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

Good morning, and welcome to the XPS Pensions Group plc Investor Presentation. [Operator Instructions] Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to the management team from XPS Pension Group. Good morning.

Good morning, everybody. Thank you for joining us this morning. I'm Snehal Shah, I'm the CFO at XPS Group, and I'm joined by our Co-Chief Executive, Paul Cuff. And I'll hand over to Paul to do the intros.

Good morning, everybody. Thank you very much for joining us. We're going to start by introducing our company. I know some of you on this call may know us a little bit already, but quite a few of you might not have heard us before. So I'm going to start at the very beginning, and then we'll move through some of the recent performance and so on. But let's just set the scene first. So what do we do at XPS Group? Well, we do all things workplace pensions. So that means we will help a company to run a pension scheme for its employees and we'll help pension trustees, of course, have a very important role in making sure that pension scheme runs safely and securely and that members of those pension schemes have a good experience and ultimately get the pension that they're entitled to in the very long run. So it's a hugely important job that we have in society. And ultimately, across the public and private sectors, a few million people are dependent on us to make sure that their pensions are well protected and received, as I say, safely in the fullness of time. Now what do we do to help our clients, our employers and trustees? In the plainest English, we've got 3 divisions that do the following 3 things on this slide in front of you. The first thing is, particularly in defined benefit pension schemes, we need to make sure there's enough money in the pension scheme to eventually pay everybody the benefits that they're due. And as a reminder, a defined benefit scheme works by providing a pension based on a simple formula of how long you work for a company and what you're paid when you're there. And nobody ever quite knows exactly how much that will cost to provide in the fullness of time. So we do lots of actuarial calculations and work and try to make sure that ultimately, there is enough money in the scheme to say to pay everybody out in time. Now of course, there have been problems in the system over many years on that front. If you think of challenging situations at places like BHS with Philip Green or Carillion, sometimes corporate failures can lead to pension scheme members being left high and dry. We exist as the antidote to that and to try to stop that happening, and that's a core activity in the first pillar of our business. The second pillar is very related. This is advice on where the assets of the pension scheme should be invested. And we will design portfolios for clients. We'll talk to them about asset allocation, how much needs to be invested, say, in bonds or how much invested in growth assets, more complex things like how they might hedge against interest rate changes or inflation changes, which, of course, has been very topical in the last couple of years. Now 1 and 2 on this slide are very related because the question of have I got enough money in the pension scheme is related to what return will the money I have got achieve. And so we very often work quite closely for clients across items 1 and 2, but we do report them as separate distinct divisions as well. Now Box 3 is just dealing with the actual human beings in the pension scheme. If 1 and 2 is a lot of sophisticated financial modeling and so on, Box 3 is dealing with the people. And it means keeping all the records of the people who are in these various pension schemes, communicating with them if they want to get in touch with any questions about how it works and so on and helping people through big stages in their life, whether that's retirement, we track them whether they move home, whether it's divorce. We keep the pension in payment until eventually it might become payable to dependents and so on. So we are generally keeping records for people ultimately for decades and making sure they're safe and secure and well looked after. So our strategy, at the bottom there, is a simple one. This is about doing everything that you need if you are running a workplace pension scheme and doing it brilliantly to be a one-stop shop that could help you with all of those things that I've outlined above. And of course, a whole wider range of activities, too. We do all of the governance work and secretarial work, all of the regulatory returns that are required, things like the accounts for pension schemes. You can imagine there's a lot of activity required year in, year out to make sure that pension schemes are looked after and run really well. We also mentioned on the bottom there that we will deploy our transferable skills into other markets, and we'll say a little bit more about that in a minute, but an awful lot of what we do does apply potentially to insurance companies as well. And indeed, already, 1 or 2 of our bigger clients are insurance companies rather than pension schemes. So I'll come back to that perhaps a little bit in a minute. But at our heart, we are a pensions business doing the things that you can see in front of you on that slide.

