Insignia Financial Ltd

Good day and thank you for standing by. Welcome to the Insignia Financial Limited first half 2023 results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising you that your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Renato Monmar. Renato Monmar, please go ahead.

Good morning, everyone, and welcome to Epinga Financial's first half 2023 results. It's a pleasure to be here and really appreciate you taking the time. I'm here today with Andrew Illich, our GM of Corporate Affairs, as well as David Chalmers, our CSO. So look forward to spending about half an hour or so going through the result itself before opening up to questions. So just to kick us off, and just before we sort of kick into the result in earnest, I think it's worth starting by reflecting on the progress of Insignia Financial since the acquisition of MLC, which was about 18 months ago. And at the time of acquisition, we set ourselves some clear goals. And as we've successfully progressed through these commitments, I think the broader macro opportunities our industry provides are becoming increasingly more tangible for the group. The targets and growth associated with some of the key trends are increasingly clear, whether it's servicing one of the largest retirement savings pools in the world, which continues to compound in size, and it's supporting one of the richest per capita populations in the world, Whether it's supporting an increasingly complex lives people live, which require ever increasing levels of expert support and advice, and advice that's scarce in supply, or whether it's in fact the compounding of these trends in an aging population, which has more complex needs for longer. So all this reinforces really the unique position that Insignia Financial finds itself in. And it's one of the few organisations that's got the business diversity to cater for these lifetime financial wellbeing needs holistically. Our ambition of creating financial wellbeing is what binds our three separate business lines. And it's the unique combination through a client lens of these lines that ensures we can deliver the right outcome at the right point in time for the right client, irrespective of the client's station in life, age or complexity of needs. As we look to simplify our businesses, these three capabilities will be able to leverage off contemporary technology, data platforms and a common purpose to deliver consistently through whole life. Whether it's supporting someone who's joined us through a workplace and seeks financial guidance or helping a MySuper member access more customised retirement needs, it's the linking of these diverse capabilities in support of financial wellbeing outcomes that delivers the growth of the business. So as we step through today's presentation, really the key message is that while we continue to build the capabilities for tomorrow, we're delivering on our commitments today and ensuring we continue to translate size into a competitive growth advantage both short and long term. Moving to the highlights, and whilst it's pleasing to report a 67% increase in impact, that's $45 million for the half, I think we need to recognise the impact of volatile markets through 22 on our underlying net profit after tax, which is down 17% to $94 million for the half. Whilst there's no doubt the markets had an impact, it is pleasing to be able to offset some of this impact through synergy realisation with our operating expenses down 7% on PCP to $518 million for the half. We're also declaring an interim dividend of 10.5% per share. Pleasingly, we've met our commitment of completing our integration synergies 18 months ahead of schedule, as well as exiting the aims of TSA or the Transitionary Services Agreement from that acquisition. We continue to increase the focus of our portfolio through select divestments, and we saw this in the previous half through the sale of AET, which completed in November, and more recently, the final divestment of our stake in Janet. Part of building the foundations of the organisation is ensuring that we're attuned to the sustainability of our business, and there are two call-outs worth making. The first one there relates to our environmental credentials and it's pleasing to have received the Climate Active Certification for Indignant Financials. And the second one there relates to governance and ensuring governance is embedded in our operating environment and our conduct, which is particularly important given the level of change that we're experiencing as a business. We expect this to continue to be an area of focus and one that will also include making sure we satisfy the ADRA licence conditions on our superannuation businesses. Switching to the right-hand side of the page and looking at the three segments, financial advice, while we continue to change the business and improve the sustainability of that business, it's really pleasing to see our advisors continue to be recognised, some of the leading financial advisors in the country. In the platform space, again, it's really pleasing to report a nearly $1 billion improvement in net flows, period on period, or certainly in comparison to the prior corresponding period. Our focus in enhancing, continuing to enhance our expanded RAP offer is paying dividends through momentum and certainly gives us confidence in our goal to position ourselves in the top two or three platforms in the market. In terms of asset management, and again off the back of continued strong investment performance and despite investment markets, we've seen this business really deliver strong resilience from an economic perspective. We've seen some growth in higher margin business lines, offset some weakness in lower margin business lines, which has been pleasing in a particularly volatile investment perspective. Moving to digging a bit deeper in each of the segments and starting with platforms. Certainly a key feature of our platform segment is the diversity of channels to market. And we see that across