Praemium Limited (PPS) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Praemium Limited First Half 2024 Results Presentation. [Operator Instructions] I would now like to hand the conference over to Anthony Wamsteker, Chief Executive Officer. Please go ahead.

Thank you. Welcome, everyone. Nice to have so many people interested in the half year results for us, and welcome to the presentation. At Praemium, we acknowledge the traditional custodians of the country. We pay our respects to their elders past, present and emerging, for they hold the memories, traditions and culture of First Nations people. I draw everyone on the call's attention to our disclaimer, which is on Slide 3. Okay. So joining me on the call today is my colleague, David Coulter, the CFO. And today, we'll be running through very briefly the first half highlights, followed by the financial results, and then I will spend a little bit of time talking about the acquisition that was also announced this morning of the Iress OneVue platform business. And then we'll open it up for any questions. If I first of all go to the highlights of the year -- of the half year. So we had the $9 million EBITDA at the Annual General Meeting. We signaled that, that was probably about where we were likely to land. The revenue of $39.7 million is 10% on the previous calendar period. I have to say, even though we aspire to double-digit revenue growth, the $39.7 million was somewhat disappointing to us. And again, we mentioned that in the Annual General Meeting update. FUA continues to grow strongly, and we're pleased to be on the threshold of reaching $50 billion. And that will be a big milestone for the Praemium business. And for the first half of the year, we continue to return capital to shareholders. In this half, it was all in the form of a buyback, and we'll continue where we don't have appropriate uses of the capital to look for ways to return that capital to shareholders. I think one other thing that I'll just draw, which is not really in the first half, but the fact that we do have a strong balance sheet was what allowed us to participate in the OneVue acquisition. And I'll talk a little bit more about that later in the presentation. Just going to the net flows. The reason we put this slide in is that we want people to get a view of the longer-term trajectory of the funds under administration. The double-digit revenue growth that we aspire to comes largely because we're able to grow FUA. And so it's important to -- for FUA to be growing, and it's important that, that growth comes through what we can control, the organic side of things. But usually we have some help from the tailwind of a positive market return. And so this slide, I won't go into it in any great detail, but it highlights that FUA does grow consistently over time and is what underpins our aspiration for double-digit revenue growth. For the first half of '24, the half just completed, the net inflow for the Praemium Managed Account scheme continue to be very strong and pleasing and in line with the aspiration of double-digit growth. The Powerwrap scheme had an unusual half in that there was actual net outflow. But we feel that's likely to ameliorate over time. Again, we talked about that at the AGM, and I draw people's attention back to the comments we made then as well. But longer term, we think that the Powerwrap scheme will grow strongly. Both schemes benefit not just from writing new business, but from the reality that we've got some very good clients who use our platform, and those clients have typically grown their business at above-market rates. And we think that will continue to be the case. And the last half was just a bit of anomaly in that regard for the Powerwrap scheme. This half, we introduced a new slide, which is to talk about the noncustody FUA. That's a very important part of our business. Many of you have heard me say before that part of the appeal that we can offer to clients is that we can deal with both custody and non-custody. Non-custody is a very important segment in the high net worth part of the market and will continue to be. And the only way an adviser can give a full portfolio view or a whole of wealth view to their clients is to be across the noncustody component of their clients' portfolios. And so our noncustody solution is a very important part of giving advisers a whole as wealth that they can share with their clients. And we're very excited about the growth that we're seeing in the noncustody part of our business and very confident about the outlook for that. We are the largest noncustody provider in the market, but the biggest part of the market even though we're the biggest, particularly in the admin space with $25 billion in noncustody FUA, and that's well and truly in front of the second biggest noncustody provider. But the biggest segment is actually people who are doing it in their own back office, adviser who are doing their own back office. So there's a massive opportunity being #1 in the market as that market shifts to professional providers rather than doing it in their own back office. And we're seeing great opportunity for us in there. If I just highlight the investment trends platform results just out -- and again, we maintain #3 position overall. I'm not sure we'd ever been #1. Sometimes we get asked, will you ever be #1. It's possible. I'm not saying we won't. But the reality is it's a platform survey for the whole market. And given the largest part of the market is retail, and we're specializing high net worth, we continue to build the functionality for the high net worth segment. And the reality is that means in some categories we might struggle to get the points necessary to become #1. But we're very happy to have won those 2 categories, which we think are the most important categories for the high net worth segment. And so we'll continue to respond to our client needs rather than trying to build the platform to win #1. But nevertheless, the fact that we are doing that should mean that we expect to continue to do very well. And it's good to have the endorsement for another year that we are continuing to do extremely well, particularly in the categories that we look to provide a good outcome for our net worth advisers. So as I say, just a brief touching on the highlights. I'll be back later in the call to talk a bit more about the way we're seeing the market looking forward in the OneVue acquisition. But the most important, in my view, part of this, is to hand over to David and let him take you through the financial results for the first half in more detail. So over to you, David.

