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Edited Transcript of HSN.AX earnings conference call or presentation 23-Aug-19 12:30am GMT

Full Year 2019 Hansen Technologies Ltd Earnings Call

Dec 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Hansen Technologies Ltd earnings conference call or presentation Friday, August 23, 2019 at 12:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew Alaxander Hansen

Hansen Technologies Limited - MD, CEO & Director

* Graeme Taylor

Hansen Technologies Limited - CFO

* Warwick Lee Sharp

Hansen Technologies Limited - IR Director

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Conference Call Participants

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* Garry Sherriff

RBC Capital Markets, Research Division - Executive Director of Equity Research & Head of Australian Technology and Small-Mid Caps

* Jules Cooper

Ord Minnett Limited, Research Division - Senior Research Analyst

* Nicolas Burgess

Baillieu Holst Ltd, Research Division - Equity Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by and welcome to the Hansen Technologies Limited results briefing. (Operator Instructions) I must advise you that this conference is being recorded.

I would now like to turn the conference over to your first speaker today, Managing Director of Hansen Technologies, Andrew Hansen. Thank you. Please go ahead.

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Andrew Alaxander Hansen, Hansen Technologies Limited - MD, CEO & Director [2]

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Thank you, Edwin. I want to -- like to thank everyone for their attendance and interest in listening to us today. It's Andrew Hansen here, CEO of Hansen Technologies. I have both Graeme Taylor, CFO, with me; and our Investment Manager -- Investor Manager, Rick Sharp, here with me as well. So welcome all.

Look, just to start off by -- potentially about the optics of our release here, but we're very happy with the result. We achieved what was our budget for the year and probably against clearly a backdrop of some very challenging times for the customers we support around the world.

With not a lot of research, we can all see what's happening with the very large telcos and energy providers around the world which have all seemingly having been -- having gone through drops of revenue up in the high single digits and actually quite large impacts to their profits due to challenging conditions, et cetera. But I want to spend a bit of time as we chat today to try to explain what Hansen does and how the relationships with our customers is actually getting deeper and deeper as we try and solve some of these problems as we go forward.

Just for the backdrop of our organization. As always, this company was founded back in 1971, headquartered in Melbourne. Our software has always been around customer care and billing, but we're actually moving now more to that life cycle with customer acquisition and fulfillment and data management. So we're actually getting more of the cradle to grave for the customer management for our customers.

The industries, we've never really -- let's start from our industries, so across the gas, water and the communications being telco and pay TV. Big numbers now we are as we're spread around the world with some 1,500 staff and 30-plus offices, with an average tenure of 10, which, from an IT perspective, we're very, very proud of those numbers. Customer base, when I came into this business some 30 years ago, we had one customer to dissipate, or having our business now spread across 550 customers worldwide using our software and paying us for the rights of using that software, gives us a fair amount of security in that the decisions, which we've actually made and delivering upon it.

Also shareholders, my family has a stake of 18% inside the company, institutional with 46% and retail. That's just the background of our organization.

So what do we do? I think it's probably worthwhile touching on -- I'll go a bit later onto Sigma, so I don't want to spend too much time. But the whole customer management for our customers, so it's the fulfillment thing and what do we sell them, how do we sell it to them, how do we give it to them and how do we bill it. So it's the whole data billing and bundling aspects of what we're doing. So it's a lot more now around customer acquisition and fulfillment, really managing that customer life cycle. Certainly, and also helping our customers to sell more services, you just have to -- we'll probably hear for those from Australia, where we've seen some changes by the federal government, which are now putting caps on energy companies of how much they can actually charge by having to provide on all their bills now if there's a cheaper tariff made available to them. So a lot of our customers are now looking to sell beyond the core product and looking to be whether it be solar, maintenance of electricity and other services around batteries, et cetera. So part of our logic of moving into that acquisition fulfillment is actually moving more into that broader data set.

Certainly, data management, there's an amazing amount of data in both the communications and utilities market, which actually goes throughout and some of the work we do around just the importing and aggregation of that data and validating it. And the data's just getting bigger and bigger. And for those that heard us talk before, when we talk about the energy market getting to more and more data, clearly, the whole digitization of our industry now is this is the direction it's going, and we're very proud of the fact that we think that we've been ahead of that curve for some time now.

And then it comes down to billing and customer care, which is the -- probably the half. You've now got the services. You provision it to the customer, but now used it. Then how do we do it? And that's all the billing and the customer care, the aggregation of that build, the collection of that data. So you probably understand some of our logic of why we've invested in Enoro and with the Sigma business and data analytics, et cetera. You understand the way we've actually -- the mindset is to actually pan out that full relationship from our customers.

From a financial dashboard, the numbers, so the number of $231 million, with a very small contribution from Sigma. This year only $4.5 million. It was just the first month. It's only been a couple of months, which is -- we've owned the business for so far. Underlying profit and NPAT. So I think the revenue, Graeme, it's probably the Sigma revenue.

