Hansen Technologies Limited (HSN) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Hansen Technologies FY '23 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Richard -- sorry, Andrew Hansen, Managing Director.

Thank you. Good morning, everyone, and thank you so much for joining the call and your interest today in what is always a very busy time around results. My name is Andrew Hansen, and I'm the Managing Director of Hansen for some 35 years. And I'm joined today with Graeme Taylor and Richard English. Just as a bit of background. You'll know, during the year, we appointed Richard English as the new Chief Financial Officer of the company, and more recently with Graeme assuming the role of CEO and which is really overseeing the -- some of the day-to-day operations. For me, I'm still heading the company up and really driving the strategy, but some of our interest in M&A, et cetera allows me some more time to focus and concentrate on the company. And this transition has been in -- planned for some time with both, certainly with Graeme, who worked very closely together for the last 10 years. So that's a bit of a background on who's actually joining on the call today. I'll run through a number of slides today. Just on some housekeeping matters: Look. If we have any technical issues, we'll just take a short break. And if anyone is affected, then we'll advise you accordingly when we kick off the call. We have a reasonable busy agenda today, so -- but there'll be plenty of time for questions at the end. For those -- I know a lot of people have listened in to Hansen before, but it's it would be remiss of us not to actually go back to what Hansen actually does. But as we know, we really take -- make complicated products and services and building. We provide that by configure, price, quote across really the gas, electricity, water and communications industry, but basically, guys, we're at the heart of the cash cycle of our customers. We're close basically really to the cash register of our customer. And it's all mission critical, so what the services we do is all about the cash generation of all of our customers. We own our IP. And we have -- we're very, very proud that we have less than 2% churn of our customers. And that's really based on the continuing investment we make in our products and really trying always never to give our customers a reason to want to leave us, by maintaining very fresh software applications and meeting their requirements on an ongoing basis. We have the diversification in location. It's one of the beauties of Hansen, when we think about it. When I first came here, our business was just an Australian-based company, whereas now probably only 10% of our revenue is derived from Australia. We have a true global company led by a great team of management who have been here a long time to globalize our organization. And we also enjoy our predictable revenue streams. And I think the other thing about Hansen which we're extremely proud about: We've always been cash generative. So that's a nice thing. We've always made money as we go forward. Just a little bit further on the background of Hansen. And you'll probably know that, Hansen, the business was really founded back in 1971. And we listed in the stock market back in 2000, some 23 years ago. We have customers which operate in over 80 countries, and the 2 main industries we service really is the utilities and telecoms. And really for -- those industries, as you'd understand, are going through rapid change and evolution of those 2 respective industries, which we don't probably need to go into at this point now. We'll cover that later, but basically [indiscernible] for all our customers' commercial business model, obtaining a customer, selling them a product, provisioning that product, looking at their usage and billing. It's the end-to-end life cycle what we get involved in. And certainly I know that there is a lot of questions about M&A, which I'll touch on a bit more, but we've always been -- found a pragmatic approach to really looking after the organic growth of our business. We don't believe in profitless prosperity. We're constantly trying to find ways that we keep on looking after our customer base, but the inorganic M&A is [ also an aspect which ] Hansen focus on and to one we've been very, very successful and never had a failed implementation of a new acquisition. So we'll give you a bit of a brief run-through of some of the financials. And then we'll drill into a little bit more detail via Richard and Graeme as we go. Guys, this has been an amazing year for us. We think about COVID as a past. The transition of Hansen and most businesses to actually go through COVID and come out the other side and [ being itself a renewed ] business -- and I think you'll see that by our results because it is an outstanding result really based on the hard work of a lot of people. In a normal typical year, we're securing new logos. We're enjoying lots of upgrades and renewals to existing customers during the year, which is very much just a business as usual for Hansen. We've certainly uplifted our approach to ESG. This is certainly a cost that companies do, but we all see the benefits of -- ESG have as any global organization does. And it's something which means a lot to our staff as well, about our [ green gas house ] emissions, et cetera and that Hansen is doing the right thing. So I must thank Peter Beamsley, who's actually our Head of Investor Relations, who has actually been [ chairing ] that; and the hard work that Peter has been doing in that area. Expected organic growth in '24 has been the best yet and certainly taking advantage of those rapid changes. [ And also taking advantage is ] just making sure our software is current. It's relevant for the modern times and whether that's our software sitting on premises. It's sitting in the cloud. It's a SaaS. At the end of the day, our application is our application, and the way we house that is totally up to ourselves as we do that. [ It should ] rapidly pay down debt. I think that's probably the most outstanding thing about this business. And anyone would have seen, and I think I'd touch on it later, but in the last few years, between paying out to shareholders and paying down debt of $200 million in cash, for a business our size, I think, is second to none. Our balance sheet has never been stronger. And once again we talk about acquisition. I think we invest the money on behalf of all shareholders. Every person in Hansen spends money like it's their own. And I think it's the mainstay of our business always, moving forward. And the next [ acquisition ] will be just around the corner, but we will never buy a business which is not going to be earnings accretive, is not going to be strategic and is not going to be a business which is going to harbor or hinder the business as we have it today. As far as the results, certainly on the revenue side, organically 5.2%, which certainly has exceeded guidance for the year. EBITDA margin was great. I know that we announced at the half year that we're going to have a stronger second half. And so those who took note, who bought shares in Hansen have been rewarded for taking us on what we said. And I think that's come through with our second half EBITDA margin of 33.5% when you think that's way above our historical margins. NPAT increased 2.1%, earnings per share up 1%, dividend reflecting once again a strong cash position. We are returning 47% of our NPAT to our shareholders this year. [indiscernible] paying dividends. Once again there's some reliance on the fact we're a cash-generative business. And the most important thing, effectively, well, today, we are net debt. So we have -- our cash is very strong at the moment. And we're just working through some of those remaining loans which we have overseas, but to be net debt as quick as what we have over that last acquisition of Sigma a number of years ago is fantastic. I've got on Page 11 just some work which is something we don't normally -- we probably don't have a lot of direct peers in the world because Hansen is a bit unique as we compete against the IBM and Oracles and the SAPs. So we wouldn't say they are direct competitors, but I think we've just outlined here just how we've actually gone against the small ords and the all tech index, and Hansen's performance against that. And that's probably coming down to probably the perceived dependency which people can have on Hansen and this cash-generative nature, of why people think that we're a pretty safe bet on. And we thank everyone for their investment. Earnings per share, up 18% on a compound annual growth since '19. We think we're in a great position really to take advantage of opportunities as we go just based on our cash position. And there ago, I understated. I said it was nearly $200 million. In fact, I think on the note there it's $211.5 million that we have -- we paid back in debt and to our shareholders. So maybe a little bit more detail. Would you like to take [indiscernible], Richard, and just talk a little bit more about that?

