Hansen Technologies Limited (HSN) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Hansen Technologies Limited FY '24 results briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Andrew Hansen, MD and CEO. Please go ahead.

Good morning, everyone, and thank you for joining our 2024 results presentation. I'm joined -- I've got Richard English, our CFO, with me; and also in attendance, Peter Beamsley, who is our Head of IR. So we'll run through -- there's a lot of data which we've got in the pack here, so we'll run though because I know that people need some time to digest it, but we'll do our best to hit the salient points as we go through. Just a couple of housekeeping that is, look, if we have any technical issues today, there may be a short break, and then we'll redial in accordingly. And the questions we will go through at the end of the session. So regarding highlights, so clearly, operating revenue up 7.3%, excluding powercloud. I've noted the Energy & Utilities business up 14.7%, at 13.2% at the group level. Our cash EBITDA which seems to be a question people moving more and more to, to actually normalize the business, is up as well, which looks fantastic. Strategic wins during the year -- look, we've had a net gain of customers during the year which is fantastic, but we've noted some of those customers there. And I encourage people -- we never use really the ASX for marketing and advertising of what we're doing because we're not allowed to, but our website is very, very informative. We win numerous awards for our technology and wins, and that information is always available on our website for those which take the time to have a look at it. Innovation, over 400,000 hours we've actually spent in R&D and technology this year. Not all is capitalized as you'd understand the rules, any investment we make in our product which we can realize within a year or 2 is always expensed straight up. Moving to ESG and sustainability, that's certainly strange enough for an issue which a lot of our customers around the world are asking us more and more what we're actually doing. And whilst largely, it's a bit of a compliance issue and probably we're not where ESG is really aimed at, but our staff are really -- and some of the things which we're actually doing as we promote internally and externally has really been favorably received. And once again, there's lots of notes coming to our website of some of those initiatives which have taken place. Our powercloud probably a little bit misunderstood by people, but I'll touch on a bit later. But certainly, the integration of powercloud is happening as we speak. The very first customer, a large -- one of our large customers come for renewal, we've already renewed for 5 years, so that's a great confidence booster to the change and the investment which we're making into the German marketplace. On the executive team, certainly ready to the next phase of growth. I think as we've already articulated to the marketplace, we really have 2 verticals. The verticals, the communications mark is mainly a technology-driven one. And on top of that, you've then got the energy, which made it a compliance thing. So we were actually -- because we actually announced the market in 2019, but it all got stopped when we went through COVID. So it was just reintroducing the initiative we wanted to do. And number 2, seasoned campaigners of the organization, Darren Meade, who is a long-term employee with about 34 years in Hansen, continues to head up the IT organization and technology strategy, and he predominantly looks after innovation, which is where our investments' taking place and tools and standards. We welcome back Niv Fernando, for those on the call, which have been around Hansen since we've been listed since 2000. We certainly welcome Niv back into the organization, looking after strategy of the business, and that oversees the M&A market and HR functions. So we welcome Niv back. Graeme Taylor, a 12-year veteran of Hansen, CFO for the company, stood into the role of assisting me. I was still full time the company running the business as a Managing Director, but Graeme shared some of the responsibilities, and we thank Graeme for his time. The realignment into the market segmentation now is really quite advanced, and we've kicked it off. And so you will see over the next 12 months the levels of reporting, which we can give more information. But predominantly, the business, we've