Micro Focus International PLC (MFGP) 2021 Q4 法說會逐字稿

Good afternoon, and good morning, everyone. Today's earnings call covers the year ended October 31, 2021. And I'm pleased to be joined today by both Stephen Murdoch, our Chief Executive; and Matt Ashley, our Chief Financial Officer. In a moment, I will hand over to Stephen and Matt to provide a short presentation of our performance in the period. The slides for this presentation will be presented as part of the webcast facility accompanying this call.

For those participating by phone, the webcast and the slides can be accessed on the Micro Focus Investor Relations website. A recording of this call and the slides will be made available on this website shortly after this call finishes. After the presentation, we look forward to covering as many of your questions as we have time for. I would now like to hand over to Stephen to provide an overview of the period.

Thank you, Ben. I'm delighted to be able to talk to you again so soon after our strategy update. We will use today to highlight our priorities for this year and next, talk to the progress made in the past 60 days and provide some additional color around last year's performance.

Overall, we're pleased with the progress we made specifically in respect of systems, product and our go-to-market strategy. We've now moved the business onto one set of systems and standard global processes. This is the key foundation from which to drive efficiencies and improvements in productivity.

In product, we've improved the propositions across our portfolio, the introduction of new artificial intelligence, analytics and cyber capabilities together with SaaS and subscription solutions in every portfolio improves our competitiveness and our ability to capture more of the market opportunity.

We now have a global go-to-market organization, delivering greater consistency in both performance and customer service. The combination of these actions provides a platform for continued improvement and the delivery of the objectives we set out on our Strategy Day.

Overall, we're pleased with the progress made in terms of revenue performance. License revenue grew overall and in 4 of our 5 portfolios. We saw continued development and progress in our SaaS offerings and have significant work, both completed and ongoing, to improve our performance in maintenance. In Q1 of FY '22, we've continued to make good progress.

We announced and have completed the disposal of Digital Safe. The financial outcome achieved demonstrates the value inherent in our portfolio and our willingness and increasing ability to realize this value where and when appropriate. We closed our third financial period on the new systems smoothly and to plan.

We also identified and acted upon additional opportunities to remove duplicate costs and inefficiencies. Our strategic partnership with AWS achieved another key milestone with the launch at their flagship re:Invent conference of the AWS Mainframe Modernization preview solution, of which we are a core element. We're supporting AWS in building a pipeline of customers that want to move to this offering, have begun generating consulting revenues, with subscription revenues to follow later this year and ramping thereafter as per the plan.

We're on track and 100% focused on delivering our aspirations as to how we exit FY '23, where our goals remain flat or better revenue trajectory, $400 million to $500 million of gross cost reduction and an exit run rate of $500 million of free cash flow.

I will now turn the session over to Matt to cover our financial performance in FY '21 in more detail before returning to cover our priorities for the immediate future.

Thanks, Stephen. Good afternoon and good morning, everyone. Firstly, I'm delighted to say our audited results are consistent with those we presented in November.

The key financials are revenue of $2.9 billion, representing a halving in the rate of overall decline. Adjusted EBITDA of $1 billion. Within this, cost discipline was good, with overall costs reducing, whilst we continue to invest in both people and product. Adjusted free cash of $300 million. One of the strengths of our company is our ability to generate strong levels of free cash flow. Performance in '21 was impacted by a number of one-off items, which I will cover later. The important thing is these were one-off, and we have confidence free cash flow will build from here on.

We certainly have not been sitting on our hands since November. We have been busy taking cost out of the business and remain on track to deliver the cost savings we described at the Strategy Day.

We have completed the sale of Digital Safe. We've received the cash and are using it to pay down our debt. Just to remind you, we sold Digital Safe for $375 million, equivalent to approximately 3.5x revenue and 12.5x adjusted EBITDA less lease costs. In total, we transferred $40 million of lease obligations as part of the transaction. We also took the benefit of the buoyant loan market and refinanced $1.6 billion of debt. Finally, we are proposing a final dividend of $0.203.

