Insignia Financial Ltd. (IFL) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to Insignia Financial First Half '24 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, to Renato Mota, Chief Executive Officer. Please go ahead, sir.

Thank you, and welcome, everyone, to our first half 2024 financial results presentation. I'm here with our Chief Financial Officer, David Chalmers, and look forward to stepping through both the financial and the business performance for the half. Really, the overarching theme for the half is that the efforts for the last 6 months have really delivered 3 key outcomes. The first, being the strong performance -- financial performance for the half. We've delivered against key strategic milestones. And pleasingly, we're also now in a position to upgrade our outlook for the full financial year. If I move forward on to Slide 3 and the first half highlights. Pleased to report an underlying net profit after tax of $96 million for the half, which is up 1% on prior corresponding period. And net profit after tax of -- or a net loss in this case of $50 million, which factors in remediation and strategic investment costs. Net revenues, $696 million, which is up 1% on prior corresponding period, really off the back of improved investment markets, which is also reflected in our closing funds under management and administration at $301 billion, up 5% on pcp, and also declaring interim dividend of [ $0.093 ] per share for the period. I think at the back of it, and really pleasingly, I think, in setting the foundations for the periods to come is the strategic execution during the period. So we remained on track with our National Australia Bank separation as a result of the MLC acquisition. And pleasingly, also on the -- Master Trust build has also commenced, which we'll touch a little further on this in the presentation. We're excited by the establishment of Rhombus Advisory, so the entity and the initiative previously described as the Advice Services Co. So the demerger of our self-employed licensee business, really pleasing progress there, which has also allowed for the creation of a new division and a new area of focus in our Client Wellbeing division, which I'll touch on a little further as well. And we're looking forward to the completion of the MLC Wrap migration in April of this year. Reflecting on some of those initiatives and their progress. It is also pleasing to see $18 million of cost optimization flowing through in the first half and giving us confidence to be on track to $60 million to $70 million of in-period gross benefits for the full year. And we continue on -- working on our license conditions and progressing to plan there, which again is pleasing. And particularly pleasing is the outcome of a positive EBITDA in our Advice division, which is the first time in a number of years, and certainly, only possible as a result of the significant restructuring and repositioning of those capabilities, leaving our Advice business, I think, with real focus on growth into the forward period. We talk regularly about our transformation as a business. But I think it's equally important, if not more important, just to also recognize the quality of the franchise. And I think that's certainly the objective of Slide 4. We're pleasingly able to outline that with our level of award-winning performance and capabilities across the value chain. So whether it's in Advice -- and great to see our Shadforth advisers ranked with some of the best in the industry at Barron's survey. Whether it's in platform or asset management, there is no question that this business has top-tier capabilities across the value chain. And I think it positioned as a high-quality business across all 3 aspects of our business that will ultimately drive future funds flows and revenue growth. So it's really the backbone of our competitive advantage. Turning to the segment analysis, and starting with our Platform segment. Really, the story here for Platforms over the last couple of years has been unlocking the benefits of scale and growth through simplification and improved client experience. Case in point, I think, has been the effort around the Evolve '23 migration of MLC wrapping to Expand, which remains on track for April '24, bringing an additional $38 billion and 96,000 clients into our more contemporary and improved client experience and really bringing it into the -- our current transitionary dynamics that we're seeing in net funds flow around the MLC Wrap. Workplace continues to be an important source of client growth. Combining this with greater strategic focus and Client Wellbeing, I think, is a real opportunity going forward for the business to unlock the opportunities of what is a large and growing franchise. And we'll touch a little further on this. Managed account funds flow is -- which includes SMAs, is something that's continuing to grow in importance for the business, which is really pleasing. I think this plays favorably to a broader industry dynamic. And I look forward to seeing the franchise take more share in this space. And finally, just pleasing to be able to confirm that we're targeting the higher end of our net revenue margin in the [ 44 to 45 basis points ] range, which is a function of good net revenue resilience and product mix. Focusing a little -- just on our platform strategy specifically. And our announcement middle of last year around our platform strategy really highlighted our decision to center our strategy across 2 discrete offers customized to different markets, but really supported by one technology, data and client infrastructure. And just -- maybe just to delve a little deeper into that. Our platform strategy and structure revolves around what we would -- a Master Trust structure, so effectively a platform administration offer to retail clients distributed through employee [ plans ] administered in a third-party technology. But really, made up of a cost-effective bundled solution in a tax paid environment, really akin to most other superannuation funds in the market. This represents around $123 billion in funds in our admin in excess of 1 million clients or members with an average balance of around $107,000. Alongside that, we also have a specific structure and administration offer that is far more customized and tailored for financial advisers, which we call our Wrap structure. And this is housed on our proprietary technology, which we think continues to give us a competitive advantage in our ability to remain agile. It's a tax-exposed structure, which really plays to the demands of financial advisers in that level of customization. In our Wrap environment, we have $92 billion in funds under admin across 370,000 clients. And