Welcome everybody to the Computershare FY 'twenty one Full Year Results Presentation. Following the presentation, we will open the call for questions. I'll now hand over to our first speaker, Chief Executive Officer, Stuart Erling.
Good morning, everyone, and welcome to Computershare's FY 'twenty one results conference call. I'm joined today by Nick Oldfield, our Chief Financial Officer and Michael Brown from our Investor Relations team. As usual, on this call, I'll take you through the key aspects of our results and the outlook for the new financial year. Now we did release a presentation pack to the ASX and it's also on our website and there's a lot of information in the deck for you. And as usual on these calls, I'll focus my remarks on the opening pages of the presentation.
Nick will then take you through the slides on our financial results. Then after some concluding remarks, we will open up the call for questions. Also as a reminder, we will be talking in U. S. Dollars in constant currency, unless we state otherwise.
So let's start on Page 2 of the presentation. There are really three key points I'd like to call out here. Firstly, I'm very pleased to say that we delivered a strong operating performance in the second half of the year. Earnings were 39% higher in the second half compared to the first half, and we made just over $0.30 per share of EPS in the second half. We said in February that we expected the 1H results would mark the bottom of the earnings cycle for Computershare and the earnings growth was underway And you can see that coming through.
2H was effectively the equal best operating result excluding margin income in Computershare's history. Secondly, our main operating businesses are performing well. We are making good progress executing on our growth plans And we're also benefiting from high market activity levels. Without a doubt, the year had plenty of operational challenges. Margin income is frustrating with record low interest rates and the government restrictions in U.
S. Mortgage services went on for longer than we expected. However, the strong growth in issuer services and employee share plans enabled us to deliver on the upgraded guidance that we provided in February. Adjusting for an increase in the annual leave provision as many employees were restricted to home and didn't take leave, EBIT Excluding margin income, we have also been in line with guidance. Finally, as I've talked about before, strategically a better quality computer share is emerging.
We clearly made a big step forward this year with our announcement in March. We are acquiring the assets of Wells Fargo Corporate Trust Services, A leading U. S. Provider of trust and agency services to government and corporate clients. Due to complete later in the year, the acquisition accelerates our scale to position in the attractive U.
S. Corporate trust market. It also provides Computershare with greater exposure to interest rates and positive long term growth trends in trust and securitization products. Now we are delighted with the acquisition. We have secured regulatory approval from the OCC since we last spoke and we are heavily focused on the plan to first separate the business from Wells and then integrate into Computershare.
And on that note, I would like to thank our existing and new shareholders for supporting our capital raise to partially fund the acquisition. We had very high levels of participation in the offer, which is a great endorsement of the strategy, and I am very grateful for your support. Now let's move along to Page 3, where we show a more detailed analysis of the results, the earnings waterfall. We bridge from the FY 2020 management EPS of $0.56 per share through to the result of $0.52 per share for the year and then show guidance on the far right hand side for comparison. I'll walk you through the bridge.
Margin income on the left With the single largest factor in the period, the drop in MI from $200,000,000 last year to $104,000,000 this year Cost us over $0.13 per share. $0.084 of this drop was in the first half and it's the lowest level of MI for a long time for us. We averaged $20,000,000,000 of balances in the second half, which was high, partly driven by strong corporate actions activity, But the average yield on the exposed balances was only 0.7% and this was less than half the rate we earned in FY 2020. Grouping 3 of the next columns together, mortgage services cost us $0.10 of EPS. As we've talked about before, We took the decision to be more conservative and changed the amortization period from 9 years down to 8 for the performing MSRs we own in the U.
S. To reflect the elevated level of runoff in the market, that cost us $0.016 It impacted earnings, but it's non cash. 2nd, the extension of the foreclosure moratorium in the U. S. Won't surprise anyone either.
It was part of the government's response to the And it went on for around 10 months longer than initially anticipated. And while the CARES Act moratorium was finally lifted at the end of July, It was in place for the full second half of the year and it cost us around $0.0109 per share. The 3rd part of the cost is in UK mortgage services. FY 2020 was the last year we received a sizable fixed fee contribution under the UCAR contract with only $4,000,000 coming through in FY 2021. So that was a $45,000,000 drop in revenues over FY 2020.
This reduced EPS by $0.07 in FY 2021. We clearly knew this was coming and we've been proactive in taking out more costs from this business to adjust. You'll also see on Page 21 of the deck, we have upgraded our savings this year compared to our original plans. We are making good progress rightsizing the business and we do expect to return to a modest profit in Slide 22. Moving to the green bars, the good news stories.
All the cost out programs across Computershare really helped our results. Across Stages 1, 23, the Equatex synergies and expanded cost out opportunity in mortgage services added $0.094 of earnings. Now we do expect our cost out programs to deliver a further $73,000,000 of gross savings over the next 2 years, and we continue to look for more cost As you know, it's in our DNA. We will use these savings to help mitigate wage inflation pressures. Across the group, but particularly in the U.
S, wage inflation should run around 3% next year, and I can see the pressures across the economy. While we manage our costs very carefully at Computershare, that's around $38,000,000 of additional headwind on a pre tax basis next year that we have to offset to deliver growth. Moving to the next green column in the bridge, we did deliver profitable operational growth in FY 2021. We delivered over $0.09 per share of operational earnings growth, excluding margin income, and the split was broadly $0.03 in the first half and $0.06 in the second. And as I mentioned earlier, EBIT ex Mi was up 12.6% for the year And adjusting for the increased annual leave provision as we didn't force people to take time off during the pandemic, it would have been 14% growth.
