DEMONSTRATING OUR RESILIENCE IN THE FACE OF MARKET DISRUPTION
Not surprisingly, this year needs to be understood in two parts – pre- and
post‑Covid-19. Prior to March, we were tracking comfortably to the guidance we
gave in August and reaffirmed in February. At this point, we were tracking 8%
ahead of our budgeted 2H earnings targets, enough of a buffer to offset the
earlier than expected cuts to interest rates we had seen.
In March, all of this changed – the world economy, and our markets in particular,
abruptly entered a period of heightened uncertainty and volatility. Central banks
injected emergency liquidity into financial markets and cut interest rates. This
upheaval had an immediate effect on our business operations. Those rate cuts
saw our margin income decline sharply, ending the year down 18.3%.
Another major impact was reduced transaction activity in our markets: fewer
corporate actions (outside of HK and AU), deferred meetings and events, lower
levels of trades by shareholders and employees, and regulatory relief measures
in mortgage markets (such as foreclosure freezes) which also reduced our fee
income. Understandably, many of our clients’ priorities changed overnight,
and some major revenue opportunities we had in the pipeline ended up being
cancelled or postponed. We will recapture some of the deferred revenue in the
year ahead. In combination, the impact of Covid-19 disruption on our business
operations took 10.2% off our management earnings per share for FY20.
In addition to this, in the light of Covid-19, we made some one-off management
decisions in the last quarter, which cut our earnings result by a further 4.6%.
These decisions were taken to look after our shareholders and our staff. We
repatriated cash out of Canada to enhance our liquidity, incurring withholding
taxes, so we could maintain our year-end dividend. And we looked to protect our
most vulnerable employees, setting aside provisions for a hardship fund for their
benefit. We’ve also allowed our employees to accrue leave, rather than mandating
furloughs, so they have personal financial buffers if there are further waves of
Covid-19 that come in the months ahead.
In combination, this has resulted in our full-year Management EPS being down
19.8% on FY19, instead of the 5% decline we had previously forecast. We have
been open and transparent throughout – this is the result we provided in our April
guidance, issued as soon as we took stock of unfolding events in our markets.
We have maintained our final dividend at 23 cents, without impairing our liquidity
or capacity to make investments. The Group generated $506 million of free
cash flow – about 55% of which has gone to fund strategic acquisitions and
build further scale in our US mortgage books. One third has been returned to
our shareholders as dividends – something we believe is the right thing to do,
especially in a historically low interest rate environment.
Our balance sheet remains conservative, with a leverage rate of 1.93x, below the midpoint of our target range. Net debt was
essentially unchanged, with a $500 million facility refinanced and pushed out from 2021 to 2024.
We could have chosen to impose widespread staff furloughs or layoffs. Instead, we provided support and flexibility. We’ve encouraged
our employees to choose how to best combine their professional lives with other responsibilities, like providing care or home
schooling. We see this as part of our social obligation to our employees and the wider communities around us. I believe we will see
tangible returns on this investment in our people in the years ahead.
As a silver lining, our goals of reducing our carbon footprint by travelling less and videoconferencing more took a great leap
forward in the second half of the year, albeit by necessity. We’ve learnt a lot about what is possible with remote working, while also
acknowledging that it doesn’t suit all people and all roles.
We did see some encouraging signs of recovery in our markets during May and June, and since, which gives us some cause for
optimism about the year ahead, assuming economies continue to stabilise on the same trajectory.
OUR COVID-19 RESPONSE – PROTECTING OUR PEOPLE, STANDING BY OUR CLIENTS
When the rapid spread of Covid-19 became apparent, we took immediate action and, by mid-February, we had assembled a
dedicated global pandemic task force. I thank that team for their single-minded concentration in handling a blizzard of facts and
figures from every country.
Our immediate and highest priority was to protect the health and wellbeing of our 12,600 employees. I’d like to acknowledge the
roles played by the divisions that support our core businesses, including our People, Communications and Technology teams.
These teams were instrumental in planning and executing changes to our operations, and then providing important guidance and
reassurance to our employees during a frightening time. Their efforts enabled thousands of our employees to move to full-time
work from home, in some cases virtually overnight, maintaining our capacity to serve our clients and customers.
Having already invested in secure virtual networks and supporting technologies, we were able to ramp up capacity rapidly, allowing
over 90% of our workforce to work off-site without interrupting our service to our clients or compromising their data. For those
with essential on-site roles, we put in place strict hygiene and distancing protocols, along with stringent cleaning processes, to
reduce risk as much as possible.
Our support for our employees is ongoing, as already noted above. We have placed a priority on our communications, providing
regular updates, advice and reassurance to help people adjust to new circumstances, and encouraged them to reach out for extra
help. We’ve given our managers guidance and tools to support their teams, and we’ve extended and promoted the provision of
mental health support. Our people are our advantage, so it makes perfect sense to put them first.
