IntegraFin Holdings plc (IHP) Earnings Call Transcript & Summary

Good morning, and welcome to IntegraFin Holdings' annual results presentation for the financial year ended 30th of September 2022. I'm Alex Scott, Chief Executive, and I'll kick off proceedings with a quick overview of our year. I'll then hand over to Jonathan Gunby, Chief Executive of our Investment Platform, Transact, to provide you with a platform update and advise market outlook. I'll then cover off the financial update and guidance before we open the floor to Q&A. Performance over the year has been resilient in the context of difficult market and economic conditions. Our group underlying earnings per share has increased by 2% over the period. Our market opportunities remain strong. We continue to invest, as previously announced in our employees and our technology to ensure that we're best positioned to take advantage of those opportunities. And on outlook, I confirm that our cost guidance for future years remains unchanged. Our strategy also remains clear and unchanged. Our focus is to enable the delivery of financial plans to clients by financial advisers. This is what drives advisers to use us, increasing adviser numbers, increasing our client base and supporting our inflows. We continue to believe that this is best achieved through the delivery of the highest quality customer service delivered by highly skilled staff, all underpinned by high-quality technology. And the best way to achieve that and to maintain our position is through targeted investment in people and technology. By maintaining our proprietary systems, we can control investment, setting the direction of development, helping to control the volume of highly skilled employees we require to deliver the quality of support advisers and clients seek. This delivers business growth. And then with our focus on efficiency and quality, we'll continue to deliver on profit and dividend. The result of our model has continued to deliver steady growth over the financial year. The number of advisers registered on Transact has increased by 5%, helping to grow client numbers by 8% and drive net revenues of GBP 4.4 billion over the year. At the same time, the number of CURO [ 3 ] license users at Time4Advice has also increased, up 46% over the year. This growth has been achieved even before the launch of the new generation product. Total combined, this has resulted in growth of 8% in group revenue, allowing for exceptional items, which I'll cover later, underlying profit before tax after additional investment in people and technology is up 1%. Cash generation continues to be robust and even after exceptional payments, the balance sheet remains strong. This has allowed us to declare a dividend broadly in line with the growth in underlying earnings per share. The quality of our service and technology has been recognized through several awards over the year. Transact has regularly achieved these successes year after year, so it's especially pleasing for me this year to be able to see that Time4Advice has also been beginning to be recognized for the quality of its technology offering, CURO. In a year that has seen significant volatility in asset values, our daily average funds under direction held up well, leading to increased revenues. Reductions in our ad valorem fees and buy commission fees, together with the increased investment, has resulted in a slight reduction in the platform underlying profit before tax margin in FY '22, following strong growth over the previous 3 financial years. The investment is being made to support future growth, predominantly through additional IT employees whose focus will be on delivering a mix of new and enhanced functionality and service efficiencies. The level of the group underlying profit before tax margin of 49.7% is due to this increased investment and due to the inclusion of a full year of Time4Advice losses. A higher cost base of Time4Advice rising as we have added service staff to maintain and improve adviser experience ahead of the full launch of the next-generation product. This is all in line with expectation. Additional employees have contributed to an annual group increase in staff costs of 13%. The main driver of total cost increases over the year. These additional staff costs arise from the recruitment of IT developers, the effect of the first full year of Time4Advice staff costs and general inflationary pressures with group salary increases averaging 7.5% over the year. The increase in regulatory and professional fees reflects the cost of business volumes and the ever increasing array of new regulation. Whilst the increase in occupancy costs generally reflects the return to the office and the significant rises that we've seen in energy and utility costs. I've referred already to our previously announced investment in technology and technology employees. So how are we progressing? We've already recruited 15 IT employees, mainly in the U.K., and they had all commenced work for us by the end of the financial year. The increase in costs from these additions was marginally lower than guided pro rata as several of these were at lower levels of seniority. We've also successfully recruited the London-based Chief Technology Officer, who will join us late in January, and the recruitment of more senior roles is expected to follow and that results in our guidance for the financial years '23 and '24 remaining unchanged. Whilst we intend to continue to recruit as previously guided, we will manage our recruitment in light of ongoing VAT discussions that are taking place. And this may affect the timing of some of those future recruits as well the quality of the individuals that we are able to recruit. And that quality may depend on the markets in which those individuals are available. We're investing to deliver operational enhancements to ensure that we can continue to deliver a premium service focused on added value activities with strong cost control, to grow our FUD with resilient net inflows, to deliver enhanced platform scalability to operate at a high and resilient group profit margin and to grow Time4Advice revenue to deliver a stand-alone profit before tax from T4A from financial year '24 onwards. On Time4Advice, I'm pleased to announce that the beta version of the next generation of CURO system was rolled out to a large live client on the 5th of December. So far, all is going well. Beta testing is scheduled to run through to late April, after which the rollout of the live product is planned for May 23. Implementation planning work with the first of those clients has already commenced. License fee revenue has continued to grow through sales of the existing CURO [ 3 ] system. Time4Advice has been able to increase ongoing users by 46% over the year from just over 1,500 in September '21 to over 2,500 in September '22. Costs have increased as expected and are being closely managed and all current CURO license fees have been increased in response to cost inflation. Time4Advice reported a profit before tax loss of GBP 1.9 million for financial year '22. We expect this to reduce in '23 and moving to delivering profits from '24 onwards. Before I hand over to Jonathan, I'd like to give you an update on some of the other developments that we've been undertaking over the last 12 months. We've made good progress on recruitment of 3 important roles in the group. In January, we will be joined by 2 of these. A London-based platform Chief Technology Officer will be joining us to help drive the IT and software enhancement plan. And we'll also be joined by a new Group Chief Risk Officer, who will lead and enhance the strength of our risk management team. Additional to that, we are also actively recruiting for a Group Chief Financial Officer, having appointed Odgers Berndtson for this recruitment process. On environmental matters, with design assistance from our external consultants, we have commenced implementation of a structured environmental plan to achieve carbon net zero by 2050, having set a baseline year of 2019. Our plans will continue to evolve as new regulations continue to emerge and change. We're extending the lease on our London office by 2 years to allow time post the pandemic to plan our future space requirements, ensuring we incorporate both our environmental and social goals. We have acted over the year to help employees meet the significant impacts of inflation and costs of living. From the 1st of October '22, we moderately increased monthly take-home pay for all employees below senior management. In conjunction, we introduced a revised and lower bonus scheme. This now gives staff more certainty of income but with limited additional overall cost to the group. This has been well received by all staff. And on governance, we've completed the transfer of ownership of the insurance companies directly to IHP, flattening the group structure and improving fungibility within the group. I'll now hand over to Jonathan for a platform update.