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Graeme Taylor, Hansen Technologies Limited - CFO [3]

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Look, I think just to talk to the revenue, Andrew, everyone can clearly understand, this has been a bit of a challenging year for our customers. But the portion of our revenue that's standing at 1.9% down without Sigma in the results is as we've gone forward and off the back of a really strong 2018. I think the other thing that's important to bring out at this point, our expense base has stayed pretty flat year-on-year and delivered an outcome of around a $55.8 million underlying EBITDA. And certainly, that's in line with where we felt we would be 12 months ago, recognizing the year that we were about to have.

So I think just turning into the next slide, Page 5, I guess is a representation now that everyone's familiar with that just talks about the underlying metrics of our business and how we're performing both from a revenue growth point of view or EBITDA and NPATA. Clearly, in an environment that we're in, with acquisitions being done across the globe, amortization of the underlying intangibles of our business are now forming quite a significant portion there. So I think when we look at NPAT now, we're very clearly looking at the performance of the business on an adjusted amortization basis.

Moving to Slide 6. Again, EPS and dividends per share and so forth, again a fairly common matrix that we put up for everyone to understand. I'd just like to spend a little bit of time talking about our debt because this has been a significant change in our business over the last 12 months. Certainly, as part of preparing for a major acquisition, Sigma, we went to the market and had a bit of a chat with the various financial institutions out there, and it was very, very pleasing to see the level of support, Andrew, that our teams have prepared to the business. Being able to secure quite a large facility on the back of our balance sheet and the recognition of the strong cash-generating nature of this business, it was great to see an ability to raise that in a market where debt is relatively cheap and we've been successfully able to leverage the balance sheet there.

So I think we moved forward into a period of syndication as well on that debt. So we now have a number of banks, syndicated groups supporting the business. And that indication was tied down very, very successfully with all of the participants. Actually, significantly oversubscribing to that facility, again, in my view, a very strong vote not only to the business' track record, but as I mentioned, its ability to generate cash out into the future. And I think we're looking there at a net debt position down at a $148.3 million. It's also important to note that post year-end, we've been successful to pay our debt down by $6.5 million, and that has got us to a point now where our leverage ratio is just a smidgen under 2 on a metrics that we're measured against, which is up at 3%. So certainly, the gearing aspect of our debt is not something that's going to restrict us as we move forward into FY ' 20.

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Andrew Alaxander Hansen, Hansen Technologies Limited - MD, CEO & Director [4]

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It's probably also pleasing, Graeme, that in the first -- start of this financial year, we've already paid some debt down. I think we might have our bankers on the phone, they're probably not happy about it, but I think we have a, what is it, a conservative view of managing our capital inside the organization.

So just on Page 7 now, which is the operational highlights. Look, we've -- it's been a good year as far as closing some deals. I think a lot of people would understand that some of the business we win today sees us well into the future. We know the life of our customers is probably anywhere from 5 to 30 years. So closing deals at the moment now and becoming instrumental in their transformation at the moment now, we just know we're continuing to be very much an annuity-based business and we just keep on loading on top of it. So we're very happy about that.

The analytics tool, which we talk about, we've got 20-plus customers, and given that's only been released, it's a very short timeline. We're very, very happy that, that operates in across America. At the moment now, another significant win here.

The Vietnam development cycle, not to belabor the point we might touch on a bit later on, but it's now at 100 people. But just to understand the significance of that, it exceeded our expectations. There's always a -- it's one step to go back when you do this because we have to take a productive staff and we have to train these people up. But we've been really impressed by the eagerness, the education standards and English standard, we're doing in Vietnam.

And across the board now between China, India and Vietnam, to probably have close to 20% of our staff now in lower-cost geographies is certainly something that we have to do going forward to meet some of the concerns of their customers and certainly, in those regions, which is just very hard as you'd understand to take the cost of the U.S. employee into India and things like that. It's just too expensive for them. So we're really happy about that.

And then Sigma, Sigma was a long-winded process, which we've been targeting for some years to get there, but very, very exciting as always to continue. As most people know, we've always had a view that we'll grow organically. But it's specifically important to Hansen that we have acquisitions which just fast-track the growth of our business, and that pipeline, well and truly, continues to exist.

On the revenue split, I think -- so this is an annualized look at the business if Sigma hadn't been there. So in the previous financial year, we were weighted to the utilities market at about 66%, with the communications about 32%. Incidentally now with Sigma, the balance across it has now gone 50-50. So it's around about 50% utilities and 47% communication. And also, geography, that good balance between APAC, Americas and EMEA, is one thing which is very important to Hansen. It's not necessarily having any of our eggs in the one basket, whether it be customers, products, region or currency going forward.

