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Edited Transcript of BVS.AX earnings conference call or presentation 24-Feb-21 10:00pm GMT

·37 min read

Half Year 2021 Bravura Solutions Ltd Earnings Call SYDNEY Feb 25, 2021 (Thomson StreetEvents) -- Edited Transcript of Bravura Solutions Ltd earnings conference call or presentation Wednesday, February 24, 2021 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Anthony Brian Klim Bravura Solutions Limited - CEO, MD & Director * Martin Deda Bravura Solutions Limited - CFO, Company Secretary & Executive Director ================================================================================ Conference Call Participants ================================================================================ * Matthew Johnston Jarden Limited, Research Division - Analyst * Michael Peet Goldman Sachs Group, Inc., Research Division - Executive Director * Naveen Patney Evans & Partners Pty. Ltd., Research Division - Executive Director of Small Caps Research * Scott Lyndon Hudson MST Marquee - Senior Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you for waiting, and welcome to the Bravura Solutions 1H Q1 financial results. (Operator Instructions) I would now like to hand the conference over to Mr. Tony Klim, CEO and MD. -------------------------------------------------------------------------------- Anthony Brian Klim, Bravura Solutions Limited - CEO, MD & Director [2] -------------------------------------------------------------------------------- Thank you, Laurie, and good morning. My name is Tony Klim. I'm the Chief Executive Officer at Bravura, and I'm joined here by Martin Deda, our Chief Financial Officer. Thank you all for joining the presentation of our half year financial results. In line with earlier guidance, Bravura financial results for the half were down. The COVID-19 pandemic and its related lockdowns have impacted our largest markets in the U.K. There has been significant market uncertainty that has affected business confidence, and in particular, the workplace restrictions has impaired the ability of our clients and prospects to engage and collaborate on major projects. The result of this environment is evident in our first half results. Having said that, the business has pushed forward and experienced a number of impressive achievements. We have signed Australia's second largest superannuation fund by assets under management, Aware Super, as our major client for our game-changing new digital-first proposition, Sonata Alta. With Delta Financial, we have acquired a market-leading software business in the U.K. to broaden our coverage of the pensions market. And we have extended our market leadership through a targeted R&D program that provides clients with the solutions that they're looking for. So while markets are tough, our business is resilient. As the COVID-19 vaccines rollout and confidence improves, the business continues to position itself to take advantage of the subsequent release of pent-up client demand. And I am convinced that Bravura will emerge stronger as the pandemic eases. The pandemic has highlighted the greater need for robust technology and [all data] in a digital-first world, and the long-term drivers of our growth are as strong as they've ever been. With those opening comments, if I can take you now to the summary on Slide 4. While lower project work in the U.K. arising from the impact of COVID-19 has underpinned our first half results, Bravura's first half NPAT of $9 million is broadly in line with guidance provided at Bravura's AGM in November. The lower U.K. project work also underpins our lower revenue and earnings results. But recurring revenue now stands at 86% of group revenue with contracted recurring revenue up 8%. The Aware Super contract is a landmark deal for Bravura and for the Australian superannuation market. It has generated significant interest from other superannuation funds, and we expect to see other wins as a result. In prudence, we've adjusted our workforce and cost base in the current environment. But having said that, we've retained key talent to ensure that Bravura is well positioned to take advantage of the confidence of this slowly returning. And we've made excellent progress on our R&D initiatives, spending $26 million on the development of the suite of microservices, Australian wrap functionality, Sonata Alta, GFAS enhancement and extension of our digital advice capability. This continued targeted investment directly meets the needs of our clients and provides Bravura with a significant and sustainable competitive advantage. We welcomed Delta Financial into the group during the period, expanding our U.K. market offering into complex self-invested pensions. The acquisition complements Bravura's core Sonata offering and broadens Bravura's growing ecosystem of products and services. On Slide 6, we discussed the impact that COVID-19 has had on the group. As the pandemic has unfolded, different countries had been impacted in different ways. Despite that, I'm proud to say that our collaboration technology has accommodated the transition to remote working seamlessly, and our people have been able to take it in that stride. But most importantly, client operations have been supported without disruption. Our sales pipeline overall has remained strong. COVID-19 has made it even more apparent that modern technology with strong digital capabilities is a must. At the same time, the challenges of a world still adjusting to remote working to see the lengthening of the sales cycle. And in the U.K., specifically, a general lack of confidence and workplace restrictions have led to a reluctance amongst clients to embark on major new programs. However, while decisions are taking longer, they're still taking the time to evaluate our products so that they can move more quickly when business confidence returns. In Australia and New Zealand, whilst the sales cycle has become longer, we continue to create a number of potentially significant opportunities. And in South Africa, COVID has had a significant impact. Despite that, client activities continue to progress, and we [continue to] discuss new opportunities. Turning now to Slide 7. During the period, we took steps to further evolve our strategy. We outlined our changes here. Firstly, there are a number of developments taking place in the markets. Individual fund managers are increasingly moving towards providing digital wealth management capability as an alternative to retail platforms, opening up additional sales