Earnings Call: H2 2021

Aug 26, 2021

Thank you for standing by and welcome to the IOOF Holdings Limited FY 'twenty one Results Briefing. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. I'd now like to hand the call over to Mr. Renato Motta, CEO. Please go ahead. Thank you, and good afternoon, everyone, and It's great to be here today with our CFO, David Chalmers to present the full year FY 2021 results. Just before getting into the presentation, I do want to acknowledge and recognize that for large parts of Australia, for many people right now, it's a particularly environment personally and professionally juggling lockdowns with dependence and on top of work pressures. So our thoughts are with everyone. And It's probably also a good segue to take this opportunity to recognize just the amazing efforts from everyone across cytoplasm and obviously who have done An incredible job in these commissions and I think much of that's reflected in the results we're presenting today, which I think were a strong set of results Achieved against the backdrop of the global pandemic and much uncertainty. Just jumping into the presentation itself and I'll start off at Slide 2 in the pack. And as we work through the pack today, I think there are really 3 teams that consolidate all of our achievements over the last 12 months. I think firstly, with the completion of the MOC transaction, we're now at the scale we need to be to support our ambitions and the repositioning of the business As an industry leader, not only does this translate into a position of industry leadership, it also translates Economically into improved gross profit and net operating margins. In terms of the synergistic Commitments we've made, it's pleasing to say that we are well and truly on track. And not only are we delivering on the P and I, But importantly, we've also set ourselves up and have a high level of confidence around our MLC commitments. And thirdly and importantly, We've got a clear focus on the deliverables in terms of growth for this business, both in terms of the addressable market, but also in terms of revenue growth for the business. If we jump into the business overview and starting at page 4, We really do see today and these results as representing a new AWS. Looking at the financial highlights, reporting $147,800,000 of underlying profit after tax from continuing operations, which is up 19% from previous Yes. After the non recurring, we've reported a net operating loss of $143,000,000 as a result of We've achieved a $56,000,000 in cumulative run rate to date and we're on track on our commitments both on P and I and the Enelof's acquisition. And there's also a $12,000,000 already have been crystallized $12,000,000 from the MLC transaction already crystallized in FY 'twenty one year. Reporting total dividends for the year of $0.23 With the final dividend being made up of the $0.095 ordinary and the $0.02 special dividend. The final comment on the financials and David will delve into this On a pro form a basis, with the inclusion of MLC, this is a very different business to the business it has been in the past. It translates into an opportunity set that provides significant opportunities from scale and a real competitive advantage in terms of capability set and our ability to drive down the cost to serve. To the right hand side of the slide, you'll see some Some business highlights and it's pleasing to report that despite the uncertainty of the environment we're in, we've not only delivered on the strategic initiatives, But also completed the MLC within 12 months of announcement. And I'm wondering that the particularly pleasing achievement relative to other proposed transactions that are currently in the marketplace. We continued our progress against the Evolv2.0 transformation and the Evolv21 migration, Having completed the first half of the Evolv migration during the FY 2021 year and on track to complete that program in December of this year. Alongside this, we continue to build on our foundation of strong governance and culture centered around the clients and our conduct. While it's important to recognize the benefits of the business through this transformation, the ultimate success measure For us, as a business and a management team, it is delivering both growth to efficiencies, but also top line growth. And in this regard, it's Pleading to recognize that the net flows into our contemporary offers, particularly our retail advisory platform, which is really building momentum in the marketplace. Alongside this, we've also seen really strong growth in our financial advice business in an organic context. Alongside the repositioning of this business, that sees us being an increasingly important contributor to the economics of the business. If you flick on to Slide 5, it's not only the size and scale that we think is particularly relevant Strategically, it's also the economic diversity of the new group that we take quite a diverse company. I particularly like to call out the diversification That's obtained through the inclusion of the asset management business into Light Up Life, which is a different business to our traditional asset management or investment management business As we used to call it, it brings with a real depth of capability and also breadth. And I think it actually provides A diversification in terms of growth opportunity going forward. I'd like to say that it's still relatively early days with respect to the Completion of MOCE and having only had control of the business for the last 3 months, but the early signs are quite positive, both from a capability perspective and People perspective, but also our ability to deliver on our commitments in terms of synergies and simplifications. It's been pleasing to see much of those assumptions and hypotheses I'll be validated in a relatively early period and we continue to learn more about the business. I think as an integrated business, What we've built is a really mature approach to supporting change. And whilst we're going through a lot of change at the moment, it does give us confidence that we'll be able to meet our commitments With respect to simplification, reaching a cumulative run rate synergy realization of 136 to 156 across the Combined groups. In terms of our transformation achievements for the year on Slide 6 there, And really focusing on the priorities that we've laid out for ourselves over the past 12 to 18 months, it is pleasing to report that we've made significant progress On all, and in fact, we're on track on all. Having Completed everything we thought we wanted to do. It's actually pleasing to see here now with a much higher level of conviction around Certainly around some of these outcomes, which are laying the foundations for that translation into economic benefit. From an Evolv 21 perspective, beyond the simplification of the current environment, It provides a real opportunity to then continue the work in terms of the product roadmap more broadly and the continued simplification Of the product set that we now find ourselves with, not only with the 3 platforms that come from MLC, But