REG - XPS Pensions Group - Half-year Report
23/11/2023 07:00
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RNS Number : 3884U XPS Pensions Group PLC 23 November 2023
23 November 2023
XPS Pensions Group plc
Unaudited interim results for the half year ended 30 September 2023
Continuing to deliver strong and sustainable growth
Financial highlights:
Half year ended 30 September 2023 2022 YoY
Pensions Actuarial and Consulting £44.4m £34.4m 29%
Pensions Investment Consulting £10.2m £8.1m 26%
Total Advisory £54.6m £42.5m 28%
Pensions Administration £32.4m £28.0m 16%
SIP £5.4m £4.4m 23%
NPT £2.1m £2.1m −
Total Group revenue £94.5m £77.0m 23%
Adjusted EBITDA((1)) £22.7m £17.8m 28%
Profit before tax £8.1m £6.8m 19%
Basic EPS 2.6p 2.9p (10%)
Adjusted diluted EPS 5.9p 5.3p 11%
Interim dividend 3.0p 2.7p 11%
((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, new wins, inflationary fee
increases and bolt on M&A drove 23% growth in Group revenues to £94.5
million (organic growth of 19% year on year)
· Operational gearing continuing with adjusted EBITDA of £22.7
million (+28% YoY) despite continuing inflationary pressures in our cost base
in addition to investment in people and technology
· Eighth consecutive half year of YoY growth in revenues across
Advisory and Administration:
o Highest YoY growth in Pensions Actuarial and Consulting revenues (+29%
YoY, +22% organic)
o Continued strong growth in Investment Consulting revenues (+26% YoY)
o Pensions Administration revenue growth of 16% YoY with continued success
in new business wins and strong growth in project work
· SIP revenues increased 23% YoY due to bank base rate increases
and growth in underlying SIP sales
· Adjusted diluted EPS was up 11% YoY to 5.9 pence (despite higher
interest and increased rate of corporation tax)
· Increased interim dividend of 3.0 pence (2022: 2.7 pence) per share
declared by the Board, reflecting XPS's progressive dividend policy and our
continued confidence in the Group's prospects
Operational highlights:
· Strong client demand, continued success in winning new business
and inflationary fee increases continue to drive profitable and sustainable
growth
· Continued strengthening of the brand, enhanced by industry awards
- 'Third Party Administrator of the Year', 'Fiduciary Evaluator of the Year'
and 'Diversity and Inclusion Excellence Award'
· Our proprietary administration platform Aurora delivered on time
and on budget with first new large client onboarded. Aurora is also driving
success in winning new appointments
· Continued focus on ESG within the business, notable milestones
achieved:
o Retained signatory to the FRC's Stewardship Code in the period
o Reduced our own emissions and remain fully carbon neutral (Scope 1, 2 and
3 emissions)
Post period end:
· Continued success in the first-time administration outsourcing
market with the landmark appointment to the John Lewis Partnership pension
scheme
· Sale of NPT to SEI (completed 20 November 2023) has significantly
reduced leverage while creating a valuable long term commercial relationship
with SEI
Outlook
The strong first half financial performances underscores the resilience and
predictability of the XPS business model. We expect the demand for our
services to remain high underpinned by both market and regulatory tailwinds as
well as the strength of our brand. The business continues to trade well in
H2 and combined with the completion earlier this week of the EPS accretive
sale of NPT, the Board are confident of achieving overall full year results
ahead of its previous expectations.
Paul Cuff, Co-CEO of XPS Pensions Group, commented:
"We are very pleased with the first half performance of the Group, with strong
profitable growth being achieved across all core divisions. To continue to
achieve growth at these levels, even when measured against what was a very
strong prior year, is really pleasing.
We made progress in many areas during the half year, as we continued to invest
in our business, welcoming new people and new clients, and successfully
implementing new technology. A real highlight though was the awards we won
for our culture - all our people should be really proud, as put simply our
culture is all of us.
The future for XPS looks very exciting. There is much discussion of the need
for change in our industry, and we are pleased to be at the heart of the
debate as it develops, with wide ranging capabilities to help our clients with
all their needs."
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
Alex Orr
RBC Capital Markets (Joint Broker) +44 (0)20 7653 4000
James Agnew
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 focused 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 one million members and provide advisory services to
schemes and corporate sponsors in respect of schemes of all sizes, including
81 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 23%, of which 19% is organic, has
been delivered with impressive growth rates across all our business units.
