JTC PLC (LON:JTC) have today published full year results for the year ended 31 December 2020.
A strong performance with continued growth from both new business wins and disciplined M&A
| As reported 2020 | As reported 2019 | As reported Change | Underlying* 2020 | Underlying* 2019 | Underlying* Change | |
| Revenue (£m) | 115.1 | 99.3 | +15.9% | 115.1 | 99.3 | +15.9% |
| EBITDA (£m) | 34.9 | 33.7 | +3.5% | 38.7 | 35.4 | +9.4% |
| EBITDA margin | 30.3% | 34.0% | -3.7pp | 33.6% | 35.6% | -2.0pp |
| Operating profit/EBIT | 21.0 | 23.0 | -8.4% | 24.9 | 24.6 | +1.0% |
| Profit before tax (£m) | 11.2 | 17.6 | -36.3% | 21.4 | 19.7 | +8.3% |
| Earnings per share (p)** | 9.02 | 15.43 | -41.5% | 22.49 | 21.74 | +3.4% |
| Cash conversion | 91.0% | 81.0% | +10.0pp | 91.0% | 89.0% | +2.0pp |
| Net debt (£m) | -76.0 | -66.5 | -9.5 | -75.8 | -59.3 | -16.5 |
| Dividend per share (p) | 6.75 | 5.3 | +1.45p | 6.75 | 5.3 | +1.45p |
* Reconciliation of performance measures to reported results. For further information on underlying results see appendix to CFO Review.
** Average number of shares for 2020: 116,736,585 (2019: 111,352,868)
FINANCIAL HIGHLIGHTS
· Revenue up 15.9% to £115.1m (2019: £99.3m), reflecting a combination of good net organic growth of 7.9% (+16.7% gross) and inorganic growth of 8.0%
· Underlying EBITDA up 9.4% to £38.7m (2019: £35.4m) with underlying EBITDA margin of 33.6% (2019: 35.6%)
· Performance in line with medium-term guidance of 8% – 10% net organic growth and 33% – 38% underlying EBITDA margin
· Record annualised new business wins totaling £17.9m (2019: £14.9m), comprising £13.4m in ICS and £4.5m in PCS
· Strong underlying cash conversion of 91.0% (2019: 89.0%)
· A robust balance sheet with an undrawn £44.4m out of the available £150m facility and no debt falling due for repayment before 2023
STRATEGIC HIGHLIGHTS
· Highly resilient response to Covid-19 with no redundancies, no staff placed on furlough, no government support taken and dividend increased from 25% to 30% of underlying PAT
· Good performance from both divisions, with continued strong results from the PCS Division
· Acquired fund services business NESF in the US, the Sanne Private Clients business in Jersey and announced the acquisition of the RBC CEES employee benefits business in the Channel Islands and UK.
· Post period end, acquisition announced of INDOS, a specialist depositary, AML and ESG governance services business with operations in the UK and Ireland.
· M&A pipeline remains healthy and disciplined approach will continue in 2021 with particular focus on the US, UK, Ireland and mainland Europe.
OUTLOOK
· Continued positive growth prospects for the Group, underpinned by fundamental drivers for our industry
· Medium-term guidance maintained. Net organic revenue growth of 8% – 10%; underlying EBITDA margin of 33% – 38%; cash conversion of 85% – 90% and net debt of 1.5 – 2.0 times underlying EBITDA.
· Focus on integration of RBC CEES and INDOS businesses
· The Group remains well invested to deliver continued operational improvement and take advantage of further consolidation opportunities.
· The current financial year has started well with momentum in new business wins and the Group is trading in line with management guidance/consensus expectations.
Nigel Le Quesne, Chief Executive Officer of JTC PLC, said:
“We are particularly pleased with our results for 2020 as they have been achieved despite the challenges of the global pandemic. If there was a year that tested our people, our culture, and the resilience of our business model, it was 2020. I would therefore like to thank and congratulate our global team for managing to deliver both strong revenue and profit growth through this period of significant adversity. The rise in revenue was achieved by a balanced combination of net organic growth and growth by acquisition, with strong contributions from both Institutional Clients Services and Private Client Services. Based on our 33-year track record, our scale, our diversification, our infrastructure and our people, we believe that JTC is well equipped to continue to succeed and grow both now and in the future.”
Chief Executive Officer’s Review
Nigel Le Quesne
Chief Executive Officer
PEOPLE, CULTURE AND RESILIENCE
We like to keep things simple at JTC with our aim to make the business better every year. Once again we believe we achieved that in 2020.