opportunities. Secondly, we've seen a reduced interest in big bang, large-scale implementations and much more interest in modular implementations. Thirdly, we're observing a middle tier of clients that are under serviced relative to the top-tier of clients. Fourthly, the need for clients to reduce their administration costs is heightened as financial services value chains are squeezed. And finally and importantly, in a digital-first world, an optimal customer experience for our end customers is becoming more paramount. Now coinciding with these market developments, we've accelerated the rollout of our technical strategy. As well as developing and acquiring new modular products, we're transforming our existing products into smaller, individually salable and deployable components or microservices. All of our products are or will be cloud-enabled. We're increasing the degree of automation that our technology provides and also ensuring a world-class digital experience. And hand-in-hand with our technology strategy, we're also modifying our commercial approach. Going forward, we anticipate having more client contracts underpinned by a subscription and consumption-based approach. And in doing so, the structure of our client contracts will allow clients to smooth their client fees over the term of the contract. We see our strategy supporting the outcomes that our clients are asking for as well as delivering enhanced longer-term value to shareholders. Turning now to Slide 8. The development in our strategy also sees an expansion in our total addressable market. Bravura's market opportunity in our 2 biggest markets in U.K. and Australia is significant. In the U.K., we estimate a total addressable market of more than GBP 1 billion of revenue per year for our products and services. The market comprises retail and institutional fund administration, retail investments in life insurance platforms, discretionary fund managers, corporate defined contribution pension schemes, self-invested personal pensions and small self-administered funds. In Australia, we estimate the total addressable market to be about AUD 1 billion of revenue per year. The market here comprises superannuation, platforms, advice, life insurance, investment management and asset management. I'll now ask Martin to take us through the financial implications in more detail. -------------------------------------------------------------------------------- Martin Deda, Bravura Solutions Limited - CFO, Company Secretary & Executive Director [3] -------------------------------------------------------------------------------- Thanks, Tony. Let's now turn to Slide 9. As Tony described, we're moving our commercial strategy to a more subscription consumption-based model. So this will result in 5 key changes. More of our client contracts will be subscription and consumption based. This is already the case, to some extent, in our funds administration contracts and some of our newer deals in wealth management, notably the Aware deal are also largely consumption-based as is our Midwinter advice offerings, which is a SaaS-based offering. The result of these changes, we expect to see contracted recurring revenue rise from about 50% of total group revenues to about 70%. Upfront license fees will be a smaller contribution to revenue and earnings, but upfront license fees will still occur. The revenue and margin profile of each contract and therefore, in aggregate, will be more consistent over time. Bravura's total address -- as Bravura's total addressable market expands, our products and services will cover more of the value chain, and overall client contract value is expected to increase. I turn now to Slide 11. This sets out our H1 '21 financial results. As discussed earlier, group and segment revenue and earnings were down, reflecting the impact of COVID, particularly in our U.K. business, which constitutes approximately 75% of total group revenues. Corporate costs came in 2% lower, benefiting from tight cost control and lower acquisition costs in H1 compared to the prior corresponding period. We also undertook measures to rightsize our consulting and development workforce as a consequence of the reduced professional services work. We reduced our overall headcount by about 5%, and this will deliver an annual benefit of approximately $11.5 million. And relative to the first half, the second half will see a benefit of about $5.5 million. Turning to Slide 12. This shows Delta's contribution to the first half results. The Delta acquisition closed at the end of October, resulting in a 2-month contribution to the period. Delta contributed $2 million in revenue and its earnings contribution was immaterial. We've included Delta within the Wealth Management segment, and that's where it will be -- continue to be reported going forward. Delta, as Midwinter and FinoComp have, has a high proportion of recurring revenue. In the case of Delta, it's around 80%. Going forward, we expect Delta to deliver revenue growth in the range of 20% to 30% per annum. Slide 13. This slide shows our revenue by geography. And it highlights our revenue performance in the half by the geographic location of our clients. As you can see in the chart, the decline is very much concentrated in the U.K. across both Wealth Management and Funds Administration as the U.K. market has been significantly impacted by COVID. All of our other regions, particularly Australia and New Zealand, delivered revenue growth. I'll turn to Slide 14 showing our long-term revenue and earnings. Notwithstanding the most recent half and the extraordinary circumstances caused by the pandemic we found ourselves in, Bravura has consistently delivered revenue growth and margin expansion over the last 6 years. As the vaccine rolls out, business confidence returns and the operating environment improves, we expect Bravura in the U.K. to return to growth as well. Slide 15 sets out our recurring revenue. And you'll see here that we have added to our disclosure to aid investors in understanding the components of our revenues. Contracted recurring revenue was up 8% during the half compared to the prior corresponding period. And contracted recurring revenue comprises those revenues contracted for the total contract term, which includes typically maintenance support, managed services, hosting, cloud, SaaS revenues. As discussed earlier, COVID-19 has impacted attached recurring revenue, where we've seen some project work being reprioritized. It's important to highlight that this work has not