Hansen Technologies Limited (HSN) Earnings Call Transcript & Summary

Thank you for standing by. At this time, I would like to welcome everyone to the Hansen Technologies 1H '23 Results Release Conference Call. [Operator Instructions] Andrew Hansen, Managing Director, you may begin your conference.

Chantal, thank you very much, and welcome, everyone, to the first half of our 2023 results. I'd like to take this opportunity to also introduce fellow colleagues of mine that are on the call. We have got Graeme Taylor, Richie English and [ Peter Bentley ], our new Head of HR. You may have picked up in the announcement this morning on what is a pretty exciting changes for us. That is the Graeme Taylor, who's been our CFO for quite some number of years now with 8 years in Hansen. Now we have got promoted him to Chief Development Officer. The specific focus on the group M&A, and Graeme will, later in the call, talk to our M&A opportunities. Also, Richard English. Richard English has been with us for 4 years now as the Global Finance Controller -- Director, and he is now being promoted to CFO. So I'd like to both congratulate both Graeme and Richard on their new roles and what it looks for the organization. So thank you, guys, and we'll hear from you, Richard, when discussing the financials. I think it's important to Hansen the succession plan is always an important part. And when we're able to promote people from within, that's always a great opportunity, because they always have great knowledge of the organization, the culture and what really are the fundamental important things to Hansen. And so you guys, congratulations. So we'll just follow through the announcements that we've got today. Certainly the important notice, which is the standard offering, and then we'll go to Page 3. Basic to the agenda today, we'll go through the themes, the mission, the results, the detail, cash investment guidance and Q&A. Of course, if there's any technical issues, we may take a short break and we'll come back. Look, we have got a busy agenda, so we'll walk through as quickly as possible, allowing some time for questions at the end. Look, I think just to go through the key -- the themes. Look, clearly, [indiscernible] a backdrop now on the back of COVID which is taking place. We've got global challenges with wars, et cetera, interest rates inflation, a whole range of matters which are effecting some of the organizations, we don't seem to have had a break since the start of 2020 with COVID. But I think from Hansen's point of view and for business to be around as long as us we've been through many of these challenges before. Clearly, in the first half of having no customers leave us is pretty fundamental to any business and always goes to the view of Hansen of just being a long-term supplier to our industry. Certainly, the continued success of all of our projects have continued to go live. We're reiterating our guidance, which is 3% to 5% organic growth for this year with 30% EBITDA margin. Just to touch on the [indiscernible], we all know as those which have been following the stock but we did have an increase in our EBITDA margin during the pandemic when we weren't traveling, we had staff changes, people in offices [ work ] there, et cetera. And we all anticipated we'd go back to pre -- it's very, very proud of the fact that we're at the high end of where historically we used to be pre-pandemic. So we're very excited about that. Certainly, an issue which is in the press a lot lately is staff churn, we know we probably did far better than a lot of organizations on staff churn. But we are certainly -- that's slowed down. And also rate pressure is stabilizing. And I think that from Hansen's point of view, what is actually good to be when we're seeing so many news about so many IT companies, letting people go. It is the opportunity that, that pool is quite deep for us to go to and also having over a period time where we did lose some people which you might say were regrettable losses coming back to the organization which are always welcome back. As you can understand, people made a lot of lifestyle changes or move because of the pandemic. And it's great to see people who have had fond memories of working at Hansen, knocking at our door again and they are welcomed back into it. I don't want to steal too much of the thunder of Richard. The cash generation of this business is a mainstay. This business has been around for 50 years, and the amount of cash this generates, we've paid back out to our shareholders or we use that for capital management to grow is one thing. So I don't want to steal your thunder, Richard. But the last 3 years, $191 million being paid down in debt dividend is an amazing thing. I'm not quite sure what other companies -- IT companies in the world actually perform at the level of Hansen does, at our level, I think it's amazing. Very much focused also on our M&A approach and our discipline around M&A, but I'll -- once again, I'll allow Graeme to elaborate a little bit further on them. Just going to the company mission statement without going to the Hansen mission statement. But I think that the Hansen has continued to reinvent itself over such a long period of time of being relevant to our customers and maintain very strong relationships with them. So the main point then is not really giving them a reason to leave us, that we're always ahead. We're always dealing with challenges, whether it be dealing now with AI, which is very exciting to us and our customers to [ taking place ] technologies and also having a broad skill set across whether it be SaaS or on-prem, et cetera, the hallway which we deliver our applications into marketplace. We certainly have grown through acquisitions, the Hansenisation, which should be aware to most people, as we've done acquisitions and we have such a track record of every one of our acquisitions being a successful transaction, and we will continue then the path and Graeme will touch on a little bit further. We do certainly provide industry-specific software products and expertise. It's all around in business, everyone that you need to understand what the market demand is and our job is to make sure that we're actually supplying what the market is looking to. And that really comes with capitalizing on commercial opportunities. Most of our customers are dealing with challenges at the moment now. We know the cost of capital is higher, interest rates are higher, and people are spending their money more wisely than what they ever had before. And when you can actually show them updates to your application or they go through upgrades where they can get a return on investment is fantastic for us. So we think we remain in a very unique position in the market to which we deal with, specifically the energy and the telecommunications marketplace and giving those customer needs and the business outcomes, which they look to Hansen to continue to provide investments. That's our ambition statement. On the financial summary, certainly, revenue, excluding license revenues. We all understand that IFRS 15 was a change with our license fees having to bring them together with Hansen's traditionally has just had those license fees over the term of the contract. So we do have a timing issue from time to time, and probably this first half is a bit of a timing issue which -- where some of these license renewals fall either side of financial year. We are never going to push a customer to bring forward a new agreement or a new contract or a renewal because it actually suits market timing. It happens when it happens, and we very, very closely the international rules, which are affording to us and, Hansen, as a company, which has undertaken some 44 audits since we've been public. We never had a qualified audit which show that we stick very much to the way businesses should be run. EBITDA margin now at 30%, which is back to prehistoric levels, which we're very, really happy about. There's no doubt the lag between our pricing increases cost NPAT. But I think we've managed exceptionally well on the employee costs as they've actually gone up. And I think that's because we are a destination where people want to work for Hansen. And once I've always said to people, we try to provide the 3 elements, which everyone works for, which is the job we give these people, the salary we were able to pay them, but the culture of the company of feeling where they can continue to develop professionally and personally in a prime environment. NPAT increased by 10.3%. EPSa increased by 9.8% and growth is [indiscernible]. The rapid debt repayment, which down now to a net down by 30% down 28.7%. And I think Richard I will allow you, I am not stealing all of your thunder by allowing you have some good comments on when we're likely to get net debt at that point in time. Just on Slide 7, just to talk about market performance of the organization. I think that we have -- it's -- you're the marketplace you're who buy shares, but to see that support of our investors' shareholder base is very good to us and continually to outperform the index is fantastic. I think our cash position is very, very strong. And when we talk about cash position, it is the 3 elements of our capital management, which are fundamental to Hansen and those 3 fundamentals is the way which we use our cash, the way we could use our scrip, and the way we use bank to support us going forward. So having our debt paid down on those levels is great to us. We certainly remain very, very focused on M&A. I know a lot of our shareholders who have been long-time shareholders have been well rewarded for the diligence and the discipline we approach to acquisitions, which is clearly always done probably with a mindset in this company. We all spend money like it's our own. It's a bit of a [ family-type ] mentality, and we're not wishing to deviate the wrong way from that. I think I've stolen a little bit our cash position, but the fact that we've been able to return $191 million to our banks is just an amazing number for a company of our size. So on that basis, look, I might hand over to you, Richard, if you'd like to pick up on some of the financial.