as you can see, they're clearly a higher average balance and a strong source of flows. I think the main point to make here certainly from a financial perspective is that there are different margins to be generated in each of these segments. And when you look at the economics of the Platform segment as a whole, it's really a combination of these 2 separate and discrete offers that make up our Platform segment. And we're confident that this customized approach to really looking to address the client need is actually our best opportunity to deliver both a leading solution in each discrete market, but equally doing it in a scalable way, leveraging off common infrastructure around technology, data and client experience. Turning to Advice, and as I said, it's particularly pleasing to be sitting here talking to the Advice segment and providing an update that includes a positive EBITDA contribution. It's been quite a while in the making and I think now positions us in -- not only do we have a sustainable business model, operating model. I think it's a model that is absolutely focused on the future, having significantly improved the quality of the Advice provision and significantly improved the sustainability of the economics. If I reflect on the creation of Rhombus, our new Advice services business that will be separated from Insignia Financial. But pleasingly, all the work we've done there in terms of adviser engagement and now the business -- standing up the business in its own right gives us real confidence that this business will be positive, profitable in its first year of operation. So again, we're standing up a business that will be sustainable and profitable in its own right and I think be a real competitive force in the marketplace. So when you look at the Advice business [ that ] Insignia Financial now represents, we've got a business that has 2 discrete business models that are complementary, fit-for-purpose and centered around capitalizing on future growth. And in fact, it's been pleasing to see some of that future growth start to be realized through the Bridges business over the past 6 months. It's also worth highlighting the completion of the ex-ANZ fee for no service remediation, which, again, is pleasing to have that behind us and a key milestone that allows the business to continue to focus on the future. Turning to Asset Management. And this segment has actually been a reliable and mature segment for the business. And that's been particularly important when we've had so much change happening both in the Advice and the Platform segments. That economic performance has really been off the back of strong investment performance, and congratulations really have to go to the investment team who worked tirelessly in ensuring that we're delivering to our clients. And that's really showing up at the moment with 89% of our funds under management performing -- outperforming target of the benchmark. It's also great to see this translate through to our managed account offers with strong research ratings. And again, I think this represents a source of future growth for the business. Finally, the Asset Management segment also has benefited from strategic simplification, which helps improve the focus of the business, which has certainly been the case with the divestment of the friendly Society business and significant investment structure simplification during the period. Turning now to flows. And I think I described the last sort of period or 2, Flows has been one of -- displaying -- or actually being a function of a lot of strategic change and transformation in the business. And I think that's certainly been evident in the MLC Wrap transition. But equally important is the diversification of the different channels that we operate through. And I think that can be seen with the workplace net funds flow, providing diversification and net funds by resilience whilst we've been working through some of the platform transformation in the Advice side of the business. And as a consequence, it had to deal with some disruption to net funds flow. I think during the period, that's probably been a little bit chemicalized by the one-off inflows into our private label. But nonetheless, we remain confident that beyond the completion of the migration of MLC Wrap to the Expand offer, we expect to see a net funds [ planning ] advisory business to return to more normal levels. If we delve a little deeper on funds flow, I think what the chart at the top really demonstrates is that this business reliably takes in inflows, $10 billion [ a half ] or $20 billion in a year. And that is a substantial opportunity for the business. If we reflect on the opportunities present, it actually presents the opportunity by way of retention and client engagement. And so when we focus on our efforts in that space, part of that does relate back to the MLC Wrap migration. And we're certainly confident that the migration of MLC Wrap will assist in engaging with those advisers and clients in a more contemporary way with a more contemporary offer. But likewise, the creation of Client Wellbeing division and setting up a strategic focus, specifically designed around improving the client lifetime value of existing relationships as well as the establishment of new services and new opportunities by way of the Quality of Advice review, I think, presents a significant opportunity to see a positive trajectory with net funds flow across the Platform segment. In terms of Asset Management, we've continued to see strong momentum in the underlying multi-asset flow. Albeit it's been partly offset by some of the sort of downstream impact of the MLC Wrap platform flow into the wholesale trust in the Asset Management division, which, again, I think does some disservice to the underlying momentum in the multi-asset net funds flow. And as we've mentioned in the past and can happen from time to time, I think in this period we're seeing some outflows in the Institutional segment as a result of client rebalancing, which has occurred as a result of the shift in the interest rate cycle. Just before handing over to David, I think it's worth framing the first half results in the context of our 3-year strategy, which we laid out last year. And during the half, we've made meaningful progress against each of the strategic pillars that not only reinforces our execution track record, but also underpins the financial performance for the half, but importantly, the financial performance for this business in '24 and beyond. So it is pleasing that alongside producing a strong half performance -- What is most pleasing, I think, is how we're setting ourselves up for the full year and '25 and beyond. I'll hand over to David.

