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

Hello, everyone, and thank you for standing by. Welcome to the Insignia Financial Half Year 2025 Results. [Operator Instructions] Please be advised that today's conference is being recorded. Now it's my pleasure to turn the call over to Andrew Ehlich. Please proceed.

Thank you. Good morning, everyone. Welcome to Insignia Financial's first half results for the 6 months ended 31 December, 2024. I'd like to begin by acknowledging the traditional custodians of the lands on which we meet today and pay our respects to their elders, past, present and emerging. Presenting today's results are Scott Hartley, Insignia Financial's CEO; and David Chalmers, Chief Financial Officer. I'll now hand you over to Scott. Thank you.

Thank you, Andrew, and welcome, and thank you, all, for joining us today. My reflections almost 1 year into the role, we had a long list of things we had to get done, and I'm really pleased with our progress. Some of the key things that we had to get done was to migrate our MLC Wrap platform to Expand, Rhombus separation, the organizational design and the appointment of a refreshed executive team, the IT separation from NAB. We launched our 2030 vision and strategy, and we announced plans to partner with SS&C to simplify and transform our Master Trust business. Throughout today's presentation, we'll share with you a number of milestones we've achieved in the first half full year '25 -- financial year '25 and that are critical to our ongoing plans to simplify our business while continuing to lay the foundations for long-term sustainable growth. So the reason we're all here today, our half year results. As you can see from the chart on the left, we have 4 individual complementary lines of business within Insignia that together generate value for customers and shareholders. In the first half '25, these businesses delivered $124 million of underlying profit after tax, which was an increase of 30% on the same period last year, driven by market growth and a continued reduction in operating expenses. Pleasingly, OpEx reduced by $36 million or 7% on the prior period as we see the benefits of our cost optimization program. The growth in revenue, combined with the cost reductions, have resulted in a reduction in our cost-to-income ratio of 6 percentage points to 68%. And notably, this is back to [indiscernible] cost-to-income ratio prior to its acquisition of MLC. In fact, you'll see throughout today's presentation, we've actually achieved a gross optimization target that we announced in 2023 early. This has allowed us to accelerate our reinvestment plans for our 2030 strategy and bring forward some of this investment into the second half of '25. As I mentioned, we had a long list of things that we said we were going to achieve as part of our FY '24-'26 strategy. And pleasingly, we did them. In addition, we've also unveiled our strategy to become Australia's leading and most efficient wealth management company by 2030, embedded a new operating structure and executive team, confirmed our strategy to simplify and transform our Master Trust business and successfully separated from NAB. We also remain on track to achieve our full year cost guidance through our cost optimization program. We continue to enhance the functionality and adviser experience of our Wrap MLC Expand platform and uplift our risk and governance capability, including the appointment of Danielle Press as Chair and Non-Executive Director of Insignia Financial's Trustee Boards late last calendar year. And invest in MLC as our go-forward consumer brand with plans to be back in market in the first half of FY '26, but with some initial activity planned for the second half of this financial year. All this work has been about continuing to simplify our business, reducing our costs and setting ourselves up for long-term sustainable growth. But wait, there's more. Pleasingly, we've also had significant additional achievements. We've embedded our partnership with Rhombus Advisory following separation, and we continue to experience strong net flows from that business. In fact, flows from Rhombus are up 75% year-on-year. We finalized our Australian Equity Trustees transaction with the ending of the transaction service agreement. We implemented pricing changes across parts of our Master Trust book to help improve retention. We improved Wrap flows following from the MLC Wrap to Expand migration. We achieved $1.1 billion of net flows into retail multi-asset products. We launched the MLC Reinsurance Fund, investment fund with new institutional mandates. We had 25 of our Shadforth advisers recognized in Barron's top 150 more than any other financial planning firm. And we implemented a single unifying enterprise agreement across our organization. All these achievements in the first half of FY '25 have helped lay the foundations for our 2030 strategy. Looking at flows now. In Master Trust, we continue to see challenges. However, through our MasterKey reprice, and with imminent improvements in member engagement, we've taken steps to improve flows and retention. These changes will take time to impact on flows, but they will indeed impact on flows. In Wrap, we've seen stable flows momentum in MLC Expand platform with consistent flows over $1 billion per half in the last 3 halves. We've also seen the worst of the disruption from the MLC Wrap to Expand migration. In Asset Management, good performance in Asset Management in the first half of financial year '25. This has driven ongoing strength in MLC's contemporary managed account solution and retail multi-asset offerings and strong net flows in the domestic institutional fixed income capability. We continue to consistently deliver strong investment performance for our customers. Pleasingly, our flagship MySuper product, MLC MySuper Growth, was top quartile over 3 and 5 years. Four of our multi-asset offerings were awarded Best of the Best honors in the 2025 Money Magazine Awards and the overwhelming majority of our MLC multi-asset fund has outperformed benchmarks, as you can see from the sea of green on the table on the right. We also continue to innovate, grow and look for opportunities to further commercialize, which in the first half of FY '25 saw us launch our new MLC reinsurance investment fund, which already has more than $200 million invested by external institutional clients. This is the first time we've packaged our in-house Alternatives capability for the external market. We've grown our SMA capability with now $3 billion in MLC's multi-asset proposition. In the Advice business, Bridges & Shadforth, we've now -- we've seen a growth in net revenue, revenue per adviser, revenue per client, driven by improved adviser efficiency and a focus on higher-value clients. It's worth noting this is the first period since we cleared away other Advice businesses to just focus on Shadforth & Bridges. There's still work to do as we spoke about at our strategy presentation late last year, and we have a plan to further improve efficiency and grow advisers and the clients they serve. This plan includes lifting adviser efficiency and capability, accelerating new client growth, growing the brands of these 2 businesses and continuing to invest in and developing our advisers. I will now hand over to our CFO, David Chalmers, to go through the full financial results with you.

