Xps Pensions Regulatory News (XPS)

7 December 2017

Xafinity plc

Interim results for the six months ended 30 September 2017

Continued profitable growth and innovation in technology

Xafinity plc ("Xafinity" or "the Company"), the pensions actuarial, consulting and administration business, is pleased to announce its interim results for the six months ended 30 September 2017.

Financial Highlights:

· Revenue for HY18 of £26.6m, a 2% increase when compared with the prior year (HY17: £26.0m)

· Adjusted EBITDA grew by 2% to £8.7m (HY17: £8.5m), representing a margin of 32.7%

· Pre-tax profit increased by an impressive 188% to £4.9m (HY17: £1.7m)

· Strong cash conversion in H1 2018 of 75%

· Basic earnings per share of 2.9p (HY17: 1.0p) following IPO share reorganisation

· Interim dividend of 2.1p per share declared by the Board

Operational Highlights:

· The Company has added 5 more annuity client wins in the six months ended 30 September 2017

· Introduction of Radar technology to 40 clients since beginning of financial year

· Xafinity fully supports the CMA investigation into the investment consultancy sector, and is looking forward to assisting the regulator as the investigation progresses

· Performance since 30 September 2017 has remained in line with the Board's expectations and the revenue associated with recent contract wins is expected to feed through over the remainder of this financial year

Proposed Acquisition of Punter Southall divisions

Xafinity today announces a proposed acquisition of Punter Southall Holdings Limited, the holding company of the actuarial consulting, pensions administration and investment consulting businesses of Punter Southall Group Limited ("PS Group"), for up to approximately £153 million. The deal would combine the three target businesses with Xafinity's existing businesses, whilst Xafinity's HR Trustees business would be sold to PS Group. The addition of these complementary divisions to the Xafinity group is anticipated to enable the enlarged group to become the largest "pure play" pensions consulting firm in the UK outside of the global consultancies.

Ben Bramhall, co-CEO of Xafinity plc, commented: 

"The Company's performance since 31 March 2017 has been pleasing, and I would like to thank all of our employees for their hard work as the business continues to build momentum as a publicly listed company. We remain committed to investing in people and technology, as seen by the roll-out this year of our market leading product, "Radar", which has been positively received both by our new and retained clients."

"The investment consultancy industry is currently undergoing a period of increasing scrutiny from the CMA, and we fully support the regulators decision to explore ways in which the industry can work more effectively. We believe this investigation will be hugely beneficial to pension schemes and trustees, and we look forward to sharing our recommendations with the CMA on how the industry can improve."

Paul Cuff, co-CEO of Xafinity plc, commented:

"The announcement today regarding the transaction with Punter Southall is very exciting news for everyone at Xafinity, and it follows a successful period for the Company built on the back of a series of impressive client wins. We have a very clear strategy to build market share in the pensions advisory space, and the merger of these three divisions from PS Group with Xafinity will enable us to achieve our aim of becoming the clear alternative to the Big Three in the pensions consultancy sector. The trading environment for Xafinity remains strong, while the pipeline of new business continues to offer real growth opportunities, and we look forward to the rest of the year with confidence."

Media enquiries

Camarco

Notes to Editors

Xafinity is a UK specialist in pensions actuarial, consulting and administration, providing a wide range of services to over 550 pension scheme clients. The Company combines expertise, insight and technology to address the needs of both pension trustees and sponsoring companies. The Xafinity Group has more than 400 employees, of which approximately 90 per cent are client facing, with offices in Reading, Leeds, Stirling, Belfast, London and Manchester providing it with access to staff, expertise and clients in geographic locations across the UK.

CHAIRMAN'S STATEMENT

By focusing on our strategic objectives, Xafinity has delivered a consistent first half performance despite prevailing macroeconomic uncertainties. The Company's core markets remain healthy and offer exciting opportunities for growth as the challenges facing defined benefit schemes continue to drive demand for de-risking advice.

The Group's performance since March 31, 2017 has been in line with the Board's expectations. During the first six months of the financial year 2018 ("H1 2018 or HY18"), revenues were up 2% at £26.6m (HY17: £26.0m) while adjusted EBITDA increased 2% to £8.7m (HY17: £8.5m), and pre-tax profit was up 188% at £4.9m (HY17: £1.7m). Cash conversion during H1 2018 was an impressive 75%.

The Company has maintained a strong balance sheet with net assets of £32.1m as at 30 September 2017, compared to net assets of £28.9m as at 31 March 2017. The increase reflects continued profitable growth of the group. Net debt decreased during the period to £23.1m (HY17: £79.8m).