This was a significant achievement against what was a strong comparator in
HY23 - the momentum we have been carrying for a couple of years now has been
sustained and has even strengthened.
Our growth has been profitable - 23% revenue growth has given rise to a 28%
increase in adjusted EBITDA on the prior period, reflecting both a mix of
business effect, with our strongest growth in higher margin activities, and
work done to increase efficiency in our business.
Validation and development of our business model
As we have stated in previous releases, our ambition is to achieve strong
profitable growth against any economic backdrop. Given the current
challenging economic backdrop it is worth repeating the key features of our
business model that give rise to this opportunity.
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.
We are of course pleased to have grown total group revenues materially above
inflation rates. This has been achieved by keeping close to our clients, and
continually ensuring we evolve to have the expertise and experience to be able
to provide support to them against a backdrop of market and regulatory
volatility. This leads to high levels of client demand for the wide range of
services we now offer.
We have been particularly pleased with the progress we have made in the risk
transfer market, where we have proven that we are now capable of winning large
mandates against tough competition. This had been achieved by a combination
of senior hires and the development of talented junior colleagues to create a
formidable team that continues to grow strongly.
As this market evolves, there is increasing activity from insurers,
particularly as the bulk annuity market grows and they take on the risk from
pension funds. We have been developing our capability to provide the support
that both established firms and potential new entrants need, across our
advisory and administration businesses. We have had initial success with
this strategy and expect to continue to grow in this area.
As we look forwards, we continue to develop new services to meet market
demands. A simple example is our GMP offering which we are expanding against
a backdrop of high market demand, and in the area of public sector pensions
administration, where clients need support on large rectification projects in
response to recent court cases that have ruled that changes to member benefits
need to be implemented.
We are growing our administration business. For example, there continues to
be a large opportunity to take on the administration of large defined benefit
schemes through 'first time outsourcing'. We were delighted to announce our
partnership with the John Lewis Partnership to do just this, the latest large
scheme we will take on - once onboarded it will be our largest administration
client, with over 160,000 members, an increase of 15% on our current total.
Delivery of our new administration system
We achieved a significant milestone in the development of our new
administration system (called 'Aurora') during H1, with our first client
successfully onboarded. The first phase of this large IT project has been
delivered on time and on budget.
We continue to develop the system and will be working through our clients in
an orderly fashion to move them to the new system over the coming years. In
time this will deliver efficiencies, as we will cease to pay license fees to
third parties whose systems we currently use.
We have also begun to use Aurora in new business opportunities, including the
successful John Lewis Partnership discussions referenced above.
The sale of NPT, and the de-leveraging of our balance sheet
During H1 we announced the sale of our defined contribution master trust,
National Pension Trust (NPT), to the US asset management and technology firm
SEI. This transaction completed on 20 November, and we have received the
initial £35m consideration payable (with an additional £7.5m payable
contingently based on future performance of NPT). This has materially
reduced our borrowing by approximately a half.
This was not however simply a sale of a business unit - retaining exposure to
the growing Mastertrust market through provision of core services was a key
objective and so, as part of the deal, we have signed a long-term contract
with SEI to remain a service provider to NPT (including continuing to provide
administration and investment advisory services) and more widely. We will
remain very close to NPT and will provide support to help it thrive long into
the future.
The combination of the reduction in interest costs and the continuation of
parts of the NPT revenue through our partnership with SEI mean that the
transaction is expected to be immediately EPS accretive.
Continued industry recognition, and a strong culture
We have had success in recent years in winning industry awards for what we do,
and this year was no different. We were delighted to win 'Third Party
Administrator of the Year' at the Professional Pensions Awards - the second
year in a row we have won this. At the same event, our investment consulting
business also won an award, and we were delighted to win an award recognising
our work on the diversity and inclusion agenda. This latter award is
important to us, as it reflects the wide ranging effort, we put in to being a
great place to work, for everyone.
On the topic of culture, we have just seen the first cut of the data from our
annual staff survey. We are delighted to have achieved an employee net
promoter score of +31, a figure that we are told is very high indeed for a
professional services firm. This year we entered The Sunday Times 'best
companies to work for' and were pleased to be an award winner in the 'best
large companies' category. This is truly a win for everyone at XPS - we are
all our culture, and we should all be really proud of the firm that together
we have created.
We are passionate about this - it is the right thing to do, and it also drives
good retention and recruitment and good business performance more widely.
Happy, motivated people look after each other and our clients well.
