Iress Ltd

ASX:IRE

Earnings Call Transcript 2022-Q2

[Operator]

Thank you for standing by, and welcome to the Iress Limited 2022 Half Year Financial Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Andrew Walsh, IRS CEO. Please go ahead, sir.

[Andrew Walsh, executive]

Thanks for joining us today, and welcome to Iress -- Thanks for joining us today, and welcome to Iress' 2022 First Half Results Call. John Harris, Iress' CFO; and Michael Brown from Investor Relations, are on the line with me.

We've released a detailed presentation to the ASX this morning. I will concentrate my remarks to the opening pages of the deck, and John will take you through the financials.

As usual, we present our results on an underlying basis in constant currency. There is a full reconciliation to statutory results at actual FX rates in the deck. In determining underlying results, we have adjusted the prior corresponding period for the one-off earner payments for the QuantHouse and BC Gateway acquisitions and, in the current half, removed the investment in our single technology platform. Following the presentation, we'll be pleased to open the line for Q&A. So let's make a start.

There are some summary points on Page 4. Firstly, we delivered a solid set of results for the first half of the year. As we preannounced, segment profit is up 6%. Revenue is up 6% with, once again, over 90% of that revenue recurring. Underlying NPAT is up 29%. And with the benefits of the ongoing share buyback program, underlying EPS increased by 32%. We are making good progress executing on our growth, product and technology and capital management strategies to deliver faster earnings growth and higher returns for shareholders.

Free cash flow is another positive feature of our performance. We generated $41 million of free cash flow in the half, up 30% versus pcp. Cash conversion is in line with our long-running average at 93%. The strength in cash generation funds our organic growth investments and the returns to shareholders. Since 2018, we have generated a total of $350 million in free cash flow and paid out $358 million to shareholders.

In the first half, we started to deploy the $30 million we flagged for our single product and technology platform. To date, we have acquired $70 million of shares on market since the buyback commenced with another $30 million to go, and we are maintaining the interim dividend at $0.16 per share. Underlying return on invested capital is tracking in the right direction, up 140 basis points to 9.6%.

While the result for the half came out way we expected, there is no doubt that we're seeing some cost inflation across our businesses. Underlying people and non-wage operating costs increased by 4%. We've been able to manage these pressures with price increase, a global talent base and efficiency gains. Margins improved in the half.

The lifetime value of our total portfolio remains high at around $25.7 billion. This value highlights the strength of our client base and high retention levels. It's clearly many multiples of our market capitalization. Importantly, we are on track in the transition to a platform-based architecture and operating model. As we outlined at our investor strategy update last year, this transition is key to driving faster speed to market operating leverage and scale. We are delivering product and technology outcomes and value from cloud and platform execution and becoming leaner by retiring legacy applications. I'm pleased to report that the transition is well underway, and we're on track.

Finally, we affirmed the guidance range for full year 2022 segment profit in constant currency of $177 million to $183 million. Results are now expected to be at the lower end of the range due to investment in fund registry as part of our digital investment infrastructure and delayed growth in the U.K. I'll talk more to this shortly.

The second half is typically seasonally stronger for Iress, with the 2022 segment profit expected to increase by around 7% versus pcp. The second half should benefit from growth in APAC and the U.K. and, as we saw last year, a lower annual leave expense.

Page 6 summarizes the results for the half. A key highlight of the result is the continuing strength of our core business in Australia. Financial advice and trading and market data in Australia grew revenue by 8%. That is a faster growth rate than we mapped out to deliver on our 2025 medium-term targets. Iress' core is performing well. We have a positive view on the outlook for the Australian advice industry. Iress' user numbers are stable and explain continues to be the advice software of choice by advisers.

Our technology-enabled solutions address the critical industry needs. Iress' digital technologies enable advisers to be more efficient and to profitably service new market segments where there is a large unmet need for advice. We have purposefully positioned Iress to benefit from these trends. We are building momentum in superannuation, another of our group key growth strategies.