Graeme, do you want to talk revenue bridge?

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Graeme Taylor, Hansen Technologies Limited - CFO [5]

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Look, I think that this bridge is just, at a high level, talking about, as I mentioned before, the underlying decline in Hansen's revenue, around $4.5 million, and the contribution that Sigma made of about $5 million in the month of June as they were on our report. We acquired that business on the 31st of May. So certainly, that's a result of a very, very small amount of revenue growth there year-on-year.

Moving now to the next slide. I think, I mean, what's pleasing here, we've been talking to this for a number of years now about our strategy around really strengthening that underlying recurring revenue base. And as we look further and further for increased annuity revenues, we're all aware that we had a bit of a purple patch in the first half of '18 with the Power of Choice here in Australia driving some very, very strong revenue. But of course, that doesn't fit our recurring model particularly well. So this year was -- had increased maintenance and support fees, up $2.7 million. We're seeing that Power of Choice revenue fall away and some onetime license fees resulting in this $5.4 million reduction and of course, as I mentioned, the $5 million from Sigma coming in, for adding an overall revenue position of $231.3 million for the year.

Moving on to the EBITDA bridge now at Slide 11. I won't talk very much to the revenue piece. I think we've done that pretty much to depth. And we'll look at the major cost drivers there as the next components moving from left to right. We're seeing an increase in remuneration at around 2%, and considering the investment that we've been making in that area of the business with regional structure and so forth, by the time we allow for inflation increases, wage increases to our staff and so forth, we've really seen quite a strong level of cost control within this area.

We've seen some of our contractors reduced as a result of the initiatives we've employed across the business, and there's been significant savings in travel and professional services costs. And travel is always a growing aspect to our business. With the international nature that we have there, it's been very, very important and a number of initiatives have been run across the year to make sure that we're spending our money wisely on that front.

R&D capitalization continues to be the same. We look at that very seriously every year. In this digital age, we've got to make sure our products remain very market-focused, and so we very much continue to look at the return on investment on each of the initiatives as they unfold across the year. And as it's turned out this year, somewhere around $4.7 million of our revenue, we continue to invest back into our products.

EBITDA contribution from Sigma, well, it was just 1 month. At the end of the day, Sigma was just new into the fold, yes, that's $100,000, but we're very confident that Sigma is going to make a strong contribution across the year. And this is not particularly typical of where we see our Sigma business going forward.

We've looked at this year to talk to underlying EBITDA and a little bit because of the fact that we've had quite a high level of transaction cost this year, as Andrew mentioned. A lot of work went into looking at that Sigma business. And we do a lot of our due diligence ourselves in-house, but given the size of this particular transaction, it was obviously the legal fees and fees with accounting people, as I showed, that were doing all the various levels of analysis on this business. These folks supplemented our in-house counsel and my team here in Hansen to get an outcome, and so we've set aside that -- those associated costs just to have everyone clearly understand where the underlying positioning is at $53 million.

Moving on to Slide 12, underlying EBITDA margin, 24.6% this year. Again, we continue to strive for that 25% to 30% range. But as the business grows overseas, it's very important, and I think Andrew has mentioned it a number of times, it's important to keep making the investment in the likes of Vietnam. We also, through the Sigma acquisition, now have some 260 people within Pune in India that further enhanced that low-cost development center approach. But I think to expand a little bit on Andrew's point, we've gone from 9 people to 100 people in Vietnam this year, and with elevenfold increase across the year, that's not only involved in investment in infrastructure within Vietnam, but we've had to set aside some of our people to bring that knowledge into our team in Vietnam now. So we have seen some lower productivity outcomes elsewhere in the business as we train people. We bring them up to a level where they can contribute.

So when you look overall at that 100 people investment, you look at the controls that we've demonstrated -- cost controls we've demonstrated across that remuneration line, I think it's quite a pleasing result that we've been able to keep the margins where they are and make that investment that sets Hansen up very well as we look to grow the business into 2020 and beyond.

Moving on to Slide 13, cash flow. Look, I think the slide provides quite a bit of detail here. What I think I'd like to bring out in this conversation now is I think there was a little bit of concern about the buildup of working capital as we delivered our half year results. As we indicated, that position has freed up very, very quickly into January and through into the last half of the year.

I think it's also important you see that nice big blue column there as we've drawn some debt down and paid for Sigma. As I mentioned before about the support we received from our banks, it really is important to acknowledge the fact that they are seeing and acknowledging quite clearly Hansen's underlying ability to generate free cash, which once again is demonstrated here. The $27.6 million debt repayment you see there is associated a little bit with the debt that was repaid across the year as well as the refinancing of our old ANZ facility. So it's part and partial of the cash flow story there. And as mentioned before, we had, post year-end, paid down some $6.5 million as we start to commence 2020.