A sustainable business
As well as advancing sustainability across our business, we continue to work
with our clients, communities, suppliers, and colleagues to do the right
thing, focusing on areas that are material to all our stakeholders and where,
as a business, we can make an impact.
Our sustainability framework and ambitions have strong alignment with the UN
Sustainable Development Goals. Our Investment Consulting business advises on
pension assets in excess of £94 billion. We incorporate sustainability into
our investment strategy solutions, and we continue to be signatory to the
FRC's UK Stewardship Code.
As a large employer, we recognise that we have a responsibility to address the
environmental impacts of our operations and our investments. In line with
the Paris Agreement, we are committed to a science-based net zero strategy
that limits our operational emissions to a level consistent with or below a
1.5°C global temperature rise. We have continued to reduce our own emissions
and have continued to invest in high quality UN approved carbon offsets to
achieve carbon neutrality across our entire value chain, covering our Scope 1,
2 and 3 emissions.
Developments in our wider market
During the last two years we have seen significant changes in the economic
backdrop, with material increases in both long term interest rates and
inflation. These changes have had profound impacts on UK pension schemes of
all types.
In general, most defined benefit schemes are in a healthier financial position
than they were. Schemes continue to 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. This has driven significant demand for
advisory services, and we expect this to continue. XPS is well placed to
meet this demand with the depth of capability we have.
Pension funds have also been the subject of Government scrutiny and newspaper
headlines, with focus on asset allocation and whether changes could be made so
that the very large sums of money in the pension system make an increased
contribution to long term growth in the UK economy. This is a live, ongoing
debate with cross party support for change and we have been pleased to be an
active participant including attending meetings with Treasury and the Bank of
England. The timing and extent of future developments is still unclear,
however any changes to the system are expected to drive demand for advice from
our clients.
Outlook
The strong first half financial performances underscores the resilience and
predictability of the XPS business model. We expect the demand for our
services to remain high underpinned by both market and regulatory tailwinds as
well as the strength of our brand. The business continues to trade well in
H2 and combined with the completion earlier this week of the EPS accretive
sale of NPT, the Board are confident of achieving overall full year results
ahead of its previous expectations.
Financial Review
Half year ended 30 September 2023 2022 Change YoY
Revenue £94.5m £77.0m 23%
Adj. Administration expenses((1)) (£71.8m) (£59.2m) (21%)
Adj. EBITDA((1)) £22.7m £17.8m 28%
Adj. Depreciation & amortisation((1)) (£2.8m) (£2.6m) (8%)
Adj. operating profit ((1)) £19.9m £15.2m 31%
Exceptional and non-trading items (£9.2m) (£7.0m) (31%)
Operating profit £10.7m £8.2m 30%
Net finance expense (£2.6m) (£1.4m) 86%
Profit before tax £8.1m £6.8m 19%
Tax (£2.6m) (£0.9m) (189%)
Profit after tax £5.5m £5.9m (7%)
Basic EPS 2.6p 2.9p (10%)
Adj. diluted EPS 5.9p 5.3p 11%
Interim dividend 3.0p 2.7p 11%
((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
Group revenue for the six months ended 30 September 2023 was up 23% year on
year to £94.5 million (2022: £77.0 million). Organically, group revenue grew
19%.
Pension Actuarial and Consulting
Revenue has grown 29% YoY (22% organically) to £44.4 million (2022: £34.4
million). The growth reflects continued high levels of client activity, driven
in part by continued regulatory changes and demand for advice in response to
volatility in financial markets and changes in pension scheme funding levels.
Inflationary fee increases have also contributed to the growth. The Penfida
acquisition completed in September 2022 has contributed £2.5 million to
revenue in H1.
Pension Investment Consulting
Continued high client demand in the face of regulatory and financial market
changes, combined with inflationary fee increases, has helped revenues grow
26% YoY to £10.2 million (2022: £8.1 million).
Pension Administration
Revenue has grown 16% year on year to £32.4 million (2022: £28.0 million) on
the back of new client wins coming on stream, strong demand for project work
and inflationary fee increases. Number of members under administration were c.
1,048,000 at 30 September 2023 (2022: c. 990,000) and average fee per member
has grown 7% year on year.
SIP
Revenue has grown 23% to £5.4 million (2022: £4.4 million), driven by strong
underlying sales and the impact of the increase in the bank base rate.
NPT
Revenues were flat year on year impacted by competitive price pressures. We
announced the sale of the NPT business to SEI in July 2023 pending regulatory
approvals. The Pensions Regulator approved the sale in October 2023 and the
sale completed on 20 November 2023.