Sure. Thanks, Andrew. And thank you all for joining the call. I think in the last 12 months there's been an increased level of interest in Hansen. And we now have circa 10 analysts covering our stock and renewed interest in the shareholder base as well, so it's been a great year. And between Andrew, myself and Graeme, we'll walk you through the financials and the FY '24 guidance. Look. First up, revenue. We've had a record year, for those that have followed Hansen, circa $312 million of revenue, the highest we've ever had in Hansen and 5.2% growth rate. Pleasingly, that was ahead of both of our guidance and also the consensus in the market. So at the start of the year, we had talked to a growth rate of 3% to 5%. We reiterated that at the half, and pleasingly, we have come out at 5.2% for the full year. We are, as always, robust, predictable. And I think Graeme will talk to shortly the exciting FY '24, where we certainly have some tailwinds and some momentum behind us. So from a revenue standpoint, our key metric, all heading in the right direction. Underlying EBITDA. So again we came out at the half and also last year and advised that we would be looking to guide to 30% margin plus. And great today to be able to say that we've come in at just under 32%, maintaining margins well and truly above our historical averages. For those that follow Hansen: 25% to 28% margin is sort of typically where we land. And to come in at 32% for the year during what has been a pretty challenging period around the world is just outstanding. And you can see our CAGR growth rate of 12% since FY '19 just really speaks volumes to the profitability and predictability of Hansen. For those who want to look into the detail. From a reported basis, our EBITDA has come in at [ 103.4% ] versus [ 97.6% ] last year, but Hansen always talks to EBITDA excluding the FX swings that go through the P&L. So overall, [ 99.5% ], well and truly above our guidance; and we're thrilled with the results. From an NPAT level. Obviously, when it's all said and done, net profit after tax were up 2.1%. It's worth highlighting here that the tax impact year-on-year plays a part in this number. Last year, our effective tax rate was 18%. This year, it's 21%. Last year, we had some tax losses which we soaked up. We had some tax strategies in place which we don't have in FY '23, so 21% effective tax rate does impact the bottom line. But nonetheless, profit before tax, up 6%; after tax, up 2.1%, but the number to draw out here clearly is the CAGR growth of 18.8% over the last 4 years, which we think is outstanding and great shareholder value. If you'd like to move on to Slide 14. The earnings per share is obviously a critical metric for all shareholders looking for shareholder value and accretion. And this is where Hansen really succeeds, and the reason we succeed here is our ability to leverage our balance sheet. And I'll talk to borrowings in a second, but the ability to use debt to acquire companies, [ Hansen-ize ] those companies, improve their margins whilst paying down debt is the clear reason why earnings per share is up from $0.109 in FY '19 to 21.1% -- or $0.211 in FY '23. We will continue to use our balance sheet. And we have banks that are very supportive. We have an appetite for leverage that will support the next acquisition, so we anticipate that earnings per share will continue to improve. Now net debt is an area that -- we always talk about cash in Hansen. And I'm so pleased to say today that, at the half, we had talked to a full year net debt position of heading towards 0; and it's actually turned out that way. We paid down $34 million for the year. As of July, we were in a net cash positive position. We, of course, still have borrowings, but our cash exceeds our borrowings. And we've exceeded where we thought we would be, so to be in a position where effectively our leverage ratio is now 0 after what's been 4 years of rapidly paying down debt is quite something. Moving on to dividends per share, look. We've declared a $0.05 interim dividend and a full year dividend of $0.05 as well. It's partially franked. And for those who know Hansen, you will know that our profits are largely derived offshore where we don't get the benefit of franking credits, but in the last year, we've returned circa $20 million to our shareholders via dividends or DRP. So when I look at these 2 charts here, I'm particularly proud of the fact that, in the last 12 months, we've returned circa $54 million to either the banks or our shareholders. Moving on to Slide 15. And this, I'd like to spend a bit of time on Slide 15 because it does talk to a level of revenue transparency that we've been talking about disclosing this year. So there are 3 key revenue streams for Hansen, the first one being support and maintenance. And this is really the lucrative, underlying, predictable steady cash flow of the business. Every one of our contracts around the world has support and maintenance built into the contracts. And you can see here that progressively, over time, there is a steady growth pattern of 3.5% since FY '19. The small one-off blip that you'll see in FY '21 is due to a previously disclosed unprofitable call center client that we returned. And of course, since then, we've recovered our numbers up to $75.3 million in the second half of this year. So up 5.2% year-on-year, as I said, a very, very predictable, robust revenue stream for the business. Moving on to license revenue. And we think it's very important to highlight that licenses play a part in our business from a revenue standpoint. Obviously 10% of our revenue is derived from licenses, but the real point that I wanted to draw out here is there are some fluctuations in our revenue year-on-year and half-on-half based on license revenue. And this comes down to accounting standards that were introduced back in FY '18. And therefore, revenue is often taken at a point in time, as opposed to over the length of the contract, so we often have to spend a bit of time talking to shareholders and analysts around the volatility in the revenue, but the reality is we can't control this. We don't try and sign contracts to take revenue upfront. Sometimes, accounting standards play a part in that, but nonetheless, we're up 12% CAGR on license revenue. It remains a part of our business, but at only 10%, it doesn't swing the revenue number as much as it might have in the past. The most important area that I wanted to spend a bit of time on is our services revenue. In other businesses that we've looked at, there is a lack of predictability in services, but it's actually not the case with Hansen. We own 100% of our IP. The applications we work on are ours, and as a result, there are 4 key areas of services revenue that we spend all of our time working on. And 90% to 95% of our revenues and services are fully predictable and known well and truly in advance, which is very uncommon in the tech space. So the first area is around upgrades. And we talk to our clients 2, 3 years out regarding upgrades. They are known. We resource them suitably. And we consider them to be highly predictable in nature, as they recur on a recurring nature. The second area is around [indiscernible] market regulatory changes. And within the energy industry in particular, there are market changes happening every month and every [indiscernible] so we know about these changes in advance. We ensure that we have resourcing in place. They are, in our minds, 100% predictable in nature. The third area is around embedded dedicated teams. And in many of our long-standing customers that have been with us for 10-plus years, we have a mix of staff that actually sit within their buildings, working really as an extension of their IT departments. They are 100% dedicated and 100% predictable in nature, which really leaves only 1/4 of the services revenue, one part of services revenue as unpredictable. And that is the implementation of new logos. And of course, we have new logos every year. Some, we disclose. Some, we don't, but the overall services revenue makeup is highly predictable in nature. And I thought it was worthwhile explaining that on today's call, that 3 of the 4 buckets of services, we know well and truly in advance. The other area that we'd like to disclose today is this customer diversity, and there's a number of reasons for this. Obviously, having 33% of our clients in our top 10 is it speaks volumes to our not having all the eggs in one basket, but it's more than that. And [indiscernible] of our revenue. However, our top 10 clients make up different products, different industries, different geographies, different currencies, so the strategy with Hansen has always been to never have all your eggs in one basket. And this pie chart here clearly highlights that there is no one client that can cause any significant stress to the Hansen financial numbers. We have long-standing tenures with these clients. Our top 10 clients, on average, have been here for longer than 10 years; and we remain heavily engaged and invested with their businesses. I hope that's been helpful, to those listening in on the call, to understand a bit more about the revenue, but if you then move on to Slide 16. Nothing here is particularly new on the left-hand side. We just wanted to disclose the revenue by vertical between the energy sector and the communications sector. And you can see, back in FY '19 and -- we were obviously skewed towards the energy business. Speaking to our strategy around not having all of our eggs in one basket, we then diversified and invested heavily in a new product in the Canadian market. This then rebalanced our communications and energy revenue verticals, which you can see thereafter. I think, in the year just gone, it's circa 53%, 47% between both verticals, which is a great split. In the bottom left-hand side, where you can see then the revenue makeup by region. And of course, EMEA remains a key part of our business. They are very dynamic, very progressive. There's a lot happening in that space and we're at the forefront of that, but of course, [ in ] Asia Pac and Americas, business continues. There are plenty of upgrades and new logo opportunities as well, so across the board, in both of these 2 charts, you can see again the diversity that is Hansen. And then finally, in the revenue, on the right-hand side. We have always talked to [ an over ] number of circa 5.2%, but the reality is, when we look at what I've just described on the previous page, the business is growing by 7.3% excluding license fees. Now considering that these are highly predictable in nature, this is an outstanding result. Hansen has particularly talked to a 2% to 4% growth rate. 7.3% for these 2 revenue streams is outstanding. Obviously licenses will vary year-on-year, depending on when the revenue recognition lands, but we're anticipating [ license fees ] in FY '24 to be slightly higher than where they've landed in FY '23. But nonetheless, 7.3% on those 2 revenue streams is something that [ we're particularly ] proud of. Finally moving on to Slide 18, please, cash and capital management. And this goes to the core of why we are Hansen. We talk to -- one of our key mottos is spending the money like it's your own. And there's no point being in business unless you're generating substantial cash flows. And we are a tech company that's done this for a very, very long time. We're very proud of it. And we see plenty of tech companies that are growing but don't necessarily generate the sort of cash flow that Hansen does. And in the past 4 years, we've returned just under $212 million to our shareholders or our banks, which is just outstanding from our point of view. So on cash flows. At the bottom of the page, you can see underlying EBITDA is about $100 million. There is a modest buildup in working capital of $7.8 million. At the half, it was $16.1 million. We did say that would be unwinding, and it has, but obviously there is some growth in our business of circa $15 million of revenue that contributes a small portion of that working capital buildup. And we have 2 very, very large implementations underway that have clearly defined billing schedules. I think it's very, very important to say that we have no bad debt issues. We deal in the Tier 1, Tier 2 space. So no concerns from a bad or a doubtful debt provision. From a CapEx investment. Last year, we invested $6 million; this year, $4.8 million. We continue our hardware refresh in all parts of the world but in particular in EMEA. We think, depending on how the business case stack up in FY '24, CapEx will be in the range of $4 million to $5 million [ again ]. Graeme will shortly talk to product development. And R&D is core to why we are successful. $21.1 million is our last investment to date. Last year was $16 million. Part of the increase is the catch-up due to a lack of capacity during the COVID years. And we have managed to catch up our capacity and invest in our products in FY '23. We have a very, very clearly defined road map. And next year, we will guide to an investment of circa $20 million, but every product receives some type of investment. There is a clear road map in place. We have plenty of opportunities to grow our products and retain existing clients, so we think that $21.1 million is clearly money well spent. Just quickly on interest on debt and tax, the $12.1 million. Everybody is aware that interest rates are rising. And we are in the fortunate position where, because of our ability to pay down debt so quickly, our interest burden is perfectly manageable. And we think, in the next 18 months, the interest component will be extinguished altogether. Moving across to the right. Our debt repayments last year, we returned $34 million to the bank; again, $33.8 million this year. So a 2-year payback to the bank of $68 million is something we're particularly proud of. And then of course, dividends back to our shareholders, net of DRP, is $18.4 million, so overall an outstanding news from a cash flow perspective. Final slide. Thanks for your patience. Slide 19, on borrowings. This is one of the charts that I always enjoy talking to. FY '19, we started with $186 million of debt. Fast forward 4 years, and we've got $54 million of debt. We are now net debt 0, retiring another $34 million in the year. We continue to have bank support from many of our very supportive banks, 2 in particular that have been on the journey with us. And with a leverage ratio of effectively 0, we are now in a position to find the right assets, leverage accordingly to acquire them, integrate them and then drive earnings per share. Final point, dividends per share: again, $0.10 declared this year; $80 million returned to shareholders since FY '19; again, very, very proud of our numbers and the ability to reward our shareholders that have been on the journey with us. So thanks for listening to the financial section. I know it's a bit to get through today. I'll now hand over to Graeme Taylor, our new CEO, to talk through R&D and AI. Over to you, Graeme.

