Thank you for standing by, and welcome to the Premium Limited FY twenty twenty one Half Year Results Briefing Conference Call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. I would now like to hand the conference over to your first speaker today, Mr. Michael Ohanesesen, CEO.
Please go ahead.
Good morning and welcome. Thank you everybody for joining us today on Framingham's first half F 'twenty one results. I will go through a very, very quick business highlights overview very quickly before I hand over to Paul to take us through the numbers. I'll then do a bit of a deeper dive looking at the 2 business segments that we have, Australia and International, before we take questions at the end. So without further ado, Paul, can we go to Slide 5, please?
Obviously, the major highlight for the half was the acquisition of Power App. Primo has been around for 20 years. We've done 3 small strategic bolt ons overseas. But this is our 1st Australian and by far our biggest transaction. And I'll spend a bit more time on this a little bit later on.
But suffice to say, we chose to do an off market takeover process. It was a friendly on both sides and the support of the Board, the management staff, the key shareholders and of course, our clients as well. That transaction went pretty well in a pretty tough time, particularly as the mail was very slow during COVID and but we got there in the end and we're very pleased with that outcome. And from that acquisition, you can see the dramatic impact it's had on our business. We now have $34,000,000,000 in FUA, which is a massive increase from where we were this time last year.
And if you look at the inflows on the left hand side, you can see the big impact that Power App had on our business, and we're delighted to have them on board. We are, we believe, stronger together. And premium today has got the kind of scale that we need, we think, to really succeed in this fast evolving wealth market. While all that was going on, we continue to do a lot of development, particularly through COVID. We're very proud of our products and technology people for the ongoing development they do.
We are global. We are agile. Our velocity is high. And through all of that, we continue to evolve our capability and our product. And what you don't see on this slide, which I think is just as important, is the effort that we've put in to strengthen our resilience.
And one thing we've learned from this pandemic is that everybody had to change, everybody had to adjust. And we believe we already had a very strong infrastructure, but we believe that coming out of 2020, we're much stronger than we have ever been. And with that, I'll turn to Paul.
Great. Thank you, Michael, and good morning, everybody. I'll start on Slide 9, which gives the financial highlights for the half. And you can see from the graphs and from some of the metrics that we've seen an improvement in all major categories across this half with a 21% increase in net revenue, which is represented with the graph in the top left hand side, a 9% increase in gross margin in dollar terms, a 5% increase in underlying EBITDA and 113% increase in net profit. The execution of our strategy continues to deliver results.
And despite challenging conditions, we are reporting, as you can see in the graph at the bottom, our 14th consecutive half of profit growth. If I turn to slide 10, you'll see this is showing our complete results. This half includes the trading results from the acquisition of Para with 4 months of results included from September 2020. Now these results are reported within the Australian segment, which I'll touch on in the next slide. But overall, in terms of the numbers, as I said, net revenue was CAD 31,600,000 an increase of 21%, and underlying EBITDA was CAD 7,300,000 an increase of 5%.
Now this profitable growth was achieved while we continued our investment in sales and marketing. And you can see the sales and marketing line that was up 24% to 6,900,000 dollars And despite market volatility during the half and the impact of on margins from the integration of ParaRAP, which I'll touch on in the next slide. If we look at EBITDA to NPAT, you'll see there's a number of call outs in relation to the Power App transaction. Obviously, acquisition and restructure costs of $1,600,000 $1,200,000 of that was related to the Power App transaction. And you're seeing the FX and other line relates to a $4,500,000 revaluation of Para App shares that we owned prior to announcing the takeover.
You'll also see our depreciation and amortization increases this half. There's 3 components included within that software intangibles of 2,400,000 and obviously the lease incentive, which is a newest standard from last year of 800,000. But overall, you can see NPAT of £3,000,000 being 113% increase for the half.
Now if I turn to Slide 11,
you'll see we are reporting our Australian segment results. As I mentioned, there's 4 months of Power App results and that is included in platform revenue. It should be noted that Power App as a customer used to be in our portfolio services line. So there is some commentary at the bottom just because we're moving revenue from pre acquisition to post acquisition. But overall, our revenue growth was 28% for the half.
Platform revenue, you can see, was up 52%. That's including Power App platform revenue of $6,900,000 Now portfolio services is reported to be flat, but however, again that included the Power App revenue as a customer in last year's numbers. If you look at the underlying results, portfolio services revenue is up 9% and that's off continued VMA portfolio onboarding and obviously some positive growth in VMATs, which has been a strong contributor for us. Now the integration of Power App has impacted margins due to its high net worth client base and the inherited cost structure. Now remember, Power App was a loss making business reported for F 'twenty.
