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

Good day, ladies and gentlemen, and welcome to XPS Pensions Group plc Interim Results Presentation. [Operator Instructions] I would like to remind all participants that this call is being recorded. I will now hand over to management to start the presentation.

Hello, everyone, and welcome to the presentation of our results for the half year ending 30th September '25. In terms of what we are going to cover today, we'll start with the key highlights, but we thought it might then be a good idea to cover the big themes that are happening in our market today. So you can see what's been keeping us so busy and why it's going to keep us busy for a long time to come. I will talk us through the details of the financials, and then we'll look at our key divisions in turn, and we'll say a bit about our culture and brand before Ben wraps up with a summary and more comments on the outlook from here. What will come across throughout, I think, are 3 key things. We're continuing to achieve strong growth with revenues up by double digits again. We have good visibility of continued high demand for all our services, given everything that's going on in our markets and in the coming years. And we have made really good progress in expanding our addressable market.

So to look at it in more detail, during the period, revenues grew by 13%, of which 8% was organic, with of course, the remaining growth coming from the acquisition of Polaris, which completed shortly before the start of this financial year. And we're also really pleased to report healthy growth in our profits with adjusted EBITDA up 8% and EPS up 9%. And this performance is especially pleasing, giving us measured against a very strong first half last year, and that included material one-off revenues from the large McCloud remedy project. If you adjust for that and the one-off impact of the NI increase in our cost base, the underlying organic performance of the group is double-digit revenue and profit growth once again. Snehal will give you the details of all of that in a second, but in terms of what's driving it, I think it's fair to say that the pensions market is going through more change at the moment than probably any time in the last 20 years. The step change in the financial position of defined benefit schemes has created a really wide range of opportunities for our clients. And it's also against the backdrop of other things such as new funding rules working their way through the system, continued work on the GMP remedy and quite more besides. Now these things are going to persist for many years to come, and we're really well placed to help our pension scheme clients. We've continued to invest in technology to be able to get cutting-edge advice, and we can do so really efficiently. We've also won new clients in the period across all of our lines of service, but perhaps most eye-catching to me, we're delighted, of course, to have been appointed to be the Administrator for the Metropolitan Police. They've got around 80,000 members and will be, by some way, our largest public sector client. Now that appointment was, of course, really supported by our strong reputation following the successful delivery of McCloud work more widely. Now back in the private sector, part of the big structural changes that are going on has, of course, been the increase in insurance transactions in recent years and the gradual merging of the insurance and pensions ecosystems. And it was, of course, against that backdrop that we acquired Polaris, an insurance consulting firm, just before the start of this financial year. And we're really pleased with how the acquisition has gone so far, probably especially pleased with how it's opening up opportunities for us to deploy XPS capabilities in support directly of insurance company clients. And really importantly, more widely, we continue to do things in the right way. And as you'll know, we place a huge value on having a strong employee-centric culture. We measure this, and we've been really pleased with the results of our most recent employee survey. It confirms that we've got a happy and motivated workforce. And again, that's something that sets us up really well as we look to the future. So before we get into the detailed business line review, it's helpful, I think, to just give you a quick reminder of how we structure ourselves within XPS. So we've got 3 key parts to the business. Actuarial & Consulting, and this is where in plain English, we're trying to make sure that there's enough money in pension schemes to provide all the benefits in the future. It's also where we help schemes to ensure that they're compliant with a wide range of regulations that apply to them. In the Investment business, we advice on where to invest the scheme's assets and associated things like risk management. And of course, these 2 parts of the business work really closely together indeed, often resources shared between them, so you'll often hear us refer to the advisory business, which ultimately captures both of them. And the third pillar is a little different, and that's Administration. And that's where we deal with the members directly themselves. It covers record-keeping, answering member questions, and ultimately, anything that's needed to ensure that we pay the right benefits to the right people at the right time. Now in terms of our markets, the bulk of our work is for pension schemes. But as we've previously mentioned, we're increasingly providing these services to life insurance companies, too. And for example, insurers writing bulk annuities,sometimes need help with actuarial calculations, which is where our advisory team could help them after deal has been written and the insurer needs to keep all the records and do all the administration, again, something that's core here to us at XPS. Our markets are large, we estimate that around GBP 3 billion a year is spent running occupational schemes in the U.K. and the market for people supporting insurers is a very large one as well.

So before Snehal runs through the financials, it's helpful to explain some of the key trends in the private sector to find benefit world, which are driving our performance. So as schemes come down from the top and as they travel down the road, they need all of the typical care and maintenance support, so things like administration, regular funding investment and covenant reviews, and they also need support to react to any market or regulatory changes. Now if I went back 5 years or so, schemes were typically quite a long way from the junction and actually, it wasn't a junction as the only real opportunity was to head to buy out. Over the last few years, two things have changed. The first is that due to large rises in gilt yields, schemes are now much better funded and they're now much closer to the junction. And indeed, many have already reached it. And this has driven an increase in the activity in the bulk annuity market, which you can see from the chart on the top right. Now the second thing that's changed is that schemes now have a choice as the concept of continuing to run the pension scheme in the pensions regime. Perhaps using the techniques employed by insurers is now a valid option. And it's an option that's really gaining traction, particularly among schemes with over a few hundred million pounds of assets. So for example, our most recent conference, where we had around 300 external guests. We asked the audience which three of their schemes they're likely to take, and 40% said they're exploring run-on, 38% said they were likely to head to buy out with the remainder undecided. And that's a huge shift as a few years ago, the vast majority would have been heading to buy out, and this is really, really interesting to us. So what does this all mean for XPS? Well, for schemes that choose to run-on, it's very simple. As they will continue to need all of the ongoing consulting and administration services they get today, they will probably need a bit of extra support around things like risk management and how to manage surplus release. When schemes go down the buyout route, it creates a lot of extra work. It typically takes 3 to 4 years from a scheme deciding that they want to pursue an insurance transaction to actually completing a buyout. During this time, we typically earn a multiple of the care and maintenance fees given all of the work associated with the transaction itself and the broader work required to ultimately decommission a pension scheme. So this creates demand in the short term, but it is a double-edge sword as in the end, we have 1 less client. For a fact, each transaction, there's an insurer on the other side, and they often need help, too, whether that's onboarding the schemes or carrying out the administration that the pension scheme was previously doing. So whilst buyouts might reduce the pension scheme addressable market, it creates opportunities for XPS to help insurers and effectively increases the insurers' addressable market. And this is something that we'll touch on as we go through the presentation.

