Earnings Call: H2 2023

Jul 26, 2023

Good afternoon, and welcome to the XPS Pensions Group PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the Q&A tab situated on the right-hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Paul Cuff, CEO. Good afternoon, sir. Hello, good afternoon. Just completing the poll myself. Thank you very much for joining. Thank you for your interest in XPS. We're going to canter through a little bit about the company today at a high level to give you a good introduction. I'll keep an eye on the poll to see how many of you are shareholders, but of course, there might be a little bit of a mixture of knowledge of the company, so we will cover some of the basics first. If we crack on, briefly, who are XPS? We are a company that does all things workplace pensions in the U.K., and I'll expand a little bit more on our different service lines in a moment. But just in terms of the history and scale of the business, you can trace the origins of XPS back around 40 years. The company as it is today, came into being in 2018 with the merger of two firms, to create a new brand in our market at that time, about five years ago now. That was a real fresh start for our business. Over the last five years, as we'll talk about today, we've been investing quite heavily in the business and producing some really fantastic results now as the strategy that we've been pursuing has paid off. In terms of scale and locations, we're all over the U.K. We're in all corners. We're in the South East. We have an office in Bristol, in the Midlands, in the North. We've got three offices in Scotland and in Northern Ireland as well. So we serve pension scheme clients and employers in local markets all over the U.K. We employ a little over 1,500, nearly 1,600 people today. We are main market premium listed on the London Stock Exchange, have been since 2017. We're a high-quality firm in our market. We'll tell you a bit more about this, but we're very proud to win lots of awards, not just for what we do, but also for our culture as well. We are an extremely employee-centric organization, and we'll talk a little bit about that today as well. So what do we do? When I say we do all things workplace pensions, that means pensions that companies provide to their employees. We do everything that's required to look after, run, and maintain them. There's a lot of work involved in that. Now, you can break it down into three kind of core headings. This is true for defined benefit pension schemes, defined contribution pension schemes, all sorts of varieties and in-betweens, et cetera. Essentially, the first thing that we do is we try to make sure there's enough money in pension schemes to pay people out for their retirement benefits that they've been promised. In defined benefit schemes, that's what actuaries do, try to make sure there's enough assets in a pension scheme to pay everybody out in full in time. The second thing that we do that's sort of related to that is help people to decide where to invest the money that's been set aside to one day pay people's pensions. We do a lot of advice around asset allocation, advice about how much of that might be in stocks and shares, how much of it might be in bonds and so on, and more complicated things like how much of it should be hedged, et cetera. Of course, it's quite topical because our advice here relates in part to LDI, which was obviously in the headlines quite a lot last year, which kept us extremely busy. Now, the third thing we do, if those two things are a lot of consulting work, a lot of financial modeling, we also deal with the actual human beings in these pension schemes too. We do the administration for over 1 million people in the private sector, in the U.K. now, who are members of pension schemes. That involves keeping records, keeping in contact with them throughout their life as they move home, as they change jobs. Eventually, as they retire, we put the pensions into payment. It's quite complex to do pension scheme administration, so clearly a very responsible task. We look after very sensitive data. We provide great technology to people able to access online information about their pension schemes, and so on and so forth. At the heart of it, we are all about trying to make sure members are well protected and get the pensions that they deserve and that they've invested in with their employers over their working lives. So it's a hugely societally important role that we fulfill. Now, these divisions, we do report numbers based on these subdivisions. Our actuarial consulting, investment consulting, and pensions administrations divisions are generally involved in the activities I'm talking about above. For many clients out there, we'll do all of these services. For some of them, we'll do just one. We're fairly happy either way. Clearly, the more that we do, the better. Our strategy ultimately is simply described as to be the best provider of services to the U.K. pensions market. So being a one-stop shop that can do everything you need if you are an employer or a pension scheme trustee tasked with looking after and running world-class pension provision for your people. Now, a little bit more about what that means. So a pension scheme, whether defined benefit or defined contribution, but let's talk a little bit about defined benefit schemes because a lot of our client base are defined benefit pension schemes. They have their current and former members, and the governance structure works that the company ultimately funds the scheme. It writes the checks that build up the assets over the years to one day pay out somebody a pension promise that they have received based upon how long they work for their employer and what they were paid when they worked there. Independently of the company, a group of trustees look after the pension scheme and make sure it runs properly, and make sure the company puts in adequate funding, and make sure that everything works as it should. So they are sort of on the opposite side of the table, if you like, in the governance structure to make sure everything works well. Those two parties both require lots of advice and support. So the trustees' primary responsibility, legal responsibility, is to make sure the members are properly protected, and they need the services that I have just outlined on the previous slide. Every pension scheme must have a qualified actuary giving advice about the adequacy of the funding of the scheme. Trustees must take independent investment advice about where to invest the assets, and it is a regulatory requirement that there is professional qualified advice to do that. Every pension scheme needs proper administration. Again, the trustees oversee that that is done well and that members receive a very good service. There is wider advice. There are things like scheme secretarial work, keeping the records, and organizing all of the meetings, and regulatory filings and correspondence, and so on. There is other work in terms of advising the strength of the underlying company, so-called covenant advisory