Thanks, Scott, and good morning to everyone on the call. I'd like to commence the review of financial performance with a summary of the group's financial results for the period ending 31st of December, 2024, starting with net revenue of $705.8 million, a 1.5% increase on first half '24 revenue. Now it's worth noting that the first half '24 comparison period includes revenue from several divested or deconsolidated Advice services businesses, most notably Rhombus Advisory. Collectively, these businesses generated $22.9 million of revenue in first half '24 and a loss of $4.3 million in first half '25, which represents the loss on deconsolidation of Rhombus Advisory. So looking at performance on an ongoing business basis and excluding these divested and deconsolidated Advice businesses, first half revenue was 5.5% higher than first half '24. Turning now to costs. Our operating expenses fell by 6.9% as the benefit of our cost optimization program continued to reduce the total cost base. As Scott talked to, from a cost-to-income point of view, pleasing to see a significant drop there, 6 percentage points lower than first half '24, down to 68%. And from a profitability point of view, there was also a significant uplift compared to first half '24. EBITDA is up 25.9% to $223.6 million, while underlying net profit after tax increased by 30.2% to $124.3 million. UNPAT adjustments for the period were $141.1 million, the largest components of which were the expense transformation and separation costs of $100.3 million and historic legal settlements of $41.3 million. There's also in there the impact of the fair value adjustments for the subordinated loan notes which were reviewed H half and which I'll add a little bit more commentary on later in this presentation. These adjustments resulted in a statutory NPAT loss of $16.8 million compared to an NPAT loss of $49.9 million in first half '24. Turning back to profitability. I'll now step through the drivers of the $28.8 million growth in underlying net profit after tax. Firstly, as we've noted, net OpEx fell by $35.9 million, consistent with the guidance that we've given in terms of our objectives for this year. On the revenue side, strong investment markets and better-than-expected net flows saw FUMA growth contribute revenue increases of $52.9 million with average FUMA of $320 billion being 8.6% higher than first half '24. I've already commented on the divestment and deconsolidation of our Advice services business that saw a change in revenue across the period of $27.2 million, that being the loss of the revenue in first half '24 plus the loss on deconsolidation in first half '25, added together you get to the $27.2 million. Net margin contraction for the period was $6.2 million with group net revenue margins of 44 basis points versus 45.4 basis points on an ongoing revenue basis. During this period, revenue margins were essentially flat in Asset Management and Master Trust, and we also pleasingly saw Advice net revenue grow by $3.3 million. So in terms of revenue decline across the period, it was really only impacted in the Wrap operating segment, where we saw the impact of the migration of legacy MLC Wrap platform to Expand, which reduced Wrap margins from 31.5 basis points to 28.9 basis points. Importantly, there was a full 6 months of this pricing impact in first half '25, meaning there's no further margin decline to come from the transition to Expand. Finally, there was a net $17.2 million reduction from the impact of tax as well as increases in net interest expense, which was up $5.8 million, thanks to lower interest income from an ORFR base that was $70 million lower following the return of capital of the ORFR in the second half of '24 and higher interest expense from higher average drawn debt. Moving now to operating expenses. We've commented on the $36 million reduction over the time. And as a reminder of our guidance, we're targeting FY '25 OpEx to fall by a net $60 million to $65 million, meaning total FY '25 operating expenses of between $947 million and $952 million and implying a target second half '25 cost base of between $460 million and $470 million. This reduction came in -- after some of the BAU cost increases that we see. So for example, annual salary increases, increased software license costs, increased investment in the MLC branded digital and Wrap development, all cost increases that we flagged as part of our FY '25 guidance. Scott mentioned some of the pleasing developments in terms of the work done with SS&C and the ability to move forward on the Master Trust contract. And as part of that, we've been able to accommodate the bring forward of spend to support this strategy into the FY '25 plan. So what that allows us to do is to get started on that transformation earlier than expected. And so we've called out a reinvestment spend of approximately $12.5 million in FY '25 with additional BAU savings realized to enable us to fit this spend inside the existing operating cost guidance of $947 million to $952 million. As outlined at our November Strategy Day, from FY '26, we will start reporting operating expenses in 2 categories. We'll talk about base OpEx and reinvestment OpEx. Now the purpose of that is enabled us to highlight the reductions we're delivering in the BAU cost base, while we expect reinvestment spend to average $60 million to $80 million per year over the next 5 years. Importantly, investments that historically were funded below the line, such as the rationalization of the Wrap platforms, will from FY '26 be accounted for above the line and form part of this reinvestment spend. Turning back to below-the-line spend that forms part of the FY '24 to FY '26 strategic initiatives. I outlined earlier that the UNPAT adjustments made to transformation and separation costs of around $100 million for the