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RNS
Equiniti Group PLC   -  EQN   

Unaudited results for six months to 30 June 2019

Released 07:00 02-Aug-2019

RNS Number : 6516H
Equiniti Group PLC
02 August 2019
 

Equiniti Group plc

Incorporated in England and Wales

Registration number: 07090427

LEI: 213800TS721HGE2JIV94

ISIN: GB00BYWWHR75

 

PDF version 

http://www.rns-pdf.londonstockexchange.com/rns/6516H_1-2019-8-1.pdf

 

 

2 August 2019

 

EQUINITI GROUP PLC UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2019

 

Equiniti Group plc ("Equiniti" or "the Group"), an international technology-led services and payments specialist, today publishes its unaudited interim results for the six months to 30 June 2019.

 

CONTINUING STRATEGIC PROGRESS; CONFIDENCE REAFFIRMED

 

 

Financial Highlights

 

 

H1 2019

 

H1 20181

Proforma

 

 

Change%2

Revenue (£m)

275.1

254.0

8.3

Underlying EBITDA* (£m)

60.9

58.6

3.9

Underlying EBITDA* margin (%)

22.1

23.1

(1.0pts)

Operating cash flow conversion*3 (%)

83

101

(18pts)

Earnings before interest and tax (EBIT)*

20.1

11.2

79.5

Profit before tax (£m)

11.6

3.6

222.2

Profit after tax (£m)

9.3

2.6

257.7

Diluted EPS* (pence)

2.3

0.2

1,050.0

Underlying EPS* (pence)

7.7

7.6

1.3

Dividend per share (pence)

1.95

1.82

7.1

Net debt (£m)

370.2

352.9

4.1

Leverage (x)

2.8

3.0

(0.2x)

 

Financial Progress:

·      Revenue growth of 8.3%, with organic revenue growth* of 3.2%

Strong organic revenue growth of 10.7% in EQ US, 7.2% in Intelligent Solutions and 5.0% in Investment Solutions offset by 8.6% decline in Pension Solutions

·      Underlying EBITDA growth of 3.9% reflecting strong divisional growth offset by the expected decline in Pension Solutions with a margin decline of 1.0pts

·      Strong EBIT and profit after tax growth reflecting underlying EBITDA growth and a reduction in non-operating charges related to the acquisition of EQ US

·      Operating cash flow conversion of 83% reflecting higher level of seasonal payments

·      Leverage of 2.8x on a post-IFRS 16 basis (30 June 2018: 3.0x), 2.6x on a pre-IFRS 16 basis
(30 June 2018 2.8x); further deleveraging expected in H2 2019

Strategic Progress:

·      Separation of US4 business from Wells Fargo completed in May 2019

New product launches gaining traction with wins in proxy services and employee plans

New offshore centre in Bangalore launched with second US servicing site in Milwaukee

90% of the $5m of 2019 synergies secured

Major renewals/client wins in the US including Change Healthcare, Comcast and OneOK

 

·      Strong client retention with new wins across all divisions

New share registration clients including Deltex Medical, Morgan Advanced Materials and Petrofac

New IPO mandates including DWF, Trainline and Watches of Switzerland

New client wins across all divisions including Bamboo Finance, MYJAR and The Sovereign Group

 

·      Nearshore technology centre established in Poland

·      Agreement to acquire RD:IR, an independent investor relations business

Use of Capital:

·      Interim dividend growth of 7.1% to 1.95 pence per share, in line with progressive dividend policy which targets distribution of c30% of underlying profit attributable to ordinary shareholders each year 

·      US transition delivered for £45.1m with no further non-recurring costs

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

"During the first half of the year we have made pleasing progress in three important areas.  We have completed the technical separation of our North American business from Wells Fargo and are delivering our investment thesis for the US market with strong organic growth, new product launches, client wins and the realisation of material operating synergies.  Our market-leading UK franchises in share registration and share plans continue to grow organically, where the differentiated quality and breadth of our offerings are delivering increasing market share.  Whilst the pensions software and administration market remains challenging, we are making good progress in stabilising the performance of our Pension Solutions division.

 

"We are continuing to deliver our long-term strategy of sustainable organic growth, focus on our core specialisms and accelerating progress in North America.  We are pleased with the performance in the first half and despite the current uncertainty of the UK economy, the strength of our franchise and the non-discretionary nature of our services underpin our confidence in delivering market expectations for the full year.  Prudent allocation of capital remains a key priority and we are pleased to have reduced leverage year-on-year and the completion of the integration costs in North America pave the way for accelerating deleverage in the future."

 

1The Group has applied IFRS 16 for the first time to the period beginning 1 January 2019 and has transitioned by adopting the modified retrospective approach, therefore comparatives in the condensed consolidated financial statements have not been restated.  In order to provide like-for-like comparators for the prior period, comparatives on pages 1 to 13 have been presented as if IFRS 16 had applied throughout 2018 - see Appendix A on pages
15 to 17 for details.    

2Change at actual foreign exchange rates.  Revenue change at constant foreign exchange rates is 7.4% and underlying EBITDA is 3.0%.

*The Group uses alternative performance measures to provide additional information on the underlying performance of the business.  See pages 12 to 13 for further detail. 

3Operating cash flow conversion is calculated after allowing for use of a £20.0m receivables financing facility the Group has in place of which £10.2m
(H1 2018: £14.0m) was utilised at the end of the period.  Details of the facility can be found on page 10.
 

4The acquisition of EQ US completed on 1 February 2018 and results were consolidated into the Group from that date.  Prior period performance is from 1 February 2018 to 30 June 2018.

 

MEDIUM-TERM OUTLOOK

Whilst we expect the uncertainty in the operating environment to continue, the outlook for Equiniti remains strong. We expect further organic growth in the UK, as we build on our relationships with our exceptional client base. The US offers a platform for accelerated growth based on market opportunity, the potential to take market share and the opportunity to cross-sell digitised services into our blue-chip client base.  Where appropriate, we will supplement our organic growth with capability-enhancing acquisitions.

 

Our business model gives us excellent visibility of our revenues. Our operations are highly scalable with platform characteristics and actions undertaken in the first half will serve to increase efficiency and reduce marginal costs.  This, along with progressive deleveraging and further operational improvements, will allow us to grow underlying profits and earnings ahead of revenue and underpins our confidence in the delivery of market expectations for the full year.

 

Our medium-term guidance is as follows:

·      Organic revenue growth of 3 - 7% per annum supplemented by capability-enhancing acquisitions.

·      Gradual margin improvement of c25 bps per annum.

·      Progressive dividend policy with distribution based on a 30% payout ratio of underlying profit attributable to ordinary shareholders.

·      Cash tax rate of c13% for 2019 and c17% for 2020 onwards.

·      Average cash conversion of c95%.

·      Capital expenditure of 6 - 7% of revenue post integration of the US business.

·      Net debt/underlying EBITDA ratio of 2.0 - 2.5x post-IFRS 16.

 

Analyst and Investor presentation

Equiniti's management will host an analyst and investor presentation at 9.15am UK time today. There will be a conference call and 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 today. 

 

Conference call details:

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

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

 

For further information please contact: 

Analyst/Investor enquiries:

Equiniti Group plc       Guy Wakeley, Chief Executive                            +44 (0) 207 469 1811 

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

Media enquiries:

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


Forward-looking statements

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

 

 

GROUP RESULTS

 

 

 

 

 

H1 2019

 

 

H1 2018

Proforma

 

 

Reported

Change %

 

 

Organic

Change %

Revenue (£m)

 

 

 

 

 

  Investment Solutions

 

73.1

68.9

6.1

5.0

  Intelligent Solutions

 

83.9

78.3

7.2

7.2

  Pension Solutions

 

62.7

65.4

(4.1)

(8.6)

  Interest Income

 

6.6

6.0

10.0

10.0

  Total UK & Europe

  EQ US

 

226.3

48.8

218.6

35.4

3.5

37.9

1.7

10.7

Equiniti Group

 

275.1

254.0

8.3

3.2

 

Underlying EBITDA (£m)

  Investment Solutions

 

23.4

22.9

2.2

 

  Intelligent Solutions

 

19.8

18.2

8.8

 

  Pension Solutions

 

9.0

10.9

(17.4)

 

  Interest Income

 

6.6

6.0

10.0

 

 Total UK & Europe

  EQ US

 

58.8

10.6

58.0

8.0

1.4

32.5

 

Divisional Total

 

69.4

66.0

5.2

 

Central Costs

 

(8.5)

(7.4)

14.9

 

Group Underlying EBITDA

 

60.9

58.6

3.9

 

 

Underlying EBITDA margin (%)

  Investment Solutions

 

32.0

33.2

(1.2)

 

  Intelligent Solutions

 

23.6

23.2

0.4

 

  Pension Solutions

 

14.4

16.7

(2.3)

 

Total UK & Europe

EQ US

 

26.0

21.7

26.5

22.6

(0.5)

(0.9)

 

Equiniti Group

 

22.1

23.1

(1.0)

 

             

Reported change is at actual foreign exchange rates. Organic change % is at constant foreign exchange rates.   

Reported revenue change at constant foreign exchange rates is 7.4% and underlying EBITDA is 3.0%. 

EQ US reported revenue change at constant foreign exchange rates is 29.8% and underlying EBITDA is 24.7%.

The acquisition of EQ US completed on 1 February 2018 and results were consolidated into the Group from that date.  Prior period performance is from 1 February 2018 to 30 June 2018.

 

Overview

Equiniti has delivered another strong set of results in an uncertain macro environment.  In the UK, the Group continued to build on the momentum established in the prior period, with a pleasing level of new client wins from registration transfers and IPO mandates.  In the US, the technical separation of our EQ US division from Wells Fargo completed in May 2019 with all transitional services coming to an end.  New product launches are gaining traction with wins in proxy services and employee plans.  Client retention remains strong across the Group with new client wins across all divisions. The Group continues to make progress against its strategic objectives and is confident of delivering in line with market expectations for full year 2019.

 

Revenue increased by 8.3% to £275.1m (H1 2018: £254.0m) during the year whilst revenue adjusted for acquisitions and foreign exchange rates grew organically by 3.2%. 

 

Investment Solutions delivered strong revenue growth driven by the high fidelity client base and increasing market share.  Intelligent Solutions also delivered strong growth with remediation services and software sales in credit services particular drivers of growth.  As expected, Pension Solutions contracted due to restructuring costs, change in scope of the NHS contract at the end of 2017 and repricing on the renewal of the MyCSP contract extension. 