But I think that was an important thing to do, because I think we've retained our special culture at Computershare despite all the challenges of remote working and lockdown. So at the earnings level, we came in at down 7.3% for the year. That was 70 basis points ahead of the upgraded guidance gave in February at down 8%, and we made just over $0.30 per share in the second half. Let's now talk about the businesses and how they performed starting on Page 5. We'll start with Issuer Services, which is the largest business in the group And contributes 43% of total revenues.
The business is performing well. Revenue was up 9% this year, and again, we saw the operational gearing come through with EBIT ex Mi up 26.3% And margins expanded by 240 basis points to 24.4%. And I'd have to say we're very pleased with these results. Revenue grew across all its business lines. Registry revenue was up 3.2% excluding margin income, which is a good pickup from the 0.6% growth in the first half.
The number of shareholder accounts we manage around the world increased slightly year on year And we also increased client wins by a net 277, which is up 82 wins on FY 2020. This market share growth is good validation of our offer. Now issuer paid fees grew by over 4%. These are the recurring revenues and now account for 69% of total revenues in the business. Holder paid fees are more transactional, But pleasingly, we did see some recovery in the second half here.
They account for over 28% of the revenue And margin income effectively halved in the business throughout FY 2021. Corporate actions was strong in FY 2021. We saw increased transactional volumes and high market activity levels across all our major regions. Excluding margin income, revenues and corporate actions increased by 35%. The M and A and Hong Kong IPO boom has been a positive for us, But FY 2021 was also a story of capital raises, particularly in the UK.
It also reminds you that our key metric is a number of Announced transactions are a good lead indicator, but we do earn our revenues when the deal has been completed. Stakeholder Relationship Management, another of our event based businesses did well. Revenues ex MI increased by 45% With a very strong first half as we completed a number of mutual fund proxy campaigns. As I've said before though, these projects are lumpy and not recurring. We don't expect the same level of contribution from corporate actions due to less capital raise transactions or from SRM in FY 'twenty two.
Our new governance businesses, as we now call them, are building scale. We are successfully leveraging our core registry skills in The new complementary adjacencies, registered agent and entity management. Our key metric of units or entities registered and stay under management Same growth in large addressable markets. They also provide recurring subscription style revenues and don't have any margin income exposure. I'm pleased with our progress in governance services and our ability to provide an expanded suite of services and a combined offer and it's a clear competitive strength.
Moving on to employee share plans, it also delivered a robust result. It more than doubled earnings excluding margin income in the second half compared to PCP, recurring fee revenues increased by 4%, excluding margin income. EBIT ex MI was up 68% And we delivered 7 90 basis points of margin expansion on the same basis. But what's really driving that growth? Now as you know, we are implementing our market leading platform, Equate Plus across Europe and Australia, with over 3,000,000 participants now live on the platform, And this is helping us win market share.
New client wins were up 7%. Transactional revenues also recovered As equity markets rallied, you will remember the fees were down 7.4% at the halfway stage and have finished the year up 16% And they're now above pre pandemic levels. That's been a big recovery driver. The structural rise of equity based remuneration is also clear See here, units under administration are up 13% and more companies are issuing equity deeper into their organizations to attract, retain and reward employees. Now moving on to Business Services, it Delivered that disappointing result, so these are clearly not peak earnings for the group.
Revenue was down 15% and EBIT ex Mi fell by 34%. Now there are really three parts to this. Firstly, the Canadian Corporate Trust business performed consistently, which is a decent result given the high PCP. Bankruptcy reported strong revenue growth, up 37%, although it was first half driven And class actions declined by 31%. Now there are a couple of points to make here.
First, the economic stimulus packages have We delayed the bankruptcies we expected to see when the year began, and you can see that in the public filings. There's been very little activity over the last 6 months. But we do expect volumes to recover over time, but the outlook for FY 2022 is slightly subdued. Same with class actions, There has been very little activity through the courts. And while the structural growth trends are intact at around 6% volume growth PA in cases, Again, the outlook for FY 2022 is a little subdued.
Now let's move to mortgage services. It's been a doozy of a year. There's been lots of challenges to manage. With the pandemic related restrictions in the U. S.
Extending through FY 2021 And a prolonged period of record low rates driving elevated levels of runoff, the results aren't all bad. EBIT ex MI margin, including the increased Amortization stayed positive. Total UPB is down 6% to $112,000,000,000 With this, the value of loans we subserviced increased by The mix is improving also. Performing subservicing UPB grew by 28% And we now sub service over 290,000 loans. Capital light revenues increased by 17% in the year, Partly as we're able to sell MSRs on a retained basis, convert and owned MSR into subservicing business.
This helped drive the mix in the portfolio I've just talked about. We also expanded our recapture capability. This is our defense to losing loan servicing from refi. We have retained the servicing on over $215,000,000 of loans that would have been served at somewhere else. Having said all that, we had just over $700,000,000 of capital employed in this business at the end of June.
This reflected a delayed MSR transaction, which completed in the 1st week of July and a temporary peak in advancing on behalf of a subservicing client. Adjusting for this, The invested capital would have been flat over the year. We're now very focused on the pathway to better. But what is this? Now we can reduce the capital employed through ongoing MSR sales, recycling capital and creating new capital light subservicing businesses.
