REG - XPS Pensions Group - Half-year Report
24/11/2022 07:00
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RNS Number : 4254H XPS Pensions Group PLC 24 November 2022
24 November 2022
XPS Pensions Group plc
Unaudited interim results for the half year ended 30 September 2022
Delivering strong and sustainable growth
Financial highlights:
Half year ended 30 September 2022 2021 YoY
Pensions Actuarial and Consulting £35.1m £30.9m 14%
Pensions Investment Consulting £8.1m £6.8m 19%
Total Advisory £43.2m £37.7m 15%
Pensions Administration £27.3m £24.7m 11%
SIP £4.4m £2.8m 57%
NPT £2.1m £2.1m -
Total Group revenue £77.0m £67.3m 14%
Adjusted EBITDA (1) £17.8m £15.5m 15%
Profit before tax £6.8m £7.1m (4%)
Basic EPS 2.9p 0.7p 314%
Adjusted diluted EPS 5.3p 4.5p 18%
Interim dividend 2.7p 2.4p 13%
((1) ) Adjusted measures exclude the impact of exceptional and
non-trading items: acquisition related amortisation, share based payments,
corporate transaction costs, restructuring costs and other items considered
exceptional by virtue of nature, size and incidence. See note 3 for further
details.
· High levels of client activity and inflationary fee increases drove 14% growth
in Group revenues to £77.0 million.
· Operational gearing coming through with adjusted EBITDA of £17.8 million
(+15% YoY) despite inflationary pressures in our cost base
· Excluding bolt on acquisitions, the Group delivered organic revenue growth of
13% YoY
· Sixth consecutive half year of YoY growth in revenues across Advisory and
Administration:
o Pensions Actuarial and Consulting revenues (+14% YoY, +13% organic)
o Continued strong double digit growth in Investment Consulting revenues
(+19% YoY)
o Pensions Administration revenue growth of 11% YoY driven by new client
wins coming on stream and project work
· SIP revenues increased 57% YoY due to the Michael J Field acquisition in
February 2022 and the bank base rate increase, along with growth in underlying
SIP sales (organic revenue growth of +21%)
· NPT revenue flat YoY with AUM held steady at £1.3 billion despite significant
volatility in asset prices
· Adjusted diluted EPS was up 18% YoY to 5.3 pence
· Increased interim dividend of 2.7 pence (2021: 2.4 pence) per share declared
by the Board, reflecting our continued confidence in the Group's prospects
Operational highlights:
· Strong profitable and sustainable growth, driven by high client demand and
inflationary fee increases underscoring the non-cyclical and resilient nature
of our business
· Strong brand, enhanced by industry awards - 'Pensions Actuarial Consulting
Firm of the Year', 'Investment Consulting Firm of the Year' and 'Third Party
Administrator of the Year' - the first time a firm has won all three awards
outright
· Strong new business pipeline with our 'Market Force' initiative continuing to
create opportunities
· Strengthened our already successful covenant advisory business through the
acquisition of Penfida Limited
· Michael J Field acquisition in FY 22 has integrated well and the SIP division
won Best SIPP Provider at the Investment Life & Pensions Moneyfacts
Awards
· Additional resource brought in to meet demand and capitalise on client
opportunities delivering strong results in areas such as risk transfer and DC
consulting
· Continued focus on ESG within the business, notable milestones achieved:
o Retained signatory to the FRC's Stewardship Code in the period
o Remained fully carbon neutral (Scope 1, 2 and 3 emissions)
Outlook
The continued resilience and predictability of the XPS business model
(including inflation-linked revenues) is very encouraging with momentum in the
first half continuing into the second half of our financial year. We
continue to experience strong demand for our services in a wide range of
activities, particularly in Advisory against the backdrop of the significant
changes in the financial markets and have made a very strong start to H2.
Adding to our recent announcements, combined with the recent bolt-on
acquisition of Penfida, the Board are confident of achieving full year results
slightly ahead of their previous expectations for the year.
Paul Cuff, Co-CEO of XPS Pensions Group, commented:
"We are very pleased with the first half performance of the Group, with strong
profitable and sustainable growth being achieved across all core divisions.
Our last financial year was the strongest since listing in 2017 and we have
carried on building on that momentum in this financial year.
The last two months have been particularly busy against the backdrop of more
volatile financial markets. We want to say a big thank you to our staff who
have been superb in how they have looked after their clients and each other in
such busy times. We are proud of them. We are also proud of the results of
our latest staff survey - 98% of our people think we are a good company to
work for (PY: 95%).
Our business model has continued to demonstrate its resilience. We have good
visibility due to a high proportion of our revenues being non-discretionary
and recurring. This, combined with high client demand leaves us well placed
for future growth.
The near, medium and long term future for XPS looks very exciting. We have
the full suite of services our clients need as they adapt to the backdrop of a
new world of higher interest rates together with an ever-growing profile in
the industry to attract new clients."
Results Presentation
A results presentation will be held today at 9:30 a.m. (GMT) via a Zoom
webinar. Those wishing to attend are asked to contact Camarco at
XPSgroup@camarco.co.uk (mailto:XPSgroup@camarco.co.uk) .
