Insignia Financial Ltd
ASX:IFL
Earnings Call Analysis
Q4-2023 Analysis
Insignia Financial Ltd
Insignia Financial has embarked on a transformative strategy to innovate their advice model, aiming to enhance alignment between client interests and self-employed advisers. The creation of a holding company, ASC, housing over 500 advisers from consulting networks like TenFifty and RI Advice, represents a step towards independent management in an owner-operator model. Insignia plans to start as a 100% shareholder in ASC and will over time divest 40% of the assets.
Insignia is also reshaping its portfolio to focus on professional services firms, capitalizing on the momentum gained by businesses like Shadforth in attracting ultra-high net worth clients. This strategic pivot aims to propel the move from industry to profession, promising greater growth prospects and an enhanced partner owner model. The company will continue fostering relationships with independent businesses and advisors under their ownership, expanding opportunities for organic growth.
Financially, Insignia expects to fund the transformation through existing cash and facilities, targeting a senior leverage ratio between 1 to 1.3x net debt to EBITDA for FY'24. The transformational spend will be reported as an aggregate figure and significant spend is anticipated to take place in FY '24, with the larger realization of benefits expected in FY '25. Future spends are intended to be absorbed into existing OpEx levels rather than treated separately.
Insignia has outlined a target of achieving $140 million to $150 million in annualized OpEx savings, which includes the previously mentioned Evolve23 target of $30 million to $35 million. This is part of a broader financial strategy which will see $80 million to $90 million moved from restricted cash to corporate cash, enhancing operational flexibility. The additional savings from an advisory structure are expected to contribute approximately $10 million of UNPAT on an FY '24 exit run rate basis.
Addressing potential concerns, Insignia plans to maintain strong ties with advisers managing $21 billion out of $24 billion in platform FUA within ASC, aiming to neutralize major changes in platform relationships post-transition. The cost benefits projected, including an incremental $100 million to $110 million, are largely independent of the TSA exit, stemming primarily from operational efficiencies and synergy initiatives in place or planned within the organizational structure.
While acknowledging the complexity of the MLC integration process and the potential for incremental costs, Insignia is confident that synergy benefits will significantly surpass the original $150 million estimate. With strategies to minimize transition risks, the leadership remains confident about managing the Master Trust transition before the May '25 TSA expiry date, aiming to ensure that these operations enhance the company's trajectory towards robust and sustainable growth.
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Good day, and thank you for standing by. Welcome to Insignia Financial 4Q '23 business update. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.
I'd now like to hand the call over to your first speaker today, Renato Mota. Thank you. Please go ahead.
Well, thank you, and good afternoon, everyone. Thanks for making time to to have a call on our business update, our Q4 business update, conscious that we had quite a lot in the update this quarter. So we felt it would be worthwhile just to create some time and space for more of a strategic conversation, particularly around some of the strategic announcements that were made today. Quite conscious, obviously, also that there will be a lot of interest in the financial implications of some of these and the more detail-oriented nature of some of those issues. We're certainly more than happy to address those in the August full year results. However, today's call is really designed to focus in on the strategic aspects of it.
With me today, I've got Chris Weldon, our Chief Transformation Officer; Darren Whereat, our Chief Advice Officer, who will also be the CEO of the new [ ISP ] Venture; and David Chalmers, our CFO, to walk us through some of the key initiatives.
Just as a bit of a theme setter and I think which in some ways was overwhelming in our quarterly results was actually a very positive story around delivery through the financial year just completed. And it's really pleasing to see us continue to deliver on the commitments we've made and really build a strong track record of delivery. I think a key feature of the result this morning was the positive net funds flow outcome for the year, which needs to be put in the context of a $4 billion turnaround over the past 2 years. Certainly, again, we continue to be on track for a breakeven on advice even before the [ ASC ] announcement this morning, but really pleasing with the progress we're making on advice, which has actually allowed us to take a next step and really look at the growth of that business. And also announcing a clear path forward of Master Trust is, I think, a really important feature for us and provides us conviction around the separation of Nav and our competitiveness thereafter in the superannuation landscape.