By the time we reported last year, we were able to talk about how the Group might respond to the pandemic, and I mentioned factors such as our well-invested infrastructure, experienced management, historic track record and our scale and diversification as keys to our resilience. I also talked separately and specifically about the importance of the culture of the Group and how we had invested in it over decades. Well, there’s nothing like the year we’ve just had to test the validity of that belief, in every respect. And in hindsight, our people and culture were the most important factors in making sure we could trade successfully through 2020. I would like to take this opportunity to thank and congratulate our global team for the performance of the business during an extraordinary year for the whole world. Even in the ongoing face of the pandemic, I genuinely believe we are a better business going into 2021 thanks to the energy, commitment and entrepreneurial spirit of our people.
FINANCIAL PERFORMANCE
Performance was in-line with market expectations that were set pre-Covid-19 and we delivered headline revenue growth to £115.1m (2019: £99.3m), achieving £38.7m of underlying EBITDA (2019: £35.4m) at a Group margin of 33.6% (2019: 35.6%). These strong results were achieved through a combination of net organic growth of 7.9% (2019: 8.4%) and inorganic growth of 8.0% (2019: 20.1%).
This means that we again delivered in line with our medium-term guidance of 8%-10% net organic revenue growth and 33%-38% underlying EBITDA margin, which we continue to believe represent the key ‘guide rails’ for sustainable high performance in our sector.
A BALANCED APPROACH
We have for many years adopted multi-year business plans that we name to mark chapters in our journey. From 2018 to 2020 we called our plan the Odyssey Era and during this three year period the performance of the Private Client Services (PCS) Division has been exceptional. On the other side of the business, the Institutional Client Services (ICS) Division has grown strongly, but has struggled, in relative terms, to achieve the same levels of operational efficiency. Having said that, we know from experience that our Divisions go through natural business cycles as they develop and evolve. Sometimes they will be at the top of their game and at other times need to make important operational changes. Conceptually we believe in the flywheel effect, where businesses succeed not from a single initiative, but from the accumulation of small wins over years of hard work. In 2020, we put a lot of good work into getting the ICS business to the position where the flywheel moment will be achieved in the medium-term. What we’re seeing with PCS is the flywheel effect made real – it’s outperforming its peer group in the market in almost every respect. To me, it brings home the benefit of having two Divisions within the Group and we look forward to this playing out over our next business plan era, which we are calling Galaxy and will run for five years until the end of 2025.
INSTITUTIONAL CLIENT SERVICES DIVISION
Revenue increased 17.8% to £64.6m (2019: 54.8m) and there was a 0.8% decrease in underlying EBITDA to £18.0m (2019: £18.1m). The underlying EBITDA margin fell 5.2pp to 27.9% (2019: 33.1%) but excluding NESF, which was particularly impacted by a combination of Covid-19 and the performance of the US economy, the margin was 30.6%. Net organic growth was 6.9% (2019: 9.4%) with the annualised value of new business wins being £13.4m (2019: £8.9m). As already noted, 2020 was a more challenging year for ICS, but we have undoubtedly made progress. The planned internal operational restructuring of the fund services practice was completed, albeit at a slower pace than we would have liked due to travel restrictions, which prevented us from delivering the change programme in our preferred face-to-face format. However, the Division has landed its two biggest ever clients, judged by annualised revenue, in the last 18 months, has a strong new business pipeline going into 2021 and enjoys positive long-term structural tailwinds.
One trend we observed, possibly hastened by the effects of the pandemic, and particularly important to the ICS market, was an acceleration in decision making from larger clients who showed a greater inclination to outsource as part of their longer-term strategy. This led to us competing for and winning a number of higher value and more complex mandates, which are positive for our market profile and the lifetime value of the JTC book, but necessarily take longer to on-board and get up to speed due to their size and complexity.
In terms of acquisitions, NESF provided an important entry point to the high-growth US fund services market and brought with it a capable and experienced management team. The business also gives us a significant in-house technology capability for the first time and one that can be leveraged across the entire Group in due course.
We are excited about prospects in the corporate employee benefit services field following the acquisition of RBC CEES, announced at the end of the period, which when combined with our own shared ownership credentials, immediately positions us as a leader in this space. The business adds complementary service lines that we believe have substantial growth potential as the wider ESG agenda drives more companies to consider broader and more sophisticated employer benefit programmes. There are also opportunities for cross-selling of private client services to underlying members of such programmes.