work. I could have added another 10, 20 green boxes under there of services that the trustees need, but these are arguably the core ones. The company needs lots of advice too. They need advice about controlling the risks associated with their pension scheme. They need to know that the trustees are not, say, being too cautious, demanding too much funding too quickly, and so on. So they need their own actuarial advice, as a counterpoint to that being provided to the trustees. Companies will want to think about benefit design and communications with members and trying to give them world-class pension schemes for their current employees, and a lot of that these days is defined contribution. There is lots to be done. They will need advice if they are considering M&A. Maybe they are buying a company that has got a pension scheme. How should they allow for it? What if there is a deficit in the defined benefit scheme that must make the company worth a little bit less, and so on. Lots of careful M&A advice is needed. They have got to account for all of this. It has all got to be put through the P&L and on the balance sheet. So we, again, provide services that do that. So you get a sense that there is a lot of work involved. A lot of it is regulatory compliance type work that simply has to happen year in, year out. It is really, really important. The trustees need very high-quality services to run these schemes, and it is all under the oversight of The Pensions Regulator who tries to make sure that everybody is doing a great job. As I said, we have got a really strong societal purpose. When you think of some of the unfortunate negative headlines around pensions over the years, probably the worst example, of course, is Robert Maxwell back in the day robbing the Mirror Group pension funds. More recently, we've had, unfortunately, challenging times when Carillion collapsed or Philip Green at BHS, where the company pension scheme was left a bit high and dry when there was insolvency there after years of neglect, really, of the business and no money going into the pension scheme but being dividended out instead. We are the antidote to this. We are here to try to make sure pension schemes are well funded, are well supported, and that people get what they're due. You can imagine that does therefore keep us rather busy, and we'll say a little bit more about current market drivers that have driven such great growth for us recently in just a minute. Just in terms of how we work, we have open-ended engagement letters with clients. They're not time-based. There's no termination date for our clients. If we do a great job for them, we tend to keep them for a long time. There's no conflict in that in what we do. It's a little bit analogous to being an auditor. However, there are no sort of conflicts between different services we provide. If we're serving the trustees, we are simply trying to get the best outcome for their members, and it's as simple as that. Where we do repeat recurring work, so where we do the same things every year, certainly in administration, most tasks happen on a daily basis. They're the same year in, year out, looking after people, the actuarial side. We have to do regulatory filings every year, accounting numbers every year. Where we do work like that, we often do that on the basis of a retainer, and the retainer will be an inflation-linked retainer that will go up each year, in line with a prevailing inflation written into the contract. So we have very repeat recurring revenues at our heart and a lot of it inflation-linked, and our services are needed come rain or shine. We'll talk about that a little bit more in a minute, and you'll see that makes us really fundamentally quite a bulletproof business, even in times of wider economic turmoil. Indeed, actually, wider economic turmoil generates a huge amount of work for us because pension schemes are affected and need a lot of support. Just to introduce myself. I'm Snehal. I'm the CFO at XPS. XPS as a brand is probably a little over five years old, and we've invested in creating a firm that is best for our people, which in turn becomes the best for our clients. We were the first firm in the 25-year history of the Professional Pensions Awards last year to win all three marquee awards, which is voted the Actuarial Firm of the Year, the Investment Consulting Firm of the Year, and Administration Firm of the Year. Our technology also got highly commended, and in the Moneyfacts Awards, our SIPP business was voted the best SIPP provider. So we win such awards on a regular basis each year, which certainly helps to boost our profile in the market. We have a very strong values-driven culture. Our people are highly motivated, and they absolutely love being part of XPS. Our employee net promoter score was +33. I will just give you a little bit of background into this, that to have a positive score is quite difficult. To have a score of, say, between +5 and +20 in a professional services firm is considered to be very high. We were naturally very, very pleased to achieve a +33 in the survey that we conducted last year. In a survey that we conduct every year ourselves, 98% of our people would recommend XPS as a good place to work. That just sort of underlines the strong culture and the employee engagement that we have, which translates into great customer service, which eventually translates into the really good set of numbers that you have seen. In terms of the market that we operate in, that is a very fragmented market. The total fees within this market are about GBP 2.5 billion. This is firms doing exactly what we do, and that accounts to about GBP 2.5 billion. It is dominated by the big three, which is Mercer, WTW, and Aon. They are part of giant global insurance broking firms, and naturally bound by the bureaucracy that comes with it. We are solely focused in the U.K. market, as Paul outlined. Being the only listed company in our space, we have access to capital, and we are very agile in the face of market developments. With GBP 166 million of revenues, we still only have less than 10% market share, and therefore a lot of room to grow. This chart only goes to First Actuarial at the bottom of the screen. There is a long tail beyond that. It is a very fragmented market, and it has consolidated in the recent past, and we think that it will continue to consolidate in the future. In terms of our client base, you will see that we have some very highly recognizable names as our clients here. In terms of the diversification of the revenues, the biggest client that we have contributes to less than 2% of our total revenue. The top 10 contribute to less than 10% of our revenues. With over 1,500 clients within the advisory and administration space, we benefit from the portfolio effect that that generates. We also have a very high degree of visibility on our revenues. More than 90% of our revenues are repeat or recurring. Over to the left, as I said, you could see the very recognizable names which we have mostly won in the very recent past, and we continue