Release Date: November 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- XPS Pensions Group PLC (LSE:XPS, Financial) reported a strong half-year with a 23% revenue growth, driven by high client demand and regulatory changes.
- The company achieved a 37% increase in adjusted EBITDA and a 53% rise in adjusted EPS, benefiting from lower debt levels.
- XPS Pensions Group PLC has been recognized for its strong brand and culture, winning multiple awards and achieving entry into the FTSE 250.
- The company has made significant progress in transitioning administration clients onto its new Aurora platform, enhancing operational efficiency.
- XPS Pensions Group PLC has a strong focus on organic growth and has been successful in expanding its service offerings, particularly in high-margin areas like risk transfer work.
Negative Points
- Higher inflation has contributed to growth, but it also presents challenges in managing costs and maintaining margins.
- The company faces potential impacts from the national insurance increase, estimated to add GBP2.5 million in costs annually from FY26.
- There is a reliance on project work for revenue growth, which may not be sustainable in the long term as some projects, like McCloud remedy work, are one-off.
- The competitive landscape remains intense, with ongoing consolidation in the industry potentially affecting market dynamics.
- XPS Pensions Group PLC's expansion into the insurance consulting market is still in its early stages and may require significant investment and time to become a substantial revenue stream.
Q & A Highlights
Q: Can you provide the proportion of work that is time and materials versus recurring work, and the progress on client transfers to Aurora?
A: Snehal Shah, CFO: The recurring work is on a fixed fee contract that increases with inflation, while project work like risk transfer is time and materials. This year, growth is mainly from project work. Benjamin Bramhall, Co-CEO: About 15% of our clients have moved to Aurora, with the transition expected to complete by FY27. Paul Cuff, Co-CEO: We've increased recruitment of junior staff, focusing on school leavers, which has been successful.
Q: Could you elaborate on the insurance work and its differences from current client work?
A: Benjamin Bramhall, Co-CEO: Much of our pension work is applicable to insurers, such as administration and data cleansing. We're expanding into finance transformations and accounting for insurers. Paul Cuff, Co-CEO: The insurance consulting market is large, comparable to pensions, and we aim to grow our presence there, potentially through M&A.
Q: How does the acquisition of Redington by Gallagher affect your competitive landscape, and what are your M&A priorities?
A: Paul Cuff, Co-CEO: There's significant M&A activity in our industry, with healthy multiples indicating confidence. Disruptions from such deals can provide competitive opportunities. Our M&A focus is on organic growth, but we may consider consolidating with similar firms or expanding into new areas like insurance consulting.
Q: Can you explain the trends in client numbers and the impact on revenue growth?
A: Benjamin Bramhall, Co-CEO: The number of active clients fluctuates with industry changes, like the LDI crisis, which temporarily increased smaller client needs. Revenue growth is driven by more work with existing clients, particularly in risk transfer and GMP projects. Paul Cuff, Co-CEO: We have a healthy pipeline, with opportunities in risk transfer and administration, especially with new clients like John Lewis.
Q: What is the outlook for margin improvement and the impact of the national insurance change?
A: Snehal Shah, CFO: Margin improvement is expected to continue, driven by high-margin work like risk transfer. The national insurance change will add about £2.5 million in costs annually from FY26, but we are exploring mitigation strategies. Further efficiencies are anticipated with the full rollout of the Aurora platform by FY27.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
