Hansen Technologies Limited (HSN) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Hansen Technologies Limited FY '22 Results Conference Call. [Operator Instructions] At this time, I would now like to hand the conference over to Mr. Andrew Hansen, CEO. Please go ahead, sir.

Thank you, Chris, and welcome to everyone. It's certainly my pleasure today to update everyone on our financial year. And I have with me today Graeme Taylor, our CFO; and Richard English, our Global Finance Director, and we look forward to discussing our results. So I'll just go straight to Page 5, which is the introduction to Hansen. And look, clearly, probably everyone in most companies around the world, it's been a challenging year, with COVID, interest rates, the global conflict, inflation, labor shortages and certainly, the market which we deal with, the energy market have all been challenging. So to have the result we've done across all that headwind, we are extremely delighted. So most people would understand, but just touching on, we're a very, very proud 50-year-old business, which is amazing to be around for this period of time. We do provide mission-critical solutions to the energy, water and communications marketplaces. I think the very nature of our customer base, the main average is probably over 10 years per customer, which is good. Very experienced and long, loyal leadership team, which has worked with me for a long time, and I would like to say, we've always been very, very aligned certainly the 22-year veteran of being a listed company. So therefore, our staff are very much aligned with our investors and making a good, strong profitable company going forward and incentive programs to match. I think the other key thing about Hansen is that the financial principles of our business and the cash flows. I think that we're not talking about just making positive cash flow for 1 year, 2, 3 years. This has been a cash-generative business for 50 years, which is, I think, is an amazing step in itself. We are true global businesses, probably those listening on the call, and we have, I think it's 15 -- probably close to 1,600 staff today. We have 600-plus customers. We're in 80 countries and we -- our business is really split really right down the middle between the energy and water and the communications business, as we go forward. I suppose Hansen's defensive position has always been just how diversified our company has been and the predictability of our business, which is probably the mainstay of what we're doing here. We do, as we would know, deal with recession-proof industries, the energy, water, and communications markets are always there and not going anywhere. And that's spread across all those customers. The other thing is, we've always concentrated on really this Tier 1, Tier 2 customers. So some of the events which have affected Tier 3 or 4, certainly, with the instability of the energy market has actually [ started to ] good stead. We're not losing customers during that period of time. I think also just the thought leadership from our own customer base and our play back into it is just that we do provide that technical drive into our business and dealing with innovation as they go forward. Consistent growth, industry segments providing organic growth to our profiles. We've never promoted to be some double-digit company, but we would always suggest having money in [ the cash register ] at the end of the day, as always, probably the most important thing to Hansen. A lot of work on modular approach. So a lot of our systems now -- people are now taking modules. So rather than having to do the big upgrade end-to-end, they can take individual modules, and that's provided with some great opportunities for us with customers maintaining existing applications of adding modules, which I'll go on a bit later on. And also acquisition targets. Now I know a number of people on the call today would be keen on us doing more acquisitions. But the times are the times, and we're always going to be concentrating on buying opportunities which extend our existing customer base or take us into new regions as we go forward. Customer focused, clearly, the new logo wins we keep on publishing, and these are the ones which are all material would actually show our reputations in fine stead. I think our products delivering efficiency but meeting regulatory requirements to understand, I think, a number of people which have been hearing this call, our software has a lot to do with local regulations and therefore, to providing innovation, but also regulatory has also worked. That long customer theme, which we actually have and end up building on relations with all of our customers, very low customer churn. And the principle of Hansen is never giving any of our customers a reason to think that they need to look elsewhere, hence, the low churn of what we're doing. And I think the other thing is about R&D investment into known markets and requirements. Our business spent a record year investing in R&D and the software to which we're doing is keeping our software at the forefront of technology, but also at the forefront of where the industry is actually going. And as we see dynamic changes that's happening in the energy supply and the costs and we're all reading that, we're all seeing that, our energy to build at the moment. Now we're working very, very close with our customers to make sure that the R&D investment is actually software, which is going to see the light of day. The sound principles of Hansen. And I think that people which would know me sitting over here for over 30 years is actually treating company's funds like if they're own, like on the founder-led business, but those same principles worked through the whole management team inside our organization. We do very much look at all events in our company is making sure we are getting a return on investment. So we do a lot of work to make sure in the allocation of our money with a customer where we're going to get that money back and quite often partner over the long-term period of the customers. We think that cash flow is always King. We have the advantage and for those which goes through and you look at the financials of Hansen and I know that Richard and Graeme will talk a bit later on, which is actually the way which we walk our way through, we can actually show where every dollar comes from the company, and where we are actually spending our money. And also those things, which should consider the environment in those decisions, the ESG, et cetera, which we'll touch on a bit later as well. But the key point to all this is, to have a business which is going for 50 years and cash-generative and growth is amazing. We just haven't done it for 5 years or 1 year. This is the most