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RNS
Equiniti Group PLC  -  EQN   

RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2018

Released 07:00 27-Jul-2018

RNS Number : 9426V
Equiniti Group PLC
27 July 2018
 

27 July 2018

 

EQUINITI GROUP PLC UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2018

 

Equiniti Group plc ("Equiniti" or "the Group"), the multinational specialist technology outsourcer providing non-discretionary payment and administration services, today publishes its interim results for the six months to 30 June 2018.

 

STRONG RESULTS: CONTINUED MOMENTUM AND DELIVERY OF OUR LONG-TERM STRATEGY

 

Financial Highlights

H1 2018

H1 20171

Change %

Revenue (£m)

254.0

194.8

30.4

Underlying EBITDA2(£m)

55.0

41.8

31.6

Underlying EBITDA margin (%)

21.7

21.5

0.2pts

Operating cash flow conversion3 (%)

102

109

(7)

Reported EBIT

10.6

13.9

(23.7)

Profit after tax

2.7

7.0

(61.4)

Earnings per share4 (EPS) (pence)

0.2

1.7

(88.2)

Underlying5 EPS (pence)

7.7

6.8

13.2

Dividend per share6 (pence)

1.83

1.64

11.6

Net debt (£m)

308.3

258.2

19.4

Leverage (x)

2.8

2.8

-

 

·      Strong double-digit revenue and underlying EBITDA growth, ahead of expectations, including EQ USA

 

·      Revenue growth of 30.4%, with strong organic growth of 7.7%7, supported by:  

Renewal of all UK registration clients including Carnival, EasyJet, GSK, Prudential and QinetiQ;

Increased UK market share underpinned by new name business wins including Bodycote, Hiscox, and Low & Bonar;

70% of new company listings including Acacia Pharma, Avast, IntegraFin Holdings and KRM 22;

Major renewals in the US including CVS, General Electric, JP Morgan, 3M and MDU;

New client wins across all divisions including CNPP, Persimmon and Ulster Bank;

Strong growth in Intelligent Solutions; and

Pension Solutions contraction in line with expectations

 

·      New capabilities established, including:

Wells Fargo Shareowner Services (EQ USA) acquisition successfully completed on 1st February with operations transitioned and integration underway;

Acquisition of Boudicca Proxy completed on 27th April, cross-sold to seven registration clients; and

Continued traction with estate management including a 'tell us once' pilot for six major UK banks

 

·      Underlying EBITDA growth of 31.6% with margin increased to 21.7%, driven by strong performances in Investment Solutions and Intelligent Solutions, and continued operational improvement

 

·      Lower reported EBIT of £10.6m with profit after tax of £2.7m reflecting £14.1m of non-operating charges arising from the acquisition of EQ USA

 

·      Net debt of £308.3m inclusive of acquisition-related debt and costs of £170.4m with year-on-year leverage maintained at 2.8x

 

·      Interim dividend growth of 11.6% to 1.83 pence per share, in line with progressive dividend policy

 

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

"The first half of 2018 has been our strongest reporting period yet, with accelerating organic growth supplemented by the successful completion of the high quality Shareowner Services business from Wells Fargo Bank.  Our UK business remains the undisputed market leader for registration and share plans, with more new clients choosing Equiniti.  The deployment of these core capabilities into the US, along with proprietary technologies for payments, pensions, credit and analytics, creates multiple opportunities for future growth.

 

"We continue to make good progress against our long-term strategy with sustainable organic growth, progressive margin and dividend expansion, and the utilisation of strong cash flow to invest in new capabilities whilst strengthening the balance sheet.  We remain committed to disciplined capital allocation into our best performing assets to sustain continued earnings growth.  We have been pleased with performance in the first half, and expect full year earnings to be towards the top end of market expectations8."

 

 

 

 

 

1 Restated for changes in accounting standards (IFRS 9 and IFRS 15) - see note 2 for details.

2 For definition of underlying EBITDA, see page 12.

3 Operating cash flow conversion is calculated after allowing for use of a receivables financing facility the Group has in place, details of which can be found on page 9.

4,6 2017 EPS and dividend have been restated to reflect the bonus element of the rights issue associated with the EQ USA acquisition.  See page 40 for calculation of restated dividend.

5 For definition of underlying EPS, see page 12.

7 For definition of organic growth, see page 7.

8 For market expectations, see page 6.

 

 

 

 

 

Analyst and Investor presentation

Equiniti 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:

 

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



 

Reported

H1 2018

 

Reported

H1 2017

 

Reported

Change %

 

Organic

Change %

Revenue (£m)






  Investment Solutions


68.9

64.2

7.3

6.7

  Intelligent Solutions


78.3

55.2

41.8

34.8

  Pension Solutions


65.4

70.7

(7.5)

(7.5)

  Interest Income


6.0

4.7

27.7

27.7

  Total UK & Europe

  EQ USA


218.6

35.4

194.8

-

12.2

-

10.3

(6.3)

Equiniti Group


254.0

194.8

30.4

7.7

 

Underlying EBITDA (£m)

  Investment Solutions


22.2

20.2

9.9


  Intelligent Solutions


17.6

13.2

33.3


  Pension Solutions


9.6

10.5

(8.6)


  Interest Income


6.0

4.7

27.7


 Total UK & Europe

  EQ USA


55.4

7.5

48.6

-

14.0

-


Divisional Total


62.9

48.6

29.4


Central Costs


(7.9)

(6.8)

16.2


Total Underlying EBITDA


55.0

41.8

31.6



Underlying EBITDA margin (%)

  Investment Solutions


32.2

31.5

0.7


  Intelligent Solutions


22.5

23.9

(1.4)


  Pension Solutions


14.7

14.9

(0.2)


Total UK & Europe

EQ USA


21.7

21.2

21.5

-

0.2

-


Equiniti Group


21.7

21.5

0.2


 

OVERVIEW

Equiniti has delivered a strong set of results, building on the momentum established in the prior period.  Our client relationships are a core strength of the Group and we have retained all of our FTSE clients.  The Group has continued to win market share with a number of share registration and share plan clients choosing to move to us from competitors.  We have grown our client base, securing 70% of newly listed companies and winning new clients across all divisions.  The Group has made progress against its strategic objectives, delivering revenue and profit ahead of expectations, generating strong cash, and increasing the interim dividend whilst maintaining leverage on a proforma basis.

 

Reported revenue increased by 30.4% to £254.0m (H1 2017: £194.8m) during the period whilst proforma revenue adjusted for acquisitions grew organically by 7.7%.  The acquisition of our US business completed successfully on 1st February 2018 with operations transitioned and integration progressing within budget.   The acquisition of Boudicca Proxy on 27th April 2018 has been fully integrated and has already cross-sold into the registration client base. 

 

Investment Solutions delivered strong revenue growth supported by the high fidelity of our client base, whilst increasing market share and win rates.  Intelligent Solutions also delivered strong growth, with increasing regulation creating multiple opportunities in financial services remediation.  As expected, the Pension Solutions business contracted versus the prior period and we continued to actively manage the cost base and drive efficiencies. 

 

Revenue from interest was 27.7% higher on average client cash balances of £1.7bn (H1 2017: £1.7bn) as the Group benefitted from the 25bps increase in UK interest rates in November 2017.   Two thirds of the balances are hedged with instruments secured to August 2018 (£650m) and July 2020 (£380m). 

 

Underlying EBITDA, which excludes non-operating charges of £14.1m relating to the acquisition and integration of EQ USA, increased by 31.6% to £55.0m (H1 2017: £41.8m) reflecting a strong performance in Investment Solutions and Intelligent Solutions along with the impact of acquisitions made in the period.

 

Operating free cash flow conversion was 102% (H1 2017: 109%) despite a 29.6% reduction in the receivables financing facility from £19.9m at 31 December 2017 to £14.0m at 30 June 2018.  This facility is forecast to reduce further subject to commercial requirements.  Free cash flow to equity holders was £22.1m (H1 2017: £20.1m).   Net debt of £308.3m (30 June 2017: £258.2m) represents a ratio of 2.8x net debt/EBITDA (30 June 2017: 2.8x), and is net of acquisition-related debt and costs of £170.4m.  Net debt/EBITDA adjusted for a full year of EQ USA earnings was 2.5x at 30 June 2018.  See page 40 for adjusted calculation.

 

 

The Board has declared an interim dividend of 1.83 pence per share, representing growth of 11.6% (H1 2017:  1.64 pence per share).  The interim dividend is to be paid on 26th October 2018 to shareholders on the register of members at close of business on 14th September 2018. Any shareholder wishing to participate in the Equiniti Dividend Reinvestment Plan ("DRIP") needs to have submitted their election to do so by 5th October 2018.  We maintain our progressive dividend policy which targets the distribution of around 30% of our normalised profit attributable to ordinary shareholders each year.  

 

 

OPERATIONAL REVIEW 

We serve our clients through four divisions: Investment Solutions, Intelligent Solutions, Pension Solutions and EQ USA.  The integrated nature of our client base and strong client relationships result in shared clients across the Group.  This provides the opportunity for us to continually enhance our performance through cross-selling and up-selling.  Our entry point is often the provision of share registration services, with clients taking further services from us over time.

