Thanks, Andrea. Good morning, and welcome to the IPH results presentation for the year ended 30 June 2023. My name is Andrew Blattman, and I'm the CEO of IPH. With me today, again, is John Wadley, our Group CFO. Thank you all for joining us for today's presentation and for your interest in IPH. Before commencing the formal presentation, I first want to acknowledge and thank all the IPH executive team and our board for their support and, of course, all of our people across our expanding group for their contribution during the year. I also want to particularly acknowledge our team in Canada, and as this is the first full year financial results with Smart & Biggar being part of the IPH group, thank you for your terrific contribution this year.
Of course, I want to welcome the team at Ridout & Maybee in Canada, who, as we announced earlier today, are joining Smart & Biggar. Moving on to slide three, our contents. Today's presentation, I'll provide an overview of the operational highlights of the year. John will discuss the financial results in detail, including an update on our cyber incident in the last quarter, before handing back to me to provide some commentary on our key markets in terms of filing activity and a review of our operations. I'll conclude with some comments about our ongoing strategic focus and how we are building a stronger platform for growth. That will include some detail on our latest acquisition, which we announced separately this morning.
In this context, as I've just mentioned, we are very excited to announce that we have consolidated our presence in Canada with leading IP services firm, Ridout & Maybee, to join Smart & Biggar. This is consistent with our growth strategy and supports our vision to be the leading IP services group in secondary markets. I'll talk a little bit more about this transaction later in the presentation. As always, of course, we'll be happy to answer your questions at the end. Moving to slide four, about the group. It's just a recap. We'll we continue to expand. As mentioned, we've today announced our agreement to further consolidate in Canada. In May, if you might have missed this one, we enhanced our Asian network offering by establishing a new office in Manila, in the Philippines.
We are truly one of the world's largest IP services group in secondary IP markets, with around 1,300 employees operating across 10 IP jurisdictions, now servicing some 26 countries. In terms of our year in review, I guess our results, to me, reflect the resilience in our business, which comes from having exposure to an increasing and diverse number of jurisdictions. The addition of a significant IP jurisdiction through our Canadian operations, now of increased scale, highlights this diversity and underpins the strength of the IPH business. With this in mind, let me step through some of the highlights for our financial result for financial year 2023. In slide six, we delivered a strong underlying result for FY 2023, which demonstrates the additional shareholder value we continue to create through our acquisition and integration strategy.
Of course, in FY 2023, that included the acquisition of Smart & Biggar in Canada. As a result, we delivered a significant uplift in underlying earnings for the group, with enhanced returns for shareholders. Underlying EBITDA is up 28%, with the final dividend up 9%. The financial performance of Smart & Biggar has exceeded our expectations during the year, I'll discuss this performance a little later in the presentation. John will shortly detail the impacts of a cyber event and some disruption in our Asian business, which has impacted earnings in the second half. However, we remain convinced of the significant opportunity in the Asian region. We've been there for a while now, built a very strong business which has grown exponentially over the past few years, we're uniquely placed to continue to leverage that growth opportunity.
The acquisition and subsequent integration of Smart & Biggar has progressed well, and as I mentioned earlier, its financial result has exceeded our expectations at the time of the acquisition. Of course, one aspect of the rationale for this transaction was the potential for IPH to participate in further growth and industry consolidation opportunities in the Canadian IP market. Consistent with our strategy, we are pleased to announce Ridout & Maybee joining Smart & Biggar. Total purchase consideration for that transaction is approximately CAD 65 million. I'll give some more color to this transaction later in my presentation. Moreover, we continue to further progress complementary acquisition opportunities in Canada, with another opportunity being actively pursued. Finally, importantly, we continue to work on progressing our sustainability agenda.
We've stepped up our actions this year, which include enhancing our greenhouse gas emissions measurement and reporting direct and indirect emissions of our international operations, including our member firms. In summary, I'm pleased with our performance this year. Strong underlying result, improved returns to shareholders, Smart & Biggar performing ahead of expectations, further consolidating our presence in Canada with the Ridout & Maybee acquisition, and further acquisitions and opportunities under active consideration. I'll now hand over to John to step through the financial results in detail, together with a recap on the, on the cyber incident.
Thank you, Andrew, good morning, everyone. Just to reiterate the strong result of a 28% increase in our underlying EBITDA for FY 2023, which reflects the Smart & Biggar acquisition, as well as foreign currency tailwinds. The Australian, New Zealand business held up well in the second half, considering the cyber incident. The FY 2023 results should also be reviewed with an understanding of our foreign exchange impacts. The average Australian U.S. dollar for FY 2023 averaged 67.3 cents versus 72.6 cents in the prior year. As we have previously advised, a 1 cent weakening in the U.S. dollar equates to an AUD 2 million reduction in service charge revenue.
