each of the last 3 quarters after the dip we had in the COVID impact year, albeit within the full year, we haven't reduced them at all. And so it's a nice healthy progression on the dividends. Just a couple of other achievements I want to touch on. I mentioned before on the people front. Trusteeship is about judgment and that means people. There has been increased pressure in the, I guess, employment market in Australia, particularly in certain areas. Technology is one such area that impacts us. And we've had a slightly higher turnover rate. But I'm really pleased that -- with our ability to recruit the people, that we have gone to recruit. And just a couple, I'll touch on here that a new company secretary joined us just a couple of months ago. We've put in place, a new general manager of business development and corporate trustee services, given the demand that we're seeing for our services there. And we're expanding our asset management team by appointing a head of the responsible investing as we continue to develop our responsible investing framework for our portfolios. On a technology front, we've implemented a number of really specialized technology platforms. CAMMS is our risk and compliance platform that runs across the whole business, a very important platform for a trustee business. Zeidler has been implemented for our service provider oversight. Bear in mind, we utilize probably something like 30 major service providers across the company, and we are overseeing and responsible for their work. So our oversight function is a really important function of trusteeship. Our sales force will continue to evolve and our cyber resilience is being worked on continuously over the last 18 months, and we want to reasonably competent position in that spot. We will do -- we've done a lot of preparatory work and we'll have more major IT development in the next 12 to 18 months, particularly in the trustee wealth services, our private client business, where we will be putting in place a new platform. That's a very important upgrade. And then on the finance side, we will be putting in place a new platform in finance. On the marketing front, we continued improvements in our search engine optimization and digital marketing, increased our communications program and really changed our marketing, it needs to be hybrid online events. And that will continue to be the case as we -- workers return and our clients return basically into the cities. On the asset management side, I mentioned that we're really building an outstanding investment track record, but just look at Australian equities over the course of the last 6 months, our alpha generation in the main portfolio has been of the order of 1.8% to 2%. So that really is an outstanding result. And if I look at it over the 3 years since we've had the team in place headed by Darren Thompson and by Chris Haynes, the alpha generation is over 1% per annum over that time period. So that has really gone really well for our clients and the beneficiaries of their various trusts. We've consolidated the number of schemes that we've got, so from 24 down to 13. So it's been a long-running process since the acquisition of the [ A&T trustees ] business, where we had the replicated portfolio of schemes. And that now is a complete network, and we launched a new global equity fund in the course of the period called the Eight Bays Global Equity Fund in conjunction. The partnership with Eight Bays, I'm pleased to say we've raised $30 million in that fund and alpha generation of this [indiscernible] schemes. So a really great start. So in summary, we're really pleased with these results. The funds growth has been significant. It's been both organic and assisted by strong equity markets. That has translated into earnings growth, both on an underlying and statutory basis. It's enabled us to increase the dividend again. We continue to invest in the company on the people side, but more so in technology as we move forward, and we're really proud of the impact we have had on the community and our ability to deliver for shareholders, for our clients, for our employees and so on. So with that as a summary, I'm going to hand over to Philip, who will take you through the financial results.

