Hansen Technologies Limited (HSN) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Hansen Technologies Limited FY '26 Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Andrew Hansen, Managing Director and CEO. Please go ahead.

Good morning, everyone, and thank you for joining our call today on the 2026 financial year. It's Andrew Hansen here. I've got Richard English, our CFO, along with me and also Peter Beamsley in the background, Head of Investor Relations. If we have any difficulties today, we will take a short break and we'll recommence then. But last number of years, it's all worked perfectly. So, I hope it all works well today. Just a little bit on Hansen before we kick off. We have software in some 80 countries around the world. More interesting, 80 million end customers, energy we serve and 360 million in the communications sector. I think we've spoken many times about it, but for those new to it, so we're actually involved in everything from the customer acquisition, the building of a product they sell them, the billing, the rating and the collection of the money. And so we've done -- this is the Hansen's life of what we've actually done. Very critical to all of our customers that we are the lifeblood of their business and very, very proud of what we've done to date. And certainly, now with AI, and we've spoken a lot about AI, but I'm very excited to talk more about AI today and what it's actually meaning to our organization whilst we go through those changes. It'd probably be best we thought we'd touch on the leadership changes since that's going to be new to everyone, including a lot of people inside Hansen. So first of all, succession planning is a big part of the Hansen business and always is a big part of the business in the last couple of years, when we're looking to my own succession and how it actually runs inside the organization. And that aligned with not only finding a Chief Executive Officer, but also dealing with David Trude, who's our retiring Chair of the Board. So firstly, probably getting into slightly wrong order, I'd like to thank David Trude who will be retiring at the AGM for 50-plus years of service. I know as public companies we have this view of governance, you've got to change your Board and Chairs over on a regular basis. The fact that people like Hansen, our ongoing success and the money we keep on making all the time has come from the leadership, the governance, the advice and the camaraderie we have with the Board. David has been an absolute champion of mine. I really enjoy having a Chair in a non-exec position who have been able to put in front of customers, deal with acquisitions and help our business go overseas. So, we'll talk more about David at the AGM, but we thank all of his leadership leading up to it. The view was that it would actually move me to Executive Chair, an operational role inside the business. But what we've actually spent over the last couple of years is not only trying to see what did we actually want in a CEO, what was the changes we wanted the business and have spent considerable time in interviewing people. I'm very proud to announce Stuart MacDonald. A number of you on the call will be aware of Stuart's role in TechnologyOne, the role he actually led not only to -- from probably under originally Adrian's guidance of what he actually did to the organization. But as we know, Stuart was across everything from the development of the software, delivering sales, marketing and end-to-end. And we couldn't have found -- it was a very high benchmark when we actually interviewed. But part of the process we went through when looking at what is Hansen looking for? Our business has grown over the years on a very low spend in sales and marketing. We're talking about probably 1% of revenue, which is a fraction of what any other company spend. We've always relied strongly on our reputation, our know-how and our customer loyalty into the business space. So, one of the things we wanted to do is actually in bringing a new lens to the organization from the outside is actually growing out that. We can only imagine because once upon a time, low single digits, we were happy with that. But we're not happy with that anymore. And one of the things in talking to Stuart and in fact, all the candidates is what could Hansen be with a true focus on global ambition and expanding our business through sales and marketing. So, I think as I move to Executive Chair, so I'm still involved inside the business, but I will be more on the strategic side and the M&A side, and Stuart will come in and be running the operations of the business. And Stuart is now -- he doesn't join until November, but a truly welcomed individual coming to the organization. I'm extremely excited by what Stuart will bring to the mix inside the business. And we know between myself, Stuart, the business is in very, very good hands. So welcome, Stuart, and thank you, David, for your time. Looking at the financial highlights of the business, a relatively flat year. But I suppose most people would understand, geez, there's been some real turmoil going on at the moment now, everything from technology turmoil to wars, conflict, some countries administration, which we won't go into. But we're focused very much on our business on what we've always done in underlying profitability and generating cash out of the business. And also moving -- as we're going to be moving, I'll talk a little bit more about that when I talk about AI. Certainly moving our sales, support