Operating costs
Total operating costs (excluding exceptional and non-trading items) for the
Group grew by 21% or £12.6 million year on year. Organically, total
operating costs grew 18% year on year, below the organic growth in group
revenues evidencing the continued improvement in operational gearing. 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 £22.7 million is up 28% YoY (2022: £17.8 million) with an
increase in the margin to 24.0% (2022: 23.1%).
Exceptional and non-trading items
During the half year ended 30 September 2023 the Group incurred £9.2 million
(2022: £7.0 million) of exceptional and non-trading charges (see note 3 for
further details).
Net finance expenses
Net finance expense of £2.6 million was £1.2 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 £4.4 million
(2022: £2.6 million) equating to an effective corporation tax rate of 25.4%
(2022: 18.7%).
The tax charge on statutory profits was £2.6 million (2022: £0.9 million).
The increase is largely due to the impact of the increase in corporation tax
rate from 19% to 25% from April 2023, and the increase in taxable profits.
Basic EPS
Basic EPS in the half year ended 30 September 2023 was 2.6p (2022: 2.9p). The
variance is largely due to the impact of the increase in corporation tax rates
to 25% from April 2023. On a like for like 19% corporate tax rate, basic EPS
was 3.0p.
Adjusted fully diluted EPS
Adjusted fully diluted EPS in the half year ended 30 September 2023 was 5.9p
(2022: 5.3p). On a like for like basis at 19% corporate tax rate, adjusted
fully diluted EPS was 6.3p.
Dividend
An interim dividend of 3.0p has been declared by the Board (2022: 2.7p),
reflecting XPS's progressive dividend policy and our confidence in the Group's
prospects. The interim dividend amounting to £6.2 million (2022: £5.6
million), will be paid on 5 February 2024 to those shareholders on the
register on 12 January 2024.
Cash-flow, capital expenditure and net debt
The Group generated £11.3 million from operating activities. After £4.1
million on capital expenditure; paying £11.8 million dividends; £2.2 million
of interest, £1.3 million of lease liabilities; £0.4 million dividend
equivalents on vesting of employee share schemes; £4.3 million on
repurchasing own shares, £0.4 million net payments relating to previous
period acquisitions, £0.2 million on fees relating to extension of the loan
facility for a further year, partially offset by a £6.0 million drawdown of
committed facility, the net decrease in cash was £7.4 million at 30 September
2023.
At 30 September 2023 net debt (as defined for RCF covenants and therefore
excluding IFRS 16) was £68.2 million (2022: £72.9 million. The leverage
ratio for financing covenants was 1.55x (2022: 2.09x). At 30 September 2023,
the Group had £26.0 million of undrawn committed facility. The Group's RCF
expires in October 2026.
As a result of the completion of the NPT sale, current net debt is
approximately £30 million, representing a significant reduction in the
Group's leverage ratio to approximately 0.7x.
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 2023
(pages 46-51).
Condensed Consolidated Statement of Comprehensive Income
for the period ended 30 September 2023
6 month period ended 30 September 2023 6 month period ended 30 September 2022
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 94,510 - 94,510 76,998 - 76,998
Other operating income 3 - 92 92 - - -
Administrative expenses (74,650) (9,247) (83,897) (61,784) (7,050) (68,834)
Profit/(loss) from operating activities 19,860 (9,155) 10,705 15,214 (7,050) 8,164
Finance income 20 - 20 - - -
Finance costs (2,577) - (2,577) (1,334) - (1,334)
Profit/(loss) before tax 17,303 (9,155) 8,148 13,880 (7,050) 6,830
Income tax (expense)/credit (4,375) 1,693 (2,682) (2,646) 1,703 (943)
Profit/(loss) after tax and total comprehensive income for the period 12,928 (7,462) 5,466 11,234 (5,347) 5,887
Memo
EBITDA 22,733 (5,634) 17,099 17,799 (3,706) 14,093
Depreciation and amortisation (2,873) (3,521) (6,394) (2,585) (3,344) (5,929)
Profit/(loss) from operating activities 19,860 (9,155) 10,705 15,214 (7,050) 8,164
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 5 6.2 2.6 5.5 2.9
Diluted earnings per share 5 5.9 2.5 5.3 2.8
Condensed Consolidated Statement of Financial Position
as at 30 September 2023
30 September 31 March
2023 Unaudited 2023
Audited
Note £'000 £'000
Assets
Non-current assets
Property, plant and equipment 4,006 3,079
Right-of-use assets 8,664 9,684
Intangible assets 210,834 212,103
Other financial assets 1,847 1,847
225,351 226,713
Current assets
Trade and other receivables 46,783 43,765
Cash and cash equivalents 5,796 13,285
52,579 57,050
Total assets 277,930 283,763
Liabilities
Non-current liabilities
Loans and borrowings 6 73,248 67,310
Lease liabilities 6,682 7,234
Provisions for other liabilities and charges 1,297 1,869
Trade and other payables - 845
Deferred tax liabilities 17,049 18,445
98,276 95,703
Current liabilities
Lease liabilities 2,540 2,701
Provisions for other liabilities and charges 2,115 2,009
Trade and other payables 30,285 31,218
