SimplyBiz Group plc (LON:SBIZ), a leading independent provider of compliance and business services to financial advisers and financial institutions in the UK, today announced its audited results for the twelve months ended 31 December 2019.
Financial highlights:
· Group Revenue up 24% to £62.8m (FY18: £50.7m)
· Operating profit increased by £5.2m to £12.0m
· Adjusted EBITDA*1 up 49% to £17.0m (FY18: £11.4m)
· Adjusted EBITDA*1 margin increased to 27.1% from 22.5%
· Adjusted earnings per share (EPS) *1 increased by 15% to 13.4p
· Net debt of £27.0m at 31 December 2019, with a comfortable net debt to adjusted EBITDA ratio of less than 1.6 times.
· Final dividend proposed of 2.85p per share, resulting in a full year dividend of 4.26p per share.
Operational highlights:
· Successful strategic acquisition of Defaqto
· Strong progress on software development and deployment
· Strong growth in value per intermediary customer
· Strong increase in mortgage completions
· Strong cost control maintaining strong operating margin
Matt Timmins, Joint Chief Executive Officer of The SimplyBiz Group, commented:
“We are delighted to have successfully completed the strategic acquisition and rapid integration of Defaqto and welcome these new colleagues into the SimplyBiz Group. This acquisition instantly expands the Group’s customer base by over 50% and materially extended our software and service platform across all key sectors. The acquisition enhances the Group’s strong and sustainable profit margins.”
“The Board is confident and optimistic about 2020. We are guiding to marginally lower growth in revenues and EBITDA, particularly in employee benefits and valuations, with operational gearing flowing through to earnings. We expect both headline and underlying growth to remain strong.”
*1 Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation of intangible assets arising on acquisition and operating exceptional costs. Adjusted profit before and profit after tax exclude operating exceptional costs, exceptional finance charges and amortisation of intangible assets arising on acquisition. In the current year the measures have also been adjusted for the impact of adopting IFRS 16. A reconciliation of these metrics to GAAP measures is provided in note 5. Adjusted earnings per share is calculated based on adjusted profit after tax, as shown in note 9.
*2 Organic growth is defined as the year on year increase in a financial metric, excluding the impact of acquisitions.
Analyst presentation
An analyst briefing is being held at 10.30am on 10 March 2020 at the offices of Instinctif Partners, 65 Gresham Street, London, EC2V 7NQ. To register your attendance please contact SimplyBiz@instinctif.com.
JOINT CHIEF EXECUTIVES’ STATEMENT
The SimplyBiz Group is a leading independent provider of support services and software to financial advisers and financial institutions. The Group serves over 5,600 intermediary firms and more than 350 financial institutions in the UK.
The Group delivers a platform for intermediary firms to run a compliant and successful business and enables product providers to reach the market more effectively. Our unique product data and market insights inform the purchase decisions of financial advisers and consumers and we enable product providers to design and optimise higher quality products for their markets.
Overview
2019 was another significant year for SimplyBiz. The strategic acquisition of Defaqto, completed in March, instantly expanded the Group’s customer base by over 50% and materially extended our software and service platform across all key sectors. Defaqto has been a leading research and fintech provider for over 20 years and its brand is well known and respected amongst financial advisers, product providers and consumers. We are delighted to welcome these new colleagues into the SimplyBiz Group.
The Defaqto fintech platform is used by over 5,800 advisers from 1,900 intermediary firms who were not previously customers of the group and provides independent expert ratings of 21,000 financial products and funds. These product ratings are licensed by 250 financial services brands to help them communicate product quality to financial advisers and consumers. Defaqto has a proprietary, scalable and flexible digital platform. Its rich database of financial products and unique market insights assist with product design and inform financial adviser and end consumer purchase decisions.
The acquisition of Defaqto was completed through a combination of debt and equity. The Group remains confident of its ability to repay its borrowings as planned.
The strategic combination of SimplyBiz and Defaqto creates a single fintech and support services Group, which now benefits from a significantly increased customer base and an extension of the number and range of distribution channels. The acquisition has already enhanced the Group’s already strong and sustainable profit margins.
The Group has also continued to invest in its people and services by developing its compliance and technical teams to serve an increasingly complex and regulated Intermediary Services market, and to extend the range of support for its Distribution Channels.
Revenue grew by 24% to £62.8 million, reflecting a first time £11.8 million contribution from the acquisition of Defaqto since the date of acquisition on 21 March 2019, and £0.3 million (1%) of organic growth*2. Strong growth in our core business was offset by the continuing softness in employee benefits and a slowdown of transactions in our valuations business.
Adjusted EBITDA margin increased to a strong and stable 27.1% from 22.5% in the prior year.
Divisional Performance
Following the acquisition of Defaqto the Group now operates as three divisions: Intermediary Services, Distribution Channels and Research & Fintech.
Intermediary Services Performance
The Intermediary Services division provides business services and software to over 3,700 individual intermediary firms through a comprehensive membership model. The Group’s members, which includes financial advisers, mortgage advisers and consumer credit broker firms, conduct regulated activities that require that they are authorised and regulated by the FCA. The member firms pay a monthly subscription fee for a core package of services and software, and then purchase additional services and software licenses to suit their individual business needs. Revenues in this division grew to £24.2 million, (£23.3 million in 2018) and contributed 38% of Group revenue in the period. Adjusted EBITDA also grew to £5.6 million (£5.2 million in 2018).
Member Firms as at 31 December 2019 were 3,728 (3,726 as at 31 December 2018) and revenue from membership fees increased 9.4% to £10.3 million. Average income per member increased, primarily as a result of better penetration of services and bundled software to existing members, and by the launch of our ‘Signature’ proposition to support higher value and larger member firms. With an increase in regulation, including the preparation for the first stage of the Senior Managers and Certification Regime (SM&CR), the Group has seen higher member engagement in its additional services. Additional services income increased strongly by 16% to £5.2 million.
