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Equiniti Group PLC  -  EQN   

EQUINITI RESULTS FOR THE 6 MONTHS TO 30 JUNE 2017

Released 07:00 28-Jul-2017

RNS Number : 3645M
Equiniti Group PLC
28 July 2017
 

28 July 2017

 

EQUINITI GROUP PLC RESULTS FOR THE 6 MONTHS ENDED 30 JUNE 2017

 

Equiniti Group plc ("Equiniti" or "the Group"), the specialist technology outsourcer providing non-discretionary payment and administration services, today publishes its interim results for the six months to 30 June 2017.

 

SOLID INTERIM RESULTS: IN LINE WITH EXPECTATIONS AND FULL YEAR GUIDANCE AFFIRMED

 

Financial Highlights

H1 2017

H1 2016

Change %

Revenue (£m)

194.8

191.9

1.5

EBITDA1 prior to exceptional items (£m)

42.0

41.2

1.9

EBITDA margin prior to exceptional items (%)

21.6

21.5

0.1pts

Operating cash flow2 pre-exceptional items

45.8

38.2

19.9

Free cash flow3 to equity holders (£m)

20.2

18.5

9.2

Cash flow conversion (%)

109

93

16.0pts

EBIT prior to exceptional items

18.0

17.7   

1.7

EBIT (£m)

14.1

15.3

(7.8)

Earnings per share (EPS) (pence)

1.9

2.0

(5.0)

Underlying4 EPS (pence)

6.9

6.5

6.2

Dividend per share (pence)

1.75

1.64

6.7

Net debt (£m)

258.2

261.7

(1.3)

Leverage5 (x)

2.8

2.9

(0.1)x

 

·      Revenue progression of 1.5% (with a decline in organic growth of 0.6%) despite interest rate headwind and H2 bias

100% client retention with new client wins across all divisions

§  New share registration clients including Arrow Global, Howden Joinery Group and J Sainsbury

§  New client wins including Aon Hewitt, British Bankers' Association and House of Fraser

§  New mandates including Alpha FX, Arix Bioscience, Global Ports, Ramsdens and Xafinity

Renewal or extension of relationships with clients including

§  DS Smith, Imperial Brands, Lloyds Banking Group and Santander

 

·      New capabilities established:

Credit bureau and credit servicing permissions secured following the acquisitions of Marketing Source and Gateway2Finance

Increased scale and depth in the credit servicing market with the acquisition of Nostrum

Planned entry to the US market with the proposed acquisition of Wells Fargo's Shareowner Services business to create a stronger, more diversified Group

 

·      EBITDA prior to exceptional items growth of 1.9% with margin of 21.6%; reflecting the impact of acquisitions made in the current and prior period and an improved margin from our core operations

 

·      EBIT of £14.1m reflecting the impact of £3.9m of exceptional items, related to the proposed acquisition of the Wells Fargo Shareowner Services business

 

·      Strong cash flow conversion of 109%; growth of 9.2% to £20.2m in free cash flow to equity holders driven by strong working capital management

 

·      Underlying EPS growth of 6.2% to 6.9 pence per share

 

·      Net debt of £258.2m post acquisition-related costs of £14.9m with leverage at 2.8x

 

·      Interim dividend growth of 6.7% to 1.75 pence per share, in line with progressive dividend policy

 

Commenting on the Group's results, Guy Wakeley, Chief Executive, said:

"We are pleased that Equiniti's strategy of deep specialisms in regulated markets continues to generate underlying earnings growth and shareholder value.  Our market leading positions are a foundation for further defensive revenue growth, whilst the quality of our people and platforms provide continuing margin progression.

 

 

 

 

 

"The proposed acquisition of Wells Fargo Shareowner Services, announced on 12 July, provides an exciting opportunity to springboard our products and capabilities into the largest global equity market, allowing us to diversify our revenues with multi-national clients.

 

"As we enter the second half of the year, we affirm our full year guidance."

 

 

1 EBITDA is earnings before interest, tax, depreciation and amortisation.

2 Operating cash flow is EBITDA plus the change in working capital prior to exceptional items (page 7).

3 Free cash flow to equity holders represents cash flow prior to any acquisitions, refinancing or share capital cash flows and is post exceptional items (page 7).

4 Underlying EPS excludes the impact of exceptional items and amortisation of acquisition related intangible assets plus cash tax (note 6).

5 Leverage is calculated as net debt/EBITDA on a rolling 12 month basis (page 9).

 

 

 

Analyst and Investor presentation

Equiniti's management will host an analyst and investor presentation at 9.15am UK time today. There will be a conference call and live webcast of the event.  This will be broadcast live on Equiniti's website, www.equiniti.com and an archive version of the presentation will be available on the website later that day. 

 

Conference call details:

 

Please dial into the call in time to allow for registration.

 

Participant dial-in           : +44 (0) 20 3003 2666 

Password                      : Equiniti

 

 

               

For further information please contact: 

 

Analyst/Investor enquiries:

Equiniti Group plc        Guy Wakeley, Chief Executive                            +44 (0) 207 469 1800 

John Stier, Chief Financial Officer                       
Frances Gibbons, Head of Investor Relations       

 

Media enquiries:

Temple Bar Advisory   Alex Child-Villiers                                               + 44 (0) 7795 425580
Will Barker                                                        + 44 (0) 7827 960151



 

 

Forward-looking statements

This announcement contains forward-looking statements regarding Equiniti. These forward-looking statements are based on current information and expectations, and are subject to risks and uncertainties, including market conditions and other factors outside of Equiniti's control. Readers are cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. Equiniti undertakes no obligation to publicly update any forward-looking statement contained in this release, whether as a result of new information, future developments or otherwise, except as may be required by law. 

GROUP RESULTS



 

 

H1 2017

 

 

H1 2016*

 

 

Change %

 

Organic

Change %

 

Revenue (£m)






  Investment Solutions


64.2

62.5

2.7

2.7

  Intelligent Solutions


55.4

54.7

1.3

(5.8)

  Pension Solutions


70.5

68.9

2.3

2.3

  Interest Income


4.7

5.8

(19.0)

(19.0)

  Equiniti Group


194.8

191.9

1.5

(0.6)







EBITDA prior to exceptional items (£m)

  Investment Solutions


20.2

17.8

13.5


  Intelligent Solutions


13.4

12.1

10.7


  Pension Solutions


10.5

12.5

(16.0)


  Interest Income


4.7

5.8

(19.0)


  Central Costs


(6.8)

(7.0)

2.9


  Equiniti Group


42.0

41.2

1.9








EBITDA margin prior to exceptional items (%)

  Investment Solutions


31.5

28.5

3.0


  Intelligent Solutions


24.2

22.1

2.1


  Pension Solutions


14.9

18.1

(3.2)


  Equiniti Group


21.6

21.5

0.1


* See Appendix 1 on page 26 for detail of restated numbers

 

OVERVIEW

Equiniti has delivered a solid set of results as we continued to make progress on our strategic objectives during the period.  The strength and longevity of our client relationships is a key asset of the Group and we continue to retain 100% of our client relationships, whilst extending and expanding a number of major contracts.  The Group continued to gain market share, winning a number of clients from our competitors and securing new clients across all divisions.  The Group has delivered revenue, profit and margin in line with expectations, continued to cross-sell to our strategic clients and has increased our offshoring capability with 784 people in our centre in Chennai as at 30 June 2017. 

 

Reported revenue increased by 1.5% to £194.8m (H1 2016: £191.9m) during the period (with a slight decline in organic growth) despite the interest rate headwind and second half bias of the Group's trading.  The acquisitions of Marketing Source and Gateway2Finance have been fully integrated and add to the Group's capabilities, having now secured credit bureau and credit servicing permissions.  The acquisition of Nostrum strengthens our scale and depth in the credit servicing market.  The proposed acquisition of Wells Fargo's Shareowner Services business creates a stronger, more diversified multi-national Group combining our local expertise with global reach.