Progress on strategic objectives

Management has continued to implement the strategy for organic growth outlined at the IPO in February 2017, resulting in 5 new annuity client wins in the last six months and one annuity client loss. The period has also seen the Company start to realise an increasing number of H2 2017 annuity contract wins.

The demand for de-risking advice has continued into the first half of the year, with significant progress being made in Trivial Commutation. Elsewhere, while industry adoption of MasterTrusts remains slow, National Pensions Trust has achieved solid growth through H1 2018 and continues to gain acclaim in the market with £292m of assets under management ("AUM") as at 30 September 2017. Post period, this growth has continued and AUM now stands in excess of £320m.

We have maintained our investment in people during the period and are continuously developing and expanding our offering to clients through improved technology and new products. We have been delighted with the reaction to Radar, our new technology offering, that empowers clients with the information necessary to create a truly collaborative and beneficial relationship with Xafinity.

The proposed acquisition of the actuarial consulting, pensions administration and investment consulting businesses of PS Group is a very exciting step for the Company, and is one that we believe has a compelling strategic rationale for Xafinity. Ben Bramhall and Paul Cuff, co-CEOs, have a longstanding professional and personal history with Punter Southall, having been given their first jobs by Jonathan Punter as trainee actuaries. We believe that a successful combination of these two premier mid-tier providers would create the pre-eminent mid-tier firm in the pensions consultancy market, with significantly stronger growth prospects than each business would possess individually.

Regulation

The CMA investigation into the investment consultancy sector is an initiative that has our full support. All industry participants must shape its future, rather than a handful that already dominate the market. We look forward to the outcome of the CMA investigation and are confident that it will be beneficial to pension schemes. Our approach and our actions demonstrate that we continually focus on the interests of schemes and members, and have offered our assistance to the regulator in setting out high standards in this important area.

Dividend

The Board is pleased to declare an interim dividend of 2.1p per share. The interim dividend will be paid on 8 February 2018 to those shareholders on the Company's register as of 29 December 2017.

Outlook

The trading environment for Xafinity remains strong, with our new business performance during the period having undoubtedly been supported by our post-IPO profile. The Company expects strong growth in H2 2018, as the revenues gained from recent contract wins starts to feed through into the business and the pipeline of opportunities strengthens. Xafinity continues to gain momentum in the market, with the proposed combination of the actuarial, consulting and pensions administration divisions of Punter Southall establishing the Company as the clear alternative to the Big Three in the pensions consultancy sector.

We are entering an exciting time for the Company as it continues to grow both organically and via acquisition. The core pensions market that Xafinity operates in continues to be driven by the need for de-risking advice and other services, and the Board is confident about the future prospects of the Company.

Tom Cross Brown

Chairman

Interim Management Report

Revenue compared to the same period in the previous year (i.e. the 6 months to 30 September 2016) was up 2.2% to £26.6m (2016: £26.0m) with a positive underlying trend. Pensions Advisory and Administration and SSAS / SIPP continue to win new clients and grow revenue. Revenue growth was strongest in NPT at 27%. Profit before taxation increased by 183.7% to £4.9m (2016: £1.7m). The most notable difference being the interest charge of £0.4m compared to 2016: £3.8m. This is a result of the lower level of borrowing in the group of £28.6m compared to a year ago £83.6m. The proceeds of the IPO in February 2017 were used to pay down the Company's pre-IPO debt. As a result of the IPO the Group has strengthened its balance sheet with net assets of £32.1m as at 30 September 2017 (30 September 2016: net liabilities £20.4m). Group headcount now stands at 427 (30 September 2016: 415).

Revenue in the Pensions Advisory and Administration division (80% of group revenue) increased by 2% to £21.5m (2016: £21.2m). Growth has accelerated through the period due to the impact of new client wins in the last quarter of the previous year which have started to come on-stream. Given the lag between winning new business and generating revenue, which can be 6 months or more for certain types of contracts, the first half of the year does not reflect the full value of the contracts won in the previous year. Furthermore, it is pleasing to note that client wins have continued during this period - both for full-service recurring business as well as corporate advisory appointments which should start to come on-steam during the remainder of the financial year. 

Within the Pensions Advisory business, the investment practice continues to perform strongly. In addition, toward the end of the period, the roll-out of our proprietary pensions modelling software "Radar" commenced. This brings our clients better insight into what is happening and why, and so helping them make informed and efficient decisions about how to improve their pension schemes through highly tech-enabled actuarial and investment advice (giving rise to project work). The Group believes this will lead to an increase in the volume of de-risking projects.

NPT revenue (2% of group revenue) increased by 27% to £0.4m (2016: £0.3m) The NPT product continues to grow and by the end of the period had £292m of assets under management, which belong to 26,000+ members from 102 sponsoring employers.