For further information, contact:
XPS Pensions Group
Snehal Shah +44 (0)20 3978 8626
Chief Financial Officer
Canaccord Genuity (Joint Broker) +44 (0)20 7523 8000
Adam James
Patrick Dolaghan
RBC Capital Markets (Joint Broker) +44 (0)20 7653 4000
James Agnew
Jonathan Hardy
Jamil Miah
Media Enquiries:
Camarco
Gordon Poole +44 (0)20 3757 4997
Rosie Driscoll +44 (0)20 3757 4981
Notes to Editors:
XPS Pensions Group is a leading pension consulting and administration
business focussed on UK pension schemes. XPS combines expertise, insight and
technology to address the needs of over 1,500 pension schemes and their
sponsoring employers on an ongoing and project basis. We undertake pensions
administration for over 1 million members and provide advisory services to
schemes and corporate sponsors in respect of schemes of all sizes, including
51 with assets over £1bn.
Forward Looking Statements
This announcement may include statements that are forward looking in nature.
Forward looking statements involve known and unknown risks, assumptions,
uncertainties and other factors which may cause the actual results,
performance or achievements of the Group to be materially different from any
future results, performance or achievements expressed or implied by such
forward looking statements. These forward-looking statements are made only as
at the date of this announcement. Nothing in this announcement should be
construed as a profit forecast. Except as required by the Listing Rules and
applicable law, the Group undertakes no obligation to update, revise or change
any forward looking statements to reflect events or developments occurring
after the date such statements are published.
Co-CHIEF EXECUTIVES' REVIEW
We are very pleased with the performance of the Group in the first six months
of the financial year. Revenue growth of 14%, which is almost entirely
organic, shows that the momentum from last year has sustained and indeed,
strengthened in the current financial year.
This strong growth is profitable and sustainable. Like most firms across the
UK we face inflationary pressures in our cost base, however despite these
pressures all relevant adjusted profit measures are growing more quickly than
revenue as we are becoming more efficient in what we do. Adjusted diluted
EPS is up 18% on the prior period.
Validation of our business model
Our ambition is to achieve strong profitable growth against any economic
backdrop.
At the core of our business, we provide non-discretionary recurring advisory
and administration services to pension scheme clients. We also provide high
value consulting services to help clients improve the position for pension
scheme members or address the challenges created by regulatory changes and
market volatility. As such we are a non-cyclical business. Furthermore,
our contracts typically enable us to pass on inflationary increases meaning we
have an inherent protection against a high inflation environment. The half
year we are reporting on today is a validation of this business model.
Our growth has come through a combination of factors but in particular through
keeping close to clients and remaining relevant with up to date proven insight
and expertise. It is also in part through our ability to pass on inflation
to our clients through our contracts, which makes our business resilient.
However, for many of our contracts, core fees increase on the anniversary of
the contract meaning that there is a lag between high headline inflation
figures, and these being reflected in our fees. We will therefore continue
to see the benefit of the recent high headline inflation in H2 and beyond as
we pass through more contract anniversaries.
More generally, our growth has been driven by the level of client demand for
the wide range of services we now offer. This reflects the investment we
have made in our services over recent years in areas such as data cleansing,
DC consulting and risk transfer. Senior hires in the latter area have
materially increased our profile and capability. We have also continued to
develop our services around GMP, where the majority of our clients have
rectification work to do to comply with legislation.
A strengthening brand
The investments we have made in our people and services have earned us
widespread industry recognition as the leading independent specialist pensions
advisory and administration firm. This year at the UK Pensions Awards, we
won all three of the big awards - Administration Firm of the Year, Investment
Consulting Firm of the Year and Pensions and Actuarial Consulting firm of the
year. We are the first firm in the 25 year history of this event to win this
'hat-trick'. We also won Best SIPP Provider at the Investment Life &
Pensions Moneyfacts Awards.
These awards are a source of pride for our people, and of course it is helpful
in marketing and new business opportunities.
A sustainable business
We are a responsible and sustainable business in terms of our culture and our
governance. We are employee centric, and actively work to build and maintain
a culture that is diverse and inclusive. This is both the right thing to do,
and it drives good business outcomes.
We have just received the headline results of our annual employee survey. On
one of the key questions, 'XPS is a good company to work for' we scored 95%
approval last year. We perhaps thought it a challenge to get higher still,
so are delighted that it is 98% this year.
More generally our governance standards continue to be high. We have strong
control frameworks throughout our business and help clients to design and
implement their own too. Our Investment Consulting business continues to be
a recognised signatory to the FRC's UK Stewardship Code. More widely, we
actively support pension scheme trustees to progress their ESG agenda,
assisting them in investing billions of pounds in sustainable investments.
Whilst we are not a large carbon emitter, we are working hard to reduce our
impact on the environment and are pleased with the progress being made in this
area. 39% of our offices have certified renewable energy supply compared to
11% at 31 March 2022. We have also established environment champions across
all our offices who meet quarterly to discuss and implement various
initiatives to continually drive down our carbon footprint. This will continue
to be a focus. We have also decided to continue our investment in high
quality, UN approved carbon offsets to achieve carbon neutrality across our
entire value chain, covering our Scope 1, 2 and 3 emissions.
Investing in our future
During the period we continued to invest in technology, particularly in the
area of Administration, where we are developing our administration platform to
further improve the experience for pension scheme members and drive efficiency
in our delivery. We expect to start seeing the benefits as we go through
2023.
We have also invested in our infrastructure more widely to ensure the valuable
data we hold remains protected.
Delivering on our M&A strategy
During September we completed the acquisition of Penfida, a market leading
specialist in providing 'covenant advisory' services to pension scheme
trustees and corporate sponsors. We expect this acquisition will bring many
benefits. Although we already had a successful covenant advisory practice,
the Penfida business provides us with a step change in our capacity and
capability to support more of our clients in this important area. Over time,
we also have the opportunity to introduce broader XPS services to Penfida's
existing client base which includes some of the largest pension schemes in the
UK. It is very early days, but we are starting to see these opportunities
come to fruition.