But obviously, we've been able to report a positive contribution for payout, which I'll touch on in a second. If you look at premium underlying business margins, however, they are consistent with prior periods. So our average platform basis points was 26% for the half, but that is broken down between premium of 34% and ParaF of 21%. Gross margins, again, average was 75%, but premiums were 79%, which has been consistent with prior years, Power Ups of 54%. And our EBITDA margins were 33%, premiums of 36%, which is below the last reported half, predominantly due to obviously declining platform revenue during the COVID period, but also continued investment in sales and marketing, while Power App's EBITDA margins were 26%.
So overall, a good result, but I suppose more importantly, it positions the business for growth in the second half and beyond. The investment in sales are now starting to generate results. As I mentioned, we're very pleased to report a positive contribution from Power App of $1,800,000 and that's obviously from the implementation of synergies, which are flowing through into cost savings.
If I turn now to Slide 12,
we'll go through the international results. You can see again, revenue has been weathering global volatility. Overall, net revenue is down 2%, but similar to the last half, if you break up this, the core components, our platform revenue is increasing, is up 20% and that's off the back of increasing inflows and increasing floor which is up 24%. At the same time, our fund revenue which relates to the outflows from the smartphone protected product is down 55%, which is why the overall platform revenue is down 8%. Our planning software continues to grow from new WealthCraft clients and from the conversion of plum clients to WealthCraft.
But despite the decline in revenue, we've been able to deliver improved operating leverage. Expenses you can see are down by 7% from operational efficiencies. And the overall result is a loss of 600,000 which is a 41% decrease. But I think more importantly, if you break it out between the U. K.
Segment, it was a loss of 200,000 which does include the first half R and D incentive, but it is a 72% improvement in the loss compared to this time last year. And Asia segment, which is our WealthCraft product center, a $400,000 loss, which is a slight increase on the prior year.
If I turn to Slide
13, you will talk through quickly our cash flow.
I suppose we are pleased
to report continuing cash flow positive generation despite incurring a number of costs relating to the acquisition. You'll see that net operating cash flow was $2,200,000 that is net of one off cost of acquisition cost of $1,600,000 You'll see in the investing cash flow line, the acquisition was a positive $1,200,000 in cash flow because we did acquire $14,600,000 from Para as part of the takeover. Our R and D CapEx was $3,400,000 for the half, which is a combination of Australian and U. K. Projects, but also PowerUp projects.
Obviously, they've been capitalizing R and D for a number of their projects as well. And you can see the financing cash flow line, we've drawn down our $15,000,000 loan, which will then we'll be paying down over a 3 year term. Final slide for me on Slide 14 is just a quick overview of our balance sheet. You'll see that we still have a strong balance sheet. Cash reserves with the inclusion of PowerUp is now $28,900,000 Our regulatory cash, given PowerUp is also regulated scheme is now $12,000,000 You'll see obviously a sizable increase in intangibles related to the goodwill associated with the PowerUp takeover.
And our franking credits continue to build $13,000,000 and there are some tax losses that we are now reviewing. There's around $10,000,000 to $12,000,000 of tax losses with Power App still to be determined how much of that can transition across as part of the acquisition. And with that, I will hand to Michael.
Thank you, Paul. So we're on Slide 16 now. In terms of the key drivers for Australia, it's been a pretty interesting half for us. 116% increase in net inflows for the business. Our FUA platform FUA is up 132%, obviously helped by Power App.
And just in terms of portfolio numbers, and we're showing here for the first time the custody and non custody numbers. This excludes some of our institutional clients, but you can see again a 13% increase in portfolio numbers. Next slide is really talking a little bit about the industry. I guess this is probably not news to any of you, but I think it was just worthwhile showing some of the key numbers here. And the Haymore Commission is really changing the advice space.
Margin squeeze because they've got more overhead, more compliance, more due diligence to do. Product commissions, the grandfather product commissions are now pretty much gone. And the whole idea of conflicted advice is yesterday's story. And of course, we're having now Brexit. And you can see down the bottom there, the continued loss of advisers from institutions.
So not only have we seen a 25% decline in the number of advisers in the industry since Hain, but we're also seeing a continued march of advisers from the institutions. Now what does that mean for platforms? So it means that we're now going to have a smaller cohort of advisers. Those advisers are progressively looking for alternatives to the institutional platforms, platforms that are tech savvy and independent and capable and agile. And so I think firms like Premium and some of our peers are very well placed.