always talked about M&A, but once again, I think we had a slide on M&A, Richard, which I can probably touch on when I get to that. I think I missed a slide going there, Richard, so you can actually talk about those financial ones when we get to your section so that we're not doubling up. So that will teach me for not reading the cues. Now I know what Peter was looking across the table at me for the whole time. As far as our marketing product and AI, we're a global company. If you just look at our customers around the globe, we are predominantly a Tier 1, Tier 2. And when you see that slide there with the blue, you'll actually pick up just where and how broad Hansen's business is. And this is a well-diversified business, which doesn't really have any one customer, one product in one region which can greatly affect the company. And we've always [ benefitted ] from the ebbs and flows. So very slow. And in fact, this year was a great year because we've had a net gain in customers through the year as we've gone forward. I'll just touch on the energy sector. Look, you'd understand the energy sector, predominantly as what we were talking about before is actually dealing with the market obligations and rules and regulations. Even here in Australia, each state has their own rules and regulations. So our software has to be very, very compliant. Hence, it ties into powerplay going to the German marketplace, which I'll touch on. So the whole market in energy is changing between smart grid virtual power plants, you've got electronic but it's sophisticated billing. It's moving to what's called event based. And that is where it's no longer just the consumption of kilowatts of power, but the type of power, all the way breaking power to which device in the house is actually using it. Regulatory changes and the policy we have to keep up. So it's a significant investment we provide to have that leading-edge technology, which means that's why we don't have churn of customers. This is that compliance which our energy customers globally need, et cetera. And I think just by the very fact over now some 50 years that we've been able to keep our customers such a long journey of time is that we're able to be in advance of where our customers need to be from a technology point of view. Communications sector, there's a lot of information in the slides there, but just the key points which we're talking about there. Certainly, the digital transformation and that customer experience. As you can understand, all of us now want to be able to solve things and do things on our phones, et cetera, not wanting to talk to people, the ability to quickly bundle up products very quickly and get them to marketplace. Certainly the 5G, and this you'll find out if you're listening to technology -- your telecommunication stocks talk about it; the 5G networks because we could already stream on 3G and 4G, they're still looking to monetize that. And that's speeding up things of the Internet things, et cetera. But there's still an enormous amount of demand for as they're finding more products to take on board and great opportunity for Hansen. Some of the awards we've been winning from our technologies from AI and our technology have been well rewarded and once again, go to our website, but certainly positioned strongly for the transition of both the energy and the communications into the decades ahead as we go. In our industry, we often talk about AI and people [ watch ] AI. I think probably people just need to understand AI as a tool. We provide a solution. So we have to find that nice balance between technology and the application to go forward. So we have AI plus our products at the moment now, and artificial intelligence is speeding up the process for our customers to interrogate the usage and the demand to quickly make those changes. So in regarding to trading of the commodity or interfacing with customers and giving pricing arrangements where they can control some of their own costs. So we've got AI now involved in a lot of customers and certainly one of our growth is at the moment now. And as I said before, I think we've always tried to find, enhance in that right balance between investing in technology because tech is an enabler for us to keep on growing that application for our business. So on that, I'll hand back, Richard, because I did speed through the first one about the highlights. So can you make sure you cover it, Richard?

