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Edited Transcript of LNK.AX earnings conference call or presentation 29-Aug-19 10:59am GMT

Full Year 2019 Link Administration Holdings Ltd Earnings Presentation

Nov 22, 2019 (Thomson StreetEvents) -- Edited Transcript of Link Administration Holdings Ltd earnings conference call or presentation Thursday, August 29, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew MacLachlan

Link Administration Holdings Limited - CFO

* John M. McMurtrie

Link Administration Holdings Limited - MD & Executive Director

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Conference Call Participants

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* Brendan Carrig

Macquarie Research - Research Analyst

* Edmund Anthony Biddulph Henning

CLSA Limited, Research Division - Research Analyst

* Edward Pham

Morgan Stanley, Research Division - Research Associate

* Kieren Chidgey

UBS Investment Bank, Research Division - Executive Director & Research Analyst

* Nigel Pittaway

Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst

* Siddharth Parameswaran

JP Morgan Chase & Co, Research Division - Research Analyst

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Presentation

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Operator [1]

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Thank you for standing by, and welcome to the Link Administration Holdings Limited 2019 Full Year Results Conference Call (Operator Instructions)

I would now like to hand the conference over to Mr. John McMurtrie, Managing Director. Please go ahead.

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John M. McMurtrie, Link Administration Holdings Limited - MD & Executive Director [2]

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Good morning, everybody. 2019 has been a tough year for the company. Our business is navigating both macro and regulatory pressures, including changes in superannuation regulation in Australia and market uncertainty from Brexit. However, our conviction remains strong and our medium- to long-term strategy remains extremely sound.

We have a good business operating in growing markets with good prospects for future growth. Our business remains resilient having secured a number of things: year-on-year revenue growth of 2.8% on a like-for-like basis; major contract renewals, including AustralianSuper and REST, securing over $300 million of annual revenue from continuing operations. Strong recurring revenues that still represent over 80% of total revenue, with cash flow conversion remaining high at 95%.

We continue to enhance the quality of service provided to clients in the most efficient manner. We refined our operating global model in the year to have 5 global divisions: industry, [manner], operations, technology and service delivery.

We have completed the integration of LAS into the wider Link Group, giving us the benefits of common platforms and systems.

We substantially completed the Superpartners integration, and we have also completed the divestment of our CPCS business and announced the sale of our registry business in South Africa subject to regulatory approvals. This simplifies our portfolio going forward, allows us to focus on the key areas of growth. We believe that we are in a strong position to achieve future growth over the medium term.

In RSS, we are seeing very strong underlying member growth of 3.9% per annum. We are looking to expand our European operations. We've increased our investment in PEXA in February of this year. This continues to perform strongly. And finally, we finished the year with a strong balance sheet, providing Link Group with a range of capital management opportunities we'll outline a little later.

I'll now turn to the financial results for the year, where in addition to the financials, I'll also share a range our initiatives that will take us forward.

In terms of financial performance, our revised guidance has been met, with the macro, political and regular changes having weighed on the performance as we flagged previously.

Revenues are $1.4 billion, up 17%. Operating EBITDA, $356 million, up 6%. Operating NPATA of $202 million, down 3%. Operating earnings per share, $0.379, down 9%. Statutory net profit after tax of $320 million was up 123%. This reflects the profit on sale of the CPCS business and the revaluation of investment in PEXA in connection with the increase in our investment to 44%.

Off the back of these results, the group is pleased to announce a final dividend of $0.125, reflecting $0.04 per share related to the profit on the sale of CPCS. This will take the total 2019 dividend to $0.205, the same as the prior year.

Looking forward, Link Group is already executing on a series of initiatives to drive both short- and medium-term shareholder value.

Firstly, the integration of LAS allows us to launch a single global transformation program and absorb all existing efficiency programs. We anticipate this will deliver annual savings of $50 million from 2022 with a one-off cost of $50 million to $60 million up to that period. Secondly, we've launched an on-market share buyback program to purchase up to 10% of issued capital. And thirdly, we continue to assess the optimization of the group's business portfolio.

We also have additional strategic options available to us that are currently under consideration. This include: executing on an entry strategy to the U.K. pension market, which continues to be a strong market with good growth fundamentals. This tends to mimic the Australian superannuation system. Further expansion of LFS and BCM into Europe. We've already taken BCM into Amsterdam and Italy. And in relation to PEXA, looking at potential capital returns now that the business has moved to positive cash flow territory following an investment of $300 million in the ecosystem.

As far as the outlook is concerned, we remain confident that our medium-term growth potential remains strong while we manage through some short-term challenges. The 2020 operating EBITDA of the continuing business is expected to be stronger in the second half, and overall, broadly in line with fiscal '19 after taking account of the divested business divisions.

The projected lower contribution RSS will be offset by growth in our other divisions. We forecast RSS to have revenue of $480 million to $500 million per annum and an operating EBITDA of $60 million to $70 million following the step changes in revenue resulting from PYS as well as previously announced client losses and client mergers.

Underlying member growth remains strong. We expect this tailwind to continue in the aftermath of the Royal Commission and projected government responses. Looking forward, we are confident in growing revenues in the medium term. While margins will be compressed this year, transition to global operating model and the continued investment in this division should contribute to margin improvement. We've also announced today a share buyback program of up to 10%, reflecting the strong conviction we have in the medium- and long-term future of the business.

Turning to Retirement & Super Solutions. The regulatory challenges have been well documented. I should remind everybody that in May last year -- May 2018, the government announced the series of initiatives to reduce the incidence of duplicate accounts in the system. This, by Christmas, appeared to be unlikely to pass the parliament. In February, just prior to the more conventional proroguing of parliament, the initiative went through the parliament and we are now -- we've been in the process of executing on this. The final impact will be felt in 2 bursts, in October this year, when there will be sweep of low-balance accounts to the ATO and another sweep in April of 2020.

This, however, we believe, creates future opportunities to Link. This has provided pressure on the entire industry, but the impact is that duplicate accounts by April next year will largely be taken out of the system. The regulatory focus is appropriately raising the bar for all the industry participants. We're in a great position to support all of our clients in contrast to some of our competitors.

In the last 12 months, we've renewed 10 key client contracts, securing over 50% of the division's revenue. We've also recorded underlying member growth of 3.9%. The strongest it's been in a number of years. RSS revenues in this last year of $551 million was down 2% from the previous year, with EBITDA down 13%. Revenues were impacted by client losses and client merges but supported by the work attached to the regulatory change program. The decrease in the operating margin is largely a reflection of reduced revenue and the operating leverage within the division.

Margins were also impacted by the increased pressure the division is currently facing. Implementation of the PYS program in itself is a large body of work, requiring significant focus. Nine months of work was channeled down to 3 with the original time frame not being adjusted when it passed through parliament in March of this year.