Thanks very much, Anthony. I'll take you through the financial results. I should be on Slide 11 now, as you're seeing it on your screens, and it's the group results. I think Anthony touched on the revenue and cost dynamics in the highlights for the results. And you see them in a little more detail here just for a bit of financial housekeeping. I'd point out that there's a very detailed reconciliation in the actual statutory accounts of our underlying EBITDA to our statutory net profit after tax. We also have slides to follow this one that have a little more detail on the derivation of both the revenue and the cost. I think we highlighted at the AGM that the revenue had grown quite significantly, and many companies in many different industries would be very happy with a 10% uplift in revenue. However, we participate in a strong growth sector, and we do mark ourselves very [ partly ] on these attributes of our business. In particular, in the platform space, we were the beneficiaries traditionally have high volumes of trading activity, and that ameliorated or softened very significantly in the first half of the 24 financial year, and there's some sites to follow on the underlying margins that bear that out. And on the cost base, we had held off to the greatest degree possible, the headwinds of wage cost inflation. You see there that our wage inflation underlying was around 7%, and that's a measure of wage increases granted for roles that existed within the business. More than that, wherever someone had the part of the business, and we replaced them with a different employee, that wage growth was more pronounced again just to get back into the market and get the right candidate for the role to join the organization. We feel now that we've struck the right balance between rewarding our staff, making sure that we're at market, we conducted a very comprehensive benchmarking exercise of every one of our roles to a very reputable source of information for wages within the financial services sector. And we've got that balance right now, but it has come at the cost of wage inflation more broadly. And you can see that in the footnote to the P&L there, where we have wage growth of around $3.1 million, and that's all on cost of salaries as well. And you might be aware that payroll tax, of course, in our home state of Victoria was increased, and that's been part of what's also hit us there. As I said, there's more detail on the following slide. I'm happy to answer any questions on what reconciles our statutory results are underlying. Just moving on now to the margin slide. You can see here that the platform revenue margin did come off a little, particularly in the Powerwrap business. You look at 20 basis points in the prior comparative period down to 19 basis points. Whilst we express all the revenue as a function of the FUA, not necessarily every dollar of revenue we earn is directly correlated to the FUA we have on platform and trading revenue is probably the most stark example of that. You're really looking at 5% decrement in the Powerwrap business on what it was able to earn from the FUA underlying as well as having reasonably subdued FUA, as Anthony pointed out in his section based on the movement of particular advisers within different licensee groups, in particular to a licensee that doesn't utilize our technology in the Powerwrap space. But it also came off somewhat in the SMA, although less pronounced there with something of an increase half-on-half. The SMO margins, while they're healthier, the FUA and the SMA is lower than the Powerwrap revenue. And that's to a reasonably large degree while we've seen reasonably strong revenue growth, but as I say, a little disappointing for a participant in now a sector that is a challenger platform and expects to grow at reasonable double digits. And now moving to our FTE, which is the most significant contributor to our costs. You see here that the FTE increases were most pronounced in Australia, which has been a very high wage location relative to, say, the Armenian staff contingent. And the increases in Australia have been borne largely by the need to bolster our risk and infrastructure resilience overall as well as a simplistic measure of having to award reasonably high wage increases just to keep up with markets and also to temper the turnover that we were suffering in there. The wage increases, I think, are supportable and we would not necessarily want to have them repeated in the next half of this year. In other words, we think we've achieved what we want to achieve to make sure that we've built a resilient, strong capable business. However, it's come at some cost because wages have grown very strongly in Australia over the last 2 years. I'm on now to Slide 14 and our cash flow. You can see here the operating cash flow is not necessarily as reflective as we'd like of the underlying results. And that's because we've had a timing mismatch on our GST collections and remittances that occurs as it will occasionally over reporting periods. The one-off costs have been dampened somewhat. The one-off costs that we've incurred here are largely in relation to the initiatives we're taking to make sure that in the face of these cost increases, we are building a significant mark-to-market set of revenue initiatives across our product set. In other words, we have done a lot of preparatory work to ensure that -- or to understand better, I think, would be the better phrasing, understand better where it is that our products compete vigorously, but that we're materially under-priced relative to our main competitors in that part of the market. And that having not really increased any of our prices for the best part of a decade. A high inflation environment presents the opportunity to make sure that you're marked adequately to market for the service you provide. We've done a lot of preparatory work to make sure that our teams are well-informed and able to speak to clients about what it is that's governing or providing the impetus to the decisions to lift our revenue rating for our products as they stand. And that's come at that cost. The financing cash flow is largely made up from the share buyback. Anthony referred to that as well, where we're not necessarily a high-volume listed entity. We tend to trade in our own shares when the opportunity presents itself in terms of liquidity and reasonably stable price. But at $7.5 million and $6.6 million in the prior comparative third we're coming fairly close now to having exhausted the $25 million that we were prepared to outlay from the divestment proceeds of the international business. And as you have seen from today's announcement, and Anthony will go in detail, we now have in front of us an acquisition opportunity which might or not might, I should say, definitively provides a better deployment of capital in our view as it will help enhance grow our business and also ensure that we are building the sort of scale that is necessary to compete vigorously in this sector. And from my last, I'm just turning to the balance sheet now. Again, really, the only message from this is that we've got a very strong, very clean balance sheet, and it's clearly able to fund not only the buybacks that we've engaged to date but the initiative that we're going to announce that Anthony is going -- have announced, sorry, and that Anthony will go into detail on as part of the Iress OneVue platform business acquisition. I'll just touch very quickly on the group regulatory cash requirement. I'm well aware that we had thought we would be down to only having to maintain $10 million in cash for the AFSLs that we hold. It remains $15 million at this stage because we did have some interactions on what it was required to submit to the regulator. There's no significant hiccup or problem with doing that. We'd expect to get that initiative underway again and engineered for the remainder of the financial year. The OneVue business itself does have its own $5 million AFSL requirement -- so there'll be temporarily a $20 million allocation to those licenses. But you can see from the amount of cash we hold here. And if you project forward to what might be outlaid for the OneVue acquisition, we'll have excess liquidity over that $20 million for that very brief period of time anyway. So I'll hand you over to Anthony now to discuss the strategy in the OneVue acquisition. Thank you.