Another strong half year, as Paul said, with revenue growth of 13%, of which 8% was organic. This is particularly pleasing as we have significant renews from the McCloud remedy project in the prior year comparator. During the period, we continued to invest in building our insurance consulting team. We also had the increase in Employers National Insurance from 1st of April this year and the prior year comparator included a strong margin contribution from the one-off McCloud remedy project. Adjusted EBITDA margin has therefore fallen by 1.2 percentage points to 26%. However, normalizing entirely for the National Insurance increase and the one-off impact of McCloud, adjusted EBITDA margin has improved from 24% to 26.3%. We remain on track to deliver on full year expectations and further improvements in the margins over the medium term. Strong operational performance and a lower share count has driven adjusted diluted EPS of 9.7p which is up 9% year-on-year. The first half is cash outflow heavy with the payment of the full year bonus and the final dividend from the prior year. Despite that and the additional debt due to the Polaris acquisition, leverage remains below 1x at 0.88x. In line with our progressive dividend policy, the Board has declared an interim dividend of 4.1p per share, up 11% year-on-year underscoring our continued confidence in the business model and growth prospects. As we said in June, due to the significant overlap between our consulting service offering, we have now moved to disclose and discuss performance in our advisory, administration and SIP divisions. Paul and Ben will go through each of the divisional performance shortly, but let me give you the highlights. As I said earlier, group revenue grew 13% year-on-year, 8% was organic. And if you exclude the significant impact of the McCloud remedy project in the comparator, organic revenue growth was very strong at 12%. Costs, which I'll cover next, have grown 15%. This includes the impact of the higher Employers NI as well as investing in growing our insurance consulting team. Normalizing for these items, cost growth is below the revenue growth, meaning operational gearing continues to improve in the underlying business. Net finance costs have increased following the acquisition of Polaris. Adjusted profit after tax has, therefore, grown 7% year-on-year. A lower share count due to continued share purchases through the EBT has helped deliver adjusted EPS growth ahead of the growth in profit after tax. On the non-trading and exceptional items, which are all consistent with previous treatment and largely noncash, increase in amortization of acquired intangibles reflects the acquisition of Polaris, the acquisition related to remuneration is the buildup of the Polaris contingent consideration, and higher share-based payment charge reflects an increase in senior equity plan awards as well as a higher share price. Total operating costs were up 15% ahead of the 13% growth in revenues due to the one-offs mentioned previously. Within that, staff costs are up 19%. Of that 19%, 5% is from the Polaris acquisition and expanding our insurance consulting team, 3% is from the impact of the higher Employers NI. Therefore, you can see that on an underlying basis, staff cost growth of 11% remains below the organic revenue growth of 12%. The remainder of the increase is driven by an 8% increase in headcount as well as inflationary and promotional pay rises. Increase in IT costs reflect a higher headcount, continued investment in tech, particularly cybersecurity, partially offset by some benefits of Aurora flowing through. Other costs are largely in line with prior year as we continue to maintain strong cost discipline. Adjusted operating cash inflow of GBP 22.8 million equates to a 68% conversion. The 84% conversion last year was flattered by project work with cash received in advance. Like-for-like conversion was 72% last year. Guidance for the full year and future years remains conversion of between 90% to 95% as we continue to grow. We spent GBP 14 million during the half year to buy back shares, which have been used to satisfy vesting of share awards. The CapEx includes GBP 3.3 million on continued development of Aurora, our administration platform, and the remainder on BAU IT spend as well as leasehold improvements. The full year CapEx guidance is between GBP 10 million to GBP 11 million as we continue to invest in our technology. Net debt at 30 September was GBP 62.2 million and a covenant leverage of 0.88x. Currently, we have GBP 47 million of undrawn facility from the total of GBP 120 million available until March 2029. Just to remind you of our capital allocation priorities, which remain unchanged, the focus remains on capitalizing on the organic opportunity within our core and tangential markets. We want to continue investing in creating market-leading proprietary tech that creates a competitive advantage as well as drives efficiencies. Relative to the size of the business now, we will continue to be CapEx-light. We will continue with our progressive dividend policy, and we will continue to scan the horizon for earnings enhancing strategic M&A opportunities, but we'll remain disciplined in our approach.

So in advisory, which as a reminder, covers actuarial and investment advice to pension schemes and insurers, we saw strong performance. Growth was 19%, which includes Polaris, and organic growth was 9%. Now we've been and continue to be very busy supporting pension scheme clients with a wide range of topics. The market evolution that Ben described has created a lot of demand, and we're busy advising clients on which path they might want to take, whether to look at an insurance transaction or to look at running on to benefit from surplus. We've introduced new functionality on our software platform, Radar, to help with this debate, and we've developed some really smart financial models more widely that we believe are the first in the industry to be used with clients. Now we've innovated in other areas, too. For example, in Investment Consulting, where client needs are evolving in the age of surpluses. For example, this is Xchange, which is a service that helps pension schemes and others trade in illiquid assets, something that's been really topical lately, the schemes looking to ensure may wish to sell assets before maturity, while others running on may wish to take advantage of buying opportunities. At the same time, our pension risk transfer team has been really busy, and we continue to see a strong multiyear pipeline of activity in that area. We're also still busy working through GMP projects for clients and there are many years of this work ahead as well. Now we've also been doing more work directly with insurers, and we're seeing a trend where the increased volume of transactions in recent years, many of which are only now being onboarded by the insurers in what's always a multiyear process, is giving rise to a need for some additional support for them as they scale up their operations. Now XPS is really well placed to help, and the relationships and contracts that Polaris have proved invaluable in accessing some of these opportunities. And more widely, we're just really pleased with how well Polaris is integrated. Something that we've also seen is a number of the insurers have reviewed their preferred supplier list in recent months ahead of future years where they expect to need a lot of external support. Polaris, now, of course, part of XPS, has been renewed in each of these reviews. And happily in a number of cases, we've actually expanded the services to which we're now on the preferred supplier list. And that's really important for the future, and it leaves us really well positioned in the years ahead. So in terms of the outlook, put it simply, we expect all of these things to continue. The industry is going through some really fairly seismic changes, and it will work through the system over a period of many years. It's also giving rise to a healthy new business pipeline. Change always brings opportunity to differentiate, and we're investing in our propositions, in our technology and our people to be able to rise to the challenge.