Other revenue (18% of group revenue) increased by 3% to £4.7m (2016: £4.5m) driven in particular by the HR Trustees, Independent Trustee business which grew by 12% driven by previous new wins and winning three new appointments in the period.

Cash flow The Group maintained a strong cash position of £5.7m as at 30 September 2017 (30 September 2016: £6.2m). Working capital in the period has decreased by £1.1m and notable cash outflows included repayment of loans £4.3m, a dividend of £1m, capital expenditure of £0.9m and £0.6m of tax payment.

EPS The Company's EPS for 30 September 2017 was 2.9p (2016: 1.0p).

Dividend An interim dividend of 2.1p per share (2016: nil) will be paid on 8 February 2018 to those shareholders on the Company's register as at 29 December 2017.

Principal risks and uncertainties affecting the business The principal risks and uncertainties affecting the Group's business activities remain those detailed within the Principal Risks and Uncertainties section of the Annual Report and Accounts for the year ended 31 March 2017, namely Staff Retention, Reputation, Data loss/security breach, Errors, Competition/Client retention, and crime/external events/market, economic, political.

Outlook Current trading since 30 September 2017 has remained in line with the Board's expectations, with a number of new client wins built on robust trading momentum and delivery of the Company's strategy to build market share in the pensions advisory sphere. The revenues from these new client wins are expected to have a positive incremental effect on the Company through the remainder of the current financial year. Trading conditions remain strong and, with a strong pipeline of visible new opportunities, the Board looks forward to the rest of the financial year with confidence.

Condensed Consolidated Statement of Comprehensive Income

for the period ended 30 September 2017

Condensed Consolidated Statement of Financial Position

as at 30 September 2017

Condensed Consolidated Statement of Changes in Equity

for the period ended 30 September 2017

Condensed Consolidated Statement of Cash Flows

for the period ended 30 September 2017

Notes to the Condensed Consolidated Financial Statements

for the period ended 30 September 2017

1 Accounting policies

Xafinity plc (the "Company") is a public limited company incorporated in the UK. The principal activity of the Group is employee benefit consultancy and related business services. The registered office is Phoenix House, 1 Station Hill, Reading RG1 1NB. The Condensed Group Financial Statements consolidate those of the Company and its subsidiaries (together referred to as the "Group").

Basis of preparation and statement of compliance with IFRS

The annual financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU), IFRS - IC Interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. These financial statements have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union.

After making enquiries, the Directors have formed a judgement, at the time of approving the half-yearly financial results, that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, a period of not less than 12 months. For this reason the Directors continue to adopt the going concern basis in preparing the condensed set of financial statements.

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 March 2017.

Critical accounting estimates and judgements

The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Functional and presentation currency

The Financial Statements are presented in British Pounds which is the Group's functional currency. Figures are rounded to the nearest thousand.

New standards and interpretations not yet adopted

IFRS 9 Financial Instruments

In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted.

IFRS 9 requires the Company to record expected credit losses on all of its debt securities, loans and trade receivables, either on a 12-month or lifetime basis. The Company expects to apply the simplified approach and record lifetime expected losses on all trade receivables.

The Company plans to adopt the new standard on the required effective date. The Company is still assessing the impact on its balance sheet or equity on applying the classification and measurement requirements of IFRS 9 although it does not expect it to have a significant impact.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 was issued in May 2014 and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after January 1, 2018. The Company plans to adopt the new standard on the required effective date. The Company has started a review of the impact of IFRS 15 with the help of a third party. Once the analysis is completed, the transition method will be chosen. Based on the current sales contracts, both methods are feasible from an implementation perspective. Furthermore, the Company is considering the clarifications issued by the IASB in April 2016 and will monitor any further developments.

IFRS 16 Leases

IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees - leases of 'low-value' assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.

IFRS 16 is effective for annual periods beginning on or after January 1, 2019, subject to endorsement by the European Union. Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard's transition provisions permit certain reliefs.

The Group has entered into a number of long term leases in respect of land and buildings. The Group has assessed the leases under IFRS 16 and expects a significant impact as the right of use assets and lease liabilities will come onto the consolidated statement of financial position for the first time in respect of its current operating leases. IFRS 16 will therefore have an impact on the financial statements of the Group, however the Group are still assessing the quantum. To see the volume of operating leases please see Note 29 to the Group's consolidated financial statements for the year ended March 31, 2017 for more information.

Xafinity is currently reviewing the impact of the above-mentioned Standards and Interpretations and is yet to conclude on whether any such standards will have a significant impact on the financial statements of the Group in the year of initial application other than in respect of IFRS16 as noted above.

The other standards, interpretations and amendments issued by the IASB (of which some still subject to endorsement by the European Union), but not yet effective are not expected to have a material impact on the Group's consolidated financial statements.

