Good day and thank you for standing by. Welcome to Insignia Financial First Half 2024 Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, to Renato Mota, Chief Executive Officer. Please go ahead, sir.
Thank you and welcome, everyone, to our First Half 2024 Financial Results presentation. I'm here with our Chief Financial Officer, David Chalmers, and look forward to stepping through both the financial and the business performance for the half. Really, the overarching theme for the half is that the efforts of the last six months have really delivered three key outcomes. The first being strong performance, financial performance for the half. We've delivered against key strategic milestones, and pleasingly, we're also now in a position to upgrade our outlook for the full financial year. If I move forward onto slide three and the first half highlights, pleased to report an underlying net profit after tax of AUD 96 million for the half, which is up 1% on prior corresponding period.
A net profit after tax of or a net loss in this case of AUD 50 million, which factors in remediation and strategic investment costs. Net revenue of AUD 696 million, which is up 1% on prior corresponding period. Really off the back of improved investment markets, which is also reflected in our closing funds under management and administration at AUD 301 billion, up 5% on PCP. And also declaring an interim dividend of AUD 0.093 per share for the period. I think off the back of this, and really pleasingly, I think in setting the foundations for the periods to come, is the strategic execution during the period. So we remain on track with our National Australia Bank separation as a result of the MLC acquisition. And pleasingly, also on the Master Trust build has also commenced, which we'll touch a little further on this in the presentation.
We're excited by the establishment of Rhombus Advisory, so the entity and the initiative previously described as the Advice Services Co. So I think with the demerger of our self-employed licensee business. Really pleasing progress there. Which has also allowed for the creation of a new division and a new area of focus in our client well-being division, which I'll touch on a little further as well. And we're looking forward to the completion of the MLC Wrap migration in April of this year. Reflecting on some of those initiatives and their progress, it is also pleasing to see AUD 18 million of cost optimization flowing through in the first half and giving us confidence to be on track to AUD 60 million-AUD 70 million of in-period gross benefits for the full year. And we're continuing on working on our license conditions and progressing to plan there, which, again, pleasing.
Particularly pleasing is the outcome of a positive EBITDA in our advice division, which is the first time in a number of years. Certainly only possible as a result of the significant restructuring and repositioning of those capabilities, leaving our advice business, I think, with real focus on growth into the forward period. We talk regularly about our transformation as a business, but I think it's equally important, if not more important, just to also recognize the quality of the franchise. I think that's certainly the objective of slide four, where we're pleasingly able to outline the level of award-winning performance and capabilities across the value chain.
So whether it's in advice, and great to see our Shadforth advisors ranked as some of the best in the industry in the Barron's survey, whether it's in platform or asset management, there is no question that this business has top-tier capabilities across the value chain. And I think it's this position as a high-quality business across all three aspects of our business that will ultimately drive future funds flows and revenue growth. So it's really the backbone of our competitive advantage. Turning to the segment analysis and starting with our platform segment. Really, the story here for platforms over the last couple of years has been unlocking the benefits of scale and growth through simplification and improved client experience. Case in point, I think, has been the effort around the Evolve 23 migration of MLC Wrap into Expand, which remains on track for April 2024.
Bringing an additional AUD 38 billion and 96,000 clients into our more contemporary and improved client experience. Really bringing an end to the current transitionary dynamics that we're seeing in net funds flow around MLC Wrap. Workplace continues to be an important source of client growth. Combining this with greater strategic focus on client well-being, I think, is a real opportunity going forward for the business to unlock the opportunities of what is a large and growing franchise. We'll touch a little further on this. Managed account funds flow, which includes SMAs, is something that's continuing to grow in importance for the business, which is really pleasing. I think this plays favorably to a broader industry dynamic, and I look forward to seeing the franchise take more share in this space.
And finally, it's just pleasing to be able to confirm that we're targeting the higher end of our net revenue margin in the 44-45 range, which is a function of good net revenue resilience and product mix. Focusing a little just on our platform strategy specifically, and our announcement middle of last year around our platform strategy really highlighted our decision to center our strategy across two discrete offers, customized to different markets, but really supported by one technology, data, and client infrastructure. And just maybe just to delve a little deeper into that, our platform strategy and structure revolves around what we would term a Master Trust structure.
Effectively, a platform administration offer to retail clients distributed through employer-administered employer plans administered tax-paid environmentin a third-party technology, but really made up of a cost-effective bundled solution in a tax-paid environment really akin to most other superannuation funds in the market. This represents around AUD 123 billion in funds under admin in excess of 1 million clients or members with an average balance of around AUD 107,000. Alongside that, we also have a specific structure and administration offer that is far more customized and tailored for financial advisors, which we call our wrap structure. This is housed on our proprietary technology, which we think continues to give us a competitive advantage in our ability to remain agile.
It's a tax-exposed structure, which really plays to the demands of financial advisors in that level of customisation. In our wrap environment, we have AUD 92 billion in funds under admin across 370,000 clients.
