Thank you for standing by, and welcome to the Iress Ltd 2023 full year financial results conference call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Marcus Price, CEO. Please go ahead.
Good morning, everybody. Welcome to the Iress results presentation. Today we're announcing a solid result for the company. We've come in at the top end of our revised guidance. We're also moderately upgrading our guidance for 2024 and our exit run rate for 2024 off the back of an improved outlook for the company. This is a significant update today because it's more than just results. We will be taking you through the 2023 results and the progress of our transformation. But importantly, Cameron's going to take you through a couple of other things as well. Apart from doing the financial results, he will also be taking you through some of the other changes we want to initiate. We did set out to provide more transparency to the market back in our April Investor Day, and we're continuing to deliver on that today with a couple of additional items.
The first is that we will be looking at making a change in the metrics with which we're reporting, moving from an underlying EBITDA. As you know, we've moved away from segment profit already. We're going to move away from underlying EBITDA into a concept of adjusted EBITDA, which is much more tightly coupled to the audited accounts. Now, Cameron will take you through all of that. He'll also be taking you through today, importantly, the capital management plan, which is very important, of course, because it's all about how we'll be dealing with leverage over time, the working capital requirements of the company, and charting a pathway to the reinstatement of our dividend. I'd like to now take you through the progress we've made as a company this year. First of all, I think it's very important to consider that we are at a point in time in transformation.
We're about halfway through. We've done a lot of the heavy lifting in the first year. And so when you look at the results of 2023, they're an amalgam. They're halfway through. And it's sort of a tale of two parts. I'll come to that in a moment. We've had significant transformation initiatives this year. We've come in with an Underlying EBITDA of AUD 128.3 million, which is at the top end of the revised guidance, about 12% down on the previous year. And our reported EPS, of course, this year was -AUD 0.764. That's almost entirely driven by significant write-downs which we announced in the middle of the year. There's been a few additions to that in this half but at the margin.
What I want to draw your attention to is I think the bottom slide, which talks about the first half versus the second half, with Underlying EBITDA up in the second half 16% versus first half and our operating costs down second half versus first half. What that tells you is that our exit run rate for 2023 is quite superior to the overall results for 2023. We certainly have why. Cost management programs have been enacted, and we've spoken about those previously. We've got the improved second half earnings as a result. We've pleasingly had some improved customer sentiment with our NPS scores improving. I think that's a result of us focusing more tightly on our customers. Cameron will take you through the shifts to better reporting throughout this. As a result of all of that, we've got a modest upgrade to the 2024 guidance.
Onto the transformation, three areas I'd just like to focus on. The first is cost management. We've taken quite a lot of actions to arrest what was a multi-year cost momentum in the business against a heightened inflationary environment. I don't think you can talk about CPI in the context of technology companies because the reality is us, along with all other technology businesses, are experiencing much higher headwinds than, say, CPI. Technology CPI is considerably higher than consumer CPI. Our operating model enhancements, our change in structure and efficiency, have led to headcount reductions which amount to 15% of the total headcount in this year, with an additional 6% of the headcount leaving as a result of the MFA transaction. So we have been optimizing on cost throughout the year.
We do see a little bit more to come, particularly in the area of non-wage OpEx, but the bulk of the heavy lifting on costs has been done. On the asset sales, as you know, we announced the MFA sale for AUD 50.5 million in October. The platforms business is progressing and is very, very close to a conclusion. That's expected to be complete by 30th of April. That is not a game changer, but it is just more of a signal that we're moving on with that. It's a question of us cleaning up our business. The U.K. mortgages sale process is underway and well underway, and we're expecting that transaction to conclude in the first half. That is significant to this business. The proceeds will be used to reduce debt, and that will be significant to our leverage. The South African and Canadian disentanglement process is ongoing.
This year we are shifting to revenue initiatives has been our principal focus, and particularly organic revenue is our focus. Having more value-based conversations with clients, looking at our discount strategies and so forth in the market. We think there's quite a lot of opportunity there. We're having a lot more positive feedback from clients in regard to our pricing this year, so we're quite pleased with that. Introducing a world-class CRM as part of that, which we're delighted to be working with Salesforce. I think it's important that we do all of that. We'll be introducing customer metrics right throughout the organization. And I think our focus on customers and on improving our revenue performance is the first priority. Product innovation is also underway. We'll talk a little bit about that later on. We've got quite a few interesting things underway this year.
But one of the other interesting pieces of data that we're using internally is our revenue per FTE is up 28% versus last year, which I think is a fair barometer of efficiency. As you know, we were focused on creating a business unit structure and some more transparency. We're going to now take you through each of the businesses' business unit performance. Just quickly, though, to recap the way we've segmented the business. And as you can see, we've broken this up into APAC Wealth, Australian APAC Trading and Market Data, superannuation business, and then the managed portfolio, which is predominantly the U.K. and the other businesses at the end there. You can see here we've just broken up the revenue and EBITDA contributions of each of the segments. This has only been in place since July 1.