Recurring revenue increased by 17%, again, ahead of our medium-term target growth rate. It should be noted that in this segment, implementation or nonrecurring revenue transfers into long-duration recurring revenue once the client goes live. You can see that in these numbers.

To industry fund clients, ESS Super and Guild are now live with our automated super admin offering. Both funds have been able to gain material improvements in increasing efficiency, improving the member experience and reducing their cost to serve members. We are also in advanced discussions with 2 large super funds and have a strong pipeline of additional opportunities. With these validations, we're expanding our sales pipeline and adding new prospects. Industry consolidation should provide further new opportunities as super funds prepare for the future based on technology.

The commercial launch of our new integrated investment infrastructure offer is planned for November this year. We will initially be launching 2 new products to market, digital advice and third-party connectivity. Since February, we have appointed new commercial leadership to execute a 3-year rollout plan, focusing on driving broad market adoption and accelerated revenue growth. A dedicated digital investment infrastructure team is in place with more than 50 people executing towards the launch. The sales collection and marketing plan have been completed and a marketing agency appointed. We are well advanced.

The pilot trials connecting Xplan with the OneVue platform have been successful in demonstrating significant efficiency gains of our offer. New independent research has also highlighted strong demand for greater efficiency through integration for advice businesses as the number of systems used by advisers hits a 10-year high. This is backed up by our own market research, which has yielded positive feedback on the value of our integrated offer. We are highly confident we can gain share in this $3 billion market.

In the U.K., our mortgages business is performing well, following the decision to retain the business for growth. Total revenue increased by 18%, with recurring revenue up 22%. Private wealth and trading are also growing strongly. With increased functionality, new client wins against competitors and implementations, recurring revenue grew by 25% and 8% in these areas. Retail wealth underperformed where recurring revenue was down 10%. This is disappointing and one of the reasons why we now expect full year guidance to be at the lower end of the range. We have rejuvenated our sales approach and capability for this market, which is a different sales approach to our approach to date. We are beginning to see some positive evidence of improved activity and expect this to translate into growth and improved results.

That now takes me to my final point. These results take us closer to our 2025 growth targets of delivering more than 2x net profit with the potential for upside. We clearly have a lot of work to do to complete our technical and operational work, which will see us deliver value over time, not simply at the end of the period. This will contribute to accelerating growth and returns. But we are making good ground, and we are certainly moving in the right direction.

As you know, the executive team's remuneration is now directly aligned to these goals. We are committed to transitioning to a faster Iress with high returns and sharing the benefits to the shareholders.

I'll now hand over to John to go through the financials.

[John Harris, executive]

Thanks, Andrew. I'll start on Slide 20. Segment profit in constant currency was $80.3 million, representing an increase of 6% versus the first half of '21. Growth was mainly driven by strong performances in trading and market data, financial advice and superannuation in Australia and private wealth and mortgages in the U.K.

Revenue in APAC grew by 6% on PCP, with the direct contribution rising 7%, highlighting some operating leverage. Trading and market data increased revenue by 9% and financial advice grew by 7%. Both of these businesses are outperforming their medium-term target run rate.

We implemented a higher-than-normal price increase in April this year, reflecting inflation in the broader economy. Our ability to adjust pricing to reflect the cost environment is a key strength of our business model. We have also been investing in our sales methodology and sales team. With new leadership in place, we have restructured our engagement around clients rather than products. This is allowing us to have broader discussions on whole of client technology needs, which is creating new opportunities. Superannuation also exceeded the medium-term target growth rate.

Recurring revenue increased by 17% as a result of new clients going live. Nonrecurring revenue decreased primarily due to the timing of the ESS Super implementation. To achieve our 2025 targets in Super, we expect 1 to 2 new client wins each year. We are on track to achieve this with a good sales pipeline. As Andrew noted earlier, we are in advanced discussions with 2 large super fund opportunities.

