Iress Limited (IRE) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Iress Limited Investor Briefing Transformation Update. [Operator Instructions] I would now like to hand our conference over to Roger Sharp, Iress' Chair. Please go ahead.

Thank you, Zack. Welcome to this update from the Iress management team on the company's transformation program. I'm Roger Sharp, Chair of Iress. And with me are Marcus Price, our Managing Director; and Cameron Williamson, our CFO. We have allocated an hour for this call. There'll be time for Q&A at the end, but if we do run out of time, we'll be more than happy to schedule separate calls with you. This transformation is a whole-of-company strategy that is fully supported by the Board of Iress. As a Board, we are really pleased with the progress being made in delivering transformation outcomes. The new team is demonstrating that it knows how to take unnecessary costs out of this business, show more attention to its customers and improve its product suite. If we get these things right, the benefits will flow through to shareholders. As you know, we did experience some headwinds in the midyear. And in response, we have brought several transformation initiatives forward since August. And we'll today deliver an improved outlook for the second half of FY '23, which will flow through into FY '24. Marcus and Cameron will brief you on that shortly. Our program is well advanced and will be nearing completion this time next year. By that stage, this company will look very different from how it did when we embarked on this transformation journey. We will have a leaner, more efficient and customer-focused organization with an improved earnings run rate to enable reinvestment in high returning businesses. Importantly, we do not need to raise equity to delever. The benefits of our improved earnings profile and a strong balance sheet following our asset sale program will provide the path to sustainable dividends. And it's very pleasing to be able to report today that the first results are now coming through. The benefits of this program will flow to shareholders for many years to come. Importantly, Iress is on a path to becoming a more transparent organization with clear divisional reporting, a clean set of numbers and a capital plan, setting out what comes -- what sits above and below the line, clarity around capital expenditure, investments and dividend payout ratios. Indeed, Iress is becoming a simpler, leaner and more competitive business targeting Rule of 40 returns. Our focus in the near term is very simply on the disciplined and relentless execution of this transformation plan. And with that, I'll hand over to you, Marcus.