Good morning, everybody. So what I want to do is refresh you on the size of the platform market and the opportunity for growth and then also look at the -- our place within it and the adviser market. So the assets that are contestable for the platform space are very, very significant, at least GBP 2,500 billion could still find its way to platforms. And there's various sources of these flows, could be cash ISAs, stocks and shares ISAs, DC pension schemes, workplace schemes, et cetera. Some of them have a higher propensity than others to move to platforms. So the opportunity is very significant. And there's other sources too, for example, things like people selling businesses or people selling shareholdings in companies where they work. Coupled with this, the U.K. taxation system is very complicated, particularly for individual clients. And therefore, this is really good for advisers within the U.K. So we have a large market and it grows all the time, by the way. All of these blocks that you see on this chart tend to get bigger rather than smaller, and I'm not now sure that they'll ever be depleted and all moved over to platforms. There's also a lot of investment choice. And once again, this is where individual clients need the advice from financial advisers to help them organize their financial plans. To put a bit more color on this. This is the sort of volumes, [ monetary ] actual people volumes that are holding these products. So personal pensions, there's now GBP 30 million in the U.K. These are very portable private pension schemes. Workplace pension scheme since auto enrollment, it's obviously ballooned in terms of the number of people with workplace pensions. ISAs, GBP 7.9 million in stocks and shares ISAs. JISAs already 1 million in those. Lifetime ISAs, which haven't been around for that long, are already at GBP 0.7 million. Now we offer wrappers on the Transact platform for all of these type of products that can therefore move over seamlessly to be managed on Transact. Also, it's worth mentioning that all of this ignores the substantial contributions we get from our customers, from their own earnings from their occupations and that results in lots and lots of regular contributions every month onto the Transact platform. So all of this leads to a very positive outlook for the adviser platform sector. For the period '18 to '22, you can see the compound growth was 8%. And this particular chart is from Fundscape, and as they're projecting forward for the next 5 years, you'll see we've got a pessimistic growth of 8%, realistic of 11% and optimistic of 16%. So that shows the outlook looks to be for quicker growth for the platform space than the prior 5 years. Transact is the leading player in the adviser space, and therefore, we're very well placed to take advantage of this growth. And why are we so well placed? Well, what this chart shows on the left-hand side, first of all, this is what an independent survey advisers tell us that they value. So the factors they're considering are charges, functionality, customer service, functionality and financial stability and alongside that corporate stability generally. So then on the right-hand side, we can see how Transact performs in each of these areas. So in terms of customer service levels, we were consistently ranked in the top 3 right across 19 service categories that is captured in the Investment Trends report, a big quantitative study that's run annually. In terms of functionality, another quant study, CoreData, we were ranked first for functionality. Usability. We were ranked second for usability. And financial stability, well, as you know, as part of the IHP Group, we've got strong regulatory capital, no debt on the balance sheet. So we're in a strong position. And coupled with that is the corporate stability. What clients and advisers don't like is lots of change in ownership. And as we've seen change over recent years, this can be disconcerting for both clients and advisers. So our stability is valued. And then in terms of charges, whilst we never aim to be the cheapest, we continue to share economies of scale with clients and we've managed to reduce charges in a responsible way every year, actually, for the last 10 years, including 2022. So as Alex mentioned, our investment in the platform helps us to sustain this leading position. And that really boils down to people and systems. Every single month, we -- well, every 4 weeks, we relaunch a version of the platform software. So that means the system we use at the head office and the Transact Online system that advisers use is constantly refreshed. We get hundreds of suggested improvements to our website from advisers, and we've got a wonderful feedback loop that we've been doing for 20 years. We keep a register of every single request from an adviser. And clearly, when it's a popular request, these are the candidates for our software development process. What we find though is you can introduce new functionality, but then you have to train people to use it properly. And for many years, we've used live chat and co-browse. Co-browse is a bit like screen share, but a slightly more secure -- one of more secure version of it. We can't actually click buttons to process instructions, to submit instructions. So what we have is a team at the head office, which we've doubled in size of platform Transact Online users and they are constantly using live chat and co-browse on working with advisers and their staff to teach them how to get the most out of Transact Online, which is a very rich -- is very rich with functionality. And you can see on the right, the big usage increase for both live chat and co-browse. So now with our Self-Serve drive, the functionality that we've built means that, for example, an adviser can open a portfolio, open a pension, open an ISA, submit dealing instructions, have everything signed by DocuSign or any one of the other recognized electronic signatures and do all of that online. So you can see on the right-hand side, just how much usage is via Transact Online these days. It's very, very high. So this creates lots of efficiencies for the adviser and for us. So it's quicker, more secure, more accurate than relying upon postal instructions or even e-mail instructions. So it works very well. It also means that our service staff can help advisers with more complicated things and of which they're, in our space, there are complications when people are transferring, for example, several pensions with lots of assets, can be quite complicated. So our teams help advisers with this. We also have a large and respected technical support team. So if things get really technical, then we can refer the advisers to that technical support team. All of this investment in this functionality and this drive to digitalization means that we've been recognized by NextWealth and they award us the status of Digital Process Champion, which is pleasing. So looking at the flows into the adviser