Praemium Limited (PPS) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Praemium Limited FY '24 Annual Results. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Anthony Wamsteker, Chief Executive Officer. Please go ahead.

Thank you, and welcome, everyone. Thank you for joining us for our annual financial results presentation. At Praemium, we acknowledge the traditional custodians of country. We pay our respects to the elders past, present and emerging. I'll draw your attention to the disclaimer. I won't leave it up long enough for anyone to read it, but it is available on the ASX website for those who would like to see what we've said in that. I'm joined today by David Coulter, the CFO, and our agenda today is to go through very quickly some of the highlights for this past financial year. Then David will go through the financial results in some detail, and we'll conclude with a brief discussion about the strategy going forward, followed by questions and answers. So if I go to the business highlights for the year, just done, we've talked in the past about a new leadership team and the strategy that goes with that new leadership team. And so this slide, we just draw your attention to the reality is we're trying to emphasize the unique value proposition of Praemium and what makes Praemium different and what makes us valued by many of our clients. We've used a Venn diagram in the past, and this is a different way of looking at what we offer. And one of the things that we offer is a market-leading alternative asset capability. We've always said that we've got the widest investment range, and that is true. We also have the non-custodial service, which is the largest non-custodial service in the market by market share in terms of the assets administered on that non-custodial service, and we've got the widest suite of available reports. With those strengths, we also need to focus, as we've said in the past, on service excellence and the client centricity of putting clients at the forefront of everything we do. And we've said that's how we develop our strategy, being aware of what clients want, what we're good at and then finding a point in the market where we can make a contribution to the market in a profitable way. And so that is another way of looking at what our strategy is. If I then go to the highlights of the year, $21.5 million EBITDA, we think is a strong result for the year, especially when you consider the strong uplift in the second half from the first half, that is from $9 million EBITDA to a $12.5 million EBITDA in the second half. The revenue of $84.9 million, again, strong revenue growth, 11% for the year and 15% half-on-half. We've got what we believe is a scalable position in the market now, $57.4 billion in assets under administration altogether on both the custody and non-custody services that we offer. And finally, we are a disciplined manager of capital in our business. We returned capital to our shareholders in regard as the most efficient way, and we are delighted, as part of that to have announced a $0.01 dividend fully franked dividend. The final thing about the capital management and why I believe we are entitled to say that we're disciplined capital managers is because we are always on the lookout for opportunities. We're not silly about that, and we've walked away from almost every opportunity that we've looked at. But the one that we did proceed with who we think was a very good acquisition for us in the OneVue business. If I then go to the a broad look at how we look at our sales pipeline and the growth that we get, this slide gives an opportunity to look at the composition of our sales or our growth by the tenure of the adviser. And so again, just to draw out what this graph is telling us over time. So this is now 3 years of data in this graph and its existing sales from an existing adviser. It's an existing service with a new adviser. So that's a client of ours who has grown their adviser pool and started to put money on the platform with those new advisers that they've gone or a whole new service. And what we think it demonstrates and what we feel is that our business has got good loyal established clients as well as businesses that are growing themselves. And whilst we've had some setbacks in the past year where some of those who've left our clients. So clients are happy with us, but they have lost their advisers. That is a relatively unusual proposition for us. Usually, we have had advice Groups using our platform who are growing their business quite strongly. And then the right-hand side is another way of looking at the FUA by the length of tenure and so of the adviser. And so again, you can see a relatively good mix and growth coming through as well as strong organic growth from our existing book of clients. If I then go on to the next slide. One of the things that we have to do is we have to continue to make sure that our technology is suitable for our ambitions. And our ambition is to be the best platform for high-net-worth advisers and the best overall solution, whether it's platform or non-custody for high-net-worth adviser or sophisticated advisers. And so we're very confident that the way that platforms get assessed independently by investment trends we continue to demonstrate that we are improving our technology over time and the investments that we're making, which are not insignificant, and we record that as the CapEx in our accounts. So very significant investment, but certainly reaping a good return on investment in terms of not only the organic growth, but the independent assessment that our technology is market-leading, as we say there. If I then move on to the OneVue integration because that is a topic of interest to everyone, not just ourselves, but our shareholders have been very interested in that since we announced it and acquired the business on the 15th of April. Just to remind everyone, it is strategically valuable to us. It is accretive, and it gives us greater scale. And it's a business that we can put all of that business on our own technology stack, which, as I've said in the previous slide, is clearly fit for purpose. We're happy with the negotiations and the structure of that. You will have seen, for the first time today, the accounting treatment at the present time of the earnout. It's explained there and in the annual report as to why we've dealt with it that way. But the essence of it is, for those who remember, there is a $20 million earnout potentially in full for $3 billion in FUA, scalable between $3 billion and $6 billion. So we acquired over $4.1 billion if it finishes up at $3 billion and there's no earnout if that's $3 billion on the first earn-out date. If ultimately at the final earnout there're $6 billion, then it would be $20 million. And the way that works is that given the FUA as it stands today and the earnout that would be paid if that trend that we've seen today continues, then we treat that in an accounting sense of $3.2 million. So that's -- just to be clear, that's -- it's more an accounting treatment than a projection of what's going to happen in that business. But to recapture the point, very important transaction for us and correctly priced in our view and with the right incentives in place. Obviously, we've now had that for 4 months, and therefore, we've had the opportunity to work with all of the clients. We continue predominantly to deal with the clients through the OneVue team. And as I've said before and I say again, we've got a highly capable team of people with OneVue. And so they've been dealing with the clients as well as introducing some Praemium executives to the client base and that -- those conversations are going very well. Finally, I just want to talk about corporate responsibility. Sometimes, people hear me say that we regard this business having 4 main Groups of stakeholders, shareholders who listen to the purpose of this call and the annual results presentation is to talk extensively to shareholders, and we regard the shareholders properly as the owners of the business, very important stakeholder Group. Our staff are very important. The people who work in our business, make sure that we achieve the results that we do. Of course, clients are a critical stakeholder Group and the reason we are in business. But finally, there is a broader community within which we operate, and we're conscious of that. And we believe strongly and you earn the right to operate in a particular business area has been the wealth management sector and the investment administration in that sector. And so we continue to strive to earn the right to operate appropriately. And hence, some of the things that we say there about the corporate responsibility, which is Grouped around those 4 critical stakeholder Groups. So again, I won't go through the slide in any more detail than that, but it's there for everyone to read on the ASX website. With that, obviously, given we're talking to the shareholders, the owners of the business, we know you're very interested in what all that means in terms of the financials. And David, as the CFO is all over that. So I'll hand over to David to talk in detail about how we're going financially.