Onto administration, and this part of the business provides services to private and public sector pension schemes as well as bulk annuity providers. And in simple terms, we can split the work into core administration which is the day-to-day admin and probably accounts for around 2/3 of the business and then projects. So growth in the half was 6%. However, this is the part of the business where the McCloud revenues were earned in the prior year. And as we've mentioned, these were one-off in terms of the size and delivery method. Now whilst the McCloud project is finished, it's been really positive for our reputation in the public sector. And actually, over the recent months, subject to contract, we've been appointed to provide pensions administration to the West Midlands Police Force. And as Paul mentioned earlier, in the last couple of weeks, subject to contract, we've been appointed to provide administration to the Metropolitan Police, which is the largest force across England and Wales. Now if we exclude the impact of McCloud revenues to look at the underlying performance, revenue growth was 16%, which is very strong. And this was driven by growth of around 10% within core administration as we onboarded some large new clients, most notably John Lewis and the SEI Master Trust. The performance was also driven by a 30% increase in project-related revenues, reflecting the high demand from private sector schemes for support with things like data cleansing and GMP work. And also around the pensions dashboard where the first schemes are now being connected. Looking ahead, we expect to see strong demand for projects given the broader backdrop for defined benefit schemes. We're also seeing a strong pipeline of new business opportunities across both the public and private sector markets, and our service quality and Aurora platform, we've got a really strong story to tell there. So we're optimistic about continuing our success. There's also a lot going on around operational efficiency and technology. So the project to migrate all of our schemes onto Aurora is progressing well, and this will reduce the pay aways to third-party system providers, but having all schemes on a common platform should also bring efficiency. The next big milestone here is to complete the migration of public sector schemes by February next year. And we'll then have 1 more system to migrate off which we're aiming to do by the end of 2027 or early 2028. We also have a number of other projects underway to use technology to improve our service proposition both in the core administration business, but also around things like data cleansing. Finally, as we touched on, a lot of these services are increasing needed by insurers as they write mobile annuity business. So we're working to grow our footprint in that market, too. Turning to our SIP business, where we set up and administer SIP and SSAS arrangements, and revenue in this part of the group was up 10%. Part of this came from fee increases applied since the comparable period, and an increase in the number of SIPs under administration. The rest came from the sharing of interest on cash balances and this element increased by around 18% compared to the previous period as the underlying cash balance has increased. In terms of sales over the period, these were solid, perhaps not as strong as the previous record year due to inheritance tax changes, which impact people who might have considered pensions in their tax planning and also more generally, the uncertainty created by the budget speculation. However, looking ahead to sales pipeline, it does look robust as our products are highly rated, and we have a strong reputation and network among the IFA community. Also, about 1/3 of our new SIP policies are written through our place on the St. James's Place, an open work panels, where the scope for us to get a bigger share of the business written through those channels. Finally, on the operational side, there's lots going on to drive efficiency and great service. And one particular initiative here is to increase the take-up of our online portal among advisers and members to enable more self-service in the future, and we're now up to around 90% sign up, which is great.

So our culture at XPS is something we think about a lot. We think it's really, really important. As we often say, we believe that happy, motivated people will look after each other brilliantly, and then in turn, they'll provide great service to our clients. Now we do a great deal to foster a culture where we work together, we share and celebrate success, and we provide opportunities for people to develop and have interesting varied careers. We measure how we're getting on continuously, but we do have a particular focus on our annual staff survey, which usually runs every October, and we've literally just seen the first cut of these results, and we're delighted that they're really good. The survey is comprehensive, but the most important single figure that captures the overall mood is our employee Net Promoter Score, and this was plus 32 this year, which we're told exceptionally high for a professional services firm. We had good results last year. So it's really pleasing to see the scores in a wide range of categories, getting better still too, even against those measures, as you can see on the slide. Now our culture has also won more awards in recent times. And again, we're really proud of this, and we think it's important as it really helps us with recruitment of talented people. Now it's, of course, really important to maintain and build on our really strong brand in the market as well. We held a large client conference in October. It was the biggest event that we've ever done, and you can see some of the images here of what was a very professional event with a real wow factor about it and how we engage people and energize people more generally. Truly, it was more of a kind of Ted conference than it was a pensions event. And it was attended by a lot of our clients and really importantly, by many prospects as well. We covered all the key topics in the industry at the moment, and we've got some great feedback from the attendees, and it's already led to a number of new business opportunities, which is great.

So to summarize, it's been another good 6 months for the group, where we've continued to deliver on our strategy and traded in line with expectations. The underlying business is performing well, and this is a function of all of the market and regulatory changes that we've seen, but we've also done a good job of developing our services so that they focus on what clients need. We've also had some great new business wins during the period, too. But generally, we're also seeing examples where the Polaris relationships are helping us to deploy our broader pensions capabilities into the insurance market. And if you strip out the change in Employer NI and the impact of the McCloud project, we've continued to deliver operational gearing. Looking ahead, we expect to remain busy. It's hard to overstate the significance of the changes that we've seen in the private sector defined benefit pensions market over the last couple of years. So we expect to be busy helping our pension scheme clients decide on their long-term strategy and then helping them with the implementation, which typically involves lots of projects. And the quality of our service offering and reputation in the industry means we are well placed to continue winning more clients and mandates. We'll also continue to invest in our services. So we're looking at how we can use AI and technology to enhance what we already offer and create USPs, and we're also expanding the services we offer to the insurance market. In terms of operational gearing, we do believe the scope for further margin improvement through the migration of schemes onto Aurora and the use of technology to drive efficiency. And finally, and most importantly, it's worth saying that our success today has been underpinned by our culture, and we're firm believers that having happy motivated people is critical to providing a great service to clients, which, in turn, drives strong financial outcomes. So our culture will remain a key focus for us, and our employee Net Promoter Score of plus 32 shows we're really well set there. That's the end of our presentation. Thank you for listening.