So let's look at our overall financial performance. We generated revenues of $2.9 billion in '21. This represents a halving of the rate of constant currency decline from 10% reported in '20 to approximately 5% in '21. I will expand on our revenue performance by stream and product group shortly. Alongside the improved revenue trajectory, our cost base reduced by 0.9% on a net basis.

In terms of the cost base, we have essentially used cost savings achieved in the year, totaling approximately $120 million, to fund the run rate impact of investments made in CyberRes, Big Data and other parts of the portfolio. The combination of revenue and cost actions delivered an adjusted EBITDA performance of $1.040 billion, which represents an adjusted EBITDA margin of 36%.

You will remember from our Strategy Day, we have set ourselves an ambitious but achievable target over the next 2 years of removing $300 million of recurring costs on a net basis from $1.9 billion seen on this page to $1.6 billion as we exit fiscal '23. This reduction is after assuming a 5% inflationary cost in both fiscal '22 and '23, i.e., we have to save around $500 million gross to save $300 million net.

Clearly, inflation is a hot topic at the moment, particularly in the labor market. But we believe the parameters we have set ourselves are achievable. As we progress with the cost program, we will give detail of the savings we have achieved. But for commercial reasons, which I'm sure you understand, we have not disclosed our internal targets.

Exceptional spend in the period totaled $247 million. Last year, it was $3 billion, which included an impairment charge of $2.8 billion in relation to the group's goodwill. Finally, we are proposing a final dividend of $0.203, taking our total dividend for the year to $0.291 consistent with our 5x covered policy.

Revenue. On this slide, you will see revenue performance, both by stream and product group. We are pleased to return to growth in license, with revenue growing by approximately 5% in the period. Clearly, an initial step, but significant and encouraging. Sales execution was strong in both halves and with key metrics such as sales conversion rates remaining above previous periods, with improvements being broad-based across the portfolio.

Maintenance revenue declined by 9%. This was below our expectations on what we believe is attainable. Improvement here remains a critical priority for the company. We have been consistent in our view that this will take multiple periods to deliver. SaaS revenue declined by 4%, but with an improving underlying trajectory. Excluding Digital Safe, SaaS revenues grew by 0.2% year-on-year, and growth is expected to accelerate over the next few reporting periods.

Our work in reshaping our consulting practice is now complete, and this part of our business is now well positioned to deliver the type of projects, which add value to customers through supporting faster, more effective deployment of our software.

Now turning to product group performance. AMC. We had a strong close to the year delivering growth overall. AMC is typically cyclical in nature, and this trend is expected to continue until we begin to see revenue from the AWS partnership, which remains on track for '23 and beyond.

CyberRes. In aggregate, we are really pleased with the progress made in the period. 3 of the 4 sub-portfolios here delivered performance in line or ahead of our expectations. There remains one sub-portfolio, which is providing a headwind, particularly in terms of maintenance performance, and we are executing a comprehensive plan to actively improve this.

IM&G. The big news here is obviously the disposal of Digital Safe, which we have already discussed. Excluding Digital Safe, IM&G declined 2.5%. The remainder of the portfolio performed as we expected. In Big Data, we see significant market opportunity here and expect growth to accelerate. In ADM, we made substantial progress with the product offerings. Improving maintenance performance and growth in SaaS are the key priorities.

ITOM. Encouragingly, full year performance saw a moderation in the rate of license revenue decline with several sub-portfolios growing. We continue to work to improve maintenance performance. In summary, our goal of exiting '23 with flat or better revenue is on track.

Exceptional items. We recorded a total of $247 million of exceptional items in '21. This compares to $3 billion in the previous period, which included a $2.8 billion goodwill impairment charge. In the year, the key charges in relation to exceptional spend were $136 million in respect of Micro Focus and HPE integration charges. The majority of this relates to the implementation of the enterprise-wide platform. As I stated at the Strategy Day, it is our intention that we will incur no further exceptional spend in relation to this platform with any future costs recorded within normalized operating costs. In addition, we also incurred $75 million in relation to the settlement of the Wapp legal claim.