Thanks very much, Anthony. Turning to the financial results. We've got 2 ways of looking at the profit and loss statement. The first is on the annual basis. In both instances, we've taken the OneVue contribution to the result and isolated that as a separate column. So you can see the impact of having acquired OneVue on the 15th of April and having owned it for 2.5 months into the 30th of June 2024. So the more relevant comparison potentially is to take that middle column FY '24 x OneVue and compare it to the full year '23. On that basis, we had 8% revenue growth. I'll go into that more than we talk half-on-half, I think, because that's where the stellar performance is really highlighted. The first half, as was noted by longtime observers of the company was impacted by subdued trading volumes in Powerwrap. However, the repricing of the SMA and very positive markets overall as well as our strong growth in VMA and VMAAS more than the rest of that, so that we've had a very, very strong second half. As so I'll go into that in the next slide. More pertinently, again, the costs were up 7% -- or sorry, the expenses were up 15% overall for an EBITDA reduction of only 7%, which when compared again for the last half year result, you can see the extent to which the second half has really done a lot to improve the overall profile of the company and the results thereby produced. So turning to that second half. You can see again, we've got the format where we've taken OneVue's impact for the 2.5 months of ownership out of the second half so that we have a like-for-like comparison. And it's on that basis that you can see again, reasonably significant revenue growth, but also a plateauing of the costs having taken the tough decisions in the first half to make sure that we're investing adequately in capability, resilience and IT security that we bear the fruit of that by having earned our revenue and earned a very significant uplift in our EBITDA for the second half of the financial year. So a $12.8 million result, absent OneVue is a very significant 42% improvement in underlying earnings before interest, tax, depreciation and amortization on the $9 million experienced in the first half of the financial year. I do know that the next slide attracts a lot of attention from our analysts and also from our shareholders, and there's good reason for that. It's probably the most transparent look at revenue margins in the sector. And it also highlights the extent to which the corrective action we took on the 1st of April to make sure that our flagship SMA product was priced appropriately for market, has had the impact of lifting revenue particularly in that last quarter. You can see from the variability in the chart, there's a continuing upward trend line for the blue SMA and the last 3 months was earning at 39 basis points on its FUA. And that's in an environment where FUA was improving both in flow and from market valuation over that quarter as well, hence, the significant uplift to revenue overall. I haven't plotted OneVue on here necessarily, but I've isolated it and what it actually does produce. So it's very consistent with the Group average on what it gets. And I think that's also something that we can look at as we go towards making the OneVue integration work for our shareholders. I'll get on to Powerwrap maybe more when we talk about in the next slide, but the Powerwrap experience has been one of reasonably significant markets holding up and investing some of the outflow that we've had from exited advisers from a particular advice Group. Turning to the next slide. This is the first off for us in coming to some more detailed statistics about what makes up our 2 most significant products. Again, we haven't gone into detail on OneVue here, having only owned 2.5 months, but also because the plan and Anthony will go into some detail on this as he finishes up the presentation, the plan is to transition OneVue clients to our own tech stack and potentially to something of a different product profile in doing that. You see here that the SMA on the left has around $400,000 per portfolio, but more importantly, the revenue per portfolio in this year has lifted significantly on the reprice. So at around low $1,000 million for the previous 2 years and then an uplift to getting closer to $1,500 million as we hit full year '24, noting that there's only 3 months' worth of the higher repricing in that. So we would expect a significant tailwind on the revenue per account as we enter into FY '25. Powerwrap, and I think this is very, very illuminating is an ultra-high net worth offering and the extent to which we earn very, very significant revenues per account speaks to that. Although the account numbers, of course, because ultra-high net worth by definition, are fewer and far between than your normal participant in the market or where the account numbers are much lower there. But you can see from both of these that the skew of the business towards high net worth, notwithstanding the second half of '22 at a fairly significant market correction has led to an ever-increasing profile of FUA per account. And that's roughly at the time where Anthony has taken over the business and determined that the appropriate segmentation for us is to look at the high net worth and ultra-high net worth as a market. The SMA itself still is a reasonable tail in lower account balances, but has lifted very significantly over the time that we've decided to concentrate our energies on the market that best suits us. The biggest message to come from