Annual Report 2020

YEAR IN REVIEW

It goes without saying that 2020 has been an extraordinary year.

I feel a great sense of pride in what Computershare has achieved this year, particularly in the second half of FY20. Like every other global company, we’ve faced substantial challenges as business operations and supply chains were disrupted and normal work routines and social structures were interrupted. Every one of our people has felt some strain and stress. But we’ve demonstrated, conclusively, that Computershare remains strong and stable and capable of delivering for our stakeholders – our employees, our shareholders, our clients and our communities.

We’ve respected our shareholders, by being fully transparent as the impact of Covid-19 on our businesses became clearer. We updated our guidance in March and again in April, as deeper than expected rate cuts bit hard into our margin income, and market volatility reduced transactional volumes. We could have simply withdrawn our guidance, but instead, we increased disclosure and told the market exactly what we were seeing – and then we came in right on the number. We also made it a priority to maintain our dividend.

Despite the disruption to our normal office operations, we’ve continued to deliver high levels of service to our customers, with most of our staff working remotely. We have never dropped our sharp focus on execution and getting the job done.

Of course, none of this would be possible without the expert and dedicated contributions of our 12,600 global employees. Since the potential impact of the Covid-19 pandemic became clear, our priority has been to look after our people, to protect their health and wellbeing, while enabling them to work productively and to continue to pursue their professional goals and development.

Last year we rolled out our global ways of working, ‘Being Purple’ – this year those values were exemplified by the way our people pitched in to support each other in the most challenging of circumstances and found innovative solutions to support our clients’ changing needs.

Despite the impact of Covid-19 on our earnings, and our Management earnings per share (EPS) being down 19.8%, across the year our headline revenue was down by only 1.9%, and Management EBITDA was down by 3.7%. Although activity levels across the group were subdued in the fourth quarter, the business performed in line with the revised expectations and we saw continuing improvement after the macro volatility months of March and April. There are many other positives and reasons for an optimistic outlook, which Stuart will expand upon in his CEO Report.

OUTLOOK

With interest rates projected to remain depressed over the year ahead, we expect our FY21 results will continue to be affected by reduced margin income. Fundamentally, that’s a reflection of where we are in the global economic cycle. However, our core businesses remain robust and well-positioned. Excluding margin income, our EBIT is expected to be up in the year ahead, and we expect to see transactional revenue pick up as confidence returns to markets. We also have good counter-cyclical prospects in Business Services. Overall, we remain focused on the things we can control – building stronger businesses with diversified revenue pools and greater exposure to structural growth trends over the longer term.

ACKNOWLEDGEMENTS

On behalf of my fellow directors, I’d like to thank you for your ongoing support as a shareholder. The past 12 months have seen large swings in market sentiment, but our company remains stable, strong and well-positioned to continue our growth trajectory. Our efforts to diversify, invest in scale and grow complementary and counter-cyclical businesses will continue to bear fruit in the years ahead.

I’d also like to thank our incoming Chief Financial Officer, Nick Oldfield, and his global Finance team, for the work they have done in preparing these results, and more broadly, in safeguarding the financial health and stability of the Group. Their responsibilities are demanding at the best of times, and no doubt have been even more so recently given the way working routines have been upended. Of course, those same thanks are due to every one of our global employees – the way they have kept delivering amid widespread uncertainty and upheaval is truly remarkable.

Finally, I would like to especially thank Stuart Irving, our CEO and President, for the exemplary leadership he’s provided throughout the year. I know that his commitment to protecting our company – our people, our businesses and our shareholders – has meant many long hours for him. His dedication is appreciated, as is the great contribution he continues to make to Computershare’s performance and our distinctive culture.

I would also like to acknowledge my fellow board members for their invaluable support – they bring a real diversity of experience, insight and expertise to the Group.

Simon Jones
Chairman

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