and revenues up whilst controlling costs inside the business. Underlying EBITDA up by 7%. Cash EBITDA, $106 million. But the operational cash flow, $110 million coming out of the business our size is -- I'm not sure how many companies can actually describe that, just not making profit, but the cash which comes out of it in the year. Certainly, our EBITDA at 31%, demonstrating the discipline on our cost management has probably been always seen as something, which Hansen has always done as everyone has been listening this call for many, many years of what we do as an organization. There's no doubt the strength in our business is our business model, has been proven once again to be successful. So even in when there's turmoil in both industry economics and also technology that we stay on board. I just want to touch a little bit on AI. I know this time last year, AI was still relatively new. I know that someone talked many times I mentioned AI, but probably not listening to what we're saying. But I think the important thing is we're exploring the opportunity of AI. AI is new. It's something, which we couldn't even envisage 3 years ago and how quickly it's actually gone. So, we continue to really explore the AI tools. We've looked at a lot of tools to go out there, the technologies. Then we started to have what was AI enablement teams. So, we could actually have people teach the teachers, so to begin. Also commercialization because it does introduce a lot of ideas of how we will price this new technology into our business. Then we had to start by building the capability. So therefore, it was an AI culture, a lot of training with people, lot of proof of concepts, et cetera, which started to happen and the deployment across the AI across the whole organization. Then it was the modernization of our own products. So, this is the first time we could actually say, well, what does it make to our own products? Remembering, we have a large degree of customization by customer and by countries as we go around the world. So, then we developed a thing called NOVA RAG. In simple terms, what Hansen has is some 50 years of knowledge base built into technology and know-how. And NOVA RAG allows you to actually capture that whole journey. So, rather than going to 10 people or 20 people of how things operate or how industries work, NOVA RAG goes into each of those products and deeply goes in and understand how it actually works. So then all of them for the first time, that whole IP of what we've actually got has been able to be crystallized, customized and brought together. Then you move on that. So, now you've done that. So, now we now know we can actually go looking for that data, which are our customers' data and our data because our customers don't always own all the data. Some of the data is from other disparate systems, which we bring together. So, then we started to look at what were some of the productivity gains. And certainly, some of our increased margin has come from some of the productivity. Certainly, our staff being more productive in the use of technology has came on board. We then started to test this even further out with some embedded data-driven improvements inside our business, which have been coming. But then we're able for the first time, turn this into the next 5 years. What does the next 5 years look like? How we commercialize AI? How we leverage this knowledge bank, which has never been able to be done before? Drive efficiency and lead it. So, turning that 50 years of intellectual property to a scalable asset has probably been one of the most exciting revelations we've had of how Hansen can actually take subject matter knowledge and look now to commercialize it going forward. So, what does it actually mean for us? I know there's been many questions from our shareholders, our customers, et cetera. We've always had multiple products. We've had products, which deal with certain jurisdictions. We've had customization for products, et cetera. But now with NOVA RAG, what we can actually do? We, for the first time ever, we will be able to now unify those applications. We are able to innovate by embedding AI into all of our products. So, you can now start to see we will now be able to have less products and we'll be able to now start to upgrade our customers with AI functionality and technology while still doing what we're doing at the moment. The benefits are endless. If you think of R&D, we can now run R&D from less products. Our bang for buck is so much further. We can now take the same knowledge. When we've actually acquired business in the past, the idea of integrating their technology with our technology is something, which has been difficult and costly. Those same is not cost prohibitive in our business anymore. Our ability to scale into new markets is much, much quicker now. And you put that on top of Stuart joining the company with a clear mandate and the presentation to myself and the Board of how we're going to be now building out a true sales opportunity in the organization and taking what we've done with the existing teams and accelerating it. We see the whole strategic side of AI being a demonstrable change to our business going forward. So guys, I'm extremely excited not only with what we're doing with AI, the health of our industry, how we're using the technology and the changes we make, I'm extremely optimistic about our future. We probably should drill into some of the details. Rich, if I could get you to look at the financial metrics, please.