this slide and perhaps that means I shouldn't have left it to last. As you can see the segmentation gap we have between ultra-highs and Powerwrap and the sort of balances we have in the SMA that are going to be addressed by the Next-Generation IDPS. And again, Anthony will talk to that product launch in a lot more detail as we progress through the presentation. But at $400,000 versus around $3 million per account, you can see there's a significant gap that we're looking to address. And we believe we've got the appropriate product solution to do that. The next 2 slides just concentrate on our [SVMA] flows, both from a custody point of view and from the non-custodial. It's a revisit really because we produced all these statistics when we went with our June quarter update in mid-July. Worth looking at, again, though, we've had very significant growth in our FUA SMA through flow and through market revaluation. Powerwrap, keeping it set above water based on the market revaluation, as I said earlier, offsetting any outflows that we've had from that business, and we've talked at length on the Powerwrap adviser exits and then also through a studious and carefully considered acquisition, adding $4 billion from OneVue. So even without the OneVue acquired amount, the 8% uplift, I think, is reasonably significant given all factors considered. Our non-custody solutions are, without doubt, market-leading, both in terms of FUA, in terms of portfolio numbers and in terms of the derivation of revenue that we get from these accounts as well. The growth has been very, very quick throughout the FY '24 period, and that means we can expect a significant tailwind going into FY '25. And again, Anthony will refer again to actual actions we are going to take within the non-custodial space to make sure that we're priced at that market, and deriving fair value in revenue for the services and the software that we offer in that space. But the growth in there is -- it puts us as a clear market leader in that space amongst our peers. Quickly concentrating here on FTE. There's been no significant story in the second half from this. You might argue that that's not the case given the significant uplift there for OneVue, but OneVue has an acquired workforce and being added with 41 people when we added. The number hasn't changed very significantly from that. We're looking to progress OneVue as a technology transition. We said, at the moment, we need the OneVue workforce stable so that they can concentrate on servicing those clients as we roll out the communications and product change plans. As I said, Anthony will go into that in much more detail, but fairly stable over the second half. It was the first half where we engineered more of our changes, which did result in an uptick in costs. But we believe very strongly that they've uplifted our capability, particularly as we sought to bring more of our senior operations roles back into Australia from Armenia and Anthony might talk to that transition again as we finalize the presentation, but not significant change over the second half in FTE, OneVue notwithstanding. Just turning quickly now to the cash flow and balance sheet before I head over to -- or give the presentation back to Anthony. Our operating cash flow of $19.2 million is reasonably close to $21.5 million underlying EBITDA. Tax refund speaks to the period prior, where we had a write-down for the INTERNATIONAL division divestment but received the funds to the income tax benefit in the current year. We have had an uptick in our one-off costs. That's natural when you consider the amount of work we've done one, to ensure that our reprice was properly configured and adequately communicated declines, but two, one-off costs associated with legal and success fees for the acquisition of OneVue. All else in there really looks as you'd consider it should, given progress on the buyback and also the amount we innovate and take to balance sheet for capitalized development costs. Happy to take any questions on that as we progress. But it does leave us in a very, very strong cash position $44.3 million. Regulatory capital has increased with the OneVue acquisition, but there's still plenty of surplus that allows us to pay the dividend that we've declared at $0.01 per share, which will cost in the order of $4.8 million and also continue the buyback for the next few months to make it up to where we said we would get when we originally had the divestment at $24 million of surplus proceeds. So we bought back around $21.5 million to this point. Lastly for me, before I hand back to Anthony is the balance sheet. Again, a very, very strong balance sheet. The regulatory cash component highlighted there on, sorry, just making sure I get to that doing the slide movement there for you. Assets have increased only because we've had the OneVue acquisition. Our net asset position remains as is. So it shows that we do return surplus funds to our shareholders as Anthony was very clear on the outset. Also, the OneVue acquisition being valued at $8.2 million overall with the component parts there. We've actually completed the purchase price allocation to its full extent. We've called in the independent valuations expert. These are the numbers they've come up with. We've even flagged that the software that has come over because it will be a product migration is likely to be written off on transition, and we'll be very clear on the impact that that's had on P&L when it comes. I'll now hand back to Anthony for the strategy component and then the Q&A.

