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(Alliance News) - XPS Pensions Group PLC shares were sharply lower in London on Thursday as the pensions firm reported a dramatic rise in annual profit but warned pension revenue will be flat in the current year and profit will be hurt by a one-off increase in central costs.
Shares in the pensions actuarial, investment consulting and administration business were down 38% in mid-morning trading at 99.53 pence each at midday.
In the year ended March 31, XPS Pensions' pretax profit more than tripled to GBP11.4 million from GBP3.3 million the year before.
The company's revenue was 75% higher year on year at GBP109.9 million versus GBP62.7 million.
The large increase in both profit and revenue was from the addition of the Punter Southall Pensions Group Ltd's actuarial, administration and investment businesses in January 2018, having been purchased by XPS Pensions for GBP159 million.
As a result, XPS Pensions' administrative expenses increased 77% to GBP103.4 million from GBP58.4 million.
The company's proforma revenue - which assumed the Punter Southall acquisition had been completed in April 2017 - was up 5.4%.
Worryingly though the company's largest unit, Pensions, saw a proforma decrease in revenue of 2.2% to GBP56.8 million from GBP58.1 million. The company said this was due to a "resourcing issue".
XPS said its Pension business revenue will be "broadly flat" in financial 2020 as it targets hiring more staff for the business to keep up with the increased number of clients following the Punter Southall acquisition.
"The Pensions business, being our largest business, was the business most affected by the integration activities, and that combined with a lack of large-scale projects meant that, on a pro-forma basis, the business slipped back compared to the previous year. No large clients were lost and indeed several new clients were won, particularly in the final quarter, which gives good optimism for 2020. We also expect to see the volume of project work increase again," the company explained.
XPS expects its total revenue to grow by a "mid-single digit percentage" in financial 2020. The company said its other divisions - Administration, Investment, SSAS/SIPP and NPT - will see "good year on year growth".
"Exiting the discounted transitional services agreement with Punter Southall early and bolstering central functions will benefit the group operationally but will cause a roughly GBP2 million per annum step up in the cost base. In combination, the change in the mix of business and the one-off increase in central costs is expected to temporarily impact the growth in profits for the next twelve months," added XPS.
The company said it has traded in line with these revised expectations in the first two months of the new financial year.
XPS proposed a final dividend of 4.3 pence, up 2.4% on the year before, resulting in a total dividend of 6.6p, which is 4.8% ahead of the 6.3p distributed in the prior year period.
Looking forward, the company is anticipating the regulatory changes to the industry will have a "material impact" on trading.
"We continue to operate in a market where there is strong demand for our services. With the pensions regulator changing the rules on how defined benefit schemes are funded and the way risk should be managed, there is much for us to do," said Co-Chief Executive Paul Cuff.
Cuff continued: "The industry as a whole has yet to get to grips with guaranteed minimum pension equalisation, which will require a lot of work to resolve. The broader market backdrop is favourable, with a continued pipeline of first time outsourcing opportunities for our Administration business, the continued fallout of the CMA review benefiting our Investment business, and the impact of distracting corporate activity at competitors creating opportunities in our Pensions business. We look forward to the future with optimism."