In many ways, this announcement really represents the 2-year mark of having acquired MLC. And I think it's our track record delivery over the first 2 years that allowed us to reset for this final year and really gives us conviction in our ability to deliver in these -- on these key milestones, which not only deliver through '24, but importantly, set us up for a real success for '25 and '26.
In terms of the initiatives that we're outlining today, I think they really all go to draw on the key strengths of the business. And the first one is actually bringing together the best of some external technologies as well as their own expertise and foundations in technology. And I think we see that through the Master Trust solution that we've announced today, building partnerships with the professionals that generates an alignment of interest. And historically, we've done that in asset management and what we're announcing today is we're actually extending that model into our advice profession and also leveraging advice capabilities through our broader business in a way that I think very few can do today. And I think with the advent of quality of advice review focus on retirement income covenant, I think there's a fantastic opportunity there that today also sits in unlocking.
I think when you look through these announcements and through the execution, then what emerges out of this is really an Insignia Financial that can deliver a unique client experience, leveraging heavily off technology, but bringing together that combination of advice, asset management and platforms, a deep focus on relationships, which I think continues to underpin our B2B model and our model serving advisers and workplace and a cost base that leverages the benefits of scale and is self-sustaining in terms of reinvesting into the future. So we're very excited by the announcement of today's -- that we're releasing today, and we think it actually provides a real indication as to what Insignia Financial looks like beyond the integration, the finalizing of the integration of MLC.
So with that said, I'll hand over to Chris Weldon to talk us through Master Trust.
Thank you, Renato. Pleasure to be here. I think before I jump straight into Master Trust, I thought that in the market strategy, I thought it would be helpful just to share a little bit of context around the platform segments that we do operate in. You can see them outlined there on the slide. We operate in 2 platform segments, the Wrap platform segment and the Master Trust platform segment. Wrap platforms offer a broad range of underlying direct investments, ally management features and ally our management of tax at an individual basis. Clients are primarily placed into routes via their financial adviser as the wraps facilitate the implementation and management of their advice strategies for their clients.
Our rep platforms include MLC Wrap, Navigator and our flagship expand brand, which is shown here on the slide. Master Trust platforms, on the other hand, have -- generally have a smaller range of investments. They operate with full tax arrangements and a simpler set of features, whilst they're also very much supported by advisers for certain client segments. They tend to have a more targeted direct client experience and client inflows are primarily driven through our Workplace Super channel. Our Master Trust platforms include MasterKey, Plum, Smart Choice and the OneAnswer Frontier platform.
We've previously outlined our intent and progress towards the consolidation of our Wraps on to our underlying proprietary registry Evolve. Today, what we've announced is our strategic approach for Master Trust, which you can see is a segment that has circa $118 billion in that space. As per the release that we put out, we did follow an in-depth assessment. We had an in-depth assessment of our Master Trust solutions that were available to us. They are different various options. And we considered a number of different strategic alternatives, and we have decided to take an approach that combines the foundational aspects between both our Wrap and Master Trust platforms under a shared technology ecosystem.
This approach will include 2 registry platform pillars, both a proprietary Wrap platform Evolve and a Master Trust Platform Registry. For that Master Trust platform registry, we have selected FIS Global as the provider. FIS is a Fortune 500 company and a leading provider of technology solutions to financial services firms globally. FIS' registry platform Compass is a well-supported and scalable application platform supporting over 70 million client accounts worldwide. And importantly, MLC is a long-standing existing relationship with FIS with the Compass registry currently supporting MLC MasterKey, which represents approximately 50% of the total number of clients and FUM in that Master Trust platform segment you see on the slide there.
