Earnings Call: H1 2021

Feb 23, 2021

Good morning, everyone, and welcome to the IOOF Holdings Limited 20 21 Half Year Results Presentation. Shareholders and analysts are welcome to request to ask questions during the Q and A session at the end of the presentation. Media inquiries and requests can be sent through via e mail. For opening remarks, I'd like to hand the call over to IOOF's CEO, Renato Motta. Please go ahead, Renato. Thank you, and good morning, everyone. Thanks for your time this morning. Over the next half hour or so, myself and our Chief Financial Officer, David Chambers, will walk you through some of the highlights for our 1st 6 months of this financial year before opening up to questions. So starting really with the financial overview, I'm pleased to say we've delivered what is a solid set of results from a financial perspective. And in addition to that, really delivered on some meaningful business Transformation and Business Outcomes. Starting with our profit metrics, so starting with underlying impact as well as gross margin, we've seen a significant uplift In both of those, with the contribution and inclusion of the P and I business coming across from ANZ. And importantly, this provides a really solid foundation for our continued growth into the future. The same can be reflected in our funds under management and administration, which benefits from the completion of P and I. Interestingly and importantly in our net flows figures, our proprietary technology offer, it's pleasing to see that deliver $785,000,000 in net inflows for the period. And clearly, the result also reflects some simplification and rationalization as a result of the transformation, which has resulted in one off net outflows of approximately $4,100,000,000 In terms of dividend and we're conscious this is always an important feature of our results for our shareholders. We're reporting a total dividend of $0.11 5 for the period, made up of 2 parts. It's made up of a fully franked interim dividend of $0.08 per share, well as a special fully franked dividend of $0.035 per share. David will touch on this a little bit further, but I think importantly, And not only does it reflect the recognition of the importance of income to our shareholder base, it's also a reflection of our capital base as a business both currently and also our confidence in terms of our balance sheet going into the future. Reflecting on our business achievements, I think making these sorts of achievements across any one of these 3 strategic initiatives would be a great outcome. But I think To be able to demonstrate our ability to execute across all three simultaneously, I think is really a credit to And demonstrates our ability to execute. If we focus on our Advice 2.0, so our Advice Transformation, We've commenced the changes in September of last year around that transformation and are on track to realize those expected annualized synergies of $10,000,000 per annum. Pleasingly, we've seen the integration now of the ex A and Z line licensees with the existing IWF licensees under 2.0. This has also allowed us to really create the common governance environment. So we're now dealing with 1 governance environment and we're now seeing a large number of those advisers go through a full annual cycle under the uplifted governance standards. We at our last reporting period, we announced the acquisition of Wealth Central and it's pleasing to see that see some significant take up of that functionality over the last half. Moving to our Evolv program of work or Evolv21 as we call it, which is geared around the simplification of 2 operating systems to 1 by December 20 21. It's pleasing to report that we're on track and making really strong progress on that front. That system, the Evolv system now is For administering over $14,000,000,000 of funds under administration. As I mentioned earlier, we're seeing strong net flow, which is really pleasing. In addition to that, we're also surpassed the $1,000,000,000 mark in our MDA service, so our managed portfolio service. And so some really pleasing progress on that front. In addition to that, we've taken the opportunity also to simplify our ecosystem In and around evolve as well, which has been pleasing for the period. From a growth perspective and really pointing to the integration of both P and I and Preparation for MLC. It's pleasing to say that we've now reporting a $20,000,000 annualized savings achieved this year towards our target of 25 for the year. So very much on track to deliver on our commitment with respect to P and I synergies, which is a real credit to the team. We've been able to do this alongside preparation for the MLC acquisition itself. So, and we'll touch a little bit further on this. When I reflect on our ability to make the progress and that we're reporting it today, I think part of that comes down to a couple of important factors. And One of those factors is the consistency of our strategic intent, which has now been in place for 2 years. And I think that consistency of strategic intent, including the MLC acquisition provides real clarity for the business and that clarity is now translating into agility and speed of execution. So that's really a really pleasing feature for the business. In addition, I think one of the Additions to that agility and the pace of change and being able to deliver on our commitments has been a maturing of that capability, both in terms of the addition of some capability from the P and I leadership that has joined the group. But importantly also, we're now in a position where we have the executive team in place. This time last year, we're in the midst of executive team reshuffle, but now having Had a good 6 months and now leading into the remainder of this year and next, we're seeing that stability of team, increased capability maturity really translate into business outcomes, which is a real positive for the business. Just before handing over to David, I do want to briefly on our 3 strategic initiatives, Advice 2.0 of all 'twenty one and transformation through integration. Just starting with Advice Super 1 0 and this is really about ultimately creating an end to end opportunity set with respect to The accessibility and affordability of advice to all Australians. If we reflect on the traditional advice industry as we currently know it, it's very much centered on what I'd call the latter half, if you like, of the to half if you like of the lifecycle of advice relevance. This reflects the need to reinvent advice as we traditionally have known it to remove any cross subsidization from other parts of the value chain. And from an IFF perspective, that's about improving