gone away. And the attached recurring revenue, those professional services revenues, be it consulting or development revenues that clients undertake post having gone live on our core systems. The decline in nonrecurring revenue is almost all in the U.K. The lack of new significant deal wins have seen a decline in implementation work as implementation work from earlier deal wins have been completed. Turning to Slide 16 sets out our funding position. Bravura is in a healthy financial position with cash of $56 million and no debt. During the period, we completed the acquisition of Delta. The maximum possible purchase price of GBP 23 million comprised GBP 14.5 million, approximately $27 million upfront, and this was paid in October. And an earn-out of GBP 8.5 million, approximately $16 million, contingent upon meeting certain financial targets over the next 2 years. Our balance sheet is well positioned to continue our program of R&D investment across our product ecosystem to meet anticipated client needs. Operating cash flow, excluding taxes paid, was $9.6 million in the half, representing cash conversion of 61%, cash conversion of operating cash flow to EBITDA, that is, compared to 21% in the first half of '20. As you can see in the chart, our cash conversion metric appears lumpy on a 6-month view, but sits at around 94% over time. Tony will now take us through the performance of each segment and the outlook. -------------------------------------------------------------------------------- Anthony Brian Klim, Bravura Solutions Limited - CEO, MD & Director [4] -------------------------------------------------------------------------------- Thank you, Martin. If I can now take you to Slide 18, which sets out the performance in our Wealth Management segment. This segment saw revenue and earnings decline during the period. Most of this decline came through as COVID impacted professional services work in the U.K. Pleasingly, contracted revenue rose 17% during the period. Along with the Aware Super contract win, a further 6 new or renewed contracts were signed in the U.K., Australia and New Zealand. Approximately $21 million of R&D was incurred in the Wealth segment, of which 37% is capitalized. The spend related predominantly to developing additional microservices, wrap functionality in Australia and extending our digital advice capability. Now let's turn to Slide 19, which sets out performance in our Funds Administration segment. This segment also saw revenue and earnings decline during the period. As with the wealth segment, much of this decline came through as COVID impacted professional services work in the U.K., although to a lesser extent. Contracted revenue or contracted recurring revenue remained broadly stable during the period. Bravura signed a contract renewal with an existing client, a large U.K. financial institution. Excluding license fees, which are less consistent in nature, segment EBITDA margin is in line with our first half. R&D spend in the segment was all expensed and focused on enhancing Bravura's GFAS product. Let's now turn to Slide 21, which sets out our outlook. The industry's structural drivers for our strategy are strengthening, and COVID-19 has emphasized the importance of digital-first. We're increasing our total addressable market through a more flexible and modular deployment model as discussed. We are seeing an increase in market confidence in the U.K. with the rollout of the vaccines, and we anticipate a resumption of demand in U.K. and South Africa in FY '22 as a result of postponed activity, though the impact of COVID in the U.K. and South Africa is expected to continue to affect the business in the second half. However, the sales pipeline is strong. Accordingly, Bravura anticipates delivering revenue growth from H1 to H2 in excess of 10% and achieve a full year NPAT between $32 million and $35 million. So Martin and I will now be very happy to take your questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from Michael Peet with Goldman Sachs. -------------------------------------------------------------------------------- Michael Peet, Goldman Sachs Group, Inc., Research Division - Executive Director [2] -------------------------------------------------------------------------------- Tony and Martin, just on the guidance, could you give us a little bit more color around the 10% revenue growth? Just interested in how much of that's going to be generated, obviously, through new contract wins, and just the mix of those, if we can, between Sonata, Sonata Alta microservices? -------------------------------------------------------------------------------- Anthony Brian Klim, Bravura Solutions Limited - CEO, MD & Director [3] -------------------------------------------------------------------------------- Martin, would you like to take that? -------------------------------------------------------------------------------- Martin Deda, Bravura Solutions Limited - CFO, Company Secretary & Executive Director [4] -------------------------------------------------------------------------------- The revenue growth will predominantly be driven by the Sonata Alta revenues as we ramp-up in the Aware program as well as microservices, particularly in the U.K. There are a range of opportunities in micro services in the U.K. We also have a -- in the Fund Administration segment, a contract renewal coming up as well, which will also contribute to that revenue growth. -------------------------------------------------------------------------------- Michael Peet, Goldman Sachs Group, Inc., Research Division - Executive Director [5] -------------------------------------------------------------------------------- Okay. And so could you give us a rough guide on license fees in the second half? And also just on R&D, what sort of level of R&D would be expensed and capitalized? -------------------------------------------------------------------------------- Martin Deda, Bravura Solutions Limited - CFO, Company Secretary & Executive Director [6] -------------------------------------------------------------------------------- We expect to capitalize a similar amount of R&D in the second half as we did in the first half. So as per our full year guidance, we're still trending and anticipate doing about $18 million of capitalized R&D across the whole year. And in terms of license fees, we anticipate license fees in the second half to be approximately what they were in the first half. -------------------------------------------------------------------------------- Michael