Computershare Limited (CPU) Earnings Call Transcript

Welcome, everybody, to the Computershare Half Year Results presentation. [Operator Instructions] I'll now hand over to our first speaker, Chief Executive Officer, Stuart Irving.

Good morning, everyone, and welcome to Computershare's FY '21 First Half Results Conference Call. I'm joined today by Nick Oldfield, our Chief Financial Officer; and Michael Brown from our Investor Relations team. As usual, I'll take you through the key aspects of our results and how we see the rest of the financial year. We released the presentation pack to ASX, and it's on our website, and there's a lot of information in the deck for you, but I know that you're all pretty busy, so I'll focus my remarks on the opening pages of the presentation. Nick will then take you through the slides on our financial results. Then after some concluding remarks, we will open up the call for questions. And then just as a reminder, we'll be talking in U.S. dollars and constant currency unless we state otherwise. Okay? So let's start on Page 2. There's really 3 main points I'd like to make: One, we delivered management EPS ahead of plan, and I'm pleased that our operating business is performing. And remember, the first quarter was an uncertain time and comparisons against the PCP are difficult. We delivered $0.218 of management EPS for the half compared to the $0.20 per share we guided to in August; two, we executed well on what we can control. Issuer Services, our largest business, delivered the fastest rate of growth across the business streams and Employee Share Plans and Corporate Trust both grew fee income. On the other side, margin income was clearly hit by record low interest rates and US Mortgage Services was impacted by the extended moratorium and volatile market conditions. And these are not excuses, but the results do highlight the strength of our high quality businesses; and third, the 1H operating performance supports upgrading full year earnings guidance. We now expect EBIT, excluding margin income, to be up around 14% for FY '21. That's up from around 10% we started the year with. We also expect management EPS to decline by around 8%. That compares to previous guidance of down around 11%. There's a lot of detail in the deck that breaks down the bridge from first half to second half EPS to be able to deliver that guidance. But in simple terms, this is how I see 2H. Now we start with the $0.218 from the first half, add back the one-off costs of $0.02 per share, add seasonality of $0.02 and cost savings of $0.03. Tax and margin income take off 2 together, and that gets you to $0.27, which leaves $0.03 for organic growth, which is the same amount we guided to in August. Back to the first half. We show a more detailed analysis of the results on Page 3, the earnings waterfall. We bridge from the 1H FY '20 management EPS of $0.29 per share through to the $0.218 per share for this half. There are a range of operating and one-off factors here, and I'll call out some headlines going from left to right. Margin income was the single largest factor in the period. The drop to $55 million of MI cost us over $0.08 per share against the PCP. We did a good job maintaining balances at the 2H level of $17.6 billion, helped by Corporate Actions and our Corporate Trust balances, especially later in the half. But our annualized achieved yield on exposed balances was only 0.75%, the lowest in our history, and well down on the 1.79% annualized yield on exposed balances we earned in the PCP. Moving across, one-off costs reduced EPS by a little over $0.02. This is the $15 million pretax we took above the line. It includes a range of items such as a $4.5 million levy on the transfer of assets to a Brexit-compliant environment and a provision for over $7 million against a receivable in Class Actions. The moratorium on foreclosure in US Mortgage Services cost us $0.015. The UKAR fixed fee reduction cost us $0.035 of EPS in the bridge, and that shouldn't really surprise anyone. And on the positive side, in green, cost savings made an important contribution to these results. Savings from our cost-out programs provided $0.05 per share to EPS. And as you'll see a little bit later, BAU OpEx fell by 6.3% in the half. Page 14 in the deck takes you through the details of our cost-out programs, and Nick will take you through that later. Finally, operating earnings growth, excluding margin income, added a little over $0.03 