amazing business run by whole lot of very talented people in a market which we are subject matter experts. So into our 51st year now, we can't be more proud than what we are to continue that sustainable growth going forward. We do have a team of people. We've put out there some faces to who runs the business. But the average tenure of my management is well over 10 years as we go forward. And as I touched on, I think you'll find that founder-led focus we actually have. The other interesting point, which I do make quite often, whilst we're an Australian-based company, we're not an Australian-led company. So we only currently would double. We now have 2 expats who are working overseas at the moment now. So I think it's a really important characteristics of having Hansenisation as we call it and very sound principle around the way we run our company. But the management team, both here and overseas, so we can -- so if you [ understand them ], that's Finnish people or South American [ voluntaries ] or whether they're in Brazil or whether in Toronto, they're just the local people running our business. And I think that's such an important characteristic that we're not relying on people. Hence, during COVID and lockdown, we didn't have a whole bunch of people marooned or isolated from the business. We're able to just keep on trading, which we think we're very, very happy about it. I think a nice little note here just on shareholder value, and we understand shareholders are the core. We're always interested to make sure where we're going as an organization. But the earnings per share growth, 70%. Debt levels, the ability to pay down debt, I'm not sure how many companies as a percentage of growth turn over profitably and cash could pay down the levels of debt to what we have actually done. But that constant focus and strategic view on our future the whole time, we always have a long-term view, and that relates very much into our customers as well of supporting our customers as we go through. On Slide 10, reputation built on customer satisfaction. [indiscernible] not in business unless your customers want to [ buy off ] you. I think that's really, really important to us that, that strong customer retention. The investment we have made in our areas and primarily it's the B2B, business-to-business, or business-to-consumer marketplace. The money which we're spending in CIS solutions, so on-prem, hosted, SaaS cloud, we have an application which can be supported by our customers, no matter which way they wish to be delivered. So whether they want it to be in the cloud or on-premises, the application is supported in all those aspects as well. Also fully integrated with tech stacks. So some of the work we've been doing more recently is, as I said, I've talked earlier about some of our modules. And those modules now mean that individual customers are able to take some of those modules in addition to what they're actually doing. And that's been very, very pleasing in this last 12 months in some of the future we're seeing the strength of this modular approach to our business. Long-term partnerships, we do a lot of co-development with some of our customers. We actually are sitting sometimes on the inner sanctum about dealing with challenge to their industry and how we can help support them. Our software is on point. Software on point means it's actually what they need today. We're not speculative. We're not writing loads of code to which people may never actually see. So that's a real solution dealt within in real-time. Low churn, in fact, it's probably less than 1% of what our churn is. But the demand from our upgrades and sometimes I hear a person say, all our software is legacy. They don't -- maybe they understand what legacy is. All of our software has a part, which is embracing technology, it's using different delivery methodologies. And it's done in such a way that we're providing enough value in the upgrade that a customer wishes to get that next level of version of software as we go forward. And certainly, the new wins and we're winning all these Tier 1 businesses, which we're winning at the moment now is just a strong testament to what we're actually doing. Look, there has been certainly a lot of R&D, which has been on these future requirements. And there's no doubt the 5G in the telecom marketplace has been one where we're trying to be as up to front of that marketplace as what we possibly can do. Our R&D spend is -- there's not a lot of strange [ number of sight ] of R&D in Hansen. Has always been around sitting where is the industry going to and we have a view of the next 5 years, but we would drop it back into where the next 12 months going. And that's not in consultation with our customers and that we would have a view on receiving upgrades all of that business. And I think our R&D spends about 5.4% of revenue. But remembering, we also have a lot of cost investment with our customers and works we started doing, which we sometimes we're subsidizing, et cetera. But we continue to own the subject matter. So it becomes -- it's always our code and our software customers have to pay a license to use that code. Independent industry recognition, we're in all those reports that are on the radar. We do compete with some very large companies out there. We do compete with the Oracles, the SAPs, the Amdocs, et cetera. But we have -- we certainly win on a size ratio, we punch well and truly above our weight in winning the deals if we continue to win out of there. Just on Slide 11, some of the new logo wins. Look, as I said, we only bring it to marketplace. It's actually -- it's quite testy sometimes. A lot of our customers don't always want notices going out. Certainly, we're winning new business because in some cases, they have not told their incumbents are actually leaving. So there's sometimes is where we can't even make the announcements but we respect that. But in the last 12 months, the Exelon deal was fantastic. Exelon is the largest utility -- energy utility in the North American marketplace. And we sold them the module, which is to deal with all the data and [ migrating ] and cleaning up all the data to actually use. And so we know there's probably another 4 or 5 modules over a period of time we'd like to sell them, but we have a long-term view of our business. Let's get that delivered and then be actually somewhat as a trusted partner to continue to help with them. Energy Queensland and Essential Energy, just a couple of local people that talk to customers here. In both cases, upgrading to the latest CIS version. But more importantly, we've actually won some additional modules, meter data management in there, et cetera. So we're actually selling additional modules. So these were areas which other competing