Peet, Goldman Sachs Group, Inc., Research Division - Executive Director [7] -------------------------------------------------------------------------------- Okay. Tony, you mentioned that there's a sort of a decline in the appetite for big bang implementations. I guess that says, I guess, Sonata might place a headwind on that, but does that also mean Sonata Alta, obviously, as a cloud-based opportunity, is it a little bit easier to implement? Or am I assuming that incorrectly? And just -- you say there's a strong pipeline. Could you quantify that? Is the value of work that's sitting in that pipeline -- maybe how significantly greater is that than previous periods? -------------------------------------------------------------------------------- Anthony Brian Klim, Bravura Solutions Limited - CEO, MD & Director [8] -------------------------------------------------------------------------------- I think if we look at the U.K. and Australia, there is a slight difference at the moment, so which may be down to just the confidence factor in COVID, but I think it just reflects the difference in the markets. We're not seeing such a drop-off in Australia in terms of those large deals. The Aware Super, I think, as you know, is a large deal, and I think we're seeing some strong interest as a result of that. So I think in the U.K., at the moment, we're seeing more interest in the modular solutions. There's still a big market opportunity for Sonata. But I think it's partly reflecting this lack of confidence, which, as I say, I think, will change as we go into the next financial year. But in general, part of the reason to move to the microservices model is it opens up and expands the market, as we've discussed. I've always said on previous calls, we haven't really been addressing the next tier down of which there are many more opportunities. So at the moment, I think there's a -- the U.K. market is -- if we look at the pipeline, it's very strong on the microservices. So these tend to be smaller sales, but more of them. But actually now, we are seeing light at the end of the tunnel, particularly on existing clients. So we've had a number of large projects or programs with existing clients that were effectively put on hold or postponed. We're seeing those come back to life. And I think that's just reflecting the vaccine rollout and increasing confidence. Those will -- some of those will start to take effect in the second half. And then I expect a much stronger move into FY '22. So the pipeline is really across the board. It's actually strong in all areas. -------------------------------------------------------------------------------- Michael Peet, Goldman Sachs Group, Inc., Research Division - Executive Director [9] -------------------------------------------------------------------------------- Are you able to quantify that at all in terms of total contract value versus maybe another period? -------------------------------------------------------------------------------- Anthony Brian Klim, Bravura Solutions Limited - CEO, MD & Director [10] -------------------------------------------------------------------------------- I would say it's -- in terms of total contract value, I think we've got more opportunities in previous periods. As I say, some of those are at lower value. I would -- [so that being some], I would say, very similar. Martin, would you comment on that for other periods? -------------------------------------------------------------------------------- Martin Deda, Bravura Solutions Limited - CFO, Company Secretary & Executive Director [11] -------------------------------------------------------------------------------- Yes, that is the case. So as Tony explained, we're seeing the pipeline for projects with existing clients is larger than it has been in previous periods. That's partly to do with it being pent-up being -- projects being prioritized forward. The overall pipeline is a greater number of opportunities. The absolute value of the pipeline is similar to what it was previously. It's just that there are more opportunities in the componentization microservices sort of sphere as well as coming with the Delta products, which is -- we anticipate, particularly in FY '22, strong growth out of those products as well. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- Your next question comes from Scott Hudson with MST. -------------------------------------------------------------------------------- Scott Lyndon Hudson, MST Marquee - Senior Research Analyst [13] -------------------------------------------------------------------------------- Just in terms of, I guess, the evolution in the strategy, is the technology already componentized? Or do you still need more work to do in terms of getting all those components available to sell to the cloud base? -------------------------------------------------------------------------------- Anthony Brian Klim, Bravura Solutions Limited - CEO, MD & Director [14] -------------------------------------------------------------------------------- A large part of this is componentized. So certainly, the acquisition of FinoComp and Delta have effectively brought in those microservice components. And Sonata, we have, for the last 1 or 2 years, been looking at further componentizing aspects of Sonata. So for instance, we have one of the stronger -- those of you who've seen Sonata, one of the strongest aspects of it is the orchestrator, the process that effectively coordinates everything, and that we have componentized. And that can now be deployed as a separate product module. And in addition, at FinoComp we're also building and deploying new products which are complementary to Sonata. So a product with Stanza, for instance, a machine-learning product that's getting a lot of interest in the market at the moment. So our product strategy, and we'll be talking further about this, I think, at the full year. I think we'd like to do an Investor Day and take you through this in a bit more detail. But Sonata was already evolving in that direction, but the model now that we're following is very much the one of DevOps continuous deployment and so on, which is really where the market is moving. So it's a mixture of -- certainly, the acquisitions have accelerated that microservice and componentized process. And over the next 2, 3 years, Sonata will be fully modularized and deployable in the individual components, but we are already somewhere along the line. -------------------------------------------------------------------------------- Scott