Thanks, David. So this next slide, you've seen this before, but I do want to talk to it again because the platform market and the non-custody market, we regard as one market, the market in doing administration on investment portfolios for advised clients. So we market our services to advisers. We -- and we put a message to those advisers that they will be doing their job as well as they can if they understand the full portfolio of their clients. Now we're not telling them how to suck eggs. They know that, that's what they know. I know they can't give good advice unless they understand the full asset position of their clients. Indeed, you can't help to get good tax planning unless you fully understand the portfolio of the clients. And so we regard the market as more than just the platform market. But the platform market is the highest revenue-generating part of the segment because it's got $1.1 trillion as the latest estimate there that we've got on the right-hand side. And because you've seen from our own presentation, we can earn something of the order of 30 basis points on that. So that is a massive market opportunity and drives a lot of revenue, but it must never be forgotten that there are far more assets not on platform in non-custody than there are on platform and for advisers to seek to perform their roles to the best of their ability, which we think they do very well. We think that there's a very high-quality advice community in Australia. That they need to understand the full position. Where does that impact the most? That impacts the most on high net worth. A retail client who might have $0.5 million might have it all on platform, a high-net-worth adviser with millions of dollars in wealth and under advice is probably not going to hold it all in platform. They'll probably have a lot more in non-custodial holdings. So it is that ability to provide all of the view of the assets and report on all of that and enable tax planning on all of that, that gives us a unique opportunity in the market. Being #1 in non-custody is helping us with the more traditional platform market. And as this slide also says there is some convergence between the 2 for a range of reasons. One of the reasons is because there's wealth transfer going on. Another one of the reasons why it's converging is because advisers themselves are realizing there are not enough advisers to serve all of the people who need advice in Australia. And so they should be transitioning their business to the higher net worth segment, and therefore, able to advise on the non-custodial holdings and the alternative assets that the net worth clients might want. So we're very comfortable with the foundation of our business, and that's the strategy that we continue to execute on. If I talk about how that works in practice when you talk about these strategic initiatives, they have not changed for a long time. Our strategy is consistent. And the key thing that we have to do is execute on the strategy. I know from when I do talk with shareholders that often the key messages, we're comfortable with the strategy, but we want you to execute. So I won't go through the 5 highlights at the top. But what I'll say is that in all of those areas that we've said we're focused, we continue to make progress, such as we now have clients in the Next-Gen IDPS. We haven't launched it in a public sense. When we do, we will make sure that it's very well known in the adviser community, what is on offer with the Next-Gen IDPS, but there are clients in that already. We are and have been for a long time, the market leader in non-custodial and we've experienced very strong growth in that. In terms of operational transformation, one of the things we devoted our efforts to was fully understanding what our pricing should be, and we're starting to see the fruits of that coming through on this occasion. In terms of service enhancements, we've said that not only do we have to match the market, we have to beat the market because we're targeting a segment of the market where people are used to good service, and we have to match that. So there have been some roles that have shifted from offshore back to Australia. And one of the good things about acquiring the OneVue business is we've got more operational roles in Sydney than we've ever had before. And I think that is a good thing. We are client-centric and we like having people in the Sydney market as well as our head office in Melbourne. But you've seen that in the numbers. I hope that everyone agrees, we try to be very transparent about what we're doing in the business. And so you've seen that some roles have shifted from Armenia back to Australia, and that is part of the service proposition that we offer having to be the best in the market at service, which is our aspiration. Superannuation has been a problem child for us for a while because we outsource so much of what we do in superannuation, but we have made some progress over the last year, and it continues to be obviously one of our top priorities. And in terms of our [ core position ], I think the good thing is there was an acquisition this year. I think that is very good. But I also think it's a good thing that there was only one. There was a lot looked at. And we don't think that any of the others would have produced the return on capital that we would like to deliver for our shareholders. So we're very happy with what we did, but we continue to recognize that acquisition could be a way to grow the business and get leverage on the scale that we've got. Finally, if I look at what we might expect going forward, we've certainly got some momentum second half on first half, and that momentum should continue over the coming years. And there's opportunity for more revenue uplift on the rest of the product suite as well. The new IDPS, we're very excited about that. It really does address a gap sometimes a little bit understated and that is deliberate because when we launch, that's when we want to get bang for our buck. We've entrusted our marketing team with really making sure that the awareness of the new IDPS and what it means for the offering that Praemium has for advisers and their clients is very well understood. There continues to be very significant market share shift within the platform sector. And we acknowledge that two of our competitors in Hub and Netwealth are continuing to see very strong growth. But in past presentations we've seen [indiscernible] when does that come to an end? When does the migration come to an end? The good news is it's speeding up in recent times, not slowing down. So one way to look at it in rough terms is that collectively, the challenger platforms are probably circa 20% market share. And its that's been built up over 10 years, say, there has been 2% per annum market share shift. But it's a lot more than 2% over the last few years. So there's still a huge opportunity of the migration, let alone the growth in the industry as a whole of the wealth management. So there's growth in the sector, and there's migration within the sector. So we're very excited about the potential of building out and finishing the range of product that we need to compete in the market. And finally, we continue -- we've got capital, we do have opportunities to deploy capital, but we're very disciplined about it, and we're focused on making sure that going forward, people are able to say, to the OneVue was a very highly returning investment and a good use of capital. So with that, we'll hand over to the questions.