competitors actually own some of that landscape, and we've actually moved forward at the moment now. And just one import, I think one of the pleasing things in our business always is whilst conservative is what the marketplace is, they are always looking for those efficiencies. In Fortum's case, Fortum, we did some work. We rolled our systems for them in Finland, and we're now continuing to roll them out into Norway and Sweden. And looking even to take some of the additional modules again. So we have no doubt that as a company, we are very well positioned to continue with this customer momentum. And as I keep on reiterating the point through profitability. So there's no loss levers across our business at all going forward. Certainly, the global market has some challenges. And so we always see those challenges. But how are we addressing those challenges as a question that people probably should understand. Hansen's been such a long time. We've dealt with all matters of events, in certainly the last couple of years. But with the global financial crisis, we've had energy issues, labor shortage, all those things there, but we've always navigated like we have this year, navigated as best we can and really having a positive outcome at the same time. There's no doubt, as with challenge, these things over the last 50 years. But the last 12 months or so, the IT marketplace has always had some staff in the patients because the demand has always been matching supply. But we have noticed a return of less churn in our marketplace. And those listened to me talk 6 months ago and 12 months ago, we never did as bad as many, many companies but we notice even our own stats have been reduced. A 9% improvement in our staff retention. That's concentrated effort by Hansen to recognize leaders inside our business is very, very important to our teams of people. We know that a lot of our tech companies are showing some signs of strain. Clearly, if you are not a cash-generative business these days, it does make it very, very difficult. And there's some interesting reports coming out of the U.S. at the moment now of redundancy in the tech sector, primarily around because profitless prosperity is no longer in vogue. Companies are now looking to support businesses which do actually make cash, and we know that will actually help us with our start. On that whole labor churn, actually highlights to the point where we are looking to rebuild our bench, as most people we know. We did have a staff shortage in this last 12 months, opportunities were unable to take. We just couldn't get the people on board. But we've stabilized that now, and we're now in the process of now starting to rebuild that bench, which is what we've had historically. At the same time, we've expanded further expanding our marketplaces in Argentina, Vietnam and India and looking to do something in Europe in the near term as well. So that's dealing with labor, which is also, at the end of the day, we've got customers that need products to start are important to us. Inflationary pressure, there's no doubt, we're all reading what's happening around the world, and that there's always that inflation. Hansen has, once again, a very, very unique position inside our business. We can't stop what's happened with the Ukraine and Russia. We can't stop a lot of things about inflation happening around the world. And we do have increased costs in our business. And of course, everyone has those increased costs. One of the benefits Hansen has, though, is that, we do have opportunities in all of our contracts with our customers, where we can actually increase our charge rates, et cetera, by inflation. And that's an opportunity which we can choose to take, but we don't always take and that's the strong sense of why we've had success over such a long period of time. And that is how we actually work with our customers who may have margin constraints, no matter what size they are, and the fact that whether we wish to apply some or all, is something which we take to the heart because we are playing a long game and just not a short game. And certainly, Hansenisation across our business is where we get our efficiencies and maintain those benefits throughout our business. I've touched on a little bit -- interest rates are going up, but our leverage is very low. And I know that Richard and Graeme will touch on that leverage in the financial sector as well. We certainly kind of forward gearing one of the benefits Hansen has is gearing. And that means that the amazing support from our banks and from our shareholders, which are wishing us to charge forward. But guys we're not going to start spending money like confetti. We're going to be spending money like it's our own and invest it well because we've proven that might take 30 years of every acquisition, nearly doubling the level of profitability. And we take that to the heart, and that's not a reason why, even though banks are lifting -- giving us enormous amounts of credit, it's not a reason why we'd spend the money to possibly the rights of the deal. So the M&A strategy is -- it has been a global pandemic, which has restricted us a little bit from traveling. High valuations, we do know the investment marketplace, a number of you on the -- have been invested in companies which have had enormous growth but don't make money. And unfortunately, even in our industry, people have seen some of those valuations, which don't make sense to us. There's no sense for Hansen to buy a business, which is double our valuation and it's not going to be earnings accretive. And so we will continue to run a cause, which is actually investing money wisely as we go forward. But we do know that valuations are starting to slowly return to more realistic numbers, I should say. And that should provide more opportunities because at the end of the day, the price should always be set by the purchaser and we're a purchaser, and we will wait for the market to be appropriately priced. We continue to expand in our M&A and actually having putting more focus actually to Europe and America in our future because M&A is running out of Australia just limited a little bit. And it was probably an issue during COVID when we just couldn't travel overseas, et cetera. And so our balance sheet and cash flow generation allows us to weather any potential storm better than probably most companies are sitting out there. So on the financials, look, it's important to note here, we've mentioned and most of the people listening on the call would have heard, we did have a blue-bird, we had Telefonica who did take quite unique by rather than paying over the next 10 years, gave us all the money upfront. So it did have aberration in the last year. So I think, Richard, just on the highlights.