Thanks, Richard. A little bit more color on research and development. I think that it's clearly an area that we continue to invest in, [ product research Richard mentioned ]. I think it's very important when you recognize the significant state of churn that we find both of our sectors in at the moment. We've got technology changing with 5G and the adoption and the monetization of 5G within telecoms. And of course, that's driving a need for us to continue to invest in our products and work with our customers to be that loyal technology partner. Also, within the energy sector, I think we all see it every day of the week as we move about doing our day-to-day activities [indiscernible] is becoming very much part of lives. And there's various challenges around introduction of electric vehicles and so on throughout the globe. And of course, Hansen remains at the forefront of making an investment in our products to ensure that our energy customers are in the best position they can be to support that ongoing activity in the market. So this has seen our investment grow somewhat over more recent times, but I think it's important also to note, is Hansen is a global company. We get the advantage of seeing many of these adoptions overseas before they hit some of our other markets. And so Hansen has the unique opportunity to really leverage this investment quite well as it looks to service its customers from around the world, so I think it's something we will certainly continue to see in our business. Technology companies need to keep investing to [indiscernible] in the best position possible to support its customers. And of course, we've got a proven track record with a very low customer churn rate, and I think that research and development and investing in our products is part of that equation. Moving on to a piece of technology that's very much out there in the marketplace in the -- at the moment, artificial intelligence. Of course, it's something that we are very conscious of and are looking and working with [ as we speak to now ]. I think it's one of those things that Hansen is very much aware that it's an area of future development where we need to move carefully; and make very, very well-thought-through recommendations to our customers around the adoption of this technology. It's a very, very exciting space. And we're working on a number of proof of concepts at the moment as we look to see how this technology could benefit not just ourselves as we look to find more efficient ways to do business but also to make recommendations to our various customers around the world how this technology can be adopted to better service their customers and deliver a great experience into their respective businesses around the globe. There's a lot of [ reading ] out there. I'm sure people have taken it and used the technology themselves to perhaps draft a letter or do something at the very basic levels of this, but as the industry looks to adopt it, of course, we're wanting to make sure that the strengths of our business around IP and so forth continue to be maintained and we're able to protect our customers as we move forward in this space. There are lots of exciting developments to come here. And we look forward to bringing this into the industry over the coming 12, 18 months; and we'll continue to make that investment as appropriate. Look. I'll now hand back to Andrew. I'm sure he's got some more news in respect to M&A.