Yes. Sure, Andrew. And thank you, everybody, for joining. I can see there's been a bit of reaction in the market, so we can spend a bit of time this morning walking through that. And of course, welcome to Stuart joining the business on the 19th of November. I think a lot in the industry will know what Stuart has done at TechnologyOne. So, we are equally as excited that he's now part of Hansen and driving the next stage of growth after Andrew moves to Executive Chair. Now for those who have listened to a few of these calls, I do like to talk through some of the key themes. And I think what's really important, first up, let's just talk through some of the key strengths of FY '26, and then I can address some of the questions that will be inevitably coming for FY '27. This has been a very strong year. The revenue has been largely flat year-on-year. There's some headwinds, which I'll talk through. But the idea that we have generated $120 million of EBITDA, increasing our margins from 28.5% to 31%, I think, is a real achievement considering what's going on out there in the market. More importantly, and this might get lost in some of the numbers, we've taken out $20 million of costs in the year. And that's no small feat. That's a lot of effort, and that's the proven work from AI efficiencies, AI enablement and other initiatives that we talked about 12 months ago. So removing $20 million or 7% of our operating cost base in 1 year is quite significant. And off the back of that, we've generated our most successful year of cash generation in history, $110 million of operating cash flow, up 52% year-on-year. So, that's the backdrop. We're starting FY '27 off a very strong balance sheet position. We're going to be net cash positive in the next 90 days and then rolling into FY '27. And I think what needs to be clearly outlined here is the focus on the business from transitioning from license and some services revenue to a consumption-based revenue model. When you look through the financials of the presentation, you will see our underlying recurring revenue growing substantially year-on-year, and it's continuing to grow substantially next year. But the reality is that as we transition away from these license fees that we're not particularly fond of, and I know that the market is not particularly fond of, inevitably, there will be a transition and FY '27 is that transition year as we roll off some of these license fees. So to give you an indication right now, the license fees in FY '25 were $50 million. In FY '26, they're $35 million. We're expecting a similar level of decline in FY '27 for license revenue to be approximately 5% of group turnover. So, that's a material change in the revenue mix for the FY '27 year. The second thing we're doing is investing a substantial amount of money in AI that we are not capitalizing. So, we talked to margins in our outlook of 26% plus. What that includes is $8 million to $10 million of AI enablement staff, vendor spend, token spend, et cetera, that we're not capitalizing. We're being conservative on that approach. And we're also investing another $6 million to $8 million in sales and marketing. So between those 3 initiatives, the AI enablement functionality investment, the sales and marketing investment and the transition to recurring revenue, I think that might partially explain why there is some concern around FY '27. We are very optimistic about FY '28. And Andrew, of course, will talk to the outlook shortly as we go through the presentation. Moving on to Slide 11. Just let me walk you through some of the highlights, and then we can talk more about FY '27. Operating revenue, we had some headwinds in the year. So, we had approximately $5 million of FX headwinds in FY '26. There will be more headwind in FY '27. Most of the currencies are running against this, the USD, euro, sterling and CAD and not working in our favor. However, we do have a natural hedge in place that most of you are aware of with our cost base also in those same jurisdictions. I mentioned before the license revenue lower by $15 million year-on-year as well. VMO2 was announced in February 2025. So all in all, $387 million off the back of $20 million of headwinds from license and FX, we think is explainable. And then moving across to underlying EBITDA. So, there's 2 things here. At the start of FY '26, we flagged that we thought we would get our margins back to 30%, right? We were at 28.5% for FY '25. We actually exceeded it. We've come in at 31%. The second half of the year has come in at 32.7%. So, we've had a particularly strong second half of the year. The cost-out initiatives that I referred to before, the $20 million have made a significant difference to the business. We have now gone -- our headcount has now reduced to 1,450 staff. We're not going to talk a lot about headcount on this call, but we see long-term opportunities for productivity gains throughout Hansen, and that's not dissimilar to a lot of what tech companies are talking about out there in the market. Cash EBITDA, naturally, that flows down from underlying EBITDA as well. Margin increasing from 23.8% to 27.5%. I think considering the cautious demand out there in the market, juggling FX headwinds, et cetera, we've just delivered $100.2 million of EBITDA, of which $110 million has dropped to operating cash flow. So, I think off the back of a bit of noise around what's in the future, I think this has been a particularly strong year. Underlying NPATA growth of 15.9%. Obviously, that flows through the P&L. We also paid our fair share of taxes. The effective tax rate was 24% versus 19.7% last year. I think next year, just to guide, it will be 25%, 26% for the ETR for FY '27. Move to Slide 14. We talk a lot about diversity. Diversity has helped us this year. We've got some mixed pockets out there, some in growth, some in stability mode, but we now have both verticals largely 50-50. Comms is 48%. Energy is 52%. EMEA continues to be our growth engine, 73% of our revenue in EMEA and substantial amount of opportunities, not only with existing customers, but with M&A opportunities as well that Andrew will talk to shortly. But I just wanted to draw your attention to the second table there, which is the real story for FY '26, and it will be the same story for FY '27, right? This is recurring revenue. This is better quality revenue. We've grown the business 14% CAGR since FY '22. We're also guiding to a 6% to 8% growth rate next year, which gets us to $245 million to $250 million of recurring revenue next year. So, this is the revenue that is profitable, sticky, recurring in nature. It's locked in for the foreseeable future. And