Thanks, Mick. Let me now take you through some of the key points in financials. Let's start first with the P&L. Here, you can see a little bit more detail here, in particular. Revenue growth, you can see up 15.8% from the prior corresponding period, particularly strong. In contrast expense growth relatively contained on a statutory basis, up 2.7%, albeit when you strip out the M&A project expenses from the PCP then expenses are up 8%, but still well below the rate [indiscernible] we've seen in the revenue. That transforms into a healthy increase in EBITDA, nearly up 40% and net profit before tax, up around 30%. Net profit after tax is up 29.3% and EPS up 28.2% on a statutory basis, albeit on the underlying again, adjusting for those project expenses, EPS still up a very healthy 18.1%. The dividend up $0.04 on the PCP, $0.01 on the previous half. We now just break down the revenue in just a little bit more detail for you. You can see that a bridge on revenue growth versus the prior corresponding period, showing the split between the organic revenue growth, which is pretty healthy, about 35% of the total. And obviously, positive equity markets have made a material contribution as well, particularly in CTS and TWS. Let me just expand a little bit further on some of those key metrics. Here, you can see some of the history over the last 5 halves on each of revenue, EBITDA, NPAT and dividends being a very consistent improvement over those periods. And as Mick mentioned, notwithstanding COVID in the second half of '20, full year dividends were maintained through that period as well. So a pretty solid performance. Now let me turn to each of the major revenue business units and starting firstly with Trustee Wealth Services business. On the left-hand side, you can see there, respective bridge on revenue, again, a strong contribution from organic growth and some positive assistance from the equity markets as well. On the right-hand side, you can see the FUMAS breakdown, a slight reduction half-on-half. As a result of that, the estate that was finalized over that period that was referred to, the underlying growth remains pretty solid and also helped by excellent business performance [indiscernible] Going a little bit deeper into TWS now. You can see that the sub-businesses, pretty strong increases across FUMAS across all of them, other than the Estates, which I've referred to before and particularly strong performances from Advice, Compensation Trusts. Living Donors there, the Q1 is a stand out, but generally quite positive momentum across TWS. Now turning to the Superannuation business. Here, revenue is up around 12% on the PCP, again, quite strong. On the right-hand side, members are down, but largely due to transfers to the ATO across the -- which is a feature of the whole industry. Funds under supervision number is still healthy across the period. Now turning to the Corporate Trustee Services business. This business has been particularly busy over the last 6 months. Strong growth in funds under supervision, headline revenue growth of around 17%, high levels of activity continuing, currently around 35 funds at various stages of establishment. You can see on the right-hand side, a particular increase in funds under supervision of alternative funds. Now let me just show you a little more detail on the fund and client movements. On this slide, you can see some of the activity that's been going on here, quite high levels of new fund establishments, both half-on-half and on the PCP. And obviously, some exits as well for funds that haven't been successful for various reasons. Generally quite good momentum across this business. Then on the right-hand side, you can see about half our clients are global fund managers and half Australian, good momentum across both sets of clients. Turning now to the CTS, Corporate Trust and Securitization business. There's good momentum here, albeit revenue is slightly down half-on-half, but well up on the PCP. Underlying activity levels remain quite strong, and we expect the second half of '22 to deliver improved revenue growth there based on the levels of activity [indiscernible] Turning now to our U.K./Irish business. Here, you can see clients and funds, clients relatively stable funds up a little and funds under supervision up quite strongly, partly assisted by markets, but also some good underlying growth in a number of these funds, particularly as the COVID restrictions abate somewhat and fund managers now could get out and distribute in ways they haven't been able to do before. Looking forward, there is a strong pipeline, increasingly of larger prospects, which is encouraging, and we're targeting 6 to 8 new fund establishments in the next half, which should assist considerably. Now turning to the balance sheet, continues to be quite strong. You can see this circa $100 million of cash in one form or another. Some of that is beta support regulatory capital, and I'll talk a bit more about that shortly. Borrowings remain relatively modest albeit $30 million of committed undrawn facilities. So plenty of flexibility to take advantage of opportunities, should they arise or ride out perhaps more challenging economic times should they arise as well. Moving on to cash flow. Again, a particularly strong cash flow generation half. Very consistent high-quality cash generation, principally used to pay dividends and income tax, negligible bad debts. No particular issues on the horizon in that regard, we see continuing strong cash generation in the period ahead. Now a little more focus on liquidity, just to paint a bit more of a picture here. Here you can see a bridge which helps explain our unencumbered liquidity position. On the left-hand side, you can see the total liquid assets held and definition of those is spelt out below the chart. We've got about $66 million of those liquid assets, effectively a requirement of regulatory capital, mainly for the RE business. Then we've got some ORFR related cash, which essentially matches the ORFR lines, supporting our superannuation business, leaving around $30 million of net available liquid assets. When you combine that with the committed undrawn facilities, we've got about $60 million in surplus to corporate available liquidity. In summary, a very strong organic revenue growth performance supported by the growth in the equity markets, underlying cost growth well below revenue but quite a bit of investment still to come in resources and technology to support the sustainable future growth, and Mick will talk more about that when he talks about strategy. Particularly strong growth in EBITDA, margins increasing. Again, we'll talk more about the outlook in due course. Strong cash generation and well positioned to take -- to support the company's future growth aspirations. I'll pass back to Mick to talk about the strategy and outlook in more detail.