Thanks very much, Roger. It's a real pleasure to be here today. We did mention that we needed to introduce these transformation updates. It's really a function of the amount of change that's going on and needing to keeping the market appraised of where we're up to. In summary, though, our transformation is well on track, if not ahead. Our new structure and refreshed leadership is firmly in control of this business and, very importantly, driving the execution of strategy. I think the company has become certainly much more focused on our customers, and I mean that both in terms of structure and processes, and we've seen some results of that coming through. The work that we've been doing on the balance sheet and on our economics is allowing us to create capacity to reinvest in our core businesses, even though we see potential for further cost efficiencies through the group. I think the program for divestments has certainly become a lot clearer since August, and we'll talk a little bit about that later on. But that will result in bringing forward the reduction of debt that we've foreshadowed. And I think when you look at the company today, we're past the sort of change in management inflection point, if you want to think about it that way, where change is not just something new to the company. It's something we've experienced working through and engaged with. And as a result of that and the result, in fact, of all of those things working together, we'll be providing a guidance upgrade today. Our transformation is really about creating a leaner and organically driven business -- organic growth-driven business. We're progressing towards our Rule of 40 outcomes. A couple of the important achievements that I think even -- we're seeing even now. Iress has had a history of considerably high-cost growth, around 10% per annum over the last 4 or 5 years. We've been able to arrest that cost growth, in fact, reverse it. And that's hard. It takes work, and that's the work of transformation. We've got further cost efficiencies to come actually through the group. So we're very pleased about where we've landed with those early transformation initiatives, and the bringing forward of them has resulted in tangible benefits today. What is also important, perhaps is not as visible, is creating the capacity for selective reinvestment back into the core businesses because this transformation is about focusing and doubling down on our core businesses. We've been able to improve the balance sheet even in this first half from the sale of MFA, but we'll be able to accelerate that process in 2024. The reason for that incidentally is largely to do with the U.K. strategy. We spoke about dealing with the U.K. as a whole in August. As we've worked through the process of disentanglement and how to actually deal with the 4 companies that reside in the U.K. group, we've determined that it's actually better to deal with each of them individually. As a result of that, we're being able to bring forward the sale of one of those businesses, which will be material to our results in 2024. And Cameron will give you a brief update on that as well. The revenue has had a modest growth in the second half, even though it's been a challenging environment. So we're pleased to be able to report that. In terms of the transformation itself, this is a big program of work. We've got 10 major work streams, 80 programs of work, 300 initiatives. There are 300 or more people engaged in one form or another in transformation as part of their day-to-day business. This is a whole-of-enterprise effort. And we're delighted with the work that we're seeing. The results are tangible. We've got a refreshed leadership team firmly in control. And just as an interesting metric, for example, on efficiency, we've had revenue per employee increased by 30% year-on-year, from $272,000 per employee to $356,000. It's just an interesting metric of efficiency. We use a number of those internally as we keep track of our progress and change. I mentioned that the change management inflection point has passed. Change is becoming something we can do. It's hard when you get to that first moment of change for an organization that hasn't changed a lot. But going through that process is now -- we've got a group of people who are well engaged with change and embraced the need for it. I guess we're seeing some other metrics as well that are reflecting the progress of transformation. In particular, customer sentiment is markedly improved. And as well, employee engagement is improving. So all of the things, all the lead indicators of performance are there. And we're delighted with that work of transformation. It's been a tough half year, but we've actually seen the results now. You've seen this slide before. This is really an update slide as we said we were going to deliver it to you. It's to do with the sort of 3 major areas and the -- I guess, the 6 big jobs that we set ourselves in April last year. The thing I want to call out on that slide, really, because you can obviously refer to each of the line items. It's really for me, if you walk around the corridors, what's different today in August. We're still in a change process. We're still a change flux. It was there, I would say. But today, if you walk around this organization, you see a very clear structure. You've got CEOs in charge of businesses, their leadership teams appointed. They have business plans metrics. Each person in the organization knows where they fit in the organization. We have performance management frameworks in place, which link to remuneration. So the targets that are in the business plans, the things that matters to shareholders flow all the way through the company. We're building that performance culture, which I spoke about in April, something which I'm keen to see happen at Iress. And we have that transparency and accountability for our leadership teams. And that leadership is dispersed through the company. What that gives you is leverage. There's a lot of people engaged in producing great outcomes for shareholders. Net-net, they're working across this entire page, but the real thing is the engagement of the team and the engagement of leadership and the performance culture that sits behind it. Moving on to just each of the businesses in turn. With Wealth Management, we've -- there's been obviously a challenging year, and we foreshadowed that. But our teams worked well, and we've brought some transformation initiatives here, certainly in having more and more value-based conversations with our customers. And we've got a full program of work to speak to each of our customers about the value they're getting from our products, not a conversation I've had before. This is not about pricing. It's about what value do you get from utilizing Iress tools. The reaction to that's been quite positive, and we're seeing NPS scores rising. And I think it's just about having the right conversations. And we're seeing certainly a tide turning in the attitude towards us with our customers. We're delighted with that. We, I guess, also launched Advisely, which is a community which is designed to help advisers with their businesses, a communication that we care about our customers. It's things like how are the changes in advice regulations going to affect advisers, allowing advisers to communicate with one another, to communicate back with us. Things like people who've got great ideas as to how to use Xplan in their practices can share them with other advisers. And it's all about trying to get back to this notion of the value of being part of the Xplan community and the Iress community. That's what really Advisely is about. It's the first step of quite a significant journey. We've also been doing, in the meantime, uplifting screens and so forth throughout Xplan. And with 15,000 screens to choose from, you may not have seen those all, but they -- certainly, we are focusing on the high-usage one. So we're very pleased with the progress in Wealth. I'm very pleased with the new leadership. We see this business having revenue growth of 5% to 7% within the medium term -- over time per annum, sorry. On to the trading business, Trading & Market Data businesses. A different sort of business. And you'll remember the update in April. We spoke about needing to stabilize this business, getting -- reinvesting back into the core and our tools, and in particular, things like -- for example, things you don't hear about but the transition to 64-bit in IOS, which makes the application more stable. In some respects, with this sort of business, initially, it was about not having things -- not having bad things happen because we hadn't attended enough to the infrastructure of the business. Now we've reversed that. And we're not getting those same things. We've made a lot of progress in stabilizing these applications. But even more pleasing was we're actually now going forward. For example, we launched the cloud-native FIX Hub in this quarter since August. Now in and of itself, it's not a huge revenue spinner or anything else. It's not going to change the dial on the economics. But what it does change is it's the nature of the technology that's being deployed. We've deployed this cloud-native FIX Hub. It's the same sort of technology that we're going to use to replace IOS Classic next year and IOS+ and the other platforms. It's the same team. And using that technology, bringing that to market, I think, is a huge benefit to clients. There's lots of knock-on benefits and leapfrogging technologies we can use. This is about the reinvestment in our products and our core businesses delivering value to clients and value to us. I'm delighted by that. The success of the platform has been terrific, and the reception it's got from the market has been really phenomenal. It's great to see us stepping forward into technology and delivering value for clients, and that's what this team has been able to do. In this business, we'll also be having value-based conversations with clients as well. How do they want to use our applications? How do they -- what do they need from us as a business partner going forward? This is a tough -- it's had a tough year, this industry. And whilst we're not exposed to volume and to FUM, our clients are. And we felt their pain, believe me, and we -- as we work with them. That, interestingly enough, seems to have turned around in the last few months. We are seeing increased -- much more increased trading volumes. Our clients are feeling more positive. It's a better environment for us to have those conversations with clients as well. So we're very pleased. And we do see this business growing at 5% to 7% per annum in the medium term as well. The Superannuation update. Now Superannuation, well, it's a tale of more than one business in many respects. And when you see the results for Superannuation, it's important to remember that a part of the business is technology, and a part of it is administration. Or -- and they're very, very different businesses. Administration is literally answering phones, looking at envelopes, the things you have got to do to support Superannuation clients. It's a low margin, highly regulated. It's a tough business to do well in, probably not a business where we've got our great competencies lie, to be honest. Our technology business, on the other hand, is very good and very sound. It has the margins you'd expect of a software company. The Acurity business and the Acurity platform had a great, great second half of this year, in particular, with the first stage of migration of the Commonwealth Super Corporation onto a cloud-based Acurity instance. It was a wonderful project, and I want to really call out CSC for the terrific work they did with us. It was a collaborative project that's gone through. It's been one of the best projects we've ever been involved with, and that was largely down to CSC and the terrific work they did with us as a true joint team. And we've got a road map of other initiatives to go with CSC as they move more portfolios across, and we're absolutely delighted with that. We have another couple of client wins as a result of mergers in the market as well. So we've got a pretty full pipeline on the technology side for Superannuation in 2024. We are, I guess, thinking about our options as far as administration is concerned as part of our transformation as to how we best go about delivering that to the market. We've got quite a few options to investigate there. There'll probably be more to be said about that in later updates. That's really all I have to say by way of update. I'd like to thank you for your time today. Cameron will now take over and give you a few more insights in the Managed Portfolio and finance section.