Thanks, Paul. So in terms of a little bit more about us, if you -- our heritage can trace back to more than 40 years. We've been in this -- in the pensions advisory and administrative space for a very, very long time. We listed on the main market in 2017, and we're now part of the FTSE 250. When we listed, there was a little over 400 people. We now have nearly 2,000 people across 15 locations in the U.K. We have a very highly motivated staff. Our employee Net Promoter Score on average in the last 3 years has been over plus 25. And that within professional services firms is quite unheard of. We have a strong financial track record, which we will go through in a minute. And we win multiple awards for our service and for our culture, as you can see at the bottom of that slide. And we do all of this in a very sustainable way. Doing the right thing is a core part of our strategy and our values. So how have we been getting on with the competition and so on? Who else does what we do? It's a pretty big market, our market, and there are some names on there that you might be familiar with. This is competition. Now you say, these bars are the revenues that our firms earn doing what I've just described, those 3 boxes at the start. Some of these firms do other activities and so on as well, particularly the 3 firms to the left of us as you look at it. So we compete with Mercer, who are part of Marsh McLennan Group. We compete with Willis Towers Watson, and we compete with Aon. You'll note that those 3 big firms, they do lots and lots of other stuff. They are U.S. firms that operate globally, most predominantly in international firm insurance markets and so on, broking in Asia and so on and so forth that have very, very little, indeed nothing to do with pensions activities in the U.K. And that's quite an interesting dynamic for us. I say those bars are like-for-like, so they're big firms in our market, but they're not as focused and dedicated at what they do as we are. And we position ourselves as a very high-quality alternative to firms like that. And to our right, you then have a number of high-quality mid-tier firms. A number of these are partnerships or private equity owned, so they're a little bit different to us, but fundamentally quite similar in what they do. I would make Capita an exception there, who are mostly involved just in administration and much smaller in consulting. But the other firms there, LCP, Barnett Waddingham, Isio and so on are a lot more similar to us. It's quite a big market. The total fees in aggregate are about GBP 2.5 billion. We, therefore, have around 10% market share. There are still 5,000 private sector defined benefit schemes in the U.K. that need help and support in the ways that I've been describing. And so there's a lot of opportunity to potentially take a little bit of market share. And the general trend that's been going on these last few years has been growth in the mid-tier. And of course, we'll talk about ours in a moment, where we've had really strong organic growth. And it's slightly at the expense of the firms to the left. So what you have is the biggest firms losing a few clients year-on-year to really high-quality independent firms like ourselves, and that's been a good source of opportunity for us for some years. And indeed, that's also true of some of our competitors to the right, who've all generally done quite well in that sense. So what's our investment case? We operate in a very fragmented market, as you just saw, with less than 10% market share, but we have been growing faster than the competition and the market. We don't have client concentration with a diversified portfolio of over 1,400 clients, and our revenues are highly predictable with 90% to 95% being repeat recurring each year. We benefit from regulatory changes, of which there is a lot, as we'll see a bit later, and market volatility. So changes in interest rates, gilt yields, et cetera, are good for client demand. We've been growing through all manner of macro conditions like the Brexit, pandemic, war and financial market turmoil, you can see that our revenues and profits have grown year in, year out. We're highly cash generative and have a very -- and a progressive dividend policy. So cash conversion of more than 90% to 95% of our EBITDA. And including the interim dividend that we just declared, we have now returned over GBP 120 million to shareholders since listing in 2017. We've got a strong track record of delivering earnings-enhancing M&A, and we've done 6 deals since 2018. And we have a very low net debt, and we're virtually debt-free and so a very, very strong balance sheet as well.