Thanks, David. All right. So if we go to the strategy now, I've talked in the past about the strategic approach that we adopt and we've slightly done it differently this time. But I just want to go through it. Just -- I know it's repetitious, but I just think that you need to understand that our strategy is consistent year-on-year, half-on-half, so that you can understand a little bit about what I'll say about what we're doing and also where the OneVue acquisition fits in. But we've always said we monitor the market. That's part of our job, is to just know what's happening in the market. Then in response to what's happening in the market, we need to develop and offer products and services that effectively address the evolving needs. So that's a combination of seeing what's happening in the market and also being aware of what's happening in technology and other areas that might help us to offer products and services that keep meeting those needs and in fact go beyond the current needs to future needs. And from that, with that, we then are able to create some things that are unique, some things that differentiate us. The things that are unique. They are things that only we provide. The differentiators are things that allow us to provide things that are done by others, but hopefully in a way that is better suited to the needs of our client base. And the ultimate outcome is that we will deliver improvements that outshine existing alternatives. And then the final leg, and I haven't talked about this so much as a strategy in the past, I've sometimes talked about the -- I've sometimes talked about the first 3 legs to our strategy development. But the other thing I think is important, and we've reiterated in our thinking about the strategy is it's very important that we continue to grow and scale our business. We do think that we are smaller than we need to be to ultimately deliver the first 3 parts of our strategy. So then what does that look like? The first part of it is to understand the market. And the first thing we say about the market is there continues to be a differentiation between the high net worth client and the average retail client, but that there is some converging needs and the overlap in that Venn diagram talks about some of the overlapping needs. More and more people want the total wealth too. More and more, they want Super and non-Super-managed with the 1 adviser, custody and noncustody and managed portfolios and individual assets. So those things are overlaps and they are things that will continue to drive our development. Having said one quick way of looking at the market and there's other ways, but that's a quick summary of how we're viewing the market. We then say, well, what do we need to do to respond is to deliver the second and third aspects or pillars of our strategy. And this is, again, repetition, but this is -- these were the 5 strategic initiatives or fields of endeavor that we would pursue. And on each of those, we've made good progress. So the next-gen IDPS product launch is in its final stages. That's a very key component of what we need to offer to fully meet the needs of the market. And so the IDPS is a very important development. We are in the half stages where we're doing the work on how we're going to present that to the market. I know I do get some questions sometimes about exactly how is the IDPS different from other parts of our offering. And part of that will be answered when we launch. It will be very clear from the launch materials how that is a genuine next-generation product for the platform market. The Mercer onboarding we've called out there is important addition to our noncustodial. Operational transformation, I've talked a little bit about that in the past. You've got to get your operations right to be able to deliver. And a big part of what we've been doing over the last 6 months is getting ready for the revenue uplift, which David talked about, and which is very much on track with -- compared to what we said at the AGM. The group-wide service enhancements, we are a service business. We always have to be improving our client service. So we've made a couple of enhancements there, but it continues to be a major focus for what we do. Superannuation, it's still even in the high net worth segment. Superannuation is at least half the total money that is managed and administered on behalf of clients. So we're absolutely determined to have best-of-breed superannuation offering. And there's a little bit of a descriptor there about what we're doing, and there's more stuff happening in the background. And finally, we are on the lookout for acquisition opportunities. We continue to be. OneVue won't be the last acquisition that we make. But being able to announce that today is very pleasing. I'll talk about that acquisition now, and it is highly accretive, strategic. It's -- as you all know, there's not many businesses that are right down the middle of the fairway as we say, in terms of exactly the same as what we do now. And so it adds $4 billion or thereabouts in FUA to our platform offering. And we expect to realize at least $3 million of pretax synergies once we migrate it on to the Praemium technology. But the reality is we can manage that whole business on our own tech stack, and that was what made that so attractive to us, and that will be the work of implementation now. The acquisition price, we're comfortable with what we've agreed to pay for that business. There is an earn-out that makes us committed to not only getting the $4 billion on, but we feel that there's opportunities for that -- for just the client base that OneVue has already to grow to $6 billion over the coming 18 months. So there is a possibility the full earnout will be $20 million, and we would love that. That would be a great earn-out from our point of view if we've grown that business to $6 billion. And certainly, our determination is to do that. And our track record is that the Powerwrap business, it's grown by well over 50% since acquiring that business. So we know that we can grow businesses after we acquire them. And then the client migration and timing. So the target is to complete this transaction by the end of April and then start to work on migrating it to our platform, but also continue the work of talking to the clients where we feel there's a big opportunity to grow that business. And as I say, get that FUA growing even further. Just as part of the work we did on the Iress OneVue business. We've put up some slides here to just talk about the $4 billion, and what it's made up of. And in that slide you'll see we've talked a little bit about some of the products, some of the segments and what the FUA is made up of. You will note that there is some noncustody business there, which we think makes Praemium a good home for us because, again, as you all know, that's a big part of what we offer. The other thing just in the client segment that we're delighted about is some very important family office clients in that portfolio, and that is totally consistent with our high net worth view and part of the business that we'll be looking to grow further. So that just gives you a good summary. $10.9 million of revenue in calendar 2023, very nice addition of revenue to our business as well as the FUA. And, as I say, great prospects for that business in the Praemium world. Post migration, this just says what do the 2 businesses look together. And I mentioned earlier that $50 billion in platform FUA would be a great milestone. Or sorry, not -- in total, FUA will would be a great milestone. And if we don't reach it by the time transaction completes, then this transaction will take us above $50 billion. So a big milestone and obviously a big incentive to say, well, $100 billion would be a nice target going forward. And when you're looking for double-digit revenue growth, that should be an aspiration that we should be proud to go for. Let me close by saying we're delighted to be able to acquire that business because it's got some tremendous people working in it where we've had a really good time getting to know the people and really look forward to welcome them into the Praemium business, even though it's an acquisition in many ways, we'll treat it like a merger where we'll be trying to pick the best of breed in what OneVue people do and what Praemium people do. And certainly, the migration of Powerwrap onto the Praemium platform that has enabled us to get some good ideas that help both businesses. So we'll be doing the same with OneVue. I'm going to open to questions, but there is an appendix there, which is a very busy slide. But that Slide 26 in the pack that we released to the market just allows you to see some highlights of that business and the information that came to us as part of the work we did to satisfy ourselves that it would be a good acquisition. So thank you very much for your attention so far. And now we do have people on the line who are able to ask questions. So I'm going to pause and open it up for any questions. Thank you.