per share to management EPS, and that's a little ahead of where we thought we would be in August. Now let's move to Page 4 and talk through the business performances at a high level. Starting with Issuer Services. Revenue was up 8.4% and EBIT ex MI was up 23.3%. Computershare's largest business delivered the fastest rate of growth across the group. We saw new client wins, and as a result, increased market share and growth in our entity management and Registered Agent offerings. There's lots of good information and new disclosure on the business line, starting on Page 9. And you will see we have stripped out margin income from the operating business revenue lines to give you even more transparency. In Issuer Services and excluding MI, Register Maintenance had positive growth of 0.6%. But within Register Maintenance, shareholder paid fees are still recovering. In fact, they are still below the PCP, down some 9%, and that shows the underlying growth in Issuer paid fees, the recurring revenue, up around 4%. The number of shareholder accounts we managed increased again to 38.2 million, and that's a rise of around 1.5 million over the past 2 years. Corporate Actions also saw some recovery. We saw good activity levels in Hong Kong IPOs and UK rights issues. Excluding margin income, revenues in Corporate Actions increased by 35%. But it does show how margin income is hurting us though because including MI revenues, they were only up by around $3 million to $76 million here. Stakeholder Relationship Management did well. Revenues ex MI increased by 95%. We completed major governance projects for Legg Mason and others. We hired over 400 temporary staff in the period to complete this work, all working remotely. I do need to say though, these projects are lumpy and not recurring, so please don't bake them into FY '22. Our new Issuer Services business in Entity Management and Registered Agents are going well. Revenues increased by 177%. This includes organic growth and a full half of contributions from our 2 acquisitions, Corporate Creations and Verbatim. We're really pleased with the extra capability these businesses give us. And we can grow these new large revenue pools and recent bundled client wins, means we've got off to a strong start. And also remember, there's no margin income in these new business lines. In Employee Share Plans, fee revenue, excluding MI, improved by 2%. We continued to win market share with a 5% increase in net new client wins. And we're making good progress upgrading clients to the EquatePlus platform in Europe and the migration program will shortly move to Australia. Transaction volumes are an important part of the revenue line here, and I'm encouraged to say activity is recovering as market levels rally. And while transaction revenues ex MI were down over 7% for the half, we do expect 2H will be stronger. Units under administration has increased by 9% for a second year as more customers use equity to attract, retain and reward employees. We now have over $220 billion of assets under administration. Now I will call out in Employee Plans, management EBIT ex MI was down by $3.6 million. As I mentioned earlier, we did include some one-off regulatory costs related to Brexit. So if we took that out, underlying EBIT ex MI actually increased by close to 5%. We had some good operating performance in Business Services, too. Excluding MI, Corporate Trust increased fee revenue by 7.4%. Now as I've said before, this has been a consistent growth business for us. You can see on Page 13 of the deck, fee revenue has grown by over 6% per annum on average over the last 10 years. And the volume of debt we administer has increased at over a 10-year period with a CAGR of 5%. We also made excellent progress in building a foothold in the U.S. with a 44% increase in mandates, albeit from a modest base, and this is a market where we see significant room for growth. Bankruptcy also kicked in. And this is one of our more cyclical businesses, and it's coming into its own in this environment. Excluding MI, revenues increased by over 120%. However, we do know that the court system is fairly clogged up in the U.S. at the moment, so we do expect to be a little slower in the second half. Now of course, the cross on the scorecard is for US Mortgage Services. The results are disappointing. EBIT ex MI fell by $26 million and was negative in the half. It was clearly a volatile period, but let me explain what happened. First, the