Computershare Limited (CPU) Earnings Call Transcript

Thank you, Harmony, and good morning, everyone, and welcome to Computershare's FY '22 Results Conference Call. I have Nick Oldfield, our CFO; and Michael Brown from our Investor Relations team, with me. And I'm pleased to say it's the first time we've all been in the same room for our results for a couple of years. So let's take that as a small sign that the world is returning to normal. Now on this call, we'll take you through the key highlights of our results and the outlook for FY '23. As usual, we've released a presentation pack to the ASX, and it's also on our website. There's a lot of information in the deck. So I'll focus my remarks on the opening pages. Nick will then take you through the financial results. Following the presentation, we will open up for Q&A. And as a reminder, we will be talking in U.S. dollars and constant currency, unless we state otherwise. Okay, so let's start with the highlights on Page 2. We are pleased to report overall management EPS slightly ahead of guidance. Management EPS increased by over 10%. Guidance was for around $0.57 per share, and we came in just over $0.58 per share. But clearly, it was a challenging market environment in the second half of the year, especially in the last quarter. As interest rates increased rapidly, our transaction and event-based revenues were impacted by lower volumes and activity levels. Mortgage rates shot up reducing origination and corporate action volumes began to tail off. So the drag on EBIT ex MI was in essence somewhat tied to the increasing rate environment. As a result, EBIT ex MI came in below our guidance for the second half, but MI was upbeat and more than offset. Margin income is a natural hedge in our business, and we did begin to benefit from the higher than anticipated rate rises in some of the key markets in the last quarter. So simply put, the mix altered. Management revenues increased by over 12% with 8 months contribution from the Corporate Trust acquisition in the U.S., which we completed last November. Growth in client fee income offset weaker transaction revenues along with strong cost controls. So we were able to manage the impact of inflation as we began to benefit from the rising interest rates. Margin income in the second half was $125 million compared to $62 million in the first half, and there was clearly more to come. And we have laid out our assumptions on future rate rises as part of guidance. And Nick will also talk us through that later on. Issuer Services and Employee Share Plans continue to win market share. Transaction-based revenues and corporate actions and employee share trading, as I said earlier, were impacted by market volatility in the second half, and the expected recoveries in bankruptcy and class actions have yet to come through. Mortgage services in the U.S. delivered a disappointing result, although the outlook is a little more positive. And our well-timed CCT acquisition continues to exceed expectations. We're making good progress integrating the business and delivering the expected synergy benefits. Now that business delivered $90 million of EBITDA for the year, with $80 million of that coming in the second half. Computershare's free cash flow and balance sheet are standouts in this result. We generated over $320 million of free cash flow with over 60% cash conversion. Debt leverage has improved to 1.64x below the bottom of our target range. However, that's probably not a bad place to be in a rising rate environment. The deleveraging has come through sooner than expected following the CCT acquisition. And this balance sheet flexibility will enable us to continue to strengthen and scale our global growth businesses, fund the integration plan for CCT and reward shareholders. We have a confident outlook. Management EPS is expected to increase by 55% in FY '23. Now inflationary pressures are impacting our operating businesses and costs are expected to rise in FY '23, and we are not immune to these pressures. However, margin income, our natural inflation offset, is estimated to be $520 million this year, driving strong earnings growth. And we will continue to invest in our businesses, simplify our structure to improve the quality of our earnings and deliver long-term returns for shareholders. Now moving on to Slide 3. This really summarizes the performance across our major business line. The main point I'd call out is that we have a business model that allows us to build scale and grow in large global markets. And overall, we can offset some inflation with cost controls and, of course, rising margin income. In Issuer Services, we increased revenues in Register Maintenance, our largest business, and we continue to win market share and outperform. In fact, over the last 4 years, we've won over 1,400 net new client wins. In FY '22, we increased the number of wins compared to the year before. The ongoing investments in front office, client experience and product innovation are strengthening the business and improving the value proposition. Governance Services delivered another good result. Our revenues increased by 30%. Now remember, this business does not have margin income, something I used to call out as a positive. There's a tremendous amount of growth opportunity here, and all the structural trends like rising compliance and regulation and business complexity are positive. Corporate Actions had a weak second half though. Volatile equity markets led to lower transaction volumes in the second half. And you can see