So this is the first year we've been able to report this. The benefits, of course, we're orientating the businesses closer to clients, creating accountability through the organization, tighter spans of control, and in particular getting proper cost allocation and proper signalling through the organization as to where we actually are efficient and where we're not efficient. Going into each of the businesses, the APAC Wealth, of course, this is principally Xplan, AUD 130 million of revenue, AUD 47 million of Underlying EBITDA, and a margin of 36%. It remains one of our core businesses, our strongest business. It's the wealth software of choice with more than 60% market share. And in fact, we grew market share this year in a difficult year. The recurring revenue is steady despite some economic headwinds. So again, that is pleasing.
We're doing a lot of work here working with our customers on their usage of Xplan, what's their optimal use of Xplan, as well as uplifting screens. We introduced the SMA capability for our clients, which they were certainly asking us for, and importantly launched our Advisory Community software, which is all about supporting advisors in the totality of their business. We've got a couple of priorities here, near-term revenue growth, all about working more closely with our customers. And remember that Xplan is not a single thing. It's a whole lot of different modules. And there's a lot of optimization we think available for clients in terms of which modules they use and don't use. And the way you get to that is having value-based conversations, high-quality conversations with our clients. And that's what we're focused on.
We're also looking, of course, at the quality of advice review and the implications of advice being delivered by superannuation funds. We're working actively with a number of super funds in that area. Longer term, we're looking to develop a new roadmap and refreshed roadmap for Xplan, and in particular looking at cloud transformation and how that can actually deliver extra functionality for customers. APAC Trading and Market Data. Now remember, this is a tale of two businesses, a trading business and a market data business. We've been able to maintain our revenue at AUD 178.5 million despite what was a very tough year for traders. And we've certainly felt that, as they have, 30% decline in ASX traded volume throughout the year. Very pleasingly, though, things picked up quite dramatically in November and December. Trading volumes have come back, which affects sentiment for our customers.
It helps obviously, it's easier to have a value-based conversation with a client who's feeling optimistic and bullish about their business. We're doing quite a lot of core platform remediation here. In particular, this year we intend to be replacing the IOS Classic product, which is at the core of our core technology in trading. It's one of our most important products. We're doing that in conjunction with the ASX and the move to single open. We're very pleased with our relationship with ASX and the way we're working together to produce a good outcome for our clients. We did launch our Iress FIX Hub, which is important from a technology perspective because it's a cloud-native application built in a relatively short time, but it's actually been deployed in Australia, Singapore, and London. You would not be able to do that with any other type of technology.
We've got clients already in every single market. I think it's showing what the next generation of cloud-native trading and technologies will be able to do. And we intend to invest in those technologies. We're also doing a lot of work with our global market data businesses to optimize those. Superannuation, there's no getting around this. When you're reporting on a segment basis, it was a tough year. Superannuation is going through quite a lot of changes, including in our case, we have actively exited some clients who were subscaled. There's quite a lot of rationalization going on in the superannuation industry, as I'm sure you're all aware, and fund mergers. Our non-recurring implementation revenue is higher. That tends to be a forerunner, and it happens before you get the contracted technical or software revenue, if you like.
The bit of the business that's from if you think about this as two businesses really, a technology business delivering superannuation software and an administration offering, it's the administration offering that is consuming the costs and is leading to the negative Underlying EBITDA of 4.6%, AUD 2.5 million. It's mainly about remediation. I think this is a point in time for the superannuation business. This is not a level of performance we expect to be replicated, and it's one that we're looking obviously very closely at going forward. The managed portfolio U.K., I do want to highlight a few things here. Obviously, we're looking at the mortgages divestment process, as I've said earlier, well underway. We expect completion probably first quarter and proceeds in the first half. That is significant. That is a significant event for us.
But what's been interesting is we've been working with the other businesses in the U.K. as well, in particular the sourcing business, which has actually not had a lot of attention for a long time. We're doing some new functionality there and getting good results there. But I think really importantly, new leadership in the U.K. Harry Mitchell's taken the reins in the U.K. We've got much more line of sight directly into the customers. And we're seeing improved performance. We saw improved performance in the U.K. in the second half, primarily in the wealth area, which I think is just due to that autonomy and actually having the ability to go and have those value-based conversations with clients. And we're also looking to make sure that the U.K. has access to their own resources to deliver their own product in the U.K.
We've had a couple of big private wealth wins in the U.K., which are in that category. Actually, it's frankly improved its performance quite substantially. We're quite pleased with wealth in the U.K. at the moment. Looking forward to more to come there. I won't dwell on the other parts of the portfolio, which is essentially Canada plus South Africa plus platforms. We're, as I said earlier, working to disentangle those parts of the business so they can have autonomy and focus more directly on their client segments. That concludes from myself. I'm going to hand over to Cameron, who's now got the job of taking through the financials as well as, as I said, the changes in reporting metrics and the capital management plan.