to add to that. In terms of the investment case for XPS, just a few key features of our business model and our current position that we would like to bring out. The first is that we are non-cyclical, and I will show you a chart in a minute to prove that. Our revenues are required, as I said, come rain or shine. You have no choice but to do the administration of the pension scheme year in, year out. No choice but to do your regulatory filings and compliance. We are needed no matter what the economic backdrop is. Indeed, we actually actively benefit from regulatory and market change. Over the last few years, there has been quite a lot of both. Of course, a lot of market volatility. Last year's rapidly rising interest rates, rapidly rising inflation. That has a pretty profound impact on pension schemes, and clients need a lot of advice and a lot of support about what to do. That is above and beyond the core compliance. In our charging model, I described those repeat recurring revenues that we might get a retainer for. When there is additional value add advice, whether in response to a project like M&A or whether in response to market volatility, things that cannot be predicted, we are then on the clocks and we have charge out rates. We bill our clients like lawyers and accountants on the basis of hours put on time sheets, and bills sent out at the end of the month. Regulatory market change just drive really high levels of activity. That has happened in the recent past. Our year that we have just finished was a very strong year with a lot of that in the background. There is no sign of that abating, and we think we have probably got the next few years of regulatory market change that we can see coming, underpinning a lot of demand for our services. I have covered the repeat recurring nature of much of our revenue already and the inflation proofing, because actually the retainers themselves, they contain inflation linkage written into the contract. It is not a debate, it is just done, and it is industry standard. There is not a sense that you could go somewhere else and have something different. Our charge out rates we control. In the last couple of years, we have pushed them up by double digits on each 1 April when they go up. Our clients have actually fundamentally been quite happy to pay that. We have not had a peep out of our clients about us pushing our rates up in that way. Quite bulletproof in that sense too. Almost everything we make turns to cash. We are a people business. We have pretty low spend on CapEx. We do invest in technology, and we might talk to you a little bit about our administration technology in a minute. Generally you are talking single digit millions that we spend on CapEx against a backdrop of GBP 165 plus million of revenue that we disclosed for our last full year. Very high cash conversion. We always get paid because even if the employer is reluctant to pay us because they want to hang on to cash and are trying to squeeze their suppliers from a cash flow perspective, we get paid out of the assets of the pension scheme anyway if that happens. We have pretty much zero bad debts, and we always get paid for what we do. Low capital requirements I have touched upon. We have a very strong competitive position. Sunil showed you that chart. As the biggest independent firm in our market, we compete, in particular in advisory, with three global firms in Mercer, Willis Towers Watson, and Aon. Who for various reasons are not wildly popular these days in our market. Being a differentiated pure play U.K. firm really does resonate. Indeed it does for some of our mid-tier competitors too. Those middle firms on that chart are generally all having quite a good time, a little bit at the expense of the biggest firms. In administration, we compete with names like Equiniti and perhaps more personally, Capita, who of course have been on the front pages of many of the newspapers recently for huge data issues, a lot of which affected some of their big pensions administration clients. We stand to gain when things like that happen as well. Finally, operational gearing. I can see we have already had a question. Thank you, Mark Egg, for your question. We will come to operational gearing in a moment in more detail, but operational gearing is emerging in our business through various initiatives, again, that we have invested in. You can see that last year, our earnings per share and EBITDA grew at 24% on 20% revenue growth. We expect that general pattern of profit to grow quicker than revenue in percentage terms to be an emerging, well, constant feature now of our business into the future. We will probably say a little bit more about that in just a minute. I said our services are needed through every backdrop, and here is the graph that proves it. These are the revenues of Xafinity, one of the legacy businesses that became XPS. The big leap in 2019 is the combination of the two businesses. You would see the same for both of the businesses underneath this. We have grown through every single thing that the world has thrown at us, whether it was the tail end of the credit crunch. By the way, if you roll this back to 2005, we grew every year through credit crunch too. Through austerity, through Brexit, through a global pandemic, through war in Ukraine, whatever it is, our revenues have grown organically every single year in, year out through all of that. That nice leap you can see at the end is almost all organic. Where some of the investments we have made as we have been that bigger firm since 2019 have really paid off, and we have been able to provide a wider range of services to clients, and indeed, have won a few nice clients, big clients along the way as well. In terms of market drivers, there is a lot. You will all have seen, last year, the mini budget, everything else. We were already against a backdrop of a lot of regulatory change coming through in our industry. The way defined benefit schemes are funded, that is, the rules and regulations about how much money you need to put in and when, the balance of the interest of the pension scheme versus, say, shareholders and banks. Should shareholders get a dividend if the pension scheme isn't well-funded or in deficit? These are the really fundamental questions coming out of the scandals of BHS and Carillion and those before. We were already wrestling with that and dealing with that and very busy helping our clients to adapt to all of that. Then against that backdrop, you get all of the market turmoil that happened last year. Interest rates were already rising quite significantly. Inflation, of course, was rising a lot throughout the calendar year last year. Then we had the mini budget debacle, a massive spike in gilt yields very quickly. These things just profoundly affect pension schemes, and some of them, perhaps counterintuitively, are really good for pension schemes. Rising interest rates, even through the LDI crisis. It's actually on the far side of that, really good for them. Most of them saw a better financial position because higher interest