Whilst the platform registry is an important component of the overall technology ecosystem, it's only but one component, and it is with the other components where a lot of the client value and efficiency opportunities lie. On the slide, we've outlined what some of those key components of the shared technology ecosystem are to help you understand. There is the client experience component, which includes being such as the digital client experience applications, client reporting. There is data analytics and capability. We're in the process of developing a data platform and capability that will allow us to deepen our client insights and understanding, and we're going to be using this to enhance engagement and enable us to really engage with our clients digitally at scale, which is critically important with the large client base we have set in that Workplace Super Master Trust offer.
We have client servicing capabilities that these include workflow and CRM, knowledge management system capabilities, telephony, digital client response tools. There are back office functions that include accounting, general ledger, clearing house functions, robotics capability, [ mall ] house. And then infrastructure, which includes infrastructure and cloud hosting, the ability to leverage our investment in strengthening our cybersecurity capability and single client identity management capability as well. A number of these shared ecosystem components are actually in place today. And examples of those are the CRM and workflow capabilities. Some are being built out or further developed in readiness for the transition of the MLC products from Nav as we exit our transitional services arrangement. Examples of this are the general ledger, our data platform, identity management and further investment in cybersecurity and client infrastructure.
Given this, we believe that the key advantages of this strategic approach are it will be faster and lower cost to implement and supports our exit from the Nav traditional services arrangement. It will minimize client disruption as approximately 50% of our Master Trust clients already reside on FIS Compass. It provides an ability to improve client experience more quickly and support the continued growth in our Workplace platform segment, as you would have seen in the release that we put out today that is a growing segment for us, so we want to continue to support that segment. And it will provide further incremental opportunity to remove duplication within that shared ecosystem between both Wrap and Master Trust to create operating efficiencies. And most importantly, then finally, it will provide a clear pathway for Master Trust platform simplification over time. They are the key points I just wanted to raise today, and I'll be around at the end if there are further questions.
And with that, I will hand over to Darren Whereat, our Chief Advice Officer.
Thank you, Chris, and good afternoon, everybody. Very pleased to be talking to you here this afternoon about what we believe is a very innovative and progressive change to our strategy in respect to our advice model. More importantly, one that we believe will further support self-employed advisers, the alignment of interest with our clients and more importantly, be fit for purpose as the advice industry moves into a profession. We really think that this model enables Insignia to benefit more greatly through the growth that it offers. The most significant announcement that we are talking about is the creation of a holding company called [ ASC ] whereby the AFSLs of consulting, which includes our TenFifty network that we got across from MLC as well as RI Advice, which represents just over 500 self-employed advisers.
We will be establishing a business that will charter pathway over the next 12 months to independent management, an owner-operator model, whereby the interest of advisers and those of our clients will be completely aligned, been very deliberate about this strategy in terms of the licensing model for the future. And in the creation of this innovative partner owner model, Insignia initially will be a 100% shareholder. But over time, we will be divesting down 40% of the assets and sharing the equity in ASC, so that the interest of those self-employed advisers, the voice of the self-employed advisers and the growth opportunities that this business will be able to experience under a profession is far greater than what it is at the moment.
If you think about a professional services model that Renato referred to in the investment management space, this is the first, we believe, for the advice profession. So very excited about those opportunities in our calls this morning. It's been very well received by those in the community. And obviously, there's work to be done at the initial and feedback is this is very progressive. It's taking the licensing model to that next evolution, and it's good to be part of a model that offers the institutional support that Insignia will continue to provide via strategic long-term shareholding and also the entrepreneurial spirit of self-employed advisers and self-licensed ownership. And so for us, it's the best of both worlds. We really think it's a licensee model that really is partnerships at its best.