 

In addition to our four divisions, the Group earns interest income on balances we administer on our clients' and customers' 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 2018

 

H1 2017

Reported

Change %

Revenue (£m)

68.9

64.2

7.3

Underlying EBITDA (£m)

22.2

20.2

9.9

Underlying EBITDA margin (%)

32.2

31.5

0.7

 

Revenue in Investment Solutions increased by 7.3% to £68.9m (H1 2017: £64.2m) with organic growth of 6.7%, driven by our high fidelity client base, increasing market share and win rates, along with good growth in stock market activity and double digit growth in International Payments.  It was also a significant period for corporate action activity, with revenue growth from fees of 72.3% to £8.1m (H1 2017: £4.7m).

 

Underlying EBITDA increased by 9.9%, with margin of 32.2% as a result of organic revenue growth, an increase in higher margin project work and continued focus on operating leverage. 

 

Share registration delivered a strong performance, renewing all clients in the period including Carnival, GSK, EasyJet, QinetiQ and Prudential.  The division continued to make excellent progress with competitor wins and was appointed as registrar and/or share plan provider to clients including Arrow Global, Bodycote, Hiscox, Low & Bonar, National Grid and Rentokil. The division was also highly successful at winning IPO mandates, securing 70% of those coming to market including Anexo, Avast, KRM 22, Mind Gym and Urban Exposure. 

 

There has been good traction with our estate management offering, with the "tell-us-once" pilot with six major UK banks now live. 

 

The acquisition of Boudicca Proxy on 27th April has been fully integrated and already cross-sold into the Group's registration client base. 

 

 



 

 

 

 

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 2018

 

H1 2017

Reported

Change %

Revenue (£m)

78.3

55.2

41.8

Underlying EBITDA (£m)

17.6

13.2

33.3

Underlying EBITDA margin (%)

22.5

23.9

(1.4)

 

Revenue in Intelligent Solutions increased by 41.8% to £78.3m (H1 2017: £55.2m) underpinned by strong organic growth of 34.8% and a strong performance across all service offerings. 

 

Underlying EBITDA increased by 33.3% to £17.6m as a result of strong organic growth driven by remediation services.   

 

The division won a wide range of work during the period with new client wins across all service lines including customer on-boarding services to Ulster Bank, credit services to MotoNovo, data analytics to Neilson and IT solutions to the Information Commissioner's Office.  There was strong demand for remediation services with client wins including multiple large scale remediation and fulfilment projects now underway with major UK Banks.  

 

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 2018

 

H1 2017

Reported

Change %

Revenue (£m)

65.4

70.7

(7.5)

Underlying EBITDA (£m)

9.6

10.5

(8.6)

Underlying EBITDA margin (%)

14.8

14.9

(0.1)

 

 

As expected, revenue in Pension Solutions decreased by 7.5% to £65.4m (H1 2017: £70.7m) with a decrease in underlying EBITDA of 8.6% to £9.6m as a result of a competitive environment and a small number of contract losses and scope changes at the end of 2017.  The previously announced £2.0m of restructuring and transformation costs in respect of Pension Solutions will be expensed this financial year.  £0.8m is therefore reflected in underlying EBITDA in H1 2018.  We continue to focus on stabilising the trading performance by managing the cost base with initiatives on plan to conclude at the end of 2018.

 

Despite a challenging market environment the division renewed all relationships in the period and continued to win new clients including the UK Atomic Energy Authority and Surrey & Sussex Police, and a 10-year contract to administer the Combined Nuclear Pension Plan. 

 

MyCSP continued to deliver in line with expectations and we anticipate that the contract will now run until at least December 2021.

 

 



 

 

EQ USA

EQ USA provides creative solutions for shareowner management.  The division offers a range of transfer agent services that enable our clients to manage share registers, communicate with shareowners and undertake significant corporate actions - simply and effectively.




 

H1 2018

 

H1 2017

Proforma

Change %

Revenue (£m)

35.4

37.8

(6.3)

Underlying EBITDA (£m)

7.5

7.1

5.6

Underlying EBITDA margin (%)

21.2

18.8

2.4

* 1 February 2017 to 30 June 2017

 

The acquisition of EQ USA successfully completed on 1st February 2018 and results were consolidated into the Group from this date.  Prior period performance is shown here to reflect the underlying performance of this division.

 

Revenue in the period decreased by 6.3% to £35.4m (2017: £37.8m) reflecting the H2 bias of the business and a reduction in corporate action revenue to £2.0m (H1 2017: £3.3m).   Revenue from interest income increased by 9.5% to £4.6m (2017: £4.2m) on average cash balances of £563m.  Underlying EBITDA grew by 5.6%, with margin progression of 2.4pts as a result of treasury strategy and good cost discipline.

 

Whilst there has been some attrition amongst smaller clients during the period prior to completion, the division has retained all of its major clients including a five-year extension with General Electric and our foundation contract with MDU, a client of the Group since 1929.  Other major renewals include CVS, JP Morgan and 3M. There has been early success with selling our UK credit services to our US client base including wins with Advanced Partners, Baron Finance and Capital Business Credit.  New client wins in the period have also been encouraging with wins including CPS, Mastercard and NBH. 

 

Our integration of EQ USA is proceeding well.  We are prioritising the delivery of those system features which accelerate the digitisation of client services and reconfirm the delivery of the programme is within the previously disclosed costs and benefits.

 

OUTLOOK

We are confident in our ability to grow sustainably in the UK where we have a differentiated business underpinned by dependable revenues from resilient clients.  We are also increasingly excited by our entry into the US market which presents significant opportunity that we shall harvest by leveraging our core strengths, allowing us to add value for clients and shareholders alike whilst maintaining our disciplined focus on regulation and payments.

 

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

 

We continue to make progress with our strategy, have the resources, technology and specialists to respond to opportunities as they are presented, and see multiple drivers of growth for the future.

 

We have been pleased with performance in the first half and expect full year earnings to be towards the top end of market expectations.

 

2018 market expectations*

Revenue                                    :           £475.0m to £499.0m

Underlying EBITDA                    :           £116.0m to £122.9m

*Source: Company Compiled

FINANCIAL REVIEW

 

Group Income Statement                                           

 

£m

H1 2018

H1 2017

Revenue

254.0

194.8




Underlying EBITDA

55.0

41.8

Depreciation

(3.1)

(3.0)

Amortisation - software

(11.6)

(7.7)

Amortisation - acquired intangibles

(15.6)

(13.3)

EBIT

24.7

17.8

Non-operating charges

(14.1)

(3.9)

Reported EBIT

10.6

13.9

Net finance costs

(6.9)

(5.4)

Profit before tax

3.7

8.5

Taxation

(1.0)

(1.5)

Profit from continuing operations

2.7

7.0

Non-controlling interest

(1.8)

(1.6)

Profit attributable to ordinary shareholders

0.9

5.4

Earnings per share (pence)



Basic

0.2

1.7

Underlying

7.7

6.8

 

 

Revenue

Reported revenue increased by 30.4% to £254.0m (H1 2017: £194.8m) during the year whilst proforma revenue adjusted for acquisitions increased by 7.7%.  

 

Organic revenue growth is reported revenue growth adjusted for acquisitions on a like-for like basis.  Here we restate 2017 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 2017

Reported

H1 2017

Adjustment

H1 2017

Proforma

Investment Solutions

64.2

0.41

64.6

Intelligent Solutions

55.2

2.92

58.1

Pension Solutions

70.7

-

70.7

Interest Income

4.7

-

4.7

Total UK & Europe

194.8

3.3

198.1

EQ USA

-

37.83

37.8

1Acquisition of Boudicca Proxy

2Acquisition of Nostrum Group

3Acquisition of EQ USA at constant exchange rates

 

Underlying EBITDA

Underlying EBITDA prior to non-operating charges of £14.1m (H1 2017: £3.9m) increased by 31.6% to £55.0m (H1 2017: £41.8m) reflecting a strong performance in Investment Solutions and Intelligent Solutions along with the impact of acquisitions made in the period.

 

Non-operating charges

Non-operating charges are defined as expense items, which if included, would otherwise obscure the understanding of the underlying performance of the Group.  Non-operating charges of £14.1m incurred in the period (H1 2017: £3.9m) comprise £5.2m of transaction costs and £8.9m of integration costs and relate entirely to the acquisition of the EQ USA business.  Included within this are £2.5m of costs in relation to permanent project staff, which on completion of the integration project will be absorbed into vacant positions, replace contractors in the business or otherwise leave the Group.  The total costs to integrate EQ USA into the Group are unchanged at £42.0m and are expected to deliver $10m of annualised synergies in the second full year of ownership.  The synergies relate to the automation and digitisation of services and improved third party procurement.  Of the total £42.0m of integration costs, £12.5m have been incurred to date (H1 2018: £8.9m, FY 2017 £3.6m).   After completion of the US integration programme, no further non-operating charges are anticipated.  

 



 

 

Reported EBIT

Reported EBIT remains an important measure of the Group's performance, reflecting profit before finance costs and taxation. In 2018, reported EBIT was £10.6m (H1 2017 £13.9m), reflecting EQ USA transaction costs of £14.1m. 

 

Net finance costs

Group net finance costs before non-operating charges increased by £1.5m to £6.9m (H1 2017: £5.4m). 

 

Profit from continuing operations

The Group made a profit for the period from continuing operations of £2.7m (H1 2017: £7.0m).