Thank you, Marcus, and very pleased to be here today to give you an update, I guess, on where we sit with a number of key areas of our business. I'll be touching on the Managed Portfolio, in particular, and how that's progressing; also provide an update on the capital management plan, which we articulated back in August, where we're looking to provide an update in February and just give an update of where we stand with that, the revenue and cost trends that we've seen across the group over the course of the second half, in particular, relative to the first half and how that has been trending; and at the end, provide an update on our guidance, both for expectations around this year but also into next year. So just touching on the Managed Portfolio itself. And while I'm focused on core CFO responsibilities, I also oversee a large part of the Managed Portfolio, which I do share with Harry Mitchell, our CEO of Wealth, who is now in the U.K. and leading that part of the portfolio as well. Just to remind people, the Managed Portfolio itself is a portfolio of assets that was to be considered as part of the group with a different mindset and very much a private equity mindset. And that is we were looking to grow those assets aggressively or divest them and release capital back to the group. The portfolio itself consists of 5 assets, one being the U.K. business, the South African business, Canadian business. And in Australia, we have 2 elements of the old OneVue business being the platform and the MFA businesses. The MFA business, we did give an update in August as to the status of that asset. We were going through a sale process at the time. I'm pleased to say that, that has completed during the last few months for proceeds of $52 million, which have come into the business over the course of this quarter. The Platforms business is another element of that portfolio that's currently in a sale process, an exclusive one at that. That is progressing. It will simplify our business, and we'll be in a position to provide a greater update on the status of that in February. The one area where we have advanced our thinking, and Marcus touched on it earlier, is around the U.K. business and treating each of the 4 businesses that sit under that umbrella as discrete businesses themselves. One of those businesses has been identified and advanced as a noncore asset, and we are in the process of going through a divestment, and we expect that to complete in the first half of next year. The South African and Canadian business is a slightly more complex in terms of their product and tech stack that currently exists and the support that they get out of Australia in regards to that. And work is currently being done in evaluating that and putting them in a position where they can operate in a more autonomous sense. And again, looking at that very much with a private equity mindset around either growing those businesses and/or divesting them at some point. So just touch on the capital management plan. In August, as I said, we advised that our capital management plan was under review, and we would be in a position to present that to you back in February as part of our year-end results. I'm pleased to say that plan is progressing well. Good dialogue is being had with the Board and management on a number of capital initiatives and capital requirements across the group as we've just gone through a strategy review with the Board around that and capital being a key part of that. The capital plan itself that we will share with you in February will address our debt and leverage positions and where we are looking to take them, where dividends sit within the group. And ultimately, we do see dividends as an important part of return to shareholders in a business like ours. But ultimately, we want to see them return into the business. And also from an R&D perspective, our commitment to R&D and that area of our business, that does provide future growth that we see as a really important part of our future. From a debt perspective, our net debt level at this point in time is $308 million. That's as at 31 October. That is down considerably from the $375 million at 30 June as part of our last update, and it is expected to decline further as assets are divested. The leverage ratio as at the end of October is 2.3x. That is comfortably within our debt covenants. We see no requirement, as you've heard from Roger, to -- for any equity raise at this point in time to delever further. Just turning to the next slide and looking at our revenue and cost trends. We have seen over the course of the second half of the year modest revenue growth, average revenue of -- up 2.6% on the first half. And that's largely being led out of the U.K., where we have seen better-than-expected growth in that segment of our business. You will also note that our pricing adjustments that we implemented in the first half came into effect in first of April. You will also note that there is a decline in revenue in October. That is largely as a result of the MFA divestment. We did have the MFA business clearly as part of the group up until the end of September, and you should expect to see that decline as a result of that divestment. On the cost side, pleasingly, we have seen staff costs declined 4% second half versus first half. And that's largely a result of the cost initiatives that we've undertaken through the course of the transformation project, in particular, the cost out that we articulated back in August. And that has been felt into the second half of this year, where we get the full effect of that into 2024. We are seeking further efficiencies across the group, both at the business unit level as well as the corporate center. And we expect to see that continued improvement in our cost line over the course of the next 12 months. This is notwithstanding there are elements that we are having to invest in. We are focused on areas that we can invest in, and creating that capacity to invest is very important in terms of how we do that. On the non-wage line, slightly higher, 2.4% second half versus first half. We did articulate this is one area of our business where we had seen significant inflationary pressure. That has continued, albeit at a more moderated level, into the second half of this year. There is some level of seasonality in the second half based on just general business activity, and you'll see that on a monthly basis, but from a trend perspective, up marginally from the first half. This is another area of our business that we are looking for further efficiencies as we head into 2024. So in light of the more positive activity that we've seen over the last few months, we are upgrading our guidance today. In August, we did guide on the second half, we expected a broadly flat outcome. We are now seeing second half expected to be somewhere in the region of $3 million to $8 million higher than first half. That is on a constant currency basis. That is substantially being driven by a number of cost initiatives, which we have brought forward, largely staff but also some efficiencies that we've captured as part of our business units who are heavily focused on creating an efficient business unit with clear accountability, as Marcus has alluded to. In terms of expectations for 2024, underlying EBITDA has now been revised upwards to $135 million to $145 million. That's still 5% to 10% higher, albeit on a slightly more positive outlook for this year. And it does capture a number of areas of reinvestment that is important for us as we look to the future. In terms of the exit rate, which is something we are very focused on for 2024, it does bring to conclusion to the end of what we call the transformation program and a focus for the group. We expect that exit rate to be somewhere in the region of $150 million to $170 million in underlying EBITDA, which does set up the business very well for growth in 2025 and 2026 with a lot of the work that's being done today focused on the benefits flowing through to those years. We look at the Iress Group looking out to the end of 2025 as one that is progressing to a Rule of 40 business, one that has a much streamlined cost base, an area where we have released capital from areas that we don't think are core to our business going forward, coming out of the Managed Portfolio and with a balance sheet that has a much reduced debt level and an area of strength that gives us a great platform for growth going forward. So with that, I will hand over to the operator for some Q&A.