All right, Andrew. I'll let you to expand a little more on Sigma.

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Andrew Alaxander Hansen, Hansen Technologies Limited - MD, CEO & Director [6]

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Thanks, Graeme, and I'm sure Rick shall at one stage, he's going to say something. Otherwise, he's not in the meeting and he's just having a cup of coffee and a muffin at the moment now, and he's enjoying his muffin.

Look, if you can understand on the Sigma acquisition, that was really to extend the ecosystem as we see it with our customers and the whole life cycle by dealing with it. As I said earlier, we've seen, for some years now, the pressure that our industry, which we serve, has been -- come under it. And as we get deeper and deeper in the way we support our customers and require to their needs, you will understand Sigma.

So Sigma's business primarily is actually dealing in the communications market, at telcos around the world. And they're founded in 1996, et cetera, but it's all about taking those complex product and service offerings to get that faster relationship, that customer, to keep the customer engaged quicker and faster. But we bought the business for a whole bunch of reasons. Primarily, it was the extension of that business. The $163 million we paid, we think, was very fair and very reasonable for business. It was very earnings-accretive for us going forward. But I think the -- just to redrill the point down, it does expand the scale and scope in the communications sector for Hansen, but it does open up the market completely for the utilities marketplace. I think that, that cross-selling opportunity, which we're seeing at the moment now, is probably the area where we're probably most excited at the moment because the energy market is progressing.

I think we're all used to going and buying a mobile phone. When you buy a mobile phone, you get the plan. You might buy some extra data. You might be paying off the phone. There might have an insurance policy. So they are all different elements, and those elements have to give a product. And the energy market has aspirations to do something very, very similar on what they're actually doing and extend it beyond. We have actually one of the world's largest car manufacturers, actually uses Sigma software. So this is all about smart cars now. So smart cars, we'll actually now be actually talking with the car about servicing issues with the cars, et cetera, but it's allowing car companies now to that the first stage of how does the car, into the mode of vehicle ecosystem, work as far as fuel. Are you low on fuel, there's a dealer -- this service station 5 kilometers down the road. So we start to see just where the bundling of the communication-moving data, who have applicability outside our true major market sectors at the moment now.

We've actually kicked off a project office with one of our most experienced executives at the moment now. And that's really dedicated to implementing the efficiencies through the business. So we have a bit of a war room and a project office and the senior executive across the company, in our company, working from a cross-selling point of view, delivery efficiency, the account management efficiency, all the same things that we call Hansen-ization. We're right in the midst of all doing that at the moment now.

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Warwick Lee Sharp, Hansen Technologies Limited - IR Director [7]

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You mentioned a few energy...

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Andrew Alaxander Hansen, Hansen Technologies Limited - MD, CEO & Director [8]

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It's Rick, it's Rick. Welcome, Rick.

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Warwick Lee Sharp, Hansen Technologies Limited - IR Director [9]

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You mentioned a few energy customers that we've already got, that we've already started to talk to.

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Andrew Alaxander Hansen, Hansen Technologies Limited - MD, CEO & Director [10]

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He's just trying to steal my thunder. Look, in the last 2 months, we've actually taken the Sigma products into one, an unverified customer in the Americas, one in APAC and one in EMEA, where we have presented the Sigma product suite and working with key customers about the applicability that's solving their problems. And it's fair to say we have not had one pushback and has validated completely our reasons why we want to acquire Sigma. And I think we'll be looking forward to outlast maybe at least one of those deals in the next number of months going forward. So we've had some fantastic feedback on that point.

So just on Page 15, it's really just what is the products which they do. The catalog -- catalog is, as I touched on before, it's to do with the mobile front -- it's the building blocks to bring our product together, all the different elements you need to do. So it allows a telco energy companies to very quickly offer new product to the marketplace. These things are normally hard-coded in provisioning systems or even in your billing systems but catalog is where you actually start building, and it allows them also to do what-if scenarios and test the market very, very quickly.

So that market catalog of all the products, et cetera, configure price and quote. So the next thing you've now bundled those things, but you need to configure it, you need to price it, you need to quote it. So actually, you've now bundled these elements together. Now what's the price? How do you actually price it? Because we need that pricing details as it flows back into the system going forward when we're looking to charge the customer to know what's going on.

Order management, self-explanatory. You've now got -- you've configured a product. You price the product. Now the order needs to be processed. And that's the ordering, which actually takes it from a piece of paper to turning on the network, et cetera, to actually to be used, if the order made it to the fulfillment of that, inventory management.

Some products are finite, and so therefore, you can only sell so much bandwidth, you can only sell so many items. So fulfillment management is just the knowledge of what products you've got to sell and where you are. And it's very important it actually feeds right back into how many more you've got to sell and how you do your pricing.