We have a strong pipeline of new fulfillment business and we're in the process of implementing these contracts. And whilst the moratorium on foreclosures has come to an end, there are still a range of relief measures put in place by the CFPB, which will remain through to the end of the calendar year. Once these finish, we do expect to be able to add high margin non performance and servicing work Together with its associated ancillary fees to help improve the bottom line, that will start to come through in the second half, but clearly we've got a lot of work to do here. Putting it all together, our largest businesses performed very well. The more cyclical events businesses were a mixed bag, ups and downs.
Margin income was frustrating, U. S. Mortgage services needs to improve and we've added a whole new long term growth engine in the U. S, which is Corporate Trust. Now let's move to Page 6 and talk about our outlook for FY 2022.
For FY 2022, our initial guidance is to deliver around 2% growth in management EPS. Now there are several moving parts in this, so I'll step you through it. The guidance includes CPU legacy, now that's Computershare before the acquisition and without the rights issue. Also, let me highlight an important number here that I may be missed in all the excitement of an improved margin income outlook. For the legacy business, we do expect management ex MI to improve over 3% on the PCP.
2nd, we show the contribution from CCT For the 8 months, we expect to own it for the year and finally, the dilutive impact of the rights issued. Now to help you, we also put in a bridge for the guidance, which is on Page 7. Starting on the left, We have FY 2021 management EPS translated to FY 2020 FX rates of $52.03 Then there's an FX adjusted equivalent of what we're reporting today, which 52.46, that's in constant currency. With wage inflation that I've called out, Cost out programs and some underlying business growth, the guidance for the legacy business would have been $0.547 per share. This would be a rise of 4.2% compared to the adjusted PCP, that's underlying organic growth.
Moving along the chart, the Corporate Trust acquisition is expected to close in October or November, And we expect CCT to add over $0.04 of earnings in FY 2022. We then have to adjust for the rights issue. Now we assume the rights issue took place in full on the 1st July. Pre the rights issue, the weighted number of shares on issue in FY 2021 was around $540,000,000 In FY 2022, it's over $604,000,000 Using the higher share count dilutes EPS by 0.056 dollars Taking all this into account, we expect around $0.534 of EPS in FY 2022, which is around 2% growth on last year. The other guidance assumption to call out is on margin income.
Again, I'll do a little bit of the sum of the parts breakdown here. We expect for Computershare on a standalone basis Mi to be the same in FY 2022 as it was last year at around 107,000,000 This is better than the initial guidance we gave at $80,000,000 for FY 2022 And Nick will talk you through how we achieved the uplift. We assume balances of $17,000,000,000 And as usual, we base our yield assumptions on the 3 month swap curves as they are today. We don't speculate on the rate. You'll also remember that CCT has balances too, dollars 60,000,000,000 of them.
Around $9,000,000,000 is directly exposed to interest rates With the majority of the others in money market funds, where fees are fixed and we don't classify them as margin income. We expect CCT to contribute Additional margin income of around $38,000,000 So this gives us $145,000,000 of margin income in total. Balances for the group should average between $55,000,000,000 to $60,000,000,000 Our view is the margin income will be split broadly $60,000,000 in the 1st half $85,000,000 in the second half, and this reflects our assumption around the timing of the closing of the CCT acquisition. I'll now pass over to Nick for further details on the financial results.
Thank you, Stuart. Good morning, everyone. Let me start with our financial results this year, which are on Slide 19 of the deck. As you can see, group revenue ex margin income was up 3.6 percent. And adjusting for M and A and the UCAR fixed fee, organic operating revenue growth was 4.6%.
Increased contributions from issuer services and employee share plans are the key drivers here. Reflecting the fall in interest rates, Total revenue for the group fell 0.8% over the prior corresponding period. There's more detail on revenue on Slide 27 to 29, including revenue excluding margin income across each business stream. EBIT for the year fell 11.5 percent to $440,700,000 In large part, this decline is attributable to the $95,100,000 reduction in margin income, While amortization expense increased by $35,800,000 this reflects both the change in amortization period announced last year And an unwinding of a couple of excess strip trade mid year. We assume an 8 year amortization period for performing loans going forward and therefore expect amortization expense at a similar level in FY 2022.
As Stuart has already said, Excluding margin income, EBIT increased 12.6 percent to $336,400,000 And adjusting for the increase in our annual relief provision, EBIT excluding margin income was up 14%. The EBIT ex margin income margin was up 130 basis points 15.6%, again largely due to the improved contributions of issuer services and employee share plans. As anticipated, interest expense was lower, reflecting the lower rate environment. Our income tax expense was lower too at $105,400,000 The effective tax rate for the year was 27.2%, Slightly better than we anticipated. This was largely due to a change in tax rates in the UK and the related revaluation of the next We also expect a slightly lower ETR range in FY 2022 26% to 28%.
This reflects a slight change in expected profit mix and a lower expected U. S. Beat expense. Management NPAT was down 7.4 percent to $281,400,000 And as you've already heard, Management EPS is down to 7.3 percent to $0.5203 per share. Our statutory results are set out on Slide 2526.
Statutory NPAT was $189,000,000 With the difference attributable to the amortization of non MSR acquired intangible assets of $42,700,000 acquisition related expenses The $24,500,000 which was largely attributable to the ongoing Equatex integration and $27,500,000 Associated with our cost out programs, the main contributor being the UK Mortgage Services restructuring. I'll now jump back to Slide 8 and talk about margin income. Now the margin income result was broadly in line with expectations With 2H21 being $51,500,000 at actual rates. Notwithstanding this result, Average balances were actually around $2,500,000,000 better than the first half and much greater than we expected, Meaning our overall yield on client balances declined further from the first half to around 51 basis points. This increase in balances is largely due to a growth in SPAC funds as we have managed to penetrate that market segment in
the second half of the year.