Thank you, Marcus. There is a lot to cover today. I'm looking forward to taking you through it. And today you'll hear about four or five key areas about what we're doing. Firstly, I'm going to touch on the financial results. So I'll cover off on our profit result for the year, revenue and cost drivers, and the action that we've taken, particularly around the cost mid-year. Talk about our significant and non-operating items, in particular the transformation work that's been undertaken. And we have had a level of increased activity in this regard, as you've heard. It is from a spend perspective; it is in line with expectations. And I'll take you through the makeup of this. And following on from this, looking at how we report from a cleaner reporting perspective and enter into a new reporting regime.
So Underlying EBITDA is our key reporting metric as far as this result is concerned. But it is to be phased out and replaced with our Adjusted EBITDA from 2024 as our preferred measure. As you've heard through the course of this year, we are committed to increased transparency. We believe this measure better aligns with our audited numbers and provides a very clear linkage to that. We are continuing to deliver on a number of undertakings through the year. It's important to sort of restate what they were, including detailed P&Ls for our business units. You can see them in the back of the pack in the appendices. They are on a fully costed basis right across each of our business units. We have improved our reporting. I think we've broken down all aspects of it.
We are moving to more transparent reporting going forward as well. I will take you through the capital management plan as well. We'll go through this in more detail. This was something we committed to at the half-year. I'm pleased to report on how that's progressed today. Finally, we'll just touch on guidance, Marcus has already alluded to. We are providing a modest upgrade today in terms of our 2024 expectations. So firstly, on the result itself, at the headline level, Underlying EBITDA 12% down. It's largely due to higher costs over the course of the year. Revenue itself was up 2%. And in particularly, importantly, recurring revenue. At the cost line, up 6%. And that's largely due to higher non-staff or non-wage OpEx.
We have had significant inflationary pressures with a number of our input costs, in particular our tech infrastructure, market and data fees, software and hardware licensing. All of that has been quite significant growth over the course of the year. We have made some good headway in that, mind you, in the second half of the year. But certainly, when looked at over the course of the year, there has been some growth. But as we look into 2024, those cost measures that we've undertaken in the middle of the year obviously providing a better entry point as we head into the current year. From a margin perspective, underlying EBITDA margin did decline from 24%-21%. But as I said, when looked at over the course of the year, the first half, first, second half, we have had an improvement in margin.
We would look to improve on that as we head into 2024 as well. At the statutory level, we've got a net loss of AUD 137.5 million this year. That's really due to the write-down of the U.K. goodwill. Just reiterating, we did disclose that as part of our half-year result. It was previously advised. Falls into our full-year numbers. Just touching on the revenue itself, we've got modest growth this year of 2%. It's robust as we go through the transformation program. We did see clients this year being a bit more circumspect in light of the heightened inflationary environment, certainly operating with a more cautious mindset. Having said that, we have had growth coming out of our U.K. trading and super businesses, which was very pleasing. The APAC Wealth revenue did decline over the course of the year.
And that's largely due to non-recurring revenue, which was lower this year following on from a number of our enterprise clients finding homes in the mid-market last year. And we helped on those implementations over the course of last year. And obviously, that had completed this year. That does feed into our recurring revenue going forward, which is important. In the managed portfolio, revenue was lower. And that's largely as a result of the MFA sale, which occurred in Q4 of this year. About AUD 3.8 million of that is due to that particular asset dropping out of the portfolio. Just turning to the costs now. And this is really a tale of two halves. Costs themselves up 6% over the course of the year. But when looked at first half, first, second half, it is two different stories.
There was notable inflationary pressures in that first half nearing double-digit growth, both staff and non-wage OpEx. Now we did take some action through the middle of this year, including a 15% reduction in headcount, which is fed into our full-year numbers. However, it provides a very different entry point as we head into 2024. When comparing the second half versus the first half on an annualized basis, staff costs are about AUD 11.5 million lower than what we saw in that first half. That does include salary uplifts, which come in effect from 1 July. So notwithstanding those effects, we've actually lowered our staff costs as a result of that as well. Cost of sales, you'll see there is broadly flat. Notwithstanding there was an accounting adjustment in one of our business lines with some netting of revenue and costs.
At the non-wage OpEx level, we have had growth continue. This does remain an area of focus for the business. We are focused on optimizing that as we head into 2024. We believe there's some further gains to be had in this area through the course of 2024. I just want to touch on our significant and non-operating items. These are items that are not deemed to form part of our ongoing costs of the business, excluded from our underlying EBITDA in our current classification terms. There's two elements here that I want to take you through because they go to our transparency and our commitment to improve how we report. Firstly, the costs themselves are up to AUD 57.8 million this year. That's materially higher than last year. That's largely due to the transformation program.
Of the transformation program, we've got AUD 28.7 million in costs associated with that, of which AUD 13.6 million is redundancy related. As you've heard, we've had a significant reduction in headcount through the course of the year. Now that's largely in line with our expectations. And certainly, the guidance that we gave in the middle of the year, we're expected a similar level of expenditure in the second half of the year. That's sort of fed through into these numbers.
The other notable item that I'll draw your attention to is our technology and uplift costs or our non-recurring project work that's been undertaken through the year of AUD 16.9 million. Much of this is running off. There is a tail-end effect of that feeding into 2024. But much of it is running off. But we are looking at sort of making changes in terms of how we project that.
