RNS Release: 23 March 2021

MJ Hudson Group plc

(the ´´Company``, ´´Group`` or ´´MJ Hudson``)

Interim results for the six months ended 31 December 2020

MJ Hudson Group plc (AIM: MJH) the international asset management consultancy, today announces its unaudited interim results for the six months ended 31 December 2020 ("H1 FY21").

Highlights

·      The Group's markets remained resilient and are now showing signs of strengthening

·      Recent acquisitions of PERACS and Bridge consolidated from end of period and integrating well, each with early client collaboration successes

·      Group underlying revenue growth from continuing operations of 14.4% to £11.3m. Statutory revenue increased by 45% to £15.9m*and 3.6% organic growth** achieved, continuing recovery trend

·      Underlying EBITDA from continuing operations maintained at £1.8m (H1 FY20: £1.8m)

·      Underlying pre-tax profit £0.4m (H1 FY20: £0.4m) (reconciled to statutory results in table below)

·      Underlying fully diluted EPS of 0.2p***

·      Process to secure senior debt facility for Group is now well advanced

·      Significant client wins - ESG and Luxembourg detailed below

·      Trading in early 2021 on track with expectations.  Activity levels in legal services recovering well

* This number includes pass through revenues which are not considered part of underlying results - see notes below, **Organic revenue growth adjusts for the impact of acquisitions
*** Prior period distorted as IPO shares in issue for less than one month

Financial summary and key performance indicators

In order to assist shareholders' understanding of the underlying performance of the Group, the underlying performance of the business has been presented on an adjusted basis for the 6 months to 31 December 2020 and for the comparative period to 31 December 2019. The Group includes non-GAAP measures where it is deemed useful and necessary. A reconciliation from adjusted to statutory results is presented within this statement. In addition, segment and division are used interchangeably in this release.

1.        Adjusted results exclude discontinued businesses

2.        Revenue under IFRS includes all revenues received by the Group. Within the Group's Business Outsourcing division and Organic Investments, a material proportion of revenue is typically passed through to clients as a specific payment linked to the performance of the clients' funds. This is reflected in direct costs of sales. In managing the business and looking at underlying trends for the Group as a whole, Management consider that these payments can have a distorting effect. Underlying revenue is a measure defined to specifically excludes these items. It provides a more representative metric, especially in relation to the value created by the Group, its underlying growth and the operating efficiency of its activities. These pass-through revenues have increased in the period due to a significant new Luxembourg AIFM client's first billing.

3.        Adjusted EBITDA is segment profit/(loss) before share based payments and LTIP expense and excludes fundraising and acquisition costs, non-recurring costs, unallocated group expenses and discontinued business losses. Adjusting items are explained in more detail below.

4.        Adjusted profit before tax is calculated by taking underlying operating profit less finance expenses. Finance expenses are adjusted to exclude the unwinding of discounting of deferred consideration related to acquisitions

5.        Adjusted EPS takes the underlying profit after taxes divided by the weighted average shares outstanding at the period end. In the case of the period to 31 Dec 2019, adjusted EPS assumes the shares issued at the Company´s AIM listing were in issue for part of the period.

6.        The results for 6 months to 31 December 2019 have been restated for comparability. This includes the transfer of IR business from Business Outsourcing to Data & Analytics; and the removal of discontinued operations form Advisory. Refer to segment note for additional details.

Commenting on the results, CEO of MJ Hudson, Matthew Hudson said:

"We made real progress in the Covid-impacted six months to end December 2020, including a return to organic revenue growth, against what was a tough comparison period. We extended the recovery in group organic revenues since the start of the Covid pandemic. We announced two acquisitions, adding a key jurisdiction (Republic of Ireland) to our Business Outsourcing division and strengthening our Data & Analytics offering in Europe and America. Both additions to the Group are integrating well with early successes in terms of new clients and business pipeline additions which will benefit our second half. In Advisory, where the impact of Covid has been most keenly felt, activity levels in legal services improved and new funds began to launch again. This is beginning to positively impact revenues with good momentum in the final three months of the period and a good start to our H2 2021. Outside of Advisory, we continue to make progress led by strong secular demand for our ESG offer and regulatory driven services.