period, with the remaining spend for second half '25 likely to be towards the top end of the $42 million to $60 million range. The transformation and separation costs for the period included the cost of separating IT infrastructure from NAB and establishing stand-alone environments, the cost of redundancies to support the cost optimization program and costs associated with transitioning custody arrangements from NAB's National Asset Servicing business, which is winding down its operations. Next slide focuses on cash flow analysis and gives the details of moves across the period, starting with cash UNPAT realized of $153 million and stepping through the uses of cash that I've spoken through over the last couple of slides. Free cash flow for the period was negative $239 million, which resulted in a drawdown of debt of $158 million and a decrease in corporate cash of $81 million. So let me now give some context to the negative free cash flow. Firstly, our BAU free cash flow is typically lower in the first half of the financial year than the second due to the payment of annual staff bonuses in September each year, which is just over $70 million. Secondly, the large transformation separation and remediation spend in the first half collectively accounts for around about $200 million and continues to be the main non-BAU cash outflow. Importantly, we expect these programs in the second half of '25 to have a lower cash cost by more than $70 million. So just as we found ourselves with FY '24, we do expect positive free cash flow in the second half of '25 with an improvement of free cash flow of more than $250 million, driven by lower remediation cash payments, lower spend on transformation and separation and a number of cash costs incurred in first half '25 that either won't be repeated in the second half or relate to prepayments. I would add that this cash flow profile was anticipated when we considered the recent pausing of the dividend and is consistent with comments made at the November Strategy Day about higher leverage being anticipated for FY '25. And speaking of leverage and now building on from the cash flow, the impact of that cash flow profile for first half '25 helped increase leverage to 1.67x at senior net debt-to-EBITDA. And consistent with my comments on the previous slide, we expect the improved second half cash flow performance to see senior leverage return to more normal levels in the second half of the year. At the 31st of December, we had $360 million of corporate cash and undrawn facilities. And looking ahead at the expected timing of key cash commitments, we expect transformation and separation spend to be completed in FY '25, while approximately $50 million of cash for remediation payments will extend into FY '26, consistent with our comments that Advice remediation will be completed across FY '25 and FY '26. It's also worth at this point making a couple of comments on our subordinated loan notes, which have a face value of $200 million, with the final cost of redeeming these no later than May 2026 being linked to our share price. So going back to the balance date, the value of these was still around about $200 million, which is the face value of the instrument. But it's important to note that at today's share price of approximately $4.60, there would be an additional redemption cost of approximately $59 million for the subordinated loan notes. Now while the counterparty to these notes, which is NAB, is able to request early repayment before May 2026, we do have the option of declining to repay early, which would lock in the value of any share price uplift above the reference price and result in the coupon on the notes increasing from 1% per annum to 4% per annum. As we covered at Investor Day, we have a number of options on how we will repay the subordinated loan notes, including the use of senior debt capacity in mid-2026 or the ability to issue a replacement subordinated loan instrument. Turning now to dividends. The Board has declared no interim first half '25 dividend, consistent with the comments we made at the November Strategy Day that first half '25 dividend was likely to remain paused. The rationale for this is spelled out in the last couple of pages that I've covered when looking at the negative free cash flow in the first half of '25 and the forecast cash spend across FY '25 and the need to maintain balance sheet flexibility and not impact leverage beyond our comfort levels. Importantly, our policy remains to pay 60% to 90% of UNPAT as dividend, and we will review the capacity to resume dividend payments even if it's below the 60% to 90% range in the second half of FY '25. Moving to guidance and looking ahead to the remainder of FY '25, our expectations are consistent with the detailed guidance we gave ahead of FY '25, which was a little bit updated at the Vision 2030 Strategy Day back in November. So there are no changes to guidance that was updated in November. Probably the key element to highlight is the group net revenue margin is currently above the FY '25 guidance range, which implies we expect second half margins to be a little lower. And we expect to see this across Master Trust and Asset Management, and therefore, group net revenue margins to fall, while we expect Wrap margins and Advice revenue to remain fairly consistent. In terms of market growth, we're modeling a 5.4% annualized growth for markets in the second half. So that's annualized. So for the 6 months, 2.7%, which is about half of the growth rate seen in first half '25. Lastly, I'll just add that the guidance we provided for FY '25 was necessarily detailed given the new operating segments of the business, but we will seek to return to a more simplified guidance approach for FY '26. And with the guidance covered, that concludes the financial section. So I'll pass back to you, Scott.