platform space and also the funds under Direction [ League ] table, this is where we sit. So on the left-hand side, that was flows for our financial year '22. And you can see that we're at a solid third there at GBP 4.4 billion. True Potential and Aviva, who sit slightly above us have slightly different models to us, as you may be aware. On the right-hand side, that shows funds under direction. And there, we sit at GBP 50 billion that gives us a share of funds under direction of around 10%. And what's interesting to note there is the 2 players above Transact, Abrdn and Quilter, you'll see that we're outperforming those in terms of net flows. And it's those net flows and market movements, of course, which drive funds under direction. So you can see here over time, this goes back to 2012, you can see, well, it's not perfectly correlated, very close correlation between the net flow -- net inflows that we deliver on Transact and the increase in group revenue over period. Those net inflows drives the growth in FUD, and it's the FUD that drives the growth in group revenues. So we have a strong market share that you can see here. And you can see that, that's been growing over the last 5 years. And whilst these small percentage movements don't sound a lot, that means quite a lot in terms of inflows. We've been able to achieve this through the various enhancements, whether that's to systems functionality processes or the service that we deliver via our client service managers, of which there's almost 200. It's also helped by the fact that we have the financial and corporate stability that some of the platforms don't have, and that's a great attraction to advisers. So we've had very resilient flows over the last 5 years. This can be seen on the left-hand side. And what was particularly pleasing in financial year '22 is despite all of the volatility caused by the macroeconomic climate and the geopolitical challenges around the world, it was still our second highest every year for net inflows, as you can see there. I think it's also important to consider the sources of these inflows. So I'll work around the pie chart there. The 35% is what comes from our existing clients who are happy with the platform, awarding us -- bringing more money to the platform by topping up their portfolios. So we have over 220,000 clients and they're bringing money to us. And therefore, it's very significant. So it's now 35% of gross inflows. The 61% is existing advisers that are happy with our service and bring more clients to us. And this is, by far, the biggest source of new inflows, as you can see. So we're constantly increasing our share of wallet of the over 7,000 advisers that use the platform. The 4%, that's coming from new advisers to the platform who are bringing new clients to the platform. Just by this pure mathematics, that's going to be a lower percentage, and therefore, that sits at 4%. But it's important, though, because these are the advisers that bring their clients to us very slowly. They will bring 1 or 2 test drive Transact, they're happy with Transact, then they'll bring some more and some more. So it's a slow process for adviser to migrate clients to the Transact platform. So whilst our closing FUD was GBP 50 billion, you'll see that the average daily FUD for the year was GBP 52.5 billion. And that compares to the prior year average of GBP 47 billion, so we're very pleased with that. We also, in the year, launched a new service, which is the service we've launched with BlackRock and the Transact-BlackRock Model Portfolio Service. And that's where we provide a range of model portfolios, it's about 7, and it's very attractively priced. The DIM fee is 6 basis points and then the OCF on the underlying building blocks within the portfolio is 20 basis points. That's a very low-priced but quality proposition using BlackRock's expertise and their Aladdin investment methodology. So we're excited about the launch of this new MPS. It's literally just a few weeks now, but we've already got lots of wrappers that are linked to this model portfolio service. The other thing that we launched over recent weeks was something called the inheritance tax Index. So that's helping our advisers highlight the growing incidence of inheritance tax and how important it is for clients to take advice and put in place the appropriate plans to mitigate their own inheritance tax liability. Looking at those adviser and client numbers then, so you'll see we now have 7,500 advisers using the Transact platform. That's up 5%. We're happy with that. It takes time to bring on new advisers. We not only have to train the advisers, we need to train the administration staff, train the power planners, that's very nice. And also, with such a large supporter base, we don't have any adviser concentration. And you can see that below there. On the client side, up 8% tends to grow a little bit faster than the adviser growth, and that now stands at 224,000 clients. The important thing to note is here, is that we are working in the mass affluent market. So you can see the average single portfolio is GBP 223,000. Probably more important is the value of the family portfolio. So this is where typically there will be husband and wife and children. Obviously, the children portfolios tend to be a lower value, so that brings down the individual average. So if we look at the family level, that's GBP 351,000. So that's a good amount of portfolio value. Now these type of customers, of course, they're not immune to the cost of living crisis that we're seeing at the moment, but they're not amongst the most vulnerable either. So what we're seeing is high retention rates. So you can see we have a 97% client retention rate on Transact. So we're very pleased with that. In terms of the sources of new advisers and new flows. So our calculations are that there's 35,000 advisers in the U.K. but this does include those that are tied to a single provider like SJP or they work for a bank, and therefore, are restricted again. So what we're really working with is the 7,500 existing advisers and another 5,500 that we would like to sign up to Transact. What I should emphasize here is that most of the growth is the 7,500 where we continue to increase our share of wallet amongst that 7,500. And some of those have been with us for many years, where we have a high percentage of their wallet. Others have only joined us in recent years, and therefore, there's lots, lots more for us to bring across. The 5,500 that aren't Transact registered are those that we continue to promote our services to and successfully sign up more advisers every single month. The firms that we focus on are the high-quality independents, small to medium-sized firms. We do have some large ones, too. But in that 5,500, it tends to be the small, medium regional players. So there's lots for us to go up both amongst the 7,500 and the 5,500. So with that, I'll hand back to Alex to provide the financial update.