[Operator Instructions] Your first question comes from Nick McGarrigle from Barrenjoey.

Okay. Maybe just a bit more detail on the U.K. assets that you're progressing towards selling in the June half year. Is that more towards mortgages or more in the advisory space?

Thanks, Nick. I might just quarterback Q&A. It's Michael here. Cameron, why don't you take them?

Nick, it's Cameron here. Look, we're not -- we've just started the process. We're not going to actually sort of articulate exactly who it is. It's fair to say that we have progressed our thinking around the U.K. It is a noncore asset. We'll be in a better position in February to articulate once that -- once the process is more advanced. I think it's appropriate at this point to hold back on naming what the asset is. But clearly, we've identified it as an asset that we don't look at as part of our core offering going forward, but we'll be in a position to give you a greater update in February on that one.

Just in the market...

Yes.

It's in process.

So you've got confidence that you can -- that sale can happen inside of the 6-month period to June?

Yes. Yes. Yes.

Great. And then maybe just a bit of a discussion around the Super business revenues down half-on-half. Is that predominantly to do with more of the services side of that business as opposed to the recurring?

Yes, it certainly is services. And that is -- as I mentioned, I think, Nick, it's a mixed business. And the fortunes of it and the costs of the revenue side of it are quite disproportionate, if I can say that. So yes, it's definitely to do with services. It's not to do with software, which is quite sticky. It's the other sides of the business. There's also a consulting business in there. It's actually 3, but they're all people businesses. And they are very, very -- they do fluctuate.

And you mentioned potentially divesting some of the noncore, nonsoftware part in the Super business to do that, predominantly the manual administration side and maybe some of those more consulting and managed services and implementations. Or what's the mix of what's ongoing versus what maybe is not core?

It's -- probably divestment is a strong word there, Nick. I think we're looking to partner there. We think there's probably other companies who are -- got the scale and, I guess, also the experience in regulated markets to really add value to our customers. And frankly, if they can do it better than we can and we can partner with them and provide the software components, then we think that might be a great answer for everyone. So yes, we'll still be participating. We'll still be providing that as a service. It's just it will be, I think, through a partnership. That's what we're looking at. We're evaluating a couple of partners at the moment who are very keen to work in that space and are very, very competent in that space, and that's their core business.

Great. Okay. Cool. I mean in terms of -- the last one for me, and then I'll get back in the queue. But just in terms of the path to 7% growth rates across Aussie Wealth and the APAC Trading, can you give us a sense of what proportion of that, and this is obviously not prescriptive, that comes from new product innovation versus existing volume or module growth and price? I guess there's 3 different drivers?

Yes, Nick, where we see that going is probably over the longer term, 3% to 4% of that would be price and 2% to 3% would be organic. And that would come through innovation, extensions and broader focus at the commercial level on sales capability where we are investing. We do see that -- the capacity to grow in those business lines that probably haven't had the attention over the last 5 to 10 years, we do see potential there to grow organically that we haven't seen before. And a lot of things are getting put in place as part of the transformation to deliver on that.

I think also, Nick, just to amplify that a little bit. We talked about the costs, having to reverse some momentum on cost. We're having to reverse the momentum on growth as well as in organic -- real organic growth other than pricing. And that requires us to do work on underlying product. So in the outlook periods, it's relatively modest. In the outer periods, we set a much more ambitious growth targets than those. So we want to see -- but it takes time. You've got to reverse that momentum and get to organic growth momentum as well as pricing. We really want to see organic growth, and the underlying business has been the thing that drives us going forward. That will take time, but that's not -- you can't just turn that on [ in a heartbeat ].

Your next question comes from Bob Chen from JPMorgan.

A few from me. I mean the first one, just a follow-up to that 5% to 7% growth rate mirror. Obviously, we've seen a bit of cost rationalization from your customers in that sort of first half result. Can you talk a little bit about whether that sort of normalized now? And then in terms of medium term, like what's the time line on medium term? Is that towards the end of that sort of FY '25 period is when we can see that 5% to 7% rate?

I will take the second part first. Yes, the -- that's the '25 to '26 planning year. We've just finished a 5-year planning exercise, and those are the sort of metrics that are flowing from a continued running of the current businesses in the way that the transformation anticipates, which doesn't give you step changes but gives you very, very solid growth through that period. And that's really the delivering of the ongoing benefits of transformation. On the module side, there's been -- look, it has moderated a little bit. I think we've seen the people who've wanted -- it was really about cost, right, in our clients' side. What we are finding is our value-based conversations with clients are being really helpful in that a lot of times, we haven't had those conversations for a long period of time. We've responded to that particular feature of the first half by going out and talking to customers about what they're using, why they're using it, how they're using it. And what we're actually often finding is there's actually as much benefit in that conversation as cost. So sometimes, we actually say to someone, hey, you probably shouldn't be using that module because it's 15 years old or something. And there's another module that's better or cheaper or whatever. And we are genuinely taking sort of the value lens with our customers. And that actually is quite good, but it's also uncovering all sorts of other things like credential sharing and things that people are quite open about. They talk about that as well. We're trying to get -- we're trying to understand and walk in our clients' shoes as far as value is concerned. And I think that conversation is very helpful for everyone, especially our clients who can understand the value proposition of Xplan when it's explained to them. And I think we've got the opportunity to then move to SaaS-based pricing in the medium term, which is where I really do see the benefit. We actually get rid of all those sort of behaviors that we see at the moment that are not as helpful for customers or us. So I think it's a -- I think it was a point in time, Bob. I think everyone will always be looking at the -- do I need X,Y, Z? I think what's interesting if you look on the charts also is we haven't actually lost any customers. Our churn rate is very, very low. It's just changing mix of business. So it's on us to produce new modules and produce new things, and that's what innovation is about as well. So look, I think it was -- we are seeing a moderation in that. We're seeing customers stabilize. We're seeing having better conversations with them around their use of Xplan.