Thanks, David. So last year we finalized a detailed review of our Master Trust strategy. This review considered a range of various options to simplify our multiple technology platforms and administration operating models into a single platform and operating model. Late last year, we announced we had signed an initial agreement with SS&C Technologies to simplify and transform our Master Trust business. Excitingly, we've now signed a binding MSA with SS&C for an initial 8-year term. We will partner together to help convert our size into meaningful scale benefits through lower cost to serve, competitive fees and industry-leading service outcomes for clients. As part of the agreement, we will transition about 1,400 of the administration and technology teams that support our Master Trust business to SS&C from mid-2025. Following migration to SS&C's environment, we will work closely together to transform our multiple Master Trust technology platforms and operating models to one, with SS&C's registry solution Bluedoor at its core. The simplification work is expected to occur between 2026 to 2030 -- 2028. This is a really innovative model for the industry and not one we've seen on this scale before, and will ensure a continuity of service, operations and product knowledge for our more than 1 million super fund members. One of the key differences between this and other models in the industry is what we're transitioning to SS&C and what we will keep in-house. As part of this partnership, it was really important for us to keep things like claims, complaints and remediation as well as relationship management, marketing and advice, guidance and education in-house. SS&C are a global technology and fund administration leader. So it's important that we partner with them on the areas they can deliver value for our members, including technology, operations and our secure websites and apps. Along with some of our people, we will also transition certain premises to SS&C to again ensure the seamless integration and service continuation for our members. As you can see here, this half will continue -- we will continue to focus on what we said we were going to do at our Strategy Day in November. We remain on track to achieve our strategic priorities for the second half of FY '25, including meeting our separate operating cost reduction target and preparing for the Master Trust transition to SS&C. Excitingly, after being out of market for more than 5 years, one of the key focus areas in the second half will be refreshing the MLC brand that we Australians know and love, and we aim to relaunch in market with an aim to relaunch in market in early '26. We continue to uplift our risk and governance capabilities, and we expect to be substantially complete remediation and continue to address our license conditions. By achieving our gross optimization target early, it has allowed us to accelerate our reinvestment plans for our 2030 strategy and bring forward some of this reinvestment into the second half of '25. Not only have we completed the majority of our FY '24 to '26 strategy with the 2 outstanding milestones on track, we've already started ticking off some of the key priorities in our 2030 strategy. We've presented a lot of information today, but in summary, we've hit our guidance and benefits from market growth. We've delivered on a range of key priorities that are reducing costs across our business and laying the foundations for growth. We're starting to work on our 2030 strategy earlier than we expected or planned, all within our current guidance. And we have clarity on the remainder of FY '25 and are committed to hitting our cost-out number. But if you take one thing away from today, I hope it's that we have a clear pathway to achieving the 2030 vision we presented to you late last year of being Australia's leading and most efficient wealth management company by 2030. I'll now hand back to Andrew.