The provisioning, the activation, deactivation and insights analytics. So there's now a data -- of all these data [in cluster here] just allows companies much, much quicker to interpret what is being sold to the marketplace, the take-up by the marketplace going forward. And just to rehash the point, which Rick made before. When we -- the reason we went down this is we just saw that the more and more of our customers were asking us to provide some of these services into the energy market, and it just made so much more sense for us to actually to be able to invest and buy product, which was already demonstrable 25-year history into the marketplace and just a proven track record here. They're putting the product in that marketplace at the moment now. And once again, Hansen has a very unique proposition, everyone, because there's no one who actually straddles both the energy and the telco markets like ourselves. Yes, there's big players in both but we're the only one now which goes across both of them. And to bring Sigma by themselves to get the energy market would have been extremely complex. The fact that we're able to open the door to hundreds of customers with subject matter expertise has sped the whole process. So very, very excited, guys, about our future at the moment now.

Last slide. Clearly, the outlook. Look, the work Hansen is doing to further entrench ourselves in the ecosystem of our customers and the further digitization of what people are doing, we're now at the very heart of that sit right now. We do have the people, the products, the services and the partnerships to drive in financial year for the -- '20 and ahead. We are aware that the industry we serve is under some pressure at the moment now. But it's that pressure they're under which actually makes more applicability to what we actually bring to the table. Old business practices are no longer applicable at the moment now. Those old manual systems don't work anymore. They need much faster, quicker to market. And I think some of the work which we've been doing in our strategic planning of entering into this marketplace, in that ecosystem, the investment into what will be some of our lower-cost development centers and the level of productivity, our systems and our processes are all playing out well for us at the moment now.

Guidance. Guys, we -- as more and more of our investors are asking us what's going on and the visibility of our business and the predictability of the Hansen business, we're proud to point everyone to where we think our year is going to be and what our guidance is with the year, it's somewhere between $305 million and $310 million, and EBITDA of $70 million to $76 million. It was a bit of a broad range but understand, I think everyone knows, we don't quickly ramp up staff and ramp down staff. There's some direct reflection on the revenues we take [that ain't] happens. So we think that's really good. And this step does include the full year of Sigma. It does exclude the impact of interest but I'm sure that's probably a topic now handled by nearly every public company at the moment now jostling with interest as we go forward.

As I -- we state here again and just once again to reiterate the point, our customers are really driving us for efficiencies inside their business. And the [wise ones pursue] those efficiencies and get to that level of profitability has really been the -- those new products like the Enoro and Sigma moving forward.

Financial year '20. Look, it's already great momentum. We've already I think may have 3 or 4 new logos and Sigma, 5 logos, Rick has just shown me a hand of 5. But 2 significant deals for Sigma in our first couple of months of ownership were very exciting to us as well. Those are significant wins for the business. We're very, very happy about that.

We're certainly expecting a lot more deals to come through the year. As I said, the point that we talked about before, the early very positive communication coming back from our customers has -- is very, very rewarding for the decisions we've actually made. So folks, we're excited by the future of this company and the prosperity of this business. We're excited by the opportunity that we continue to make cash. We're excited about capital management and we'll pay down debt but always a view there's other opportunities sitting in front of us. We are well on track to continue to improve the margins as we said some years ago around Enoro and now the Sigma business to get to that Hansen-ization numbers at the moment now. So we're very buoyed about the future and very excited about what's taking place.

So thank you very much for your interest and your attendance today. And I think I'll pass back to Edwin. If there's any questions, we'll do our best, if we can, to answer them. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Garry Sherriff from Royal Bank of Canada.

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Garry Sherriff, RBC Capital Markets, Research Division - Executive Director of Equity Research & Head of Australian Technology and Small-Mid Caps [2]

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I just have a handful of questions. The first one in relation to Sigma. So if I do some back calculations and I think you guys have said in FY '18, Sigma -- well, Sigma did $75.5 million revenue and you said you held it for a month. Now that would imply that the revenue should be closer to $6.3 million but you've stated you've gone $5 million. And I'm just trying to figure out, am I missing something here? Is that -- has Sigma started to go backwards? I'm not sure why there would be $1 million, $1.5 million difference for that 1-month contribution given their FY '18 run rate.

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Andrew Alaxander Hansen, Hansen Technologies Limited - MD, CEO & Director [3]

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I understand. Look, there's no doubt the Sigma business doesn't with -- over the years at Hansen, I think you probably understand we've moved more and more of our customers to annuity based where we try to flatten out revenues going forward. In Sigma, not as much. Sigma has probably been more license fees orientated, and so it's just timing. Each month actually moves around more than what the Hansen traditional business moves around. It's probably the easiest way to answer that question. I think once it comes into the Hansen business, that starts to normalize out across the board.

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Graeme Taylor, Hansen Technologies Limited - CFO [4]

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So nothing has really changed in terms of our revenue expectation. It's just going to be a bit lumpier from month to month.