Thanks, Renato, and good morning to everyone on the call. I'll start with a summary of the financial results for the 6 months ended 31 December, 2023, where first half revenue was $695.7 million, a 0.6% increase on first half '23 and that's due to higher average FUMA balances of 0.9% and an uplift in Advice revenue from our Shadforth and Bridges professional services businesses. These increases have offset declines in Asset Management revenue, which were mainly due to the loss of ongoing revenue from the restructuring of the JANA relationship in first half '23 and the completion of the sale of IOOF Limited midway through first half '24. Operating expenses were broadly in line with first half '23, and pleasingly flat on second half '23, with the impact of annual salary increases from 1 July and the increased cost of cyber and governance investments being offset by the first wave of benefits from the cost optimization program that commenced in early FY '24. As a result, first half EBITDA was up 2.3% to $177.6 million and UNPAT up 1.2% to $95.5 million. It should be noted that the UNPAT effective tax rate for the first period was 31.5%, which is [ meaningfully ] higher than our typical rate, which is normally around 26%, 27%. As a result, tax expense increased by 23% to $43.7 million, but is expected to normalize in the second half. The driver for this increase in our effective tax rate is a $6.7 million capital gains tax expense on the disposal of IOOF Limited, which is not normalized out of UNPAT. Turning now to net profit after tax. We saw a loss of $49.9 million for the 6 months, a decline of $95 million pcp. Thanks to first half '23, including a $45 million gain on sale for the exit of AET Limited and increased transformation separation costs in first half '24 as well as an increase in remediation expenses. Turning now to our key metrics. Net revenue margin of 47 basis points was consistent with our first half '23, while EBITDA margin increased from 11.8 basis points [ to ] 12 basis points, a change also reflected in the small improvement in the cost-to-income ratio of 0.4 percentage points. Looking next to segment performance on the next slide. Firstly, Platform saw a fall of $10.6 million of revenue during first half '24 despite higher average flow due to a decrease in Platform's net revenue margin from 46.7 basis points to 45.7 basis points, as some of the planned price reductions took effect. On the OpEx side of things, the increased cyber governance costs I mentioned earlier are largely allocated to the Platform [ segments ], which helps to explain the increase in platform's OpEx. Moving now to Advice. As Renato has already mentioned, Renato Advice recorded a significant turnaround with a small UNPAT loss of $700,000 for the 6 months compared to a loss of $21.9 million in the first half '23. Pleasingly, this reflects both an increase in revenue of $3.9 million as well as a $24.6 million reduction in costs with the first benefit of that restructuring program being delivered. As Renato also noted, it’s worth remembering that as recently as FY '22, Advice UNPAT losses were $55.3 million. So we're pleased to see the changes in that business over the last couple of years and the platform that's being built for future growth. It's also important to note that this first half Advice result fully includes the results of the self-employed or the Advice services businesses, which we intend to restructure with ownership from Rhombus management, the Advice practices themselves and Insignia going forward. Asset Management UNPAT reduced from $34.8 million to $30.2 million, largely due to the loss of $9.5 million of ongoing revenue associated with the divestment of JANA and IOOF Limited over the comparison period. Expenses are broadly flat in Asset Management and the underlying business continues to perform well. And finally, corporate losses increased by $4.9 million due to both annual salary increases and the increased interest costs associated with the group's bank facilities, a cost that was offset across the group by increased interest income, which is recorded in other segments, mainly in Platforms. Turning over to the next slide now and back to the group results. This slide shows an UNPAT bridge from first half '23 to first half '24. You can see that there's a net $7.3 million impact of divestments, which is the sum of the gains on sale from IOOF Limited and M3, being offset by the loss of ongoing revenue from the divestments of JANA and IOOF Limited. As discussed earlier, margins fell by $8.1 million, a fall that was offset by a $19.8 million increase in FUMA, thanks to healthy market returns during first half '24. The last item that I call on this page is the net OpEx change of $0.4 million, which I'll now step through on the next page. So this slide shows a bridge in OpEx from first half '23 to first half '24 and is largely the product of annual salary increases and the offset of the first wave of benefits from the optimization program. Now, as I cover on the outlook slide, we expect a significantly higher contribution from the optimization program in the second half of '24 and the $17 million of cost reduction here are the results of a program that started early in FY '24. And therefore, there is not a full 6 months of benefit inside the first half results. The other category of cost increases is largely an increase of cyber and governance, which is offset by the cost savings in areas such as marketing. And taken together, all of these contribute to increased costs of $400,000. Turning now to our 2 structured remediation programs, product and advice remediation. First half '24 saw an increase in the provisions of these 2 programs of $72.6 million, which will be partly funded by a successful indemnity claim and through trustee approved funding, leaving a balance of $24.8 million that will need to be funded through corporate cash or through debt facilities. In addition, we've lodged a $20 million PI insurance claim relating to client compensation and costs