if you look at our contracted revenue in the annual report, you'll see it's jumped dramatically from $250 million to $325 million. So there is -- despite some noise in the numbers in FY '27, this is where the real story lies. And that then leads nicely into license revenue. So, you can see the way it's bounced around. We spend a lot of time with analysts, shareholders talking about license fees. We are, as best we can within our accounting standards and rev rec policy, migrating towards recurring consumption-based revenue streams. So I did say before, 9.1% for FY '26. I think it might be around the 4% to 6%. I'm not going to bank it, but that's the sort of percentage for license fees in FY '27, and that explains a large part of the margin impact for the FY '27 guidance. Moving to Slide 15, Communications & Media. There's a couple of really good stories here. The first one is around Digitalk. Andrew will talk about the acquisition. We've now owned the business for just on 8 months. It's going ahead of plan. It is a smaller business, but it's growing well. It's extremely profitable. That's obviously contributed 6 months' worth of information here. But we've also taken out $8 million of costs from the business, and you can see the margin increasing from 53.8% to 57.6%. For those on the journey, you will remember Telefónica 5 years ago, we signed a large deal in FY '21. Everybody was hoping that there would be a renewal, and we were really pleased to announce recently that we did renew for a further term. We are a strong partner of Telefónica. We only represent Telefónica in Germany. They are a global outfit, but we are entrenched in that business, and it's a fantastic partnership that we announced again in FY '26. And there are a strong number of opportunities in the pipeline. We talk a lot to the size of these opportunities. Nothing's changed dramatically. Obviously, there's some cautious demand all around the world in all markets, but we feel particularly strong about Communications & Media. Slide 16, Energy & Utilities, a slightly different story here. So, we've got some large implementations that finished in FY '26. So, you'll see the application services revenue reducing in the FY '26 year. The underlying support and maintenance revenue is the key. Aside from some reduction in Germany, the business is very resilient. We've taken out $10 million of costs from the business and protected our margin. You can see the underlying margin of 35.8% going to 34.9%, so largely protected on a reduced revenue. Andrew and I don't ever talk a lot to one product or one specific country, but it's worthwhile touching on Germany just for a moment. It's fair to say that the smart meter rollout in Germany is well behind schedule. One of the reasons we bought the business was the acceleration of smart meters rolling out across Germany. They are well behind. They have pushed out their estimated completion to 2032. So, that's obviously had a drag on opportunities for us to pick up customers from legacy software suppliers. There's been some customer rationalization. There's been some customers actually exiting the market, and there's been some modest customer churn as well. So for a business that's turning over circa $400 million, this is a very small component of Hansen, but it is worthwhile pointing out that it's been a drag on the business in FY '26, in particular, this vertical. But it's a long game. And this is a 10-year window we have for opportunity in Germany. It's not about the last 2 years. We feel in time that this will obviously be a very good acquisition. But in the short term, it has been a drag on our overall numbers. Slide 17, cash generation. There's been some feedback on the last couple of years, when is Hansen returning to the strong cash that it's known for? Well, this is the year. We generated $110 million of cash flow, 52% up on last year. We will be net cash positive in the next 60 days, and I'll talk about capital management in a moment, but we are in a very strong position from a cash generation standpoint. We paid back $19 million to our shareholders. We paid back $64 million to the banks, combining $84 million back to shareholders and the banks in the last 12 months, which is particularly strong. And of course, we bought Digitalk for $67 million. So overall, a very strong cash generation year. If I was to talk to next year, I think it will be around the 70% to 80% conversion rate, slightly down on this year, but off the back of a very strong year, I think that's understandable. And then finally, Slide 18. I just want to spend a bit of time on capital management and the way that the Board and management talk about this. And it's fair to say this has now become a monthly topic. When we're in a position where we will be net cash positive in 60 days, there is a view in the market that there are other opportunities and other ways to spend our money as opposed to M&A. So, I think the first one for us is always M&A, right? We have a long track record of generating substantial shareholder value from M&A over the journey. We have a lot of opportunities coming up off the back of the European summer. We feel that we are well placed on some of those opportunities. Some of them may not progress, but the point is we have a strong balance sheet and we think M&A is priority #1. However, we have talked about a special dividend. We don't think that's in the best interest of shareholders to return a partially franked special dividend. We have talked at length around the buyback. And at the share price and where it's trading, it can certainly be attractive and accretive to look at a share buyback. All I can say is that it's now become a focal point each month. We're not committing to anything today, but the Board and management are actively looking at the best way to deploy our capital to make sure it's generating a return for our shareholders and we will keep you posted over the coming months. We have an AGM fast approaching. And between now and then, we'll continue to consider both the M&A and the buyback as well. Finally, we paid out a $0.05 dividend, partially franked to 80%, as I said, and we head into FY '27 in a very strong position from a balance sheet standpoint. I think the underlying revenue base, we talk a lot about revenue mix. The underlying revenue base is very, very strong. And with the cost efficiencies that we've already identified and further efficiencies to identify, I think we're certainly treating FY '27 as a transition year. And with Stuart also on board, we're excited about FY '28. Andrew, I've just done a bit of a whip around the financials. Back to you on M&A.