sustainability, the accessibility and the affordability financial advice. So it's great to see we're making significant progress around that. It's really pleasing to us to see us get greater clarity around the positioning of each of our propositions, particularly with respect to Shandforth and Bridges, which I'll touch on a little bit further, But also the same applies to our self employed advice licensee offer across some of those brands. Whilst there is a lot of focus on reshaping and reinventing what we already have, there's also tremendous effort going into what we call the financial coaching and well-being aspects of our advice offer. And it's this approach to looking at advice and well-being through a different lens, through a very technology enabled lens that is going to improve the accessibility and the addressable market of advice. As we currently sit here today, advice is accessible to approximately 1 in 5 Australians and there's tremendous opportunity to increase that addressable market through finding new ways and better ways to create a customized and relevant experience to other cohorts, many of which are clients of ours today. So when we look at our advice footprint, we also look at that through the spectrum of advice or licensing models. And as we've mentioned before, we stratify that across 3 key segments, which is professional services or employed financial advice models, the self employed segment and the self license segment. Going forward, we see all three of these segments has been really key for the Ottobworth Group and creating a really healthy and vibrant ecosystem across all three. What I think can be seen from this slide and I think it's a really relevant point is a relative contribution of each. And clearly, there's a I think we can highlight a really stark difference in the economic contribution of the professional services versus a self employed and the self licensed. The professional services we see as being a growing segment. It's currently going through a transition particularly with bridges towards a wholly employed environment. And this is providing great opportunity to simplify our processes to create greater quality and consistency and advice experience, which I think will benefit our clients and ultimately benefit the brand as a whole. It's also important to recognize the strong referral model that sits within Bridges that provides significant opportunity for net new clients and growth of that network. We approximately receive 10,000 referrals per annum into the Bridges network, a large part of which currently go uncertain because The traditional advice model simply does not cater to many of the needs that we're currently receiving through that network. So Tremendous opportunity to, as I said, extend that addressable market. In terms of the self employed advice model, And as we've spoken many times before, this is a segment of the industry and a segment of the market that needs to be reinvented, particularly with respect to sustainability. So clearly, as you can see from that figures from a relative context, it is responsible for the vast bulk of our financial advisers, but yet represents a much smaller part of our gross margin from the segment. And this points to the sustainability challenge, which cannot continue. There are two aspects of this that we're really looking to address. 1 is the cost structure that we currently incur in supporting this advice network. And as we've said in the past and have said today, we're targeting $10,000,000 annualized benefit there. But equally, we need to be really disciplined in which advisors do we choose to partner with. And certainly to the extent that historically we've supported or cross subsidized advisors that are not Economic sustainable in their own right. This is not something that we will continue to do going forward. I think the other overlay here is one of governance, governance and higher standards that we've now rolled out through our network. So between the high governance standards, in addition to the sustainability equation, we do expect Advice 2.0 is likely to see us reduce our adviser numbers in this segment by approximately 100 and 40 advisers over the coming 6 to 12 months. This of itself is actually allowing us to re platform and reinvent this business. So advisor numbers of themselves are not a key metric of success. It's actually ensuring that we have the right advisers and we have a business that is attracting like minded advisers into our network. With respect to alliances, or IFF alliances, this is a business that we think has tremendous potential. It is a business that we are currently repositioning for the future and for a future model. So whilst it's a small part of our business, I think over coming years we'll see this as a growing part of our business. For Evolve 'twenty one, I think we're reaching a really exciting phase of Evolve 'twenty one. Not only are we Rationalizing and simplifying our system, which allows us to have more resources dedicated to the go forward experience and service. It's also really pleasing to see the growth that we're now experiencing, particularly in the external market or what we would call the IFA market, the independent financial advisor market. We're seeing increasing levels of licensee usage, increasing levels of active adviser numbers. And I think that's a really pleasing sign and demonstrating some real green shoots in terms of what we can expect going forward. As we've said, we're on track to deliver to our commitment to 31 December, having the 2 ecosystems rationalized to 1. In terms of our transformation through integration, As we've touched on, it's pleasing to be here today reporting an annualized cost figure of $20,000,000 for the 6 months in terms of our cost achievement and very much on track to achieve a $25,000,000 annualized for the year, which will take us to $43,000,000 on a cumulative basis in terms of cost out and very much well on track towards $1,000,000 target. It has been it is a complex integration, particularly as a result of the TSA, but it's pleasing to see us Particularly pleasing to see us do the same with MLC. I think the team have been very disciplined, methodical in their approach. And I think part of the credit must also go to National Australia Bank and MLC for their approach to this process. Of note, particularly of late, The ACCC outcome in terms of the no opposition to the acquisition, I think was a real positive and welcomed. And more recently, we've had the MLC trustee or Nulus confirm that the transaction is in members' interests. And this will be a key input into APRA's own opining on the transaction, which we expect to occur over the