Okay. Great. And then just looking at the FY '24 outlook and then comparing that to your exit run rate for FY '25, it looks like $15 million, $25 million sort of improvement you sort of expect over that period. Like how much of that is going to be driven by further cost out, like you mentioned earlier, across the business unit levels?

Bob, look, I think a lot of it is baked into the transformation program. And we do have -- I'd say it's quite evenly split between pricing and -- not so much pricing. It's revenue initiatives and cost initiatives, including modernizing pricing. I mean that is a key element in terms of what we want to do. We're clearly working on further cost efficiencies across the group. I'd say they're a bit more tangible than some of the revenue. Some of the revenue initiatives are probably going to take an element of time. You've heard Marcus talk about moving to SaaS-based pricing. That is something that you can't do in one fell swoop. It's a progression, and we're engaging with our clients at the moment around that. And so in terms of the comfort level around where we're going on the guidance, it is probably weighted towards the cost side. We're more confident around delivering the outcomes that are within our guidance range around that with some of the initiatives around the revenue side coming through in 2025, 2026.

Okay. Perfect. And just a final one. In terms of -- can you remind us what the cash costs are for your sort of restructuring program as well as the redundancies and when exactly that sort of hits your cash flow, I guess?

Yes. So the first half transformation, we call it transformation costs, including technology uplift and a bunch of other stuff that was in that bucket. It was about $30 million from a cash basis. We're expecting that to decline a little bit this half as a number of these projects have run off. It will -- there is still an element of that, that will feed into next year with probably the -- in terms of the known program being completed by the first half of 2025. It will complete by 2024 but feed into outcomes that are linked to 2025. And so you will expect to see some of those transformation costs over the course of the next 18 months, but it is on a downward trend from where we sit today.

I think it's worth knowing, Bob, there's a changing mix in that as well because this first -- a lot of it was about redundancy, as you can appreciate. There's been a lot of cost out in this initial transformation. That was the first tranche. So as you go on in the transformation program, the nature of those costs do change.

Yes. And one other thing I would add is there is an element that is very much linked with our execution partner that is linked to the outcomes that get delivered at the end of the program. At this point, that is subject to what gets delivered and what gets executed on. And again, that sort of feeds into that 2025 number I was just referring to.

Yes. Okay. And just to make it clear, so that element that's linked to execution, that's the McKinsey component that finishes by mid next year? Or is it the end of '24?

Well, the program itself runs to the end of 2024 from a transformation perspective. From a measurement perspective, it's a combination of both end of next year and first half of 2025. So that -- the success of that program will be felt for the next 18 months, and it will be unknown. It is very much linked to the value that gets created over that period.

And in particular, metric is the exit run rate as at end of '24. I mean that's a -- a lot of the incentives in the transformation is baked around a target exit run rate. And Cameron's talked a little bit about that already in the presentation.

Okay. And that target is just the EBITDA, underlying EBITDA?

I'm not going to go into it in a whole bunch of detail, Bob, but there is a number of elements. One, EBITDA is one of them. Activity is another, and there's a range of things, but it's all very much linked to shareholder outcomes.

Your next question comes from Brendan Carrig from Macquarie.

Just a few for me. Can you just -- Cameron, you've told us the sort of the revenue contribution from MFA, or we can work it out roughly from the slide. But the EBITDA contribution, can you just give a bit more detail on what that was for MFA that's dropping out? I understand it's probably slightly negative or near 0.

I think you've hit it on the head there, Brendan. It's quite negligible. So look, that business is very much one of sort of a breakeven plus or minus around that. It was very much a synergy story with the buyer. So the value that they paid for it is very much linked to the synergies they get from it.

[indiscernible] platforms in the U.K. asset that you've mentioned today. Are they factored into the sort of EBITDA FY '24 and run rate targets that you have provided? Or would they be additive? And if they're additive, are they material?

No. We've guided on the basis of all businesses in the business today will be factored into our guidance. Should businesses be sold, obviously, these will change. I mean I think the Platforms business is one that has similar metrics to MFA. So you can use your calculator on that one. I think the other asset for the U.K., we'll be in a better position in February to give you a bit more color around that. But it's one that is profitable and one that probably sits within a revenue stream in the 30s, and that -- as a number of U.K. businesses do. They're all quite similar in terms of size.

Okay. That's helpful. And then is there any revenue seasonality in November, December that we should be made aware of? Or should we just sort of be using that October as a bit of an exit rate for revenue for the rest of the half?

I mean the only seasonality we really get on revenue is around the implementation costs, in particular, around Super. And I think Super at this point is -- I think you can see the trend line on Super, where we sit. We are working with a number of clients around their implementation for -- as you've heard Marcus talk about. I would be using the run rate in October as a bit of a guide, albeit I would just caution that we are seeing an uptick around our trading side given the improved market conditions that we've seen over the last few months.