Thanks, Andrew, and thanks, everybody, for joining the call. There is a lot to get through, and it is often tricky to distill the numbers between the Hansen core business and powercloud. And as you'd be aware, we've only owned the powercloud business for 5 months. So I'll walk through these slides as best as I can, and then I suspect there will be some questions at the end, and we can address those then. I think the key thing here is around the revenue side of things. The group is up 13.2% year-on-year, but of course, that does include $18.4 million of powercloud revenue that's been booked in the first 5 months of -- for the final 5 months of the year. The call-out for me here is around the core Hansen business, which is the existing structure that we've had for many, many years. The business is up 7.3% year-on-year. And excluding the data center, which we did disclose was being closed and has now been fully closed as at 30 June. The underlying Hansen business is actually up 8.2% versus last year. And these are numbers that we've not typically seen in the past, the business normally grows circa 2% to 4%, and we came out this year and talked to a 5% to 7% growth rate. Taking into account some FX tailwinds of around 2%, we're still well and truly within guidance, and we're very pleased to be able to deliver to the market. The guidance is 5% to 7%, we've come at 7.3% for the core business. So overall, going particularly well for the core Hansen business and early days for powercloud, but we did exceed our guidance. We had guidance for powercloud $16 million to $18 million, and we came in at $18.4 million. Andrew touched briefly on underlying cash EBITDA on the top right-hand box. And we've done a bit of bit of reflection on what's the key metric for Hansen. And this is a close proxy for cash for us. And simply underlying cash EBITDA excludes R&D capitalized. And when you look at these numbers quite closely, you'll actually see that FY '23, our underlying cash EBITDA margin was 25.1%, and we've expanded it to 26% in FY '24. So you've got the growth in the top left-hand column for Hansen, and you're seeing margin expansion in underlying EBITDA, which is what we're after. Obviously, powercloud short-term impact as expected. You can see the $10 million delta there for powercloud in the 5 months. This is going exactly as we had expected back in February when we had announced the market the cash that was required to fund the business and the turnaround strategy. We are on the journey, and Andrew will give an update on that very shortly. Moving to the bottom right-hand column, underlying EBITDA. Again, Hansen core, we have achieved a margin of 30%, and that's on a lower R&D capitalized base. Those that have looked at the numbers will have seen that R&D last year was 6.8%. It's down to 3.8% this year, and we still maintain margins of 30%. So very pleased with the core business. We did give guidance of 30%, and we've hit the number. So a year in Hansen is very, very predictable, and we've come out and delivered to what we said we would. From powercloud's perspective, we had a guidance of a loss of $7 million to $8 million. We've come in at $7.4 million. So on track to where we thought we'd be and hopefully, no surprises to anybody out there who's been following and assessing Hansen over the journey. In the bottom left-hand column underlying NPATA and I think this needs a bit of discussion or a bit of overview to be honest, because you can see the decline from $55.6 million down to $50.1 million for the powercloud business. There's a key factor here around the R&D capitalization. And we have made a conscious decision to redeploy our resources around the world depending on cost jurisdiction and billable work. And we've actually moved a lot of our R&D into our talent centers, which are typically lower costs. The important thing to draw out here is that the actual R&D hours for the year is over 400,000 and largely aligned with the same time last year. So there's no less work going into the product. It's simply a matter of the cost base and where it's being deployed. And then the other staff of the business who have been working on R&D have been redeployed to some billable work, including some implementations and upgrade work that's underway. So when you're removing $8.5 million of R&D year-on-year from the face of the P&L, it obviously has an impact on NPAT. The second part is around the tax and the effective tax rate for Hansen remains at 24%, and we think it will be the same next year. But we have not taken into account any deferred tax assets for the powercloud business as yet. We will assess that over the next 12 months. And as a result of not taking up any of the DTA, the effective tax rate rises to 31% for the year. We expect the next year to be around 30% going forward. Into FY '26, we will assess the DTA position of powercloud and provide an update accordingly. Moving on to revenue on the next slide, and there's a key point to draw out here as well. A lot of people are talking about the energy and utilities market and how it's quite dynamic, and it has gone from being a slow-moving beast into quite a progressive industry and very, very pleased to report that we're experiencing that as well. Revenue for our Energy & Utilities division is up 14.7%. And as I said earlier, 2% to 4% is historically where we've been. And to report these types of numbers, I hope it's not lost on anybody that this is a significant step-up for Hansen from an energy and utility standpoint. And then, of course, you've got the diversification across many, many customers. We've got different currencies, countries, products, industries and there's a bullet point there around our total revenue with only 8% tied up with one customer. So there is no soft underbelly to Hansen. And the second part around the growth is it doesn't need to be firing on all cylinders