Thanks, Andrew. And look, welcome, everybody, to the call. I've been here circa 4 years. This is a great opportunity for me to step into the CFO role, and thanks to Andrew and the Board for all of your support, and in particular, to Graeme, a lot of people know Graeme over the journey. He's been asked CFO for many years and Graeme put forward a long-term transition plan a while back, and he's been outstanding in handing that over. So congrats to Graeme on the promotion and business as usual for us in finance going forward. If you'd like to move to Slide 4, please, just to walk you through some of our key metrics. So look, everybody is always focused on revenue. As Andrew touched on, modest growth, $149.1 million for the half versus $148.9 million last year. So relatively flat year-on-year, but that doesn't tell the entire story. And I think if you strip out the license fee that are unfortunately accounting related by IFRS 15. The underlying business is growing particularly strong. We're up 6.2% across our services and support and maintenance streams. And that's a bit of validation for us that if some of you recall a while back, we built up our capacity in the business, we call it the Hansen bench, and I'm glad we did because without doing that, we would not have been able to satisfy that demand. So 6.2% underlying growth, lots of upgrades, implementations, market changes. So a great first half from our perspective and still on track to 3% to 5% growth for the full year. Underlying EBITDA, which is our key profit metric, margin of 30.2%. It's important to point out that the last 2 years, the margins have been higher than historical averages during the pandemic. We took some costs out. There's no travel or expenses, et cetera, like that. But the reality, the historic Hansen business is running at 25% to 28%. So running at 30% plus for us is where we think long term Hansen sits. We've absorbed some wage increases, but we've also increased the headcount of the business with repriced contracts. We have the pricing power to do that. So all in all, we're happy with the first half results. It's in line with our expectations internally. And I think for the full year guidance, we're still on track to our 30% plus margins. In terms of underlying NPATA, the [indiscernible] is pretty closely with revenue and underlying EBITDA, of course. Some costs back into the business. The tax rate is 22.8%. At the same time last year was 22.7% and we think for the full year, we'll be around the 23.5% to 24% range for tax. We've also increased in R&D. Graeme will touch on that a little later, but -- this is our -- this is a high year of R&D investment for us, and it's needed. There's a few things happening in the communications space. We're staying ahead of the curve with our class cloud-native implementations and development. So our R&D has crept up from circa 5% to 6.5% of revenue for the first half. Moving on to Slide 13, EPSa. Again, these are well and truly in line with our internal expectations. You can see the impact of the EPSa falling away a touch from the prior corresponding period due to some investment in teams and wages. But again, somewhat higher than our historical averages. So we're very pleased with that. And then Net Debt, Andrew, did steal a bit of my thunder, but we're particularly proud of the fact that we can generate a lot of cash and pay down debt. As interest rates are rising, it's important to het ahead of the goal, which we are. We paid down a record $20.9 million of debt in the first half. We're down to a leverage ratio of 0.32, which is extremely low and gives us a significant buy power to really leverage our balance sheet if and when we decide to do the next acquisition. I think it's just a matter of time, but we certainly have plenty of buy power for the next acquisition. In terms of dividends, so look, we have declared a $0.05 dividend. You might recall at the same time last year, we declared a $0.05 plus $0.02 special, that was related to the payment from Telefonica of $18 million that we returned some on to our shareholders. $0.05 is our sort of standard range, and we're happy with that. Looking forward to the full year. This -- we're looking at a partially franked dividend on our current forecast, but that's to be determined as the year unfolds. But -- all in all, $0.05 is our standard rate, and we're happy to return some capital to our shareholders. Moving on to Slide 14. So what I like about this slide is it really highlights our diversity. We don't have all of our eggs in one basket. The beauty of Hansen is that we don't have a soft underbelly. So we've diversified by products, jurisdiction. We've got over 600 clients. We deal in 25 currencies and we've got 2 different verticals. So there's no one key crisis that can bring Hansen down or put any real stress or strain on the business at all. So you can see here the split by vertical largely 50-50 across the board and then by revenue type vertical. We've got a good blend there as well. On the right-hand side is what I think is a really important point to draw out is the revenue by type and that underlying growth of 6.2%. So the second half will be a different makeup of revenue. There will be some more license fee coming into the second half. But the 6.2% growth off the back of building our bench, managing talent and wage creep is outstanding. So we're thrilled with that result. Moving on to the next slide, cash and capital management. Slide 16 is cash flow. And this is the standard waterfall chart that we talk to in our business. Everybody knows that Hansen generates cash, and that's sometimes a little unusual in the tech space. We're growing the top line, we're highly profitable and generating a lot of cash. And if I just quickly walk you through the waterfall. So underlying EBITDA of $45 million. What you'll see here is a working capital buildup of $16.5 million. And typically, for the first half, it's usually flat. But this buildup is not unusual. We were expecting it. We had 5 or 6 clients that we invoiced in November and December. And all of that money is now coming through the door. So the working capital will be largely fully unwound by the end of March. And as of today or earlier this week, we had a net debt position of $20 million. So you can already see that, that working capital is unwinding. CapEx, some modest investment in some refreshes of hardware around the world. And then I did touch on earlier, the R&D investment, the product development there of $10 million. We have a very, very robust quarterly review of our R&D. We're not just doing stuff that we think clients might want in the future. We have a clear ROI process. We have a clear approach to making sure that, that investment is sound. And we're very, very comfortable with the $10 million that we've invested in the first half. IFRS 16 lease rental payments to $3.6 million. And then, of course, interest on debt and tax. So everybody is aware, interest rates are creeping and another reason why we're paying down debt so rapidly. And I think the good news will be that on this trajectory, we should be net debt 0 by probably the first quarter of FY '24, which will be a great result. So at the end of the day, we've got $7.4 million of free cash generated and we've then distributed $21 million to bank and $9 million to our shareholders. So Andrew touched on the return of capital to the banks or to our shareholders of $191 million over 3.5 years. And I just think it's just an outstanding result. We're well and truly on track to leverage up the game and do our next deal when the right one comes along. Slide 17, borrowings. The chart on the right sort of highlights again the cash generative nature of our business. You can see the rapid decline in environments from when we first acquired an acquisition in Canada, which was signal back in 2019, we've rapidly paid it down. What I did want to highlight is those that have had a look at the accounts may have seen that the $65 million of debt has gone current, it was previously noncurrent, that was a conscious decision we made. We didn't want to pay unnecessary fees. We do spend money like it's our own. So what we've done is we mitigate current, we are in the process of renegotiating that loan right now. The banks are very supportive that the terms seem consistent with what we've been on previously. So there's no concern there about renegotiating the facility, and we think that will be wrapped up by about May at which stage the debt will go back to noncurrent. Dividends I touched on earlier, we're really proud of the fact that we can support our shareholders. We've returned $70-odd million in the last 3.5 years to our shareholders, and that will continue in the future. Look, it's late over in London, Graeme will be up and about and Graeme handing over to you to talk about investing for growth.