coming months to allow us to reach a conclusion or completion by June this year, by no later than June this year. So a tremendous amount of progress is being made and alongside meeting our commitments on P and I. So I think it's been a very productive period of time over the last 6 months and positions us well for the coming year ahead. I'll hand over to David. Thanks, Rado, and good morning, everyone. Before we jump into the results, I just wanted to point out that over the last few months, we've been reviewing the way that we communicate our financials to the market. And with that in mind this morning, You'll find that there are additional two documents which we've uploaded to our investor site. One of those is an investor pack. It's an Excel file that steps through the numbers providing reconciliations. The second one is an investor book that is aimed at providing greater insight into how we make our money. So really what we're trying to do there is Greater transparency, greater detail on profit drivers. There's a lot more detail there. So it's something we look forward to talking about with investors and analysts over the coming days and perhaps weeks. As Renato said, the first half 'twenty one results represent a solid result in what's been a busy operational period for us on several of those key transformation initiatives. Before we dive into the numbers, it's also probably worth mentioning there are a couple of things to call out when you're looking at the comparisons on this first slide here. The first is that if you look across the 3 halves that we've presented, so first half 'twenty one and two comparator half periods, it's important to note that ANZ P and I is not included at all in first half 'twenty one as the transaction had not yet completed. There are 5 months of P and I included in second half '20 and a full 6 months in first half twenty twenty one. The second thing it's worth noting, in particular when you look at the increase in the NPAT line, is a number of material one offs during the period. Those principally relate to the settlement of our arrangements with BT, which we announced to the market on 17th December and also a legal provision that we took up in relation to an AET case, again, that we disclosed to the market a couple of weeks ago. So the net of those So is really what has driven the increase in NPAT. Both of those items are stripped out of NPAT. Revenue for the period was up to $350,000,000 UP 30 8 percent, largely driven by the inclusion of P and I. And if I step through to the next slide, I'll do a quick reconciliation in terms of Unpat and what's driven those changes there. The first to note is the $11,400,000 impact of reduction in Fuma. Now when you look at the Fuma summary, it's true that the closing Fuma for this period compared to the second half 'twenty is almost the same. But if we look at the underlying FUMAs, so if we strip out the impact of 5 versus 6 months of P and I and we just look at the IOOF numbers on a like for like basis, the FUMBA is actually average FUMBA is actually down over the period, contributing to that $11,400,000 reduction. The margin has also taken a hit. That's really driven by a couple of things. Firstly, is the final tranche of some of the regulatory pricing changes, grandfather commissions and things like that. And secondly, and I'll step through this when we come through to our advice business, some margin reductions in terms of some of our 3rd party platform arrangements. Offsetting though these decrements is the contribution of the P and I business, as I said, for a full 6 months in this period here. And then you also note that that number there is net of the ANZ notes, which were formerly a part of our historic results. Expense base, I'll just skip over quickly because essentially what we're seeing there is the same impact most material impact there is the addition of P and I for the period, which has increased the cost base over that time. Renato mentioned the $5,900,000 synergies. Now that is the in half, if you like, impact as against the annualized impact that we see from the $20,000,000 So it's translation of annualized into actual. And then we also see a small increase there in labor and also in IT. Now the labor costs, what that represents is principally some of the uplift we've seen with governance. We called that out in the second half of FY 'twenty that we had an $8,500,000 year on year uplift in those costs. And so what you see is some of that coming through in the comparison period. Stepping now into a business overview and we've presented these as business overviews rather than segments because we wanted to give you a look at also financial advice inclusive of the former ANZ licensees. Now in the Excel workbook that I mentioned before that is uploaded to the site, you'll still find all of the segment analysis with both of these separated out individually. As Renato mentioned, there's a lot of work going on here in terms of the transition to the Advice 2.0 model, But the major driver that we see here in terms of the gross margin drop off is actually in relation to the 3rd party platform arrangements such as the one that we had with BT. I'll step through those in a bit more detail at the moment. The other impact there is, as noted before, the impact of the grandfather This slide is a new one we've put together to try and break And Renato mentioned some of these earlier. You'll often have would have heard us say that funds under advice or advisor numbers is not the best way to think about the Advice business and profitability. This slide is really aimed at addressing that point. And you can see there that despite, for example, representing less than half of our funds under advice and adviser numbers, the professional services channel contributes well north of half of the overall gross margin for the channel. In addition, As we have there, you can see the IFF license holders being self employed and then self licensed being the alliances group. The open architecture, so that is the 3rd party platforms, that's where we recorded the revenue that came through for the BT arrangement. As noted, that terminated as at the end of December 'seventeen. So that open architecture line is one that will certainly be impacted going forward. We called out at the time of $15,000,000 FY 'twenty one impact to revenue. Moving on now to portfolio and estate administration. This business is more directly linked to changes in funds of administration and of the gross margin fall of $9,400,000 principally due to those lower funds under administration balance, including the impact of early release of super and the last tranche of the Protect Your