CLOSE

Intertrust N.V. H1 2016 Results

25 August 2016

Amsterdam, August 25, 2016, Intertrust N.V. (“Intertrust” or “Company”) [ticker symbol INTER] a leading global provider of high-value trust and corporate services, today announces its results for the half year ended June 30, 2016.

To read the full version of the press release click here.

To read the H1 2016 Results presentation click here.

Presentation of financial and other information

Financials are presented on adjusted basis before specific items and one-off revenues/expenses. This press release includes unaudited financial information. The condensed consolidated interim financial statements for the half year ended 2016 and have been prepared in accordance with IAS 34 and a review report has been issued by the company’s auditors KPMG Accountants N.V.

In € millions

 

HY 2016

 

HY 2015

 

Adjusted revenue 176.7 166.1
Adjusted EBITA 71.1 67.8
Adjusted EBITA Margin 40.2% 40.8%
Adjusted net income* 51.9
Adjusted net income per share (€)** 0.61

 

  • Adjusted revenue of €176.7 million grew by 6.4%. At constant currency and on a proforma*** basis, Adjusted revenue grew by 3.5%.
  • Adjusted EBITA of €71.1 million grew by 4.8%. At constant currency and on a proforma*** basis, Adjusted EBITA grew by 3.5%.
  • Adjusted EBITA margin of 40.2%. This is in line with HY 2015 on a proforma*** and constant currency basis.
  • Strong operating cash flow conversion of 96.7 % versus 97.6% HY 2015, the difference being attributable to timing.

* Adjusted net income is defined as Adjusted EBITA less net interest costs and less tax costs
** Adjusted net income per share is defined as Adjusted net income divided by the number of shares outstanding before additional issuance for the acquisition of Elian (85,221,614)
*** Proforma including the CorpNordic contribution for the period January-June 2015. CC is defined as constant currency

Note: Rounding differences may occur as calculations are based on half year figures not rounded to millions.

David de Buck, Chief Executive Officer of Intertrust, commented:

“I am pleased with our sound results for the first half of this year. We continue to see a solid pipeline of business and reiterate our guidance for 2016 that the full year Adjusted net income per share will be at least €1.30. An important development in the second quarter is the successful acquisition of Elian. Preparations for integration are well underway and we expect to close the transaction in September. We are excited about the prospects for cross-selling and synergies from the integration of Elian and Intertrust. Elian will significantly strengthen our capital markets and funds capabilities, reinforcing our global leadership.”

Highlights HY 2016

  • On June 6, Intertrust announced its agreement to acquire Jersey-based regional trust and corporate services provider Elian for £435 million (€557 million). The transaction is on-track to close before the end of September, pending regulatory approvals. An integration project is fully operational with several functional workstreams preparing for closing. Financing of the transaction was successful and included:
    • €122 million in a share offering on June 13, 2016;
    • syndication of 2 new debt acquisition facilities, one for £94 million and the other for €147.5 million to a group of nine banks.
  • Intertrust opened a sales office in Chicago in January, and is gaining a foothold in the region with Mid-western multinationals.
  • CorpNordic integration was completed in Q1 – annualised synergies of €0.9 million have been achieved and the activities show growth in line with expectations.
  • Completed rollout of the Business Application Roadmap (BAR) IT project.
  • Irish AIFMD ManCo services were successfully launched in HY 2016 and the onboarding of funds is ongoing.

Key Financials Q2 and HY 2016

Q2 2016

 

Q2 2015

 

% change
(reported) 
% change (Proforma and CC10)

 

HY 2016

 

HY 2015

 

% change (reported)

 

% change (Proforma and CC12)

 