The Group has continued to invest in software development following the launch of Centra, developed on Defaqto’s software platform, in March 2018. Centra delivers a highly efficient ‘one-stop-shop’ for financial planning that has been designed in consultation with our clients. The ongoing adoption and development of Centra delivers a key technology platform from which to launch future services. Furthermore, its integration to our 3rd party vendor ‘back-office’ software has helped grow software revenues strongly by 22% during the year, to £5.1 million.
The Group has invested in developing its SaaS employee benefits platform, Zest, over the previous 3 years. While it has secured several long-term contracts from well-known employer brands in the year, the revenue reduction from this non-core business has continued from £5.3m in 2018 to £3.6m in 2019.
Distributions Channels
The Distribution Channels division continues to provide a highly effective and efficient distribution channel for over 135 financial institutions to reach an otherwise fragmented intermediary sector. The member firms that the Group serves rely on SimplyBiz to provide them with relevant and timely information about product providers’ services and products across the market, collectively informing and facilitating better outcomes for their businesses and for their clients. The product providers achieve greater efficiency from our activities in this area and are better able to comply with their regulatory requirements. Revenues in this division totalled £26.8 million (£27.4 million in 2018) and contributed 43% of Group revenue in the period.
The Group has continued to build on its extensive events programme to cater for the expanding needs of both our intermediary and product provider customers. As well as delivering a significant programme of events and seminars in the period, the Group also provided a broad range of digital and traditional materials to deliver product provider brand and product communications to its members. The Group’s marketing services present product providers with access to over 25% of the total retail financial service marketplace. Income in the period increased by 5% to £7.2 million, from £6.9 million in FY18. During the year the Group also launched its outsourced distribution service, which provides product providers with an additional efficient distribution contact channel for targeted marketing.
SimplyBiz Mortgages is the UK’s third largest mortgage club, with over 1,600 mortgage members benefitting from access to a dedicated support service and preferred products from key lenders. Despite overall market conditions, Mortgage Services revenues increased by 4% to £6.8 million, as a result of higher levels of lending through the Group’s mortgage club. Mortgage completions increased to over £16 billion.
Growth in product provider and mortgage services income was offset by a 14% reduction in income from property valuations, due to a UK wide slowdown in the number of housing transactions. The overall impact on EBITDA was limited to less than £0.1m due to our flexible business operating model.
The Group’s investment business, Verbatim, saw revenues grow to £2.3m from £2.2m (up 7%), in the year.
Research & Fintech performance
Revenues in this division were £11.8 million and Adjusted EBITDA was £4.9 million, wholly reflecting the strategic acquisition of Defaqto on 21 March 2019. There have been no allocations of other Group revenues or costs to this segment in the year.
The integration of Defaqto into the Group has been rapid and successful, with strong alignment of culture and objectives achieved early in the process. The strength of the customer relationships and the widespread ethos of delivering excellent service quality in Defaqto are highly aligned with that of the wider Group. Cross-business working has been established, resulting in the design and development of new software products and an exciting expanded suite of market-insight services ready to take to market.
The financial performance of Defaqto in the period since acquisition was strong and fully met our expectations.
The Defaqto fintech platform is used by over 9,500 users and provides independent ratings of 21,000 financial products and funds, licensed by 250 financial services brands. Defaqto has a proprietary, scalable and flexible digital platform, supporting a rich database of financial products and providing unique information and insights to aid consumer and adviser purchase decisions.
The core strength of Defaqto lies in both its large dual customer-base and its management team. The SimplyBiz Group had previously worked closely with Defaqto during the 18 months over which it developed its Centra software solution, which now serves to bring unique and valuable insight to the market.
Market Overview
Intermediary firms continue to grow revenue as the profession adapts and innovates to meet increasing customer demand and the need for a broader range of financial services. Client numbers are strong for the sector as a whole and data from the Office for Budget Responsibility (‘OBR’) suggests a period of rising saving ratios is likely.
Regulation continues to advance and 2020 will see the planned introduction of the 5th Money Laundering Directive and the requirements of SM&CR introduced for all solo-FCA regulated firms. The key challenges for financial advisers are likely to centre on the need to develop their advice and business models to meet more complex client needs efficiently, while managing continued regulatory changes in their business. Delays in processing new applications at the Financial Conduct Authority and a more difficult professional indemnity insurance market has increased the time and added complexity to our recruitment of new member firms from networks, but this remains healthy.
Product providers are responding as the regulator and the market continues to put downwards pressure on fees. We have seen, and anticipate a continuation of, consolidation in the product provider, asset manager and platform sectors of the market.
Market competition has generally increased in 2019. Our platform has expanded significantly
and the Group will serve both its direct members, as before, while also serving other financial intermediaries in whatever their chosen business structure through our provision of fintech software.
Strategic Priorities
The significantly increased customer scale and extension of our service and software platform achieved in 2019 places greater emphasis on increasing value from existing customers and serving new customers with our market leading fintech services.
Our unique product data and market insights will provide a valuable service for Product Providers to comply with regulations and be more effective in the market.
The breadth of the Group’s core membership and fintech customers will in turn enable the expansion of its Distribution Channels.
Outlook
The Board is confident and optimistic about 2020. We are guiding to marginally lower growth in revenues and EBITDA, particularly in employee benefits and valuations. Operational gearing will flow through to earnings, partly mitigated by a reduction in the effective tax rate. No guidance is being provided other than for 2020.
Recognising that external challenges facing all companies at this moment are still developing, the Board expects both headline and underlying growth to remain strong.
Neil Stevens and Matt Timmins
Joint Chief Executive Officers
The SimplyBiz Group