Thanks, Scott, and we'll now open the line for questions.

[Operator Instructions] And is from the line of Andrei Stadnik with Morgan Stanley.

Can I ask my first question around the cost out program? It looks like it's running ahead of schedule. So what is the opportunity here to either upgrade your total cost out or perhaps give us some feel for what you could do on the cost side in FY '26?

It's David here. Look, I think, as always, with costs, you need to look at it both from the point of view of costs being spent and cost being saved. So I think for the moment, we're comfortable with guidance. I wouldn't be setting an expectation that we're going to deliver better than that. Our comments about BAU running a little ahead was really to enable us to accommodate that additional spend to accelerate Master Trust. So, as I said, we're comfortable that we will be able to deliver guidance, but I don't want to create an expectation ahead of that. Now having said that, there is certainly some of the cost out work from things that we're doing at the moment that will benefit FY '26. And so, I go back to our comments around Investor Day where we gave a bit of an overview of where we thought we could get to, that was FY '28. But we would expect to see some flow through. So there's still a lot of work to be done on the cost side, but too early to comment on the quantum of those for FY '26.

And my second question, and look, apologies if I missed it earlier, slightly busy morning. But you mentioned in one of the slides that the free cash flow should improve by $250 million in the second half versus the first half, which is a very significant improvement in the flagging. Can you explain a little bit about how that should come about? And what sort of dividend implications come around from that?

Sure. So you're right, you heard correctly, $250 million in terms of the turnaround, right? So we're not talking about positive $250 million, we're saying that we expect there to be an improvement of $250 million. So some of the key drivers for that, that I talked about were fewer transformation remediation costs. I mentioned the staff bonuses impact that occurs only in the first half of the year. There's also -- there are also some one-off payments that sit only inside the first half. So for example, settlement of some historic class actions, some movement around ORFR. Some of that is where there was a prepayment effectively made in December that will come back onto the balance sheet in January. There's a TSA penalty that sits in there, some one-off costs associated with moving into -- moving offices in Sydney. So there's a number of those things that sort of go into it. But as I said, a $250 million turnaround rather than that being the amount of positive free cash flow. And I can't really add much more on the dividend than I said earlier. I think we'll certainly be actively looking at the opportunity. We'll look at the opportunity even though 60% to 90% of UNPAT is our policy. If there's a sensible capacity to pay even less than that, we would look at that. But again, it's too early to be too predictive over what we may do with dividends.

That comes from Siddharth Parameswaran with JPMorgan.

A couple of questions, if I can. Firstly, Scott, maybe just a question on the Master Trust simplification. When you were at AMP, they actually walked away from their arrangement with SS&C. And I think a lot of it dealt with, I think, a lack of flexibility and maybe cost of bringing in changes. Could you just comment on how this arrangement that you've struck might be different? And also, any change always brings a lot of risks around costs blowing out. Could you just comment on how firm these agreements on reducing cost per member are and who bears the risk if costs of the transition actually blow out?

Okay. Thank you for the question. I am not aware that AMP walked away from any significant services with SS&C. They do provide services. So SS&C has lots of different services around asset management, technology and various other things. But there was no major Master Trust service agreement contemplated as far as I'm aware. And those -- some of those services that SS&C provide AMP, I believe, to still be on foot. So I can't really comment on that. Your second question around risk of change. Yes, there's always risk in anything, including standing still and not changing. But we have a very strong team who have assessed these risks, a very experienced team as well. And they know what they're doing, and we have a lot of confidence in our plans and a lot of risk mitigations in place. And the SS&C contract is very tight in terms of the financial projections for cost per member going forward. And so the risk to not achieving the cost reductions from that partnership really rely with them. So they carry their own risks for not making that transition happen in a timely way. There's a slight impact on us if they don't make those transitions or those migrations to the new platform in a timely way and that we won't be able to simplify some things on -- that are left on our side of the fence, but that's a minor part of the overall opportunity. So there is a lot of motivation for them to get the transitions done and to get them done well.

Okay. Yes, apologies. My comment on SS&C wasn't on Master Trust per se, but I'll move on. Just the second question was on just the takeover offers and where they stand? If you could just provide an update on -- maybe just on time lines? And also if you could just comment on how you're looking at just the nature of the bids that are provided versus some of your FY '30 plans, which seem to be much more ambitious than the levels at which the -- some of these indicative bids have come in at?

Yes. So look, there's not much to add other than what we have announced to the ASX. We have 3 bidders. We have been providing limited due diligence and more information to each of the bidders fairly and equally across those bidders. We have done 3 presentations on different topics to each, one on strategy, one on finance and one specifically on SS&C arrangements. Those are complete. We are -- we have fielded a few additional questions which we're providing answers to all bidders. And we are awaiting the reconsideration of their offers. And there's no time line on that at this stage. That's in their hands largely. So we would like the process to be expediated as much as possible. So we think we're close to done in this first phase of initial bidding. In terms of the offers where they stand today relative to 2030 -- yes, of course, 2030 is 5 years away. The offers are the offers today. The Board needs to consider that in light of a range of issues, and we'll do that in due course.