 

Interest income was 10.0% higher than the prior year, on average UK client balances of £1.7bn
(H1 2018: £1.7bn) benefitting from the 25bps interest rate rise in August 2018.  Interest receivable is partially fixed with instruments secured to July 2020 (£380.0m), September 2021 (£215.0m),
September 2022 (£215.0m) and September 2023 (£215.0m).

 

EQ US delivered exceptional revenue growth driven by stabilisation of the client base, new client wins and a high level of corporate actions in the period.

 

Underlying EBITDA, which excluded non-operating charges of £5.5m relating to the integration of EQ US, increased by 3.9% to £60.9m (H1 2018: £58.6m) reflecting strong divisional growth offset by the expected contraction in Pension Solutions. 

 

Central costs in the period increased by 14.9% to £8.5m (H1 2018: £7.4m) and were driven by investment in sales and marketing, and M&A activity.

 

Operating cash flow conversion of 83% (H1 2018: 101%) reflects the higher level of seasonal payments.  Net debt of £370.2m represents a ratio of 2.8x net debt/underlying EBITDA (30 June 2018: 3.0x). Pre-IFRS 16, net debt/underlying EBITDA was 2.6x (H1 2018: 2.8x).  As the integration of EQ US is now complete, we expect the business to continue its deleveraging profile and guidance on leverage is 2.0 - 2.5x post-IFRS 16.  

 

The Board has declared an interim dividend of 1.95 pence per share, representing growth of 7.1%
(H1 2018:  1.82 pence per share).  The interim dividend is to be paid on 25 October 2019 to shareholders on the register of members at close of business on 20 September 2019. Any shareholder wishing to participate in the Equiniti Dividend Reinvestment Plan ("DRIP") needs to have submitted their election to do so by 4 October 2019.  We maintain our progressive dividend policy which targets the distribution of around 30% of our underlying profit attributable to ordinary shareholders each year.   

 

 

OPERATIONAL REVIEW 

We serve our clients through four divisions: Investment Solutions, Intelligent Solutions, Pension Solutions and EQ US.  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 of the FTSE 100, and the administration of SAYE schemes and share incentive plans for approximately 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 2019

H1 2018

Proforma

 

Change %

Revenue (£m)

73.1

68.9

6.1

Underlying EBITDA (£m)

23.4

22.9

2.2

Underlying EBITDA margin (%)

32.0

33.2

(1.2)

 

Revenue in Investment Solutions increased by 6.1% to £73.1m (H1 2018: £68.9m).  The acquisition of Boudicca Proxy on 26 April 2017 contributed to reported growth and has been cross-sold into 27 of the division's clients.  Organic revenue growth was 5.0%, primarily driven by outstanding client retention and increased market share, with corporate action revenue flat at £8.1m (H1 2018: £8.1m). 

 

Underlying EBITDA grew by 2.2% to £23.4m (H1 2018: £22.9m) driven by organic growth and strong growth in employee share plans, with a margin decline of 1.2% driven by a one-off bank collateralisation cost on a significant corporate action.

 

Our share registration business had another strong performance with key renewals including Associated British Foods, Draper Espirit, Ferguson, Fresnillo and Melrose.  The division continued to make excellent progress with competitor wins and was appointed and/or transferred registers for clients including AFI Development, Deltex Medical, Morgan Advanced Materials, National Grid, Petrofac Limited and WM Morrison. 

 

IPO wins continued to be strong with new mandates including Cameron Investors Trust, Distribution Finance Capital, DWF, Essensys, Induction Healthcare, Trainline and Watches of Switzerland. 

 

 

 

 

 

There was a good level of corporate activity in the period including the conclusion of the Shire/Takeda transaction, a rights issue on behalf of Marks & Spencer, a shareholder programme on behalf of National Grid, Metro bank's non-pre-emptive cash placing and the acquisition of RPC Group plc by Berry Global International.

 

Our share plans services had a strong performance with wins/transfers including Cobham, Compass, DWF, Morgan Advanced Materials, WM Morrison, National Grid, Rentokil and Trainline. 

 

On 19 July 2019, we reached an agreement to acquire Richard Davies Investor Relations Limited (RD:IR), with completion subject to certain procedural matters.  RD:IR is an independent investor relations business, offering a wide range of IR-related analysis, research and advisory services and will provide our share registration business with a proprietary technology platform for investor analytics, relevant across our 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 2019

H1 2018

Proforma

 

Change %

Revenue (£m)

83.9

78.3

7.2

Underlying EBITDA (£m)

19.8

18.2

8.8

Underlying EBITDA margin (%)

23.6

23.2

0.4

           

 

Revenue in Intelligent Solutions increased by 7.2% to £83.9m (H1 2018: £78.3m) whilst underlying EBITDA increased by 8.8% to £19.8m (H1 2018: £18.2m) with growth driven by remediation services and software sales in credit services.

 

Remediation services was a particular driver of growth as the division continued to benefit from multiple large-scale remediation and fulfilment projects with major UK Banks.  Other wins included a review of fees and charges of store cards on behalf of a large retailer and a re-review of closed complaints on behalf of a large automotive services provider. 

 

Whilst we continue to benefit from PPI remediation as we approach the August 2019 deadline for claims submission, we are seeing opportunities in other areas of financial services remediation and have sales teams active in pension and utilities projects.

 

There were significant software license sales in credit services, with new wins including contracts with Bamboo Finance Credit Servicing and MYJAR Loans.  Traction with selling credit services into the North American business continued with our risk analytics platform now sold into 14 new clients. 

 

Our recently launched EQ Insider platform, a technology to administer PDMR (Persons Discharging Managerial Responsibilities) dealing, has now been cross-sold to three of our share registration clients.

 

 

 

 

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 2019

H1 2018

Proforma

 

Change %

Revenue (£m)

62.7

65.4

(4.1)

Underlying EBITDA (£m)

9.0

10.9

(17.4)

Underlying EBITDA margin (%)

14.4

16.7

(2.3)

 

As expected, Pension Solutions revenue declined by 4.1% to £62.7m (H1 2018: £65.4m), with a decrease in underlying EBITDA of 17.4% to £9.0m (H1 2018: £10.9m), representing a margin of 14.4% (H1 2018: 16.7%).  The decline was due to restructuring costs, change in scope of the NHS contract at the end of 2017, together with repricing of the MyCSP contract extension.

 

Despite the challenging market environment, the division successfully renewed or extended relationships with clients including Lloyds Banking Group, Leeds Building Society, Sensata, Royal Papworth Hospital and North West Anglia NHS Foundation Trust.

 

The division was also successful in winning a number of new clients. The acquisition of Aquila, a UK-based life and pensions' technology provider, is contributing to market share growth with multiple sales of its Administrator platform.  Significant wins included a software licence sale to The Sovereign Group, a large outsourced administration contract and a large calculation automation project.  In addition, the division secured an outsourced administration contract on its EQ Compendia platform.

 

We continue to actively manage the cost base with initiatives in place throughout the course of 2019 to stabilise trading.  Those initiatives include the further integration of MyCSP and Aquila into the wider Pension Solutions business.  We also continue to increase operational automation, offshoring work and rationalisation of our property footprint.

 

In December 2018, the Court of Appeal ruled that 'transitional protections' offered as part of the public sector pension reforms amounted to unlawful discrimination, a decision which will impact pension schemes across the public sector.  As a result of this decision, the procurement process in relation to our MyCSP contract which was due to run until end of 2021, has been put on hold and we are in discussions over a contract variation to extend the terms.  Any remedy agreed by Government is likely to require significant rectification work which Pensions Solutions is well placed to support.

 

With the cost efficiency actions completed in the first half, and new client wins, we are confident that the business will stabilise underlying EBITDA in full year 2019.

 

 

 

 

EQ US

EQ US 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 2019

 

H1 2018*

Proforma

 

Proforma

Change %

Revenue (£m)

48.8

35.4

37.9

Underlying EBITDA (£m)

10.6

8.0

32.5

Underlying EBITDA margin (%)

21.7

22.6

(0.9)

* 1 February 2018 to 30 June 2018.

EQ US Reported revenue change at constant foreign exchange rates is 29.8% and underlying EBITDA is 24.7%.

 

The acquisition of EQ US completed on 1 February 2018 and results were consolidated into the Group from that date.  Prior period performance is from 1 February 2018 to 30 June 2018.

 

Revenue in the period increased by 37.9% to £48.8m (H1 2018: £35.4m) with an increase in revenue from corporate actions of 52.8% to £5.5m (H1 2018: £3.6m).  Revenue from interest income increased by 78.8% to £5.9m (H1 2018: £3.3m) on average client balances of £814.5m (H1 2018: £541.0m).  Organic revenue growth was 10.7% at constant foreign exchange rates, driven by stabilisation of the client base, new client wins and a high level of corporate actions in the period.  Underlying EBITDA increased by 32.5% to £10.6m (1 February to 30 June 2018: £8.0m) representing a margin of 21.7% (H1 2018: 22.6%)  reflecting strong organic growth, growth in corporate actions, stability of the client base and good cost discipline, offset by investment to drive future growth.  

 

The division continued to build on the momentum of the prior period, retaining all of its major clients, with key renewals including Comcast, ONEOK and Procter & Gamble.  New client wins in the period were also encouraging and included Ademco, Change Healthcare, Cincinnati Financial and Renaissance Learning, and against the industry trend, we have grown our on-register holders by c2%.

 

The separation of the business from Wells Fargo and its integration into Equiniti completed in May 2019 for a total overall cost of £45.1m with all transitional services coming to an end.  Technology build is now focusing on a new asset reunification and tracing platform, and we have launched new shareholder and issuer portals to significantly enhance customer and client experience and functionality.

 

There has been continuing success with introducing new products into the client base.   Our proxy solicitation services have been sold to more than 20 clients, including a number of clients in the banking sector, and our recently launched employee plans business has already booked its first three sales. 

 

The synergies outlined in the acquisition case of $5.0m in the first year (2019) and $10.0m in the second year of ownership (2020) are on track and will deliver in their entirety, with cost savings being delivered from insurance, IT, operations and back office services.   Actions concluded in H1 2019 will deliver 90% of the 2019 $5.0m synergies, primarily through the discontinuation of technology and TSA costs, the mobilisation of our new customer service centre in Milwaukee Wisconsin, and use of a second offshore captive in Bangalore.