Super changes, which have also impacted margin. At the OpEx line, we've also seen a slight increase in the allocation of our client first operational team, again representing a lot of the work that was involved in terms of processing those ERS applications. If we now look at net flows by solution, we can see that again our flagship advice products were strong for the half, albeit down on previous corresponding period, principally due to the impact of COVID. And we've also provided there Some gross margins by solution in the bottom right. And the key point to note there, particularly when you're looking at the flagship adviser versus flagship employer is that while there are higher gross margins sitting in the employer channel, it's important to notice that the gross margin dollars are quite different. So we've noted the gross margin dollars approximately $930,000,000 for Advise versus $370,000,000 for Employer. So while The margins are quite different. They're coming off of a reasonably different base. Investment Management, where we saw gross margin down by 11%, Principally down to some of the lower margins that we've seen on cash products. I'll come to talk about that when we look under funds under management and also a moderate increase in costs again to some of those governance related costs items that I mentioned earlier. You can see here that while flows have been relatively stable over the period, the $1,900,000,000 that you see on the far right of the top chart there represents a liquidation of the cash management fund, which has been replaced with external cash accounts. Now importantly, income from those Cash accounts will be recorded in a different segment that will be across in portfolio and estate administration. So while there'll be a decrement to this reporting segment across the group. There'll be a minimum impact we think from that change. Moving through to P and I, and as I mentioned earlier, The result you see there for second half 'twenty is a 5 month result relative to 6 months for first half 'twenty one. We saw some hits to gross margin coming from net outflows and again ERS over the period. The P and I business was more impacted on a relative basis from early access to super than the Heritage IFF Businesses. We also and again, this is something we noted last time that the P and I business tends to be more move more in sync with market movements. And the reason for that is that most of the fees there are principally percentage based, whereas across an IOOF, they have historically been more of caps Sort of and sort of set fees, meaning that the percentages or the dollar value doesn't change as much relative to movements in the market. We also see some of the synergies coming through here that we've mentioned. Now it's important to note that when When we talk about the $5,900,000 not all of that is removed from the P and I segment. Those savings are spread across all of the areas, but you do see here some of the profit improvements being made as a result of the synergies being delivered. I mentioned earlier in terms of the greater relativity of Early Access Super. You can see that here on the chart. And also worth noting that for the half, there was $519,000,000 of outflows for ERS compared to $180,000,000 for IOOF over the same period. Shifting gears now and just changing to remediation. The remediation programs are coming into now pretty crucial stage as we work through the programs throughout the rest of calendar 2021. By nature, these programs are not linear. There's often a lot of upfront work that needs to go into reviewing particularly complex case files. All of that needs to happen before cash flow actually follows and we'll see a significant increase in those payments made. Across our 3 different remediation programs, there were some minor changes in terms of increases in provisions. Typically, these were due to modeling. So for example, just updating interest rates and things like that. But taken as a whole, the remediation balances have been pretty much unchanged other than program cost expense during the period and also payments. It is important to note though, when we look at The completion of the programs that we are anticipating a significant acceleration of cash payments, particularly in the IFF remediation program. That program we expect to be substantially complete by the end of FY 2022, meaning that the cash flows, as I said, we expect to be quite high over the coming months as we work through that program. It's a similar time frame in relation to the ANZ aligned licensees remediation and a little bit longer for the to wrap up the P and I remediation on the product side of things. Touching on corporate cash and debt facilities, and again, you'll find a reconciliation in the Excel pack as to how we derive corporate cash. But it's important to note at the moment we have a very unusually high cash balance, which of course is the result of the equity raise associated with the proposed MLC transaction. That cash is sitting on our balance sheet today. And so we have $865,000,000 of undrawn cash facilities available in addition to corporate cash. The number you see there in green is a pro form a as at 31 December, the only adjustment to the The former being the inclusion of the BT settlement, which was received in the 1st few days of January. As a reminder, the funding required for the to complete the MLC transaction is $1,440,000,000 that will be funded $1,240,000,000 through The cash and facilities that you see on the left, in addition to that, a $200,000,000 subordinated loan note, which is going to be issued to NAB. So no drawn debt for the moment, but clearly this picture will change going forward. I did also want to give a quick update in terms of the target leverage that we sort of forecast for the 1st day of post MLC and upon completion. We've been talking about net debt to EBITDA of less than one times. Potentially, that could increase to a little higher, potentially up around the 1.1, 1.2. The key factor there will be the pace of remediation. So clearly, if we speed up remediation, that will in the short term increase leverage. It won't increase it over the medium term, but clearly, we're looking to move that remediation program as quickly as possible. And finally, as Renato mentioned, in terms of the dividend, it's one where we've We've split it into 2 to position the ordinary dividend as being funded in line with our policy of 60% to 90% of unpack. It's at the higher end of that at 79%. And then we were able to fund the $0.035 special dividend on the basis of capital following the divestment of the shares that we held in Australian Ethical Fund and also from the