XPS Pensions Group plc (406.F) Earnings Call Transcript & Summary

Good afternoon and welcome to the XPS Pensions Group plc investor presentation. [Operator Instructions] The company may not be in a position to answer every question it received during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I would now like to hand you over to Paul Cuff, CEO. Good afternoon, sir.

Hello. Good afternoon [indiscernible] myself. Thank you very much for joining. Thank you for your interest in XPS. We're going to canter through a little bit about the company's data at a high level to give you a good introduction. I'll keep an eye on the poll to see how many of you are shareholders, but of course, there might be a little bit of a mixture of sort of knowledge of the company, so we will cover some of the basics first. [Voting]

If we crack on, briefly: Who are XPS? Well, we are a company that does all things workplace pensions in the U.K. And I'll expand a little bit more on our different service lines in a moment, but just in terms of the history and scale of the business, you can trace the origins of XPS back around 40 years. The company, as it is today, came into being in 2018 with the merger of 2 firms to create a new brand in our market at that time about 5 years ago now; and that was a real fresh start for our business. And over the last 5 years, as we'll talk about today, we've been investing quite heavily in the business and producing some really fantastic results now, as the strategy that we've been pursuing has paid off. In terms of scale and locations, et cetera. We're all over the U.K. We're in all corners. We're in the South East. We have an office in Bristol, in the Midlands, in the North. We've got 3 offices in Scotland and in Northern Ireland as well, so we serve pension scheme clients and employers in local markets all over the U.K. We employ a little over 1,500, nearly 1,600, people today. We are main market premium listed on the London Stock Exchange, have been since 2017. And we're a high-quality firm in our market. We'll tell you a bit more about this, but we're very proud to win lots of awards not just for what we do but also for our culture as well. We are an extremely employee-centric organization, and we'll talk a little bit about that today as well. So what do we do? When I say we do all things workplace pensions, well, that means pensions that companies provide to their employees. We do everything that's required to look after, run and maintain them; and there's a lot of work involved in that. Now you can break it down into 3 kind of core headings. And this is true for defined benefit pension schemes, defined contribution pension schemes, all sorts of varieties and in-betweens, et cetera, but essentially the first thing that we do is we try to make sure there's enough money in pension schemes to pay people out for their retirement benefits that they've been promised. In defined benefit schemes, that's what actuaries do, try to make sure there's enough assets in a pension scheme to pay everybody out in full in time. The second thing that we do that's sort of related to that is help people to decide where to invest the money that's been set aside to, one day, pay people's pensions. And we do a lot of advice around asset allocation, advice about how much of that might be in stocks and shares, how much of it might be in bonds and so on and more complicated things like how much of it should be hedged, et cetera. Of course, it's quite topical because our advice here relates in part to LDI, which was obviously in the headlines quite a lot last year which kept us extremely busy. Now the third thing we do. Those 2 things are a lot of consulting work, a lot of financial modeling. We also deal with the actual human beings in these pension schemes too. And we do the administration for over 1 million people in the private sector in the U.K. now who are members of pension schemes. And that involves keeping records, keeping in contact with them throughout their life as they move home, as they change jobs. Eventually, as they retire, we put the pensions into payment. And it's quite complex to do pension scheme administration, so clearly a very responsible task. We look after very sensitive data. And we provide great technology to people able to access online information about their pension schemes and so on and so forth, but at the heart of it, we are all about trying to make sure members are well protected and get the pensions that they deserve and that they've invested in with their employers over their working lives, so it's a hugely societally important role that we fulfill. Now these divisions. We do report numbers based on these sub-divisions, our actuarial and consulting, investment consulting and pensions administrations divisions are generally involved in the activities I'm talking about above. For many clients out there, we'll do all of these services, whilst some of them will do just one. We're fairly happy either way. Clearly, the more that we do, the better, but our strategy ultimately is simply described as to be the best provider of services to the U.K. pensions market. So being a one-stop shop that can do everything you need if you are an employer or a pension scheme trustee tasked with looking after and running world-class pension provision for your people. Now a little bit more about what that means. So a pension scheme, whether defined benefit or defined contribution -- but let's talk a little bit about defined benefit schemes because a lot of our client base are defined benefit pension schemes. They have their current and former members, and the governance structure works at the company ultimately funds the scheme. It writes the checks that build up the assets over the years, to one day, pay out somebody a pension promise that they receive based upon how long they worked for their employer and what they were paid when they worked there. Now independently of the company, a group of trustees look after the pension scheme and make sure it runs properly and make sure the company puts in adequate funding and make sure that everything works as it should, so they are sort of on the opposite side of the table, if you like, in the governance structure to make sure everything works well. Now those 2 parties both require lots of advice and support. So the trustees' primary responsibility or legal responsibility is to make sure that members are properly protected. And they need the services that I've just outlined on the previous slide. Every pension scheme must have a qualified actuary giving advice about the adequacy of the funding of the scheme. Trustees must take independent investment advice about where to invest the assets. It's a regulatory requirement [ that you get ] professional qualified advice to do that. And every pension scheme needs proper administration. Again the trustees oversee that, that is done well and that members receive a very good service. There's wider advice. There's things like scheme secretarial work, keeping the records and organizing all of the meetings and regulatory filings and correspondents and so on. There's other work in terms of advising the strength of the underlying company, so-called covenant advisory work. And actually I could have added another 10, 20 green boxes under there or services that the trustees need, but these are arguably the core ones. The company needs lots of advice too. They need advice about controlling the risks associated with their pension scheme. They need to know that the trustees are not, say, being too cautious, demanding too much funding too quickly and so on, so they need their own actuarial advice as a counterpoint to that being provided to the trustees. Companies will want to think about benefit design and communications with members and trying to give them world-class pension schemes for their current employees. A lot of that these days is defined contribution. There's lots to be done. They'll need it right if they're considering M&A. Maybe they're buying a company that's got a pension scheme. How should they allow for it? What if there's a deficit in the defined benefit scheme? [ That must make ] the company worth a little bit less and so on. Not-so-careful M&A advisers need it. And of course, you've got to account for all of this. It's all got to be put through the P&L and on the balance sheet, so we again provide services that do that. So you get a sense that there's a lot of work involved. A lot of it is regulatory compliance-type work that simply has to happen year in, year out; and it's really, really important. The trustees need very high-quality services to run these schemes. And it's all under the oversight of the pensions regulator, who tries to make sure that everybody is doing a great job. Now as I said, we've got a really strong societal purpose. When you think of some of the unfortunate negative headlines around pensions over the years, probably the worst example, of course, is Robert Maxwell, back in the day, robbing the Mirror Group pension fund, but more recently we've had unfortunately challenging times where Carillion collapsed; or Philip Green at BHS, where the company pension scheme was left a bit high and dry when there was insolvency there after years of neglect really of the business and not -- no money going into the pension scheme but being dividend-ed out instead. We are the antidote to this. We are here to try to make sure pension schemes are well funded, are well supported; and that people get what they're due. Now you can imagine that does, therefore, keep us rather busy. And we'll say a little bit more about current market drivers that have driven such great growth for us recently in just a minute. Just in terms of how we work, we have open-ended engagement letters with clients. They're not time-based and there's no termination date for our clients. If we do a great job for them, we tend to keep them for a long time. There's no conflict in that in what we do. It's a little bit analogous to like being an auditor. However, there are no sort of conflicts between different services we provide. If we're serving the trustees, we are simply trying to get the best outcome for their members and it's as simple as that. Where we do repeat recurring work, so where we do the same things every year: certainly in administration. Most tasks happen on a daily basis. They're the same year in, year out, looking after people, the actuarial side. We have to do regulatory filings every year, accounting numbers every year. Where we do work like that, we often do that on the basis of a retainer. And the retainer will be an inflation-linked retainer that will go up each year in line with a prevailing inflation written into the contract, so we have very repeat recurring revenues at our heart, and a lot of it inflation linked. And our services are needed come rain or shine. And we'll talk about that a little bit more in a minute. And you'll see that makes us really fundamentally quite a bulletproof business even in times of wider economic turmoil. And indeed, actually, wider economic turmoil generates a huge amount of work for us because pension schemes reflect it and need a lot of support.