Just a final question, just on flows. Maybe if you could just provide some color around your outlook for flows in the different segments? I know you flagged that there has been some improvement in trends, perhaps in Wrap over time. But I think you're flagging some potential outflows as well in the near term. Could you just comment on the outlook for flows for the different segments, some visibility?

Sure. I'll start with Wrap. So yes, we did flag at the end of last year that we expected approximately $3 billion of one-off flows -- sorry, outlows. Yes, one-off outflows this financial year, that hasn't materialized. A little bit of it has, but not much of it. So we're still yet to see those $3 billion that we flagged at the end of the full year results in August last year. That -- we do expect those to materialize. That hasn't changed. But pleasingly, we're seeing strong underlying flows in the Wrap business, continued flows. And I think we're quite optimistic about the flow trajectory of the Expand platform. Those advisers that migrated to the Expand platform are very pleased with the migration, very pleased with the experience of Expand broadly. And we are getting good engagement with both existing and external advisers that we haven't had the time or the ability to speak to whilst we're in the middle of migrations of legacy wraps. So that's the Wrap business. I think on Master Trust, we're still seeing significant flows out. We did the repricing in October from 1 October last year. It takes time for repricing to bite, in my experience. It will bite, and we will see a reduction in net outflows. The other key thing to reducing outflows in Master Trust is building our marketing technology capability to be able to engage members far more -- in a more sophisticated and contemporary way to be able to encourage members to stay with the fund and provide them better guidance and advice. And I expect flows in Master Trust will improve from here to essentially breakeven in line with what we said at Strategy Day, which is 2028. And that's -- so I think that's tracking exactly as I'd expect. Asset Management has been really pleasing to see really strong flows, not just in the SMAs, which we've had good momentum in now for over 1 year, but also the managed funds of the past, which were somewhat out of favor in the Advice community coming back into favor and we're seeing strong flows from advisers into managed funds, particularly those that we won the awards from Money Magazine awards last year as I mentioned. So we're seeing good rebound in managed fund flows, which is pleasing.

Our next question comes from the line of Anthony Hoo with CLSA.

First question just on the Master Trust business on the margin, you've guided for a lower margin in second half. And then looking at your full year guidance, it sort of implies the second half margin has to be around 53 basis points. Firstly, is that correct? And then can you also comment on the outlook going into FY '26 for the margin?

Yes. So -- Anthony, it's David here. So yes, as per my comments, we do expect some of the margin in Master Trust to decline in the second half. Now part of the reason for that is, you might recall a little while ago, we repriced some of the alternative options in Smart Choice and introduced more alternative PE options there. So that will have a negative impact in the second half, probably of around $3 million to $5 million depending on the pace of that. There are also lots of other things that make up margin other than just pricing. So for example, one of the areas we've been able to really improve this year is in an area we call value claims, which is effectively sort of -- any sort of client detriment issues that we need to issue, refunds for, things like that. So margin movement can be the result not only of pricing changes, but some of those other ancillary items. I don't want to give a specific guidance for -- in terms of basis points for '25. The best path, and I think Scott commented on this already, the best path really is to go back to the Strategy Day in terms of what we said and where we think those margins can be for FY '28. But probably the only one that I'd call out again on Master Trust is you might recall that some of the repricing work that we did this year, and it's noted in the presentation, is being funded through member reserves. So the trustees have approved that. And that will effectively cover that price out for all of FY '25 and partially FY '26. So you should expect there to be a margin impact in FY '26 of that, and we'll quantify that when we give FY '26 guidance.

And then the second question, just around your free cash flow and your dividend outlook. Obviously, you've given us some visibility for second half FY '25. But I'm just wondering, you also said that you will undertake a review ahead of the final full year result for the dividend. But given you already have good visibility around the key drivers, the large chunks of outflows in terms of remediation and transformation costs, what remains uncertain for you? Why wouldn't you be able to give a more definitive outlook today?