Richard, thanks for that, mate, and well done on presenting the financials and managing your team during the year to certainly generate the cash, which we have been. Look, guys, it's always probably worthwhile touching on M&A. We've got a couple of slides on M&A. But just to -- Hansen's history has been very, very good at turning companies, increasing their profitability. We've done that for a long time. A long track record of doing it. We've always had very clear focus on what we're actually looking for around IP, where the margins are, et cetera, and we've loved it. And I think we've been extremely disciplined. I think the last 12 months -- I know a lot of my time has been probably more focused on what we think is the excitement, opening up the market with AI and what we're doing, how quick we'll be able to make sales, how quick we can enter markets. It's very, very exciting. Part of my new role in discussions with the Board and also with Stuart on roles is Stuart now operating the business, but myself will give more time on M&A, going back to the M&A time and partnering with Stuart to bring those. For us also using an AI lens to some of the businesses we'd be looking to buy is how we can actually bring that to market with something we've never done before and how we leverage some of the intellectual property they have in their history with the NOVA RAG coming in over the top. I think our pipeline has never been bigger in M&A. It does come to question at the moment, valuations of businesses. Everyone is a bit confused with valuation of all businesses at the moment now. The heady days from a number of years ago when silly valuations were doing it. But Hansen is probably one of the strongest companies out there. We make strong cash. We have ability to fund. Our balance sheet is unbelievable. But we won't lead what we actually do. But I know the boys have worked very, very hard to build out. I know once Stuart comes on board, I will be able to devote a lot of my time into what we think is a very interesting opportunity. Changing to the recap on acquisitions, Richard, you sold some of my thunder on Digitalk. Great acquisition, great bunch of people come on board, strong revenue, ahead of our expectations. It's straight from the Hansen playbook, which has been fantastic. We can talk about Dial AI, which is one of the first AI enablement for call center, et cetera, which we have a shareholding and have put into our product. But the sales we're now making on the back of that now, that's gone very, very well for the company as well and certainly expanding the pipeline and also the growth of that business. powercloud certainly is below expectations, a number of reasons why. Whilst Hansen have operated in Germany for such a long period of time, buying a big established business there, dealing with some bureaucracy in Germany, their transition is slower than what they originally published and the migration, the market contraction. Customer churn has not played out probably the way which we would have liked. But the third largest economy in the world, 1,000 retailers, meters everywhere, and it's probably one of the most -- it all needs to be upgraded to new meter technology. So, our outlook is the smart meter rollout is still going to drive a lot of demand. There's lots of regulatory changes. So it's the medium term. As I said, it's a bit of a mixed bag there. We wouldn't change our way on powercloud. But it's great to see Digitalk talk, deliver on everything they said, has been fantastic for us. Dial AI and powercloud just a little bit below our expectations, which probably moves it all to outlook. Guys, I've probably never been more excited in my 30-odd years of running Hansen for the first time of seeing how we can -- we've always been subject matter and doing a great job. We've always made sales because people know who we are. But to unlock what we're doing with technology now into the future, we will spend this next 12 months, the next 3 years when we look to converge our products into and upgrading our customers. We have a very, very clear path of the journey we're going. I think we talked about Stuart coming on board to drive those sales and Stuart has bought into not only what we're doing but his own experience from TechnologyOne of what's taking place. We do know there's a change in pricing. I know many companies are talking about it now. The days of charging by seat or by meter or by event has changed. It's going to be consumption-based, and we're in the forefront of that. Some of the work we're doing, which we don't talk on these calls and won't because some of our lighthouse customers, which we're now working with some of these new technologies with them and partnering with them is exciting times. So, I think our outlook is fantastic. Our outlook is great. The fundamentals of Hansen about generating cash and profitable growth. is not going to change. We're just excited by the future with technology by Stuart and by our industry as it moves forward. So next year, yes, we'll be investing a lot. As we've said, we've decided not to capitalize a lot of the investment we're doing in bringing the products together, but still making a very healthy return and cash inside the organization. So the future looks great for Hansen. I thank you all for listening in. I thank you all for the journey, and we look forward to taking any questions if there's any questions.

