Against a relatively subdued economic backdrop, and with inflation and interest moderating
more slowly than many had expected at the start of the year, the diversity of the
IPS business served LWDB well. The Corporate Trust and Corporate Services businesses
showed strong growth in net revenues. The Pensions business was robust despite a non-repeat
of the unusually elevated level of activity in 2023 that was triggered by the gilt
market reaction to the UK government’s autumn 2022 financial statement, which required
many pension schemes to review their funding and investment strategies. Taken as a
whole, net revenues increased 6.2% to £53.7m and underlying operating profit (before
interest and tax, and excluding the non-recurring charge) increased by 6.4% to £16.0m.
The Corporate Trust business continued to perform very strongly, with net revenues increasing by 12.7%, on top
of the c 17% growth delivered in 2023. Activity in debt capital markets is an important
driver of revenues. Where acting as a bond trustee, new issuance generates upfront
fees but also replenishes the back-book of business from which LWDB earns recurring
servicing fees. Volatile in nature, from a decade-long low point in 2023, European
debt capital issuance showed a strong recovery, increasing 19% year-on-year including
an acceleration in H2. However, while deal flow is important, the majority of revenues
(typically around two-thirds) are recurring in nature, generated from serving the
existing book of business, built up over many years. The servicing fees for performing
bonds are mostly inflation-linked, with new issuance fees providing a strong offset
to the impact of moderating inflation. When bonds default, post-issuance work generates
additional ad hoc revenues. These have often displayed a strong economic counter-cyclicality,
but despite a challenging environment for many corporate borrowers showed no material
uplift in 2024. If and when conditions do change, post-issuance revenues could be
substantial, and often continue well after an economic recovery is underway. Included
within the corporate trust business, escrow services continued to grow steadily across a range of transactions and end-users.
Corporate Services is itself a diverse collection of businesses, including whistleblowing (Safecall), structured finance services, company secretarial services (CSS) and service of process (SoP). Collectively, net revenues increased by 11.0%, driven by strong growth at Safecall
and a recovery in the more cyclical SoP activities. Safecall is growing strongly, driven by whistleblowing legislation, an increasing recognition
that the provision of such services represents best business practice, and investments
in enhancing capability, functionality and capacity. In 2024, revenues (+25%) and
new business both reached new record levels. Also at a record level was the number
of reports to clients, up by 11%, while the majority (70%) of all issues raised are
now done so digitally. The management team is increasingly ambitious in this fast
growing sector and notes the significant scope for market share gains in the large
US market. In SoP, LWDB handles many thousands of appointments in a year, many of which are short duration,
with a low level of repeat business relative to LWDB’s other activities. Compared
with the past couple of years, with improved economic and capital markets activity,
particularly in developed markets, revenues picked up noticeably in 2024 with a positive
impact on operational efficiency.
CSS is well advanced with its significant investment in the right people, skills and
systems to further exploit the growing need for outsourced governance solutions; however,
this is yet to filter through to revenues. Against a supportive backdrop, where in
most developed countries there is a continuing statutory and regulatory drive for
enhanced corporate governance standards, LWDB remains confident that the business
will generate sustainable growth over time. Structured finance is a relatively small part of the business, seeking to grow by leveraging the acknowledged
quality of its offering by raising its profile with a broader universe of clients
that use these products (such as asset managers, hedge funds and challenger banks).
Despite the improvement in European capital markets new issuance, the securitisation
markets remained subdued and new issuance was broadly flat year-on-year.
Since 2017, net revenues in the pensions business have increased by 10.6% pa. However, following the frenetic activity of
2023, 2024 was a quieter year, in line with LWDB’s previously expressed expectations.
Net revenues were 4% lower compared with 23% growth in the prior year. While revenues
in the pensions business are significantly recurring in nature, project related work
can be more variable, and 2023 benefited from significant additional activity resulting
from the liability driven investment crisis in late 2022. Taking 2023 and 2024 together,
growth was 7.9% pa and LWDB is confident it will continue to grow the business solidly
over the medium term. Structurally, this growth is underpinned by the need for high-quality
expertise to assist pension schemes to navigate an increasing legislative and regulatory
burden and the steady move towards increased professionalism across the sector. In
2025, LWDB expects the implementation of a new defined benefit funding code to be
an area of focus for clients. With average defined benefit pension scheme funding
remaining strong, trustee boards and sponsors continue to consider the relative merits
of continuance or insurance of the liabilities. LWDB is also contributing to the debate
surrounding defined contribution consolidation.