Current income tax liabilities 3,310 2,280
Deferred consideration - 568
38,250 38,776
Total liabilities 136,526 134,479
Net assets 141,404 149,284
Equity
Equity attributable to owners of the parent
Share capital 7 104 104
Share premium 8 1,786 1,786
Merger relief reserve 8 48,687 48,687
Investment in own shares held in trust 8 (2,805) (1,350)
Retained earnings 8 93,632 100,057
Total equity 141,404 149,284
Condensed Consolidated Statement of Changes in Equity
for the period ended 30 September 2023
Share capital Share premium Investment in own shares Accumulated deficit/ retained earnings Total equity
£'000 £'000 Merger relief reserve £'000 £'000 £'000
£'000
Balance at 1 April 2023 104 1,786 48,687 (1,350) 100,057 149,284
Profit after tax and total comprehensive income for the period - - - - 5,466 5,466
Contributions by and distributions to owners
Shares purchased by employee benefit trust for cash - - - (4,277) - (4,277)
Dividends paid (note 9) - - - - (11,825) (11,825)
Dividend equivalents paid on exercised share options - - - - (438) (438)
Share-based payment expense - equity settled from employee benefit trust - - - 2,822 (2,806) 16
Share-based payment expense - IFRS2 charge - - - - 2,408 2,408
Deferred tax movement in respect of share-based payment expense - - - - 466 466
Current tax movement in respect of share-based payment expense - - - - 304 304
Total contributions by and distributions to owners - - - (1,455) (11,891) (13,346)
Unaudited balance at 30 September 2023 104 1,786 48,687 (2,805) 93,632 141,404
Balance at 1 April 2022 103 116,804 48,687 (4,157) (17,002) 144,435
Profit after tax 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 (note 9) - - - - (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 - - - - 1,571 1,571
Deferred tax movement in respect of share-based payment expense - - - - 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
Balance at 1 April 2022 103 116,804 48,687 (4,157) (17,002) 144,435
Profit after tax and total comprehensive income for the year - - - - 15,837 15,837
Contributions by and distributions to owners
Share capital issued 1 1,786 - - - 1,787
Share premium reduction - (116,804) - - 116,804 -
Dividends paid - - - - (15,331) (15,331)
Dividend equivalents paid on exercised share options - - - - (549) (549)
Shares purchased by employee benefit trust for cash - - - (2,200) - (2,200)
Share-based payment expense - equity settled from employee benefit trust - - - 5,007 (4,137) 870
Share-based payment expense - IFRS2 charge - - - - 3,892 3,892
Deferred tax movement in respect of share-based payment expense - - - - 258 258
Current tax movement in respect of share-based payment expense - - - - 285 285
Total contributions by and distributions to owners 1 (115,018) - 2,807 101,222 (10,988)
Balance at 31 March 2023 104 1,786 48,687 (1,350) 100,057 149,284
Condensed Consolidated Statement of Cash Flows
for the period ended 30 September 2023
Note Period ended Period ended
30 September 30 September
2023 2022
Unaudited Unaudited
£'000 £'000
Cash flows from operating activities
Profit for the period 5,466 5,887
Adjustments for:
Depreciation 394 442
Depreciation of right-of-use assets 1,572 1,288
Amortisation 4,374 4,198
Loss on disposal of right-of-use assets 54 -
Finance income (20) -
Finance costs 2,577 1,334
Share-based payment expense 2,408 1,571
Other operating income (92) -
Income tax expense 2,682 943
19,415 15,663
Increase in trade and other receivables (3,025) (3,608)
Decrease in trade and other payables (2,187) (3,014)
Decrease in provisions (621) (281)
13,582 8,760
Income tax paid (2,280) (2,209)
Net cash inflow from operating activities 11,302 6,551
Cash flows from investing activities
Acquisition of a subsidiary, net of cash acquired - (8,267)
Payment of deferred consideration (406) -
Purchases of property, plant and equipment (743) (219)
Purchases of software (3,369) (2,125)
Net cash outflow from investing activities (4,518) (10,611)
Cash flows from financing activities
Proceeds from the issue of share capital on exercise of share options - 1,787
Proceeds from existing loans 6 6,000 11,000
Payment relating to extension of loan facility (200) -
Repurchase of own shares (4,277) (1,000)
Proceeds from the exercise of share options settled by EBT shares 16 397
Interest paid (2,235) (1,037)
Lease interest paid (119) (149)
Payment of lease liabilities (1,195) (1,236)
Dividends paid to the holders of the parent 9 (11,825) (9,763)
Dividend equivalents paid on vesting of share options (438) (413)
Net cash outflow from financing activities (14,273) (414)
Net decrease in cash and cash equivalents (7,489) (4,474)
Cash and cash equivalents at start of the period 13,285 10,150
Cash and cash equivalents at end of period 5,796 5,676
(
)
( )
Notes to the Condensed Consolidated Financial Statements
for the period ended 30 September 2023
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 Accounting Standards ("IAS"). These condensed financial
statements have been prepared in accordance with UK adopted IAS 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 2023.
