Following what was a transformational year for Link Group, we are pleased to report another strong earnings result. Having undertaken expansion in the United Kingdom and Europe as well as growth across the 18 jurisdictions in which we operate around the world, Link Group has delivered:
The Board is pleased to announce a final dividend of 13.5 cents per share, which is 100% franked. Together with the interim dividend of 7 cents per share, this represents 60% of NPATA, which is at the top end of the Board’s dividend policy of paying between 40% and 60% of NPATA.
These results reflect our continued commitment to our client relationships and disciplined execution of our strategy. As a scaled provider across multiple markets and jurisdictions with a demonstrated capacity to evolve and innovate, Link Group remains well placed to achieve further growth.
Link Group completed the purchase of Capita Asset Services (renamed Link Asset Services, or LAS) for £909 million ($1,548 million) from London Stock Exchange-listed Capita plc on 3 November 2017.
The acquisition of LAS demonstrates our strategy to grow through further penetration of attractive markets, enabling us to provide an expanded range of products and services to our clients in these jurisdictions.
LAS materially expands our footprint in Europe in business lines we understand well, such as share registry and fund solutions. In addition, LAS brought with it a new line of business for Link Group: Banking and Credit Management. LAS enjoys leading market positions in the 10 jurisdictions in which it operates, servicing almost 7,000 clients and safeguarding more than £600 billion held in funds, entities and other instruments.
The LAS acquisition has had a strong positive impact on Link Group. Both Operating EBITDA and Operating NPATA benefited from its inclusion in our results for the eight months since the acquisition. We remain confident in achieving efficiency benefits of at least £15 million per annum over the medium term.
Reflecting our expanded global presence, in March, the Link Group Board:
Our earnings results were also buoyed by progress on our broader integration and efficiency objectives and a strong operating performance in Technology & Innovation (formerly Information, Digital & Data Services).
Link Group continues to realise operational efficiencies from the Superpartners integration and we remain on track to achieve targeted synergies of $45 million in Fund Administration and Technology & Innovation by FY2020.
With the markets we serve subject to the global trends of increased complexity and greater governance oversight, Link Group remains well placed to help our clients manage the changing regulatory landscape and deliver improved outcomes for members, trustees and employers. This presents revenue opportunities and a competitive advantage for Link Group due to our size, our investment in technology and our expertise in managing regulatory changes.
Link Group invests significantly across all our business lines to deepen relationships with our clients. We continue to pursue opportunities to work with them to support their growth. We remain focused on the delivery of service excellence, innovation and the retention of the high level of trust placed in our business. We service more than 35 million individual shareholders per year, answer more than 5 million calls per year and provide services for over 50 superannuation funds, which have more than $400 billion of funds under management.
As Link Group continues to grow, it is critical that our people around the world are engaged in creating success and value for our clients and shareholders. We recognise that our people are integral to both our achievements and our overall success as an organisation. In the Engagement Survey undertaken in November 2017, our people shared with us that they wanted to contribute more to the wider Link Group. Given our significant expansion over the past five years, it is essential that all our employees across all business areas have a clear understanding of our purpose. Earlier this year, we embarked on a journey to create the Link Group Purpose Statement, which connects employees and clients globally and supports further growth of our innovative products and services. Link Group’s Purpose Statement – “Together we achieve…” – reflects our DNA and encapsulates the collaborative way we work together with each other, clients and third parties to help everyone achieve success, including our shareholders.
On behalf of the Board, I would like to thank our shareholders for their participation in the $883 million equity raising in July 2017, proceeds of which partly funded the acquisition of Link Asset Services. A further $300 million equity placement in April 2018 has Link Group well positioned to pursue other strategic opportunities. We greatly appreciate your continuing support.
As the Board looks forward to FY2019, my fellow Directors and I, together with the Executive team, will continue to focus on the delivery of value for all our clients, their members and investors. We whole-heartedly believe that together we will achieve great things.
1 Unless otherwise stated, results throughout this report are presented on an Operating basis. See page 71 of the Annual Report for Non-IFRS definitions of Operating EBITDA and Operating NPATA.
Today, Link Group is a market-leading provider of technology-enabled administration solutions, with over 7,000 employees working across 18 jurisdictions. We have significant operations within our four divisions: Fund Administration, Corporate Markets, Technology & Innovation and Link Asset Services (LAS). Our clients include some of Australia’s largest superannuation funds as well as the world’s largest corporations.