 

Investment Solutions delivered good revenue growth driven by new client wins, higher share dealing volumes and growth in employee share plans, offset by the timing of corporate action income, with EBITDA and margin expansion driven by revenue growth, project work and continued focus on operating leverage.  Intelligent Solutions revenue was impacted by the timing of project work in our specialist resourcing business, with strong profit progression driven by growth in higher margin work and a continuing drive for efficiency.  Pension Solutions revenue growth was driven by an increase in project work, new client wins and MyCSP revenues stabilising, offset with a decline in profit due to lower margin project work and cost pressure for specialist projects. 

 

Revenue from interest was 19.0% lower than the prior period due to the impact of lower interest on average client cash balances of  £1.7bn (H1 2016: £1.7bn).   Two thirds of the rate is fixed with instruments secured to August 2018 (£650m) and July 2020 (£380m).

 

EBITDA prior to exceptional items increased by 1.9% to £42.0m (H1 2016: £41.2m) reflecting the impact of acquisitions made in the current and prior period and an improved margin from our core operations. 

 

Free cash flow to equity holders was £20.2m (H1 2016 £18.5m), an increase of 9.2%.  Net debt of £258.2m (30 June 2016: £261.7m) represents a ratio of 2.8x net debt/EBITDA (30 June 2016: 2.9x), showing a reduction in leverage despite acquisition-related costs of £14.9m.    

 

The Board has declared an interim dividend of 1.75 pence per share. The interim dividend is to be paid on 26 October 2017 to shareholders on the register of members at close of business on 15 September 2017. Any shareholder wishing to participate in the Equiniti Dividend Reinvestment Plan ("DRIP") needs to have submitted their election to do so by 5 October 2017.  We maintain our progressive dividend policy which will see us distribute around 30% of our normalised profit attributable to ordinary shareholders each year.  

 

Board changes

As announced on 3 July 2017, Philip Yea joined the Board as a non-executive director and will succeed Kevin Beeston as Chairman in September 2017. Philip has considerable executive experience in both the quoted and private equity sectors and his experience will prove invaluable to the Board. 

 

OPERATIONAL REVIEW 

We serve our clients through three divisions: Investment Solutions, Intelligent Solutions and Pension Solutions.  The integrated nature of our client base and strong client relationships results in shared clients across the Group.  This enables us to continually enhance our performance through cross-selling and up-selling to existing clients.  Our entry point is often providing share registration services, with clients taking further services from us over time.

 

In addition to our three divisions, we earn interest income on balances we administer on our clients' behalf.

 

Investment Solutions

Investment Solutions offers a broad range of services, including share registration for around half the FTSE 100, and the administration of SAYE schemes and share incentive plans for 1.2 million employees. The division also provides share dealing, wealth management and international payments to corporate clients and their employees, as well as direct to retail customers.

 




H1 2017

H1 2016*

Change %

Revenue (£m)

64.2

62.5

2.7

EBITDA prior to exceptional items (£m)

20.2

17.8

13.5

EBITDA margin prior to exceptional items (%)

31.5

28.5

3.0

* See Appendix 1 on page 25 for detail of restated numbers

 

Revenue in Investment Solutions increased by 2.7% to £64.2m (H1 2016: £62.5m) driven by new client wins, higher share dealing volumes and growth in employee share plans, offset by the timing of corporate action income.  Corporate action revenue was £4.7m (2016: £5.6m) with a strong pipeline of corporate activity to support H2 2017.

 

EBITDA prior to exceptional items grew by 13.5%, with margin progression of 3.0% as a result of revenue growth, an increase in project work and continued focus on operating leverage.

 
Registration Services continued to win market share and was appointed share registrar to Arrow Global, Howden Joinery Group and J Sainsbury, replacing existing service providers. The bereavement services contract secured with Lloyds Banking Group in the second half of 2016 has now gone live and the division secured a further pilot project for six banks through the British Bankers' Association.  The division won a number of mandates from newly listed companies including Alpha FX, Arix Bioscience, Global Ports, Ramsdens and Xafinity, and renewed or extended relationships with clients such as DS Smith, Lloyds Banking Group, Imperial Brands, JPM Investment Trusts, Metro Bank, National Express, Santander and TalkTalk. 

  

 

Intelligent Solutions 

Intelligent Solutions targets complex or regulated activities to help organisations manage their interactions with customers, citizens and employees. The division offers enterprise workflow for case and complaints management, credit services, on-boarding new clients and specialist resource for rectification and remediation.

 



 


H1 2017

H1 2016*

Change %

Revenue (£m)

55.4

54.7

1.3

EBITDA prior to exceptional items (£m)

13.4

12.1

10.7

EBITDA margin prior to exceptional items (%)

24.2

22.1

2.1

* See Appendix 1 on page 26 for detail of restated numbers

 

Revenue in Intelligent Solutions increased by 1.3% to £55.4m (H1 2016: £54.7m) with a decline in organic revenue growth of 5.8%, reflecting good progress across the division offset by the delay of a major remediation contract with a retail bank which has now commenced. 

 

The acquisitions of Marketing Source and Gateway2Finance have been fully integrated and add to the Group's capabilities having secured credit bureau and credit servicing permissions.  The acquisition of Nostrum strengthens our scale and depth in the credit servicing market. 

 

EBITDA prior to exceptional items increased by 10.7% to £13.4m as a result of growth in higher margin work and a continuing drive on efficiency. We continue to see a mix shift in this division, selling proportionally fewer resourcing services with more software sales and high margin project work.

 

The division won a broad range of work during the period including asset reunification on behalf of RBS and Royal Dutch Shell, and new sales in complaints management to a number of existing clients including a number of utilities companies. 

 

Pension Solutions

Pension Solutions offers administration and payment services to pension schemes, as well as pension software, data solutions, and life and pensions administration. The division is a scale provider of pension technology and operates some of the largest pension schemes in the UK. These include the National Health Service scheme, which has more than 2.6 million members, and the Armed Forces Veterans which we have served continuously since 1836.

 




H1 2017

H1 2016*

Change %

Revenue (£m)

70.5

68.9

2.3

EBITDA prior to exceptional items (£m)

10.5

12.5

(16.0)

EBITDA margin prior to exceptional items (%)

14.9

18.1

(3.2)

* See Appendix 1 on page 26 for detail of restated numbers

 

Revenue in Pension Solutions increased by 2.3% to £70.5m (H1 2016: £68.9m) driven by an increase in project work, new client wins and revenue from MYCSP stabilising.

 

EBITDA prior to exceptional items decreased by 16.0% to £10.5m with a decrease in margins of 3.2%.  This was due to lower margin project work with cost pressure for specialist work.  Action taken to adjust the cost base at the end of the second quarter will underpin full year profit and margin.      

 

The division continues to win new clients including House of Fraser, Magnox, Shawbrook, and a partnership with Aon Hewitt, and has renewed or extended long-term relationships with Hackney, the NHS and the Metropolitan PoliceThe division has also been awarded contracts to manage GMP reconciliation and rectification for Tayside, Clwyd Pension Fund and SSE plc, and our early-mover advantage in local authority GMP rectification will drive revenue for H2.

 

 

 

OUTLOOK

Our objective remains to deliver organic revenue growth supplemented by growth from capability enhancing acquisitions each year. The dependability of our revenues, the platform nature of our operations and progressive deleveraging will enable us to grow underlying profits and earnings ahead of revenue.

 

We continue to make progress against this strategy with multiple opportunities for future growth.  As we enter the second half of the year, we affirm our full year guidance.