Thank you, Philip. So let me just give you a quick update on the strategy and how we see the outlook for the company. Firstly, this company has been founded on trust through its 135 years. And I guess trust has never been in more demand, and that goes to our private client business, that goes in the role we play in funds management markets and the role we play in the superannuation markets. And in an uncertain world with the independence and specialization and the history that we bring, really is a very positive attribute for the company. If I just give you a quick look at what's happening in the market and the environment, we really do feel we're experiencing tailwinds. So the Royal Commission, obviously, was very focused on trusteeship basically in superannuation and in funds management. The regulatory landscape is changing constantly. And it really is a core capability of the company to be able to do that. So I mean a good example of that would be the rollout we did of the design and distribution obligations. That was a rollout that we did a couple of hundred schemes with target market distributions, which saved our clients enormous amount of time, and we have the efficiency to be able to roll that out in a really streamlined way for the benefit of our clients. There is a focus on core capabilities. Everyone is really narrowing down on their core capabilities in the value chain. And so ours is really clear. It's trusteeship, right? And that's just at the apex and really the control of the whole value chain in financial services. So it's a good position to be in. COVID and the markets have obviously impacted and changes in ownership in the wealth market has also impacted and provided opportunities for us. So every time there's change, the various new owners and players that are in the market are considering what's the best way of establishing their arrangements and often the independent specialist model of trusteeship is considered in most circumstances. Our strategy hasn't changed. We're looking for consistent growth in shareholder value and returns. So we do see good growth opportunities in key parts of our markets. Others take, if you like, a longer time to grow. We will continue to invest in those areas where that's the case. We have an increasing focus on client service. So we don't take any beneficiaries for granted, even though the role of trustee quite often has a very controlling position over the arrangements that we have. But all of the clients are beneficiaries critical to that they deliver the same -- that they are delivered the same level of service. We will be investing more in technology. I'll come to that in a second. And we will be the beta leader in the markets in which we compete. So if there's markets where we don't have that leadership position, we're looking at ways we can achieve it or we won't stay in those particular markets. I look at each of the business unit strategies and I'll start on Trustee Wealth Services. It's been a business that has a really strong leadership position in the legal industry. And we've been looking to expand that into other distribution networks. We've got a very strong presence here in Melbourne and not quite the same in some of the other cities, and we're looking to -- and not all of the segments in which we operate in. So we will be [indiscernible] sure that we've got that leadership across multiple segments and all across the country. We're going to invest significantly in the platform -- the main client platform for Trustee Wealth Services over the next 12 to 18 months. And that will be the objective, and that is to deliver better client experience and improve our operational efficiencies. In superannuation, the opportunities are pretty immense at the moment. So it's a market that's growing at a really good rate. There's a lot of change going on. We've got a leadership position in providing trustee services with our independent specialized model. So we'll continue to put that forward to other superannuation trustees as they look to make changes in how they're looking after their superannuation funds. There was a big focus on member outcomes that has been a focus for the last 18 months and we'll continue to build our efforts, heat maps that are applying in the buy super space now, being extended into the choice space, and we're well positioned to manage that transition. And in Corporate Trustee Services, we've got obviously, the leading position in providing RE services in the [indiscernible] market here in Australia. We're trying to replicate some of that success into the U.K. and Ireland and build the profitability in that business. We're increasingly focusing on the corporate trust side, both in the debt and securitization markets as well as in the custody and real asset markets, and you'll see more of our attention put to that. I'll just go down in a little bit more detail in each of these areas. In Trustee Wealth Services, as I mentioned before, we're going to put in place a new client platform. It will take us some 18 months to do. And we've done a lot of work in the last 6 months to set ourselves up to do that. We continue to build out the asset management capability, as I mentioned before. We have taken on board quite a number of health