Okay. That's clear. And the last one for me. Just the guidance is obviously on a constant currency basis. The weak Aussie dollar, which has probably been a bit of a headwind for the half, it's maybe starting to abate the last couple of weeks. Is there anything you sort of want to call out there? I think FX impact on input costs was a real issue in sort of the first half of the year. So just any color or anything we should be thinking about sort of on an FX-adjusted basis?

FX at the moment is quite -- not overly significant in terms of the guidance that we've given. I would -- we have seen that moderate a little bit relative to the first half. It was more pronounced in the first half. But for the second half, at this point, Brendan, it's not that different from the first half, second half.

Your next question comes from Simon Fitzgerald from [ Iris ].

Perhaps a question for you to start with, Cameron. Just the guidance at the $170 million at the top end of the exit rate versus $125-ish million at the midpoint of the revised FY '23 guidance, that lines up quite well with we previously heard about of $47 million of annualized cost reductions. Perhaps you can sort of just talk about what your assumptions are at the $150 million end versus the $170 million end? Does it assume, for instance, you don't get to retain all of those? Just to know sort of what the assumptions are between the 2.

Simon, look, there's a range of assumptions that are in those numbers, and we've just gone through a process at the strategic level. We're obviously going through a budget process as well at this point in time. A number of initiatives, and you've heard Marcus talk about it today, are baked into the budget. Now some of those initiatives have to be risk weighted because we need to work through them, both at the revenue line and the cost line. Where the costs are, probably a bit more comfort level that they can be achieved. At the revenue level, we are working through step plans about how to achieve them. And some of those -- and that's where the range really sits. So if we can get everything that we can around the revenue and the new business that we're looking to bring in, it'd certainly be at the top end of that range but probably not quite at that level if we don't execute as well. So we're giving ourselves a bit of leeway because we are going through a transformation. There's a range of new activity that the commercial teams are working through at this point in time. And as we -- whilst we do have those plans in place, there's an element of just conservatism around how we execute them over the course of the next 12 months.

Yes. And then another question just in terms of there was a comment, Marcus, in the presentation today saying, creating capacity for selective reinvestment to grow the core. Are you thinking about inorganic opportunities when you talk about that? And maybe if you are, you could sort of share with us what your sort of test or hurdles are in order to see an acquisition pass the test.

We're certainly not in acquisition mode, I have to say. We never say never. If there was an opportunity that was appropriate and we thought really shareholder value, we will do it. But it's not high on the agenda. The reinvestment I'm talking about is reinvesting into core business applications, IOS Classic replacement, IOS+ replacement, those sort of things where we're going to move to cloud-native applications. Those things give us other growth opportunities as well, potentially even in other markets. So that's what we're focused on. And when you look at the planning and the planning horizons, that's what the plan is about.

Okay. Just one more, one from -- in regards to the Wealth Management section. You talked about an existing software to help financial advisers lower their cost of doing business. It looks very similar to what a lot of specialist platform providers talk about quite a lot of the time. And I understand the next plan is very different. But could you sort of talk about what sort of initiatives you'll be looking at in that way in terms of lowering their cost? I mean a lot of financial advice firms that are experiencing huge increases in costs. So they certainly wouldn't want extra modules to pay for that in that regard.

This is not about modules. Advisely is about providing consultative advice, benchmarking, data benchmarking. So how is their practice going? How are they performing in certain tasks? We've got data that we can make available to practitioners about their businesses to help them focus on their own efficiencies. It's free. Not only that, we want advisers to share best practice between themselves because, frankly, they know that some of these people have been using Xplan for 20 years. They are brilliant at using it, and we want them to be able to share that knowledge with other users who might not be using it as optimally. So it's really about optimizing that value proposition for the product. I've been out with clients, and I've seen some incredible best practice. And even in some cases, tools that have been built off the top of Xplan, reporting tools or whatever they might be that other practitioners would probably like to have but don't even know about. And providing a forum for them to share best practice, to share tools, to share hacks, if you want to call them that, to share information about how to optimize their business, how to optimize their practices, we think there's a lot in that. And we've had great feedback in regard to that. It's not a cost. It's a sharing. It's a forum. We want to feel -- our advisers to feel like we care about them and their business. And the optimal use of Xplan and the tools, all the tools they've got in their business is part of that.

Yes. Okay. And sorry, just one more. I know you're giving some thoughts in terms of how you treat the disclosures and reporting lines, segment lines, et cetera. Do you have any more thoughts about segment line reporting at the EBITDA level? And I'm thinking about core management group when I'm talking about this. I mean I was hoping to see maybe an update on page -- or at least Slide 31 from the Investor Day where we talk about core underlying EBITDA, $106 million to $124 million, et cetera.

I could just point out, this is really a transformation update. We are absolutely committed because as you can see, a lot has changed. We're really committed to reformulating our accounts and how they appear. I think if Cameron wants to add to that, we would expect to be reporting in a much more transparent fashion in the February outlook.

Yes. I think, Simon, this isn't a result announcement today. This is more about an update of trends in the business. You'll get a far more clarity in February, where we will give business unit P&L. So you can see how they've trended. And in fact, we'll have an appendices for historic trends and what it would have looked like under that structure. So you can get a sense of direction of how they have performed over the course of the year and even into last year as well as a re-creation. So get a sense of how they have progressed over that time.

Your next question comes from Scott Hudson from MST.

Maybe one for Cameron first. Just the 5% to 10% EBITDA growth into FY '24. Am I right in interpreting your earlier comments that to get to the 5% is more cost driven and then 10% growth will be more around revenue?