[Operator Instructions] Our first question is from Steve Woolf from Deutsche Bank.

Congrats on the strong results this morning. Just a few for me, so bear with me. Can you just sort of talk a little bit more about the type of work that you're being referred from Polaris into pensions and how quickly does those sort of referrals and wins come through into the top line? Is it something for a sort of full year '27, just think of it in that area? Do you have the amount of people you need to do the work, given you've been so successful with a number of these contracts. Secondly, in terms of McCloud, congrats on the Met Police. Am I right in thinking they didn't complete McCloud? Or have I got that wrong? And is there opportunities in other areas? And then finally, for the investments you're putting into the insurance market at the moment in that business, does that constrain any margin improvements you might have been thinking about in near term? Just wondering now that you're sort of 6 to 8 months into Polaris, your thoughts there?

Thanks, Steve. I'll kick it off, Steve. So in terms of the type of work, yes, we refer to Polaris referring into XPS, of course, we don't think of it quite like that. We are all one firm these days. But the opportunities that it's opening up for us to deploy sort of long-term longstanding XPS resource into insurers is what we're referring to and I think what you're asking about. And yes, the opportunities there relate to Polaris relationships and existing contracts that they've got to do work for insurers, it's often quite difficult. You need to go through procurement. You need to be on preferred supplier list. You need to then have a master services agreement and so on with them. And in some cases, those are only updated and renewed every few years. Now the nice thing with the Polaris acquisition is that they already had such arrangements with all of the big insurers in the bulk annuity space pretty much. And as such, therefore, XPS had a license to go and do work in all those insurers straight away in a way that might have been a bit more difficult for that acquisition. Where we've seen that really pay off has been helping insurers primarily with onboarding of pension schemes where they've written a buy-in transaction in the last year or two and are getting to the stage in the process where they now need to assume responsibility for administering the pension scheme and paying the benefits and so on. And they've seen quite an increase in volume of work that they themselves need to do because of the increase in volume in the transactions. And we are a really obvious port of call, it is our bread and butter to do the administration pension scheme on a day-to-day basis. So offering sort of surge support to help them as they onboard new schemes is something that we've seen happen quite a bit, really kicked off in the summer in some cases. And it will help us with revenues in the second half of this year, and we expect that generally to persist into the following year as well. So lots of opportunities opening up for us in general in that market to keep helping those insurers. As an example of one of the larger cases that we've won, it is an example where the phone rang for one of the Polaris handlers, who is now an XPS partner. And that introduction enabled him to say, yes, we can definitely help. We've got lots of resource at XPS. They would not have been able to help using just Polaris capability, if you like, in the past. So it's a really great example for their relationships, their contracts, but XPS underlying expertise and resource has been able to deliver. So in combination, that's is just great. That's exactly what we hope to happen when we bought Polaris. It's really, really pleasing to see that come through. Now in terms of have we got enough people, we are actively recruiting. When we put people in to help and provide support to an insurer, they were already busy on pensions scheme clients. Now we've got enough people across the whole piece to be able to do that and still provide a great service to our clients. But of course, it does mean that, that's a sort of surge in busyness, if you like, across the group for our people when that happens, and we'd like to get more people in because we believe we can keep them busy when we do, do that. So I wouldn't say it's causing its operational problems, but more positively it's actually if we had more people, we've got to keep them all busy. So we do have vacancies and we are actively recruiting across the market to try to help to therefore, fuel via upgrades that will come with that. Ben, do you want to talk about the McCloud and the police question?

Yes. I mean that's very quick. I mean it's an early stage in our conversations on that, on new clients. So there will be discussions about exactly what support they need as part of the onboarding and going forward. So it's probably a bit too early to talk about any specific work or projects that we might do. And in terms of your question on investment in Insurance Consulting, so look, I think the short answer is, all of that is in the numbers that are in market at the moment. So we're not expecting any margin sort of contraction as a result of that. Of course, just to reiterate what's in the consensus is, a continued margin improvement of at least 0.5 percentage point from FY '27 onwards.

That's great. Ben, just what's -- the Metropolitan, did they defer McCloud? So is there work still to be done regardless of who does it? It has to be done in the future or was that work eventually completed?

I think it's underway. So it will be something we'll discuss about whether they need any support, but I believe it's underway. But as I say, it's not clear yet what support they might need as and when we're getting involved.

Our next question is from Portia Patel from Canaccord.

Can you hear me?

Yes, we can.

I've got one on the competitive landscape. So we've noticed within the last 12 months, there's been a bit of consolidation within your space. So Howden acquiring Barnett Waddingham and Gallagher acquiring Redington. So I just wondered whether that had created or changed the landscape for you, created opportunities for you? And could you see potential further consolidation in the space occurring?