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 2023, except for the following amendments which apply for
the first time in 2023/24. However, the below are not expected to have a
material impact on the Group's financial statements as they are either not
relevant to the Group's activities or require accounting which is consistent
with the Group's current accounting policies.
The following new standards and amendments are effective for the period
beginning 1 April 2023:
• IFRS 17 Insurance Contracts;
• Disclosure of Accounting Policies (Amendments to IAS 1 Presentation of
Financial Statements and IFRS Practice Statement 2);
• Definition of Accounting Estimates (Amendments to IAS 8 Accounting
policies, Changes in Accounting Estimates and Errors);
• Deferred Tax related to Assets and Liabilities arising from a Single
Transaction (Amendments to IAS 12 Income Taxes); and
• International Tax Reform - Pillar Two Model Rules (Amendment to IAS 12
Income Taxes)
Going concern
IFRS 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 up to 31 March 2025, which
includes the 12-month period 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. The period to
31 March 2025 has been chosen as it covers the current and next financial
years and includes the 12-month period from the date of signing these interim
accounts. Inflationary increases have been modelled using the OBR inflation
forecasts for that period, and interest rate increases have been included in
the forecast based on latest market projections. Additionally, the Directors
have modelled a scenario at which the banking covenants could potentially be
breached, which is the point at which going concern would be threatened. In
this scenario, revenue is modelled to decrease significantly, partially offset
with a reduction in staff bonuses. 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 extremely unlikely. In
addition, the Group has several additional cost reduction and cash
preservation levers it could utilise, which include managing staff costs
through a hiring freeze or a reduction in workforce, a reduction in capital
expenditure, and a reduction of dividends.
The cash flow forecasts discussed above do not factor in the impact of the
sale of the NPT business (see note 12). The impact on EBTIDA for the Group is
expected to be immaterial, however the cash received on completion of the sale
of the business would result in a reduction in Group debt. This would lead to
interest saving and a related improvement in banking covenant test outcomes,
which already showed a position of headroom.
The Group's current revolving credit facility is in place until October 2026
and 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 forecast. The Group does not have any
non-financial covenants.
Notes to the Condensed Consolidated Financial Statements (continued)
1 Accounting policies (continued)
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 3% of the forecast figure, and
adjusted profit after tax was within 8% of the forecast figure. Actual results
were ahead of forecast in both cases. 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.
In terms of the wider macroeconomic and financial situation, the main impact
on the Group is the high level of inflation currently being experienced in
the UK, and also the related increases in interest rates, albeit the interest
rates are now expected to stabilise. 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.
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.
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 since 31 March 2023 except for the estimates relating to the
business combination that related specifically to the comparative period.
The sale of the NPT business has been reviewed, and it is the Director's
assessment that at 30(th) September 2023, the NPT business is not classified
as held for sale, as the criteria under IFRS 5 had not been met. This
judgement is due to several factors, but the key element was that the Pensions
Regulator had not given their approval at this date, and approval could not be
considered to be customary.
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.
Notes to the Condensed Consolidated Financial Statements (continued)
2 Financial information
The financial information in this report was formally approved by the Board of
Directors on 22 November 2023. 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 adopted IFRS for the year ended 31 March
2023 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 2023 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 2022 was unaudited but was reviewed by the
Group's auditor.