at all onetime. You've got energy and utilities up 14.7%. The communication space has been largely flat for the year. That's off the back of some work we've completed in EMEA and Asia Pac over the last 2 years. We expect that communications will continue to drive forward in FY '25, and Andrew will talk to the guidance shortly. In the top right-hand column, you'll see revenue by vertical, excluding powercloud again, drawing out the energy growth there. You can see in the bottom right-hand corner, the data center has declined, and that's now a very, very small piece of revenue, which has been closed at 30 June. We won't be reporting on that going forward. It will just simply be the energy and the communications verticals. Moving to the bottom left-hand table, support and application revenue, I think we always talk to being a very predictable business, and we set our budget 12 months ago, we've hit exactly where we thought we would be, and it's all down to this recurring revenue. We know exactly where it's coming from, whether it be support and maintenance, which is a highly lucrative rich stream of revenue, or from our application revenue, which is typically change requests, upgrades, implementations. Across the board, you can see the steady trajectory over the last 5 or 6 years, which is really the backbone of Hansen and the reason we can generate so much cash and pay down debt. And then finally, on license revenue, this is a tricky area for everybody to understand, and it relates, of course, to accounting standards, IFRS 15, which can impact the numbers and certainly swing revenue half-on-half and year-on-year. We have had some license revenues brought into our books this year in relation to some contract renewal and contract wins. Preferably, we would not like to take the license revenue upfront. It does come down to an assessment of the contract with the customer, a typical negotiation. And in some cases, we do need to bring it to account. Just for the analysts out there, we're thinking next year, circa $28 million to $32 million of license revenue, and it will be more towards the back half of the year. Moving on to the next slide around cash flow, and I think everybody is probably sick of me talking about cash flow, but it is one of the great strengths of Hansen. The core business continues to generate an awful lot of cash, which we've used to then pay down debt and repay some money to our shareholders. But I think the key -- there's a few key draw outs here. The first one is around working capital. You can see the buildup of $13.6 million in working capital. There's 2 factors at play here. One of them I had updated the market in February. We've got a very large upgrade implementation underway. That is progressing, that will be billed and that cash be collected at the latter half of -- or the first half of this year, probably December, January, February, and we'll see all of that cash come back into FY '25. And then the second part, of course is, with the business growing, it does require more working capital. So there's been a small allocation to fund the growth of Hansen from the core business from $311 million to $334 million. We have talked about powercloud previously, the acquisition of the business, and we'll talk about that more throughout this call. Product development, you can see there at $16 million, slightly down on last year. And hence, the reason there is some movements to the NPAT number. But I think the key areas here for me is around the debt. So we drew down $55 million to fund powercloud. We've already paid down $12 million of that, and that's on top of funding the turnaround that's powercloud. And you can -- it just goes to highlight that there is plenty of cash being generated in the existing core business to fund not only powercloud but to pay down the debt. And at this stage, we've got a net leverage ratio of 0.3%, which means we have sufficient firepower and balance sheet capacity to do further M&A, which Andrew will talk to shortly. Finally, in terms of debt repaid, total for the year, $37 million and dividends to our shareholders of $18.4 million. So in a year of acquiring a company that at this stage is requiring cash flow, we've also repaid $55 million to our shareholders and our banks. Moving on to sustainability. And Andrew did touch on this. And look, it is a big piece of work. I'd encourage those that have the time to read our annual report. We have published our first-ever sustainability strategy. It is a lengthy document, but it does outline some of the key targets we're looking to achieve over the next 3 years. It is fully supported by the exec team and the Board and absolutely across EMEA, it is front and center. And in many cases, it's actually considered a bit of a competitive advantage to be able to go into RFIs and RFPs with a really robust sustainability strategy that we have in place. I think the one thing to draw out here is that this is an investment as well. We don't disclose what we spend on ESG, but it is a growing cost, and it is particularly challenging for a domestic ASX business that has approximately 90% of its revenues and operations offshore. So we, in the next 2 to 3 years, we'll be expanding on our sustainability and data collection across the world. And with that comes some additional costs. But one of the key highlights that is worth highlighting domestically is that we are for the third year straight, carbon neutral in Australia with significant reductions in our greenhouse gas emissions, and we are particularly pleased with that, and we'll continue to update the market over the next 2 years. So look, that's a quick run through the financials. I'm sure there'll be questions, and we do have a lot of meetings lined up for the next 2 weeks to go through in more detail, but I think it would be a good time to hand back to Andrew to talk about powercloud.

