Iress has posted a 14 per cent underlying earnings drop for its Asia-Pacific wealth management business, which includes financial planning software Xplan and the Advisely content platform, amid a tough year in which the group made a $137 million loss.
In its 2023 full-year results today, Iress said the local wealth unit has seen an increase in operating costs due to salary inflation and improvement works on Xplan’s user experience, which claims over 60 per cent share of the wealth software market.
Combined with pressure on revenue from a reduction in non-recurring projects, wealth management saw a $7.9 million drop in underlying earnings, the most significant among all business divisions. Iress’ share price tumbled 5 per cent on Wednesday to close at $8.3.
However, in its comments to the market, the group was upbeat about the path ahead. It said there are fresh revenue growth opportunities from digital and scaled advice on the back of Quality of Advice Review.
The wealth management business also includes Iress’ new educational offering Advisely, which the company said had a “well-received” launch in the second half last year.
Iress chief executive, Marcus Price, conceded that 2023 “has been in many respects a challenging year”, and said the business is still undergoing several transformations.
“Today also marks the beginning of our transition to clearer financial reporting, with fully cost allocated business units and a shift underway towards simplified profit measures,” he said.
“We also completed our new capital management plan which is designed to deliver a stronger balance sheet with lower leverage, create capacity to increase our R&D innovation, and enhance shareholder returns from a cash-generative business.”
Group revenue was reported at $625 million, up from $615 million in 2022.
Superannuation ‘key unit’
A Morningstar analyst note for the company distributed at the end of last year said Iress was in prime position to “defend its dominance in the core financial markets and wealth management verticals”.
“Revenue growth in the Australian trading/data and wealth management businesses and very low client defections illustrates the quality of Iress’ Australia assets, which we believe have strong customer utility and high switching costs,” the note said.
While the research house predicted Iress’ superannuation business to be the “key unit” from 2024 and beyond, it saw a 292 per cent decline in 2023 full-year underlying earnings to a $2.5 million loss despite 9 per cent increase in revenue.
The segment’s climbing cost was attributed to “salary inflation, restructuring activity and notable remediation projects”.
Iress runs a smaller superannuation unit than market incumbents like Link Group. Speaking to Professional Planner’s sister publication Investment Magazine this week, Iress superannuation CEO Paul Giles said fund administration is still in “growth” phase compared to the rest of the cohort.
He was not overly concerned about technology cost in this space, as one of its big advantages is that its administration business can be built upon Iress’ own software, which streamlines both improvements and troubleshooting processes.
“If you were having a look at other outsourced [super fund] administrators within the market that don’t have their own proprietary technology, certainly cost is an issue around developing the software because you definitely have to weigh that off with all your administration fees,” he said.
Elsewhere in the results, a refocus to local core business continues as Iress’ managed fund administration (MFA) unit was sold in October last year to SS&C Technologies with $50 million gross proceeds, while the platform business sale is expected to be completed by 20 April this year.
Iress upgraded its 2024 underlying earnings guidance to $137 million to $147 million based on current R&D investment level of 2 to 3 per cent.