the overall drop in completed M&A and capital raising numbers. Hong Kong IPOs, which were a prominent feature of the PCP, were substantially down, and we do expect some further weakness in corporate actions in FY '23. Employee Share Plans continues to win market share and increase client-paid fee revenues. Fee revenue was, in fact, up over 5%. And the EquatePlus platform is really driving this growth. Now the upgrade is complete in Europe. And in Australia, 85% of clients are now on the new platform, and we're now preparing for the North American rollout. And although equity markets have been weak, transaction revenues were stable for the year overall, but we did see a reduction in the second half as equity markets lowered in key markets. The volume of units under administration increased 5% year-on-year, and you'll remember me saying that this is latent earnings power in this business and should lead to transaction revenues over the coming years. Over in Business Services, the expected recovery in bankruptcy and class action has so far failed to come through. Revenues were down in both businesses. Case volumes are low. Regardless of this, we do need to improve the profitability of these businesses, and we've got more to do. Canadian Corporate Trust headline results were modestly impacted by the sale of our private capital solutions business. Now this was a small retail focused business that added unnecessary complexity to Canadian Corporate Trust. Excluding this, it delivered another consistent result. As I said earlier, mortgage services in the U.S. delivered a disappointing result, although the outlook is more positive. Revenues were down 5% due to the impact of the prior period refinance volume and a continued shift towards capital-light subservicing, which comes at a lower revenue level per loan. In the second half, new origination volumes were weaker than expected due to rising mortgage rates. EBITDA was down $9 million to $100 million, and we reported an EBIT loss of $14 million. On the positive side, we are making progress on our strategy to shift the portfolio to a more capital-light model. Invested capital fell, and we recycled over $170 million of MSR capital. This contributed to the growth in our subservicing portfolio, where we added over $22 billion in new subservicing throughout the year. We have a pathway back to profitability and do expect better results this year. Speaking of profitability, we also returned the U.K. mortgage services to profit. And whilst we know that book is in runoff and revenues are down, we are actively managing that cost base, and the sale process is continuing. I'll highlight CCT, our recent acquisition in the U.S. I'm delighted to say the business is performing well and exceeding expectations. It delivered $336 million of revenue and $90 million of EBITDA for the year. Now remember, we only completed in November, so that's effectively $260 million of revenue and $80 million of EBITDA in the second half. The business had over $18 billion of balances and an additional $47 billion of money market funds on average in the second half, so it clearly increases our leverage to interest rates. But what I find most encouraging is, just as we did in Canada, we are slowly beginning to improve client paid fees, recurring revenue and management EBIT ex MI, which was $29 million in the second half. Now that's a good start. Integration is also underway, and we're slightly ahead on delivering synergies at this stage, but it is early days. Now let's turn to Slide 5, outlook. Now as the great singer Dinah Washington said, what a difference a day makes. And I think she might have been singing about interest rates too. In FY '23, we expect management EPS to be up around 55%. That's opening guidance of around $0.90 per share EPS. Margin income is a big driver. We're guiding to around $520 million of MI this year. Now this includes the benefit of recent rate rises, the effect of our hedging strategies where we're looking to deliver a smoothing earnings profile over time and also the assumed future rate hikes. Undoubtedly, we will be wrong, but we are trying to be helpful and transparent to investors. A simple way to look at this is to think about Computershare in 2019. So pre-COVID interest rates and where yields were similar, we delivered close to $250 million of margin income in the legacy CPU business. Now rates are back to similar levels, and with the CCT acquisition, we have doubled our balances, hence the figure of around $520 million. We base our guidance on average cash balances for the year of approximately $38 billion. Exposed unhedged balances are expected to average just over $16 billion, and we assume U.S. cash rates to rise to 3.5% by the end of the calendar year. That is all laid out on Slide 10 of the deck, and of course, we'll be happy to take questions on this. Now the other side of higher interest rates is, of course, higher inflation. Now we are not immune to the inflationary pressures you are seeing. And while we will maintain our disciplined focus on cost control, we do expect cost growth of around 5% on a pro forma basis in FY '23. And as you work through the numbers, you'll see that we expect EBIT ex MI to be down around 5% next year. However, with such a strong financial position, we will take advantage of the opportunity to invest in our businesses and simplify our structure to improve the quality of our earnings and deliver long-term returns for shareholders. I'll now hand over to Nick to take you through the financials in more detail.