As also indicated in February, our results include FX gains recorded in our P&L, i.e., those derived by the revaluation of U.S.-denominated cash and receivables, as well as banking receipts at a more favorable rate than booked. For FY 2023, this was a $3.3 million gain, compared to a $6 million gain in the prior year. You'll notice that the statutory result in FY 2023 includes a number of one-off items. I'll address these in a subsequent slide. Underlying NPAT has grown by 20%, with underlying diluted earnings per share up by 16% to $0.436 per share. Our ongoing strong financial position and continued cash generation has enabled a further increase in the final dividend, which was up 9% to $0.175 per share at 35% franked.
Moving on to slide nine and being the like-for-like revenue and EBITDA. The like-for-like basis eliminates the impact of acquisitions and the foreign exchange impacts I discussed earlier. We've not included Smart & Biggar into this analysis as yet, given this is the first year of their contribution to the IPH group. Looking first at Australia and New Zealand. A slight decline in revenue of 1%, with EBITDA down 5% on the prior year. This is actually a slight improvement on the results of the first half, where you might recall that revenue was down 3%, with EBITDA down 6%. This slight improvement was despite some disruption of the cyber incident during March and April. In addition to cyber, earnings were impacted by increased salaries and higher investment in business development. In Asia, our Singapore hub continued its solid performance, with increases in both revenue and EBITDA.
However, this was offset by the impact in the second half of one of our large clients exiting China. This is not unique to IPH. A number of corporates have been de-risking their supply chain reliance on China and seeking to base their operations in other locations. We've also seen that Hong Kong continues to be impacted by geopolitical events, which has resulted in a decline in patent and trademark revenue in our Hong Kong business. There was also a decline in translation revenue. All up, that resulted in like-for-like revenue from our total Asia business being up 4% for the year, but steady at the EBITDA line. With this short-term disruption in China, Hong Kong has impacted the second half result, our Asian business continues to represent an outstanding growth opportunity for the group.
We've successfully addressed short-term periods of volatility in the past, and this is demonstrated by the fact that our Asian business has grown strongly. We're generating circa AUD 14 million in EBITDA in FY14 to over AUD 50 million this year. Taking a look at slide 10 and the cyber incident, I'll provide a quick, quick update. As most of you are aware, in March, we detected that a portion of our IT environment had been subject to unauthorized access. Fortunately, we had a well-developed cyber response plan ready to go, and we were able to immediately enact this plan and also implement our business continuity plan. As we announced to the market, a limited set of data was downloaded by an unauthorized third party during the incident.
This data set originated from the Spruson & Ferguson Australia business and primarily contained data relating to a small number of clients of Spruson & Ferguson Lawyers, and certain financial and corporate information. We reviewed the downloaded data set and worked with Spruson & Ferguson Lawyers to directly contact affected clients. We recall we previously announced the expected financial implications of this incident. The FY 2023 results are consistent with that announcement. The business' disruption in March contribute to a service charge budget shortfall of approximately AUD 4.4 million in Spruson & Ferguson, Australia, and Griffith Hack. In subsequent months, Griffith Hack and Spruson & Ferguson collectively exceeded budget by approximately AUD 1.5 million. We do not expect any further backlog of filings for either firm.
In line with our previous announcement, we incurred $2.8 million pre-tax in non-underlying costs in FY 2023 in regard to this event. We conducted a comprehensive post-incident review to identify a few further learnings and opportunities to strengthen our cybersecurity measures and ensure the strengthening of controls. We've not experienced any known loss of client relationships as a result of this incident and now completed a review of regulatory requirements associated with the issue. While this was an unfortunate incident, we were pleased with the rapid and comprehensive response from our team in managing this issue. Looking at slide 11 and the underlying results. Shows the calculation of the underlying result, which is on a consistent basis with prior periods, and reconciles these to reported statutory results. There are a number of adjustments to statutory results in FY 2023.
The items, which represent a significant difference from the prior year, include: a remeasurement of deferred consideration. This relates to a fair value gain on the settlements of the earn-out for Smart & Biggar due to changes in the IPH share price. Costs relating to business acquisitions of AUD 10.7 million. These primarily relate to the Smart & Biggar transaction and the progression of other opportunities, including that announced today. Restructuring expenses include AUD 1.7 million for the IPH Way project. As we previously announced, total spending for this project is expected to be AUD 6 million by the end of FY24. I mentioned cyber-related costs on the previous slide, which were in line with our previous announcement, and IT SaaS implementation costs were AUD 0.8 million.
We previously announced that from FY 2023, we now include share-based payments expense in our underlying EBITDA, unless specifically relating to a non-underlying item. For FY 2023, share-based payments expense was AUD 6.1 million. AUD 1.6 million was incurred in non-underlying business acquisition costs, representing payments to vendors. FY 2022 accounts have been restated to include AUD 4.8 million in share-based payments in underlying EBITDA. The underlying effective tax rate was 26.8%, reflecting an increased proportion of the results recognized in tax jurisdictions. Moving on to slide 12 and the cash flow statement. Reviewing the cash flow statement, cash conversion remains high at 88%. We've amended the cash conversion calculation methodology from previous periods to more accurately reflect the rate of cash conversion.