also the 2 to 3 platforms that we've inherited from the AZ P and I business. So and we'll touch a little bit more on this a little later. The The introduction of the MLC Asset Management business, as I said, does change the nature of the Our asset management capabilities and as I've said, I think we've acquired some really impressive capabilities that are complementary and are additive to our growth prospects. And finally, just touching on remediation programs. It's pleasing to see that the rigor and the urgency that's being applied to these Means we're making meaningful progress both across the product and the advice remediations. We expect to largely be complete on advice by the end of FY 2022 Financial year, the current financial year, and I'm making good progress on the product remediations. As we've mentioned in the past, there were some matters That have come across within Allsee that we'll be remediating as well. And these have been provided for by Mad. And as equally as we've said in the past, there are no advice related matters that we've inherited from the MFC transaction. So just touching on synergies before handing over to David. We felt there was an opportune time really to bring together the 2 programs of integration across both the ANDRE and P and I transaction, Which is more progressed and obviously the MLC transaction now with the completion of MLC. We've taken the learnings From the ANZIP program, which has been running for longer and we've really looked to adapt it to increased size and scale, the observation I'd make is that the complexity of issues Very similar across both. However, there's no doubt that the MLC integration is of a larger scale and therefore We're good to support our transformation team and capacity with An increased level of year end method and also it's been pleasing to be able to incorporate some knowledge and expertise that have come across from MLC. So We're confident we've got the right structure and I think reporting this through the lens of the 1 integrated program, I think it's more representative of the way as we manage going forward. Specifically, I'll call out the FY FY 'twenty two run rate synergy target of $80,000,000 to $100,000,000 This is on top of the $12,000,000 that's Already been delivered from MLC in the 1st month or so of ownership. Supporting this is, there's approximately $300,000,000 remaining integration costs. So we feel we're well placed to deliver on our promises and really Simplify the business both to the benefit of shareholders, but importantly also to the benefit of the members. So, in saying that synergies we're on track, which given the context of all the transformation we've undertaken, the context of Having worked through another acquisition and in the context of COVID, I think it's a great achievement through this process and look forward to continuing to report against these milestones and targets. So, David, I might hand it over to you. Thanks, Fernando, and good afternoon everyone on the call. So I'm starting on Slide 9 with an overview of the FY 'twenty one financial summary. As Roberto mentioned, the year represents it's a good year transformation period for IFF with the inclusion for the first time of a full 12 months contribution of the P and I business And 1 month of MLC's financial results, the combination of which helps drive an increase helped to drive a 31% increase in revenue to $769,900,000 for the period. Adding in these two businesses also saw a similar percentage increase in the expense base, although BAU expenses were tightly controlled during the year, aided by delivering $16,000,000 of in year cost synergies from the P and I acquisition. As Renato mentioned, these cost synergies will deliver a run rate of $26,000,000 of full year savings, taking the cumulative cost synergies from the P and I acquisition The $44,000,000 over the last 2 years, and that's from the reference of the $68,000,000 that we committed to over 3 years at the initial time of the acquisition of P and I. Moving down through unpaid. Unpaid increased by 19% to 147,800,000 With a statutory loss of $143,500,000 The net profit result was impacted by the write down of $200,000,000 of non cash intangible assets As we announced in our Q4 business update on 28th July, an approximately $50,000,000 of integration costs is relating to the MLC acquisition. But despite this increase in unpaid earnings per share fell by 29% to $0.251 a share, Reflecting the capital raise in August September of 2020 to support the MLC acquisition, but with that transaction not completing until 31st May 2021. Moving over to slide to an overview of our business units, and I'll step through each one of these In turn, if you look at Advice, Advice included an EBITDA of $20,800,000 with a reduction of gross margin of $37,800,000 on FY 2020. The majority of that coming from legacy open architecture arrangements that accounted inside our Advice segment and there was also a $6,700,000 margin impact From the end to grandfather commissions, which we've been talking about for some time. It's important to note that this loss that this result also includes a loss for The ex A and Z Allied licensees are around about $19,000,000 With cost and revenue synergies already in place, it will reduce those losses to a run rate breakeven position by the end of FY 'twenty two with a small in year loss expected for those for that part of the business inside FY 'twenty two. And that's consistent again with what we've been committing to, which is to get those businesses to a backend position within 3 years of acquisition. Moving through now to Portfolio and Estate Management, which delivered $76,300,000 of EBITDA With a 5% or $11,300,000 reduction in gross margin, principally due to margin contraction in our flagship employer super product And also an impact of $4,500,000 from the end of grandfather commissions. The P and R business includes 12 months of results for the first time compared to 5 in And it's important to note that when we talk about the business delivered through the P and I acquisition, most of the benefits of those synergies are counted inside this Segment, including also there's an additional $8,700,000 of revenue synergies. So they're accounted for in this segment even though it affects The impact of these synergies is delivered much more broadly across the business. Nevertheless, they're recognized in here from an accounting perspective. MLC, what you see here with MLC is obviously just the 1 month of earnings. And so we provided a couple of different Pro form a numbers for the full year, those are found on Page 32 of the appendix, which not only gives a pro form a for MLC for FY 'twenty one rebates to a June year end, but it also compares that to the numbers that we gave you almost 12 months ago, which was our estimate of the full year 'twenty Headline financials for MLC on a stand alone basis. Finally, Investment Management Business achieved EBITDA of $51,000,000 in period, a 9% reduction on With the key drivers of that being some of the reduction in gross margin from cash products and also reduction Moving through