book of loans we service came down a little at $115.8 billion. You'll also remember, we moved to an 8-year amortization schedule, and this increased the amort charge by some $6 million. Loans were also being refinanced as rates fell, accelerated runoff, as we call it, and this caused an $8.5 million hit to EBIT. We spent $45 million of cash replacing amortizing rights, and we invested an extra $21 million on further MSR growth investments. MSRs we acquired added volume, but the number of loans we subservice was only up by about 4,000 to 277,000, and this wasn't enough to maintain the overall level of the book. Second, our ancillary revenues are being impacted with the moratorium on foreclosure being extended. This delay is not a surprise, but it cost us over $11 million of EBIT and you can see these details on Page 11 and 12. Now we originally thought the moratorium would be lifted in September, then it got extended to December. And now depending on the agency, the dates are likely to move again. Foreclosure revenues have been deferred and the other incentive fees we can earn when a mortgagee avoids foreclosure by returning to a payment plan have also been delayed. We do not expect these revenues to recover till FY '22, where it will be a steady recovery. So excluding the effect of margin income and the moratorium being extended, how did the business perform? The underlying story is a little bit better. Servicing and related revenues are up over 8%. Capital-light UPB increased by over 3%. The pipeline of nonperforming subservicing work is excellent, and we have recognized expertise in specialist servicing and the amount of books being outsourced to specialists, such as ourselves, is shaping up nicely. It's just a matter of timing because they won't move until the moratorium opens up. We clearly took a couple of steps backwards in our return aspirations in this business, however. Now putting that all together, overall, we had a decent first half results. A little ahead of where we thought we would be in August. This operating performance validates our strategy to build stronger and more efficient businesses with greater leverage to long-term structural growth trends. This strength also provides us with flexibility. The $71 million of free cash flow, we're able to self-fund our organic growth plans and invest in technology. As the debt leverage ratio is inside the target range, it also allows us to maintain the interim dividend and look after our shareholders. Now let's move to Page 5. This breaks out the guidance for the rest of the year. Now I already took you through the upgraded numbers, and you can see them here, along with some of the assumptions that we based that on. Let me call out some important sensitivities: one, we expect margin income of around $45 million in 2H on average balances of approximately $16.4 billion; we do not expect material foreclosure recovery in 2H '21 regardless of moratorium expiry dates; we expect similar levels from our events based corporate actions business; and four, we are seeing a recovery in Employee Share Plan trading revenues and we recognize this in seasonality given the March to May vesting season in Europe; and finally, we expect ongoing growth in our fee-based revenues. Issuer Services have momentum and Corporate Trust is a consistent performer, and we expect more client wins in our key businesses. And I hope this transparency helps. Now on Page 6, we show more detail on how we are bridging the 2H guidance. This should help answer the questions you may have. Is the guidance for 2H ambitious? Is it achievable? Some of you may be skeptical if you're looking at the 38% growth in earnings, 2H on 1H. Now remember that $0.30 per share per 2H is unchanged from our original guidance in August. That's 10% growth from the second half PCP, which in itself had a couple of horror months. So the upgrade for the year reflects the stronger first half only. Working from left to right, we pragmatically expect a drop in margin income versus the first half. We also have to add back the $15 million of one-off costs we talked about earlier. And we expect around $0.06 from operational earnings growth, and this roughly breaks down 50-50 between revenue growth and cost savings. The revenue growth is coming from Issuer Services, Plans, Business Services and also some recovery in US Mortgage Services. So on that positive note, I'll hand over to Nick who will take you through the financials.