Lyndon Hudson, MST Marquee - Senior Research Analyst [15] -------------------------------------------------------------------------------- And how far along are you in terms of the cloud to all products being cloud based? -------------------------------------------------------------------------------- Anthony Brian Klim, Bravura Solutions Limited - CEO, MD & Director [16] -------------------------------------------------------------------------------- Yes. With Sonata, it's completely cloud deployable at the moment. All of the microservices are cloud deployable, Delta's cloud deployable. So that's already there. In one of the transition models, we have a number of them, certainly in the U.K. are big strategic clients that are currently deployed in the Vodafone data centers that we operate out of. We do see that as a major move over the next 2 to 3 years. So not just new clients, but all new deployments are cloud-based and we're talking to all of our clients, some of them are moving faster than others in terms of moving to that cloud model. And that presents efficiencies for ourselves I think -- I don't want to make too much of it, but there is a revenue opportunity, obviously, in moving in that direction which clients want to do. So that, in effect, is an opportunity in its own right. But we do see all of our products being cloud deployable. The major strategic ones are at the moment and all of the microservice models are cloud deployed. -------------------------------------------------------------------------------- Scott Lyndon Hudson, MST Marquee - Senior Research Analyst [17] -------------------------------------------------------------------------------- In terms of the, I guess, the license fees in terms of the second half, you said sort of similar to the first half. Is that purely related to the Funds Admin contract renewal? Or are there additional license fees (inaudible)? -------------------------------------------------------------------------------- Anthony Brian Klim, Bravura Solutions Limited - CEO, MD & Director [18] -------------------------------------------------------------------------------- It's additional. The Fund Admin is of a reasonable size. That's probably the major one, but there's a number of microservice licenses in that pipeline and Delta licenses as well. -------------------------------------------------------------------------------- Scott Lyndon Hudson, MST Marquee - Senior Research Analyst [19] -------------------------------------------------------------------------------- So microservices and Delta also have a license fee component attached to them? -------------------------------------------------------------------------------- Anthony Brian Klim, Bravura Solutions Limited - CEO, MD & Director [20] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Martin Deda, Bravura Solutions Limited - CFO, Company Secretary & Executive Director [21] -------------------------------------------------------------------------------- They do. And there are also -- sorry, Tony, there are also other wealth management licenses included in that. -------------------------------------------------------------------------------- Scott Lyndon Hudson, MST Marquee - Senior Research Analyst [22] -------------------------------------------------------------------------------- In terms of the corporate cost reductions, is that captured in that $5.5 million savings that you talked about in sort of second half versus first half or is the cost... -------------------------------------------------------------------------------- Martin Deda, Bravura Solutions Limited - CFO, Company Secretary & Executive Director [23] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Scott Lyndon Hudson, MST Marquee - Senior Research Analyst [24] -------------------------------------------------------------------------------- Okay. Yes. And is that a sustainable cost savings? Or is it just the benefits of no travel and entertainment, et cetera? -------------------------------------------------------------------------------- Martin Deda, Bravura Solutions Limited - CFO, Company Secretary & Executive Director [25] -------------------------------------------------------------------------------- So the headcount reductions that we did were predominantly in consulting and development. There were also some corporate headcount reductions as well. -------------------------------------------------------------------------------- Scott Lyndon Hudson, MST Marquee - Senior Research Analyst [26] -------------------------------------------------------------------------------- Okay. And then in terms of the -- I guess, the guided uplift in the margin in the second half versus the first half. Is that purely driven by that $5.5 million cost savings and the uplift in the revenue given the guidance? -------------------------------------------------------------------------------- Anthony Brian Klim, Bravura Solutions Limited - CEO, MD & Director [27] -------------------------------------------------------------------------------- Yes, they are the main factors that drive the improvement. -------------------------------------------------------------------------------- Scott Lyndon Hudson, MST Marquee - Senior Research Analyst [28] -------------------------------------------------------------------------------- And then lastly, just in terms of, I guess, the evolution of the markets and moving into that sort of second-tier of the market and also sort of the wealth management space. What's the competitive landscape, particularly in the wealth management market? And here you're sort of coming up against mostly in that environment. -------------------------------------------------------------------------------- Anthony Brian Klim, Bravura Solutions Limited - CEO, MD & Director [29] -------------------------------------------------------------------------------- Well, it's interesting. It's -- as I think I've spoken to a number of you in the past to say that it's not well served. I think the big retail platforms, that's where the focus has been in recent years. But the next tier down, if you take the U.K. market, there's probably 60 or 70 what we would call private client asset managers with asset bases, say, up to GBP 10 billion, anything from GBP 2 billion to GBP 10 billion, say. And then the technology in that sector is actually quite primitive. And the reason why that sector hasn't been able to really take up the technology like Sonata, which is very applicable, is because