to the next slide. The next slide brings together all of those drivers into Consolidated picture showing the bridge between FY 2020 unpat of 124 to FY 2021's 147.8. You can see there was a positive contribution from higher FIGR balances, which were offset by the decreased margin of $20,500,000 With the majority of this decline coming from reduced margins in the portfolio at a state business, which as I referenced earlier, may have been due to the repricing of employer super And grandfather commissions. There's a $23,000,000 unpack movement in the open architecture part of our business with the majority of this being the termination The contract that we had with BT that was announced in December 2020. It's important to note there was also a net cash settlement in respect to that contract of $52,000,000 when the contract was terminated, but this amount is not included in our unpack. It's normalized out from that result. Moving through to the 3 key drivers of increased Unpack. We've got the synergies which we've talked about before and then also the additional EMEA contributions from both P and I Turning over to slide, there's a similar bridge on the expense side of things. And you can see there that particularly on the labor cost side, it was a very modest year in terms of labor cost increases. We did make some further investment in IT and in overall governance side of things, but it's worth noting that within there, we did not apply any general salary increases in the FY 21 year, due to the uncertain operating environment, but we are returning those to normal for FY 'twenty two. And so you should And then again, you see the offsetting impact there of the cost synergies as well. Moving on to Slide 13, which focuses on remediation. We've reorganized the way that we manage this internally and we now run 2 distinct programs, advice remediation, which includes IAA remediation advice And remediation for the former ANZ line licensees and product remediation, which covers P and I and now also includes MLC. Well, probably I think most important achievement with regard to mediation for FY 'twenty two was that we made $144,400,000 of payments Declines during the year. And when you look at the pace of the program, payments in the first half of 'twenty one were 28,500,000 So the second half had more than $115,000,000 of payments and shows the increasing pace of the program as we're moving through and getting towards completion. We did have an increase in remediation provisions across both programs in total of £70,600,000 This is a result of updating, I guess, our sort of assumptions and assumed rights to sort of actual experience. Also, we've had a couple of months of delays in one of the programs, which has increased interest costs and also some change to the WACC as well. And while these provisions have increased, it's important to note that the further we progress the process, what we're actually doing is turning a set of assumptions around Past file metrics into actual data, which gives us greater in confidence overall in terms of the overall provision number. Renato mentioned that we expect to have the advice remediation largely complete by the end of FY 'twenty 2, with product remediation program extending further, We're targeting to complete the P and I aspects by the end of calendar 2022 and the MRC program will go further into FY 'twenty three. Speaking of MLC, it's important to note that product remediation provisions, including the MLC remediation provisions, were funded on the balance sheet as at completion, although are subject to the usual purchase price adjustment process. Turning to Slide 14, which sets out our corporate cash and Now at debt facilities, following the completion of the acquisition on the 31st May, we've withdrawn senior debt of $475,000,000 which represents a senior leverage ratio of 0.6x net debt to EBITDA. That's slightly below our estimate when we announced the transaction Where we thought we were going to be around about 1x net debt to EBITDA. The difference between that is largely timing. I mentioned before that Some of the remediation programs have slipped a couple of months, still inside the delivery windows we talked about both 6 months ago and I've just talked about now. But nevertheless, there is a timing aspect in terms of that leverage. And so we do expect leverage to increase over the coming 12 months as those payments are made, Peaking towards the top end of our 1 to 1.3 times sort of target range before declining as Cash flow grows from normal business operations and also the delivery of synergies. We've also set out some of the medium term funding commitments, including remediation And also the integration investment that we're making, which obviously will deliver some of those returns in terms of synergies. And then looking out further to FY 'twenty six, we've got the subordinated loan notes that were issued to NAB as part of the MLC acquisition. Those had a face value of $200,000,000 of issue. We've reviewed those and will be in each accounting period. So the current fair value As at 30 June, it was $205,000,000 for those subordinated loan notes. And important to note that from a debt facility point of view, those are Moving on to Slide 15, where we talk through the dividends. Consistent with the first half of 'twenty one, we declared an $0.155 dividend made up of an ordinary dividend of $0.095 and a special of $0.02 per share. And that special dividend, just as it was in the first half, is there to reflect the fact that the capital raise It was completed last August September, but there was only one period of additional MLC earnings in the period. And as we had freed up some cash from divesting a couple of non core assets, there was the capability to extend To extend special dividend to smooth out those overall dividends for investors over the period. The The ordinary dividend per share for the second half 'twenty one, the final dividend represents 75% of Unpat, so midway through at the midpoint of our Overall dividend payer policy, which is at 60% to 90%. Turning to the next slide, which sets out a bit of a pro form a for So this represents IFF for FY 'twenty one ex the 1 month of MLC contribution on the left hand side. We've then done a pro form a for MLC June to June for FY 'twenty one to produce an overall good pro form a for FY 'twenty one. And it does really talk to the scale of the business with revenues of close to $1,500,000,000 and Unpad of $213,300,000 Importantly, we're also flagging there some changes to our reporting that we will work through in FY 'twenty two. The main ones there are really around Reviewing our operating segments to consolidate down to 4 segments, which will be advice platforms, investment management and corporate. So full integration of both MLC and P and I into those segments. We're also looking to review our FUMA methodology for October, which is when our Q1 FY 'twenty two for the report will be out, just to make sure there's consistency in the methodologies that are used between IAAF and MLC. There have been some historic differences there in the past, and also