Thank you, Stuart, and good morning, everyone. I'll take you through our financial results then starting on Slide 7. Firstly, as Stuart has said, I will also make the distinction between operating revenues and margin income revenues. Group revenue, excluding margin income, was up 2.4%. Adjusting for M&A and the UKAR fixed fee, organic operating revenue growth was $27.7 million or plus 2.8% over the period. Increased contributions from Issuer Services and Bankruptcy underpin this rise. Reflecting the fall in interest rates, total revenue for the group fell 3.2% over the prior corresponding period. There's more detail on revenue on Slides 21 to 23, including the new disclosure on revenue excluding margin income across each business stream. EBIT fell 28.4% to $190.3 million. The decline in EBIT is largely attributable to the $60.8 million reduction in margin income, whilst amortization expense reflecting both the larger MSR portfolio and the change in amortization period increased by $15.7 million. Cost of sales also rose due to a slight change in the sales mix. Excluding margin income, EBIT fell 9.8% by $14.7 to $135.2 million. Adjusting for those one-off costs of $15.2 million, EBIT ex margin income would have been slightly up. The EBIT ex margin income margin was down 180 basis points to 13.1% as a result of both the one-off cost and the change in the sales mix. As anticipated, interest expense was lower, reflecting the lower rate environment. And finally, our income tax expense was also lower at $45.1 million versus $72.6 million in PCP. The ETR for the half was 27.7% at the bottom of our expected range, and we expect it to be a bit higher in the second half. We continue to anticipate full year ETR in the 28% to 30% range. The geographic profit mix and the timing of US BEAT are responsible for this difference. U.S. profits and taxable income are weighted more to the second half, driving higher tax expense and a higher second half effective tax rate. We had a $0.01 benefit from the timing of BEAT in the first half, and this will reverse in the second half with greater U.S. profit contribution expected. Management NPAT was down 25% to $117.8 million, and management EPS was accordingly down 24.8% to $21.8 per share. The statutory results are on Slides 19 and 20. NPAT was $72.6 million, with the difference attributable to the amortization of non-MSR intangible assets of $21.4 million, acquisition-related expenses of $4.7 million and $19.2 million associated with our cost-out programs, largely being the UK Mortgage Services restructuring. Moving to Slide 8. This shows margin income compared to the last 10 half years. The margin income result was a little bit better than we had anticipated in the first half, $55.5 million at actual rates. This was driven by higher balances in the second quarter, particularly in Issuer Services where we've seen good activity in Corporate Actions and also in Corporate Trust. Exit balances at 31 December was $17.3 billion, but they do tend to move around a bit during the year. But as Stuart mentioned earlier, notwithstanding the higher balances, the achieved yield was impacted. It was an all-time low in the first half at 0.63%. This reflects the impact of lower rates globally and the current weak bank appetite for term funds. Now turning to the second half, we expect slightly lower margin income of around $49.5 million as some of our existing higher rate deposits roll off. This effect should carry through to FY '22, where we now expect margin income to be around $80 million. This reflects the unwind of some U.K. term deposits as the current DPS contract heads towards the last year of its life. For FY '22, to be clear, we're applying the current yield curve and assuming balances in line with the second half of FY '21. There's more detail about balances on Slides 64 to 68 of the pack. Next, I'd like to talk about Slide 14. Here, we show the bridge in operating costs between the first half FY '20 and the first half of FY '21. Importantly, we've drawn out the reduction in underlying operating expense. So you can see how the cost-out programs are having an impact. The net benefit realization from these programs in the first half of FY '21 is $48.8 million. Now let me take you through these savings. $14.3 million of these come from the finalization of the asset migration program in UK Mortgage Services. We are now live on 1 platform, and the IT cost associated with the transition has come out. The remaining $34.5 million comes from our other cost-out programs, the largest of which is the restructuring of our UK Mortgage Services business. This represented 58% of the overall savings. Adjusting for some underlying inflation, for example, the first half last year did not fully reflect an employee merit award. Our adjusted operating cost base was $577.6 million. This equates to a reduction of 6.3%. So where did these savings go? Well, first of all, there's a bit of M&A-related expense. In the first half of FY '21, we had 2 more months of Corporate Creations, and we had a full half of Verbatim. These add $5.5 million of OpEx. Then there's the investment in growth. We've added capacity to meet demand in Bankruptcy, in Corporate Actions and in Stakeholder Relationship Management. This added $13.8 million of cost. And finally, there's the one-off cost of $15.2 million, which we referenced earlier. Total operating expense is detailed on Slide 29, so you can see the usual breakdown there. I would just highlight there the change in the cost of sales. This represents the 2 acquisitions together with the volume impact in Bankruptcy, Corporate Actions and Stakeholder Management. This has driven a slightly changed sales mix in the first half. And as a result, margins are a little bit lower. On Slide 15, we show the impact of all our cost-out initiatives. As you can see, we've increased our expected benefit realization for the UK Mortgage Services cost-out program by around $14 million. The total gross multiyear benefit from these programs is now estimated to be $250 million. Turning to Slide 16, and I'll finish with some comments on our balance sheet and cash flow. In the period, we generated $124.1 million of net operating cash flow. This is down 50.4%. Operating profits were lower, while tax payments were higher reflecting the tax due on the interest rate derivatives unwound in the prior year. Free cash flow was $71 million. CapEx was down for the half at $8 million due to lower IT related spend. We do expect second half CapEx to be slightly higher. Net cash flow is negative $46.3 million, after spending $89 million on dividends and around $65 million on MSR. The MSR investment is split between $45.1 million maintenance to offset amortization and an additional $20.8 million to grow the book and mitigate the impact of the accelerated runoff. The investment was net of MSR sales receipts of $27.6 million. In the second half, we expect net spend to be lower and total MSR investment for the full year to be below our amortization expense. Net debt has increased a little compared to 6 months ago. But over the last 12 months, we've acquired Corporate Creations and Verbatim, we've paid 2 dividends, and we've invested in the future of our business, both in terms of growth and in delivering our cost-out programs. Our net debt-to-EBITDA ratio increased to 2.24x at the top of our range. This was in line with expectations and reflects the lower earnings we've seen in the first half. The average maturity of our drawn debt at 31 December was 3.3 years. Now looking ahead, we do expect the net debt-to-EBITDA ratio to sit more comfortably inside our target range at year-end, reflecting the expected improved second half performance. I'll now hand back to Stuart. Stuart?