Risk factors remain in relation to the global economy caused by the Covid pandemic, but in the alternatives sector which we serve, this is increasingly a question of the speed as opposed to the prospect of a recovery. This translates directly into our own business. With the benefit now of a solid first half, signs of recovery in current trading in the early months of calendar 2021 and growth prospects for the second half, our confidence levels have improved.  We confirm we are trading in line with market full year expectations which require a step up in profitability in our second half. Linked to this, we also confirm the payment of a maiden dividend payment to shareholders in respect of the current period to June."

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Chief Executive's Statement

MJ Hudson, the international asset management consultancy, is pleased to report its interim results for the six months ended 31 December 2020.  The Group has made two key acquisitions in the period, in line with our strategy, and whilst first half results have been impacted by the economic environment, we are seeing strong signs of increased activity across most business units in the past two months to February. The Advisory division´s share of Group underlying revenue has now fallen to 45% (H1 FY2020 - 57%) largely due to prior acquisitions in Business Outsourcing and Data & Analytics and this downward proportionate trend is expected to continue.

During the reporting period we announced the acquisition of Bridge Consulting ("Bridge"), the Dublin based funds platform, and PERACS Group (PERACS) the fund performance analytics business. Following regulatory approval, Bridge was consolidated into the Group´s results from mid-February 2021.  As a result, the first meaningful contribution from both these businesses will come in the second half of FY 2021. They are both integrating well and, in both cases, we have been able to quickly extend their marketing reach within and without our existing client base.

Net cash was £1.6m at the end of the period (excluding lease liabilities) compared with net cash of £20.1m in December 2019. With the acquisitions of PERACS in December and Bridge Consulting in February, MJ Hudson has announced four acquisitions since IPO and six since the purchase of Amaces in FY 2019. In aggregate, the Group has invested £15m on these acquisitions since IPO. Looking forward, we are now at an advanced stage in our efforts to source debt funding for the Group to support M&A and will be making an announcement to the market in due course. Revenues on an underlying basis grew by 14.4% compared with the same period to H1 FY20 and underlying EBITDA was maintained at £1.8m. In terms of profitability, adjusted pre-tax profits reduced marginally to £0.4m, and EPS was 0.2p (from 0.5p in H1 2020 which was not representative due to our IPO taking place in December 2019).  This is a creditable result given the half year to December 2019 represented a challenging comparison period for two separate reasons:  the interims to December 2019 saw strong growth of 26% (of which 13% was organic, driven by legal services); and, it was the last complete period in our financial calendar before the start of the Covid lockdowns. On an organic basis, underlying revenue grew by 3.6% in the period which continues the improving trend from the second half of FY20.

Underlying EBITDA margins fell from 18.2% to 15.8% and Covid related cost saving measures in April to June 2020 were discontinued in H1 2021. We have taken measures to further reduce costs on a precautionary basis in the second half and expect margin to improve during the rest of the financial year. More detailed segmental analysis is included in the table below.

These results show the resilience of our business model:  the well-reported market weakness in new fund launches during lockdown impacted our Advisory division whilst counter cyclical growth in ESG and regulation continues to lift Data & Analytics and Business Outsourcing. The growth in recent years - both by acquisition and incubation - of the divisions outside of MJ Hudson´s origins as a law firm has made this possible. 

Adjusted performance by segment

*      These figures restated for comparability, refer to note 6 above.

At the Group level, underlying EBITDA margin for the period reduced from 18.2% to 15.8% as at December 2020. This is largely due to additional cost of Organic Investments. Removing organic investments from the above totals, the underlying EBIDTA for the period reduced from 23.2% to 21.8%. This change has been driven by a reduction in the Advisory margins caused largely by certain fixed cost in a period of continued reductions in revenue. This was due to a combination of delayed new fund launches from the ongoing Covid related lockdowns which continued to suppress legal revenues and reduced project income in Investment Advisory. I have commented previously that we consider reduced Advisory revenues to represent postponed rather than lost revenue, and I am pleased to report that we have seen a return to strong year on year growth in activity levels in the law firm in 2021 with activity levels in January and February tracking consistently ahead of pre lockdown levels in 2020 and 2019 for the same period.