we've been pricing it and selling it obviously to the higher end of the market. What microservices allows us to deploy similar functionality at a lower cost base. And there is not the same level that we believe is a competition in that next tier down. In fact, many organizations have been using quite primitive technology in that space. So we do think we have a market-leading position. -------------------------------------------------------------------------------- Operator [30] -------------------------------------------------------------------------------- Your next question comes from Naveen Patney with Evans & Partners. -------------------------------------------------------------------------------- Naveen Patney, Evans & Partners Pty. Ltd., Research Division - Executive Director of Small Caps Research [31] -------------------------------------------------------------------------------- First question I had was just another clarification on the revenue growth of sort of 10% half-on-half. Just doing a bit of math here. So it roughly implies $12 million revenue growth. And is this math right, then about $4 million Delta, $4 million to $5 million of Aware coming on, so netting that out, that 2% -- 2% to 3% organic growth half-on-half. Is that -- is that math in the ballpark? Or is it not right? -------------------------------------------------------------------------------- Martin Deda, Bravura Solutions Limited - CFO, Company Secretary & Executive Director [32] -------------------------------------------------------------------------------- Naveen, no, it's not quite right. There is -- a portion of it is from Delta coming up to speed. Then the Aware as well as other contracts in APAC add to that. And then there is work out of Fund Administration, which would be the other factor that add to that. As Tony pointed out, we're anticipating that the U.K. market in wealth management will continue to be slow in the second half. It will take a while in the second half for it to ramp back up. -------------------------------------------------------------------------------- Naveen Patney, Evans & Partners Pty. Ltd., Research Division - Executive Director of Small Caps Research [33] -------------------------------------------------------------------------------- Okay. Great. And on the corporate costs, that's gone down a little bit on pcp. But half-on-half, they went up $2 million. I don't know, is there some seasonality element to it on corporate costs? Or is there a reason why it did increase half on half? -------------------------------------------------------------------------------- Martin Deda, Bravura Solutions Limited - CFO, Company Secretary & Executive Director [34] -------------------------------------------------------------------------------- There is a little bit of seasonality in some costs that we have in some halves rather than others. We spent -- there were costs for the Delta acquisition, so M&A costs in this half. We have acquisition costs in the same half previously as well. There's no -- it's one-off items rather than anything systematic, those 2 halves. -------------------------------------------------------------------------------- Naveen Patney, Evans & Partners Pty. Ltd., Research Division - Executive Director of Small Caps Research [35] -------------------------------------------------------------------------------- Okay. Great. Awesome. And on the R&D capitalization, obviously, there's some significant investment going into your platforms this year. I mean how should we think about the level of R&D capitalization into '22 and '23 versus this year? -------------------------------------------------------------------------------- Martin Deda, Bravura Solutions Limited - CFO, Company Secretary & Executive Director [36] -------------------------------------------------------------------------------- We're working through our budget at the moment. There will, as Tony described, continue to be work on the componentization microservices, which is a prime part of the work in this year. There will continue to be some of that going into FY '22. It's -- I don't anticipate that continuing into '23 at that sort of rate. So at this stage, the capitalization will continue as our program continues through into '22. And then towards the end of '22, it will be easing off to lower levels, levels that we had in sort of '18, '19 sort of levels we had. -------------------------------------------------------------------------------- Naveen Patney, Evans & Partners Pty. Ltd., Research Division - Executive Director of Small Caps Research [37] -------------------------------------------------------------------------------- Okay. Right. So FY '22, it's sort of towards the back end of that, it starts to ease off relative to this year and then '23 gets to more normalized levels? -------------------------------------------------------------------------------- Martin Deda, Bravura Solutions Limited - CFO, Company Secretary & Executive Director [38] -------------------------------------------------------------------------------- Yes. That would be our current view. Yes. A bit of a way out at this stage, but that's our view for now. -------------------------------------------------------------------------------- Naveen Patney, Evans & Partners Pty. Ltd., Research Division - Executive Director of Small Caps Research [39] -------------------------------------------------------------------------------- Yes. All right. Sure. And in terms of the Aware Super contract win last half, it was truly a very significant and well done on getting that contract last half. Just interested in your views on the pipeline you see in that segment at the moment, just noticing that Link has renewed a number of its key clients towards the end of last year. I was just interested in your views on whether you're still as optimistic on that opportunity, given some of those renewals as you've been previously? -------------------------------------------------------------------------------- Anthony Brian Klim, Bravura Solutions Limited - CEO, MD & Director [40] -------------------------------------------------------------------------------- Yes. I think we're very optimistic. Certainly, in the discussions we're having with some of the other major funds, certainly, also has been quite an eye opener. I think it presents a tremendous middle road, if you like, between the fully outsourced Link-type proposition, fully cloud deployed, lots of automation, standard operating model gives the organization far