 

We are pleased with our progress in the US, and the realisation of our investment case and the sighting of new opportunities for growth give us real confidence for the future in this important market.

 

 

 

 

FINANCIAL REVIEW

 

Group Income Statement                                            

 

 

£m

 

 

 

H1 2019

H1 2018

Proforma

Revenue

 

 

275.1

254.0

 

 

 

 

 

Underlying EBITDA

 

 

60.9

58.6

Depreciation

 

 

(6.3)

(6.1)

Amortisation - software

 

 

(13.2)

(11.6)

Amortisation - acquired intangibles

 

 

(15.8)

(15.6)

EBIT prior to non-operating charges

 

 

25.6

25.3

Non-operating charges

 

 

(5.5)

(14.1)

EBIT

 

 

20.1

11.2

Net finance costs

 

 

(8.5)

(7.6)

Profit before income tax

 

 

11.6

3.6

Taxation

 

 

(2.3)

(1.0)

Profit after tax

 

 

9.3

2.6

Non-controlling interests

 

 

(0.8)

(1.8)

Profit attributable to ordinary shareholders

 

 

8.5

0.8

Earnings per share (pence)

Basic

Diluted

Underlying diluted

 

 

 

2.3

2.3

7.7

 

0.2

0.2

7.6

 

 

Revenue

Revenue increased by 8.3% to £275.1m (H1 2018: £254.0m) during the year with organic revenue growth of 3.2%. Organic revenue growth is reported revenue growth adjusted for acquisitions on a like-for like basis.  Here we restate 2018 for the prior period acquisitions had they been owned in 2018 to create a like-for-like comparison of year-on-year progress.  This is calculated as follows:

 

 

Revenue (£m)

H1 2018

Reported

H1 2018

Adjustment

H1 2018

Proforma

Investment Solutions

68.9

0.71

69.6

Intelligent Solutions

78.3

-

78.3

Pension Solutions

65.4

3.22

68.6

Interest Income

6.0

-

6.0

Total UK & Europe

218.6

3.9

222.5

EQ US*

37.6

6.53

44.1

Equiniti Group

256.2

10.4

266.6

1Acquisition of Boudicca Proxy

2Acquisition of Aquila

3Acquisition of EQ US

*EQ US is translated at 2019 constant exchange rates to provide like-for like comparison.

 

Underlying EBITDA

Underlying EBITDA prior to non-operating charges of £5.5m increased by 3.9% to £60.9m (H1 2018: £58.6m) reflecting strong divisional growth offset by the expected contraction in Pension Solutions. 

 

Non-operating charges

Non-operating charges are defined as expense items, which if included in EBIT, would otherwise obscure the understanding of the underlying performance of the Group.  Non-operating charges of £5.5m incurred in the period (H1 2018: £14.1m) comprise £0.3m of transaction costs and £5.2m of integration costs, and relate entirely to the acquisition of the EQ US business.  Included within this are £1.9m 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. As the US integration programme completed in May 2019, there will be no further non-operational charges absent transformational transactions.

 

 

 

 

 

EBIT

EBIT remains an important measure of the Group's performance, reflecting profit before net finance costs and taxation. In H1 2019, EBIT was £20.1m (H1 2018: £11.2m).

 

Net finance costs

Group net finance costs increased by £0.9m to £8.5m (H1 2018: £7.6m). 

 

Taxation

There was a net tax receipt in the period of £0.4m.  Taxes paid in the period of £0.5m are primarily due to payments on account for MyCSP Limited.  The remainder of the taxes paid are overseas taxes relating to the Group's operations in India and the Netherlands.  During the period, amounts totalling £0.9m were received relating to repayments of overpaid 2017 taxes. 

 

The Group has recognised deferred tax on £823.0m of gross tax attributes representing future tax deductions which will reduce the cash effective tax rate as compared to the underlying effective tax rate over time.  Net future deductions are expected to be in the region of £123.5m, on which a net deferred tax asset of £21.5m has been recognised at the relevant local statutory rate.

 

The gross tax attributes totalling £823.0m are represented by:

 

Future tax deductions on tax losses carried forward

£211.6m

Future tax deductions on intangible assets

£498.9m

Future tax deductions on property, plant and equipment

£18.7m

Future tax deductions on employee benefits and other timing differences      

£93.8m

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 EQ US from 1 February 2018.  Other timing differences have increased in the period due to the adoption of IFRS 16, effective from 1 January 2019.

 

Profit attributable to ordinary shareholders

The Group made a profit attributable to ordinary shareholders of £8.5m (H1 2018: £0.8m).

 

Earnings per share 

Basic earnings per share of 2.3 pence (H1 2018: 0.2 pence) is based on the weighted average number of shares totalling 368.4m (H1 2018: 364.5m).  Diluted earnings per share of 2.3 pence (H1 2018: 0.2 pence) is based on the weighted average number of shares in issue plus the dilutive effect of share options totalling 368.5m (H1 2018: 366.4m).

 

Underlying earnings per share increased by 1.3% to 7.7 pence compared to the prior period of 7.6 pence, based on the diluted weighted number of shares in issue, adjusted for the timing of the rights issue. 

 

Capital structure

The Group's consolidated statement of financial position at 30 June 2019 is summarised as follows:

 

£m

 

 

30 June 2019

 

30 June 2018

Proforma

Assets

 

 

  Non-current assets

918.8

913.8

  Current assets

195.1

236.8

Total assets

1,113.9

1,150.6

Liabilities

 

 

  Non-current liabilities

450.6

474.3

  Current liabilities

144.3

165.4

Total liabilities

594.9

640.7

Total equity

519.0

509.9

 

Current assets include £87.9m of trade receivables and accrued income at 30 June 2019
(30 June 2018: £84.1m).  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, and growth in the business.  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 of £0.1m at 30 June 2019 (30 June 2018: £0.1m). 

 

 

 

 

Cash flow

The Group generated a free cash flow attributable to equity holders of £3.5m (H1 2018: £22.1m) and delivered an operating cash flow conversion of 83% (H1 2018: 101%). This was impacted by a higher level of seasonal payments. H1 2018 cash flow was supported by improving working capital practices at EQ US after the acquisition completed in early 2018. The main movements in cash flow are summarised below:

 

 

£m

 

 

H1 2019

 

H1 2018

Proforma

Underlying EBITDA

60.9

58.6

Working capital movement

(10.2)

0.8

Operating cash flow prior to non-operating charges

50.7

59.4

Operating cash flow conversion

83

101

Cash outflow on non-operating charges

(11.0)

(11.4)

Capital expenditure

(25.7)

(18.1)

Net interest costs

(7.0)

(4.3)

Tax receipts

0.4

-

Employee benefit trust (EBT) - share purchase

(0.2)

-

Finance lease payments

(3.7)

(3.5)

Free cash flow attributable to equity holders

3.5

22.1

Net (reduction) / increase in borrowings

(13.4)

133.6

Investment in current and prior year acquisitions

-

(170.4)

Payment of deferred consideration

(7.5)

(2.0)

Dividends paid (including payment to non-controlling interest)

(14.8)

(13.6)

Net cash movement

(32.2)

(30.3)

 

The Group has access to a £20.0m receivables financing facility of which £10.2m (H1 2018: £14.0m) 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 is forecast to reduce further subject to commercial requirements. 

 

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

 

£m

 

H1 2019

H1 2018

Proforma

Underlying EBITDA

60.9

58.6

Operating working capital movements:

 

 

  Net increase in receivables

(0.3)

(12.5)

  Net increase in contract assets

(3.2)

-

  Net (decrease) / increase in payables

(5.5)

10.7

  Net (decrease) / increase in contract liabilities

(1.4)

-

  Decrease in provisions

(1.0)

-

  Share-based payment expense

1.2

2.6

Operating cash flow prior to non-operating charges

50.7

59.4

Non-operating charges:

 

 

  Non-operating P&L expense

(5.5)

(14.1)

  Net change in non-operating payables

(5.5)

1.9

  Non-operating share-based payments expense

-

0.8

Total cash generated from operations

39.7

48.0

Interest paid

(7.0)

(4.5)

Income tax received

0.4

-

Net cash inflow from operating activities

33.1

43.5

 

 

Capital expenditure

Net expenditure on tangible and intangible assets was £25.7m (H1 2018: £18.1m). This represents 9.3% of revenue (H1 2018: 7.1%).  Included within capital expenditure is £7.0m associated with the establishment and integration of EQ US relating to IT servers and software development to enable the business to operate on a standalone basis.  Excluding costs relating to the US integration, capital expenditure was 6.8% of revenue.

 

 

 

Net interest costs

Net interest costs paid in the period were £7.0m (H1 2018: £4.3m). 

 

Investment in current and prior year acquisitions

£7.5m (H1 2018: £2.0m) was spent on deferred consideration for prior year acquisitions.

 

Free cash flow attributable to equity holders

Free cash flow attributable 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 attributable to equity holders decreased to £3.5m (H1 2018: £22.1m) as a result of higher capital expenditure costs mainly related to the US integration and higher working capital. 

 

Bank borrowings and financial covenants

 

 

£m

 

 

 

H1 2019

Reported

 

H1 2018

Proforma

 

H1 2018

Reported

Term loan

 

 

322.5

320.3

320.3

Revolving credit facility

 

 

63.0

71.4

71.4

Finance lease liabilities

 

 

42.9

46.2

1.6

Cash and cash equivalents

 

 

(58.2)

(85.0)

(85.0)

Net debt

 

 

370.2

352.9

308.3

Net debt/underlying EBITDA (times)

 

 

2.8

3.0

2.8

 

At 30 June 2019, net debt was higher at £370.2m (30 June 2018: £352.9m), reflecting the acquisition of EQ US and integrated costs, representing a ratio of 2.8x net debt/underlying EBITDA (30 June 2018: 3.0x).  As the integration of EQ US is now complete, we expect the business to continue its deleveraging profile with medium term leverage guidance of 2.0x to 2.5x post-IFRS 16.

 

In July 2019, the Group refinanced its Senior Debt Facilities to provide ongoing committed funding beyond the October 2020 maturity.  The £520.0m term loan and revolving credit facility has been extended to July 2024 with an initial margin of 150pts and fees of £3.6m payable in July 2019. The Group has substantial liquidity to support its growth ambitions and ongoing working capital requirements. 

 

 

 

 

 

ALTERNATIVE PERFORMANCE MEASURES

The Group uses alternative performance measures (APMs) to provide additional information on the underlying performance of the business. Management use these measures to monitor performance on a monthly basis and the adjusted performance measures enable better comparability between reporting periods.