Sure I haven't fallen asleep, but yes, we should thank you. Look, I'd like to just start out by saying, it's been my great pleasure to serve as CFO for a little over 8 years. And I'm sure one can appreciate that's had some form of leadership positions. I've had a wonderful team of people working with me in order to have that wonderful career, and I'd like to just take a moment for thanking them for their support. And of course, one of the things that's become very rewarding to me personally is investing time in those people and seeing them develop within the company. And every one of them has done that in [ place ]. And certainly, Richard, it's been great that the plan that we put together some time ago now, you've certainly fulfilled your part of the bargain and I wish you every success as you take on your new role. So look, more importantly, investing for growth. I think in my new role, there's a number of elements to that. And it may seem a little bit strange to be talking to research and development as part of that. But of course, I'm sure everyone can understand that the technology company in this world that we live in at the moment and certainly, particularly in the verticals that Hansen deals with. There's a constant technology turn out there. And it's a very, very important that we make the right investment to ensure that our customers remain on track and on trajectory to achieve their business goals. Andrew also talked about the fact that we're a technology company but we're really here to make sure that our customers get and use technology to solve their business problems and look to grow and develop. And so we have to make the right investments in our products to ensure that's the reality. And of course, what we're seeing is an increase in this most recent period in order to achieve that. And I think with things like cloud-native and other initiatives that are going on across the business, that investment will continue a little into the future as we keep in touch with the immediate need. But this is an important investment, and it's an investment that delivers returns to shareholders. It's not unusual to sit in a meeting where we question each and every step that we're making sometimes to stop an investment because it's not heading down the path that we deem appropriate any longer. So we're not afraid to change direction and make sure that the investment continues to yield as is appropriate. And that's very, very important, particularly in these times of great change. I think it does very much [indiscernible] into what we're doing at Hansen around future acquisitions. I think as the company has matured, it has become more and more important that these acquisitions whilst leveraging the wonderful experience we have in the company and our history of doing successful transactions, we continue to look for more innovative ways to bring new technology into the organization. And certainly, what we're seeing at the moment in the market is a lot of companies that have been out there, developing new technology, new software, new approaches to doing business. And of course, they're coming up against hard times at the moment as equity becomes more difficult to raise and real challenges face the business. I think this is an opportunity perhaps for Hansen to look at some of these new technologies and perhaps bring them to there across our 2 verticals. So we're much keeping a watchful eye out for opportunities where we can perhaps leverage an opportunity in that regard. Of course, if this business is out there that we'd be interested to consolidate with and just expand our global reach as a company. And so we continue to monitor the markets. We are trading very, very carefully. So I think it's very, very clear to me the brief that's there before me, I've got a couple of colleagues that are working with me in this regard. So certainly, Hansen is very, very focused to look for that next acquisition and stick through to our fundamentals. We understand that ownership of IP, looking for things in places where we exist today or may be complementary to some aspects of our business, this is a great opportunity to leverage the core skills we have within our business. And I think that the older [indiscernible] guys, I am always looking for 1 and 1 to make 3 or hopefully 5 if we can be that bold. So look, having taken on this role now for all of about 10 minutes, I can't promise anything immediate for everyone. But like clearly, we've got a very, very, very strong focus on acquisitions. And as Richard pointed out, we're in a position where we've got a balance sheet that enables us to go and spend some capital to keep growing the business. I think to that end, what Richard alluded to were certainly our banking facilities. And it is important that, that facility be appropriately negotiated, and I applaud Richard's approach to take the time to do that because we want to have great flexibility in that facility so that we can move quickly when the right opportunity comes along. So look, I'm looking very hopeful into the future about an acquisition opportunity and when it will come. And I certainly look forward to continuing to serve the shareholders and my colleagues in my new capacity. Thanks very much, Richard. I think it's probably back to you, Andrew.