So just to introduce myself. So I'm Snehal. I'm the CFO at XPS. XPS as a brand is probably a little over 5 years old. And we've invested in creating a firm that is best for our people which in turn becomes the best for our clients. And we were the first firm in the history, 25-year history, of the Professional Pensions awards, last year, to win all 3 marquee awards, which is rated the actuarial firm of the year, the investment consulting firm of the year and administration firm of the year. Our technology also got highly commended. And in the Moneyfacts awards, our SIP business was voted the best SIPP provider. So we win such awards on a regular basis each year, which is -- certainly helps to boost our profile in the market. We have a very strong values-driven culture. Our people are highly motivated and they absolutely love being part of XPS. Our employee Net Promoter Score was plus 33. And I'll just give you a little bit of background into this, that to have a positive score is quite difficult. And to have a score of, say, between plus 5 and plus 20 in a professional services firm is considered to be very high, so we were naturally very, very pleased to achieve a plus 33 in the survey that we conducted last year. In a survey that we conduct every year ourselves, 98% of our people would recommend XPS as a good place to work, so that just sort of underlines the strong culture and the employee engagement that we have which translates into great customer service, which eventually translates into the really good set of numbers that you have seen. In terms of the market that we operate in, that's a very fragmented market. The total fees within this market are about GBP 2.5 billion. So doing -- this is firms doing exactly what we do. That accounts to about GBP 2.5 billion. It's dominated by the big three, which is the -- which is Mercer, WTW and Aon. And they are part of giant global insurance broking firms and naturally bound by the bureaucracy that comes with it. We're solely focused on the U.K. market, as Paul outlined. And being the only listed company in our space, we have access to capital and we're very agile in the face of market developments. With GBP 166 million of revenues, we still only have less than 10% market share and therefore a lot of room to grow. Now this chart only goes to sort of First Actuarial at the bottom of the screen, but it is sort of there is a long tail beyond that, so it is a very fragmented market. And has -- it has consolidated in the recent past and we think that it will continue to consolidate in the future. In terms of our client base, you will see that we have some very highly recognizable names as our clients here. And in terms of the diversification of the revenues, the biggest client that we have contributes to less than 2% of our total revenue. The top 10 contribute to less than 10% of our revenues. And with over 1,500 clients within the advisory and administration space, we benefit from the portfolio effect that, that generates, so we have a -- and we also have a very high degree of visibility on our revenues. More than 90% of our revenues are repeat or recurring. And over to the left, as I said, you could see the very recognizable names, which we have mostly won in the very recent past, and we continue to add to that.