I should also add, in that respect, there were further changes sitting in parliament. Now we would employ the regulators and the government to slow this down so as not to cause further intense pressure on clients and also our own operations. We have, however, been successful in delivering on the PYS program, especially in the very short time frame. Link Group is well-placed to support our clients with the resources and expertise to meet the demands of the heightened level of regulatory focus.

Turning to LAS. It's delivered a stable financial performance in an environment where Brexit continues to weigh on business sentiment. Revenue for the continuing business was up 4% on the year, with operating EBITDA up 0.5% over the same period.

Looking at the chart in the top left, the underlying strength of the division is evident with the steady growth of recurring revenues over the last 2 years. When considered against the Brexit backdrop, this is a terrific achievement and validates the resilience of the business. Brexit had a more prevalent impact on nonrecurring revenues and particularly impacting on our LMS registry business.

A great pillar of work has been undertaken to ensure the division and their clients are well-prepared for whatever Brexit outcome is reached on 31st of October. We do operate across multiple European jurisdictions, with established operations in U.K., Ireland, the Netherlands, Luxembourg and Italy. The diversity of this footprint will provide us with the flexibility to offer solutions and services to our clients irrespective of the Brexit outcome.

LMS, as I said, has been the unit that's had -- felt the impact most. We're making further investments in that business to strengthen its client offering, offer cross-sell of all services and to upgrade on the technology platform.

We continue to win business and IPOs despite the tough market but fair to say, the IPOs that were flagged probably at the beginning of calendar 2019, many of them have not been executed due to Brexit uncertainty.

As you would be aware, the Woodford Fund remains close to redemptions as it continues to work through a rebalancing of its portfolio. Link Fund Solutions continues to work with the regulator to progress its investigation and we're unable to make any further comments on this confidential matter except that we continue to operate in the interest of investors.

We remain in active dialogue with our clients and pleasingly, we had no client losses in the second half of 2019. In fact, the business has won and onboarded 1 new client and it's actually been appointed to manage another client by the end of the calendar year. This will be the last time we will present LAS as a single business division. In 2019, we officially separate it from Capita and have commenced the global realignment of the divisions, which will be the way we report on moving forward.

Corporate Markets continues to win new business, and revenue was up 4% in a continuing competitive environment. The EBITDA is down 10%. This division will greatly benefit from our global transformation program as we align our operations globally to drive efficiencies.

Our strategy has been and continues to be of growing the business through an integrated product suite. We also have a more developed end-to-end offering than any of our competitors, and this is underpinned by a platform that continues to leverage technology.

In the Australian market over the past 2 years, we've increased the number of clients using 7 products or more almost fourfold from 19 to 73. Further opportunity exists and this is the blueprint for our international Corporate Markets business.

Earlier this week, we announced the sales of our Registry business in South Africa to JSE. This follows -- followed an approach from the JSE late last year, which we regarded as a compelling offer. Since entering that market in 2006, we've grown the value of that business at an annual CAGR of over 25%, the value of taking a long-term view of the business. We believe JSE will be an excellent major shareholder. We do have ongoing marketing and other arrangements with them to support dualistics. We expect completion to occur before the end of this calendar year subject to regulatory approval.

Technology & Innovation division has delivered another pleasing result, with external revenues continuing to grow year-on-year. Revenue grew by 12%, and operating EBITDA by 9%. This division will clearly be central to the global transformation program. We'll be establishing and implementing standardized systems and approaches across the globe by Centers of Excellence for key areas and processes such as information security and IT development.

We have a great opportunity to increase scope and specialization of these hubs across the globe, removing duplication, allowing for deeper specialization. A global rollout of workflow and productivity tools will also maximize operation leverage while enhancing our service levels.

PEXA. PEXA continues to go from strength to strength, following, as I said, an investment of over $300 million to create an ecosystem. Volumes continue to grow and are tracking ahead of last year's forecast, with both revenue transaction in fiscal '19 more doubling over the prior year. The business is now equity accounted following our increased shareholding to 44% and contributed $2 million for operating NPATA in 2019.

I'd just like to remind everybody, PEXA was designed back in 2010 under COAG sponsorship, where the federal government and the states we're trying to design a system to provide benefits to land registries, state-based -- state revenue authorities, conveyances, lawyers and importantly, owners of property and buyers and sellers of property. These targets are well and truly being met and when you look at the charges of PEXA that appear on individuals' statements from a property transaction, they are almost embarrassingly small to be of any consequence.

In the meantime, PEXA remains committed to ongoing investment and encouraging the move to electronic settlement and systems, somewhat akin to the move to CHESS in the mid-1990s.

The earnings growth will provide an opportunity for shareholders to assess introducing debt into the capital structure and providing a capital return.

We've reorganized our global business units. From the 1st of July, we've organized into 5 global divisions that was well publicized at our Investor Day in June in London. These 5 divisions will allow us to better execute in a consistent basis and to drive strong business performance and further efficiencies. A recap of the historicals would be provided in the market ahead of the first half operating results expected in February of 2020.

Global transformation program. We continued to focus on continuous improvement, always have done, always will do. We're upping the ante in our global transformation program now that we're a more global business. We've got an envelope now that extends from New Zealand right through into Europe. We expect this program to deliver annual cost savings of $50 million by the end of fiscal '22. The work on this has already commenced.

Significant programs of work include: establishing centers of excellence and leveraging our existing and long-standing Mumbai operations; vendor consolidation and decommissioning of legacy systems, productivity and workflow tools to deliver increased operational efficiencies. A one-off program cost expected to be in the order of $50 million to $60 million, offset, as I said, by a substantial savings.

Before I pass to Andrew, I'd like to remind investors, we've always invested for the long term and we continue to do so. We operate a competitive business and have built strong positions in the markets we operate. We continue to invest in our business to enhance the relevance for our clients, we apply disciplined approach to evaluating our portfolio as demonstrated by the sale of CPCS and we have a strong culture of continuous improvement as evidenced by our global transformation and simplification program. Our business is resilient and has a strong platform for medium-term growth.

Thank you. Andrew?

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Andrew MacLachlan, Link Administration Holdings Limited - CFO [3]

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Thanks, John. I'll now go through the full year results to 2019 in some more detail. Whilst the past years had its share of short-term challenges, including Brexit in the U.K. and regularly change in the Retirement & Super Solutions market in Australia, the underlying business remains strong. We see evidence of this in top line growth; member growth in RSS, as John has mentioned; cross-selling success in Corporate Markets; and the continued growth in T&I external revenue and operating EBITDA. I was particularly pleased to see the strong rebound in operating cash conversion in the second half, which delivered on the commitments we made at the half year.