 

 

 FINANCIAL REVIEW

 

Group Income Statement                                           

 

£m

H1 2017

H1 2016

Revenue

194.8

191.9




EBITDA prior to exceptional items

42.0

41.2

Depreciation

(3.0)

(2.5)

Amortisation - software

(7.7)

(8.3)

Amortisation - acquired intangibles

(13.3)

(12.7)

EBIT prior to exceptional items

18.0

17.7

Exceptional items

(3.9)

(2.4)

Reported EBIT

14.1

15.3

Net finance costs

(5.4)

(6.5)

Profit before tax

8.7

8.8

Taxation

(1.5)

(2.0)

Profit from continuing operations

7.2

6.8

Non-controlling interest

(1.6)

(0.9)

Profit attributable to ordinary shareholders

5.6

5.9

Earnings per share (pence)



Basic

1.9

2.0

Underlying

6.9

6.5

 

 

Revenue

Reported revenue increased by 1.5% to £194.8m (H1 2016: £191.9m) during the year whilst proforma revenue adjusted for acquisitions decreased organically by 0.6%.

 

Organic revenue growth is reported revenue growth adjusted for acquisitions on a like-for like basis.  Here we restate 2016 for the prior period acquisitions had they been owned in 2017 to create a like-for-like comparison of year-on-year progress.  This is calculated as follows:

 

 

Revenue (£m)

H1 2016

Reported

H1 2016

Adjustment

H1 2016

Proforma

Investment Solutions

62.5

-

62.5

Intelligent Solutions

54.7

4.11

58.8

Pension Solutions

68.9

-

68.9

Interest Income

5.8

-

5.8

Total Group

191.9

-

196.0

1 Acquisition of Risk Factor, Top Level, Marketing Source and Nostrum.

 

 

EBITDA prior to exceptional items

EBITDA prior to exceptional items increased by 1.9% to £42.0m (H1 2016: £41.2m) reflecting the impact of acquisitions made in the current and prior year and overall improved margins across the Group. 

 

EBIT prior to exceptional items

EBIT remains an important measure of the Group's performance, reflecting profit before finance costs and taxation. In 2017, EBIT prior to exceptional items increased 1.7% to £18.0m (H1 2016: £17.7m). 

  

Exceptional items

Exceptional items of £3.9m incurred in the period (H1 2016: £2.4m) relate to the proposed acquisition of the Wells Fargo Shareowner & Services Business.  Further costs will be incurred as the transaction progresses to completion with total costs estimated at £17.0m, of which £13.0m will be charged to exceptional costs in FY 2017.

 

Net finance costs

Group net finance costs before exceptional items fell by £1.1m to £5.4m (H1 2016: £6.5m). 

 

Profit before income tax

The Group made a profit for the period from continuing operations of £7.2m (H1 2016: £6.8m).

 

Earnings per share (EPS)

Basic EPS of 1.9 pence (H1 2016: 2.0 pence) is based on a weighted average number of shares of 300m (H1 2016: 300m).  Excluding the impact of exceptional items, there was strong growth in underlying EPS of 6.2% to 6.9 pence (H1 2016: 6.5 pence).

 

Dividend per share

The Board has declared an interim dividend of 1.75 pence per share. The interim dividend is to be paid on 26 October 2017 to shareholders on the register of members at close of business on 15 September 2017. Any shareholder wishing to participate in the Equiniti Dividend Reinvestment Plan ("DRIP") needs to have submitted their election to do so by 5 October 2017.  We maintain our progressive dividend policy which will see us distribute around 30% of our normalised profit attributable to ordinary shareholders each year.  

 

Capital structure

The Group's Consolidated Balance Sheet at 30 June 2017 is summarised as follows:

 

£m

 As at

30 June 2017

As at

30 June 2016

Assets



  Non-current assets

726.9

695.7

  Current assets

181.0

197.2

Total assets

907.9

892.9

Liabilities



  Non-current liabilities

372.9

340.7

  Current liabilities

137.6

162.4

Total liabilities

510.5

503.1

Net assets / (liabilities)

397.4

389.8

Total equity

397.4

389.8

 

Cash flow

The Group generated a free cash flow to equity holders of £20.2m (H1 2016: £18.5m) representing a free cash flow conversion of 109% (H1 2016: 93%). The main movements in cash flow are summarised below.

 

£m

 

H1 2017

 

H1 2016

EBITDA prior to exceptional items

42.0

41.2

Non-exceptional working capital movement

3.8

(3.0)

Operating cash flow pre-exceptional items

45.8

38.2

Cash flow conversion (%)

109

93

Exceptional Items

(1.9)

(2.8)

Capital expenditure

(16.4)

(10.5)

Net interest costs

(4.5)

(5.0)

Taxes paid

(2.5)

(1.2)

Other

(0.3)

(0.2)

Free cash flow to equity holders

20.2

18.5




Net change in borrowings

20.0

(6.0)

IPO related costs

-

(18.3)

Investment in prior and current year acquisitions

(14.9)

(12.1)

Payment of deferred consideration

-

(0.4)

Dividends paid (including payment to non-controlling interest)

(12.4)

(5.3)

Net cash movement

12.9

(23.6)

 

 

Reconciliation of EBITDA to total cash generated from operations (statutory cash flow statement)

 

£m

 

H1 2017

 

H1 2016

EBITDA prior to exceptional items

42.0

41.2

Non-exceptional working capital movement

3.8

(3.0)

Exceptional Items

(1.9)

(2.8)

IPO related costs

-

(18.3)

Other

(0.4)

(0.3)

Total cash generated from operations

43.5

16.8

 

Capital expenditure

Net expenditure on tangible and intangible assets was £16.4m (H1 2016: £10.5m). This represents 8.4% of revenue (H1 2016: 5.5%) and is driven by timing of major regulatory projects such as MiFID II and the launch of a new portal for our Selftrade business. Full year 2017 guidance remains at 7% of revenue, falling to 6% thereafter following completion of MiFID II requirements. 

 

Net interest costs

Net interest costs in the period was £4.5m (H1 2016: £5.0m). Total interest bearing loans increased from £306.0m to £326.0m.

 

Investment in current and prior year acquisitions

Net cash outflow on prior and current year acquisitions was £14.9m (H1 2016: £12.1m) and relates to Marketing Source, Gateway2Finance and Nostrum.

 

Free cash flow to equity holders

Free cash flow to equity holders represents our cash flow prior to any acquisition, refinancing or share capital cash flows. It is a key measure of cash earned for the shareholders of the Group.  Free cash flow to equity holders increased by 9.2% to £20.2m in the period and is pre acquisition-related costs of £14.9m.

 

Tax paid

Taxes paid are primarily due to MyCSP Limited (UK) and the Group's operations in India (Equiniti India Pvt Limited).  The Group has the following tax attributes that reduce the cash tax effective rate compared to the profit and loss account effective tax rate:

 

·      Future tax deductions on tax trading losses                                £232m 

·      Future tax deductions on intangible assets                                 £369m

·      Future tax deductions on tangible assets                                     £34m

 

The tax impact of these attributes is recognised as deferred tax assets.

 

The forecast cash tax rate over the next few years is estimated to be around 14%.

 

We consider the cash tax rate to be an appropriate measure to use as it best reflects the economic flows from the business, taking into account our assessment of how our tax attributes, noted above, will unwind and reduce our overall tax liabilities.