Our acquisition of Michael J Field, a SIP business, completed in FY22. We
are pleased with the progress made on integrating our new colleagues into the
business and this has been reflected in the strong financial performance of
the SIP division.
Developments in our wider market
The period we are reporting on today was a challenging one for the UK
economy. Higher inflation and rising interest rates were themes throughout.
What was moderate turbulence for our clients over the period became much more
challenging in late September at the time of the 'mini budget' and the
financial crisis that resulted. Very large swings in bond markets gave rise
to high demand from clients in a range of areas, most significantly in
investment advisory, where hedging arrangements and LDI needed attention. We
are very pleased to have provided a strong level of support to our clients
during H1, and this has continued into H2. We are grateful to our people for
the commitment they have shown in very busy times.
The outcome of the recent rapid movement in gilt yields is that pension
schemes are typically better funded now than they were a year ago, in many
cases materially so. Schemes will therefore need to re-look at their
long-term objectives and strategies to reflect the 'new world' of higher long
term interest rates and funding levels. We expect this to drive significant
demand for advisory services immediately and into the medium term. XPS is
well placed to meet this demand in the coming years with the depth of
capability we have.
Whilst the recent financial market volatility has driven extremely high levels
of demand for our services on existing clients as pension schemes have focused
on the immediate challenges, we have continued to tender for new business
opportunities with a focus on driving cross sell opportunities. There is
increased interest in our services across broader markets including
insurance. Our client churn remains extremely low.
Outlook
The continued resilience and predictability of the XPS business model
(including inflation-linked revenues) is very encouraging with momentum in the
first half continuing into the second half of our financial year. We
continue to experience strong demand for our services in a wide range of
activities, particularly in Advisory against the backdrop of the significant
changes in the financial markets and have made a very strong start to H2.
Adding to our recent announcements, combined with the recent bolt-on
acquisition of Penfida, the Board are confident of achieving full year results
slightly ahead of their previous expectations for the year.
Financial Review
Half year ended 30 September 2022 2021 Change YoY
Revenue £77.0m £67.3m 14%
Adj. Administration expenses((1)) (£59.2m) (£51.8m) (14%)
Adj. EBITDA(1) £17.8m £15.5m 15%
Adj. Depreciation & amortisation((1)) (£2.6m) (£2.7m) 4%
Adj. operating profit ((1)) £15.2m £12.8m 19%
Exceptional and non-trading items (£7.0m) (£4.9m) (43%)
Operating profit £8.2m £7.9m 4%
Net finance expense (£1.4m) (£0.8m) 75%
Profit before tax £6.8m £7.1m (4%)
Tax (£0.9m) (£5.8m) 84%
Profit after tax £5.9m £1.3m 354%
Basic EPS 2.9p 0.7p 314%
Adj. diluted EPS 5.3p 4.5p 18%
Interim dividend 2.7p 2.4p 13%
((1) ) Adjusted measures exclude the impact of exceptional and
non-trading items: acquisition related amortisation, share based payments,
corporate transaction costs, restructuring costs and other items considered
exceptional by virtue of nature, size and incidence.
Group revenue
Total Group revenue for the six months ended 30 September 2022 was up 14% year
on year to £77.0 million (2021: £67.3 million). Within that:
Pension Actuarial and Consulting
Continuing regulatory changes have driven high client activity, with a growing
contribution from GMP equalisation and risk transfer services. This combined
with inflation linked fee increases has driven a 14% YoY increase in revenues
to £35.1 million (2021: £30.9 million).
Pension Investment Consulting
It has been a very busy half year in terms of client demand in the face of
regulatory and financial market changes, which combined with new business wins
from H2 of FY22 and inflationary fee increases, has helped revenues grow 19%
YoY to £8.1 million (2021: £6.8 million).
Pension Administration
Revenues have grown 11% year on year to £27.3 million (2021: £24.7 million)
on the back of new client wins coming on stream as well as demand for GMP
equalisation and other project work. Number of members under administration
were c.990,000 at 30 September 2022 (2021: c. 950,000) and average fee per
member has grown 6% year on year. In November 2022, the number of members
under administration crossed the landmark 1 million mark.
SIP
Revenues have grown 57% to £4.4 million (2021: £2.8 million) including the
acquisition of the Michael J Field SIPP and SSAS books. Organic revenue
growth is 21% resulting from higher levels of SIPP and SSAS sales as well as
the increase in the Bank base rate.
NPT
Asset prices have been extremely volatile in the half which has meant that the
AUM is flat at £1.31 billion compared to 31 March 2022 which has resulted in
revenues being flat YoY at £2.1 million (2021: £2.1 million).
Operating costs
Total operating costs (excluding exceptional and non-trading items) for the
Group grew by 14% or £7.4 million year on year. Factors contributing to the
cost growth include higher number of employees from ongoing recruitment as
well as bolt on acquisitions, higher bonus accrual commensurate with trading
performance, and inflationary increases in other cost lines.
Adjusted EBITDA
Adjusted EBITDA of £17.8 million is up 15% YoY (2021: £15.5 million) with a
slight improvement in margin to 23.1% (2021: 23.0%).
Exceptional and non-trading items
During the half year ended 30 September 2022 the Group incurred £7.0 million
of exceptional and non-trading charges, including amortisation of acquired
intangibles, share-based payments and corporate transaction costs and other
exceptional items, in line with the Group policy.
Net finance expenses
Net finance expense of £1.4 million was £0.6 million higher than the prior
year, largely due to increases in the bank interest rate and a higher average
net debt in the period.