On operating costs, we recognize we have more to do, with a number of our business divisions feeling margin pressure from regulatory change and competitive markets. Which is why, as John has discussed earlier, we've announced our global transformation project. This will improve the quality of service to our clients and deliver $50 million in annual cost savings by the end of FY '22, as John has mentioned.

During the year, we have also laid some very important foundations for future growth, which I'll discuss in some more detail as we go through the results for each business units. Starting with our overall revenue and operating EBITDA for the year. You'll note that we've shown the contribution of the divested CPCS business in both the revenue and operating EBITDA slide. This illustrates the performance of the continuing business.

As we indicated at the Investor Day in June, our operating EBITDA performance of $356 million, or $321 million, excluding CPCS, is in line with the guidance we provided. Excluding CPCS, our operating EBITDA of $321 million reflects a full 12 months contribution from the remaining LAS divisions and a stronger contribution from T&I, offset by a softer performance in RSS and Corporate Markets.

Margins are down on the prior year, reflecting changes in revenue mix and higher operating costs, coupled with the impact of historic client losses in RSS and competitive pricing pressures in Corporate Markets. Competitive markets are not new. So redoubling our efforts for cost control is a major focus for the management team in the year ahead, which I'll come back to later in the presentation.

Turning now to the overall P&L summary. The numbers in this slide are our statutory results, including CPCS. I'll discuss the individual division performance in later slides so I'll focus here on the below-the-line items.

Non-acquisition-related depreciation and amortization has increased by 49% on the prior year. This reflects the full year impact of LAS and the impact of high CapEx and the change to the revenue accounting standard during the year. Excluding the impact of the new accounting standard on leases, we would expect D&A in FY '20 to be between $85 million and $90 million. Interest expense for the year has also increased considerably, reflecting the largely debt-funded acquisition of our 44% share in PEXA in January 2019.

Weighted average cost of debt is expected to be around 3% for the year ahead. Following the completion of the sale of CPCS in June 2019, net debt leverage remains comfortable at 1.8x, which I'll come back to later in the presentation.

Operating NPATA was $201.5 million, which is down 3% on last year, and statutory NPAT of $320 million reflects the large one-off gains from the PEXA revaluation and the profit on sale of CPCS.

This next slide provides some more detail on the reconciliation between our operating results and our statutory results. I've already mentioned the large one-off gains recognized on the revaluation of PEXA and the profit on sale of CPCS, which, as you can see, were a major component of the bridge between operating NPATA and statutory NPAT.

I'll also reflect on significant items of $58.7 million, which are up on the previous year and reflect the ramp-up in the integration and transformation activity in LAS during the last 6 months. As John mentioned, during the year, we successfully completed the separation from Capita and integrated our shared services systems, although this did turn out to be a more complex and costly exercise than we had originally anticipated.

Otherwise, I'd also direct your attention to the PEXA reconciliation table at the bottom of the slide. This highlights the components of the PEXA result we've included in our own results for the period since 16th of January 2019. As John's highlighted earlier, PEXA performed strongly, and we see it as a significant growth opportunity in the substantial Australian real estate market.

Before I turn to the pro forma numbers by division, I'll cover the group's cash flows for the year. I'm pleased to report the seasonality and actions we spoke about at the half year have resulted in a better working capital performance in the second half. Net operating cash flow for the year increased by 6% to $339 million, and operating cash conversion in the second half was 118%, resulting in the full year conversion result of 95%.

This reflected a stronger receivables performance, partly offset by higher prepayments and lower levels of payables and provisions.

Cash tax of $69.2 million was up 71% on the prior year. This reflected a full year of higher tax installments in Australia, coupled with the full year impact of LAS.

CapEx was around 5.7% of revenue, slightly higher than last year, and reflecting increased investment on new systems and technology refresh programs across all of our key jurisdictions. We continue to see strong business cases for the rollout of workflow and productivity systems across the business and expect to realize the benefits of this spend in future periods.

Acquisitions and divestments of $52.7 million includes cash outflows associated with the acquisition of 44% of PEXA, the investment in Leveris and other smaller acquisitions in India and the Netherlands, offset by cash inflows of GBP 240 million from the sale of CPCS.

To assist investors and to help year-on-year comparison, the financial results in the remainder of this section are presented on a pro forma basis. This excludes CPCS in each year and includes the LAS businesses for a full 12 months in 2018.

As we illustrate here, the pro forma results of the continuing business show a revenue growth of 2.8%, but operating EBITDA reduction of 3.7%. I'll discuss the key drivers of this result in the next few slides.

Starting with our overall Link Group revenue. We show here the splits between recurring and nonrecurring revenue for the current year and the prior year. As John said, we see the high level of recurring revenue as an underlying strength of the business and it remains above 80% of the year, growing by 3.5% on the previous year. This demonstrates the resilience of the business.

Nonrecurring revenue was flat for the year, which reflects lower levels of these revenue streams in the U.K., especially in the second half of the year, as we indicated at the May trading update. This was offset by growth in RSS fee-for-service revenue.

Turning now to the divisional performance. Retirement & Super Solutions, or RRS, previously Fund Administration, had a challenging year as John said. The headline financial here results indicate as well that we were pleased to see underlying member growth continued to remain strong at almost 4% for the year. This was up from 2.4% at June last year and accelerated from 3.6% at December 2018.

RSS revenue and operating EBITDA were both down on the previous year, which reflects the historic client losses and fund mergers we previously advised. If you exclude the impact of these losses and mergers, underlying recurring revenue grew by $7.6 million.

Nonrecurring revenue grew by 13% for the year, which is a good result considering the softer first quarter and reflects the major regulatory change program, particularly in the last 6 months.

Operating costs in RSS grew by $6.2 million. This reflects some volume and activity-driven costs related to the regulatory change projects, especially the PYS legislative change as we highlighted in the May trading update.

We also saw elevated levels of claims and migration-related costs in the year, which we expect to moderate in FY '20. Coupled with a lower revenue, this resulted in a fall of $15.4 million in operating EBITDA for the year.

On this slide, we set that the 4-year trend of recurring and nonrecurring revenue for RSS, which does illustrate the change in mix over the period as nonrecurring revenue has helped compensate for the reduction in recurring revenue. Lower recurring revenue over the 4 years reflects the Superpartners' discounts, plus the impact of client losses and fund merges.

I do want to spend some time on the guidance chart towards the bottom of the slide. We have listened to the feedback and we've tried to make it easier for investors to forecast FY '20 by providing this guidance today. Set out in the bridge on this slide is the buildup of revenue guidance range of $480 million to $500 million for FY '20. It's clear from the bridge that net client losses and mergers and the impact of the PYS legislative change has been a major onetime impact on recurring revenue in FY '20.