Adjusted revenue1 (€m) 88.8 84.5 5.1% 3.1% 176.7 166.1 6.4% 3.5%
Adjusted EBITA1 (€m) 35.1 34.2 2.9% 2.5% 71.1 67.8 4.8% 3.5%
Adjusted EBITA1 margin 39.6% 40.4% -85.2bps -24bps 40.2% 40.8% -59.5bps -0.9bps
Operating free cash flow2 (€m) 36.1 34.9 3.4% 72.6 69.6 4.4%
Cash conversion ratio including strategic capital expenditure (%)3 94.9% 93.6% 123.9bps 94.8% 93.5% 125.3bps
Cash conversion ratio excluding strategic capital expenditure (%)4 97.1% 97.1% -5bps 96.7% 97.6% -91.7bps
Adjusted Net Income (€m) 26.4 na 51.9 na
Adjusted net income per share (€)5 0.31 na 0.61 na
Basic Earnings per share (€)6 0.08 na 0.27 na
Profit (loss) after income tax (€m) 7.1 4.6 56.2% 23.0 7.6 203.1%
No. of entities7 (000’s) 38.6 41.4 -7.0%
Average Adjusted revenue per entity (ARPE)8 (€k) 9.2 8.0 14.4%
No. of full-time equivalents (FTE’s)7 1705.1 1608.5 6.0%
Adjusted revenue per FTE (€k) 207.2 206.5 0.3%
Total reported net debt9 278.1 na
Total net debt10 excl. net proceeds of the issue of shares 398.9 na
Net leverage ratio11 excl. net proceeds of the issue of shares 2.63 na
  1. Adjusted financial information before specific items and one-off revenues/expenses. 2016 figures include CorpNordic acquisition
  2. Defined as Adjusted EBITDA – Maintenance capex
  3. Defined as Adjusted EBITDA less capital expenditure, including strategic capital expenditures/ Adjusted EBITDA
  4. Defined as (Adjusted EBITDA less capital expenditure, excluding strategic capital expenditures) / Adjusted EBITDA
  5. Adjusted Net Income per share is calculated as Quarterly or Half Year Adjusted EBITA less net interest costs and less tax costs divided by the number of shares outstanding (85,221,614) before the additional issuance of shares for the acquisition of Elian. When using the weighted average number of shares outstanding as per June 30 (85,854,703), the Quarterly and Half Year Adjusted Net Income per share would be €0.30 and €0.60 respectively.
  6. Basic Earnings per share are calculated as Profit/(Loss) for the period divided by the weighted average number of shares outstanding during the period which was 85,854,703 for HY and 86,487,792 for Q2. The Group had 91,999,392 shares outstanding as of June 30, 2016.
  7. As of June 30, 2016 and June 30, 2015 respectively.
  8. Annualised numbers based on Adjusted revenue before specific items and one-off revenue/expenses.
  9. Reported net debt includes cash raised through the issuance of shares for the Elian acquisition.
  10. Net debt at the end of June 2016 at closing rate excluding the cash raised through the issuance of shares for the Elian acquisition on June 13th 2016 as part of the Elian acquisition.
  11. Net debt leverage ratio is defined as Total net debt excluding cash raised through the issuance of shares for the Elian acquisition divided by the last twelve months Adjusted Proforma EBITDA (Adjusted EBITDA and full year run rate of CorpNordic synergies.
  12. Proforma including CorpNordic contribution for the period January to June 2015, CC defined as constant currency.

Financial highlights HY 2016 versus HY 2015

  • Adjusted revenue in HY 2016 increased by 6.4% to €176.7 million (HY 2015: €166.1 million). On a constant currency basis, Adjusted revenues grew by 7.2%. Revenue growth was particularly driven by strong performance of the Netherlands and Guernsey, growth in Luxembourg and the acquisition of CorpNordic. The growth was negatively impacted by a slightly higher loss in Cayman of certain low ARPE registered office business. Including the contribution of CorpNordic for the first six months in 2015, Adjusted revenues grew on a like-for-like proforma basis by 3.5%. The growth in revenues was impacted by approximately €3 million as a result of less capital markets-related services in the Netherlands due to market circumstances and lower billable hours in Luxembourg due to fewer FTE’s than budget stemming from a tight recruiting market.
  • Adjusted EBITA in HY 2016 increased by 4.8% to €71.1 million (HY 2015: €67.8 million). On a constant currency basis, Adjusted EBITA increased by 5.5%. Including the proforma contribution of CorpNordic for the first half year in 2015, Adjusted EBITA grew by 3.5%.
  • Adjusted EBITA margin was 40.2% versus 40.8% for HY 2015, a reduction of 59.5 bps partially driven by the consolidation of the lower margin CorpNordic acquisition. Including the proforma contribution of CorpNordic for the first six months in 2015, the EBITA margin was in line with HY 2015 (-0.9bps).
  • Total capital expenditure for HY 2016 was €3.9 million (HY 2015: €4.6 million), €1.4 million (HY 2015 €2.9 million) of which represented one-off strategic capital expenditure resulting from the implementation of the Business Application Roadmap, a company-wide standard software application platform. Increase in maintenance capex in HY 2016 versus HY 2015 was driven by timing of hardware replacement, the implementation to outsource the datacentres of Intertrust and leasehold improvements.
  • HY 2016 cash conversion ratio excluding strategic capital expenditures remains strong at 96.7% (HY 2015: 97.6%)
  • YTD annualised Average Revenue Per Entity (ARPE) increased by 14.4% to €9.2 k (HY 2015: €8.0 k). Intertrust continues to see additional hours per entity due to more complex structures, regulatory reporting requirements and focus on higher value-added entities. In addition, increased ARPE was partially driven by the outflow of lower valued registered office entities in Cayman.
  • As of HY 2016, Intertrust had 38,553 entities, a net outflow of 2,895 entities over the last twelve months mainly due to the re-entry of a competitor in Cayman (2,775 entities lost of which 1,431 in 2016), partially compensated by the increase of 796 entities due to the CorpNordic acquisition.
  • A net increase of 97 FTE’s over the last twelve month period ended in June 2016 was mainly due to the increase in billable FTE’s (92 FTE’s, of which 57 FTE’s from the CorpNordic acquisition) mainly in the Netherlands and Luxembourg to support business growth. Intertrust maintained a billable versus total FTE ratio of 75%.
  • YTD annualised Adjusted revenue per FTE increased by 0.3% to €207.2 k (HY 2015: €206.5 k).
  • Reported Profit after tax for the HY 2016 was €23.0 million compared to €7.6 million in HY 2015. The increase in HY 2016 was primarily driven by increased EBITA and by significant reduction of net finance costs partially offset by an increase of specific costs for the equity share based payment programs and transaction costs related to the acquisition of Elian.