I suppose, almost, I feel we've not actually sold powercloud on the German market that well because no doubt, we were very, very excited by the opportunities in the German marketplace for all the things we've said before. It's a market which is undergoing transformation, and it's way behind its peers in Scandinavia, et cetera. [ We have found some ] trying to way to enter, and I sometimes wonder if I said to the Board, let's put $30 million aside to write a product and enter the German marketplace, we may be more awarded by our shareholders than actually buying an entry in there with customers and a product already to go after it. But it was a natural target for Hansen in that German marketplace. The role of smart leaders, we sometimes forget a lot of the world's been in this for decades, and now trying to get this done over the next 5 to 7 years, where it's going from. There's also opportunities with some of our competitors in that marketplace, which are having to change. But it's a very large marketplace, the German marketplace. It operates with what's called Stadtwerke, these local councils, which have millions down to 10,000 or 20,000 customers. So we're excited. As you know, we're already in the German marketplace with Telefonica and also some Stadtwerkes anyway through our product. So it's a great opportunity. We couldn't find a better way to the German marketplace as our view to open up an office and start writing software and trying to get to the marketplace, we would be a decade down the track. So we've fast-tracked our entrance in there. So I apologize for not probably selling why we were so excited about the opportunity of getting into the marketplace. I think on the acquisition, I think the playbook of Hansen has always been understood. This company has done many, many acquisitions. We've doubled the profitability of every single company we've actually bought. The thesis of the German marketplace is exactly that where we see the opportunities of profitability out of it. The integration, certainly with Phase 1, we've listed here the things we've done so far, restructuring savings already at $13 million. Just by giving the benefits of our understanding of the marketplace, by being able with some of the Hansenisation taking place. But powercloud had embarked on a global strategy and was wanting to become a global company with pure focus should have been on the market in front of itself. And so we've had to change some of the -- the way they see things. I've been involved in customer conversations and the customers are [ really ] loving. We're saying we're focused on the German marketplace and it's exactly what they wanted to hear. A lot more around capacity planning and productivity and bringing some Hansen's knowledge of how these markets work has actually been a cornerstone to helping the business and certainly helping more importantly, some of our customers understand the transition of what they're doing. Raising the bar of customer satisfaction, we've always -- another [indiscernible] of Hansen is maintaining our customers and not giving them a reason to leave us is the same thing. But it's a turnaround, and there's no doubt this is a company which saw the world there going after and made a whole bunch of sales, but then started over a number of years to see the difficulty of what they're trying to choose. We have the opportunity, that broader Hansen team in some of our different [ costs ] in Vietnam, et cetera, but from our customers' point of view, what we're offering in there is 24-hour support, things which this business is unable to do. But it does have its risks, but this is a turnaround. But as I said, I keep on coming back, the opportunity in the German marketplace has not been lost on us at all. And now we're working through the normal challenges of all Hansenization. But as I've said, we've done this many, many times. I suppose that leads into M&A. Hansen is always seen as it just goes back to that point, do I spend $30 million writing a product to enter a new marketplace or buy? We love the idea of having that cultural fit in each country, which we deal with, by having some of our leaders. One of our most senior managers, John May, came back into the organization, a bit like Cameron Hunter, our CEO; and ultimately, like people like Graeme Taylor come back into specific roles for Hansen in M&A. And -- but we've done 50 years of consistent growth through aggregation and organic and inorganic growth the whole way. Niv Fernando is very, very understanding. In fact, one of the things which Niv commented that our targets globally are all still sitting there. The interesting thing is they have not been transacting. So the market and the growth in the industries which we went in have not been transacted. Part of the reason, we are the natural buyer for quite a lot of these assets. And the problem is it just comes down to buying at the right price. I think Hansen's maintained that strong discipline about spending its money wisely and spending like its own. It's not going to go on waste money and overpaying for assets. We do want to be earnings accretive as we go forward. But there's no doubt the assets which are out there still passed above our market verticals. We probably would have helped the market, might have understood powercloud and maybe upticked us a bit and that's what helped us with M&A, but all things will come for those which actually wait. And we continue to look at opportunities in third verticals, but once again, we only want to enter one of those verticals when we know it can be sustainable and there's multiple growth rather than just doing a single transaction without actually having what would be the next 10 years or 15 years on top of it. I'm rolling out to -- probably people have read ahead with the e-mails I've read this [ small ] the ASX. From a guidance, there's no doubt we have invested more in our company to have a higher top-line growth. Our investment in some of our R&D works, certainly, our sales and our marketing as we go forward, and we're seeing some of those benefits. And certainly, that's at a cost of some EBITDA, but trying to find that balance the whole time in any organization is complex between growth and profitability and in our case, cash flow because I don't think anyone would challenge us on Hansen's ability of converting revenues to cash. And as Richard pointed out before, just the amount of debt we can pay down and provide our working capital and actually pay dividends, I'm not sure how many IT companies have been consistently been able to do that for 20-odd years going forward. Revenue growth, we're saying 5% to 7%, yes, which is an uptick, but we think we're getting that really good balance between investment, as I said, and on sales and marketing. Powercloud's revenue is aligned, annualized. It's -- we're still working our way through that as a business, but that's very soon going to be rolled into our full energy vertical, where the full benefits of the synergies of our business can be maintained and benefited from it. We reiterate the point, powercloud, we are expecting the EBITDA will be positive before the last quarter of this financial year, which will 100% validate everything we've actually said about entering the marketplace. And we expect in the underlying for the year, which is [ subsided ] to the losses of EBITDA about $5 million. So all those numbers as we look at now are certainly better or in line with where we think it is, and so no great big surprises into the marketplace. So that's the guidance. So we're upbeat, we're positive. I get to head a, for many, many years, about 30-odd years now, a fantastic business with a bunch of fantastic leaders in both technology and innovation and industry. We're very, very excited about the marketplace and certainly the opportunities we see to further expand into the German marketplace. But I got to be careful. I'm excited about every market, which we go into and I just can't talk about Germany because I'll be upsetting every one of our other staff, which operate in all the other countries around the world. So to all staff, listening, I love you all. To that point, we probably -- if there's any questions, Julia, do we…