As you can see, they're clearly a higher average balance. A strong source of flows. I think that the main point to make here, certainly from a financial perspective, is that there are different margins to be generated in each of these segments. When you look at the economics of the platform segment as a whole, it's really a combination of these two separate and discrete offers that make up our platform segment. We're confident that this customized approach to really looking to address the client need is actually our best opportunity to deliver both a leading solution in each discrete market, but equally doing it in a scalable way, leveraging off common infrastructure around technology, data, and client experience.
Turning to advice, and as I said, it's particularly pleasing to be sitting here talking to the advice segment and providing an update that includes a positive EBITDA contribution. It's been quite a while in the making, and I think now positions us in not only do we have a sustainable business model, operating model, I think it's a model that is absolutely focused on the future. Having significantly improved the quality of the advice provision and significantly improved the sustainability, the economics. If I reflect on the creation of Rhombus, our new advice services business that will be separated from Insignia Financial. But pleasingly, all the work we've done there in terms of advisor engagement and now the business standing up the business in its own right gives us real confidence that this business will be positive, profitable in its first year of operation.
So again, we're standing up a business that will be sustainable and profitable in its own right. And I think be a real competitive force in the marketplace. So when you look at the advice business, the Insignia Financial now represents we've got a business that has two discrete business models that are complementary, fit for purpose, and centered around capitalizing on future growth. And in fact, it's been pleasing to see some of that future growth start to be realized through the Bridges business over the past six months. It's also worth highlighting the completion of the FFNS fee for no service remediation, which again is pleasing to have that behind us. And a key milestone that allows a business to continue to focus on the future. Turning to asset management.
This segment's actually been a reliable and mature segment for the business, and that's been particularly important when we've had so much change happening both in the advice and the platform segments. That economic performance has really been off the back of strong investment performance, and congratulations really have to go to the investment team who worked tirelessly in ensuring that we're delivering to our clients. That's really showing up at the moment with 89% of our funds under management performing, outperforming target or the benchmark. It's also great to see this translate through to our managed account offers with strong research ratings. Again, I think this represents a source of future growth for the business.
Finally, the asset management segment also has benefited from strategic simplification, which helps improve the focus of the business, which has certainly been the case with the divestment of the Friendly Society business and significant investment and investment structure simplification during the period. Turning now to flows. And I think I described the last sort of period or two of flows as being one of displaying or actually being a function of a lot of strategic change and transformation in the business. And I think that's certainly been evident in the MLC Wrap transition. But equally important is the diversification of the different channels that we operate through. And I think that can be seen with the workplace net funds flow providing diversification and net funds flow resilience while we've been working through some of the platform transfer transformation in the advice side of the business.
And as a consequence, have had to deal with some disruption to net funds flow. I think during the period, that's probably been a little bit camouflaged by the one-off inflows into our private label. But nonetheless, we remain confident that beyond the completion of the migration of MLC Wrap to the Expand offer, we expect to see our net funds flow in the advisory business to return to more normal levels. If we delve a little deeper on funds flow, I think what the chart at the top really demonstrates is that this business reliably takes in inflows AUD 10 billion a half or AUD 20 billion a year, and that is a substantial opportunity for the business. If we reflect on the opportunity this presents, it actually presents the opportunity by way of retention and client engagement.
And so when we focus on our efforts in that space, part of that does relate back to the MLC Wrap migration, and we're certainly confident that the migration of MLC Wrap will assist in engaging with those advisors and clients in a more contemporary way with a more contemporary offer. But likewise, the creation of client well-being division and setting up a strategic focus specifically designed around improving the client lifetime value of existing relationships, as well as the establishment of new services and new opportunities by way of the Quality of Advice review, I think presents a significant opportunity to see a positive trajectory with net funds flow across the platform segment.
In terms of asset management, we've continued to see strong momentum in the underlying multi-asset flow, albeit it's been partly offset by some of the sort of downstream impact of the MLC Wrap platform flow into the wholesale trust in the asset management division, which again, I think does some disservice to the underlying momentum in the multi-asset net funds flow. And as we've mentioned in the past and can happen from time to time, I think in this period, we've seen some outflows in the institutional segment as a result of client rebalancing, which has occurred as a result of the shift in the interest rate cycle. Just before handing over to David, I think it's worth framing the first half results in the context of our three-year strategy, which we laid out last year.
During the half, we've made meaningful progress against each of the strategic pillars that not only reinforces our execution track record, but also underpins the financial performance for the half, but importantly, the financial performance for this business in 2024 and beyond. It is pleasing that alongside producing a strong half performance, what is most pleasing, I think, is how we're setting ourselves up for the full year and 2025 and beyond. I'll hand over to David.
Thanks, Renato, and good morning to everyone on the call. I'll start with a summary of the financial results for the six months ended 31 December 2023, where first half revenue was AUD 695.7 million, a 0.6% increase on first half 2023. That's due to higher average FUMA balances of 0.9% and an uplift in advice revenue from our Shadforth and Bridges professional services businesses.