Thank you, Stuart. Let me start with our financial results which this year are on Slide 11. Revenue for the group increased 12.2% over the PCP, whilst revenue ex margin income was up 9.2%. Adjusting for the CCT acquisition, operating revenues fell 3.5%. Our event-based businesses corporate actions, stakeholder relationship management and bankruptcy were the biggest drivers here, whilst mortgage servicing runoff -- revenues also dropped due to book runoff in the U.K. and an increased shift to subservicing in the U.S. Encouragingly, recurring revenues improved to 82%, and we do expect growth in client fees across the Registry, Governance Services, Employee Share Plans and CCT in FY '23. Margin income increased 74.3%, reflecting the rise in global interest rates. Excluding CCT, margin income was 22% higher. There's more detail on revenue on Slide 33. EBIT grew 19% to $530.9 million, which is largely attributable to the $79.5 million MI improvement. Excluding MI, EBIT was marginally better at $344.4 million. Adjusting for the CCT acquisition, however, EBIT, excluding MI, was down 7.5%. As I said earlier, this is largely down to reduced volumes in our event-based businesses, particularly in Q4. The EBIT ex MI margin was down 110 basis points to 14.2%. This reflects both the impact of the lower-margin CCT business on the group and the reduction in those higher-margin event-based revenues. Notwithstanding the dilutive impact of CCT margins here, do note that this business was breakeven on an ex MI basis pre-acquisition, so we are very pleased with the improvement in performance so far. Interest expense was $4.8 million higher, and we've now swapped all of our debt to floating rates. This acts as a natural hedge to our margin income, and so we'll benefit in the event rates fall in the future, but does lead to higher expense in FY '23. Our income tax expense was higher, as you would expect, at $120.7 million. The effective tax rate, however, was lower at 25.6%. This was largely due to a reduction in BEAT expense in the U.S. as MSR values improved and also attributable to an updated transfer pricing agreement in Canada. This agreement has had the impact of reducing our Australian royalty revenues, and in turn, our ability to frank our dividends. We do expect a slightly higher ETR in FY '23 in the 26% to 28% range reflecting higher U.S. margin income contributions. Including CCT, management NPAT was up 23.5% to $350.3 million. Excluding CCT, it was up 2.1% to $289.7 million. Finally, and as you've already heard, management EPS was up 10.6% to $0.5803 per share. Statutory results are on Slides 52 and 53. Statutory NPAT was $227.8 million with the difference attributable to the amortization of non-MSR acquired intangible assets of $63.4 million, acquisition-related expenses of $45.1 million and $13.7 million associated with our cost-out programs. Of the acquisition-related expense, $56 million came from the CCT acquisition and ongoing Equatex integration. This was partially offset by gains on the disposal of our stake in Milestone and our small private capital solutions business in Canada. I'll now jump back to Slide 8 and talk about margin income. Margin income was somewhat ahead of our expectations, doubling over the second half with a full half of CCT contribution and more and higher rate rises than we had anticipated. 2H '22 was $125 million at actual rates. And on Slide 9, we show our balances for the year. In our legacy business, balances were just over $21 billion. The average yield improved to 73 basis points in the second half, reflecting the general improvement in rates. And at CCT, reported average balances are skewed by the fact we only had 2 months of balance for the first half. In the second half, average balances of around $18 billion was slightly down on the first half largely due to a slowing of bond issuance as rates started to rise. As with the legacy business, yields have also improved from 23 basis points to 53 basis points in the second half. And on Slide 10, we provide more color on our outlook for FY '23. As Stuart has said, we expect to deliver $520 million of margin income in the next year. So how do we get to $520 million? Well, firstly, we're not economists. We set out the average cash rates by a quarter that underpin our forecast here. These are sourced directly from Bloomberg. And secondly, we've set out our balance assumptions on how the book breaks down by category. Let me just make some points on balances. Exposed non-hedged balances are expected to be down around $3.3 billion compared to 2H '22 average. This reflects our assumption that corporate actions volumes will be lower in FY '23 given general market conditions, combined with an increased shift to hedging. CCT balances are expected to be broadly consistent with the 2H FY '22 average, albeit there is some movement from exposed to nonexposed as we learn more about the underlying portfolio. Hedged