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

Can you hear me okay?

Yes.

First question, just on the transition away from the license fee. So, obviously, you mentioned that that's happening. Just wanted to clear up, is that partially customer-driven as well? Or is it also handset driven in terms of when you are signing new contracts, you're insisting on the recurring basis? And maybe you mentioned the sort of trajectory that it drops down again. Is that expected to sort of come down to a much more nominal amount in, say, '28 and '29, et cetera?

Yes, Josh, good question. I think that Richard answered a little bit. So number one, we've got contracts going another 10 years on the old format. But the traditional days of licensing has been changing. We've been seeing that in the marketplace. The problem is it's a new market, mate. You've got the cost of tokens. You've got the cost of housing. We've already started to move to consumption-based. So, where is the driver coming from? We're probably leading those conversations at the moment now, consumption-based. We see the value in being able to use what we've called our Cortex, which sits on top of all our products, which interrogates the data and brings information back up into the hands of our customers and the way which we're actually pricing. We know it is, from our point of view, a move to consumption-based. So, I think it's -- I think we're on the forefront of actually doing it, trying to work out the pricing exactly. I think what Richard was trying to highlight before, the traditional days of licensing is not the way people wish to see it. I think our customers also like the idea of consumption because they can monetize consumption. They can look at their own cost of running their own business and see this is the cost, how they pass it on to their customers as well. But it's a bit of a journey, Josh, at the moment now. And I'd probably, at this stage, because competitors listen to this, probably hold back a little bit of what I can say is some of our competitive edge we have over people at the moment now going forward.

Okay. That's great. And just on the leadership changes, obviously, well done on your tenure and I know Stu well. He's a great operator. So, that's an excellent hire for the business. But I imagine him coming in as well. I'm just trying to link you sort of mentioned on the call that he's obviously talked a little bit about his strategy coming on board, the investment in AI and the investment in sales and this transition, like how much of that was sort of in train before the leadership changes versus maybe partially influenced by that as well?

Well, remember, Stuart hasn't started yet. He doesn't start until November. So therefore, to be honest, this is already happening now. But in all fairness, there was a bit of DD on both sides. The conversation -- I've had many, many conversations with Stuart over the journey at the moment with many, many candidates. So, I think the Board had a very clear focus along with myself of what we wanted from inside the organization. Hansen is a predictable sort of business. So, I think when we start to feel that what we could unlock in the industry with AI and how we best take advantage, Josh, it was why I think that Stuart, some of his experience, which you would know from Stuart, what he's done at TechnologyOne, you can understand the great alignment of the conversations between Stuart and myself and what we were doing and where we were going. The fact having a new lens over the top, I think we're well on the journey at the moment and thank God, we are on the journey and we've been on it now for a couple of years. But I think that Stuart and I will work very, very closely together. I think we talk about being a partnership inside our business. Him looking after day-to-day, me on the strategy side and the M&A is just going to harmonize the business going forward. So mate, to your words, a great acquisition. He's had a brief introduction to the executives, but we can't wait until November when we will give him the keys to the car.

Your next question comes from Sinclair Currie with MA Australia.

Hope you can her me okay. Can you hear me?

Yes.

I was just interested maybe in drilling a bit more into the license impact specifically to Telefónica. I think you renewed that in late May or June. So, can I just confirm that would have been an impact for license fee revenue for FY '26? Or was it something, which would have fallen into FY '27?