Yes. And it's a pleasure to join the call. I've been with the company for about 4 years and [ I've just said it go ] from strength to strength. So these are very, very pleasing results. You can see with the revenue, what we've done here is, excluded the Telefonica license fee from FY '21. It was a genuine one-off license and to compare apples with apples, we've taken out of this chart here. And as a result, you can see, revenues are up 3.4%, which is particularly pleasing given the 12 months that everybody is well aware of around the world, it's been a challenging time. In terms of underlying EBITDA, again, excluding Telefonica, this is the strongest year in Hansen's history, $100.3 million, up 1.1%. And then underlying NPATA, again, up 6.2% off the back of just some fantastic results and some tax adjustments I'll talk through shortly. Looking at adjusted EPS at $0.29, again, this really highlights the fact that specifically, obviously, we're very profitable. But typically, our acquisitions are funded with debt in cash and not equity. The dividend of $0.12. Again, this is a record dividend for Hansen. The last 2 years have been $0.10. We've declared $0.12 this year and in effect, returning over $60 million of capital to shareholders in the last 3 years. Andrew touched on cash generation, which we all live and breathe at Hansen. And you can see here the net debt down 57% in the year, which is quite something. But if you look at the 3-year period, we've actually paid over $120 million of debt of our balance sheet. So the way I look at it is a combination of dividends return or capital return to shareholders and net debt. We've returned over $180 million [ to the ] banks or the shareholders in the last 3 years, which really highlights the cash-generative nature of Hansen. If we move on to the next set of charts on Slide 16. We've highlighted here a strong performance despite some headwinds. And we've talked to 2 years around COVID and there's Ukraine war, and inflationary issues but this is a great result. We're up 3.4% on a apples with apples comparison year-over-year. You can see the track record, the CAGR growth of 12.2%, just building via organic growth or acquisitions. And of course, there has been some significantly logo wins this year. We announced to the market, the Exelon deal in America, which is the biggest energy retailer in America and also the biggest win for Hansen in its history. Andrew also touched on Energy Queensland, which is a significant upgrade. There has been plenty of other new logo wins in the year that we haven't necessarily showed to the market. Just a quick point on the FY '20 results, you can see there are $301.4 million. There's actually an $8 million headwind versus that year. So if you were to look at the comparison between FY '20 and FY '22 on a constant currency basis, there was also growth, which I think we all agree is a good result considering what's been happening for the past 24 months. Looking at underlying EBITDA, again, growth there, $100.3 million. Margin is around 34%. I think we all have been on the Hansen journey, we know that typically, we're between 25% and 30%. The last 2 years have been in the mid-30s, which is exceptional. But I think Andrew will get to the outlook shortly, and you'll see that there are some costs coming back into the business. We are looking to build out our Hansen bench as we call it, for capacity. And there will be some further travel as we go into our customers and staff around the world. Underlying NPATA, obviously, profit after tax, excluding acquired amortization. The important thing here is, obviously, flowing through the P&L to profitability, but the tax rate for the year is 17.8%. So we've utilized nearly all the tax losses in the U.K. and there were some other strategic tax decisions made in the year that drove that tax number down. We don't anticipate it being that low next year. I think it will be more in line with the sort of the 25% mark, but we'll update the market accordingly. Moving on to the next slide, continued positive cash generation. Like I said, we live and breathe cash generation. We're very, very proud of taking money to the bank. You can see there the earnings per share, again, increasing 5.4%. We've returned 57% of our net profit after tax to dividends or to the shareholders. On a TSR metric, we've outperformed many parts of the Small Ordinaries Index. And again, we do look to do our acquisitions via a combination of cash and debt. We don't look to shareholders for equity unless it's a real strategic reason for doing it. On net debt, again, these are numbers that a lot of businesses would be very proud of. We certainly are. We've gone from $151.4 million down to $28.8 million in the course of 3 years. So you can see there over $120 million has been paid down. Our leverage ratio is now sitting at 0.31, which is fantastic. And Graeme will touch on just the capacity we have and the fire power we have to do future growth in the future. And then, of course, the dividend per share, I mentioned before, that's a record for us. We've done special dividends in the past. But this year, it's a total full year dividend of $0.05 after an interim dividend of $0.07. So ultimately, returning over $60 million of capital back to shareholders in the past 3 years, and we're very, very proud of that. Moving on to the next slide, taking profits to the bank. Look, it sounds a bit easy, but it's really what we live and breathe here. We talked about Hansenisation and the motto for Hansen is spend it like it's your own. It's exactly what we do. You can see reported EBITDA of $100 million, a very small nonrecurring item of $300,000, ultimately delivering an underlying EBITDA of $100.3 million. Now the working capital of $18.2 million, for those that have followed the last 2 years would be aware that we did have a large Telefonica license taken in FY '21. 10% of that license paid in FY '21, and the balance of $18 million was paid in FY '22. So the way I look at this is working capital is effectively net 0, excluding Telefonica, which I think is particularly impressive considering we're growing the top line without needing any more working capital. CapEx of $6 million, slightly higher than what those probably Hansen would be used to. We have invested in some cloud infrastructure in EMEA to drive some better outcomes for our customers. And then you can see our product development of $15.6 million. Again, we are investing heavily across all of our products. We take R&D very, very seriously and we assessed the ROI and the views of attracting new logo very, very seriously. So that measure has been monitored on a quarterly basis and driving some great outcome. You can see IFRS 16 there with $6.9 million of lease payments. And then, of course, interest on debt and tax of $26.3 million. Now that's higher than what we've experienced in the past, mainly because of the profitable period in FY '21 and the subsequent installment for tax that we had to make in FY '22. We've talked a lot about debt, $34 million paid down, dividends of $22.4 million. And after all it's said and done, we still got $60 million of cash in the bank. So we're in a great position moving forward. I'll hand over to Graeme now to talk through the dividend and the outlook.