balances are up $1.2 billion, and we're continuing to add cover as rates rise. In 2H '22, average hedged balances were $4 billion, and our outlook assumes they rise to $5.2 billion. In actual fact, they are currently at $5.8 billion following some activity in July, and we continue to add protection. We do not believe this will materially affect our MI guidance at this point. Third and final, let's talk about yields. You can see from the table at the top of Slide 10 that we expect our exposed yield to improve from 75 basis points in FY '22 to 211 basis points in FY '23. Now this overall return is still a little below the expected average cash rate for the year. This is for a couple of reasons. Firstly, there's still a large proportion of CCT balances earning below market rates from Wells Fargo as part of the transaction agreement. This will change at the end of the TSA period in October 2023. We also have other balances earning submarket levels due to U.K. retail bank ring-fencing whilst euro market rates remain close to 0. Otherwise, we continue to play catch-up on overnight rate recovery as rates rise, albeit we do expect to achieve around 90% of an overnight cash rate over time, just not in FY '23. Looking further ahead to FY '24, we anticipate further improvement in our exposed yields as the recovery in rates -- or catch-up in rates continues, whilst we do continue to add hedge cover to protect the medium term. There's more detail on balances on Slides 56 to 59. Next, I'd like to talk about our operating costs on Slide 22. Here, we show the bridge in operating cost between FY '21 and FY '22. Importantly, we've highlighted our cost-out programs, which yielded $42.5 million of gross benefit in FY '22. These more than offset the impact of $35.9 million in cost inflation in the year. Of the cost-out programs, the restructure of our U.K. mortgage servicing business delivered $26 million of benefit. Equatex synergies totaled $7.7 million and ongoing Stage 3 benefits which were largely related to property rationalizations delivered the remainder. Overall, our adjusted operating cost base was at $1.885 billion, an increase of 11.3%. The legacy business was broadly flat, and so the higher cost base really just reflects the CCT acquisition. Like most organizations, we continue to face inflationary pressures across our business lines, and we anticipate overall cost to increase around 5% on a pro forma basis in FY '23. This assumes CCT was owned for the full 12 months in FY '22. Our exposure to higher interest rates, track record of delivering cost out and ability to reflect current market conditions in event-based pricing, does give us comfort we can effectively manage the effects of market inflation. We also have some contracts where we have the ability to adjust for CPI. Total operating expense is detailed on Slide 54, so you can see the usual breakdown there. On Slide 23, you'll see the impact of our cost-out initiatives and that they have now extended this out to FY '26. Between now and then, we anticipate delivering $56 million more savings which will cost us around $100 million to implement. These are largely coming from the Equatex integration, whilst the U.K. mortgage servicing restructure is expected to deliver incremental benefits of $6.5 million. Our Stage 3 program, which includes our global operational transformation program, adds a further $5 million in savings. We continue to evaluate opportunities for a Stage 4 cost-out program and have started a new employee-driven cost-out initiative in U.S. mortgage servicing. We are excited to see how that turns out. I'll finish with some comments on our balance sheet and cash flow on Slide 24. In the period, we generated $438.4 million of net operating cash flow representing an EBITDA to cash conversion rate of around 61% at actual rates. Free cash flow was $322.6 million, a 24% improvement over the PCP. CapEx increased to $42.8 million, largely as a result of the CCT acquisition. Net spend on MSRs was $73 million. We recycled $178 million of mortgage servicing capital over the year with our net investment in MSRs being 65% of amortization. We expect net MSR investment going forward to be 50% to 60% of amortization with amortization itself roughly flat in FY '23. Net cash flow -- net cash outflow, sorry, was $621.4 million after spending a net $737.7 million on acquisitions and $206.3 million on dividends. Net debt at year-end was $1.18 billion. Our balance sheet has repaired faster than we expected as earnings have grown and CCT integration-related expense has been lower than anticipated. As mentioned earlier, net debt to EBITDA improved to 1.64x and we expect this to improve further over the course of the year. And finally, as a result of the $800 million in public market bond issuance we did in the first half, the weighted average maturity of our drawn debt has increased to 4.4 years. I'll now hand back to Stuart.