So in terms of the investment case for XPS, just a few key features of our business model and our current position that we'd like to bring out. The first is that we are noncyclical. And I'll show you a chart in a minute to prove that, but our [ revenues ] are required, as I said, come rain or shine. You have no choice but to do the administration of the pension scheme year in, year out; no choice but to do your regulatory filings and compliance, so we're needed no matter what the economic backdrop is. Indeed we actually actively benefit from regulatory and market change. And over the last few years, there's been quite a lot of both and, of course, a lot of market volatility, last year's rapidly rising interest rates, rapidly rising inflation. That has a pretty profound impact on pension schemes, and clients need a lot of advice and a lot of support about what to do. And that's above and beyond the core compliance, so in our charging model, I describe those repeat recurring revenues that we might get a retainer for. When there's additional value-add advice, whether in response to a project like M&A or whether in response to market volatility, things that can't be predicted, we are then on the clock and we have charge-out rates. We bill our clients like lawyers and accountants on the basis of [ hour spot ] and time sheets and bills sent out at the end of the month. And regulatory and market changes just drive really high levels of activity. That's happened in the recent past. Our year that we've just finished was a very strong year with a lot of that in the background, but there is no sign of that abating. And we think we've probably got the next few years of regulatory and market change that we can see coming underpinning a lot of demand for our services. I've covered the repeat recurring nature of much of our revenue already and the inflation proofing because actually, the retainers themselves, they contain inflation linkage written into the contract so it's not a debate. It's just done and it's industry standard, so there's not a sense that you could go somewhere else and have something different. And our charge-out rates, we control. And in the last couple of years, we've pushed them up by double digits on each [ 1 April ] when they go up; and our clients have actually fundamentally been quite happy to pay that. We haven't had [indiscernible] clients about pushing our rates up in that way, so quite bulletproof in that sense too. Almost everything we make turns to cash, and we are a people business. We have pretty low spend on CapEx. We do invest in technology. And we might talk to you a little bit about our administration technology in a minute, but generally you're talking single-digit millions that we spend on CapEx against a backdrop of GBP 165-plus million of revenue that we disclosed for our last full year, very high cash conversion. We always get paid because, even if the employer is reluctant to pay us because they want to hang onto cash and they're trying to squeeze their suppliers from a cash flow perspective, we get paid out of the assets in the pension scheme, anyway, if that happens. So we have pretty much 0 bad debt and we always get paid for what we do. Low capital requirements, I've touched upon. We have a very strong competitive position. Snehal showed you that chart. As the biggest independent firm in our market, we compete, in particular in advisory, with 3 global firms in Mercer, Willis Towers Watson and Aon, who for various reasons are not wildly popular these days in our market. And being a differentiated pure-play U.K. firm really does resonate, and indeed it does for some of our mid-tier competitors too. Those middle firms on that chart are generally all having quite a good time, a little bit at the expense of the biggest firms. In administration, we compete with names like Equiniti and perhaps more [ presently ], Capita, who of course have been on the front pages of many of the newspapers recently for huge data issues, a lot of which affected some of their big pensions administration clients. And we stand to gain when things like that happen as well. Now finally, operational gearing. I can see we've already had a question. Thank you, [ Mark A. ], for your question. We'll come to operational gearing in a moment in more detail, but operational gearing is emerging in our business through various initiatives again that we've invested in. And you can see that, last year, our earnings per share and EBITDA grew 24% on 20% revenue growth. And we expect that general pattern of profit to grow quicker than revenue in percentage terms to be an emerging -- well, constant feature now of our business into the future. And we will probably say a little bit more about that in just a minute. I've said our services are needed through every backdrop, and here's the graph that proves it. These are the revenues of Xafinity, one of the legacy businesses that became XPS. The big leap in 2019 is the combination of the 2 businesses, but you would see the same for the -- both of the businesses underneath this. We have grown through every single thing that the world have thrown at us, whether it was the tail end of the credit crunch -- and by the way, if you roll this back to 2005: We grew every year through credit crunch too, both through austerity, through Brexit, through a global pandemic, through war in Ukraine. Whatever it is, our revenues have grown organically every single year, year in, year out through all of that. And that nicely, if you can see at the end, is almost all organic, where some of the investments we've made as we've been that bigger firm since 2019 have really paid off. And we've been able to provide a wider range of services to clients; and indeed have won a few nice clients, big clients, along the way as well. In terms of market drivers, there's a lot, okay? So you'll all have seen, I mean, last year the mini budget, everything else. We were already against a backdrop of a lot of regulatory change coming through in our industry. And the way defined benefit schemes are funded, that is the rules and regulations about how much money you need to put in and when; the balance of the interests of the pension scheme versus, say, shareholders and banks; should shareholders get a dividend if the pension scheme isn't well funded or in deficit, these are the really fundamental questions coming out of the scandals of BHS and Carillion and those before, so we were already wrestling with that and dealing with that and very busy helping our clients to adapt to all of that. And then against that backdrop, you get all of the market turn and all that happened last year. And interest rates were already rising quite significantly. Inflation, of course, was rising a lot throughout the calendar year last year. Then we had the mini-budget debacle, massive spike in gilt yields very, very quickly. And these things just profoundly affect pension schemes. And some of them, perhaps counterintuitively, are really good for pension schemes. Rising interest rates even through the LDI crisis is actually, on the far side of that, really good for them. Most of them saw a better financial position because higher interest rates mean that value placed on their liabilities drops quite a bit, but the key point for us is they just had loads to do. Their asset portfolios might have needed rebalancing and changing, and hedges needed adjusting. Things like high inflation have profound impacts on pension schemes that typically offer members a benefit that's inflation linked but subject to a cap, so you've got pension trustees out there very anxious about the fact that the real incomes of some of the members of those schemes is being eroded. Their purchasing power is going down. What can we do about it? How can we adjust and change? And against this backdrop as well, there's just lots of other things. I haven't even mentioned yet something called GMP. I shan't trouble you with what GMP equalization is, but essentially it boils down to men and women in pension schemes not quite being treated equally over the last 20, 30 years. And it's a very technical topic, but sometimes men have been treated better than women, sometimes the other way around. It depends on very specific circumstances of each scheme, but there was a court case a few years ago that ruled, although this was not very material and not systemically biased towards one gender or the other, it was nevertheless illegal. And we all needed to adjust our pension schemes and run them slightly differently and make back payments to people. It's slightly analogous to something like [ PPI ], although nobody has really done anything wrong here. It's just the way that the legislation has evolved over time. What it leaves us with, though, is the need on behalf of our clients to put through remedies for this. And we did millions of pounds of work on GMP last year. And we've got a pipeline of many more years ahead to fix these pension schemes and give people backdated payments and so on and so forth. And again, in our industry, these things are -- they're just huge. And they underpin a demand for our services that we see continuing for quite some time. Now against this backdrop, our main challenge is people and trying to get brilliant people in our industry because our competitors face the same challenges that we do -- or rather, the same opportunities that we do. And some of them will be growing quite well, but that's where our culture matters. Being a great place to work matters, and I think we've done a pretty good job there. And actually we're [ seeing that ease ]. Our staff attrition is quite low. We've been able to hire brilliant people from some of the other firms that we compete with in recent years, and that again has really helped to fuel the growth. And it is part of our story that, 5 years ago, XPS was relatively new. These days, we're able to hire people from places like Aon and Mercer, senior partners there who think, frankly, it looks like an awful lot more fun working for a firm like us than for the giant U.S. multinational and so on. And again that's been a really important part of our story and the growth that you can see coming through.