BT settlement as well. So that's the key point, I think. In terms of dividend, we also recognize it's an unusual period where we clearly have an expanded capital base, but not yet the earnings coming through from the MLC acquisition. So that wraps up the summary of the financials. Happy to certainly take any questions after this in terms of going into more detail. So back to you, Renata. Thanks, David. Just before opening up to questions and wrapping up, I thought it'd just be worth just really refreshing in some ways ourselves on the strategic intent and rationale of the organization and really providing an outlook as to where to from here organizationally. And for us at IFF, it does begin with the value of advice. And over the past 6 months, we've completed What is Australia's largest survey with respect to value of advice incorporating both clients who are currently in an ongoing advice relationship and those that are not. And that's provided a really valuable set of data and knowledge that really reinforces the value of our strategy and our positioning, which just goes to reinforce that the advice experience is in fact the most valuable part of the value chain when perceived through the lens of our clients. Some of the interesting stats there which you can see on the slide there, but one I think that is particularly topical is that 94 of clients have an understanding of the annual fees they pay for the advice based on several advice documents they receive. So we're now moving into an environment where clients have There are very high level understanding and comprehension of what to expect and what in fact they're paying for. And if you look at the right hand side of the slide there, which really looks to compare clients who are advised and those that are not advised, what you're seeing is what we're calling the advice dividend. So the benefit as perceived by the clients in terms of the value attributable to the advice, both in terms of their financial well-being, their level of financial anxiety, but also their ability to afford a respectable retirement. Interestingly, and I think importantly, this is agnostic as to age whether you're under or over 50 or net wealth whether you're high net worth or whether you're in fact in the mass market. And this really just goes to reinforce the opportunity to increase the addressable market for financial advice through the end to end life journey, But also importantly, to ensure that we are targeting each of our brands to a relevant segment, be it high net worth through Stratford or mass market through Bridges or in fact supporting our self employed advisers to find their own target market. Just moving to again the simplification rationale of the transaction sorry of the organization and Evolv21 specifically. And this is a slide we've used many times before really to justify and reinforce the value of simplification in terms of operating cost base. Now ambition is absolutely to be to create an organization that's lowest cost to serve. I think the pleasing thing for us here is that we are absolutely on track to deliver. But alongside that, we've also been able to deliver to increasing our net flow growth profile from the go forward technology base. The reason we're able to do this is simply because the technology is a core competency of the group. It has been for a number of years and continues to be an area of investment for us. Being able to focus that competency both in terms of systems, peoples and processes into fewer ecosystems or environments will actually increase our speed and pace of change. Whilst we've spoken quite a lot about Evolve 'twenty one and our desires and to simplify 2 ecosystems into 1. I think it's also important to note that we're also making progress on the environment we've acquired from the P and I transaction. So if we reflect on our commitment around Evolve 21, which is for to have that rationalized by the end of 2021 or in other words halfway through the FY 'twenty two financial year. What we're committing to here is by the end of the FY 'twenty two financial year, so by June 'twenty two, we would have also rationalized another RSC licensee that came across from P and I. We would have rationalized another superannuation fund as well as another technology environment. So in total there by FY 'twenty two, we're saying we're rationalizing 2 technology environments, 1 Fund, 1 RSC and in the process removing just over 50 different products from our range. So again, meaningful progress in terms of rationalization of our environment, which all bodes well very much for the incorporation of MLC and continuing that path over the next 3 to 5 years. So really just to in wrapping up, We have a clear way forward across our 3 years of strategic intent over the coming 6 months and certainly over the coming year. We are holding ourselves to account by measurable deliverables and certainly really look forward to keeping you up to date with respect to those over the coming periods. So finally, just before closing and opening up the questions, I think the transformation the group is going through at the moment is adding significant Dial and strength and sustainability to IOOF into a different world, a very different world, one with society's expectations with respect to who they engage with and the technology they use will be very different. We're delivering economic diversity, both in terms of range of and diversity of product, but also diversity of channels. And we do think there's a tremendous opportunity to engage more directly with our members and our communities in an environment where the regulatory environment settings are also changing. We also should not lose sight of the fact that we will have And an opportunity to engage with our existing member base of 2,500,000 members. And this is a tremendous opportunity and one that we look forward to exploring further and engaging with them and again, using new ways and new technologies. So with that, I'd like to thank you for your time. We'll pause there, and we will open up to questions. Thank you very much, Renato. Followed by the number 2 on your telephone keypad. I will just quickly post that we did have a slight issue at the very start. We've got a couple of minutes before this webcast Started with some telephone lines, but it seems to have resolved itself. I have emailed out alternative phone numbers to everyone who was registered in case you had issues with the original phone number. We do have 35 plus people connected via telephony currently, so that would suggest that the issues have resolved themselves. All right. We do have some questions. The first question comes from Andrey Stanek at