2 Financial information

The financial information in this report was formally approved by the Board of Directors on 7 December 2017. The financial information set out in this document does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006.

Statutory accounts prepared under IFRSs for the year ended 31 March 2017 for Xafinity plc have been delivered to the Registrar of Companies. The auditor's report on these accounts was not qualified, did not draw attention to any matters by way of emphasis and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

The financial information in respect of the period ended 30 September 2017 is unaudited but has been reviewed by the Group's auditor. Their report is included at the end of this document. The financial information in respect of the period ended 30 September 2016 was audited for the purpose of the Group's admission to the London Stock Exchange and was contained within the Group's Prospectus dated 13 February 2017. The Accountant's Report on the 30 September 2016 financial information was not qualified, did not draw attention to any matters by way of emphasis and did not contain any statements under section 498(2) or (3) of the Companies Act 2006.

3 Adjusted EBITDA and adjusted profit after tax

4 Operating segments

In accordance with IFRS 8 'Operating Segments', an operating segment is defined as a business activity whose operating results are reviewed by the chief operating decision maker ('CODM') and for which discrete information is available. The Group's CODM is the Board of Directors.

The Group has several operating segments based on geographical location and revenue streams, but one reporting segment due to the nature of services provided across the whole business being the same pension and employee benefit solutions. The Group's revenues, costs, assets, liabilities and cash flows are therefore totally attributable to this reporting segment.

Operating segments

5 Taxation

6 Loans and borrowings

On 17 February 2017, as part of the IPO related re-financing exercise, the Group repaid its existing £86.0m bank loan and replaced it with new senior debt of £15.0m and a drawn revolving credit facility of £18.0m. Total debt was £28.6m at 30 September 2017 (30 September 2016: £83.6m). During the period the Group repaid £4.25m of its revolving credit facility. At 30 September 2017, £13.7m (31 March 2017: £18.0m) was drawn down under this facility.

7 Trade and other payables

The carrying value of trade and other payables classified as financial liabilities measured at amortised cost approximates to fair value.

8 Earnings per share

A further 729,000 share options are in issue which are not currently dilutive.

The calculation of basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the period. In accordance with IAS 33 the weighted average number of shares in issue during the prior period has been retrospectively adjusted for the proportionate change in the number of the shares outstanding as a result of the bonus issue and share sub-division, as if the event had occurred at the beginning of the earliest period presented.

Adjusted earnings per share

9 Dividends

Amounts recognised as distributions to equity holders of the parent in the period

The final dividend for 2016/17 was paid on 29 September 2017. The final dividend has been reflected in the Statement of Changes in Equity.

The proposed interim dividend was approved by the Board on 6 December 2017 and has not been included as a liability at 30 September 2017

10 Related party transactions

There have been no related party transactions during the first six months of the financial year. In the period ending 30 September 2016 there were £69,000 in respect of fees for non-executive directors.

11 Post balance sheet events

On 7 December 2017 Xafinity entered into a conditional agreement with, among others, Punter Southall to acquire three significant divisions from Punter Southall for a total consideration of up to approximately £153 million. The consideration for the acquisition will be satisfied through a payment of approximately £92.5 million in cash and the issue of shares. In addition, Xafinity will transfer to Punter Southall the entire issued share capital of HR Trustees Limited at an agreed value, such amount being set off against the aggregate consideration payable. The cash element of the consideration and associated transaction fees will be financed through the net proceeds of a firm placing and placing and open offer (the "Capital Raising") of £70 million and drawdown on new debt facilities which comprise two RCFs totalling £80 million and which will also replace existing indebtedness of the Group.

The acquisition is conditional upon, among other things, Xafinity shareholder approval, receipt of proceeds from the Capital Raising, and is expected to complete in Q1 2018.

Responsibility Statement

We confirm that to the best of our knowledge:

a) The condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

b) The interim management report includes a fair review of the information required by DTR 4.2.7R (indication of the important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

c) The interim management report and note 10 includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

On behalf of the Board,

Mike Ainslie

Chief Financial Officer

Independent Review Report to Xafinity plc

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2017 which comprises the Condensed Consolidated Income Statement, the Condensed Consolidated Balance Sheet, the Condensed Consolidated Cash Flow Statement, the Condensed Consolidated Statement of Changes In Equity, and related notes 1 to 11.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of and has been approved by the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, ''Interim Financial Reporting'', as adopted by the European Union.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Our report has been prepared in accordance with the terms of our engagement to assist the company in meeting its responsibilities in respect of half-yearly financial reporting in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'', issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34, as adopted by the European Union, and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

BDO LLP

Chartered Accountants

Reading

United Kingdom

Date: 7 December 2017

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).