Thank you. [Operator Instructions] The first question comes from the line of Nicholas McGarrigle with Barrenjoey.

Thanks for taking questions. Obviously, the year-end showed a good uplift in revenue margin. I guess, June is always a bit of a spike up. But in terms of overall basis points, once you blend in OneVue and the planned potential shifts over there, what should we think of as a Group level revenue margin and does that looks reasonable moving forward?

Thanks for that. Look, we go back to that graph, and I think that's the easiest way you can really look at it there. I'm not necessarily of the view that we had at June spike. If you look at it, we actually had more of something in May. What that tells you is that the SMA is now more aligned to what you might have experienced in Powerwrap and that the repricing concentrated on lifting the margins where we do trading on behalf of clients and their advisers. So the more trading we do, the more revenue we can expect to earn. So the good news is the potential for uplift is much higher. The corollary is that it's a little more volatile in the SMA than you might previously have been used to. So I'm looking at it more at the exit rate from the blend there is 27 basis points, but it was 30 the month before. OneVue itself is at 26 basis points. So you can really go that it's somewhere in the high 20s is probably the blended exit rate. But I'd say that there's greater volatility than it allows me to predict that with a high level of confidence as a month-on-month-on-month outcome. But given you've asked the question the way you have, that's not a bad starting point.

All right. That's helpful. And then in terms of the expectation around the relaunch of the SMA of the Next-Gen IDPS. Can you talk about timing on that? And has that been in response to market feedback around pieces of functionality that the client base that you weren't necessarily having success we're looking for?