We've also taken a prudent view that nonrecurring revenue will be lower in FY '20, although this is more difficult to forecast, given that's driven by client and regulatory activity, hence, the range provided.

The growth revenue range in the last box provides a combination of underlying member growth and indexation-related impacts and provide us with confidence around growth from this lower base.

Together with the benefits from the global transformation program, we expect to see margins recover from this lower base.

Now turning to LAS. We set out on this slide both the actual results for the year and the actual comparative for the 8 months in 2018 in Aussie dollars, but of more relevance are the pro forma in sterling. These numbers exclude the divested CPCS business and are presented on a 12-month by 12-month basis, and I'm going to focus my comments on these numbers.

As we mentioned at the May trading update, this division has felt the impact of Brexit uncertainty in the last 6 months in particular. Notwithstanding that, LAS continued to grow its revenue over the previous year at 3.8%, which demonstrates its resilience. We won new clients and saw the benefits of previous client wins such as LGPS on our revenues. We expanded further into the Netherlands banking credit management market with the acquisition of FlexFront in the second half, which complements our previous acquisition of Novalink in 2018 and completes the build-out of an end-to-end loan servicing proposition in this large market.

We realized GBP 8.1 million of integration benefits in the year and are on the track to achieve the $50 million target that we set at the time of the LAS acquisition.

Offsetting this, we did see some additional costs related to new business wins, IT and data security and expansion into new markets. The net result was an operating EBITDA of GBP 53.2 million.

On this next slide, we provide some more detail on the LAS constituent businesses and their contribution to the overall segment result.

As John's highlighted earlier, LAS has remained resilient in challenging times, which demonstrates its underlying quality. As you can see from the slide, LMS did see a reduction in nonrecurring revenue year-on-year, especially in the second half of the year, due the Brexit-related uncertainty. This was a significant reduction in -- there was a significant reduction in share-dealing revenues and the slowdown in IPO activity, as we flagged.

There was a concern raised at our Investor Day in June around client losses in this division. Whilst we have seen some losses, which we've discussed, LMS still won 34% of IPOs coming to market and kept its recurring revenue flat for the year.

Winning and retaining clients is a key focus for this business. Link Fund Solutions continues to be a strong performer. Overall revenue growth was above 10% again, and we saw new mandate wins and no client losses despite the Woodford issue. Overall FUM is now approaching GBP 100 billion and is up considerably from a year ago.

Banking & Credit Management also recorded solid revenue growth of 7% and had a number of client wins, which offset losses from nonperforming loan runoffs and portfolio sales.

Looking now at Corporate Markets. This division operates in multiple jurisdictions with ANZ comprising around 64% of the total revenue, with the remainder coming from European and Asian jurisdictions. As we announced earlier in the week, we've sold our 75% interest in Link South Africa to the JSE, subject to regulatory approvals. And going forward, this division will be combined with the LMS business in LAS to make up a larger global Corporate Markets division.

The results for last year for this division were mixed. We saw solid top line revenue growth of 4.2% but our cost grew at 9.2%, resulting in our margins falling to 22%. As we've previously said, Corporate Markets operates in highly competitive markets and we saw the impact of this, coupled with some investment in some of our newer businesses, including Hong Kong registry and LFS Australia on our margins during the year.

As John's highlighted earlier, we've seen good results from our strategy to cross-sell products to our client base and from a volume perspective, we added 130 net client wins across all of our jurisdictions.

We've also added scale to our Indian business with the acquisition of TSR Darashaw in May to service the Tata Group of Companies amongst others, and this adds around 7 million additional shareholders to our existing Indian business.

This next slide provides some further color behind the Corporate Markets revenue results. As I've already mentioned, we've driven good volume growth resulting in continued new client wins and the sale of additional products to our existing clients. Today, we service around 4,700 clients across our various jurisdictions. And John pointed earlier to the success we're having in selling multiple products to our existing clients. This not only adds to revenue but also drives client retention. So it's a big part of our strategy in this division going forward.

Nonrecurring revenue is subject to market conditions and reflects the actions undertaken by our clients. Growing our client base also helps increase the probability of benefiting from nonrecurring revenue into the future. During the year, nonrecurring revenue remained flat with the prior, although we did see a return to more normal levels in the second half as the tram tracks chart on the slide indicates.

We continued to see good growth opportunities in Corporate Markets through the deployment of our global suite of services and by growing market share, both organically and through disciplined acquisitions in our target markets.

Moving on to our Technology & Innovation division. This division has performed well in the year with good growth in external revenues and margins recovering in the second half to 34.7%. This ensured full year margins remained above 30%. I'll come back to the revenue profile in the next slide.

Cost growth in this division was 13.7% on the prior year. One of the major reasons for this was revenue-related cost growth in communications and digital services.

Our communications business, in particular, benefited from a significant increase in activity from the regulatory change program, which flowed through the cost base as well. As we highlighted at the half year, we've also incurred elevated costs from client migration and remediation activity. These costs have now normalized.

Finally, cost growth reflected an increased level of investment in cloud, IT and data security and new application support, which was partly offset by Superpartners' integration savings. As John said, the Superpartners' integration program is now substantially complete, with run rate savings of $41 million as at 30 June 2019, and it will conclude in FY '20 as expected.

Coming back to the revenue breakdown for this division. The slide here shows the split between internal and external revenue, with external revenue now hitting 35% of total revenue.

If you recall, at the time of our IPO, external revenue in this division was only 22%. So this has been a good growth story.

One of the largest contributors to this was our Communications business, Link DigiCom, which has successfully transitioned from a standalone traditional prudent [mile] house a few years ago into an integrated communications business today.

Internal Revenue reflects the restructure of some functions across RSS and T&I in the first half of the year, coupled with some recovery of some of the additional IT infrastructure and data security costs I mentioned earlier.

As we have highlighted earlier, this division will become a global technology and operations division under our new global structure and will be a key driver of the global transformation program, which I'll come to now.

As John mentioned earlier, we've announced the global transformation program today, which builds on and adds to the existing synergy and integration programs related to Superpartners and LAS acquisitions.

This program will see global technology platforms and Centers of Excellence delivering quality client outcomes in the most efficient way. In other words, providing additional capacity, better levels of service and product innovation at a lower cost.

The program is both wide-ranging and achievable and is targeting $50 million in annual cost savings by the end of FY '22.

The program's being led by Paul Gardiner, our Chief Technology and Operations Officer, and we have a program office based in London that we support from Australia and other jurisdictions, which will help monitor and report on progress.

As John mentioned, we're already underway on a substantial number of initiatives. For example, we've rolled out our workflow productivity tools into a number of jurisdictions and we're already seeing positive results.

Premises consolidation is underway with our new Center of Excellence in Leeds, on track for completion by the end of December this year.