So -- hang on. Sorry...

All right. No, I've set it for you.

Thank you. So in terms of the financial performance for this year ended March '23: 20% revenue growth, 17% of that organic. Now Paul mentioned that all of our contracts have inflation linkage in them, but into the -- of the 17%, probably about half of that was linked to inflation. And this inflation linkage kicks in every year on the anniversary date of the -- anniversary of the contract. And then therefore, there is a lag, so when you see the headline inflation rate, it will come through into our contracts a few months later. So we will still continue to see a good benefit of inflation linkage into this year, but the other half of that 17% was therefore driven by doing more for our clients. We didn't actually win a lot of new business in the year, but we did an awful lot more for our existing clients. And that is because we have the full suite of services that our clients could need and want. So -- and then in terms of the adjusted EBITDA. So how much of that revenue growth did actually convert into operating profit? That grew by 24%. So this is the point about operational gearing. We have started to see that come through in the past. When we were investing in our business, investing in our people, capabilities, the growth in EBITDA had lagged revenue, but now we are growing EBITDA faster than we grow revenues. And that will be a trend that will continue into the future. Adjusted diluted EPS is one of the key metrics that the market assesses us by, and that has grown by 24%. So again, all of the EBITDA growth has flowed through to the bottom line and growing shareholder value. What does that mean for dividends? 17% growth in dividends. Ever since we listed in 2017, we've had a progressive dividend policy, which at times has meant that we've paid 2/3 of our adjusted profit after tax. And we've continued to pay dividend through all of the times, even the pandemic. We in fact raised the dividend. And we were one of the very few companies to have paid a dividend without taking any government support or furloughing any of our people during the tough times. In terms of OCF conversion. So this is how much of the EBITDA converts into cash. And as Paul said, we hardly have any bad debt write-offs; and [ we have a ] very high conversion. So you can see 99%. And in terms of what the market expects that -- between 90% to 95% is expected despite having growth in revenues as well. We have had debt, and -- but we are on a firm path to deleveraging. The leverage came down significantly, including the acquisition that we did in the year of Penfida, paying out a cash consideration of about GBP 8 million, with a further consideration to pay if the business performs as expected. And that leverage will come down very significantly. We will talk about our recent announcement to do with the NPT sale in just a moment, but just to give you in terms of what the market expects in terms of the future, because obviously this is history: Revenue growth, to some extent, will definitely depend on what the inflation rate is in the future, but consensus, which is published on our website -- 5 analysts cover our stock. All of the analysts have us on a buy or outperform rating. And you can see the next sort of 2 years worth of consensus numbers on our website. Revenue is forecast to grow, on consensus, at 14%; and EBITDA growth is ahead of that. And here's a reminder that the corporation tax rate obviously goes up this year, which will sort of account for a slower growth in EPS, but once you normalize for the tax, EPS is also expected to grow ahead of revenue in the next couple of years. Now on to the next slide. So doing the right thing is our core value, and it underpins our sustainability strategy. And we've continued to make very good progress on all 5 pillars of our sustainability strategy. And you can find a lot more detail on each of these in our annual report which was published last week. Now some of the highlights to pull out. So we remain a signatory to the FRC stewardship code. Now this is a very high bar for companies operating in the investment space. And we're aligned to the principles of responsible investment, and with over GBP 100 billion of assets on our -- under our advice, we have a key role to play in the responsible deployment of capital. And we're not the biggest of emitters in terms of carbon, but we continue to reduce our operational emissions. And we remain sort of net carbon neutral on all scope 1, 2 and 3 emissions. And we have set out our net 0 ambition, and it is to achieve net 0 a lot quicker than the U.K. government stated ambition. We protect pensioners through our anti-scam service. And we oversaw the transfer of about GBP 1.8 billion of pension assets, protecting more than 8,500 members. And we do a huge amount for our employees and their well-being. We support a variety of charities chosen by our people and we provide volunteering opportunities, so the thing to say here is that we're a purpose-driven organization and we have a strategy to grow responsibly and sustainably.