Performance for the individual segments is as follows:

·      Advisory - (9.3)% reduction in revenue. As above legal revenues continued to be suppressed by postponements in new fund launches in 2020. A series of cost saving measures were put in place in the law business unit from October which have stabilised results and margin. In fact, the period ended on a high with good momentum building in terms of revenues in the last three months of the year and December modestly ahead of the comparison period. Investment Advisory was loss making in the period, which has suppressed margin. This accounts for the reduction at the divisional level from 20.3% to 16.4%.  

·      Business Outsourcing - 57.6% growth, of which 4% was organic. Underlying EBITDA margin reduced from 36.8% to 32.3% because integration of the Anglo Saxon Trust Jersey fiduciaries business has been slower than hoped due to local lockdown restrictions, which , in turn, impacted revenue. We also invested, with the help of consultants, in strengthening the management team in the Appointed Representative function to increase our capacity going forward. This temporarily suppressed margins which should improve as the business expands in the second half of the financial year.

·      Data & Analytics - 22.2% revenue growth, of which 22% was organic. Underlying EBITDA margin increased slightly to 22.3% from 20.7%. The MJ Hudson ESG & Sustainability business saw 83% organic sales growth compared to FY2020 in response to sustained customer demand. The Meyler IR and Marketing analytics acquisition has now been fully combined with the UK IR & Marketing business unit. Previously included in Business Outsourcing - FY2020 half year revenue for UK IR business was £0.2 million (2019 - £0.2 million).

·      Organic Investments - Revenue increased by 130% to £0.9m which was primarily driven by expansion in the Luxembourg AIFM operation. Losses at the underlying EBITDA level rose slightly to £0.48m which was largely due to the Fund Administration business unit. The third organic investment, Regulatory Consulting, has shown good growth after its launch in the prior period.  It is expected that Luxembourg and Regulatory Consulting will form part of Business Outsourcing from FY22.

New business activity

As announced in our trading update in February, we have secured two new clients in ESG & Sustainability (Data & Analytics) and Luxembourg (Organic Investments) which are significant for different reasons. We are working with a global financial services group, following a rigorous international pitch process, to develop a new training and reporting service for their platform. This is a new product structure for us in ESG & Sustainability, creating recurring revenues and follow on opportunities. We will update investors on further new product opportunities within Data & Analytics at the preliminary results stage. Elsewhere, a new material client in Luxembourg underpins its route to profitability for what was an incubation start up for the Group.

In terms of our new business KPIs, clients taking services from more than one division represented 17.2% of underlying revenue in the six months to December an increase on the 12.3% reported for the prior period. We expect this percentage to improve again over the full year with the impact of renewed activity in new fund launches (an historic impetus for cross sales activity) and the addition of acquired clients of scale from recent M&A. In addition, we are introducing Salesforce across the organisation in the final quarter of FY 2021.

Whereas the top 10 client list as recently as 2019 was dominated by clients from the law firm (Advisory division), it is noteworthy that half of the clients in the six months to December 2020 came from outside that division, with a higher degree of recurring revenue. This follows naturally as our three divisions add scale. Recent acquisitions, Bridge Consulting in particular, are likely to extend this trend.

Acquisitions and integration

Including PERACS and Bridge we have now made six acquisitions since Amaces in FY 2019, with four announced as a public company.

Following investment in 2020, we are improving our processes to integrate new businesses in the Group.  Naturally it helps that the whole Group has a similar focus on alternative assets and recent integrations of Bridge and PERACS have led to early successes with clients. In the case of Bridge, the business acquired a significant new client for its Super Manco services in the immediate aftermath of completion with the help of the Group and, in addition, its new business pipeline has improved since our original due diligence.  In the case of PERACS, a collaborative marketing campaign in the first 8 weeks of integration has yielded a new business pipeline which is already comparable in terms of potential revenue with its full-year revenues in 2020. 