and personal injury clients where we were a trustee, but not the financial adviser. We will now be their financial advisers. So that portfolio, I think, now is up to $0.5 billion and we are financial adviser and the trustee for those clients and sometimes the investment manager as well. There's a big focus on operational efficiency. I think it's a business that -- it's complex, it's diverse, but there's plenty of opportunity to achieve operational efficiencies when we put these new platforms into place. In the Superannuation space, we've got to continue to build our data analytics and because APRA is demanding more and more, and there's a greater focus, as I mentioned on member outcomes. We're very active in the market talking to prospective clients. And as I mentioned before, demand for specialized superannuation trusteeship given the obligations on superannuation trustees is just increasing all the time. And I think increasingly, providers are seeing that the independent model and the unconflicted model is what the regulator wants and what is best for their members and enables them to focus on their core capabilities, whatever they are as an investment manager or administrator or distributor. So we continue to put more people into this business. And I'm really pleased that we now recruit the -- that the quality of professionals that we have been able to handle the growth that's been there and as such the business is in a really solid shape. On our Corporate Trustee Services, I think I've touched on many of these things, I will just mention that the build-out of listed investment schemes will continue -- we now have 7 listed in the market and we have a pipeline of the AQUA in that number. So that's expanding the distribution capability of our clients. We've been winning on the Corporate Trust side new deals in securitization. And in the real asset space, as I mentioned, we're putting more resources into that and we'll be recruiting more people to help build that business over the course of the next 12 months. And the momentum is growing in the U.K. and Ireland, we've managed quite well. We increased requirements of the Financial Conduct Authority in the U.K. And we've built a full portfolio of clients announced the funds flow into those clients' funds, which will build the profitability of that business. The technology side, I mentioned quite a number of these things. And perhaps you can see there the investments that we've had in the second half of '22, $0.5 million to $1 million we're expecting but then going to FY '23, $2.5 million to $3 million. So [indiscernible] we're seeing in technology to handle that transition of the Trustee Wealth Services client base to a new platform and also to handle a new finance platform. And also, we're doing a major piece of work in Corporate Trustee Services, just given the sheer scale of that business and the complexity of it, with almost 400 schemes and 130 fund manager sponsors and promoters as clients. It's a big business. And while we've been putting in various solutions, over recent years, we need to reengineer some of those processes. So it's fit to double again in size in the coming years. I mentioned before that risk and governance is really critical to a trustee business. I'm really pleased to say that we have excellent relationships with 2 main regulators at the highest levels of those organizations. We have an incredibly clean track record in recent years, not caught up in any of these incidents with the Royal Commission, not caught up with any enforceable undertakings, not caught up with any class actions. So it really is a testament to the way we conduct ourselves as a trustee. I mentioned before the Risk Culture Survey response, we're pleased with that result -- rather that response. It really is a critical part of that business to have first class governance and be able to handle the regulatory requirements that are on entrusted. So finally, in summary, I think our strategy is being reinforced, the strength of it and living up to deliver growth in funds and revenue, and that has translated to earnings. We've had an enormous gap between revenue growth and expense growth in this period. The trend to outsourcing fiduciary services, we expect to continue, and we're really well placed in each part of the market to capitalize on that. The equity markets have helped us in the time over the last 12 months. Obviously, the unfortunate circumstances in Eastern Europe will have some impact on market volatility. And part of our business, obviously, with revenue is correlated to market returns. We expect to see growth in the securitization of debt side of the business as well as in customer real assets. In the people business -- people, obviously, the market has got tighter, but we're prepared to meet the market. We, I think, are increasingly seen as an employer of choice, given our specialization and the purpose of this company for what exists, I think makes us a very attractive employer. Some significant IT developments coming forward in the next time period. The balance sheet, that's what makes us in a great position. We've got very positive momentum moving into the remainder of FY '22 and beyond. So we'll stop there, and we'll take some questions here.