We've removed the effects of non-operating activities from the calculation. The prior period comparatives have been restated. You will note that the increase in working capital in FY 2023, three main components of this: cash payment of makegood provisions expensed in prior periods relating to our focus on reducing our rental footprint, normalization of Smart & Biggar's net asset position post the acquisition, and larger work-in-progress balances at year-end for Spruson & Ferguson and Griffith Hack, resulting from the cyber incident. Slide 13. The balance sheet. Main movements in the balance sheet have been caused by the acquisition and counting of Smart & Biggar. These include customer relationships, will be amortized over 10 years. Also goodwill and the Smart & Biggar brand name. These will not be amortized, but subject to impairment testing.
Our increased borrowings following Smart & Biggar transaction have resulted in an interest charge on an annualized basis of circa AUD 24 million. Net debt at the year-end was AUD 284 million, with leverage of 1.8 times, which remains within the group's indicated target range of 1.5-2 times. Slide 14 on foreign currency. As noted earlier, the group benefited from the strength of the U.S. dollar versus the prior year. The group's exposure to US dollar remains broadly the same post the Smart & Biggar acquisition, as we invoice the vast majority of our clients in Canadian dollars. The U.S. dollar invoicing is now a small proportion of the overall group's invoicing. I now hand back to Andrew.
Thanks, John, I'm now on slide 15, the market update. Over the next couple of slides, I'll provide an update on filing activity for the year. The first one being slide 16 in Australia, in terms of patent filings here. Overall, the total Australian patent filings, FY 2023, ex innovation patents, which are now honestly a thing of the past, decreased by 3.3% compared to the prior year. IPH's group filings decreased by 7.8% for the year. That relative decline to the market is broadly consistent with our disclosure for the first half. FY 2023 does represent a full 12 months of the integration of Spruson & Ferguson and Shelston IP, while the prior year included only seven months where the two firms were integrated.
You'll recall that we've had previously noted the disruptive impact of member firm integrations on filing activity, and FY 2024 will be the first full year comparison of the integrated Spruson & Ferguson Australian Shelston IP business. Our group filings did begin to stabilize in the second half compared to the market, and both Spruson & Ferguson Australia and Griffith Hack pleasantly recorded improved filing performance in the second half. Another point to note on this slide, during the period, we received over 800 patent cases being transferred to Spruson & Ferguson Australia from two significant clients. Whilst these aren't necessarily reflected in new Australian patent filings that have already been filed, they include a multitude of pending applications filed across multiple jurisdictions, thereby providing a good pipeline of ongoing revenue opportunity.
In terms of slide 17, Singapore, as many of you recall, there's always a delay in obtaining final data, which is why we've referenced calendar year December 2022 data. The Singapore patent market increased by 1.2% for the calendar year. One of the top corporate filers, which also happens to be an IPH client in Singapore, had a significant reduction in filings. I believe, of course, reflecting the nature of individual filing patterns of clients, and as this client was a client of IPH, IPH was more strongly impacted by the decline than the rest of the market. Including this top corporate client, IPH filings decreased by 2.7% in calendar year 2022. However, a filing from this group has excluded IPH really grew nearly twice the rate of the market in calendar year 2022.
Excluding this group, the market increased by 3.8%, while IPH filings were up by 7.7%. Based on the preliminary data for the first four months of 2023, IPH has outperformed the market and has increased its market share to 23.2%, compared to 22.7% for the corresponding period in 2022. Again, a very solid result in Singapore and maintaining our market leading position there. Slide 18 in Asia. Looking now at the Asian filings, we've already called out IPH filings were lower in China, primarily due to one significant client exiting operations in the country. Indeed, as, while our China filings are lower this period, longer-term filing growth in China is solid. Our compound annual growth rate in filings is 18% since FY 2018.
During FY 2023, we experienced some patent filing decline of 2% across our Asian jurisdictions, which compared to a strong prior year. Filing growth in Indonesia and Malaysia was upset by the decline in China. IPH continues to be attractive to large clients, with multiple large clients increasing filings across a number of jurisdictions in FY 2023. Expanding in Asia and pursuing growth in ANZ, we are very conscious that we need to renew and sharpen our focus on generating organic growth in the business, and that includes Asia and Australia and New Zealand. In Asia, we've established a new team and office in Manila, which expands our presence to 7 offices in the region. Closer to home, and as already mentioned, the integration of Spruson & Ferguson Australia and Shelston IP did cause some disruption.
While to some degree, that is to be expected in an integration of this scale, we do recognize that we need to be, do more to improve organic growth. In response, we've commenced a number of specific business development initiatives to drive new revenue. These include specific business development plans for practice groups and their Theonas, client plans for our top 30-50 clients, a specific program with incentive plans to reward Theona sales activity, and a new client relationship management system to enhance client interactions. We've already started on these initiatives. We had a minor disruption due to the cyber incident in the last quarter, where our teams and their resources were focused on managing that. However, it's now full speed ahead on these programs, and it is, of course, very important to drive organic growth.