The post period end INDOS acquisition will expand our fund services offering and brings sophisticated depositary, AML and ESG services to the Division, as well as a highly skilled team in the UK and Ireland. This will allow us to provide holistic solutions at every stage of the fund cycle, as well as our well-established administration and accountancy services. INDOS, in combination with NESF, will also be at the forefront of our expansion into specific ESG related services.
Looking ahead our ICS business has some of the most exciting organic and inorganic growth prospects in the Group as we move into 2021 and we look forward to capturing those opportunities and driving performance.
PRIVATE CLIENT SERVICES DIVISION
Revenue showed a 13.7% increase to £50.5m (2019: £44.5m) and a 20.2% increase in underlying EBTIDA to £20.7m (2019: £17.2m). The underlying EBITDA margin improved 2.2pp to 41.0% (2019: 38.8%). Net organic growth was 9.0% (2019: 7.2%) with the annualised value of new business wins being £4.5m (2019: £6.0m).
The performance of the PCS Division built on the great work and results in 2019. At the start of our Odyssey Era business plan three years ago, PCS was possibly seen as an unfashionable and relatively low-growth business. But it has performed strongly, benefiting from a consistency of focused management and efficiencies due to a restructuring of operational support during the Odyssey Era, which has shown through to the 2020 results. Our Private Office proposition has continued to drive growth, with the number of clients paying £100k pa or more increasing by 25%. The Division also benefited from the acquisition and full integration of the Sanne Private Clients business during the year. This strengthened our Jersey platform, delivered a skilled team and high quality client book and was immediately portable to our operating platform. It also further increased our share of and commitment to the PCS market and was a straightforward acquisition for us, in spite of the constraints of integrating during lockdown.
One of the more notable trends in the PCS Division is its ability to attract relationships with global financial institutions who trust us to provide services for their individual private clients. Mirroring a trend seen in the ICS Division, these large firms are opting for a lighter operating model, for example through white labelling, and are seeking to ensure that they remain ahead of market trends and fully compliant by partnering with JTC, an acknowledged expert in the field.
The PCS Division enters 2021 with good momentum that we are confident will carry into the Galaxy Era.
INORGANIC GROWTH
In 2020 we once again looked at over 50 opportunities as the market continues to consolidate at pace. Our substantial experience and disciplined approach meant that we are very pleased with the deals completed in the year.
At the heart of JTC’s approach to inorganic growth we combine a set of core criteria with near-term areas of focus. Our overarching principle is to acquire businesses that make JTC better for the long-term and our core criteria are: to improve jurisdictional strength, add scale, strengthen our service offering and create cross-selling and synergy opportunities. In 2020 our specific areas of focus were primarily ICS orientated with an emphasis on alternative asset classes, the US, UK, Ireland and Luxembourg. We also sought out opportunities related to the addition of so-called first-cousin services and technology capabilities. Notwithstanding this framework, we always remain alert to executing opportunistic deals as they may arise.
In combination, these criteria and areas of focus create a ‘two plus two must equal five’ mentality when we look at deals and the acquisitions made embody this approach.
We believe the sector will continue to consolidate for at least the next 5-10 years and look forward to remaining an active participant and enter 2021 with an active pipeline of opportunities.
RISK
We were pleased to welcome Richard Ingle as our new Chief Risk Officer (CRO). Richard has a distinguished financial service career spanning more than 30 years and has worked for a number of well-respected institutions including the Financial Services Authority, JP Morgan and Standard Chartered. His arrival not only strengthens the Risk & Compliance function, but also the overall leadership team as he takes a seat on the Group Holdings Board. I would also like to record my thanks to Bill Byrne, our Chief Group Counsel, who undertook the role for the majority of 2020 and now returns to his core role of leading our legal function across the Group. Bill will continue to work closely with Richard and his team, as well as both Divisions and the Operations teams.
OUTLOOK
As we start our five-year Galaxy Era journey, it is worth noting that when we entered the Odyssey Era in 2018 we had a Group turnover of £59.8m and underlying EBITDA of £14.4m, so we have significantly moved the dial over the past three years. Assessing what we have achieved in 2020 specifically, our senior team is our most cohesive ever, and is another year wiser. We have upgraded the general talent within the Group, as we continue to find more of the industry’s top professionals attracted to what we have to offer, including our shared ownership culture and entrepreneurial approach. We assess the strength of our operations in each individual jurisdiction on a regular basis and, on the whole, they are improving year on year. And importantly, we are beginning to be seen as leaders and a driver of trends in the markets we operate in.