Thank you, Jonathan. Yes, as Jonathan says, as we continue with our recruitment for a group CFO. For now, I'll cover off the financials. Group revenue has increased 8% due to growth in average daily FUD. Growth in the platform client base, increasing wrapper fees and the growth in CURO license numbers and revenue. This has in part been offset by platform fee reductions. And additionally, particularly in the last quarter of the year by lower average daily FUD than we'd originally expected due to the reduction in market values that happened predominantly across August and September. As I mentioned earlier, there are exceptional items that have affected the underlying profit before tax for both financial year '22 and the prior year '21. The 2 major items are VAT and Time4Advice post combination remuneration. In particular, the payment to HMRC in 2022 of prior year, VAT and interest on software services of GBP 8.8 million. For clarity, this is all set out in the appendix. After adjusting for the positive and negative exceptional items, underlying group profit before tax is GBP 65.8 million, up 1%. Whilst at the post-tax level, underlying earnings per share has increased by 2%. As expected, we continue to see a gradual decrease in platform revenue yields as the effect of price reductions offset increased revenue from higher FUD. As the full year effects of the price changes from March and July 2022 flow through, this reduction is expected to continue in financial year '23. These price reductions help to embed Transact in our clients' business and position us better for the requirements of value for money under the new consumer duty regulations. Group and platform revenue has been steady over the year with the majority of group revenue being recurring. Total investment platform revenue increased 7% with the recurring element increasing 8%. Growth in fixed [ sterling ] charge wrapper fees, which give a good guide to the underlying growth of the platform increased by just over 9%. We also passed all interest earned on client cash back to our clients as we believe this is fundamentally the right thing to do. Nonrecurring buy commission is gradually being removed. We'll keep chipping away at the buy commission to improve the value for money of the platform offering to our clients. Time4Advice revenue increased by 63% over the year. And of this, 82% is generated from recurring license fees, which themselves increased 52% over the year. I've talked a little about our increase in IT staff already and the reasons for these increases. You can see here that the majority 13 are in the investment platform business, whilst 2 are actually caught in the Time4Advice number. Platform operational and support staff are marginally down at the year-end, but most of this is actually vacancies in the process of recruitment. We've found recruitment easing over the last few months and the rate of turnover falling as employment markets ease. Time4Advice staff numbers have increased as we grow the business and with the advanced development of the next generation of CURO. The group continues to have a healthy liquidity position after payment of historical disputed VAT and allowance for the dividend payment. Risk appetite requirements are unsurprisingly increased in the current economic and regulatory environment. On one specific area, the latest pronouncements on Solvency II from the Treasury and Bank of England continue to indicate a good outcome for all life insurance companies. The majority of the positive elements, though, do not affect our insurance company as we did not need to use transitional arrangements when Solvency II was introduced. Matched adjustments do not apply. And the risk margin release that's expected to apply across the industry is focused significantly on longevity risk life insurers rather than investment-based life insurers. All of that said, though, we are still expecting a small positive outcome from the changes. On dividends, just to remind you, our dividend policy is based on paying out 60% to 65% of profits after tax. This year, we have done this, making allowance for the one-off VAT payment giving a level of dividend growth that corresponds broadly to that of our underlying earnings. Slide 29 sets out our capital and cash priorities. These have not changed, so I won't dwell on them today. Safe to emphasize our strong balance sheet and the organic investment opportunities. Moving on to guidance for financial years '23 and '24. During '22, we've provided greater insight into our cost guidance for the full year and we set out again here for brevity and benefit of clarity, our guidance for '23 and '24. There are no major changes from the shape of costs previously announced. And so to recap, performance over the year has been resilient in the context of difficult market and economic conditions. Our group underlying earnings per share has increased by 2%, with platform net inflows for the year at GBP 4.4 billion. Our market opportunities remain strong and we will continue to invest as previously announced in our employees and our technology to ensure that we're best positioned to take advantage of those opportunities. The market opportunities remain compelling and we are well positioned to take advantage of those opportunities in 2023 and beyond. I'll now open up to questions and answers.