Thank you, Graeme. And thanks for staying up late, although I do note the number of callearnings release that are calling from overseas. So you're not the only person sitting there with [indiscernible] on this call. But thank you very much. I certainly reiterate your comments about Richard, but to yourself, Graeme, I am really looking forward to working with you. Look, now, just talking now about guidance for the year. Look, I have already touched on it. We still reiterate the backdrop of what's happening around the world at the moment now, but we still feel extremely comfortable with our forecast going forward and happy to restate what is our organic growth going forward at 3% or 5%. We are still expecting our EBITDA margin to be around that 30%. And whilst we talk about M&A and aspirations for growth, notwithstanding, this is such a great business without that and just shown, even though we've not done a deal for 3 years and there's good reasons why we haven't because the right valuations not there, the right deals not there. We will stay disciplined. But the fact that business is still growing and still making the [ money ] it is now. That's just the cherry on top. This is an extremely successful business, which has navigated change over 50 years. And to have that successful year-on-year growth and making cash. As I said, I don't know what other businesses out there. And that's a to do with me. That's just do with a bunch of very hard-working people which continue to fine-tune this organization to continue to sell what people want to buy. And I'm very, very proud of being able to lead such a team of talented, hard-working individuals. I don't know how many other CEOs really get to have that sort of that feeling coming to work every day. So I thank them all for their focus. I thank them all for their commitment to the organization. And we are extremely excited for the future of this company. And the way we look at it, we're always looking at [indiscernible] ahead and from a public company over in 6 months but just understand the decisions we're making up for the long-term prosperity of this organization. So on that basis, I think everyone who listened to us have a chat, and I'm sure there may be 1 or 2 questions coming through. So Chantal I'll pass it back to you, and if there's any questions, we'll do our best to try and answer them.

[Operator Instructions] Our first question comes from Garry Sherriff with RBC.

And congratulations, Graeme and Richard, on your promotions as well. So apologies if I've missed a couple of things. I'm just on a couple of other conference calls. But just 2 questions. Firstly, the operating cash. If you, Richard, maybe just talk through exactly what happened there and whether that's going to revert in the second half? And then the second question, again, around our license revenue, being about 40% lower on [indiscernible] again. Is this just temporary? Can you just give us more detail around what happened there?