updating our cost allocation model as well. The last one I draw your attention to there is in relation to the way that we calculate UNPAT. We've introduced and reviewed the way that we Adjust from in between NPAT and NPAT. We've introduced a minimum threshold for adjustments and made other changes To sort of really tighten that up, and the net impact of that will be that there'll be fewer items that we normalize in between those two lines going forward. Moving to Slide 17, we also want to set out some selected key financial drivers and targets as we look out across Now I won't step through each of these in detail, but the first few relate specifically to earnings drivers over the period, With the net result of those being that we're targeting growth in net operating margin despite an anticipated decline in gross margin due to the benefit of synergies being realized across the period. I talked before about the change in Unpacked methodology. If we applied that approach to FY 'twenty one, UNPAT would have been approximately 3% lower, but it's important to note that none of this does anything to change statutory Through NPAT or cash flow, it's simply fewer items being adjusted in the NPAT number, but important to take into account as we go forward. And finally, when we look at all these factors combined, we're targeting increasing EPS through 4 years' contribution From MLC, in addition to the benefit of synergies coming through, which when looked at within light of our dividend payout ratio, I'll hand it back to you, Narevato. Thanks, David. And Just to spend a few moments in terms of our outlook and priorities going forward. Just worth reflecting on page 19. Some of the industry dynamics that we find ourselves in and certainly there's no denying that our industry plays a really important role in supporting financial world banks in the strains and We find ourselves in a fortunate position and privilege to have been supported by an expanding addressable market, by the way of increasing rates of the super contribution. And whilst it does come with responsibilities, it does also create a vibrant market for competition and continued growth. And that's something certainly we're looking to exploit going forward. Alongside this, we're in a unique place where we're facing a vast market There's never been more dislocated in terms of demand and supply. Now we actually think this creates a really positive tension to be resolved And it's pleasing to see all the stakeholders in the system, whether it's policymakers, regulators as well as commercial enterprises Such as ourselves looking to solve this tension, and that is how do we increase the supply of advice or advice like services Into a market that is clearly seeking more and more assistance and support in an increasingly complex world. So again, the dynamics of Financial Advice, we think have never been better, albeit that the starting point It does require some reengineering and repositioning of the industry as a whole. And we look forward to working with our stakeholders to really Not only provide a value service into the community, but importantly do so in an economically sustainable way where the owners of the business are rewarded for the deployment of capital. So if we move on to Slide 20 and try and contextualize this in terms of what does this mean for IFFF, I think Where we find ourselves is on 2 horizons of transformation. And I think the first horizon of transformation, So the 2019 to 2021 horizon are really those initiatives that we've committed the last few years of management attention and resources Towards making progress on and it's pleasing to say that we've made considerable progress on all of these, whether it's Advice 2.0 to evolve. And also the importance of acquisitions in achieving the scale that we felt was required to ensure we can continue the transformation journey And continue to exploit the market opportunities ahead. Importantly, however, it's also important So we'll pass that first horizon and to the next horizon, which is an extension of the existing themes. So Whereas Advice 2.0, we've got a high degree of confidence around our ability to meet our commitment of net flow positive in relation to the self employed models. There is a continued opportunity to firstly extend that logic and extend that desire across the MLC Advanced Businesses, but importantly also to challenge ourselves to Solve the problem of the unaddressed and looking to extend that. And we're really calling that Intel In the Evolv program of work, I think as we see that come to a It really opens up and clears the path for our product simplification exercise That really we think will release significant value for the business. And having now reached a point where we feel we are at that point of critical mass With respect to scale, I think the acquisition focus now turns into an organic growth focus that revolves around engaging with our clients and Building strength in our reputation. So whilst we're not losing sight of the fact that there is work to be done on the first horizon, I think it's really important that we look beyond that and we look continue this evolution to ensure that we're optimizing the most of the opportunities ahead. If I look to dissect that a little bit further and really focusing on that advice aspect of that transformation, By any measure, and I think the research that we ourselves have done and others have done, there is no doubting the value that the advice industry and advice SELF delivers to clients. The challenge is, however, in the reach and the scalability of that advice. I've Previously described, the Advice Industry is a binary industry and that is you pay a significant fee and you receive a holistic personalized proposition Or you pay nothing and get nothing. And that is part of the problem. There is no glide path. There is no Modularity to advice, and I think that that is certainly a challenge that is solvable and one that we will commit ourselves to solving. We think there's a significant opportunity in embracing a digital first mindset and leveraging concepts like cash flow management, like goals planning and financial education To create a more engaging coaching style interaction with our clients, particularly younger demographics that may in fact extend that to a more modulated or episodic nature of advice. We've seen Sigma models emerge offshore and believe that we've got a fantastic opportunity to make ourselves more relevant to our client base And our members through more meaningful experience. And certainly, one data point that brings this to light in our mind is that With the acquisition of MLC, we'll have over a 1000000 members that are unadvised in our superannuation products. And there's a terrific need and frankly, An opportunity to build more relevance and build more value into our interactions with them. We're in the process of currently incubating some new And we think this venture can actually add significant value through improved net funds flow, improved client lifetime value as well as potentially exploring new revenue models. This is on top of our