These increases helped to offset declines in asset management revenue, which were mainly due to the loss of ongoing revenue from the restructuring of the JANA relationship in first half 2023 and the completion of the sale of IEEE Limited midway through first half 2024. Operating expenses were broadly in line with first half 2023 and pleasingly flat on second half 2023 with the impact of annual salary increases from 1 July and the increased cost of cyber and governance investments being offset by the first wave of benefits from the cost optimization program that commenced in early FY 2024.
As a result, first half EBITDA was up 2.3% to AUD 177.6 million and UNPAT up 1.2% to AUD 95.5 million. It should be noted that the UNPAT effective tax rate for the first period was 31.5%, which is meaningfully higher than our typical rate, which is normally around 26%, 27%.
As a result, tax expense increased by 23% to AUD 43.7 million, but is expected to normalise in the second half. The driver for this increase in our effective tax rate is a AUD 6.7 million capital gains tax expense on the disposal of IEEE Limited, which is not normalised out of UNPAT. Turning now to net profit after tax, we saw a loss of AUD 49.9 million for the six months, a decline of AUD 95 million PCP, thanks to first half 2023 including a AUD 45 million gain on sale for the exit of AET Limited and increased transformation separation costs in first half 2024, as well as an increase in remediation expenses.
Turning now to our key metrics, net revenue margin of 47 basis points was consistent with that of first half 2023, while EBITDA margin increased from 11.8 basis points to 12 basis points, a change also reflected in the small improvement of the cost to income ratio of 0.4 percentage points. Looking next at segment performance on the next slide, firstly, platforms saw a fall of AUD 10.6 million of revenue during first half 2024 despite higher average FUA due to a decrease in platforms net revenue margin from 46.7 basis points to 45.7 as some of the planned price reductions took effect. On the OpEx side of things, the increased cyber and governance costs I mentioned earlier are largely allocated to the platform segments, which helps to explain the increase in platforms OpEx.
Moving now to advice, as Renato has already mentioned, our advice recorded a significant turnaround with a small UNPAT loss of AUD 700,000 for the six months compared to a loss of AUD 21.9 million for first half 2023. Pleasingly, this reflects both an increase in revenue of AUD 3.9 million as well as a AUD 24.6 million reduction in costs, with the first benefit of that restructuring program being delivered. As Renato also noted, it's worth remembering that as recently as FY 2022, advice UNPAT losses were AUD 55.3 million. So we're pleased to see the changes in that business over the last couple of years and the platform that's being built for future growth.
It's also important to note that this first half advice result fully includes the results of the self-employed or the advice services businesses, which we intend to restructure with ownership from Rhombus management, the advice practices themselves, and Insignia going forward. Asset management UNPAT reduced from AUD 34.8 million to AUD 30.2 million, largely due to the loss of AUD 9.5 million of ongoing revenue associated with the divestment of JANA and IEEE Limited over the comparison period. Expenses are broadly flat in asset management, and the underlying business continues to perform well. Finally, corporate losses increased by AUD 4.9 million due to both annual salary increases and the increased interest costs associated with the group's bank facilities, a cost that was offset across the group by increased interest income, which is recorded in other segments, mainly in platforms.
Turning over to the next slide now and back to the group result, this slide shows an UNPAT bridge from first half 2023 to first half 2024. You can see that there's a net AUD 7.3 million impact of divestments, which is the sum of the gains on sale from IEEE Limited and M3 being offset by the loss of ongoing revenue from the divestments of JANA and IEEE Limited. As discussed earlier, margins fell by AUD 8.1 million, a fall that was offset by a AUD 19.8 million increase in FUMA, thanks to healthy market returns during first half 2024. The last driver to call it on this page is the net OPEX change of AUD 0.4 million, which I'll now step through on the next page.
So this slide shows a bridge in OpEx from first half 2023 to first half 2024, and it's largely the product of annual salary increases and the offset of the first wave of benefits from the optimization program. Now, as I'll cover on the outlook slide, we expect a significantly higher contribution from the optimization program in the second half of 2024. And the AUD 17 million of cost reduction here are the result of a program that started early in FY 2024, and therefore there is not a full six months of benefit inside the first half result. The other category of cost increases is a large increase of cyber and governance, which is offset by other cost savings in areas such as marketing. And taken together, all of these contribute to increased costs of AUD 400,000.
Turning now to our two structured remediation programs, product and advice remediation, first half 2024 saw an increase in the provisions of these two programs of AUD 72.6 million, which will be partly funded by a successful indemnity claim and through trustee-approved funding, leaving a balance of AUD 24.8 million that will need to be funded through corporate cash or through debt facilities. In addition, we've lodged a AUD 20 million PI insurance claim relating to client compensation and costs incurred on a small number of advisors for the completed phases of the IOOF FFNS no service program. That potential claim is not included in these numbers, and we're in the process of working through it with our advisors. Stepping through each of the programs now, starting with advice, there were client payments of AUD 38 million in the half, along with program costs of AUD 14.