 

 



 

Bank borrowings and financial covenants

 

£m

 

 

H1 2017

 

 

H1 2016

 

 

FY 2016

Cash and cash equivalents

(69.6)

(52.9)

(56.7)

Senior debt

250.0

250.0

250.0

Revolving credit facility

76.0

64.0

56.0

Other

1.8

0.6

1.9

Net debt

258.2

261.7

251.2

Net debt/EBITDA prior to exceptional items (times)

 

2.8

 

2.9

 

2.7

 

At 30 June 2017, net debt was lower at £258.2m (30 June 2016: £261.7m) due to strong cash flow offset by investment in the business and payment of dividends.  The slight increase in leverage from 31 December 2016 was due to acquisition costs paid in H1 2017 and the seasonality of our cash flow. In H1 we pay annual bonus payments of c£5m and £12.4m of dividends (including the annual dividend of MyCSP). We also tend to generate more profit in the second half of the year which naturally leads to more operating cash flow in this period. 

 

The term debt facility does not include scheduled debt repayments and together with the revolving credit facility is available for a five-year term to October 2020.  £74.0m of the £150.0m revolving credit facility was not drawn at the period end.  The Group has substantial liquidity to support its growth ambitions and ongoing working capital requirements.

 

Acquisitions 

On 6 January 2017, the Group acquired Gateway2Finance for a total consideration of £200k with a further earn-out of up to £1.0m payable in 2020, dependent on growth.  Gateway2Finance is an FCA authorised entity acting as a consumer finance intermediary, securing loans for clients referred by financial services companies and price comparison websites. 

 

On 26 May 2017, the Group took control of Nostrum Group Limited and icenet Limited ("Nostrum") for a total consideration of up to £12.5m, comprising £7.0m contingent consideration, with £2.0m payable in September 2018 and £4.5m payable in September 2020, cash on legal completion of £3.9m and a total of £2.1m payable in monthly instalments to December 2018. 

 

Nostrum is a provider of end-to-end loan management technology that helps banks, finance companies and retail brands provide innovative credit solutions to their customers.  The acquisition strengthens our position in the lending sector and consolidates our strategy of providing technology-enabled loan and mortgage solutions to meet the requirements of this fast-moving market place, building on the technology platforms of Pancredit and the loan, mortgage and insurance servicing permissions of Gateway2Finance.

 

Events occurring post reporting period

On 12 July 2017, the Group announced the proposed acquisition and carve out of the Wells Fargo Share Registration & Services ("WFSS") business for a total cash consideration of $227.0m (c£176.0m) subject to certain customary closing adjustments and conditions. 

 

The acquisition combines the #1 UK and #3 US share registrars to create a multi-national share registration and services business spanning the world's deepest capital markets, which will create a more diversified, multi-national Group. The business combination is expected to generate £8m of cost synergies by 2020 through introducing our Sirius platform and using this to automate processes.

 

Founded in 1929, WFSS provides share registration, corporate actions and investment plan services to c1,200 public and private US companies and other global companies and c9.2 million shareholder records processed in the US.

 

WFSS occupies a leading US market position and is growing market share driven by strong organic revenue growth (c6% 2014-16 revenue CAGR) from recent client wins and high profile corporate actions business. In 2016 WFSS delivered revenues of $104.0m (c£81.0m) and had adjusted profits to be acquired ("EBITDA") of $18.0m (c£14.0m).

 

WFSS has a strong track record of organic growth and market share capture with c650 clients including J.P.Morgan, Wells Fargo, General Electric and Berkshire Hathaway.  

 

The cash consideration and Equiniti's transaction expenses are expected to be financed from a planned £122.0m (c$160.0m) fully underwritten rights issue and £120.0m (c$155.0m) fully underwritten new debt facilities.

 

The rights issue is expected to be launched in September 2017, subject to the approval of the acquisition by shareholders and other customary conditions, such as the availability of new debt facilities. The rights issue will be used to pay deal fees of £17m plus part fund the acquisition. The balance of the purchase price (£70m) will be settled by the raising of the debt. The remaining £50m of debt facilities will be used to fund transformation costs and provide working capital to support WFSS.

 

Transaction costs are expected to be £17m, of which £9m will be charged as exceptional costs. These exceptional costs are expected to be charged to the income statement in 2017 as the transaction completes. The balance of £8m will be charged to the share premium account or charged to interest payable over the term of the new debt facility.

 

In addition to the above transaction costs a further £4m of exceptional charges will be incurred in 2017 reflecting the initial stages of the integration programme.  Therefore the total exceptional spend for 2017 is estimated to be £13m.

 

Total integration costs, which will be incurred by 2019 will be around £42m, with exceptional costs in the region of £20m and capital expenditure of £22m.  These costs reflect the programme to separate WFSS from the Wells Fargo Group and to introduce our own technology to the business.

 

 

PRINCIPAL RISKS AND UNCERTAINTIES

The Directors have considered the principal risks and uncertainties affecting the Group's financial position and prospects in 2017.  As described on pages 44 to 47 of the Group's Annual Report for 2016, the Group continues to be exposed to a number of risks and has well established systems and procedures in place to identify, assess and mitigate those risks. The principal risks include those arising from change in client demand; reduction in Bank of England rates; information security breach; loss of key clients; regulatory risk; attracting and retaining high calibre employees; change, transformation and mobilistion; adverse legislative and environmental changes; and disruption to client servicing.

 

 

DIRECTORS' RESPONSIBILITY STATEMENT

The Directors confirm that, to the best of their knowledge

 

·      the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting;

 

·      the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and a description of principal risks and undertainties for the remaining six months of the year); and

 

·      the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

 

 

 

 

 

By order of the Board

 

 

Guy Wakeley                            John Stier

Chief Executive                          Chief Financial Officer

 

28 July 2017

 



 

CONDENSED CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2017




 



6 months ended     June 2017

6 months ended     June 2016

Year ended
December 2016


Note

£m

£m

£m






Revenue

4

194.8

191.9

382.6











Operating costs before exceptional items, depreciation and amortisation

5

(152.8)

(150.7)

(290.2)

EBITDA1 prior to exceptional items

4

42.0

41.2

92.4

Operating costs - exceptional items

6

(3.9)

(2.4)

(5.0)

EBITDA1


38.1

38.8

87.4

Depreciation of property, plant and equipment


(3.0)

(2.5)

(5.4)

Amortisation of software


(7.7)

(8.3)

(16.0)

Amortisation of acquisition related intangible assets


(13.3)

(12.7)

(25.3)











Total operating costs

5

(180.7)

(176.6)

(341.9)

Earnings before interest and tax (EBIT)


14.1

15.3

40.7






Finance income


0.5

0.1

0.2

Finance costs


(5.9)

(6.6)

(12.4)

Net finance costs

10

(5.4)

(6.5)

(12.2)






Profit before income tax


8.7

8.8

28.5






Income tax (charge)/credit

12

(1.5)

(2.0)

4.9

Profit for the period


7.2

6.8

33.4






Profit for the period attributable to:





 - Owners of the parent


5.6

5.9

30.5

 - Non-controlling interests


1.6

0.9

2.9

Profit for the period


7.2

6.8

33.4











Earnings per share attributable to owners of the parent:



Basic earnings per share (pence)

7

1.9

2.0

10.2

Diluted earnings per share (pence)

7

1.9

2.0

10.1

 

Underlying earnings per share2 attributable to owners of the parent:



Basic earnings per share (pence)

7

6.9

6.5

15.9

Diluted earnings per share (pence)

7

6.9

6.5

15.8

 

1Earnings before interest, tax, depreciation and amortisation

2Underlying earnings per share excludes the impact of exceptional items and amortisation of acquisition related intangible assets plus cash tax

 

 



 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2017





 



6 months ended    June 2017

6 months ended    June 2016

Year ended
December 2016



£m

£m

£m






Profit for the period


7.2

6.8

33.4






Other comprehensive (expense)/income










Items that may be subsequently reclassified to profit or loss




Fair value movement through hedging reserve


(2.8)

5.8

3.1

Net exchange (loss)/gain on translation of foreign operations

(0.3)

