FY2020 was an unprecedented year of rapid change for Link Group, during which we showed resilience in the face of the COVID-19 pandemic and moved to a global operating model with solid progress made on the Global Transformation program, culminating in the establishment of two strategic hubs in Leeds and Mumbai, augmenting existing hubs in Sydney, Melbourne, and Maynooth. In addition to the pandemic-related impact largely felt in the 4th quarter (Q4), lower financial measures compared to FY2019 also reflect the divestment of Corporate and Private Client Solutions (CPCS) in June 2019, the impact of regulatory change and client losses in Retirement and Superannuation Solutions and the effect of Brexit-related uncertainty on Non-Recurring Revenue activity in Corporate Markets.
The net loss of Link Group for FY2020 was $113.9 million, which was down 136% on FY2019’s net profit of $318.1 million. This reduction in net profit was largely the result of including an impairment charge of $107.8 million in relation to Corporate Markets EMEA and the impact of one-off gains in the prior year (related to the profit on sale of CPCS and the fair value revaluation gain on PEXA) not repeated in FY2020.
In addition, in Q4, lower equity markets had a direct impact on pre-tax earnings as a result of depressed asset values, adverse impact on capital markets related revenue and new business pipelines and delays in realising cost savings from the Global Transformation program.
Notwithstanding this statutory loss after tax, Link Group showed resilience in response to the challenges brought on by the COVID-19 pandemic across all global markets. During this period, we maintained a focus on safeguarding the well-being of employees, as well as ensuring continuity of service for clients. Link Group’s response was aided by the following.
- The majority of contracted revenue is with large financial institutions derived from non-discretionary services.
- A resilient earnings profile supporting operating cash flow, with approximately 80% of revenue recurring in nature, however, some business units saw market volatility impacting Non-Recurring Revenue.
- A liquidity position supported by cash reserves and committed, undrawn credit facilities.
- Debt serviceability and leverage remained comfortably within existing bank covenants.
- Additional initiatives were implemented to reduce costs and support operating cash flow recognising the increased activities in Retirement and Superannuation Solutions.
Link Group’s revenue by geographic region (as illustrated below in Figure 1) reflects our position as a global business with revenue derived from outside Australia and New Zealand (ANZ) at 44% compared to 49% in FY2019, largely as a result of the disposal of CPCS in FY2019.
Figure 1: Revenue by region
External Revenue by Region
Link Group continued to execute on other elements of our growth strategy in FY2020 as follows.
- Increased sales of products and services to existing clients to help mitigate the impact of previously announced client losses in Retirement and Superannuation Solutions and competitive pressures in Corporate Markets.
- New investment in technology platforms and innovative products and services with capital expenditure increasing by 33% to $107.3 million during the year.
- Extending our UK and European footprint with entry into the UK pensions market through an investment in Smart Pension (Retirement and Superannuation Solutions) and the announced acquisition of Pepper European Servicing (PES) (Banking and Credit Management), the latter being subject to regulatory approval.
- Savings related to the Global Transformation program continued to be realised and are on track to achieve our medium term forecast operating cost reductions.
- Property Exchange Australia Limited (PEXA) beginning to make a material contribution to Link Group’s Operating NPATA as volumes continue to grow and operational leverage is realised.
Drivers of growth
Growing with our clients in attractive markets
Product and service innovation
Integration and efficiency benefits
Client, product and regional expansions
Identifying adjacent market opportunities
- Key client renewals (HESTA)
- Continuing to win clients in LFS (UK and Australia)
- Virtual AGMs used to facilitate physically distanced and virtual annual general meetings for clients
- API portal enabling Link Group and our clients to tailor and transform the user experience for their customers (eg. Member portals, mobile apps)
- Delivered annual efficiency benefits of $14.7 million as part of the Global Transformation program. Global transformation program on track but behind expectations due to Covid-19 disruption
- Mumbai and Leeds hubs established
- Established pension administration business in UK in 2020. Link Group currently administering over 700k members in the UK
- Executed PES transaction in January 2020 creating a leading European debt servicer (subject to regulatory approval)
- PEXA recapitalisation expected to complete in 1H2021
FY2021 Strategic focus
- Capitalise on growth opportunities created by financial services Royal Commission in Australia
- Deliver integrated and increased product suite in the UK
- Broaden the range of products per customer across business units
- Continue to execute on the Global Transformation program
- Build presence in UK pension administration market
- Build on LFS presence in Luxembourg
- PES completion
- Continue to explore value accretive acquisitions