Thank you, Nick. So just to wrap up, we've had a pretty solid year with earnings slightly ahead of guidance. And our earnings are accelerating too. And we delivered 15% growth in management EPS in the second half of FY '22 versus the PCP, and we're guiding to a further 55% growth in FY '23. Now this performance is an outcome of our long-term strategies to strengthen and scale our global businesses and also increase our optionality. And this time, it's paying off, and there's more to come. As I said at the beginning, we have a business model that delivers high-quality recurring revenues, has the ability to offset inflation with margin income, requires little capital to grow and generates significant free cash flow to self-fund investments and enhance returns for shareholders. So the question on the table is what are we going to do with all that cash? Well we will continue to invest it in our businesses and assess complementary acquisition opportunities, while maintaining a conservative capital structure and also reward our shareholders. I'd just like to say thank you to all my colleagues at Computershare for delivering these results and also to our shareholders for your loyalty and support. So thank you very much. And operator, can we please open the line for questions.

Your first question comes from Kieren Chidgey from Jarden.

A couple of questions, if I can. Maybe starting with second half '22. Just wondering, Stuart, if you can unpack a little bit more I guess, around what sort of transpired between February and June. I know sort of ex CCT and ex margin income, your guidance back in February was hovering up to $104 million EBIT ex margin income. In the legacy part of the business, you've delivered $158 million, which is about 23% large. Is that purely, as you've said, due to much, much weaker transactional revenues through sort of the back end of the half, particularly in the June quarter. So just wondering if that is the case or if there were other parts of the revenue lines, more recurring revenues that were also softer? And then secondly, if that case what is embedded within your guidance or your outlook for '23 in regards to those transactional revenues are you assuming sort of a continuation of what we saw through the June quarter or some sort of pickup as we move through the course of the year?

Yes, thanks, Kieren, good question. Obviously, when we were at the half, we had quite a strong EBIT ex MI number at the half. And we guided to an increase in that number. It really became a story about the last quarter. I think it is important to understand that we do have a business that is sensitive to markets. We saw interest rates pop up and the quantum of these rates were probably higher than anyone expected. As a result, that did have a fairly quick sort of second quarter of the half impact on some of that transactional revenue, Employee Share Plans, Corporate Actions were delayed, a number of IPOs were pulled, et cetera. So as a result, that was very much correlated to the interest rate environment, which impacted markets. And saying that, there was also some other businesses that perhaps were less exposed to sort of the interest rate side that didn't come through as well, such as bankruptcies and class actions. But as I said, it really became a mix issue where the punching rate rises helped us on margin income, but lowered it on the event based and the transaction revenue in the last quarter. As we sort of -- and that's a mix issue. That's exactly what it is. The mix just changed. So still able to hit the guidance, but just the component parts were a little bit difficult. Of course, we then sort of look forward into FY '23 and quite specifically looking at the businesses on an ex MI basis, et cetera, we still think there'll be a little bit of a drag with equity markets. And we think EBIT ex MI will probably drop to about 5% before recovering into FY '24. That's what we see.

Okay. And at a very high level, I know there's a bunch of different transactional revenue lines. But is that implicit within that sort of a continuation of sort of more the second half '22 type weaker levels of transactional activity rather than sort of what we saw through full year '22 with a stronger first half?