To date, however, these balances have not attracted any margin income due to the fee arrangements in place for these types of transactions. So adjusting for these SPAC funds, our exit balances at the end of FY 'twenty two FY 'twenty one, sorry, Looking to FY 'twenty two, however, we're actually upgrading our margin income expectations to be around $107,000,000 And that's $145,000,000 when we include the contribution from CCT. A reminder, these numbers are in constant currency. So what's behind this improved margin net income outlook for our core business? Well, firstly, we've been able to secure an extension of our deposit protection service contract in the UK through to 2026.
This means that we can reinvest funds that had previously been expected to revert to short dated rates in FY 'twenty two, And we can add further duration to term funds that were previously anticipated to end in FY 'twenty three. Moreover and importantly, this new contract provides more flexibility in terms of duration and liquidity requirements, Whilst UK medium term rates have also improved significantly since we did our half year outlook. Altogether, The DPS represents around 2 thirds of the margin income uplift that we're now anticipating in FY 'twenty two. The remainder of the uplift is driven from an improvement in the U. S.
Dollar interest rate outlook, where medium term swap rates have picked up since the half year. We've been able to take advantage of this and add duration to the book to secure a higher return in FY 'twenty two. Together, this drives a higher yield expectation in FY 'twenty two on the legacy book to be around 63 basis points on balances of $17,000,000,000 Now looking at the CCT book, we expect that to come on board in October, November time Deliver around $38,000,000 in margin income during the year, at a yield of around 29 basis points. Now to be clear, we're not assuming any upside in FY 2022 from extended duration, recapture of money market funds or yield enhancement strategies at this point. There's more detail on our balances on Slide 71 to 75.
Next, I'd like to talk about Slide 20. Here, we show the bridge in operating costs between FY 2020 and FY 2021. Importantly, we've drawn out the reduction in underlying operating expense. You can see how the programs are having an impact. These programs realized $82,600,000 of benefit in FY 2021.
Dollars 32,400,000 of this Came from the finalization of the asset migration program in UK Mortgage Services. All the IT costs associated with the transition has come out, And that's what this saving represents. The remaining $50,200,000 comes from our other cost out programs, The largest being the restructuring of our U. K. Mobile Services business.
Overall, our adjusting operating cost base It was $1,181,000,000 a reduction of 6.5%. So where did these savings go? Well, first of all, there's $8,000,000 of M and A related additional OpEx, a little bit of corporate creations and a full year of Vabatin. Then there's the investment in growth. We've added capacity to meet demand in corporate actions and in building out our corporate secretarial capabilities.
This added $33,000,000 of cost. And finally, there's some one off costs of $9,600,000 a regulatory levy and a particular bad debt. These won't repeat in FY 2022. You'll also note that cost of sales increased from $371,800,000 to $410,400,000 This is driven by sales mix and underpins that higher revenue excluding margin income that we discussed earlier. Total operating expense is detailed on Slide 35.
So you can see the usual breakdown there. And on Slide 21, We show the impact of all our cost out initiatives, and you'll see we're increasing our cost out savings target by $30,000,000 relative to our prior estimate. This reflects, firstly, a $10,000,000 increase in the synergies we anticipate generating from taking the Equate Plus platform around the world 2nd, an increase in our expected benefit realization for the UK mortgage services cost out program of around $10,000,000 Taking the overall saving here to $75,000,000 excluding the IT costs associated with the platform migration. And third, An increase in our Stage 3 cost out target of $10,000,000 this represents the additional savings from the transformation of our finance and people functions, together with some reductions in office space. At the same time, we've increased the expected cost to achieve by $15,000,000 The total gross multiyear benefit target for which we extend the delivery period out to FY 'twenty four now From these programs is now estimated to be $276,000,000 I'll finish with some comments on our balance sheet and cash flow On Slide 22, before handing back to Stuart.
In the period, we generated $375,300,000 of net operating cash flow, representing an EBITDA to cash conversion rate of around 60% at actual rates. Free cash flow was $260,000,000 CapEx was down for the year at $16,300,000 due to lower IT related spend Our net cash flow was $40,800,000 after spending $21,800,000 on acquisitions, dollars 172,800,000 on dividends And around $123,600,000 on MSRs. Now our capital recycling transaction was slightly delayed at year end And completed in the 1st week of July. Adjusting for that, net investment in MSR for the year was around $100,000,000 and therefore, largely maintenance, in line with the amortization expense for the year. We do expect that net MSR investment will be a fair bit lower in FY 2022.
All told, net debt has reduced materially over the last 12 months. This reflects the receipts of the rights issue ahead of completion of the CCT acquisition later this And as a result, our net debt to EBITDA ratio fell to 1.07 times. Looking ahead, The net debt to EBITDA ratio will peak post the completion of the CCT acquisition before starting to organically repair. And we anticipate it being around the top of our target range at the end of FY 2022. I'll now hand back to Stuart.
Thank you, Nick. And finally on to conclusions. Look FY 2021 was undoubtedly one of the This year of my and many other people's careers, managing global businesses remotely, the numerous false starts The pandemic recovery, having record low interest rates cloud our performance, not to mention making a leapfrog acquisition with all the due diligence you'd expect of us, as well as completing a major and complex capital raise. It was pretty tough, but everyone did their job and our teams continue to deliver exceptional client outcomes. And I want to express my thanks to all my colleagues for the outstanding contribution and dedication, not to mention the resilience.