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Garry Sherriff, RBC Capital Markets, Research Division - Executive Director of Equity Research & Head of Australian Technology and Small-Mid Caps [5]

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Okay. Yes, that's clear. And therefore, if we're talking about your guidance that you've provided, can you maybe just disaggregate what chunk is organic revenue -- rough organic revenue estimates, I guess, for that midpoint of guidance?

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Andrew Alaxander Hansen, Hansen Technologies Limited - MD, CEO & Director [6]

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Mate, you've got 3 of us looking to the sky. Look, probably not over the phone. But look, we'll take that on notice, Garry.

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Graeme Taylor, Hansen Technologies Limited - CFO [7]

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It's about a couple of percent.

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Andrew Alaxander Hansen, Hansen Technologies Limited - MD, CEO & Director [8]

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Yes.

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Garry Sherriff, RBC Capital Markets, Research Division - Executive Director of Equity Research & Head of Australian Technology and Small-Mid Caps [9]

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Okay. So 2% organic revenue growth and the remainder being Sigma. Yes, that makes sense.

The other question I've got in terms of you mentioned just early on the call that you might be in a position to announce deals perhaps in coming months in terms of cross-sell of Sigma into existing customers. Realistically, what are the verticals? I know you've talked about energy. Is it primarily energy? Or are there other verticals that you can sell Sigma into?

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Andrew Alaxander Hansen, Hansen Technologies Limited - MD, CEO & Director [10]

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Look, I think there are other verticals. I think it's one of these things. I'm probably putting a bit of caution across the company at the moment now. I think the eagerness sometimes that people are spreading ourselves and doing the shotgun approach, my absolute focus from the executive team at the moment now was to work with 3 identified customers who would spell out their problem and look to solve it. And to be honest, I think we want to win 1 or 2 of those to move it to the energy market. We want to get the language right, we want to get the marketing right so that we then have a very robust a tool going forward and resist the urge to try and satisfy the whole world. It's just I think it's too dangerous.

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Graeme Taylor, Hansen Technologies Limited - CFO [11]

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I think the other thing to remember, Garry, too, is that the Sigma business is very, very successful in the market that it's already focused in. So there's a lot of opportunity there. And to Andrew's point, it's important not to distract them too far from that as well. There is very real opportunity. We are not looking to leverage these cross-sell because we're running out of opportunity in that market space. Quite the opposite is the truth.

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Andrew Alaxander Hansen, Hansen Technologies Limited - MD, CEO & Director [12]

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Very, very good point. Their market is still going gangbusters at the moment now and we're just -- we're creating a business unit within the business unit to especially look at the energy market at the moment now, which is our main focus.

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Garry Sherriff, RBC Capital Markets, Research Division - Executive Director of Equity Research & Head of Australian Technology and Small-Mid Caps [13]

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All right. And a final question just around acquisitions. So you've talked about the acquisition pipeline in the past. I know that you're stating that commentary on customer headwinds continues. Has that had any change in vendor expectations? Can you give us some color on discussions with vendors and what they expect? Has that changed in any sense?

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Andrew Alaxander Hansen, Hansen Technologies Limited - MD, CEO & Director [14]

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Look, it's so hard to generalize an answer like that because whether someone is doing a carve-out or whether it's an owner-driver or whether it's owned by private equity, all have slightly different reasons behind. I think the pipeline of acquisitions, the case -- probably hasn't changed for 10 years, they're still sitting out there. And I think you know our approach to that. It is being patient and buying businesses at the right sort of price is probably a thing.

What's their price expectation at the moment now? We would constantly point the marketplace to the deals we are doing and what we're paying to actually set vendor expectations. So we -- I don't think there's any need to start overpaying for assets. I think that the Sigma is another one where I think our discipline just paid out against what the original expectation is as to what we actually paid. And I think that will continue to play. Now that's only general comments. Deal by deal, no doubt, there's a lot more color behind it. But generally speaking, I don't think that the situation really has changed much for the last 10 years for us.

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Garry Sherriff, RBC Capital Markets, Research Division - Executive Director of Equity Research & Head of Australian Technology and Small-Mid Caps [15]

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Yes, okay that's clear. Maybe just remind us on what those broad transaction multiple ranges are, would be my final question.

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Andrew Alaxander Hansen, Hansen Technologies Limited - MD, CEO & Director [16]

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Probably anywhere from 4x to, say, maybe 11x EBITDA multiple. The variation of that for everyone on the pool always comes down to what we call the bull's eye. It's the software that brought in there, the stickiness of the software. We tend to look at products from an evolution point of view. And that is where's the trajectory of those products? Where are they in their life cycle? There are some products which are towards their later life, and there are some products at the start of life. Sigma's products and Enoro products were at the very start of their lives because they had totally refreshed a new marketplace. And we've got -- naturally, being an old business, we've got some old approach. So you can imagine we could find a business which may only have 5 to 10 years left. We think in that technology before we have to start to invest into it. So we pay less if we got a business which we thought has just finished the major capital investment and we [bring] benefits from the up 10 to 20 year without any refreshing going on, we pay more for it. So it's a combination of the stickiness of revenue, the customer base, Tier 1, Tier 2, owning the IP, but really where are they in their trajectory.