[Operator Instructions] The first question comes from the line of Alex Medhurst from Barclays.

Just -- well, 3 from me, if that's all right. Firstly, I noticed the comment on not pushing through any ad valorem pricing reductions next year, which is obviously positive for the revenue margin. And can you flesh out a little bit the thinking here and what that means for how you're sort of thinking around the sort of responsible pricing strategy going forward beyond what's obviously pretty exceptional market conditions at the moment? Secondly, a question on Time4Advice. You've had the business for 1.5 years now or so, maybe even slightly longer, so presumably having conversations with your existing adviser base. Can you give any color on sort of what the potential demand is from the existing customer base? And what the reception is to that transaction ahead of the launch next year? And then thirdly, just a quick question on competition. We've obviously seen some of the big players refocusing a bit on the market. Can you just give an update on how the competitive landscape is developing?

Okay. Thanks, Alex. I'll pick up on the first 2 of those, and then I suspect Jonathan will have a little bit to say on the first and I'll leave the third one of those to Jonathan. So the -- you raised the fact that we haven't made any changes to the ad valorem fees. I mean, there are several reasons for that, not least of which is the current outlook for economic conditions, which still remains somewhat unstable. So we always have this in mind. We've talked regularly about being responsible with our price reductions. That needs to take into account competition in the market and our own position as well, and I'll leave that piece for Jonathan. But in terms of our own position of revenues and in terms of the market condition, we decided that this year was not the year to be making those reductions. You're well aware they have more cost to us than say tech in the buy commission reduction that we have done. In terms of outlook, our outlook hasn't changed. We've been very clear as to what we think the path is over a period of time, but we've also been very clear that, that path of time isn't fixed. So in terms of our sort of long-term expectations, they haven't changed. It's just the path there will take the time, it needs to take to get us there. On the Time4Advice piece, the Time4Advice is going to be effective with Transact user -- adviser users. And we are building an integration piece of software between the Transact Online adviser system and the Time4Advice CURO system. But I think it's not right to focus just on that cross sale. Time4Advice has access to the whole of the U.K. adviser market as an addressable market and actually, a lot of the focus of the Time4Advice sales team is actually on adviser groups that are themselves consolidating as that will help grow their business faster. So we have all of that in mind when we're considering the growth of Time4Advice and where the focus of their efforts should be. Jonathan?