And pleasingly, during the half, we also completed what was the largest part of the original program, that being the ANZ FFNS no service files. There was, however, an increase in the provision of AUD 35 million, and that cost increase is split evenly between expected increases in client compensation and external consultants, as the quality of advice files reviewed in the period were more complex than anticipated. There's also a significant amount of cash payments that we've already made in this third quarter of FY 2024, or that's waiting to be processed over the next few weeks. And so we expect a further AUD 24 million of payments to be made in the third quarter, i.e., in between the 1st of January and the 31st of March this year. And we're still tracking to have the advice programs substantially completed by 30th June 2024.
Product remediation also saw a significant increase of AUD 37 million, mainly due to the cost of remediating ADA dual accounts for OPC clients and IML members requiring remediation for portability breaches. Both of these streams are subject to third-party review. The third-party reviewer has already signed off on the scope and calculation methodology. And as with advice, there are also significant payments being processed in the quarter, and we expect AUD 31 million of payments to be completed prior to 31 March. And as with advice, we also expect this program to be substantially complete by 30 June 2024. The next slide gives an overview of corporate cash and debt facilities with net debt of AUD 440 million as at 31 December and available funding of AUD 552 million as at the same date.
As expected, senior leverage came in at 1.5x net debt to EBITDA, which was expected in their first half peak due to the timing of remediation payments and the investment in the strategic program, as well as the timing of annual FY 2024 employee incentives, which occur once a year in September. We expect FY 2024 leverage to fall back into the 1-1.3 range, supported by a significant uplift in free cash flow expected in the second half. The next slide really demonstrates this being a link between the free cash flow, firstly an overview of the first half. You can see there the impact of remediation and strategic investment on overall free cash flow with an increase in drawn debt to support each of these initiatives.
And while there was negative free cash flow in the first half, we expect more than AUD 150 million of improvement in second half free cash flow due to a range of factors, including those annual incentive payments I mentioned before that fall only in the first half, the timing of the expected tax refund, and the release of reserves following the migration of MLC Wrap to Evolve. Moving through now to the dividends, directors have declared an interim dividend of AUD 0.093 for the first half 2024, consistent with second half 2023 dividend and the first half 2023 ordinary dividend, albeit AUD 0.012 per share lower than the total first half dividend from first half 2023, which also included a AUD 0.012 cent per share special div.
The interim dividend is unfranked, and we expect the final FY 2024 dividend and the FY 2025 dividends to also be unfranked due to the unavailability of franking credits. Turning now to full year guidance, first half 2024 has come in either ahead or in line with all the guidance metrics given at the FY 2023 results. Stepping through each in turn, we've increased our guidance on net revenue margins for the full year to 45.5-46 basis points, a smaller decline than expected on our FY 2023 results. Now, despite being a smaller decline, we still expect lower second half revenue in absolute terms across each of our segments. In platforms, this will be driven by the margin decline in pricing, for example, the MLC to Evolve 23 transition that's been flagged.
We also expect a revenue decline in advice in the second half as the transformation of that business continues across that time. There'll be further divestments of smaller businesses as we flagged last July when we announced ASC with the subsequent loss of revenue. We also expect lower revenue from Bridges in the second half as the flow and impact from the 2023 restructure works its way through the system. But despite these one-off movements in the second half of 2024, we still expect the advice segment to exit FY 2024 with an annualized UNPAT profit of AUD 10 million, as we committed to when the MLC acquisition was made. Asset management, we expect a small revenue decline due to the full year impact of the lost revenue from divestments, but the underlying business continues to perform well.
Just as we expect a better net revenue margin for FY 2024 than originally guided, these improvements also cascade their way down to group EBITDA margin, where we're forecasting 11.8-12.2 basis points for FY 2024, an improvement on the previous guidance of 11.3-11.8, although it should be noted that we're still expecting the same delivery of cost optimization in FY 2024. So in summary, while we're expecting lower revenue in the second half, we also expect this reduction to be more than offset by greater in-period benefits from the cost reduction and therefore higher second half EBITDA. Finally, for the strategic investment program, we saw AUD 112 million spent in the first half with a similar second half spend to be offset by the expected capital release as outlined last July. There's no change to this outlook.
Similarly, as mentioned before, we remain on track to deliver AUD 60-70 million of gross new benefits from the optimization program. Back to you, Renato.
Thanks, David. Turning to outlook, and really referring back to our strategic announcement in July of last year, there were three key areas of focus we laid out as part of our three-year plan. Firstly, transforming advice, platform simplification and separation, and operating efficiencies. While we'll delve into these a little deeper, it's pleasing to report we've made really positive progress across each of these and remain on track to deliver on our commitments that were laid out. As we made mention at the time of the announcement, these initiatives in aggregate provide the business with a strong growth profile, leveraging technology and client experience while benefiting from improved operating efficiencies through lower costs.