more control of the proposition than an administered opportunity. And actually, importantly, we believe it's hugely competitive in terms of cost-to-policy. So it's generating a huge amount of interest. And our sales team in Australia are certainly on the road as well talking to a lot of organizations about what it's all about. But we do definitely see some follow-on opportunities of Alta in the Australian market. -------------------------------------------------------------------------------- Naveen Patney, Evans & Partners Pty. Ltd., Research Division - Executive Director of Small Caps Research [41] -------------------------------------------------------------------------------- Okay. Great. And the last question I had was there's obviously been a few press reports around Nucleus looking to replatform its technology to FNZ. But understand you designed a long-term agreement in any case with Nucleus in 2018. So I was just interested in how we should think about the profile of that client for you guys over the next few years in terms of rolling off? Or just how you think that will evolve over time, that project? -------------------------------------------------------------------------------- Anthony Brian Klim, Bravura Solutions Limited - CEO, MD & Director [42] -------------------------------------------------------------------------------- Yes, an interesting question. I think, as you said, we've got a long-term contract with Nucleus. We have a brilliant relationship with them. They've been very committed to the technology. We believe we've developed a superb system for them and that the team feels the same way. I don't see any short midterm impact, and that's the messaging we're getting. I think if they do anything with FNZ, it will focus on the James Hay book for the first 2 years. And that's quite a messy book to try and migrate over to FNZ. So I think they'll have their hands tied in that area for a while. And I think let's just watch this space. I think this has got a way to play out. But -- so no short to medium-term impact would be my view. -------------------------------------------------------------------------------- Martin Deda, Bravura Solutions Limited - CFO, Company Secretary & Executive Director [43] -------------------------------------------------------------------------------- And if I could add to that, Tony, we also renewed the contract with Nucleus in December, together with arrangements to move further into the cloud with the Nucleus opportunity. So that contract restarted in December last year, so as opposed to 2018. -------------------------------------------------------------------------------- Anthony Brian Klim, Bravura Solutions Limited - CEO, MD & Director [44] -------------------------------------------------------------------------------- And then the acquirers announced, I think, in their announcement that they are following the acquisition, which, if it gets regulatory approval, which will probably take place in about 6 months' time. And they want to conduct a 3-month review of technology options after that point anyway. So as I say, let's just see how this plays out. We're not seeing -- we're not anticipating any impact in the next couple of years, at least. -------------------------------------------------------------------------------- Operator [45] -------------------------------------------------------------------------------- Your next question comes from Matt Johnston with Jarden. -------------------------------------------------------------------------------- Matthew Johnston, Jarden Limited, Research Division - Analyst [46] -------------------------------------------------------------------------------- Maybe just the first one from me on the transition from -- the transition to subscription-based contracts. I'm just trying to get a view of your sense around what the client feedback is on that, both existing and perspective. And does that mean that we've sort of seen peak license fees sort of in FY '20 as we move forward? -------------------------------------------------------------------------------- Anthony Brian Klim, Bravura Solutions Limited - CEO, MD & Director [47] -------------------------------------------------------------------------------- Well, I'll take the first bit. I think very positively received by most clients. So I think everyone sees this as a trend. And as an enterprise software provider, as I'm sure you know, we're not unique in moving through this transition to SaaS and subscription-based models. It's certainly where all clients in terms of new client option opportunities are seeking that sort of model. Obviously, well, we have contracts that have some time to run. It's really up to the client. But there's a general, all of our clients are asking for us to tell them about cloud deployments and how we're going to do it. And in many cases, we're sitting down and planning that with them. On the second part, so I hand it over to Martin for the licenses. -------------------------------------------------------------------------------- Martin Deda, Bravura Solutions Limited - CFO, Company Secretary & Executive Director [48] -------------------------------------------------------------------------------- Yes. Thanks, Tony. So I think consumption-based is more of the concept that you should be thinking about. So under there, not wanting to get overly technical, but under the IFRS 15, the accounting, if software is provided to a client as an individual instance for that client regardless as to how they take that, whether they take that through the cloud, or whether it's on-premise, or through third-party data center, there is still a component you have to recognize upfront being the value of that license. As opposed to if it is a SaaS where the client is a tenant in a multi-tenanted service where it's purely annual ongoing fees. At the moment, the only service that we offer as a multi-tenanted SaaS is our AdviceOS offering in Midwinter. The Wealth Management Solutions and the Fund Administration Solutions, even when they're offered through the cloud, we offer as an individual instance for that client. So there will continue to be a license element of those deals. The consumption or subscription-based is where clients are asking for a volume component, so that they want to be able to flex what they pay with how much they use of the software as opposed to the traditional enterprise software model, where there's essentially just a flat fee sometimes with staged levels of increased usage. So it is a