So the first question here is around the CTS U.K. and Ireland business. And it's basically saying, are we seeing growth in funds under management from new client wins. Are they attributable to onboarding of new clients that are already there or are they still prospective. So the growth that you see -- you saw in those slides in the U.K. and Irish business is primarily coming from funds flow to existing clients, because that's really the best sort of growth for us because all the work that we do is really setting clients up and then establishing funds. And the business has been on that path for the last 4 years doing that. And at that stage, funds are at a point where they're paying a minimum fee and covers our cost, but doesn't really get us to those profit margins we want. So we need to see our clients growing. I'm pleased to say that there's a number of clients in the U.K./Irish business, some really high-quality fund managers that are achieving that growth. We have got a pipeline of new clients coming on board. Things take a little longer over there to get funds established because the Central Bank and the FCA in the U.K. are a little slower and afraid to establish funds that what they are -- what we see here in Australia. But I think the pipeline is solid. Perhaps, there will be an exclamation mark we could use, corporate trustee services, Corporate Trust and securitization business, we saw revenue drop back, but it looks like the key drivers are outstanding. That's when we think about those performance metrics for the business going forward.

Thanks, Mick. Look, that business has seen higher levels of activity and the key metrics are heading in the right direction. I think our expectation is that there's been quite a lot of new business put on in the last few months. And I think the full half impact of that should come through in the second half. And there's a fair bit of additional new business expected to come on as well. So we're quite positive about the outlook for that particular business.

The next question is a great result in 2021. Census results likely show another median rise in Australia's age to 39. Can you expand on how the demographics impact the business? And also the declining population in our home state of Victoria. So good question. I think, firstly, we do have a footprint across all of Australia. So obviously, the history of the company is here in Victoria. But -- and the private client side, Trusted Wealth Services is more focused here in Victoria, but we are -- we do have a solid footprint in all the other states. And of course, the 2 corporate lines of business across the whole country. So I don't think the geographic decline in Victoria, if that continues, is going to be any impact on the company. The aging of the population really sees more demand for our services in Trustee Wealth Services. We are, I guess, increasingly seeing well moving capacity in late fees. I guess, medical technologies enable us to have people living a lot longer, doesn't necessarily mean you've got the capacity to be able to meet their needs [indiscernible] so where I see more clients, I guess, anticipating those sorts of changes, the families anticipating those changes and putting in trustee arrangements to look after their loved ones. So that's a positive trend for the business, but it will play out over a long period of time. The next question is about the U.K. assets, the larger prospects may mean a shorter time to break even. Rome was not built in a day, and its a geopolitical worries including [indiscernible]. But will you visit the U.K. operations at some stage to enhance relationships, including the major clients [indiscernible] to people. That's an excellent question. Look, I think it's important that when you're building a business, you're picking up clients who are really great clients and going to be successful. Having said that, we will also back fund managers that we think can have success that is not guaranteed. So that's just the way our business to back those types of potential clients. So getting over to the U.K. and Ireland, we would like to, at some stage very soon. So it hasn't been possible frankly, since February of 2020, I think was the last time. So it's been due to that we're running our business remotely in that way. We've got some good leaders over there and the business has continued to progress. That's important, we do get some of our people and we're planning to do that over to the U.K. and Ireland very shortly. Perhaps Phil can take the next one, the Trustee Wealth Services before tax margin was up considerably. Can you talk through cost management in the segment and how the abatement of certain headwinds persisted.

Thanks, Mick. TWS cost growth was the most modest of all the 3 BUs. In fact, there was actually some cost reduction in certain areas, offset by investment in certain areas in some way. The increased revenue that came through from both the organic growth and it's just in certain markets substantially fell to the bottom line [indiscernible] as you can say, first is the margin business. We think that, that can continue, though we do expect further investment in TWS, particularly in technology, but from a resourcing standpoint, it's really [indiscernible].

Next question is Trustee Wealth Services outlook commentary talked about AMP health and personal injury clients. Can you talk about that opportunity and the implications. So in arrangements -- trust arrangements, looking after health and personally injury clients, generally the courts appoint a trustee and also a financial adviser to look after those clients' interests. In many cases, we perform both of those roles. In some cases, we've worked with other distribution partners. And in this case, as AMP advice, where they performed one of the roles that we perform the trusteeship. What we've done just recently has taken those clients across so we're providing both services to them. So -- and we've been lucky enough to recruit one of the people out of AMP advice, we're sisters in that. So we maintain the client relationships that were in place. That will have an impact, a positive impact on revenue going forward, and it really does set up the portfolio of that business in a much more solid fashion. We prefer to be doing both those roles concurrently. The next question talks about the impact of negative market returns in January and February on fixed segments revenue and on [indiscernible].

Thanks, Mick. So the market impacts on each of the 3 businesses will essentially translate as per the guidance we've previously given to each of them. At TWS, about a 50% leverage to the ASX, average 200. In the case of CTS, about 50% of the average gain in growth in [ SDI ]. In the case of STS about 20% to 30% leverage because there's a lot more fixed arrangements traded in the average ASX 200. And reality, you've obviously seen in January, there hasn't really been much effect in January on the revenues, continue to be pretty strong in that month. Obviously, February is not complete yet, but it will translate along the lines I've suggested. So I won't know a particular price.

Thanks, Phil. Next question is about given what level of gearing will the company be comfortable with in a M&A scenario, should we think about a multiple of profit before tax or a debt-to-equity excluding the ORFR reserves that we have.