Taxation
Tax charge on adjusted profit before tax for the half year was £2.6 million
(2021: £2.4 million) equating to an effective corporation tax rate of 19.1%
(2021:19.7%).
The tax charge on statutory profits was £0.9 million (2021: £5.8 million).
The decrease is largely due to the impact in the prior year of the increase in
corporation tax rate from 19% to 25% from April 2023, and the related
re-valuation of the Group's deferred tax liabilities on acquired intangible
assets, the impact of which was £4.4 million.
Basic EPS
Basic EPS in the half year ended 30 September 2022 was 2.9p (2021: 0.7p). The
variance is largely due to the impact in the prior year of the increase in
deferred tax liability on acquired intangibles resulting from the enacted
increase in statutory corporation tax rates to 25% from April 2023.
Adjusted fully diluted EPS
Adjusted fully diluted EPS in the half year ended 30 September 2022 was 5.3p
(2021: 4.5p).
Dividend
An interim dividend of 2.7p has been declared by the Board (2021: 2.4p),
reflecting our confidence in the Group's prospects. The interim dividend
amounting to £5.6 million (2021: £4.9 million), will be paid on 2 February
2023 to those shareholders on the register on 6 January 2023.
Cash-flow, capital expenditure and net debt
The Group generated £6.6 million from operating activities. After £2.4
million on capital expenditure; paying £9.8 million dividends; £1.0 million
of interest, £1.4 million of lease liabilities; £0.4 million dividend
equivalents on vesting of employee share schemes; £1.0 million on
repurchasing own shares, £8.3 million on acquiring Penfida (net of cash
acquired), partially offset by a £11.0 million drawdown of committed
facility, and £2.2 million of cash from the exercise of SAYE options by
staff, the net decrease in cash was £4.5 million at 30 September 2022.
At 30 September 2022 net debt (as defined for RCF covenants and therefore
excluding IFRS 16) was £72.9 million (2021: £55.3 million) reflecting the
two bolt on acquisitions over the last year as well as significant investment
in the firm's Administration systems. The leverage ratio for financing
covenants was 2.09x (2021: 1.87x). Excluding the impact of M&A, like for
like leverage was 1.84x. At 30 September 2022, the Group had £25.0 million
of undrawn committed facility. The Group's RCF expires in October
2025.
Principal risks and uncertainties affecting the business
The principal risks and uncertainties affecting the Group's business
activities remain those detailed within the Principal Risks and Uncertainties
section of the Annual Report and Accounts for the year ended 31 March 2022
(pages 44-49).
Condensed Consolidated Statement of Comprehensive Income
for the period ended 30 September 2022
6 month period ended 30 September 2022 6 month period ended 30 September 2021
Trading items Non-trading and exceptional items Total Trading items Non-trading and exceptional items Total
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
Note £'000 £'000 £'000 £'000 £'000 £'000
Revenue 4 76,998 - 76,998 67,335 - 67,335
Administrative expenses (61,784) (7,050) (68,834) (54,556) (4,854) (59,410)
Profit/(loss) from operating activities 15,214 (7,050) 8,164 12,779 (4,854) 7,925
Finance costs (1,334) - (1,334) (797) - (797)
Profit/(loss) before tax 13,880 (7,050) 6,830 11,982 (4,854) 7,128
Income tax (expense)/credit (2,646) 1,703 (943) (2,361) (3,440) (5,801)
Profit/(loss) after tax and total comprehensive income for the period 11,234 (5,347) 5,887 9,621 (8,294) 1,327
Memo
EBITDA 17,799 (3,706) 14,093 15,512 (1,581) 13,931
Depreciation and amortisation (2,585) (3,344) (5,929) (2,733) (3,273) (6,006)
Profit/(loss) from operating activities 15,214 (7,050) 8,164 12,779 (4,854) 7,925
Pence Pence
Pence Pence
Earnings per share attributable to the ordinary equity holders of the Company: Adjusted Adjusted
Profit or loss:
Basic earnings per share 8 5.5 2.9 4.7 0.7
Diluted earnings per share 8 5.3 2.8 4.5 0.6
Condensed Consolidated Statement of Financial Position
as at 30 September 2022
30 September 31 March
2022 Unaudited 2022
Audited
Note £'000 £'000
Assets
Non-current assets
Property, plant and equipment 3,049 3,187
Right-of-use assets 10,876 10,927
Intangible assets 217,713 206,800
Deferred tax assets 1,071 1,099
Other financial assets 1,814 1,814
234,523 223,827
Current assets
Trade and other receivables 44,228 38,776
Cash and cash equivalents 5,676 10,150
49,904 48,926
Total assets 284,427 272,753
Liabilities
Non-current liabilities
Loans and borrowings 6 74,447 63,309
Lease liabilities 8,425 8,935
Provisions for other liabilities and charges 1,647 1,781
Deferred consideration 5,7 2,824 -
Deferred tax liabilities 21,093 20,065
108,436 94,090
Current liabilities
Lease liabilities 3,142 2,745
Provisions for other liabilities and charges 1,252 1,236
Trade and other payables 26,131 27,275
Current income tax liabilities 1,780 2,207
Deferred consideration 7 765 765
33,070 34,228
Total liabilities 141,506 128,318
Net assets 142,921 144,435
Equity
Equity attributable to owners of the parent
Share capital 104 103
Share premium 118,590 116,804
Merger relief reserve 48,687 48,687
Investment in own shares held in trust (2,091) (4,157)
Accumulated deficit (22,369) (17,002)
Total equity 142,921 144,435
Condensed Consolidated Statement of Changes in Equity
for the period ended 30 September 2022