In 2021, we will continue to drive organic growth through service quality, innovation, maturity of larger mandates, process efficiencies and technological capabilities. The outlook for further inorganic growth in the Galaxy Era remains positive, with a well-developed pipeline of opportunities that can strengthen and deepen our global footprint and service offering; however it is important we maintain our reputation as a disciplined buyer. We’ve always said we’re building this business for the long term, making sure the infrastructure we put in place future-proofs our business, incrementally keeping up with growth, whether organic or inorganic.
From a personal point of view, I see plenty for us yet to achieve, and I’m really enjoying continuing to build the Group, and plan to carry on doing so through our Galaxy Era. If there’s a lesson from Covid-19, or from our financial performance over 33 years, it’s that consistency and continuity of management is the right thing to aspire to. And so when succession comes, it will ideally come internally rather than externally. This collective approach that is so special to JTC can be handed down over generations to ensure the business continues to succeed and thrive for years to come.
Nigel Le Quesne
Chief Executive Officer
Chief Financial Officer’s Review
Strength in numbers
Martin Fotheringham, Chief Financial Officer
REVENUE
In 2020, revenue was £115.1m, an increase of £15.8m (15.9%) compared with 2019.
Despite what were undoubtedly less conducive conditions for new business we delivered net organic growth of 7.9% in the year (2019: 8.4%). The average organic growth for the last three years was 8.3%. The growth in 2020 comprised gross new business of 16.7% (2019: 15.4%), inorganic growth of 8.0% (2019: 20.1%) and attrition of 8.8% (2019: 7.0%). The higher attrition offset the increased gross new business and resulted in a reduction in the retention of revenues that were not end of life in 2020 to 96.6% (2019: 97.4%). In the last three years the average retention of not end of life revenues was 97.4%.
ICS net organic growth was 6.9% (2019: 9.4%). The average for the last three years was 9.2%. The vast majority of jurisdictions grew in 2020 with particularly strong performances in Cayman and the UK. Luxembourg and the US institutional businesses were hit harder by the macroeconomic environment and as a result we saw a reduced flow of new business. Attrition for the division for the year was 8.3% (2019: 6.8%). The slightly higher attrition mainly occurred in the Netherlands and was in connection with the NACT business. This was highlighted in the 2019 results and is consistent with the customer relationship impairment recorded in that period.
PCS net organic growth was 9.0% (2019: 7.2%). The average for the last three years was 7.4%. We continue to see strong demand for our Private Client offering and were pleased at the strong growth in Cayman, Guernsey, Jersey, Mauritius and the US. Attrition in PCS was 9.4% (2019: 7.4%) and this was higher than the prior period due to the reduction in the BVI business. This was a result of a conscious decision to exit a number of structures.
Revenue growth, on a constant currency basis, in the year is summarised in the chart below.
| PLC | ICS | PCS | |
| 2019 Revenue | £99.1m | £54.9m | £44.2m |
| Lost – JTC decision | (£0.7m) | (£0.4m) | (£0.3m) |
| Lost – Moved service provider | (£2.5m) | (£1.0m) | (£1.5m) |
| Lost – End of life/no longer required | (£5.1m) | (£2.8m) | (£2.3m) |
| Net more from existing clients | £8.3m | £3.3m | £5.0m |
| New clients | £7.5m | £4.5m | £3.0m |
| Acquisitions | £8.5m | £6.1m | £2.4m |
| 2020 Revenue | £115.1m | £64.6m | £50.5m |
ACQUISITIONS
Acquisitions contributed £8.5m of new revenue in the period broken down as follows:
| PLC | ICS | PCS | |
| NESF (Q2 2020) | £5.1m | £5.1m | – |
| Sanne (Q3 2020) | £2.4m | – | £2.4m |
| Anson Registrars (Q1 2020) | £0.2m | £0.2m | – |
| Acquisitions < 12 months | £0.8m | £0.8m | – |
| Total | £8.5m | £6.1m | £2.4m |
When JTC acquires a business, the acquired book of clients is defined as inorganic. These clients continue to be treated as inorganic for the first two years of JTC ownership.
NEW BUSINESS/PIPELINE
During 2020 JTC secured new work with an annual value of £17.9m (2019: £14.9m). During the year £9.0m of this was recognised. The divisional split of new work won was ICS £13.4m (2019: £8.9m) and PCS £4.5m (2019: £6.0m). Typically this revenue will have an average life-cycle of approximately 10 years. Whilst new business wins increased there was undoubtedly a slowdown in the launch of new funds with investors being deterred by the uncertainty caused by Covid-19 on the macroeconomic environment. PCS is a business that typically requires a high degree of interpersonal contact and travel and meeting restrictions undoubtedly had an adverse impact on the new business won in 2020.