workplace, personal and advisory. I think pleasingly, each of these individually have a clear market opportunity and clear strategic intent. And we've seen that translate through funds flow profile for each of these businesses. Importantly though, collectively, they also provide business resilience to that diversity, which we think is a real feature of our business model in the platform space. As I've already touched on, we've seen nearly a $1 billion improvement in net fund flow compared to prior comparative periods, which really underwrites our confidence in our target for FY23 of reaching net fund flow positive for the full financial year. Also, just to put the scale of our business into context, we've highlighted there the reported $10 billion in gross flows for the half, which again, demonstrates the strength of the franchise, but also recognises the work yet to be done to make sure that we improve the retention of our funds flow and making sure that we're continuing to challenge ourselves from a service perspective, from a product offering perspective to improve retention and ultimately have that translate through to improved net funds flow. From an advice segment, and I think for advice more than ever, the delineation and strategic intent in each of our segments and each of our businesses is clearer than it's ever been. And really, I think advice really is a tale of three stories at the moment. I think if you start with Shadforth in our professional services channel, a really mature business, a really strong business that's getting back into focusing on growth, which is probably the first time in a number of years. So it's really pleasing to see the momentum that business has been building. In Bridges, again in our professional services segment, we're really working through the establishment of a new business model, bringing together the MLC advice business and the former Bridges model to create a new model and one that I think has a really compelling proposition into that mass market arena. And the third real area of focus, which we've spent some time discussing in the past, is that self-employed model. where there remains some work to be done around ensuring we can meet our commitments around the sustainability of this business model, which is also a key focus. Probably lastly and importantly, our focus on remediation I think is really imperative. It's pleasing to see this work sort of enter its final stages of the program for a couple of reasons. One is it's a pivotal piece of work from a reputational perspective and making sure we deal with any issues of the past. But importantly, putting this behind us also allows us to put more focus on the future. So I think finalising this piece of work I think will be a real catalyst for us putting more effort into the opportunities and advice going forward. Turning to asset management and as we all know asset management lives and dies by investment performance and it's pleasing to see the depth of capability and the team shine through our investment performance in our key flagship products and portfolios. This is certainly underpinning the growth in our retail channels and our managed account program as well as our multi-asset capability which is really pleasing. And as I've already mentioned, I think the growth in retail and particularly given the higher margins here is providing strong business resilience in the face of volatile markets. Also worth touching on the resetting of the relationship with Jonah, which included the divestment, the final divestment of our stake in that business, The sell-down of equity to management is something that had begun prior to our acquisition. It was certainly in train well before our acquisition of MLC and the recent announcement really represents the completion of that process. I think it's really important to recognise that for all parties it's important that the partnership with JANA continues. It is a strong one on a range of activities and we've got a lot of respect for the team at JANA. Turning to flows and focusing in on platforms to begin with. Again, really pleasing to report a positive trajectory there on funds flow, particularly in comparison to PCP. And I think, you know, special mention must go to the workplace team that is clearly building some very strong momentum and has done for the last couple of years. This is off the back of a real focus around client proposition, service, the right product offering, as well as investment performance. And I think it's through the combination of both new client wins and strong retention that we've seen this momentum build in the business. Pleasingly, however, it's also great to see improvement in Net1's flow on PCP, both in personal and the advisory channels. I think particularly in advisory, it's great to see momentum build in the expand offer, in our contemporary wrap offer on our proprietary technology. I think this gives us real confidence for the future and also confidence that once we get through the transitions of our other RAP offer, our flagship offer, albeit on legacy technology in MLC RAP, it'll give this Evolve ecosystem and our RAP ecosystem a real dedicated focus on growth going forward. And turning to the asset management flows, again, it's a really pleasing story and positive story, again, underpinning our confidence on our commitments around flows. I think the top right-hand chart there really tells the story and the shift in momentum, particularly from retail, which again, pleasing not only because it's building some real momentum, but also the higher margin nature of this is a really attractive feature for us. This is coming from renewed work with our advisory channel, some increased momentum around our managed accounts program, and we expect that to continue going forward. It is worth highlighting that our flows data, we're presenting the flows data here, excluding the JANA flows, given the divestment of that business and really looking to create an appropriate baseline. I'll hand over to David.