Share capital Share premium Investment in own shares Accumulated deficit Total equity/
£'000 £'000 Merger relief reserve £'000 £'000 (deficit)
£'000 £'000
Balance at 1 April 2021 103 116,797 48,687 (2,563) (13,958) 149,066
Comprehensive income and total comprehensive income for the period - - - - 1,327 1,327
Contributions by and distributions to owners
Share capital issued - 7 - - - 7
Dividends paid - - - - (8,948) (8,948)
Dividend equivalents paid on exercised share options - - - - (268) (268)
Shares purchased by employee benefit trust for cash - - - (1,352) - (1,352)
Share-based payment expense - equity settled from employee benefit trust - - - 1,610 (1,605) 5
Share-based payment expense - IFRS2 charge in respect of long-term incentives - - - - 1,939 1,939
Deferred tax movement in respect of long-term incentives - - - - 125 125
Total contributions by and distributions to owners - 7 - 258 (8,757) (8,492)
Unaudited balance at 30 September 2021 103 116,804 48,687 (2,305) (21,388) 141,901
Comprehensive income and total comprehensive income for the period - - - - 8,096 8,096
Contributions by and distributions to owners
Dividends paid - - - - (4,883) (4,883)
Shares purchased by employee benefit trust for cash - - - (1,972) - (1,972)
Share-based payment expense - equity settled from employee benefit trust - - - 120 (99) 21
Share-based payment expense - IFRS2 charge in respect of long-term incentives - - - - 1,404 1,404
Deferred tax movement in respect of long-term incentives - - - - (132) (132)
Total contributions by and distributions to owners - - - (1,852) (3,710) (5,562)
Balance at 31 March 2022 103 116,804 48,687 (4,157) (17,002) 144,435
Balance at 1 April 2022 103 116,804 48,687 (4,157) (17,002) 144,435
Comprehensive income and total comprehensive income for the period - - - - 5,887 5,887
Contributions by and distributions to owners
Share capital issued 1 1,786 - - - 1,787
Shares purchased by employee benefit trust for cash - - - (1,000) - (1,000)
Dividends paid - - - - (9,763) (9,763)
Dividend equivalents paid on exercised share options - - - - (413) (413)
Share-based payment expense - equity settled from employee benefit trust - - - 3,066 (2,669) 397
Share-based payment expense - IFRS2 charge in respect of long-term incentives - - - 1,571 1,571
-
Deferred tax movement in respect of long-term incentives - - - - 20 20
Total contributions by and distributions to owners 1 1,786 - 2,066 (11,254) (7,401)
Unaudited balance at 30 September 2022 104 118,590 48,687 (2,091) (22,369) 142,921
Condensed Consolidated Statement of Cash Flows
for the period ended 30 September 2022
Note Period ended Period ended
30 September 30 September
2022 2021 (1)
Unaudited Unaudited
£'000 £'000
Cash flows from operating activities
Profit for the period 5,887 1,327
Adjustments for:
Depreciation 442 427
Depreciation of right-of-use assets 1,288 1,621
Amortisation 4,198 3,958
Finance costs 1,334 797
Share-based payment expense 1,571 1,939
Income tax expense 943 5,801
15,663 15,870
Increase in trade and other receivables (3,608) (129)
Decrease in trade and other payables (3,014) (5,322)
(Decrease)/increase in provisions (281) 190
8,760 10,609
Income tax paid (2,209) (1,400)
Net cash inflow from operating activities 6,551 9,209
Cash flows from investing activities
Acquisition of a subsidiary, net of cash acquired 5 (8,267) -
Purchases of property, plant and equipment (219) (452)
Purchases of software (2,125) (1,060)
Increase in restricted cash balances - other financial assets - (34)
Net cash outflow from investing activities (10,611) (1,546)
Cash flows from financing activities
Proceeds from the issue of share capital on exercise of share options 1,787 7
Proceeds from new loans 6 11,000 2,000
Repurchase of own shares (1,000) (1,352)
Proceeds from the exercise of share options settled by EBT shares 397 4
Interest paid (1,037) (539)
Lease interest paid (149) (149)
Payment of lease liabilities (1,236) (1,354)
Dividends paid to the holders of the parent (9,763) (8,948)
Dividend equivalents paid on vesting of share options (413) (268)
Net cash outflow from financing activities (414) (10,599)
Net decrease in cash and cash equivalents (4,474) (2,936)
Cash and cash equivalents at start of the period 10,150 8,623
Cash and cash equivalents at end of period 5,676 5,687
(1) Purchases of property, plant and equipment and software of £0.8 million
in investing activities and lease payments of £0.1 million in financing
activities previously incorrectly presented as a movement within trade and
other payables (which impacts operating cash flows), have been reclassified as
the amounts were unpaid at the period end (net of amounts unpaid at the
previous period end). A corresponding adjustment has been made to working
capital movements. This change has no overall impact on the total movement in
cash and cash equivalents in the period, it is just a reclassification of the
movement.
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 September 2022
1 Accounting policies
XPS Pensions Group plc (the "Company") is a public limited company
incorporated in the UK. The principal activity of the Group is that of an
employee benefit consultancy and related business services. The registered
office is Phoenix House, 1 Station Hill, Reading RG1 1NB. The Condensed Group
Financial Statements consolidate those of the Company and its subsidiaries
(together referred to as the "Group").