 

The APMs used to manage the Group are as follows.

 

Organic revenue growth

Organic revenue growth is reported revenue growth adjusted for acquisitions on a like-for-like basis. Part of the Group's strategy is to deliver growth and develop and acquire new capabilities. As such, a measure of like-for-like growth is a key performance indicator. See page 8 for calculation.

 

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 financing 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 in EBITDA, would otherwise obscure the understanding of the underlying performance of the Group. These items represent material restructuring, integration and costs that are transformational in nature.

 

 

Reconciliation of profit before tax to underlying EBITDA (£m)

 

 

H1 2019

H1 2018

Proforma

Profit before tax

Plus: Depreciation

Plus: Amortisation of software

Plus: Amortisation of acquisition-related intangible assets

Less: Finance income

Plus: Finance costs

 

11.6

6.3

13.2

15.8

-

8.5

3.6

6.1

11.6

15.6

(0.2)

7.8

EBITDA

 

55.4

44.5

Adjustment for non-operating charges:

Plus: Transaction costs

Plus: Integration costs

 

 

0.3

5.2

 

5.2

8.9

Underlying EBITDA

 

60.9

58.6

 

Transaction costs of £0.3m relate to deal advisory and legal fees which were contingent on successful completion of EQ US which completed in February 2018. Integration costs of £5.2m relate entirely to the US business and represent programme delivery, the development of standalone functions and delivery of systems and processes to run the business.  Included within this are £1.9m 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-operating charges absent any transformational transactions. 

 

Underlying EBITDA margin

Underlying EBITDA margin is earnings before interest, tax, depreciation, amortisation and non-operating charges as a percentage of revenue. This is a key measure of Group profitability and demonstrates ability to improve efficiency, as well as the quality of work won.

 

Operating cash flow conversion

Operating cash flow conversion represents underlying EBITDA plus change in working capital as a percentage of underlying EBITDA. This measures the Group's cash generative characteristics from its underlying operations and is used to evaluate the Group's management of working capital.  See page 10 for calculation.

 

Free cash flow attributable to equity holders

Free cash flow attributable 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. See page 10 for calculation.

 

 

 

 

Earnings before interest and tax (EBIT)

EBIT is used to measure the financial performance of the Group excluding expenses that are determined by capital structure and tax regulations, instead of the underlying trading. In addition to this, net interest costs are impacted by fair valuation re-measurements of certain financial liabilities that are dependent on external market factors rather than the Group's core operations. See page 8 for calculation.

 

Cash tax rate

The cash tax rate is determined through a calculation of the future expected cash tax liabilities of the Group against our profit forecasts, adjusting for known variables such as changes in tax rates, changes in tax legislation (loss restriction rules) and implementation of the Group transfer pricing policy.  We consider the cash tax rate to be an appropriate measure, as it best reflects the anticipated economic outflows from the business, taking into account our assessment of how our deferred tax attributes will unwind and reduce our cash tax liabilities over time.

 

Leverage and net debt

Leverage represents the ratio of net debt to underlying EBITDA.  This is a key measure that evaluates the Group's capital structure and its ability to meet financial covenants. See page 11 for calculation of net debt.

 

Underlying profit attributable to ordinary shareholders

The Group has a progressive dividend policy which will see it distribute around 30% of underlying profit attributable to ordinary shareholders each year.

 

Underlying earnings per share

Underlying earnings per share represents underlying EBITDA, less depreciation of property, plant and equipment, amortisation of software, amortisation of acquisition related intangibles, net interest costs, cash tax and minority interests. 

 

 

Reconciliation to underlying earnings per share (£m)

 

 

H1 2019

H1 2018 Proforma

Underlying EBITDA

Less: Depreciation

Less: Amortisation of software

Plus: Finance income

Less: Finance costs

 

60.9

(6.3)

(13.2)

-

(8.5)

58.6

(6.1)

(11.6)

0.2

(7.8)

Cash tax at 12% / 13%

 

(3.9)

(4.3)

Minority interest

 

(0.8)

(1.8)

Underlying profit attributable to ordinary shareholders

 

28.2

27.2

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

 

368.5

355.7

Underlying earnings per share (pence)

 

7.7

7.6

 

 

PRINCIPAL RISKS AND UNCERTAINTIES

The Directors have considered the principal risks and uncertainties affecting the Group's financial position and prospects in 2019.  As described on pages 48 to 51 of the Group's Annual Report for 2018, 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 and development; information technology; markets and competition; data protection; regulatory requirements; product development, channel and pricing; conduct; security; purchasing, supply and outsourcing; business continuity and resilience; and people.

 

 

 

 

 

DIRECTORS' RESPONSIBILITY STATEMENT

The Directors confirm that, to the best of their knowledge, the extracts from the consolidated financial statements included in this report, which has been prepared in accordance with International Financial Reporting Standards, as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company taken as a whole, and that the management report contained in this report includes a fair view of the development and performance of the business.

 

 

By order of the Board

 

 

 

 

Guy Wakeley                             John Stier

Chief Executive                         Chief Financial Officer

 

2 August 2019

 

 

 

APPENDIX A - 2018 PROFORMA FINANCIAL STATEMENTS ON A POST-IFRS 16 BASIS

The Group has applied IFRS 16 for the first time to the period beginning 1 January 2019 and has transitioned by adopting the modified retrospective approach which does not require restatement of the comparatives.  In order to provide like-for-like comparators for the prior period, comparatives on pages 1 to 13 have been presented as if IFRS 16 had applied throughout 2018. A reconciliation has been provided below. 

CONSOLIDATED INCOME STATEMENT

 

 

 

Reported
H1 2018

 

 

IFRS 16

Impact

 

 

Proforma
H1 2018

 

 

 

Reported
FY 2018

 

 

IFRS 16

Impact

 

 

Proforma
FY 2018

Total Revenue - £m

254.0

-

254.0

 

530.9

-

530.9

 

 

 

 

 

 

 

 

Underlying EBITDA - £'m

 

 

 

 

 

 

 

Investment Solutions

22.2

0.7

22.9

 

47.3

1.2

48.5

Intelligent Solutions

17.6

0.6

18.2

 

39.8

1.3

41.1

Pension Solutions

9.6

1.3

10.9

 

19.7

2.6

22.3

Interest

6.0

-

6.0

 

12.1

-

12.1

Total UK & Europe

55.4

2.6

58.0

 

118.9

5.1

124.0

EQ US

7.5

0.5

8.0

 

19.2

1.1

20.3

Divisional Total

62.9

3.1

66.0

 

138.1

6.2

144.3

Central Costs

(7.9)

0.5

(7.4)

 

(15.8)

1.0

(14.8)

Total Underlying EBITDA

55.0

3.6

58.6

 

122.3

7.2

129.5

 

 

 

 

 

 

 

 

Total Underlying EBITDA margin

21.7%

1.4%

23.1%

 

23.0%

1.4%

24.4%

 

 

 

 

 

 

 

 

Revenue

254.0

-

254.0

 

530.9

-

530.9

Underlying EBITDA

55.0

3.6

58.6

 

122.3

7.2

129.5

Depreciation

(3.1)

(3.0)

(6.1)

 

(6.0)

(6.0)

(12.0)

Amortisation - software

(11.6)

-

(11.6)

 

(23.9)

-

(23.9)

Amortisation - acquired intangibles

(15.6)

-

(15.6)

 

(31.7)

-

(31.7)

EBIT

24.7

0.6

25.3

 

60.7

1.2

61.9

Non-operating charges

(14.1)

-

(14.1)

 

(20.8)

-

(20.8)

Reported EBIT

10.6

0.6

11.2

 

39.9

1.2

41.1

Finance costs

(6.9)

(0.7)

(7.6)

 

(15.3)

(1.5)

(16.8)

Profit before Tax

3.7

(0.1)

3.6

 

24.6

(0.3)

24.3

Tax

(1.0)

-

(1.0)

 

(3.9)

-

(3.9)

Profit after Tax

2.7

(0.1)

2.6

 

20.7

(0.3)

20.4

Minority interest

(1.8)

-

(1.8)

 

(3.2)

-

(3.2)

Net Income

0.9

(0.1)

0.8

 

17.5

(0.3)

17.2

 

 

 

 

 

 

 

 

                     

KEY MEASURES

 

 

 

Reported
H1 2018

 

 

IFRS 16

Impact

 

 

Proforma
H1 2018

 

 

 

Reported
FY 2018

 

 

IFRS 16

Impact

 

 

Proforma
FY 2018

EPS - reported (p)

0.2p

(0.02)p

0.2p

 

4.8p

(0.05)p

4.8p

EPS - underlying (p)

7.7p

(0.08)p

7.6p

 

17.9p

(0.10)p

17.8p

 

 

 

 

 

 

 

 

DPS (p)

1.83p

(0.01)p

1.82p

 

5.32p

(0.03)p

5.29p

 

 

 

 

 

 

 

 

Net debt

308.3

44.6

352.9

 

309.5

41.9

351.4

Leverage (x)

2.8x

0.2x

3.0x

 

          2.5x

0.2x

2.7x

 

CONSOLIDATED STATEMENT OF CASH FLOWS

 

 

 

 

Reported
H1 2018

 

 

 

IFRS 16

Impact

 

 

 

Proforma
H1 2018

 

 

 

 

Reported
FY 2018

 

 

 

IFRS 16

Impact

 

 

 

Proforma

FY 2018

 

Profit before income tax

3.7

(0.1)

3.6

 

24.6

(0.3)

24.3

Adjustments for:

 

 

 

 

 

 

 

Depreciation

3.1

3.0

6.1

 

6.0

6.0

12.0

Amortisation of software

11.6

-

11.6

 

23.9

-

23.9

Amortisation of acquisition related intangibles

15.6

-

15.6

 

31.7

-

31.7

Finance income

(0.2)

-

(0.2)

 

(0.2)

-

(0.2)

Finance costs

7.1

0.7

7.8

 

15.5

1.5

17.0

Share-based payments expense

3.4

-

3.4

 

6.4

-

6.4

Changes in working capital:

 

 

 

 

 

 

 

Net increase in receivables

(12.5)

-

(12.5)

 

(12.0)

-

(12.0)

Net increase in contract assets

-

-

-

 

(3.1)

-

(3.1)

Net increase/(decrease) in payables

12.7

(0.1)