incurred on a small number of advisers for the completed phases of the IOOF fee for no service program. That potential claim is not included in these numbers and we're in the process of working through it with our advisers. Stepping to rest of the programs now, starting with Advice. There were client payments of $38 million in the half, along with program costs of $14 million. And pleasingly, during the half, we also completed what was the largest part of the original program, that being the ex-ANZ fee for no service files. There was, however, an increase in the provision of $35 million. And that cost increase is split evenly between expected increases in client compensation and external consultants as the quality of advice files reviewed in the period were more complex than anticipated. There's also a significant amount of cash payments that we've already made in this third quarter of FY '24 or that's waiting to be processed over the next few weeks. And so, we expect a further $24 million of payments to be made in the third quarter, i.e., in between the 1st of January and the 31st of March this year. And we're still tracking to have the advice program substantially completed by 30th of June, 2024. Product remediation also saw a significant increase of $37 million, mainly due to the cost of remediating [ ADA ] dual accounts for OPC clients and e-mail members requiring remediation on portability [ bridges ]. Both of these streams are subject to third-party review. The third-party reviewer has already signed up on the scope and calculation methodology. And as with advice, there are also significant payments being processed in the quarter. And we expect $31 million of payments to be completed prior to 31 March. And as with Advice, we also expect this program to be substantially complete by 30 June, 2024. The next slide gives an overview of corporate cash and debt facilities with net debt of $440 million as at 31 December and available funding of $552 million as at the same date. As expected, senior leverage came in at 1.5x net debt-to-EBITDA, which was expected in the first half peak due to the timing of remediation payments and the investment in the strategic program as well as the timing of annual FY '24 employee incentives, which occurred once a year in September. We expect FY '24 leverage to fall back into the 1 to 1.3 range, supported by a significant uplift in free cash flow expected in the second half. And the next slide really demonstrates there's -- being a link between the free cash flow. Firstly, an overview of the first half, and you can see that -- the impact of remediation and strategic investment on overall free cash flow with an increase in drawn debt to support each of these initiatives. And while there was negative free cash flow in the first half, we expect more than $150 million of improvement in second half free cash flow due to a range of factors, including those annual incentive payments I mentioned before, that fall only in the first half, the timing of the expected tax refund and the release of reserves following the migration of MLC Wrap to Evolve. Moving through now to the dividend. Our Directors have declared an interim dividend of [ $0.093 ] for the first half '24, consistent with second half '23 dividend and the first half '23 ordinary dividend, albeit [ $0.012 ] per share lower than the total first half dividend from first half '23, which also included a [ $0.012 ] per share special dividend. The interim dividend is unfranked. And we expect the final FY '24 dividend and the FY '25 dividend to also be unfranked due to the unavailability of franking credits. Turning now to full year guidance. First half '24 has come in either ahead or in line with all the guidance metrics given at the FY '23 results. Stepping through each in turn. We've increased our guidance on net revenue margins for the full year to 45.5 to 46 basis points, a smaller decline than expected on our FY '23 results. Now despite being a smaller decline, we still expect lower second half revenue in absolute terms across each of our segments. In Platforms, this will be driven by the margin decline in pricing, for example, the MLC to Evolve [ '23 ] transition that's been flagged. We also expect a revenue decline in Advice in the second half as the transformation of that business continues across that time. There'll be further divestments of smaller businesses as we flagged last July when we announced from [ ASC ], with the subsequent loss of revenue. We also expect lower revenue for Bridges in the second half as a flow-on impact from the 2023 restructure works its way to the system. But despite these one-off movements in the second half of '24, we still expect the Advice segment to exit FY '24 with an annualized UNPAT profit of $10 million, as we committed to when the MLC acquisition was made. Our Asset Management, we expect a small revenue decline due to the full year impact of the lost revenue from divestments, but the underlying business continues to perform well. And just as we expect a better net revenue margin for FY '24 than originally guided, these improvements also cascade their way down to group EBITDA margin, where we're forecasting 11.8 to 12.2 basis points for FY '24, an improvement on the previous guidance of [ 11.3 to 11.8 basis points ], although it should be noted that we're still expecting the same delivery of cost optimization in FY '24. So in summary, while we're expecting lower revenue in the second half, we also expect this reduction to be more than offset by greater in-year -- greater in-period benefits from the cost reduction and therefore, higher second half EBITDA. Finally, for the strategic investment program, we saw $112 million spend in the first half with a similar second half spend to be offset by the expected capital release, as outlined last July. There's no change to this outlook. Similarly, as mentioned before, we remain on track to deliver $60 million to $70 million of gross new benefits from the optimization program. Back to you, Renato.