I can see a couple of questions coming through, by the way, about things like future M&A and whether there might be consolidation in our industry. They're very good questions, and we'll come back to those if we may. We will get to as many questions as we can when we get to the end. Briefly, our most recent half. Really, really pleased with the performance of the business in the half just gone. 23% revenue growth, all of which is organic, is very, very strong. And we've done it profitably with margin improvement at the same time. So our adjusted EBITDA is up 37% on that organic growth of 23%. So really, really strong performance. Our adjusted EPS is up a really eye-catching 53%. We should highlight though that, that benefits slightly from the fact that we've massively reduced our debt. That's a very good thing, but it creates a one-off boost in EPS because we have now much lower interest cost than we had 1 year earlier in the comparative period. Now you can see, yes, that performance has been very strong. Where has it come from? It's come from really investments that we've made in prior years paying off, and it's come from a strong demand for our clients against a backdrop of a lot of change in markets that affect them. So we, as a business, benefit from market volatility when there's volatility in financial markets, interest rates moving around, inflation being volatile. These things have quite profound impacts on pension schemes, and our clients need a lot of advice and help as to how they're going to navigate their way through those things. So we've got a lot of demand and have been very busy helping in those ways. And there's also a lot of regulatory change, which again, we benefit from. We are not very heavily regulated because our clients are heavily regulated and as a consequence, need a lot of help and advice when regulations or rules change. And in particular, in recent years, there have been a couple of court cases that have happened that mean that certain pensions that are being paid at the moment need to be modified and corrected. It's a big event like that in the public sector, and [indiscernible] and in the private sector, something called GMP. And I'll spare you all the gory details, but we are very busy working on projects for clients in both sectors, trying to help them to get through those remedy projects. And that again has helped to drive a little bit of growth for us. Now we produced this performance with a very, very strong culture, as Snehal was mentioning. We do genuinely do things absolutely the right way. We've made it our mission for many years to be the best firm in our industry to work for. And we've actually won 4 awards for our culture from independent bodies in just the last month alone, another one on Tuesday of this week, which we were delighted about. This week, we won an award for the way we approach flexible and hybrid working. We won multiple awards for our general approach to diversity and inclusion and just promoting a positive culture in general. And we absolutely think that plays a huge part in the performance of our business as it drives strong loyalty and commitment from our people. And that's a 2-way street because our people also celebrate very well in the success of the firm when it comes through. Now all this has culminated in us hitting the FTSE 250 this half as well, which is a really, really big milestone for us and has been very exciting. And that has ultimately come about after 5 years or so now of very, very strong performance in the business and the recognition of that emerging in our share price as we produced continued very good growth and profitable growth of that. Now you can see on here, these are the 4 years actually to 31 March 2024. So they don't include our most recent half, which has been great performance, as you've just seen. But even leading into that, you can see the very strong revenue growth that we had and importantly, that the EBITDA growth is above that revenue growth. So strong revenues and margin improvement at the same time. We've paid a very healthy dividend along the way, a growing dividend, no matter what the world has thrown at us through all sorts of economic uncertainties and so on and inflation spikes, a war in Ukraine and everything else in the background. We have grown relentlessly through all of that, and we've grown not just our profit, but our dividend, too. Now what's not on that slide, of course, is our debt. And along the way, we have reduced our debt very materially. It was about 2x EBITDA at the beginning of the period on that slide. Today, it is getting very close ultimately to 0, and we're on track to potentially hit that milestone over now the next few months. And that's quite an extraordinary performance. The reason that debt has come down so quickly is we did do a disposal of a business last year, and we were well paid for that disposal and used it to reduce our debt very materially, along with retaining some of the profits in the business as well. But in combination, a performance we're certainly very proud of. And obviously, if you added the latest half year on to those growth figures, it would look better still. And if you put the consensus figures up on that slide, it would show that continuing trend. Now we have to deliver those figures, of course, but we are optimistic that we'll conclude another strong year come March 2025.