Thank you. [Operator Instructions] Your first question comes from Josh Kannourakis with Barrenjoey.

First one is just a little bit around, I guess, the discussion on the cash EBITDA margins. So into next year, I guess that actually looks like quite probably a bit better than people were expecting, and maybe there were some expectations of a lot higher investment in powercloud. Can you talk us through a little bit about maybe a bit more detail around how you're managing to do that and how you're managing to, I guess, deliver to the road map expectations without having a high step-up and maybe talk to some of the local centers and the like around that as well?

Look, it's early days. We've had the business literally, I think, for 5 or 6 months, maybe it's 120-odd business days, but we've done a lot of work already. Andrew talked to some of our management team in place in powercloud. And we've already removed $13 million of costs from the business and looking to do some further margin enhancement over the next 9 to 12 months. I'll be honest, we're a bit surprised that there was some doubt that we could potentially turn this business around. We know there are risks with all acquisitions, but we are executing through our playbook. And we just gone through the numbers, Josh, we looked at the budget for the 12 months, and we're fairly comfortable that the cash EBITDA number will be better than what you might have been thinking.

Just around the Hansen core business as well, so into next year, I guess that it's a big delta, I guess, on the license fee. So I guess I was trying to sort of normalize, if you sort of normalize for the license fees, that's sort of basically a similar margin profile, right, from 23% to 24%, is that how we should be thinking about it?

Yes, that's right. That's right. I mean I said on the call that the license fees can certainly swing the margins and also the half-on-half comparison and full year comparison. So guiding to 28% to 32%, it all depends on how the contracts fall. But at this stage, that's the expectation.

I think I think we've always, as a company, like annuity, we've always liked the long-term predictability, nothing to do with accounting standards, Richard, and who knows if another accounting standard comes out. So it is still a question about our customers, isn't it? Around licenses and the expense in the operation or capitalization.

Yes. And often, Josh, it's actually out of our hands entirely. So as Andrew said, we prefer to do a 5-year annuity. And then depending on how the contract is drafted and negotiated, there can be some license fee upfront. So that's just a guide for the year. It may well change as the year progresses.

Final one, just around pipeline. I know you guys have been quite busy, both obviously on telco and utilities, but it seems like there's quite a few reasonably significant contracts out there, especially across the telco space. I mean could you maybe give a little bit more color? I know you never really give names, but give a little bit more color as to some of the pipeline size scale like proximity around -- for the remainder of this year?

Yes, Josh, you're right. We're going to be careful, really dropping even to regions because we don't want to know. But the main driver in the communications sector with the commercialization of what you say is the 5G network, is the ability of bundling up products and getting to the market very quickly. So it's probably the wrong time to go into a lecture of how systems used to be actually built, which took months and months to get them out there. So CPQ and catalog is [indiscernible] which actually how do you quickly get these products to market. Most telcos are trying to find ways. Some have spent a lot of money in rolling out 5G with not necessarily that return on investment. So we're a supplier of that technology for enablement of that growth in those marketplaces. Nearly every communications company, you talk the top 50, are trying to commercialize their business and profitability. Guys, it's tough in business out there at the moment now, and it doesn't matter whether you're Telstra or AT&T, all of them are trying to find ways, all their customers are asking for better deals at the moment now. And it's just so lucky. Our software, in we're at the -- we're at the top of the tier, you get the CPQ caliber, we're the #1 product out there at the moment now, and we're we are rewarded by the deals and certainly by the people we're talking to. It just comes to that return on investment because these are significant investments they have to make, and they've got to get that return. So it's almost the chicken and the egg, but also most have to know what products they're looking to sell into the industry, then they need us to help sell in. So it's like we've got to be close to everyone to that tipping point where they need to make that investment so they can sell those new products.