Thanks, David. And turning to outlook. And really referring back to our strategic announcement in July of last year. There were 3 key areas of focus we laid out as part of our 3-year plan. Firstly, transforming Advice, Platform simplification and separation and operating efficiencies. And while we'll delve into this a little deeper, it's pleasing to report we've made really positive progress across each of these. We remain on track to deliver on our commitments that we laid out. As we mentioned at the time of the announcement, these initiatives in aggregate provide the business with a strong growth profile, leveraging technology and client experience, while benefiting from improved operating efficiencies through lower costs. Turning to Advice, and I probably can't overemphasize the significance of having our Advice segment reach a positive EBITDA contribution and on track for our UNPAT run rate, as David mentioned, by the end of this financial year. This has been the result of a multi-year focus on transforming the business, all the while maintaining positive relationships with our adviser partners. And I'd go as far as saying that our Advice partners have welcomed our proactive approach to finding a better business model in how we partner with them. Importantly, Rhombus is expected to deliver a profitable first year of operations, which is a long way from the business we acquired as part of the ANZ and MLC transactions. The resetting of this business has also seen us exit some partnerships in the form of M3 and as well as Godfrey Pembroke. But again, I think we've achieved this in a really positive and orderly fashion. As we've foreshadowed in the separation of Rhombus from Insignia Financial, this will also allow us to focus on our professional services Advice business as well as through Client Wellbeing, or in other words, starting to create linkages between our Advice capabilities and some of the opportunities that, in fact, exist in our Platform segment. While the Platform separation and simplification is broad and multi-year, there is a really important near-term milestone, which like Advice, I think is expected to really transform our growth prospects and net flow competitiveness. And in that, I'm referring to the migration of MLC Wrap to Expand. The transition is on track for completion in April and will provide us with a single highly competitive offline market, nearly $90 billion in funds under administration and with a clear path to growth and continued innovation. I know our platform strategy and competitiveness has been a key area -- a keen area of interest. And I do think our current competitiveness in some ways is [ camouflaged ] by the transition disruption that's occurred to our -- and net funds flow. We continue to see Expand rise in the rankings of Platform offerings and currently is placed third in terms of Wraps across a couple of different sources. So we're confident in our positioning in market and equally confident that it continues to improve and will continue to improve well beyond the transition. And finally, turning to our operating efficiencies and the aggregate financial impact of all these initiatives. We remain on track both with respect to the net cash investment as well as the benefit realization we laid out across those various time frames at the time of announcement. While the $18 million realization in the first half of operating efficiency is a relatively small portion of the total in-year benefit of '24, really reflects about 2 months of cost benefit, given the early [ effort ] in mobilizing the program in the first half. So as we look to the '24 outcome and into '25, we remain confident in our ability to deliver the stated goals, both across operating efficiencies, but also more importantly, the other programs equally and remain confident on the capital commitment we've outlaid on the charts, as you can see on Page 26. And finally, before opening to questions -- and I'll say finally in the context of this being my last results presentation before finishing up with the group. If I compare the organization we are today with the IOOF I stepped into, to lead in late '18, I think we've delivered on our ambition of creating a leading organization with scale, capabilities and talent to grow and prosper for years to come. In the short-term, there's no doubt there's been a significant investment required from shareholders. And as we laid out in our 3-year strategy last year, the foundations we're setting in 2024 will yield the growth we all want to see in '25 and beyond. As an organization, we pride ourselves on our ability to execute and deliver on our promises. And I continue to believe in the prospects of the industry and the incredible value creation opportunity this industry provides both for clients and for shareholders. Our industry has gone through a really key inflection point. And we created Insignia Financial to capitalize on that industry dislocation we see today in [ pursuit ] of growth tomorrow. And I think we've brought together a high-quality and unique set of capabilities and scale. And I think that growth prospect still remains ahead of us. So finally, I want to thank the entire Insignia team for all their support as well as the analyst and shareholder community for their intellectual rigor, the challenge and the commitment. It's not been an easy journey, but I'm confident that with time, we'll recognize it as a right journey for the group. So with that, I'll thank you, and happy to open up to questions.