Looking forward, we enter FY 'twenty two with renewed vigor and confidence. We'll keep our heads down and keep true to the strategy to build stronger, more efficient businesses with more leverage to structural growth plans. We will focus on executing well, maintaining cost disciplines and investing strong free cash flow and growth, New technology and balances with the conservative capital structure and returns for shareholders. We do expect to return to positive earnings growth in FY 22. We have high quality businesses with scale and strong recurring revenues in the group.
The event activity will fluctuate Interest rates will be what they are, but we have significantly increased our optionality for when rates do start to rise. I'd like to thank you all for your time. And I'll now hand back to the operator to open the line for questions.
Thank you, and welcome to the Q and A session. The first question comes from Nigel Pizzaway from Citigroup. Please go ahead, Nigel.
Good morning, Stuart and Nick. First of all, just a question on the margin income guidance and sort of the renewal of the DPS contract. I mean, previously, you sort of Highlighted some concerns that banks weren't sort of willing to take 5 year money and the rates you were getting on 5 year money were somewhat subdued. So did that change over sort of the last few weeks and enabling you to sort of get a higher return and therefore sort of obviously come out with that $107,000,000 guidance on the legacy book.
So Nigel, just Quite importantly on the DPS contract, so as you may be aware, in the last year of the contract, The investments have all got to be short dated and be fairly liquid. And that was due up March 2022. So we had a little bit of a DPS cliff. During last The last sort of 6 months, we've been in discussions with the British government. They've renewed that term for 5 years.
That's meant that we've not had to Come out of some of the term, which enjoying quite higher rates, and they've also changed and relaxed some of the rules around What we can do as far as these investments are concerned and some of the durations and the limits, so that's helped. As Nick said, it's probably around about 2 thirds of the uplift. The other third really is some of the changes of Appetite for certain banks for funds, both in the UK and also in the U. S, I mean, the U. K.
Rates have sort of improved a little bit for longer term money. And there was also some opportunities that the treasury team identified in the U. S. To be able to do that as well. That really sort of explains through why we get that uplift in margin income in FY 2022.
So there's a range of factors. Yes, but there is certainly some financial institutions certainly do have appetites And they've been offering attractive rates.
Okay. Thanks for that. Second question is just on servicing related fees in mortgage servicing. They seem to Leap in the second half and been the highest they've been by a key margin. Can you just make some comments on what's driving that,
Please. Nick, do you have insight?
Yes. So that just reflects Some other income associated with some NSR transactions that were completed in the second half. We mentioned some unwinding of an excess strip. And as we've sold some MSR on a retained basis In the second half, that drove a little bit of a gain, Nigel. So that's largely what's I wouldn't expect that to repeat at that level in 2022.
So the first half level is probably more an indication of
a go forward position. Would that be Fair to say.
The first one is just a little bit of steady growth,
Yes. Okay. And maybe just finally, I mean, obviously, you sort of mentioned the big increase in recovery in transactions in plans In the second half, it does look as if sort of that lift in revenue pretty much dropped through straight down onto the EBITDA line. I mean, is that Sort of fair way to describe it, you're basically getting those transaction revenues with very little cost attached to them and they just drop straight through?
Yes, that's right. I mean, we have to maintain the underlying infrastructure regardless of The number of transactions that actually come into the marketplace as far as people exercising their stock, etcetera. We are able to get that extra increase to the bottom line in that business. Yes. As I said, it was a big driver of the recovery in that business.
The increased vesting and
Thank you, Nigel. The next question comes from Simon Fitzgerald from Evan and Partners. Please go ahead.
Hi there. Nick, first question for you.
Can you just give us
a little bit of clarity in terms of your expectations of depreciation and amortization Charges in FY 'twenty two and I'm comparing that to the $182,100,000 that was booked in 'twenty one.
Yes. I expect amortization to be fairly flat In 2022? And depreciation as well? Yes. I mean, it's not materially different to what it is in 'twenty one.
Okay. That's fair. And also, I'll note that just in the one of the back pages in terms of the reconciliation with the statutory profits, There's $29,000,000 there about the cost, dollars 22,000,000 of that relate to the U. K. Cost out program, and that's consistent with the treatment that you've done in the past.
I guess I'm just trying to get a bit of a handle in terms of what some of those numbers might look like in FY 'twenty two, just given that we've got a lot going on and there's the Big transaction costs associated with the CCT business.
Yes. So, sorry, just let me just clarify a comment I just made in terms of our cash flow from the depreciation. They'll be fairly I think it's broadly in line with 2021 with the exception of there will be some additional depreciation expense associated with CCT. So just to sort of I'll pull that out. In terms of the Statutory adjustments or management adjustments in 2022, they will be Obviously, we've got the cost to achieve that we call out on Slide 20.
So that That'll be a large part of that. And then you will have the cost associated with the Wells Fargo The equity acquisition, they'll broadly be in line
with what we previously disclosed.
So that'll be in addition to what
And then they likely come through in 1 year in the FY 'twenty two year?
It will be largely
in the second half.
Yes. Okay. The revised will be second half when we get full year in 'twenty three. Okay, good. Just one final question on the mortgage services business.
I just want to get
a bit more of a
handle in terms of how much of that link With the level of interest rates, it's important to see that get back to the same sort of run rate that we've previously seen in the past. Maybe you can sort of help
me with that in terms of I mean, margin income was one of the biggest declines that saw that business Get to
a loss, but what sort of expectations or interest rate levels do you need to see to see that return?