Moving to slide 20 and 21, looking at our strategy. 21, Smart & Biggar performance exceeding expectations. Well, we're pleased. We're pleased with the performance of Smart & Biggar since we took ownership last October. Revenue since October of CAD 87 million was ahead of the annualized pro forma revenue at the time of acquisition, and earnings were ahead of expectations. Legal service revenue was just under 30% of the total revenue. The synergy expectations that we outlined at the time of the acquisition remain on track. We've identified initial synergies of CAD 3 million since acquisition, and we have a clear pathway to realize the AUD 4 million-AUD 6 million synergy over the first three years, as we previously advised.
The addition of Smart & Biggar means we now have an even broader international offering across our network, which is an important development and a key differentiator as we pitch for global work. This network effect, as I call it, contributed to around 220 international client referrals between Smart & Biggar and the IPH offices in Asia Pacific in FY 2023, which is a good outcome. The integration of Smart & Biggar is progressing well. IPH operational capabilities are now in place, encompassing a number of areas. Our three-year strategy targets profitable client growth and strong national alignment as part of the IPH group. We're well on track there.
Of course, Smart & Biggar provides us a strong platform to participate in further consolidation and growth opportunities in Canada, and today, we announce the next chapter of this with the acquisition of leading Canadian IP services firm, Ridout & Maybee, which I'll address on the next slide, slide 22. We are very pleased to announce the continued execution of our growth strategy with Ridout & Maybee joining Smart & Biggar in Canada. This acquisition brings together two leading Canadian IP firms and the highly qualified and experienced IP teams into one combined firm, which will operate under the Smart & Biggar brand. Ridout & Maybee is a well-known Canadian IP firm, with more than 30 high-quality IP professional staff. They have offices in Toronto, Ottawa, and Burlington.
In 2022, the firm filed more than 2,800 patent applications and 1,000 trademarks for their clients, who include large multinational corporations, universities, government agencies, startups, all the way through to individual inventors. A very similar client profile to other member firms in the IPH group. This, the transaction is, is expected to be underlying EPS accretive in the first full year of ownership. The transaction structure and the consideration achieves ongoing alignment between vendor with vendor partners and IPH, and we achieved that through the issue of IPH shares to vendor 's minimum term employment agreements, which are generally for four years. Slide 23, a summary of the transaction. Financially, as I say, consideration is CAD 65 million, which is approximately AUD 74 million.
That includes an upfront consideration, cash consideration of CAD 45.5 million, and initial issue of IPH shares to a value of CAD 19.5 million. Those shares will be escrowed for two years. Ridout & Maybee's pro forma adjusted EBITDA for the 12 months to December 2022 was CAD 8.2 million, approximately AUD 9.4 million. Ridout & Maybee is expected to add approximately 25% to Smart & Biggar's underlying EBITDA, including cost efficiencies of approximately CAD 2 million, expected to be achieved over three years. We will fund the consideration from our debt facilities, and following the transaction, our pro forma leverage ratio will be 1.8x.
We'll also take the opportunity to reinvest between AUD 1 million-AUD 1.5 million of expected synergies to strengthen the Group's operating model, reflecting the increased geographic scale and scope of the business, what we hope will be future requirements. Slide 24, Commitment to sustainability. We remain committed to operating a sustainable business, we've stepped up that commitment this year. We refreshed our sustainability strategy, that has led to the identification of the core strategic priorities, which we have identified on this slide. We continue to make solid progress there. I won't go through each of these in today's presentation, but they are detailed in our sustainability report, which has been released with our annual report today. Also, from our people, a core focus for IPH in slide 25 remains on attracting, motivating, developing, and retaining our people across the business.
During FY 2023, we made 76 promotions across all our member firms, including 7 principal appointments. Over two-thirds of senior promotions in FY23 were women. We're committed to developing our people and creating leaders for tomorrow. In FY 2023, 26 leaders completed our bespoke People Leadership Excellence program. That makes over 240 leaders, 240 leaders have now completed this development program since we launched in FY 2021. In slide 26, just a couple of comments about AI and IP, which is, of course, very topical now, and in fact, if you go back another 10 years or so, it was very topical in the academic, academic research, and more recently, has been a strong driver of patent filings, including the many of our own firms, I might add.
That's now, of course, a significant area of interest in the corporate environment. While businesses are currently adapting to the potential impacts of AI, what I would say, and what we've seen for generations in this business, is whenever there's a change in technology, the one constant is the ongoing requirement for IP protection, which, which suits us. However, AI will, of course, change the way we protect innovation. We expect AI will enhance and contribute to efficiencies in the administration of IP, whether streamlining the patent process and even extending the commercialization of patents through infringement opportunities or, or commercial partnering matching. We are ourselves assessing the impact of AI on the patent translation process. Machine learning is continually improving. However, translation quality is highly variable. We do expect that AI translations will improve.