Thanks, Renato, and good morning to everyone on the call. Let's start with an overview of the financial results for six months into 31 December 2022. The first half of 23 UNPAT, including discontinued operations, was $98.6 million. The result, net revenue of $691.3 million and operating expenses of $517.7 million. Net profit after the tax period was $45.1 million, with a series of items adjusted between NPAT and UNPAT set out in the appendices. The most significant of these being the $48.4 million profit from the sale of AET and transformation costs of $57.6 million. As Rinaldo mentioned, the performance of financial markets during first half 23 was a significant factor in the period's performance, with average firmer down 7.1% compared to the previous corresponding period. Closing claim was down 10.4%, but it should be noted that this includes the removal of $7.6 billion of funds associated with JANA. When comparing first half 23 to first half 22, net revenue or gross margin is down 8.9%, mainly driven by this decline in average FURMA. OFFEX pleasingly fell by 7.3% as the benefits from annualised energy use continues to translate into actual P&L benefits, and together these led to a 13.3% decline in EBITDA and a 17.6% decline in UNPAT. In terms of our key ratios, net revenue margin fell from 47.9 basis points to 47 and EBITDA margins from 12.6 to 11.8 basis points. Looking now at the segment contribution on the next slide, we see some differences between the drivers of the results between the two of our segments where income is directly related to the performance of investment markets, that being asset management platforms, and our advice segment, which is far less exposed to investment market volatility. Platforms saw a 16.4% fall in unpack, with falls in gross margin partially offset by OpEx reduction. The main driver of gross margin decline in platform were the impact of lower FUA as a result of investment market declines over the period, and also contributing were the price reductions that we flagged at last year's results back in August. The impact of these was offset by initiatives focused on some of the costs and fees that sit between the gross margin and net margin line, and the impact of some small provision releases. OpEx in the platform segment fell by more than $15 million, thanks to the synergy benefits being realised. Moving to advice, advice grew unpat by 22%, despite seeing a $10.5 million fall in net revenue, largely caused by the integration of MLC advice into Bridges, which resulted in some of the lower-value clients being off-boarded. Offsetting this fall was a 16.7% reduction in OpEx, with the advice business continuing to make progress towards the elimination of losses from the acquired MLC advice business. The $48 million of MLC advice that was noted in FY22 will now be tracked as part of an overall profit improvement target in our advice segment, given the integration of this business, and the details of that is noted in the appendix on the advice segment slide. Asset management impact was down 8.9% year-on-year, albeit with actually quite strong underlying performance, given most of the $9 million net revenue decrease can be attributed to the significant PE performance fee set in first half 22 and the lower revenue of $3 million following the sale of Cosima. So effectively delivering flat underlying revenue despite lower fund was the result of improved fund mix with outflows from lower margin products and positive inflows into higher margin products. The corporate segments saw UNPAT broadly in line, improving by 1.9%. Here, a decrease in operating expenses due to synergy benefits, offsetting the annual REM increases and other CPI increases. At the UNPAT line, this reflects an increase in funding costs, partially offset by lower impairment charges, again, based on the previous corresponding period. It's worth calling out borrowing costs that increased by 9.3 million due to increased base rates, the higher margin of the new facility and a higher drawn average balance. Turning back to the group result again on the next slide, we see here a bridge between first half 22 UNPAT and first half 23 UNPAT. And this chart highlights the impact of the lower FURMA performance, again, mainly due to the decline in investment markets, with $45.2 million of net revenue attributable to lower FURMA, and a further 27.3 linked into pricing. Offsetting these declines was the 40.8 we mentioned before, with revenue synergies of $5 million in RPAT, generating $94.4 million, with AET's contribution of $4.2 million in the first half, called out as discontinued operations. At least on the last five, one of the highlights of the first half of 23, the result was the improvement in OPEX, with costs reduced by a net $40.8 million. The way this is made up is effectively we have salaries and other cost increases of $15.2 million and cost reductions due to the synergies from the P&I and MLC acquisitions of $56 million. As we committed at the time of the full year 22 results, we've managed salary inflation through additional cost reductions beyond the committed synergies, resulting in a net salary increase of $10.7 million, which is in line with our usual historic wage inflation. Continuing on the topic of synergies, management committed to achieve a run rate of $218 million of savings from these two acquisitions by the end of December 2022, pleasing to this target that we achieved at the end of the year, with MLC synergies realised over 18 months rather than the originally committed three-year period. We will continue to track the flow through of these annualised synergies into in-period synergies to ensure the benefits are fully realised. And we expect $96 million of synergy benefits to be delivered in FY23, including those already delivered in the first half. And that will leave a further $10 million to flow into FY24, which is a slightly faster pace of synergy realisation than we expected at the full year, where we expected 20 to come through in 24 and about 85 in 23. So there's a slight bring forward in terms of those benefits. We do see continued cost opportunities beyond these targets, but rather than reporting these as synergies, they will form the business cases for the remaining phases of simplification as we embark through that process. Onto our two remediation programs, which continue to progress well with over $100 million of payments made to impacted clients over the period, mainly in the advice remediation workstream. Advice provisions increased by a net $17.9 million, this being an increase of $25.9 million, offset by an insurance receivable of $8.4 million. The increase in the advice provision raised relates to fee for no service programming for the ex-AMZ licensees, the work on which is concluded subject to final assurance. The remainder of the advice work focuses on quality of advice, which we expect to be completed by the end of FY24. The remaining product remediation provision mainly relates to MLC advice, again, which we expect to complete by the end of this calendar year. And this program saw a release of a provision of $22.2 million following a couple of the issues that sit within there being run to ground over the half. Moving now on to corporate cash and debt facilities. Senior leverage at the end of the period came in at 1.2 times net debt to EBITDA. And following the pay down in debt from the proceeds of the IET divestment, we now expect to remain inside our target 1 to 1.3 target leverage ratio for the remainder of FY23. And one aspect on the balance sheet we've been highlighting for some time is the build-up of the deferred tax asset associated with the remediation program. As of the 31st of December, the current tax asset and the deferred tax asset specifically related to remediation stood at $136 million, a balance that will be used to offset future tax payments and improve free cash flow. The deferred tax asset is transferred to a current tax asset once the client has been remediated. And so the increase in remediation payments over the last 18 months is what has led to the increase in the current tax assets. Moving through to the dividend, as Renato mentioned, directors have declared a dividend of 10.5 cents for the first half of 23, made up of a 9.3 cents per share ordinary dividend and a 1.2 cents per share special dividend. The dividend is 50% frank and the DRP continues with a 1.5% discount. This is the first period of some time where we've paid a partially frank dividend and we've noted here that we do not expect to frank either the second half 23 dividend or the FY24 dividend. I just want to touch on two of the main drivers of this. The first is that our dividend policy is based on UNPAC, which has been higher than NPAC for some time due to transformation activity. We've continued to pay a 100% frank dividend through this period due to our franking credit reserve. With the decline in that reserve as they used up, we're now reliant on franking credits and taxable earnings generated in each period. The second factor relates back to the current tax, as I mentioned before, generated largely through remediation payments. And assisted by this tax asset, our outlook for tax payments is nil to minimal over the next two years. Now, this reduces our ability to generate franking credits, but as mentioned, does give us the benefit of improved cash flow. And we'll continue to keep investors updated with the timing of returning to the franking of dividends. Lastly, I just wanted to comment on outlook. At the FY23 results back in August, we provided guidance to the market that you see there in the left-hand column. We've provided an update on a bit of a checkpoint on where we are first half 23. There are two changes that we're making to guidance. Firstly, in relation to group net operating margin, we're now expecting a decline of 0.5 to 1.5 basis points. The reason that this decline is lower than the original guidance relates to some of those offsets I've mentioned before in terms of some of the cost lines that sit between gross margin and net margin. but also due to the fact that with FUMA being lower than anticipated across the period, having a lower denominator in some of those fixed fees or tier pricing means that in times when FUMA declines, the margin percentage actually goes up. We've also updated our group EBITDA margin expectation from broadly in line to a decline of 0 to 0.5 basis points. And again, this is based largely on the lower FOMA that we've seen over the period. I'll pass back to you, Renato.