Yeah, Alex, it's a good question. Sorry, Nick. You're absolutely right in so much as that particular business Has very little opportunity to term out the monies that we receive. Yes. So it's hard to get yield enhancement On that, so when there is interest rate decline, it is one of the businesses that are impacted Quickly and by the most, interest rates also have a bearing on mortgage rates.
And as we know, As interest rates came down, mortgage rates came down and that kind of sparked the sort of the refi activity. I think we've always said in mortgage services, a sort of Gently rising rate environment is the optimal environment for a mortgage services business because it provides a little bit of balance. But I think what we will see is mortgage rates It will start sort of gently sort of creeping up as this longer end of the curve, so longer term money becomes a little bit more Spencer, that will slow down the refi, but I think it will take a while to get back to the margin income that we got in that business. We enjoyed in that business through FY 2018, FY 2019.
Okay. All right. That's helpful. Thank you very much.
Thank you, Simon. The next question comes from Matt Dungar from Bola. Please go ahead.
Thank you very much, Jasmine, for taking my questions. Just if I could touch on the guidance. You've talked to The typical seasonal earnings SKU, could you confirm that this is around 40% or 42% in the first half? And also whether this for the total group or this seasonal SKU is for Computershare legacy Before you look at the margin income, which comes in largely in the second half for CCT? Yes.
So I think you saw clearly in FY 2021 quite a large SKU between first half and second half, Yes. And we always said that we expected the better second half performance and delivered as Terry said. So There has always been a little bit of a natural first half, second half skew on the Lexi business. Clearly, this year that will also be the case because we don't expect to close the CCT transaction until November. So certainly, its margin income, etcetera, etcetera, will all be pushed into the second half as well.
So it will be sort of More prevalent this year, even more than it was in FY 'twenty one.
Thanks, Stuart. And on the tax rate guidance, 26% to 28%, are there any one offs in FY 'twenty two? And is this in line with your Long run
expectation?
Yes, sure. Let's do it. There's no one offs in 2022 at the moment. There was a little we had as I call that in the commentary, we had a little bit A benefit in 2021 from the revaluation of the net deferred tax asset position due to changes in UK rates. The reason why we're focused on our forecasting a slightly lower ETR in 2022 is largely because of The profit mix, lower profits in the U.
S, in part because of the cost to take on The Wells Fargo acquisition, that will and as a result, we anticipate having a lower U. S. Beat And in 'twenty two as well. Moving forward, it really depends Just the outlook for corporate tax rates around the world, there's a lot of speculation at the moment that governments Maybe forced to put up rates to pay for COVID related support. We've already seen that happen in the UK with them announcing rates will go up there From 23 onwards, so I do think that it's likely that there will be an increase in rates over the medium term, but Outside of the U.
K, we haven't got anything that we can point to definitively. And until that happens, My expectation is that the rate our ETR will be similar to what it has been in FY 2021, Perhaps it will be slightly lower in 'twenty two, but 'twenty one is a sort of a good medium term We'll monitor until any rate changes occur.
Thanks very much, Nick. And just a final one, if I could, please. On the CCT contribution, you're flagging $1,800,000 in FY 'twenty two from management EBIT ex margin income for 8 months. You've talked about $11,000,000 of cost synergies in year 1. So are you able Talk to us about why there's not more earnings contribution coming through from CCT for 8 months ownership?
Yes. Look, I think the CCT business, ex margin income As it stands, just now it's not profitable. It's very much like the Canadian Corporate Trust business that we acquired 20 years ago. There was Strong reliance on margin income to drive the results. Over time, we've been able to Change that fee structure and drive more of the earnings coming from fees rather than relying On margin income, look, we do have some synergies coming through.
Obviously, that was an annualized rate. We're only going to have it for half of the year or so. But that's really why that number is fairly low. A lot of the Integration and synergy work will commence in the second half of the year. Not all of these synergies will be delivered In the second half of FY twenty twenty two, more of them will be towards the first half of twenty twenty three.
That's really the explanation why that number is low.
Great. Thank you very much, Stuart.
Thank you. Thank you, Matt. The next question comes from Andy Chuk from Macquarie. Please go ahead, Andy.
Hi, Stu. Hi, Nick.
Thanks for taking my questions. The first question is on amortization, which picked up quite significantly in the second half around $10,000,000 You called out the unwinding of excess strip sales in the U. S. Mortgage servicing business. This is kind of the opposite of the capital recycling strategy that Computation normally pursues.
So can you provide some color around these transactions and whether we should expect more going forward?
Look, I wouldn't expect any more, Andy. Yes, sorry, Stuart. Yes, absolutely. Andy, I wouldn't expect any more. These were sort of one offs.
And really, with these transactions, they were opportunistic. We had excess strip investor Looking to exit the transaction, it made sense for us to retain the assets on our portfolio. Essentially, it goes from having A partial interest in the MSR to having the full interest in the MSR. So you're essentially buying back the excess strip interest, which increases your ownership stake and increases your go forward amortization. At the same time, you do get the greater revenue associated with owning The full MSR, that's what the transaction is.
As I said, there were a couple of them this year. They were one off. I wouldn't anticipate any more of these happening moving forward, certainly not the impact that we've seen in this last 12 months.