And just to give you a sense of how things have changed so dramatically, if you just take the 12 months to September 2020, the Challenger platforms, which we mentioned down the bottom here, are up 34%. And in that same period, institutions are down 10%. Now remember, that 10% is on a much bigger number than what we're talking about for the platforms. And as you can see, Premium obviously had a very big year, if you like, with 100% increase in our FUA, thanks largely to PowerUp. So let me come back to PowerUp.
I'll spend a bit more time on PowerUp. It really has, I think, given us a seat at the table as a scale player. We're targeting $6,000,000 of cost synergies in the new financial year of 'twenty two, which we're still very confident on. Although, as I said before, we think that better technology and better integration with our clients, we think, will generate good revenue synergies as well. And overall, one of the great things about bringing PowerUp into our world is that we really are, we think, the platform of everything.
We can handle assets that are off platform. That's always been our core skill. That's how we started as a company 20 years ago. Our platform itself is very strong. We have a large addressable market, as you know.
And adding in PowerUp, which is arguably the only independent open architecture platform designed specifically for the private wealth market, I think really rounds out the premium proposition. So we're very excited about it. We've had great support, great feedback from the clients of PowerApp as well. And I think everyone's looking forward to how we now evolve the product over this year. And by the way, there are new regulations coming in later this calendar year called the DBA or the design diligence, sorry, distribution design and distribution obligations.
Thank you, Paul. And so we will, in one step, define the integrated solution of PowerHouse and Framingham at the same time as preparing for the new set of regulations that are coming in later this year. I want to talk a little bit about VMA. As you can see here, I want to talk specifically about VMAse. We've been doing Vemas now for 3 years.
And what's really interesting is we've done some research with a third party firm. And what we've discovered is that about 22% of wealth is off platform. Now on platform is the most efficient place for wealth to be.
All the assets
are in one are in one place. But a serious chunk of wealth sits off platforms. And it is a huge pain point for advisers. Think about how it is for yourselves when you've got money on a stockbroking system and money in a bank, money in a term deposit, money for the fund. It's very, very hard to manage and monitor your investments.
This is a great strength of premium. And by taking our software, which is very, very good at non custody, with all the data feeds we've got, with all the analytics we've got, with corporate action capability we've got, our time machine and so on. We are very, very good at delivering accuracy, be that it or tax or performance or whatever it might be. But we're now adding the administration because there's not a lot of choices for advisers when they're trying to find an efficient and highly accurate and strong analytical capability for assets that are all platinum. And you can see the dramatic growth we've seen in VMATs.
We think that there's a lot more to come. Our growth over the last 12 months has been 20% up in portfolios and 85% up in revenue. And we think the opportunity in this space is big, and we think we are now at scale, and we think that we can really ramp this up. So let me talk a little bit about the international business. Again, in terms of dashboards, our FUA is up 31%.
Our pension schemes are up 52% for the year, which is fantastic. Portfolio numbers are up 28%.
I'll go
to the next slide. Let me spend a bit of time on this. I think this is probably of great interest to many of you. We're shown in Slide 4. This is the update for the half.
And what you can see here is a tale of 2 stories. On the one hand, you see the premium smartphone range in decline, and they're almost gone now. You can see that on the bottom right hand corner graph. The amount of money we now have in the smartphones is down to £31,000,000 We expect that to ease away over time. And it will stop being a headwind, if you like, for us with a negative revenue.
Meanwhile, the platform is growing very, very strong. We've seen it in the inflow numbers, and you're seeing it in the growth of our FUA. We believe that as that headwind phase, as the growth of platform revenue outpaces that fund decline from the $31,000,000 and it will go to 0 at some point in the near future, we believe that we are on track to get this business not only profitable, but hopefully strongly profitable with very good operating leverage going forward. Thank you, Paul. We continue to win awards internationally.
I think we said we were going to put some effort into raising our profile, raising our awareness, showing people what we're good at. And you can see more and more wins. Again, the International Advisor guys have appointed us best platform of the year again. I think it's 3rd year in a row. We're winning awards for innovation.
I think most importantly, though, is the Lakehead. They do independent research on all the 21 platforms in the U. K. We consistently rank in the top 3. Overall, we are ranked 2nd.
We are ranked number 1 though in overarching features, number 2 in proposition and 3 in service. So we're very proud of that. And it is having an effect on what advisers think. And remember, this is actually based on what advisers say. It's not necessarily what the landscape says.