The enquiry pipeline increased by £15.1m (49.7%) from £30.4m at 31 December 2019 to £45.5m at 31 December 2020. The major influence on the increased pipeline was the acquisition of NESF which at 31 December 2020 had added £11m to the group pipeline. The pipeline has a number of exciting prospects and we have in the last twelve months seen a trend towards larger opportunities in both Divisions. There was a clear slowdown in the launch of new funds within ICS and this was reflected above in the lower growth, particularly in Luxembourg and the US.
UNDERLYING EBITDA AND MARGIN PERFORMANCE
Underlying EBITDA in 2020 was £38.7m, an increase of £3.3m (9.4%) from 2019. The underlying EBITDA margin for the Group was 33.6% (2019: 35.6%).
The underlying EBITDA margin % is the primary KPI used by the business and is a key measure of Management’s ability to run the business effectively and in line with competitors and historic performance levels. The EBITDA margin has remained within the Group’s medium term guidance range of 33-38%.
ICS’s underlying EBITDA margin decreased from 33.1% in 2019 to 27.9% in 2020. Excluding NESF the EBITDA margin for the division was 30.6%. In the first half of the year, the ICS margin was 27.1% and in response to this we undertook an exercise to review our operating processes within the division. Global travel restrictions have frustrated the rate of progress that was achieved. We identified the areas that required restructuring but were reluctant to effect the changes remotely. Our colleagues are key to our business and we did not want to compromise client service or employee welfare in a time of significant global uncertainty.
As highlighted above, the ICS margin was also adversely impacted by the acquisition of NESF in April 2020. We were conscious that this acquisition would initially be margin dilutive. We believe that there is a strong growth outlook for the US fund administration market. Unfortunately the anticipated growth was not evidenced in 2020 due to the Covid-19 impact as well as the weakness in the NESF billing model. The reduction in interest rates in the US had an immediate and material impact on US revenues and EBITDA. We have subsequently restructured the business in line with current revenues albeit the current EBITDA margin is still dilutive to the division. We remain confident about the growth opportunity and the medium-term prospects for ICS in the US.
PCS’s underlying EBITDA margin improved from 38.8% to 41.0% in the year. This was driven by the highly efficient operational model and the talent within the division. We continue to take advantage of the operational leverage we have built into the business and to identify additional service offerings. The acquisition of the Sanne Private Client business in July 2020 was a case in point, and we have integrated it seamlessly into our business with no adverse impact on the divisional margin.
We saw an increase in credit impairment losses in the year but believe this to be unique to the financial year and economic conditions. We also saw an increase in a number of indirect costs which the business has had to absorb.
We continue to invest in the business and have been encouraged by the strong growth in new business wins in H2 2020 and in the size of mandates being won by both Divisions.
DEPRECIATION AND AMORTISATION
The depreciation charge increased to £5.9m in 2020 from £4.6m in 2019. £1.0m of this increase was as a result of an increased charge for right-of-use assets. This reflects the increased footprint of the business in the US and Ireland.
The Group has £228.7m (2019: £172.9m) of balance sheet assets consisting of goodwill (2020: £173.8m, 2019: £124.9m), customer relationships (2020: £50.2m, 2019: £46.7m) and software (2020: £4.0m, 2019: £1.2m). The increases in the year were as a result of the acquisitions that we made. We regularly test these assets for impairment and monitor the recoverability of the carrying amounts. There were no impairments required in the year. We recognise that in the current uncertain Covid-19 business environment there may be an increased need to monitor for impairment indicators and where there is evidence of impairment, we shall review carrying amounts in our balance sheet.
The acquisition of NESF brought us in-house technology capabilities. We are in the process of standardising processes where possible and intend in time to use technology to automate many of these. There will be a commensurate investment in the business that we believe will ultimately deliver additional revenues and increase operational efficiency. To date we have not capitalised any costs in this regard.
STATUTORY OPERATING PROFIT
The Group recognises that statutory operating profit is a more commonly accepted reporting metric and hence shows these results for the benefit of external stakeholders.