Well, I think as you'd appreciate, there are a number of factors that go into what the Board elects to do on dividends. Some of that relates to final performance of FY '25. So yes, there's only a few months to go. But nevertheless, a few things we need to nail down. Some of it would relate to -- we would need to think about the cost of the subordinated loan notes. And as I noted earlier, the repayment of those is in May '26. The price on those at the moment would be based on $4.60, would be around about $259 million. So there could be some movement in terms of that. So I don't think it's unusual. We don't normally give guidance on dividends for a period coming up. The best I can say is that it's an active consideration. We understand the importance of dividends to many of our shareholders. So we will certainly look at that opportunity. I've already flagged that if there's an opportunity there, we won't wait until necessarily it has to be in the 60% to 90% payout area. If we think we can do less, that may form part of the considerations. So I think all options are on the table, but we'll keep our powder dry on that until August.

And it's from the line of Lafitani Sotiriou with MST Financial.

Three questions, if I may. The first is, I think there were some comments you made about there being a binding SSA in place with SS&C. Could you just talk to what that may mean for the potential bidders? Are all the bidders on board with SS&C? Or what's -- is there -- if one of them wanted to use a different outsourced provider, is it possible? Or is it too -- are you too far into the process? Could you just provide a little bit more color around what you mean by that binding SS&A?

Sure. It's a binding material services agreement, or master services agreement, I should say, that's been signed. It does -- importantly, it does bind ourselves and SS&C to this contract. It's a contractual document. It is a significant costs to either of us in exiting that contract. This was obviously something that the PE bidders were very interested in. I wouldn't say concerned about, but very interested in. We gave them a separate session -- presentation on it. And there was no indications from any bidders that they had an alternative plan or any alternative pathway for the Master Trust certification that they were keen to understand the detail of it, and that has been provided.

And just to clarify, the binding nature includes all pricing split costs. There's no -- there's not much variability left.

I was saying it's a very tight contract in terms of forward pricing, as I said before. And it's a very binding contract and a very tight contract in terms of -- there's very little variability in that contract.

Got it. Can I just understand earlier on, I think it was a follow-on to the question around the transaction and the process. You alluded to us being towards the end of the first phase is nearly done. What do you envisage as being the next phase that we're moving into from the bids? Does one party get exclusivity or to do more deep DD? Or how do we -- how should we think about it? And also, is there a line in the sand for you guys to continue managing the business to remove the distraction that you'll draw on the sand to say, look, if we don't have a bid by this point then we're just going to move on from the process?

Okay. So I'll start with your second part of that question first. We do not have a line in the sand at this point, and the Board is working through the process. In terms of the first point, what we have provided is limited information, so management information presentations to help the bidders improve their offer. We -- so what I call the first phase of the process, if the Board receives improved offers, they will consider whether or not we move into a second phase in the process, which would be detailed/confirmatory DD, and that has not been decided on at this point.

Just to clarify, would that be exclusive or would multiple parties be able to get to that stage?

Potentially, it depends on who turns up with what.

And just my final question just to -- just a couple on the financials. So on Slide 11, there was $4.3 million negative for Rhombus. Is that stranded group cost? Or how should we think about that? And also, I think, David, you mentioned there was $14.4 million other costs during your presentation that you would come back to, but I don't think you kind of got back to it. So could you just kind of call out what that $14.4 million one-off cost was in the period?

So the $4.3 million relates to the loss on deconsolidation of Rhombus. So that's what that relates to. The $14.3 million -- which page are you looking at there, Laf?

$14.4 million. I think it's -- so you've got in terms of -- in your reconciliation between your statutory and your underlying figures. So let me just get you.

The $9.4 million? There's a $9.4 million. Is that the one there, on Slide 12?

$14.4 million. So it's on Slide 27 of your investor and analyst pack. There's remediation costs of 3 odd, and then there's other at $14.4 million, on 25. The investor and analyst book pack. So there's transformation and separation costs of $100.3 million, and then there's other of $14.4 million. That's just isolated with no explanation.

Yes. Okay. So the amounts in there relate to -- I think there's a footnote there, which as I said -- I'm sorry, I'm looking at a very small screen. So some of the other losses there in the NPAT reconciliation, I just can't quite read that. Let me come back to on that, apologies. I'll come back to you on that.

Yes. It says that the half year reporting combines transformation and separation with other. So you're consolidated, you put it somewhere together, but it's split out there, and it's different to what you discussed in the presentation. So I'm just trying to work out what it is? Anyway, back to [indiscernible]...

Come back to you on that. Yes.

And it's from the line of Kieren Chidgey with UBS.

Most of my questions have been asked, but I just wanted to come back on 2 things. Firstly, on Rhombus. Can you just provide us an update for how that is tracking post the separation 1 July, how much AUM is on platforms from the Advice group and what you've been seeing from a flow point of view, and how stable that has been over the last 6 months?