0.1

3.1



(3.1)

5.9

6.2

Items that will not be reclassified to profit or loss




Defined benefit plan actuarial loss


-

-

(11.3)

Deferred tax credit on defined benefit plan


-

-

1.9



-

-

(9.4)






Other comprehensive (expense)/income for the period

(3.1)

5.9

(3.2)






Total comprehensive income for the period


4.1

12.7

30.2






Total comprehensive income attributable to:





 - Owners of the parent


2.5

11.8

28.0

 - Non-controlling interests


1.6

0.9

2.2

Total comprehensive income for the period


4.1

12.7

30.2

 

 



 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION


AS AT 30 JUNE 2017





 



As at      June 2017

As at      June 2016

As at December 2016



£m

£m

£m

Assets





Non-current assets





Property, plant and equipment


16.4

13.4

17.1

Intangible assets


677.9

653.5

670.1

Other financial assets


4.5

12.0

7.8

Deferred income tax assets


28.1

16.8

29.1



726.9

695.7

724.1

Current assets





Trade and other receivables


74.8

76.8

75.4

Agency broker receivables


36.5

67.5

15.9

Other financial assets


0.1

-

0.2

Cash and cash equivalents


69.6

52.9

56.7



181.0

197.2

148.2






Total assets


907.9

892.9

872.3






Liabilities





Non-current liabilities





External loans and borrowings


322.1

308.9

301.5

Post-employment benefits


23.9

13.5

23.9

Provisions for other liabilities and charges


23.2

13.5

16.2

Other financial liabilities


3.7

4.8

4.5



372.9

340.7

346.1

Current liabilities





Trade and other payables


99.6

90.2

105.4

Agency broker payables


36.5

67.5

15.9

Income tax payable


1.0

1.0

2.2

Provisions for other liabilities and charges


-

3.5

-

Other financial liabilities


0.5

0.2

0.5



137.6

162.4

124.0






Total liabilities


510.5

503.1

470.1






Net assets


397.4

389.8

402.2






Equity





Equity attributable to owners of the parent





Share capital


0.3

0.3

0.3

Share premium


0.1

-

-

Capital contribution reserve


181.5

181.5

181.5

Hedging reserve


2.1

7.6

4.9

Share-based payments reserve


3.9

1.1

2.1

Translation reserve


2.8

0.1

3.1

Retained earnings


187.8

180.6

191.5



378.5

371.2

383.4

Non-controlling interest


18.9

18.6

18.8

Total equity


397.4

389.8

402.2

 



 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY


FOR THE SIX MONTHS ENDED 30 JUNE 2017





 

 


Share capital

Share premium

Capital contribution reserve

Hedging reserve

Share-based payments reserve

Trans-
lation reserve

Retained earnings

Non-con
-trolling
interest

Total
equity


£m

£m

£m

£m

£m

£m

£m

£m

£m











Balance at 1 January 2016

0.3

-

181.5

1.8

0.2

-

176.7

20.0

380.5











Comprehensive income










Profit for the year per the income statement

-

-

-

-

-

-

30.5

2.9

33.4

Other comprehensive income

/(expense)








Changes in fair value through hedging reserve

-

-

-

3.1

-

-

-

-

3.1

Net exchange gain on translation of foreign operations

-

-

-

-

-

3.1

-

-

3.1

Actuarial losses on defined benefit pension plans

-

-

-

-

-

-

(10.4)

(0.9)

(11.3)

Deferred tax on defined benefit pension plans

-

-

-

-

-

-

1.7

0.2

1.9

Total other comprehensive income/(expense)

-

-

-

3.1

-

3.1

(8.7)

(0.7)

(3.2)

Total comprehensive income

-

-

-

3.1

-

3.1

21.8

2.2

30.2











Dividends

-

-

-

-

-

-

(7.0)

(1.6)

(8.6)

Transactions with non-controlling interests

-

-

-

-

-

-

-

(1.8)

(1.8)

Share-based payments expense

-

-

-

-

1.7

-

-

-

1.7

Deferred tax relating to share option schemes

-

-

-

-

0.2

-

-

-

0.2

Transactions with owners recognised directly in equity

-

-

-

-

1.9

-

(7.0)

(3.4)

(8.5)











Balance at 31 December 2016

0.3

-

181.5

4.9

2.1

3.1

191.5

18.8

402.2

 


Share capital

Share premium

Capital contribution reserve

Hedging reserve

Share-based payments reserve

Trans-
lation reserve

Retained earnings

Non-con
-trolling
interest

Total
equity

 


£m

£m

£m

£m

£m

£m

£m

£m

£m

 











 

Balance at 1 January 2016

0.3

-

181.5

1.8

0.2

-

176.7

20.0

380.5

 











 

Comprehensive income










 

Profit for the period per the income statement

-

-

-

-

-

-

5.9

0.9

6.8

 

Other comprehensive income









 

Changes in fair value through hedging reserve

-

-

-

5.8

-

-

-

-

5.8

 

Net exchange gain on translation of foreign operations

-

-

-

-

-

0.1

-

-

0.1

 

Total other comprehensive income

-

-

-

5.8

-

0.1

-

-

5.9

 

Total comprehensive income

-

-

-

5.8

-

0.1

5.9

0.9

12.7

 











 

Dividends

-

-

-

-

-

-

(2.0)

(1.6)

(3.6)

 

Transactions with non-controlling interests

-

-

-

-

-

-

-

(0.7)

(0.7)

 

Share-based payments expense

-

-

-

-

0.9

-

-

-

0.9

 

Transaction with owners recognised directly in equity

-

-

-

-

0.9

-

(2.0)

(2.3)

(3.4)

 











 

Balance at 30 June 2016

0.3

-

181.5

7.6

1.1

0.1

180.6

18.6

389.8

 

 

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY


FOR THE SIX MONTHS ENDED 30 JUNE 2017





 

 


Share capital

Share premium

Capital contribution reserve

Hedging reserve

Share-based payments reserve

Trans-
lation reserve

Retained earnings

Non-con
-trolling
interest

Total
equity

 


£m

£m

£m

£m

£m

£m

£m

£m

£m

 











Balance at 1 January 2017

0.3

-

181.5

4.9

2.1

3.1

191.5

18.8

402.2











Comprehensive income










Profit for the period per the income statement

-

-

-

-

-

-

5.6

1.6

7.2

Other comprehensive expense










Changes in fair value through hedging reserve

-

-

-

(2.8)

-

-

-

-

(2.8)

Net exchange loss on translation of foreign operations

-

-

-

-

-

(0.3)

-

-

(0.3)

Total other comprehensive expense

-

-

-

(2.8)

-

(0.3)

-

-

(3.1)

Total comprehensive (expense)/income

-

-

-

(2.8)

-

(0.3)

5.6

1.6

4.1











Issue of share capital

-

0.1

-

-

-

-

-

-

0.1

Dividends

-

-

-

-

-

-

(9.3)

(1.5)

(10.8)

Share-based payments expense

-

-

-

-

1.5

-

-

-

1.5

Deferred tax relating to share option schemes

-

-

-

-

0.3

-

-

-

0.3

Transactions with owners recognised directly in equity

-

0.1

-

-

1.8

-

(9.3)

(1.5)

(8.9)











Balance at 30 June 2017

0.3

0.1

181.5

2.1

3.9

2.8

187.8

18.9

397.4

 

 



 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE 2017




 



 6 months ended    June 2017

6 months ended    June 2016

Year ended December 2016


Note

£m

£m

£m






Cash flows from operating activities





Cash generated from operations

18

43.5

16.8

64.0

Interest paid


(4.7)

(4.8)

(9.7)

Income tax paid


(2.5)

(1.2)