Okay. So as Paul said, very strong revenue growth in the first half, revenues up 23% and strong performance across business units, particularly in actuarial and administration. And we continue to improve our margins. EBITDA margins have improved 280 basis points in the first half. And consensus expects that further margin improvements in the future will follow as we complete the rollout of our proprietary administration platform, Aurora in 2027. And as Paul mentioned, last year, we sold a small part of our business, NPT, that used to do just under GBP 1 million of EBITDA, and we sold it for GBP 35 million and used the proceeds to pay the debt, which has led to the low leverage that we have. And as a result of that reduction in the interest cost, that's why you see a marked improvement in our diluted EPS. Now Paul mentioned that we are virtually debt-free, but we remain committed to deploying the strong balance sheet on expanding our markets beyond pensions, and Paul will talk about how we're approaching that on our -- in our adjacent markets such as insurance and other financial market consulting. And we'll do that both organically and potentially inorganically. And I know there is a sort of a question -- a couple of questions about that, so we will get to that as well. We're also committed to investing in tech and AI to further improve efficiencies in the business. And at the same time, we'll continue with our progressive dividend policy. And so in line with that, we declared a dividend of 3.7p, which is up 23% year-on-year. So there's a lot going on in our market. The right question that a lot of our investors have asked us since we published our results a week ago, of course, is great momentum, can it continue? What more is there to keep talking to clients about as we look to the future? And the answer is, there's a huge amount going on. I mean, of course, pensions is rarely off the front page of the business pages these days that Mansion House speech recently, the agenda that the government has these days for change in the pensions industry to try to drive growth in the U.K. economy. That potentially just means more and more change coming down the pipeline for us, and that means more and more change that our clients need an awful lot of advice about. A few examples of things that are likely to keep us busy. Well, first of all, the big improvement in pension scheme funding levels is opening up all sorts of options for our clients that they didn't have before. Defined benefit schemes have generally been in material deficit for a long time. Many of you on the call might have invested in companies that have got big pension issues and challenges that need to be fixed. Well, the good news, if there is some about rising interest rates is that actually that's had a pretty positive effect on defined benefit schemes because we use those long-term interest rates to calculate the value of the liabilities. And when interest rates go up, generally, the value of the liabilities will go down and more so than the value of the assets that are held. So you will see an improvement in financial positions. And that's happened not uniformly, but it's happened to a lot of defined benefit schemes out in the U.K. Now better funding means you've got new options. And what's really interesting is some of them are now contemplating whether actually they might have an asset on their balance sheet and they may run on for a long time now and use the value that's in the pension surplus to perhaps pay higher benefits to members, which would be a good thing and perhaps also to benefit the employer and give them some funds to invest in growth in their businesses. That's clearly an interesting option that we've not really been talking to many clients about for many, many years, while we've been focused on solving deficits. So it's an emerging new playbook, if you like, that a lot of our bigger clients, in particular, are really interested to talk to us about. Now many clients will also want to go and access insurance. So the more expected outcome for a really well-funded pension scheme is that you might go to an insurance company like Legal & General or a specialist like Pension Insurance Corporation or [ RSA ], and you might say to them, will you take my pension scheme off my hands. And if that happens, then it's a very big transaction, analogous to an M&A type process where different insurers might bid and offer different prices and different terms and conditions to take on the liability. We'd be very, very actively involved in that and helping finding a good home for our clients for the longer term. Those are typically multiyear projects with huge amounts of work on cleansing data, running the broking, et cetera, and all of the winding up work of the pension scheme afterwards. So that generates a lot of work for us as well. Now that's what that little road map you can see is clients now having a choice about where they might go in that longer term. And we expect to be busy for years helping clients as they approach that junction in the road and choosing which way to go. And we fundamentally do well whichever way they choose to go if they go down the insurance routes as I've described, a huge spike often in project-driven work. Now it is true that at the same time, in the end, there will be fewer defined benefit pension schemes in our market. Those that go to full insurance, ultimately, once we wind up the pension scheme, that is one less client for us to have. But I must stress that is going to take years and years and years, and we will make very good profitable revenue on the way through. And of course, clients that run on, clients in the public sector, et cetera, we will have for a very long time, potentially sort of almost indefinitely in terms of that kind of time horizon. And what we will do is invest some of the proceeds, as we've said, in actually building a practice that helps support all the insurers in our ecosystem as our world and that begin to collide, and I'll come back to that in a second. But in summary, not short of things to talk about. Probably one more thing to mention before we do move on is that new funding code that's on the slide there, too. Not all pension schemes are in surplus. Many of them still do have reasonably sizable deficits. And The Pensions Regulator has just this last September, finally issued new rules on the way a pension scheme with a deficit needs to be assessed and appraised and how the interest of other stakeholders such as shareholders, should balance against the interest of the members of the pension scheme. And that is directly addressing those scandals of the past that I'm talking about, avoiding a future Carillion, et cetera happening where the pension scheme might be left high and dry. Now as you can imagine, that means a lot of our clients again need a huge amount of advice. The next time they do one of their full triennial valuations, the deep dive into the financial health of the pension scheme you do every 3 years, they're doing so in a different regulatory landscape to last time. So we expect to see a lot of demand for that again over the coming years as we'll need to do things a bit differently to the way we've done them in the past. So a quick canter through there. There's lots of other things, of course, I could talk about, but you'll get a general sense that there's lots happening and our clients are going to keep needing a lot of support from us. And this is the market that we're talking about. I must stress, although we've mentioned broadening into insurance a few times, the main opportunity for us absolutely is in pensions for years to come, and we will keep being a big profitable business in that space. And I think there's loads of ways we'll grow. But at the same time, we are reinvesting some of our profits to help us grow into addressing insurance companies alongside addressing -- supporting pension schemes. And we already do this. And it's where in this Venn diagram, the world of life insurance and pensions do overlap. So if one of our clients goes to Legal & General or somebody like that, who's going to look after doing the administration of that pension scheme once Legal & General have taken it on for many years to come. Well, that's our bread and butter. That's what we do today. So we can provide services to insurers in an area like administration. Already, if an insurer is writing business in the bulk annuity space, we've got one big client where, for example, they'll give us all the raw data about a pension scheme, and we're the ones that do all the calculations and so on that they then use to price the business that they're about to write. Again, that's kind of our bread and butter. That's what we do for pension schemes is take data and turn it into meaningful financial analysis. But then there are certain areas where insurers need support where historically, we've not been able to provide it. We don't have life insurance specialists who could help insurers with things like advice on their solvency requirements or negotiations with the PRA about certain aspects of the investments they might hold and so on. And that's a really big market. We estimate in total insurance companies spend north of GBP 1 billion on external contractors and wider consultancy support. And we'd like to get a little bit more of that market share. It's a logical place ultimately for us to begin to go. We've got good relationships with the insurers already. We have an incredibly strong brand in that market. And what we've now done recently is hire some people to begin to really professionalize what we do in that space, where it's been a little bit on the side of our desk, now we'd like to really try to grow our practice in that space. I should say to the question somebody is very reasonably asked, how big might that become and so on. It is a very big market. It will be small and slowly, slowly at the beginning because we're a big business now. If we can grow our business with a few million into that space, that will -- organically, that will be good, but we're a GBP 200 million-plus revenue business. So that wouldn't quite touch the size really. Our ambitions, though, potentially inorganically are to help to grow our business more quickly, and we may do that over the next few years. But we have to wait and see, of course. It's unpredictable. But you, of course, can see that it's quite an interesting opportunity that's really fundamentally a very logical one for us to go and pursue while we're doing so well and making such good profits in our pensions industry at the same time. So in summary, yes, the future is extremely bright for us. There's a lot of momentum in the business, a real positivity amongst our people. We've got a really strong culture. Morale in the firm, as you might expect at the moment, is extremely high because we're doing so well. We're winning new clients and really making a difference for the clients that we've got. And that's turning up now in great financial results and great recognition entering the FTSE 250 and so on has been a really, really big and proud moment for us. We've been doing this profitably with operational gearing coming through. We've been doing a lot of really valuable project work in McCloud and GMP and rectification type work keeping us busy, and there's plenty more of that to come. And we've got a very healthy pipeline of new clients to potentially take on in the future. I haven't even mentioned in this presentation, but we won our biggest new client in administration a few months ago, which is John Lewis, and we're taking on 150,000 members in our administration business as we look after John Lewis partnership going forward. That goes live next year in 2025. So lots of exciting things still to come down the pipeline for us. All this against the backdrop of all sorts of regulatory change and demand, Mansion House speech, et cetera, that wider agenda, The Pensions Regulator's new guidance, et cetera, all these things that mean our clients need to stay close to us, and we need to stay close to them to help them to navigate their way through it. So a very exciting future for us still. We've carried a lot of momentum and doing well and a long way to continue. So thank you very much for listening. We've got a few questions already. So I don't know if you want to help us to...