Fantastic. And just a follow on on that, you made a comment to Simon before that 'twenty two amortization should be in line of 'twenty one. Just to clarify, do you mean second half twenty twenty one as the run rate or actually the FY twenty twenty one number?
Sorry, yes, 22 second half.
Fantastic. And the second question for me is on the U. S. Mortgage servicing business. So the business has to suit a capitalized Strategy in FY 2021, the UPB has declined 5.7%.
So I appreciate that the refinancing rates are elevated given the low rent environment, But the overall market continues to grow. So maybe if you can please provide an update on the capital light strategy? And if you could also comment on when we should expect new PBITDA return to growth, please?
Yes. Look, the first thing to note on the rundown in the book is that It's largely on the non performing portfolio. So what's happened is the non performing portfolio Run off with rates being low, the loans that are at the better end of that portfolio have been able to refinance. And because of the moratorium, we've not been able to replace So it's largely the nonperforming book where we've seen the runoff. The capital light strategy as a whole, We're focused on implementing already and the MSR trades that we did towards the back end of FY 2021 We're at the sale of MSRs on a retained basis.
And so when you see our subservicing portfolio go up, you've seen our own portfolio go down. And that really reflects the capital light strategy in action. We're converting owned MSR into sub service MSR. The piece of the strategy you're talking about is having a permanent capsule partner in place, permanent capsule vehicle in place. We are continuing to work diligently on that.
It's taking a little bit longer, quite frankly, because the funds that we're working with have encountered Just some regulatory complexities that we just needed to work through with them as we put this structure in place. But we're working through those and We anticipate making a lot of progress in this half.
Great. Thanks for that. That's all for me.
Thank you, Andy. The next question comes from Ed Henning. Please go ahead.
Thanks for taking my questions. And sorry if I go over other questions and my phone dropped out, so I might have missed something. But Just further on the U. S. Mortgage servicing business and talking about your partner you're working with and you're hoping to get it in the second half sorry, in the next half, I would imagine, can you just run through what is going to be the appetite for this partner?
How fast can they run Would you getting subservicing work for them?
Well, part of what we're working through is making sure that they've got the capital to deploy immediately so that we can get it going Immediately, Ed, and we're working on that basis. And we're actively trying to build our MSR pipeline In the near term, so that once the pipeline once the partnership is in place, we can hit the bottom and start to get into transactions almost straight away.
What I'm trying to figure out though is, can they take how much are we talking potentially? Is it just dipping the toe in the water initially or are they or can you see your growth going up substantially On your subservicing
The best way, we're targeting growth in our servicing portfolio over FY 2022. We're anticipating a return to growth in the portfolio in 2022, which will be fueled not just by the special servicing work that we've already talked about, but Subservicing coming out of our Capital Light partnership in the second half.
Okay. So this isn't going to see material like Once you get the partner on board, is this going to see material step up in the growth profile is kind of what I'm trying to get at?
Look, I think we have see how we go with the partner, right? There's been a lot of work. There's a lot of complexity. There are funds, there's challenges on certain things that they can own, not own, and we'll still have to have a little bit of in a vehicle, but not as much as we would ever have on some of the previous sort of transactions that we've done. I think what we will do is we'll use this year, we'll implement it.
Obviously, with our co issue program with CMC, we've got we have access The volume coming through and then we'll slowly ramp that up. And now that we'll have that structure, we'll also be able Speak with other finance partners, because once you get the first one over the line And the necessary approvals that will be easier to get the other ones. And once we can do that, that's when you'll see a sort of step change in growth.
Okay. No, that's helpful. Yes. Okay. No, no, that's helpful.
And then going back to The previous question on mortgage servicing again, and you talked about the returns in the business and obviously, rates have had an impact on that. If we just hold rates where they are now, which hopefully they stay that way for you guys, but What kind of return do you think you can get in
that business if I kind
of look at Slide 52, where currently it's negative On EBIT prices.
Yes. So, I mean, obviously, margin income was part of that sort of 12% to 14% Turn on invested capital. Yes, if rates stay exactly where they are, that will That creates a whole, so net net, you're then talking sort of high single digit numbers, Right. And then the other challenge that we've got in that business to make up if rates stay where they are will be The cost per loan to serve and continuing to tackle efficiencies and deployment of Digital technologies to reduce the cost to serve, to make up some of the gap, given we'll not have the margin income that we had in the business Before until rates do change. Yes, so that's what I
was saying. There's a bit
of work to be done. Yes.
Yes. No, that makes sense. And then just one last one, just circling back to employee share plans, obviously, very strong period, the transactional revenue Bouncing back, and I might have missed the comment before, but did you talk about growth going into 'twenty two? Are you anticipating growth To continue for employee share plans and that transactional revenue to maintain at that high level?
Look, we are look, I think that obviously, when you look at transactional revenue And the second half ending at 16%, that was on the PCB. You have to remember that sort of Late March, April, May FY 2020, it was fairly subdued. Yes. But I would say that We are anticipating further growth in employee share plans in FY 2022, which is part of the plan. And it will actually be nice see a little bit of a normalized year of it, yes, but it should remain at the levels of slightly above what we see just
Thank you, Ed. The next question comes from Ashley Dalziel from Goldman Sachs. Please go ahead.
Hi there, guys. Thanks for taking my question. Just one on your expense Profile into next year, just picking up some of the analysis on Slide 20, where in The current year of FY 'twenty one, it looks as though your kind of underlying expense inflation was essentially 0. But into 'twenty two, you're guiding to underlying expense inflation in circa 3. So I appreciate there's definitely building wage inflation pressures in North America, but it does feel like a bit of An unnatural profile, I suppose, for a business like this.