(2.2)

Net cash inflow from operating activities


36.3

10.8

52.1






Cash flows from investing activities





Interest received


0.5

0.1

0.2

Business acquisitions net of cash acquired

9

0.7

(12.1)

(12.0)

Payment relating to prior year acquisitions


(15.6)

(0.4)

(7.3)

Acquisition of property, plant and equipment


(1.3)

(2.1)

(8.3)

Acquisition of intangible assets


(15.1)

(8.4)

(19.9)


(30.8)

(22.9)

(47.3)






Cash flows from financing activities





Proceeds from issue of share capital

13

0.1

-

-

Increase/(decrease) in revolving credit facility


20.0

(6.0)

(14.0)

Payment of finance lease liabilities


(0.3)

(0.3)

(0.4)

Dividends paid


(9.3)

(2.0)

(7.0)

Dividends paid to non-controlling interests


(1.5)

(1.6)

(1.6)

Transactions with non-controlling interests


(1.6)

(1.7)

(1.7)

Net cash inflow/(outflow) from financing activities

7.4

(11.6)

(24.7)






Net increase/(decrease) in cash and cash equivalents

12.9

(23.7)

(19.9)

Foreign exchange gains on cash and cash equivalents

-

0.1

0.1

Cash and cash equivalents at 1 January


56.7

76.5

76.5

Cash and cash equivalents at 30 June/31 December 

69.6

52.9

56.7

 

 



 

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2017

 

1)   General information

Equiniti Group plc is a public limited company which is listed on the London Stock Exchange and incorporated and domiciled in the United Kingdom. The company and its subsidiaries (collectively, the "Group") provide complex administration and payments services, supported by technology platforms, to a wide range of organisations. The registered office address is Sutherland House, Russell Way, Crawley, West Sussex,   RH10 1UH.

The financial information in these condensed interim financial statements has been reviewed but not audited by the company's auditor, PricewaterhouseCoopers LLP.

The condensed interim financial information set out herein does not constitute the Group's statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2016 have been delivered to the Registrar of Companies. The external auditor has reported on the 2016 accounts and its reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

 

2)   Basis of preparation

These condensed interim financial statements for the six months ended 30 June 2017 have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and with IAS 34, 'Interim financial reporting', as adopted by the European Union. These interim financial statements have been prepared on the basis of the accounting policies as set out in the previous Annual Report and Accounts for the year ended 31 December 2016 which are available at www.equiniti.com, except for taxes on income in interim periods which are accrued using tax rates that are expected to be applicable for the full accounting year.

Estimates

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that effect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these condensed interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended 31 December 2016. In addition, a judgement has been made that there were no significant changes to the pension assumptions used to calculate the net defined benefit pension obligation and as a result, there were no material changes to the obligation as at 30 June 2017.

Going concern

The Directors, after making enquiries and on the basis of current financial projections and the facilities available at the reporting date, believe that the Group has adequate financial resources to continue in operation for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the condensed consolidated interim financial statements.

 

3)   Seasonality

Whilst the business is not highly seasonal, there is some margin bias towards the second half of the year. The business delivers more contracted, lower margin activities such as running of AGMs, dividend payments and pension statements in the first six months and there tends to be more discretionary, higher margin project work in the second half of the year.

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

 

4)   Operating segments

The Group's chief operating decision maker is the Board of Directors. The Board of Directors have identified the Group's operating segments as Investment Solutions, Intelligent Solutions, Pension Solutions and Interest, in line with how the Group runs and structures its business.






6 months ended

June 2017

6 months ended

June 2016

Year ended December 2016

Reported revenue



£m

£m

£m

Investment Solutions




64.2

62.5

124.0

Intelligent Solutions





55.4

54.7

109.3

Pension Solutions





70.5

68.9

138.1

Interest





4.7

5.8

11.2

Total revenue





194.8

191.9

382.6

 






6 months ended

June 2017

6 months ended

June 2016

Year ended December 2016

EBITDA prior to exceptional items 


£m

£m

£m

Investment Solutions




20.2

17.8

37.5

Intelligent Solutions





13.4

12.1

28.3

Pension Solutions





10.5

12.5

27.7

Interest





4.7

5.8

11.2

Total segments





48.8

48.2

104.7

Central costs





(6.8)

(7.0)

(12.3)

EBITDA prior to exceptional items 



42.0

41.2

92.4

 

Central costs principally include corporate overheads. The EBITDA prior to exceptional items of each segment is reported after charging certain central costs based on the business segments' usage of central facilities and services.






6 months ended

June 2017

6 months ended

June 2016

Year ended December 2016

Reconciliation to profit before income tax

£m

£m

£m

EBITDA prior to exceptional items



42.0

41.2

92.4

Operating costs - exceptional items



(3.9)

(2.4)

(5.0)

EBITDA



38.1

38.8

87.4

Depreciation of property, plant and equipment


(3.0)

(2.5)

(5.4)

Amortisation of software



(7.7)

(8.3)

(16.0)

Amortisation of acquisition related intangible assets

(13.3)

(12.7)

(25.3)

Net finance costs



(5.4)

(6.5)

(12.2)

Profit before income tax



8.7

8.8

28.5

 



 

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

 

5)   Operating costs


6 months ended

June 2017

6 months ended

June 2016

Year ended December 2016

Expenses by nature

£m

£m

£m

 

Employee benefit expense


84.2

81.2

160.1

 

Direct costs


37.4

35.6

69.4

 

Bought in services


9.6

8.9

15.8

 

Premises costs


3.5

3.2

6.6

 

Operating lease costs


3.4

3.7

7.2

 

Government grants for research and development

(0.9)

-

(1.9)

 

Other general business costs 


15.6

18.1

33.0

 

Operating costs before exceptional items, depreciation and amortisation

152.8

150.7

290.2

 

Exceptional items






3.9

2.4

5.0

 

Depreciation of property, plant and equipment

3.0

2.5

5.4

 

Amortisation of software


7.7

8.3

16.0

 

Amortisation of acquisition related intangible assets



13.3

12.7

25.3

 

Total operating costs

180.7

176.6

341.9

 

 

6)   Operating costs - Exceptional items


 6 months ended     June 2017

6 months ended    June 2016

Year ended December 2016

Included in the profit for the period are the following: 

£m

£m

£m

Acquisition, restructuring and other costs

3.9

2.4

5.0

Total exceptional items

3.9

2.4

5.0

 

Acquisition related expenses represent fees paid to third party advisors and transaction fees in respect of acquisitions completed in the period, as well as costs incurred on further potential acquisitions and disposals not yet completed, including costs incurred in relation to the proposed acquisition of the share registration division of Wells Fargo & Company (note 19). It also includes exceptional income in relation to the reversal of the contingent consideration provision on historic acquisitions as a result of a change in post-acquisition performance expectations or other earn-out criteria. 