Basis of preparation and statement of compliance with IFRS
The annual financial statements are prepared in accordance with UK adopted
International Financial Reporting Standards. These condensed financial
statements have been prepared in accordance with UK adopted International
Accounting Standard 34 'Interim Financial Reporting'. They do not include all
disclosures that would otherwise be required in a complete set of financial
statements and should be read in conjunction with the latest audited financial
statements, for the year ended 31 March 2022.
The accounting policies adopted in the preparation of the interim condensed
consolidated Financial Statements are consistent with those followed in the
preparation of the Group's annual consolidated Financial Statements for the
year ended 31 March 2022, except for those that relate to new standards and
interpretations effective for the first time for periods beginning on (or
after) 1 January 2022, and will be adopted in the 2022/23 annual financial
statements. New and amended standards and interpretations issued by the IASB
that will apply for the first time in the next annual financial statements are
not expected to impact the Group as they are not relevant to the Group's
activities.
Going concern
Accounting standards require the Directors to consider the appropriateness of
the going concern basis when preparing the interim Financial Statements. The
Directors have taken notice of the Financial Reporting Council guidance
'Guidance on the going concern basis of accounting and reporting on solvency
and liquidity risks' which requires the reasons for this decision to be
explained.
The Directors have prepared cash flow forecasts for a period including 12
months from the date of approval of these
interim Financial Statements which show that during that period the Group is
expected to generate sufficient cash from its
operations to settle its liabilities as they fall due without the requirement
for additional borrowings. For the period ended 31 March 2024, the Directors
have modelled a scenario at which the banking covenants would be broken, which
is the point at which going concern would be threatened. This scenario
modelled a significant decrease in revenue in the period, with a corresponding
reduction in staff bonus. The headroom between this scenario and current
performance, and the budget and latest forecast, is significant and a decrease
of this magnitude is considered to be highly unlikely. The worst case scenario
modelled does not include additional mitigating actions that the Directors
could take, including further reductions to the cost base and capex spend, or
reduction in dividend payments. These additional measures available give
further comfort in the Group's ability to continue as a going concern.
The Group's current revolving credit facility is due to end in October 2025.
This facility gives the Group access to a Revolving Credit Facility of £100
million with an accordion of £50 million. The facility is subject to two
covenants - net leverage and interest cover. These covenants were not breached
during the period, nor are any breaches forecasted in the period to 31 March
2024.
The Directors have reviewed the historical accuracy of the Group's
budgets/forecast. The Group's prior year performance was compared to the
budget/forecast, and actual revenue was within 2% of the forecast figure, and
adjusted profit after tax was within 0.4% of the forecast figure. This
demonstrates that the Group's forecasting process is at a sufficient standard
to be able to place reliance on it when making a going concern assessment. The
financial performance in the current period has been favourable when compared
to budget. The Directors, after reviewing the Group's budget and longer-term
forecast models, including the worst case scenario referred to above, conclude
that the Group has adequate resources to continue in operational existence for
the foreseeable future and they continue to adopt the going concern basis of
accounting in preparing these interim financial statements.
The Group does not have any clients in Russia, and so has not had any direct
impact from the sanctions or restrictions imposed on Russian owned firms. The
main impact on the Group of the current global situation therefore is the high
level of inflation currently being experienced in the UK, and also the related
increases in interest rates. The Group is largely protected from a high
inflation environment because of its contractual ability to increase revenue
from the majority of customers by an amount linked to inflation. Whilst
higher interest rates have led to higher finance expenses this has been
modelled in the Group's forecasts and is not considered a significant risk.
Notes to the Condensed Consolidated Financial Statements (continued)
1 Accounting policies (continued)
Non-trading and exceptional items
To assist in understanding its underlying performance, the Group has defined
the following items of pre-tax income and expense as non-trading and
exceptional items as they either reflect items which are exceptional in nature
or size or are associated with the amortisation of acquired intangibles and
share based payments. Items treated as non-trading and exceptional include:
· corporate transaction and restructuring costs;
· amortisation of acquired intangibles;
· changes in the fair value of contingent consideration;
· share-based payments;
· profits or losses on disposal of assets or businesses; and
· the related tax effect of these items.
Any other non-recurring items are considered individually for classification
as non-trading or exceptional by virtue of their nature or size.
The separate disclosure of these items allows a clearer understanding of the
trading performance on a consistent and comparable basis, together with an
understanding of the effect of non-recurring or large individual transactions
upon the overall profitability of the Group.
The non-trading and exceptional items have been included within the
appropriate classifications in the consolidated income statement. Further
details are given in note 3.
Critical accounting estimates and judgments
The Group makes certain estimates and assumptions regarding the future.
Estimates and judgments are continually evaluated based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
There have been no material revisions to the nature and amount of estimates of
amounts reported in prior periods.
Functional and presentation currency
The Financial Statements are presented in British Pounds which is the
functional currency of all Group entities. Figures are rounded to the nearest
thousand.
2 Financial information
The financial information in this report was formally approved by the Board of
Directors on 23 November 2022. The financial information set out in this
document does not constitute statutory accounts within the meaning of section
434 of the Companies Act 2006.
Statutory accounts prepared under UK IFRSs for the year ended 31 March 2022
for XPS Pensions Group plc have been delivered to the Registrar of Companies.
The auditor's report on these accounts was not qualified, did not draw
attention to any matters by way of emphasis and did not contain statements
under section 498(2) or (3) of the Companies Act 2006.
The financial information in respect of the period ended 30 September 2022 is
unaudited but has been reviewed by the Group's auditor. Their report is
included at the end of this document. The financial information in respect of
the period ended 30 September 2021 was unaudited but was reviewed by the
Group's auditor.