I think that's more the exit rate, right? So I think on the 5% to 10% for FY '24, I think we've probably got a few levers in our toolkit that we think we can comfortably get there at that level. And there's an element of confidence that we can deliver on that. I think the exit rates still have, and that's why the range is where it is, a stretch there around -- particularly around some of the revenue stuff. And you've heard us talk about 5% to 7% revenue growth over the medium term. How we get there has still got to be implemented. And that is baked into some of our thinking for next year, and that's why the range as we exit next year is where it is. I think the 5% to 10% for what we deliver next year is certainly within our capability.

So the 5% to 10% is more cost driven?

It could -- yes, yes, initially.

And I guess just in terms of the comments around the Managed Portfolio, do I sense a softening in terms of the desire to sell all of those businesses?

Softening, no, absolutely not. It's Marcus here. I think what we've done is we have examined the portfolio and just stage gated. And we talked about taking a private equity lens to these businesses. So for example, to give you an example, there are some businesses that we're actually going to reinvest some money in to reposition them to optimize their value, not just as -- there's a lot of background noise on the speaker. Yes. No, that's okay. Yes. So there might be some businesses that even though we have scheduled as noncore, we actually want to do a little bit of work on before we would exit them. So we've been able to stage gate that. And there's -- each business has got a different, I guess, outcome. And like any good portfolio, we're trying to determine the optimal outcome for shareholders from that, and it's always been about setting up a program of activity. What has happened, the thing we did do, the big threshold thing, as I said earlier, was not treating the U.K. as a whole or as a carve-out or something like that and to actually treat it as the component parts. That's allowed us to bring something forward, but it's also allowed us to work on other parts of that business to optimize their value.

Yes. I think it's also important to note that we didn't say we're going to sell all those businesses, right? So they either needed to improve their performance -- and some of those, we do see an ability to actually do that. And they could -- at some point, some of them could flip back into the core category. But we need to do a lot more work around how we get there.

But we want to use the tools of private equity. It could be partnering. It could be reinvestment. It could be divestment. It's about optimizing the return to shareholders so -- from that portfolio. And that is actually our focus. Now Cameron has put together that program. So it's not softened. It's just -- it's actually evolved and progressed.

Your next question comes from Shaun Ler from Morningstar.

Apologies if this has been covered as I jumped in a bit late. But I just wanted to clarify something on product uptake really quick. So during the first half results, you mentioned that clients have been utilizing less ancillary, less modules, which affected revenue growth. I'm just curious. Has this trend persisted? Or has it reversed? Because I asked this -- because you've mentioned about some new product innovation. So I mean are these old modules now redundant, so you need to create new things or these old modules can be reused again and there's additional upside from the new products?

I kind of had a go at this earlier. I'll just -- I'll re-answer the question, if you like. There's a vast number of modules of Xplan. Anyone who's used it -- it's more like an environment than an application when you look at it, right? So we haven't lost any clients. You can see the return rate on clients is the same. Logos are the same. What does happen over time is people look at particular modules. Am I using it? Am I not using it? We're doing that with a cost lens at the first half of the year. What we have done in response is bring forward our transformation initiative to say, okay, let's embrace that. Let's go out and have value-based conversations about how you're using the application, why you're using the application, which components you need to continue using, which ones you might want to not use anymore. And those conversations are happening now. So what we see is actually an opportunity -- we are actually finding more opportunities than losses, I guess. And in some cases, these clients have not looked at their configuration for a long period of time. And just the fact that they're experiencing cost pressures has been like a catalyst to sort of housekeep themselves, if you want. We're helping them with that housekeeping, and it's giving us an opportunity to rearticulate the value proposition of Xplan with our clients, something they haven't had. There are new modules always underway in Xplan. So there is new replacement things coming in, and we're certainly looking at things in reporting. And we're looking at things in terms of partnering as well. Can we embrace some of the people that have built ecosystem-type businesses around Xplan and work more closely with them and to provide more optionality and value for clients? So it is a bit of a rethinking of the value proposition of Xplan, talking to them about the modules they're using, talking to them about the value they get out of Xplan. And that's been a very -- I think it's even why our NPS is trending upwards, because people are experiencing that in a positive way.

Your next question comes from Stewart Oldfield from Field Research.

Thanks for today's update. I think there was a reference earlier to the work of McKinsey. But can you just clarify what role Accenture has been brought for -- in for? Is that just a particular project or you've got -- that will be expanded over time?

We certainly have been having conversations with Accenture. A terrific company. They've got -- we worked with them in a number of different businesses and have worked with them over years. We certainly see them potentially as a significant partner to us going forward. They've got some services and things. Particularly, we talked about, for example, things like the administration of Superannuation. That's the sort of business that they love being in, and they're one of the companies who might talk to you about that. But frankly, we see them as a valuable partner to ourselves through a number of parts of the business. There's nothing particularly new there, really.

Got it. And can you just clarify who is acting in the role of Chief Technology Officer?

Yes. We have [indiscernible] acting Chief Technology Officer. Remember though, there's a CTO in every business. The CTO team is actually a Chief Technology Officer for Wealth, for Trading and for Super, embedded in the business. So the role of CTO at the corporate level is significantly different than it was previously. So the CTO role is being acted by [indiscernible]. We're actually looking for a new CTO in the market now. But that CTO role is very much a strategic CTO as opposed to an operational CTO, if I can use that terminology.

Got it. And finally, can you clarify the relationship with Australian Retirement Trust?

We're not commenting on -- we're not really commenting on individual clients. And you probably know we still work with a raft of superannuation funds, and we are very cognizant of their requirements in terms of what we can and can't say about our relationships.

Your next question comes from Olivier Coulon from E&P Financial Group.

So a lot has already been answered. Just wanted to ask. The cash balance actually looked pretty good. Do you have a large amount of one-off costs that haven't been paid where you've got a payable provision but haven't actually paid the cash cost yet?