12.6

 

18.0

(0.1)

17.9

Net (decrease)/increase in contract liabilities

-

-

-

 

(2.4)

-

(2.4)

Net decrease in provisions

-

-

-

 

(1.3)

-

(1.3)

Cash flows from operating activities

44.5

3.5

48.0

 

107.1

7.1

114.2

Interest paid

(4.5)

-

(4.5)

 

(10.5)

-

(10.5)

Income tax paid

-

-

-

 

(4.5)

-

(4.5)

Net cash inflow from operating activities

40.0

3.5

43.5

 

92.1

7.1

99.2

Cash flows from investing activities

 

 

 

 

 

 

 

Interest received

0.2

-

0.2

 

0.2

-

0.2

Business acquisitions net of cash acquired

(170.4)

-

(170.4)

 

(173.6)

-

(173.6)

Payments relating to prior year acquisitions

(2.0)

-

(2.0)

 

(4.0)

-

(4.0)

Acquisition of property, plant and equipment

(5.0)

-

(5.0)

 

(9.5)

-

(9.5)

Payments relating to developing and acquiring software

(13.1)

-

(13.1)

 

(30.3)

-

(30.3)

Net cash outflow from investing activities

(190.3)

-

(190.3)

 

(217.2)

-

(217.2)

Cash flows from financing activities

 

 

 

 

 

 

 

Proceeds from issue of share capital, less transaction costs

(0.8)

-

(0.8)

 

(0.8)

-

(0.8)

Purchase of own shares

-

-

-

 

(13.9)

-

(13.9)

Proceeds from new bank loans

64.9

-

64.9

 

64.9

-

64.9

Proceeds/(repayment) of revolving credit facility balance

70.7

-

70.7

 

76.1

-

76.1

Payment of loan set-up fees

(0.8)

-

(0.8)

 

(0.8)

-

(0.8)

Payment of finance lease liabilities

(0.4)

(3.5)

(3.9)

 

(0.9)

(7.1)

(8.0)

Dividends paid

(9.9)

-

(9.9)

 

(16.5)

-

(16.5)

Dividends paid to non-controlling interests

(1.8)

-

(1.8)

 

(1.8)

-

(1.8)

Transactions with non-controlling interests

(1.9)

-

(1.9)

 

(5.9)

-

(5.9)

Net cash inflow from financing activities

120.0

(3.5)

116.5

 

100.4

(7.1)

93.3

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

(30.3)

-

(30.3)

 

(24.7)

-

(24.7)

Foreign exchange gains and losses

0.1

-

0.1

 

0.4

-

0.4

Cash and cash equivalents at 1 January

115.2

-

115.2

 

115.2

-

115.2

Cash and cash equivalents at 31 December

85.0

-

85.0

 

90.9

-

90.9

 

 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

 

 

 

Reported
H1 2018

 

 

 

IFRS 16

Impact

 

 

 

Proforma
H1 2018

 

 

 

 

Reported
FY 2018

 

 

 

IFRS 16

Impact

 

 

 

Proforma

FY 2018

Assets

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

Intangible assets

829.0

-

829.0

 

836.4

-

836.4

Property, plant & equipment

19.9

39.2

59.1

 

21.9

36.2

58.1

Other financial assets

0.5

-

0.5

 

0.2

-

0.2

Deferred income tax assets

25.2

-

25.2

 

23.6

-

23.6

 

874.6

39.2

913.8

 

882.1

36.2

918.3

Current assets

 

 

 

 

 

 

 

Trade and other receivables

55.2

-

55.2

 

64.1

-

64.1

Contract fulfilment assets

50.9

-

50.9

 

46.2

-

46.2

Agency broker receivables

45.7

-

45.7

 

12.4

-

12.4

Income tax receivable

-

-

-

 

0.7

-

0.7

Other financial assets

-

-

-

 

0.5

-

0.5

Cash and cash equivalents

85.0

-

85.0

 

90.9

-

90.9

 

236.8

 -

236.8

 

214.8

 -

214.8

Total assets

1,111.4

39.2

1,150.6

 

1,096.9

36.2

1,133.1

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

External loans and borrowings

386.5

-

386.5

 

395.2

 

395.2

Post-employment benefits

22.7

-

22.7

 

22.9

 

22.9

Provisions

21.3

-

21.3

 

12.8

 

12.8

Other financial liabilities

5.9

38.9

44.8

 

4.2

36.2

40.4

 

436.4

38.9

475.3

 

435.1

36.2

471.3

Current liabilities

 

 

 

 

 

 

 

Trade and other payables

92.8

(0.1)

92.7

 

112.2

(0.1)

112.1

Contract fulfilment liabilities

13.8

-

13.8

 

16.4

-

16.4

Agency broker payables

45.7

-

45.7

 

12.4

-

12.4

Income tax payable

2.9

-

2.9

 

-

-

-

Provisions

4.0

-

4.0

 

9.1

-

9.1

Other financial liabilities

0.6

5.7

6.3

 

0.5

5.7

6.2

 

159.8

5.6

165.4

 

150.6

5.6

156.2

 

 

 

 

 

 

 

 

Total liabilities

596.2

44.5

640.7

 

585.7

41.8

627.5

Net assets

515.2

(5.3)

509.9

 

511.2

(5.6)

505.6

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

Equity attributable to owners of the parent

 

 

 

 

 

 

 

Share capital

0.4

-

0.4

 

0.4

-

0.4

Share premium

115.9

-

115.9

 

115.9

-

115.9

Other reserves

197.8

-

197.8

 

182.4

-

182.4

Retained earnings

181.5

(5.3)

176.2

 

203.2

(5.6)

197.6

 

495.6

(5.3)

490.3

 

501.9

(5.6)

496.3

Non-controlling interest

19.6

-

19.6

 

9.3

-

9.3

Total equity

515.2

(5.3)

509.9

 

511.2

(5.6)

505.6

 

 

 

 

Independent review report to Equiniti Group Plc

Report on the condensed consolidated financial statements

 

Our conclusion

We have reviewed Equiniti Group Plc's interim condensed consolidated financial statements (the "interim financial statements") in the unaudited results of Equiniti Group Plc for the 6 month period ended 30 June 2019. 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 2019;

·      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 unaudited results 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 unaudited results, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the unaudited results 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 unaudited results 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 unaudited results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

 

 

 

PricewaterhouseCoopers LLP

Chartered Accountants

Gatwick

2 August 2019

 

 

 

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATED INCOME STATEMENT - UNAUDITED

FOR THE SIX MONTHS ENDED 30 JUNE 2019

 

 

 

6 months ended     June 2019

6 months ended     June 2018

Year ended
December 2018 

 

Note

£m

£m

£m

Revenue

4

275.1

254.0

530.9

Administrative costs

5

(219.7)

(213.1)

(429.4)

Depreciation of property, plant and equipment

 

(3.3)

(3.1)

(6.0)

Depreciation of right-of-use assets

 

(3.0)

-

-

Amortisation of software

8

(13.2)

(11.6)

(23.9)

Amortisation of acquisition-related intangible assets

8

(15.8)

(15.6)

(31.7)

Finance income

13

-

0.2

0.2

Finance costs

13

(8.5)

(7.1)

(15.5)

Profit before income tax

 

11.6

3.7

24.6

Income tax charge

17

(2.3)

(1.0)

(3.9)

Profit for the period/year

 

9.3

2.7

20.7

 

 

 

 

 

Profit for the period attributable to:

 

 

 

 

 - Owners of the parent

 

8.5

0.9

17.5

 - Non-controlling interests

 

0.8

1.8

3.2

Profit for the period/year

 

9.3

2.7

20.7

 

 

 

 

 

 

 

 

 

 

Earnings per share attributable to owners of the parent:

 

 

Basic earnings per share (pence)

6

2.3

0.2

4.8

Diluted earnings per share (pence)

6

2.3

0.2

4.7

 

 

 

 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - UNAUDITED

FOR THE SIX MONTHS ENDED 30 JUNE 2019

 

 

 

6 months ended    June 2019

6 months ended    June 2018

Year ended
December 2018

 

 

£m

£m

£m

Profit for the period/year

 

9.3

2.7

20.7

 

 

 

 

 

Other comprehensive income/(expense)

 

 

 

 

Items that may be subsequently reclassified to profit or loss

 

 

 

Fair value movement through hedging reserve

 

14.7

2.9

4.4

Deferred tax on movement in hedging reserve

 

(2.5)

(0.6)

(0.9)

Net exchange gain on translation of foreign operations

0.1

6.7

10.9

 

 

12.3

9.0

14.4

Items that will not be reclassified to profit or loss

 

 

 

Defined benefit plan actuarial loss

 

-

-

(0.2)

 

 

-

-

(0.2)

Other comprehensive income for the period/year

12.3

9.0

14.2

Total comprehensive income for the period/year

 

21.6

11.7

34.9

 

 

 

 

 

Total comprehensive income attributable to:

 

 

 

 

 - Owners of the parent

 

20.8

9.9

31.7

 - Non-controlling interests

 

0.8

1.8

3.2

Total comprehensive income for the period/year

 

21.6

11.7

34.9

 

 

 

 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION - UNAUDITED

AS AT 30 JUNE 2019

 

 

 

 

As at      June 2019

As at      June 2018

As at December 2018

 

Note

£m

£m

£m

Assets

 

 

 

 

Non-current assets

 

 

 

 

Goodwill

8

524.9

518.3

524.1

Intangible assets

8

302.1

310.7

312.3

Property, plant and equipment

 

21.4

19.9

21.9

Right-of-use assets

 

36.7

-

-

Other financial assets

20

12.1

0.5

0.2

Deferred income tax assets

 

21.6

25.2

23.6

 

 

918.8

874.6

882.1

Current assets

 

 

 

 

Trade and other receivables

9

63.0

55.2

64.1

Contract fulfilment assets

10

49.9

50.9

46.2

Agency broker receivables

 

23.6

45.7

12.4

Income tax receivable

 

-

-

0.7

Other financial assets

20

0.4

-

0.5

Cash and cash equivalents

 

58.2

85.0

90.9

 

 

195.1

236.8

214.8

Total assets

 

1,113.9

1,111.4

1,096.9

 

 

 

 

 

Liabilities

 

 

 

 

Non-current liabilities

 

 

 

 

External loans and borrowings

14

382.6

386.5

395.2

Post-employment benefits

18

22.9

22.7

22.9

Provisions for other liabilities and charges

12

9.3

21.3

12.8

Finance lease liabilities

 