The next question comes from Evan Karatzas with UBS.

I just want to get a bit of clarity on the guidance, especially the revenue growth. Can you just outline exactly what the base is that you're expecting to grow 5% to 7% off, please?

Yes, Evan, no worries. So you've got the base business, the core business, which delivered $334 million, and then we've used the powercloud annualized number, which is the $18.4 million for 5 months and then annualized to get to a $44 million number. So the baseline number that we're talking to is $379 million.

And then so that -- for '25, you're assuming flat powercloud of $44 million, right? And then that assumes that, I guess, the core Hansen's going to grow 6% to 8%.

We're saying broadly flat. So we just started the year. We've got a long way to go. But between both of them -- and we won't be reporting in great detail on powercloud going forward because it's a small part of Hansen, but between both of them, we're saying baseline $379 million and then growing 5% to 7%.

And then just another one on powercloud then. So thanks for giving the detail on the $13 million annualized savings from the cost out. So just another [ few ] numbers to throw at you. If you take the minus $7.4 million EBITDA or powercloud in the second half, you annualized that, that's $18 million. You've got guidance out there for minus $5 million EBITDA powercloud. Obviously, it doesn't assume I guess, much additional improvement over the next 12 months from where we are today. I mean, is that just a reflection of conservatism? Or maybe just talk through some of the puts and takes that you're thinking with that number as –

Yes. I thought you'd have those numbers, Evan. Again, it is early in the year. We're in August. We've got a long way to go. This is a turnaround business, right. So it comes with risk. We've tried to highlight that throughout our release that it is a business that has been burning cash and does require investment. And with that comes work involving our customers, our employees and, of course, our product. So we look forward to an update probably at the AGM on how things are progressing.

The next question comes from Nic Burgess with Ord Minnett.

So just another question on the guidance. So I'm thinking here about the guidance of the core Hansen business, excluding powercloud. So on my math, the midpoint of the guidance implies an EBITDA margin, if you back out what you're talking about for powercloud for the core Hansen businesses in FY '25 of about 28%. Now I take your point that you made earlier around license fees, although over the last 3 years, license fees have been up and down, but haven't changed all that much and your guidance is for something similar. So I just wanted to ask, is that a sort of margin assumption or margin calculation broadly correct with your expectations? And I guess the question is if that is correct, over the last 3 years, that margin has declined from 32% to 30% to 28%. So perhaps a little bit more detail around some of the investment or some of the drivers of that, if possible?

So look, part of the reason for moving to a cash EBITDA metric as well is to highlight that you've mentioned there, the margins have gone from 32% to 28%, and you're not far off the market with that, by the way. But that includes R&D capitalization rates at a significantly higher level than they are going forward. We are also investing behind our sales and marketing and our 2 new verticals that Andrew talked to before. So there's a lot going on in this space that we have rolled into our budget for FY '25. The other thing to highlight is that you've mentioned the last 2 years of margins, but historically for Hansen, we've been bouncing around between the 24% and 28% mark for a long time. And now we're coming in with higher margins on far superior top-line revenue and revenue growth. We think it's a good story and hopefully it's received well by the market.

So there's a real shift between costs that you're capitalizing that now are being expensed. I just wanted to clarify on that EBITDA margin -- cash EBITDA margin point at 19% to 21%, is that all-inclusive? Or does that exclude that $5 million of CapEx required for powercloud?

No, that includes powercloud as well.

And just lastly on similar things, just the amortization of software development cost took a big step up this year in the second half. So related to all of this, was there an acceleration of amortization or any kind of write-off relating to powercloud, or anything in there specifically that saw that step up quite significantly that amortization charge in the second half?