The technical nature of what we do in the context of patent applications still require an expert review. AI is obviously an area we'll continue to monitor very carefully. You'll be pleased. My last slide is our summary and priorities, and our priorities are focused on generating organic growth across our network and those complementary growth step-out opportunities in Canada and other core secondary IP markets. As I indicated on earlier, earlier, an immediate priority is drive filing growth and organic revenue in Australia and New Zealand. I've already outlined some business, business initiatives there we are implementing in this regard. We are also focused on restoring growth in Asia. We can continue, and we will continue the integration of Smart & Biggar to ensure we fully leverage the revenue earnings and strategic opportunities this acquisition provides the group.
Of course, we will commence the integration of Ridout & Maybee into Smart & Biggar to further leverage that opportunity. We continue to progress complementary acquisition opportunities in Canada. We believe there are a number of further consolidation opportunities to expand our market share in a material manner, each in the region of between 4%-7% patent market share. We have announced Ridout & Maybee's acquisition this morning, and another opportunity is being actively pursued at present. We're also continuing to pursue other acquisition opportunities elsewhere and remain involved in discussions. Underpinning all of this is our continuing focus to operate at the discipline and manners to generate further shareholder value. In closing, I'd like to acknowledge the hard work and contribution of all our people across the group.
Many thanks to all of you for your continued interest and support. Over back to our moderator, Andrea, where John and I would be happy to take any questions you may have.
Thank you. If you wish to ask a question, please press star then 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then two. If you are on a speakerphone, please pick up the handset to ask your question. In order to give everyone an opportunity to ask questions, please limit yourself to two questions. Your first question comes from Marni Lysaght of Macquarie. Please go ahead.
Good morning, team. Thanks for taking my questions. I've just got a few questions on Ridout, on R&M, the new business. Can you kind of give us some insight into the breakdown, I guess, of its business, particularly its margins? It's fair to say agency work compared to any litigation work.
Oh, thanks, Marni. Look, its litigation is smaller than what Smart & Biggar has. It's, it's probably more in the context of what we normally have in IPH group companies elsewhere, so sub 10% litigation revenue. It's, it's a business which, you know, like all patent attorney businesses in secondary markets, receives a lot of its work from... Well, in this case, across the border, I mean, in the US and certainly from Europe and Japan. In a similar sense to nearly all of us, we receive most of our work from the primary market filers. They have got small offices in Burlington, which is outside of Toronto, and another office in Ottawa, but most of that work is still international incoming.
There's, there's quite a nice opportunity, I think, in some of the local clients they have, that we've been able to hopefully leverage into, into IPH's Asia Pacific offerings as well. That's what we like about it. They are, as, as I say, in the, in the announcement, they will come into Smart & Biggar from day one.
Understood. Just on the, on the, on the margins of this business and how it would compare to Smart & Biggar, just with the different mix?
So well, there's a couple of things. One of them would be the different mix, but I guess it's.
Mm.
The company is probably operating within the, the 20% in terms of its EBITDA margin. Always a little bit difficult to estimate, a private business like that because it's a totally different, structure.
Mm.
It would be operating the, the 20%, and we've identified there that there are synergy opportunities in this business. We, we would hope to improve that in bringing that within the the Smart & Biggar structure.
Okay. Just another one from me. It's just going back to the result. You, obviously, the market share year-over-year in Australia has declined. Can you give us any insight into potentially where that's going, or are you comfortable that you'll be able to capture that back, given the business development initiatives and investment underway in cycling of fairly easy comps moving forward?
Yeah. It's a fair question, Marni. I was pleased. I think I, I mentioned in the result that we had a second half in AJ Park, Spruson & Ferguson was stabilizing. We had a, you know, Spruson & Ferguson had a significant client win, or two significant client wins in the second half as well, which, as I say, weren't, weren't new filings, but transfer of portfolios, which is a good sign that we're heading in the right direction in BD. We need to do better, but I think we will. The FY 2024 will be an interesting comparison, because it's the first full year comparison to the integrated business of Spruson & Ferguson and Shelston IP. It's got clear air there, and we'll be able to judge, you know, how we are progressing.
We're certainly not for lack of effort, Marni.
Okay, understood. I know, I know I've got to keep it to two questions, so I'll, I'll jump back in the queue. Thanks, guys, for answering my questions.
Good on you.
The next question comes from Scott Murdoch of Morgans. Please go ahead.
Morning, Andrew and John. Just firstly on Asia, if we can, can you, I guess, just provide a few more details on the Hong Kong, China impacts, in the second half? Just more specifically, I guess, do these earnings or the run rate of earnings that we're seeing reflect the full impact, or are we yet to see that full impact flow through? I think John said they were short-term disruptions, but a, a loss of a client there or a client exit feels more, permanent. Just, the second part to the first question, just the strategies you're deploying to, rejuvenate growth in Asia that you've called out.