Thanks, Portia. We've got quite a fragmented market. There are a lot of competitors. We have the big multinationals, the big 3, but then there's quite a lot of companies that are probably top of the pack of the next mid-tier competitors, but there are a few that are fundamentally pretty similar in size and scale to us and quite a long runoff. Clearly, the deals that you mentioned there, Barnett Waddingham, a competitor, it's still a bit like us. They were a partnership, therefore entirely employee-owned and they were acquired by Howden, as you say. An interesting transaction that Howden don't have footprint in pensions advisory, they did a bit of work in employee benefits, I think, obviously, quite an acquisitive company. A transaction like that may well be very good for Barnett Waddingham and their clients and so on, but it is a big change and probably quite a cultural shift when something like that happens. And like I say, that could go very well. But obviously, we will keep our eyes peeled to whether there are opportunities around people and clients when our competitors go through quite a lot of cultural change at times like that. So that's interesting to us. And in terms of Gallagher and Redington, Redington is a small specialist investment advisory firm and Gallagher have a wider pensions capability. So again, you can see that transaction making terms. I don't think it's nerve catching really in our world. As to whether there'll be many more, I mean there might be. There's private equity ownership out there. Some of our competitors are owned by private equity firms and possibly part of their journey might be to consolidate and achieve benefits and so on from doing so. I think we are just very proudly independent and feel like we are on a very, very clear uncomplicated path. We're very happy with our ownership. We think we benefit from being a public company in terms of the sheen that gives us, the transparency that gives us. And we are not going through any complicated cultural changes or mergers or anything like that. And while that's the case, we've got the best few years probably of demand out there from our clients to go and exploit. So we're very comfortable. I'm very glad really that we don't have any of those things to wrestle with while we just go and try and maximize the organic opportunity in our core business. Of course, we did do Polaris, but it's really pretty small in the scale of things, and it opens up a wider market, and it doesn't in any way distract us from the real big price that's right there in front of us in the pensions market right now. So in terms of wider M&A, we do still scan the horizon, but it will be more likely to be things that accelerated our diversification into wider addressable market than looking at the competition more directly in our historic core market in pensions.

Our next question is from Mandeep Jagpal from RBC.

Can you hear me?

Yes, we can.

I'll stick with 3 for now. Firstly, congratulations on the win for the 2 police schemes for admin. I was wondering if you could provide the expected revenue contribution from these wins, and when you expect the revenues to start coming through? Secondly, you spoke about run-on as an alternative end game that may be suitable for some of your clients, and that we've seen in recent weeks that some of your peers are talking about a role commercial or DB super funds can also play. Is this something that you have consulting expertise in? And is there a meaningful proportion of your clients that would consider this end game? And then just I think you talked at the start about new client wins across the business. What kind of feedback are you getting from the tender process, processes that you enter and reasons why you do win and reasons why you don't win?

If I kick us off with the police schemes, the two largest wins that have been confirmed, West Midlands, which is a very large force, and we are pleased that there's an outsourcing of their in-house team there. McCloud perhaps was almost a project too far and demonstrated the value of an outsourced provider with economies of scale and really deep expertise and good technology perhaps to them, and we're delighted to take that onboard that involves the GP transfer of some of their people into our Birmingham office to then deliver the services back, which is great. And then, of course, really recently, the Metropolitan Police win, which has been mentioned already, and we're delighted that that's, by some way, the largest force in the U.K. and becomes our largest public sector client. In terms of revenues, these things are clearly a little bit commercially sensitive. But let me say a little bit, particularly about the Met Police win and the feedback that we got on that, which is really, really positive. We are actually part of a consortium led by DXC to win that because DXC -- well, what the Met Police put out to tender was a much, much wider transformation process and technology transformation process. I think pension is about 10% by value of the contract that was put out to tender. So we tethered ourselves to DXC in that as did one of the two other firms with different elements of the contract. We're delighted collectively to win. On the pensions aspect, specifically, you get feedback from procurement about how well we've scored. We scored 10 out of 10 overall for our submission. And so we were clearly a very strong part of that consortium and absolutely delighted to play our part collectively in winning that work. And it's a 7-year minimum contract term. It's expected to go live in 2027 is the formal announcement, but we are reasonably optimistic that actually things happen more quickly than that as the latest it can go live. But probably, we will go live a little bit ahead of all of that. Now I should say, in terms of those revenues and what's commercially sensitive, it's clearly a healthy good contributor to future growth for us. It's what we have to do in order to meet the growth expectations that there are in the group in the future, of course. But it's nice to tick that box kind of a year in advance of when those revenue numbers will start to show up in our numbers to give us that extra little confidence boost that we are already making progress towards hitting those numbers in the future, which is a really nice thing.

Your second question was around run-on and commercial DB super funds. So I guess I probably start here when we advise clients because our role is to help them understand all of the different options and then help them with whichever route they want to go down. So we have expertise to support clients across whether the pros and cons have run on, pros and cons of an insurance transaction and the pros and cons of different options like consolidators. And the market is evolving quite quickly. So there are sort of broader kind of things to consider as well. So yes, we have the expertise to effectively support plans to consider and implement those types of arrangements. In terms of I think you asked, do we think we'll have loss of clients going down those routes? I think it's probably too early to tell. Probably my observation though is that clients who are comfortable continuing bearing the risk and would like the benefit of a surplus emerging, I think, like the control and therefore, do it in a run-on pension scheme environment. Schemes who believe that they want to discharge or companies would like to discharge the risk, I think, have a real focus on member security, then the insurance regime is really powerful in providing security. And so I generally see people at the moment, fall into all of those camps, and DB super funds aren't something that I think is getting a lot of traction. But as I said, the market is evolving and it could change, but that's where things stand today.