rates mean the value placed on their liabilities drops quite a bit. But the key point for us is they just had loads to do. Their asset portfolios might have needed rebalancing and changing, and hedges needed adjusting. Things like high inflation have profound impacts on pension schemes that typically offer members a benefit that's inflation-linked, but subject to a cap. So you've got pension trustees out there very anxious about the fact that the real incomes of some of the members of those schemes is being eroded. Their purchasing power is going down. What can we do about it? How can we adjust and change? Against this backdrop as well, there's just lots of other things I haven't even mentioned yet, something called GMP. I shan't trouble you with what GMP equalisation is, but essentially it boils down to men and women in pension schemes not quite being treated equally over the last 20, 30 years. It's a very technical topic, but sometimes men have been treated better than women, sometimes the other way around. It depends on very specific circumstances of each scheme. But there was a court case a few years ago that ruled that although this was not very material and not systemically biased towards one gender or the other, it was nevertheless illegal. We all needed to adjust our pension schemes and run them slightly differently and make back payments to people. It's slightly analogous to something like PPI, although nobody's really done anything wrong here. It's just the way that the legislation has evolved over time. What it leaves us with, though, is the need on behalf of our clients to put through remedies for this. We did millions of GBP of work on GMP last year, and we've got a pipeline of many more years ahead to fix these pension schemes and give people backdated payments and so on and so forth. Again, in our industry, these things are just huge, and they underpin a demand for our services that we see continuing for quite some time. Against this backdrop, our main challenge is people and trying to get brilliant people in our industry because our competitors face the same challenges that we do, or rather, the same opportunities that we do. Some of them will be growing quite well. That's where our culture matters, being a great place to work matters. I think we've done a pretty good job there. Actually, we're seeing that ease. Our staff attrition is quite low. We've been able to hire brilliant people from some of the other firms that we compete with in recent years, and that again has really helped to fuel the growth. It is part of our story that five years ago, XPS was relatively new. These days, we're able to hire people from places like Aon and Mercer, senior partners there, who think, frankly, it looks like an awful lot more fun working for a firm like us than for the giant U.S. multinational and so on. Again, that's been a really important part of our story and the growth that you can see coming through. Oh, hang on. Sorry. Sorry. I'll press it for you. Thank you. In terms of the financial performance for this year, ended March 2023, 20% revenue growth, 17% of that organic. Paul mentioned that all of our contracts have inflation linkage in them, but of the 17%, probably about half of that was linked to inflation. This inflation linkage kicks in every year on the anniversary of the contract. Therefore, there is a lag. When you see the headline inflation rate, it will come through into our contracts a few months later. We will still continue to see a good benefit of inflation linkage into this year. The other half of that 17% was therefore driven by doing more for our clients. We did not actually win a lot of new business in the year, but we did an awful lot more for our existing clients, and that is because we have the full suite of services that our clients could need and want. In terms of the adjusted EBITDA, how much of that revenue growth did actually convert into operating profit? That grew by 24%. This is the point about operational gearing. We have started to see that come through. In the past, when we were investing in our business, investing in our people, capabilities, that growth in EBITDA had lagged revenue. Now we are growing EBITDA faster than we grow revenues, and that will be a trend that will continue into the future. Adjusted diluted EPS is one of the key metrics that the market assesses us by, and that has grown by 24%. Again, all of the EBITDA growth has flowed through to the bottom line and growing shareholder value. What does that mean for dividends? 17% growth in dividends. Ever since we listed in 2017, we have had a progressive dividend policy, which at times has meant that we have paid two-thirds of our adjusted profit after tax. We have continued to pay dividend through all of the times, even the pandemic. We in fact raised the dividend, and we were one of the very few companies to have paid a dividend without taking any government support or furloughing any of our people during the tough times. In terms of OCF conversion, this is how much of the EBITDA converts into cash, and as Paul said, we hardly have any bad debt write-offs and very high conversions. You can see 99%. In terms of what the market expects, between 90%-95% is expected despite having growth in revenues as well. We have had debt, but we are on a firm path to deleveraging. The leverage came down significantly, including the acquisition that we did in the year of Penfida, paying out a cash consideration of about GBP 8 million, with a further consideration to pay if the business performs as expected. That leverage will come down very significantly. We will talk about our recent announcement to do with the NPT sale in just a moment. Just to give you in terms of what the market expects in terms of the future, because obviously this is history, revenue growth to some extent will definitely depend on what the inflation rate is in the future. Consensus, which is published on our website, five analysts cover our stock. All of the analysts have us on a buy or outperform rating. You could see the next two years' worth of consensus numbers on our website. Revenue is forecast to grow on consensus at 14%, and EBITDA growth is ahead of that. Just a reminder that the corporation tax rate obviously goes up this year, which will account for a slower growth in EPS. But once you normalize for the tax, EPS is also expected to grow ahead of revenue in the next couple of years. Now, on to the next slide. Doing the right thing is our core value, and it underpins our sustainability strategy. We've continued to make very good progress on all five pillars of our sustainability strategy, and you can find a lot more detail on each of these in our annual report, which was published last week. Some of the highlights to pull out. We remain a signatory to the FRC Stewardship Code. This is a very high bar for companies operating in the investment space. We're aligned to the Principles for Responsible Investment. With over GBP 100 billion of assets under our advice, we have a key role to play in the responsible deployment