[Operator Instructions] The first question today comes from Lafitani Sotiriou from MST.

My first question, I would like to expand on the OneVue platform acquisition. Could you please just add a little bit more color? If we want to try and think about the next sort of 18 months, 2 years in terms of the cost [indiscernible] for both the TSA and you achieving your synergies. So just a bit more clarity on the timing of that. And then also, if you could talk to the actual practicality. So will the OneVue platform technology still be around? Or are you expecting to do a complete transfer to your own existing infrastructure. If you could just add some color around that, that would be great.

Right. Thanks, Laf, and welcome to the call. And I'll take the second question and then hand over to David on the timing. Before I do hand over to David, I will highlight, as you all know, he for many years was CFO at IOOF as it was and Insignia now and oversaw a CFO quite a number of transactions. And I can assure you, having worked with him closer he is going to be very focused on making sure we stay disciplined on realizing those cost savings. So I'll hand over to him in a minute. But just on the tech stack and the business left, which is a very good question. I do want to make a couple of points. The first one is it will be on Praemium tech. And so there will only be one tech stack in the Praemium world going forward. Part of the uplift that we've been focused on in the recent past, one of them has been bringing Richard Large in as CTO and asking him to give us whatever we need to do to build out the tech team. And Richard, also like David, has had many years of experience in his case with Aberdeen Asset Management, doing a number of transactions and ruthlessly getting them down to the bare minimum number of platforms. So it will be just one tech stack, it will be the Praemium tech stack. Having said that, OneVue have done strategically, what I say we need to do, which is you've got to monitor the market and then you've got a find what you're good at and make sure what you're good at delivers for the market. So there is a couple of modules in the OneVue platform that we will either need to build out or we'll need to seamlessly integrate to our tech stack. There's not many, but there's just a little bit of capability there that will be very important to the OneVue clients to say we haven't gone backwards in terms of what we're getting from the new tech stack. So it will be one. It will be a very disciplined approach over the next 18 months. And we're confident that what that means is that there will be a functionality uplift to not just doing that for the OneVue clients, but to Praemium clients as well as a result of having to add a module or to the Praemium tech stack. But I'll let David talk about the timing and the costs associated with the various milestones along the way.

Yes. Thanks, Anthony, and thanks for your question, Laf. In essence, we've disclosed that we'd have $4 million of one-off costs. And that, again, in very simplistic terms, is what it will cost us to interact with Iress on a TSA to operate the business on its current tech whilst we're preparing our own stack to take receipt of client funds. $4 million over 18 months works out at $2.7 million on an annualized basis. So like any CFO, I'd be exhorting our team to transition off TSA as quickly as possible the natural tension will be, how much risk are we taking in doing that and which clients are willing in what order to embrace our new tech stack. I would figure that, that would be the ones who have the least amount of bespoke customization in their OneVue offering. And that would be looking for Praemium as a logical solution based on our reputation and our rating in the market more broadly. So the TSA itself is modular and the bulk of it is focused on the provision of IT capability and capacity. Those head office corporate services, and I think given my own exposure, I talked about the finance team, for example, we are not keen on and nor is Iress just quietly. We're not keen on having a finance function out of Iress head office, extend itself for 12 or 18 months for that matter. And we think we should be able to get ourselves away from that as they'd be keen to do as well, just based on us working collaboratively to make sure that we've got all the information we need, all the feeds and we've built our GL appropriately to take receipt of the company information. And that's the sort of dynamic we're going to try and impose on each of the teams within Praemium to ensure that we're just taking advantage of that modular nature of the TSA.