Thanks, David. And as I mentioned earlier, the further beyond the acquisition of MLC we get, the closer we are to capitalising on the medium-term opportunities the new Indigenous financial has. And while our industry has real scale and capabilities in some aspects of the value chain, like super investments, access to credit and even financial advice, I think we'd all agree that there remains a significant unmet need in how these different elements are brought together in a way that's relevant to today's consumer needs. The demands and needs of everyday Australians are well understood. However, they remain largely unmet. And part of the reason they remain unmet is that most organisations in the value chain have spent their investment dollars in the scalable and product-oriented parts of that value chain. We certainly view that the next frontier, and certainly one that Insignia is keen to explore, is connecting the financial well-being continuum to market-leading products and services. In other words, alongside unlocking the potential of our platforms and asset management business through technology and simplification, In addition to the removal of loss-making subsidisation to the traditional advice model, we're also committed to extending our reach into financial coaching and data-driven insights to help connect our clients to the right behaviours, the right products, the right portfolios, which together deliver improved financial wellbeing and greater financial confidence. Some of these themes have also been identified by Michelle Levy's quality of advice report. We look forward to participating in the government's consultation process and believe the report's recommendations will significantly alleviate some of the current pressure points limiting accessibility and affordability of guidance and advice. Just to recap some of the key data points we presented at the last half around our simplification plans, we remain committed to the milestones we set out in August of 22 and have continued to make real progress towards these goals, including the planning and sequencing of the remaining work. Specifically, we continue to believe that one to two platforms is a key goal in terms of the final state of the business. And in doing so, we will significantly reduce our cost of income with a target range of mid to low 60s. Getting there, we're involved both with significant reduction in our cost base as well as improved pricing for clients, both building both a more competitive and effective organisation. Alongside this re-platforming is a focus on ensuring our governance environment is fit for purpose and embedding this into the frameworks and conduct of the organisation at all levels. Just delving more specifically into the platform simplification programs, it's worth segmenting this into two key streams of work. Firstly is the WRAP program, which we've discussed previously and is due to be delivered in the second half of calendar 23. This will see us migrate the MLC RAP across to the Evolve system. Not only does this transition one of our key products from a legacy technology and user experience to a more contemporary digital experience and functionality, it also simplifies our business and provides a singular RAP environment with a clear focus on growth and innovation going forward. The second larger program is a simplification of our Master Fund platforms, of which we've got four today. We're currently working through the detailed planning of this And as we've telegraphed in the business update, we're exploring all options, including partnering externally in the development of a dedicated software solution. It's important that we consciously explore all options to ensure we clearly understand the trade-offs we're making. However, the goal remains ensuring we navigate this process safely and as quickly as possible, maximising the benefits both to members and to shareholders. Whilst we're still working through the various options, I might ask David to comment briefly on how we think about this from a capital and economic rationale perspective.

