XPS Pensions Group Plc (LON:XPS) published its Annual Report and Accounts 2023 this month. Below are the highlights from the Co-Chief Executives’ review.
The resilience and predictability of our business model have driven a strong performance for the year and we are continuing to focus on our strategy to be the best provider of all services to the UK pensions market.
Sixth consecutive year of growth
A year of record revenues, record dividends, a strategic bolt-on acquisition, multiple award wins, a strong culture with excellent employee feedback sustainably delivered including carbon neutrality – shareholders would be forgiven for thinking they are reading last year’s Co-CEO Statement. There’s even another five-year anniversary to mention. It is true all the above were milestones achieved during the year ended 31 March 2022 but 12 months on and many of those same achievements have been repeated, and in many cases bettered. This is testament to the successful execution of the strategy we have pursued since we listed to deliver our societal purpose.
Record revenues: the year ended 31 March 2023 saw a record 20% increase in year-on- year revenues to £166.6 million, of which 17% was organic growth.
Record dividends: the Board is proposing a 17% increase in the full-year payout to 8.4p per share.
Strategic acquisition: this year we acquired Penfida, a leading covenant adviser to UK pension funds. Just as the previous year’s acquisition of Michael J Field brought scale to our SIP division, Penfida has done the same for our existing employer covenant practice. Together with our award-winning Administration, Actuarial and Investment Advisory divisions, XPS is now a one-stop shop of scale for all services needed by pension trustees and sponsoring employers.
Multiple awards: we won arguably the three most important awards at the 2022 Professional Pensions’ UK Pensions Awards – Third Party Administrator of the Year; Actuarial and Pensions Consultancy of the Year (second consecutive year); and Investment Consultancy of the Year (second consecutive year). This represents the first time all three of these categories have been won outright by one company in the same year – third-party validation of our continued excellence in client service and innovation. Our SIP business also won Best SIP Provider at the Moneyfacts awards.
Carbon neutral: for the second year in a row, our activities have been carbon neutral, just one example of how we strive to do business sustainably. This has been achieved through a combination of a reduction in our direct footprint and the purchase of high-quality carbon offsets. Fostering a strong and caring culture is another, and with this in mind it is encouraging to note that 98% of our people rate XPS a good place to work.
Fifth anniversary: 2023 marks the fifth anniversary of the launch of XPS as a new brand in the market with clear objectives to be the best for people and for clients. By developing content, investing in people and innovating consistently, our brand has grown stronger each year ever since, so that five years on we are reporting revenues of £166.6 million. Furthermore, this 60% revenue growth has been achieved during a period which included the pandemic, heightened macroeconomic uncertainty and decades-high inflation, evidence of our non-cyclical, all-weather end markets – our defined benefit (DB) and defined contribution (DC) pension scheme clients require our advice and services regardless of the prevailing economic environment. The progress made is also down to our people. Without their commitment and expertise, becoming the first company to win all three key awards at the 2022 Professional Pensions’ UK Pensions Awards while reporting a sixth consecutive year of growth would have been impossible.
Record financial performance Total Group revenues for the year ended 31 March 2023 came in at a record £166.6 million, a 20% increase on FY 2022’s £138.6 million. Of this, 17% of the growth was organic. The record revenues represent a step-change compared to the mid to-high single-digit revenue growth we have reported for each of the years since our listing. This is partly down to higher inflation being passed through to clients and onboarding of new client wins but is also due to a considerable amount of regulatory and market change – the two chief drivers of activity in our client base. The record revenue performance can also be attributed to the scaling up of our platform into high-growth areas – the product of investment in staff, technology and acquisitions to respond to these market and regulatory changes. Because of this, we are now able to service larger pensions schemes and offer a wider range of value-add services. The increased scale of our capabilities is being reflected in our financial performance, a trend we expect to continue going forward. In the past, the investments we have made in our business have meant growth in earnings has not outpaced revenues. Last year, we reported a significant narrowing in this historical revenue and earnings gap. We also stated that we expected this metric to improve further in the years ahead as our efficiency drive and investment into higher-growth areas increasingly translated into higher margins. This has proven to be the case with FY 2023 adjusted EBITDA increasing 24% to £42.4 million (FY 2022: £34.1 million); statutory profit before tax rising 13% to £19.1 million (FY 2022: £16.9 million); and adjusted diluted EPS up 24% to 12.6p (FY 2022: 10.2p). The improved profitability and continued confidence in future prospects has enabled us to propose a 17% increase in the full-year dividend, another record. Divisionally, Advisory (comprising Pensions Actuarial & Consulting and Pension Investment Consultancy) was the top performer with full-year revenues growing 26% to £95.4 million (FY 2022: £75.9 million), while Administration increased revenues 10% to £57.5 million (FY 2022: £52.3 million).