The last one for international, I think the momentum speaks to itself. If you just take the last 2 years, remember, it's been the last 2 years where we really had this strategy of trying to grow our business, it's telling our story. And you can see there's been a step change over the last 2 years and again in 2020. I'm very proud to say that we continue to have great support from the discretionary fund managers coming out of the U. K.
We have an increase of 29% of them over the year. I'm also pretty happy with what's going on with WellCraft. The cross sell with WellCraft and the total was very strong with the 58% compared to 52% last year, whilst Wellcraft itself is growing. And it grew 14% in terms of client firms in this half. With that, let's go on to the summary on Page 26, if you pull.
So we are 2 years into our strategy, and I think it's important to remind ourselves of the journey that we've been. Our narrative has been that we want to go from being a niche SMA platform into a full platform. We did that exactly 2 years ago. And from there, we've been measuring our march forward in terms of gaining market share. And the Power App acquisition was a very, very important acquisition for us.
It's uniquely accretive. Remember, they use the same core technology as premium. And so we believe that when we put this together, we're going to have this is one of the once in a generation, great transformations and great acquisitions. Our SaaS leadership continues. We continue to invest in SaaS.
Other firms are likewise seeing the opportunity here given just how much money sits on platform. We believe we continue to sustain our advantage in non custodial reporting. And the opportunity now for our clients, particularly our existing SaaS clients as well as new ones, to outsource the administration to us, we think, is a really exciting opportunity. And I think over the last 3 years, particularly with VMASS, we've demonstrated that we can do this, and we've got the scalability now. Also on international.
It's been a long road. It's been frustrating for many people that we haven't made it possible, but I don't believe we are that far away. What you're seeing now is 4 consecutive halves of a much higher level of inflows. And we believe based on particularly the sales we've had over the last 6 months that we could have another step up in terms of our growth rate. So we're very excited about that.
And we believe that as the U. K. Market, capital market continues to change and evolve that we will stand out as one of those few firms that have their own technology and has the best technology. And finally, let me just talk a little bit about how we see the future. For the international platform, we see further expansion of the DFM platform.
To give you a sense of it, there's over 100 DFMs in the U. K. We continue to bring more of them on board, and we've got some exciting new ones coming on board. And they are a very important channel for bringing business to our U. K.
Platform. In the offshore platform, our platform market, because of regulation changes, advisers can't make the same kind of money by flogging insurance products and portfolio bonds like they used to. And so all of the offshore advisers, we're seeing it in Asia, we're seeing it in Dubai, in places like that, They are now having to make a switch from the old world of product flogging to the new world of strategic advice, fee based on a platform. And premium has the best platform internationally.
We are winning
a lot of new business. And a lot of the time, we're also getting the WorldCraft account as well because to the extent they've got legacy assets with insurance companies, the WorldCraft system gives you that data feed and gives that visibility to the advisers. In terms of things that we think will also improve our efficiencies, we are going to do some changes around our pension book. And we're also now adding a bit more admin support from our Yerevan office, which has always been traditionally more of a technology center. But progressively now, and started with BMAS, we're are doing some of the admin support there as well.
For the Australia platform, obviously, PowerUp is a major driver of growth. And we believe that the proposition itself, we think, is the best in class for the private market in the independent space. We think as we bring our technology, our front end, our sales capability, our client service capability and so on, we believe we can really power up the Power App proposition. As I said, we've been working on growing our business for the last 2 years. So we're still relatively new, if you like, as having a full service platform.
And I just want to say, just remind people, we are still early in our January and the progress we are making is very, very encouraging. And as I said, we see great opportunity. If you think about the amount of money that we report on, if you like, from a SaaS perspective, that is well over $100,000,000,000 in the 100 of billions. And so the market potential there for us on VMATs, we think, is massive. In terms of drivers, we plan to do most of the integration work this calendar year.
Obviously, we've got the DTO obligations to do as well, but our plan is to get a lot of that integration work between the PowerAmp and Pramium done in this calendar year to realize the synergies and to deliver a better product to the market. And we think that for our non custodial labeling or VMAs, we believe there are more efficiency gains to be had as we scale this up and as we get better and better at it. But so far, for 3 years, I'm really encouraged by the way that is going. And with that, I think we then turn to questions.
Thank you. Your first question comes from Danny Yunus from Shaw and Partners. Please go ahead.