Not really, Olivier. I mean there are a number of contingencies, but they're more sort of longer term, as you would have heard, very much linked to outcomes that go beyond this year. Where we sit at the moment, obviously, we're very comfortable with our cash position. It has improved over the course of the last few months. But there's nothing there that I would call out from a cyclicality perspective that would change that in the shorter term.

[indiscernible] this year and I think the markets as well?

Nothing to call out, Olivier. You might just want to check your spreadsheet. Happy to work with you on that one.

And then just on the below-the-line cost, apart from the McKinsey success fee, is there any change in that outlook? I presume maybe the former might be going up if they're getting more benefits out.

So the below-the-line cost consists of a number of what are determined nonoperating costs in the business, including some of the technology spend that has gone into uplifting the platform and things like that, that is deemed nonrecurring. What we have committed to as part of our year-end announcement is actually rebasing a number of these items back into an above-the-line P&L. So we will come out with a revision to our underlying earnings that will include those costs. There are a number of them running off, though. These are runoff situations, right? So as they have run off, it makes more sense for everything to be sort of put above the line and then called out more broadly as a sort of a nonrecurring element of the P&L rather than below-the-line items. But we'll be in a position to give you a broader update in February on that.

We're also speaking how we treat -- how we intend to treat that going forward as well.

Yes, that's right.

[indiscernible] you've given [indiscernible] the exit of '24 is all on an above-the-line basis with some costs still below the line. Is that right?

Correct. Correct. Well, I mean we haven't changed at this point. But we will bridge that in February.

Yes. And there hasn't been a material change in the kind of below-the-line costs that you're currently expecting relative to the below-the-line costs that you're expecting in August?

No, there hasn't.

Yes. Okay. All right. That's great. And then just on the trend in ANZ Wealth revenues, obviously, you have pleasing improvement there. You mentioned that you're having better success when you're talking to clients. Is there anything more you can share with us there in terms of how you've gotten to that positive run rate? And I suppose on a forward basis at the full year result, you're also going to be able to kind of share with us a little bit more as to both the pluses and minuses of what's driving that revenue growth to give us confidence that you'll be able to get to that 5% to 7% by the FY '25, FY '26 run rate basis, in particular, things like any legacy contract roll-offs, et cetera?

Look, that's all part of the grist of transformation, to be honest. We're still at the early stages of those conversations with clients. And there's a bit of test and learn going on here as well with those conversations, what works, what doesn't work. And all I can say is it's been a very positive experience to date. We've had -- not everyone's -- sometimes you get a negative reaction. But for the most part, on balance, it's been customers are welcoming the opportunity to speak to us about the value they get from our products. And that's really what we're focused on. Now I don't know -- we are rolling out, adapting as we learn. It's a new type of conversation, to be honest, in the field. So we'll be in a better position in February to sort of plan and plot that out for -- on a whole year basis. But yes, it's a pretty exciting program of work, to be honest. It's been terrific for the team to have a new approach to how they deal with their clients.

[indiscernible] the extent to one party is -- what's the level? Is there kind of lowered pricing agreed? Or you're still kind of going back and forth on that sort of...

Yes. Olivier, we're in process on that one. We've got a -- we're in discussions with a party on that, and we'll give you an update as and when is the appropriate time.

Your next question comes from Cameron Halkett from Wilsons Advisory.

Just going back to Wealth Management quickly. With QAR bubbling away and some of your industry foreign customers are going to get back into the advice space, how should we think about the materiality of the digital advice opportunity in relation to that medium-term revenue target or growth objective for Wealth Management?

You certainly hit the nail on the head there. That's probably the hottest topic in Iress at the moment and, in particular, the changing face of wealth with the banks exiting and superannuation funds adopting and stepping in, I guess, and providing, we think, advice to their clients and members. We see that as a major opportunity for Iress. We want to be in the space of providing advice and advice tools to advisers. As that industry shifts from banks to superannuation funds, which is essentially what QAR is doing at one level at least, we want to be able to provide fit-for-purpose tools into that industry sector. We're working with a number of superannuation funds today on that. We think that's something we're really looking to step into, I think, as a strategy. We're evaluating it pretty deeply at the moment. We talked about reinvesting in the core and talking about developing new growth corridors. That's right up there with one of our highest priorities to investigate. And when we get to the point where we're comfortable to actually articulate our strategy in that area, we'll certainly let the market know. But that is certainly a high topic for us.

There are no further questions at this time. I will now hand back to Mr. Price for closing remarks.

Right. Thank you very much for your time today. I hope you've found the call useful as we committed to providing you more frequent updates as we go through a rapidly changing environment for ourselves and one that's delivering great results. We are aggressively transforming this business. You've just even heard the number of people involved in it. This is a large exercise. You can see already the positive early outcomes of the transformation, and we're really pleased with what's achieved and I think even emboldened by our progress. And that really is providing motivation to continue on and to go, if anything, double down and go harder. Only 8 months into a 2-year program. We've still got a lot to do, and the team is working really hard on making that happen. And I'm very proud of our team, of our leadership team and everything that's been achieved. We've got a lot of optionality ahead of us. There's some terrific growth vectors for us. I think there are costs and benefits to that. We've got a lot of things. And I think it was interesting, the nature of the questions even. The -- a lot of those levers are in our hands as well, certainly on the cost and efficiency side. And we've got opportunities on the revenue side in big growth industries such as, for example, Wealth and Superannuation that we're really energized by. So I'm very pleased to have been to be able to participate in the call today. We look forward to speaking to you in February, and thanks very much for your questions.