 

Earnings per share (EPS)

Basic EPS of 0.2 pence (H1 2017: 1.7 pence) is based on a weighted average number of shares of 366.4m (H1 2017: 321.5m, restated to reflect the bonus element of the rights issue associated with the EQ USA acquisition).  Excluding the impact of non-operating charges, there was strong growth in underlying EPS of 13.2% to 7.7 pence (H1 2017: 6.8 pence).

 

Dividend per share

The Board has declared an interim dividend of 1.83 pence per share, representing growth of 11.6% (H1 2017: 1.64 pence per share). The interim dividend is to be paid on 26th October 2018 to shareholders on the register of members at close of business on 14th September 2018. Any shareholder wishing to participate in the Equiniti Dividend Reinvestment Plan ("DRIP") needs to have submitted their election to do so by 5th October 2018.  We maintain our progressive dividend policy which targets the distribution of around 30% of our normalised profit attributable to ordinary shareholders each year.  

 

Capital structure

The Group's Consolidated Balance Sheet at 30 June 2018 is summarised as follows:

 

£m

 As at

30 June 2018

As at

30 June 20171

Assets



  Non-current assets

874.6

726.9

  Current assets

236.8

183.4

Total assets

1,111.4

910.3

Liabilities



  Non-current liabilities

436.4

372.9

  Current liabilities

159.8

138.8

Total liabilities

596.2

511.7

Net assets

515.2

398.6

Total equity

515.2

398.6

 

1Restated to reflect changes in accounting standards (IFRS 9 and IFRS 15).

Current assets include £84.1m of debtors and accrued income at 30 June 2018 (30 June 2017: £52.3m).  Accrued income represents amounts recognised as revenue but not yet billed and is driven by mix in business including corporate actions, software sales and remediation services.  No income is accrued without a  contract in place and, combined with the blue chip nature of our client base, results in minimal bad debts being recorded and traded income reversing out of the accounts. Debtors and accrued income increased in 2018 following our expansion into the US market and an increase in large BPO projects which are invoiced a month in arrears.  See Note 10 of the financial statements for further detail.



 

 

Cash flow

The Group generated free cash flow to equity holders of £22.1m (H1 2017: £20.1m) with an operating cash flow conversion of 102% (H1 2017: 109%). The main movements in cash flow are summarised below.

 

£m

 

H1 2018

 

H1 2017

Underlying EBITDA

55.0

41.8

Working capital movement

0.9

4.0

Operating cash flow prior to non-operating charges

55.9

45.8

Operating cash flow conversion (%)

102

109

Non-operating charges

(11.4)

(1.9)

Capital expenditure

(18.1)

(16.4)

Net interest costs

(4.3)

(4.5)

Taxes paid

-

(2.5)

Other

-

(0.4)

Free cash flow to equity holders

22.1

20.1




Net financing cash flows

133.6

20.1

Investment in current and prior year acquisitions

(170.4)

(14.9)

Payment of deferred consideration

(2.0)

-

Dividends paid (including payment to non-controlling interest)

(13.6)

(12.4)

Net cash movement

(30.3)

12.9

 

The Group has access to a £20.0m receivables financing facility of which £14.0m (H1 2017: £13.5m) was utilised at the end of the period and included within cash balances.  This is used to match receipts against costs, especially where clients require extended payment terms and is driven by project flow in Intelligent Solutions.  The facility is with Lloyds Banking Group at a rate of 1.75% over LIBOR. The facility draw down has reduced by 29.6% since 31 December 2017 when it stood at £19.9m and is forecast to reduce further subject to commercial requirements.

 

 

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

 

£m

 

H1 2018

 

H1 2017

Underlying EBITDA

55.0

41.8

 

Operating working capital movements:


 

 

  Net increase in receivables

(12.5)

(0.7)

  Net increase in payables

  Decrease in provisions

  Share-based payments expense

  Other

10.8

-

2.6

-

2.8

-

1.5

0.4

Operating cash flow prior to non-operating charges

Non-operating charges:

  Non-operating P&L expense

  Net increase in non-operating payables

  Non-operating share-based payments expense

Other

55.9

 

(14.1)

1.9

0.8

-

45.8

 

(3.9)

2.0

-

(0.4)

Total cash generated from operations

44.5

43.5

 

 

Capital expenditure

Net expenditure on tangible and intangible assets was £18.1m (H1 2017: £16.4m). This represents 7.1% of revenue (H1 2017: 8.4%).  Included within capital expenditure is £3.3m associated with the establishment and integration of EQ USA relating to IT servers and software development to enable the business to operate on a standalone basis. 

 

Net interest costs paid

Net interest costs paid in the period was £4.5m (H1 2017: £4.5m). Total interest bearing loans increased from £326.0m to £391.7m.

 



 

 

Investment in current and prior year acquisitions

Net cash outflow on prior and current year acquisitions was £170.4m (H1 2017: £14.9m) relating mainly to the acquisition of the EQ USA business.

 

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 10.0% to £22.1m (H1 2017: £20.1m) in the period and is pre acquisition-related debt and costs of £170.4m.

 

Tax paid

Taxes paid in the period are primarily due to MyCSP Limited (UK) as well as the Group's operations in India and the US.  During the period, amounts totalling £1.8m were received relating to repayments of overpaid 2016 taxes and payable R&D expenditure credits which will be used to fund further payments of UK corporation tax in the second half of the year.

 

The Group has the following tax attributes that reduce the cash tax effective rate compared to the profit and loss account effective rate:

 

·      Future tax deductions on tax losses carried forward                     £229m

·      Future tax deductions on intangible assets                                   £516m

·      Future tax deductions on property, plant and equipment                £33m

 

The tax impact of these attributes is recognised as deferred tax on the balance sheet.   Included within the intangible assets tax attribute is the customer relationship and goodwill intangibles related to the acquisition of the trade and assets of the EQ USA from 1 February 2018.

 

The forecast cash tax effective rate over the next few years is estimated to be c13% for 2018 and 2019 and c17% from 2020 onwards, reflecting completion of the integration and anticipated growth in EQ USA.

 

We consider the cash tax effective 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 will unwind and reduce our overall tax liabilities.

 

 

Bank borrowings and financial covenants

 

£m

 

 

H1 2018

 

 

H1 2017

Cash and cash equivalents

(85.0)

(69.6)

Senior debt

320.3

250.0

Revolving credit facility

71.4

76.0

Other

1.6

1.8

Net debt

308.3

258.2

Net debt/Underlying EBITDA (times)

2.8

2.8

 

At 30 June 2018, net debt was higher at £308.3m (30 June 2017: £258.2m), reflecting the acquisition of the EQ USA business and associated costs.  

 

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.  The Group has substantial liquidity to support its growth ambitions and ongoing working capital requirements.  Cash balances and undrawn RCF facilities at 30 June 2018 were £212.6m (30 June 2017: £143.7m).  Net debt/EBITDA adjusted for a full year of EQ USA ownership was 2.5x.

 



 

 

Acquisitions 

The Group completed two acquisitions in the period.

 

On 1 February 2018, the Group completed on the acquisition of the trade and assets of the Wells Fargo Shareowner Services business (EQ USA) for a total cash consideration of $227.0m (£159.6m), deferred consideration settled in June of $0.1m (£0.1m), plus £9.8m in settlement of a deal contingent forward used to hedge the position. EQ USA is a share registration business based in the United States.

 

On 27 April 2018, the Group purchased the entire issued share capital of Boudicca Proxy Limited (Boudicca Proxy) for £1.1m plus contingent consideration of up to £0.8m payable in 2019 and £1.5m payable in 2021. Boudicca Proxy is a specialist shareholder engagement company providing expertise in the areas of progressive proxy solicitation, shareholder communications, corporate governance advisory, share ownership analysis and global equity intelligence.

 



 

 

 

ALTERNATIVE PERFORMANCE MEASURES

Alternative performance measures used to manage the Group are EBITDA, underlying EBITDA, underlying earnings per share, operating cash flow conversion, underlying net debt and cash tax effedtive rate. 

 

EBITDA and underlying EBITDA

EBITDA is considered to be the most suitable indicator to explain the operating performance of the Group.  The definition of EBITDA is earnings before net interest costs, income tax, depreciation of property, plant and equipment, amortisation of software and amortisation of acquired intangible assets.

 

Underlying EBITDA is used to explain the sustainable operating performance of the Group and its respective divisions, where EBITDA is adjusted for non-operating charges which are defined as expense items, which if included, would otherwise obscure the understanding of the underlying performance of the Group.  These items primarily represent material restructuring, integration and acquisition related expenses.

 

£m


H1 2018

H1 2017

Profit before income tax

Plus: Depreciation of property, plant and equipment

Plus: Amortisation of software

Plus: Amortisation of acquisition related intangible assets

Less: Finance income

Plus: Finance costs


3.7

3.1

11.6

15.6

(0.2)

7.1

8.5

3.0

7.7

13.3

(0.5)

5.9

EBITDA


40.9

37.9

Adjustment for non-operating charges:

Plus: Transaction costs

Plus: Integration costs


 

5.2

8.9

 

3.9

-

Underlying EBITDA


55.0

41.8

 

Transaction costs of £5.2m mainly relate to deal advisory and legal fees which were contingent on successful completion of EQ USA which completed in February.   Integration costs of £8.9m relate entirely to the US business and include programme delivery, the development of standalone functions and delivery of systems and processes to run the business. Included within this are £2.5m of costs in relation to permanent project staff, which on completion of the integration project will be absorbed into vacant positions, replace contractors in the business or otherwise leave the Group.  Post completion of the US integration programme, there will be no further non-operational charges absent transformational transactions.