Hi, Michael. Hi, Paul. I've got 3 questions and maybe a clarification at the end too, please. My first question is around the impact of margins from the integration of Power App. So with gross margins 54%, EBITDA 26%, your revenue yield of 21 bps, should we view that as a bottom?
I mean, clearly, there's likely to be some sales and marketing investment going forward and more cost out synergies to come. How should we view those metrics going forward? Is that a bottom for you guys?
Danny, Paul here. I think, as you said, we've inherited a business that last year was loss making. So obviously, we've called out synergies, which we're well progressed on. But obviously, we still have significant synergies to come. So in terms of gross margin and EBITDA margin, yes, we would think we're kind of at the bottom range, as you say, and we would expect that to improve as the synergies flow through.
And similarly with the revenue yield, that 21 bps, because I think previously, they've done about 22, 23.
Yes. I'll just jump in there, Daniel. I think one thing that's changed over the year, of course, is the interest cash margins have declined, I think, for everyone who collects that kind of funds. So I think that's probably a permanent change unless interest rates are going to change, which nobody foresees.
Okay. And going to the international business, this is a perennial question that seems to come up. I mean, you've talked about it's been a long road. You're stepping up the growth rate. You're clearly making inroads in the UK with the losses coming down.
And now you're talking about an inflection point. So the 7% expense reductions you've put through, are they permanently locked down? Or are they likely to change going forward? And given the Smart Fund exit happening, it seems like you're approaching breakeven probably closer rather than later at this stage.
Yes. I think I mean, one of the obvious cost savings has been travel. And we've had a bit of a disadvantage on travel because if you think about where our people are, we have people in Hong Kong, Dubai, Jersey and U. K, but our clients are in Singapore and now Japan and South Africa and so on as well. So we in the past, to win that business, we've had to have some people do some pretty unproductive travel.
All of that stopped now, and yet we've still found a way to sell and support our clients. So I suspect that we will when all this is over, that we'll have a little bit more on the travel cost. But I think it will be more productive. In other words, someone's going to fly from Dubai to Hong Kong, they'll have 10 clients to see instead of 5. So I think that that's a big part of it.
And the thing is, clearly, the platform itself has a lot of operating leverage. And the area where we're spending money is on client support implementation and sales, basically. And we've done that progressively through 2020 for the international business. In fact, we added probably 6 or 7 or 8 people in Dubai alone just because of the demand that we're getting all over the world. So where we are adding costs, it's usually to drive growth.
Excellent. And just on the R and D CapEx of $3,400,000 Can you split that across the premium business, platform upgrades, new product development? I mean, previously you've talked about ESG, the adviser portal in the UK, where has that spend gone? And how much of it was Power App?
Yes, Danny, Paul here. In terms of Power App, it was just under $400,000 for the half. But if you go back to Slide 13 sorry, Slide 7, I should say, obviously, we've got a long list of ongoing development. So as you said, we've launched a number of other products or functionality, ESG you've touched on, but we're obviously continuing our platform enhancement. So but in terms of overall R and D CapEx, premium, if you look at last year, capitalized around $5,000,000 and Power App is around $2,000,000 So $3,400,000 for this half is kind of in the range.
So we would expect that probably more reasonable number going forward.
Okay. Thanks. And just a clarification, I think Power App, I originally had consolidated from the 2nd October, but it looks like you've included another month in there for September. What's the actual date that you integrated Power App?
Yes. So there's actual control and there's accounting control. So under the accounting rules, they've deemed as when we took 50% of the acceptances, which is the 4th September. But in terms of practical controls, Danny, you're absolutely right, it was October. We didn't pay cash and shares until the end of October.
But so there is an accounting quirk for 1 month, but it has allowed us to take an extra month.
Great. Thanks, guys.
Thanks, Andy. Thank you.
Your next question comes from Nick Virges from Ord Minut. Please go ahead.
Good morning, Michael. Good morning, Paul. A couple of questions. So that 24% increase in sales and marketing you mentioned, a little bit more color on that, is that all based in Australia?
Hi, Nick. Paul here. No, it's not predominantly in Australia, yes. But as Michael said, we've been adding some support people in Dubai to support the international business. And we've added a couple of people in Hong Kong, Dubai and UK from the sales perspective.
But obviously, most of it relates to the full impact of bringing on the sales team in Australia that we've done over the last 6 to 9 months. So obviously that's been flowing through, but there has been an incremental increase in the international business as well.
Okay. Thanks. And so just on the synergies of the Power App business, so the $6,000,000 where are you at the end of the half or is it today in terms of what you've achieved versus what needs to be achieved?