We've consolidated agreements with some of our largest IT vendors and have established a substantial Center of Excellence in Mumbai, India, which provides us with access to a highly skilled workforce in a time zone that mostly lies between Asia Pacific and Europe.

We will be reporting on progress towards the $50 million target at our future results.

I'll close with Capital Management. We finished FY '19 with our leverage ratio of 1.85x, which is at the bottom half of our guidance range of 1.5 to 1.2x operating EBITDA.

This is a comfortable level of gearing that provides flexibility to undertake various capital management and acquisition-related activities.

As John mentioned, we have announced today a final dividend of $0.125, which is fully franked. This dividend is made up of $0.085 relating to the continuing business and $0.04 related to CPCS.

We would expect our FY '20 dividend payout ratio to be at the upper end of the 40% to 60% of NPATA guidance range.

I would also highlight that future dividend franking is likely to be less than 100% given the earnings profile of the business is now more weighted to offshore than it was previously.

We've also announced a nonmarket share buyback of up to 10% of issued capital, which we believe will be quite accretive to shareholders.

We also believe that buyback is consistent with our commitment to efficient capital management and maximizing shareholder returns. We will continue to maintain an active and disciplined approach to capital management and we retain the flexibility to explore future acquisition opportunities as they arise and evaluate these against the buyback.

Back to you, John.

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John M. McMurtrie, Link Administration Holdings Limited - MD & Executive Director [4]

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Thank you very much, Andrew. And in summary, I'd just like to reiterate, we have had great success in retaining existing clients and winning new business in all markets. We've increased our cross sell and penetration across all businesses. We are looking closely at a U.K. pension strategy for entering that large and growing market. I'd also reiterate we do continue to invest in development of new innovative products and services, that's reflected in being at the upper end of the 5% range of revenue and the lion's share of that spend historically has been to support fund administration client base in Australia.

The Global Transformation Program Andrew has mentioned and we will continue to look at opportunities for bank and credit management and LFS into Europe.

This business is well-positioned for the medium to longer term. Having been in private ownership and public ownership now for 4 years, very, very important that we don't take our eyes off this long-term value creation for shareholders and also giving the balance back to other stakeholders, including clients and also our staff. I'll just reiterate this has been a tough year. The executive team has foregone any short-term incentive payments this year, but we are working very hard to actually turn this around and build on what we think is a fantastic business going forward.

I'm happy to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Kieren Chidgey from UBS.

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Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [2]

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I've got a couple of questions. Maybe just starting with the guidance outlook for next year. I was hoping if you could help us with the disconnect between your Funds Admin outlook where the operating EBITDA is dropping $40 million next year but sort of you're flat on operating EBITDA across the continuing businesses. On my numbers to the continuing businesses ex Fund Admin this year delivered about $213 million. So you'd be talking about 20% uplift in those other businesses to counter the lower EBITDA outlook in Fund Admin, which, obviously, seems very high. Can you talk to where those offsets are coming through and whether or not, in particular, the technology -- T&I business is booking, I guess, a higher share of EBITDA at the Fund Admin going forward than it was previously?

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Andrew MacLachlan, Link Administration Holdings Limited - CFO [3]

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Kieren, it's Andrew here. So we are expecting growth across the other businesses, including T&I but not just T&I also Corporate Markets and LAS as well. As John mentioned, and I reiterate, the Global Transformation Program, we'll see some significant cost savings over the next few years. So we see that being a big part of what we deliver in FY '20 as well. But the other businesses, I guess, are making up for the sort of onetime hit to RSS and we're confident that, that can do that.

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John M. McMurtrie, Link Administration Holdings Limited - MD & Executive Director [4]

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Also just to add, banking and credit management is a global business. We've noted that, that has the impact of Brexit timing, we believe, has limited impact on that. We've taken that business into the Netherlands with a couple of relative smaller acquisitions. That's looking very prospective with the rollout now to -- in September. We've guided weekly as well. LFS, that business is sensitive to probably FTSE and other market indices. But the FTSE, if you look as the last 18 months, FTSE has come off somewhat recently still trading ahead of where it was 9 months ago.

So again, we won some business in that space. I think once Brexit comes and goes and I think London remains a very, very strong financial center and the infrastructure in London, just for everybody, cannot be duplicated in Frankfurt, in Berlin, in Paris. In Dublin already, we know of, at least we operate there. Dublin is already seeing virtually -- there's no space base in Dublin. Wages are going up so the arbitrage that Ireland may have had is sort of now out the window.

So I think London will get through this Brexit transition, and I think the good news -- as people know me, I'm sort of a half glass full sort of guy, but a realistic/optimist, but probably, the good news is, I think October 31 will be an outcome here on Brexit. So we will prepare. The 2 of the 3 businesses, we've see revenue growth. LFS had a record year. And yes, we acknowledge Brexit uncertainties impact to nonrecurring revenues of LMS.

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Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [5]

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And second question, I guess, partly related to that, just digging down into this outlook for revenue. You've given some Fund Admin next year. In particular, this on Slide 26, the $38 million reduction coming through from net wins and losses. That just seems proportionately like a very high number, obviously, CareSuper, I understand that's still got 9 months of impact to come through incrementally. Next year, TW, maybe 1 quarter, and off safe, a full 12 months. But on our numbers, that seems to imply 4% reduction in members with a $38 million revenue drop and implies something closer to 7% revenue impact. So it seems to include something else on there. I'm just wondering whether or not you've also got sitting in there lower recurring revenue from the rest as well as Super renegotiations.

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Andrew MacLachlan, Link Administration Holdings Limited - CFO [6]

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There's a little bit of that, Kieren, but the majority -- the vast majority is the client losses as you've outlined. So you talked about Care, off safe. Remember there's also nonrecurring revenue that goes with those client losses as well.

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Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [7]

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Okay. So a quick comment on Rest and AustralianSuper in aggregate and then have they been renewed at similar run rates? Or are there discounts to where they were previously?

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John M. McMurtrie, Link Administration Holdings Limited - MD & Executive Director [8]

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Kieren, I think just on that, you might remember now almost 5 years ago, we merged their business with Superpartners. We gave to the Superpartners clients a fee discount. We gave them a second discount in March of 2017. And given the growth, I'd say in a broad client base, we've looking at the contract renegotiations and I think we've taken that -- we've given -- it's a good balance between the client's interest and our interest taking account of the growth in our clients' segment. So we're very, very pleased. And in addition to that, we've added 8 clients in that segment.

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Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [9]

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Okay. And my final question just a point of clarification. The cost program numbers of $50 million by FY '22. Can you just confirm that's including the remaining LAS synergies of, I think, $12.5 million that haven't hit the P&L yet?