35.2

1.0

0.6

Other financial liabilities

20

0.6

4.9

3.6

 

 

450.6

436.4

435.1

Current liabilities

 

 

 

 

Trade and other payables

11

88.6

92.8

112.2

Contract fulfilment liabilities

10

15.0

13.8

16.4

Agency broker payables

 

23.6

45.7

12.4

Income tax payable

 

1.8

2.9

-

Provisions for other liabilities and charges

12

7.6

4.0

9.1

Finance lease liabilities

 

7.7

0.6

0.5

 

 

144.3

159.8

150.6

Total liabilities

 

594.9

596.2

585.7

Net assets

 

519.0

515.2

511.2

 

 

 

 

 

Equity

 

 

 

 

Share capital

16

0.4

0.4

0.4

Share premium

 

115.9

115.9

115.9

Other reserves

 

199.1

187.0

182.4

Retained earnings

 

193.5

192.3

203.2

Equity attributable to owners of the parent

 

508.9

495.6

501.9

Non-controlling interest

 

10.1

19.6

9.3

Total equity

 

519.0

515.2

511.2

 

 

 

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - UNAUDITED

FOR THE SIX MONTHS ENDED 30 JUNE 2019

 

Year ended 31 December 2018

 

Share capital

Share premium

Other reserves

Retained earnings

Non-con
-trolling
interest

Total
equity

 

£m

£m

£m

£m

£m

£m

Balance at 1 January 2018 as originally presented

0.4

115.8

178.0

196.8

19.6

510.6

Changes in accounting standards - IFRS 15

-

-

-

1.1

-

1.1

Restated balance at 1 January 2018

0.4

115.8

178.0

197.9

19.6

511.7

Comprehensive income

 

 

 

 

 

 

Profit for the year per the income statement

-

-

-

17.5

3.2

20.7

Other comprehensive income/(expense)

 

 

 

 

 

 

Changes in fair value through hedging reserve

-

-

4.4

-

-

4.4

Deferred tax on movement through hedging reserve

-

-

(0.9)

-

-

(0.9)

Net exchange gain on translation of foreign operations

-

-

10.9

-

-

10.9

Actuarial losses on defined benefit pension plans

-

-

-

(0.2)

-

(0.2)

Total other comprehensive income/(expense)

-

-

14.4

(0.2)

-

14.2

Total comprehensive income

-

-

14.4

17.3

3.2

34.9

Issue of share capital, net of transaction costs

-

0.1

-

-

-

0.1

Purchase of own shares

-

-

(13.9)

-

-

(13.9)

Own shares awarded to employees

-

-

3.9

(3.9)

-

-

Dividends

-

-

-

(16.5)

(1.8)

(18.3)

Transactions with non-controlling interests

-

-

-

-

(1.7)

(1.7)

Further acquisition of non-controlling interest in MyCSP Limited

-

-

-

2.0

(10.0)

(8.0)

Share-based payments expense

-

-

-

6.4

-

6.4

Transactions with owners recognised directly in equity

-

0.1

(10.0)

(12.0)

(13.5)

(35.4)

Balance at 31 December 2018

0.4

115.9

182.4

203.2

9.3

511.2

 

Six months ended 30 June 2018

 

Share capital

Share premium

Other reserves

Retained earnings

Non-con
-trolling
interest

Total
equity

 

 

£m

£m

£m

£m

£m

£m

 

Balance at 1 January 2018 as originally presented

0.4

115.8

178.0

196.8

19.6

510.6

 

Changes in accounting standards - IFRS 15

-

-

-

1.1

-

1.1

 

Restated balance at 1 January 2018

0.4

115.8

178.0

197.9

19.6

511.7

 

Comprehensive income

 

 

 

 

 

 

 

Profit for the period per the income statement

-

-

-

0.9

1.8

2.7

 

Other comprehensive income/(expense)

 

 

 

 

 

 

 

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

-

-

9.0

-

-

9.0

 

Total comprehensive income

-

-

9.0

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

-

(6.5)

(1.8)

(8.2)

 

Balance at 30 June 2018

0.4

115.9

187.0

192.3

19.6

515.2

 

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - UNAUDITED

FOR THE SIX MONTHS ENDED 30 JUNE 2019

 

Six months ended 30 June 2019

 

Share capital

Share premium

Other reserves

Retained earnings

Non-con
-trolling
interest

Total
equity

 

 

£m

£m

£m

£m

£m

£m

 

Balance at 31 December 2018 as originally presented

0.4

115.9

182.4

203.2

9.3

511.2

 

Changes in accounting standards - IFRS 16

-

-

-

(2.1)

-

(2.1)

 

Restated balance at 1 January 2019

0.4

115.9

182.4

201.1

9.3

509.1

 

Comprehensive income

 

 

 

 

 

 

 

Profit for the period per the income statement

-

-

-

8.5

0.8

9.3

 

Other comprehensive income/(expense)

 

 

 

 

 

 

 

Changes in fair value through hedging reserve

-

-

14.7

-

-

14.7

 

Deferred tax on movement through hedging reserve

-

-

(2.5)

-

-

(2.5)

 

Net exchange gain on translation of foreign operations

-

-

0.1

-

-

0.1

 

Total other comprehensive income

-

-

12.3

-

-

12.3

 

Total comprehensive income

-

-

12.3

8.5

0.8

21.6

 

Purchase of own shares

-

-

(3.8)

-

-

(3.8)

 

Own shares awarded to employees

-

-

8.2

(4.7)

-

3.5

 

Dividends

-

-

-

(12.6)

-

(12.6)

 

Share-based payments expense

-

-

-

1.2

-

1.2

 

Transactions with owners recognised directly in equity

-

-

4.4

(16.1)

-

(11.7)

 

Balance at 30 June 2019

0.4

115.9

199.1

193.5

10.1

519.0

 

 

 

 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - UNAUDITED

FOR THE SIX MONTHS ENDED 30 JUNE 2019

 

 

 

 

 

 

 6 months ended    June 2019

6 months ended    June 2018

Year ended December 2018

 

 

£m

£m

£m

Profit before income tax

 

11.6

3.7

24.6

 

 

 

 

 

Adjustments for:

 

 

 

 

Depreciation of property, plant and equipment

 

3.3

3.1

6.0

Depreciation of right-of-use assets

 

3.0

-

-

Amortisation of software

 

13.2

11.6

23.9

Amortisation of acquisition-related intangibles assets

 

15.8

15.6

31.7

Finance income

 

-

(0.2)

(0.2)

Finance costs

 

8.5

7.1

15.5

Share-based payments expense

 

1.2

3.4

6.4

Changes in working capital:

 

 

 

 

Net increase in receivables

 

(0.3)

(0.3)

(12.0)

Net increase in contract assets

 

(3.2)

(12.2)

(3.1)

Net (decrease)/increase in payables

 

(11.0)

15.1

18.0

Net decrease in contract liabilities

 

(1.4)

(2.4)

(2.4)

Net decrease in provisions

 

(1.0)

-

(1.3)

Cash flows from operating activities

 

39.7

44.5

107.1

Interest paid

 

(7.0)

(4.5)

(10.5)

Income tax received/(paid)

 

0.4

-

(4.5)

Net cash inflow from operating activities

 

33.1

40.0

92.1

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Interest received

 

-

0.2

0.2

Business acquisitions net of cash acquired

 

-

(170.4)

(173.6)

Payment relating to prior year acquisitions

 

(7.5)

(2.0)

(4.0)

Acquisition of property, plant and equipment

 

(2.6)

(5.0)

(9.5)

Payments relating to developing and acquiring software

(23.1)

(13.1)

(30.3)

Net cash outflow from investing activities

 

(33.2)

(190.3)

(217.2)

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Proceeds from issue of share capital, less transaction costs

-

(0.8)

(0.8)

Purchase of own shares

 

(3.8)

-

(13.9)

Proceeds from share options exercised

 

3.6

-

-

Proceeds from new bank loans

 

-

64.9

64.9

(Repayment)/proceeds of revolving credit facility balance

(13.4)

70.7

76.1

Payment of loan set up fees

 

-

(0.8)

(0.8)

Payment of finance lease liabilities

 

(3.7)

(0.4)

(0.9)

Dividends paid

 

(12.6)

(9.9)

(16.5)

Dividends paid to non-controlling interests

 

-

(1.8)

(1.8)

Transactions with non-controlling interests

 

(2.2)

(1.9)

(5.9)

Net cash inflow from financing activities

(32.1)

120.0

100.4

 

 

 

 

 

Net decrease in cash and cash equivalents

(32.2)

(30.3)

(24.7)

Foreign exchange (losses)/gains

(0.5)

0.1

0.4

Cash and cash equivalents at 1 January

 

90.9

115.2

115.2

Cash and cash equivalents at 30 June/31 December 

58.2

85.0

90.9

 

 

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2019

 

1)   General information

Equiniti Group plc (the Company) 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 Company's 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 2018 have been delivered to the Registrar of Companies. The external auditor has reported on the 2018 statutory 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 2019 have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and with IAS 34 Interim Financial Reporting (IAS 34), 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 2018 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 IFRS 16 Leases (IFRS 16), which is explained in more detail below.

New standards adopted by the Group

The Group has applied IFRS 16 for the first time to the period beginning 1 January 2019 and has transitioned by applying the modified retrospective method. Comparative balances have not been restated and continue to be reported under IAS 17 Leases (IAS 17).

The Group identified its leased properties as the main leases that were impacted by this new standard. On 1 January 2019 the Group recognised £36.2m as right-of-use assets and £41.9m of finance lease liabilities for future lease payments in the statement of financial position. The Group also reversed £3.1m of rent-free accruals included within trade and other payables. The net adjustment recognised within retained earnings in the statement of financial position was £2.1m, net of deferred tax.

The Group has seen no impact on reported earnings per share (EPS) as a result of adopting IFRS 16, as there has been no impact on profit for the period. Administrative costs have decreased as the Group no longer recognises a rental expense on the majority of its properties. However this has been offset by increased depreciation and interest expenses since adopting IFRS 16. The depreciation expense on the right-of-use assets for the six months to 30 June 2019 was £3.0m and the interest expense £0.8m.

The total cash outflows in respect of lease payments has not changed under IFRS 16. However lease payments previously recognised within cash flows from operating activities are now classified as a cash flows from financing activities.