Turning to advice, and I probably can't overemphasize the significance of having our advice segment reach a positive EBITDA contribution and on track for our UNPAT run rate, as David mentioned, by the end of this financial year. This has been the result of a multi-year focus on transforming the business, all the while maintaining positive relationships with our advisor partners. And I'd go as far as saying that our advice partners have welcomed our proactive approach to finding a better business model in how we partner with them. Importantly, Rhombus is expected to deliver a profitable first year of operations, which is a long way from the business we acquired as part of the ANZ and MLC transactions. The resetting of this business has also seen us exit some partnerships in the form of M3 as well as Godfrey Pembroke.
But again, I think we've achieved this in a really positive and orderly fashion. As we've foreshadowed in the separation of Rhombus from Insignia Financial, this will also allow us to focus on our professional services advice business, as well as through client wellbeing, or in other words, starting to create linkages between our advice capabilities and some of the opportunities that in fact exist in our platform segment. While the platform separation and simplification is broad and multi-year, there is a really important near-term milestone, which like advice, I think, is expected to really transform our growth prospects and net flow competitiveness. And in that, I'm referring to the migration of MLC Wrap to Expand.
The transition is on track for completion in April and will provide us with a single highly competitive wrap in market, nearly AUD 90 billion in funds under administration, and with a clear path to growth and continued innovation. I know our platform strategy and competitiveness has been a key area of keen interest. I do think our current competitiveness in some ways is camouflaged by the transition disruption that's occurred to our net fund flow. We continue to see Expand rise in the rankings of platform offerings and currently is placed third in terms of wraps across a couple of different sources. We're confident in our positioning in market and equally confident that it continues to improve and will continue to improve well beyond the transition.
Finally, turning to our operating efficiencies and the aggregate financial impacts of all these initiatives, we remain on track both with respect to the net cash investment as well as the benefit realization we laid out across those various timeframes at the time of announcement. While the AUD 18 million realization in the first half of operating efficiencies is a relatively small portion of the total in-year benefit for 2024, it really reflects about two months of cost benefit given the early effort in mobilizing the program in the first half. As we look to the 2024 outcome and into 2025, we remain confident in our ability to deliver the stated goals both across operating efficiencies, but also more importantly, the other programs equally and remain confident on the capital commitment we've outlaid on the charts, as you can see on page 26.
Finally, before opening to questions, and I say finally in the context of this being my last results presentation before finishing up with the group, if I compare the organization we are today with the IOOF I stepped into to lead in late 2018, I think we've delivered on our ambition of creating a leading organization with scale, capabilities, and talent to grow and prosper for years to come. In the short term, there's no doubt there's been a significant investment required from shareholders. As we laid out in our three-year strategy last year, the foundations we're setting in 2024 will yield the growth we all want to see in 2025 and beyond. As an organization, we pride ourselves on our ability to execute and deliver on our promises.
I continue to believe in the prospects of the industry and the incredible value creation opportunity this industry provides both for clients and for shareholders. Our industry has gone through a really key inflection point. We created Insignia Financial to capitalize on that industry dislocation we see today in pursuit of growth tomorrow. I think we've brought together a high-quality and unique set of capabilities and scale. I think that growth prospect still remains ahead of us. Finally, I'd like to thank the entire Insignia team for all their support, as well as the analyst and shareholder community for their intellectual rigor, the challenge, and the commitment. It's not been an easy journey, but I'm confident that with time, we'll recognize it as the right journey for the group. With that, I'll thank you and happy to open up to questions.
Thank you, sir. As a reminder, to ask a question, you would need to press star one one on your telephone. To withdraw your question, please press star one one again. We ask that you please keep your questions to no more than three questions per person. Please stand by while we compile the Q&A roster. I'm sure our first question comes from the line of Kieran Chidgey from Jarden. Please go ahead.
Morning, guys. A few questions, maybe just starting on some of the one-offs in this, resulting in your underlying profit number. I just want to confirm, in your corporate business, I think you call out some one-off revenues, just the quantum of those, whether or not sort of that AUD 5 million revenue in that division is sort of a decent proxy for what those one-off revenues are. Then, David, I think you mentioned sort of a tax one-off tax impact of maybe AUD 6 million or AUD 7 million. So is it correct to think on a net-net basis, there sort of hasn't been too much of a sort of net impact to the UNPAT number this period?
Yeah, I think that's fair, Kieran. As you know, we don't adjust for items below a AUD 10 million threshold. The two I'd call out in corporate revenue, there were gains from the sale of both AET and IEEE Limited that was AUD 2.2 million. So that's the main one-off item, if you like, except in that corporate revenue line. And then, as you quite rightly note, there's the one-off minus AUD 6.7 million in terms of the capital gains tax on the divestment of IEEE Limited. So there are swings and roundabouts on some other things in terms of provisions, but nothing I'd call out as being unusual other than those three movements.
Sorry, I think I missed the first one. You said 2.2 in the revenue. Was there another number as well? No, so AUD 2.2 million is what I'd call of corporate revenue, which is 4.6. I'd call 2.2 of it out as being one-off in nature. And that's the gain on sale from AET and IEEE Limited. So 2.2 of revenue one-off and 6.7 of tax one-off.