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John M. McMurtrie, Link Administration Holdings Limited - MD & Executive Director [10]

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Correct.

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Operator [11]

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Your next question comes from Edmund Henning of CLSA.

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Edmund Anthony Biddulph Henning, CLSA Limited, Research Division - Research Analyst [12]

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Just a couple of questions for me. Firstly, you talked about U.K. pension strategy and you're entering into that. Could that involve substantial acquisition and say, the buyback not getting off the ground or stopped? The first one.

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John M. McMurtrie, Link Administration Holdings Limited - MD & Executive Director [13]

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Ed, we did outline at our Investor Day why we see that market as attractive. As you observed, the entry into that could be in a number of ways. It could be by acquisition, it could be by taking our IP and technology into that market or it could be through another alternative, which should be partnering up with an existing client and moving quickly into that market. I mean what we like about -- as I go around and talk to participants in the U.K. market, I don't think anybody has any idea the transforming nature of now the 8% of salaries that are going into the system. Historically, the U.K. system was there for managers of companies and for public servants principally. Now it's been spread more broadly, which is the impact of our system 25 years ago.

So when I talk to people in that market, I don't think they have any idea of the effects of compounding and bringing all of the employees into the system. So we're over quite excited about this. But we are taking our time working with our Board to work it out. But I think you could probably expect that you will see something on this before our half year results in February.

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Edmund Anthony Biddulph Henning, CLSA Limited, Research Division - Research Analyst [14]

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Okay. So you will advance down that path?

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John M. McMurtrie, Link Administration Holdings Limited - MD & Executive Director [15]

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We're making probably big mistakes like progress at the beginning of an innings that transformed itself in the last hour.

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Edmund Anthony Biddulph Henning, CLSA Limited, Research Division - Research Analyst [16]

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Okay, brilliant. Next one in your guidance, you talked about -- you're hopeful Brexit gets resolved by October 31. Have you assumed a rebound in market activities from Brexit being resolved in your guidance?

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John M. McMurtrie, Link Administration Holdings Limited - MD & Executive Director [17]

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No. We broadly plan for a no deal Brexit in the hardest possible way. So we've been deliberately quite conservative on that.

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Edmund Anthony Biddulph Henning, CLSA Limited, Research Division - Research Analyst [18]

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Can you just clarify on your guidance what the like-for-like number is on for FY '19 when you talk about broadly in line, which you've given the ex business but not the South African business?

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Andrew MacLachlan, Link Administration Holdings Limited - CFO [19]

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So the South African business, the impact of that is not material. It's I think I'll take it to the pro forma financial information slide, which shows the numbers excluding CPCS.

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Edmund Anthony Biddulph Henning, CLSA Limited, Research Division - Research Analyst [20]

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So $320.9 million is our base number?

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Andrew MacLachlan, Link Administration Holdings Limited - CFO [21]

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That's right. Yes, that's right. South Africa is annualized for sort of $4 million to $5 million.

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Edmund Anthony Biddulph Henning, CLSA Limited, Research Division - Research Analyst [22]

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And just one final one. You talked about some new mandate in the Fund Solutions business in the U.K. Have they been post the Woodford announcement or were they prior?

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John M. McMurtrie, Link Administration Holdings Limited - MD & Executive Director [23]

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Post.

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Operator [24]

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Your next question comes from Ed Pham from Morgan Stanley.

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Edward Pham, Morgan Stanley, Research Division - Research Associate [25]

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Actually, most of my questions have been taken care of. I just had a question on particularly on your (inaudible). Can you confirm that $38 million was compared to the $50 million to $55 million you originally gave and how much of that came through in FY '19 due to this sort of early ERF-ing?

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Andrew MacLachlan, Link Administration Holdings Limited - CFO [26]

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Yes, the $38 million does relate to the $55 million so that's our best estimate now. I think John said, we won't know the actual number until this week happens in October and April. But this is our best forecast now. The number that impacted '19 was less than $1 million. Some of the ERF-ing activity actually get a bit delayed into late June and into July. So what we expected sort of in May with some of that ERF-ing activity that happened got quicker. It actually got delayed. So that pushed some of the impact into the '20 year.

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Edward Pham, Morgan Stanley, Research Division - Research Associate [27]

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Yes. Okay. Second question, I think you mentioned, obviously, the resources were quite stretched per the reform and the [close down there.] Is there an update now into September? Has that died down or is that still...

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John M. McMurtrie, Link Administration Holdings Limited - MD & Executive Director [28]

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Ed, I think this program has created massive pressure on the entire wealth management and superannuation industry. And anybody that tells you that hasn't, ask them the question again. And I think this will continue, different levels right through to Christmas because we got the sweep of the inactive accounts that were flagged on June 30 into the ATO in October. I should also say the combination of individual funds mail-outs, not just our clients but others, the combination of that plus the industry body campaigns through social media and then a government program to remind everybody of the 1st of July changes, led to unprecedented increase in telephone calls from members and interestingly, largely from members who were not well educated in superannuation, who possibly didn't know they had it.

So in particular with the insurance issue that every channeling code went up, I chatted with other players in the industry that all had the same experience. So enormous pressure. Our team in particular, I'm proud of them the way they delivered on that. But we're not quite sure now is coming up to October, there'll be other mail-outs to members saying last chance to do something prior to the sweep to the ATO. And then you've got the existing proposed legislation sitting in Canberra.

As I said before, I would plead with government and the regulators including APRA and ATO to actually take a more sensible approach to the timing if the under 25 insurance proposals gets up, then have a more sensible application timing just to be completely realistic.

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Operator [29]

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Your next question comes from Nigel Pittaway from Citigroup.

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Nigel Pittaway, Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst [30]

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Just first of all, just broadening on a question from Ed just on the decision to announce the buyback. I mean although I hear you when you say you pay pension entry might not be their acquisition. You have talked before about acquisition in that space as well as Luxembourg and probably a bit smaller from banking and credit management in Italy. And then you do you have sort of the Woodford issue at least, I know you can't talk that, but it might at least present some risk of some expenditure further down track. So can we just get a bit more sort of feel about how you view the buyback announcement in that context?

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John M. McMurtrie, Link Administration Holdings Limited - MD & Executive Director [31]

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You can probably, Nigel, assume that clearly right at the moment, there's nothing on the table in relation to acquisitions. The Board took the view -- there was a balance between we want to maintain maximum flexibility and also, it was the view that particularly around the current prices, this is accretive to offer up a buyback. But the flexibility will remain as we also flagged that with PEXA, we injected an additional $400 million of equity in January or early February this year in PEXA. As PEXA continues to evolve, that is sort of long-term asset, similar to a toll road or port or stock exchange even, where there is an underlying borrowing capacity in that. So there is the potential, we think, in the next 18 months to look at actually putting some debt in that vehicle and returning that to the shareholders.