Going forward, I'm keen that exceptional spend is only recorded in relation to incremental M&A and cost reduction programs. Excluding further M&A, '22 and '23 exceptional costs are expected to be approximately $100 million in each year and relate to the cost of delivering the cost savings I outlined earlier. At the bottom of the slide, you will see the cash cost of exceptional spend in '21 after the impact of tax. The cash cost of exceptional spend in total was $236 million in the period. In the next slides, I will present the impact this has had on our free cash flow.

Now this is my favorite slide. Not only does it reconcile EBITDA to free cash flow, but it allows you to see how our position improves next year. It is all about the cash. Micro Focus is a highly cash-generative business. In '21, our ability to generate free cash flow was impacted by 3 material items: one, working capital; two, tax; and three, exceptional spend.

Turning to working capital. In '21, we had a cash outflow of $127 million. This was essentially the net of 2 movements: an outflow of receivables and an inflow on payables. We had a material improvement in Q4 billings year-on-year. This improvement is clearly a positive trend and resulted from the growth in new license sales. Specifically, our Q4 '21 billing was approximately 15% higher year-on-year, which increased revenue recognized, but with the cash following later.

Overall, our adjusted cash conversion dropped from 113% in '20 to 87% in '21. You can see with this percentage that average for the 2 years is approximately 100%, which is more consistent with our typical guidance range of 95% to 100%. Next year, we expect cash conversion to be within this range, which would result in an improvement of circa $100 million year-on-year.

Tax. In '21, we made tax payments of $270 million, which compares to $150 million in '20. In '21, we made large payments, which are not expected to recur. Firstly, a $47 million payment in relation to EU State Aid. We disclosed this to you at the half year. We made this payment while appealing this ruling in court alongside several other FTSE companies. Our current expectation remains this amount will be repaid in the near future and have recognized the receivable accordingly.

Secondly, in '20, we made catch-up payments of $52 million to certain tax jurisdictions following the filing of aged accounts. I would categorize these payments as the final pieces of the integration cleanup. Going forward, the group expects a cash tax rate of approximately 30%, which will be a significant reduction year-on-year and see cash tax payments reduced to circa $130 million.

Looking at exceptional items. Exceptional spend continues to reduce free cash flow. In '21, we charged $247 million to the income statement in relation to exceptional items. The total cash cost of this spend was $236 million, which after tax is an outflow of $189 million. Going forward, excluding any M&A, exceptional costs are expected to be $100 million per annum for '22 and '23.

In addition, there is approximately $45 million of exceptional spend on the balance sheet at October 2021. However, the cash impact of this spend is factored into our adjusted cash conversion guidance outlined on the previous slide. Again, year-on-year, this represents an incremental improvement in free cash flow.

So in summary, for 2022, we are expecting flat working capital, cash tax closer to 2020 levels of circa $130 million, reduced exceptional spend of circa $100 million excluding M&A. Before I leave this slide, I would also like to touch on CapEx and finance leases. In 2021, we invested $145 million in CapEx. In 2022, we expect this to increase by $60 million as we invest $40 million in software and product development and $20 million in our IT infrastructure.

Gearing and net debt. The group's net debt to adjusted EBITDA ratio was 4x at the end of October. We have since completed the disposal of Digital Safe. In total, including finance leases, this disposal is expected to reduce our net debt by $375 million. On a pro forma basis, the group's leverage ratio was 3.8x adjusting for this disposal. In January, we announced the $1.6 billion partial refinancing of our term loans and, in doing so, increased the average maturity of the group's debt by year.

Our approach to this refinancing was to alter our capital structure, splitting the $3.3 billion term loan with the intention of creating smaller tranches of debt that we will refinance on a smoother path. The reduction in leverage over the medium term remains a key priority of the group, and our ambition is to reduce our gearing to 3x.