Thank you very much, Richard, and welcome to the call. I think that I'll just take a little moment to talk a bit about people and development. Richard joined the finance team, as he said some 4 years ago, as I'm looking to constantly bring new talent into the team. And so it's great that Richard is able to join us today and clearly demonstrate his great depth of knowledge around our business. It is part of the overall philosophy that we have here at Hansen, Andrew and the rest of the management team, you've seen some faces there. We look to bring new talent in as well as have those long-term experienced heads in the business. It's great that we're able to bring these new people in that bring new ideas and new approach to our business. So back on the numbers. Of course, this year, we talked a lot about Telefonica and the impact to revenue. But this year, it's been great to see our delivery team get into a very detailed process of delivering that business to Telefonica. And of course, we have seen some great work done there and a very happy customer, and we have met all of our obligations in and around Telefonica. And it's really exciting as our customer prepares to go live with that solution sometime, we believe, in December of this year. So quite an exciting development for us to be involved with and see we keep our fingers crossed as we move forward and look to use that as a reference side into the future. Richard spoke a little bit about R&D investment. And I think it's really, really important just to recap on that point a little bit and talk about the fact that we see that as being where our long-term financial returns come from. It's great to see our existing customers take upgrades. It's great to see them very happy to talk positively about their Hansen relationship to new prospects that we have as we use them as references. It's an incredibly powerful thing when you have a customer standing at your shoulder as you look to secure some new business. We talk a lot about resilience in this business, and I think it's very much at the forefront this year. We have a great business with a really strong balance sheet. We have a banking consortium that's really keen to see us continue to prosper and certainly more than happy to support us through 3.5x an EBITDA multiple of a combined business when we find the right target. I think what that means to shareholders or prospective shareholders is that, you can invest in the company understanding that we're not going to dilute that investment just as we look to continue our momentum. We will only call an equity should we have a very strategic reason to do so. I think the final point that I'll make is that, our capital management philosophy really remains exactly as it has been in the past. The Board looks to return to shareholders cash that's in excess of our immediate needs to deliver some returns in the shorter term, allow us to utilize franking credits where they might be available in our Australian business. But of course, they are reducing as we continue to see profits coming from the business that we have offshore. And of course, we've been great with revenue growth occurring in multiple divisions. We've had, after adjusting for Telefonica, growth here in Asia Pacific as well as in Europe. I think also whilst the Americas has been a little bit quiet this year, it is important to recognize that that's part of the secret sauce, if you like, at Hansen. We don't expect every market in the world to continue to fire at the same time. But it is exciting to recognize that we continue to support the development of solar throughout the United States, and we're recognized as being one of the market leaders supporting that industry as it develops within the U.S. So I think there's some exciting times to come out of that market as we move forward. I guess, just to recap where we are today. I mentioned Hansen offers a very stable predictable platform growth where we service our existing customers that are in very resilient market of energy, water and communications. Our product offerings are focused to our customer requirements and deliver predictable revenue growth. We don't invest speculatively. We're very much on point to make sure that our customers receive a benefit immediately and see their businesses prosper. And I think that's a very key point, particularly in these times where there's a little bit of economic uncertainty. Everyone is looking for that little bit of improvement in their margin and how they can get their businesses to operate more efficiently. Our reputation of delivering on time and on budget continues to drive new business opportunity. And again, if you're wanting a partner when the pressure is on and the margins at tight, you really want someone who's able to deliver and not deliver unpleasant surprises, where cost overrun is a concern. And certainly, we value our reputation in that regard. And finally, just a reminder that we do provide a very strong defensive platform in this environment, and we're looking forward to getting on to growing our business into the next stage. Andrew, I'll hand back to you.