Okay. Yep, that's clear. Secondly, just on the costs, the AUD 20 million of cyber governance step-up you talked about at the end of 2023. Can I just be clear on sort of how much of that has hit in first half?
Are we at kind of the full run rate and we saw a AUD 10 million impact from that, or is there further uplift still to come? Yeah, there's about AUD 7 million that's come through in the first half, just given timing. And so the balance will come through in the second half.
Okay. So when you say balance, you're talking about moving to a AUD 10 million per half run rate.
Correct. Yeah. Yep. Yep.
And then lastly, just sort of on the advice business, I think the UNPAT was sort of negative 1 this period. You've sort of reaffirmed the AUD 10 million per annum run rate by June 2024. Two questions on that, just how we should think about the second half. Then, as we move through into 2025 with, I guess, the structural separation of Rhombus compared to the employed advisors, how we should think about the AUD 10 million being split across those two segments.
Yeah. So firstly, on the second half for advice, I don't expect it, as I sort of indicated on the outlook comments, I don't think it's going to be as positive as the first half. And the reason for that is there's still a lot of work going through restructuring. So for example, we talked today about the exit of GPG. There'll be losses of revenue associated with those divestments and other sort of one-off costs that won't be UNPAT adjusted, but that will hit the P&L in the second half. So directionally and on an underlying basis, I think the direction of travel is clear.
But I wouldn't expect the actual second half result to be as good as the first half result. In terms of then moving forward, yeah, look, you're right. I think we've always sort of talked about that AUD 10 million. That's an annualized profit number from June 2024 moving forward. In terms of the timing of Rhombus, we're aiming to deconsolidate Rhombus in early FY 2025. Now, whether that's on 1 July, which would line up neatly, that's what we'd like to do. But I think it's more important that we get it set up properly and set up well for strong growth. But certainly, early in FY 2025 is what we're aiming for there in terms of deconsolidation. Importantly, as Renato noted, given we expect Rhombus to be profitable, it's not going to be, if you like, a way of moving losses off balance sheet.
Okay. But sort of in the just looking at that from another angle, though, sort of given you're not going to own 100% of Rhombus, is also I'm just wondering about the profit leakage that occurs for IFL shareholders. A small amount, just to. What the split of the AUD 10 million will be between sort of what you're retaining and what goes.
Yeah, there's a small contribution there from Rhombus. But I think we'll save it until the full year to talk about 2025 for advice. But Rhombus will make a we expect it to make a small profit. So if we're deconsolidating, for simplicity say less than 50% of that, that probably gives you a good indication for the scale of what we expect from Rhombus to be recognised as part of that 10.
Okay. All right. Thank you.
Thank you. And I'm sure our next question comes from the line of Andrei Stadnik from Morgan Stanley. Please go ahead.
Good morning. Can I ask my first question just around oh, sorry, good afternoon. Sorry. Can I ask my first question around the guide for the better revenue margins, particularly in platforms? Can you talk about what's driving it? Where are you seeing the improvement?
Yeah. So to be clear, when we talk about better revenue margins, we're talking about relative to the guidance given. We still expect a decline in absolute terms. Look, I think it's been a couple of things there. It's been a good half from a product mix point of view. We've seen some positive contributions, some things like platform cash margin. And also, there has been I talked before about some of the planned price decreases that we sort of baked into this year's strategic plan.
One of those has been delayed by a few months. So that will impact in second half 2024. The full year impact of that will push into 2025. That's probably around about AUD 5 million, if you like, that we expected would land in the first half but hasn't. So those are probably the key drivers, if you like, of that improved guidance. But as I said, to be clear, for the full year, it's still a decline in overall net revenue margin.
Thank you. And my second question, just in terms of the remediation, how can you describe in terms of what is still outstanding? What percentage or just what types of payments or work is there still outstanding, particularly in terms of work that where you might need to dig deeper in terms of your case estimates? Sure.
So if we look at the remediation slide, to answer your first question, it's part of the reason we've given you that sort of what we call the pro forma at the end of March. So we're saying that based on the payments that we've either already made this calendar year or expect to make in the next few weeks, that provision balance sort of drops down to sort of AUD 28 million for advice and about AUD 50 million for product. In terms of the work to be done, it's worth noting that the Quality of Advice stream of advice is still outstanding. And Quality of Advice is the one that will typically have greater variability on client detriment. Now, the reason for that is Fee for No Service is simply a case of returning fees already paid back to a client.
We know the dollar fees that a client has paid us. So you know what the maximum amount is. The quality of advice involves pulling apart every piece of advice that's been given. And just to give you one example, we have one client who received 64 pieces of advice over the years. Each one of those needs to be analyzed. Some may well have been poor quality of advice where the client has actually benefited. Some where there's been a loss. And so just by its nature, the variability around quality of advice, either positive or negative, is higher than fee for no service. So that's how I think about the sort of forward-looking view on remediation.
Thank you.
Thank you. And I'm sure our next question comes from the line of Nigel Pittaway from Citi. Please go ahead.