No worries, Garry. And thanks for your question. In terms of the working capital, so we have 4 or 5 large implementations underway. And in terms of the billing milestones, they were in accordance, we invoiced the course of the billing milestones in November and December. And as a result, the cash is coming through in the first -- or the third quarter of FY '23. So typically, we have sort of a flat first half of working capital. There's no negative or gain. But in this case, because these large implementations and upgrades we have had some buildup.

So you're saying that we've already -- and half of that's already been unwound in the first month, it was actually end by March?

We're largely unwinding, Garry, and with $20 million net debt today, it will be -- we're basically focused on a net debt 0 position by Q1 FY '24. In terms of the revenue, yes, license fees down first half of last year. There's a bit of IFRS 15 in there, the accounting treatment. But in the second half, the license fees, we're anticipating will be stronger than the first half. So if your modeling, just anticipate there'll be some upside in the second half in license fees.

Our next question comes from Lafitani Sotiriou with MST Financial.

Just a couple of questions from me. The first one, I wouldn't mind focusing on the pipeline and organic business sales. I think previously, you've included some charts around upsell and cross-border sales from existing clients and winning net new clients because it's a great outcome not to have any client losses in the last half. But could you just talk to the organic side and whether you can even touch on other particular strengths in geography or business lines that you see greater opportunity from an organic perspective?

Yes. Thanks, [ Laf ]. And Thanks for the question. Look, as far as the sales pipeline is concerned, we've not really seen much deviation over the last few years which have been affecting the business. So the pipeline looks okay. I think the encouraging part of the pipeline more recently has been probably existing customers doing upgrades and taking more services from us. So that's people evaluating the applications that they've already got at the moment now. In some cases, which is very encouraging to [indiscernible] to the marketplace. They've evaluated the competitors and have stayed with us. We have a very strong win back. I have got -- couldn't be the exact number, but I reckon probably got 20% of all people over my 30-odd years of being here have elected to leave that end up staying with us. And we're pretty proud of it. So I think the pipeline organically is as sound as it has ever been. But some of -- more of that focus has probably been they have such low churn of customers. So it's always good that when they see them they're going to leave, they end up staying or some who just want to embrace more service from us as our technology, some of the -- the point being some are very happy to be on-premise, but then some people then say, "oh no, we want to go cloud-native", and the fact that we can accommodate customers who have a specific choice of being in private cloud, public clouds will be on premises. So maybe just as good as it's always been.

So can I just move on to sort of the capital allocation question because this -- as you've indicated within the foreseeable future, you're moving to sort of no net debt. And we have seen an uptick in some of the R&D expense in the last half. And obviously, a keen focus on M&A, which there has been, but very much of [ ground ] there, just higher expectations. But if we fast forward 6 months to a year and net debt at 0 and you don't -- you think some of the target acquisitions are still a bit expensive. Can we expect to see things like buybacks emerge? Or would you be allocating more to R&D? Or what are you guys thinking? Because obviously, we don't -- you've made it clear in the past, you're not going to just do an acquisition for the sake of it. So how should we think about the capital allocation over the next couple of years?

Yes. Look, I think -- look, I think that's a topic our Board spends a reasonable time on the capital management, capital allocation, so which we're probably why we think would mark ourselves pretty good 10 out of 10 and actually doing -- you're quite right. Look, this is shareholders' money, which we are actually spending. We deem over the life of this company, the return on capital, as we've invested is second to none in doing -- in what we've actually done. So the first point to us always is to pay down debt. It's a bit like you're clearing the credit card, so you can go again with absolute turns. Because we are cash generator, that makes perfect sense. I think we've found the balance as it's actually putting a combination between paying down debt and continuing to pay out dividends to our shareholders. I think in 6 months' time, you're probably now raising the question from the Board's point of view, on what should we be doing with the surplus cash this company generates, which should be the shareholders share. Look, I assure you if I can't find where the cash we're building up, we can't use appropriately because we adequately provide our working capital so easily and this is the organization, we will be challenged in 6 months' time about how we would turn that. But I would like to think some of the work we're doing and some of the things we've seen without going to too much detail, that we would be back at a point where capital management will be taken on board acquisitions and using cash, using debt and/or using [ scriptor ] as part of it going. You touched on share buybacks. You've got to do a lot of share buybacks to actually make a big difference. Once again, we always think -- and from my history of 30-odd years in the company, that return on capital been outperformed to our shareholders is probably best used by us to actually keep on growing this business and getting a return to our shareholders by share price increases as they take a favor in the shares or as we do dividends.

Sorry, just a follow-up to that, then. So if you consider the M&A environment and focus on growing. In the past, you've discussed that pricing from some of the targets was unrealistic. Had some of that pricing come down? And how confident or how disappointed would you be if you didn't make an acquisition in the next year?