So to bring it all together. We have had a record year. We're very, very pleased with the performance of the group last year. It got generally stronger the longer the year went on, each quarter better than the one before. And we're very pleased with the start of the year that we've just had as well, where we continue to carry some really positive momentum. Revenue growth at 20%; under half of that being inflation, so some really good revenue growth in excess of that driven by a lot of client demand but -- the services that we have developed over the years, really then being able to deploy them services above and beyond just core compliance work. And yes, that's come from years of investment in terms of the strength of the offering that XPS has. And the brand position of the business now, as Snehal was mentioning, are quite remarkable. To be the firm that was a little bit of an unknown quantity 5 years ago, to be winning every single award in our industry on the same night, the first firm ever to do that, really reflects how the world sees us at the moment: a little bit on the charge; and the investments that we've made really, really paying off. There is lots of operational gearing. I can see in the Q&A there's a question about that. And we'll perhaps unpack that a little bit more in a second, but we're doing lots on that front. We expect there to be a lot of continued high client demand as well for our services because of everything you read. Front page of the FT, very frequently these days, is related to the government's latest desire to try to get a bit of reform through the pensions industry in order to get more money invested in growth assets in the U.K. and so on. Whenever you read a story about that -- like that, think of us because it's our clients that are impacted by that, and our clients that will need lots of advice and lots of support should there be significant changes in regulations and so on coming. And we think there will be. The profound changes in interest rates and inflation take years ultimately to work through the system too. And the dust hasn't even settled on what happened last October. We are still supporting clients today about what to do in the fallout of all of that and just the paradigm shift that there's been, so it really is a very, very good time to be us. And we feel very bullish about the future that we can see in the short to medium term, for certain, and we're very excited about just what opportunities we've got in front of us. I haven't covered the recent little disposal that we announced. I will do that in the Q&A, but I'll open up the Q&A now.

And I can see we've got one, as I say, [ Mark A ]. Snehal, perhaps you might like to [ knead off ] a little bit maybe on the admin platform. And we'll talk about sources of gearing within the business. So let me read out [ Mark's ] question. It says, "Can we expect to see similar levels of revenue growth moving forward of around 20%? And how operationally geared is the business from these levels of revenue?"

So in terms of the revenue growth, [ Mark ], as I said, the -- it will depend on what the inflation rate is in the future. And we have proven our ability to be able to pass on inflation. In certain parts of the business, we do put up our charge-out rates every year -- actually, not in certain parts of the business, all across the business. And we are seeing that more of those increases in the charge-out rates are sticking with our clients when we do time and materials work, as opposed to the fixed-fee work. And the level of growth that we have seen, the 20%, 17% of that was organic. And as I say, half of that was linked to inflation, but with the continued demand that we see for our services, as you can see, that -- consensus has revenues growing at least 14%. And if you look at the history of how XPS has performed against consensus, we have either met; or in the more recent past, actually exceeded consensus. We've had the analysts upgrade our sort of revenue and profit growth 4 times in the last 12 months, so the philosophy that we certainly have is underperform and overdeliver against that. In terms of operational gearing -- sorry.

Underpromise and overdeliver.

Sorry. Underpromise and overdeliver, yes.

[ At things that underperform ]...

Sorry, Freudian slip there, absolutely. The operational gearing point: So you saw that we grew EBITDA faster than our revenue this year. And there is a lot of operational gearing. One of the key points is the administration platform. And another key point is the bonus, which Paul can sort of unpack. The administration platform, currently we have 4 external systems that we use, and we pay away between GBP 3 million to GBP 4 million a year to use those systems. In June this year, we launched our own platform. We've developed that over the last 18 to 24 months; and that will, over time, significantly reduce that pay-away. By FY '26, we will be off all of the legacy platforms, onto our own Aurora platform which is best in class. And it's certainly helping us win a lot of new business, but that will continue to drive a significant amount of operational gearing into the future. In terms of other initiatives such as -- and sort of having a team that is dedicated to a standardized task which is performed by school-leavers rather than graduates on a path to becoming actuaries reduces our cost base. And it also brings about more efficiencies into the -- into our work streams. We're also quite strict about our -- sort of the amount that our clients pay. We regularly review the roster of clients and the -- sort of the clients which are at the bottom end of that scale in terms of recoveries, and we have an honest and open dialogue with them. Either we do less for the amount of fees that they pay us, because we are now a premium-listed firm, so a premium firm in the market, and -- or we find them an alternative home, but the point is that the resource that gets freed up from those clients will be doing a lot more profitable work. So these are such as some of the ideas that -- some of the reasons why we think that operational gearing will continue into the future. And consensus certainly sees us improving our margins into the next 2 to 3 years.

