The SimplyBiz Group plc (LON:SBIZ), a leading independent provider of compliance, technology and business services to financial advisers and financial institutions in the UK, has announced its unaudited results for the six months ended 30 June 2020.
Financial highlights:
· Revenue of £28.9m (H1 2019: £29.1m)
· Operating profit of £5.0m (H1 2019: £3.2m)
· Adjusted EBITDA*1 of £7.4m (H1 2019: £8.0m)
· Adjusted EBITDA*1 margin of 25.5% (H1 2019: 27.5%)
· Adjusted EPS *2 of 4.22p (H1 2019: 5.57p)
· Free cash flow conversion*3 of 65% (H1 2019: 43%)
· 30 June 2020 net debt of £25.8m (30 June 2019: £30.1m)
· Full year guidance maintained – adjusted EPS no less than 11.0p (PY: 13.0p)
Operational highlights:
· Digital strategy accelerated
· Scale and growth in intermediary services
· Decisive cost control and efficiency improvements
· Strong performance and contribution from Defaqto
· Mortgage completions of £7.4bn
· Awarded Service Company of the Year
Operational Update
The company took strong and positive action within the first week of national lockdown to successfully ensure it could fully support its customers and colleagues. All services to intermediary customers were moved onto a proprietary digital platform and delivered without disruption. Decisive cost control and efficiency improvements were made which will deliver sustained margin benefits in the future. Fintech & Research remained resilient and robust over the period with continued product developments to support our future growth.
The Company’s mortgage valuation business and events programme were significantly impacted by the lockdown, though volumes moderately increased in June. Management expects a continued slow recovery in the housing market during the second half of the year. Mortgage completions were consistent with prior year, further demonstrating the resilience of our customer base and services.
Management quickly and successfully moved to agile working, bringing forward and enhancing developments to the digital platform, enhancing the delivery of services.
Dividend
As stated in the Operational & COVID-19 Update announcement on 27 April 2020 and Pre-Close Statement on 23 July 2020, the Board does not intend to recommend an interim dividend in respect of the current financial year. A further update on the FY20 dividend will be provided in January 2021.
Matt Timmins, Joint CEO of The SimplyBiz Group plc, commented:
“We are delighted to report strong and resilient trading for H1 2020, demonstrating the robust nature of our business. We benefitted from an improving quality of our underlying earnings, under-pinned by six full months trading from Defaqto which helped offset a significant reduction in valuation income during the period. The quality of our revenues, the resilience of our customers, and the benefits of a stronger digital delivery platform have enabled strong trading during challenging times. We have responded quickly and decisively to deliver growth in key strategic areas, whilst improving the quality of our underlying earnings.
We have accelerated our digital strategy. This data led, digital delivery, will further improve our quality of earnings, margins and cash generation going forward, whilst also improving customer service.”
“On behalf of the Board, I would like to thank all of our colleagues, customers, and wider stakeholders for their support during these unprecedented times.”
*1 Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation, share option charges and operating exceptional costs. Adjusted profit before and profit after tax exclude operating exceptional costs and amortisation of intangible assets arising on acquisition.
*2 Adjusted Earnings Per Share is calculated as adjusted profit after tax, which excludes operating exceptional costs and amortisation of intangible assets arising on acquisition, divided by the average number of ordinary shares in issue for the period.
*3 Free cash flow conversion is calculated as adjusted EBITDA, less working capital movements, lease payments, CAPEX, development expenditure, corporation tax paid and interest, as a percentage of Adjusted EBITDA.
JOINT CHIEF EXECUTIVES’ STATEMENT
Overview
During the six months to 30 June 2020, SimplyBiz delivered a robust financial and operational performance, reacting quickly and decisively to COVID-19 restrictions. The robust nature of revenues, the resilience of its customers base, and a stronger delivery platform following the acquisition of Defaqto have enabled growth in key strategic areas offsetting reductions in valuations and marketing events. The company delivered a strong adjusted EBITDA margin with strong cash conversion.