A reconciliation between the operating lease commitments as at 31 December 2018 and the finance lease liabilities as at 1 January 2019 is shown in the Appendix.

 

 

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2019

 

2)   Basis of preparation (continued)

New standards adopted by the Group (continued)

 

Lease policy applicable from 1 January 2019

At the inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract provides the right to use an asset for a period in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group assesses whether the contract involves the use of an identified asset, which may be specified explicitly or implicitly. The Group also assesses whether the contract provides the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use. The Group must also determine whether the contract permits the right to direct the use of the asset, which flows from the ability to decide how and for what purpose the asset is used.

 

When a contract contains a lease, the Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at the initial amount of the lease liability, adjusted for any lease payments made at or before the commencement date, any initial direct costs incurred and any lease incentives received.

 

Right-of-use assets are subsequently depreciated on a straight-line basis from the commencement date to the earlier of the end of the useful life of the right-of-use asset, determined on the same basis as for property, plant and equipment, or the end of the lease term.

 

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease. When the interest rate implicit in the lease cannot be readily determined, the lessee's incremental borrowing rate is used as the discount rate.

 

The lease liability is measured at amortised cost using the effective interest method. The liability is remeasured when there is a change in the future lease payments is recognised. A corresponding adjustment is also made to the carrying amount of the right-of-use asset, or if the right-of-use asset has been reduced to zero, recorded in the income statement.

 

Short-term leases and leases of low-value assets

The Group has elected not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets, including IT equipment. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

 

Policy applicable before 1 January 2019

Contracts entered into before 1 January 2019 required the Group to determine whether a contract was, or contained, a lease based on the assessment of whether fulfilment of the arrangement was dependent on the use of a specific asset or assets and whether the arrangement conveyed a right to use the asset.

 

Leases in which the Group assumed substantially all of the risks and rewards of ownership of the leased asset were classified as finance leases. Where land and buildings were held under leases, the accounting treatment of the land was considered separately from that of the buildings. Leased assets acquired by way of finance lease were stated at an amount equal to the lower of their fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses.

 

Assets held under other leases were classified as operating leases and were not recognised in the Group's statement of financial position. Payments made under operating leases were recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received were recognised in the income statement as an integral part of the total lease expense.

 

 

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2019

 

2)   Basis of preparation (continued)

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.

Estimates

In preparing these condensed interim financial statements, the significant estimates made by management in applying the Group's accounting policies were the same as those applied to the consolidated financial statements for the year ended 31 December 2018.

Judgements

In preparing these condensed interim financial statements, the significant judgements made by management in applying the Group's accounting policies were the same as those applied to the consolidated financial statements for the year ended 31 December 2018, except for the new judgements required in applying IFRS 16.

Leases

In applying IFRS 16 management has exercised judgment that impacts the valuation of the finance lease liabilities and the valuation of right-of-use assets in the statement of financial position. These judgements include making a determination on whether contracts and leases are in the scope of IFRS 16, determining the contract term and determining the interest rate used for discounting of future cash flows.

 

The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.

 

The present value of lease payments is determined by discounting the lease cash flows by the lessee's incremental borrowing rate. The lessee's incremental borrowing rate is calculated by using an interest rate applicable to a government bond, commensurate with the lease term and the lease location, adjusted for the margin currently paid on the Group's debt facilities.

 

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, administering dividend payments and issuing 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.

 

 

4)   Operating segments

 

 

 

 

 

6 months

ended

June 2019

6 months

ended

June 2018

Year ended

December

2018

Revenue from continuing operations

 

 

£m

£m

£m

Rendering of goods and services

 

 

262.6

243.4

509.7

Interest income

 

 

 

 

12.5

10.6

21.2

Total revenue

 

 

 

 

275.1

254.0

530.9

 

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2019

 

4)   Operating segments (continued)

The Group's operating segments have been identified as Investment Solutions, Intelligent Solutions, Pension Solutions, EQ US and Interest, 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 interest, tax, depreciation and amortisation. The EBITDA of each segment is reported after charging relevant corporate costs based on the business segments' usage of corporate facilities and services. Central costs principally include corporate overheads.

 

 

 

 

 

6 months

ended

June 2019

6 months

ended

June 2018

Year ended

December

2018

Reported revenue

 

 

£m

£m

£m

Investment Solutions

 

 

 

73.1

68.9

142.5

Intelligent Solutions

 

 

 

 

83.9

78.3

165.9

Pension Solutions

 

 

 

 

62.7

65.4

129.0

Interest

 

 

 

 

6.6

6.0

12.1

UK and Europe

 

 

 

 

226.3

218.6

449.5

EQ US*

 

 

 

 

48.8

35.4

81.4

USA

 

 

 

48.8

35.4

81.4

Total revenue

 

 

 

 

275.1

254.0

530.9

 

*Included within USA, is £5.9m (June 2018: £4.6m, December 2018: £9.1m) of interest revenue which is reported and managed within the EQ US results.

 

 

 

 

6 months

ended

June 2019

6 months ended

June 2018

Year ended December 2018

Timing of revenue recognition

 

£m

£m

£m

Investment Solutions

 

 

28.9

29.1

56.5

Intelligent Solutions

 

 

8.8

7.0

15.7

Pension Solutions

 

 

4.5

3.7

7.5

EQ US

 

 

12.6

5.6

34.5

Point in time

 

 

54.8

45.4

114.2

Investment Solutions

 

 

44.2

39.8

86.0

Intelligent Solutions

 

 

75.1

71.3

150.2

Pension Solutions

 

 

58.2

61.7

121.5

Interest

 

 

6.6

6.0

12.1

EQ US

 

 

36.2

29.8

46.9

Over time

 

 

220.3

208.6

416.7

Total revenue

 

 

 

275.1

254.0

530.9

 

Point in time revenue primarily relates to our share and foreign exchange dealing revenue streams where the performance obligation is fulfilled when the transaction completes, plus corporate action fees where these are dependent on a transaction closing. It also includes revenue from right to use licences where revenue is recognised once client delivery and acceptance conditions are met.

Over time revenue primarily relates to our share registration businesses, including corporate actions, where the Group has a legal right to revenue for work performed, our pensions administration business, our customer remediation business and software support services.

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 represent material restructuring, integration and costs that are transformational in nature.

 

 

 

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2019

 

4)   Operating segments (continued)

 

 

 

 

 

6 months

ended

June 2019

6 months

ended

June 2018

Year ended

December

2018

Underlying EBITDA

 

£m

£m

£m

Investment Solutions

 

 

 

23.4

22.2

47.3

Intelligent Solutions

 

 

 

 

19.8

17.6

39.8

Pension Solutions

 

 

 

 

9.0

9.6

19.7

Interest

 

 

 

 

6.6

6.0

12.1

UK and Europe

 

 

 

 

58.8

55.4

118.9

EQ US

 

 

 

10.6

7.5

19.2

USA

 

 

 

 

10.6

7.5

19.2

Total segments

 

 

 

 

69.4

62.9

138.1

Central costs

 

 

 

 

(8.5)

(7.9)

(15.8)

Total underlying EBITDA

 

 

60.9

55.0

122.3

 

 

6 months

ended

June 2019

6 months

ended

June 2018

Year ended

December

2018

Reconciliation of underlying EBITDA to profit before tax

£m

£m

£m

 

Underlying EBITDA

 

60.9

55.0

122.3

 

Non-operating charges

 

 

(5.5)

(14.1)

(20.8)

 

Depreciation and amortisation

 

(35.3)

(30.3)

(61.6)

 

Net finance costs

 

 

(8.5)

(6.9)

(15.3)

 

Profit before tax

 

 

11.6

3.7

24.6

 

 

5)   Administrative costs

 

6 months

ended

June 2019

6 months

ended

June 2018

Year ended

December

2018

Expenses by nature

£m

£m

£m

Employee benefit expense

 

113.5

106.6

219.8

Employee costs capitalised in respect of software development

 

(8.4)

(7.4)

(16.2)

Direct costs

 

52.0

47.4

101.2

Bought-in services

 

17.5

22.8

38.6

Premises costs

 

5.1

4.0

7.9

Operating lease costs

 

0.2

4.1

8.7

Government grants for research and development

(0.3)

(0.4)

(0.5)

Other general business costs 

 

40.1

36.0

69.9

Total administrative costs

219.7

213.1

429.4

 

6)   Earnings per share

 

 6 months

ended

June 2019

6 months

ended

June 2018

Year ended

December

2018

Basic and diluted earnings per share 

£m

£m

£m

Profit from continuing operations attributable to owners of the parent

8.5

0.9

17.5

Weighted average number of ordinary shares* (m)

368.4

364.5

363.0

Dilutive performance share plan options (m)

-

-

7.1

Dilutive sharesave plan options (m)

0.1

1.9

1.7

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

368.5

366.4

371.8

Basic earnings per share (pence)

2.3

0.2

4.8

Diluted earnings per share (pence)

2.3

0.2

4.7

* Adjusted for share options awarded, but not yet exercised, and shares held in the employee benefit trust.
 

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2019

 

7)   Dividends

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

 6 months

ended

June 2019

6 months

ended

June 2018

Year ended

December

2018

£m

£m

£m

Final dividend for year ended 31 December 2018 (3.49p per share)

12.6

-

-

Interim dividend for year ended 31 December 2018 (1.83p per share)

-

-

6.6

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

-

9.9

9.9

  

12.6

9.9

16.5

 

The recommended interim dividend payable in respect of the period ended 30 June 2019 is £7.1m or 1.95p per share (30 June 2018: £6.6m or 1.83p per share). 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 2019, since it has not yet been approved.

The dividend of £12.6m paid in the period ended 30 June 2019 and disclosed in the statement of changes in equity and the statement of cash flows represents the final dividend for the year ended 31 December 2018 of 3.49p per share.

 

 

8)   Intangible assets

 

Goodwill

Software

Acquisition-related

intangibles

Total

 

£m

£m

£m

£m

Cost

 

 

 

 

Balance at 1 January 2019

524.1

286.4

443.2

1,253.7

Acquisition of business

0.9

-

-

0.9

Additions

-

18.8

-

18.8

Translation adjustment

(0.1)

-

(0.1)

(0.2)

Balance at 30 June 2019

524.9

305.2

443.1

1,273.2

 

 

 

 

 

Accumulated amortisation

 

 

 

 

Balance at 1 January 2019

-

197.3

220.0

417.3

Amortisation for the period

-

13.2

15.8

29.0

Translation adjustment

-

(0.1)

-

(0.1)

Balance at 30 June 2019

-

210.4

235.8

446.2

 

 

 

 

 

Net book value

 

 

 

 

Balance at 31 December 2018

524.1

89.1

223.2

836.4

Balance at 30 June 2019

524.9

94.8

207.3

827.0

 

The acquisition of business includes £0.9m of fair value adjustments relating to prior year acquisitions.