Okay. Can I just follow up to the capability gap. Can you just a follow-up question and then on a new question. Can you just go into a little bit more detail what are some of the capability gaps that you'll be looking to fill or transfer across from OneVue. And then can I just go into some of the price changes. The language here is a little bit stronger around looking to capitalize on or possibly push through some price increases. So over the last year and a bit, you've made some changes on the cash margin, but can you -- are you talking outside of the cash margin, you're actually looking to possibly increase administration fees and the like? And what is the time horizon on some of these price changes.

So Laf, once again I'll go to your second question first. And the answer is yes. I know it wasn't really yes-no question, but the answer is yes, we're looking beyond just the cash margin, also looking at the cash margin as well. And you might have a follow-up question if you want more detail about that. But yes, we're looking at every part of the platform. And then if I go back to the first question, which was a follow-up. And this gets to -- it's related -- you can relate it to the question you've just asked about the revenue. Obviously, as you know, you know better than most that the platform has many components of revenue and that each component of revenue arises from some functionality that you're offering to a client. The 3 big ones we often talk about are just what's the base platform fee, what's the cash margin and what's the trading revenue or execution margin that you take. But there are numerous others. And the reason I mentioned it in both the revenue, but the revenue arises because you're offering a service. And in each of those areas, OneVue are offering something slightly different to what Praemium does. And their technology delivers things in a slightly different way. Most of those differences are very slight. And so we can we can administer and service OneVue client based on the Praemium technology. But there are elements of the total that they do slightly differently. They do trading and execution slightly differently to how we do in Praemium, in some ways, superior, in some ways the Praemium way is probably superior. And so what we want to do is where we think that the way that OneVue are serving their clients on trading and execution is different to the way Praemium does it. And you can see from the client's point of view, probably considered to be superior to the Praemium way. We need to take the trading and execution functionality that they've built and the modules they've built into their platform and put them into the Praemium or else -- so we can build that module out in the Praemium world, or we can acquire that module. We're no longer, Praemium is no longer a shop where we have to build everything ourselves. So there are a couple of things where we might go to market and buy a module that will meet the needs of the OneVue clients and be a superior solution for the Praemium client base.

Okay. Got it. So it's more process rather than actual product feature that is there is a gap, so [Audio Gap] you don't currently offer -- you're saying it's more process-driven that you'll need to sort of work that out over the coming 1.5 years on how to solve some of those processes.

Yes. That's right, Laf. And the OneVue people have told us that when they look at their product development, most of it lands on the sort of functionality that's offered either in the Praemium platform world or the Powerwrap product. The big gap for both of us is this IDPS that we're building out. And so that will be just being able to get that live as well. We'll close a lot of the gap, too. But as I say, more on the trading and execution, there are some things they do which is very clever and they need to be commended on what they've done there for their clients.

It's I mean interesting, the IDPS, that's my last area of questioning. So can you just add -- this is a big change, right? So this is a reasonable growth area of the overall platform space. Have you got an existing back book of clients or existing book of clients that have been demanding this? So do you expect to start at a reasonable run rate? And can you just -- I'm sorry if I missed this, but can you just add a bit more color around the timing of the launch of when this will be in the market?

Yes. So we -- in terms of the back book, we -- to be honest, where we've lost opportunities that we're pitching for because we don't have an IDPS, we haven't yet had a live, we've had 1 or 2, so you need to come back to us when you got the IDPS and you'd have a better chance of winning. But most when they go to market with a tender are ready to go now. So it's not as if we've got a whole lot of new clients who have said, we'll wait until you got the IDPS before we make our own platform decision. We have got 1 or 2 who that is feasible, but not many. We've certainly got a lot of our existing clients who say basically you've stretched either Powerwrap or more commonly the Managed Account scheme to the limit in terms of what functionality you can build on that, but I still need a new IDPS. I need a full IDPS solution. So in there is a big demand for it, mostly though, in our own client base. So we would think that the first 3 to 6 months after launch could well be migration of existing clients who actually need that functionality rather than what Powerwrap offers or what the Managed Account scheme offers. I'm sure we'll get a lot of traction very early on after that because we know that there's a number of tenders where we would have done better in the tender had we have had the full IDPS. And when I said before, you'll hear more from us as we go to market. There's a lot of work going on behind the scenes at the moment on how we position that in the market. I've said before, whatever happens, I can assure you this won't come to the market, branded next gen IDPS, that won't be the brand. So a lot of work is going on on the brand and naming and the material that should go into a proper launch. And that should give us plenty of momentum to not only win over the existing client base who might want to migrate from one product to this more importantly, far more importantly and the business case is predicated on actually winning more new clients onto it.

And sorry, the timing, are we saying within 6 months, within 12 months, just to…

Definitely within 6 months, yes, yes. But it could be probably later this year, later this financial year or early next financial year is the current timing.

We probably should move on to some of the other callers left, but happy to have you around back in if you like.

The next question comes from Nicholas McGarrigle from Barrenjoey.

I just wanted to get a sense on what gives you confidence that you can get to the kind of $6 billion upper end of that range. I guess they had about $5.7 billion when the business was acquired by Iress. So some of the money obviously has leaked out. But what gives you confidence that you can regrow that towards $6 billion?