In terms of taking the opportunity to review how we report these items, it's important to understand this is a key driver behind how we're moving and shifting our cleaner reporting to Adjusted EBITDA. One that does provide a greater alignment to our reported EBITDA, as you can see at the bottom of this table. It is more prescriptive as to what's excluded.
Significant work has been done around benchmarking, looking at the market, also peers, and listening to our investors who want to see a clearer reporting framework in terms of how business is performing. I'll take you through that on the following slide. So while the headline for this year is still Underlying EBITDA, we are moving towards Adjusted EBITDA as our preferred measure going forward. It is more in line with contemporary practice across our peer group and the market.
It contains a far more prescriptive list of items that we are excluding from that and a greater link to our statutory result and the audit itself. So we are looking at effectively EBITDA only adjusting for the following items: M&A related activity, which is quite common for a business that's going through a significant amount of M&A, which we are currently undergoing.
This will cover both transaction costs as well as disentanglement and integration costs. So they form part of that cost line. Transformation related activity as well, the costs associated with that, including costs to achieve outcomes, including redundancies and restructures. That would also be excluded from that. And with changes that we've already made, we also believe share-based payments form part of our better represented as part of our cost base and remuneration framework.
So they're the only items that would ultimately get adjusted from our reported EBITDA and all very clear to understand. We believe that this creates an improved accountability across our business lines as well in delivering project work and delivers cleaner reporting going forward. For 2023, Adjusted EBITDA is AUD 106.1 million. The difference between our Underlying and our Adjusted number are substantially the tech uplift projects and some other non-recurring items.
Notably, these will largely either be falling off or we will be calling them out where there is some variability in expectations into the next year. So they will form part of our guidance and form part of how we think about providing a better understanding of these lumpiness, if you like, in our cost base but certainly reported in our Adjusted EBITDA number. Just onto the capital management plan.
Now this was something that we committed to updating you on as part of the half-year result. And we're announcing it today in light of those commitments that we've provided. It is focused on the business's underlying and sustainable earnings, including methodology for disclosure. And I've taken you through some of that with the Adjusted EBITDA methodology there. But there are some flow-on effects to the dividend as well. Target leverage in the business and how we're thinking about leverage and where that goes and over what period. Talking about our R&D capital and what we put back in and reinvest back into our business. Ultimately, what the dividend policy looks like at the end of that and essentially the shareholder returns and the makeup of those returns.
With the objective in delivering the plan is to ensure Iress has the appropriate capital settings for a stronger balance sheet and appropriate capital allocation in order for us to meet our strategic goals going forward. Ultimately, it's to ensure the business is well set up to enhance our shareholder returns going forward. Just looking at the cash flow on the balance sheet, you will note that the cash flow or the free cash flow in the business has been in decline over some period. This year, obviously, it's significantly lower again as the transformation projects and a number of the technology uplift projects have been enacted. Over that time, the net debt and the leverage ratios have grown. It's fair to say, though, that we peaked in the middle of this year. Action has been taken.
You have seen a level of improvement at the back end of this year, our leverage ratio declining from 2.8x to 2.5x and our net debt down about AUD 55 million from the AUD 375 million where it was mid-year. That's been really achieved through a pause in the dividend but also repatriating some of the proceeds that we got from MFA onto our debt retirement. It's fair to say that we've passed the peak debt. It's now about continuing to strengthen the balance sheet and improve the free cash flow in the business going forward. Just looking at the plan itself and the target state, what we're aiming to do, we are, as I said, we do have leverage at 2.5x.
Currently, we are looking to take that down to a range of between 1x and 1.5x as part of a target state. We think this can be achieved over the next 12 months via asset sales and free cash flow. As you've heard from Marcus, the U.K. mortgages business and the platform businesses are currently in processes. We believe some of those sales will result in a meaningful reduction in our leverage over the course of the year. Looking at our R&D, software CapEx is a percentage of our revenues, currently about 2%-3%. We are looking to increase that to 5%-7% of revenue. That will be built over time, likely take two to three years, and be aligned with product roadmaps across our core businesses.
We are doubling down on our core competencies, investing for future growth with a longer-term organic lens. This is a core part of our strategy. Just turning to the dividend itself, our current dividend policy is paying out 80%-greater than 80% of core NPAT. Going forward, we are looking at revising that to pay our dividend out of NPAT-A. Now, NPAT-A is the statutory NPAT adjusted for acquisitive impairments and intangible write-downs on an after-tax basis as well as M&A related P&L items. We believe this gives a greater proxy to our cash flow. This will supplement our Adjusted EBITDA reporting going forward. As I said, it's got a very strong correlation to cash flow in the business. The dividend itself remains on pause until we achieve our target leverage ratio.