Well, what is the funny thing. If we don't do an acquisition, we should be applauding ourselves that we didn't do an acquisition. I think the moment you throw out your fundamentals of your business and you start buying businesses to set the market expectations that will be the wrong decision we always make. I won't be disappointed in one way, I'm very close to the deals which we have talked yet but in broad terms, there is no doubt leading up to COVID, we were in a period where valuations were really well out of step. Now is it out of step. The only thing we can mark ourselves with is the value of Hansen. So that becomes a benchmark for us. So we think our shareholders on the call today have said, this is what we think of your work. It makes no sense to me to go and buy a business at more than you think [ I am worth ]. I think the opportunity -- I had a conversation with someone recently who knows about Hansen, who knows about our Hansenisation and with wanting me to actually price in Hansenisation to the acquisition we buy from them. And I'm just, no, no, Hansenisation is to be the benefit of Hansen shareholders. It's our hard work and our know how to go and do it. So there is -- while saying that, there is no doubt, there is some movement. I think the more important thing is the targets which we have identified in this last year, the key targets of it have not been sold. So it's not as though we're under pricing. It means that you've got to set the market. It doesn't matter what you do in life [indiscernible]. You can set the price whatever you want on any asset you've got. But the price is always to be set by the purchaser, and we will just be patient. And I think that those valuations are coming down. They see us. They see our valuation. They see what the stock market thinks we are worth, and they know we would not be willing to pay a premium for that. We would want this to be earnings accretive. And we would want to deliver like we've always done with the strong discipline Hansen has in running businesses to actually deliver greater margins and the businesses have been able to operate themselves.

Our next question comes from Evan Karatzas with UBS.

Can I -- can you please, another one for Richard to start. Can you please just outline how much of your cost impact was related to, I guess, staff churn or employee hiring for the period, specifically relating to things like recruiting costs, new joining costs just to bring that increase in your employee headcount?

Look, so Evan, of our increase in REM year-on-year, there's about a 5.5%, which relates to headcount increases. There's a small portion which is churn, which is [indiscernible] we had far more of that during FY '20, '21, '22. So there's a bit of churn in there, of course, but the numbers have come well down and the balance are our wage increases, which we think we've handled particularly well this [indiscernible].

I think in just -- just the part of that answer is in recruitment costs. We would probably -- about 90% of our employees are hired internally. So we have a fixed internal cost. So we have a talent acquisition team. We've always thought that the data in the marketplace, the job is something that we've been wanting to keep into ourselves. So it's a fixed cost inside the Hansen, but it's only very specialist roles we would normally go outside for. So it's a fixed cost. So we're not dealing -- and more importantly, we're not dealing with headhunters who have [indiscernible] our employees outside of our own business.

Okay. Perfect. And then just on the CapEx and R&D capital CapEx there. Can you just provide a bit more color into what that would include? Obviously, it's a bit of a step up, as you mentioned earlier?

So in terms of CapEx, there's some standard refreshes for laptops and other hardware. We're also going through a hardware [ depression ] in some of our data centers. So we're halfway through it. I think for a slight uptick in CapEx. So you might be looking at sort of $1.5 million, $1.8 million in the second half. R&D, look, Andrew, did an interview a few days ago around the R&D investment. There's a few key initiatives. One of the very many is cloud native, we're improving user experiences. There's been some significant market changes in the industry as well. So there's a lot going on. Like I said, this space is a particularly dynamic space versus the energy space. So we're...

And we have to stay relevant. So I think that by being staying relevant, we're going to stay in the marketplace. And with the investments we're making today, we have to -- the data security is if we -- the amount of money I'm spending on data security [indiscernible] and some but that thought about the relativity of your customers and cash flow to have that churn. But we're very [indiscernible] in that approach [indiscernible] investment.

Yes. Okay. Great. And then just a final one for me. Just on Slide 12 in the presentation, you mentioned an uplift from contract repricing being more of a benefit in the second half. Can you just provide some color what that involves? And what sort of benefit that will bring in the second half or what benefit we should be expecting or looking for through the second half there, please?

I mean the reference there, Evan, was around our ability to pass on increases which, of course, we can in all of our contracts. We're fairly pragmatic about where we pass on CPI increases and we look at long-term tenure, we look at upgrades, there's a whole strategy around it in terms of modeling the second half, look, we're not going to disclose how much an imapct that's had. The full year guidance remains as it is. So I think that's [indiscernible].

Our next question comes from Josh Kannourakis with Barrenjoey.

Just a couple of quick ones from me. You mentioned on the upgrades and the success you're having with existing clients. Can you maybe talk a little bit more to any of the particular modules or products where you're seeing that or any particular dynamics driving those upgrades?

Josh, Andrew here. Look, it's so broad. I suppose you understand we've got applications in 80 countries around the world across the 2 disciplines. I think with the nature of Hansen, you never have it with single jurisdiction or industry on fire at exactly the same time. So some of the upgrades have certainly come because there has been market changes in maybe the Swedish marketplace, which is forcing some customers to have to do upgrades or other technology. And look, there's no macro -- they are all a bunch of micros to be brutally honest with you across the board. There's no doubt as we touched on earlier. Everyone's trying to provide or get services from their vendors cheaper than what they're paying before. The challenge that Hansen has like everyone else is how do you provide more value to try and hold on to your money because you just don't want to discount things down. So invariably, we will -- we do invest in some of the modules for people, which is important. The other thing is just where some customers want to progress from, say, a -- it's not SaaS so much. It's all around -- we provide applications and whether the application is going to be on their own hardware, our hardware or third-party. There's a lot of talk at the moment now around cloud-native. But just remember, cloud-native in Australia, they think about as much when you go overseas, cloud-native doesn't really work because in the EU, [indiscernible] Protection Act, which means you can't have customer data for doing outside your country. So you can't be in a cloud environment in some countries, it just doesn't work. So hence, the whole time, you'll never hear Hansen making some announcements saying, "Oh, we're going SaaS, or we are going cloud." We -- our applications can be deployed on SaaS, their hardware, our hardware, however, it's whatever suits someone. I mean that's always -- we see technology as a mean and where we can find that cheaper than that we are paying today, that's where a lot of interest has actually been coming from.