Sure. Happy to answer that, Kieren. Look, Rhombus is tracking really well. The separation was very good. The business is traveling well. We retain a 37% share in that business. Advisers seem very satisfied with the model. And our relationship with those advisers, if anything, has been strengthened as a result of the separation. We -- I'm just trying to pull some numbers up here, but we have seen a 75% improvement in net flow from Rhombus year-on-year. On the Wrap platform, it's about $14 billion, a bit over $14 billion that sits on Wrap platform with Rhombus. It is -- there would be other monies in the Master Trust, particularly the MLC Master Trust side of the business, but also a Master Trust product called Frontier, which is a legacy Advice product. And so we're very happy with how that relationship is going. We continue to invest in that in terms of time and effort and relationships, and we're progressing well from a Rhombus perspective.

Second question. I know sort of there was a discussion earlier on the Master Trust margin outlook. But just sort of at a more holistic group level, we're 7 months through the year, started quite well, obviously, in terms of the first half, I think 43.8%, which is above the full year range of 42.5% to 43.3%. So it does imply quite a wide range of potential outcomes for the group revenue margin in the second half, anywhere between 41 and 43 basis points. What are some of the key swing factors that are still sort of providing uncertainty from your point of view? Or just interested if you do have more confidence where you might land within that revenue margin range?

Yes. So first of all I'd say recall that the margin is obviously a relation to both net revenue, but also of average FUMA. And not all of our fees correlates directly with FUMA. So we have things like caps, we have fee tiering. So what it means is that sometimes you can get a movement in FUMA either up or down that will not result in a change in net revenue. So part of the variance is actually what happens to markets as against what happens to revenue. The 2 things I'd call out, I mentioned that there was a range of $3 million to $5 million approximately on the Smart Choice reprice. So again, we'll have to work our way through that. And I also talked about asset management. Now one of the pleasing parts in asset management is we've talked before about some of the performance fees we get from private equity and alternatives, that was around about $3 million or $4 million higher in the first half of '25 relative to first half of '24. Now, we don't expect that to be as high in the second half. But the PE fees, as you recall, come back to the underlying investments that, that team has and in particular to what happens with exits and IPOs for some of the underlying investments. So there is a little bit of variability around those performance fees and the timing of those. Just to go back, Laf, to your question around the $14 million. So the majority of that relates to TSA penalty fees. So the majority of the TSA costs are allocated to each of the segments. But the penalty fees that were put in place when we renewed the TSA for an additional year, those are UNPAT adjusted. So that's $12.5 million, $13 million of the $14 million.

And it comes from the line of Nigel Pittaway with Citi. Please proceed.

I just wondered whether we could get a bit of a flavor for where these cost saves are going to appear on a divisional basis? Are they going to be mainly targeted at the group division or is the split a bit different? Can you just give us a flavor for where they might appear on that sort of level?

So Nigel, Scott here. Are you talking about through FY '30?

More in the immediate term, but yes, so more sort of second half and potentially beyond, but yes, where that sort of cost reduction in second half is going to come through?

So in -- within the current year, the cost reductions are broad-based across the company with a particular bias probably towards our Wrap platform business where post migration we've been able to save significant costs, which are still being worked through. That would be my particular sort of spin on it. In terms of out to FY '30, the cost saves are broadly 50% broad-based across the business and 50% Master Trust related, is the way you should think about it. And so, yes, that's probably my answer to that question. Do you want to add anything to that, David?

Yes. Look, I certainly agree with that. You probably will see a larger allocation than usual to corporate. So some of the potentially stranded costs or some of the costs associated with Rhombus and the restructuring of that business have been -- that business and the broader Advice business have been brought into the corporate OpEx base. So we'll certainly be looking to rationalize those in the second half. So yes, probably a healthy weighting towards corporate as well.

Yes. Okay. That was more the direction of question. There's obviously quite a lot of costs come into that corporate area. So I just don't know how long they stick there. And then maybe a related question is just, with your sort of obviously flagging some pressure on the Master Trust revenue margins going forward, I mean, previously, I think you've said that despite the revenue margin pressure, you think you can keep EBITDA margin at least flat. I mean I presume that still stands even though you're expecting a squeeze in the second half. Is that correct?

That's correct. I mean, will it be positive jaws half-on-half? I'm not sure. But certainly, through the next 5-year period, very strong positive jaws on Master Trust.

And as I see no further questions in queue, I will turn the call back to Andrew Ehlich.

Thank you, and thank you for attending. That concludes today's presentation. We'd like to thank you for your time this morning and your ongoing interest and support. Please reach out if you have any further questions.

And thank you all for participating, and you may now disconnect.