I would like to finish with reiterating our financial guidance. Revenue. We are on track to exit '23 with flat or better revenue. There are no changes to the assumptions made in regard to '22. Again, we reiterate the progress is not expected to be linear. Costs. On track to exit 2023 with a circa $300 million reduction in the cost base, net of inflation. On exceptionals, excluding M&A, we expect to spend approximately $200 million evenly over the next 2 years. For '22, we expect our adjusted cash conversion to return to more normalized levels.

The business has historically delivered an adjusted cash conversion of between 95% to 100%, and this is expected again next year. Staying on cash. We expect CapEx, including finance leases, to be around $200 million. Cash interest cost of $230 million, including the upfront fees of the refinancing and cash tax of approximately $130 million.

The Digital Safe disposal has resulted in net proceeds of $335 million after tax and fees as well as a reduction in finance obligations of approximately $40 million, together, a reduction in net debt of $375 million. Digital Safe will have contributed approximately $25 million of revenue and $13 million of adjusted EBITDA in the first quarter.

Finally, our Employee Benefit Trust is in the process of purchasing 12 million shares for the purposes of employee share schemes. These shares will be used to settle current and future LTIP grants for those employees considered critical to delivering our objectives over the next few years. The estimated cash cost of this purchase is around $70 million and will likely complete in H1.

I will now hand you back to Stephen to provide an operational update and outline our priorities for the next 2 years.

Thank you, Matt. Let me start with a high-level recap of the progress made last year to set the context for how we will build on this looking forward. The move to a single set of systems is a critical element of how we are simplifying the business to deliver much more flexibility and agility for our teams and ease of doing business for our customers.

As I said earlier, we have now closed our third quarter on the platform smoothly and continue to identify opportunities to remove unproductive cost.

In product, we're really pleased with the progress made last year, particularly in SaaS and how we repositioned to cyber resilience. We refocused our approach in both ITOM and ADM, consolidated progress in IM&G and built on our leadership position in AMC. And we've taken important first steps in establishing a more specialist global sales force.

Through the remainder of this year and next, we will build on this through the execution of the following 3 strategic priorities. Number one, transition to a product group operating model. We have a broad portfolio operating in markets with different challenges and opportunities. As a result, we need to continue to build deeper levels of specialist capability that is aligned by product portfolio coupled with increased agility such that we compete more effectively and win more of the market opportunity available. In addition, this approach will create more optionality for value creation as was evidenced by the Digital Safe transaction.

Secondly, continued focus on the installed base. We delivered significant innovation and improvements across the portfolios last year and have clear plans to do so again this year. We see lots of opportunity for improvement in how we enable customers to exploit this innovation. Executing this comprehensively and consistently will ensure customers see more business value faster with improved return on investment. This will translate into improved retention rates and additional revenue through new project deployments and product expansion.

Thirdly, utilizing the enterprise-wide platform. After several years of duplication and inefficiencies, we now have the foundation to drive simplification in our business, and we intend to exploit this as fully as possible. Through the combination of these initiatives, we're building a business that's focused by product portfolio and supported by operational hubs to drive efficiency and agility so that we optimize the performance of each portfolio.

Turning now to the product portfolios. But before covering the key points by individual portfolio, I want to underscore that across the board, we're executing plans to improve maintenance renewal rates and increased recurring revenue through our subscription and SaaS offerings. We're also tracking operational metrics around adoption of our latest product releases as a key leading indicator of future performance in these areas.

In CyberRes, our breadth and ability to execute at scale and in an integrated fashion differentiates us from point solution competitors. We're already growing in 2 of our 4 sub-portfolios, are on track to do so in a third and have advanced interaction plans to reposition ArcSight. On this point specifically, we have delivered very significant product improvements and have more planned. We're now focused on helping our customers exploit these new releases fully.

In AMC, we're consolidating and strengthening our leadership position and helping some of the largest companies in the world modernize their mainframe applications to the cloud, which we do both directly and through strategic partnerships such as AWS.

In ADM, we have a proven track record, deep capabilities and a large installed base of customers who depend on our solutions every day. So firstly, we're focused on helping them fully adopt the innovation we deliver in this area. Additionally, we'll continue to deliver on our SaaS road maps and help customers to transition to these offerings as appropriate.