Then, at that time, it will be considered by the board for recommencement, but having regard to our capital requirements at that time. The aim is to grow the dividend over time once reinstated. Ultimately, the capital plan itself is aimed to deliver a stronger Iress, one that we believe will enhance shareholder returns over time and deliver a better balance between the dividend yield and capital growth of the share price. Just turning to our guidance itself, we are updating guidance today in 2024 both at Underlying EBITDA level and also Adjusted EBITDA. Previously, we have only guided on Underlying. Today, we provide both with the focus on Adjusted EBITDA given it's the preferred measure, reporting measure going forward. For financial year 2024, guidance is moderately upgraded from an underlying EBITDA sense to AUD 137 million-AUD 147 million. It's up about AUD 2 million from the prior.
That translates into adjusted EBITDA of AUD 117 million-AUD 127 million. In percentage terms, that's 10%-20% growth on the current year. The exit run rate, as we exit 2024 at the completion of the transformation program, which is something that we are very focused on, it is a more meaningful upgrade with our underlying EBITDA up to AUD 160 million-AUD 180 million. That's up AUD 10 million from our prior guidance. And adjusted EBITDA of AUD 140 million-AUD 160 million. It's fair to say that business confidence continues to improve. Transformation continues at pace with an increased revenue focus in 2024. Ultimately, work being undertaken is about setting the foundations for a stronger Iress, a more profitable Iress, and one that has characteristics towards Rule of 40. So with that, I'll hand it back to Marcus to complete. Thanks, Cameron.
Just to summarize, and I won't take too long because we'll leave some time for Q&A. We're clearly at the midpoint of the transformation. So when you're looking at the 2023 results, you're looking at the averaged effect of it. Where the business is at today, I mean, I don't think the 2023 results in totality don't reflect the exit run rate of 2023. We're considerably ahead of that. And that gives us a lot of confidence in producing guidance for 2024. The cost reduction, obviously, is there. We're focusing now on reinvestment and reinvention of our core platforms. And when you think about the core projects for this year, we're looking at IOS Classic replacement, as I've mentioned, looking at the IPS application in the wealth area and our superannuation platforms.
I've said, right at the start, we're doubling down on our core businesses. And that's exactly what we're doing. And we're using new technology to do it. Capital management plan, obviously, finalized, which I think sets the foundations for future growth. And I think—I think it's a very balanced plan. I think it provides a good line of sight. We've also been quite clear about what our threshold is for reintroducing dividends around our leverage. Getting our leverage down is our first priority. But we can clearly see a pathway to that. And we do see a pathway to dividend reintroduction in the not too distant future. The balance sheet is strengthening. We've also seen that. Transformation continues on. As I said, we've got a very big program ahead of us this year.
But it's all been based around core competencies in core businesses and investigating our growth sectors. When we talk about our sort of objectives beyond 2025, we want to have Rule of 40 businesses in this company. We aspire to be a technology company. We are a technology company. The sort of attributes we're looking for are the high customer satisfaction levels that you would associate with a high-quality tech business. We've already seen some improvements. We've got a road to go on. But we are definitely trending in the right direction there. The high-performance culture is also very important. We didn't mention a lot about it in these results. But we spoke about it at mid-year, the linking of remuneration to performance, to customer satisfaction, to engagement, and to the delivery of core projects within the business. We are innovating around our core competencies.
When people ask, "What's the future of Iress?" I do think it's important to remember that we've got some tremendous core competencies in trading and market data and wealth and in super. If you think about all of them, there's probably not that many teams in the world who've got the core competencies that we have in trading and market data. Maybe five or 10 teams who've got that sort of competency. And in wealth, it's even smaller. So we're looking to innovate around those competencies, around our teams and around our people. And of course, in superannuation, we're one of the major players already. So I think there's a pretty exciting industry transformation roadmap ahead of us. We've got the competencies to do so. And with the balance sheet that we're now producing, we're going to have the ability to invest in those things.
Ultimately, of course, we want to deliver sustainable dividends derived from earnings. As Cameron has said, NPAT-A will be the driver of that. I'll conclude it there and open up for question and answer. Over to you.
If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Cameron Halkett from Wilsons Advisory. Please go ahead.
Hi, Marcus. Hi, Cameron. Thanks for taking the time. Just two questions. I think, you know, winding back six months, you'd commented in Australia Wealth that some of your core customers had descoped some of their ancillary modules.
Any comments or color you can provide, I suppose, on the later period as to whether that has returned?
It hasn't really. I think it's a really good question because it was a feature of the—you're quite correct—it was a feature of the first half. We had a pretty steep price increase last year. And I think there was quite a bit of a whiplash reaction to it, if I can use that, in the marketplace. And people tried to rationalize their use of the platform. I don't think that was just about us, by the way. I mean, everyone was receiving bills from their suppliers which were significantly larger than they were used to. And no one's been used to those sort of inflationary pressures being in business for a long period of time.
What we did see was, though, there was a period where people went through a reevaluation of their platforms. And then they've settled right back down. And we're not having that—we're not seeing that now. And we're having value-based conversations with clients about their installed set of modules, including talking about how they can make better use of them. So we're not seeing a continuation of that. I think it was probably a phase that we went through as a result of inflation last year, price increases, and I think people just rationalizing their use of the platform. But we're not seeing that as a continuing trend.