So the way that we think about the simplification program is that with the intention to remain both within our target dividend policy throughout the period, so 60 to 90% of UNPAC, and also within our target senior leverage range of 1 to 1.3. So I mentioned earlier on that the leverage has come down, again, due to the sort of divestment period. What we intend to do as we move through these periods of simplification.

Thanks, Dan. Just moving into asset management. As I mentioned previously, the asset management business is one that, despite markets and despite its leverage to markets, has been displaying real economic resilience. And I think that's a reward for the assets in the retail sector and the momentum that's built around the portfolio construction capabilities generally. We've seen that shine through both in terms of some new product launches in private equity and managed accounts, as well as that continued strong performance through the multi-manager capabilities, including supporting our mindset process. We expect this to be a similar theme continuing to 2024 as we continue to look for opportunities to create greater collaboration between some of our platform channels, particularly the advisory channel and our asset management businesses. Whilst we've experienced some outflows in the lower margin institutional capabilities, we remain focused to make sure we continue to support these high quality businesses and There remains significant economic leverage from economies of scale in those businesses. That's something that we're keen to continue to explore and support through time. And maybe some final observations before we close out and open to questions. Firstly, our strategy has been clear and consistent since the acquisition of MLC and we continue to deliver on that strategy. Clearly, there's more to do. However, the more we get through and the more we deliver on our commitments, the closer we are to unlocking the longer-term potential of the franchise we've built. This potential will be unlocked through clear focus on three key areas. The first one is continuing to create insignia financials. We've come a long way in the last 18 months. However, as we emerge out of the COVID pandemic, we continue to build one way of working, one unified set of norms, where there previously were two or three. This ultimately is what will build our culture and our reputation. The second area of focus is to simplify. And simplification continues to drive our operating leverage, improve client outcomes, and improve governance. And this is really the core of setting the stage for future growth. And thirdly and finally is our focus on financial wellbeing. While there are plenty of proof points that this represents a material area of value-added both for our advice business as well as in support of platform and asset management, There clearly remains more to do. However, I think there will be few others that will dedicate themselves to this challenge in a holistic way as Insignia Financial will. Digital organisation will play an important role in this, as will continuing to improve our engagement methods both through the platforms and asset management parts of the business. So in conclusion, it's really putting together these key drivers, creating Insignia Financial, simplification of financial well-being that will look to reach more Australians and drive sustainable growth through the business. So with that, I'll thank you for your time in advance and open up to questions.

Thank you. As a reminder, if you have a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile our Q&A roster. Our first question comes from the line of Andrew Stednick with MS. Your line is open. Please go ahead.

Good morning. I wanted to ask two questions, please. Firstly, in terms of the slide that talks about the target and state and splits it into the three buckets, can you just give us a bit of a feel for between the RAC licenses, the super funds, and the platforms, which one of those three is likely to get to its target end date first, and which ones will take a bit longer to get to its target end state?

Andre, are you referring to slide 22 there? Right, yeah. Yeah, so there are absolute dependencies and sequencing across these. I think what is probably more relevant in some ways, certainly economically as well, which aspect of these actually delivers the economic benefit? And I'll say to you that the bulk of the economic benefit comes from reaching the platform end state. Now, in getting there, there will certainly be a rationalisation of the IRC licensees, the super funds themselves, Some of this needs to be sequenced in a way that the final trigger is actually on the consolidation and the movement of members' monies as well. So I would say to you that the most pivotal on this category, of these four categories, is the platform one. So moving to the one for two. Because when you rationalise a platform environment, you remove hardware, you remove software, administration people, products. So there is quite a lot of this that is dependent on each other. However, I'd say that's the one that I'd probably focus on. There may be some rationalisation of RSCs and super funds in advance of that, but that's not where the big economic payback is.