In the U.K. and Europe, revenue grew by 2% and direct contribution grew 4%. In the U.K., we saw good growth in private wealth, with recurring revenues increasing by 25% as new clients went live and existing clients continue to take up additional Xplan functionality.

U.K. retail wealth was disappointing. Recurring revenue was 10% lower with this half impacted by changes in specific clients' businesses that reduced revenue. As we talked about in February, we have initiated a new sales approach and team in this segment that better fit the nature of the client opportunities. We are seeing some encouraging early signs and recent new wins against key competitors. We are intensely focused on improving results in this business.

U.K. trading was in line with expectations, delivering 8% recurring revenue growth. A number of new trading technology and market data clients have gone live and there is a good pipeline of further opportunities.

Mortgages increased total revenue by 18% and recurring revenue by 22% as a result of recent client implementations going live. We continue to see a strong pipeline of interest in our MSO product and the improved operating leverage and customer experience that MSO delivers to lenders.

Also on this slide, you will see that product and technology costs were relatively stable at $69.4 million in the half. That equates to 23% of group revenue compared to 24% in the pcp. It is too early to see the operating leverage benefits of the new platform, but by 2025, this ratio should come down to around 21%.

Operations costs were 12% higher, largely as a result of investment in fund registry and digital investment infrastructure as we prepare for scale and growth. Corporate costs increased by 15%, in part as a result of directors' and officers' insurance costs.

With the earn-out adjustments to the pcp, as Andrew mentioned, this growth in segment profit translated to 29% growth in underlying NPAT and a 32% increase in underlying EPS. It is encouraging to see the earnings acceleration we have talked about coming through in this result.

Turning now to Slide 22. Underlying people and OpEx costs increased by 4% in the half despite inflationary pressures in the broader economies in which we operate. On this waterfall, you will see the largest OpEx increase was $6.4 million in operations and corporate driven by additional investments in fund administration, which is an important part of our digital investment infrastructure offering. Underlying product and technology costs were flat on pcp.

On Slide 23, I'll touch on some of the significant movements to underlying NPAT shown on this page. To start, we have adjusted the prior corresponding period, as Andrew explained. This gives us a base for comparison of $24.6 million in the first half of '21.

We saw positive contributions in this half from the $4.8 million increase in segment profit, $1.5 million of lower share-based payments expense due to forfeitures from departing employees and a $2.3 million benefit from the lower intangible amortization. This benefit resulted in part from the write-down of unused offices in the previous period.

The red blocks on this chart are due to higher interest and tax charges. The interest charge is higher due to higher rates and an increase in average borrowings as a result of the share buyback and the final dividend. The underlying effective tax rate adjusted for the earn-out releases in 2021 was 24% in this period compared to 28% in the pcp.

There are a number of moving parts in this, including the recognition of some losses in France. For the full year, we expect the effective tax rate to be between 23% to 26%. These movements get us to an underlying NPAT of $31.8 million in constant currency for the first half.

On Slide 24, we show our net debt analysis. With over 90% of revenue recurring and a capital-light model, we consistently generate high levels of free cash flow. In first half '22, we generated $40.6 million compared to $31.2 million in the pcp, an increase of over 30%. Cash conversion was 93%.

With this cash flow, we can fund high levels of dividends, acquire shares on market for the employee remuneration schemes and fund the buyback. We have completed $70 million of the extended $100 million buyback and spent $22.4 million of cash on this in the first half. We expect to resume purchases following the release of these results.

Net debt increased 24% to $290.9 million, although leverage at 1.7x segment profit remains below the neutral setting of 2x. To partially mitigate increasing interest rates, we issued a GBP 60.5 million 5-year fixed rate note in May and used the proceeds to repay floating rate debt.