 

Underlying earnings per share

Underlying earnings per share represents underlying EBITDA, less depreciation of property, plant and equipment, amortisation of software, net interest costs, cash tax and minority interests.  The shares in issue for the purpose of underlying EPS have been amended to match the rights issue shares to the start date of the EQ USA acquisition.

 

£m


H1 2018

H1 2017

Underlying EBITDA

Less: Depreciation of property, plant and equipment

Less: Amortisation of software

Less: Net finance costs


55.0

(3.1)

(11.6)

(6.9)

41.8

(3.0)

(7.7)

(5.4)

Underlying profit before tax


33.4

25.7

Cash tax at 13% / 14%


(4.3)

(3.6)

Underlying profit after tax


29.1

22.1

Non-controlling interests


(1.8)

(1.6)

Underlying profit attributable to ordinary shareholders


27.3

20.5

Weighted average number of shares adjusting for timing of rights issue (m)

Employee share options (m)


353.7

1.9

300.1

1.1

Diluted weighted average of shares in issue, adjusting for timing of rights issue (m)


 

355.7

 

301.2

Underlying tax rate


13.0%

14.0%

Basic underlying earnings per share (p)

Diluted underlying earnings per share (p)


7.7

7.7

6.8

6.8

 

 

 

 

 

 

 

PRINCIPAL RISKS AND UNCERTAINTIES

The Directors have considered the principal risks and uncertainties affecting the Group's financial position and prospects in 2018.  As described on pages 44 to 47 of the Group's Annual Report for 2017, 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

 

26 July 2018 



 

 

Independent review report to Equiniti Group plc

 

Report on the condensed consolidated financial statements

 

 

Our conclusion

We have reviewed Equiniti Group plc's condensed consolidated financial statements (the "interim financial statements") in the Equiniti Group plc results for the 6 Months ended 30 June 2018. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

 

 

What we have reviewed

 

The interim financial statements comprise:

 

·      the condensed consolidated statement of financial position as at 30 June 2018;

·      the condensed consolidated income statement and consolidated statement of comprehensive income for the period then ended;

·      the condensed consolidated statement of cash flows for the period then ended;

·      the condensed consolidated statement of changes in equity for the period then ended; and

·      the explanatory notes to the interim financial statements.

 

The interim financial statements included in the Equiniti Group plc results for the 6 Months ended 30 June 2018 have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

 

 

Responsibilities for the interim financial statements and the review

 

 

Our responsibilities and those of the directors

The Equiniti Group plc results for the 6 Months ended 30 June 2018, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Equiniti Group plc results for the 6 Months ended 30 June 2018 in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

 

Our responsibility is to express a conclusion on the interim financial statements in the Equiniti Group plc results for the 6 Months ended 30 June 2018 based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose.  We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

 

 

What a review of interim financial statements involves

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

 

 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

We have read the other information contained in the Equiniti Group plc results for the 6 Months ended 30 June 2018 and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

 

 

 

PricewaterhouseCoopers LLP

Chartered Accountants

Gatwick

26 July 2018

 

a)   The maintenance and integrity of the Equiniti Group plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial statements since they were initially presented on the website.

 

b)   Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.



 

 

CONDENSED CONSOLIDATED INCOME STATEMENT - UNAUDITED

FOR THE SIX MONTHS ENDED 30 JUNE 2018

 



6 months ended     June 2018

6 months ended     June 2017 (Re-presented1/ Restated2)

Year ended
December 2017 (Restated2)


Note

£m

£m

£m

Revenue

4

254.0

194.8

406.3

Administrative costs

5

(213.1)

(156.9)

(318.6)

Depreciation of property, plant and equipment


(3.1)

(3.0)

(5.7)

Amortisation of software


(11.6)

(7.7)

(18.3)

Amortisation of acquisition related intangible assets


(15.6)

(13.3)

(26.7)

Finance income

13

0.2

0.5

0.8

Finance costs

13

(7.1)

(5.9)

(12.5)

Profit before income tax


3.7

8.5

25.3

Income tax charge

17

(1.0)

(1.5)

(10.0)

Profit for the period


2.7

7.0

15.3






Profit for the period attributable to:





 - Owners of the parent


0.9

5.4

11.6

 - Non-controlling interests


1.8

1.6

3.7

Profit for the period


2.7

7.0

15.3











Earnings per share attributable to owners of the parent:



Basic earnings per share (pence)

6

0.2

1.73

3.5

Diluted earnings per share (pence)

6

0.2

1.73

3.5

1The comparative income statement has been re-presented to reflect non-operating charges, which were previously reported separately, within administrative costs.

2Restated for changes in accounting standards - see note 2 for details.

3Restated to reflect the bonus element of the rights issue associated with the EQ USA acquisition.

 

 



 

 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - UNAUDITED

FOR THE SIX MONTHS ENDED 30 JUNE 2018

 



6 months ended    June 2018

6 months ended    June 2017 (Restated1)

Year ended
December 2017 (Restated1)



£m

£m

£m

Profit for the period


2.7

7.0

15.3






Other comprehensive income/(expense)





Items that may be subsequently reclassified to profit or loss




Fair value movement through hedging reserve


2.9

(2.8)

(12.2)

Deferred tax on movement in hedging reserve


(0.6)

-

0.8

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

6.7

(0.3)

(0.1)



9.0

(3.1)

(11.5)

Items that will not be reclassified to profit or loss




Defined benefit plan actuarial gain


-

-

0.8

Deferred tax on defined benefit plan actuarial gain


-

-

(0.1)



-

-

0.7

Other comprehensive income/(expense) for the period

9.0

(3.1)

(10.8)

Total comprehensive income for the period


11.7

3.9

4.5






Total comprehensive income attributable to:





 - Owners of the parent


9.9

2.3

0.7

 - Non-controlling interests


1.8

1.6

3.8

Total comprehensive income for the period


11.7

3.9

4.5

1Restated for changes in accounting standards - see note 2 for details.

 

 



 

 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION - UNAUDITED

AS AT 30 JUNE 2018

 

 

 



Note

£m

£m

£m

Assets


Non-current assets


Goodwill


Intangible assets


Property, plant and equipment


Other financial assets

20

Deferred income tax assets




874.6

726.9

713.7

Current assets


Trade and other receivables

9

Contract fulfilment assets

10

Agency broker receivables


Other financial assets

20

Cash and cash equivalents




236.8

183.4

216.0

Total assets


1,111.4

910.3

929.7



Liabilities


Non-current liabilities


External loans and borrowings

14

Post-employment benefits

18

Provisions for other liabilities and charges

12

Other financial liabilities




436.4

372.9

290.0

Current liabilities


Trade and other payables

11

Contract fulfilment liabilities

10

Agency broker payables


Income tax payable


Provisions for other liabilities and charges

12

Other financial liabilities




159.8

138.8

128.0

Total liabilities


596.2

511.7

418.0

Net assets


515.2

398.6

511.7






Equity


Share capital

16

Share premium


Capital contribution reserve


Hedging reserve


Share-based payments reserve


Translation reserve


Retained earnings


181.5

189.0

190.5

Equity attributable to owners of the parent


Non-controlling interest


19.6

18.9

19.6

Total equity


515.2

398.6

511.7

1Restated for changes in accounting standards - see note 2 for details.

 

 

 

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - UNAUDITED

FOR THE SIX MONTHS ENDED 30 JUNE 2018

 

Year ended 31 December 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 as originally presented

0.3

-

181.5

4.9

2.1

3.1

191.5

18.8

402.2

Changes in accounting standards

-

-

-

-

-

-

1.4

-

1.4

Restated balance at 1 January 2017

0.3

-

181.5

4.9

2.1

3.1

192.9

18.8

403.6

Comprehensive income










Profit for the year per the income statement (restated)

-

-

-

-

-

-

11.6

3.7

15.3

Other comprehensive (expense)/income








Changes in fair value through hedging reserve

-

-

-

(12.2)

-

-

-

-

(12.2)

Deferred tax on movement through hedging reserve

-

-

-

0.8

-

-

-

-

0.8

Net exchange loss on translation of foreign operations

-

-

-

-

-

(0.1)

-

-

(0.1)

Actuarial gains on defined benefit pension plans

-

-

-

-

-

-

0.7

0.1

0.8

Deferred tax on defined benefit pension plans

-

-

-

-

-

-

(0.1)

-

(0.1)

Total other comprehensive (expense)/income

-

-

-

(11.4)

-

(0.1)

0.6

0.1

(10.8)

Total comprehensive (expense)/ income

-

-

-

(11.4)

-

(0.1)

12.2

3.8

4.5

Issue of share capital, net of transaction costs

0.1

115.8

-

-

-

-

-

-

115.9

Dividends

-

-

-

-

-

-

(14.6)

(1.5)

(16.1)

Transactions with non-controlling interests

-

-

-

-

-

-

-

(1.5)

(1.5)

Share-based payments expense

-

-

-

-

3.5

-

-

-

3.5

Deferred tax relating to share option schemes

-

-

-

-

1.8

-

-

-

1.8

Transactions with owners recognised directly in equity

0.1

115.8

-

-

5.3

-

(14.6)

(3.0)