In terms of other aspects of our announcements today, that is the most significant. But there are some other particular aspects if we just move on to that next slide. In terms of the advice models for the future, just reiterating our portfolio at the moment, I've spoken about ASC and the establishment of that for the consultant TenFifty, RI communities, self-employed business is solely focused on that channel, alignment of interest but more importantly, Insignia will still have an important role to play there through technology like Wealth Central, which is an integral part and a need for the -- those businesses in there. And so in addition to be a strategic shareholder, the influence will still, in terms of bringing services and understanding the advice needs of the self-employed through tools like Wealth Central will be front and center for Insignia.
In terms of the other parts of the portfolio, we also announced this morning a long-term commitment that have been made to Godfrey Pembroke. In terms of our agreement that we've been working on, whereby they would again take greater ownership and control of their own AFSL and then this will take 80% of the equity in that. Insignia will remain 20% shareholders, a very strategic partnership arrangement, again, with a high net worth brand. This has been a very beneficial and good solid relationship for Insignia. The Godfrey Pembroke network are very complementary of the relationship that's been forged over the 2 years since they've been with it. And they're looking forward to the exciting opportunities for them to also grow their presence in network in the high net worth space, and Insignia will be a beneficiary of that.
In terms of a couple of our other brands, Millennium3, the specialist nature of the Millennium3 business is strategically different to those of consultant TenFifty and RI. And for that reason, we are currently exploring the opportunity to divest that business in terms of finding a more suited owner that has a community that looks more like the Millennium3 businesses, which predominantly is very much insurance focused. And so the right thing for us to do on that respecting the self-employed business is to find them the right home and we'll continue to have conversations with a number of firms as to the suitability of that. But you can see that plus the exit of the Lonsdale license, there's only a few businesses to go in terms of that license. We've been on that journey now for nearly 9 months. That concludes the picture for our self-employed businesses.
Moving back to the right-hand side in terms of Bridges and Shadforth. The professional services part of the Insignia Financial portfolio for advice is front and center has been key. There's really good momentum in both of these businesses, with Shadforth having a very, very strong year last year in respect to attracting new clients in the ultra-high net worth. And Bridges also had a very solid last quarter in terms of really getting their operating model. And Insignia gets the opportunity here to continue to build upon that momentum and concentrate on the professional services firms.
In addition to that, our relationships with the independent businesses that have their own license in IOOF Alliances and MLC Connect will remain under Insignia ownership. And again, Insignia will be continuing to foster those relationships with the independent minded firms that have their own license. And you can see there that there's huge opportunities by the reshape of this portfolio, a move to professionalism via ASC, an alignment of interest, greater growth prospects in that partner owner model and certainly representing a movement from the industry into a profession, a much more progressive licensee and a couple of strategic exit there where the interest really aren't strategically aligned to what we've got. So that's what was announced this morning really excited by the opportunities, both in the professional services firms, more importantly, about connecting those businesses to other parts of the businesses. And obviously, the opportunity the quality of advice reviews opens up as well.
This diversified balanced footprint. Again, is the evolution of a journey we've been on for the last 3 years, and it's a natural next step. And certainly, ASC has been well received, but I'm not downplaying the amount of work that's actually in front of us, but the announcements have been well received by the professionals and the self-employed people in that segment.
Thank you for your time in terms of the reset. Again, I'll be online at the end, like Chris. And for now, I'm going to hand over to Dave.
Thanks, Darren. Good afternoon, everyone. As Darren said, I'll spend a few minutes just giving a summary of the financials. And in particular, I'll try and touch on where what we're saying today. How does that fit with guidance or sort of comments that we've previously made. As Renato mentioned at the start, we're consciously giving this update a few weeks ahead of our FY '23 results where we would typically make comments on '24. And so just to repeat again, we will provide more insight next week. We're a bit limited in what we can say today and the absence of there being FY '24 guidance and actuals for FY '23 in the market. A few principles that I want to just cover before we get into the tables of the cash investments and benefits realized.