3 Non-trading and exceptional items
Period ended Period ended
30 September 30 September
2023 2022
Unaudited Unaudited
£'000 £'000
Corporate transaction costs (1) (2,611) (1,894)
Exceptional items (2,611) (1,894)
Contingent consideration write back (2) 92 -
Share-based payment costs (3,115) (1,812)
Amortisation of acquired intangibles (3,521) (3,344)
Non-trading items (6,544) (5,156)
Total exceptional and non-trading items before tax (9,155) (7,050)
Tax on adjusting items (3) 1,693 1,703
Non-trading and exceptional items after taxation (7,462) (5,347)
( )
(1) Included within this is £845,000 of contingent consideration in respect
of the acquisition of Penfida Limited (H1 2022/23: £nil). The maximum
contingent consideration of £3,379,000 would be payable on the second
anniversary of the acquisition subject to business performance which includes
retention of clients as well as continued employment of key employees. As
continued employment is one part of the contingent consideration test,
according to IFRS 3, the entire contingent consideration must be treated as a
post transaction employment cost accruing over the deferment period of two
years. The contingent consideration is material in size and it is one-off in
nature. As such, in line with the Group's accounting policies, it has been
classified as an exceptional item. If the entire contingent consideration is
not payable at the end of the two year period, any resulting credit will also
flow through the exceptional category. The remainder of the costs in the
current period largely relate to the disposal of the NPT business (see note
12). The costs in H1 2022/23 relate to the Penfida acquisition, as well as
other potential M&A opportunities explored by the Group in the period.
(2) Contingent consideration revaluation credit of £92,000 relating to the
reduction in the deferred cash-settled consideration for the MJF acquisition
(H1 2022/23: £nil).
(3) The tax credit on exceptional and non-trading items of £1.7 million (H1
2022/23: £1.7 million) represents a credit of 18% (H1 2022/23: 24%) of the
non-trading and exceptional items incurred of £9.2 million (H1 2022/23 £7.1
million).
Notes to the Condensed Consolidated Financial Statements (continued)
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
2023 2022
Unaudited Unaudited
Revenue from external customers £'000 £'000
Pensions Actuarial and Consulting 44,422 34,432
Pensions Administration 32,370 27,990
Pensions Investment Consulting 10,185 8,123
National Pension Trust (NPT) 2,118 2,063
SIP (1) 5,415 4,390
Total 94,510 76,998
(1) Self Invested Pensions (SIP) business, incorporating both SIPP and SSAS
products.
In the second half of the prior year, there was a change in the way that
divisional revenues are reported to the CODM which is more reflective of the
responsibilities and operations of the business. As a result related revenue
to the period ended 30 September 2022 of £0.7 million has been reallocated
from the Pensions Actuarial and Consulting division to the Pensions
Administration division. The above prior year comparative has been restated to
reflect this reallocation.
5 Earnings per share
30 September 30 September
2023 2022
Unaudited Unaudited
£'000 £'000
Profit for the period 5,466 5,887
Weighted average number of shares: '000 '000
Weighted average number of shares in issue 206,947 204,091
Effects of:
Outstanding share options 12,687 9,464
Diluted weighted average number of ordinary shares 219,634 213,555
Basic earnings per share (pence) 2.6 2.9
Diluted earnings per share (pence) 2.5 2.8
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)
5 Earnings per share (continued)
Adjusted earnings per share
30 September 30 September
2023 2022
Unaudited Unaudited
£'000 £'000
Adjusted profit after tax 12,928 11,234
Adjusted basic earnings per share (pence) 6.2 5.5
Diluted adjusted earnings per share (pence) - total 5.9 5.3
The adjusted profit after tax is the trading profit after tax and excludes the
exceptional and non-trading items disclosed in note 3.
6 Loans and borrowings
At 30 September 2023, the Group had drawn down £74 million (31 March 2023:
£68 million) of its £100 million revolving credit facility. The current
Revolving Facility Agreement was entered into on 12 October 2021 and had a 4
year term, which was extended in April 2023 by one year to October 2026.
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 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 £73.2 million (31 March
2023: £67.3 million).