Got it. No, that's really helpful. And just on that cloud point, Andrew, like if we think about the -- some of the other peers have talked about they do get an uplift when you do go to a public cloud environment because you're sort of managing that multi-talented environment. Do you guys also get that uplift as well on the customers where you are transitioning to that environment?

Look, I'm not sure talking about other companies and what they've done because most of the companies I've heard about their own journey has not actually transitioned it to making money yet, because you've got to think with cloud, it often doesn't mean Josh, that we're providing the cloud, it's basically providing that environment themselves because it's just a mechanism to actually host on going forward. The cloud benefits -- and I don't want to get too technical because my technical team will start laughing that I know what I'm talking about. But cloud native is really a mindset of developing your software, which is component. So it's like the big lego block set you can just take out 1 block and fix it and then put it back in. And the main savings are not savings for us so much, and savings for our customer that these applications which are staying up and alive the whole time can just have a single module being updated without having to take the whole system offline. And the savings come from not having to do an end-to-end test so they can just retest that module rather than taking the whole application down. So some of the savings straightened out will not be replicated in Hansen's operations, but will be in our customers' operations where they see those benefits. So cloud-native, today, it's a mindset, which we're all going down to, but it's actually a developing methodology which has been around for hundred years to take the truth, but just talked about more than what it used to be.

Yes, 100% obviously gives you guys a few more development efficiencies as well. A final one, just on the debt side as well. So in terms of capacity, you've obviously talked about M&A at length before in terms of that. But maybe just to reiterate in the current environment, with interest rates a bit higher, how yourself, the Board feels about the sort of capacity to use debt?

Yes. Look, I think look, broadly speaking, where do we feel comfortable? It's a bit of a subjective sort of conversation. But we would think 3x the combined debt of the acquisition. So it would be our own profitability plus the EBITDA that model of 3x is capital. I can tell you now there's banks which will go a lot higher than that, but where do we feel comfortable in regarding to interest rates, it's strange but it's not a big thought to us because of, as you can see, the amount of cash, which we generate. We're not -- and I think we're just going to take some comfort of the long-term history of Handsen of making money. When you think about, if the cost of money plus is about 5%. It's not high. What's the historical that we went over the last 30 years, what's the average of that, 7.4% [indiscernible], it's still low cost of capital at the moment as far as we're concerned. And now their ability to service that and pay down the debt will continue to be a mainstay of the focus the Board has for our capital management.

Our next question comes from Dylan Jones with Ord Minnett.

Just a quick follow-up on the license revenue. Are you able to quantify the first half timing impact at all? And then looking ahead to June, July, would you anticipate any similar timing issues in the second half?

Yes. Look, [indiscernible] we don't release at that level, and you probably understand why, the license revenues has tenure to them. So it could be some of prepaid 10 years, 5 years, 1 year, 2 years, et cetera. And that's all commercial and confidence to us, [ we hide out ] from our competitors ever to know that detail. I think what Richard probably answered it best before, which is I think the fact that was the timing licenses and be paid when they actually hit. And I think the last few years, that's been relevant. I say as when you look at the Telefonica deal, et cetera, and some of the deals which we actually announced. So we don't break it down, but I think you can take comfort from Richard's view that we will likely to have more license uptick in the second half than the first half. I just -- I'm not at liberty or would not want to be saying on what are the durations of those licenses or what customers because we don't want that information in the public domain.

No, fair enough. And sorry, just second one, so just looking ahead to June, July, do you anticipate any sort of similar I know you sort of alluded to what you're expecting in terms of license revenue, but just around timing there? Is there any comments that you want to sort of add around the second half just looking ahead 6 months?

I'd probably just reiterate what Richard said, the license will likely to be stronger in the second half of the financial '23 year than what they were in the first half.

Yes. Perfect. And then just on the cost side, obviously, you've done some hiring in the first half to build back that staffing capacity. Are you able to talk to how you sort of feel about this capacity as it sits today and what we can sort of expect in terms of new hires over the second half?

Yes. I'm not sure if you're asking the question because we've all read about some of the IT companies are letting go staff. We have our forecast and our planning and we plan them to the years out, we've seen no changes in our current head count and growing our headcount. You need a natural bench in your company, which deals with the upskilling of staff before they're productive. You need to deal with churn and you need to also finally manage. The thing I'm happy to share with you we -- under our management methodology, we're always viewing the next 13 months now in detail and making sure we have capacity to build the next 13 months. Then we have other opportunities inside the organization, which is the redirecting of staff between products or countries to provide support. So whereas we've got a very strong base in China, Vietnam, India and also now Argentina. So we're always -- if we've got Finnish customers, we want to have Finnish staff supporting them, but they now go largely to where we have these broader teams and the broader teams in those other countries. And there's 2 aspects. There's certainly a cost element to it, but there's also availability of key staff. And from our point of view, I think we manage the staffing extremely well, and we're confident. So we've always got positions open. We've always got also positions open for people we'd like to bring back into the organization. But we're feeling very, very comfortable at our trajectory at the moment now, our staffing, our ability to recruit, our ability to upskill people our ability to get people as productive as soon as possible. We're very, very comfortable.