Then your last question, Mandeep, was about feedback on tenders. I should say what we see is tenders and increasingly, our pipeline reflects the evolving market. I've already covered administration, public sector administration is a little different and private sector administration, a very healthy tender list there. And generally, feedback is, we are recognized as a very high-quality provider with a particular expertise in large schemes and first-time outsourcing, having done, we think, probably over half of all of those that have been done now in the last decade or so. Obviously, John Lewis was recent and that's onboarded successfully. And I think the market can see that we've digested that and are ready to do another one of those which is really exciting for us. I guess the other place that we're seeing quite a healthy increase in pipeline has been investment consulting, and that reflects the changing financial position particularly defined benefit schemes in the private sector. Essentially, many have a strategy set many years ago that would involve the need to outsource quite a lot of daily decision-making because you want to really actively trade your way out of deficits and you might use what's called a fiduciary manager, an outsourced fund manager basically to make proactive decisions and really actively trade. But with that comes quite a lot of expense. It is an expensive way, but the idea would be net of fees, that's justified if you need to chase a really high return. These days, pensions don't need to chase a high return. That world has shifted. If you're very well funded, a sensible care and maintenance type strategy is more the order of the day. And so then there becomes a question as to whether you really need an expensive fiduciary manager and so on? And we've had some success in winning appointments over the last 6 months and a very healthy pipeline as we look forward in taking on that care and maintenance type roles on an advisory basis where people choose not to use those more expensive fiduciary management offerings that some of our biggest competitors in particular provide. So feedback on those tenders is, we're providing services that meet the market's need right now. And I would say in general, that's the theme where what we're doing for our clients today is different to what we were doing from 3 years ago and 6 years ago, but we're always good, I think, having the right services at the right time, and that is critical. And feedback on tenders is generally, yes, what you guys have got is very relevant right now. And when we win, that's generally why is because we're quite quick out of the blocks to adapt to the world that's changing around us.

Our next question comes from Rahim Karim from Cavendish.

Hopefully, you guys can hear me. A couple of questions from me. The first, just on addressable market. I noticed that in the pensions, business has kind of gone from GBP 2.5 billion to GBP 3 billion. I was hoping that you might be able to just talk about what's changed in terms of your assumptions there? And also just on insurance, how you think that GBP 1.5 billion might evolve in the next kind of year or so as the Polaris acquisition kind of beds in and the opportunities that you talked about kind of manifest themselves. The second question was kind of a little bit more detailed in terms of the EBT scheme and the rate of purchases that you're doing there and that's seen a step-up, obviously, trying to perhaps limit the impact of dilution. If you could give us a sense of where that might be for full year and what we should be thinking about in future years, that will be great. And then finally, just maybe to touch on the pensions opportunity and the administration opportunity in the public sector as a whole. The announcements or the wins that you've had in the last month or 2 are encouraging. And how much more is there to do in that? Obviously, it's a smaller part of your business, but in the context of the group, where would you like to see that being in a few years time?

Thanks, Rahim. So I'll take your first question, the addressable market. So as you can see in the graph in the slides, the data is taken from the Professional Pensions survey where they look at some of the statutory entities that operate in our market. Obviously, we give the most amount of detail in terms of divisional breakdown, et cetera. But unfortunately, we don't have the same luxury from our competitors. So it is a little bit of an aggregation of the revenues of those relevant firms. Of course, we know that some of those do operate in markets that we don't, consulting markets particularly. But that's what's led to the sort of the increase that looking at their most recent accounts, they add up to just over sort of GBP 3 billion. Of course, we don't go and look at all of the sort of the long tail that may exist within that market. And I'll also just take your question on the EBT, the share purchase. So we've been on a sort of journey on this that we're not sort of trying to put the market or anything here, but it is more about protecting the dilutive impact of the share of remuneration that we have. And we sort of look at it very carefully in terms of the cost of the additional debt, the interest, et cetera, and make sure that it is overall net positive for the EPS, and that's what just happened. We had a very big sort of save as you add scheme maturing this year, which is, of course, great for our people and the motivations, et cetera, and we had a number of the PSPs also maturing. So it is to satisfy those awards. So you will see the share count has reduced year-on-year, and we expect that to be the sort of the year-end position. We don't sort of assume any significant buybacks in the future. But for the future years, expect the share count to go up as we've sort of said in terms of the PSPs, et cetera, they are an issue.

Rahim, I think the second part of your first question was around the target addressable market for insurance -- around insurance companies. So the figure of GBP 1.5 billion there. So actually, when we initially looked at that market, we had some external work done on the size of it. And so the GBP 1.5 billion comes from that work and its U.K. actuarial services in effect to insurance companies and is consistent with other figures that I've kind of seen trying to do similar things. I guess what I'd probably say is that the opportunity for us, I think, is bigger than that in terms of we do work that isn't strictly actuarial, broader consulting and, obviously, administration support. We can provide also the line between work for life insurers and general insurers, which is a different market, another very large market. I think that line is quite great. And so from our perspective, I think, we think there's a much bigger market than GBP 1.5 billion that will hopefully be open to as we go forward on our journey. So really, really exciting. That's a really big increase for us in our target addressable market.

And on public sector as a whole, different market for us. And yes, we're pleased with the headway we're continuing to make, especially in Blue Light Services, for a focus on police, there are opportunities more widely across fire as well. The market in public sector, there are definitely opportunities for us to continue to expand our footprint there. But it's something that takes time. You need to be on framework agreements and so on that our only review are fairly and frequently, and if you're not on framework agreements, you're not able to participate in bidding for public sector work and so on. We are optimistic that over time, we have an opportunity to get on to this framework agreement because of the great work we've done in certain areas of the public sector and the reputation we have for McCloud. And there are a lot of challenges out there in the public sector right now around the quality of administration on some very large schemes and indeed, residual McCloud type issues that need to be resolved in other large public sector schemes that are some way behind, at least primarily because we've done police and the rest of the public sector market has a little bit of a way to catch up. And we are, of course, as you'd expect, in active conversations about trying to get involved in wider work, one for us to report on in future periods. I think we certainly have ambition to do more there, and it is quite a wide big market. But it's all quite chunky. And if you win an appointment or two in that, it can be very, very material. So it can be a little bit binary as you go through those processes. But yes, we're on that path very much, and we've been trying to maximize the great reputation that we now have.

I think there was a last question about what we see the opportunity in terms of pensions administration of the public sector.

Our next question is from James Fletcher from Berenberg.

Just kind of 2 or 3 questions really within the same area for me. Just with regards to kind of bulk annuity transactions. Just if you could give some commentary around that 2025 number, so you've got year-on-year decline. Just in terms of what's going on there, I guess it's been run-on for surplus impact. Then also if you could talk about in terms of your own risk transfer team. I know in the past, you talked about them doing GBP 50 million from almost a standing start. Just if you could kind of give us an update there. And then just finally, you've said in terms of economics of -- or you're agnostic in terms of run-on for surplus versus buyout. Just if you can give a bit more further explanation as to why you're agnostic on kind of different economics there.

