Link Administration Holdings Ltd (ASX: LNK) released results for the half-year (HY21). The Link share price finished 2% higher despite recording lower revenue.
Link is a technology-enabled provider of outsourced administration services for thousands of financial market participants. These services include data management analytics, digital communication, and stakeholder education and advice.
The business has five key operating segments: Retirement and Superannuation Solutions (RSS), Corporate Markets (CM), Banking and Credit Management (BCM), Fund Solutions (FS), and Technology and Operations (TO).
Key highlights from Link’s half-year result
Link experienced a drop in revenue from $624 million in HY20 to $597 million in HY21. This was mainly due to a decline across the RSS, CM, and BCM divisions. Only the FS and TO segments recorded increases in revenue.
The RSS division continues to suffer from the adverse impact of the ‘Protecting Your Superannuation’ (PYS) legislation that came into effect on 1 July 2019. This continues to have a negative impact on member numbers.
The PYS legislation was enforced on the back of the Financial Services Royal Commission and Productivity Commission’s review into superannuation.
As a result, the PYS legislation had the following effects:
- the closure of inactive accounts with balances below $6,000;
- an annual cap of 3% charge for investment and administration fees for all accounts with less than $6,000;
- banned exit fees when a member wants to move to another superannuation fund;
- and inactive super accounts with insurance for 16 months will have their insurance cancelled.
Corporate Markets experienced the biggest drop in revenue as it went down by $8.38 million, which was due to decreased dividend activity and shareholder transactions in the UK.
The combination of lower revenue and a non-material change to operating expenses contributed to a lower operating EBITDA and operating net profit after tax (NPAT).
Operating EBITDA fell by 17% and operating NPAT declined by 19% compared to HY20. These are operating figures, meaning they exclude significant one-off items and are more reflective of day to day operating conditions.
The subdued performance resulted in the company declaring a fully franked interim dividend of 4.5 cents per share, compared to 6.5 cents per share in HY20.
Management outlook
Link’s CEO & Managing Director, Vivek Bhatia remains upbeat about the future as he said, “Link Group has demonstrated financial resilience during 1H 2021, providing a strong platform from which the business can resume earnings growth in FY 2022. Our core businesses have strong market positions and clear strategic ambitions. Trading to date has been in line with expectations, with European activity remaining subdued due to the extended COVID-19 related lockdowns in key jurisdictions.”
My take
I do share Vivek’s sentiment that Link displayed financial resilience in what has been a tough period for the sectors that it serves.
Despite the significant regulatory and pandemic hurdles thrown at Link, its other segments have provided much-needed support and growth.
This highlights the importance of diversification and optionality in a business during difficult times.
Link appears to be a versatile business but investors should monitor the performance of the segments that experienced declines in revenue. One key question I would ask myself is whether these declines were a result of temporary shocks or structural changes like the PYS legislation.
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