Headline revenue was broadly consistent with the prior year at £28.9m (H1 2019: £29.1m), as the positive performance from Defaqto and growth in core Intermediary Services were offset by the impact of COVID-19 on the Distribution Channels division.
Adjusted EBITDA of £7.4m represented a robust 25.5% (H1 2019: 27.5%) margin flowing from the higher margin Fintech & Research division, coupled with the quick and efficient implementation of cost saving measures, including the utilisation of certain UK Government assistance packages.
Divisional Performance
The Intermediary Services division provides compliance and business services to over 3,700 individual intermediary firms through a comprehensive membership model. Members, including financial advisers, mortgage advisers and wealth managers, conduct regulated activities and are regulated by the FCA.
The Company reacted quickly and decisively to accelerate its digital strategy and deliver a package of member benefits that enabled uninterrupted high quality delivery of all intermediary services, maintained customer scale and recurring subscriptions value, and strengthened the opportunities for future engagement and growth.
Membership fee income increased by 4% to £5.3m, compared to H1 2019. The Company continued to pursue its strategy of focussing on recruiting larger firms and wealth managers, with average fees increasing by 3%.
Increased regulation continues to drive demand for our services. Additional services income increased by 9% to £2.6m (H1 2019: £2.4m) and the acceleration of the Company’s digital delivery in the period strengthened its growth potential.
Software licence users increased from 4,106 at 30 June 2019 to 4,580 (30 June 2020), contributing to a strong and accelerating 10% increase in software licence income to £2.7m.
Revenues in Zest Technologies, the Group’s employee benefits software solution, were stabilised and grew marginally ahead of the prior year at £1.7m.
The Distribution Channels division was significantly impacted by the COVID-19 restrictions, with revenues reducing by 31% to £9.2m.
The Surveying business was unable to provide physical onsite valuations for 10 weeks, from late March, with the majority of its surveyors placed on furlough as a result. The market has subsequently improved with volumes currently around c50% of previous ‘normal’ levels. Valuation Services revenues in the period were £2.1m (H1 2019: £4.4m).
The temporary closure of the housing market also impacted Mortgage Services income, with lower than expected mortgage completions and reduced panel management transactions during Q2. Growth in the months prior to lockdown helped maintain total mortgage completion at £7.4bn, consistent with H1 2019. Mortgage Services revenues for the period were £2.3m (H1 2019: £3.1m) mainly due to a reduction in panel management services (surveying).
The Company’s extensive events programme has also been impacted by lockdown restrictions, with all physical events suspended from the end of March. The Company acted quickly and decisively to develop an innovative new virtual events service that has attracted excellent attendance and superb customer feedback. Revenues from marketing agreements were £2.6m (H1 2019: £3.6m).
The Fintech & Research division contributed £7.4m of revenue for the period, compared with £4.2m for the three and a half months following the acquisition on 22 March 2019. The acquisition remains earnings enhancing. Defaqto continues to provide a significant strengthening of its delivery platform and remains a strategic priority for future quality earnings growth.
Strategy
The Company’s strategy comprises organic and acquisitive growth. Organic growth is expected to be driven by growth in the Company’s digital service and technology offering to its customers as well as increasing average revenue per customer. An accelerated digital strategy will deliver strong margin growth and greater cash and capital efficiency. The integration of Defaqto and the Company’s enhanced ability to provide data driven, digitised services, will further improve the quality of earnings.
Management continue to pursue selective acquisitions to enhance the services offered, the technology capabilities it possesses and to build on the scalable platform of the Company, subject to prudent balance sheet management, particularly with regard to sensible leverage ratios.