Firstly, in terms of funding principles, this is going to be funded through existing facilities in cash. We expect to close FY'24. FY'24 closing senior leverage to be at the lower to mid end of our target range, which is 1 to 1.3x net debt to EBITDA. Secondly, while we are setting out here the components of investment and the components of the benefits, our intention is to track and report these back at an aggregated level. And that's a practical reason as much as we did when we combined the P&I and MLC synergy targets and budget. So that's how that will be reported going forward.
Lastly and importantly, this transformation spend, being, as Renato said, really the last leg of that separation from that. These initiatives are the ones that will continue to be adjusted as part of UNPAT. But our intention is that similar future spend would not be adjusted. And that would be absorbed into the existing OpEx levels, which will allow us to reduce the number of below-the-line items and have a much cleaner UNPAT number going forward. So just a few comments to start with about how we'll sort of be treating that going forward.
I said I wouldn't go through every number, but I just want to touch on -- I'll make a couple of comments on the cash investment line. Let me start with the Evolve23 budget you see there of $15 million. If you go back to the first half '23 result, we forecast that there was $28 million of remaining spend. So the $15 million is a subset of that $28 million, that is not additional spend that was already covered off in previous announcements.
As we work down through the other numbers there, probably the other one that's worth talking about is on the advisory structure. The $45 million to $50 million is not all going to go through the P&L. That includes an amount roughly think of it as being around 1/3 that will be funds to capitalize ASC as against the rest of the costs there that are some one-off costs that sit within the balance of that.
And then the capital release that we're talking about there, as we've grown the number of funds that we have under our sort of various [ ROCs ] as you grow those funds, we've got some inefficiencies in terms of the capital that we are holding at IFL at the moment, where, in some cases, we've got some double ups of reserves. And as you restructure those arrangements, we're able to release that sort of double up. So think of it as being in the majority cash that already sits on the IFL balance sheet today, but is not corporate cash. So as many of you will know, we have a cash amount. Some of that is restricted cash. So effectively, what we're talking about is moving $80 million to $90 million from the cash line that's restricted to the corporate cash line.
Turning over now to the annualized benefits. You can see we're talking about then we split that into 2. So $140 million to $150 million of annualized OpEx savings. The only number there that is -- that we've already spoken about in that $140 million to $150 million is the Evolve23 target. We've previously guided $30 million to $35 million. So that number is already out there, and that is included in the $140 million to $150 million. The reason we have split out the advisory structure below is that $35 million to $40 million is effectively the numbers that will deliver the profit target that we've stated there on the second bullet point, that is approximately $10 million of UNPAT on an FY '24 exit run rate basis. So that $35 million to $40 million is not on top of that sort of $10 million UNPAT. What we're saying is that the benefits we've announced day through ASC, that is how we're going to get to that outcome.
I know there'll be a lot of interest in terms of the split of timing. All I can say at the moment is in terms of spend, I'd expect the most significant spend year within that range to be FY '24. And in terms of benefits, the largest realization would come, we expect in FY '25. So I know there'll be more interest in granular detail, but I might just leave it there for the moment, as I said, ahead of our results in a month's time when we look forward to talking about it more.
So with that, Andrew, conscious time, I'll hand back to you.
Thanks, David. Thanks, everyone. We'll now expect questions from the line.
[Operator Instructions]
First question comes from the line of Kieren Chidgey from Jarden.
I've got a few questions. Just starting on the platform side around the timing with some of the initiatives. I think in the release, you say the foundational elements will be in place by around December '24. Just wondering exactly what you mean by that and what won't be in place sort of by that time frame?
So I think if you look on the slide that there are a number of shared ecosystem components. The key things that we're referring to that are the foundational pieces that will be in place will be general ledger. So a new fit-for-purpose general ledger that will work across the various platforms and also support the corporate entity. Will we have the foundations in place. And in fact, it's already being built out around our unified data platform that will provide that data and reporting and analytics component. There will be -- and we're well progressed at this point with a new identity management system to support cybersecurity. That will be -- once we move the Evolve23 takes place, that will actually use that new identity management to some be progressively phased in. So they are the key components that will be in place. And there's some other more technical ones that reside underneath some of the cloud infrastructure is being built out as well.