So just hand back to Lilly for just any housekeeping, and then we'll get on to answering the questions.

[Operator Instructions] I'd like to remind you that a recording of this presentation along with a copy of the slides and the published Q&A can be accessed via investor dashboard. As you can see, we have received a number of questions throughout today's presentation. And if I could just hand back to you to read the questions and give responses where appropriate to do so, and I'll pick up from you at the end.

Thank you. So the first question is significant growth to date, but what is the scope for similar continued growth? I'll start answering that, and I think Paul can sort of chip in. So we have clearly -- all our contracts with our clients have an inflation linkage. So there is an automatic inflationary increase every year, and that could be CPI, RPI or another measure of inflation linkage. And clearly, in the recent past when inflation has been high, we have been benefiting from that clause. In addition, we also put up our charge-out rates every 1st of April, and those tend to be slightly ahead of inflation. And we've got a change in mix of business as well. So for example, within advisory, we have something called risk transfer. This is where pension schemes want to insure their liabilities, something called buy-in or buyout. When that happens, that is the highest margin work. We were very underweight within that business 2.5 years ago, doing only about GBP 1 million of revenues per year. Now that is a run rate of GBP 15 million. And this is one of the examples of where we've made investments and those are really, really paying off. And this is investment in headcount, not sort of M&A. So the mix of business also has an impact in terms of the EBITDA progression. In terms of the future, clearly, we're entering into a much lower inflationary environment, so that will play through. And there are clearly -- there are some one-offs this year like the McCloud remedy project within administration that has a statutory deadline of completing by March 31, 2025. There will be a little bit of that continuing in '26, but that one-off falls away. But if you look at consensus, that still has the revenue growing at least mid- to high single-digit percentage into the future. And more importantly, from FY '27 onwards, the EBITDA growth starts to accelerate the revenue growth again. Now I say from '27 because in '26, of course, we will have another one-off impact in the form of national insurance increase. That for us is a cost of about GBP 2.5 million, and we'll look to sort of try and offset some of that. But clearly, that might have an impact. And therefore, in FY '26, consensus has revenue and profits growing at the same rate before starting to accelerate again. Beyond the scope of the consensus, which is FY '28 and beyond, we will get more efficiencies, efficiency savings from deploying our administration platform called Aurora. Right now, we use third-party providers for that. That will all fall away. All our clients will be on to our own platform and therefore, lead to further operational savings in the future. Paul, do you want to add anything to that?