[Operator Instructions] And I show our first question comes from the line of Kieren Chidgey from Jarden.

A few questions. Maybe just starting on some of the one-offs, in this result your underlying profit number. I just want to confirm, in your corporate business, I think you called out some one-off revenues. Just a quantum of those, whether or not sort of that $5 million revenue in that division is sort of a decent proxy for what those one-off revenues are? And then, David, I think you mentioned sort of a tax -- one-off tax impact of maybe $6 million or $7 million. So is it correct to think on a net-net basis this sort of hasn't been too much of a sort of net impact to the UNPAT number this period?

Yes, I think that's fair, Kieren. As you know, we don't adjust for items below a $10 million threshold. The 2 I'd call out in corporate revenue, there were gains from the sale of both M3 and IOOF Limited, that was $2.2 million. So that's the main one-off item, if you like, it sits in that corporate revenue line. And then, as you quite rightly note, there's the one-off minus [ minus $6.7 million ] in terms of the capital gains tax on the divestment of IOOF Limited. So those are -- there are swings and roundabouts on some other things in terms of provisions, but nothing I'd call out as being unusual other than those 3 movements.

Sorry, I think I missed the first one. You said $2.2 in the revenue? Was there another number as well?

No. The $2.2 million is what I'd call of corporate revenue, which is $4.6 million. I call $2.2 million of it out as being one-off in nature and that's the gain sale on -- from M3 and IOOF Limited, so $2.2 million revenue wise and [ $6.7 million ] of tax one-off.

Secondly, just on the costs, the $20 million cyber governance step up you talked about at the end of '23. Can I just be clear on sort of how much of that has hit in the first half? Are we at kind of a full run rate and we're sort of $10 million impact from that? Or is there further uplift still to come?

Yes, there's about $7 million that's come through in the first half, just given timing. And so the balance will come through in the second half.

So when you say balance, you're talking about moving to a $10 million per half run rate?

Correct, yes.

And then, lastly, just sort of on the Advice business, I think the UNPAT was sort of [ negative $1 million ] this period. You sort of reaffirmed the $10 million per annum run rate by June '24. 2 questions on that, just how we should think about the second half? And then as we move through into '25 with, I guess, the structural separation of Rhombus compared to the employed advisers, how we should think about the $10 million being split across those 2 segments?

Yes. So firstly, on the second half for Advice, I don't expect -- as I sort of indicated on the outlook comments, I don't think it's going to be as positive as the first half. And the reason for that is there's still a lot of work going through restructuring. So for example, we talked today about the exit of GPG. There'll be losses of revenue associated with those divestments and other sort of one-off costs that won't be UNPAT-adjusted, but that will hit the P&L in the second half. So directionally and on an underlying basis, I think the direction of [ travel ] is clear. But I wouldn't expect the actual full -- second half results to be as good as the first half results. In terms of then moving forward, yes, look, you're right. I think we've always sort of talked about that $10 million -- that's an annualized profit number from June '24 moving forward. In terms of the timing of Rhombus, we're aiming to deconsolidate Rhombus in early FY '25. Now whether that's on 1 July, which would line up neatly, that's what we'd like to do. But I think it's more important that we get it set up properly and set up well for strong growth. But certainly, early in FY '25 is what we're aiming for there in terms of deconsolidation. Importantly, as Renato noted, given we expect Rhombus to be profitable, it's not going to be, if you like, a way of moving losses off balance sheet.

But sort of in the -- just looking at that from another angle though, sort of given you're not going to own 100% of Rhombus is -- also just wondering about the profit leakage that occurs for IOOF shareholders?

A small amount.

What the -- split of the $10 million will be between sort of what you're retaining and what goes?

Yes. There's a small contribution there from Rhombus. But I think we'll save it until the full year to talk about '25 for Advice. But Rhombus will make a -- we expect to make a small profit. So if we're deconsolidating, taking, let's implicitly say less than 50% of that, that probably gives you a good indication for the scale of what we expect from Rhombus to be recognized as part of that $10 million.

And I show our next question comes from the line of Andrei Stadnik from Morgan Stanley.

Can I ask the first question around the guide on for the better revenue margins, particularly in Platforms? Can you talk about like what's driving it? Like what are you seeing the improvement?

Yes. So to be clear, when we talk about better revenue margins, we're talking about relative to the guidance given. We still expect a decline in absolute terms. Look, I think it's been a couple of things there. It's been a good half from a product mix point of view. We've seen some positive contributions and things like Platform cash margin. And also, there has been -- I talked before about some of the planned price decreases that we sort of baked in to this year's strategic plan. One of those has been delayed by a few months, so that will impact in second half '24. The full year impact of that will push into '25. That's probably around about $5 million, if you like, that we expect it would land in the first half, but haven't. So those are probably the key drivers, if you like, of that improved guidance. But as I said, to be clear for the full year, it's still a decline in overall net revenue margin.

And my second question, just in terms of the remediation, how -- can you describe in terms of like what is still outstanding -- like what percentage, or just what types of payments or work is there still outstanding, particularly in terms of work that -- where you might need to dig deeper in terms of the case estimates?

Sure. So if we look at the remediation slide, to answer your first question, it's, part of the reason we've given you that sort of -- what we call the pro forma at the end of March. So we're saying that based on the payments that we've either already made this calendar year or expect to make in the next few weeks. That provision balance sort of drops down to sort of $28 million for Advice and about $50 million for product. In terms of the work to be done, it's worth noting that the Quality of Advice -- stream of advice is still outstanding. And Quality of Advice is the one that will typically have greater variability on client [ detriment ]. And the reason for that is fee for no service is simply a case of returning fees already paid back to a client. We know the dollar fees that a client has paid us. So you know what the maximum amount is. Quality of Advice involves pulling apart every piece of advice that's been given. And just to give you one example, we have one client who received 64 pieces of advice over the years. Each one of those needs to be analyzed. Some will result -- Some may well have been poor quality of advice where the client has actually benefited, some where there's been a loss. And so, just by its nature, the variability around Quality of Advice, either positive or negative, is higher than fee for no service. So that's how I think about the sort of forward-looking view on remediation.