 

 

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2019

 

9)   Trade and other receivables

 

As at

June 2019

As at

June 2018

As at

December

2018

 

£m

£m

£m

Trade receivables

42.2

38.0

46.4

Other receivables

7.9

4.7

7.1

Prepayments

12.9

12.5

10.6

Total trade and other receivables

63.0

55.2

64.1

 

Trade receivables are shown net of an estimated credit loss allowance of £0.2m at the period end (June 2018: £0.5m, December 2018: £0.2m).

 

Credit risk

The ageing of trade receivables at the reporting date was:

 

As at

June 2019

As at

June 2018

As at

December

2018

 

£m

£m

£m

Not past due

33.1

27.6

29.0

Past due 0-30 days

4.1

6.1

12.6

Past due 31-90 days

2.4

2.7

3.0

Past due more than 90 days

2.6

1.6

1.8

Total trade receivables

42.2

38.0

46.4

 

The movements in the period in the Group's estimated credit loss allowance for trade receivables is as follows:

 

 6 months

ended

June 2019

6 months

ended

June 2018

Year ended

December

2018

 

£m

£m

£m

Balance at 1 January

0.2

0.4

0.4

Balances acquired from business acquisitions

-

-

0.2

New provisions made in the period/year

0.1

0.1

0.1

Balances reversed in the period/year

(0.1)

-

(0.5)

Balance at 30 June/31 December

0.2

0.5

0.2

 

 

10)  Contract fulfilment assets and liabilities

 

As at

June 2019

As at

June 2018

As at

December

2018

 

£m

£m

£m

Accrued income

45.7

46.1

41.6

Contract set up costs

4.2

4.8

4.6

Contract fulfilment assets

49.9

50.9

46.2

 

 

As at

June 2019

As at

June 2018

As at

December

2018

 

£m

£m

£m

Deferred income

15.0

16.4

Contract fulfilment liabilities

15.0

13.8

16.4

 

 

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2019

 

11)  Trade and other payables

 

As at

June 2019

As at

June 2018

As at

December

2018

 

£m

£m

£m

Trade payables

27.1

20.1

26.8

Accruals

47.8

58.9

64.8

Deferred consideration

4.0

3.4

7.3

Other payables

9.7

10.4

13.3

Total trade and other payables

88.6

92.8

112.2

 

 

12)  Provisions for other liabilities and charges

 

Contingent

consideration

Property

provision

Total

provisions

 

£m

£m

£m

Balance at 1 January 2019

19.7

2.2

21.9

Additional provisions

1.7

-

1.7

Amounts utilised

(4.2)

-

(4.2)

Amounts released

(2.7)

-

(2.7)

Unwinding of discounted amount

0.2

-

0.2

Balance at 30 June 2019

14.7

2.2

16.9

 

 

As at

June 2019

As at

June 2018

As at

December

2018

 

£m

£m

£m

Non-current liability

9.3

21.3

12.8

Current liability

7.6

4.0

9.1

Total provisions

16.9

25.3

21.9

 

The minimum value of these provisions could be £nil up to a maximum of £17.7m. The remaining balance is expected to be utilised over the period to 2021.

 

 

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2019

 

13)  Finance income and costs

 

 

 

 

 

 6 months

ended

June 2019

6 months

ended

June 2018

Year ended

December

2018

Finance income

 

 

 

 

£m

£m

£m

Interest income

-

0.1

0.2

Net foreign exchange gains from forward contracts

-

0.1

-

Total finance income

 

-

0.2

0.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 6 months

ended

June 2019

6 months

ended

June 2018

Year ended

December

2018

Finance costs

 

 

 

 

£m

£m

£m

Interest cost on senior secured borrowings

 

4.8

3.6

8.1

Interest cost on revolving credit facility

 

1.2

0.9

2.4

Amortisation of finance arrangement fees

 

1.2

1.1

2.2

Net finance cost relating to pension schemes

 

0.3

0.3

0.6

Interest cost on finance leases

 

0.8

0.1

0.1

Unwinding of discounted amount in provisions

 

0.2

0.4

0.8

Cost of interest rate swap against financial liabilities

-

0.7

1.2

Other fees and interest

 

-

-

0.1

Total finance costs

 

8.5

7.1

15.5

 

 

14)  External loans and borrowings

 

As at

June 2019

As at

June 2018

As at

December

2018

  

£m

£m

£m

Term loan

322.5

320.3

322.6

Revolving credit facility

63.0

71.4

76.7

Unamortised cost of raising finance

(2.9)

(5.2)

(4.1)

Total external loans and borrowings

382.6

386.5

395.2

 

 

15)  Net debt

 

As at      June 2019

As at

June 2018

As at December 2018

  

£m

£m

£m

Term loan

322.5

320.3

322.6

Revolving credit facility

63.0

71.4

76.7

Finance lease liabilities

42.9

1.6

1.1

Cash and cash equivalents

(58.2)

(85.0)

(90.9)

Total net debt

370.2

308.3

309.5

 

 

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2019

 

16)  Share capital

 

As at

June 2019

As at

June 2018

As at

December

2018

Allotted, called up and fully paid

£m

£m

£m

Ordinary shares of £0.001 each 

0.4

0.4

0.4

Total share capital

0.4

0.4

0.4

 

 

As at

June 2019

As at

June 2018

As at

December

2018

Ordinary shares of £0.001 each - in thousands of shares

Number

Number

Number

On issue - fully paid

364,537

364,481

364,537

 

Reconciliation of shares held in the employee benefit trust - in thousands of shares

Number

Balance at 1 January 2018

-

Shares purchased

6,000

Shares issued to option holders

(1,697)

Balance at 31 December 2018

4,303

Shares purchased

1,801

Shares issued to option holders

(3,631)

Balance at 30 June 2019

2,473

 

17)  Income tax charge

 

 6 months

ended

June 2019

6 months

ended

June 2018

Year ended

December

2018

Recognised in the income statement

£m

£m

£m

Current tax charge 

2.2

0.2

2.1

Deferred tax charge

0.1

0.8

1.8

Total income tax charge

2.3

1.0

3.9

 

The standard rate of corporation tax in the UK is 19% (2018: 19%) and accordingly the profits for the six months ended 30 June 2019 are taxed at 19%. The taxation charge for the six months ended 30 June 2019 is based on an estimated full year effective tax rate of 18.2% (2018: 24.2%), which combines UK and overseas operations.

 

 

Opening balance

Recognised in income

Recognised in equity

Closing balance

Movements in deferred tax during the period

£m

£m

£m

£m

Property, plant and equipment 

1.6

(0.1)

-

1.5

Right-of-use assets

-

-

(7.5)

(7.5)

Intangible assets

(23.4)

-

-

(23.4)

Employee benefits and other timing differences

9.4

-

(2.5)

6.9

Finance lease liabilities

-

-

8.1

8.1

Tax value of losses carried forward

36.0

-

-

36.0

 

23.6

(0.1)

(1.9)

21.6

 

18)  Post-employment benefits

Defined benefit pension plans

The Group operates three funded defined benefit pension plans in the UK; ICS Pension Scheme, Paymaster Pension Scheme and Prudential Platinum Pension - MyCSP Limited. The defined benefit obligation as at 30 June 2019 is based on the latest actuarial valuation as at 31 December 2018. We have reviewed the assumptions used to determine this valuation and have concluded that there has been no material change to the net pension obligation. The pension valuation will be updated as part of our normal year end processes on 31 December 2019.
 

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2019

 

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 2018. There have been no changes in the risk management department or in any risk management policies since the year end.

 

 

20)  Financial instruments fair value disclosures

The Group measures its interest rate swaps and foreign exchange forward contracts at fair value. These financial assets and liabilities are presented in the table below:

 

 

As at

June 2019

As at

June 2018

As at

December

2018

  

Level

£m

£m

£m

Financial assets

 

 

 

 

Derivative financial instruments

2

12.5

0.5

0.7

Financial liabilities

 

 

 

 

Derivative financial instruments

2

(0.6)

(4.9)

(3.6)

 

There is no material difference between financial instruments that are not carried at fair value and their fair value.

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 2018 as disclosed in note 6.12 of the Annual Report and Accounts 2018.

 

 

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 2019

6 months

ended

June 2018

Year ended

December

2018

  

£m

£m

£m

Key management emoluments

 

2.0

1.9

5.8

Termination benefits

 

0.4

-

-

Company contributions to money purchase pension plans

-

-

0.1

Share-based payments expense

 

0.5

1.7

3.5

Total

 

2.9

3.6

9.4

 

Key management are the Directors of the Group and the Executive Committee 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 2019

 

22)  Events after the reporting date

In July 2019, the Group reached an agreement to acquire Richard Davies Investor Relations Limited (RD:IR), with completion subject to certain procedural matters. RD:IR is an independent investor relations business, offering a wide range of investor relations related analysis, research and advisory services and will provide the Group's share registration business with a proprietary technology platform for investor analytics, relevant across the Group's client base. 

Also in July 2019, the Group refinanced its senior debt facilities to provide ongoing committed funding beyond the October 2020 maturity.  The existing term loan and revolving credit facility has been extended to July 2024 with an initial margin of 1.50% and fees of £3.6m payable in July 2019. Fees will be amortised over the term of the agreement.

 

 

APPENDIX - NEW STANDARD IFRS 16

 

Reconciliation between operating lease commitments and lease liabilities

 

The Group's finance lease liabilities as at 1 January 2019 can be reconciled to the operating lease commitments as of 31 December 2018 as follows:

 

£m

Operating lease commitments as at 31 December 2018

 

54.4

Weighted average incremental borrowing rate as at 1 January 2019

 

3.47%

Discounted operating lease commitments as at 1 January 2019

 

45.5

Less:

 

 

Short term leases exempt from IFRS 16

 

(0.2)

Adjustments as a result of a different treatment of extension and termination options

 

(3.4)

Add:

 

 

Commitments relating to leases previously classified as finance leases

 

1.1

Finance lease liabilities as at 1 January 2019

 

43.0

 

 


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Unaudited results for six months to 30 June 2019 - RNS