I'll go on to Slide 16, the outlook. The earnings guidance range we provided in February for FY '22 was affirmed. In constant currency, the segment profit range is $177 million to $183 million, although we now expect results to be at the lower end of that guidance range. That's around 7% segment profit growth versus the PCP. The 2 main reasons for the change to the lower end of the range are the investment in Fund Registry as an important component of our digital investment infrastructure strategy and delayed growth in the U.K., as Andrew has talked about earlier.

FY '22 underlying NPAT, which excludes the $13 million to $15 million pretax investment on the single technology platform is expected to grow by around 25% compared to FY '21 and underlying EPS is set to be around $0.40 to $0.44 per share, representing a similar percentage increase. Underlying ROIC is expected to be 10% to 11%, which compares favorably to 8% last year.

I'll finish on Slide 17, which shows the NPAT breakdown for the second half of the year and our line of sight of how we will deliver guidance. The waterfall on this page shows the progression from the $32 million underlying NPAT in the first half to the $41 million to $48 million range for the second half. We expect NPAT to be at the lower end of this range.

Annual leave makes up the majority of the expected second half growth, representing $7 million of the $9 million to $16 million NPAT uplift to deliver guidance. Consistent with previous years, this is driven by the expected weighting of annual leave to the second half, which lowers the accounting expense for salaries and wages. Growth in both APAC and the U.K. are also expected to add to second half momentum, with both regions benefiting from price rises that have already been implemented.

Net operating costs are expected to contribute a benefit of $2 million. Half of this is people costs as we reallocate resources to accelerate the transition to the new platform architecture and the other half is the non-repeating one-off items in the first half.

I'll now hand back to Andrew.

[Andrew Walsh, executive]

Thanks, John. I'll wrap up with some brief comments on CEO transition. As announced on the 26th of July, I will be stepping down from my role as Iress' CEO and Managing Director in October. After more than 20 years, and with the company in such a strong position, it's time for me to change and give Iress the benefit of new eyes. Marcus is a leader with an impressive track record. He's a proven business builder, and he will take Iress forward. Marcus inherits an international technology business and market leader with accelerating growth. Underlying NPAT is set to increase by 25% this year. Marcus has signed on to deliver the 2025 targets and his remuneration arrangements are based on the same targets and time frame. We have tremendous software solutions and services for clients, and in my opinion, some of the very best people in the business.

I'm grateful to all my colleagues for their intellect, hard work and problem-solving, support and friendship over the years. Thank you. I look forward to supporting Marcus in the transition. Thanks for joining us this morning.

And on that, I'll hand back to the operator and open the line for questions.

[Operator]

[Operator Instructions] Your first question comes from Olivier Coulon with E&P Financial Group.

[Olivier Coulon, analyst]

Just on the U.K. and retail wealth, you flagged there were changes to client businesses. I mean, did some of them close or reduce kind of functionality or have you lost that business to your competitors?

[Andrew Walsh, executive]

It hasn't been competitive. One business effectively closed down and the other changed the shape of the advice cohort, removing a whole range of advisers that they didn't see as part of the future strategy that took them to a lower contracted pricing arrangement. And so that's what [indiscernible].

[Olivier Coulon, analyst]

Yes. Okay. But is it fair to say that -- so you've had like a more churn than normal because of kind of market customer change and then your sales effort hasn't really been where you want it to be.

[Andrew Walsh, executive]

In that particular segment, that's right. But by contrast, the other adjacent aspect in Private Wealth, which is advice and trading and portfolio management has been a standout.

[Olivier Coulon, analyst]

Yes. Okay. And then like what actual concrete steps have been taken around the sales force there to improve that cut free?

[Andrew Walsh, executive]

So we have completely changed the way that we structure our commercial teams late last year and early this year. The main change for that has been to change the structuring away from what was product and some segment structuring to center around clients by client type. And so that has provided a different relationship with clients but one that is not stuck at an application level, but one is more strategic. In retail wealth, in particular, in the U.K., we have expanded the sales team and actually applied a very direct sales team approach to that, that is both engaged in outreach to competitors, much more campaign-based but also to the adviser offices user base. Also in the half, we have provided an end-of-life notice on the adviser office application. And so that is dealing with the tail of retail advice users that we have had since the Avelo acquisition.