Sure. Certainly, we could borrow considerably more debt for M&A for the immediate term. We wouldn't be particularly comfortable if that debt should be long term in nature. But for a short-term period, say, 18 months while debt levels came down to more normal levels, we'd be happy to do so. We do have a policy of maintaining at least a investment grade equivalent rating though we're not formally weighted, but we look at metrics to assist in that regard. And the EBITDA multiple would be a useful place to start. I wouldn't want to put a specific number on it because obviously, that depends on a particular acquisition.

Thanks, Phil. Next question, losses in the U.K. and Ireland are running heavier than expected. Can you talk through your confidence in the ongoing investment? Costs in the segment were up on PCP down on the second half '21. How should we think about costs in second half '22? I'll have a go at that, just covering on the cost issues. We have been managing those businesses fairly tightly. There is a need when you're a small business and you're bringing on a number of new funds to sometimes put those resources on as you're establishing the fund. So we certainly do that as we need to do it. I don't see any major change in the trajectory of the cost base the way it is at the moment. Confidence in the investment, well it has been tough time not being able to be there for 2 years and COVID impacting just generally how that may -- the markets operate over there. And particularly, most of our managers are distributing the retail markets of Europe and the U.K. and retail funds mainland distribution has been held back through the course of the last 18 months. So we're looking forward to more normal settings, getting our employees back in the workforce will be helpful and having us get over there. So they are more competitive markets for our services than what we see here in Australia. So we're not going to be the dominant player over there, but we're still confident of our prospects and have got a reasonable pipeline to continue to keep developing those businesses. Congratulations on the strong result. Can we get a feel for the expected cost growth, excluding the technology costs, which you disclosed separately? Is first half guidance consistent with the second half? Phil?

On the cost front, obviously, there is the additional tech costs we've talked about. It will be -- our expectation is that there will be some higher salary costs. We are recruiting relatively heavily in a number of key areas at the moment, and I expect there will be some increase in people costs in the second half. So certainly, I'd expect some cost increase half-on-half. Not too dramatic though, the -- but certainly reasonable.

Thanks, Philip. Surplus capital and conservative balance sheet, could you please comment on interest in M&A and capital management. So perhaps I'll take interest in M&A. We've seen that we're very interested in businesses that are operating in the trustee space, maybe a little to the adjacency of that, but primarily in trustee space. So that continues to be the case, and we're actively looking at the market for those types of opportunities. And the balance sheet does give us quite a degree of flexibility to be able to pursue any of those opportunities should we need to do it.

In terms of capital management, that's certainly something we give consideration to. At the current point in time, we believe there's quite a number of opportunities to consider deploying that capital both within the business and potential M&A opportunities, any of which would potentially have very good returns to shareholders. So not at this stage, other capital management is not a high priority, but it remains a consideration for the future.

Thanks, Phil. Philip, can you comment on the noncontrolling interest at $0.7 million versus the loss in U.K., Ireland at $1.5 million seems high.

Just a bit higher than usual. The part of the reason for that is in the period, we've taken the opportunity to derecognize the deferred tax asset in the U.K., and that's what's influencing that result. Essentially, there's still some uncertainty regarding the -- when we can -- timing around the recovery of those losses. So we've taken a conservative position.

Thanks, Philip. Next question is, what percentage of the anticipated IT spend in second half '22 and FY '23 is expected to be capitalized.

Yes. There will be some that is capitalized but in those numbers it's substantially more OpEx.

This is probably the last question, congratulations on the great result. What is your expected ROI from your technology investments and the time frame for this? Perhaps I'll take that one. So I think -- on the Trustee Wealth Services side of the business, this is going to take us some 12 to 18 months to make this platform go across the whole business. It's primarily aimed at delivering better service to clients but it will produce operational efficiencies for us. That will be able to be achieved in a relatively short time frame after the implementation of the new platform. So it's not something that's going to take us years and years and years to roll out across the business. And we expect to be seeing those results fairly quickly after the rollout. On the other investments that we're making there, they are primarily designed as well to delivering better client service efficiencies in the business. And we expect to see some return on those types of investments in the years in which we're implementing the developments. So particularly on the finance side, but also the things that we're doing at corporate trustee services to make that business more efficient. So I think that brings us to the end of all the questions. So I really appreciate all the questions. Philip and I will be, over the course of next week, talking to shareholders, and we're really looking forward to talking to you individually and in other group meetings over the course of the next week or so. So thanks very much for attending this morning.