existing and continued commitment In terms of improving the quality and sustainability of the traditional advice model that we've spoken about before, as we've highlighted, we've committed to remaining on track To have the self employed businesses breakeven by the end of FY 2022, those that were acquired as part of the Aindet transaction On a run rate basis and we're also committed to the same outcome for the MLC businesses that have been brought across in the last few months. So just to put this opportunity into context, with the inclusion of the loss making infrastructure of MLC, the combined losses of these subsidiaries In support of self employed advisors, it's just shy of $100,000,000 So it's a significant opportunity. We're certainly confident that The method to capitalize on that opportunity has largely been designed through the thinking we've done in support of the AMZ challenge. And so it's really a case of deploying the same methods and the same strategies across Some of the MOC architecture to really achieve a similar sort of outcome and really on a run rate basis breakeven by the FY 'twenty four year, so a very similar 3 year horizon. So it is a big opportunity. Our experience with the ANZ transition and deployment today gives us I really strong sense of confidence that this is achievable. If we move into the simplification Agenda and certainly the extension of the Evolv 21 migration. As I've already said, the The completion of the Vault 21, which we remain on track for, does clear the path for the continued simplification. We are currently in the midst of a product review across The enterprise product suite, which now obviously includes MLC and A and ZPNI, to ensure we can map that out As efficiently as possible, optimizing the various factors that need to be factored in, both from a member lens, From a technology lens, from a client disruption lens and from a feature functionality and pricing perspective as well. Not only in terms of capacity, but I think one of the things that Evolve has done for us and certainly the completion of Evolve gives us A highly contemporary competitive offering in the marketplace, as well as having built some real capability in this area of It is a relatively technical area and one that our the OtterBox has Had and has probably had more experience in than most others. So we're sort of entering a phase that Evolv21 is really flexing our muscles and allowing us To build some muscle memory around this capability and we're confident that that will serve us really well as we then look into The answer in the MLC product sets. Just to summarize the table on the slide there. On top of the completion of the evolve, we're also forecasting that we would have by the end of the FY 2022 year simplified one other Ecosystem out of ANZ by the end of the financial year that will eliminate not only a platform, but also an RSA license and a fund as well. So The journey with respect to rationalization or simplification has certainly begun. And finally, in terms of growth and funds flow, it's clear that the addition of P and I and what Zib certainly created A challenge, but also an opportunity in terms of reversing what has been a declining fund flow profile for those businesses. If we reflect on the root cause of that funds flow profile, certainly it's our view that it's a lack of focus and investment under previous ownership that has resulted in this In this dynamic and these are issues that have been certainly reversed with the acquisition of Adaboyev, being a pure wealth management player, The only focus is in this sphere. I think it's the starting point to reversing this trend. It's the ultimate migration to our in market contemporary product capabilities We'll provide an upgrade to members and really significantly improve Our net flow profiles in this space, but in the intervening period, there are certainly levers we have available to ourselves To really look to improve the funds profile and certainly that work has begun with ANDA and working through that ANDA profile, Both in terms of functionality improvements, which we've certainly deploying into Smart Choice, but also price repositioning. And I think between both of these, we're now targeting and expecting that the P and I product range will be Net flow neutral by the second half of FY 'twenty three. I think while MLC represents a similar dynamic, There are differences in the actions taken by MLC prior to completion and that are quite different to ANZ. So for example, the MLC products have already gone through a significant Improvement in terms of pricing, which means there's less legacy pricing exposure, and therefore, we expect there to be a natural Gradual improvement on MLC over time all else being equal. That being said, we're not in a position yet So, we've completed our prospect before MLC. So, there's more work to be done by us and by management to really Get to a final landing with respect to the options available to us to improve the net funds profile for this business. That being said, it's our full expectation that Both of these businesses that the net funds flow profile does improve. And as I said, I think having had more time with the ANZ products than the MLC products, We've certainly progressed on the ANZ likely path forward in MLC, but certainly the MLC will come into focus And has already come into focus over the past few months. So just to close out and on the final slide on Slide 24 before opening up to questions. There are really 3 key messages Before opening up to questions, there are really 3 key messages that I'd like to leave you with. And firstly, that With the completion of Enofseen, we're now at the scale we need to support our ambitions and the repositioning of the business. That we're well on our way with respect Synergies and not only does that allow us to significant Simplification benefits, both culturally and from a governance perspective. We've got a really clear focus on the deliverables in terms of growth, Both in terms of addressable market and revenue and ultimately our success is going to come from serving more Australians through a business model It deploys market leading technology in a way that delivers lowest cost of service and in supporting the financial well-being So really in this chart here, all we look to provide you with is a scorecard against the progress Against our key initiatives that we've discussed today and we've touched on today, and clearly, as I said, I think those that are on the first horizons, I think it's really pleasing to say we've made real progress in. And we're now really starting to focus in on the next horizon and of the key drivers to meet our ambition. So With that, I'd like to thank you in advance for your time and pause there for any questions. Thank Our first question is from Kiranjitji of Jarden. Please go ahead. Hi, Renata. Hi, David. Just Two areas I wanted to ask about. Firstly, in terms of the advice breakeven targets both for the ANZ ADGs And then I'll see, just keen to get a sense of the contribution from Costa driving those outcomes. You've So you lost, so I think 9, 10,000,000 