Up until FY2018, our international activities had been largely concentrated in Corporate Markets, with operations in New Zealand, the Philippines, Hong Kong, India, Dubai, Papua New Guinea, South Africa, Germany, France and the United Kingdom. We had also established a Fund Administration operation in New Zealand.
We have built strong market positions in all these locations as well as a base from which further growth can occur. Revenue generated from our international operations was under 10% of total revenue in FY2017; in FY2018, this figure has grown to around 40%.
In June 2017, we signed a sale-and-purchase agreement to acquire LAS, a major provider of back-office solutions to the financial services industry. As the Chair notes in his message, the LAS acquisition was completed on 3 November 2017 for a purchase price of £909 million ($1,548 million).
LAS is a substantial existing business with strong historical growth credentials and provides a large-scale platform for Link Group’s further growth in the UK and Europe. LAS operates businesses in Corporate Markets, Fund Solutions and Corporate and Private Client Solutions – all of which are areas well known to Link Group. Banking and Credit Management is a new activity, with promising growth opportunities in a number of markets across Europe.
The acquisition of LAS is strongly aligned with our growth strategy. It offers a natural expansion of our operations in markets into which we first entered more than a decade ago and have been looking to expand for many years, as well as new markets with attractive growth prospects.
With £331 million of revenue and £73 million of EBITDA for the 12 months ended 30 June 2018, the LAS businesses are well positioned for growth. While two-thirds of LAS’ revenue is generated in the UK, it also has operations in a range of locations across Europe, providing strong strategic bases from which to grow. With LAS well represented in Dublin, Amsterdam and Luxembourg, we have a series of geographic options in the European Union which are well positioned to deal with any adverse impacts from Brexit.
As part of the acquisition, we also welcomed over 3,000 LAS employees to Link Group. The LAS team has continued to enjoy success by winning new business since joining Link Group and I’ve been very impressed with their professionalism and commitment.
Since becoming a part of Link Group, LAS has continued to grow its operations across Europe and the UK.
In FY2018, LAS:
In July 2018, we also made an investment in Leveris, a European-based supplier of ‘next generation’ core banking platform software.
Together with the expanded European platform, each of our businesses remains well placed to capture further opportunities in the markets in which they operate.
We have established a Transformation Office in London. There are many tasks involved in separating the business from the former parent and integrating various functions into Link Group. I’m pleased to report that progress is positive as we migrate HR, payroll, finance and risk and compliance systems onto Link Group platforms. We are avoiding duplication of effort inside business layers by centralising functions such as IT and Finance. The migration of systems will continue throughout FY2019, providing the platform for extracting efficiencies and supporting our approach to global sourcing and vendor management. In addition, our property location strategy will rationalise our UK premises while facilitating efficient workplace environments and improved amenities for our people over the medium term.
As well as our further expansion into the UK and Europe with LAS, Link Group continues to grow with other exciting initiatives in selected jurisdictions around the world.
These have included further expansion in India and Hong Kong. We have been present in India for 10 years and in this time have built a leading market position in the share registry space. In May, we added to this by signing an agreement1 to merge our business with that of TSR Darashaw. TSR Darashaw has a strong client list of Indian companies, including members of the Tata group. Market conditions in India have been positive with IPOs still attracting a lot of investor interest. We have a great management team based in Mumbai and a capacity for further growth.
In Hong Kong, we opened a share registry business on 8 August 2018. We have been present in Hong Kong since 2008 with our Orient Capital business having built a leading position in the market. With this platform well established, we see strong growth prospects for the expansion into share registry.
Our continued expansion in selected jurisdictions around the world is in line with our growth strategy:
Following our clients into attractive markets as they expand internationally is mutually beneficial. We can share systems on a global basis and offer a consistent approach to the use of technology, which helps control costs for our clients and ourselves. Our clients can grow on a single platform around the world without having to implement and manage disparate systems in different jurisdictions.
I thank our shareholders for the strong support they have shown for our growth strategy. This support is evident in the $883 million equity raising in July 2017 – a fully underwritten, pro-rata, accelerated and renounceable entitlement offer – for the LAS acquisition. This was followed by a fully underwritten $300 million placement in April 2018 that provides Link Group with the capacity to continue to pursue strategic opportunities. Our shareholders have helped make FY2018 a successful one for Link Group as we further expanded our global footprint.
Our FY2018 financial results are positive and include eight months of contribution from LAS. Our record of uninterrupted Operating EBITDA growth since 2002 continued in FY2018. We exceeded our performance of the previous year across key financial measures:
In addition, we continue to realise post-migration synergies and operational efficiencies from the Superpartners integration.