Morgan Stanley. Andre, I will just un pause your line now. You'll be able to speak shortly. Fantastic. I have a question two questions. First question on the gross margin. The gross margin was steady at about 47 basis points in the portfolio platform division, which seems like quite a good outcome given the industry headwinds. Can you explain what would help that outcome and how do you see that evolving going forward? Yes. Look, there are different sort of factors, I think, impacting margin. I talked about some of the things drawing margin down, But we do also see a change in the portfolio mix. And so the positive aspects are principally due to change in portfolio mix. When you look at the slide that sets out the different margins across the different products, you can see how movements in between inside that portfolio will impact the overall gross margin. So that's the main factor. Thank you. And one of my the second question is around the special dividend and the balance sheet. Just in terms of the cash usage going forward for the integration and some of the other usage such as the radiation costs that you flagged. Is the fact it's paying a special dividend reflecting just your overall confidence in the balance sheet and the cash flow generation built at Abolayev notwithstanding some of the short cash usage that you mentioned? Yes. I think that is right. And as I also mentioned, the sell down of the shares in Australian Ethical, which we talked about just around, I think around July or August earlier on, That's also freed up around about $100,000,000 in cash. So that's something and that's across both a couple of tranches of sell downs. So that's also given us the flexibility in terms of being able to pay a special, as I said, to recognize that it's an unusual time, higher number of shares on issue, but not yet that increased earnings. But you're right, it also reflects, I think, our view that says we're comfortable with the balance sheet. Long term, we've always talked about 1x to 1.3x net debt to EBITDA. The transaction with MLC was always aimed at providing a delevered environment to the bottom end of that range. So yes, certainly we've got good confidence going forward. Thank you, Andre. The next question comes from Kieran Shidke from Jarden. Kieran, your line is now open. Good morning, guys. I've just got a couple of questions, maybe starting around the platforms. For your own platforms, I think you're flagging around forms. I think you're flagging around $5,000,000,000 of what we call transition from and seem to be suggesting the Evolve 2021 project. We'll see that transition, I guess, to lower cost. So Are we broadly talking that, that moves from that 66 basis point level that you talked about to 36 basis points over time? Is that sort of how we should think about that mix pressure as that transition takes place? Look, no, I don't think it's going to be if you're asking about the comparison between our transition products and the gross margin percentage there relative to flagship, There are quite a few differences in terms of the makeup and you can see that in the 2 flagship channels. So there is a mix issue there in terms of what you'll see on that transition. Okay. So I guess the question is, where do you anticipate that from this transition? Got it then, Doug? Well, we're not going to provide a sort of forecast in terms of sort of margins and where we see them going to at this stage, but It's one that we'll consider giving update on in our next at the next half. I think the other element To not hear and is that we've always said that there is the let's call it back book to front book is always credit dynamic, but we do expect that amortization if you like of that differential over time. But David's right, we're not in a position to give you a specific number at this stage. Okay. And then related to that, Renato, more specifically around ADT and I, where the upflow is essentially consistent and there's still circa €10,000,000,000 sitting in that transition category in that business. You previously said you were sort of considering potential repricing initiatives to help with retention around that components of that business. I'm just wondering, have you completed sort of the strategic review around that and what you're coming for, We've certainly come up with a plan of action, which we're in the process of implementing at the moment that we think will certainly assist That retention actually allows us to be more competitive in some key segments. Again, that doesn't necessarily involve a broad based rebasing of price in a generic sense. I think we've been very targeted around trying to make sure that We act in a way that economically we will get a good return for those changes. So that's something that's currently underway at the moment. So I'd expect that to be in place over the coming 6 months and therefore thereafter, we're confident that we'll see some improvement in those flows. Okay. And my final question just around sort of some of the adjustments moving from stat impact to underlying. Obviously, some of them are indeed one off that the evolved cost adjustments, the Advice 2.0 adjustments, government's cost adjustments, which seem to come through fairly consistently. Are they indeed one off? And when can we expect those numbers to not repeat? Yes. Look, it's a fair point. I mean, when we talk about the governance uplift, it's important to note that not all of those governance uplift costs put back through on, Pat. They're principally the one off, the separation costs, if you like, of separating out crash of the OST. Those are very much less sort of structural changes rather than, for example, increased headcount or things like that. Any increased headcount in our governance areas is not I'll put back through on that. Evolve 'twenty one has always gone through those adjustments. And so for consistency, we've kept it there. In terms of when we expect to see it finish up at the end of calendar 'twenty one. So moving on from there, you wouldn't expect to see that appear anymore in the unpat adjustments. Correct. A little bit longer Advice 2.0 than the end of the calendar year. But certainly those changes as we said it in the Investor Day late last calendar year, Those changes are quite transformative and certainly in our view appropriate as being treated as one offs. The next question comes from Matt Dunga. Matt, Your line is now open. Please go ahead. Thank you very much for taking my question. Just following up on the margin impact, I missed a little bit of that. What are you budgeting from the rationalization of over 50 products and 2 platforms. Are you able to give us a sense whether or not