And I show our next question comes from the line of Nigel Pittaway from Citi.

Just firstly back on Rhombus. Are you expecting to have to run a TSA with that? And will that in any way impact your ability to deconsolidate it?

I think potentially, Nigel, there's some fairly minor sort of services. So you're right. I mean, the factors that will go into that deconsolidation would be shareholding Board as well as any key strategic arrangements. So we're looking at all of those when we think about deconsolidation. There's nothing there we sort of flagged at the moment as being a concern. But I think there'll be -- to the extent there's a TSA, it will be a light one.

And then just to sort of be a bit clear about the guidance. I mean, if I read your Platform guidance, it seems as if what you're saying is we're still expecting the same revenue contraction we always did. It's just it's been a bit deferred. So firstly, is that correct? And then secondly, can you just confirm what market assumption is embedded in your full year guidance as well?

Yes. So look, I think that is fair in terms of the push-out. I still think the first half result even allowing for that push-out has been a good one. But you are right that, that $5 million impact just moves down the line. So that's fair. The market assumption, we make an annual market growth assumption of 5.4%. I think in the first half we might have seen market growth of just over 3%. So we've probably got a little over 2% assumed market growth in the second half.

And then maybe just finally, I mean, I know Kieren asked about the revenue in the group. I mean the costs do seem to swing around a bit as well. I mean is there anything that sort of would sort of suggest that, that operating expense line is group is seasonal, so you get higher costs in second half than you do in first half?

Not really. It's more from a cash flow point of view because, obviously, we accrued those incentives across the year. So I think cash flow is more weighted to the first half, [ as in ] outflows in the first half. But no, from an expense point of view, there's nothing significant I call out for seasonality.

So the $36.3 million you had second half, there were some one-offs -- last year, there were some one-offs in that, [ were they ]?

On which side of things?

Sorry, this is -- I'm looking at corporate Page 9, corporate P&L, operating expenses. So you obviously had $32.8 million this half relative to $31.8 million in pcp, but it did rise to $36.3 million in second half. Was it just one-offs driving that or?

Yes. I think in that second -- yes -- in that second half, yes, it does tend to move around a little bit. But for example, we've got net interest that sits in there. So there was a pretty meaningful increase given the interest rate profile last year. So I think that, that's probably part of the solution as well.

[Operator Instructions] And I show our next question comes from the line of Anthony Hoo from CLSA.

First question, can I ask about expenses in the Platforms business? You called out higher expenses due to cyber, governance. And then you also mentioned license conditions, [ rectification ]. Just wondering how much of the expenses in here in this period were -- might have been one-off?

Yes. So -- you're right. So if we wind back cyber and governance is principally charged, as we said, back to Platforms. That is -- that should not be seen as a one-off cost. We think that, that is a recurring cost every year. Now over time, as we simplify it, we'd be hoping to reduce that. But certainly, I think in the next 12 to 24 months, I treat that as being a permanent cost. So that's really the key driver there. The license conditions costs, yes, I mean that's one that obviously we're working hard to -- on that rectification plan. So, those costs, which are a couple of million dollars, single-digit millions, we expect to be there until those are done. I don't even want to put a time frame on that at the moment, but we're simply hoping those are not permanent.

And then second question. So going back to the Platform's revenue margin, as you said, second half would be a lower margin, MLC migration to evolve. You have that deferred impact that you mentioned before. Can you talk more broadly, are there any other repricing initiatives that are going to happen in the second half or even FY '25 as well?

No. So the main impact on FY '25, based on what we currently see in front of us, will be the full year impact of '23. So of all '23, as Renato mentioned, that migration is due to happen in April. So there'll only be a relatively modest amount in FY '24. And so, when we talk about FY '25 guidance, we'll be able to give you a better view of that. But that's really the main known driver today. The second one would be, I mentioned before that some of the fee reductions that we were planning in the first half have been pushed out. So those will also impact in the first half of FY '25. So a little bit of shuffling there, if you like, on that one. But they are the main ones that we can see today.

So as we think about the margin, it looks like your guidance, I think, for the Platforms business is implying something like 44 basis points in the second half or maybe slightly lower. So essentially, FY '25 will be lower again than that?

Yes. Look, I don't want to get too much into FY '25 guidance. But if I go back to last year's full year presentation, we gave a view of what we saw for 4 years. And based on that, yes, that's a fair assumption. Our view hasn't changed on that. But to be fair, we're only now commencing the budget and planning process for FY '25. So we'll give more detail at the full year.

And I show our last question comes from the line of Lafitani Sotiriou from MST Financial.