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Andrew MacLachlan, Link Administration Holdings Limited - CFO [32]

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The other thing to say is that we have said that we'll look at future acquisition opportunities and evaluate those against the buyback from a shareholder accretive perspective.

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Nigel Pittaway, Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst [33]

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Okay. But it sounds like there's nothing much on the agenda. So that's why you're open to that. Okay.

Secondly, just on the -- not particularly on the Woodford impact per se, but just this impact on the rest of the business. Has there been any sort hesitation to people that have false [APDs] in the U.K. on the back of what's been happening there or have you seen any impact on the ongoing business from the circumstance?

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John M. McMurtrie, Link Administration Holdings Limited - MD & Executive Director [34]

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I would say, Nigel, that the corporation, we're cooperating very close with the FCA on this. There's been cooperation over now a number of years in relation to this and other matters. That's the nature of the dialogue. But I would say this is an interesting view that because we've been in the eye of the storm, I think the chairman of the FCA did say to the Treasury Select Committee that there is perhaps more of a systemic issue around the rules about can you give liquidity in the circumstance where the underlying assets are illiquid. I think that will be revisited at some appropriate time. But we operate to look after investors in that role. And I think we've done that to will. And I think we have as good a knowledge as to evolving thinking on the future of that segment as anybody.

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Nigel Pittaway, Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst [35]

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So that hadn't any impact on your business so far? Is it...

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John M. McMurtrie, Link Administration Holdings Limited - MD & Executive Director [36]

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I would say, Nigel, I personally have been involved in some conversations to give some comfort to our client base. And as I say, I think people are just -- Woodford remains in the press most days, but I think we've all moved on from that to say, well -- and then with the excitement in and around Brexit, it's always, so it's good to throw a few good stories. But I haven't seen any reluctance by current clients and I've been involved and kept conversations with these new clients when they've come onboard.

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Nigel Pittaway, Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst [37]

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Okay, that's clear. And then just on Corporate Markets EBITDA. I mean I know you've talked about as you did at the half year about the investment in the division, still that capability and I think you mentioned the global savings program will help the margin of that as it's moving forward. I mean is that the global savings the only thing or do you still expect some sort of normalization of those investment costs, I guess, you've been in that division moving forward?

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Andrew MacLachlan, Link Administration Holdings Limited - CFO [38]

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I think it's a bit of both Nigel. So we'd certainly see that division benefiting from the global transformation program as we said, and we would also see some of the investment that we've been doing in some of those newer businesses starting to normalize as well. So I think it will be a combination of those 2 things.

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Nigel Pittaway, Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst [39]

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Great. And then maybe just finally, obviously, you're talking up the member growth and the prospects for future member growth moving forward, but obviously, one of those large contracts you just renegotiated, it doesn't seem as if you'll leverage the member growth anymore. So maybe just sort of give us some sort of feel for the logic behind that and yes, basically just a little bit more feel for the way that was renegotiated and the fact that it's no longer sensitive to member growth?

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John M. McMurtrie, Link Administration Holdings Limited - MD & Executive Director [40]

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It does vary contract by contract, Nigel. I think all of our clients, and Rest has been a client of the business for over 25 years. And they were wanting a slightly different structure. But I'd say in all other clients' cases, I think they acknowledge that there's got to be an appropriate incentive for us. So if you walk backwards from what we said, the EBITDA margin in that business next year is going to be sub-15%. We still spend lion's share of our CapEx in supporting funds. I don't think any of the funds want to go back to the old days where that was supported by the so-called breakeven administrative. They want their administrative to continue to make investments and in all of that, all of our other clients, we've got incentives to grow.

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Nigel Pittaway, Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst [41]

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Do you think that will be a one-off rather than the way in which you'll proceed with other contracts moving forward?

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John M. McMurtrie, Link Administration Holdings Limited - MD & Executive Director [42]

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Yes.

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Operator [43]

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Your next question comes from Brendan Carrig with Macquarie Group.

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Brendan Carrig, Macquarie Research - Research Analyst [44]

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Maybe just following from your comment then, John, about EBITDA margin in Fund Administration. Obviously, that was a business that was sort tracking towards 30% post Superpartners synergies. And as you pointed out, it's sub-15% margin now. Do you think that there's more that should or could be done over the medium term whether that's from more efficiencies or try to better extract a higher margin out of that business or is that impossible now given the revenue pressures that you've seen from across the industry?

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John M. McMurtrie, Link Administration Holdings Limited - MD & Executive Director [45]

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I think, Brendan, that we've got -- certain of our clients have gone down their own pathways in relation to say, digital. And certainly, our clients are strongly of the view that the member interaction will go digital. There's been absolutely no evidence of that, quite the reverse. So I think when you think about the relationship that is non really transactional, unlike a banking relationship that if your members only deal with you once a year or once every 2 years, they are going to revert to emails, which incur cost and also telephone calls. So funds to be relevant need to have good digital interfaces. But we're also of the view on the back of our CapEx, we can provide that to all our clients at a price that is actually less than what they can do it at, even at very large clients.

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Brendan Carrig, Macquarie Research - Research Analyst [46]

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And maybe I'll move on to just some of the cost-out maybe. So the way to think about the Fund Admin is about $9 million of annualized savings. LAS there was about GBP 7 million of annualized savings. So there's sort of $30 million of new cost-out announced today in terms of annualized savings?

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Andrew MacLachlan, Link Administration Holdings Limited - CFO [47]

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Yes, as you say, the Superpartners integration program, we said, we're at $41 million on a run rate basis at 30th June. So there is another sort of $4 million to do there to achieve that $45 million. And LAS, we're more than half way there on the GBP 15 million.

So what we think in terms of what we announced today is a significant step up from what we've previously announced. But we're very confident in achieving these savings.

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Brendan Carrig, Macquarie Research - Research Analyst [48]

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And over the medium term, should we expect higher underlying cost growth from these initiatives being reinvested back into the business to some extent or do you expect all of this to be dropping through to the bottom line?

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Andrew MacLachlan, Link Administration Holdings Limited - CFO [49]

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We would expect to be able to grow our margins over the medium term.

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Brendan Carrig, Macquarie Research - Research Analyst [50]

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Sure. And then maybe just last one on capital management and on the dividend. So the $0.04 you've called for CPCS component proportionately, should some of it turn to proceeds and some of it from the revenues or earnings. Is it fair now to say that the dividend has been reset a little bit lower being 8.5% for your second half dividend?

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Andrew MacLachlan, Link Administration Holdings Limited - CFO [51]

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Yes, that's a reasonable take. Yes.

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Operator [52]

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(Operator Instructions) Your next question comes from Siddharth Parameswaran with JPMorgan.