from ANZ this year and about 70,000,000 from MLC and you're targeting Right, Ketan. It's in 2022 and 2024 respectively. Is that largely from cost out or are there other factors we should think about Contributing to that and specifically just wanting to get a sense of how much I guess the cost out programs particularly the MLT 150,000,000 Kiran, it's David here. If we go back and look over the changes that we put through On the P and I business, that path to breakeven is approximately half revenue, half synergies. So Our expectation at the moment is that there would be a it won't be exactly the same for an Aussie, but it will be similar. And it's an important point you raised because Renato talked about that $100,000,000 cost improvement. That's not $100,000,000 plus, dollars 150,000,000 of synergies Because as you say, some of those cost improvements that will help get the business to breakeven, let's call it approximately half, Are also cost synergies. So there is an element of doubling up there. Okay. So I mean just for NLC, for example, the 70,000,000 full run rate in NLC advice, Yes. Of losses at the moment, we should think about half that $70,000,000 improvement by 24,000,000 Coming from costs up around $35,000,000 of the period 160, okay. Yes. Yes. And then Secondly, just keen to talk about platform processing. There's a number of significant changes across, I guess the 3 different sort of corporate groups. Historically, Platforms, the employer super re pricing you highlighted is a 6,000,000 impact. I think I saw somewhere You mentioned that was fully backdated to the start of the financial year. Was that all booked, however, in the second half? Was there a heightened margin impact in the second half from that? Correct. So all booked in the second half, but you're right that it was backdated to the start of the financial year. Okay. All right. And then secondly around the Evolv transition, the impacts you called out, I think, is sort of 9 mill The Phase 1 and 17 mill for sort of once Phase 2 is complete. How do we think about When that $0.07 run rate is actually effective? So what we've talked about there We've given you a sort of FY 'twenty two number and then a post run rate, the $17,000,000 is really post the completion of the migration In December 2021. So the majority of that is going to be in the second half of FY 'twenty two. Okay. All right. And then just thirdly, sort of on the NLC business, I think there was a comment somewhere saying They undertook repricing initiatives prior to completion. I was just wondering if you can elaborate on that. Does that refer to sort of their significant repricing on an uptick rep more than a year ago? Or is that something More recent? And if so, what impact will that have into the 'twenty two year? Yes. Yes. Look, it's something I think we noted at the time when we talked about the acquisition was that there'd been a period of repricing over MLC over the last, well, now 12 to 18 months in terms of Some of the key products, we had seen that in terms of the impact in terms of declining EBITDA. That was in line with Our expectations through due diligence. So I think that when you look out Cross MLC and think about what FY 'twenty two looks like for MLC, I would more be looking at the pro form a As being the better indicator of the starting point rather than, for example, taking the 1 month of June and multiplying that by 12. Okay. All right. And then maybe just finally on the ANZ repricing, I know you're sort of yet to finalize the legacy repricing. But based on sort of the commentary, we should just think about in broad terms that, that will offset The higher repricing in Smart Choice, we shouldn't see any material net impacts from a gross margin point of view as that flows through. Yes. That's our expectation on a full year basis. The Smart Choice rate price went through on the 1st April. One answer We'll be later on this year. So there'll be a small benefit in the first half of FY 'twenty two. But if we look at it on an annualized basis, Those 2, obviously, depending on flows and how those sorts of things evolve, we think they'll broadly neutralize each other. All right. Thank you. Our next question is from Anthony Hu of CLSA. Please go ahead. Good afternoon, guys. Just a couple of questions for me. Firstly, you mentioned that looking at revenue synergies in the P and I business, you mentioned a number About 9,000,000. Just wondering if you can give us some more insight on this, how this was achieved, the way it came from? And Do you expect further revenue synergies from here? Hi, Anthony. It's Ivan here. So So those synergies, yes, there's $8,700,000 of revenue synergies in the period. There is a lot of those came through Sort of consolidation of scale, if you like, and renegotiating with some of our external partners is where that sort of came through. We do think there are additional revenue synergy opportunities. There is a small amount of revenue synergies included in what we talk about next year in that $80,000,000,000 to 100,000,000 Now that's always been the case. If you go back to last year when we talked about $150,000,000 of synergies, there was an element of revenue a small element, about $10,000,000 All revenue synergies in there. So we certainly think that they're there. I guess our focus has always been principally To talk about and focus on the cost side of things, given that those are probably more tangible in the long term, but We're certainly very much looking at what we can do to combine the scale and breadth of the business to negotiate better terms with some of those external suppliers. There is an element of that inside that A and P to 100,000,000. So that the number they mentioned roughly 10,000,000 within the 8,000,000 to 100,000,000 is that 10,000,000 From MSC or PMA? Well, the 8.7 was delivered in FY 'twenty one. The go forward basis of 80 to 100, that's an annualized number for FY 'twenty two. In terms of where it comes from, look, to be honest, As we bring the businesses together more and more, it's very hard to and because what we're doing is really harnessing the scale, We can't really attribute that to any one particular part of the business. It's because of the collective scale of P and I And IOOF and MLC, together, that delivers those outcomes. And that's really why we've brought together the synergy programs into a single program. And likewise, with our reporting, we'll talk about segments in a much more consolidated way. Okay. And then My second question was around MLC. Perhaps just following on from Kieran's questions. With your MSC numbers, you provided some pro form a numbers on Slide 16. Looking at the revenue base, I mean, the revenue base in particular It's a little bit weaker than the historical FY 2020. Can you give us some more thoughts around Do you think that revenue base is a good base going forward? Or should we expect further impacts just from pricing Gross margins, so this morning, Pat, going forward from here. Yes. Look, I would say that if I go back and look Our assumptions when we cross the acquisition and when we move back through