Just going to pause and encourage any further questions and -- to come in. While we're doing that, I will talk just a little bit about a disposal that we announced a few days ago that -- 1.5 weeks or so ago now, I think. We have -- within our business, we own something called National Pension Trust, which is a master trust. It's a defined contribution pension scheme. What a master trust is, is if you're an employer and you want to have a world-class pension scheme that looks like it's branded as your company pension scheme and give that to your people, you can do that on your own, but it's quite expensive to set up all the infrastructure and the technology and the administration and so on. If you're a Tesco or a Sainsbury's, maybe you might choose to do that, but if you're a medium-sized employer, it doesn't really make any sense to do that. What a master trust does is create all that infrastructure and allows white labeling a section so multiple employers who can share the infrastructure show their people a fantastic pension scheme that they're members of and have it feel like the company's pension scheme, but under the bonnet, it's actually a sectionalized scheme run for the benefit of multiple employers who then get the benefit of the economies of scale that come from that and the purchasing power that comes from that on the asset side as well. Now the master trust market is quite fragmented. There are 30 or so of them in the market. I think most of our industry thinks that, in time, there will be somewhere between 6 and 10 large master trusts in the future. The other players in this market include people like Standard Life, Legal & General and 1 or 2 other big players. NatWest bank even have recently made an acquisition in this space. Now National Pension Trust, for us, is pretty small. It does about GBP 4 million of revenue out of our GBP 166 million and a bit, so it's a small part of what we do. And it does, competing with those people with very deep pockets, probably face a slightly challenged future. Now what we've announced is that we will sell National Pension Trust to another firm that's in a similar position. They have their own master trust, a firm called SEI, but they are a much bigger firm than us. They're NASDAQ listed, market cap of about 8 billion. In the U.K., they have a master trust a bit like NPT. And they do want to invest and compete and try and hoover up assets, for that is their business. They are an asset accumulation business and technology business. This makes perfect sense, but what it has led to is us receiving what we think is a fundamentally very, very strong price for NPT because it is of such strategic significance to our new partner. But not only have we sold it to them. We have also signed a long-term contract with them to be the service provider to that master trust. They're now bigger, expanding ones, so we will do all of the administration work on the NPT part of it and possibly on the wider master trust in the fullness of time. And if that grows and succeeds and is 1 of the final 6 to 10, XPS will have one of -- probably our biggest client when that all comes through, so we're not leaving the market for master trust, but we are receiving a good price for what we've got and signed up a really fantastic new client who we hope will be really successful. And we will support them in that. In terms of the economics, you'll see from the release that we put out GBP 4 million of revenue, generated about GBP 0.9 million of contribution to EBITDA last year. We have -- we will receive, when the deal goes through, GBP 35 million for it, so it's an extraordinary multiple of the profit that it's generating for us. And that profit -- sorry. That consideration could rise, as high as GBP 42.5 million, if certain new business targets are met on the far side of the deal by SEI. We also, as I say, have a really good contract with them that will replace quite a bit of the GBP 4 million of revenue that we otherwise would have lost, so for us, win-win. And our profit barely changes for this deal, on the far side of it, but we will have GBP 35 million less debt when we receive a check later this year should the transaction go through. And it's subject to regulatory approval, but we believe that approval to be something of a formality, so on that basis, it's been a -- that will be a very positive transaction for us. Our balance sheet will be very strong at that point. We will have very low debt, indeed even lower than we've been trending to already. And it will leave us in a position to deploy some capital in areas that, I think, will generate a higher return for us than owning NPT was ever likely to with the amount of investment that was probably going to be required into it, something that we were not really willing or able to do. So I think overall for the company -- so although it might seem like a relatively small part of the business, the transaction that we've announced is really, really very good news; and will set us up again to continue our ambitions in our core markets.

And related to that, there's also a question from [ Tom ] about the long tail of companies in the sector and sort of thoughts on M&A to strengthen our position. So [ Tom ], the -- in the sort of last 5 years, we have completed and -- obviously the acquisition of the Punter Southall business, which was a transformational acquisition back in 2018; and then 5 other deals, deploying about 26 million of capital in those 5 bolt-on deals, which have given us a return on capital of about 19%, so far. And that is likely to grow. Those acquisitions have all been very strategic in areas where we as a firm saw the merit in sort of growing quicker by acquisition rather than organically. And we now have all of the core skills that we need and the capabilities. And we've also invested organically in areas such as risk transfer which tends to be very high margin. And so we don't necessarily need to go and do another bolt-on deal, but so the -- but the bar for the M&A would be that much higher because the organic opportunity is that much bigger. But we never say never. M&A is part of our strategy and we will continue to look at the market. And with the sale of NPT and a healthy sort of share price, we should be -- we would have stronger currency to engage into any further M&A.