Sure, of course. So the first question was about the predicted volumes and number of deals in 2025. And I think James, you've almost answered your own question there. So what we're seeing there is, if you think, schemes generally are getting better funded, as we talked about earlier. But if you like, run-on is probably something that's getting more traction with schemes above a certain size. And it doesn't have to be that big actually to gain traction, but certainly bigger schemes are more interested. So in 2025, what we're seeing is fewer, very large transactions in the market, which is reducing the volume, but still a lot of schemes heading that way, particularly the smaller ones, which accounts, therefore, for the larger number of deals that we have predicted to happen. And I would anticipate that will be a similar trend kind of if you look forward a year or two as well.

So for our team, I think that's the key thing is what matters for us really is number of deals in the market more than the total asset size. And it is true that a large multibillion deal will have a bigger fee attached to it. But you're better off doing 3 small deals than one large one. It doesn't scale linearly with the asset size. And a GBP 50 million transaction still has a need for a huge amount of advice and support just as a GBP 5 billion one does. And I know we can't share the screen to show you. But if you look back at that slide, whilst we see the total asset value of transactions beginning to plateau, quite possibly decline this year is because of fewer big deals. But the other chart -- the thing that we overlaid on that chart in a different color was the number of deals, which is still increasing, and we think that still will. So basically, the bulk annuity market has shifted from a few massive deals to lots more smaller deals. And from a fee perspective, that's actually good for us. If we just hold market share in that environment, we will do more revenue. And that's what we're generally seeing happen. Our pension risk transfer team has been really, really busy, probably had its best first half of this year, building on the best half it's ever had in each of the prior halves for some time now. And we do optimistically think that's going to happen for the next few years as more and more small schemes come to market. Also lots of the work we're doing is sort of year 1 of a 3-year or 4-year process still. So again, the visibility of the revenue in pension risk transfer is pretty strong and with kind of record numbers of schemes still coming online, starting that process, we think that's going to be a very, very busy area of our business for quite years to come. In terms of the economics of being agnostic, well, I can partly answer that question that lots of small schemes coming on is really, really good for us because we're so busy helping them all, but for the larger schemes to run on, and that creates opportunity in two ways. And of course, it creates an extended longevity. If we still have the largest clients many, many years from now, that care and maintenance work that's done for them, they are the biggest payers of fees in the market. And so that's very healthy for us from a longevity perspective. There's lots of work to help them design and implement run-on strategies. And the last bit is, it really creates a new opportunity. Probably, there's some pension schemes out there that thought 2 or 3 years ago, I'm not that enamored perhaps with my actuarial provider or what have you, but why change from 2, 3 years away from potentially doing an insurance transaction anyway. If now you're thinking, I'm going to run on and set a course for 10 or 20 years, you need the very best actuary advice, technology supporting that and really brilliant ideas about implementation. And actually, we are all starting to see some bigger opportunities we're opening up where people are realizing that actually this is slight change for direction, almost a bit refreshed start. And rather than just hang on to the advisers that we've got, we should review the market. And that's a brilliant opportunity for us because as you know, whilst we've got some large schemes, awful lot of them sit with the big 3 firms next to us, and we do see opportunity to potentially unsettle one or two of those actually take for change just by being better and quicker to embrace these opportunities.

Our next question is from Vivek Raja from Shore Capital.

A couple of areas I wanted to explore, please. The first one is cost and operating leverage. And the second one is organic versus overall revenue growth. So on the cost and operating leverage, Snehal, you usefully sort of provided some commentary in your opening remarks about what underlying EBITDA margin progression was if you sort of strip out the NIC and the McCloud impact in prior year. What's driving that within the business? What are the sort of moving parts there to drive that efficiency gain? And I wonder if within that, you could talk about what you see in terms of wage inflation in the first half. The next question was about the organic versus total revenue growth. So Polaris has obviously contributed clients and demand into sort of core pensions business. If you sort of think about that bit, I wonder if you could sort of just provide a bit more context to the organic revenue growth number with that sort of bit from Polaris into the core business?

So in terms of what's driving that, so the numbers that I quoted in the presentation, as I said, it's sort of -- if you take out the impact of McCloud entirely, of course, life won't be as sort of straightforward as best. So if we weren't doing McCloud last year, I'm sure we would have been doing something else. But obviously, it's quite difficult to estimate. So that's the reason why there is a marked improvement in the margin. What's driving that? A few things. So in terms of the cost itself, we have come off 2 of the 4 systems that Aurora is going to be replacing. So some of that cost benefit has started to flow through. Secondly, the mix of the business as well. So we're doing more of the risk transfer work, for example, which is higher margin. And then generally, sort of the cost discipline in the business about organization pyramid, et cetera, having more junior staff joining and then developing them, reducing the sort of the input cost of the business, et cetera. So it's a consolidation of all of those things that are playing through. So those things are going to sustain and actually get better as we come off the other systems that Aurora will replace. Ben, do you want to take the one about the revenue mix?

Yes. So when we report revenue for Polaris, we just report growth figures that are organic and inorganic is what I mean. When we win new contracts that Polaris have introduced us to, but we're delivering with excess resource, which we did some of in H1, and we expect to do more of in H2, we don't record that as inorganic. We just record that as organic growth. It's being delivered by XPS resources and so on. You obviously could argue that it could be either. But to be very clear, if that means that the Polaris contribution to the group, as a whole is stronger than it might look by just looking at purely what we're describing is inorganic growth because it is pushing revenue opportunities directly into XPS using XPS resources that existed before that transaction happened. So we take a little bit of care with that. Whilst there are big opportunities there, there is a possible substitution effect, right, that our people, who are very busy doing chargeable work for clients in pensions, have been deployed at an insurer and are doing chargeable work, but that substitution effect doesn't necessarily instantly mean that we earn more revenue. We're just earning it from a different end client. In fact, we probably do see an incremental benefit because it drives increased busyness as people within the pensions business have to do a little bit more where their colleagues have gone and started being deployed at insurers. But it isn't a pound for pound is what I'm sort of guiding you to be a little bit careful on that. Now clearly, if we can backfill resource, and we're sustainably deploying resource at insurance companies, which we think is significant to what is going to happen, then actually it does drive organic growth, too, without that substitution effect ultimately happening. But there is very positive news that we are managing to deploy resource into insurers because it's just broadening and deepening relationships more generally, and it opens up all sorts of wider opportunities and it boosts the brand that we have in that market. And for the wider, more pure insurance consulting work that we'd also like to win, it clearly gives us a big head start and opens up that opportunity more generally too. So we're really, really pleased. We've had 7 months -- or 8, 9 months now of Polaris. And yes, we're really pleased with how that's generally going and what it's doing for the group as a whole.