103.6

Balance at 31 December 2017

0.4

115.8

181.5

(6.5)

7.4

3.0

190.5

19.6

511.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - UNAUDITED

 

FOR THE SIX MONTHS ENDED 30 JUNE 2018





 

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 as originally presented

0.3

-

181.5

4.9

2.1

3.1

191.5

18.8

402.2

Changes in accounting standards

-

-

-

-

-

-

1.4

-

1.4

Restated balance at 1 January 2017

0.3

-

181.5

4.9

2.1

3.1

192.9

18.8

403.6

Comprehensive income










Profit for the period per the income statement (restated)

-

-

-

-

-

-

5.4

1.6

7.0

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)

5.4

1.6

3.9

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

189.0

18.9

398.6

 

Six months ended 30 June 2018

 


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 31 December 2017 as originally presented

0.4

115.8

181.5

(6.5)

7.4

3.0

189.4

19.6

510.6

Changes in accounting standards

-

-

-

-

-

-

1.1

-

1.1

Restated balance at 1 January 2018

0.4

115.8

181.5

(6.5)

7.4

3.0

190.5

19.6

511.7

Comprehensive income










Profit for the period per the income statement

-

-

-

-

-

-

0.9

1.8

2.7

Other comprehensive income










Changes in fair value through hedging reserve

-

-

-

2.9

-

-

-

-

2.9

Deferred tax on movement through hedging reserve

-

-

-

(0.6)

-

-

-

-

(0.6)

Net exchange gain on translation of foreign operations

-

-

-

-

-

6.7

-

-

6.7

Total other comprehensive income

-

-

-

2.3

-

6.7

-

-

9.0

Total comprehensive income

-

-

-

2.3

-

6.7

0.9

1.8

11.7

Issue of share capital

-

0.1

-

-

-

-

-

-

0.1

Dividends

-

-

-

-

-

-

(9.9)

(1.8)

(11.7)

Share-based payments expense

-

-

-

-

3.4

-

-

-

3.4

Transactions with owners recognised directly in equity

-

0.1

-

-

3.4

-

(9.9)

(1.8)

(8.2)

Balance at 30 June 2018

0.4

115.9

181.5

(4.2)

10.8

9.7

181.5

19.6

515.2

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - UNAUDITED

 

FOR THE SIX MONTHS ENDED 30 JUNE 2018




 

 



 6 months ended    June 2018

6 months ended    June 2017 (Restated1)

Year ended December 2017 (Restated1)


Note

£m

£m

£m

Profit before income tax


3.7

8.5

25.3






Adjustments for:





Depreciation of property, plant and equipment


3.1

3.0

5.7

Amortisation of software


11.6

7.7

18.3

Amortisation of acquisition related intangibles


15.6

13.3

26.7

Finance income


(0.2)

(0.5)

(0.8)

Finance costs


7.1

5.9

12.5

Share-based payments expense


3.4

1.5

3.5

Changes in working capital:





Net increase in receivables


(12.5)

(0.7)

(6.6)

Net increase in payables


12.7

4.8

0.1

Decrease in provisions


-

-

(1.3)

Total cash generated from operations


44.5

43.5

83.4

Interest paid


(4.5)

(4.7)

(9.8)

Income tax paid


-

(2.5)

(3.7)

Net cash inflow from operating activities


40.0

36.3

69.9






Cash flows from investing activities





Interest received


0.2

0.5

0.8

Business acquisitions net of cash acquired

8

(170.4)

0.7

(3.5)

Payment relating to prior year acquisitions


(2.0)

(15.6)

(17.5)

Payments for property, plant and equipment


(5.0)

(1.3)

(6.2)

Payments for software development


(13.1)

(15.1)

(24.8)

Net cash outflow from investing activities


(190.3)

(30.8)

(51.2)






Cash flows from financing activities





Proceeds from issue of share capital, less transaction costs paid


(0.8)

0.1

116.8

Proceeds from new bank loans


64.9

-

-

Increase/(decrease) in revolving credit facility balance


70.7

20.0

(56.0)

Payment of loan set up fees


(0.8)

-

(2.6)

Payment of finance lease liabilities


(0.4)

(0.3)

(0.7)

Dividends paid


(9.9)

(9.3)

(14.6)

Dividends paid to non-controlling interests


(1.8)

(1.5)

(1.5)

Transactions with non-controlling interests


(1.9)

(1.6)

(1.6)

Net cash inflow from financing activities

120.0

7.4

39.8






Net (decrease)/increase in cash and cash equivalents

(30.3)

12.9

58.5

Foreign exchange gains

0.1

-

-

Cash and cash equivalents at 1 January


115.2

56.7

56.7

Cash and cash equivalents at 30 June/31 December 

85.0

69.6

115.2

1Restated for changes in accounting standards - see note 2 for details.

 

 



 

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2018

 

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 2017 have been delivered to the Registrar of Companies. The external auditor has reported on the 2017 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 2018 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 2017 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, and the adoption of two new accounting standards IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers, which are set out below.

New and amended standards adopted by the Group

A number of new and amended standards became applicable for the Group for the year commencing 1 January 2018, however only the following resulted in changes to accounting policies and the restatement of prior period results.

 

IFRS 9 Financial Instruments (IFRS 9)

Accounting policy - IFRS 9

Classification

The Group classifies its financial assets in the following measurement categories:

·      At fair value through profit or loss

·      At fair value through other comprehensive income (OCI)

·      At amortised cost

The classification depends on the business model for managing the financial assets and the contractual terms of the cash flows and management will determine the classification on initial recognition.

Measurement

At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transactions costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets held at fair value through profit or loss are recognised within the income statement.

Trade receivables and contract assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost, less provision for impairment. Other financial assets includes derivatives which are recognised at fair value through profit or loss, unless the derivatives qualify for hedge accounting, in which case the recognition of any gain or loss is recognised in OCI.

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2018

 

2)   Basis of preparation (continued)

The Group's derivatives, which include interest rate swaps and forward currency contracts are measured as the estimated amount that the Group would receive or pay to terminate the instrument at the reporting date. Third party valuations are used to fair value the Group's derivatives. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to an ineffective portion is recognised immediately in the income statement within finance income or costs. Amounts accumulated in equity are reclassified in the periods when the hedged item affects profit or loss.

The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months, and a current liability when the remaining maturity is less than 12 months.

Impairment

The Group applies the simplified approach permitted by IFRS 9 to its impairment of assets measured at amortised cost or fair value through OCI, which requires expected lifetime losses to be recognised from initial recognition of the receivables. Provisions for impairment are recognised in the income statement within administrative costs.

Impact of adoption - IFRS 9

IFRS 9 addresses the recognition, classification and measurement of financial assets and financial liabilities and was adopted from 1 January 2018. We have assessed the new classifications for financial assets and there were no changes to the Group's assets classified as held at amortised cost under IFRS 9. The Group's derivatives which are designated as cash flow hedges remain to be recognised at fair value through other comprehensive income under IFRS 9.

A new expected credit loss model which provides a new methodology for calculating the Group's impairment of trade receivables and contract assets has been applied from 1 January 2018. This model which uses a provision matrix, applies a percentage based on historical risk of default against receivables that are grouped into age brackets, as follows:

·      Not past due - 0.25%

·      Past due 0-30 days - 1%

·      Past due 31-60 days - 3%

·      Past due 61-90 days - 5%

·      Past due 90+ days - 8%

The Group's trade receivables and contract assets share similar risk characteristics by nature and therefore we have chosen to apply the same default percentage on all outstanding receivables. The Group has a low credit risk on its trade receivables and contract assets as a high proportion of revenue is derived from large customers listed on the London Stock Exchange and historical defaults have been infrequent and small. As a result, the impact of applying the new model on the 2017 results was not material and no restatement was required.

IFRS 15 Revenue from Contracts with Customers (IFRS 15)

Accounting policy - IFRS 15

The Group generates revenue largely in the UK, US and Europe.

The Group operates a number of diverse businesses and accordingly applies a variety of methods for revenue recognition, based on the principles set out in IFRS 15. Many of the contracts entered into are long term and complex in nature given the breadth of solutions the Group offers.

The revenue and profits recognised in any period are based on the delivery of performance obligations and an assessment of when control is transferred to the customer.

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2018

 

2)   Basis of preparation (continued)

In determining the amount of revenue and profits to record, and related balance sheet items (such as contract fulfilment assets, capitalisation of costs to obtain a contract, trade receivables, accrued income and deferred income) to recognise in the period, management is required to form a number of key judgements and assumptions. This includes an assessment of the costs the Group incurs to deliver the contractual commitments and whether such costs should be expensed as incurred or capitalised.

Revenue is recognised either when the performance obligation in the contract has been performed ('point in time' recognition) or 'over time' as control of the performance obligation is transferred to the customer.

For contracts with multiple components to be delivered such as transformation, transitions and the delivery of software solutions, management applies judgement to consider whether those promised goods and services are (i) distinct - to be accounted for as separate performance obligations; (ii) not distinct - to be combined with other promised goods or services until a bundle is identified that is distinct or (iii) part of a series of distinct goods and services that are substantially the same and have the same pattern of transfer to the customer.

At contract inception the total transaction price is estimated, being the amount to which the Group expects to be entitled and has rights to under the present contract. This includes an assessment of any variable consideration where the Group's performance may result in additional revenues. Such amounts are only included based on the expected value or the most likely outcome method, and only to the extent that it is highly probable that no revenue reversal will occur.