[Olivier Coulon, analyst]

Okay. Right. Sorry, on the 2 super funds, I mean, I understand you can't say too much the opportunities, but the scale of those opportunities relative to Guild and ESS.

[Andrew Walsh, executive]

We said that our outlook to 25% includes 2 to 3 medium-sized clients. These are larger than that.

[Olivier Coulon, analyst]

Okay. Right. And just on the price increase that you took in Australia, I think you said in April, kind of the dollar annualization benefit that we can expect when that kind of rolls through.

[John Harris, executive]

The percentage increase was around 6%, and there was 1 quarter of that in the first half. So hopefully, that gives you the mechanics you need.

[Olivier Coulon, analyst]

Yes. Okay. Sorry, just last question, just on the nonrecurring. What was the balance of the $4.2 million you kind of didn't add back. So it was $2.1 million from the platform spend, $4.3 million total. Is there anything in particular or just a whole of bunch of small stuff?

[John Harris, executive]

Yes, nothing significant in an individual sense but a range of corporate core infrastructure or other things that we might undertake from time to time that weren't specifically linked to that re-platforming investment but don't form part of the enduring cost base of the organization going forward. So that number was not dissimilar to previous halves, if you take out some of the M&A activities. So individually, not significant.

[Operator]

Our next question comes from Brendan Carrig with Macquarie.

[Brendan Carrig, analyst]

Congratulations, Andrew, on your tenure. Just 2 quick ones from me. Just on the super pipeline clients. I think you've answered it enough as you can with Olivier, but I just wanted to understand what contribution is in the guidance assumption. So if you were to miss out on both of those large opportunities, is that sort of the lower end of guidance? And if you were to win both, is at the upper end? Or what's the swing factor there?

[John Harris, executive]

There's not a huge swing factor on that. We would expect, if we're successful to be doing some work this year, but their longer-term implementations and the impact of that financially will be felt in future periods.

[Brendan Carrig, analyst]

Yes. Okay. So more of it would flow through into FY '23 given that they're likely to complete or be awarded later in this half.

[Andrew Walsh, executive]

It's more a question of when activity starts in earnest, Brendan. So there is existing revenue that relates to those now, but the largest of that in terms of effort and ultimate run rate occurs in time.

[Brendan Carrig, analyst]

Okay. That's clear. And then just on those price increases, I'd just be interested in terms of the response from clients. Was there any sort of resistance to those going through? Or is everyone pretty cognizant of the inflationary environment, and so that 6% price increase was fairly easy to push through from your perspective?

[Andrew Walsh, executive]

When we compare to the price increases that we're seeing around the place, it's pretty modest. And so I think in an environment of what is very high inflation in terms of spot examples from some suppliers extreme. It's very modest and we haven't had -- no one likes price increase. So I think that's worth saying. But there hasn't been a whole lot of kickback in relation to that specifically.

[Brendan Carrig, analyst]

Okay. That's good. And actually, sorry, one more while I've got the floor quickly. Just on the platform transition spend, it sounds like some BAU costs are going to be allocated towards that in the second half which obviously would help the underlying NPAT number. Just sort of thinking about it may be going forward. So given that there's going to be investment spend next year, that clearly helps. But the year after, are those investment spends going to come back into sort of BAU costs given that staff reallocation would have to be redirected in towards sort of more of the ongoing cost base?

[John Harris, executive]

We're talking about reallocating resources rather than moving activity around if that makes sense. So we want people to be focused on -- the re-platforming activity is the most important piece of work we're doing and where we can take resources that might otherwise have been focused on something else and dedicate them to that re-platforming then that's what we're going to do. Clearly, we need to manage the transition from the project phase to the post-project phase, and we're conscious of that, and we've got a plan around that. And we've been very clear that the cost of the project is not enduring.