So thanks, Nick. And going to the second part of your question first. Absolutely, it's based on client feedback. And managed accounts are a very effective tool, but there's still something like about 20% of the platform market. And so even though they're the fastest-growing segment in the market, still the bulk of the platform market is not actually in a pure managed account, and -- the feedback that we get from the clients that it's hard to put all of our assets into your SMA product because it doesn't do everything that we needed to do. So that's the second part. Yes, there is -- there's definitely been a lot of dialogue with our advisers and how to better make their needs to make sure our product is fit for the way they're running their business. In terms of what we expect out of it, I really do think there's still a lot of migration from one platform to another in the market happening. I don't know enough about every market opportunity in Australia to know whether we're seeing more market shift in our segment than other parts of the economy. But as I say, challenger platforms as a Group have collected around about 20% market share now over 10 years. And that's less the structure of our industry, somewhat different to most other industries in Australia where 7 participants in the market have -- they've got 10% and above double-digit market share or will have in the next 2 or 3 years. And I can't think of another sector in Australia where 7 players have got double-digit market share. I'm used to more like 3 or 4 competitors have double-digit market share and then a whole lot of challenges. And why that has come about is because there's still a lot of migration going on. And we really wanted to meet the needs of the adviser who are part of that migration who are moving from one platform to the other, and we felt we were missing some of it is the importance of this in our journey. But also while we're not -- it's going to be a big launch when we do it. It's not just quite [indiscernible] sneak the product in the market. It's an opportunity to get out on the front foot for all of our sales team and say here is what Praemium now offers. And as you go through that journey of thinking about migrating from one product to another, you know we're one of the top 3 platforms on the independent assessment. You now see the breadth of offering of what we can do. So we really do want to make sure that is part of continuing a strong organic growth story for Praemium. And we continue to run the business as we fully grow. We sometimes talk about we aspire the double-digit growth. It comes at times with the expenses go up. Our aspiration is always to make sure that the revenue grows faster than the expenses. But when we're making our plans and when we're doing our business plan or our strategic plan, we plan on the basis that we will be growing and we will be capturing a decent chunk of the migration that's going on, let alone the organic growth of the wealth management sector as a whole, anyway, not the whole industry is growing. But within the industry, there is still significant migration from older platforms to the platforms that are more highly rated, and we want to make sure we do well in that space.

All right. And then on the OpEx side, I feel like you had your reinvestment phase in the kind of last half the half year prior. As you look forward, do you -- how many kind of headcount do you think you need to add to the business? Or is it about now consolidating? And then as you get through to the second half of '24 and OneVue is migrated, then you start thinking about reducing overall headcount.

Yes. It's obviously a very important question and one we think and talk about a lot. And the reality is we feel we've got the base that we need and we feel there's productivity opportunities inside our business, but not only from scale, scale is one of the opportunities for productivity improvement. But there's also scale from more efficient technologies that are coming about, especially through AI. Like we are in the camp of AI will be a game changer in our sector and, obviously, many others. And that gives you productivity improvements. And some of the pilot cases that we're running on AI are giving us significant productivity improvements. So we think that on balance would mean a gradually declining headcount but there's also an aspect of we expect to grow. And platforms and non-custody administration services are not just technology. You can't just say, well, that technology is here and we can manage another 20,000 accounts without any uplift. So counterbalancing the gradual productivity improvement that we would like to get, and we plan on getting is that we also plan on growing the number of accounts. And it's not -- unless it's the pure software as a service that we offer, each account comes with some additional administrative requirements because platforms are partly a technology business, but partly a legal structure and partly an administration service on that technology. And so on balance, I don't envisage that we would be substantially increasing the headcount going forward. And certainly, we plan to run the businesses with an aspiration that expenses should grow slower than revenue growth. But the optimist in me has one eye on what we're doing around the new IDPS and we should aspire to capture a pretty good rate of growth through that and through the other 2 products, the other 3 platform products that we offer Praemium SMA, Powerwrap and OneVue.

And then in the outside the platform business, can you talk through potential revenue headwinds from potential client losses as you move through FY '25? And I don't know if you can quantify what you think that might look like? Or I guess there's being a change of control in one client that's paying you a reasonable amount, just so we could think about that VMA revenue?

Yes. So -- whilst you're quite right that there's a client on VMA who has had a change of ownership and they have an aspiration to move off our technology, and it's not just an aspiration. There's actually a time frame around that. We've got other clients of VMA who run platform businesses. Asgard, as an example, and also have an aspiration to move off it. But whilst there're risks, obviously, in our risk management framework, we take that into account, that's not causing us any distress at this point in time where we think that's a game changer for us. On the contrary, we feel like the opportunities in VMA that we're aware of and what we can do with that product and the non-custody service generally means on balance. We should continue to plan as if the client account numbers and the revenue opportunity is going to go up rather than shrink.

Great. But I mean if we could say we look at FY '26 and we assume that both those clients depart, is that in the quantum of a couple of million dollar headwind which you'd hope to get more than back with account growth and price?

Yes, I don't have the exact number that say that's right, Nick, for the working assumption, we absolutely feel like there are opportunities that will mean that's not material to us.