Alex, yes, just a couple of things to add on the fee reduction, first of all. So we decided to reduce the threshold for buy commission to 100,000. And a lot of this was based on feedback from advisers. Most advisers have a minimum size for their customers of 100,000, and therefore, we wanted to align ourselves with that. And that -- so this will mean that in practice, very, very few clients will be paying any buy commission at all. There's a little residual. And as Alex said, we'll reduce that. We'll eliminate the buy commission over time. What's also important when thinking about fees is the fact that we pay all interest that we earn to clients and advisers take this into account. So they're not just looking at the prices, they're also looking at what's happening with cash interest. So across the platform, it's probably something like 8% that's sitting on cash, and that can earn interest in 1 of 2 ways. If it's instant access, what we call pulled cash, then that is earning over 1.5% at the moment and that's increasing. And that all goes through to the customer, no skimming whatsoever. If they hold money on term deposits, which is anything from 6 months to 3 years on our platform, then that compares as much as 4.5% per annum. So as you can see, that has quite an impact on the overall charge if you're giving all of this interest to our customers. So I said it was a judgment call, and we decided that was the most appropriate reduction for this year. In terms of the competitor landscape, then yes, it's always competitive. It keeps it very healthy. And we're really competing on 3 areas: the overall proposition, the service we provide and the charges. And in all of those areas, I think we're performing strong. On the proposition side, we're one of the very few platforms that own not only the technology but also 2 life insurance companies. So the wrappers that are provided for the offshore bond, onshore bond, insured pension, are all controlled by the companies we own. And that means that our service is much more joined up than many others who are outsourcing those particular type of providers. Now what that means in practice, is if you're dealing with an ISA on the platform or one of the insured wrappers, the processes and the forms and everything, the online [indiscernible] is the same. So it's very, very consistent service. You'll also have noticed over recent years that some of the players that were our competitors 5 years ago, companies like Ascentric, Nucleus, Novia have all been bought and they're now part of other groups. And we know that some of our competitors are either replatforming or working on those integrations of companies that they have bought. We're very focused on what we're doing. We're not distracted by any of that.

The next question comes from the line of Greg Simpson from BNP Paribas.

A few on my side. I think I missed a bit of your commentary earlier, but on the staff breakdown on Slide 27, the 389 of operational and support staff, I think it was 419 at the half year stage. So it's a 7% decline in 6 months, which is quite sharp. So can you just talk to why the decline there? And if that's a concern in terms of the business being able to handle more scale, more advisers going forward. The second one would be on the BlackRock model portfolio service. Does that have any revenue potential for Transact in terms of fee margins? Is it just about enhancing the service? And then thirdly, the gross outflow rate did step up in the fourth quarter to about 6% of opening funds under direction, it was about 5 percentage points [indiscernible]. So just wondering if that's kind of a sustainable level you think going forward in terms of the visibility you have on client drawdown requests and so on.

Okay. I'll just pick up on the staff point there, Greg. Yes, I mean, the number of operational staff has eased, and that's because we're already starting to see the effect of some efficiencies that we've bought in. Some of those have been systems developments that are starting to take effect. And Jonathan talked about some of the guided application work that is still being finalized, but the effects of what we've done so far is also already having helpful effects. We've also done a bit of a reorganization and restructure following the return to office. I think I've mentioned before some of the issues that we were having with efficiencies, first from moving out of the office and then moving back into a more hybrid environment. And we've just taken a little bit of time to sort those out and actually get ourselves into a better position. So no, I'm not concerned. And as I said in one of my slides, actually, we're finding the recruitment market easier. We're actually finding less pressure and there's less poaching of our well-trained staff, which we're always unfortunately open to because they do tend to be prized by other of our competitors as well. And then you can pick up MPS, Jonathan, yes?

Yes. Yes. So our primary motivation for launching with the BlackRock MPS was to extend the choice that we provide to advisers. We already have about 100 DIMs on the platform. But as I say, we've got a very good feedback loop with advisers. And what they were telling us is that they saw the need for something that was -- had a robust process and was also very well prized. There's some particular facets of the BlackRock approach, whereby they stick to tight volatility bands whereas which fits much better with the financial planning process, the advice process, whereas some MPSs, actually, the volatility of portfolios can fluctuate quite a lot. And they've been feeling increasingly uncomfortable with some of those. So we saw a gap in the market to launch something that was very cost effective and actually stuck to tight volatility bands. Now our primary motivation is to provide that choice in this extra option. And particularly for those advisers that want to use a DIM for the first time, and we're concerned about cost, all those that were concerned about an existing proposition. We are not looking to make money from the MPS per se. We do receive a small amount of the 6 bps. We received 1.5 basis points. So not a lot. And really, that's to cover costs, our marketing costs, our training costs, et cetera. However, because it's exclusive to us for quite a few years, then we hope that it will bring more advisers and more flows to the platform. So that's our motivation.

And then picking up on the outflow piece, Greg. Actually, the uplift in outflows in the last quarter is, A, not unsurprising given the -- sort of the state of the market and what's been going on recently. But actually, it's not even, in some ways, back to historical levels pre the pandemic. So we've seen a very, very gradual return to what we might call normality over quite a period of time post the pandemic. So the numbers that you quote, the 6% there, are well within our expectations year-on-year and don't cause me any concerns at all.