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Operator [17]

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Your next question comes from Jules Cooper from Ord.

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Jules Cooper, Ord Minnett Limited, Research Division - Senior Research Analyst [18]

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Andrew, just following on from the comments you made around Sigma. The sort of the new business, the engagement you're having, I mean I'm getting the sense that it's maybe sort of slightly better than what you originally anticipated. But given the sort of the revenue model of Sigma, does that mean that you would expect maybe a little bit more margin than what they delivered? I think I might have guided to 25%, 26% previously. Or do you sort of see there being a bit of investment that needs to go into Sigma as well just to sort of establish it in those new verticals? Just to sort of understand how that new business success might play out on the margin in FY '20, the first question.

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Andrew Alaxander Hansen, Hansen Technologies Limited - MD, CEO & Director [19]

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Look, Jules, that's a good question. Clearly, there is a reasonable amount of investment we've got to take those products to make it into the energy marketplace. Just the language and the bundling and a whole bunch of new interfaces, there is some work. From a productivity point of view, they were like normalized the numbers. I think when you look at a business like the Sigma business, over 25 years, they've had their ups and their downs, as they have gone forward and bringing the house of Hansen a bit better. I think where the margins actually comes from, Jules, and they don't happen overnight. Hansen-ization, the way we wish to engage with customers, our preference of actually having annuity strings [run upfront] license fees, et cetera, we will change their model around. And that's dear to our heart what we try to aim on that. I think the other thing, Jules, is when we look at where can we get the best cost efficiencies inside the business. As an organization around the world from account management sales, you don't get those from day 1, but you would like to think there's some efficiency. We don't like to talk too much. We don't buy these businesses with a view. We've got to go and cut a whole bunch of heads. That's never, never been our focus. It's always been how do we optimize our business and actually go to that next stage of stepping up going forward. So we would certainly like as Enoro and Sigma's margins, unless our margins improved, and continue to aim for historical high numbers, which Hansen's been able to deliver.

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Jules Cooper, Ord Minnett Limited, Research Division - Senior Research Analyst [20]

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Right. And just a couple of others. You did make sort of a comment earlier just around the organic growth implicit in the revenue guidance. Could I just ask, given the normalization we've seen in the current year around the project revenue, would you expect that to now be at a -- what would be the trend as you look into next year based on your order book and your understanding of your customers? Is that further decline, flat, even up here? How do you sort of see that project element panning out this year?

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Graeme Taylor, Hansen Technologies Limited - CFO [21]

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It's probably fair to say in that respect, Jules, that FY '19 is a very good base year to work off in terms of that project revenue. So as we've mentioned before, first half '18 had a bit of a purple patch there with a bit of extra project revenue. FY '19, a good base to work off in terms of project revenue. Nothing in particular out of the ordinary occurred.

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Andrew Alaxander Hansen, Hansen Technologies Limited - MD, CEO & Director [22]

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I think what's interesting, Jules, is we've made the point here. The customers we are supporting at the moment, they are under financial pressure. I can tell Telstra is not running around giving more money out to the team. They are trying to extract as much value out of every dollar they spend. And it's a good one here. And second, it's given to us or how can we actually get more value for what we actually do? This is a long ways and it's not all about making a profit in the next month. This is about how do we make a profit for 10 years. And I know that's the way which we think about things, and there is some headwinds in that industry, and that's plain for you to see. The fact that we've not got a pro rata reduction albeit at that same headwind is probably outside testament to the way we run our business. So we're not hinged to the wagon. They dropped down by 10%, we dropped down by 10%. I think we've got well ahead -- went ahead of the curve from a technology point of view in our cost of serve to actually give a better value for every dollar they spend that what they used to in the past. And that part you could value the supply.

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Jules Cooper, Ord Minnett Limited, Research Division - Senior Research Analyst [23]

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Right. And look just on Vietnam, obviously a very big increase in headcount there. When you make the comment that you'd expected to be, I think you used a couple of years before you see the benefit on the margin, is that reflective of sort of how long you think the efficiency will take to improve from those people? Or is it more a function you continue probably to expand the team and then you're sort of probably expanding for the next couple of years? Just don't know whether it's -- how we should think about that commentary around the margin.