So thanks, Nick. It's essentially existing clients of the OneVue platform who have -- there is some compensation going. Some of this is confidential, but the gist of it is existing clients on the OneVue platform where conversations are occurring as to moving more of their book onto the platform. And obviously as part of our work that we did in the due diligence phase, we've satisfied ourselves that they are indeed 1 to 4 opportunities, and we're very keen for those to land.

And if I just may add, the CFO perspective is we think the earnout is pitched at the right level. In other words, it's $4 million now, and that would result in another close to $7 million paid out, so $8 million in total, $4 billion of FUA. The business would have excellent operating leverage should we win the additional $2 million. So the payment of another $12 million would not be of concern, it would be worth doing for the additional revenue we've garnered from the additional FUA.

Yes. And I guess the revenue [indiscernible] kind of 2x revenue, is that right, roughly on the…

Yes.

If you got an extra billion dollars at 30 bps-ish. Yes.

Yes. Look, and we think that would be only reasonable. So I think it's been a really tough negotiation with Iress. That's fair to say, as it ought to be. But I think that the 2 parties would come together on the fact that the sliding scale for the earnout is proportionately where it should be for what the business looks like now and what it could look like in 9 and 18 months.

Can I just say, we think under almost all scenarios the revenue multiple is well under 2. So I guess if the FUA doesn't grow then the multiple will be under 1, but we're very hopeful and we'll be working hard to pay the full earn-out. And if we do, it will only be a bit above 1 revenue multiple.

True.

Yes. And can I just get a sense, I mean, Iress gave some disclosures in their last presentation around their managed portfolio. I mean they obviously don't talk about this division explicitly, but it looks like it was probably losing a little bit of money to them at the EBITDA line. Can you just talk through pro forma post migration pre synergies is the business expected to be profitable to you?

So it can't be -- well, we don't expect it to be profitable on day 1. In fact, we expect it to lose money. We believe it was about breakeven, and it's really for Iris to say. But in the Iris world, we understand the business was about breakeven. When we take it over, it will be loss-making because we need additional services out of the Iris world that are covered under the shared -- the transitional services agreement, the TSA. So that will take up from breakeven to loss in -- when it comes into our world. But then there's benefits if we can grow the scale independent of the migration, but the big benefit comes if we can migrate it, well not if, when we migrate it on to the Praemium technology stack.

And is it kind of bilateral negotiations with each of the individual clients to say, listen, we're retiring the OneVue systems, you can move on to the SMA or you can kind of move your business all through? Is it that kind of conversation? Or just trying to [indiscernible] the pace of the migration and the risk around the revenue retention?

Yes. No, it's the former, Nick. It is one-on-one negotiations with each of the clients and talking about what products and services they've got from Iress and what those products and services look like in the Praemium world. But just to be clear, it's a tech migration, not a product migration. If people say, well, I want to move from the Iress product to the equivalent Praemium product, that's fine, but they won't be forced to do that. What we will be doing is serving those products and services that OneVue currently offers by using the Praemium technology to do it rather than the OneVue technology to do it.

Cool. And I'm just trying to understand, so that if I -- maybe I'm not understanding correctly, but -- let's say, $4 billion at 30 bps is $12 million, it's going to lose money for you, and then you get $3 million of synergies. I'm just trying to understand how you guys make it mid-teens accretive on -- how does it stack up?

Yes. So the running costs as they will be borne by us while under the TSA will fall away. And the underlying business will be $3 million at least better off on its own EBITDA. So it's an uplift from that breakeven. We're not considering the movement from loss-making under TSA up to synergies realization as part of the synergies. We wanted to be clear that synergies were what we'd be saving from the stand-alone running cost of that business. And we're treating the TSA costs as the one-off. So there…

Right. And the TSA embedded in that $1.5 million cost that you called out, the couple of 1.5, the one-offs?

No, no. The TSA is the $4 million over 18 months in essence. And the 1.5, just to be clear on those, Nick, 1.5, even on a deal of this size as far as purchase price goes, that's about right for the sort of advisory, legal, taxation due diligence services if we have to call in for a business of our scale. And then there would be some sort of reorganization or restructuring cost at the back end once the business is lifted from the OneVue technology to our. So they're in those 3 distinct buckets.

Yes. Okay. That's good to understand. And maybe just the last question, I guess, on the underlying business, the result was kind of as you guided. I think there was a view that you get earnings back to maybe the levels we were thinking previously on the back of some revenue and some cost synergies. Can you give us an update on those? I guess you've alluded to some potential pricing changes on the revenue side which are fairly controllable. Just wanted to get an update on that on the underlying businesses.

Yes. I'll go for that one. Anthony answered that question in a fairly extensive detail [indiscernible]. But there will be information in the public domain fairly shortly on what we're doing with the structure of certain of our products and the revenue that we'll generate from that. So until that's there, we can't go into any specifics, but that gives you the sense that we're well underway with planning and indeed delivery for execution on some of those repricing initiatives. As far as cost synergy is going, I would not necessarily expect while we've got an acquisition on and launch of the IDPS that we're looking to liberate from the underlying business any costs. It is a growing business, and we'd expect those costs to increase. What I would say is that the rate of increase of 19% was -- to pcp should ameliorate significantly. We've awarded our wage increases. We've recomposed our workforce. We should be able to constrain our cost growth to something the equivalent of wage inflation with a stable workforce and supplier cost inflation more broadly.