In ITOM, our priorities are to deliver AIOps at the core of our service assurance portfolio, cloud-native and hybrid capabilities and service management and accelerate the delivery of our SaaS road maps. We're on track with these initiatives. And again, this is core to our goal of improving maintenance performance.

Finally, in IM&G, this portfolio is performing broadly to expectations. Additionally, we see a huge opportunity in Big Data and are confident in our ability to deliver growth. In aggregate, at the group level, we're seeking to balance revenue, profit and cash generation from the overall portfolio and create strategic flexibility on how we pursue value creation for shareholders. One of the benefits of moving to this product group model is that we will be able to give you increased levels of disclosure at the product portfolio level. This will be in place for the start of FY '23.

I would like to finish by reconfirming the financial outcomes we're targeting for the exit of FY '23. Firstly, revenue trajectory of flat or better, driven by growth in cyber, AMC and IM&G; and significantly improved performance in ADM and ITOM.

Secondly, capturing efficiencies and productivity gains through the reshaping and simplification of our business with the target of delivering overall gross cost reduction of between $400 million and $500 million. These actions will combine to deliver an exit run rate of free cash flow of $500 million per annum.

In closing, the foundations we committed to are now in place, and we're 100% focused on the execution of our objectives through to FY '23. Thank you for your time today, and I'll now pass back to the operator to open up the call for Q&A.

(Operator Instructions) The first question is coming from the line of Charlie Brennan coming from Jefferies.

Can I start with 2, if that's possible? The first is, just in listening to your comments, it sounds like there's probably slightly greater confidence on the outlook for '23 than there might be for '22. You've obviously got a range of indicators that you look at that we don't see, and you've got some things that are in the pipeline like AWS that will benefit '23 that we don't have in '22. But can you give us a few other things beyond AWS that give you the confidence that '23 is going to be a much better year?

And then secondly, you touched on the problems of staff retention in the prepared remarks. Can you just give us some insight into the sort of attrition levels you're seeing and whether you're seeing anything there that's giving you any cause for alarm. You've obviously highlighted the EBT, but does that feel enough in the current environment to keep the people you need?

Okay, Charlie. Let me do the second one first. Like everybody in the marketplace, and I'm sure all the commentators that you've heard yourself, no one has really seen a labor market like we have today. And clearly, we're not immune to that. We also have a really talented workforce that solve some of the most difficult challenges customers face every day, and they've got really interesting work and enjoy that work.

So we're not in any way disproportionately concerned about the attrition more than anyone else would be in an industry-wide phenomenon that we're all seeing today. And what we are doing is working on sharpening our employee proposition for both retention and recruitment, as I said, providing those career development and expansion opportunities for the team and using the other levers at our disposal like the stock options that we've touched on.

We've got some areas of heightened attrition, and we've got overall attrition that's clearly above pre-COVID levels, with some pockets that we're dealing with. But it's no more unique for us than it is for anyone else in the marketplace. And we've got pretty decent and robust plans to deal with it.

In terms of the revenue outlook, we're pleased with the progress we've made since we laid out 60 days ago, we laid out very detailed plans for what we're going to get done through the exit of FY '23. We're confident in those objectives. We're incrementally more confident every time we talk to you. And we're seeing some of the leading indicators in terms of getting customers onto the latest versions of our product, which give us some additional confidence in the underlying maintenance performance beginning to moderate and improve over time.

As I mentioned, we've got security on -- we've got really good growth in 2 of our 4 portfolios. We're very, very close to getting the third into exactly where we want it to be. We've got work to do on the fourth one. And to the extent that we can accelerate the improvement in maintenance there really gives us a strong proposition in security, and we're very pleased with the overall portfolio. The SaaS road maps that we've laid out in ITOM have been very well received by customers, and we're making good progress in the SaaS capabilities that we already have and accelerating those in ADM.