The Australian Government announced changes to superannuation in its 2018-19 Federal Budget that look to reduce the number of inactive and duplicate accounts, cap fees on low-balance super accounts and ban super fund exit fees. While we estimated the unmitigated full-year revenue impact of these changes would be approximately $55 million as at 30 June 2018, we consider the effects of the Government’s proposed changes on Link Group will be mitigated. Many of our client funds are working to actively engage with their members, which may materially reduce the number of accounts transferred to the Australian Taxation Office under the proposed changes (which are currently expected to take effect from October 2019). In addition, in the event that there is a material decrease in member numbers, at that time, volume protection clauses are expected to be triggered in the majority of Fund Administration contracts.
The recently released Productivity Commission’s draft report on superannuation focuses on how the industry can be more efficient and competitive. As the report is considered by the Australian Government, Link Group remains in a good position to respond to the draft report’s findings. We believe we are part of the solution in helping achieve efficiency in the system and we aim to provide both the best value for money and the most innovative services to the superannuation industry. Our platforms and value-added services provide a competitive advantage to our clients and allow them to operate at the lowest end of the cost curve.
Our people are paramount to our success and we strive to create an environment where our employees can thrive and innovate. In recognition of this, we conducted our first Employee Engagement Survey in late 2017, where we asked our people globally about their experience of working for Link Group, their perceptions of our strengths and where we could improve, and their sense of involvement in our strategies. A key takeout from this exercise was a strong desire from our people to feel a deeper sense of connection to our strategies and goals, and the role they play in achieving them. As we have continued to expand our business globally, I recognise the importance and reliance placed on our people in taking the business forward. Our people, our culture and our purpose have never been more important to Link Group to achieve our growth strategy. To make this connection more tangible, we launched LinkPurpose, a program of employee-led consultations and workshops held across our organisation, to identify a Purpose that connects our people to our business strategy and acknowledges the partnerships with our clients and shareholders that make us who we are today. The essence of our Purpose is “Together we achieve...”
This year, we also launched our Graduate Internship, a two-year program where graduates can gain experience across our Corporate Markets, Fund Administration and Technology & Innovation divisions. We’ve had nine graduates join the inaugural program based in Sydney, with future programs to be rolled out nationally from FY2019.
Another area where our people make a difference is through support of community initiatives via our Corporate Social Responsibility (CSR) program. They drive our activities and how we support the communities in which Link Group operates. We take an active approach to CSR initiatives to help our people assist charities and not-for-profit organisations that they identify with and are passionate about. During FY2018, I’ve been proud of the commitment shown by our people to support a number of charities including:
Link Group is committed to creating products and services for the benefit of our clients and their stakeholders and members. Over the past 10 years, we have invested approximately $300 million into developing platforms that drive user engagement, analysis and insight. We continued to innovate our services in FY2018.
In July 2017, Orient Capital, our investor relations business, teamed up with global financial data provider, Factset, to expand the breadth of financial data, particularly around international markets, available to listed companies from Orient Capital’s online platform, miraqle®. The online platform has been revamped and is now a ‘one-stop shop’ for our clients’ investor relations needs. In addition, our miraqle® for iPhone app won Financial Services App of the Year at the 2018 Financial Standard Marketing, Advertising and Sales Excellence (MAX) Awards, following our win of the same award in 2017 for the Cbus Employer app.
Link Group is also at the forefront of virtual meeting technology. Our hybrid Annual General Meeting (AGM) services let companies deliver their own annual general meetings to shareholders in remote locations. Our proprietary technology allows shareholders to view the proceedings of the meeting via video link, ask questions, and vote using our LinkVote App on personal devices or via our interactive web-based technology online. And it’s not just listed companies that can benefit from this technology, with NRMA, Australia’s largest member organisation, utilising our hybrid meeting technology to allow its members to virtually attend its 2017 AGM.
In what has been a transformational year for Link Group, I want to thank our people for their hard work across each of our business divisions and our clients for making us a trusted partner. Link Group enjoys leadership positions in each of the primary markets in which we operate. We have a strong balance sheet with robust cash flow and good earnings momentum moving into FY2019. I believe that our people, our demonstrated capacity to innovate, our market-leading technology platforms and our expertise in managing change, position us well to deliver on our growth plan in the coming years.
I look forward to reporting back to you on our progress.
1 Subject to regulatory approval by the Securities and Exchange Board of India (SEBI).