Our strategic focus remains on the alternatives sector at all points in its investment lifecycle. We look to add value through technology across all our divisions and build scale where it makes economic sense to do so. In terms of geography, our starting point is Northern Europe but increasingly we are accelerating our presence in North America. Recent deals fit this pattern and we continue to see further opportunities, particularly within Data & Analytics which has the ability to satisfy a number of our criteria at once.  In terms of the genesis for our deals to date, the Group´s multi-division structure and common client focus makes us an attractive candidate for business vendors looking to accelerate growth as opposed to a pure liquidity event.

Net debt

Together with our debt adviser, we are now at an advanced stage in a process to secure senior debt facility for the Group. This process has generated a number of credit-approved offers. The facility is to support our M&A activities as well as to provide both general working capital and regulatory capital for the Group. We expect to complete this process in the weeks ahead.

Reconciliation of adjusted financial measures

Adjusted financial measures are presented to provide additional information to best represent the underlying performance of the business.

Acquisitions added a further £1m of costs in respect of the transactions completed in the period and £0.3m in respect of the 2016 Tower Gate Capital acquisition related to the fair value investment gain indicated above. The fair value adjustment gain in respect of a former Tower Gate Capital investment included in the H1 2021 numbers is £0.8m.

The non-recurring costs are one-off in nature and in H1 2021 include consultancy costs in respect of the UK regulated entities totalling £0.3m; reorganisation costs in UK law, investment advisory and fund management solutions business units which saw 5 people leave the Group as part of a cost-cutting review; and continued low US launch costs (suspended due to Covid-19)

Discontinued business losses relate to the closure of the Guernsey law office and comprise trading results to September 2020, when the business was wound up, settlement costs in respect of the partner and staff, closure costs and associated fees in respect of local professional guidance in respect of the employee and closure costs.

Unallocated group costs - reduced considerably from H2 2020 level which was one-off in nature, connected to improvement in integration processes and IT infrastructure.

Cashflow

Net cash generated from operating activities has increased to £1.8m from £1.3m. Working capital balances were largely neutral in the period with an increase in creditors (£0.6m H1 2021) from acquisitions being offset by increase in receivables (£0.5m H1 2021). The increase in receivables is expected to reverse in H2 2021 as it primarily relates to increases in accrued income balances relating to deferred client projects but also a trend in lockdown that projects that are ongoing are taking longer to conclude, which delays final billing.

Dividend

As set out in our report and accounts for the year to June 2020, it is the Group´s intention to introduce a progressive dividend policy in line with reported profitability and future prospects. On the strength of these results, we expect to pay our maiden dividend in respect of the current period i.e. the six months to June 2021. The quantum of this dividend will be set in our preliminary results for the year to June 2021. Dividend payments in earnest will commence from FY 2022. This is in line with market expectations.

Current trading & outlook

Despite the impact of the global economic decline caused by the Covid pandemic and the various lockdowns on the business environment, the Group performed in line with management´s expectations in the first half of FY2021. In particular, profitability was maintained at the underlying EBITDA and adjusted pre-tax levels compared with a strong comparison period in FY20.

With regards to progress in the second half and with the benefit of two months of trading, a number of visible factors combine to provide further encouragement. The recovery trend since the start of the Covid pandemic in terms of Group organic revenue growth continued in January and February. Recent acquisitions PERACS and Bridge, consolidated after December, have seen material early integration successes in terms of client wins and new business pipelines. There has been a measurable recovery in new funds activity and activity levels in the law firm generally. In particular, the revenue gap in law has begun to reverse with current activity ahead of the prior two years for the equivalent time period. Elsewhere, new client wins for ESG & Sustainability in Data & Analytics and Luxembourg within Organic Investments add to an improving picture generally for the new business pipeline across the Group.

Whilst the conversion rate of increased activity levels to revenue growth remains a risk factor, the Board is confident that trading is in line with management expectations for the full financial year to June 2021.

23^rd March 2021