Yes. In particular, Nick -- sorry, David, here. On a reprice as well we would make up that gap if we may.

Our next question comes from the line of Tom Tweedie with MA Moelis Australia.

Just a follow-up question to Nick's question around the cost base, maybe stepping a little higher. You delivered 15% expense growth this year. I'm just trying to work through maybe even outside headcount and more wage inflation and other factors. What would be a high-level thinking for expense growth potentially for next year, factoring everything and including OneVue?

Yes. Well, it's an interesting proposition. We go to do our wage reviews in this month or coming so September. So we'll get an experience of what we and therefore, our staff, many of whom have joined this call, so I got to be very guarded in what I say they're in presaging it. The macro experience as forecast by the [ RBA ] is to wage growth of around 3%. So aspirationally, I think having spent a great deal of FY '23 or the first 3 months of FY '24, reassessing every single role within the organization, benchmarking it to a financial institutions Group survey and having, in our minds, got it right by role and not having had significant changes in roles within the organization in the period since. Aspirationally, again, we would expect that we should be able to keep our wage growth constrained to roughly the macro environment overall. But I catch that or caveat it with we need to be surprised. There are all those special cases that exist within the Group. Maybe every staff member is actually on the call believes that they're in that category, they're probably not. So that's where we would see wage growth going more broadly. We've got a very, very scalable business, but certain elements of it we would grow as we grow the business as well. The VMAAS business, for example, does take some additional staff because there's some manual workflow, not borne of our technology necessarily, but just the way that certain corporate actions have to be enacted, for example, that might mean we have some FTE growth -- Anthony, before I answer that question to say, look, it would be minimal. So we're thinking that cost growth, all things being equal and what we know now should be able to be constrained. The extent to which we outperform in the next year then also talk to whether or not there's variability in incentive programs and others as well. So to some extent, that might come to [indiscernible]. But I wouldn't -- again, it's very difficult to put an exact percentage on it. We would say that we would be somewhere between 5% and 10% cost growth in a really good year because good things would happen [indiscernible] we're devising additional investments. That's in a year, and Anthony is always at place to point this out, where revenue is growing more strongly, both in absolute dollar and percentage terms.

Yes, brilliant. That's very clear. Second question I was going to ask is just around M&A. Obviously, when you bought OneVue, it sounded like there were a number of opportunities you walked away from. Just wondering a few months down the track -- more come back to the table? And is the preference to look at something potentially in the core business? Or is there adjacent services that are sort of sparking interest that you can sort of grow out the service offering?

Yes. Good question. And we certainly would prefer to deal in the core business. And Nick earlier asked a question about our business in -- they use our technology that changed hands recently and went to another business in our space. And so clearly, there's still some transactions happening. But the fact that people are not talking about that's a business we acquired suggest to you that there's a limit to what we will pay for a business and perhaps others will pay more. So it continues to just pay is there a good wide allocate capital -- is acquisition and good allocation of capital in order for us to be a good allocation of capital then on a reasonable set of assumptions, you've got to get an appropriate return on investment. And we've got enough people who are pretty disciplined around that metric to, I think, be sensible about it, including I have to say our Chairman, who this is his day job. He is working in acquisition -- mergers and acquisitions and disposals and divestments and the likes. So we've got a group of people who know how to run the ruler over these things. And having -- you've also got to -- as you know, you guys all know the market very well. There's a limited number of platforms that might be attractive. They've got to be big enough that they make a difference because you go to a lot of management time and effort to do it. So they've got to be big enough that you say, well, we'll do that because it does make a difference. And are not so big that you're betting the farm on it. So there's a limited pool of business exactly like ours. But as April, there are opportunities out there. And so we continue to have a deck of opportunities and focus on whether there's an opportunity for more M&A work. We've still got some that we're looking at right now and are under consideration. But none, but I -- I think at the AGM, I might have said, we're pretty confident we'll do a transaction. And -- but I talked about in order to be pretty confident, you've got to be looking at 3 or 4 because none of them are more than 30% or 40% chance are coming off. And it's just math you're looking at 3 or 4 and about 30% to 40% each probability coming off, there's a good chance one or more will and one did in that time frame. But I wouldn't be -- as I sit here today, I wouldn't be quite as confident there'll definitely be a transaction this year, but that could well be.

Our next question comes from the line of Cameron Halkett with Wilsons Advisory.

Most of my questions have been asked, but if I could just tend to remaining. So the dividend paid this – or declared this half is probably back to a little bit of consistent dividend paying do you think? Or should we just be thinking about the final dividends at this point?