direction that we're going, which is in -- which the market is asking for, and we're able to deliver through, as Tony said, our Sonata has always been cloud deployable. And we're able to come up with financial models that enable our clients to phase the way the costs are incurred on their behalf. And we're able to structure that so that it fits in with usage of our systems and solutions. So that's -- it's a coming together of both parties. Yes. As to whether FY '20 would be a peak, potentially, yes. It really depends as we grow. I think the takeaway is that as we grow, upfront licenses will become a smaller percentage of our total revenues. I think that's the way to look at it. They won't go away completely, but they'll become a smaller percentage. -------------------------------------------------------------------------------- Matthew Johnston, Jarden Limited, Research Division - Analyst [49] -------------------------------------------------------------------------------- Yes. Okay. That's clear. And then just on the reduced headcount, is that a sustainable reduction in the cost base? Or if you see pent-up demand come back, will you have to rightsize the cost base again to make that demand? -------------------------------------------------------------------------------- Anthony Brian Klim, Bravura Solutions Limited - CEO, MD & Director [50] -------------------------------------------------------------------------------- Yes, we will. I think obviously, we -- through this exercise, we've created some efficiencies, operational efficiencies. But I think well, I know that with the pent-up demand and the -- just the work that's coming through from existing clients as we go through this half and into FY '22, we will have to recruit again. -------------------------------------------------------------------------------- Matthew Johnston, Jarden Limited, Research Division - Analyst [51] -------------------------------------------------------------------------------- Okay. Great. And then just on the cash flow, obviously, there's a -- debt receivable balance has maintained half-on-half. And I do realize that it does get lumpy. I'm just trying to -- if I can recall, I think there was about $23 million, $24 million benefit that got cash collection in July. I'm just trying to understand, should we expect the cash conversion to improve in the second half? -------------------------------------------------------------------------------- Anthony Brian Klim, Bravura Solutions Limited - CEO, MD & Director [52] -------------------------------------------------------------------------------- Martin, are you on mute? -------------------------------------------------------------------------------- Martin Deda, Bravura Solutions Limited - CFO, Company Secretary & Executive Director [53] -------------------------------------------------------------------------------- Apologies, yes. I think the cash collection in the second half will improve slightly. Hello, can you hear me? -------------------------------------------------------------------------------- Anthony Brian Klim, Bravura Solutions Limited - CEO, MD & Director [54] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Matthew Johnston, Jarden Limited, Research Division - Analyst [55] -------------------------------------------------------------------------------- Okay. And then just finally, just -- obviously, we talked about COVID a lot. Maybe just sort of maybe comments around Brexit. Obviously, there was a trade deal but my understanding is that there's still some question mark around the financial services arrangements. Is that -- would that also be a headwind for business decision-making in the U.K.? -------------------------------------------------------------------------------- Anthony Brian Klim, Bravura Solutions Limited - CEO, MD & Director [56] -------------------------------------------------------------------------------- To a degree, yes. I think if you look at the organizations overall, Brexit has added to the lack of confidence in financial services. The rules of equivalents and passporting still to be agreed, the EU and the U.K. governments are agreeing on a supposedly memorandum of understanding in March, which really just establishes a framework for cooperation. But as I've said before, whilst we create sentiment in the market, most of what we do is domestic in terms of wealth management and in the fund space where are big clients tend to be the big U.S. players, so Citi, JPMorgan, Bank of New York and so on. We're providing those funds completely internationally, so right across Asia, Europe and so on in terms of what our products are supporting. So I think Bravura's exposure to any fallout from Brexit is limited. The main impact so far has just been some of those organizations, obviously, again, it's just hit their confidence levels over the last year. But I think now we're through the main part of it. I'm detecting just an increase in confidence. There has been a lot in the press today about various markets derivatives and so on moving to Europe, but that doesn't really impact us. So to answer your question, no real impact. I think we're probably almost out of time now, guys. So why don't you tell me, is that -- how are we doing? -------------------------------------------------------------------------------- Operator [57] -------------------------------------------------------------------------------- That is all the time we have for questions, unfortunately. So I will just hand back to Mr. Klim for closing remarks. -------------------------------------------------------------------------------- Anthony Brian Klim, Bravura Solutions Limited - CEO, MD & Director [58] -------------------------------------------------------------------------------- Okay. Well, thanks, Lori, and thank you all for your questions. And if I can just conclude, it's part of one-off impact of COVID-19 on Bravura's U.K. business. The drivers for our growth remains stronger than ever. And in addition, we've evolved our strategy to put Bravura on the best possible footing, and I'm confident that Bravura will emerge stronger from the pandemic. So I'd just like to thank you all for dialing in today. And obviously, thank you for continuing interest in our business. -------------------------------------------------------------------------------- Operator [59] -------------------------------------------------------------------------------- That does conclude our conference for today. Thank you for participating. You may now disconnect.