Sure, Scott. Yes, as you saw, it was very much a second half impact, 'cause it, it declined significantly from our first half in Asia, which has been tracking along, well. I think your commentary is right in terms of for that Hong Kong impact at least to wash through. There would be certainly an impact of that in the first half of FY24. In terms of the-
Yeah, sorry. I guess-
Sorry.
In the second half, is it a full, is it a full impact in that second half or, or potentially the, the client loss was late in the half, is kind of the direction of my question?
Yes. Yeah, so that did happen late in the half, and so then, I'd say that impact would be in the first half of next financial year as well, equally.
Okay, no problems. Just, I guess that feels a bit permanent with more to come in the next half, you're saying? Just the second part to the first question around the strategies that are being looked at to rejuvenate growth in Asia.
Yeah, look, we've got a full-on BD program there, Scott, which we, we, we-- It's hard to get a feel for what the market looks like in China in real time, because really our market is always at the primary players coming in. Ultimately, I think that the Chinese market's too big to ignore. Now there has been some disruption, you know, given the post-COVID and where the world finds itself in respect to China in the last 6-12 months. In terms of clients decoupling some of their supply chain concerns away from China, ultimately, the economy is too big to ignore. We still see our significant filers in that space will continue to file into China.
We're, we're confident that it's still very much, an opportunity for us, and we want to remain there.
Okay, thanks, Andrew. Just a little bit more color in Australia, I guess. The second half revenue performance was actually quite good, with respect to sort of flat filings half on half. Just interested in any insight into, I guess, the composition around pricing, pricing growth push-through and any maybe potentially there's some currency impact there. Equally, the cost growth is, is high or higher, and obviously you're deploying those strategic initiatives you've talked to. Just interested in what type of cost growth are embedded with the-
Yeah.
Strateg- uh,
We probably.
New growth strategies.
Probably saw three aspects to Australia in the second half, I guess. One, yeah, the salary costs coming through, which come through immediately. Yes, we had price increases, but given the fact that we have a significant proportion of the book on corporate clients, direct corporate clients with, you know, extended pricing agreements over two-three years, getting, getting that roll-through doesn't happen in one year. Then we had, you know, in the last quarter, a ruddy cyber incident, which took the sting out of us for a couple of weeks. Although we did see some of it coming back towards the end of the second half, and Sean indicated the impact on the cash conversion, because the billings were heavy on the in June.
No, I, I hope that we can put, you know, get ourselves. I think we are, you know, we're back fully operational there. I, I, I like what we're seeing in the context of the second half filings compared to the first half and the stabilization, and there's some slight growth upticks in Spruson Australia and Griffith Hack in that context. I'm confident, but there's more work to do.
Okay, thanks, Andrew. That's my quota. I'll get back in the queue. Thank you.
Good on you.
The next question comes from Elizabeth Miliatis of Jarden. Please go ahead.
Hi, good morning, thank you for taking my questions. Firstly, just on the Canadian market share that you've got currently now, it's, it's sort of sitting around the 23% on my estimates, plus a potential further acquisition that you've already called out. You know, where are you wanting to get to that, you know, over the medium- term, where do you see yourselves? Then from a margin perspective, just there is a fairly big differential between Smart & Biggar and Ridout & Maybee, you know, how should we think about the margins across the industry in Canada? You know, is it closer to the 35% or the 20%? Thank you.
Oh, look, it's, they're good questions. I, I guess in terms of market share, I, I probably have us a little bit lower than 23% with the Ridout & Maybee opportunity on board. You know, we always have to be careful on, on competition scenarios, but I, I, I think, you know, there's 25-30, we, we have some headroom left in us there. What we can see, I guess, as a, as a, a comparator is when we in-integrated Baldwins into AJ Park, I don't know, four or five years ago, whenever that was. It was middle of COVID. I kind of lost track of time. It might have been toward the end of 2020.
The, the impact on the AJ Park margin was material in, in, in bringing that in, because essentially the, the opportunities in an integration, the margin expansion are, are very high compared to leaving a standalone business. I, I think there's a lot of opportunity there. They've got good quality clients. The client mix is, is, is what we like. The, the synergy to our eyes, will be small, hopefully, in, in the integration. The upside of additional high-quality IP professionals coming into Smart & Biggar is a great bonus for us. We're, we're confident that, you know, margins will continue to expand in Canada for us. You know, it's, it's hard to get to an Asian margin given the operating leverage we have there.
Still, we, we, we think there's an, an opportunity to take it beyond 30% in Canada.
Okay, beautiful. Thank you. Just a second question on the cyber incident. You know, it seems like you've reached out to all your clients. Is it safe to assume that we shouldn't see any disruption from a client perspective going forward, and, you know, any potential headwinds have been seen already? Or is there potential for, for us to see a bit more movement there?