Yes. Okay. And then, I guess, the synergy that you flagged is kind of on the December '23 profit run rate of the core business and the OneVue acquisition with no TSAs and all the synergies?

Yes. And look, we'll be very, very transparent come August and how we're reporting those businesses. We won't try and mix and match. There will be a very distinct disclosure of OneVue under our [indiscernible] or ownership. And what it has contributed or not to our business overall, and it will be granular to the extent that our current business is as well, we'll have it reporting the way we report our own business, but distinctly differently, so that everyone in your part of the industry can get a good line on whether or not we're doing what we said we'd do. And moreover, we're not trying to then mask any deficiencies, if you want to call it that, in our underlying business. We're being very, very transparent in our underlying existing Praemium Powerwrap businesses and noncustody businesses are going.

Yes. And maybe just one last one for me. Your interest income, I think, annualized to a rate of close to 6%. So I just want to find out who your online savings account is with because I might move my money and then D&A was significantly lower than last year. So I just wanted to get some thoughts on those 2..

I'm happy to [indiscernible] our banker because it's OneVue's banker as well. So we get a nice little synergy in that respect. That's Westpac.

Okay. And then just the D&A was down a fair bit. Just wanted to understand why that was so much lower?

Nothing in particular. I think the rate of addition to capitalized intangibles 2 years ago because we were facing an uphill battle on some of the regulatory was down a little. That's probably just that coming through. I can actually tell you the other component would be significantly reducing our property footprint as well. Most of the leasing expense actually goes through D&A now to be aware.

The next question comes from Nick Burgess from Ord Minnett.

Few questions for you. Just on OneVue, the mid-teens accretion within 18 months, what level of FUA retention or level are you assuming in that accretion guidance?

Everything fits pretty conservatively. It's to retain the $4 billion.

Okay. At $4 billion. Secondly, just on the $3 million synergies, are they just cost synergies? Or given that the SMA revenue margins are a bit higher than what OneVue looks like, are you assuming some revenue synergies as well?

No, they're cost synergies as far as models. If there were revenue synergies, I see where you're taking that, but we're assuming as far as modeling goes, that all existing clients stay with a OneVue type product [indiscernible]. And as Anthony said earlier, if they want to migrate to one of our products, more than happy to entertain that conversation. But that's not the way we've done the modeling.

Okay. So the same tech rather than -- sorry, the same product rather than the tech…

[indiscernible] with that same Mantra. It's a tech migration, not a product migration. It's the best way to describe it. Yes. Okay. So no anticipated major changes in revenue margin for the OneVue business on that basis. Certainly not modeled that way.

And just thinking about the business overall, lastly in terms of EBITDA margin before we think about OneVue. Obviously, the EBITDA margin for Praemium has been pretty volatile for reasons we've talked about in depth. But the outlook for the EBITDA margin over the next couple of halves. Obviously, the market has been helpful. You've still got ongoing cost management issues. Any outlook comments on the EBITDA margin for the group?

We still aspire to get ourselves to the 40% that was called out ever since Anthony and I started doing road show together, and admit that, that has not been our achievement to date because it's borne out in the numbers. But aspirationally, we would be targeting 40%. And we have often said trying to give ourselves some sort of pass on this, but it's our scale that upsets it more than anything else because it doesn't take terribly much to go wrong in either line of the P&L to put us back a little on that aspiration. The OneVue acquisition in and of itself is what's going to accelerate our aspiration to get to that sort of dynamic.

Okay. And lastly, actually also flows across, both businesses have been pretty volatile over the last few quarters. Any outlook comments or trading updates in terms of flows onto the platform would be helpful.

Well, obviously, Nick, we'll be giving that March quarter flows in mid-April. And so that's when you'll know a bit more. But what we tried to do at the AGM is just be clear on the impact that adviser movement was having, particularly for our biggest clients in the Powerwrap world. And the trend other than adviser movements is whilst it's still cyclical, it's been better over recent times than it was at its low point. And so that's all I'd say about that. And the adviser movement, we had a disappointing half where we've been able to rely, as I said earlier, on our clients, our advice firms, typically have won the battle for advisers and have grown their market share. As one of them said to me, any time we grow our adviser numbers, that's a big win because the number of advisers is contracting. So if we grow the number of advisers in our business in a market where the number of advisers overall is contracting, we've done well. And most of our advice firms have done that. We've been the big beneficiary. And we think we will be longer term. There's been no change to the fact that we've got a very good client base who is typically, that have typically grown their advisor pool. And we have said that some of our advice firms are doing well in this environment, this landscape where advisers are moving at the moment.

The next question comes from Tom Tweedie from Moelis Australia.

Just building on a couple of the previous questions asked. With the OneVue acquisition, are you able to give us a sense of the sort of compositions of the revenue margins and fees there, how they compare to your existing businesses? I'm assuming close to Powerwrap.

Yes. Well, if you look at the -- what we've disclosed, the revenue is of the order of $10 billion.

Million.

$10 million. Sorry. It would be nice if it was $10 billion. $10 million. And FUA was about $4 billion. So a quick summary is the average is around 25 basis points. So it sits between Powerwrap and the managed account scheme, which we've published in the results, and it's pretty close to the average. So it's a similar business in that regard. The pricing is similar to what we do. So yes, similar business in a lot of ways to the…

And that includes admin fees and cash fees as sort of comparable.