Next question comes from the line of James Allen from Liberum.

Two questions, if I can. First one, are there any updates on the VAT disputes? From memory, there were ongoing cases with both HSBC and Barclays, which you were waiting to hear about how those concluded before launching an appeal, if that's right? And then second question, I think consensus has got a reduction in EPS next year due to the additional investment going into the business. In terms of how you think about the payout ratio on the dividend in FY '23 and FY '24, are you planning on keeping a progressive dividend if EPS falls next year? And how should we think about that, say, 3% dividend growth year-on-year? Would that be a reasonable assumption?

Okay. Picking up on the VAT point. As I mentioned, we're having many and several discussions. In fact, I was in one earlier this week with King's Council, discussing some of the points that have so far been raised in the preliminaries of the HSBC case and actually going into a little bit more detail on the Barclays case. It is slow progress to be perfectly honest, because those cases are in front of ours and they are taking some considerable time. So we continue to assess our options and the things that are open to us to do in the meantime. And we're also cognizant of trying to do that in as efficient and cost-effective way as possible. So to be perfectly honest, if I can stay behind others and not be incurring large legal costs, to be able to get to an end result for as long as possible, I will do so, whilst ever it makes sense for us not to be making changes of our own. And that's why we have to consider carefully how we shape our business, how things work going forward. to make sure we're not tripping over our own 2 feet. So as I say, it's very much an ongoing one. There have been developments on the HSBC case. They are somewhat mixed, and we are still working through them to determine what the real implications of those messages are for our own case because whilst they're very similar, they're not identical and we have to work through those differences. On your second point, on the earnings per share point, to be clear and I did make this clear in my presentation, our dividend policy as set out at IPO and onwards has always been based on a 60% to 65% payout of profits after tax. Now this year, we've been very clear that the VAT position is very much a one-off issue that quite clearly should be removed from that calculation. And with the capital strength of the business, we've been able to do that. We will judge next year on its own merits and sat here at this point, the dividend policy of the company is clear, and that's what I sort of expect us to be working towards.

Next question comes from the line of Rahim Karim from Investec.

3 if I may. I'm just looking at Slide 16, where you provide some interesting data points on interactions with clients on Transact Online. And at 91% in terms of transactions occurring through that medium in the fourth quarter. I was wondering if you could give us a sense of how that number has evolved over the last, say, 12 to 24 months? And if there is a reason why that number could not be 100% in the long term? The second question. Kind of talk -- you've talked a lot about the proprietary nature of your platform and Slide 17 kind of ranks all of your peers and whether they're proprietary and all. I'm just trying to get a sense of whether that's something that your clients or the advisers see as a really important virtue of your model and something that they appreciate. And then the third question was just around interest income. I think your [indiscernible], if I understand correctly, what you were saying is you believe that all the interest income should sit with the client. Some of your peers would argue that they're able to enhance the interest that their -- income that their clients receive, and that's why they should get some of that interest income as a remuneration for it. How would you respond to that? Are you yield enhancing so that the clients are getting a better outcome than they would otherwise? Or is that something that you just don't participate in?

Yes. Okay. Thank you. So I'll take each of those in turn then. So first of all, the usage online and how that's developed. So it's the shape of it really. I mean there are certain things that we've always done a lot of online. So trading is a good example, where trading activity by the sell that was already at 85%. And with the extra training that we've been providing for advisers, that will be 100% within a few months. We've got a small portion of advisers that are still doing some trading through what we call manual activities, either sending us a form or sending us an e-mail. And what we're doing is we're actually withdrawing that. So we're withdrawing that option completely. So we're forcing the activity to be online, just to get the last few percent there. If we think of things like application forms, then what we've been doing there is we added different wrappers over time, over the past 2 years. And we've still got one wrapper area to complete, which is insurance bonds. And what we're doing is once the functionality is there for advisers to be able to do it online, then we will gradually make that the compulsory option as we withdraw things. So we built the functionality. Once that's bed in, once everyone is used to it, then we take away the manual option. I suspect there's some -- there's actually quite a lot of forms overall for things like pensions, beneficiaries, et cetera, et cetera. And what we're doing is we've put in the long tail of forms all online. So we're probably 85% of all the forms but all the big incidents things are all there online and they will move to 100%. So that's the functionality online. Moving to -- what I should add, it's easier to build the functionality than it is to train everybody. You've got 7,000 advisers and their support staff. That can easily be 20,000 people that you have to train. So that's the harder job than the functionality actually. In terms of proprietary technology, what our advisers value is being able to give their feedback, give their input and we listen to it. So they'll say, oh, I always forget to do XYZ, could you put a reminder on that particular page or could you do this? Could you do that? A very recent one, we have the ability on the platform to have a peer review process. And people have -- advisers have said, oh, could you give me the option to e-mail colleagues to ask them to peer review things before it's submitted? We added that. That's just a small example. So what advisers value is the fact that they can influence the shape of the platform software, particularly Transact Online over time. So I would say that advisers see it as a big plus. Also gives us control of the cost, of course, because the people building the platform, we're all employees, so we know exactly what that platform tech is going to cost us, both now and in the future. And then on the interest that we pay for to clients. We do use a range of banks. And one can always increase the return further by using banks with lesser rating. So for us, it's a matter of we'll use banks in a way that meets the risk appetite that we're prepared to take and on behalf of our clients. But we're always reviewing the list of banks that we use and it is very actively managed. So we've got access to exactly the same banks as everybody else. It's determining which ones we think we should be, which is appropriate to use for our clients.