No, Sinclair, it's definitely not in FY '27. It's an FY '26 impact. It's nowhere near as material as the license fee in FY '21, which if you remember was about $21 million. So it's significantly lower than that. And as part of the reason, they were also looking to shift towards this recurring model that I'm talking about that we are now actively pursuing.

Okay. Okay. No, that makes sense. That makes sense. So the reduction for FY '27, that comes to negotiations that you might have had during the year, you're going to be preferencing or you feel as though your customers themselves combined are going to be preferencing a different engagement model?

Well, look, Sinclair, it's been happening for the last 2 years that there's more and more conversations around putting less on the balance sheet from a customer standpoint and more towards sort of an operating expense. The word SaaS has been used a lot and now it's considered a bit of a dirty word. It might be back in fashion, but we actually have always preferred recurring revenue. And in some cases, we just have not had the opportunity to take it.

I think the point is that the way the business that we've always done, if you go historically, it's always been recurring revenues, et cetera. I think the accounting standards, Richard, did change and also the way people want to give us money, but it's not the way which we'd like to do. And I think it's going to go back more now to that recurring revenue model.

And the thing is Sinclair, if you -- I don't want to sort of open up a can of worms, but if you sort of try and unwind the license fees that we've been doing and try to smooth them out over time, the business had a particularly strong year in FY '26 and FY '27 is not materially different other than the investment we're making in AI and sales and marketing. So, I know it's going to get lost in the wash, these licenses have been around for a long time. $50 million in FY '25 is a big number. Last year $35 million sort of historically where we've been. And I'm just saying that that's not going to be the case going forward. And I think that should be viewed as a positive. Obviously, it's not viewed as positive for FY '27, but long term, that's where we're going.

That makes sense. And then in terms of FX, you highlighted, I think it was about a $5 million FX impact. And most of that presumably was in the latter quarter of the year, I think. So if I look into FY '27, I think you've already said it's going to be higher than $5 million. But if I was to guess and say $10 million, would that be a silly number? Or -- and I apologize if I'm just pulling numbers out of the air and expecting you to answer them.

So it actually started in sort of January, February. It wasn't just the U.S. dollar that impacted us. It's the GBP, CAD, euro, et cetera. So, that's when it kicked off. I don't -- look, I don't -- I'm not going to try and predict it, but I don't think $10 million -- $10 million sounds like quite a lot, to be honest. But it's going to be an impact for sure. We can manage as best we can on the cost base. But even in that scenario, you're still carrying a lot of costs in these jurisdictions as well that can offset it, but not to the full extent.

Okay. No, that's great. And then finally, sorry, the last question, I promise, just on Germany. I think from what I can understand and you've highlighted those deferrals. You've always spoken to '27 as a year where the rubber hits the road in terms of smart metering. But what -- does it sound like there's almost a halfway solution the regulators have come up with, which means that sort of uplift is off the table for a number of years now? Or is it 4 months, 6 months as well?

Yes. I think what's happening, Sinclair -- so they've actually given their -- they've given their retailers a bit of a free kick and moved down the road a touch. They've also reduced the bar to get over to achieve the smart meter rollout percentages. So they're running -- if you look at it now, they're running at about 20% rollout of the meters that they are now considering as mandatory. That's a long way away from getting to 100%, which we've now kicked down the road to 2032. I think what you'll see is what has happened in other countries is it's a slow start now, but it will start to accelerate pretty quickly from sort of '28-'29 onwards. But that's -- by the way, that's about 2 years behind where we thought we would be. And I think if you read about Germany, it's going through some challenging times economically. So, pushing this on to all the retailers and ultimately, the end consumers is challenging.

Yes. Adding 1,000 retailers over there, and this is such a change to their business model. There's been a lot of pushback, a lot of politics behind the scenes, which we've got no control over. It's unusual. Normally, the regulator sets the agenda and they get to follow. But in this particular case, pushback, look, it's still going to be there. Germany still wants to be able to share power with the rest of Europe and they need smart meters to actually start to do it. There's a lot behind this. We're just a bit disappointed, but that's outside of our control. The end goal is exactly the same. I think it's a slower burn, but the acceleration will actually be kicking off.

Your next question comes from Michael James Trott with MST Financial.

Andrew and Richard, can you guys hear me?