Yes. Yes.

Okay. Okay. And the second question just to what Laf was mentioning. Just help our thinking on the timing of the migration costs. Is the bulk of that probably going to be -- it's obviously FY '25. But in terms of the 2 halves, how should we think about that?

So it's scheduled for 18 months. We will be doing everything we can within our power to make it quicker. But I think it's judicious to go with a conservative view that marries up with the earnout and the capacity to continue to avail ourselves of Iress service provision. Given that and given we're now into the second half of the year, albeit just, and the completion is until really the last quarter, you'd say you'd be very hopeful of having a fully implemented business running for the 26th financial year, and that will give you your best run at, a clean OneVue business on our tech, every client migrated and in the product set that they want to be in to continue their journey with us. The reality is it's never going to be quite that clean, but that's how I'm thinking about it when I'm looking to model EPS accretion for the Board, for example. Yes, just off that month of April and let's say -- or take it off to a degree. Let's get it going, given it's an 18-month progression for the 26th financial year. So that's a bit sooner than the 18 months. Let's take a quarter off. But projection is for 18 months because that gives us the best degree of conservatism and buffer over what we're trying to achieve here. Now we've got some people internally always say, whatever you ask in the world of technology, double the time and double the cost. But we don't think that's necessarily the case here. I shouldn't have even said it. But you need to build in contingency and some sort of margin for error because when you do an acquisition of this nature, there will always be something that surprises you on the downside. It's just the reality of it. I don't want to be anything but very transparent with the market about what we've got in front of us. All that said, we're entirely confident that we've got the right tech stack and the right people in our technology area to ensure that we can take those clients across.

Perfect. Perfect. And one more for me. Just on the underlying business and the balance sheet at the moment. Obviously, you mentioned that temporary restriction $20 million of cash. You also mentioned further acquisitions. Are you able to give us a sense of how we should be thinking about -- it sounds like the buyback and all that's cooling off. But what you've been looking at acquisition wise, is it a case of bolt-on FUA or do you want product tech uplift? Or how do we think about that side of the business or what you're looking at?

So if there was a lot more like OneVue, that would be ideal because it means what we're looking for. It's essentially the best opportunity is if it's exactly the same business as we're in, and they bring some -- obviously that brings more FUA and more clients, which is great for the scale, but they bring some functionality in what they do that expands what we can offer the market. And finally, that it's doable that it can migrate on to our tech stack. But there's no more like OneVue in the market. So there is -- potentially there's opportunities in the noncustody side. OneVue is more a platform business. There's some opportunity in the noncustody side where, as I say, we're the largest player in that segment, but it's a bit of a cottage industry. And so we really aspire to do a lot in that. So if there were acquisitions in that, they would potentially be attractive for us. In the end, all of these things come back to realistic vendors as well. We sometimes pass on opportunities because the vendors not seeking a price that we can get comfortable with.

The next question comes from Warren Jeffries from Canaccord Genuity.

Just belaboring it a little bit, but just trying to quantify the impact for accretion. So right now, if the [ 4-bill ] holds and all else remains equal, the business is a $10 million revenue business with about $3 million of EBITDA, which is a realization of those synergies in full.

Yes. That's a good way to look at it, Warren. Yes.

And so does that $3 million number that's achieved in 18 months or would that likely be a run rate given you -- I guess you've done the exercise for the Board?

Yes. It's more likely achieved in 18 months because scale businesses working in both directions. So whilst we'd be taking clients off the [indiscernible] tech, we wouldn't be able to close it down until the last client has migrated. And like I say, the businesses that have operating leverage, the leverage works in -- doesn't work in reverse. They have something of a fixed cost base to deal with whatever tail you're down to the end or the drawing to a close of the TSA, for example.

Got it. So in 18 months you'll have not delivering it, but the business will be achieving 10 and 3. When do the synergies from your side start to kick in because it will take a while before you can get them realized or starting to realize?

Yes, it is pretty much in the vein of the answer I gave, Tom, which is think of the full year '26 as the year where you see that business running full [indiscernible].

So 10 and 3 in '26 and 10 something smaller in '25, it sounds like.

Yes, that's a good way to look at it, Warren. And obviously, our aspiration will be to get the floor up and therefore the revenue up as well. And the marginal increase in revenue would be very attractive to the business.

At this time, we're showing no further questions. I'll hand the conference back to Anthony for closing remarks.

Thank you very much. And thanks again, everyone, for your interest in the call and for the questions, thanks to all the [indiscernible] last questions. So we look forward to -- we've given ourselves a big challenge now. There's a lot to execute. We've got the EBITDA uplift program that we're working on. We've got an acquisition, and we've got a new next-generation product which we think is very exciting. Part of the investment that we've made in the team and the capability gives us the confidence to take on that sort of workload, but we appreciate everyone who's been on the journey with us so far, and we look forward to executing those big things and moving this business forward. So in the end, we want to get back to the aspiration. We've got a double-digit revenue and expenses lower than that. As David said, we acknowledge we haven't delivered that to our own satisfaction let alone anyone else's satisfaction in the recent period, but that remains our aspiration for this business going forward. But thanks again for the time on the call, and we look forward to meeting with some of you when we get through the -- when you all get through the reporting period of all your portfolio. We'll leave it at that. Thank you.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.