Look, I think these episodes take a while to wash through then. We could- we were... I was very pleased of how our group responded to it and, and getting on the front foot with the communication to the client and, and having that cyber response plan that we had in place. If I can be pleased with a cyber incident, I was, I was pleased with our response to it. I'd, I'd be confident that, you know, the client impact is largely, well, as described, which has been minimal. We need to, you know, we, we need to do better in cyber and that we spent a lot of time and, and, and review of where we are from where we've been. We'll continue to, to provide some more resources there.
I think I might have made a mention in, in reinvestment in the business as well, and, and part of that will be some more investment in, in cyber.
Okay, beautiful. Thank you.
The next question comes from Apoorv Sehgal of UBS. Please go ahead.
Good morning, Andrew and John. I, I did jump on the call a little bit late, so if something got covered completely, I accept my apologies. First question, just on the cyber impact. You said AUD 1.5 million of the AUD 4.4 was recovered by year-end, with no further backlog expected. I'm just wondering why the balance of that AUD 4.4 wouldn't sort of maybe come through in the first half of 2024?
Sure. When we talk about those numbers, it, it's a relatively inexact science. The, the number that we reported in March of 4.4 behind budget, and then for the remaining quarter, we were 1.5 ahead. That's likely to be a mix of those cyber revenues coming through, but also a mix of what the underlying business was doing. That's why we can't come out and exactly say, "X amount was related to, to cyber." In terms of the question about what's would still be in the pipe, I guess? The filings which were there had to be filed. They are, they're filed by certain dates, so we're confident there's no backlog in, in files which needed to be filed.
What you did have probably is, the professionals needed to do an amount of rework, like, on an hourly scale, which obviously if we're doing, couldn't recharge that time to the client. It's really that, time revenue, which has been, been lost, and, and obviously you can't recover, time.
Okay. Second question, just in terms of Smart & Biggar synergies. The CAD 3 million that you've identified as initial synergies, is that basically the number you're hoping to achieve for FY 2024?
No, that's still gonna come through over the next year or two.
Okay, it's four-six, sort of in aggregate, over the course of the next few years?
Correct. Yes. That's for the initial outline.
Okay. Thank you.
Thanks, Apoorv.
The next question comes from Sam Haddad of Petra Capital. Please go ahead.
Hi, Andrew. Hi, John.
Hey, Sam.
First question, first question, just on your assessment of the acquisition for Ridout & Maybee. In terms of the commercial dyssynergies, just you touched on it briefly. Just given the given the what we've sort of experienced in ANZ, can you give us more comfort around it? Give us more color as to the detail and why you you believe that there's not gonna be a material issue in terms of integrating those two brands?
Oh, well, it's, I, I guess, we've learned a lot in acquiring and integrating patent attorney businesses in the last nine years. Sam, you've, you've, you've watched that journey yourself, I think, because you've been there from the start, looking at this stock. Look, I, I think, the interesting thing to note in this transaction is that Smart & Biggar will be the standalone brand, and then Ridout & Maybee will move into that. These are similar businesses in terms of the quality of the staff. The client base is excellent. The staff are excellent. The synergy in terms of client crossover, we're very comfortable with.
A big part of the client base and certainly a part of the litigation aspect of Smart & Biggar is pharma. As is the case across all of IPH really, the pharma exposure that we're on the innovative side of pharma. The Ridout & Maybee story matches that. There's less opportunity to have a large synergy with generics, so we like that. We like the geographic exposure, and we like the caliber of the firm. It's an 1893 business. It's not a fly-by-night business. It's been around a while, and they've coexisted with, with Smart & Biggar in that space, most of it driven by international incoming work.
They have a couple, one particular large domestic client in common, and our experience in, in, in that circumstance in, as reflected by, AJ Park and Baldwins, when you have a significant domestic client in common, you bring the two firms together, the client outcome is only improved. We, we would like to see something like that similarly happen in, in Ridout & Maybee coming into Smart & Biggar. We're confident. We've taken some learnings from the last nine years of doing this, and hopefully we're getting better at it, Sam.
Yeah.
We're certainly going to do our best.
No, no, that's helpful. I was only asking the question on the back of Shelston IP integrating into the Sprusons, and you, you called out last-- six months ago that the commercial synergies were larger than initially expected, so I just wanted to double-check that.
Yeah. Yeah, yeah.
Second question, the IPH Way, you previously called out synergies of AUD 5 million-AUD 6 million from FY 2025 onwards. I didn't see that in the pack this time. Is that did we start to see that come through at all?
I think we should see some of it come through in the last quarter of 2024, and then we're not shying away from our initial estimates, so then the majority will come through in FY 2025 and onwards.
The initiative is underway in terms of CRM and the case management system, that's still on track and delivery is as expected?
Yeah. The, the CRM and, and what, what you referenced there is, is probably a little bit different to what the IPH Way is, but yes, the IPH Way is, is underway, and we're certainly hopeful of, as I said, AUD 500,000 circa in the, in the last quarter.
Just on that, Sam, the, the cyber incident took our focus off IPH Way briefly in, in that last quarter, but we're, we're getting back on track now.