Quick follow up on just on that point. What timeframe should we be thinking?

We haven't put a timeframe on when we're reaching that target end state. I think a lot of that really depends on a lot of the planning we're doing at the moment in that Master Fund stream that I alluded to. So we're not in a position to do that at this stage. However, clearly it's in our benefits to do that as quickly as possible, but remaining cognizant of the work effort and the risks associated with that.

Thank you. And my other question was around the flows. So you remain, in the Outlook slide, you remain confident in terms of the flows improving. but the first half of FY23 actually went backwards in net flows compared to the second half of 22, so it's actually a more challenging period. So what gives you the confidence that net flows will improve from here?

Yeah, so I think it's probably will recognise that there is a degree of seasonality, I think, that occurs during the year. So I think that the better comparison point is PCP, the prior corresponding period. And that gives us a significant amount of confidence. I think we're reporting it, I think, on every sort of 0.1 negative. So, you know, we're not exactly far away and I think we'll continue to build that momentum. Thank you.

Thank you. And one moment for our next question. Our next question comes from the line of Anthony Hu with CLSA. Your line is open. Please go ahead.

Thank you. Good morning. Can I just ask two questions? Firstly, just asking on your outlook for the EBITDA margin, it looks like it implies a stronger second half margin. Just wondering if you can talk about some of the key assumptions behind this. For example, are you assuming growth in your FUMA balances and also some key assumptions around your cost base as well? Thanks.

As you said here, look, you're right. One of the complications of an EBITDA margin is it's quite heavily impacted by market value of FUMA. It was one of the reasons why, as I said, that sort of came down over the period. We normally assume each year a 5.4% increase in markets. So we're assuming that markets increase by half of that or 2.7% across the period. So that's probably one of the main drivers in terms of that sort of second half and what we see in terms of the MSTAR margin.

Okay, thanks. And then my second question was around the Evolve 23 program. Just wondering if you could give us an update on that. You told us the cost is expected to be about 53 million investment. Has that increased versus six months ago, if my memory is correct? And then also, could you give an update on, you know, you previously said you're expecting a net benefit at the EBITDA line of 5 to 10 million. Is that still the case?

Yeah, so if we go back over time, I think our initial estimate for Evolve 23 was 40 to 50. We thought for a period it could be towards the lower end of that. It's now slightly over that. So it's been moving a little, but broadly consistent with that original guidance of 40 to 50. And yes, the benefits are still the same in terms of what we're targeting.

Sorry, in terms of progress, we're in the process. I mean, the success of these largely depends on the change management with your clients. And we're conscious that it is change for our clients in our advisors and their ultimate clients. So we're working through that change management at the moment, concurrently with obviously finishing the development. So it's full steam ahead on Evolve 23.

Okay, thank you.

Thank you. And one moment for our next question. And our next question is going to come from the line of Nigel Pitaway with Citi. Your line is open. Please go ahead.

Good morning, guys. Just a question on sort of the impact of the acquisition on sort of BAU. I mean, to what extent do you think, you know, the focus on obtaining the synergies, you know, doing the integration, et cetera, is having an impact on BAU flows, operations, et cetera?

It's a great question, Nigel. And it's one that occupies our minds quite a lot on a daily basis and making sure we get that balance right. I think the best proof point we have for that is the improved flows. So if you think about that flow profile over the last couple of years, it has been improving. So yes, we've delivered our synergies. We've fast-tracked some technology simplification and rationalisation, but the flows have been improving alongside this. So I think we're getting the balance more right than wrong in that regard. It's certainly something that's not lost on us. And the piece that's particularly pivotal, I think, is not only the simplification, but the change. This change, as I was alluding to earlier, is impacting our clients. So we tend to invest quite heavily in that change management program to support our clients through that. But inevitably, there will be some degree of opportunity cost. And I think that what that reinforces is the sooner we get through the simplification, and RAP is probably the best example that by the end of this calendar year we'll hopefully be through that, actually you get more clean air and space to focus on growth. So we think that that opportunity remains ahead of us.

Okay. And obviously one of the impacts seems to have been on the MLC RAP with that moving on to evolve imminently. Do you think that hiatus will last for long or within your sort of expectation that flows improve second half, is there a presumption that MLC wrap turns that around again?

Yeah, look, I think that's part of it, certainly. I think there's an element of the change. I think there's probably likely to be an element of maybe stop the market for advisor and net flows more broadly, I think, in that sort of second half of 2022. So there's probably a number of different factors. I do think there may be a little bit of, let's call it overhang, until we complete the transition. However, as I said, that's why we're investing pretty heavily on the change management experience.