this interest duty will impact this rationalization? Sorry, just so I understand the question. So in terms of are you talking about gross margin or the cost base that supports those products? I'm talking about the gross margin, the revenue impact from that consolidation and what you're charging back to customers, how that will be impacted by the rationalization? Yes, sure. We expect some compression? Yes. So we do expect some compression. We're not in a position to give you the exact number at the moment. They're in fact some of the issues we're working through at the moment with the trustee board. But we certainly would expect some compression there. And I think come the full year results, we'll be in a position to give you a more detailed outlook on that. Okay. Thank you very much. And just a second question, if I may, on the self employed advice channel. How much how many advisers are you willing to lose in that space? And do you have and an idea of what the right footprint might be, Renato? Yes, it's a great question. Look, so we've said we expect to lose 140. I think your question is how many are we prepared to lose. We're confident that we can build a significant business in financial advice with critical mass I. E. 1 of the largest in the top 1 or 2 in the country and make it economically sustainable. Our focus and I think given our starting point is such a broad footprint, I think we can afford to be quite selective in who we partner with and make that it works not only for the adviser themselves, but also works for the licensee. So we really got a low threshold to support advisers that A, aren't like minded in terms of our expectations or B, aren't prepared to pay for the services that we're providing them. We do have another question coming in from James cardiucs@creditsuisse. Just another question on the platform division. I appreciate there's a transition going through and that may impact your revenue margins. But can you talk about the cost side of the equation? And do you think you can hold your net operating margin stable. Maybe there'll be some volatility period to period because there's mismatches, but maybe just talk about that cost equation as well. I might kick off and then get David to add his lens on that. Look, I think there's absolutely no doubt that One of the strategic tenants behind both the acquisition of ANZ and MLC is in fact to lower that cost of serve as we call it. That is only doable when you simplify and rationalize products and systems. So the rationalization is a precursor to delivering a lower cost to serve That will obviously allow us to continue to deliver, I think, a healthy net operating margin in an environment where we do expect gross margin to continue to sort of trend downwards. So now as you know that will be a transitionary period for a couple of reasons. One is, A, you need to Complete the rationalization. But the second part is that it tends to be a lag between rationalizing the product sets And then decommissioning the systems and processes around that product set. So there's likely to be a lag of say 6 to 12 months before we shut down systems. But certainly the expectation is if you take a medium term view that absolutely we're driving that cost to serve lower and that should help support our net operating margin. And you think you can actually it will be flat from kind of where it is now to jump forward a couple of years? I certainly think that with the lowest our ambition is to have the lowest Industry and therefore we should have the healthiest net operating margin in the industry. So certainly there's nothing that we see at the moment that would dissuade us of that view in terms of maintaining reasonably stable net operating margin. But again, we're in a dynamic market. So the question we ask is that How are we sure we can compete? And I said, our competitiveness as an organization in that platform segment will come down to having the lowest cost to serve And having our own proprietary ecosystem gives us confidence that we'll have actually a very competitive offering from a usability and a user experience perspective. All right. Thanks very much. Thank you, James. The next question comes from Nigel Gidawyer at Citigroup. Nigel, your line is now open. Thank you very much. Good morning, Renata and David. Just a question on your target to have a line of advice breakeven by FY 2023. How much of that does depend on sort of what competitors do in terms of license fees? And how does the sort of arrangements with the MLC advisers play into that? Thanks for the question, Nigel. It's not I mean, it's not overly dependent on our competitive landscape. And I say that On the basis that most of the competition these days are what I call smaller licensees or self licensing. And frankly, I think Fofa requires all advice businesses to operate in an and subsidized manner. So therefore, we've all got the same dynamics. I would suggest to you that we have greater scale And therefore, on a per unit economics, I think we're in a very good place to compete with respect to the price point. We are not going to subsidize. But I do think in terms of competitive pressures, I think everyone generally has the same pressures. So I don't necessarily see that as the key driver. I think the key driver in many ways, Nigel, comes down to our ability to right size our own cost base. And certainly that's a key focus at the moment is making sure we're not spending more than we have to deliver those high quality services. I think it's fair to say when a business operates in an economically rational mindset, it probably tends to make different decisions than when you're operating in an environment where you're prepared to So I think there's greater rigor in our cost base that will reflect on lowering that cost to serve in the first instance. So the competition externally doesn't consuming per se. The other element and I think in some ways the MLC conversations with those advisors have been a great testament to that. We remain very confident that the vast majority of advisers will come across. That's always been our commitment. There's nothing to change that commitment over the last 6 months that we've seen. So we're very confident that we're building an ecosystem that is attractive To like minded advisers. Okay. And maybe just as a follow-up, I'm sorry if I missed it, but just in terms of sort of the direct to clients offering and the role that plays in all this? Have you sort of updated your thoughts on that and whether or not you feel that you'd need some legislation to make that fully effective. Look, I think the current legislation settings are assisting in that regard already. So