Thanks, Graeme. [indiscernible] we've got some more news on M&A. We've always said you can actually do the guidance. [indiscernible] take it up [indiscernible]. Look. I think it's important when we talk about the position of Hansen and the fact that we've actually paid down the debt and our strong balance sheet, but we've never really changed our mantra and the way we actually look at things, to be honest. And we know what's happened in the last 3 or 4 years, the valuations which have been put on businesses and transactions which have been taking place, where valuations [ far grow from Hansen ]. And there are businesses we saw would be quite strategic for Hansen where valuations didn't make any sense for our investors, so we remain very, very focused on achieving an outcome for shareholders, a great outcome for the Hansen. That's the way -- we are busy. We are looking at businesses. I think it's an important point probably, where we sit at the moment now. Some quite specific targets which we think we are the natural home have not been transacted. So we know -- which just comes down to valuation. We sometimes -- look. I think the [indiscernible] can ask whatever they want for the businesses, but the price is always set by the purchaser and what we're prepared to go and pay. I think, whilst we actually see we've got the money and we can quickly do it, we're not particularly perturbed about the cost of money at the moment now because we think that provides a better opportunity. I think, when cash was so cheap, we certainly had some assets which were attracting the interest of private equity [indiscernible]. We think that [indiscernible] position. We've always believed very strongly that Hansen [ as an organization ] has enabled us to quickly turn businesses around. And as we've said, every business we've bought, we've probably increased the profitability by 50% as we've actually gone. We think that the markets for us -- look. We're pretty attracted to the North American and European markets primarily because over there one of the advantages Hansen has is we've had operations in those countries for a long time so we understand the culture. We understand the legalities and certainly the financials and many of those things. [ We're dealing with staff ] and churn just really helps us, so we're always focusing on that. I think the other one is we are -- certainly have interest in what will be a third vertical for the company. And I can assure you we are doing a lot of background work because the idea of buying in to a new vertical; and taking a lot of fundamentals of Hansen about dealing with data, regulatory and all those things that we know we're very good at -- we're going to make sure, if we are to buy in to a new vertical, that [ the effect is ] going to be a long tail that we see, other acquisitions which we can build on top. So I think we should be rewarded for being patient and not wasting shareholders' money. And we're all here, I'm certainly here for the long haul. And any investment we do, we want to get a really good return on it. So be assured, guys -- I just want everyone to know we are not refusing to transact. We need to transact which is earnings accretive and [ always what's ] going to be a strategic benefit to our organization. The M&A pipeline is actually quite well advanced and we certainly look forward. And when we do that announcement, I'm sure everyone will be very delighted with that, when we bring the announcement to marketplace. So Graeme, you won. We'll let you talk about the one everyone has only joined the call to listen to, the guidance.