Yeah, makes sense. Just next one.
When you consider some sort of exit valuations for platforms and mortgages and you assume that Iress gets to its sort of exit run rate survey data this year, it probably looks like you're coming out of that kind of 1x, 1.5x leverage ratio you called out today. In that event, is it safe to assume that there's no plans for further asset sales after platforms and mortgages?
No, that's not true. We certainly have a program. We still have the managed portfolio which we set out to manage. And I think what we did was probably the biggest change since April or May when we first spoke to you about this was we're dealing with the U.K. as a whole.
We've decided to deal with the U.K. in parts, which has allowed us to basically go into a process with mortgages far earlier than we would have done. There are other components of the U.K. business which we're working with. We're looking to improve them at the moment. And we're using that sort of private equity lens, which is, are these - what's the best place for these businesses? What's the best thing for the customers? What's the best thing for us? And so those things are definitely in an active evaluation. But they're not in an active sale process. We're actually in the process of optimizing them at this point in time. So yeah, it's not - never say never, I guess. But we believe certainly this in 2024, I think we've given you a fair roadmap for what you can expect.
Yeah, got it. All right, thank you for that.
Your next question comes from Nick McGarrigle from Barrenjoey. Please go ahead.
Hi . Thanks. H ad a question around the superannuation business, the margins there on a fully allocated basis. Obviously, you're losing money, as you reported it, at the EBITDA line. Can you just give us a sense on - are there kind of project-specific costs in there that might be - that might be loss-making until contracts turn on in terms of revenue? Just trying to put that in context with the prior comments that you've made about the quality of the super business.
Yeah, because it's a tail-to businesses, Nick. The technology component of that business has got a good pipeline. We've got some good new client wins in there. And we're quite pleased with it.
What's happening, though, is there is quite a lot of remediation going on in the administration part of the business. They're not all the time programs. But there's some remediation needed, some of it to do with funds we acquired through OneVue and others. We've had to do quite a lot of work to get those funds to where we think is an appropriate level of compliance and regulatory stability, if I can use that word. So there is quite a lot of backfill remediation going on. We do not expect that run rate to be necessarily the run rate of the future. I do think there's some open questions about how we actually optimise the delivery of the administration part of superannuation. It's something we're actively working on.
But I wouldn't expect—we don't expect that run rate to be something that's going to be something we're going to live with indefinitely, I can assure you.
Yep, understood. And then obviously, it's great to get the disclosures of the EBITDA margins per segment. How have you allocated core—the previously unallocated costs? Has that just been on a proportion of revenue? And then I guess just a follow-on question, the trading margins look reasonably far away from a Rule of 40 business. Just some comments on that as well.
Yeah, so in terms of the cost allocations, it's a combination of revenue and the Adjusted EBITDA, so direct profit. So it's a combination of the two, split quite evenly. We did look at alternative measures where the headcount.
But we feel that these drivers are better reflective of appropriateness in terms of the allocation of those overheads and time and effort to support those businesses. So that's where we landed. Marcus, do you want to comment?
Yeah, on the trading, it's a good pickup on the Trading and Market Data business, Nick. Again, as with some of these businesses, as you peel back the onion, you can see actually there's two businesses operating in Trading and Market Data: a trading business and a market data business. Market data business is quite a low-margin commodity type product. The Trading and Market Data business is a Rule of 40 business. Now, we've just separated them out for the first time and actually looking at the contributions, the various contributions of those businesses. And we're evaluating the strategic fit of market data as well as to what we're using it for.
We're still on that journey, Nick. We did actually consider reporting market data separately. You can actually see the trading margin in due course. We haven't got there yet. We're still one layer of the onion at a time, I guess.
Yeah. Yeah, okay, understood. Thanks for the context on that. Maybe just one last question. The managed portfolio looks to be a bit more profitable than we might have thought at the outset of the kind of strategic review that you kind of commenced a while ago. How do you think about divestment in terms of accretion from divesting assets versus, and then considering, I guess, as an extension about the potential for stranded costs, given the allocation that you've made is kind of scientific but somewhat arbitrary?
Yeah, no, I think on the first one, I think it's interesting to see.
One of the thoughts we had when we were introducing the managed portfolio was the empowerment of domestic management and to see what sort of performance uplift we can get. And I think we're seeing some of it. We had a bit of a lesson learned, if you think, a few years ago with the mortgages business when it was set aside with separate management. And suddenly, its performance level increased quite significantly when it had its own, I guess, mission. I think we're seeing a little bit of that in wealth, the U.K., as well. There are other parts of the business there in the U.K. we're still working with. And they haven't had a lot of attention paid to them. And I think there's probably a bit more improvement in them.
I think once we've got them to the point we're comfortable, customers are happy, we can sort of have a different conversation about are they strategically a good fit for the business as opposed to whether it's an economic decision. And that'll come down to, well, what else do you want to invest in the business? How much capital do we actually require to do CapEx or whatever else we might want to do? So I think what we're giving the group now by optimizing that U.K. portfolio, which is seeing the improved performance, is some optionality going forward as to what strategic decisions we should make about which businesses we want to really double down on.