the Your Future, Your Super For example, I think is opening up greater avenues in that space. If you look at the Smart Choice offer, Smart Choice Really has 2 components, has it the Employ Super Offer, but it has effectively a very contemporary direct offer already. So in some ways, you could see us already as being one of the largest direct offers in market. I think we can grow that. I think the combination of that offer and the MLC proposition, I think is something that's quite attractive. So if you complement that with of the work we're doing with technology engagement and engaging and financial well-being, I think there's a real opportunity to create a very unique offer there in the Australian landscape. That's something that's front of mind for us. I do have a question from Sean Le from Morningstar. Sean, your line is now open. Please go ahead. Hi, good morning, everyone. I've just got a quick question on dividends. Well, I read that IFF made some General dividend payout in the past just as the firm continues to acquire businesses. So what we have seen is that increases in shares during acquisitions have led quite some value in the ETF. So how should we think about dividends moving forward? Upwards, is it quick, is it steady to mostly up the top end or the lower end of the payout ratio, I guess, in line with IOOF growth strategies to participate in the overall consolidation of the industry. Yes. Look, I think on dividend payout ratio, our policy for some time has been to pay between 60% to 90% of unpat. We reiterated that As part of the MLC transaction announcement, we made sure that the funding was in place to continue to pay within that range and that's part of the way that we set up the transaction structure. I think you can see from our intent in terms of what we've done here, but I wouldn't want to be more precise. I mean, we give a range for a reason. Think we need to recognize that there's still volatility in the market. We will still need to obviously manage our cash, make sure as we get It's certainly ahead of remediation and completing that program. So you can expect us to absolutely aspire to pay, firstly, within the range. Secondly, we want to pay as high as possible, but we will always be looking at obviously the balance sheet and making sure that we've got the appropriate strength there that we don't put the balance sheet strength at risk by paying too high if you like on the dividend side. So To summarize, I think 60 to 90 still remains as the best guidance we can give you. Thank you. Thank you, Sean. We have Another question from Matthew Smith at Canexus Financial. Matthew, your line is now open. Thanks for taking the question, Renato. I just wanted to see if you're able to elaborate on the advantage you mentioned under the Your Future Your Super in relation to the direct advice strategy? And further, could you talk a little bit about kind of scale in a pro form a post the MLC deal, kind of how that might be advantageous in the current environment and talk a little bit about the super strategy to the extent it depends? Sure. So I think if we start with the Your Future, Your Super, And what I would call the general activation increasing activation of superannuation, clearly there's a move towards Having people more engaged with their superannuation and making more deliberate and active decisions. And I think in a world where we may have consumers in this case members of Superfunds more empowered and more engaged in decision making. There's a great opportunity to engage directly with them. I think if you look at our industry, it's been a largely intermediated industry both through either workplace arrangements or in fact with financial advisors. And whilst They will still have a role. I do think we're going to see a 3rd pillar to that environment. And that's something we're very keen to engage in. The second part of your question around sort of pro form a sort of future state is the way I've interpreted the question. Look, we can't give you specific numbers at this But what we can say is that there is no doubt in our mind that taking 7 or 8 different systems and platforms and offerings and consolidating that down in the same way that we already have in the past gives us the best chance of anyone I think to deliver the lowest cost to serve. That lowest cost to serve means that the outcomes that we can then generate can pass on to benefits both to shareholders, but importantly also to members and passing that on to members ensures that we're competitive, Enshores that we rank very well in repeat matters and other analysis that should continue to ensure the growth of the organization and the building of a trusted reputation. So that In a short form that is the absolute intent of putting these systems together. I think the acquisition of itself gives us Doesn't necessarily gives us scale. I think it gives us bulk. The scale will come from the simplification of those systems and processes. Thanks very much. Thank you, Matthew. We have a follow-up question from Kieran Chitgi at Jarden. Kieran, your line is now open. Please go ahead. Thank you. Renato, just keen on your view around when you think you might be in a position to articulate more around sort of the longer term platform integration strategy and the potential cost savings and no charge for that effect. Yes, Kieran, I mean, that's a great question. That is something clearly it's a work in progress. I mean, I think it's important to note that with respect to MLC, we haven't acquired the business yet. With respect to ANZ, those systems and processes are still under TSA. So it is very difficult to give you or Build ourselves an absolutely crystal clear picture of what that looks like. But I certainly do think that that will emerge over the next 12 months as both of those elements, both the TSA and the acquisition of MLC, solidify into an IWO ecosystem and IWO environment. It's also subject, as you can imagine, with for quite extensive engagement with trustee boards. So there's a sequential process that we need to run. But certainly at the right time, we're very keen to share that with There seem to be no further questions, Renato. So I will hand back to yourself for final comments. Thank you for that and thank you for everyone for dialing in today. I hope that you've gained some insights and some value out of our conversation today. And as always, we're very Continue to update you on a regular basis. I think a particular note today and as David mentioned, we have Some new disclosures, some new transparency. So certainly any feedback from our analyst community would be certainly welcome. So thank you again and we'll close off the session.