Thank you, Nick. And finally, on to conclusions. A year into this new normal of macro volatility and uncertainty, where do we find ourselves? So in my view, the first half results are reassuring. Earnings are slightly ahead of plan. We have growth in fee income and cyclical businesses are kicking in. Our ongoing cost-out programs are delivering significant savings, and you can see that in the numbers. We have invested in new products and technologies to expand our capability and enhance our customer services, and these investments are delivering returns. We have increased the size of our available revenue pools and laid the foundation for long-term growth, and we have a pathway for US Mortgage Services recovery. Now it is frustrating that the unprecedented drop in interest rates is clouding our performance. If we had delivered the same margin income as we did in 1H '20, our management EPS for this half would have been significantly up. And let's not get too distracted by that. Instead, we'll keep our heads down and keep true to the strategy to build stronger, more efficient businesses with more leverage to structural growth trends and we look forward to reporting a better 2H. Thank you all for your attendance and patience. And I'll now open the line for questions.

[Operator Instructions] The first question comes from Ed Henning from CLSA.

Look, I know you've given some detailed outlook on the second half. And look, FY '22 remains a little bit uncertain. But at this point, can you just run through some of the headwinds and tailwinds you're seeing for the business? You've obviously touched on margin income and shareholder relationship management. And can you particularly touch on Bankruptcy? While it's obviously been buoyant at the moment, Chapter 11 filings are falling. What do you think the outlook is for that as it goes through FY '22, please?

Yes. Thanks, Ed. So look within '22 -- I mean what we have said from a commentary perspective on '22 is we do expect margin income to have another drop, about a $20 million drop. Probably half of that is related to the U.K. deposit protection scheme as we roll off the term deposits as we come to the renewal of that contract in early '23. And as a result, because you don't get the term, that's going to be coming down. It's pretty hard to predict balances at this stage. The other commentary on '22, the delay in the moratorium, which just has been extended again overnight. We have faced for that -- nothing in '21 really for that, and that should actually come through and give us a little bit more momentum into '22. I think really, the -- when you look about going forward, it is pleasing to see some decent momentum in the -- our largest business, which is our Issuer Services business. We have growth in shareholder numbers. We've got the new revenue pools that we're growing in and winning clients out there. And it seems that an awful lot of our competitors are on the block for sale at the moment, which creates a little bit of uncertainty, and that bodes well for down in the future. I mean, obviously, when we talk about '22, we're working hard as far as mortgage services recovery is. It was a pretty tough half, lots of things went against us. I've got a long laundry list of that, but we've got some pretty good view to pipelines for some subservicing, nonperforming subservicing work. It's just really a question of timing when they will actually drop. And your point on Bankruptcy, you're right, filings have slowed down. There's still a fair bit of backlog within the court systems. I haven't called out the same rate of growth in Bankruptcy in the second half and we'll have to see what happens. I mean, I guess, we have to look back to the GFC, what happened to Bankruptcy revenues over that period of time. And the revenues have held up for over a 2.5 to 3-year period. And I expect probably something similar would happen here. But both Class Actions and Bankruptcy are being held up with some of the challenges in the legal systems at the moment with just the environment, it's a little bit hard to predict, as is Corporate Actions, of course. But I think that there's still work to be done in some of our businesses, but we also see momentum in others. So that's about as much commentary I can give on '22.