And then really, we're working through that shared ecosystem to say, well, where does it make sense to combine the various sort of components and where it make sense to have maybe some individual ones because of the different segments are different, but we expect those components to be in place by -- in the well in train by [indiscernible] exits. So we're talking around the timeframe you called out late calendar '24.
Okay. And the [indiscernible] intake that's currently what May '25, is that correct?
It's May '24. Yes, that's correct.
And just on the Wrap side of things, the delay in the MLC Wrap transition to Evolve to second half '24. Just talk through the reasons for that. Is that to give you more time to build out SMA capability on Evolve?
I think we called it out in the release around engage -- we're engaging really closely with our advice network on that change. We've gone through a number of these historically really successfully. And we've seen -- if you don't engage with advisers and you don't manage the change well, it can have -- there's a risk of the consequence of that. So we've been doing that. We've been engaging them with our advice network and determined in conjunction with them that it's appropriate to provide more time to manage that transition out, which is why we push the data out to a little bit just to the start of next calendar year.
And on the SMA aspect, will that be in place by that timeframe?
I think it will require in order for us to consolidate platforms, we're going to need to ensure that we have appropriate that the trustee is comfortable that is appropriate equivalency between the product sets. We've got deep experience in the SMA space. We've got a growing managed account solution already that we're leveraging the capability out of on the Evolve platform. And so it's just now creating a slightly different structure and to support the SMA capability that the MLC Wrap platform has. So the anticipation is that, that will be there, but that's the sort of work progress we're expecting that to be the case, yes.
Right. And just a second question on sort of more of the cost benefits of some of the platform consolidation work, the $140 million to $150 million, which is probably an incremental [ 115 ] Evolve numbers you'd already given, their gross numbers, how should we think about the net benefit? Is there any risk of -- or need for repricing on the Master Trust products and sort of alongside that with the creation of ASC, which I think you called out have about [ $24 billion ] platform FUA. How do you think about and manage sort of attrition risk as that business separates.
I can pick those ones up here. So look, in terms of gross OpEx side, our intention is for the vast majority, if not all of that, to be delivered to the P&L. We don't expect there to be revenue changes directly as a result of these Master Trust strategy we talked about today is, again, one of the benefits of this approach relative to some of the other ones that we considered at different times where there would have been a revenue impact. So I'm not calling out a commitment that every dollar of that, we just need to work through, particularly as we onboard and change that model to get rid of these below-the-line costs. But we will be pushing to maximize every dollar to make sure it goes to the bottom line.
And your second question, yes, look, in terms of the $24 billion, you're right. I mean is that -- and of that $24 billion, the vast majority, $21 billion of that sits within ASC. It reflects the importance of the structure that's been put in place where Insignia is a cornerstone investor into that new business, continuing to support those advisers. We expect to have an excellent working relationship with those advisers going forward. And so we don't anticipate there to be significant sort of changes as a result of that in terms of platform relationships. But clearly, that will be up to those advisers going forward and what they deem to be in their clients' best interest. But a lot of thoughts gone into the right structure to ensure that this is a win-win outcome for everybody.
Thank you for the questions. The next question comes from the line of Nigel Pittaway from Citi.
Just a question, first of all, on the incremental $100 million to $110 million or so cost benefits. I mean what proportion of those benefits do rely on the TSA exit and by saying that the majority come in '25, are you effectively saying post 31st of May '25 once you've exited the TSA.
So, Nigel, it's David here. No, the TSA is a relatively small component of that.
All right. So obviously, the next obvious question is, where are they coming from then?