No, that's -- there's been absolutely no write-offs whatsoever. We look at -- we actually go down and look at every single product and assessing the carrying value of those. So there's no issues there whatsoever. It is primarily powercloud. And then into FY '26, '27, you'll start to see an unwinding of the acquired intangibles amortization for some of the previous assets, including Sigma, which we acquired in 2019.

The next question comes with Chris Gawler with Goldman Sachs.

Firstly, I just wanted to ask on margins in the core Hansen business, and apologies if you've been asked this already, just jumping between calls. Just in terms of some of the inflationary pressures that you've called out, do you mind giving us a bit of a sense of what you're seeing so far in FY '25 and if there's an opportunity to do more outsourcing to some of those lower cost centers to offset some of the inflationary pressures?

I think every business out there, the business is tough out there at the moment now. All of our customers on renewing are asking for deals or spending less money. I think there's a company which gives extra budget that we even think of Hansen as well. I think that one of the things we've been done -- I think we're an amazing business to deal with those step changes which you referred to when we get these pressures by not having too much churn in our customers and investing, there's no doubt what you're saying. We have benefited from about lower cost development centers in Argentina and Vietnam and in China -- sorry, China but now really India. There's always opportunities to do it. It's -- there's a lot of costs which get put over the company. Rich was talking about ESG, the cost which we have through ESG or data security just keeps on going. So there is pressures all the time. But I think you probably missed the answer, Richard was giving before on this. We do all those challenges, but we keep on working very, very hard to find those step changes within our business to where we can actually find opportunities to pass savings on to customers, yet still try and maintain the profitability in our business. We did benefit during -- there's no doubt during the Covid time with the productivity where people were at home, they had nowhere to go, and we picked up a 7% productivity gain of our workforce, that's come down to normalization now. But I think we're getting back to that state now. We've got travel back in our business now. We've got people occupying offices back in our business now, et cetera. So I think it's just the natural pressures in our business. And at the same time, we do have issues in neighboring countries to Finland, where we operate, or politics in America. But I think we keep on working as much as we can to maintain the margins as best as possible, yet still provide the innovation our customers want to keep them firmly engaged with Hansen.

And then just one more question in terms of M&A. I'm curious in terms of what you're seeing out there in terms of vendor expectations and your appetite for M&A at the moment? Any update there would be helpful.

Look, it's always hard to say. One of the issues is, I suppose, as an acquiring business, anyone can look at Hansen and see what Hansen's valued at. And you've gone through a period for the last 7 or 8 years where valuations of companies were much, much higher, people saw loss-making businesses or businesses with high turnover and not making any profit, at much, much bigger multiples than Hansen. We can't afford to pay those. So at the end of the day, it's like if you want to sell your house, your house is only going to transact for what someone's prepared to pay for it. So vendors can always want more money because they -- 2000, my asset was worth 20 or 30x EBITDA. Well, we're not going to pay it, but no one else is paying for it either. So as I said, and you may have missed that point as well, largely, the target acquisitions we see, which are very naturally Hansen [ is behind] have not been sold in the last 5 to 6 years, that's still sitting there. So when they do have to sell or they do want to sell, they've got to meet the market and where the market.

I'm just confirming there's no questions online either. So if we can –

Wrap it up. So look, thank you, everyone, for joining the call. I know there's a lot of information to digest. It's always a little bit complicated when we've had an acquisition part of the way during the year. But I think we've given enough information, most of the analysts will be able to quickly understand the underlying business is going really, really well. Once again, I apologize if we didn't actually sell the benefits of the German marketplace well enough and the way the market saw it, but we are delivering exactly or above our expectations. So we have every confidence in this business. We're very excited about the trajectory of Hansen and being a business which has made money for over 50 years. That's the way we'll keep on doing it. And I think ultimately, finding that absolute balance between organic growth, inorganic growth, the investment in our software, customer retention and profitability will always be the cornerstone of our business and what we look at every day. So thank you for joining the call. And for some of those we'll be seeing again, we look forward to seeing you soon and look forward to the next time we chat you all. Thank you very much.

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