Financial Results:
| Jun-20£m | Jun-19£m | |
| Group Revenue | 28.9 | 29.1 |
| Expenses | (21.5) | (21.1) |
| Adjusted EBITDA | 7.4 | 8.0 |
| Adjusted EBITDA margin % | 25.5% | 27.5% |
| Depreciation | (0.1) | (0.1) |
| Depreciation of lease asset | (0.4) | (0.3) |
| Amortisation of development expenditure and software | (0.5) | (0.5) |
| Adjusted EBIT | 6.4 | 7.1 |
| Operating costs of an exceptional nature | – | (3.0) |
| Share option charges | (0.4) | (0.3) |
| Amortisation of other intangible assets | (1.0) | (0.6) |
| Net finance costs | (0.6) | (0.5) |
| Profit before tax | 4.4 | 2.7 |
| Taxation | (1.6) | (1.3) |
| Profit after tax | 2.8 | 1.4 |
| Adjusted earnings per share (EPS) | 4.22p | 5.57p |
Revenue
Revenues of £28.9m were 1% lower than the prior period, largely due to revenue reductions resulting from the COVID-19 restrictions. These reductions were balanced by underlying growth from both the Intermediary Services and Research & Fintech divisions, and a full six months’ contribution from Defaqto.
Revenues in the Intermediary services division grew by 6% to £12.3m, as a result of growth in member numbers and improved penetration of additional services and software licences. Fintech & Research revenues increased by £3.2m (77%) as a result of the full period of trading vs three and a half months in 2019 and continued organic growth from Defaqto.
The Distribution Channels division has been impacted by the COVID-19 lockdown restrictions, with £3.2m (42%) lower revenues from Valuation and Mortgage Services that directly link to housing transactions, and from the £0.9m (26%) impact to marketing events being moved from physical to digital delivery.
Operating profit and adjusted EBITDA margin
Operating profit increased by 56% to £5.0m (H1 2019: £3.2m, after exceptional charges of £3.0m).
Adjusted EBITDA margin is calculated as adjusted EBITDA (as defined in note 6), divided by revenue. Whilst adjusted EBITDA is not a statutory measure, the Board believe it is a highly useful measure of the underlying trade and operations, excluding one-off and non-cash items.
The Company delivered a robust adjusted EBITDA margin of 25.5% (H1 2019: 27.5%) due to continued revenue growth in higher margin sectors, rapid and decisive cost saving measures, and £0.8m received through the UK Government’s assistance schemes.
Operating costs of an exceptional nature
Exceptional operating costs in the prior year included £2.6m of professional fees in respect of the acquisition of Defaqto and £0.4m of termination costs.
Share-based payments
Share-based payment charges of £0.4m (H1 2019: £0.3m) have been recognised in respect of the options in issue. The increase in the charge reflects the full period of issue for options granted in 2019.
Financial income and expense
Net finance expenses of £0.6m (H1 2019: £0.5m) relate to drawdowns on the Group’s revolving credit facility agreement.
Taxation
The tax charge for the period has been accrued using the tax rate that is expected to apply to the full financial year. The tax expense includes a deferred tax charge of £0.6m, being the deferred tax liability arising on intangible assets acquired with Defaqto, along with the change in the UK corporation tax rate from 17% to 19%.
Earnings per share
Earnings per share has been calculated based on the weighted average number of shares in issue in both periods.
Dividend
During the period the Company paid the final dividend in respect of FY19 of £2.8m. As announced in April, the Board does not intend to recommend an interim dividend in respect of the current financial year.
Cash flow and closing net debt
At 30 June 2020 the Company had net debt of £25.8m, compared to £27.0m at 31 December 2019 and £30.1m at 30 June 2019. Net debt is calculated as borrowings less cash and cash equivalents and amortised arrangement fees. In March 2020, the Company drew down the remaining £7.0m of the £45m Revolving Credit Facility to provide ongoing financial flexibility.
Free cash flow conversion was strong at 65% for H1 2020, vs 43% in H1 2019. In the prior period, cash flow conversion was lower due to the timing of Defaqto’s cash receipts across the year.
Free cash flow conversion is calculated as adjusted EBITDA, less working capital movements, lease payments, CAPEX, development expenditure, corporation tax paid and interest, as a percentage of Adjusted EBITDA. A reconciliation of free cash flow is provided in note 6.
OUTLOOK
Trading has continued in line with the Board’s expectation since the end of the period.
The Board remains confident of the Company’s strong trading and cash generation and continues to expect that 2020 full year adjusted earnings per share shall be no less than 11.0p (2019 FY: 13.0p).
Matt Timmins and Neil Stevens
Joint Chief Executive Officers