due diligence, while the revenue numbers Paul, in FY 'twenty, the revenue number is ahead of our expectations where we did the modeling. So we're pleased with the performance of MLC in FY 'twenty one. Strong markets certainly helped in terms of delivering that revenue number. So, yes, look, I think that Happy with the result. It's in line with our expectations. And yes, I think it is a reasonable base, but it's certainly fair to also mention But some of that outperformance on the revenue side was down to some of the strength we've seen in equity markets over the last 12 months. Okay. All right. Thank you. Next, Danjo of Bank of America. Please go ahead. Yes. Thank you for taking my question. If I could just follow-up on MSC, I'm looking at $108,500,000 of FY 2021 EBITDA, But $22,000,000 almost of EBITDA for 1 month. So June month seems to be annualizing A lot higher than the FY 'twenty one pro form a. And how does this interact with the MLC gross margin falling over the same period? Look, the best advice I can give for when you look at the June 2021 number for MLC, I would not be using that as a basis, as I said earlier, for thinking about FY 'twenty two. Very unusual month, obviously, given the 1st month Of a transaction completing in addition to MLC's traditional year end has been September. We've moved that year end to June. There's a lot of movement in those numbers in the month. And that's really why we would absolutely emphasize the pro form a as being the best baseline. Yes, I would not be taking June and multiplying it by 12. Okay. Thanks, David. And just Second question, you're flagging the downward revenue pressure from migration. How much margin pressure are you expecting here? And How are you managing the business to increase the net operating margins from here? Are you able to quantify some of these margin impacts? I think for those, we've given the dollar value rather than sort of talking in terms of margin. I We've given a fair bit of information in terms of some of the dollar drivers and the impact of some of that margin that we expect to see. If I follow through to the second part of your question around net operating margin, a lot of that really comes through the synergies. That's really what is driving That divergence in terms of gross margin continued gross margin pressure, but increasing that operating margin comes down to delivery of synergies, Not only in terms of even if you just look at the from the P and I side of things, dollars 16,000,000 a year, At an annualized 26, so we get that benefit inside 2022. We're well advanced in terms of delivering on the first wave of subsidies in the MLC acquisition. So So those factors will combine to help sort of enhance the new operating margin. So the only other thing I'd add is that as you look forward and as you look to model or to predict what happens when you rationalize further systems, What we haven't spoken about in the benefit number or quantified yet is actually the economic benefit of Simplifying and rationalizing those systems. So the system rationalization from product simplification isn't included in the 150 And would be on top of. So it's just important to keep that in mind. Thanks. So can I just confirm you're saying that you're managing net Operating margins, excluding synergies, to start to increase from here? Is that what that guidance slide is telling me? Sorry, firstly, it's not a guidance slide. So, I just want to be cautious on that one. And no, net operating margin does include synergies. So what we're saying is we expect net operating margin to improve. The basis of that, I think Renato is calling out is that in addition to synergies, there are also some simplification benefits as well. Thank you. I'll leave it there. Our next question comes from Lafittani Sotirio of MST. Please go ahead. Thanks for my question guys and good afternoon. My first question is in relation to Slide 32, the MLC Pro form a, can I just clarify whether financial year 2020 and financial year 2021 is under the same accounting standard? And if it is, can you explain The $37,000,000 drop off in EBITDA, are we translating to minus $8,000,000 odd in what the difference is? Hi, Lou. It's David here. Now look, at the moment, we've done those. We have not yet harmonized accounting policies. So that is simply taking MLC's existing approach on a 12 month basis and applying that. So no, there hasn't been a there hasn't been that sort of similarity there. And what would you say is attributable to that difference in that trajectory for us? Yes. Look, some of it is in relation What you're seeing in terms of depreciation and some of the different approaches that are taken across the group in there. And then obviously from an interest point of view as well, There's no interest that sort of sits on-site inside the MLC business, but there is inside IOOF. Okay. Just moving on to Slide 17, just a follow-up question in relation to the evolved 'twenty one, 17,000,000 odd run rate post December. Can you just clarify which legacy businesses are contributing to that 17,000,000 run rate Reduction, I think it was a comment by Renato suggesting that you have yet to do the review of MLC's product base and even though they've had some price cuts, there's Joel, maybe some on the cards. So the $17,000,000 there relates to the IFF migration of our existing system that's on to evolve. And there's nothing affected in for any of the ANZ legacy business in terms of margin decline? We talked more about the ANZ pricing changes 2 or 3 lines above where we talked about the P and R product pricing changes. So the 17, we've separated both of those out. So there's nothing in there for MLC. As Renato talked about, given We've only had the business a couple of months. We're still going through reviewing those. The $17,000,000 is in relation to Evolve 21 specifically, which is around IOOF. And above there, you see what we're expecting in terms of P and I. Sorry, can you just clarify? I can't see it right now. So what's the P and I expected impact? Beg your pardon. So the P and I approach that is the net impact of Smart Choice reprice and OneAnxor, which we're expecting on an annualized basis, The ups and downs of those 2 reprices to broadly be neutral. Got it. All right. Thank you. Andre Stadnik of Morgan Stanley. Please go ahead. Good afternoon. Could I ask a couple of questions? Could I ask around the payout ratio firstly? Given the better cash position And the consequent special dividends. Are you seeing that the payout ratio should be closer to 80% than say rather 70% Into FY 'twenty two? No, I wouldn't take it that way. I would take it that, as I said, we've aimed to give Consistency of dividend over the period. Obviously, we'd like to be able to grow that over time. So the 75% represents the Point of our range, that's what we've done on the ordinary and actually why we've split it between an ordinary and a special rather than, for example, just giving it And calling it all in ordinary, I think calling it all in ordinary, which would be a payout ratio of over 100%, would be sending the wrong signals. So that's why we've