At the same time, we also took stock of the pressing needs of our clients and customers, many of whom were facing new challenges
of their own.
We’ve supported our corporate clients by rolling out a range of rapidly developed and innovative products to help them meet
their governance obligations. We’ve long been an advocate for opening company meetings to a more diverse audience through
technology – it turned out that our leadership in this area couldn’t have been more timely. This year we conducted numerous online
seminars, and promoted, planned and coordinated over 1,000 virtual Annual General Meetings around the world.
We also facilitated critical market activities, assisting our clients with capital raisings, delivering these complex and often high-risk
transactions via expert teams working remotely.
In the US and UK, we scaled up our Mortgage Services operations, to help homeowners by quickly and efficiently processing their
mortgage payment holiday requests. This was enabled by our rapid development and deployment of changes to our customer
service systems, a technology proficiency we have placed increasing emphasis on in recent years.
EXECUTING ON OUR GLOBAL BUSINESS STRATEGIES
As much as 2020 has been about change and adapting to ‘the new normal’, we remain focused on executing our own long-term
growth strategies. At Computershare, we seek to build stronger businesses with scale and more exposure to positive structural
growth trends. As we move through and out of Covid-19, some of our businesses will see more opportunities, others fewer. Some
adjustments will need to be made accordingly. But we continue to look beyond the short term, to remain focused on our strengths:
long-term planning, disciplined execution, making strategic investments to achieve organic growth while driving efficiencies and
cost‑out programs. It’s an approach that serves us well.
All of this comes down to people. We are well organised, and our people are highly skilled, competent, loyal and reliable. That’s coming
through strongly in client feedback as well as in these results. We have been rock-solid when our clients needed us the most, and they
won’t quickly forget this.
This year you’ll see a change in our full-year reporting (which we flagged last year)
to provide segment reporting over our five business lines, plus our technology
function. As we’ve explained before, our move from a regional model to a global
business structure was needed to fire the next phase of growth for the Group.
That structure is now well established, with complementary products and services
grouped together, bringing with it an increased focus on new opportunities,
innovative product development and a better, more coherent customer experience.
It also allows us to align and resource our supporting functions more effectively –
People, Technology, Operations, Finance, Sales and Marketing, and so on.
You can read an overview of our four largest business lines on pages 13 to 16,
while the complete financials are available in the Directors’ Report and
accompanying financial statements.
OUTLOOK FOR FY2021
As I’ve already suggested, there are good reasons to be optimistic about the year
ahead, although that always has to be qualified by uncertainty about the timing and
rate of recovery in our markets. We will continue to update guidance throughout
the year, if and when there are material changes that affect our outlook.
We expect margin income to remain depressed, which will adversely impact
our full-year earnings. Otherwise, all of our core businesses remain resilient
and well‑positioned. We expect to retain our clients and continue to win new
ones. We will, increasingly, be able to leverage these relationships to cross-sell
complementary products and services. In short, we will continue to focus on what
we can control. When the cycle turns back up, we will be able to take full advantage.
We are already seeing positive indicators for a rebound in our cyclical businesses,
with a good pipeline of opportunities awaiting the right conditions. In FY21, we will
see immediate returns on our investment in corporate governance services.
In Employee Share Plans, we’ve established an enviable track record in migrating
clients, with a leading platform to drive sales in a growing market and we are
planning to commence this roll out in Asia Pacific during FY21.
In Mortgage Services, our UK team completed the migration of all borrower
accounts on to our proprietary servicing platform. This was a sterling performance
given the final stages of that project coincided with the first wave of Covid-19
outbreaks in that region.
In Business Services, we expect further work to come across our desk in
bankruptcy claims administration, and we will continue to look for ways to expand
our Corporate Trust division, one of the highest quality businesses we have in
Computershare.
In Communication Services, we’re refreshing our digital toolkit to drive margin
growth and further sales. There is plenty of work to be getting on with.
My heartfelt thanks go out to every one of my fellow employees whose efforts have
made these results possible under extraordinary circumstances. Time and time
again, I’ve been struck by the selfless ethos of our people, going above and beyond
to look after our company, our customers and their fellow workers. I also note,
with sadness, the passing in May of one of our employees in US Communication
Services, Hoa Van Luong, due to Covid-19 related illness. With 39 years of service to
our company, and a valued colleague and friend to many, he will be greatly missed
– our thoughts and sympathy go out to his family.
To Simon Jones and the rest of the Board, I have very much appreciated your
support and counsel during a highly unusual year in our company’s history.
I’d also like to acknowledge our shareholders for their ongoing interest and
engagement as we continue to build a strong platform for Computershare’s
long‑term growth and profitability.
Stuart Irving
CEO