Financial highlights Q2 2016 versus Q2 2015

  • Adjusted revenue for the quarter increased by 5.1% to €88.8 million (Q2 2015: €84.5 million). On a constant currency basis, Adjusted revenues grew by 6.8%. Revenue growth continues to be driven by the ARPE growth whilst the number of entities declined. The number of entities decreased mainly due to low ARPE structures exiting in Cayman. Including the contribution of CorpNordic for the second quarter of 2015, Adjusted revenues grew on a like-for-like proforma basis by 3.1%. The growth in revenues was impacted by approximately €1.7 million due to less capital markets-related services in the Netherlands due to market circumstances, lower billable hours in Luxembourg due to fewer FTE’s than budget stemming from a tight recruiting market and slightly higher loss of registered office business in Cayman.
  • Adjusted EBITA for the quarter increased by 2.9% to €35.1 million (Q2 2015: €34.2 million). On a constant currency basis, Adjusted EBITA increased by 4.5%. Including the proforma contribution of CorpNordic for second quarter in 2015, Adjusted EBITA grew by 2.5%.
  • Adjusted EBITA margin was 39.6% versus 40.4% for Q2 2015, a decrease of 85.2 bps mainly driven by the consolidation of the lower margin CorpNordic acquisition. Including the proforma contribution of CorpNordic for the second quarter in 2015, the margin reduced by 24 bps from 39.8% in Q2 2015 to 39.6% in Q2 2016.
  • Total capital expenditure for the quarter was €1.9 million (Q2 2015: €2.3 million).
  • Q2 2016 cash conversion ratio excluding strategic capital expenditures remains strong at 97.1% (Q2 2015: 97.1%).
  • Reported Profit after tax for the quarter was €7.1 million compared to €4.6 million in Q2 2015. The increase in Q2 2016 was primarily driven by increased EBITA and by significant reduction of net finance costs partially offset by an increase of transaction costs for the equity share based payment programs and costs related to acquisition of Elian.
  • Net debt as reported on June 30, 2016, was at €278.1 million. Excluding the cash raised through equity as part of the Elian transaction, net debt would be at €398.9 million with a corresponding net leverage ratio of 2.63.

Adjusted net income and Adjusted net income per share

  • Adjusted net income for HY 2016 was €51.9 million. Adjusted net income is defined as Adjusted EBITA less net interest costs and less tax costs.
  • Adjusted net income per share for HY 2016 was €0.61 per share based on the number of shares outstanding excluding the Elian-related share issue.

Elian Acquisition

On June 6, Intertrust announced its agreement to acquire Jersey-based regional trust and corporate services provider Elian for £435 million (€557 million at 1.28 GBP/EUR), financed through €100 million in cash, €122 million of cash raised through the issuance of new shares to public investors, with €33 million of the purchase price to be paid to key Elian management shareholders in Intertrust shares. Debt facilities will include €265 million through new syndicated bank facilities and €50 million from an existing revolver facility. Transaction costs related to the Elian acquisition are €13 million. Elian expects to generate revenue of £96 million and an EBITA of £34 million for year ending 1/17. Annualised synergies are expected of £10.4 million, 75% of which should be realised by the end of 2017. Intertrust shareholders approved the transaction at an EGM held on July 26, 2016. Elian has 615 employees in 15 jurisdictions, and is particularly strong in services for capital markets, and private equity & real estate fund administration as well as being market leader in the important jurisdiction of Jersey.