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Andrew Alaxander Hansen, Hansen Technologies Limited - MD, CEO & Director [24]

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Jules, look, it's very simple math. If I -- if you bring a new person in who's got no knowledge and I've got a productive person sitting next to him, so the productive person stops doing productive work to train that person. So if you look at the net effect of the first day someone comes in, I've got the wages for 2 people but they've done no work. So when you work out how many months it takes us to train somebody up, so now you extrapolate that from a day to maybe doing it for 6 months. So you've got 6 months of time not being productive, and but you're paying for 2 people and you've still got no productivity. So the end of curve starts to improve when all of a sudden the person's training's coming up and they start to be being productive.

So it then takes you X amount of months after that to get your investment back before you start to make the model. And to tell you the truth, if I had a whiteboard now, it's about 18 months for the payback to commence. So -- and but you do get the benefits come in quick because otherwise it's stated, but if we're hiring some staff in some regions at $0.30 or $0.40 in the dollar, the payback comes back really quickly once you get it there. But it's as simple as that. Training someone up, the good competent staff then just stops being productive training up that person. So go -- you take 2 steps back a month, you spend more money and you get less done.

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Jules Cooper, Ord Minnett Limited, Research Division - Senior Research Analyst [25]

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Understood.

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Andrew Alaxander Hansen, Hansen Technologies Limited - MD, CEO & Director [26]

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And people make that mistake. We knew exactly what we're doing, hence that's why we started on that journey a couple of years ago.

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Jules Cooper, Ord Minnett Limited, Research Division - Senior Research Analyst [27]

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Yes. And just that last one given you don't have perfect alignment across revenue and costs in every market, are you just maybe able to give us some sense for the impact that currency might have had on the EBITDA just in the current year?

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Andrew Alaxander Hansen, Hansen Technologies Limited - MD, CEO & Director [28]

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Look, Graeme is whispering the number of $1.5 million. Jules, look. It's still reasonably well hedged, Jules, across the business, even though geographically, where people sit, it's not the same. But as you know and very similar to Sigma, the deals in Asia are done in U.S. dollars. We do have a Toronto-based cost out in Canadian dollars against U.S. dollars and you have the strengths and your weaknesses. But we don't pay an enormous amount of attention to currency movements because of that natural hedge we think we have in our business.

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Jules Cooper, Ord Minnett Limited, Research Division - Senior Research Analyst [29]

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Sure. And just to -- that's $1.5 million positive benefit?

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Graeme Taylor, Hansen Technologies Limited - CFO [30]

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Yes, yes.

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Andrew Alaxander Hansen, Hansen Technologies Limited - MD, CEO & Director [31]

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Yes.

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Operator [32]

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Your next question comes from Nick Burgess from Baillieu.

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Nicolas Burgess, Baillieu Holst Ltd, Research Division - Equity Research Analyst [33]

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Two questions. If I can just follow up on that previous point. So that was $1.5 million positive at the EBITDA line or revenue line?

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Graeme Taylor, Hansen Technologies Limited - CFO [34]

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EBITDA.

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Nicolas Burgess, Baillieu Holst Ltd, Research Division - Equity Research Analyst [35]

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EBITDA. And what was the approximate impact on revenue?

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Graeme Taylor, Hansen Technologies Limited - CFO [36]

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That's $7 million if you're using average FY '18 rates.

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Nicolas Burgess, Baillieu Holst Ltd, Research Division - Equity Research Analyst [37]

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Okay. Second question, just going back to Slide 7 where you talked about some of the operational highlights. You talk about particularly the Nordic region. So can we read from that, that the Enoro business is going well? And I guess any reflections on how that business is traveling specifically? And I guess given that, that was acquired at a lower operating efficiency, a lower operating margin, how the operating metrics of that business are tracking along a couple of years down the road?

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Andrew Alaxander Hansen, Hansen Technologies Limited - MD, CEO & Director [38]

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Yes. Look, I think, Nick, it's fair to say that the Nordics are actually performing quite well at the moment. They seem to be a little bit immune from what's happening in China and the U.S., that trade war at the moment now, they don't pay a big part in it. We -- from our own observations, we still find -- we've actually seeing that they talk about the strengthening American economy at the moment. We find it a little bit on the weak side. But we find the Scandi companies in Finland, in Norway and Denmark are actually trading quite well for us at the moment now and lots of opportunities coming up. So now Enoro is certainly going and certainly well on target to what we're trying to achieve with margin on the way up.

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Operator [39]

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(Operator Instructions) There are no further questions at this time. I would now like to hand the conference back to Andrew. Please continue.

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Andrew Alaxander Hansen, Hansen Technologies Limited - MD, CEO & Director [40]

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Well, look, I'd like to thank everyone for attending the call and your interest today. We look forward to a great year ahead. I wish everyone well. Thank you so much.

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Operator [41]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may all disconnect.

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Andrew Alaxander Hansen, Hansen Technologies Limited - MD, CEO & Director [42]

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Thank you.