Excellent. That's helpful. Thank you. Thanks, guys.
The next question comes from Russell Gill of JP Morgan. Please go ahead.
Hi, guys. Just two questions. Firstly on the synergies and then secondly on your cash flow. On the synergy front, just a full clarification, because you made comments in the R&M acquisition about synergies being reinvested into the business and also comments about reviewing your operating model. With the IPH Way synergies and also the Smart & Biggar four-six, just to clarify, those will be net synergies that I guess fall to the bottom line to shareholders and won't be reinvested back into this, this operating model?
The IPH Way and the Loon synergies or the Smart & Biggar synergies, they will be, yes, dropped to the bottom line.
Okay, great. Then just on that, you, you mentioned in the, in the slide preso, 220 referrals. Is it possible to quantify, I guess, the revenue synergies or, or quantification of the business case uplifts you're seeing from those referrals?
Oh, these are primarily scenarios where, say, a client in New Zealand, you know, for AJ Park, might be filing applications into Canada. Now, you know, we have to convince the client, of course, of that, that's, that's in the best interest of it to be in the hands of Smart & Biggar. That's a fairly easy conversation when you're putting them in front of the number one player in Canada with a whole stack of awards behind their name. Each of those, you know, it sets off... Look, the beauty of the business, it sets off this track of ongoing revenue.
You've got the filings, which, you know, might be anywhere between $1,500-$2,000 in it, but it sets off the train of, of recurring revenue that comes with, with the examination of a patent or trademark application. It's not not huge up fronts, but it's a it starts off an ongoing relationship, and hopefully for the, for the next filing these clients have, they'll, they'll also come into Smart & Biggar. It just, it, it, it starts off the relationship, and it's a, it's a good story there.
The, the bigger opportunity as always is taking some of the large corporates and, we do have some large domestic corporates in, in ANZ, particularly in New Zealand, and we think there's opportunities to, to have them exposed to, our operations, not only in Canada but also in Asia.
Great. John, maybe just on the cash flow, appreciate the WIP uplift because of the cyber incident. Are you expecting that WIP to unwind through FY24, and therefore what sort of cash conversion we should be thinking about both for 24 and from a normalized 25 onwards?
So I answered the first part is, is yes, we expect that to unwind from Spruson & Ferguson and Griffith Hack. We've always tended to track around the 90-100 mark, so I expect that to continue. We've always been a very strong cash-generating business, so I expect that's our long, long-term run rate.
Great. Thanks, guys.
The next question is a follow-up from Marni Lysaght of Macquarie.
Hi, just another, another one from me. I'm sorry if it's already been asked. I'm just juggling between a couple of calls this morning. Just when you, when, when you, you head to the U.S. WIPO database to kind of get the total PCT filings from the U.S., it's kind-- Look, if you, if you were to look, I know that, and I, I totally appreciate that the databases are subject to certain delays in the actual filings being recognized. Can you kind of... How, how do you triangulate, I guess, the growth that you're seeing, you know, across Singapore, Canada, with kind of the, the trends, you know, of originations out of the U.S. being kind of flat or, or slightly negative?
Oh, yeah, look, these are interesting questions, Marni, and the nature of what we do as a secondary market provider is always some in through that lens. Then we only ever get Australia only ever gets 16% or 17% of the PCT applications filed in the US because we only ever get the core technology. They don't file the full, you know, patent suite. Say we get 16% in Australia, it might be, you know, 10% or 12% in Singapore, or even less. Again, it's the core technology.
It's- that's what makes it fairly resilient in these secondary markets, 'cause a technology company will always protect the Brazilian, the core. We don't really see big dips in the patent filings, even under typical economic circumstances. No business is recession-proof, but we're fairly resilient in that way, that given that we're only ever dealing with the core, the jewels in the crown, they normally come through.
Yes, that's clear. Just a second follow-up from me. Can you kind of give us any indication for forward share-based payments expense? You've, you've done that for us at, in previous results.
That's an excellent question for John, I'm sure.
Mm-hmm.
I think about AUD 6 million for next year. I think we had AUD 4.8 million this year, plus another, AUD 1.2 circa in our non-underlying items.
Mm.
Then this year, with the additional staff, it's around the AUD 6 million mark.
AUD 6 million, and that would all be included in the underlying results? Nothing one-off in that nature, in that AUD 6 million, FY24.
Yeah. Yes.
Roger, thank you.
The next question is a follow-up from Sam Haddad of Petra Capital. Please go ahead.
Well, we might pick that up in a later conversation, Andrew. Sounds like we've got a meeting with, I'm sure, Sam, later in the week. If that comes to an end on the Q&A, it's there's always, you know, good questions, and thanks for your interest. At this stage, I think we'll probably sign off so we can continue our roadshow. We're pleased with the result, pleased to bring in Ridout & Maybee into the business, and looking forward to further opportunities there. As always, thanks for your interest, everyone.
That does conclude our conference for today. Thank you for participating. You may now disconnect.