So there's a lot in here. Charlie, there's a lot of moving parts. And yes -- but we really do have increasing conviction every time we talk to you on our ability to deliver against what we've achieved and what we set out for '23. We haven't made any changes to what we said in November about '22. And since then, you've all updated your models, and we very much appreciate you doing that. As a result, we think that the revenue consensus for the full year is there or thereabouts. And we stress 2 points, though. Progress is not going to be linear, but we really do have increasing conviction on our ability to deliver the objectives through '23 that I have laid out.

Perfect. Can I just circle back on the attrition? Is it fair to say the majority of the attrition is in the sales side of the business, and again, is that feeding into some of your revenue observations for '22?

Pockets in sales, certain countries, certain portfolio areas, there's pockets in development. We've got some really talented development teams as well. So it's more pockets and elevated overall for all the dynamics that you've seen playing out in the industry. We're able to recruit. We're an attractive employer. We're not worried about our ability to recruit talent.

Obviously, you've got a ramp phase when you recruit. So we're balancing retention. And we're also seeking to try and use it as an opportunity to remix because we're changing the weights of where we're putting some of our resources. So we're trying to exploit it as an opportunity as well, Charlie.

(Operator Instructions) The next question is coming from the line of Michael Briest from UBS.

Just on the cost side of things, I appreciate the sort of alternative performance measures showing us the underlying trend there. And R&D was up 1%. Can you talk of where the savings will be visible over the next couple of years? Should we assume that R&D will continue to grow in absolute terms?

And also on the gross margin, it looks like it came down just about -- just under a percentage point. And I'm just curious to what extent -- and this is despite consulting falling more than average. To what extent this down to the SaaS transition and the buildup more hosting costs and what we should expect from that over the next couple of years? And then I've got a follow-up.

The -- I think it was at the Strategy Day, it may have been earlier than that. We talked about the fact we've rearchitected quite a number of our SaaS solutions to be able to be deployed through the public cloud, whether that's AWS or Azure or GCP. And that's taking on-premise data centers and shutting those down and decommissioning, and we're moving customers to that public cloud infrastructure. We're pretty much there or thereabouts in terms of all of our ADM, business now is on to public cloud infrastructures.

Yes, and we'll systematically move the rest where it makes sense. So that's really about quality of service and long-term flexibility of the offering, Michael. So on the whole, it's a very good thing. And it's in the guidance that we've laid out. So there's nothing -- there's no incremental there that we haven't already talked to.

In terms of costs, we will continue to deliver our innovation agenda. We're not going to compromise what we're doing in product development at all. We think we've got tremendous opportunities in pretty much every line of the P&L, where we've had to live with a degree of inefficiency over a number of years that we can now get after.

And we have, on top of that, opportunities to give our teams now better tools, better data, a way of doing the job faster in terms of a more revolving fashion. So we see quite a lot of opportunities, have pretty granular plans for cost takeout this year and the emerging plans for how we'll do the rest next year. So I'm pretty confident with the plan as it stands today.

Just to come back on the gross margin, I mean, I assume you're cutting data center costs and other things. There's some savings. But -- I mean the cost of hosting, obviously, more than offsetting that. So should we expect gross margins to continue to trend lower and the efficiencies are further down the P&L? Or are they sort of set to improve?

Yes. I think -- Michael, it's Matt here. I think you'll see a continuation slight reduction in the margin next year. But then I think our cost programs will get ahead of it, and we'll see the margin turn around. So clearly, we're going after below-the-line savings first, but there are some things we can do above the line, it'll just take a little bit longer. So the answer to the question is we do see an improvement in margin coming certainly '23 onwards.

Okay. And then just a follow-up, Stephen, on the M&A side of things. Are there more opportunities for sale that are quite sort of tangible or near? And equally, what is your appetite for doing acquisitions to enhance the portfolio? You've obviously done a few in the past, but what sort of scale would you consider?

We've done 3 or 4 actually in the past 14 months, small technology-oriented tuck-ins that accelerate a piece of the road map or provide an adjacency that rounds out a solution. We did one in behavioral analytics, for example, in security, which is fantastic technology, really well received by customers. We've got a kind of pipeline of those types of acquisitions that we're continually looking at. And we'll take that opportunistically whenever it presents itself. As we move to this more product portfolio approach, Michael, it gives us clarity on what we need to get done there much more decisively. So we'll do more of those.