I'll just get back to the sort of qualitative analysis really that there's so much happening in our market. There are terrific opportunities. And look, we've got some really good competitors out there that are tough, but we've also got some competitors that occasionally are struggling a little bit. And there is some churn in our industry. Most of our firms benefit from having very sticky clients. That's both a bit of a blessing and a curse. It makes growth a little harder, but our client churn is vanishingly small, comfortably under 1% of our clients. And that's a very good bedrock for growth because we do win more than we lose out there. We've got an incredibly strong reputation. We won Actuarial Firm of the Year or essentially really Firm of the Year, sort of the biggest award at our industry awards. It's the fourth time in 6 years now that we've won that award. And off the back of a very, very strong culture and very, very high staff loyalty and so on, we're extremely well placed if others ever drop the ball, and that does, of course, happen a little bit from time to time. So no, we're excited about lots of things in our market. And of course, yes, that diversification play into insurance as well is interesting, albeit that's probably for a few more years' time to really see the benefit of that potentially coming through.

And leading on from that, there's a question about the share price performance being very strong. And the question is really, would a tie-up with a much larger company be beneficial in increasing the growth levels? Or would we prefer to stay independent and continue with our strategy?

Yes, it's a great question. So if you look at our recent history, we did a big transaction to create XPS back in 2018, early 2018. We were a smaller firm in the run-up to that. And we needed scale to achieve our ambitions to one day go and win the likes of John Lewis and so on in the future. So at that time, a transaction was imperative that extra scale would really help, and that has certainly come through, right? You can see the performance of the firm for the last 5 years where that scale has really paid off. The second thing is, along that journey, we have infilled any weakness that we have in terms of our capability to support our clients. Our strategy on that very first slide was to be the one-stop shop to be brilliant to everything that you might need. And we weren't quite brilliant to everything that you might need a few years ago. Snehal gave the example of risk transfer. Other firms in our market were probably more famous for providing those kinds of service and a better reputation. So what we sought to do is either organically infill those gaps, risk transfer. We've done that. We made a couple of very good senior hires from big firms in our market, one from Aon, one from Mercer to come and lead our practice. And they've done an amazing job at that, and we've grown from GBP 1 million a year to GBP 15 million a year, and we are now famous for that. Indeed, earlier on in the -- just a couple of months ago, we announced a GBP 1.5 billion deal that we did in the market from [ iShalaan ], which at that time was the biggest deal that anybody had done in the market this year. So that was fantastic. It's not, by the way, now with a couple of big ones since, but it shows you how far we have come in that space to be up there like that. But along the way, we've also grown inorganically where we've had gaps that we've needed to fill a bit more quickly. For example, trustees of pension schemes need to take what's called employer covenant advice. That means how strong is my sponsoring employer. And if there's any risk at the employer, I need to take certain actions, again, to the theme of trying to protect against the future Carillion or what have you. We had a [ tiny little ] practice in that space that was just too small. So we acquired a firm a couple of years ago called Penfida, an owner-managed business that were real deep specialists in that area of advice, and they're now part of XPS. So as I sit here today, we have kind of either organically or inorganically filled all the gaps in capability that we had. And I genuinely think we are market-leading in everything that we do now for employers and trustees. Again, that shows up in the awards that we win and so on and so forth. And so therefore, any transaction in our own space wouldn't be probably enhancing our capability. And the organic opportunity is still big. Although I said market leading, not necessarily anywhere near the biggest, but market-leading in terms of capability. So the opportunity to drive organic growth rather than going out and spending more capital on buying something is very, very attractive to us. So in summary, within the pensions world, we need a bit of persuading that another deal with one of our competitors in that fragmented market was a good idea when we're producing such good organic returns. It's not to say never. And of course, there'll probably be quite significant synergies and financial upsides and so on if we were to come together with someone. But when we're absolutely flying at the moment, it would need to be an extremely lucrative transaction for us to decide to go and do that. I already mentioned that we may, however, with our very strong balance sheet these days, look to potentially accelerate growth into that tangential market. And there are quite a few potential opportunities for us there in the insurance consulting and wider consulting space, and we shall see. We do scan the horizon and look for things like that. I suspect M&A will be part of our journey, but let's wait and see. We, literally just a few weeks ago, had a new Head of the Business join us. Let's let him get his feet under the desk first, and we'll take it from there.