split it between an ordinary and a special. Thank you. And in terms of advice, the gross margin revenues in the second half of $70,000,000 down from $82,000,000 first half And 85,000,000 BCP. How much of that was from advisors exiting versus other external pack So the majority driver of the Changes in the advice business was really due to the open architecture contracts such as principally BTIG, that is recorded inside the advice Segment? So that is the largest driver of the reductions in advice. Got it. Thank you. And if I can ask just a third question. In terms of the ANZ or the ex ANZ gross margin, It's been steadily going up 35 basis points, PCP and more pricing up, this has been up going up to 39 basis points. What's driving that? Is it just the mix or is it the outflows coming from lower revenue products? Look, it is a little hard to be looking at segments the way they currently are set up. And you might have heard what I mentioned earlier that The way we've recorded P and I synergies is effectively we've given most of the benefit of that to the P and I segment. Now that's not Truly reflective if you think about it because a lot of the synergies we've been getting have been across the group, but they are accounted for and as were the $8,700,000 of revenue synergies inside the P and I segment. So I think that's been helping. And that's really why it's important that in 'twenty two, we start to bring the segments together So that we start to get away from whether or not a benefit across platforms, for example, is recognized. Does that get recognized in P and I From Nigel Pitoet of Citi. Please go ahead. Good morning, guys. Just first of all, on the sort of platform IFF Legacy business, obviously, given the average is fewer, but obviously, given the Evolv transition took place sort of early June, your average won't be indicating So my question is just the closing balance on that mix of platforms between Flagship Advice, Flagship Employer Transition and Steve, what would that look like if you gave us the closing balance at Sorry, Nigel, would you mind repeating that? Just go one more time. Yes. So in your platform business, you've given us the average FEWA, FY 'twenty one, which obviously hasn't moved much from 1H 'twenty one. There's been a bit of market impact, but it hasn't moved much because you did the transition on to evolve Whatever it was, 9th June or whatever. So in other words, what happened with that transition? How has that mix Between your various platforms changed as a result of that transition? Yes. So what I would say is that the majority of transitions For Evolv is still to come. We have done some of those migrations across the period. But in the overall scheme of Evolv, it was a small And if you like that, that went through at that time. So the majority of the changes from Evolv will happen In the second half of FY 'twenty two, principally with those December well, actually, they'll be there for the 31 December Forward dates. All right. Okay. Okay. So that second EBITDA transition is bigger than the first one, is it? I thought it was Correct. Yes. Okay. Fair enough. Okay. Secondly, I think you might have covered this, but you're going on about The reposition of the legacy P and I suite, just to be clear, is that totally just the repricing of Oneonta? Or are there other things that you're Hoping to do with the legacy P and I suite that doesn't involve repricing and therefore isn't isolated with that. What answer price change? Yes. So we've looked at 2 key products when we've been through the analysis, Smart Choice and One Answer. I wouldn't say we've just changed price. There's actually been a fair bit more to it than that. So Smart Choice, we significantly expanded some of the investment options that were there, Redeveloper sort of online portal. So there are changes beyond just moving a price up or down. But you're right that when we talk about The P and I product pricing changes, we're specifically referring to Smart Choice and One Answer. Okay. So the other product that's in there, there's nothing being done to that? Not this stage. We focused on where we think the bigger Okay. And then you mentioned obviously that you're changing the definition of Unpacked and that would have been 3% lower this year. What items are actually moving? The main thing is we're introducing a threshold. So at the moment, There's no dollar value threshold that would apply. We're going to introduce a dollar value threshold of around about $10,000,000 Which means that if there's movement below $10,000,000 we're not going to adjust for it. So that's the major change in terms of the calculation going forward. Right. Okay. So significant items have to be $10,000,000 or above? Yes. Yes. Okay. And maybe just finally, I mean, Renato, a question for Renato, I mean, you're still sort of obviously targeting this episodic advice. Do you think you need legislation change in order to be able to deliver that? Or is that something you feel that You've got within your capability as it currently stands. I think much of that exists already within our capability, albeit there is room for improvement. So I wouldn't preclude ourselves from working with regulators and policy settings or policymakers to train some of those settings that allow For an improved experience, but some of that is already in existence today. Okay. Thank you. Thank you. Our final question is from Sidharth Amareswaran of JPMorgan. Please go ahead. Good afternoon, gentlemen. Just a question firstly, just on MLC. If I could just ask, just the repricing of the advice Of the advice businesses, just to get those towards breakeven, what time frame will that happen over? So will it all happen right at the end, FY24 or and also if you could just comment on just the cost out as well, just the time frame or the Halfway for both repricing and also this cost out to get those to breakeven? Yes. Hi, Sorry about that. Sorry, I'm not just that was first cracker. And this will last to be the last question given initial time. So thank you everyone. So that will happen progressively. So there's not a drop date at which we go from significant losses to breakeven. So I would say there's a natural progression, albeit there's a period of what I'd say, if you take the 3 year horizon and we use The 3 horizon consistently both with ANZ and MLC. There's a period of the 1st year or 18 months where you've actually got to make the changes And then you'll typically see those benefits flow through in the latter half of that 3 month 3 year window. So obviously, we're committed to reaching those goals on ANZ on a run rate basis by the end of FY 2022. And then the same again for MLC with that 3 horizon on a run rate basis taking us to FY 2024. Okay, great. Okay, thank you. Thank you. Mr. Michael, there are no further questions. Back to you. Thank you. Well, terrific. And thank you everyone for time. Apologies for being a few minutes over, but we certainly appreciate your interest and look forward to catching up with you all soon. So thank you again. Thank you. This call has now concluded. You may now disconnect your lines.