Thank you, Andrew. Well, I think most of you have seen the guidance out there. Look. On the back of a great year this year, I think we're positioned to move forward in FY '24 with a high degree of confidence behind us. It's been great that we've been able to stabilize the business. I see our ability to attract talent as having improved over the last 12 months. We've now got a reduced level of labor churn. And I think we've got our people back in the best position we've probably been in the last 3 years. We've got a very loyal and strong staff to assist us as we move through FY '24, so I think we'll continue to make investments. We feel that, with the industries in the state they are at the moment getting ready for further development opportunities, we're predicting somewhere between 5% to 7% of organic revenue growth for FY '24. We believe that we can maintain costs and continue to deliver margin slightly in excess of 30%. And I think, just to put that into context, for a business that's growing around the world and having things and costs imposed upon us and being able to maintain that margin, I think, is something that takes a lot of effort. And we work on literally every day of our working week to make sure that those costs are maintained. We take our obligations to the environment quite responsively, but of course, they bring cost to the business as well as we look to reducing our footprint. And then to look at our ongoing expenditure. This is one of the most important things when you're able to generate cash in a business, is to be able to come back and invest in yourself to ensure your future. I think it's really important not only to our customers but to our staff that we continue to make those investments that see a strong future ahead of us. And of course, Andrew has already spoken to other opportunities that we look to leverage [ and ] as we continue to generate profits and cash for the business. So a great year ahead I'm looking forward to, as the CEO, of making that a reality. And with the great executive team that we continue to develop working with me, I'm sure these results will be achieved across FY '24. So I think that really concludes the formal part of the presentation for this morning. And we can open the floor now to any questions that might be out there, so please put your questions forward.

[Operator Instructions] Your first question is from Evan Karatzas with UBS.

Look. Great results. And especially, that second half was pretty impressive. If I can just put the license sales for '24 just to a side, if I can: What sort of revenue growth, even if it's a range, should we expect for that support and maintenance, services revenue streams?

Yes, Evan, thanks for the [ feedback ]. Look. I did talk to license revenues [ making ] circa $34 million next year. So I think, back of the envelope, you can figure that one out, but we're comfortable with the broad range of 5% to 7% across all makeups. It depends on obviously when some deals fall, but if you guide to that $34 million from a license perspective, I think you'll get your number.

Yes, brilliant. I'll -- that's super helpful. And then maybe just a second one, just on the EBITDA margin. Obviously you've given us some good color on the licenses which has implications for the margin, so maybe just putting all that to a side. In terms of the operating costs expectation, I think it was about $212 million in FY '23. What sort of growth do you expect on that in '24, again even if it's some sort of range as well?

Naturally, we like to exceed or meet the market on our guidance. So we have talked to plus 30%, Evan. Last year, we talked to plus 30% as well and came in at 32%, so look. The Board and the executives, we're accountable to a margin of 30% and revenue of 5% to 7% growth. So again, in your modeling, I think you'll get the number that you need.

Your next question is from Garry Sherriff with RBC.

Andrew, Graeme, Richard, always nice to be putting through upgrades during reporting season. Again, maybe just following on from what Evan was saying, that second half EBITDA margin. I mean that expanded 3 percentage points, right? It went to about 33% versus 30% first half. I guess, looking into FY '24, do you think that second half margin level can be sustained? Or do you think there might be some level of normalization as you're continuing to invest? I guess that's the question on EBITDA margin for next year.