Yes, look, I mean, it's always a little bit difficult on a judgment call, trying to work out what Corporate Actions are going to be doing. We do expect Corporate Actions to be a little bit weaker. Lots of reports out there about M&A and what it's going to be doing, et cetera. But we think that will be tailed off. We'll keep an eye on the Asian markets as far as employee share plan trading is going to be there, but we also expect some 2H '23 recovery in bankruptcy, et cetera. So yes, there's lots of moving parts on some of that sort of transactional stuff. But I think some of that will be offset, for example, in Employee Share Plans, even though equity markets are down, the number of units are going up. So that's of late an earnings power, and that will allow it to come back. I think that because of the -- my perspective is the quantum of these rate rises was more than anyone was really anticipating, to be honest with you. The new rate rises were coming. And that just caused some -- in my view, some short-term challenges in some of that event- and transaction-based stuff. And I think once it settles, they'll start coming back. But then of course, we've got the benefit of the MI. So as I said, the mix changes.

And a second question just on the margin income outlook, Nick, sort of on the exposed non-hedged balances, you're guiding to 2.02% within your guidance for '23 and that sort of appears to sort of be relative to around, say, a 3% average global cash rate, that's on the quarterly numbers you've published here out of Bloomberg, so a conversion rate or a capture rate maybe of around 65% through '23. Now you mentioned in your comments, 90% is still what you see as achievable over the medium term. Just wondering around the timing around how quickly do you think sort of that moves to 90%. I know there are some overlapping features with some of the things you mentioned, such as the TSA on CCT and maybe the U.S. mortgage services banking arrangements changing as well. But can you give any more clarity around how we think about the pathway from 65% to 90% over the next couple of years?

Yes, look, absolutely, Kieren, and as you point out, the biggest contributor or the biggest factor is the CCT TSA agreement. As I said, that expires in October 2023. And so if you look at our -- the nonexposed -- sorry, the exposed non-hedged balance $7.7 billion is at CCT. It's earning 2.3% relative to -- you might expect it to be closer to 3%. And so you can see that, that amount there is the single biggest contributor. And that will be -- we expect that to be at sort of market rates by end of October 2023. We've then got another couple of billion in U.S. mortgage servicing, where our current rate is materially below market. And that is -- we also called that out in our FY '24 bubble on the -- at the bottom right of that Slide 10. And really, that is a reflection of the current banking arrangement is subeconomic. It's become subeconomic in the last couple of years, but it didn't really sort of come through how subeconomic it was because the market generally just wasn't paying up for cash. And so now it clearly is. We need to unpick that. Operationally, we've got a couple of thousand bank accounts that we need to move, and it's not straightforward. So we're targeting FY '24 to get that back to market rate. We may be able to do it quicker, of course, but that's our target now, FY '24. They are the 2 biggest items. There's a few other bits and pieces that are currently sort of earning closer to between 60% and 70% and that's something that we'll just address in time but FY '24.

Yes, with that so the U.S. mortgage services, when you say FY '24, you're talking start, sort of, of the year. I mean, sort of CCT, that's [indiscernible] a quarter of the way through the year?

Yes, I'd like to think we get it done by start of the year, yes, start of the year is a reasonable target.

Okay, so we should be -- so if those 2 things do occur, we should be fairly close to 90% in second half '24. Is that fair for the year?

Yes, we'll be much closer in the second half '24.

Your next question comes from Ed Henning from CLSA.

Just the first one, just a follow-up from Kieren, just to clarify, the $50 million to $75 million you've called out in '24 in margin income on Slide 10, that includes a full capture rate of the 90% of the pass-through. Is that how we should think about it?

The $50 million to $75 million add is really 3 key things that are in that bubble. It's the Wells Fargo, CCT TSA expiry, it's the U.S. mortgage servicing upside that we just talked about, and it's recapture of about $4 billion of money markets fund balances at between 25 and 50 basis points. It's -- that $50 million to $75 million is just those 3 items, nothing more.

But what I'm saying -- what I'm trying to get at, included in those, obviously, not all of this gets captured to 90%. But is there anything over and above that $50 million to $75 million in moving from the 65% to 70% pass-through rate we've got now to get the 90%. Is there any additional above the $50 million to $75 million if you can get a 90% pass-through rate is what I'm trying to get at.

If we can get 90% pass-through rate across the rest of the book, there is more upside, absolutely.

Okay. And while I can go and calculate it, can you give us any guide on what you think that is?