Okay, thanks for that. And then just maybe a question just on the sort of software on the Master Trust. I mean, previously, I think you may have thought that you know, Evolve was going to be okay for that, given its modular nature, given it's sort of fairly modern tech. So can you just sort of highlight, you know, what you're saying there in terms of, you know, the reason why you think now it'll be quicker and simpler to go externally?

Yeah. So, Nigel, we've always said one to two. So I think we've always been very, very clear that, you know, whilst, you know, There's a world where one's better than two. We want to be really disciplined around those decisions and those trade-offs. What we don't want to do is be myopic around having a preferred path without fully understanding the issues at hand. That diligence is going into our decision making. So I'd say we've always said one to two. There are some strategic benefits to proprietary technology, absolutely. However, there are trade-offs, and those trade-offs may be time, that may be cost, and may be opportunity cost between master fund and RAP. So these are all the things that we're considering before making a final decision.

Okay, so a final decision's not been made. It's just you're sort of thinking about it. Yeah. All right. Very good. Thank you very much.

Thank you. And one moment for our next question. Our next question comes from the line of Licitini Sotterio with MST Financial. Your line is open. Please go ahead.

Good morning, guys. Can I start with the Martha Trust consolidation or potential future project, and I understand it's still in an elementary phase, but can you give us an idea roughly what the cost budget or band you're currently considering to consolidate the platforms down to the target one to two?

Yeah, let's start here. I think we'd rather hold far on that until we've got a precise number. So because, as Renato mentioned, the solution's still moving around, I'm reluctant to put a number out and then have to change it. So we're working on a baseline, but it's not one that we feel comfortable sharing at the moment until it's really nailed down.

Okay. And so can I just clarify as well, is the Evolve 23 project specifically RAC related or will the Master Trust expense be Evolve 23 Phase 2 or how should I... I'm just trying to understand because Evolve 23 Phase 1 kind of implies there's another... So can you just clarify just the language that's being used?

Yeah, sure. So Evolve 23 is RAP. The Phase 2 is Master Trust.

Okay. All right. Got it. Can I just go on to then the group net revenue margin and note the comments you made about the slight improvement versus the expectation at financial year 2022? But within the sort of group net revenue margin, there's a subcategory of the platform margin. And I think at the last result, you talked to there being some meaningful cuts or resets. I think with MLC that are anticipated, I think at the end of this financial year. And so could you just talk to that? And also all things being equal and just looking at the revenue margin, so excluding sort of mixed change from different brackets clients. may move into from fund movements, what would you expect at this stage for next financial year to happen with the platform revenue margin?

Yes, so you're right. All of the pricing changes that we plan to put in place have been put in place. So there's a couple of things I'd call out in terms of what's happened. One of them relates to, I talked about some of those Some of them are cost items, but they sit below between gross revenue and net revenue. So there are fees that we would pay, for example, some of our investment management expenses and things like that. We've been able to reduce some of those costs, and that goes to offset some of what we see in terms of those price reductions. The price reductions have gone through. The majority of those benefits are recurring. There is a small amount in there. It's about $3 or $4 million in total of a couple of small provision releases that would be a one-off rather than being one that would continue on. But those have really been the two things that have sat there and really offset what we've seen in the first half. So second half, we would expect the decline to be a little more marked, and the reason for that would be a full flow through. Some of the pricing changes were made during the period, so there's not a full six months in the first half. Second half, we'll see the full impact of that, and we wouldn't expect at this stage for there to be any offsetting benefit from provisions or anything like that. So that's how I think about as we head into second half 23, which I guess is sort of a baseline as we head into next financial year.

And just to clarify, are there more price cuts coming around the end of this financial year? And so if we're looking at the platform margin 24 versus 23, so by the sounds of it, there's going to be a further step down.

Yeah, that's right. So Evolve 23 will be in the first half of 24. We took out, if you like, the first amount of those price reductions, albeit quite a small amount, has come out inside first half 23. But the majority of Evolve 23 cost-outs will be in the first half of 24. and those will be offset by some of the cost reductions that have been delivered in line with that simplification as we migrate across.

Sorry, just so I'm clear. I'm talking about the revenue margin and the cost that you're charging for the offering that you've got. So just so I understand correctly, are you anticipating having a smaller net revenue margin for platforms next year versus this financial year?

All being equal, yes.

And can you give us an idea on magnitude based on what you are? So the fee cuts that you've already identified, you've already got in track, all in train, broadly speaking?

The only ones I would call out as being new, we've previously quantified Evolve 23. I think we've said, Andrew, the cost benefit being passed back there is in the order of sort of $15 million, $20 million. So at the net margin line, that will come through. So you're right, that's in terms of net margin. If I work down to EBITDA margin, we think the cost will be more than that. But that's all that we call out at the moment in terms of the impact of Evolve 23. I think we want to get, happy to talk about what we see in terms of margins for the remainder of FY23, but I think there's still a lot of moving past before we start kind of giving 24 outlook.