That's great. Stuart, and just touching on Bankruptcy for the second half. Are you anticipating a substantial increase coming through in the next half or just up a little bit?

No. On Bankruptcy? I think -- look, I think Bankruptcy, certainly, when we do a PCP, it'll certainly be up. I don't think that it's going to be as strong as the first half. Yes, it's definitely going to be sort of a contributor. And I think this reflects some of the delays and some of the filings yet. And there's still a fair amount of government support for businesses out there at the moment. So I don't think that it's going to be strong in the second half when you do a 1H, 2H comparison, but it will certainly be stronger than 2H '20.

The next question comes from Andy Chuk from Macquarie.

Let's just start with US Mortgage Services. You've previously talked to 10% to 15% UPB growth over the medium term. However, the first half saw a UBP contraction of 2%. With that context, is the 10% to 15% UPB growth target still achievable?

Nick, I'm going ask you to take that one, please.

Thanks, Michael. Look, the first half, Andy, we've seen accelerated runoff, as Stuart mentioned, reflecting sort of the further decline in U.S. mortgage interest rates. But over the medium term, we continued to believe that good growth is deliverable in terms of servicing UPB. We've got a very healthy pipeline of subservicing opportunities on both the performing and nonperforming side. And we continued to have a leading market position in the Co-issue business. So as we -- as the market sort of returns more to normality, we would expect the book to return to growth.

Fantastic. Just another question on the dividend. So can you just remind us what the policy is on that?

Yes. So from a policy perspective, we normally sort of pay out somewhere between 40% and 60%. When you look at this interim dividend, that's up to around about 75%. And then as we sort of look forward to the final dividend and because we are predicting decent growth in EPS in the second half, that will bring it potentially down into policy range, so just knowing that this was in certainly a blink of 6 months and looking forward to sort of much more medium-term growth, we're pretty comfortable about paying the interim dividend out. We're maintaining it, even though it was below the -- a little bit above the range of 40% to 60%.

The next question comes from Andrei Stadnik from Morgan Stanley.

I wanted to ask 2 questions. Firstly, on corporate activity, Corporate Actions. Was it a better December half or was it actually a better December quarter that you saw? And what do you think the outlook is for 2021 calendar year?

Yes. So look, Corporate Actions, I really go back the last 12 months and chart what has been going on in Corporate Actions. We saw in 2H '20, an uptick in capital raising. Very much driven out of Australia and our business here as companies chose to raise capital. And then as we sort of entered into the 1H '21 and certainly the first few months of '21, we saw that capital raising flowing through into the U.K. market with a number of pretty large and complicated rights issues, which helped our Corporate Actions numbers. Now what we're seeing is a little bit of a combination of M&A activity and also pretty robust IPO activity in Hong Kong, a number of organizations choosing to list on HKEX, some of them which got delayed at the last moment, but that pipeline has been pretty strong. So our sort of last quarter, really of October, November, December, was fairly strong from a Corporate Actions perspective, and that's how you saw the uptick in the balances, EBIT and MI. And looking at the pipeline going forward, we think that it should be roughly around the same. I mean I think at a headline level, revenues from Corporate Actions are up over 30%. But -- I mean if you just add back in margin income on the PCP, it's actually only up around about $4 million. It wasn't -- probably not as big a swing as you think it is, but we think that the momentum will be carried through into the second half.

And I wanted to ask a second question around Issuer Services. Specifically, the core Register Maintenance business in constant currency, $203 million or so, was up only about 0.5% year-on-year despite the new client wins. So why is that not going higher? Is it a matter of pricing? Or is it a matter of timing of new client wins or something else happening?