In terms of future disposals, the execution plan is the same execution plan, irrespective of whether we own an asset forever or we decide that there's a better opportunity for customers and shareholders by combining that asset with someone else, like we did with Digital Safe. So all we're doing now is creating additional flexibility by improving the performance of each of our individual portfolios to create that flexibility as we look forward.

And the next question in the queue is coming from the line of Will Wallis from Numis.

I wanted to ask about the timing of when we're going to see -- when we should expect to see certain things that you're doing coming to effect. So in particular, firstly, when do you think we will see the cost savings coming through in terms of the P&L? Is it -- what are we going to see in H1 in terms of cost savings or do we have to wait until H2 or whatever?

And secondly, a similar sort of question in relation to maintenance and an improvement -- potential improvement in your renewal rates. How quickly you should -- over this 2-year journey that you've mapped out, should we expect to see that coming through? And I've got one other question.

Sure. I'll start on the cost savings. So we've been busy, taking out already. So we'll split out for you the gross impact of the costs we've taken out, and then you'll see the net impact through the P&L. The math of it are quite unsatisfactory, frankly. If we -- if I just illustrate it with a simple model, if we take out $100 million a year for the next 3 years, clearly, the average this year is $50 million, next year $150 million, the year after 250, having taken out $300 million.

So it's a bit -- it's always a bit underwhelming when you see the first half results. It looks like worth a $50 million we've taken out. And yet more disappointment around, I'm sure, but we can demonstrate the reduction in the headcount, reduction in the cost savings. And what it's also allowed us to do, and I'm quite pleased we got into it, is we were pretty clear about $500 million out gross, $300 million out net because that's allowed us to maneuver in this hot market for labor and make sure we're giving appropriate salary increases. And I was quite pleased we got on the front foot with that. Do you want to...

Yes, Will. We're really confident the actions we're taking will result in a stabilization and maintenance. And our goal really is getting to that point as quickly as possible. The rate of progress we're expecting is modeled in those FY '23 outcomes. To the extent we can get there faster, it's clearly a benefit. But we're expecting the material improvements to be evident in '23 with the foundations for that being in place through the coming months and the remainder of FY '22.

Okay. Great. And so the other question was on pricing. Obviously, in an inflationary environment, to what extent are you sort of contractually getting price increases? To what extent are you choosing to increase prices? Or to what extent are you looking to invest by effectively not putting through price increases?

Well, most of the new business that we do is project-oriented, and that's a value return dynamic. It's not materially shifting one way or the other by the macro environment and inflationary pressures. So that's -- and yes, so that's the bulk of the new work that we would do.

In terms of the precontracted work, then obviously, we've got a lot of renewals that run for a year or longer, and those are already priced. And when the renewal comes up for -- when it comes up for renewal, we look -- we always have done and we'll continue to look for what the appropriate additional price increase that is right at that time. It varies by portfolio, and it varies by country, and it varies by circumstance. But it's not -- the macro inflationary pressures don't present a material upside for us.

Thank you so much for your questions, everyone. And there are no further questions in the queue. So I'll now hand it back over to your host, Stephen, to conclude today's conference.

Well, thanks, everyone. We did a pre-close in November, and we're delighted to be able to reconfirm those numbers today. We also laid out a detailed plan and objectives in the Strategy Day at the end of November, so roughly 60 days ago.

Again, we're reconfirming those goals today and that we've made material progress since completing the sale of Digital Safe and separating the business, refinancing part of our debt to smooth the profile as we committed to do, identified and begun executing on cost and efficiency opportunities. And incrementally, we're really pleased with the product agenda, the reaction we're getting to that from customers. And we feel increasingly confident in our ability deliver the exit trajectory that we've committed to for '23.

And we'll just get back to the day job now and see how we can make progress faster. Thanks, everyone.