Mainstream Holdings Group has told shareholders it will be consolidating its underperforming superannuation services division into its funds management business, with the company generating a loss after income tax of $1.1 million for financial year 2019.
Overall, Mainstream generated a revenue of $50 million, up 21 per cent from the year before, while its EBITDA grew by 17 per cent to $7.4 million.
The group’s $1.1 million loss was a 166 per cent plunge from its FY18 profit of $1.7 million.
Mainstream Fund Services, which includes fund administration and custody contributed 91 per cent to the group’s revenue, while the company’s superannuation services contributed a mere 8 per cent.
The super division was said to underperform due to client losses through fund mergers and regulatory changes.
Chief executive Martin Smith called it a “direct result of consolidation within the superannuation industry, notably APRA regulation driving a wave of mergers within our traditional client base of smaller funds and the ATO assuming responsibility for the administration of low balance accounts from July 2019.”
Mainstream expects the super business will contribute less than 2 per cent of its revenue in FY20.
As a result of the changes to the business, Mainstream will be closing its Melbourne office, with the super operation in the process of being relocated to Sydney, incurring $300,000 associated restructure costs.
The administrator said it will be looking to grow its public offer superannuation fund as a complementary service to its recently launched separately managed account (SMA) fund, moving from focusing on industry fund member administration.
Mainstream had previously downgraded its full-year guidance, fearing changes to the super sector including an industry-wide trend of consolidation and amplified regulation would challenge its business.
The group noted a non-cash impairment of $2.8 million, which was said to be a one-off reflecting the reduction in value of the super business.
While the super business shrivelled, global administration grew
Funds under administration (FUA) rose 24 per cent during the full year to $173 billion, with Mainstream noting all of its growth was generated from organic sources, as opposed to the year before when 14 per cent of the FUA rise came with acquisitions.
Half of the $34 billion rise in FUA was attributed to market movements and the other half to net inflows.
The number of funds administered by Mainstream grew by 24 per cent to 1012, while global client numbers rose to 365 from 315 in FY18, offsetting fund exits and mergers.
Almost a third (28 per cent) of annual revenue was generated outside of Mainstream’s traditional Asia-Pacific market, up from 24 per cent in FY18. Two-thirds (66 per cent) of its EBITDA was derived from its offshore businesses.
The private equity administration business grew by $4.5 billion and 76 funds during the period with funds under custody reaching $5 billion with 48 funds added since launching.
Mr Smith said the company was pleased by its growth in its core fund businesses, especially in the private equity and custody operations.
“The non-cash impairment in our accounts reflects the actions we have taken to address challenges in our superannuation business and shouldn’t overshadow a strong underlying performance and strong growth outlook,” he said.
“We are well positioned for further future organic growth and will continue to invest in global business development, key client projects, technology upgrades and compliance.”
For its 2020 market guidance, the group is expecting a revenue of approximately $55 million and EBITDA of around $8 million.
Mainstream completed a $10.3 million capital raise during the year, which is being used to fund custody regulatory capital, expansion of US sales operations and upgrades to its digitisation.
The group invested $8.3 million in technology, data and automation in the year, with upgrades including new products and improvements in compliance.
The board declared a final dividend of 0.5 cents a share, 50 per cent franked, changing from its prior 1 cent per share, 100 per cent franked in FY18. The move to partial franking was said to reflect the growing contribution of the company’s offshore operations.
The total dividend fell by 18 per cent from the year before to 1.25 cents per share.
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
Sarah has a dual bachelor's degree in science and journalism from the University of Queensland.
You can contact her on [email protected].
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