of capital. We're not the biggest of emitters in terms of carbon, but we continue to reduce our operational emissions, and we remain net carbon neutral on all scope one, two and three emissions. We have set out our net zero ambition, and it is to achieve net zero a lot quicker than the U.K. government's stated ambition. We protect pensioners through our anti-scam service, and we oversaw the transfer of about GBP 1.8 billion of pension assets, protecting more than 8,500 members. We do a huge amount for our employees and their wellbeing. We support a variety of charities chosen by our people, and we provide volunteering opportunities. The thing to say here is that we are a purpose-driven organization and we have a strategy to grow responsibly and sustainably. To bring it all together, we have had a record year. We're very, very pleased with the performance of the group last year. It got generally stronger the longer the year went on, each quarter better than the one before. We're very pleased with the start of the year that we've just had as well, where we continue to carry some really positive momentum. Revenue growth of 20%, under half of that being inflation. So some really good revenue growth in excess of that, driven by a lot of client demand, but the services that we had developed over the years, really then being able to deploy them services above and beyond just core compliance work. Yet that's come from years of investment in terms of the strength of the offering that XPS has. The brand position of the business now, as Snehal was mentioning, quite remarkable to be the firm that was a little bit of an unknown quantity 5 years ago, to be winning every single award in our industry on the same night, first firm ever to do that, really reflects how the world sees us at the moment, a little bit on the charge and the investments that we've made really paying off. There is lots of operational gearing. I can see in the Q&A there's a question about that, and we'll perhaps unpack that a little bit more in a second. We're doing lots on that front. We expect there to be a lot of continued high client demand as well for our services because of everything you read. Front page of the FT, very frequently these days is related to the government's latest desire to try to get a bit of reform through the pensions industry in order to get more money invested in growth assets in the U.K. and so on. Whenever you read a story like that, think of us, because it's our clients that are impacted by that and our clients that will need lots of advice and lots of support should there be significant changes in the regulations and so on coming, and we think there will be. The profound changes in interest rates and inflation take years ultimately to work through the system, too. The dust hasn't even settled on what happened last October. We are still supporting clients today about what to do in the fallout of all of that and just the paradigm shift that there's been. It really is a very good time to be us, and we feel very bullish about the future that we can see in the short to medium term for certain, and we're very excited about just what opportunities we've got in front of us. I haven't covered the recent little disposal that we announced. I will do that in the Q&A. I'll open up the Q&A now, and I can see we've got one, as I say, Mark A. Perhaps you might like to lead off a little bit maybe on the admin platform, and we'll talk about sources of gearing within the business. Let me read out Mark's question. It says, "Can we expect to see similar levels of revenue growth moving forward of around 20%? And how operationally geared is the business from these levels of revenue? In terms of the revenue growth, Mark, as I said, it will depend on what the inflation rate is in the future. We have proven our ability to be able to pass on inflation. In certain parts of the business, we do put up our charge-out rates every year. Actually, not just certain parts of the business, all across the business. We're seeing that more of those increases in charge-out rates are sticking with our clients when we do time and materials work as opposed to the fixed fee work. The level of growth that we have seen, the 20%, 17% of that was organic. As I say, half of that was linked to inflation. But with the continued demand that we see for our services, as you can see, the consensus has revenues growing at least 14%. And if you look at the history of how XPS has performed against consensus, we have either met or, in the more recent past, actually exceeded consensus. We've had the analysts upgrade our revenue and profit growth four times in the last 12 months. So the philosophy that we certainly have is under-perform and over-deliver against that. In terms of operational gearing Sorry. Under-promise and over-deliver. Sorry. Under-promise and over-deliver. Yeah. You said under-perform. Sorry. Freudian slip there. Absolutely. The operational gearing point. You saw that we grew EBITDA faster than our revenue this year, and there is a lot of operational gearing. One of the key points is the administration platform, and another key point is the bonus, which Paul can sort of unpack. Administration platform, currently we have four external systems that we use, and we pay away between GBP 3 million-GBP 4 million a year to use those systems. in June this year, we launched our own platform. We developed that over the last 18-24 months. That will, over time, significantly reduce that pay away. By FY 2026, we will be off all of the legacy platforms onto our own Aurora platform, which is best in class. It is certainly helping us win a lot of new business. That will continue to drive a significant amount of operational gearing into the future. In terms of other initiatives, such as having a team that is dedicated to standardized tasks, which is performed by school leavers rather than graduates on a path to becoming actuaries, reduces our cost base, and it also brings about more efficiencies into our work streams. We are also quite strict about the amount that our clients pay. We regularly review the roster of clients and the clients which are at the bottom end of that scale in terms of recoveries. We have an honest and open dialogue with them. Either we do less for the amount of fees that they pay us because we are now a premium firm in the market, or we find them an alternative home. The point is that the resource that gets freed up from those clients will be doing a lot more profitable work. These are just some of the ideas, some of the reasons why we think that operational gearing will continue into the future, and the consensus certainly sees us improving our margins into the next 2-3 years. Just going to pause and encourage any further questions to come in. While we are doing that, I will talk just a little bit about a disposal that we announced a few days ago, a week and a half or so ago now, I think. Within our business, we own something called National Pension Trust, which is a master trust. It is a defined contribution pension scheme. What a