I think you can calculate it, Ed.

Okay, I thought I'd try. Now just a second one. You've talked about a Stage 4 cost-out program. You've already got cost benefits coming through in '25 and '26. Is this plan likely to be long dated than cost savings coming through in '23, '24?

Yes, so we've been working with a third-party organization to assess a number of our operating businesses. As part of that, they come in lots of interviews, time with the staff, looking at workflows, et cetera. It takes a while to sort of work through the identify other opportunities. We've actually had them in our mortgage services business as we move to subservicing. Important to reduce the cost to serve on a per loan basis. So look, that sort of work is completing. It's coming up for review over the next few months. And we'll assess the cost to achieve investment and work that through. Look, I think that in this rising sort of inflationary environment, Computershare has had these cost-out programs in train. You can see the benefit that we got from that very clearly on our cost slides for the year in terms of trying to offset the challenge of inflation that we're all seeing. But of course, we do need to do more, and we'll continue to attack it. And we should be able to announce something certainly this financial year on some of our other sort of Stage 4 cyclical businesses they are actually in, et cetera. There's not a lot of low-hanging fruit. Some of them are sort of major architectural redesigns of process flows, et cetera, et cetera. So -- but I can assure you, we are working hard on the costs.

No, no, that sounds good, but it does sound like there's not low-hanging fruit. It's more back-ended as opposed to '23, '24 at this preliminary stage.

Yes, yes, that's right.

No, that's good. And I might just try and sneak in one more, if I can. Just on your guidance going forward. You've touched on obviously event-based revenues being subdued. If you do look at it now, obviously, to your best guess and generally, you try to be conservative or considerate at the beginning of the year, but where do you see some potential tailwinds coming through if things do go your way, Nick talked a little bit more about on the margin income side, if you can get the rates coming through a little bit better for the mortgage servicing. But is it just more of the event-based business coming back quicker as potential upside, or how should we think about that?

Yes, I think that that's probably about right. So we did try to sort of talk through a little bit of sort of headwinds and tailwinds when we were doing our sort of guidance slides, just to sort of -- so I think that as markets settle some of that event-based revenue will come back as the cost to service debt increases, you should expect to see certainly in the second half of FY '23, things like bankruptcy come back. I think second half I also think M&A may well creep up compared to first half and get some recovery there. So look, I think we're not sort of banking it in as far as guidance is concerned. We are seeing an EBIT ex MI level, we will probably be down around about 5%, but of course, significantly offset by margin income. But we do see recovery in some of these areas coming through later on in the year. So yes.

Your next question comes from Andrei Stadnik from Morgan Stanley.

Can I ask my first question around CCT? Can you talk a little bit more about some of the opportunities you're seeing there? And it also looks like from the disclosures that on a pro forma basis, the trust fees were up 7% year-on-year in '22? Does that actually lock in some of the growth into 2023?

Yes. So just at a high level on the CCT business. Obviously, we only closed it in November. Our #1 priority has been basically maintaining all the people continuing to serve the clients in the way that they have, and really providing the high quality of service that Wells were actually known for providing. And in the background, our absolute focus is really about moving the technology out of the bank and into Computershare. So that gets us -- that's probably about 90% of our focus at the moment, right? Now just in terms of market, I think certainly, the first half of '22 was fairly robust as far as residential mortgage-backed securities issuance and the trustee work that we do around that. We saw growth in our market share in the commercial mortgage-backed security space and sort of maintaining that. That's on public record, you can go out and do that. So I think the underlying from a sort of a revenue perspective has been strong. Now we do break out the MMF fee revenue, the other fee revenue and obviously margin income on our slides to try to give you a little bit of insight to that. But look, our focus continues to be about integration on this business. Some parts of it are performing well. Other parts of it, we've got to continue to improve. But it's all about getting the platforms across, investing in the technology, lowering the cost to serve and providing better quality service and technology to the clients. So -- but as I said in earlier on, we're pleased with progress so far, but it's early days.

But just to check, given there's a multiyear contracts, so if trust is more up quite mid- to high-single digits in '22, surely that sets you up for good '23 and beyond?