Pension Actuarial & Consulting revenues grew 24% to £77.4 million (FY 2022: £62.2 million) thanks to inflationary fee increases, new client wins such as BT Group plc contributing for a full year and elevated levels of activity centred around regulatory/ market-driven dynamics. Risk transfer work was a stand-out performer with revenues rising sharply to £6.4 million compared to £1.5 million the previous year thanks to big new mandate wins. This follows the appointment of a Head of Risk Settlement and further team hires in 2022.
Pension Investment Consulting has also been a beneficiary of new business wins. Increased demand from clients for support in navigating regulatory and financial market upheaval (including the gilts crisis in autumn 2022) has also been a tailwind, as has inflation-aligned fee increases. In all, YoY revenues grew 31% YoY to £18.0 million (FY 2022: £13.7 million).
Pension Administration revenues rose 10% to £57.5 million (FY 2022: £52.3 million) helped by new client wins including Peugeot and BAA and a full year of our outsourced contract with IBM. The wins saw the number of members we have under administration surpass the one million mark for the first time. We see further growth opportunities within Administration and continue to invest in our capability here. For example, this year we successfully developed our own proprietary Administration platform which, as well as giving us greater control, will drive efficiencies and differentiate us as we look to win further mandates.
SIP revenues benefited from a full-year contribution from the acquisition of the Michael J Field SIPP and SSAS books, as well as strong organic growth and the higher bank base rate. Overall, SIP revenues rose 54% to £9.4 million (FY 2022: £6.1 million). We continue to expand the distribution channels for our SIPP offering and we were recently added to the panel of recommended SIPP providers for St James’ Place, one of the UK’s leading financial advisers. We view our inclusion on the panel as a major endorsement of our SIPP offering.
National Pensions Trust (NPT), our defined contribution (DC) master trust, posted another year of growth in assets under management (AUM) which grew 8% to £1.4 billion (FY 2022: £1.3 billion), while revenues came in flat at £4.3 million (FY 2022: £4.3 million) driven by lower asset prices early in the financial year as well as competitive price pressures. Growth in AUM was driven by an increase in client numbers to 152 during the year but was suppressed a little by reductions in asset prices.
Four core strategic pillars to capture growth in our all-weather markets. Our markets are driven by regulatory and market change rather than by economic cycles – pension schemes require support to navigate the ever-changing regulatory/market landscape, which leads to increased demand for services and in turn market growth. Our markets are therefore all-weather and to capture the regulatory and market-driven growth, we have in place four core strategic pillars:
1. Regulatory change as a driver of activity
2. Growth through expanding services
3. Growing market share
4. Growth through M&A
Outlook
The FY 2023 results demonstrate the non-cyclical, resilient and predictable nature of our business and the opportunities for growth. Our brand has strengthened further in the year with multiple awards, we have won further new mandates and have achieved high levels of client and staff satisfaction. The investments we have made into high-growth, high margin areas are increasingly being reflected in our earnings.
We expect the demand for our services to remain high as we help our clients navigate the complex and evolving regulatory backdrop as well as economic and financial market developments. We have continued to grow market share, but with this still under 10% there are continued opportunities to grow, supported by both market and regulatory tailwinds. We expect the operational gearing that has come through this year to be a continued feature of our results in the future.
The Group has made a strong start to the new financial year with continued high levels of demand for our services particularly within Advisory and further success in winning new business. We remain confident in delivering against our expectations for the current year.
Paul Cuff and Ben Bramhall
Co-Chief Executive Officers, XPS Pensions Group
21 June 2023