 

7)   Earnings per share


 6 months ended     June 2017

6 months ended   June 2016

Year ended December 2016

Basic and diluted earnings per share 

£m

£m

£m

Profit from continuing operations attributable to owners of the parent

5.6

5.9

30.5





Weighted average number of ordinary shares in issue (thousands)

300,044

300,000

300,002

Employee share options (thousands)

1,077

399

1,063

Weighted average number of ordinary shares in issue adjusted for the effect of dilution (thousands)

301,121

300,399

301,065





Basic earnings per share (pence)

1.9

2.0

10.2

Diluted earnings per share (pence)

1.9

2.0

10.1

 

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

 

7)   Earnings per share (continued)


 6 months ended     June 2017

6 months ended   June 2016

Year ended December 2016

Underlying earnings per share

£m

£m

£m

EBITDA prior to exceptional items

42.0

41.2

92.4

Depreciation of property, plant and equipment

(3.0)

(2.5)

(5.4)

Amortisation of software

(7.7)

(8.3)

(16.0)

Net finance costs

(5.4)

(6.5)

(12.2)

Underlying profit before income tax

25.9

23.9

58.8

Cash tax at 14%/15%1

(3.6)

(3.6)

(8.2)

Underlying profit after tax

22.3

20.3

50.6

Non-controlling interests

(1.6)

(0.9)

(2.9)

Underlying profit attributable to ordinary shareholders

20.7

19.4

47.7





Number of shares in issue at period end (thousands)

300,081

300,000

300,013

Employee share options (thousands)

1,077

399

1,063

Number of ordinary shares in issue adjusted for the effect of dilution (thousands)

301,158

300,399

301,076





Basic underlying earnings per share (pence)

6.9

6.5

15.9

Diluted underlying earnings per share (pence)

6.9

6.5

15.8

 

We consider underlying earnings to be an appropriate measure to use to assess progress in the Group as it best reflects the economic flows from the business.

1Cash tax rate reflects the cash tax payable on the underlying profit after tax. It is calculated based on the Group's estimated forecast cash tax rate of around 14% which is lower than the profit and loss account effective tax rate due to the benefit of future tax deductions on trading losses, intangible assets and tangible assets.

 

8)   Dividends

Amounts recognised as distributions to equity holders of the parent in the period

 6 months ended     June 2017

6 months ended   June 2016

Year ended December 2016

£m

£m

£m

Final dividend for year ended 31 December 2016 (3.11p per share)

9.3

-

-

Interim dividend for year ended 31 December 2016 (1.64p per share)

-

-

5.0

Final dividend for year ended 31 December 2015 (0.68p per share)

-

2.0

2.0

  

9.3

2.0

7.0

 

The recommended interim dividend payable in respect of the period ended 30 June 2017 is £5.3m or 1.75p per share (30 June 2016: £5.0m).  This is in line with the Group's stated policy of a pay-out ratio of around 30% of adjusted underlying profit after cash tax. The proposed dividend has not been accrued as a liability as at 30 June 2017.

The dividend of £9.3m paid in the period ended 30 June 2017 and disclosed in the Statement of Changes in Equity represents the final ordinary dividend for the year ended 31 December 2016 of 3.11p per share.



 

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

 

9)   Acquisitions of businesses

Gateway2Finance

On 6 January 2017, the Group purchased the entire issued share capital of Gateway 2 Finance Limited and Refresh Personal Finance Limited ("Gateway2Finance") for £0.2m plus contingent consideration of up to £1.0m payable in 2020. Gateway2Finance is an FCA authorised entity acting as a consumer finance intermediary, securing loans for clients referred by financial services companies and price comparison websites.

The Group took control of Gateway2Finance on 6 January 2017.  On this date the business had net assets of £0.3m. The results of the business have been consolidated since the date of control and Gateway2Finance has contributed £0.2m of revenue and £0.1m of net loss to the Group results in 2017.

On acquisition, intangible assets relating to software and to customer contracts and related relationships have been re-evaluated, resulting in a combined upward adjustment of £0.3m to the book value. The amounts relating to the intangible assets and goodwill are provisional and subject to further evaluation and adjustment, in accordance with accounting standards. The value of goodwill reflects amounts in relation to the expected benefit of the ability to generate new streams of revenue and expected synergies of combining the operations of Gateway2Finance and the Group.

Recognised amounts of identifiable assets acquired and liabilities assumed


£m

Intangible assets






0.3

Net identifiable assets and liabilities





0.3

Goodwill on acquisition





0.8

Total consideration





1.1

Deferred consideration






(0.1)

Contingent consideration






(0.9)

Net cash outflow in the period





0.1

 

As at 30 June 2017, the minimum amount of contingent consideration payable is £nil and the maximum amount is £1.0m. The final amount to be paid will be determined based on the acquiree's financial performance over the qualifying period and is only payable if the business grows in line with its business plan.

 

Nostrum

On 3 July 2017, the Group purchased the entire issued share capital of The Nostrum Group Limited and icenet Limited ("Nostrum") for £12.5m. Nostrum is a provider of end-to-end loan management technology that assists banks, finance companies and retail brands provide credit solutions to their customers, delivering services that support the whole lifecycle of lenders' operations from front-end lead generation and application processing through to customer servicing.

The purchase consideration of £12.5m consists of up to £7.0m contingent consideration, discounted to £2.0m payable in September 2018 and £4.5m payable in September 2020, cash on legal completion of £3.9m and £2.1m payable in monthly instalments to December 2018.

The Group took control of Nostrum on 26 May 2017.  On this date the business had net assets of £3.4m, including a cash balance of £0.8m. The results of the business have been consolidated since the date of control and Nostrum contributed £0.8m of revenue and £0.2m of net profit to the Group results in 2017. If the business had been acquired on 1 January 2017 it would have contributed an additional £2.8m of revenue and £0.3m net loss to the Group's results in 2017.

  

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

 

9)   Acquisitions of businesses (continued)

On acquisition, intangible assets relating to software and to customer contracts and related relationships have been re-evaluated, resulting in a combined upward adjustment of £3.8m to the book value. The amounts relating to the intangible assets and goodwill are provisional and subject to further evaluation and adjustment, in accordance with accounting standards. The value of goodwill reflects amounts in relation to the expected benefit of the ability to generate new streams of revenue and expected synergies of combining the operations of Nostrum and the Group.

Recognised amounts of identifiable assets acquired and liabilities assumed


£m

Intangible assets

4.7

Trade and other receivables

1.4

Cash and cash equivalents

0.8

Trade and other payables

(2.7)

Deferred income tax liabilities

(0.8)

Net identifiable assets and liabilities

3.4

Goodwill on acquisition

9.1

Total consideration

12.5

Cash acquired

(0.8)

Accrued consideration

(6.0)

Contingent consideration

(6.5)

Net cash inflow in the period 

(0.8)

 

As at 30 June 2017, the minimum amount of contingent consideration payable is £nil and the maximum amount is £7.0m. The final amount to be paid will be determined based on the acquiree's financial performance over the qualifying period and is only payable if the business grows in line with its business plan.

Costs of acquiring and integrating the above businesses amounted to £0.3m in the six months ended 30 June 2017 and these are reflected within exceptional items in the income statement.

 

10) Finance income and costs






 6 months ended      June 2017

6 months ended   June 2016

Year ended December 2016

Finance income





£m

£m

£m

Interest income

0.1

0.1

0.2

Net foreign exchange gains from forward contracts

0.4

-

-

Total finance income


0.5

0.1

0.2














 6 months ended      June 2017

6 months ended   June 2016

Year ended December 2016

Finance costs





£m

£m

£m

Interest cost on senior secured borrowings


2.9

3.1

6.3

Interest cost on revolving credit facility


0.9

1.3

2.2

Amortised fees


0.6

0.6

1.2

Net finance cost relating to pension scheme


0.2

0.3

0.6

Unwinding of discounted amount in provisions


0.3

0.4

0.7

Cost of interest rate swap against financial liabilities

0.8

0.8

1.4

Foreign exchange losses


0.1

-

-

Other fees and interest


0.1

0.1

-

Total finance costs


5.9

6.6

12.4

 



 

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

 

11) Net debt


As at      June 2017

As at      June 2016

As at December 2016

  

£m

£m

£m

Term loan

250.0

250.0

250.0

Revolving credit facility

76.0

64.0

56.0

Other

1.8

0.6

1.9

Cash and cash equivalents

(69.6)

(52.9)

(56.7)

Total net debt

258.2

261.7

251.2

 

12) Income tax charge/(credit)


 6 months ended     June 2017

6 months ended   June 2016

Year ended December 2016

Recognised in the statement of comprehensive income:

£m

£m

£m

Current tax charge 

1.0

0.4

4.7

Deferred tax charge/(credit)

0.5

1.6

(9.6)

Total income tax charge/(credit)

1.5

2.0

(4.9)

 

The standard rate of corporation tax in the UK is 19% with effect from 1 April 2017 (2016: 20%) and accordingly the profits for the half year ended 30 June 2017 are taxed at 19%. The taxation charge for the six months ended 30 June 2017 is based on an estimated full year underlying effective tax rate of 17% (2016: 22%).