The next question comes from the line of Ben Bathurst from RBC.

I've got 2 quick questions, if I may. Firstly, on Time4Advice. You mentioned that you expect that business to continue to make a loss in FY '23. But I wonder if you could just unpack that a little and maybe give an idea what sort of top line growth you expect from the business next year. Is that the 2022 growth repeatable? And then secondly, on consumer duty. As we move towards that regulation going live, I wonder do you envisage compliance there creating disruption for adviser businesses to the extent that it might have an adverse impact on flows in the first half of calendar 2023?

Okay. Picking up on the Time4Advice point. The rollout of the new product isn't going to happen until probably May, so we're not going to see significant new license revenues coming in from the new product until sort of June, July time this sort of 2023, which obviously, in our year, we're sort of into the final quarter virtually of our financial year. So in terms of the sort of big pickups in revenue from the new product, they're going -- that's why we sort of expect that to sort of roll in and move us into profits in 2024. So I am expecting to see some revenue growth next year. And as I've sort of mentioned in my presentation piece, we have actually increased all the license fees across Time4Advice as well as adding licenses. So most of the license fees are going up in the region of around about 10%. So that's going to help drive. That's been accepted by all clients. So that will drive through. And on top of that, are the increases going to continue on the old product at quite the same rate as they have over the last 12 months? Our expectation is not quite at that same rate because as the new product becomes ever closer and people become aware that it's in the market, those that can will be more prepared to sit and wait to get on to the new product rather than actually taking a view that they need something now and they'll move across to the new product in 12, 18 months, 2 years' time. But given that those changes are coming through, we are expecting that loss, overall loss to narrow. And I would expect to be seeing numbers sort of around about 50% to 60% of the numbers that are there today in terms of the loss on [indiscernible] for next year. But some of that will be dependent on how quickly we can grow the current license fees that are in there. Do you want to pick up on the consumer duty, Jonathan?

Yes. So in terms of how consumer duty is affecting advisers and whether that will affect flows, I mean, obviously, we talk to our advisers about this all the time. And I think the areas that it will impact them probably the most, it might shape their due diligence a bit. So advisers always undertake due diligence on platforms on a regular ongoing basis. And I'll just -- I've seen the -- some of the questions have changed a bit. So things we've talked about, cash interest. That's more important to advisers than it was a couple of years ago with interest rates being higher than consumer duty being on the horizon. So I think we might see the type of questions that we get in due diligence change, continue to change. The other thing I see changing is one of the things that platforms have is a wealth of information on behavior on the platform. And that enables advisers to ask us questions and monitor things. So for example, we have advisers asking us how their fee that they're charging compares to others. And perhaps an adviser that doesn't have a tiered fee structure will be asking us, so how many advisers charge their fees on a tiered structure? And can you give us some data? So we actually provide a benchmark in service for advisers. So we can say, here's how your charges compare. Here's your holdings per portfolio compare, the DIMs that you use, here's how they compare, here's how many times your clients log into their portfolio, here's how many have switched off paper, et cetera, et cetera. So we are seeing an increase in a request for benchmark data. The other good thing on the behavior side is that advisers, particularly the owners of advice firms are able to see the activity of everyone that logs in. So they can download reports or we can bespoke things for them. So they can say, okay, I've got 6 advisers. Can you tell me how often they're logging in? They can actually download the reports. So I think we'll see a lot more of adviser firms, perhaps the compliance arms or the owners actually monitoring the activity of advisers and their support staff exactly what they're doing in terms of servicing their clients. So -- and we're thinking about providing even more enhanced reporting to advice firms on their behavior if they're going to find that useful, and I think they will.

And if I can just add to that, Jonathan. In part, yes, we've had all this in mind when we've been looking at investment in technology staff and the like because the more that we can do to help support the advisers, the more they can get on with doing their business, which helps us in the long run. I think that's probably all we have time for this morning. Thank you, everyone, for attending. And I wish you a pleasant day and a happy Christmas when you get there.