master trust is if you are an employer and you want to have a world-class pension scheme that looks like and is branded as your company pension scheme and give that to your people, you can do that on your own, but it is quite expensive to set up all the infrastructure and the technology and the administration and so on. If you are a Tesco or a Sainsbury's, maybe you might choose to do that. If you are a medium-sized employer, it does not really make any sense to do that. What a master trust does is create all that infrastructure and allows white labeling of sections, so multiple employers can share the infrastructure, show their people a fantastic pension scheme that they are members of, have it feel like the company's pension scheme, but under the bonnet, it is actually a sectionalized scheme run for the benefit of multiple employers who then get the benefit of the economies of scale that come from that and the purchasing power that comes from that on the asset side as well. The master trust market is quite fragmented. There are 30 or so of them in the market. I think most of our industry thinks that in time there will be somewhere between six and 10 large master trusts in the future. The other players in this market include people like Standard Life, Legal & General, and what is the other big players there? NatWest Bank have recently made an acquisition in this space. National Pension Trust for us is pretty small. It does about GBP 4 million of revenue out of our GBP 166 and a bit. So it is a small part of what we do. It does, competing with those people with very deep pockets, probably face a slightly challenged future. What we have announced is that we will sell National Pension Trust to another firm that is in a similar position. They have their own master trust, a firm called SEI. But they are a much bigger firm than us. They are NASDAQ-listed, market cap of about GBP 8 billion in the U.K. They have a master trust a bit like NPT, and they do want to invest and compete and try and hoover up assets, for that is their business. They are an asset accumulation business and technology business. This makes perfect sense, but what it has led to is us receiving what we think is a fundamentally very, very strong price for NPT because it is of such strategic significance to our new partner. Not only have we sold it to them, we have also signed a long-term contract with them to be the service provider to that master trust, their now bigger expanding one. So we will do all of the administration work on the NPT part of it and possibly on the wider master trust in the fullness of time. If that grows and succeeds and is one of the final six to 10, XPS will have one of probably our biggest clients when that all comes through. So we are not leaving the market for master trust, but we are receiving a good price for what we have got and signed up a really fantastic new client who we hope will be really successful, and we will support them in that. In terms of the economics, you will see from the release that we put out, GBP 4 million of revenue generated about GBP 0.9 million of contribution to EBITDA last year. And we will receive, when the deal goes through, GBP 35 million for it. So it is an extraordinary multiple of the profit that it is generating for us. That profit, sorry, that consideration could rise as high as 42.5 if certain new business targets are met on the far side of the deal by SEI. We also, as I say, have a really good contract with them that will replace quite a bit of the GBP 4 million of revenue that we otherwise would have lost. For us, win-win. Our profit barely changes for this deal on the far side of it, but we will have GBP 35 million less debt when we receive a check later this year should the transaction go through. It is subject to regulatory approval, but we believe that approval to be something of a formality. On that basis, that will be a very positive transaction for us. Our balance sheet will be very strong at that point. We will have very low debt indeed, even lower than we have been trending to already. It will leave us in a position to deploy some capital in areas that I think will generate a higher return for us than owning NPT was ever likely to with the amount of investment that was probably going to be required into it, something that we were not really willing or able to do. I think overall for the company, although it might seem like a relatively small part of the business, the transaction that we have announced is really, really very good news and will set us up again to continue our ambitions in our core markets. Related to that, there is also a question from Tom about the long tail of companies in the sector and sort of thoughts on M&A to strengthen our position. Tom, in the last five years, we have completed, obviously the acquisition of the Punter Southall business which was a transformational acquisition back in 2018, and then five other deals deploying about GBP 26 million of capital in those five bolt-on deals, which have given us a return on capital of about 19% so far, and that is likely to grow. Those acquisitions have all been very strategic in areas where we as a firm saw the merit in sort of growing quicker by acquisition rather than organically. We now have all of the core skills that we need and the capabilities, and we have also invested organically in areas such as risk transfer, which tends to be very high margin. We do not necessarily need to go and do another bolt-on deal. But the bar for the M&A would be that much higher because the organic opportunity is that much bigger. But we never say never. M&A is part of our strategy and we will continue to look at the market. With the sale of NPT and a healthy sort of share price, we would have stronger currency to engage in sort of any further M&A. I can see a little flurry of a few more questions. I have a question here from Sat P. Thank you for your question. It says several of the board members have sold significant amounts of their holdings in the last year. What is the rationale behind the sales? Has growth peaked? I should say that it is true that if you look at the director dealings, my Co-Chief Exec and I both did sell some shares fairly recently. Very open and happy to talk about why we chose to do that, and it certainly isn't any sort of negativity about the future of XPS. The truth is, they are shares that both of us have owned since we were private equity-owned as a business many moons ago. I have owned those shares for, gosh, what, Ben has owned his for 10 years or so, and I have owned mine for about 8. We have held onto them throughout all of that period, post our IPO and so on. I cannot divulge too much information, but it is fair to say that essentially my job and all of my future incentives, bonuses, LTIPs, et cetera, are in the same place as my shareholding, and I do not have lots of savings outside of all of that. We do talk to clients about investment strategies and putting everything you have got in one stock is not generally considered a good idea, and I am sure those of