Yes, thanks, Garry. Look. The second half has indeed been strong. We did forecast that in February when we came out with our half year results. We knew it would be off the back of predicted and contracted license fees. And again the business has some seasonality. And FY '24 -- we're not going to disclose the half-on-half comparison, but we are comfortable with the revenue guidance and the margin of plus 30%. Again the license fees obviously play a part on half-on-half, and whether or not they land in the first half or the second half, we don't typically disclose that.

Yes, understood. 2 questions on M&A. I know you've been talking a lot about a third vertical. Can we get a sense? I mean assuming they're likely going to be defensive regulated industry targets. Does that mean that we should be thinking around the health medical field, financial services type verticals or others that you can articulate?

Yes, Garry, I think that's a good question. We're seeing those things. What -- as Hansen, what are our strengths? And what we deal with, probably [indiscernible] volumes, [ important guys which cover ] [indiscernible] regulated industries. [ So they're normally ] things which we think that we [indiscernible]. So [ you take that sort of part of our marketplace. Who's going to -- who is buying it ] into an industry [ we have coming ]? So look. You're 100% right. We would see financial sector, health care or other industries which are regulated would be all the areas which we have some interest in. A lot of the work in the background is trying to understand those businesses; who's available, whether that's just a regional product or whether they're an international product; and other things we're all taking forward, but it is mainly around the pension, superannuation, financial, health care, insurances, all those industries where we think we can bring something to the table other than just good, old-fashion operational efficiencies.

Understood. And the final one, in terms of the deployment of capital for M&A, you've given a large range in terms of target sizes between $30 million and $500 million. Do you envisage that, that third vertical is more of a smaller step out, with larger M&A deals, I guess, reserved for those existing verticals? How are you thinking about the deployment of that M&A and back into existing, [ rough sizing ] it, versus stepping out into a new vertical?

Yes. Look. A bit of a combination answer because we can't be assured of the timing, Garry, when these things happen, so I think we're just trying to give an indication of where the Board and I feel comfortable of where we could actually spend our money. So it could be a combination. I think it's important to note we would only embrace a new, third vertical if we thought we will be able to do other deals on the back of it. We don't need to go and do a deal and, I think, only have $10 million of revenue if we don't think it's going to go anywhere. And to be honest: We've looked at a number of businesses which we just could not find what the recurring deals on the back of it would be to try and go in an ideal situation, but aspirationally, in 5 years, we'd love to have a third vertical [ which syncs with the other 2 ] verticals because we -- I think Richard [indiscernible]. We don't like to really have a country, a currency, a customer or a product which actually could cause, [ in a way ], harm to the organization. So it's the same thing when looking at all these third verticals.

Your next question is from Josh with Barrenjoey.

Well done on the results. First one, just on the organic growth guidance, can you give us any indications of what currency assumptions you're using to sort of underpin that?

Thanks, Josh. And thanks for showing interest in Hansen in the last 12 months. Look. We have taken some prevailing exchange rates from around the [ average actually in ] April and May. So of course, there are, as you would all note, tailwinds at the moment. We don't know if they'll continue, so we've taken a conservative approach based on rates back in April and May.

Perfect. That's great. And then just within that target, like in the context of what you've got there, how should we look at what visibility, I guess, you've got over that? Like is it consistent with the [ nearly ] 5-plus percent that you've been talking about and obviously gave that extra transparency around in those line items? Well, how should we be thinking about what visibility you have got [indiscernible]?

That's exactly like you say. And we're in a fortunate position where we can predict with near certainty basically [ 95% ] of our revenues. And we're now into nearly September. There's nothing at this stage that is highlighting any concerns with what we put out today.

Brilliant. Just second one: obviously a stronger organic growth profile. And you've talked about investing more in the sales motion and obviously [ some new products and ] R&D. How should we think about maybe, rather than '24, just post '24? Is it too early to sort of say that the historical ranges that you've talked about in terms of growth may step up in terms of contribution to the sort of broader outlook outside '24? Or how should we sort of be looking at some of those things continuing beyond FY '24?

Yes. Look. The reality is in the sales [ it's likely a slow burn ]. So these very large energy and communications customers are not making decisions in 3 months. So the investments that Graeme and Andrew have talked to, we started in FY '23 and continue it in FY '24. We'll deliver some results in '24, for sure, but the '25, '26 pipeline is key to landing some of these big deals. They are big implementations. They are risky for customers to take them on and so they obviously take time to deliver.

The next question is from Laf with MST Financial.

Just a few follow-up questions and if I could start on the revenue side. So if you look in the last year, it's almost entirely the growth is being driven by the energy division. I think, Richard, you talked to a few large implementations you're working through. I guess, for both the last financial year and the guidance you're setting for the next financial year, can you give us a little bit more color as to what's driving those net new customers that you've got onboard? Or I know in the past you've talked about there's an inflation component included in your contracts and with your clients. And are you passing on those inflation increases? Or [indiscernible]? And if we look to '24, is it largely going to be energy-driven as well?

Laf, thanks for your questions. So just to address that question around holding on price increases. We're definitely not doing that. So we take a long-term strategic approach with price increases. We're not necessarily passing on 10% CPI increases just because that's what the market is doing. And we've got clients for 15, 20 years, so we'd look at potentially doing, in that example, a 5% price increase but longer tenure and including an upgrade. So just to be clear for everybody on the call: We are certainly passing on price increases. From a vertical perspective, a lot of that is timing related. So of course, [ you've seen ] energy growing in FY '23, but right now, without disclosing the customers, we have 2 very, very large upgrades happening for 2 customers in the communications space. So against that diversity, revenue will bounce between both verticals year-on-year, but there is nothing to read into the numbers that would suggest that one is growing at a faster rate than the other. And in fact, you could argue that communications is a very exciting space now with IoT, 5G because of a lot happening in those both. So we feel pretty bullish.