Yes. Look, in terms of on an annualized basis of the $6,000,000 we're probably about halfway there. And obviously, that's relating to more back office, corporate related costs, management duplication. I suppose the next half is, as we called out, more supplier integration and then some of the more IT architecture heavy lifting projects, I suppose. So yes, so halfway through, but obviously, we're earmarking the remainder and the next as we said, towards the end of 'twenty two.
Yes. Okay. And Michael, just on the UK. So can we potentially get a little bit more of timeline from your perspective on the international business and profitability? I mean, is it reasonable as we sit here today that it's breakeven in the second half, do you think?
Do you mean second half of
This year, yes.
Okay. Well, we've got to remember that the U. K. And then there's Asia, which is, I think, as Paul said, just the minus 400, but that's largely development people, all that wealth growth products. So if you're talking specifically about the U.
K. And not the Asian part, I can't give you a forecast because I honestly don't know. But what I do know is this, and that is that the momentum that we have with the business today is talk and cheese from 2 years ago, much better than a year ago. And remember, COVID really was a challenge, particularly for our U. K.
Advisers who obviously had a pretty tough time of it. But as they went through a tough time through the middle of 2020, our offshore advisers didn't seem to be as effective actually. And so when they came back in December, you saw December was just this roaring quarter for us. Now while all that was going on, we've been adding a lot of new clients to the platform. And one of the reasons that I'm nervous about making projections is simply this.
When you get to a certain size in terms of number of clients and inflows and so on, so you get to a certain size. The variance in terms of what you expect from quarter to quarter doesn't change much. But we're still too early for me to say, okay, I've got a pretty stable, knowable, bankable kind of new business introduction. So look, we're just focusing on continuing to build this up. All the evidence is that this is not a one off quarter, half year, whatever it might be.
It's demonstrably a different momentum. And as I said, our sales efforts are proving to be quite successful because you get this sort of hysteresis, right? You get this sort of, Oh, you're doing well. Why are you doing well? I should have a look.
And they have a look and they like it. So I think 2021 will be the year, I think, where give me 6, give me another give me 2 or 3 more quarters, Nick. And if it sort of looks like the momentum can really accelerate from here, which I believe it can, then I'll be much more comfortable saying, Nick, that's the date.
Yes. I can understand that. Can I just finally just ask a question that same question slightly different way? Let's assume that the Q4 momentum that you saw in the U. K.
Business in particular is sustainable or sustained. Are there any outside of business as usual, are there any costs or any investment that you want to put in that business, let's say, over the next 12 months to take it to that or to see that momentum improve? Or are you happy with the shape of the cost base now?
No, no. We're happy with the cost base. The cost base is fine. If you exclude all the increase in client support, sales, implementation and so on, our cost base really hasn't changed much. I mean, it would reduce our travel costs.
That said, we've and I've sort of highlighted 1 or 2 options here. But there's a few initiatives that we've got in mind that will restructure certain parts of our business that we think will give us further efficiencies through this year. And there's a few elements because you got to understand, in the premium world in the U. K, we've got quite a lot of regulated entities, if you can put that one. So we've got some opportunities, I think, to reconfigure some of those through the year, which will give us some cost efficiencies.
But it's the revenue uptick, I think, all things being equal, if we held the line on cost and we can go to the next level of growth, then I think we're a different business. And then profitability is just inevitable. I mean, I think profitability is inevitable in any event. But we're not looking to just pull across the line. We want this to become a highly accretive, highly profitable business in its own
Your next question comes from Lafittany Sotterio from Bell Potter. Please go ahead.
Good morning, everyone. Michael, I particularly liked your tagline that you'd like to power up the acquisition. But more specifically, there are comments around being a platform of everything. Now, are you able to go into a little bit more detail? Are you thinking now that you've got control of Power App, are you looking to have one interface for all the underlying platforms?
Or do you want to add a little bit of color?
No, absolutely. It will be one interface.
So when we talk about
our interfaces, we talk about our adviser portal and our investor portal. They don't really work for Power App guys yet. So part of the heavy lifting IC architecture that Paul referred to needs to be done before we can make that work. And once we make that work, it will just work. Meanwhile, Power App have built their own interfaces.
One I think is reasonably well known is called Hive. Fortunately, that's being built off APIs largely from premium. So we think we can refactor that reasonably easily, and we hope to get that done this calendar year as well. And once those things are in place, then some of the great capability we've got like artificial intelligence will then work for the PowerUp clients. Our ESG capability, which really works in an SMA model, clearly will work for the PowerUp clients because we're going to move from this way this way.