I think you take all the key points. Again, Graeme, you stole all my thunder, but mate, well done. Look, I suppose -- just where we look into the future, look, there are -- we've already explained how we're addressing what are the global challenges at the moment now. But even in this current environment, we still expect to have modest organic growth in our business at the moment now, which will continue to grow through existing new sales and our customer base. I can assure you, we are probably delighted that we can start giving our staff back in the numbers and doing that bench has been problematic as everyone knows during COVID and just a restriction of staff, and we're very optimistic of building that bench because of missed opportunities, which we can now start redealing with again now. We do expect part of that current environment changes through inflation and industry changes, et cetera. There will be some margin pressure, but we think once again, we're going to be very, very consistent in our approach and expect margins to still be underlying above our ongoing target of 30%, which is makes me very pleased to actually talk about. And just on the social side, it's very important to all of our staff, our view on ESG. Our carbon footprint is being assessed and we're looking to give some more information out to everyone, including our staff, which are very, very keen on doing at the moment now as we embarked on being a carbon-neutral organization. So on that basis, look, on the behalf of the Board, I wish to extend my appreciation to all the staff in Hansen and their loyalty, their commitment and hard work to get the results which we're doing at the moment now. We certainly appreciate our investors coming on the journey and hope we continue to give you comfort about having serious people who know how to run businesses, investing at the right way to maintain that the investments you are making is a sound investment you're making. So on that note, I'm happy to answer, and with help from Richard or Graeme any questions, if there's any questions on the line, Chris, please.