[Andrew Walsh, executive]

I think one of the other strategic execution aspects of that is that we all exist in a world where top quartile talent is scarce. And so our most immediate impact on accelerating what we're doing on platform is to use the top quartile talent we've already got. And so that's really what the execution strategy is about. If it takes us X days to hire someone and get them useful, then we need to be much quicker than that, whatever that X is.

[Operator]

Our next question comes from the line of Bob Chen with JPMorgan.

[Bob Chen, analyst]

Just a few questions for me. I think you've touched on a little bit around the 2 pipeline opportunities in the superannuation segment. But can you just talk if those discussions are still competitive tenders? Or are they sort of exclusive discussions?

[Andrew Walsh, executive]

Probably a mix of both. One is very late stage and exclusive. The other is in discovery phase.

[Bob Chen, analyst]

Okay. Great. And then you made some comments earlier that you're starting to see some positive evidence of rebuilding that sort of U.K. sales business. Like what's the positive signs are you actually seeing from that reinvestment there?

[John Harris, executive]

So when we look at the sales cadence data that looks at calls and interest and conversion rates and the speed with which we're spinning up a new client site once they sign, and so we're seeing that cadence increase. Still, the financial impact is not coming through at a level that's shifting those numbers. But the sales data that we're tracking around that team is positive.

[Andrew Walsh, executive]

We put more loans on to Xplan from competitors this year already in the first half than we did for the entire last year. So it gives you an idea of the step up.

[Bob Chen, analyst]

Okay. Great. And then just on the comment around launching the investment infrastructure and commercialization in November. I mean can you give any sort of financial metrics on how that will look like into next year?

[Andrew Walsh, executive]

We'll wait until we're ready and then talk about that on the call.

[Operator]

Our next question comes from the line of Scott Hudson with MST.

[Scott Hudson, analyst]

Just a couple of quick ones for me. In terms of the investment in the funds registry, is that greater than you anticipated? I'm just trying to understand why I guess it's driving the guidance towards the bottom end of the range.

[Andrew Walsh, executive]

The ability to execute directly from investor and adviser through to that registry is a really important feature of what we're doing, and it's still one of the key ingredients in reducing friction and cost. And so we want to change the way that is operating and make that much more digital. So it is probably a bit higher than we thought what would be required at the time of the acquisition, but it's the right thing to do and goes to streamlining that entire process.

[Scott Hudson, analyst]

Okay. And then in terms of the investment infrastructure solution, you talked about, I guess, 2 products. Could you maybe just expand on each of those?

[Andrew Walsh, executive]

Yes. So we have spoken about one being digital advice, how do we solve and address digitally delivered advice at scale. And that's one offer that we want to make, and that goes to the efficiency of the advice business, it goes to their ability to access unadvised clients in Australia, and that's been a key characteristic of what we're trying to solve. And there are lots of examples of digitally delivered advice in particular segments, such as intra-fund within superannuation, and our goal here is to ensure that, that is done for personal advice outside of super as well as inside of super.

The second part is third-party connectivity, and there was some research put out in the last week or so that said that the use of systems by advisers is at an all-time high and, in some cases, using 10 different systems. And the reality of where advisers place investments on behalf of their clients is that there is a significant impact for us to make that more efficient and receive an efficiency dividend for that. So we are prioritizing that because that is the greatest need within the advice space.

So put that another way, what we're doing is connecting our infrastructure so that it is very direct and really efficient, but we have a very clear objective of that being in an open architecture way. And so in the same way that we would welcome others to connect to that infrastructure via API. We are connecting advisers through to other platforms that they already use, and that provides meaningful difference to them. So we're taking a lot of what we see and what we operate and support in the U.K. and ensuring that we can deliver that here in Australia for the benefit of the community we serve.