you on this call have got portfolios that are diverse rather than all invested in one place. That is simply all that is behind that to sort of de-risk the personal position a little bit. With a huge amount of incentive and equity still held between the exec team and still retained more generally, didn't sell down all of the holding by any means, simply de-risk the position a little bit. I think the future for the company is fantastic. Yes, it helps you to sleep a little bit better at night knowing that every egg is not in the same basket. More fundamentally, we are very excited about what the future holds as I am sure you will gather. Yeah. Thank you for that question. Very happy to confront it and answer it. Just briefly, there are a couple of questions about the, will XPS benefit from the so-called Mansion House proposals designed to increase investment in U.K. small cap stocks? Very timely question. There is a lot of debate in our industry and the simple answer is yes, because any change that is forced through our industry is generally good. Our clients have to respond. They have to do something differently, and they will need to get advice if that happens. There is a lot of debate about exactly what should happen. We are an active participant in this, and indeed, we were at a private dinner yesterday with some senior people in our industry, that was hosted by the Bank of England. We are talking to them about our views about how we might revive a little bit the U.K. equity market. The answer, by the way, we think is really in defined contribution pension schemes rather than defined benefit, but there is a lot that could be done to drive more investment in the U.K. equity market, but a wider return seeking investments in the U.K. Illiquid assets, venture capital, smaller startups, all sorts of things that pension scheme money could be put to better use on. I hope the government will ultimately listen and adopt these changes because it will be for the good of all of us in the U.K., I think if they do. It will keep us very busy at implementing whatever changes might come through. I think that's a good thing. There's a couple of related questions here, I guess. First of all, how do we manage litigation risk and how do we mitigate it? We have very low levels of claim. Of course, we have high levels of professional indemnity insurance in professional services. Of course, it is a fact of life that occasionally you might make a mistake, and occasionally you might have a litigious client. It's very unusual, and if we do ever make mistakes, then they're resolved very well. The main thing is that our advice is only ever advice. We are never crystal ball gazing. We're never calling market movements. We're not active traders. We give people advice and show them ranges of outcomes, talk about alternatives, and discuss that there's always risk in whatever you do. With well-delivered advice like that still says, "Look, at the end of the day, if I were you, I would do this," but it's caveated. Clients really appreciate that and are very unlikely to blame you if things happen in the market that nobody had quite foreseen. So we are generally very well protected, even though we're giving advice about quite significant amounts of capital and decisions made around that. Of course, we occasionally might get the odd thing wrong in administration, can make errors. When you're doing the administration of 1 million people, things will happen. But that, again, is a common feature of our industry. We're protected partly by insurance and just very strong relationships with clients who understand that and recognize that you are giving 99% of the time a terrific service. We talk to our people. It is not so much about making mistakes. Everybody will. It is about what you do when you make them and how you front up and own it, and deal with it. I think- Yeah rare occasions we've had issues, actually, I've had clients come to us afterwards and say, "We're more likely to use you in the future for the way that was handled. We've seen one or two people in your industry try and sweep things under the carpet," and that's something we would never ever do. Let me answer one more before you might take the one on SIPPs now. Yeah. just, I guess, are there more LDI related issues still to come in the pensions industry? I could spend a long time talking about LDI. Of course, it hit all the headlines last year. LDI has got a bad press in many ways because it's been with us a very long time, and it has been hugely important in stabilizing the U.K. pensions industry, where 20 years ago you had some really horrendous outcomes quite frequently, where companies went bust and left pension schemes high and dry, and members didn't get anything like their full pensions. The infamous case of ASW Steel in South Wales, where people had worked in a steel works for 30, 40 years, and a week before their retirement, the company went bust, and they got nothing, despite having been in a pension scheme all along. And those things are terrible. We got the Pension Protection Fund as a response. We got a new Pensions Regulator. We got these funding rules that have driven a lot more capital into pension schemes and generally massively improved the governance. And really throughout my career, that's what I've experienced is just everything improving in that direction. LDI, what LDI does is try to actually stabilize the financial position of pension schemes by hedging the critical risks that they don't get rewarded for. Typically, trying to make sure that if interest rates fall, which in particular is a problem for pension schemes, that their assets move up as well, so that things tend to move together like this on the assets and liabilities instead of like this, which is where you can get huge problems if big gaps open up. LDI did very well for a lot of people for a very long time, and it stabilized and protected a lot of positions. Of course, when interest rates rise as quickly as they did in a matter of a few days, LDI structures came under some pressure. We shouldn't forget that underneath it, the liabilities of the pension scheme were generally still falling more quickly, because they're linked to these long-term interest rates too. So yes, it was a bit of a solvency boom. Everything got better for pension schemes overall. But along the way, some of their financial instruments that they were using to protect themselves came under quite a lot of stress and hit quite a lot of headlines. One or two pension schemes lost a little bit, but when net up, they effectively might have gone from a score of 90 out of 100 for solvency to 96, and then because their LDI hedge came off, went back to just 95. But if it had worked perfectly, they would have stuck at 96. My point is, they were better off than they had ever been had this whole thing never happened. In the industry, people do recognize that, quite sanguine about it. We have had no claims or complaints at all from our clients about the advice that we gave them during the crisis. A lot of our clients were