I can see a little flurry of a few more questions. And I've got a question here from [ Saf P. ]. Thank you for your question. It says several of the Board members have sold significant amounts of their holdings in the last year. What's the rationale behind the sales? Has growth peaked? I should take that, but it's true that, if you look at the director dealings that -- my co-Chief Exec and I both did sell some shares fairly recently and very open and happy to talk about why we chose to do that. And it certainly isn't any sort of negativity about the future of XPS. The truth is they're shares that both of us have owned since we were private equity owned as a business many moons ago. So I've owned those shares for -- gosh. Well, Ben has owned his for 10 years or so and I've owned mine for about 8. We've held onto them throughout all of that period post our IPO and so on. I shan't divulge too much information, but it's fair to say that essentially my job and all of my future incentives, bonuses, LTIPs, et cetera are in the same place as my shareholding. And I don't have lots of savings outside of all of that. And we do talk to clients about investment strategies, and putting everything you've got in one stock is not generally considered a good idea. And I'm sure those of you on this call have got portfolios that are diverse rather than all invested in one place. And that's simply all that's behind that, to sort of derisk the personal position a little bit but with a huge amount of incentive and equity still held between the exec team -- and still retained more generally, didn't sell out all of the holding by any means, simply derisked the position a little bit. I think the future for the company is fantastic. And yes, if it helps you sleep a little bit better at night knowing that every egg is not in the same basket -- but more fundamentally, we're very excited about what the future holds, as I'm sure you'll gather. So thank you for that question. Very happy to confront it and answer it. Just briefly. There's a couple of questions about the will XPS benefit from the so-called Mansion House proposals designed to increase investment in U.K. small-cap stocks. And a very timely question. There's a lot of debate in our industry. And the simple answer is yes because any change that's forced through our industry is generally good. Our clients have to respond. They have to do something differently and they'll need to get advice if that happens. And there's a lot of debate about exactly what should happen. We're an active participant in this. And indeed we were at a private dinner yesterday with some senior people in our industry that was hosted by the Bank of England and were talking to them about our views about how we might revive a little bit the U.K. equity market. The answer, by the way, we think, is really in defined contribution pension schemes rather than defined benefit, but there is a lot that could be done to drive more investments in the U.K. equity market but have got wider return-seeking investments in the U.K., liquid assets, venture capital smaller start-ups, all sorts of things that pension scheme money could be put to better use on. And I hope the government will ultimately listen and adopt these changes because it will be for the good of all of us in the U.K., I think, if they do. And it will keep us very busy implementing whatever changes might come through, so I think that's a good thing. There's a couple of sort of related questions here. I guess, first of all, how do we manage litigation risk? And how do we mitigate it? We have very, very low levels of claim. And of course, we have high levels of professional indemnity insurance [ in ] professional services. Of course, it is a fact of life, but occasionally you might make a mistake. And occasionally you might have a litigious client. It's very, very unusual; and if we do make mistakes, then they're resolved very well. The main thing is that we -- our advice is only ever advice. We are never crystal ball gazing. We're never calling market movements. We're not active traders. We give people advice; and show them ranges of outcomes; talk about alternatives; and discuss that, "There's always risk in whatever you do," and with well-delivered advice like that, that still says, "Look. At the end of the day, if I were you, I would do this." But its caveat is clients really, really appreciate that; and are very, very unlikely to blame you if things happen in the market that nobody had quite foreseen. So we are generally very well protected even though we're giving advice about quite a significant amount of capital decisions made around that. Of course, we occasionally might get the odd thing wrong in administration. You can make errors when you're doing the administration of 1 million people. Things will happen, but that again is common feature of our industry. We're protected partly by insurance and just very strong relationships with clients who understand that and recognize that you are giving 99% of the time a terrific service. And we talk to our people. It is not so much about making mistakes. Everybody will. It is about what you do when you make them and how you front up and own it and deal with it. And I think, yes, we have rare, rare occasions we've had issues. Actually I've had clients come to us afterwards and saying, "We're more likely to use you in the future, for the way that was handled. We've seen 1 or 2 people in your industry try and sweep things under the carpet," and that's something we would never ever do. Let me ask one more before you might take the one on SIPPs now, but just...

Yes.

I guess, are there more LDI-related industry still to come in, in the pensions industry? I can spend a long time talking about LDI. I -- well, of course, you hear -- all the headlines last year. LDI has got a bad press [ in many plays ] because it's been with us a very long time. And it has been hugely important in stabilizing the U.K. pensions industry, where 20 years ago, you had some really horrendous outcomes quite frequently where companies went bust and left pension schemes high and dry and members didn't get anything like their full pensions: the infamous case of ASW steel in South Wales, where people had worked in steelworks for 30, 40 years. And a week before their retirement, company went bust; and they got nothing despite having been in the pension scheme all along. And those things are terrible. And we've got the Pension Protection Fund as a response. We got a new pensions regulator. We got these funding rules that have driven a lot more capital into pension schemes and generally massively improved the governance. And really, throughout my career, that's why I've experienced this. It's just everything improving in that direction. And LDI, what LDI does is try to actually stabilize the financial position pension schemes by hedging the critical risks that they don't get rewarded for. [ It's everybody ] trying to make sure that -- if interest rates fall, which in particular is a problem for pension schemes, that their assets move up as well so that things tend to move together like this on the assets and liabilities, instead of like this, which is where you can get huge problems if big gaps open up. So LDI did very well for a lot of people for a very long time, and it's stabilized and protected a lot of positions. Of course, when interest rates rise as quickly as they did in a matter of a few days, LDI structures came under some pressure, but you shouldn't forget that underneath it the liabilities of a pension scheme were generally still falling more quickly because they're related. They're linked to these long-term interest rates too, so yes, it was a bit of a solvency boom. Everything got better for pension schemes overall, but along the way, some of their financial instruments that they were using to protect themselves came under quite a lot of stress and hit quite a lot of headlines. And 1 or 2 pension schemes lost a little bit but were net up. They effectively might have gone from the score of 90 out of 100, for solvency, to 96; and then because their LDI hedge came off, went back to just 95. Perfectly -- it worked perfectly. [ They're just stuck ] at 96. My point is they were better off than they'd ever been had this whole thing never happened. And in the industry, people are quite -- do recognize that and are sanguine about it. We have no claims or complaints at all from our clients about the advice that we gave them during the crisis. A lot of our clients were invested in LDI, but our clients understood why it wasn't speculation. It was actually risk protection. And again I think we've come out of it somewhat smelling of roses because we gave very high-quality whole-of-market advice. We advised our clients in the summer, before it happened, that there was a potential risk; and helped them to try to get ready for it. And out the far side, what we're now seeing is some of our competitors, especially those that have conflicts where they also provide LDI funds directly and recommended them to their own clients, which we've never done, where they sold them their own products that then didn't work very well and so on and got themselves into a real tangle. So I think there are some LDI issues out there for the funds themselves. And any consultants that sold clients their own funds may find themselves in trouble, but we are not in that, though. And actually what we are seeing is a lot of new business opportunities in investment consulting, as we are seen as the good guys who have shown. And people are leaving some of the people that they have problems with, now that the dust has settled, and looking for that whole-of-market independent advice. So no, net-net, the LDI crisis was just generally very good for XPS. And again it's another thing that we do see it creating further opportunities for us going forward now because it gave us a great chance to differentiate ourselves, which we really did.