[Operator Instructions] Our next question comes from Vic Lee with Blue Ocean Equities.

I've just got 3 buckets of questions. The first one is just picking up on the operating cash flow. If you add back the $16 million that's working capital related, in the slide deck, back to the statutory operating cash flow and knowing that you've sort of paid is still 10% below and also that you've also paid that [ tax ]. So how do you account what's the other $20 million?

Are you comparing half on half, Vic?

Yes. I'm looking at your statutory cash flow.

Last year we had an $18 million received from Telefonica come through in December 2021, which will be the bulk of that.

Okay. And so my second and third area is related. I can see that your CapEx to sales spending on R&D has gone up as a percentage of sales historically, it's been 4% to 5%, and it's now closer to 7%. And I think that's actually a really good thing. So can we talk to -- is that a new level? Or is that -- how do you think about that? And you talked about cloud native and things like that. Can you talk to that [indiscernible] the sales?

Yes. Look, look, you understand the Hansen's investment in R&D is sometimes expense, sometimes it's capitalized and sometimes it's co-invested with our customers. So all I can say without going out to specifics, because we've got a number of different products, which we actually look at. Each year, we actually formulate an R&D aspirational investment for all of our products. Yes, that's actually normally has an aspirational view of 5 years, and it brings down to what do we need to do now. So each of those products are then looked at. And then we come down to the reasons why we're making that investment. It could be because we see an emerging market, a market which is going to be doing, taking 12 months' time when we want to be there any time. We could see it's just regulatory we need to comply. It could also be that we think we get an upgrade or make the sale out of it. So we look at that. We manage our R&D like we do with an external customer. We get a quote, we look at it, then we'll review it on a quarterly basis to make sure the original assumptions we had based on what would be maybe an upgrade or sale or market maturity and that's our sense. The fact that it has gone up to 7% is a combination of all those things, investments for sales, investment for customers, investment for retention, investment for compliance. And you're probably right. You can always have a large debate. I think our ROI is very stringent the way we look at it inside the company. The fact it's gone up by a couple of percent, I think it was just relevant to where we are at this point of time there. There are more pressures on most IT companies at the moment now because of the emergence -- a good emergence of AI, and I don't -- and I think we're going to talk about doing an Investor Day in the next few months where we can talk about what Hansen is already doing in AI, which is quite exciting. But we're going to continue to invest in that technology as we go forward.

Perfect. And then my last one is just around the staff numbers. Just -- so you're obviously replenishing staff and also maintaining the bench. So how many have you actually added on since the last result, staff-wise?

The last time around, we had circa 1,400 to 1,500 roughly 1,600 now. When we talk about the bench, the bench is not as large as it was because of the capacity requirements in the first half of the year and the second half of the year. So we're sitting at about 1,600 going forward, which includes...

So the staff is up about 10%?

10% growth and that includes also a bunch of graduates that we are bringing around the world every year to up skill the team.

Okay. And can we tie back the staff hiring to your -- obviously to your growth and also to the R&D spend as well? I mean, clearly, you don't hire people unless you see that sort of runway.

Yes, Yes, correct. So I think we answered one of the questions before to that thing. We constantly looking at the next 13 months and making sure we've got enough staff. And we did go skinny guys, and I think that it would be -- it would be probably the same with a lot of organization. And we think of ourselves, during COVID certainly here in Victoria, where we went into a lockdown for such a long period of time where you couldn't travel, you couldn't go to a supermarket, you couldn't go out. We were the beneficiaries of an increased productivity from our staff. So things have gone back to normal now, et cetera. So we actually -- some of the peak in our business or the growth of our business was able to be achieved through productivity gains through people not being able to go outside, but we could never align that in long term. So part of the increase in bench is to deal with churn, it's to deal with projected growth in sales, it's to deal with the normalization of post-COVID. That's untouchable. We think the numbers are -- I'm not sure we [indiscernible]. It's just at 1,600, Richard. That growth of 10% feels very comfortably inside. The fact that we can go up our staff by 10% in over the last 8, 9 months, et cetera, and still see our EBITDA at those levels is pretty positive sign, the way we operate our business.

We have completed the allotted time for questions. I'll now turn the call back over to Andrew for closing remarks.

Well, once again, everyone thank you so much all listening in. As I said, we remain extremely confident about this business and the direction it's going. Just to reiterate the moves of Graeme and Richard is a great sign of the depth in our organization, the way we can keep on moving forward. I think that Graeme moving to the U.K. where half our business existed is very, very good as we also look to shift executives through the company as a global organization and not have it all centric running out of Melbourne is another good sign. We're very excited about the future and that we thank everyone's time for listening in today. And for those shareholders, thank you very much for your loyalty and your support of business, and we will look to continue to look after you. Thank you very much and good morning or good evening. Bye.

Good evening and good morning.

Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.