[Scott Hudson, analyst]

Okay. And then just the last one. Can you just touch on the competitive landscape in U.K. retail wealth? Are you seeing any, I guess, meaningful change there in number of competitors or strength of competitors?

[Andrew Walsh, executive]

No huge change from what it has been. It's a noisy marketplace with lots of activity, lots of people distracted. It's a very, very noisy low end. And it's a noisy low end that is competing heavily and probably stupidly on price. And so we're not going to go there and play there. We'll play there and perform, but our focus is on how we can grow revenue and the material change, material solutions that we can provide are not at the individual IFA end.

[Scott Hudson, analyst]

That's great. And congratulations on your tenure.

[Andrew Walsh, executive]

Thanks.

[Operator]

Our next question comes from the line of Nick McGarrigle with Barrenjoey.

[Nicholas McGarrigle, analyst]

I just wanted to dig into the APAC result a bit. Can you talk through the key drivers of the trading and market data uplift of 9% on pcp. And apologies if that was asked earlier, but just trying to understand the sort of the key drivers there between price and volume? And then I've got a few other questions just around APAC.

[John Harris, executive]

Yes. So price, as I said, was around 6%. There's 1/4 of that in these results. So that was from 1st of April. So that is part of it, but we also had some strong growth out of the Asian business, the Singapore business as well as general growth across the broader customer base. So they were the key drivers. So price was a component, but the 9% was as much driven by organic or underlying client growth in this half.

[Nicholas McGarrigle, analyst]

And presumably, obviously, a large part of that is recurring in that segment.

[John Harris, executive]

Yes. Most of that revenue, 9%, is recurring.

[Andrew Walsh, executive]

And you see the growth in superannuation recurring revenue as well. And while nonrecurring has dropped off and might affect total, we're pretty happy with what's happening underneath.

[John Harris, executive]

You can actually see that in the APAC slide that the growth was 9% growth in recurring. So there's a lot of activity in that space. That's the main driver [indiscernible].

[Nicholas McGarrigle, analyst]

Am I right that a lot of the nonrecurring fall was in MFA and platforms? And maybe if you can just talk through why result there would say the negative change?

[John Harris, executive]

Yes. So MFA and platform is effectively a business that's been untouched by our investment infrastructure strategy to date, and we've been very focused on the launch of November of investment infrastructure and, as Andrew was talking about earlier, scaling out that business so that it's ready for the growth to come. So that's not a reflection of our strategic overlay or our strategic intent with that business. So it reflects the pre-existing strategy and the execution of that.

[Nicholas McGarrigle, analyst]

Is there a strong market linkage to that in terms of equities balances?

[Andrew Walsh, executive]

There are some volume-related stuff. And these are far that sits on that investment platform per the original OneVue business, and so it is exposed to market volumes.

[John Harris, executive]

Yes. And interest rates and those sorts of things. And on the fund admin side, the focus of our resources has been on building the scale operating platform going forward rather than some of the nonrecurring stuff that might have been done in the past to drive revenue.

[Nicholas McGarrigle, analyst]

And maybe just I think you touched on the super opportunities, but can you just give us a bit of context around the FY '25 target just to reiterate that for our benefit just in terms of what the super component of that target implies and what these opportunities that you've got on foot would represent in that broader mix?

[John Harris, executive]

Yes. I mean we've talked about 1 to 2 wins a year and 2 smalls and 1 medium. These are both at the bigger end of that with opportunity to grow beyond the initial contracts. So if they are successful, then that takes us well on that path, Nick. Was that your question? If we're successful with those 2 contracts, and we announce them, you can feel confident that we're well and truly down that path to those '25 numbers for super.

[Andrew Walsh, executive]

We haven't locked in the proportionality of these growth drivers into that '25 results. And so these certainly set super and whatever those relativities are, they set super on a path beyond what we thought it might be.

[Nicholas McGarrigle, analyst]

Yes, I guess that's what I was trying to understand because there's some very large funds and the opportunity on revenue there is much bigger than potentially even ESS. That's enough for me.