So I don't want to say any more than that because I think that's really what this was all about, creating an incubation place to actually fully decouple and autonomize, if you wish, those other businesses in the managed portfolio.
Yeah, and just on your other question, Nick, on the stranded costs, I mean, it is an area of focus as businesses are disposed. It's fair to say, though, that we do need to take out a number of businesses to actually make a meaningful dent in the rump of those corporate costs. Each of those businesses, certainly the remote ones, still have, certainly from a support level, still have their own teams, right? So they still have finance, HR, sort of functions that support them in those local markets. It's not a one-for-one. But it's certainly something that we are very mindful of.
But from my perspective, we'd still need to probably get rid of more than just one or two to actually make a meaningful dent in the head office costs, if you like.
I would say, Nick, we've got a pretty good handle on one thing you will know. We've done a lot of work on the cost allocation and cost attribution throughout the group. So we've got a pretty good handle on stranded costs and what any particular movement of an asset would mean for stranded costs. So we're well alive to that issue.
Sorry, just last one. I know I'm hogging the questions a bit. The non-operating and significant items are AUD 58 million. And I think in the guidance to get from Underlying to Adjusted, it implies that that's only AUD 20 million in CY 2024.
Is that partly some of the ongoing transformation costs and redundancy costs being offset by further cost savings because you haven't kind of called them out specifically? I'm just trying to get a sense on how the 58 goes down to 20. And then I guess the roadmap is presumably that the 20 disappears at some point.
No, so I'm not quite sure where you got the 20 from. I think the 20 is the reconciliation between the underlying and the adjusted for this year, right? So it's not a forecast for next year. But in terms of the transformation costs, it's certainly trending lower next year. And as I said, a number of those project-related costs will decline as they're rebased back into the P&L back above the line and those projects come to completion, which we've alluded to.
So our guidance is only really at the underlying level, right? So at the bottom line level, adjusted and underlying. From a cost perspective, these particular parts of our cost structures, we will expect to see certainly lower transformation costs in the coming 12 months. Notwithstanding that that may change as we optimize certain things. But certainly from where we sit today, I would expect to see them trend lower. But as I said, the actual items going back into the P&L are factored into our guidance.
Yeah, I guess the 20 is just the difference between adjusted and underlying. But does that include only tech uplift and projects? Or does that also include the transformation and redundancy costs?
No, transformation is excluded from both. So therefore, it's not part of that reconciliation.
It's really trying to provide a bridge between if we had have announced adjusted this year, what would have changed with those transformation costs already out of both? It's not part of that bridge.
Okay, understood. Thanks for that.
Your next question comes from Simon Fitzgerald from Jefferies. Please go ahead.
Hi there. Thank you for taking my questions. Just the first one on the U.K. managed portfolio. I was interested to know, I think previously you've been asked about the EBITDA in the mortgages and sourcing. And I think there was a question about sort of AUD 40 million. If that's still the case, would that imply that the U.K. wealth management business has made a loss in EBITDA terms? Just wondering if you could break that down a little bit for us.
Yeah, I think, Simon, if you refer to slide 32 of the presentation, we've got the managed portfolio U.K. under the old segment. So you can kind of see U.K. mortgages and U.K. other. So both split between first half, second half, including direct and down to adjusted. So hopefully, that satisfies your question.
Yep, okay, all right, thank you. And then also just with the APAC trading and data business, you previously sort of talked about it being a longer-term sort of 5%-7% growth in revenue type of business. Just wondering sort of how you think you'll be going with that just given the high penetration rates that Iress has already.
Sorry, I can't remember. Sorry, I might want to repeat that question. Sorry, I lost the first part of it. Apologies for that, sorry.
Yeah. Sorry, sorry. So just on the APAC data and trading business, I think in the last investor day, you talked about that being a 5%-7% revenue growth type of business over the longer term. And just sort of wondering how you foresee that going on. I think you were sort of talking about new modules and things like that. But just interested to know in terms of what you're thinking of rolling out just given that the high penetration rates that that business already has, it's not going to come from new users.
I know we still have some new product in there in the FIX Hub in some areas, which is growth. It's not step change growth. But it's significant. And we're very pleased with that. We think there are some other growth areas in our we don't report it separately at this point in the Asian markets.
We've had a couple of good wins. So there are definitely areas of growth in that business. And I think, yeah, we can spot a certainly 5%-7% growth in the medium term. It's been a tough year, though, as I think I said for traders in general. And last year, we had headwinds in terms of people handing back seats and things. We've had net growth, of course. But it's still been against headwinds. I think as those headwinds diminish, you'll start to see the underlying growth in that business improve further.
Excellent, thank you.
Your next question comes from Stuart Oldfield from Field Research. Please go ahead.
Good day, gentlemen. Firstly, just on the platform sale back home, you previously talked about 15 interested parties. Can you give us a bit more update on that?
