Link (ASX:LNK) share price down as revenue slides 6% in FY21

The superannuation company is in the red after reporting its FY21 earnings today.

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The Link Administration Holdings Ltd (ASX: LNK) share price is sliding in opening trade on Thursday.

This follows the release of the superannuation fund's FY21 annual financial report earlier this morning.

Just after the market open, the Link share price is down 4.5% trading at $4.91.

Highlights of the company's FY21 results include:

  • Revenue of $1.16 billion down 6% year on year from $1.23 billion
  • After tax net loss of $163 million, versus a loss of $102.5 million the year prior
  • Operating EBIT down 21% from FY20 at $141 million
  • Earnings before interest, tax, depreciation and amortisation (EBITDA) of $208 million, a 16% decrease year on year
  • Operating net profit after tax and amortisation (NPATA) of $113 million, down 18% on the previous year
  • Fully franked dividend of 5.5 cents per share, paid on 20 October 2021.

What happened in FY21 for Link?

The Link share price is in focus today as the company recognised a 6% drop in its revenue from FY20.

Link also saw headwinds across the park in its FY21 results, with a 21% decrease to earnings before interest and tax (EBIT) and a net loss that blew out to $163 million, compared to $102.5 million a year ago.

As such, EBITDA of $208 million came in 16% behind the same time last year, even though amortisation increased by 11% to about $47 million. Link advised that this came from the "prior year's acquisitions reaching the end of their useful lives in FY20 and FY21".

The net loss was underscored by lower operating income and a "higher income tax expense". Link also recorded an 8% decrease in net operating cash flow to $293 million.

In addition, recurring revenue in its retirement and superannuation solutions business, which accounts for almost 90% of this segment's sales, was down $4.5 million on the year.

This was compounded by the fact that non-recurring revenue (which makes up the remainder of sales in this part of Link's business) also came in 10.4% behind FY20.

Link left the quarter with $395 million in cash, an almost 50% gain from the year prior. The company said this was due to the "$200 million of cash proceeds received… as a partial repayment of PEXA shareholder loans" prior to the PEXA initial public offering (IPO) on 1 July 2021.

Under this IPO, Link received $180 million in cash and retained a 42.8% equity interest in PEXA. In addition, PEXA contributed about $33 million to "Link Group's operating NPATA in FY21".

In addition, Link declared a 5.5 cents per share dividend in its FY21 annual report. This brings the total dividends for FY21 to 10 cents per share, on par with the previous year.

Finally, the company also started the transition of Vivek Bhatia as the new Group managing director and CEO in FY21.

What did management say?

Link's new managing director and CEO Vivek Bhatia said:

With the repositioning and resetting of the business underway, Link Group is well placed to return to medium-term growth. The markets we operate in have attractive macro fundamentals and our proprietary technology platforms and experienced people capabilities are supporting an increasing number of large clients.

Moving to FY22, Bhatia said:

Our focus for FY22 is to further our Simplify, Deliver and Grow strategy by progressing the global transformation program and enabling reinvestment in key technology and people initiatives.

This investment, together with continued positive markets and the benefits of the global transformation
program, is expected to underpin an increased growth in revenues and a return to earnings growth in FY23 and beyond.

What's next for Link Administration?

Link Group expects "low single-digit" revenue growth in FY22 and that operating EBIT will be "broadly in line" with FY21.

The company also expects to achieve $75 million in gross annualised savings from the completion of its global transformation program next year.

Moving beyond FY22, the group expects to "deliver stronger revenue growth" in FY23 versus the year prior.

Growth in operating EBIT is expected to resume in FY23 as the company completes this global transformation program.

The Link Administration share price has had a choppy year to date, posting a loss of 7.2% since January 1. Despite this, Link shares are up 17% over the last 12 months.

These returns have both lagged the S&P/ASX 200 index (ASX: XJO)'s return of about 25% over the past year.

The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Link Administration Holdings Ltd. The Motley Fool Australia has recommended Link Administration Holdings Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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