I guess if we roll back -- a question we're often asked once we hit the $150 million in much for the time than we expected was are there any additional benefits, right? Can you go beyond the $150 million? And you might recall what we said at the time was, yes, look, we think there are opportunities there, but we will roll those into future simplification cases. And the Master Trust strategy is a key plank that having certainty on -- and what that's going to look like, enables us to go back and look at a couple of areas. So I would see this being -- some of that will be second waves of synergies that we've sort of been working with for some time. Some of it relates to -- a lot of that first wave of synergies set within individual parts of our business. As we're looking at efficiencies on things like target delivery model that allows us to go more across the horizontal and look at opportunities across the business.
So there's a range of cost savings initiatives in there. And as I said, but the TSA component is relatively small, which is really why we think that on a -- the '25 is the max year, if it was the case that most of this was TSA, you'd expect to see that in '26.
Okay. So does that mean there will be further product rationalization synergies to come once the TSA is exited? Because presumably, you can't do any product rationalization wise or you can't do much product rationalization, whilst you still got that TSA running?
Yes. Look, we'll continue to work through those product rationalization opportunities. But I think importantly, what we're signaling is, again, to the extent that there are investments needed for that, that we expect to cover that inside our sort of OpEx base. And there's nothing significant kind of planned within this '24 to '26 period. And what that enables us to do is to really shift our focus to organic growth of the businesses we have.
Okay. And with this, obviously, new sort of solution for the Master Trust and obviously, some of the costs you've identified. I mean, can I just ask us, say, broadly -- broader question in terms of sort of your original expectations, is this MLC integration? How is it stacking up both in terms of complexity and cost compared to your original expectations?
Yes. Look, I think probably a couple of years ago now, we called that we thought that the separation would cost more than we outlined at the original acquisition date, but there would be further benefits. And I think you see some of that play out today, frankly. There were areas in terms of -- Chris outlined some of those foundational ecosystem requirements, single ledgers, investment in data capability. Some of those new investments that we would be making anyway. We sort of do that sort of investment. Those will be important drivers of how we target going forward. So I would say that generically, Nigel, it lives up to what we said a couple of years ago, yes, there's additional cost. But likewise, from a synergies point of view, it's clearly going to go significantly beyond the original $150 million.
Okay. And then maybe just a question on the advisory structure. Presumably, the first year of this business, you have a loss which you have to consolidate. So does the $10 million segment profit UNPAT, does that include the first year consolidated loss from the new business? Or is that -- once that sort of dissipates away?
So that $10 million has always been an exit FY '24 run rate as it heads into '25.
So in other words, it will be once the -- you don't have to consolidate the new business, is that right?
No. We expect the business to be profitable in year 2. So there's no -- that's not a deconsolidation effect that gets to that number.
Right. Okay. But it will be year 2 rather than year 1.
Yes. So on that exit run rate from FY '24, that's the number that we're saying we think we'll have around about $10 million UNPAT, which is consistent with what we've previously said.
And maybe just finally, I mean, in terms of the sort of obviously the big risk here of the Master Trust transition is running past the 31st of May '25 TSA expiry days, presumably by sort of taking the solution and using MLCs, you feel you've minimized the risk of that. But do you think there is much risk? I mean, how hard do you think this stage of the transition is going to be? And to what extent is the risk of that could go beyond the May '25 key day?
Yes, look, I'll turn to that quickly. We've clearly gone for a solution that we think is the right mix of being the right platform for us going forward. And clearly, with a view on lowering risk, not only from the point of view of transition, but also in terms of other disruptions that can be caused in markets. So all those factors go in. And so look, we're confident that just as we've delivered other transitions that we're on track for this one as well.
That will be the last question for today. With that, I would like to hand the call back to Andrew for closing remarks.
Thank you. And unfortunately, we are out of time today. Thank you, everyone, for your time and interest today. We look forward to speaking to you again on the 24th of August when we announce our FY '23 results. But please reach us, in the meantime if you have any questions. Thanks, everybody.
This concludes today's conference call. Thank you for your participation. You may now disconnect your lines.