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Siddharth Parameswaran, JP Morgan Chase & Co, Research Division - Research Analyst [53]

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Just a couple of questions if I can. Firstly, just in relation to guidance, can you give us any idea firstly whether you assumed any repricing on -- within Fund Admin, particularly around the ability to reprice contracts for the PYS legislation changes? And also just how much of cost savings you're actually including in that guidance because historically, we haven't necessarily been able to see all the benefits of these cost savings actually come through to margins. So I was just hoping you could perhaps give us some idea whether -- in your guidance, you're actually assuming all of it comes through.

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Andrew MacLachlan, Link Administration Holdings Limited - CFO [54]

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So as we've said, we're assuming some savings out of the Global Transformation Program next year, which incorporates the remaining benefits from the Superpartners programs. Some of that is factored in. And we think that we've been reasonably conservative in terms of the assumptions around that. We've factored in, as we said, $27 million next year out of the full $38 million for the PYS changes. And in terms of cost savings flowing through, remember that there are also inflation-related impacts, there's revenue-related impacts in terms of that cost base as well. So you're not going to see a sort of 1-for-1 flow through.

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Siddharth Parameswaran, JP Morgan Chase & Co, Research Division - Research Analyst [55]

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Is there any sort of repricing that you think will be able to push through to next year or the year after for PYS?

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John M. McMurtrie, Link Administration Holdings Limited - MD & Executive Director [56]

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I think we -- our contracts have different elements where -- if they have the numbers go up or down by certain proportion, there is the capacity to sit down and reprice. The fact of the matter is the -- certainly the clients, which are coming up in the next 18 months. So we won't actually know until sweep of the ATO in October and then in April as to whether the particular trigger gets reached. We've made -- I guess, we've made a conservative assumption going forward.

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Siddharth Parameswaran, JP Morgan Chase & Co, Research Division - Research Analyst [57]

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Okay, fair enough. Okay. Just a question just on PEXA. There's a recent report that was delivered -- commissioned by ANEC and talked about, I suppose, the prospects for the eConveyancing market going forward. What would you think that actually means for your business and particularly, their comments around basically the desirability for one eConveyancing player and perhaps, just some comments about what you think actually happens with interoperability.

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John M. McMurtrie, Link Administration Holdings Limited - MD & Executive Director [58]

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There's 3 individual reports sitting out there at the moment. So given the prospect of rain in Sydney perhaps on the weekend, that's a bit of good reading for Sunday afternoon. But we started off with New South Wales government, producing a report into interoperability, which reported in July of 2019. And we had ANEC, which is as the regulator. Just to remind everybody this design has a national market for the benefit of state registries, state revenue authorities. I forgot to mention financial institutions. And I know they've gotten substantial been -- which they have passed back to individuals in the conveyancing sector and ultimately, buyers and sellers of property.

So ANEC came out with a draft report open for consultation into September. And then IPAT, the state New South Wales regulator, has produced a draft report. Again, a consultation. Plenty of opportunity for everybody to make input. I'd note that certainty IPAT considers that the prices set were reasonable. There's a lot of reading in there. We've provided a lot of value to all of those sectors that I mentioned. And we've also got the ACCC last week, made some statements about -- particularly the ACCC having a look. But I did note that he did make some observations about the benefits that would therefore consumers already.

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Siddharth Parameswaran, JP Morgan Chase & Co, Research Division - Research Analyst [59]

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Okay. Just the final question for me. Just on AASB16, it's meant to be $40 million impact on EBITDA going forward. Is that -- should we assume that's even by segment?

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Andrew MacLachlan, Link Administration Holdings Limited - CFO [60]

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I haven't gone to that level of detail. We've done the numbers on the '19 financials on a pro forma basis to assist people. So the $40 million is based on the largest part of that, obviously, is driven from our premises leases and those premises leases I shared amongst all the divisions.

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Operator [61]

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Your next question is a follow-up question from Ed Henning from CLSA.

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Edmund Anthony Biddulph Henning, CLSA Limited, Research Division - Research Analyst [62]

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Just 2 few quick follow-ups for me. The elevated cost you've seen in the Fund Administration division from the additional client impact. How much of that is going to roll off in 2021? Is it about that $9 million you talked about?

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Andrew MacLachlan, Link Administration Holdings Limited - CFO [63]

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So as John said, there' are still lot of activity happening in the RSS space in the current year. So as John mentioned the arrangements from default insurance, which are currently before parliament, if they have the same time frame as sort of PYS, there will be a significant amount of activity to delivery those changes. I would expect that those costs would moderate but it is dependent on how much activity comes out of regulatory change over this period.

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Edmund Anthony Biddulph Henning, CLSA Limited, Research Division - Research Analyst [64]

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Okay. And just a second one. You talked about PEXA and potentially bringing leverage to the business. What do you think the capacity for leverage, is it like 3x or 4.5x? What's your anticipation there?

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John M. McMurtrie, Link Administration Holdings Limited - MD & Executive Director [65]

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If you think if you look at the annuity nature of the revenue streams going forward, then you see these sorts of assets that can normally support quite a high level of leverage. And in spite of all the doom and gloom around at the moment globally, there's a lot of money supporting transactions. And I think you're pushing well beyond -- capacity well beyond 5x EBITDA.

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Operator [66]

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Your next question is also a follow-up question from Kieren Chidgey with UBS.

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Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [67]

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Just quick question on CapEx. The outlook there has lifted to $80 million. So it's now approaching 6% of group revenues. Can you -- I think previously, you used to guide towards the higher end of your 3% to 5% range that you initially talked about sort of back at the time of the IPO. Can you just give us a feel for where you see trending now over the medium term?

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John M. McMurtrie, Link Administration Holdings Limited - MD & Executive Director [68]

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I'll come back to Andrew in a minute here. There's a lot of evidence now that good companies with good solid foundations for medium- to longer-term growth actually the bias is probably to spend more on CapEx. And I can tell you this in all the markets we serve, if we stand still and try and turn the tap off, then you actually are going to slip back from a competitive point of view. We would still think that the top end of the range is where we would like to get, but I think in the next couple of years, we're going to be beyond that range.

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Andrew MacLachlan, Link Administration Holdings Limited - CFO [69]

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Just to add, I think, we will be closer to sort of 6% than 5% in the year to come.

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Operator [70]

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There are no further questions at this time. I'll now hand back to Mr. McMurtrie for closing remarks.

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John M. McMurtrie, Link Administration Holdings Limited - MD & Executive Director [71]

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Thank you all for tuning in, and we look forward to getting back to our workstations for the benefit of all of our stakeholders. Thank you.

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Andrew MacLachlan, Link Administration Holdings Limited - CFO [72]

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Thank you.