Yes. So in terms of the -- a question from [ Jason ] about which area of the business provides the highest margin and a bit about the SIP business. [ So we can ] appreciate that, the only listed company in the business, we are sensitive to publishing sort of divisional margins, but I can guide you that the advisory business, which consists of the Pensions Actuarial and Consulting and Investment Consulting, produces the highest margins. And this would be sort of in the high 30%. Administration, as the name suggests, is it is sort of more of the "turning of the handle" type work; and that would be margin in the teens and sort of sit -- would sit somewhere in-between. It is a profitable business for us. It generates just over 9 million in revenues. After the acquisition of Michael J Field in that space, we have critical mass. We are on the panel for St James's Palace (sic) [ St. James's Place ], which has -- there are 3,500 IFAs and we're only 1 of 2 on that panel. And so whenever they -- a client of SJP IFA wants a SIPP, we -- they would recommend 1 of 2; and we are 1 of those. So it gives a distribution network that we've never had before. And also, our sort of -- SIP business is award winning. It has the flexibility that some of the other SIPPs don't offer such as earning property in the fund, et cetera. And it continues to grow organically as well as inorganically. Paul, I wonder if you want to sort of finish off with -- there's a question about the regulatory landscape and how that might give us benefits in the future and if we have any plans to expand outside of the U.K.

Yes. So I mean the regulatory landscape is very positive for us, as we say. The -- we do have something called a new single code of practice next April, and that basically sets out the rules about how pension schemes should be funded and this balance between the interests of different stakeholders. It's been years in the making. It's come about after Philip Green, BHS; and after Carillion; and so on. It's -- got stuck a little bit, but it will be here next April. It got stuck because treasury has intervened to say, "Actually, we'd like something in here about the agenda of the U.K. more widely and growth," and the role that pension schemes can play. And that's what this debate now is raging about, but we will have a new code next year. It will affect all of our clients. They will all need a lot of advice when it arrives. Between now and then, though, we are obviously not sitting on our hands. You can see that. We've got market turmoil everywhere. The long-term inflation change, interest rate change, as I said, [ that echoed on the years ], it's underpinned by other things like GMP which we've got years worth of work to do. We haven't even mentioned that in the public sector there's another rectification issue, something called the McCloud judgment, which again essentially says that members of public sector pension schemes have not received the right benefit under the law and need to get a little bit of rectification and in some cases back payments. That is absolutely huge. We do the administration for half of the police forces in the U.K. All of them are affected by McCloud, and we expect to do a lot of work for them on rectifying that and so on and so forth. I could go on, but whenever you see a story in the newspaper, whether it's front page or whether it's buried somewhere in the corner, scrapping of the lifetime allowance recently, et cetera, always think that, that will affect us. And it will always, I think, always, affect us positively. I've never seen anything that hasn't, in the sense that we've just got to go and give lots of advice on top of our ordinary core services. And there's a lot happening there. In terms of expansion, Snehal has covered M&A already. I shan't go back over that. We don't have plans to expand internationally because our core skills, our core market is very U.K. specific. There are nasty pension issues in other countries, in Germany and the U.S.A. None of them, by the way, have a system as complex or as difficult as ours, but there are already firms in those markets doing well and serving them. And I don't think it would be a great use of our capital to go and try and compete with them. And M&A into those territories doesn't make a huge amount of sense for us, so we are keeping it simple and on the straight and narrow that we've got a tremendous opportunity in front of us in the U.K. market. We're incredibly well placed, 5 years into our journey, as something of a premium brand now in the market. We've developed a lot of services to be able to meet the needs of our clients that are really paying off, and you can see that in the growth that we've got. And we think, with a deleveraged balance sheet as well coming through now, we are a really, really great place to be. We've got options on M&A, but as Snehal said, we've got a tremendous opportunity [ to deliver ] returns organically as well. And we're in a luxurious position really where we can [ pick and choose things where or what ] exactly the best route is to exploit the great opportunities that we see in front of us at the moment. So I think, with that, we are 2 minutes to 3:00. Thank you very much indeed for the many questions that we got. We really appreciate those. The engagement has been great. I hope you enjoyed it. We'd really welcome some feedback. I think there's opportunity to give a little bit of feedback at the end. We'd hugely value it. We hope it's been a useful conversation, though. And I'll hand back over to our host.

Yes. Paul, Snehal, thank you for updating investors today. May I please ask investors not to close this session, as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete and, I'm sure, will be greatly valued by the company. On behalf of the management team of XPS Pensions Group plc, we'd like to thank you for attending today's presentation. And good afternoon to you all.

Thank you.

Thanks very much.