Let me try and explain that. So the Register Maintenance revenue pool really consists of client paid fees and shareholder paid fees. And the shareholder paid fees is trading activity, transfers in and out of brokers, some insurance for certain lost items depending on the region, et cetera. And what we saw sort of post April calendar '20, a little bit like our trading revenues, shareholder paid fees dropped off a little bit, just like, as I said, transaction volumes. In fact, in the period, shareholder paid fees were down 9% on PCP. So you calculate that and -- that -- then the client paid fee component was actually up 4% in that line, which I think reflects the new client wins, et cetera, et cetera. So that's really the story about that revenue segment. On shareholder paid fees, it kind of remains slow really through to the end of October, but we're now seeing a return to some of the volumes. Certainly, the inbound volumes from shareholders on comparison to what it was 12 months ago. So that should signal a bit of a recovery on that down 9%. But that's really the story on that revenue line, if that's clear.

The next question comes from Simon Fitzgerald from Evans & Partners.

I just want to start with the Mortgage Services business. You've done a bit to explain in terms of how these subservicing volumes should come out in the second half. But I just wanted a little bit more clarity in terms of what happens if these volumes don't come out? You did sort of mention before that you expect the subservicing volumes and the pipeline to improve once foreclosures are allowed, and we are obviously seeing delays to the date from when that -- that's allowed. So what if conditions remain tough in the second half? Do you think that you might have to revise your outlook for the mortgage services business?

Nick, why don't you take that?

Yes. Thanks, Michael. Yes. Thanks, Simon. The -- so the guidance for the second half, we've been pretty conservative around the foreclosure moratorium and when that starts to unwind. So I think, as Stuart said earlier, literally overnight, it's been extended through to the end of March. We've assumed sort of a slow recovery out of the foreclosure moratorium in the fourth quarter. So in terms of -- if that -- in terms of the risk of a further extension, we don't see that as a material risk to FY '21, to the extent that we're successful in picking up and delivering on the pipeline of new business that we can see. We see those as really FY '22 opportunities from a revenue perspective rather than in FY '21.

Okay. Then the second question relates to Slide 14. I was wondering what sort of contributes into that sort of cost of sales. You did mention some acquisitions, and I think you touched on Bankruptcy, but maybe you can sort of just elaborate a little bit more what's behind the $199.7 million that's highlighted in that waterfall chart.

Yes. Look, absolutely. So generally, our cost of sales is made up of a number of items, but the largest one is print and mail postage. And so, typically, that represents around half of our cost of sales. And then other items that you have in our Registered Agent business as an example, we have -- we pay a lot of filing fees to all of the states, and so they would go into cost of sales. We have -- in the Bankruptcy and Class Actions business, there's a range of sort of media buying and advertising. That tends to be recharged to the client. But clearly, the cost goes through the cost of sales lines. We also have some rechargeable telco costs, so for example, if we have dedicated phone lines. And then in share plans, we would have broker commissions on our trading revenues. And in Mortgage Services, we would have costs for using external brokers, whether it's on property sales or inspections, valuations, foreclosure or churn as that kind of stuff. So when you think about the bridge, the difference between 1H '20 and 1H '21, what's really driving that is firstly, the growth in Bankruptcy. So there, we've sort of had more media buying, more print and mail. A lot of that Bankruptcy work is communicating out to creditors. So there's a lot of print and mail and, obviously, media buying in terms of publicizing the restructuring. We've obviously got more time associated with Corporate Creations and the data. So those 2 acquisitions account for around 40% of the cost of sales increase, which is all of the fire on cost. So there's a range of things in there, Simon. But hopefully, that gives you a little bit of a flavor of what's in there on average.

And then the final question just relates to the Issuer Services revenue and margin, very solid outcome there. I'm just interested to know whether the EBIT increase is largely related to that sort of higher-margin event-based activity, and what might be related to new contract wins?

Yes. We -- there isn't significant fee pressure on contract renewals at the moment, such as contracting margins. I mean, obviously, the Registered Agent and entity management work that we do, it doesn't have any margin income in it. And it is at or better than group margins, which was assessed. And then also Corporate Actions, they're one-off events and large, they're complicated. There's significant risk on them. And we're appropriately compensated on that from a margin perspective. So they're all sort of contributing factors to the sort of margin expansion.

The next question comes from Siddharth from JPMorgan.