So a lot of the innovations that we have, we absolutely will bring to the fore. And everything that clients have now in the premium world, the Power App world will have as well. And our plan is that we're going to deeply integrate it because it doesn't make sense for us to think about it as 2 platforms because in effect, it has already it's always been one platform. It's just been architected differently, and people have added on things in different ways. So now we're very excited.
It's a very unique opportunity with particularly now with DEO coming for us to stand back from it, which is actually what we're doing now, stand back from it and try and imagine how far we can take this and make it awesome. So when we talk about the platform of everything, whether you're a high net wealth client or retail client on platform or you want non custody or wants to non custody with admin, whatever it might be, the premium system works and it does it in a way that's sort of smooth, if you like, and ubiquitous. So we're very excited
And is there a rough timing to this?
Sorry, sorry.
Is there
a rough timing as to when you expect that to sort of be in place?
It's not a
rough timing. It's October this year when the DDO comes into effect. And so platforms, as I understand, will become both distributors and issuers of products. So we have to work through that. So actually, the timing for us is very fortunate because we want to do the deep integration with Power App, but we have to, like all the platforms and phone managers, we have to do this DDO where you've got target markets and so on.
We have to do that at the same time. So we're very fortunate that we're actually going to do both those things at the same time. Otherwise, we end up doing one thing and then having to do something else. So we think 2021 will be a year where we get all this in place. And then I think we've got the best platform around.
Okay. That makes sense. Just moving on to ground value commissions, obviously, the big change came through at the start of this calendar year. Can you just provide some discussion as to whether you're seeing any difference on the back of that change?
Yes. I'm sure it's different for our peers, but I can tell you what our experience is. The sort of days of going around and signing up big dealer groups, that's sort of like yesterday now. I think a lot of us are on those dealer groups in terms of an APL perspective. Now the focus is very different.
And what we're seeing, of course, is that advisers are moving around. And your data shows that, Larry. And so we're getting a lot now of small boutique adviser firms, money to start up, looking for new ways of operating and using new technology. Our focus on the sales perspective is firms. And there's an awful lot of new boutique firms, be they self licensed or licensed by somebody else.
And so it's in a sense, it's a much more traditional kind of sales environment. Now you have a firm and you're trying to sell to that firm. And we're getting a lot of engagement because right now, we think the big end of town, they probably still hold a lot of the private wealth, but even that seems to be changing. And we're getting a lot of these tenders coming through now. And whether and a lot of it is private wealth.
Actually, we're seeing a lot of private wealth interest. There's quite there's obviously quite a lot of private wealth out there. And we're a natural firm to talk to, particularly now that we've got PowerEdge.
So in summary, that is a yes. You're seeing a change in people coming through looking to move post that grandfather commission change?
Absolutely. Absolutely. And it's really that boutique end now. It's gone in the days of big, big, big groups. I mean, there's still some of them, obviously.
But no, it's very much becoming a boutique, very client centric, independent, tech savvy, modern approach, if you like. And I think that's a healthy advantage of the industry.
Sure. That makes sense. Moving on to the next question. This is for you, Paul. You mentioned something about tax losses that may be able to come from Para.
Can you just elaborate on that? I missed what the figure is. And while we're at it, now that U. K. May take over the profitability sooner than expected, do you want to just talk through the tax losses in that jurisdiction?
Sure. Thanks, Matt. Yes, obviously, Para have tax losses. I suppose the work that we need to do now is there's a number of tests that we need to obviously, adhere to be able to transfer those losses to the premium group. So that work is underway now.
We'll just kick that off. So there is potentially up to £10,000,000 to £12,000,000 of tax losses that may be able to come across. But obviously, I don't have a view of what percentage of that is allowed going forward. Obviously, we'll report on that in the next half. In terms of the U.
K. Tax loss position, obviously, that has been a sizable number for a number of years. It's still in the $35,000,000 range. So once, as you said, the U. K.
Business turns to profitability, we'll obviously be able to utilize those losses across the U. K. Group. And then obviously, any positive cash flows would be looking to send back to the Australian parent.
Okay. Thanks for that. And so with the UK business, could you give us a rough towards split as to what's in the UK versus what's in the international markets?
So you caught me off guard there, last.
Last, Mark was jumping in his laptop. It's normally around a third, 2 thirds, so a third U. K. Domestic, 1 third offshore. Yes, that's correct.