Yes, okay. So can I just move on to some of the M&A? And some of the commentary you've made thus far is [ it almost ] seems like [ prime investing is ] improving on some of the targets. The balance sheet is a lot stronger, so -- and you talked to getting a circa 50% uplift from the targets you've had in the past. So when outside and looking in, it does beg the question. Are your hurdle rates too high for what you're looking at with these targets to -- or if -- and if you could just give us a little bit more color as to what you're actually specifically looking at as your hurdle rate for the transactions. So is it EPS [ gross ]? And what level are you looking at? And is it pre synergies, also post synergies? Could you -- how do you think about these transactions and -- that could give us a little bit more insight into -- I mean, into the process?

Look. We probably always don't want to give away our negotiation tactics, but we're a public company, so the very first thing we look to is our valuation. It would be wrong for us to pass fully across the synergies we bring to the table to the vendor because they -- the synergies we bring to the table should be in the hands of our shareholders, so we would normally look to our valuation metrics. And [indiscernible], "Here is a company, successful, growing for 50 years. That's the valuation we have." I think it just sort of -- sometimes we -- there is no doubt pricing -- we set the price. It would be wrong of us to pass it on. We're not completely foolish to think that, some of these synergies, we could probably afford to pay a bit of an uplift for, but you don't give them all away because they're not guaranteed. And they always should be in the hands of our shareholders, not in the hands of the person selling the business. At the end of the day, if someone wants to sell the business, there's got to be -- in all aspects of [indiscernible] in business, there's got to be a compelling event. If someone wants to sell, then [ they have to leave them out ]. Now if you're a private equity firm and you want to put it into a continuation fund, if you are a big conglomerate and you want to hold onto that asset [ because it's kicking out ] cash -- everyone has got their own reasons, I think, when actually looking at things, but we would look at our valuation as really being the pencil, the line in the sand for coming up with the valuation of the companies we're buying. And as I've said, once again, I think the benefits we bring to the table, our hard work, our investment, our synergies should be back in the pockets of our shareholders and not of the vendor.

Yes, okay. And so with your share price bounce today and your likely higher re-rating, you would say that, that increases your likelihood of doing a transaction in the year ahead if it's maintained...

You're making me look. Now you're making me look up to see what our share price is. Well, after the call -- I'll have a look after the call. I mean it certainly helps. There's no doubt. Look. We're probably valued by shareholders, as we know. And we thank everyone for their support of where we are, but it does become a bit of a -- it's not a hurdle, but rightly so, [ we want to pay it ]. So clearly, if our share price goes up, then it would make something certainly more affordable to us.

Okay, sure. And just one final question, just on the cost base. In the past, you've talked to there being some inflationary pressures and even hiring pressures and even staff turnover issues. Can you just elaborate? Because it's still -- from an employee side, it still looks like it's running pretty high. Is it from net increase in staff numbers? Or is it from [ the inflation that's around ]? Or what -- can you just talk a little bit more around the -- on the employee expense line?

Look. I think Graeme is probably able, but it's probably a combination of those things [indiscernible] we're talking about post COVID [indiscernible] to come by again now, Hansen probably being an employer of choice because they -- that stability we can offer to people when they're actually [ going ]. I think the combination always is probably what we're prepared to pay for people. So there's a bit of pressure on wage, a bit of pressure. There's a bit of increase in people. Graeme, do you think...

No, I don't think -- it's really we've put staff on. We've got people at a level now that we're completely comfortable with, as far as servicing our growth. And I think that -- new business, as it comes on, we will always try and manage that workforce, but look. It's quite clear. Wage inflation has been there and we have not been immune to that. And I think it's clearly a credit to the management [ team and ] particularly the delivering and the team of software [ folk out there ] that we've been able to manage our resources well. We've been able to keep productivity at a level to be able to deliver a result with a margin higher than 30% in this sort of environment. It's certainly stabilizing. I don't see that continuing on through the next 12 to 18 months. We're seeing a lot of stability come back into the industry as we're seeing some of the big tech players lay off staff. And certainly we're really happy that we've seen some employees come back to us, saying that they want to rejoin the company; and we've been happy to take them back into the fold. So I think that labor costs will stabilize now. And as we predict, margins will be greater than 30%.

The next question is from Chris Gawler with Goldman Sachs.

Can you hear me okay?

Yes...

Yes. Thanks, mate. Yes.

Beautiful. I just want to ask a quick question, a follow-up on one of the questions earlier just on FX. I take your point on the FX, right, you're assuming into FY '24, but are you able to give us a sense for, I suppose, the benefit that you got in FY '23? Like can you give us, I guess, like constant currency growth rate for this year?

Chris, thanks for the questions. Look. I did say it was immaterial. It really is immaterial. I think, at the half, we had disclosed FX being $20,000. So we're trying to get away from talking to constant currency versus reported currency where it's immaterial, so I won't go into it, mate, but you don't need to worry. It was immaterial for the full year.

Yes, very clear. And then just on the R&D outlook, appreciate the guidance on R&D as a percentage of sales. Will there be any change in split of that between what's recognized through the P&L versus what's recognized in the cash flow in '24 versus '23?