Notes to the Condensed Consolidated Financial Statements (continued)
3 Non-trading and exceptional items
Period ended Period ended
30 September 30 September
2022 2021
Unaudited Unaudited
£'000 £'000
( )
Total exceptional and non-trading items before tax (1) (7,050) (4,854)
Tax on adjusting items (2) 1,703 (3,440)
Non-trading and exceptional items after taxation (5,347) (8,294)
( )
(1) Includes corporate transaction costs, amortisation of acquired
intangibles, and share-based payment costs.
(2) The tax credit on exceptional and non-trading items of £1.7 million (H1
2021/22: charge of £3.4 million) represents a credit of 24% (H1 2021/22:
charge of 71%) of the non-trading items incurred of £7.1 million (H1 2021/22
£4.9 million). The prior year was impacted by a £4.4 million charge to
deferred tax as a result of the increase to corporation tax announced in the
March 2021 budget to 25%).
4 Operating segments
In accordance with IFRS 8 'Operating Segments', an operating segment is
defined as a business activity whose operating results are reviewed by the
chief operating decision maker ('CODM') and for which discrete information is
available. The Group's CODM is the Board of Directors.
The Group has one operating segment, and one reporting segment due to the
nature of services provided across the whole business being the same, pension
and employee benefit solutions. The Group's revenues, costs, assets,
liabilities and cash flows are therefore totally attributable to this
reporting segment. The table below shows the disaggregation of the Group's
revenue, by product line.
Period ended Period ended
30 September 30 September
2022 2021
Unaudited Unaudited
Revenue from external customers £'000 £'000
Pensions Actuarial and Consulting 35,116 30,885
Pensions Administration 27,306 24,722
Pensions Investment Consulting 8,123 6,834
National Pension Trust (NPT) 2,063 2,084
SIP (1) 4,390 2,810
Total 76,998 67,335
(1) Self Invested Pensions (SIP) business, incorporating both SIPP and SSAS
products.
5 Business combinations during the period
On 21 September 2022, the Group acquired 100% of the share capital of Penfida
Limited from the shareholders of Penfida Limited for a total consideration of
£11.46 million, comprising of £8.64 million in cash upon completion, and
contingent cash consideration of £2.82 million (on a net present value
basis). Penfida Limited provides employer covenant advisory services. The
transaction will strengthen the covenant advice offering of XPS and give the
Group the resource to expand this offering to both existing clients, and new
prospects.
Notes to the Condensed Consolidated Financial Statements (continued)
5 Business combinations during the period (continued)
Preliminary details of the fair value of identifiable assets and liabilities
acquired, purchase consideration and goodwill are as follows:
Book value Adjustment Fair value
Unaudited Unaudited Unaudited
£'000 £'000 £'000
Right-of-use asset − 671 671
Receivables 1,911 (67) 1,844
Cash 373 − 373
Lease liability − (534) (534)
Provisions (162) − (162)
Payables (1,319) (298) (1,617)
Customer relationships − 6,395 6,395
Brand − 337 337
Deferred tax liability − (1,657) (1,657)
Total net assets 803 4,847 5,650
These figures are still provisional as permitted by the accounting standards
due to the proximity of the transaction to the date of these interim financial
statements. The completion balance sheet and the acquired intangible assets
are still under review, and so these figures, and the resulting goodwill, are
yet to be finalised.
Fair value of consideration paid:
£'000
Cash 8,641
Contingent cash 2,824
Total consideration 11,465
Goodwill 5,815
Contingent consideration
The value of the contingent cash consideration is up to a maximum of £3.38
million, based on client retention thresholds in the year following the date
of acquisition. The value attributed to the contingent consideration included
in consideration has been determined using Group revenue forecasts. The
contingent consideration is payable in September 2024.
The main factors leading to the recognition of goodwill are the presence of
certain intangible assets, such as the assembled workforce of the acquired
entity and the expected growth in the business generated by new customers,
which do not qualify for separate recognition.
The goodwill arising on the Penfida acquisition is not deductible for tax
purposes.
Since the acquisition date, Penfida Limited has contributed £142,000 to Group
revenues and £42,000 to Group profit before tax. If the acquisition had
occurred on 1 April 2022, Group revenue would have been £79.2 million and
Group profit before tax would have been £7.2 million.
6 Loans and borrowings
At 30 September 2022, the Group had drawn down £75 million (31 March 2022:
£64 million) of its £100 million revolving credit facility. The current
Revolving Facility Agreement was entered into on 12 October 2021 and has a 4
year term. Interest is calculated at a margin above SONIA (Sterling Overnight
Index Average), subject to a net leverage test.
The related fees for access to the facility are included in the consolidated
statement of comprehensive income. These fees were capitalised at the point
they were incurred and are amortised over the life of the loan to which they
relate.
Total debt net of capitalised arrangement fees was £74.2 million (31 March
2022: £63.0 million).
Notes to the Condensed Consolidated Financial Statements (continued)
7 Financial Instruments
The fair values and the carrying values of financial assets and liabilities
are the same.
Financial assets and financial liabilities measured at fair value in the
statement of financial position are grouped into three levels of a fair value
hierarchy. The three levels are defined based on the observability of
significant inputs to the measurement, as follows:
· Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities;
· Level 2: inputs other than quoted prices included within level 1
that are observable for the asset or liability, either directly or indirectly;
and
· Level 3: unobservable inputs for the asset or liability.
The Group's finance team performs valuations of financial items for financial
reporting purposes, including level 3 fair values, in consultation with
third-party valuation specialists for complex valuations. Valuation techniques
are selected based on the characteristics of each instrument, with the overall
objective of maximising the use of market-based information. The finance team
reports directly to the Chief Financial Officer.