7 Share capital
Ordinary Ordinary Ordinary Ordinary
shares shares shares shares
('000) (£'000) ('000) (£'000)
30 September 30 September 31 March 31 March
2023 2023 2023 2023
In issue at the beginning of the year 207,443 104 205,151 103
Issued during the year 102 - 2,292 1
In issue at the end of the year 207,545 104 207,443 104
30 September 30 September 31 March 31 March
2023 2023 2023 2023
('000) (£'000) (000) (£'000)
Allotted, called up and fully paid
Ordinary shares of 0.05p (March 2023: 0.05p) each 206,027 103 206,427 103
Shares held by the Group's Employee Benefit Trust
Ordinary shares of 0.05p (March 2023: 0.05p) each 1,518 1 1,016 1
Shares classified in shareholders' funds 207,545 104 207,443 104
The Group has invested in the shares for its Employee Benefit Trust ('EBT').
These shares are held on behalf of employees and legal ownership will transfer
to those employees on the exercise of an award. This investment in own shares
held in trust is deducted from equity in the consolidated statement of changes
in equity.
Notes to the Condensed Consolidated Financial Statements (continued)
8 Reserves
The following describes the nature and purpose of each reserve within equity:
Reserve Description and purpose
Retained earnings: All net gains and losses recognised through the consolidated statement of
comprehensive income.
Share premium: Amounts subscribed for share capital in excess of nominal value.
Merger relief reserve: The merger relief reserve represents the difference between the fair value and
nominal value of shares issued on the acquisition of subsidiary companies.
Investment in own shares: Cost of own shares held by the EBT.
9 Dividends
Amounts recognised as distributions to equity holders of the parent in the
period
30 September 30 September
2023 2022
Unaudited Unaudited
£'000 £'000
Final dividend for the year ended 31 March 2023: 5.7p per share (2022: 4.8p) 11,825 9,763
30 September 30 September
2023 2022
Unaudited Unaudited
£'000 £'000
Interim dividend for the year ending 31 March 2024 of 3.0p (2023: 2.7p) 6,209 5,568
The final dividend for 2022/23 was paid on 21 September 2023. The final
dividend has been reflected in the Statement of Changes in Equity.
The interim dividend was approved by the Board on 22 November 2023 and has not
been included as a liability at 30 September 2023.
10 Related party transactions
Key management emoluments during the year
30 September 30 September
2023 2022
Unaudited Unaudited
£'000 £'000
Emoluments 536 503
Share-based payments 772 261
Company contributions to money purchase pension plans 15 15
Social security costs 71 73
1,394 852
Directors' bonuses are not included in the emoluments figure at 30 September
2023 or 30 September 2022 as the bonus amount is dependent on full year
results and is also at the discretion of the Remuneration Committee.
Non-executive emoluments during the year
30 September 30 September
2023 2022
Unaudited Unaudited
£'000 £'000
Emoluments 165 162
Social security costs 20 22
185 184
Notes to the Condensed Consolidated Financial Statements (continued)
11 Financial Instruments
The carrying values of financial assets and liabilities approximates fair
value.
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 considers that the carrying amount of the following financial assets
and financial liabilities are a reasonable approximation of their fair value:
· Trade receivables
· Trade payables
· Cash and cash equivalents
· Loans and borrowings
· Deferred consideration
12 Post balance sheet events
On 14th July 2023, the Group announced that it has entered into an option
agreement to sell the National Pension Trust ("NPT"), to SEI. The intention is
to create a market leading defined contribution proposition for employers and
pension scheme members. The deal creates a strategic partnership between XPS
Pensions Group and SEI, under which the Group will provide wide ranging
services to continue to support NPT and SEI. The transaction is subject to
regulatory approval.
The total cash consideration payable to the Group upon completion following
regulatory approval is up to £42.5 million, comprising of £35.0 million
initial consideration and deferred earn-out consideration of up to £7.5
million based on business performance over two years.
The Transaction positions the SEI Master Trust to continue delivering
best-of-breed service at increased scale in partnership with NPT. The Group
will continue to provide high-quality pensions administration and consultancy
services to NPT and SEI which will ensure continuity of service to the members
and clients. SEI will benefit from enhanced opportunities in the growing
master trust space, and XPS will benefit as a key service provider to SEI.
Gross assets attributable to NPT were £2.5 million (including the regulatory
capital cash account) and the adjusted EBITDA contribution from NPT to the XPS
Group in the year ended 31 March 2023 was £0.9 million.
At 30(th) September 2023 regulatory approval had not yet been received and the
Directors still believed that approval was uncertain. The agreement received
regulatory approval on 13(th) October 2023, and the sale was completed on 20
November 2023.
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
22 November 2023
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 2023 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 2023 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
22 November 2023
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
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