 

13) Share capital


As at      June 2017

As at      June 2016

As at December 2016

Allotted, called up and fully paid

£m

£m

£m

Ordinary shares of £0.001 each 

0.3

0.3

0.3

Total share capital

0.3

0.3

0.3

 


As at      June 2017

As at      June 2016

As at December 2016

Ordinary shares of £0.001 each - in thousands of shares

Number

Number

Number

On issue  - fully paid

300,081

300,000

300,013

 

The Group issued 68,001 ordinary shares on exercise of employee share options during the six months ended 30 June 2017. The shares were issued at an exercise price of £1.27 per share. Proceeds of £0.1m were received resulting in an increase to the share premium account.

 

14) Employee benefits

Defined benefit pension plans

The Group operates three funded defined benefit pension plans in the UK; Equiniti ICS Limited, Paymaster (1836) Limited and MyCSP Limited. The defined benefit obligation as at 30 June 2017 is calculated on a year-to-date basis using the latest actuarial valuation as at 31 December 2016 and has not been updated for the half year statement in line with Group policy. This will be updated as part of our normal year end processes on 31 December 2017.

  

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

 

15) Financial risk management

The Group's activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk (including interest rate risk, foreign exchange rate risk and equity price risk). The condensed financial statements do not include all the financial risk management information and disclosures required in the annual financial statements and they should be read in conjunction with the Annual Report and Accounts 2016. There have been no changes in the risk management department or in any risk management policies since the year end.

 

16) Financial instruments fair value disclosures

There are no material differences between the carrying value of assets and liabilities and their fair value. The only financial instruments measured at fair value are interest rate swaps and foreign exchange forward contracts.

The following table presents the Group's financial assets and liabilities that are measured at fair value:



As at      June 2017

As at      June 2016

As at December 2016

  

Level

£m

£m

£m

Financial assets





Derivative financial instruments

2

4.6

12.0

8.0

Financial liabilities





Derivative financial instruments

2

2.4

4.4

3.1

 

There were no transfers between levels during the period. Valuation techniques used to value these financial instruments are consistent with those used for the year ended 31 December 2016 as disclosed in note 6.10 of the Annual Report and Accounts 2016.

 

17)  Related party transactions

Transactions with key management personnel

The compensation of key management personnel (including the Directors) is as follows:

 

 





 6 months ended     June 2017

6 months ended    June 2016

Year ended December 2016

  

£m

£m

£m

Key management emoluments


1.3

1.1

3.1

Company contributions to money purchase pension plans

-

-

0.1

Share based payments


0.7

0.3

0.7

Total


2.0

1.4

3.9

 

Key management are the Directors of the Group (includes non-executives), as well as the senior non-statutory Director of each of the major subsidiaries, who have authority and responsibility to control, direct or plan the major activities within the Group.

As part of the IPO process in October 2015, shares were issued to certain employees of the Group as a result of an incentive agreement with the then controlling shareholder, Advent.  The shares were treated as an income tax event for the receiving individuals and are subject to lock up arrangements, as disclosed in the prospectus.  As a consequence, the Group lent those individuals who received the shares monies to cover their income tax and National Insurance liabilities.  These loans were all subject to relevant approvals through the IPO process and are treated as a benefit in kind to the receiving individuals. All benefiting individuals have entered into a loan agreement with the Group. These loans must be repaid no later than October 2018. The total value of loans made to key management personnel outstanding at 30 June 2017 was £1.0m (31 December 2016: £1.0m).

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

 

18)  Reconciliation of profit to cash generated from operations





 6 months ended     June 2017

6 months ended    June 2016

Year ended December 2016




£m

£m

£m

Profit before income tax

8.7

8.8

28.5





Adjustments for:




Depreciation of property, plant and equipment

3.0

2.5

5.4

Amortisation of software

7.7

8.3

16.0

Amortisation of acquisition related intangibles

13.3

12.7

25.3

Finance income

(0.5)

(0.1)

(0.2)

Finance costs

5.9

6.6

12.4

Share-based payments expense

1.5

0.9

1.7





Changes in working capital:




(Increase)/decrease in trade and other receivables

(0.9)

(4.9)

0.3

Increase/(decrease) in trade and other payables

4.8

(17.0)

(23.0)

Decrease in provisions

-

(1.0)

(2.4)

Total cash generated from operations


43.5

16.8

64.0

 

19)  Events after the reporting period

On 12 July 2017, the Group announced the proposed acquisition and carve out of the Wells Fargo Share Registration & Services ("WFSS") business for a total cash consideration of $227.0m (c£176.0m) subject to certain customary closing adjustments and conditions. 

The cash consideration and Equiniti's transaction expenses are expected to be financed from a planned £122.0m (c$160.0m) fully underwritten rights issue and £120.0m (c$155.0m) fully underwritten new debt facilities.

The rights issue is expected to be launched in September 2017, subject to the approval of the acquisition by shareholders and other customary conditions, such as the availability of new debt facilities.

The anticipated exceptional charge for the year ended 31 December 2017 is £13.0m, with £3.9m recognised in the six months ended 30 June 2017, mainly from advisory related activities. The remaining expected exceptional charge will relate to the completion costs of the deal and integration of the business, including the provision of Equiniti's state-of-the-art Sirius platform to the US share registry market.



 

 

 

 

APPENDIX 1

RESTATED SEGMENTAL ANALYSIS










H1 2016 Reported

Re-org

H1 2016 Restated


H2 2016 Reported

Re-org

H2 2016 Restated

REVENUE (£m)








Investment Solutions

62.1

0.4

62.5


61.5

-

61.5

Intelligent Solutions

58.4

(3.7)

54.7


58.0

(3.4)

54.6

Pension Solutions

65.6

3.3

68.9


65.8

3.4

69.2

Interest Income

5.8

-

5.8


5.4

-

5.4

Central Costs

-

-

-


-

-

-

Total Group

191.9

-

191.9


190.7

-

190.7









EBITDA prior to exceptional items (£m)






Investment Solutions

18.1

(0.3)

17.8


20.5

(0.8)

19.7

Intelligent Solutions

12.8

(0.7)

12.1


16.7

(0.5)

16.2

Pension Solutions

11.0

1.5

12.5


13.3

1.9

15.2

Interest Income

5.8

-

5.8


5.4

-

5.4

Central Costs

(6.5)

(0.5)

(7.0)


(4.7)

(0.6)

(5.3)

Total Group

41.2

-

41.2


51.2

-

51.2









EBITDA margin prior to exceptional items (%)





Investment Solutions

29.1%


28.5%


33.3%


32.0%

Intelligent Solutions

21.9%


22.1%


28.8%


29.7%

Pension Solutions

16.8%


18.1%


20.2%


22.0%

Total Group

21.5%


21.5%


26.8%


26.8%

 

 

Figures have been restated to take account of the following re-organisation:

Company Secretariat - moved from Intelligent Solutions to Investment Solutions.

HR Payroll - moved from Intelligent Solutions to Pension Solutions.

Flexible Benefits - moved from Investment Solutions to Pension Solutions.

 

 

 

                                  


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EQUINITI RESULTS FOR THE 6 MONTHS TO 30 JUNE 2017 - RNS