But I'll come back to you on that number, Lev.
Okay. And
just finally, just wanted to clarify the timing of synergies. So half of it, you mentioned that you've worked your way through it, but I imagine not much of that's actually captured in the last result or the result you're presenting today. Obviously, that was at the very end of the period that a lot of the changes you would have made. So really the benefits, the $46,000,000 are primarily flowing through this half and into financial year 'twenty two.
That's right. That's correct. Yes. So some impact in this half, but obviously the next half and beyond is where we get full impact.
And your number was correct, about 2 thirds.
All right. No worries. Thanks. Thanks, guys.
Thanks, Glenn. Thank you, Glenn. Thank
There are no further questions at this time. I will now hand back to Michael or pardon me, we do have a question. Your next question comes from Suraj Ahmed from Citi. Please go ahead.
Just a couple of questions. Michael, just firstly, what's the size of your sales and marketing team here in Australia right now?
What's the size of the sales and marketing team in Australia?
Yes.
Well, we sort of define sales, marketing, product and relation management, and that group would be 40 to 50 people.
I mean, especially given you're saying now it's more fragmented and it's more boutique groups that's coming up, do you think that 40 to 50 people is enough? Or do you need more investment in that area?
Well, it's a good question. I mean, if BDMs were free, then you'd have $1,000,000 of them wouldn't ship. But yes, good question. Look, we're comfortable with the size, so I'll put it that way. I think that we'll continue to tinker with the model and make adjustments here and there.
We don't feel uncomfortable with where we are right now.
But then can you just expand on the design and distribution obligations? I mean, you're saying it's quite a big undertaking. What sort of investment? Is it just the current team focusing on that or would you need to expand the development team to do that bit of work?
All through our all through my time, certainly, in the company is we sort of made the step changes in our development resource, but rarely for one given project. It's just more about prioritizing the work. And it's still a little bit unclear exactly how this is all going to work, particularly as, oddly enough, in the regulation, the advisers are carved out. So we have to have a target market, and we have to have a product that works for that market. But when there's an adviser between us as a platform and the investor, it's not real clear yet exactly how we're going to manage that if the advisers are not involved in that since they want to know the investors.
So look, I think a lot more water to run-in under the bridge. Now look, the way it's always worked in our world is that we prioritize our work. Obviously, DDO is a priority because it's legislation. Integrating PowerUp is a big priority. And the third the other third priority that we've got that we want to continue to develop is our client experience.
We want to really make the product more intuitive, more user friendly and so on. So I don't we don't see ourselves having to do a dramatic increase in technology.
Yes. So to summarize, not a big step up in OpEx for this, just but it's one of the focus areas for this year.
OpEx, we have increased. I mean, we put a lot more effort into more resource into client service in particular. Fortunately, we've started to learn how to get administration done in our Armenia office, and that's been very successful. So it's really giving us operating leverage that actually has been surprisingly positive for us. So I think our OpEx going forward and our leverage will be quite strong.
Just and I think it just shows the benefits of investing in a location and really spending the time because it's not outsourcing, right? I mean, these are our staff. So we can and already, they are now doing administration for both Melbourne and the U. K. So I think there's a lot of leverage to come from those.
And just lastly, just on I mean, you spoke with the pipeline, grandfather commissions, etcetera, helping. What are you seeing on the pricing environment in this competition overall?
We're not seeing much of it in terms of our traditional business, quite frankly, because we've always been at the reasonably cost effective end of the scale, if I can put it that way. The interesting one will be the private wealth space, I think, because it is invariably lower margin, right, because it's big accounts and there's caps and stuff like that. So that's the area where I don't think of it as a margin squeeze.
I just think of it
as a reality. And the best way to respond to that reality is to improve our efficiencies.
Got it. And just on the pricing front, maybe one for Paul. I mean, one question that's come up is just the cash margins and whether the supplier to you reduces pricing. Have you any discussions on that or if you can just add some color?
Yes. No real comment on the supplier side. But obviously, I think we've discussed this before, but our internal view is with current interest rates being able to maintain cash margins at the level they're at will be challenging, I think, certainly for the bank. So nothing to report at this stage, Suraj, but we'll just we'll obviously watch this space, see how we do.
Thanks, Michael. Thanks, Paul.
Thank you, Suraj.
Thank you. There are no further questions at this time. I will now hand back to Michael for closing remarks.
Well, thank you all everybody for joining us today. We hope you found it interesting, and we look forward to talking to you again in 6 months' time. Thank you all.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.