Morning, guys. Just firstly, back on Rhombus. Are you expecting to have to run a TSA with that? And will that in any way impact your ability to deconsolidate it?
I think potentially, Nigel, for some fairly minor sort of services. So you're right. I mean, the factors that will go into that deconsolidation would be shareholding board as well as any key strategic arrangements. So we're looking at all of those when we think about deconsolidation. There's nothing there we'd sort of flag at the moment as being a concern. But I think there'll be to the extent there's a TSA, it'll be a light one.
Okay. All right. And then just to sort of be a bit clear about the guidance, I mean, if I read your platform guidance, it seems as if what you're saying is we're still expecting the same revenue contraction we always did. It's just it's been a bit deferred. And so firstly, is that correct? And then secondly, can you just confirm what market assumption is embedded in your full year guidance as well?
Yeah. So look, I think that is fair in terms of the push-out. I still think the first half result, even allowing for that push-out, has been a good one. But you are right that that AUD 5 million impact just moves down the line. So that's fair. The market assumption, we make an annual market growth assumption of 5.4%. I think in the first half, we might have seen market growth of just over 3%. So we've probably got a little over 2% assumed market growth in the second half.
Right. Okay. Thank you. That's clear. And then maybe just finally, I mean, I know Kieran asked about the revenue in the group. I mean, the costs do seem to swing around a bit as well. I mean, is there anything that sort of would sort of suggest that that operating expense line is group is seasonal? So you get higher costs in second half than you do in first half?
Not really. It's more from a cash flow point of view because obviously, we accrue those incentives across the year. So I think cash flow is more weighted the first half as in outflows in the first half. But no, from an expense point of view, there's nothing significant I'd call out the seasonality.
Okay. So the 36.3 you had second half, there were some one-offs last year. There were some one-offs in that, was there?
On which side of things?
Sorry, this is. I'm looking at corporate page 9 corporate P&L operating expenses. So you obviously had 32.8 this half relative to 31.8 in PCP, but it did rise to 36.3 in second half. Was it just one-offs driving that, or?
Yeah. I think in that second yes, in that second half, yes. It does tend to move around a little bit. But for example, we've got net interest that sits in there. So there was a pretty meaningful increase given the interest rate profile last year. So I think that that's probably part of the solution as well, part of the explanation I've given.
Okay. Thank you.
Thank you. As a reminder to ask a question, you'll need to press star one one on your telephone. I'm sure our next question comes from the line of Anthony Hoo from CLSA. Please go ahead.
Good afternoon, everyone. First question, can I ask about expenses in the platforms business? You called out higher expenses due to cyber governance. Then you also mentioned license conditions rectification. Just wondering how much of the expenses in here in this period might have been one-off?
Yeah. So you're right. So if we wind back, cyber and governance is principally charged, as we said, back to platforms. That should not be seen as a one-off cost. We think that that is a recurring cost every year. Now, over time, as we simplify, we'd be hoping to reduce that. But certainly, I think in the next 12-24 months, I'd treat that as being a permanent cost. So that's really the key driver there. The license conditions cost, yes, I mean, that's one that obviously we're working hard on that rectification plan. So those costs, which are AUD 2 million, 1-9 million, we'd expect to be there until those are done.
I don't really want to put a timeframe on that for the moment. But we'd certainly be hoping those are not permanent.
Okay. Thank you. And then second question, so going back to the platform's revenue margin, as you said, second half would be a lower margin. You have MLC migration to Evolve. You have that deferred impact that you mentioned before. Can you talk more broadly, are there any other repricing initiatives that are going to happen in the second half or even FY 2025 as well?
No. So the main impact on FY 2025, based on what we currently see in front of us, will be the full year impact of Evolve 2023. So Evolve 2023, as Renato mentioned, that migration is due to happen in April. So there'll only be a relatively modest amount in FY 2024.
And so when we talk about FY 2025 guidance, we'll be able to give you a better view of that. But that's really the main known driver today. The second one would be I mentioned before that some of the fee reductions that we were planning in the first half had been pushed out. So those will also impact in the first half of FY 2025. So a little bit of shuffling there, if you like, on that one. But they're the main ones that we can see today.
Okay. So if we think about the margin, it looks like your guidance, I think, for the platforms business is implying something like 44 basis points in the second half or maybe even slightly lower. So essentially, FY 2025 will be lower again than that.
Yeah. Look, I don't want to get too much into FY 2025 guidance. B ut if I go back to last year's full year presentation, we gave a view of what we saw for forward years. Based on that, yes, that's a fair assumption. Our view hasn't changed on that. But to be fair, we're only now commencing the budget and planning process for FY 2025. So we'll give more detail at the full year.
Okay. Thank you.
Thank you. And I'm sure our last question comes from the line of Lafitani Sotiriou from MST Financial. Please go ahead.