[Operator Instructions] Today's first question comes from Josh Kannourakis with Barrenjoey.

First question, guys, just around the pipeline. Obviously, you've won a lot of new logos in the period. You mentioned also there's a few you can't mention. Could you give us a little bit of context of the ones you can't mention just what product segments they're in, geographies, et cetera?

Yes, Josh, really it's across the board, mate. It's actually both sectors at the moment. Now we know the energy market specifically is actually dealing with the challenges, which is what's happening here in Australia is exacerbated overseas and further exacerbated into Europe with the gas pipeline being disrupted over here at the moment now. So there is probably some distractions to what our customers are thinking. But having products speed to market and dealing with some of these challenging times there. So we see no real change. And in the telco market, it clearly is this strong drive towards the commercialization of 5G and the products which people are saying. So it really is across the board. It's one of the thing, I think, which Graeme touched on, Josh, one of the benefits, we just don't rely on any one marketplace and thanks a lot for that because everyone's have a slightly different cycle where they are. But at the headlines, the 5G and certainly, customer interaction and engagement in the energy market is still the 2 strong drivers. And it really -- there's no one specific market or product, which could actually would take the headline from that.

Okay. Great. And just second question. You mentioned, obviously, a bit of the incremental cost in terms of building the bench. But can we talk about what that means in terms of being able to capitalize on some of the organic growth opportunities and how that means we should sort of look at our next couple of years in terms of that organic growth profile as the bench sort of builds up?

Yes. Look, we've never probably put into numbers, Josh. But there's no debt. This last 12, 18 months, we did not have enough staff to work on the projects we have been presented, which is an awkward thing. So therefore, because the very nature of what we do is quite specialist. So we just can't take people off the bus and then make them productive. We didn't have enough staff. And so we did miss out on opportunities, not only with customers, actually some new deals, which we just could not pick up because we just didn't have the staff to do. Our reputation means a bit too much. Anyone could actually accept the deal and then deliver it late. But we've never done that. We've always really tried to focus and concentrate on that. So rebuilding the bench from us, the 2 aspects. The first one is just filling the current demand. The second thing is actually the forecast sales likely be on that bench and their availability to do it. And just a further answer to a question, mate, that bench is actually bit of a global bench. And so that's actually building upon people in most parts of the world. So in the subject -- the big subject in country, but also in our development centers in Argentina, Vietnam, et cetera. We're moving into new premises, being able to -- more capacity to take more people on board as well. So it's really across the board. And we would certainly think that's going to assist with our organic growth and also new deals as well, Josh.

The next question comes from Garry Sherriff with Royal Bank of Canada.

Three questions. One on your unrecovered revenues that you referred to in your outlook. The second one on cost and the third one, M&A. So if I look at the unrecovered revenues in your outlook, can you maybe just tell us exactly what that refers to? And what sort of revenue quantum that is unrecovered?

Mate, I think someone's read that word because I invented that word, I hope you like it, Garry. Look, I touched on it a little bit before. Our contracts have the ability in all of them to recover CPI, RPI increases. But we don't always -- so an unrecovered for us is, we just don't go and always imply increases to our customers. We always really work in partnership with bringing efficiencies to the table. And it's like a bit of safety valve for us. So in some cases, we do take it on. But there are some areas where we may not actually apply that increase. We will not take -- so we'll actually [ wear ] some of the costs going forward. But that's just that management, Garry as far as we consider to have that long-term relationship. Now I've not put in some dollar terms. But -- well, I think our investors probably understand that our business would probably -- would understand that this -- the inflation risk to Hansen is minimized because all of our contracts, we can actually change the rates. And we also we own the software. So it's up to us what we wish to charge. But we're very mindful of trying having a customer for 10 years rather than having an extra bit of profit for 5 months.