Platform sale. So the platform business is currently it's pretty close to announcement. We were hoping to get there today. But the reality is it's still in process. We are working on an exclusive at the moment. So we're in a position, hopefully even a position where we can actually share that with you in the coming days. I don't think it's a game changer, just to let you know, in terms of it's more about what's the right fit for our business going forward in terms of that. And we're working with a very, I think, very credible party who will be a better home for that for our customers and for our people, actually.
Great, great to hear. And you talk about, again, in the presentation, Xplan pricing moving to a more usage and value approach. You talked about that last year. When do you expect that to be implemented?
Well, there are parts of that. Well, this year's really is about just module optimization, like who's using what and why. We're introducing Salesforce, you probably would have noticed in the presentations, well, world-class CRM and metrics around we do need to get closer to our customers, understand their usage and needs better. And that's really been the focus this year. SaaS-based pricing requires some technical changes. So we're looking at those as well this year. But what you will see is something like, for example, the IPS module or Xplan is something we want to work on and produce in a digital cloud-native form. When we do those sorts of things, we will replace seat-based pricing with usage-based pricing. And we'll work through the modules we've got, module by module, to look at what is appropriate for that sort of pricing and what is not.
It's probably not straightforward. It's probably more about the technology shift to be able to handle that sort of pricing as opposed to anything else. So that's just more of a longer-term objective. We certainly want to get there. And we'll be pursuing that as actively as we can throughout the suite.
Got it. And just more broadly, lots of financial services companies target revenue growth. But if headcount is down 15% or thereabout, what confidence should you be able to achieve those medium-term goals?
In revenue growth?
Yeah.
I think we're pretty confident. I think, particularly in wealth, I think it's been a tough. I wouldn't say tough years. It's been an industry that's restructured itself over three or four years. As you know, as the banks have essentially exited wealth, there's been quite a significant transformation in our client base.
And I think when I reflect upon it, the fact that those revenues have held up so strongly in that period has actually been quite remarkable, including the number of changes in the number of advisors. We're kind of seeing all of that washed out now. We saw a few things happening last year like the end of long-dated contracts and things like that. But we kind of feel like we're on a different footing now. And we do see revenue growth in the base as we get advisors entering the market. The market is growing. And we also see advice in superannuation as a pretty interesting area for growth as well. Working with quite a lot of super funds around how we can create an offering, which is a wealth-based offering, if you like, offered through super funds. I think that's quite an exciting area for us.
We certainly, as one of the largest advice or the largest advice platform in the country, are well placed to deliver a pretty comprehensive solution there. So reason to think shakeout concluded, new areas to progress, and the industry maturing into a different sort of steady state, if you will.
Terrific. I'll leave it there. Thank you.
Your next question comes from Brendan Carrig from Macquarie. Please go ahead.
Good morning. Yeah, thank you for the improved quality of disclosure. Look, I do just have one question, two-part, on the quality. Just the second half, operating cash flow has dropped quite a lot. I think AUD 60 million was just over AUD 60 million for the year and AUD 40 million in the first half. So clearly, there's sort of some factors at play that are one-off in nature there.
But can you just sort of talk to those operating cash flows? And then the second part of the question just on that CapEx guidance. So is it fair to assume you're sort of implying an AUD 20 million-AUD 25 million uplift in CapEx over the medium term? And so should we be sort of thinking about that in conjunction with the EBITDA exit run rate uplifts? Thank you.
Okay. So in terms of the free cash flow, Brendan, there is some cyclicality in the business's cash flows. I think if you have a look over the period, it tends to have lower free cash flow in the second half of the year irrespective. But there has been some quite lumpy payments in the second half of this year, largely to do with transformation activities, which obviously you haven't seen in prior years.
So firstly, it'd be the working capital is weighted, if you like, to improve free cash flow first half versus second half. But also secondly, a number of these transformation payments, right? I'm talking about the actual cash flow of them, were weighted very much this year to the second half of the year. Your second question was remind me again.
Just on the CapEx, so the guidance for medium terms going from sort of 2%-3% to 5%-7%, so it's about a AUD 20-25 million net uplift.
So in terms of the guidance, we're looking at basically the CapEx being at similar levels for this year. It's building over time, right? So it's got to be very much aligned to a product roadmap that we're very much working on. We've probably more progressed at this stage with some of the trading side of things.
But with the wealth and super side, there's a lot of work going into that area. We see us doubling down in those areas in the coming two to three years as opposed to the next 12 months. It will be building over time. Your numbers are probably quite reflective of where we're looking to take it. But that needs to be sort of more strongly aligned with the product roadmap.
Okay, that's helpful. Thank you. I'll leave it there.
There are no further questions at this time. I'll now hand back to Mr. Price for closing remarks.
I just want to thank everybody for your time. It's been a really interesting time at Iress. We're certainly feeling very emboldened by the transformation and what we've achieved to date. We're halfway through. We've got more to do. We're looking to deliver a good result in 2024.
We're pretty confident about it, I have to say. Our level of confidence has increased. We've been emboldened by what we've been able to achieve. We'll look forward to, obviously, our one-on-one meetings. Thank you for your time and attention. We'll look forward to seeing you soon.