Closing is expected before the end of September, pending regulatory approval, after which integration can begin. Plans for the integration were kicked-off in early summer, and a management structure for the combined company has been defined. Intertrust will incorporate a service line management structure for Funds, Capital Markets and Private Wealth, alongside the existing jurisdictional structure. Paul Willing, currently CEO of Elian, will join Intertrust’s Executive Committee. Plans to combine offices in the 10 jurisdictions in which the two companies overlap have been defined and will be implemented as soon as possible after closing. Elian will be rebranded as Intertrust approximately 3 months after closing.

Market developments

Panama Papers, a set of leaked documents from a Panamanian trust provider, caused concerns about potential reputation damage throughout the sector. In response to media inquiries made at the time, Intertrust disclosed that it did not have any commercial relationship with this trust provider and had a small number of clients who had some connection with the provider. In response to the Panama Papers media reports, Intertrust conducted extra compliance portfolio reviews and revisited IT security arrangements, neither of which resulted in changes to existing policies. Intertrust has put high compliance standards and strong client acceptance procedures at the core of its strategy. Intertrust sees the main effect of the Panama Papers on the T&CS industry as being an increasing demand from prospective clients for strict compliance and careful client acceptance procedures. Intertrust’s position within the sector has potentially been strengthened by this development.

On June 23, the UK voted to leave the EU (Brexit). Intertrust views this development as potentially increasing the fragmentation of the European tax landscape. The Company does not anticipate a negative effect on its business as a result of Brexit. The decline in the GBP to the Euro in the wake of the Brexit vote has had a limited effect on the YTD EBITA. Management estimates that approximately 23% of the post-closing EBITA is in GBP, whereas EBITA generated in USD will be approximately 20% over CY 2016 after the closing of Elian.

Regulatory changes in the first half of 2016 included the adoption of the EU Anti-Tax Avoidance Package (ATAP) by the EU member states. The ATAP is the legislative package derived from the OECD Base Erosion Profit Shifting (BEPS) Recommendations originally introduced in 2014. The version of the ATAP legislation ultimately adopted by the European Council in July 2016 was substantially less extensive than the version originally proposed in January 2016. The legislation leaves setting of tax rates to the discretion of the individual member states and encompasses certain additional reporting elements for multinational corporations. Intertrust does not expect this legislation to negatively affect its business, and the new reporting requirements could be a source of additional revenue over the medium term.

Outlook

  • Guidance reiterated of an Adjusted net income per share of minimum €1.30 for Intertrust standalone in CY 2016E before the impact of the acquisition.
  • For the medium term, objective reiterated of organic revenue growth slightly above market growth of 5% (estimated market CAGR for CY 2015 – 2018E).
  • Adjusted EBITA margin improvement objective including Elian increased by 100bps to 300-350bps by CY 2018E over the Intertrust stand-alone CY 2015 proforma Adjusted EBITA margin of 40.4%.
  • On a stand-alone basis, Interest costs for full year 2016 are expected to be €18.7 million of which €3.7 million is related to the amortisation of financing fees (non-cash). Upon completion of the Elian acquisition, the group will issue new debt of approximately €265 million with interest rates of 275bps plus Libor with a 0% floor and an RCF drawdown of approximately €50 million with interest rates of 250bps plus Libor with a 0% floor. Until completion, ticking fees for the new debt will be payable (approximately €0.1 million per month).
  • Cash conversion to continue to be in line with historical rates.
  • Maintenance / normalised capex excluding the Elian acquisition will be marginally below historical levels.
  • Effective tax rates will be lowered to approximately 16% after completion of the Elian acquisition (approximately 18% on a stand-alone basis).
  • The Elian acquisition is expected to yield approximately 10% accretion on a proforma basis excluding synergies to CY 2016E Adjusted net income per share guidance of a minimum of €1.30 and approximately 20% accretion to Adjusted net income per share by CY 2018E including synergies and a double digit ROIC by CY 2018E including synergies.
  • Unchanged target steady-state net debt to EBITDA ratios are at 2 – 2.5 times, with a temporary increase in the event of an acquisition.
  • Dividend policy is a target dividend of 40-50% of Adjusted net income. First interim dividend will be paid on Novem