Could I just push you, if you could, provide a bit of detail there. On Polaris versus core and organic, how much of the organic print came from Polaris, if you could just quantify that? And secondly, Snehal, if you could just talk about what wage inflation you've seen in the first half?

Sorry, yes. So the wage inflation within that was probably about 4% and this is sort of the promotions on the 1st of April. In terms of the contribution into the work that we sort of started for the large insurer, which has started from the actuarial team, that only started into the September, really. So there's a very small contribution within the pensions number for the half year.

Our next question is from Thomas Ryan from Davy.

Hopefully, you can hear me. Two quick ones, more broad-based, if I can. So firstly, I know at the full year results, AI projects were mentioned as maybe driving some efficiencies, so I was wondering if you had any updates on that area? And then secondly, with the budget next week, there's a lot of speculation out there. I was wondering if there's anything specific that you'll be focusing on that you think could have a big impact on your clients and then how that will affect XPS as well?

I'll take the first question on AI. Yes, so with the full year, we talked about a few initiatives that we had we achieved 1 or 2 things. So one of them was about improving our service and the way that we can analyze call information that we get within our contact center. The other was about the way that we ingest post and how we can make that process a little bit more efficient. So we continue to look for those types of opportunities. We're exploring for example, at the moment, how we might be able to use more technology in AI around things like data cleansing, which is one of the sort of challenges within the industry. So there's probably not a huge amount new to say other than that we're on the same trajectory as we were before. We still do think that there are a lot of opportunities to use technology, more generally to improve what we do and also improve our efficiency, which is sales. So it's one of the things that we think embeds is some optimism about future margin improvements.

Then in terms of budget changes, in general, as a reminder, things changes to tax rules, wider regulatory changes and so on and most of these changes that are almost universally good for our business because it means that our clients are affected by it and need advice and support as to how they're going to respond to such changes. So we do work with bated breath. I don't think anything hugely dramatic is likely to happen that will affect the big picture landscape of defined benefit, defined contribution schemes that we advise. But definitely some filling at the edges that's being talked about, changes in salary sacrifice arrangements and so on. So those affect pension contributions. There could be changes in things like thresholds for lifetime allowances and so on. You never know. And if those things do happen, then yes, we'll have a wide range of clients that need advice about how to respond to it. I don't think any of that would be earth shattering, but it would be nice to be incremental each client across our many hundreds of clients needing probably a few thousand pounds or more of advice. It can never do us any harm when those things come through. So we still wait to see. While the government policy has been set for some time to try to release pension scheme surpluses, that's the bigger news. And that's been confirmed earlier this year and the pension bill is making its way through parliament. We're awaiting regulations and so on and all of that. I don't see any question that that's going to change. It is part of this government. And indeed, the prior government's agenda to try to help drive growth in the U.K. economy. We are very supportive and think it's very sensible and it has cross-party consensus. It doesn't affect tax revenues, but it does help drive the growth agenda in a positive sense. So I think we can probably be pretty confident that, that's all robust and going to continue.

Our final question is from Mandeep Jagpal from RBC.

A couple of areas I don't think have been addressed yet. Firstly, could you please provide a reminder on whether the impact of McCloud remedy work in H2 earnings was similar to H1? And then great to see the inroad you have with the BPA players. Does the M&A in the PRT base create a change in the addressable market now compared to when you bought Polaris either from consolidation of insurers meaning fewer to serve or actually mean they're more for you to serve in the short term, and they look to integrate?

On the McCloud revenues, broadly last year, the revenue was 50-50 H1/H2. In terms of the BPA players, so I guess in terms of the opportunities for us in that market are all of the operations, I guess, that the BPA providers have. So as they've written more business, they often need more support around cash flows and pricing, more support around onboarding and cleaning data and transitioning and migrating it and then more help around administration. And I don't think any of the transaction in the market impact that opportunity. In terms of activity itself, well, clearly, we have an insurance consulting team who is able to support insurers going through change, understand kind of these transactions and support them through it. So from that data lens, it should create a bit of short-term extra opportunity for David and the Polaris team. But in terms of the underlying opportunity around the bulk annuity market, I don't think it has any real impact on that.

There are no more questions. I'll now hand back to management for closing remarks.

So well, thank you, everybody, for joining. And thank you very much for all the questions, which were really, really addressing all the key areas, I think. So thank you for that. But we're really pleased with another really, really positive half year. We're delighted the growth in the core business of 12% and profit growth of more than 12% when you adjust for the very large one-off project that we had last year, is extremely healthy. And the sort of core big beast, if you like, about pensions actuarial and administration businesses are just rolling on and producing great performance. Against the backdrop, where there's a lot of market tailwinds, our clients need a huge amount of help. So we're very excited about continuing to exploit the opportunity, to be agile and to be ahead of the competition in supporting clients against the backdrop of all this change that's multiyear in nature and going to roll on for some time to come. And of course, at the same time, really enjoying the fact that we're making some really good head roads in broadening our horizons and deepening relationships with insurance companies at the same time. So thanks very much for listening and attending. I guess, we wish you all a very good day.

Thank you for joining today's call. We are no longer live. Have a nice day.