So could you help us Pack that on the note, were there any kind of mix or one off elements that I might be missing there?
Yes. So Look, you're right. I mean, obviously, we always see in Computershare some sort of gradual and slow Wage inflation pressure, I think we're seeing quite exceptional circumstances at the moment in terms of Salary and wage pressure, a lot of that is really related Some of the more junior positions with Computershare within the call center, transaction processing, etcetera, where You would be paying $17 an hour for an agent in Louisville and then all of a sudden They're now working at home in a sort of home environment and they then have an opportunity to take jobs With New York firms or Chicago firms all working from home and take New York and Chicago salaries, sort of $23 $25 an hour. I think over time, That will sort of normalize back out. But at the moment, there's some fairly exceptional circumstances Driving some of that attrition in the organization that we've had to respond to.
So that's why you generally see Well, north of $30,000,000 pretax of headwind on these, which is probably higher than you've ever seen in computer shares. We just have to React to the market. It's really what's driving it.
Okay, perfect. Thanks. That's all I had.
Thank you, Ashley. Next question comes from Kieran Chigi from Jarden. Please go ahead.
Good morning, guys. I've had a couple of questions for you. On the CTS margin income outlook you Provided, which I think is sort of high $30,000,000 for the 8 month contribution in 'twenty two. Nick, are you assuming there is any sort of reallocation of those money market funds You had highlighted that sort of opportunity during that period or is that sort of expected to follow more in the 2023 year?
Yes. So that's what we call recapture, Kieran, and we're anticipating we're not forecasting any of that recapture Money Market Funds balances into our FY 2022 earnings guidance. So, for the moment, we're anticipating that as a 2023 opportunity.
Okay. And sort of your I'm not sure if you've had any further sort of discussions or progress in working through that opportunity Since announcing the deal, but sort of has your confidence around that item changed at all over recent months?
Look, we've spent a lot of time working on it, and we're spending a lot of time just working on migrating All of the balances, so there are it's not just the money market funds that we've got to focus on, it's all of the Deposit book that we or the exposed deposit book that we've got to transfer out of wells. So we're very focused on it. We've been spending, we've got a team mobilized and working on it. And we're focused on doing it as fast as we possibly can. But I think we always sort of said it would be 6 to 12 months to get it There's a chance that we could get it done at the sort of the 6 months rate, but we are We're just being a little bit probably conservative in our outlook here and not including anything in 'twenty two at this stage.
Thanks. And second question on U. K. Mortgage Services. We've seen Quite a bit of sort of cost out delivered there, yet the EBIT loss is pretty static year on year, and you've expanded sort of the cost out program There again, I think by another $10,000,000 Is that just now keeping pace with the runoff of the book?
Is there enough happening from a revenue point of view that, that business can move back into the black? Or are you looking at alternative options for that business, including exiting it?
Yes. So, Luc, I think in UK mortgage services, the UK mortgage market As you know, has been at fairly decent recovery, Kieran, the volumes were up, our So for lender in the box model, we've seen increased number of levels. I mean, we've always got a bit of a job on our hands keeping up with Run off because we've got the large UCaa closed book, yes, but the business will return to Profitable state in FY 2022 and then we'll continue going on. There's been a little bit of Market subdued some of the large book transfers have been on hold. Some of the Work that we've won in the past in Ireland and other bits and pieces, we haven't seen as many of these transactions Over the last sort of period, it's been a little bit quiet.
But like we always review the portfolio of companies at Computershare to see whether there's opportunities there. A lot of the hard yards has been done on that particular business. And we just look forward to making a better contribution and then the markets are improving a little bit.
Well, thanks. And just a final question. There's been changes in ownership of some of your peers globally or Still due to take place in the registry market. Are you sort of expecting Any opportunity off the back of that or sort of any change to pricing dynamics occurring in those markets?
Yes. Look, we haven't seen any I mean, that's very specifically in the issuer services space. We know that Boardroom recently acquired by one of the Tamasect funds And then obviously, Quiniti in the UK with Sirius Capital and then also they're Trying to do the same thing with the AST in the U. S, although I suspect the Department of Justice will have a look at that one Because of the Quinity's ownership of the former Wells Fargo business. I think what it does do is it has created A bit of uncertainty, especially with the Acuity, we're supposed to take the U.
K. Platform into the U. S. Form into the U. S.
That never happened. Now the new owners are saying they're going to take 6 months to have a look at it and Make a determination what they're going to do, which creates further delay and further uncertainty for some of these clients. They know that they're probably going to have to do A system conversion, so therefore, they're more than happy to come out and have a look. Look, I'm not Sure. What it will do on the pricing aspect is too early to say, but I see a change in churn There, which creates uncertainty and when we've got a very strong market position in there, I see it as a net positive.
Thank you. Thanks.
Thank you, Kieran. We have no further questions at this time. I'll now hand back over to Stuart for closing remarks.
Yes. Well, thank you very much. This was An unusual results presentation from us. We had Nick in New York, Michael in Sydney, and I'm sitting here in London. So First time when at least 2 of us have not been in the same room.
So I hope that it went well from your perspective. I just want to say thanks again for your time. Much appreciate. Thanks again for your interest and support of Computershare. And I look forward to spending more time with you all in the coming days.
Appreciate it. Thank you.
That concludes the Computershare FY 'twenty one results presentation. Thank you once again for joining us today. You may all disconnect.