Once the total transaction price is determined, the Group allocates this to the identified performance obligations in proportion to their relative stand-alone selling prices and recognises revenue when (or as) those performance obligations are satisfied. The Group infrequently sells standard products with observable standalone prices due to the specialised services required by customers and therefore the Group applies judgement to determine an appropriate standalone selling price. More frequently, the Group sells a customer bespoke solution, and in these cases the Group typically uses the expected cost plus margin or a contractually stated price approach to estimate the standalone selling price of each performance obligation.

For each performance obligation, the Group determines if revenue will be recognised over time or at a point in time. Where the Group recognises revenue over time for long term contracts, this is in general due to the Group performing and the customer simultaneously receiving and consuming the benefits provided over the life of the contract.

If performance obligations in a contract do not meet the over-time criteria, the Group recognises revenue at a point in time.

No income is accrued in the financial statements unless the business has a contract in place to support this. This combined with the blue chip nature of Equiniti's client base results in minimal bad debts being recorded and traded income reversing out of the accounts. The impairment loss provision as at 30 June 2018 was £0.5m (31 December 2017: £0.4m).

Impact of adoption - IFRS 15

IFRS 15 became effective from periods commencing 1 January 2018 and we have adopted it on a fully retrospective basis. The six months to 30 June 2018 is the first period reported under IFRS 15 and the 2017 comparatives have been restated to reflect the changes in the timing of revenue and cost recognition.

 

 

 

 

 

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2018

 

2)   Basis of preparation (continued)

IFRS 15 will not impact upon the lifetime revenue and profitability of contracts, the cash flows of contracts and does not affect the majority of the Group's revenue streams. The main changes from the adoption of IFRS 15 are on its fixed period software contracts and transition periods of multi-period contracts, in particular:

·      Revenue recognised from fixed term right to use software licences will be recognised at a point in time, rather than over the licence term when there is nothing else to deliver.

·      In some multi-period pensions administration contracts, there is a transition phase where significant costs are incurred in transitioning customers from a previous supplier to Equiniti. Under previous accounting, revenue would be recognised in line with the cost and effort to provide these transitional services. Under IFRS 15, transition activities are not a separate performance obligation, and therefore these costs and associated revenue are deferred over the life of the contract.

The Group's statement of financial position now includes:

·      New "contract fulfilment assets" representing accrued income and costs capitalised to fulfil the contract

·      New "contract fulfilment liabilities" representing deferred income which is higher as a result of delayed revenue recognition.

Details of the restatements to prior periods are set out in the appendix at the end of this report.

Judgements and 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 2017. 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 2018.

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 2018

 

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 the United Kingdom, and EQ USA in the United States of America. This is in line with how the Group runs and structures its business.

Revenue, EBITDA and underlying EBITDA are key measures of the Group's performance. EBITDA represents earnings before net interest costs, income tax, depreciation of property, plant and equipment, amortisation of software and amortisation of acquired intangible assets. The EBITDA of each segment is reported after charging relevant corporate costs based on the business segments' usage of corporate facilities and services. Underlying EBITDA is adjusted for non-operating charges which obscure the understanding of the underlying performance of the Group and its respective divisions. These items primarily represent material restructuring, integration and acquisition related expenses.






6 months ended

June 2018

6 months ended

June 2017 (Restated1)

Reported revenue by division



£m

£m

£m

Investment Solutions




68.9

64.2

132.3

Intelligent Solutions





78.3

55.2

Pension Solutions





65.4

70.7

Interest





6.0

4.7

10.1

UK





218.6

194.8

406.3

EQ USA*





35.4

-

-

USA




35.4

-

-

Total revenue





254.0

194.8

406.3

 

*Included within the USA division, is £4.6m of interest revenue which is reported and managed within the EQ USA results.






6 months ended

June 2018

6 months ended

June 2017 (Restated1)

Reported revenue by market



£m

£m

£m

UK and Europe




218.6

194.8

406.3

USA


35.4

-

Total revenue





254.0

194.8

406.3

 






6 months ended

June 2018

6 months ended

June 2017 (Restated1)

Timing of revenue recognition



£m

£m

£m

Point in time




45.4

33.1

72.6

Over time


208.6

161.7

Total revenue





254.0

194.8

406.3

 

Point in time revenue primarily relates to our share dealing and foreign exchange dealing revenue streams where the performance obligation is fulfilled when the transaction completes. It also includes revenue from right to use licences where revenue is recognised on delivery of the licence.

Over time revenue primarily relates to our share registration businesses, including corporate actions, in the UK and USA, our pensions administration business, our customer remediation business and software support services.

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2018

 

4)   Operating segments (continued)






6 months ended

June 2018

6 months ended

June 2017 (Restated1)

Year ended December 2017 (Restated1)

Underlying EBITDA by division


£m

£m

£m

Investment Solutions




22.2

20.2

43.5

Intelligent Solutions





17.6

13.2

32.7

Pension Solutions





9.6

10.5

24.6

Interest





6.0

4.7

10.1

UK and Europe





55.4

48.6

110.9

EQ USA




7.5

-

-

USA





7.5

-

-

Total segments





62.9

48.6

110.9

Central costs





(7.9)

(6.8)

(12.7)

Total underlying EBITDA



55.0

41.8

98.2

 






Underlying EBITDA by market 


£m

£m

£m

UK and Europe




55.4

48.6

110.9

USA





7.5

-

-

Total segments





62.9

48.6

110.9

Central costs





(7.9)

(6.8)

(12.7)

Total underlying EBITDA



55.0

41.8

98.2

 

Reconciliation of underlying EBITDA to profit before

6 months ended

June 2017 (Restated1)

income tax

£m

£m

£m

Underlying EBITDA



55.0

41.8

98.2

Non-operating charges



(14.1)

(3.9)

(10.5)

EBITDA



37.9

Depreciation and amortisation


(24.0)

Net finance costs



(5.4)

Profit before income tax



3.7

8.5

25.3

1Restated for changes in accounting standards - see note 2 for details.

 

 

 

 

 

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2018

 

5)   Administrative costs


6 months ended

June 2017 (Restated1/ Re-presented2)

Expenses by nature

£m

£m

£m

Employee benefit expense


106.6

84.5

174.6

Direct costs


37.6

Bought-in services


9.6

Premises costs


3.5

Operating lease costs


3.4

Government grants for research and development

(0.9)

Other general business costs 


28.6

19.2

37.9

Total administrative costs

213.1

156.9

318.6

1Restated for changes in accounting standards - see note 2 for details.

2The comparative income statement has been re-presented to reflect non-operating charges, which were previously reported separately, within administrative costs.

 

6)   Earnings per share


 6 months ended     June 2018

6 months ended   June 2017 (Restated1)

Year ended December 2017 (Restated1)

Basic and diluted earnings per share 

£m

£m

£m

Profit from continuing operations attributable to owners of the parent

0.9

5.4

11.6





Weighted average number of ordinary shares in issue (m)

364.5

320.42

331.7

Employee share options (m)

1.9

1.1

1.5

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

366.4

321.52

333.2





Basic earnings per share (pence)

0.2

1.7

3.5

Diluted earnings per share (pence)

0.2

1.7

3.5

1Restated for changes in accounting standards - see note 2 for details.

2Restated to reflect the bonus element of the rights issue associated with the EQ USA acquisition.

 

7)   Dividends

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

 6 months ended     June 2018

6 months ended   June 2017

£m

£m

£m

Final dividend for year ended 31 December 2017 (2.73p per share)

9.9

-

Interim dividend for year ended 31 December 2017 (1.64p per share)

-

-

Final dividend for year ended 31 December 2016 (2.91p per share)

-

9.3

  

9.9

9.3

14.6

 

 

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2018

 

7)   Dividends (continued)

The recommended interim dividend payable in respect of the period ended 30 June 2018 is £6.7m or 1.83p per share (30 June 2017: £5.3m).  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 2018.

The dividend of £9.9m paid in the period ended 30 June 2018 and disclosed in the statement of changes in equity represents the final ordinary dividend for the year ended 31 December 2017 of 2.73p per share.

 

8)   Acquisitions of businesses

EQ USA

On 1 February 2018, the Group completed on the acquisition of the trade and assets of the Wells Fargo Shareowner Services (EQ USA) business for a total cash consideration of $227.0m (£159.6m), deferred consideration settled in June of $0.1m (£0.1m), and £9.8m in settlement of a deal contingent forward used to hedge the position. EQ USA is a share registration business based in the United States.

The Group took control of EQ USA on 1 February 2018.  On this date the business had net assets of £111.3m. The results of the business have been consolidated since the date of control and EQ USA contributed £35.4m of revenue and £2.4m of net profit to the Group results in 2018. If the business had been acquired on 1 January 2018 it would have contributed an additional £6.1m of revenue to the Group's results in 2018.

On acquisition, intangible assets relating to customer contracts and related relationships have been identified, with a fair value of £102.0m. This cost is being amortised over 20 years. 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 EQ USA and the Group.