And I think leading on from that, there's a question about with the debt being reduced, what's the capital allocation priority. So look, I think Paul has mentioned quite a few of those. The first thing is to continue to capitalize on our organic opportunity, whether it be in our core market or the tangential market, and that means sort of investing a little bit of the P&L into expanding our reach. So that is the priority #1. Secondly, continuing to deploy Aurora, and this is our proprietary administration platform that has capabilities for further automation, et cetera, which will help future profitability. And alongside that, we will also invest a little bit within AI to make our own processes more efficient, and therefore, we can provide more value-add service to our clients. Finally, continuing with our dividend policy and then M&A, as Paul mentioned. So those are sort of the capital allocation priorities, not in sort of always in that order, but that is the focus of our business. And I think the final question was, which Paul has sort of largely answered what scope is there for consolidation in the industry...

I didn't talk about whether others would consolidate and so on. And I think there will be some of that. It is a fragmented market. There's been quite a lot of private equity interest in our market. One of our competitors is a firm called Isio. Isio is its heritage as it was the pensions practice of KPMG before it was sold out and carved out by KPMG because of audit independence issues and so on. That business has bought a couple of other things along the way, including the pensions business of Deloitte. So it has quite a strong sort of big 4 heritage. That business does compete directly with private equity owned. They may well have an M&A agenda. There are other smaller players, as you saw in our market that could consolidate and come together, we shall see. It's interesting, there's also 1 or 2 transactions that have gone the other way. So Mercer on that chart with their large bar of revenue, actually, that bar of revenue has recently just broken into as they've sold their administration business and retained all of their consulting business, and they sold their administration business again to private equity who've carved it out. So there's actually one more firm in our market, and that business is called Aptia. And it's interesting because a transaction like that, it's not game changing for us. But of course, it does generally throw up opportunities because if you're a client that used to want and have Mercer and you had it for actuarial and admin and so on, and certainly, you've now got 2 different providers, and it creates a little bit of upheaval and it creates a bit of change and disruption for people and so on and so forth. And that, therefore, can sometimes create additional opportunities for us. And like I say, I wouldn't say it's completely game changing, but it's generally good for us when stuff like that is happening as there's noise in the market about competitors and that can create a bit more opportunity for us.

I think those are all the questions we had so far. We'll hang on if there are any further questions to come.

Thank you both for answering all those questions you have from investors. And of course, the company can review all questions submitted today, and we'll publish those responses on the Investor Meet Company platform. Just before redirecting investors to provide you with their feedback, which I know is particularly important to the company. Paul, could I please just ask you for a few closing comments?

Yes. So at the risk of repeating what I said just a few minutes ago, we're very excited. We've come a very, very long way these last few years, and we are yes, really, really keen to keep going with the positive momentum we've got. And we think there's just many, many reasons why we're still in exactly the right place with the investments we've made in the past to continue this positive momentum and keep going. It is a very fair question to say, come this far, can it continue? And absolutely, we're very positive and confident in what the future holds for XPS. And we're very grateful for your interest this morning. I hope you found the presentation to be interesting and informative. It's always a bit of a challenge to pitch it to folks that don't know us at all because I know there are no real direct comparators for us in public markets as well, which is sometimes a little bit of a challenge. But no, I hope you've enjoyed it. I hope you found it interesting. Pensions truly isn't boring. It's not true to say that it is. And we're having a very interesting time at the heart of things at the moment. And yes, very excited about the future. So thanks for coming.

Thanks very much.

Thank you for updating investors today. Can 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 morning to you all.