That would be our aspiration. I think we've had holders on the register who would appreciate the yield for some years and have expected that as we evolve and gain the sort of scale that gets you that operating cash flow and the leverage that comes from improved revenue that we would have surplus funds to distribute. The issue has been around the availability of franking credits. And again, it doesn't take you to be too much of a capital markets things. This is again about listening. Shareholders have been very, very strong on the lower value they place and it's by some distance on unfranked dividends. So buyback has been a preferred mechanism for return of funds while we've had that surplus but not franking credits. We're in an unfortunate or fortunate position now where we have a very regular taxpayer to a [indiscernible] installment regime on a monthly basis. So franking credit regeneration is fairly clear. And we would expect with the outlook finance has given that we would be producing very consistent results year in, year out without allowing for some sort of significant adverse unforeseen events or macro event. Therefore, the aspiration is to continue to pay dividends under those circumstances, yes.

Yes. Very clear. And then the last one would be on some of the R&D CapEx. As you've been building that capability in the Next-Gen IDPS is about to launch. How should we think about sort of the R&D CapEx sort of post launch as much of some of that overall build done? And therefore, some of the R&D CapEx should ease off? Or should we just sort of assume a somewhat consistent level as the second half '24 going forward?

Yes. Thanks. And look, it's a really good question. It gives you a good insight to our business because on the one hand, that is the way you should look at it. You should say you should only be doing R&D if there's a good return on it. It's a good allocation of capital. You can see opportunities. But on the other hand, the way you've got to look at it, too, is not only R&D can just go up and down over time. Like if you need 50 people, for example, just to use a number, but given we spent $7 million or $8 million on R&D, it's probably not a bad estimate. There are 50 people this year working on building out tech and doing R&D work that is part of our CapEx. And you say that's good because that's exactly how many we need to build out a new IDPS as an example. And then next year, you say, oh, we don't need an IDPS. Now you can't just -- you could lay them off, but we don't just lay them off. We -- typically, there are always other opportunities. Typically, there are opportunities to say [ well we don't need ] that 50 people don't have to build out the IDPS, there are other opportunities to put the skill set that they've got to make further development opportunities and so forth. And what we've learned over time is that, that sort of magnitude of development, something like $7 million or $8 million of CapEx a year, is also consistent roughly with the opportunities that seem to be arising in the market from our strategy work and roughly consistent with their management capability to manage and get because you might see an opportunity for 50 people to be employed building an IDPS like we do, but you've got to execute it. And so you need management capability supervise and direct and follow through what they're doing. So fortunately, it sort of works that way. But because of the counterbalance, if you like, between only invest where there's a good opportunity versus you've got to have some minimum capability on tap all the time. We would, over time, like have some flexibility to move up or down with contractors and consultants who can come on when you've got extra workload and then can go away when you don't. And some of the cost increase we've had over time has been to put a little bit more flexibility so that if we don't have $7 million or $8 million worth of opportunity, we don't have to take it. We can reduce our R&D spend without having to [indiscernible] by not using a particular contracting entity or whatever. So that's part of the flexibility. This is a bit behind the scenes, but what we try to build into the business and why at times the cost base has gone up. But -- so in the end like I said it's a good question because it gets into the nitty gritty of how you do R&D and what you need to be able to do to make it work. But still, there's plenty of opportunity for us to invest in R&D at the moment. Even post the IDPS, we're seeing some opportunities where we feel that we'll get good growth if we deliver other functionality into the market.

All very clear.

Thank you. [Operator Instructions] There are no further questions at this time. I'll now hand back to Mr. Wamsteker for closing remarks.

Great. Thank you. Well, once again, we really value the shareholders that we've got. We appreciate your support of our business. You are the owners of our business and one of the 4 stakeholder groups, but you are the owners. So I'd like to think we try to run the business in your best interest. And the messages that Dave and I have given you today are partly a conversation about the results that we've had, but partly a conversation about what we're doing as the management group in order to deliver a good return on your investment. So that's our aspiration. We do our best to execute on the strategy that we've outlined a bit about today. I know that some of you will come to some broker calls and other forums over the next couple of days as we address some of the questions that might arise from these results, and I look forward to meeting many of you in person as part of that. But thanks for your interest today on the call. Please take the time to read the documents that we've uploaded to the ASX website today. And if that gives rise to further questions as you get into the detail a bit more, we're only too happy to deal with that. Thank you, and enjoy the rest of your day.

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