Recognised amounts of identifiable assets acquired and liabilities assumed


£m

Intangible assets

102.0

Property, plant and equipment

1.4

Trade and other receivables

9.3

Trade and other payables

(1.3)

Provisions

(0.1)

Net identifiable assets and liabilities

111.3

Goodwill on acquisition

58.2

Total consideration and net cash outflow in the period

169.5

 

Boudicca Proxy

On 27 April 2018, the Group purchased the entire issued share capital of Boudicca Proxy Ltd (Boudicca Proxy) for £1.1m plus contingent consideration of up to £0.8m payable in 2019 and £1.5m payable in 2021. Boudicca Proxy is a specialist shareholder engagement company providing expertise in the areas of progressive proxy solicitation, shareholder communications, corporate governance advisory, share ownership analysis and global equity intelligence.

The Group took control of Boudicca Proxy on 27 April 2018.  On this date the business had net assets of £1.1m. The results of the business have been consolidated since the date of control and Boudicca Proxy contributed £0.5m of revenue and £0.2m net profit to the Group results in 2018. If the business had been acquired on 1 January 2018 it would have contributed an additional £0.8m of revenue and £0.1m net profit to the Group's results in 2018.

On acquisition, intangible assets relating to customer contracts and related relationships have been re-evaluated, resulting in a combined upward adjustment of £1.0m 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 Boudicca Proxy and the Group.

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2018

 

8)   Acquisitions of businesses (continued)

Recognised amounts of identifiable assets acquired and liabilities assumed


£m

Intangible assets






1.0

Property, plant and equipment






0.1

Trade and other receivables






0.4

Cash and cash equivalents






0.2

Trade and other payables






(0.4)

Deferred income tax liabilities






(0.2)

Net identifiable assets and liabilities





1.1

Goodwill on acquisition





2.2

Total consideration





3.3

Cash acquired





(0.2)

Contingent consideration






(2.2)

Net cash outflow in the period





0.9

 

As at 30 June 2018, the minimum amount of contingent consideration payable was £nil and the maximum amount was £2.3m. 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 EQ USA and Boudicca Proxy in the six months ended 30 June 2018 amounted to £14.3m and these costs are reflected within the income statement.

 

9)   Trade and other receivables



£m

£m

£m

Trade receivables

38.0

22.3

28.7

Other receivables

7.6

Prepayments

12.4

Total trade and other receivables

55.2

42.3

44.5

1Restated for changes in accounting standards - see note 2 for details.

 

Trade receivables have increased in 2018 following the growth of the business into the US market which had trade receivables of £5.9m at the end of June 2018.

 

Trade receivables are shown net of an allowance for doubtful debts of £0.5m at the period end (June 2017: £0.2m, December 2017: £0.4m).

 

Credit risk

The ageing of trade receivables at the reporting date was:



£m

£m

£m

Not past due

27.6

16.4

16.7

Past due 0-30 days

2.6

Past due 31-90 days

2.0

Past due more than 90 days

1.3

Total trade receivables

38.0

22.3

28.7

 

 

 

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2018

 

9)   Trade and other receivables (continued)

The movements in the period in the Group's provision for impairment of trade receivables is as follows:



£m

£m

£m

Balance at 1 January

0.4

0.2

0.2

New provisions made in year

-

Release against receivables written off

-

Balance at 30 June/31 December

0.5

0.2

0.4

 

10) Contract fulfilment assets and liabilities



£m

£m

£m

Accrued income

46.1

30.0

32.7

Contract set up costs

4.8

4.9

5.2

Contract fulfilment assets

50.9

34.9

37.9

 

As a result of adopting IFRS 15, accrued income and contract set up costs have been reclassified as contract fulfilment assets within the statement of financial position. Accrued income represents amounts recognised as revenue but not yet billed. All accrued income is supported by client contracts. This allows accrued income to be underpinned and recovered from clients even on the rare occasions that clients cease projects with us permanently. Accrued income has increased in 2018 following the growth of the business into the US market which had accrued income of £6.1m at the end of June 2018. It has also been impacted by an increase in large BPO projects which are invoiced a month in arrears. Contract set up costs represents deferred costs incurred on contracts which have not yet completed.

 



£m

£m

£m

Deferred income

16.6

Contract fulfilment liabilities

13.8

16.6

16.2

1Restated for changes in accounting standards - see note 2 for details.

 

As a result of adopting IFRS 15, deferred income has been reclassified as contract fulfilment liabilities within the statement of financial position. This represents amounts billed in advance of work being performed.

 

11) Trade and other payables



£m

£m

£m

Trade payables

20.1

17.8

20.2

Accruals

43.1

Deferred consideration

11.7

Other payables

11.6

Total trade and other payables

92.8

84.2

80.8

1Restated for changes in accounting standards - see note 2 for details.

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2018

 

11)  Trade and other payables (continued)

 

Accruals have increased in 2018 following the growth of the business into the US market which had accruals of £11.2m at the end of June 2018.

 

 

12) Provisions for other liabilities and charges


Contingent consideration


£m

£m

£m

Balance at 1 January 2018

21.2

1.5

22.7

Provisions made during the year

2.2

0.1

Provisions used during the year

(0.1)

-

Unwinding of discount amount

0.4

-

Balance at 30 June 2018

23.7

1.6

25.3

 


  

£m

£m

£m

Non-current liability

21.3

23.2

18.8

Current liability

-

Total provisions

25.3

23.2

22.7

 

The minimum value of these provisions could be £nil up to a maximum of £30.8m. The remaining balance is expected to be utilised over periods between 2018 and 2021.

 

13) Finance income and costs






6 months ended   June 2017

Finance income





£m

£m

£m

Interest income

0.1

0.1

0.4

Net foreign exchange gains from forward contracts

0.4

Total finance income


0.2

0.5

0.8












6 months ended   June 2017

Finance costs





£m

£m

£m

Interest cost on senior secured borrowings


3.6

2.9

5.8

Interest cost on revolving credit facility


0.9

Amortised fees


0.6

Net finance cost relating to pension scheme


0.2

Unwinding of discounted amount in provisions


0.3

Cost of interest rate swap against financial liabilities

0.8

Foreign exchange losses


0.1

Other fees and interest


0.1

Total finance costs


7.1

5.9

12.5

 

 

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2018

 

14) External loans and borrowings


  

£m

£m

£m

Term loan

320.3

250.0

250.0

Revolving credit facility

76.0

Unamortised cost of raising finance

(3.9)

Total external loans and borrowings

386.5

322.1

244.0

 

15) Net debt


  

£m

£m

£m

Term loan

320.3

250.0

250.0

Revolving credit facility

76.0

Other

1.8

Cash and cash equivalents

(69.6)

Total net debt

308.3

258.2

136.5

 

 

16) Share capital


Allotted, called up and fully paid

£m

£m

£m

Ordinary shares of £0.001 each 

0.4

0.3

0.4

Total share capital

0.4

0.3

0.4

 


As at      June 2017

Ordinary shares of £0.001 each - in thousands of shares

Number

Number

Number

On issue  - fully paid

364,481

300,081

364,434

 

The Group issued 46,975 ordinary shares on exercise of employee share options during the six months ended 30 June 2018. The shares were issued at an exercise price of £1.19 per share. Proceeds of £0.1m were received resulting in an increase to the share premium account.

 

17) Income tax charge


Recognised in the statement of comprehensive income:

£m

£m

£m

Current tax charge 

0.2

1.0

5.9

Deferred tax charge

0.8

0.5

4.1

Total income tax charge

1.0

1.5

10.0

The standard rate of corporation tax in the UK is 19% (2017: 19%) and accordingly the profits for the half year ended 30 June 2018 are taxed at 19%. The taxation charge for the six months ended 30 June 2018 is based on an estimated full year effective tax rate of 24.2% (2017: 17%), which combines UK and overseas operations.

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2018

 

18)  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 2018 is calculated on a year-to-date basis using the latest actuarial valuation as at 31 December 2017 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 2018.

 

19)  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 2017. There have been no changes in the risk management department or in any risk management policies since the year end.

On acquisition of the EQ USA business, the Group took out a new term loan in USD to partly finance the acquisition and drew down on its revolving credit facility in USD. This acquisition introduced USD denominated interest rate risk for the Group arising from client cash balances, which has been mitigated by taking out USD interest rate swaps, swapping floating rate to fixed rate. This is in line with the Group's policy to fix interest receivable on client deposits for up to 3 years ahead.

 

20)  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:


  

Level

£m

£m

£m

Financial assets





Derivative financial instruments

4.6

Financial liabilities


Derivative financial instruments

2

(4.9)

(2.4)

(9.2)

 

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 2017 as disclosed in note 6.12 of the Annual Report and Accounts 2017.

 

21)  Related party transactions

Transactions with key management personnel

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

 

 





 6 months ended     June 2018

6 months ended    June 2017

Year ended December 2017

  

£m

£m

£m

Key management emoluments


1.5

1.3

4.5

Company contributions to money purchase pension plans

-

-

0.1

Share-based payments expense


1.7

0.7

1.7

Total


3.2

2.0

6.3

 

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.