Just a follow-up on the Platform margin piece. So can I just clarify that there were 2 main events that are causing a step down in the Platform margin. One is the migration, which is happening in April. Are we looking start of April, mid-April, end of April? And the other is in relation to the fee reductions that have gone through. And can you just remind us when did those fee reductions go through?

Yes. So I'll take the second one first. So the fee reductions, and the ones that we're talking about specifically, are to do with some of the Smart Choice reprice. And as part of that, we're introducing more alternatives into the mix. So those prices changed as of 1st of July. So by the time, as I said, there's about $5 million -- $10 million for the full year '24 that we expected, $5.5 million -- $5 million in the first and $5 million the second. Those price changes are yet to go through. And so based on what we currently see at the moment, there's $5 million we expect in the second half and then that other $5 million will transfer the first half of '25. And then, in terms of the Evolve '23, I think April is as specific as we probably want to be at the moment. But there's probably only a low single-digit millions impact in FY '24. And the rest of the impact will be felt in FY '25.

Can I just clarify, so the Smart Choice repricing was supposed to go through on the 1st of July, but [ didn't ] -- but it's subsequently gone through this calendar year. So there's going to be a $5 million impact this calendar year on the repricing -- for the entire of this calendar year, you'll get a $10 million impact?

So for the calendar year, that's right. That's right. So we expected a…

So it went from 1st of July to the 1st of January?

It hasn't gone through it yet. But based on -- that's a trustee decision in terms of the timing of that movement. So we still expect to see it. We think it will come through imminently. But that one is down to the trustees in terms of when they make that call.

But just from a technical perspective, if you make the change in February or March, can you still backdate it to the 1st of January? Or how should we be thinking about the monthly run rate cost? So if it's $5 million a half, why do you still assume that the step-up will happen for the full period if it hasn't happened yet?

Well, there's still more movements than that. I mean, in terms of the overall Platform margin, that's just the biggest driver that's there. So we still expect it to be around $5 million. No, it won't be backdated. But that's, I guess, as clear as we can be around the timing of that, if there's a number of different movements.

Sorry, am I missing something here because it is a $10 million annualized impact or?

Yes, it is.

Or you're still assuming $5 million in this half, even though it hasn't started yet?

That's what we're assuming, yes.

Am I missing something or -- because you're already largely going to miss 2 months' worth? Is there a higher front end? Or is there something you're seeing in that disclosure?

Well, I think we're talking about probably a difference of $1 million or $2 million. So $10 million -- and that's an approximation is the full year impact. So it's not exactly $5.0 million and $5.0 million. You're right, the longer that it sort of ticks into '24, there'll be more of an emphasis in first half '25 and second half '24. But overall, $10 million, we're still expecting it to be rounding up and rounding down a couple of million bucks to up towards $5 million in second half '24 and the balance in first half '25.

And so what about the migration? Can you give a similar figure, roughly the impact on a revenue basis annualized?

Yes. So I think -- I just have to -- let me just check that, Lafitani, in terms of full year for FY -- for Evolve '23. From memory, I think it was about $15 million, but let me come back to you if it's different to that.

So just to clarify, so there's all up the $25 million roughly annualized revenue impact from the Platform repricing with about $7 million of it to fall in second half? And so about $18 million will flow through into FY '25, assuming there's no other changes with anything else?

Yes, that's fair.

And can I just have one other follow-up question in relation to the net notes? So just 2 things happening, right? So there's -- you're expected to repay them in FY '26. Is that right? And then, there's a step up this calendar year in the interest being paid on that -- on those notes. Is that right?

Yes, that's right. So -- well, potentially right. So in November this year, [ NAB ] has the option of what's called an early call on the notes. If they make that early call, we have the ability to repay the notes. If we don't, the interest rate -- the coupon steps up to 4%, as you say. We don't have to repay it early. But we would be wearing the 4% coupon until we did. So I don't know whether they will or won't call it, but that's how it works mechanically.

So given that it's an overall cheaper source of funding still than your existing senior debt facility -- I mean, I've seen a reason why that wouldn't request it. And so we would expect the step up from 1% to 4%. And then can you just talk us through the specifics when you get to financial year '26? The -- If it has stepped up and they have called it, you haven't repaid it through that period? When it gets to the end of financial year '26, do you -- are you force to repay it, or what's the story then?

Yes, that's right. So that's the end date on the note, is in FY '26. The reference price at the moment, so that subordinated loan note behaves like equity above what's called the reference price. The current reference price is about $3.70. It moves downward with dividends. And so above the reference price, there's an equity-like return for amounts over and above. At the moment, based on $3.70 and where the share price is -- that's why we talk about the face value of $200 million. That would be the total amount repaid based on the current share price and where the reference price currently is.

I show no further questions in the queue. That concludes our Q&A session for today and today's conference call. Thank you all for attending. You may all disconnect at this time. Have a good day.