invested in LDI, but our clients understood why. It wasn't speculation. It was actually risk protection. Again, I think we have come out of it somewhat smelling of roses because we gave very high-quality whole of market advice. We advised our clients in the summer before it happened that there was a potential risk and helped them to try to get ready for it. Out the far side, what we are now seeing is some of our competitors, especially those that have conflicts where they also provide LDI funds directly and recommended them to their own clients, which we have never done, where they sold them their own products that then didn't work very well and so on, got themselves into a real tangle. So I think there are some LDI related issues out there for the funds themselves, and any consultants that sold clients their own funds may find themselves in trouble. But we are not in that boat, and actually, what we are seeing is a lot of new business opportunities in investment consulting as we are seen as the good guys who shone, and people are leaving some of the people that they had problems with now that the dust is settled and looking for that whole of market independent advice. So no, net-net, the LDI related issues crisis was just generally very good for XPS, and again, it's another theme that we do see it creating further opportunities for us going forward now because it gave us a great chance to differentiate ourselves, which we really did. Yeah. So in terms of the question from Jason about which area of the business provides the highest margin and a bit about the SIPP business. So you can appreciate that the only listed company in the business, we are sensitive to publishing divisional margins. But I can guide you that the advisory business, which consists of the pensions actuarial consulting and the investment consulting, produces the highest margins, and this would be in the high 30%. Administration, as the name suggests, it is more of the turning of the handle type work, and that would be margin in the teens. SIPP would sit somewhere in between. It is a profitable business for us. It generates just over GBP 9 million in revenues. After the acquisition of Michael J. Field in that space, we have critical mass. We are on the panel for St. James's Place, which has 3,500 IFAs, and we are only one of two on that panel. So whenever a client of SJP IFA wants a SIPP, they would recommend one of two, and we are one of those. So it gives a distribution network that we have never had before. Our SIPP business is award-winning. It has the flexibility that some of the other SIPPs do not offer, such as earning property in the fund, et cetera. It continues to grow organically as well as inorganically. Paul, I wonder if you want to finish off with, there is a question about the regulatory landscape and how that might give us benefits in the future, and if we have any plans to expand outside of the U.K. Yeah. The regulatory landscape is very positive for us, as we say. We are due to have something called a new single code of practice next April. That basically sets out the rules about how pension schemes should be funded and this balance between the interests of different stakeholders. It has been years in the making. It has come about after the Green BHS, after Carillion and so on. It has got stuck a little bit, but it will be here next April. It got stuck because Treasury has intervened to say, "Actually, we would like something in here about the agenda of the U.K. more widely in growth, and the role that pension schemes can play." That is what this debate now is raging about. But we will have a new code next year. It will affect all of our clients. They will all need a lot of advice when it arrives. Between now and then, though, we are obviously not sitting on our hands. You can see that. We have got market turmoil everywhere. The long-term inflation change, interest rate change, as I said, it echoed down the years. It is underpinned by other things like GMP, which we have got years worth of work to do. We have not even mentioned it in the public sector. There is another rectification issue, something called the McCloud judgment, which again, essentially says that members of public sector pension schemes have not received the right benefit under the law and need to get a little bit of rectification and in some cases, some back payments. That is absolutely huge. We do the administration for half of the police forces in the U.K. All of them are affected by McCloud. We expect to do a lot of work for them on rectifying that and so on and so forth. I could go on. But whenever you see a story in the newspaper, whether it is front page or whether it is buried somewhere in the corner, scrapping of the lifetime allowance recently, et cetera, always think that that will affect us, and it will always, I think, always affect us positively. I have never seen anything that has not, in the sense that we have just got to go and give lots of advice on top of our ordinary core services. There is a lot happening there. In terms of expansion, Snehal has covered M&A already. I shall not go back over that. We do not have plans to expand internationally because our core skills, our core market is very U.K.-specific. There are nasty pensions issues in other countries, in Germany, in the U.S.A. None of them, by the way, have a system as complex or as difficult as ours, but there are already firms in those markets doing well and serving them. I don't think it would be a great use of our capital to go and try and compete with them. M&A into those territories doesn't make a huge amount of sense for us. We are keeping it simple and on the straight and narrow that we've got a tremendous opportunity in front of us in the U.K. market. We're incredibly well-placed, five years into our journey as something of a premium brand now in the market. We've developed a lot of services to be able to meet the needs of our clients that are really paying off, and you can see that in the growth that we've got. We think with a deleveraged balance sheet as well coming through now, we are a really great place to be. We've got options on M&A, but as Snehal said, we've got a tremendous opportunity to deliver returns organically as well. We're in a luxurious position, really, where we can pick and choose what exactly the best route is to exploit the great opportunities that we see in front of us at the moment. I think with that, we are two minutes to 3:00. Thank you very much indeed for the many questions that we've got. Really appreciate those. The engagement's been great. Hope you enjoyed it. We'd really welcome some feedback. I think there was an opportunity to give a little bit of feedback at the end. We hugely value it. We hope it's been a useful conversation, though. I'll hand back over to our host. Paul, Snehal, thank you for updating investors today. Can I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of XPS Pensions Group PLC, we'd like to thank you for attending today's presentation and good afternoon to you all. Thank you. Thanks very much.