I would assume [ slightly ] the same. So of course, we do expense some R&D through the P&L that we don't disclose. And the rest is obviously capitalized. So broadly, FY '23 was our biggest year on record. We think there will be a slight decline in R&D investment next year, and you can build that into your model, Chris.

Got you. And then lastly, just on the 5% to 7% organic growth outlook. It sounds like there are a couple of big upgrades in the communications space happening at the moment. Do you envisage this growth rate being the new structural growth rate beyond FY '24? Or are there any, I guess, bigger deals or projects happening at the moment that might be tough to comp heading into '25?

No. I think I -- when Richard called that out -- that's business as usual for us. Some of our customers have bigger upgrades sometimes that might be going in multi jurisdiction, multi countries, et cetera, but that's pretty business as usual for us. And we'll be constantly doing upgrades for our customers, so I wouldn't look too much into 2 particular deals. There's [indiscernible] at all.

Your next question is with Nic Burgess with Ord Minnett.

I think all my questions have been answered but just one follow-up on repricing. So you mentioned, Richard, repricing in a couple of questions ago. And it was something you called out specifically on the release. Are you able to tell us how much of the 5% growth you've achieved this year was due to repricing and what the assumption is on repricing for the guidance 5% to 7%?

We don't disclose that. It's a combination. Again, there is price increases. It varies on customer, products, jurisdiction, even currency, to be honest. So we talked to a growth rate of this year, obviously, 5%; next year, 5% to 7%. It is a combination of multiple factors, of which pricing is one of them. And a lot of it comes down to timing of new logos that we've won that we don't disclose and also significant upgrades that are underway. So maybe next year, Nic, we might disclose more, but for now...

[ Maybe one ]...

I'll try one more time. I mean you've called it out, so I -- we should assume that it's a material contributor to the overall growth of the company at the moment, yes.

I wouldn't say it's [ properly ] material. Andrew just talked to business as usual. And pricing is passed on every single year. It's depending on the nature of the client contracts, so I wouldn't say it's the broad makeup of the revenue growth [indiscernible].

And sorry. It's always probably [indiscernible] shareholders. And just it seems such a lazy thing, just to keep on putting -- companies have an obligation to provide value for what they charge. And you just can't pass along without doing -- and we've always had a much longer-term view of the world, of the longevity of the customer, perhaps some upgrades coming through, the value or the efficiencies we bring into the business. And one of the proudest things we have is a step change in a business like Hansen to continue to make money at the same level when growing. [ You don't find other ] company which has done what Hansen is doing. And I think our customers appreciate that we just don't become lazy and pass it on. We have normally shown through labor efficiencies. Graeme has touched on AI. We're constantly working at ways. And we've never become lazy by trying to keep on reinventing ourselves and our relativity to what we're charging our customers. I think you understand that. I've probably said it before...

Yes. No, I understand anytime.

Your next question is from Vic Lee with Blue Ocean.

My question is just around the R&D spend. And obviously you've been a proponent of R&D spend and trying to help your customers grow their business, so maybe just talk to the R&D [ pieces. I mean ] in terms of [indiscernible] Graeme has talked about AI and whatnot, but is that R&D sort of spend in that space sort of [ tying ] offense or defense? Do you think there's opportunities and also risks to the business as well? Or like how do you think about -- do you have examples on that?

Look. I think there's a little bit of both, Vic, but at the end of the day, our R&D spend is very, very focused. And it's very, very targeted on either a customer-specific need, with a little bit of direction, if you like, or value that we bring [ from markets potentially about those ] that -- it's because we like to see our customers just sit a little bit in front of the curve. So it's that's where the risk comes in sometimes. We might be making a small strategic change to something, but look. R&D investment is something that we review regularly. We are always looking to make sure that we stay on point. And this is why I think, when you look at what we put on the balance sheet, it is very, very well controlled and certainly something we're comfortable will continue to bring revenue into the future.

Okay. So that's both helpful. And then I suppose the other question is probably more for Richard then, just on the cash flow conversion. I mean it looks like it's normalized. And then sort of going forward, it's gone from sort of 50% EBITDA and -- conversion in the first half [ to the 100% ] in the second half, so how do we sort of look through on an annual basis? What sort of conversion can we talk, think about [ moving forward ]?

I think, Vic, you've -- the last thing [ you said may be ] a little bit difficult to analyze, I think, because you have the large inflow of Telefónica landing in FY '22 of $18 million and then, of course, some buildup in working capital this year. I think that the only advice and guidance we can give you is to look at the 5-year historical run but excluding that one-off Telefónica adjustment. Nothing has changed in the underlying makeup of the business or the cash flow of the business. Customers are still continuing to pay us on time. We've always had billing schedules that [indiscernible] [ 90 days ]. So I can't be any more helpful than just looking at historical number, to be honest, Vic.

There are no further questions at this time. I'll now hand back to Mr. Hansen for closing remarks.

Thank you very much. Look. Once again, thank you, everyone. It's been a longer call than normal, but I'm very proud of the hard work by the team in Hansen for the last 12 months. [ Let's face it ], but the 50-year history to get us to where we are today is a great result. We certainly appreciate all the stakeholders in the business and our customers but also the shareholders alike which -- and support us as we go. It's great to be able to put some guidance out, as an organization, of where we're going. I know there are tough times out there, but Hansen has always [ pride itself ] to what we provide as an essential service. And we've been able to always navigate these uncertain times out there at the moment now. So thank you all for joining. And I look forward to talking to you again soon. Thank you.

That does conclude our conference call for today. Thank you for participating. You may now disconnect.