Good afternoon, guys. Just to follow up on that platform margin piece. So can I just clarify? There are two main events that are causing a step down in the platform margin. One is the migration, which is happening in April. Are we looking start of April, mid-April, end of April? And the other is in relation to the fee reductions that have gone through. And can you just remind us when did those fee reductions go through?
Yeah. So I'll take up the second one first. So the fee reductions and the ones that we're talking about specifically are to do with some of the Smart Choice reprice. And as part of that, we're introducing more alternatives into the mix. So those prices changed as of 1st of July. So by the time, as I said, there's about AUD 5 million-AUD 10 million for the full year 2024 that we expected, 5.5, AUD 5 million in the first, AUD 5 million in the second. Those price changes have yet to go through. And so based on what we currently see at the moment, there's AUD 5 million we expect in the second half.
And then that other 5 will transfer to first half of 2025. And then in terms of Evolve '23, I think April is as specific as we probably want to be at the moment. But there's probably only a low single-digit millions AUD impact in FY 2024. And the rest of the impact will be felt in FY 2025.
All right. Can I just clarify? So the Smart Choice repricing was supposed to go through on the 1st of July but didn't but has subsequently gone through this calendar year. So there's going to be an AUD 5 million impact this calendar year on the repricing. For the entire this calendar year, you'll get an AUD 10 million impact. So for the calendar year, that's right.
That's right. So we expected it sorry, Laf?
No, that's right. So it went from 1st of July to the 1st of January.
It hasn't gone through as yet. But based on that, it's a trustee decision in terms of the timing of that movement. So we still expect to see it. We think it'll come through we think it'll come through imminently. But that one is down to the trustees in terms of when they make that call.
Oh, but just from a technical perspective, if you make the change in February or March, can you still backdate it to the 1st of January? Or how should we be thinking about the monthly run rate cost? So if it's AUD 5.5 million, why do you still assume that the step-up will happen for the full period if it hasn't happened yet?
Well, there's still more movements than that. I mean, in terms of the overall platform margin, that's just the biggest driver that's there. So we still expect it to be around 5. No, it won't be backdated. But that's, I guess, as clear as we can be around the timing of that. There's a number of different moving pieces.
Sorry, am I missing something here because it is a AUD 10 million annualized impact or?
Yes, it is.
Are you still assuming AUD 5 million in this half even though it hasn't started yet? That's what we're assuming. Yeah. Am I missing something or? Because you're already largely going to miss two months' worth. Is there a higher front end or is there something missing in that disclosure?
Well, I think we're talking about probably a difference of AUD 1 million or AUD 2 million. So AUD 10 million, and that's an approximation, is the full year impact. So it's not exactly 5.0 and 5.0. You're right. The longer that it sort of ticks into 2024, there'll be more of an emphasis in first half 2025 and second half 2024. But overall, AUD 10 million, we're still expecting it to be rounding up and rounding down, AUD 2 million up towards AUD 5 million in second half 2024 and the balance in first half 2025.
Got it. And so what about the migration? Can you give a similar figure, roughly, the impact on a revenue basis annualised?
Yeah. So I think I'll just have to let me just check that one, Lafitani, in terms of full year for Evolve 2023. From memory, I think it was about AUD 15 million. But let me come back to you if it's different to that.
Okay. So just to clarify, so there's all up a AUD 25 million, roughly, annualized revenue impact from the platform repricing with about AUD 7 million of it to fall in second half. And so about AUD 18 million will flow through into FY 2025, assuming there's no other changes with anything else.
Yeah. Yeah, that's fair.
All right. Got it. And can I just have one other follow-up question in relation to the NAB notes? So there's two things happening, right? So you're expected to repay them in FY 2026. Is that right? And then there's a step-up this calendar year in the interest being paid on those notes. Is that right?
Yeah, that's right. Well, potentially right. So in November this year, NAB has the option of what's called an early call on the notes. If they make that early call, we have the ability to repay the notes. If we don't, the interest rate, the coupon steps up to 4%, as you say. We don't have to repay it early. But we would be wearing the 4% coupon until we did. So I don't know whether they will or won't call it. But that's how it works mechanically.
Got it. So given that it's an overall cheaper source of funding still than your existing senior debt facility, I mean, I've seen a reason why NAB wouldn't request it. And so we would expect a step-up from 1% to 4%. And then can you just talk us through the specifics when you get to financial year 2026? If it has stepped up and they have called it and you haven't repaid it through that period, when it gets to the end of financial year 2026, are you forced to repay it? Or what's the story then?
Y eah, that's right. So that's the end date on the note is in FY 2026. The reference price at the moment so that subordinated loan note behaves like equity above what's called the reference price. The current reference price is about AUD 3.70. It moves downward with dividends. And so above the reference price, there's an equity-like return for amounts over and above. At the moment, based on AUD 3.70 and where the share price is, that's why we talk about the face value of AUD 200 million. That would be the total amount repaid based on the current share price and where the reference price currently is.
Got it. Thank you.
Thank you. I see no further questions in the queue. That concludes our Q&A session for today and today's conference call. Thank you all for attending. You may all disconnect at this time. Have a good day.