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2018

 

21)  Related party transactions (continued)

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 2018 was £0.1m (31 December 2017: £1.0m).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

APPENDIX A - NEW STANDARD IFRS 15

 

IFRS 15 Revenue from Contracts with Customers

The impact from adopting IFRS 15 on the Group's income statement was as follows:

Six months ended 30 June 2017


As reported

Re-measure-ment

Restated



£m

£m

£m

Revenue


194.8

-

194.8

Administrative costs


(156.7)

(0.2)

(156.9)

Depreciation of property, plant and equipment


(3.0)

-

(3.0)

Amortisation of software


(7.7)

-

(7.7)

Amortisation of acquisition related intangible assets


(13.3)

-

(13.3)

Finance income


0.5

-

0.5

Finance costs


(5.9)

-

(5.9)

Profit before income tax


8.7

(0.2)

8.5

Income tax charge


(1.5)

-

(1.5)

Profit for the period


7.2

(0.2)

7.0






Profit for the period attributable to:





 - Owners of the parent


5.6

(0.2)

5.4

 - Non-controlling interests


1.6

-

1.6

Profit for the period


7.2

(0.2)

7.0











Earnings per share attributable to owners of the parent:



Basic earnings per share (pence)


1.9

(0.2)

1.7

Diluted earnings per share (pence)


1.9

(0.2)

1.7

 

Year ended 31 December 2017


As reported

Re-measure-ment

Restated



£m

£m

£m

Revenue


406.1

0.2

406.3

Administrative costs


(318.1)

(0.5)

(318.6)

Depreciation of property, plant and equipment


(5.7)

-

(5.7)

Amortisation of software


(18.3)

-

(18.3)

Amortisation of acquisition related intangible assets


(26.7)

-

(26.7)

Finance income


0.8

-

0.8

Finance costs


(12.5)

-

(12.5)

Profit before income tax


25.6

(0.3)

25.3

Income tax charge


(10.0)

-

(10.0)

Profit for the period


15.6

(0.3)

15.3






Profit for the period attributable to:





 - Owners of the parent


11.9

(0.3)

11.6

 - Non-controlling interests


3.7

-

3.7

Profit for the period


15.6

(0.3)

15.3











Earnings per share attributable to owners of the parent:



Basic earnings per share (pence)


3.6

(0.1)

3.5

Diluted earnings per share (pence)


3.6

(0.1)

3.5

 



 

 

 

APPENDIX A - NEW STANDARD IFRS 15

 

Adjustments were made to the amounts recognised in the statement of financial position at the date of adoption (1 January 2018), to reflect the reclassifications to contract fulfilment assets and contract fulfilment liabilities. Re-measurement changes were made to contract fulfilment assets through recognition of additional accrued income and contract delivery costs, and to contract fulfilment liabilities through recognition of additional deferred income. In accordance with the transition provisions of IFRS 15, the Group has restated comparatives for the 2017 financial year and below is a summary of the changes:

Balance sheet extract - 30 June 2017

IAS 18 carrying value

Reclassi- fication

Re-measure-ment

IFRS 15 Carry value


£m

£m

£m

£m

Trade and other receivables

74.0

(32.5)

-

42.3

Contract fulfilment assets

-

32.5

2.4

34.9

Trade and other payables

99.6

(15.4)

-

84.2

Contract fulfilment liabilities

-

15.4

1.2

16.6

 

Balance sheet extract - 31 December 2017

IAS 18 carrying value

Reclassi- fication

Re-measure-ment

IFRS 15 Carry value


£m

£m

£m

£m

Trade and other receivables

80.3

(35.8)

-

44.5

Contract fulfilment assets

-

35.8

2.1

37.9

Trade and other payables

96.0

(15.2)

-

80.8

Contract fulfilment liabilities

-

15.2

1.0

16.2

 

The impact on the Group's retained earnings as at 1 January 2018 and 1 January 2017 was as follows:






£m

£m

Retained earnings - as reported


Change in timing of revenue recognition


Recognition of asset for costs to fulfil a contract


Opening retained earnings - IFRS 15 



190.5

192.9

 

 



 

 

 

APPENDIX A - NEW STANDARD IFRS 15

 

The impact on segmental revenue was as follows:

Six months ended 30 June 2017

 


As reported

Re-measure-ment

Reported revenue by division



£m

£m

£m

Investment Solutions




64.2

-

64.2

Intelligent Solutions





55.4

(0.2)

Pension Solutions





70.5

0.2

Interest





4.7

-

Total revenue





194.8

-

194.8

 

Year ended 31 December 2017

 


As reported

Re-measure-ment

Reported revenue by division



£m

£m

£m

Investment Solutions




132.3

-

132.3

Intelligent Solutions





124.7

(0.3)

Pension Solutions





139.0

0.5

Interest





10.1

-

Total revenue





406.1

0.2

406.3

 

The impact on underlying EBITDA was as follows:

Six months ended 30 June 2017

 



As reported

Re-measure-ment

Underlying EBITDA by division



£m

£m

£m

Investment Solutions




20.2

-

20.2

Intelligent Solutions





13.4

(0.2)

Pension Solutions





10.5

-

Interest





4.7

-

Total segments





48.8

(0.2)

48.6

Central costs





(6.8)

-

Underlying EBITDA




42.0

(0.2)

41.8

 

Year ended 31 December 2017

 



As reported

Re-measure-ment

Underlying EBITDA by division



£m

£m

£m

Investment Solutions




43.5

-

43.5

Intelligent Solutions





33.0

(0.3)

Pension Solutions





24.6

-

Interest





10.1

-

10.1

Total segments





111.2

(0.3)

110.9

Central costs





(12.7)

-

Underlying EBITDA




98.5

(0.3)

98.2

 

 

 

 



 

 

 

APPENDIX B - EQ USA PROFORMA FINANCIAL INFORMATION

 

The historical financial information of WFSS has been prepared from carve out management accounts information provided by Wells Fargo. After the integration of the WFSS business into the Equiniti business, EBITDA will be affected by a number of factors, as shown below.

 

 

FY 2016
$'m

WFSS Management Accounts

WF Corporate overhead
(note 1)

Technology
(note 2)

Internal Revenue Share
(note 3)

Standalone Costs
(note 4)

Proforma Result

Interest income

Fee income

7.6

95.6

-

-

-

-

-

(0.8)

-

-

7.6

94.8

Revenue

Operating expenses

103.2

(91.1)

-

14.0

-

0.1

(0.8)

0.4

-

(7.8)

102.4

(84.4)

EBITDA

12.1

14.0

0.1

(0.4)

(7.8)

18.0

EBITDA Margin






17.6%

 

 

 

H1 2017
$'m

WFSS Management Accounts

WF Corporate overhead
(note 1)

Technology
(note 2)

Internal Revenue Share
(note 3)

Standalone Costs
(note 4)

Proforma Result

Interest income

Fee income

6.5

55.4

-

-

-

-

-

(0.3)

-

-

6.5

55.1

Revenue

Operating expenses

61.9

(54.0)

-

7.6

-

-

(0.3)

0.3

-

(3.9)

61.6

(50.0)

EBITDA

7.9

7.6

-

-

(3.9)

11.6

EBITDA Margin






18.8%

 

 

 

FY 2017
$'m

WFSS Management Accounts

WF Corporate overhead
(note 1)

Technology
(note 2)

Internal Revenue Share
(note 3)

Standalone Costs
(note 4)

Proforma Result

Interest income

Fee income

13.8

107.0

-

-

-

-

-

(0.6)

-

-

13.8

106.4

Revenue

Operating expenses

120.8

(104.0)

-

15.2

-

-

(0.6)

0.5

-

(7.8)

120.2

(96.1)

EBITDA

16.8

15.2

-

(0.1)

(7.8)

24.1

EBITDA Margin






20.0%

 

 

 

Feb-June 2017
$'m

WFSS Management Accounts

WF Corporate overhead
(note 1)

Technology
(note 2)

Internal Revenue Share
(note 3)

Standalone Costs
(note 4)

Proforma Result

Interest income

Fee income

5.7

46.5

-

-

-

-

-

(0.3)

-

-

5.7

46.2

Revenue

Operating expenses

52.2

(45.6)

-

6.3

-

-

(0.3)

0.2

-

(3.3)

51.9

(42.4)

EBITDA

6.6

6.3

-

(0.1)

(3.3)

9.5

EBITDA Margin






18.3%

 

The above adjustments are explained below.

 

 

(1)           The removal of general Wells Fargo cost allocations to WFSS which the Directors do not view as directly supporting WFSS business operations.

(2)           The removal of the costs associated with technology applications shared across the Wells Fargo group which the Directors do not view as directly supporting the WFSS business.

(3)           The removal of revenue and costs associated with mutual fund fees generated from the current Wells Fargo shared relationship. The Directors believe these fees and costs will not continue after the Acquisition.

(4)           Directors' expectation of incremental costs to be incurred in running WFSS as a business separate from Wells Fargo.

 

 



 

 

 

APPENDIX C - H1 2016 RESTATED DIVIDEND PER SHARE

 

 

 

Interim dividend declared (£m)

5.3



Shares in issue at June 2017 (m)

300.1

Bonus element due to rights issue (m)

20.4

Restated number of shares in issue (m)

320.5

 

Original dividend per share (pence)

1.75

Restated dividend per share (pence)

1.64

 

 

 

 

APPENDIX D - UNDERLYING LEVERAGE

 






£m

Reported

H1 2018

Proforma

EQ USA

EBITDA

Adjusted

H1 2018


Cash and cash equivalents

(85.0)

(85.0)


Senior

320.3

320.3


Revolving credit facility

71.4

71.4


Other

1.6

1.6


Net debt

308.3

-

308.3


Underlying EBITDA (last 12 months)

111.4

10.5

121.9


Net debt/Underlying EBITDA (times)

2.8

2.5







 


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RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2018 - RNS