The Group currently holds level 2 and level 3 financial assets and
liabilities.
Contingent consideration is a level 3 financial liability and is measured
based on performance compared to targets agreed in the relevant business
transfer agreement/share purchase agreement. The Penfida amount has been
discounted, however the Michael J Field amount is not discounted as this would
be immaterial.
The contingent consideration balance is made up of £2,824,000 relating to the
acquisition of Penfida (note 5), which is payable in September 2024, and is
calculated based on a client retention target. Based on Penfida's previous
levels of client retention, we anticipate that the full contingent
consideration would be payable. As such, the full contingent consideration
value is being recognised at acquisition. Client retention would have to fall
below 92.6% before there is any change in the amount of contingent
consideration payable.
The remaining £765,000 relates to the Michael J Field acquisition in February
2022, which is payable in February 2023. This amount has been calculated based
on forecast achievement of both a revenue and cost target. The total
contingent consideration payable could be up to £1,500,000 if the maximum
level of targets are achieved. Management's assessment at 30 September 2022
is that these targets are not on course to be achieved in full and therefore
only £765,000 of the contingent consideration will become payable. If revenue
were to be 1% lower than forecast, this would result in a 12% drop in the
contingent consideration payable.
8 Earnings per share
30 September 30 September
2022 2021
Unaudited Unaudited
£'000 £'000
Profit for the period 5,887 1,327
Weighted average number of shares: '000 '000
Weighted average number of shares in issue 204,091 203,838
Effects of:
Outstanding share options 9,464 8,881
Diluted weighted average number of ordinary shares 213,555 212,719
Basic earnings per share (pence) 2.9 0.7
Diluted earnings per share (pence) 2.8 0.6
The calculation of basic earnings per share is based on the earnings
attributable to ordinary shareholders divided by the weighted average number
of shares in issue during the period.
Notes to the Condensed Consolidated Financial Statements (continued)
8 Earnings per share (continued)
Adjusted earnings per share
30 September 30 September
2022 2021
Unaudited Unaudited
£'000 £'000
Adjusted profit after tax 11,234 9,621
Adjusted basic earnings per share (pence) 5.5 4.7
Diluted adjusted earnings per share (pence) - total 5.3 4.5
The adjusted profit after tax is the trading profit after tax, and excludes
the exceptional and non-trading items disclosed in note 3.
9 Dividends
Amounts recognised as distributions to equity holders of the parent in the
period
30 September 30 September
2022 2021
Unaudited Unaudited
£'000 £'000
Final dividend for the year ended 31 March 2022: 4.8p per share (2021: 4.4p) 9,763 8,948
30 September 30 September
2022 2021
Unaudited Unaudited
£'000 £'000
Proposed interim dividend for the year ending 31 March 2023 of 2.7 p (2022: 5,599 4,924
2.4p)
The final dividend for 2021/22 was paid on 22 September 2022. The final
dividend has been reflected in the Statement of Changes in Equity.
The proposed interim dividend was approved by the Board on 23 November 2022
and has not been included as a liability at 30 September 2022.
10 Related party transactions
Key management emoluments during the year
30 September 30 September
2022 2021
Unaudited Unaudited
£'000 £'000
Emoluments 503 473
Share-based payments 261 332
Company contributions to money purchase pension plans 15 15
Social security costs 73 85
852 905
Directors' bonuses are not included in the emoluments figure at 30 September
2022 or 30 September 2021 as the bonus amount is dependent on full year
results and is also at the discretion of the Remuneration Committee.
Notes to the Condensed Consolidated Financial Statements (continued)
10 Related party transactions (continued)
Non-executive emoluments during the year
30 September 30 September
2022 2021
Unaudited Unaudited
£'000 £'000
Emoluments 162 165
Social security costs 22 20
184 185
11 Post balance sheet events
On 12(th) October 2022, the Company reduced its share premium account by
£116,804,403. This order was registered at Companies House and was advertised
in the Times newspaper. This reduction will be reflected in the retained
earnings for the Company.
Responsibility Statement
We confirm that to the best of our knowledge:
a) the condensed set of financial statements has been prepared in
accordance with IAS 34 'Interim Financial Reporting' and provide a true and
fair view as required by DTR 4.2.10;
b) the interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of the important events during
the first six months and description of principal risks and uncertainties for
the remaining six months of the year); and
c) the interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein).
On behalf of the Board,
Snehal Shah
Chief Financial Officer
23 November 2022
INDEPENDENT REVIEW REPORT TO XPS Pensions group plc
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2022 is not prepared,
in all material respects, in accordance with UK adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
September 2022 which comprises the Condensed Consolidated Statement of
Comprehensive Income, the Condensed Consolidated Statement of Financial
Position, the Condensed Consolidated Statement of Changes in Equity, the
Condensed Consolidated Statement of Cash Flows and related notes.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" ("ISRE (UK) 2410"). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410, however future events or conditions may cause the group to
cease to continue as a going concern.
Responsibilities of directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
Auditor's responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statement in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
Our report has been prepared in accordance with the terms of our engagement to
assist the Company in meeting the requirements of the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority and for
no other purpose. No person is entitled to rely on this report unless such a
person is a person entitled to rely upon this report by virtue of and for the
purpose of our terms of engagement or has been expressly authorised to do so
by our prior written consent. Save as above, we do not accept responsibility
for this report to any other person or for any other purpose and we hereby
expressly disclaim any and all such liability.
BDO LLP
Chartered Accountants
London, UK
23 November 2022
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
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