Statutory operating profit is impacted by non-underlying costs which are higher than 2019, primarily as a result of the requirement to revalue the equity settled financial liability in relation to the contingent consideration for the NESF acquisition. When we agreed to purchase NESF we ensured that there was a two year capped earn-out and that all future contingent consideration would be settled in JTC equity. The variable number of shares offered for the earn-out was driven by a £4.23 share price. This ensured that all parties interests were absolutely aligned to focus on creating shareholder value.
As the earn-out arrangement includes a variable number of shares the contingent consideration is classified as a financial liability, in accordance with accounting standards, and is required to be re-measured to fair value at each reporting period end with the change recognised in the income statement. We are also required to estimate the value of the earn-out at each reporting period end.
We estimated the earn-out value at acquisition and the commensurate number of shares and we have not had cause to change these estimates. However, the improvement in the JTC share price since the date of the acquisition has ultimately resulted in an increase of the fair value of the contingent consideration and a subsequent charge of £6.5m has been recognised in the income statement. It should be noted that there is neither a trading nor cash impact of this charge and hence it is treated as non-underlying. We will continue to account for the fair value component of the contingent consideration in this way until the earn-out is determined and the equity obligation is settled.
Acquisition and integration costs were higher than in 2019, because of the increased volume and complexity of the transactions undertaken. Details of these non-underlying costs are set out below.
NON-UNDERLYING ITEMS
Non-underlying items incurred in the period totalled £10.1m (2019: £2.1m). These comprised the following:
· £6.5m loss on revaluation of contingent consideration (2019: nil)
· £3.3m of acquisition and integration costs
· (2019: £2.0m)
· £0.3m other costs/charges (2019: £0.4m credit)
· £nil impairment of customer relationship intangible asset (2019: £0.5m)
Of the £10.1m (2019: £2.1m) of non-underlying costs, £3.8m (2019: £1.7m) are incurred at EBITDA level and £6.3m (2019: £0.4m) are included within other gains and losses.
Acquisition and integration costs reflect costs incurred on the completed acquisitions as well as transactions which are ongoing or did not complete.
PROFIT BEFORE TAX
The reported profit before tax for the period ended 31 December 2020 was £11.2m (2019: £17.6m).
Adjusting for non-underlying items the underlying profit before tax for 2020 was £21.4m (2019: £19.7m). The improvement reflects the growth in revenues although the margin decreased in the period. However, the relative profitability was positively impacted by a £0.8m foreign exchange gain (2019: £1.2m loss). This is due to the translation of substantial US dollar and Euro monetary balance sheet items held at the year end. The gain reduced during the course of the year – it was £2.2m at mid-year and reflects the impact of the continued strengthening of GBP sterling in H2.
Finance costs in the year comprise £1.6m of amortisation/non-cash flow items (2019: £1.6m) and £2.8m of costs which impact cash flow (2019: £2.4m).
TAX
The tax charge in the year was £0.7m (2019: £0.5m). The cash tax charge is £1.8m (2019: £1.2m) but this is reduced by significant deferred tax credits of £1.1m (2019: £0.8m) as a result of the movements in relation to the value of customer relationships held on the balance sheet. The Group continuously reviews its transfer pricing policy and updates this to reflect the evolving nature of the business and the way it operates. The policy continues to be fully compliant with OECD guidelines.
UNDERLYING EARNINGS PER SHARE
Underlying basic EPS increased by 3.4% and was 22.49p (2019: 21.74). Underlying basic EPS is the profit for the year adjusted to remove the impact of non-underlying items within profit after tax, amortisation of customer relationships and associated deferred tax impact, amortisation of loan arrangement fees and unwinding of NPV discounts.
CASH FLOW AND DEBT
Cash generated from underlying operating activities was £35.3m (2019: £31.3m) and the underlying cash conversion was 91% (2019: 89%). This is consistent with our market guidance and reflects the highly cash generative nature of the business.
Net debt at the period end was £76.0m compared with £66.5m at 31 December 2019. The underlying net debt of £75.8m (2019: £59.3m) excludes regulatory capital (which is not included for banking covenant testing). Underlying leverage is therefore 2.0 times underlying EBITDA (2019: 1.7 times). At 31 December 2020 the bank covenant test for leverage was 3.25 times pro-forma EBITDA. The covenant test moves to 3.0 times pro‑forma EBITDA on 31 March 2021 and remains at this level until the expiry of the facility.
Our banking facility was increased by £50.0m to £150m on 9 January 2020 giving a total undrawn facility balance at 31 December 2020 of £44.4m. The facilities expire on 8 March 2023.
Martin Fotheringham
Chief Financial Officer