And when you talk about that CPI recovery or non-recovery, is that because the customers push back on it? Or did you just not intend to recover?

A combination of both. Look, you got anyone with an increase these days, they push back. But sometimes you don't even -- it's been not to even -- little bit push back, Garry. We can push back, et cetera, but it's a customer basis. And we have a process which we work through our account management team and our strategy plan product team and finance teams and work at how best we go. But you don't put your cost up to anyone without saying, thank you very much. Everyone always is pushing back. But that's not the same pressures in there, we'd rather not push it because it's just that long-term view of the business.

Okay. And just following up on costs, I know Josh had touched on it. Can you maybe just remind us your current staff numbers and what your expectations in terms of that build-out will be into FY '23?

Yes. At the moment, now our staff numbers are huge, with that 1,600 staff short at the moment now. I think our plans over the 12 months would probably be growing that to somewhere between 5% to 7% in staff numbers.

Sorry, 16-ish staff at present and growing at 5% to 7% over the next 12 months or so?

Yes, we would see on time and business coming in, doing the bench that we would be looking to, with that told, I would -- because we're also anticipating deals, new business coming in, having the people to do it. And to deal with eventual -- so we still got a muted effect that some people wish to leave us and you've also got to deal with just that churn of your staff as well. But we know that we -- this information is actually can be found. You can go to our Board and just kind of the staff we're looking at, over the last 12 months that number has banished to about 50% up until now, so slowly, surely, we are getting the numbers to where we need them to be and then to do the bench in our next call.

Obviously, I think I mentioned Garry, into this work, we're seeing that we're expanding employee markets really heavily early on this year. It's starting to change a little bit, we're seeing a greater depth in the selection pool available to us as we go into the market. So we're able to be more selective. And of course, we sometimes in that number that Andrew was talking about, we're looking for very specifically qualified people in different areas as we look to attack further different markets around the world and certainly, Argentines and place we're finding to a fairly deep talent pool at the moment that we're looking to continue to expand.

Yes. I think -- just to -- for everyone on the call, just to probably say on that a little bit more. I think one of the things is that, that Hansen -- sorry, profitable, sustainable companies now. So you've gone through where your people been changing some money. The fact that you are profitable, sustainable and have a future, as you become a destination. And that's -- to Graeme's point, we're now having people wanting to join us. So we're having resumes being sent through because you'll work -- some organizations which do not have our credentials, who do not have our future. And people -- it's old school now. People see in uncertain times, they want some certainty, enhancing and provide some certainty.

Certainly for that security demand.

Yes.

Got you. The last question is on M&A. I mean, your cash flow is very strong. The balance sheet looks like it's in really good shape. What geographies are most attractive at present, either due to regulatory change or competitive environment changing? And I guess the follow-on from that is, what general set this is and maybe you've already answered that to Josh, but maybe geographies at first quarter call and being most attractive at present?

Are you talking from an M&A point of view, or just generally around growth?

No, on an M&A perspective.

We'd probably look at the valuation and value probably is the headline at the moment now. And it's just a waiting game. Garry, I think most people who would know us well enough. We don't need to jump in, we need to buy well. The marketplace has priced us and that's what we're worth. And it would be great reluctance that we want to start paying businesses and 50% more than our own valuation. And so where the marketplace, we have to make sure we buy well. And so valuation, then we don't really mind. I think that's the beauty of our business. We are so geographically diversified, the assets in Europe, in Asia, in America, Australia, all this coming to us, because we have infrastructure, whether that be legal, finance, delivery or sitting on those reasons. So as long as that we've built out one more than another, our capacity to absorb a deal is very real. And we're as keen as everyone else, but that's not a reason for me probably to start acting like a [ Korean ] CEO, I want to make sure that what we buy is a good deal and good for all of our investors and different businesses.