All right, got it. And can I just move to one final area in relation to Jana? So when you flagged the outflows at the quarterly update, I think the language was a bit confusing around whether there's a revenue impact or not. So can you clarify two things? For the firm that's exited the business, broadly, what was the revenue margin or profitability of that for your business? And second, was there much... dividend or contribution coming through from your equity stake that you previously had in JANA?

Yeah, so if we break it down, the majority of the financial benefits from the JANA relationship came through some of the investment trusts that we ran for JANA. If we think about total revenue for JANA being somewhere in the order of about $20 million, three or four of that came through as an equity holding and the balance came through income from the trusts. We would expect that 20 to effectively sort of halve as we look at FY23 and then that would be fully removed by the time we go to FY24.

And from a profitability perspective?

From a profitability perspective, we still will be buying some services from Jana. So it's not just a matter of cost, it's actually we do acquire some services through a service provider. We've been able to renegotiate some of those rates. There's a benefit in terms of cost by a couple of million dollars that offset some of that revenue decline.

So can I just be clear here? So from a profitability perspective, it's about a $20 million overall impact from the outflows and from the lack of dividend being removed. And so there's about a $10 million impact expected in the second half and then another $10 million next financial year in terms of the JANA impact, and it's offset only a little bit.

Correct, yeah, a little bit less than that because of the offset of the lower cost, but broadly speaking, that's in the right direction. All right, understood. Thank you.

Thank you. And again, if you would like to ask a question at this time, please press star 11 on your telephone. One moment for our next question. Our next question comes from the line of Kiran Chidji with Jardine Group. Your line is open. Please go ahead.

Morning, guys. Just following up on some of the platform restructuring questions this morning, I just want to be clear. You know, you've said that the target cost of income in that division is low to mid-60s, but on note, you're already at 62% or 63%. So you already seem... So just struggling to sort of tie that in with this net benefit, you know, five to 10 mil that you're talking about out of this first phase coming through.

Yeah, so that's an overall target, Kieran. So our overall cost of income at the moment is about 74. It's gone up slightly over the half. So that low to mid 60s is an overall target. It's not just related to the whole group. Yeah.

Okay. All right. Okay. And Renato, I know you don't want to give specific numbers, but the five to ten, as you go through this first stage, how should we think about progressive benefits as you move towards that end state? Is the goal to continue, therefore, driving net benefit from further integration through to EBITDA?

Yeah, so we absolutely expect net benefit. And as alluded to in the presentation, the RAP1 in some ways is the smaller program. So we've got sort of two going to one. The Master Fund, you've got four going to one. So in quantum, it's significantly larger. And I think that translates certainly through into the benefits realisation. If you look at the Evolve or the Evolve 23, the RAP one, there was also some foundational work there that was being done that won't be replicated. So I think our expectation is the Master Fund benefit realisation will be significantly larger than the RAP. However, we're not in a position at this point to give you the cost to do or all the benefits. So we wanna make sure that when we come to market, we can lay that out in a really specific way that allows everyone to sort of understand I don't think we're far away from that, but it's just not today.

Okay. So the expectation around timing, do you expect to be in that position by full year, given you're having those discussions as we speak?

Yeah, absolutely. We think by full year, we'll be able to provide people that level of clarity.

Okay. And from a timing point of view on the implementation of that mass trust simplification, if you do go down the sort of outsourced third-party path, does that materially speed up the ability to push through the integrations of the simplification on those master trusts relative to sort of doing it yourself?

Yeah, well, that's exactly one of the variables we're trying to sort of really flesh out at the moment. So possibly, but we haven't confirmed that that's necessarily the case. But you're right. I mean, they're the trade-offs. You know, it's cost, it's time, and it's risk. It's really the things that we're trying to do up in my course.

Alright, and just final question on the quality of advice review. Just wondering if you can provide us with some thoughts as to how much benefit you're kind of assuming within the advice, sort of the revised outlook there of 10 mil unpapped by the end of 2024?

It's a good question. Those numbers don't assume any benefit necessarily from the quality of advice. That's not to say that we don't expect any or we're not hopeful, but I think there is significant benefit if those recommendations are adopted in part or whole. However, we haven't baked that into our financial forecasting at this stage. So I see that as an added opportunity. But as we all know, obviously, and as I said, we look forward to being part of that consultation process and working through it. And I think it will be a little bit of time before we know exactly where that lands. All right. Thank you.

Thank you. And I would like to turn the conference back over to Andrew Elick for closing remarks.

If there's no further questions, thank you everyone for your time. Appreciate your interest. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.