[Operator]

[Operator Instructions] Our next question comes from the line of Stewart Oldfield with Field Research.

[Stewart Oldfield, analyst]

Andrew, congratulations on your journey. You referred a couple of times to Iress being an international tech business, what would be your advice to your successor on the future of the operations in South Africa and Canada?

[Andrew Walsh, executive]

So the strategic Board review that was done when the Chair changed looked at a whole range of strategic levers and drivers. Those businesses are important. South Africa is about 10% say. So it's useful. It provides services to what happens elsewhere in the group. It is probably looking like a smaller contributor to the total group with success in what we're doing in growth strategies in Australia and the U.K. I think that takes away its significance. So I think that when we think about any of the operating divisions like we've been through the process for mortgages earlier this year that we hold them with loose hands. And so that would be my advice and make assessments based on the conditions that we've set out for pursuing '25 and handling capital and don't get stuck on anything, but don't be reckless.

[Stewart Oldfield, analyst]

It would be hard to extricate yourself from there.

[Andrew Walsh, executive]

I think there's always a plan. And so I don't think that that's the case at all. And you see what happens in much more sophisticated businesses and separations that occur. So I don't think so at all. I think that we balance that kind of extraction with the risk of distraction against our '25 goals. And so it depends what problem you're trying to solve and what contributes to the earnings profile for shareholders.

[Stewart Oldfield, analyst]

Got it. And you've had plenty of questions on the 2 super funds. But can I just clarify whether you consider strain retirement trust to be existing kind given your previous relationship with half of what it's become?

[Andrew Walsh, executive]

Super is a client of ours.

[Stewart Oldfield, analyst]

So when you're talking about 2 big parts, we shouldn't think of Iress as being a potential candidate in there.

[Andrew Walsh, executive]

You should think about 2 big super funds in Australia. And we won't answer the question.

[Stewart Oldfield, analyst]

[indiscernible]. And you spoke a bit about the U.K., have you been able to get there much in the last 12 months?

[Andrew Walsh, executive]

Yes, I was there in May.

[Stewart Oldfield, analyst]

Got it. And finally, just you made a couple of references to that investment trends research, as you say, that endorses that combination of financial planning software and platform. But how much work needs to be done on the platform side before you feel like you're competitive with the period that be?

[Andrew Walsh, executive]

The functionality of the platform that was in OneVue is functionally rich. What we're trying to build is something quite different. And so feature parity, functionality parity, price parity is actually not what we're pursuing. We're looking to change the world. And the integration is a really key part of that.

[Stewart Oldfield, analyst]

[indiscernible]. And congratulations on your [indiscernible].

[Andrew Walsh, executive]

Thank you.

[Operator]

Our next question comes from the line of Brendan Carrig with Macquarie.

[Brendan Carrig, analyst]

Just one follow-up for me, Andrew. Just when you're setting the medium-term targets, were these more of a board decision and that was sort of set in agreement with the management team and sort of pushed down? I just wanted to understand sort of how they were established given obviously Marcus is starting his tenure in a couple of months.

[Andrew Walsh, executive]

No, the management-led Board endorsed.

[Operator]

[Operator Instructions] There are no further questions at this time. I now hand it back to Mr. Walsh for closing remarks.

[Andrew Walsh, executive]

Thanks, everyone, for joining this morning. We're pleased with what has been presented for the first half, albeit pre-released. We have guided to about 7% for 2022. The second half has a significant contribution to that. A lot of the proportion of that contribution comes from the annual leave expenses we've set out in the deck and the full half of the price increases that have been put through with some other areas.

The 2025 targets have also been reaffirmed, and we are tracking well to that. I'm sure we'll have opportunity over the next coming days to talk in more detail about that, and I look forward to it. Thank you.

[Operator]

Thank you. That does conclude our conference for today. Thank you for your participation. You may now disconnect.