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Equiniti Group PLC - Unaudited results for six months to 30 June 2020

RNS Number : 5371U
Equiniti Group PLC
30 July 2020
 

30 July 2020

 

EQUINITI GROUP PLC UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2020

 

Equiniti Group plc ("EQ" or "the Group"), the international technology-led services and payments specialist, today publishes its unaudited interim results for the six months to 30 June 2020.

 

NAVIGATING COVID-19 HEADWINDS; LONG-TERM GROWTH OPPORTUNITIES REMAIN UNCHANGED

 

 

H1 2020

 

H1 2019

 

Change%1

Revenue (£m)

243.0

275.1

(11.7)

EBITDA*2 (£m)

41.5

60.9

(31.9)

EBITDA*2 margin (%)

17.1

22.1

(5.0)

Operating cash flow conversion*3 (%)

68

83

(15)

Earnings before interest and tax (EBIT)*

6.5

20.1

(67.7)

Profit after tax (£m)

0.2

9.3

(97.8)

Diluted EPS* (pence)

-

2.3

(100.0)

Underlying EPS* (pence)

3.0

7.7

(61.0)

Dividend per share (pence)

-

1.95

(100.0)

Net debt (£m)

355.3

370.2

(4.0)

Leverage (x)

3.0

2.8

0.2x

 

Summary

The economic effects of the coronavirus pandemic have compounded an already weakening environment and impacted trading in the first half of 2020 despite the underlying resilience of the Group.  The reduction of interest rates in the UK and US occurred in the week of our 2019 preliminary results, and thereafter the withdrawal of more than £38bn of dividend payments by UK listed businesses and the associated disruption to global equity capital markets have reduced the income earned from reinvestment plans, share dealing programmes and share plan vestings.  Additionally and inevitably, the decision making of corporate clients has slowed, delaying the sale of software and the delivery of services projects until later in the year. 

 

The fidelity of our corporate client base remains very high with the majority of our revenues arising from non-discretionary services delivered under long-term contracts, and with trading in June ahead of April and May and sales activity significantly ahead of the prior period, we have conviction that trading will improve as business confidence returns.

 

The operational response of our teams has been exemplary, with all lines of business sustained without interruption and our considerable investment in infrastructure has allowed a seamless transition to home-working.  Programmes to increase service automation and digitisation have been accelerated, in parallel with decisive measures to reduce costs including the deferral of pay reviews and discretionary spend, and to maintain liquidity including the use of permitted VAT deferrals.

 

Our priority remains the reduction of net debt and leverage whilst sustaining the quality of our services and onboarding new business won.  Accordingly, we do not intend to return to dividend payment or material acquisition activity until increases in the order book translate to profit growth, leverage reduces and there is an adequate generation of free cash flow to equity holders.  The cash generative capacity of our key businesses along with the fidelity of our client base and the non-discretionary characteristics of our core services give us confidence that we are well placed for the COVID-19 recovery phase and into the medium term.

 

Financial highlights

·      Revenue decline of 11.7% with organic* revenue decline of 13.3%, with resilient underlying business performance held back by headwinds from COVID-19 including:

Interest rate reductions in the UK and US

Withdrawal and suspension of dividend and dealing programmes

Reduced corporate actions

Deferred software projects

Deferred remediation projects

·      EBITDA decline of 31.9% resulting in a margin of 17.1% reflecting a lower level of higher margin projects and reduced interest income

·      Decline of profit after tax to £0.2m reflecting a lower level of EBITDA

·      No exceptional or non-recurring charges in the period with all self-help measures funded from operating expenditure

·      Operating cash flow conversion of 68% as a result of client disruptions in the second quarter and less third party spend offset by permitted VAT deferrals

·      Pleasing reduction in net debt to £355.3m (30 June 2019: £370.2m) with a higher rate of leverage at 3.0x resulting from lower EBITDA

 

 

 

 

Strategic progress

·      Non-discretionary, long-term contracts (c70% of Group revenue) continued as normal

·      Decisive action to reduce costs and preserve cash with cost efficiency programmes expected to deliver £16m in FY 2020 and a further £16m in FY 2021

·      Liquidity of £208.0m at period end

·      Encouraging market share gains in North America :

New client wins including American Midstream Partners, Arcutis, FS Bancorp and NuSkin Enterprises

New IPO mandates including The Azek Company, Treeon Insurance, Vertex and ZoomInfo

Key renewals including Allete, Honeywell, J.P. Morgan and Wells Fargo

Continued traction with new products with strong demand for virtual meetings and equity compensation plans

Delivery of US synergies in line with plan and on track to deliver $10m in 2020

·      Continued strong client retention with new wins across all UK divisions:

Share registration renewals including Imperial Brands, Hays, JD Sports, J.P. Morgan, Serco and Smiths Group

Share registration wins with Hurricane Energy and Paypoint

New client wins in EQ Digital for both software and services including ABN AMRO, Centrica, Civil Aviation Authority and Lloyds

Renewed or extended relationships in EQ Paymaster including Bank of England, British Airways, BAE Systems, Shell and QinetiQ, and new client wins secured in the period

 

Outlook

·      Although there are encouraging signs of activity rebuilding in our core markets, as a result of the continued unprecedented levels of uncertainty it is not possible to provide an accurate assessment of the trading outlook for the current year and therefore guidance remains withdrawn, however:

Our commitment to the reduction of net debt and leverage continues

Expectation of more normal market conditions for dividends and corporate actions

The resumption of EQ dividend to be reconsidered once increases in the order book translate to profit growth, leverage reduces and there is an adequate generation of free cash flow to equity holders

Interest cover and liquidity remain healthy with debt facilities in place for another four years and significant covenant headroom

 

 

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

"The effects of the COVID-19 global health pandemic during the first half of 2020 have brought unprecedented challenge for EQ and our staff, our markets and our customers, and there remains considerable uncertainty ahead.  Whilst we have been proud of the resilience of our operations and the quality of service we have delivered to our clients, trading has been impacted by the combined effect of reduced interest rates and capital markets activity, in particular the suspension of dividend payments and dividend reinvestment plans by many listed clients.  We have taken swift and decisive actions on cost, on cash flow and have accelerated digitisation and remain a robust business with healthy liquidity that is well placed to withstand a continuing period of uncertainty. 

 

"As we look to the remainder of the year, we are heartened that activity levels have increased with our order intake materially ahead of the equivalent period and that our unrivalled client fidelity continues, supplemented by new wins in all of our business lines, with particular progress in EQ Paymaster.  The non-discretionary and regulated nature of our services provide protection against recessionary conditions and the imperative for our clients to outsource non-core services has never been stronger.

 

"Whilst the timing and rate of the recovery from the COVID-19 pandemic remain unknowable, our defensive revenues along with actions to reduce cost, preserve cash and strengthen services provide us with the confidence that we have the resilience to weather an extended period of uncertainty."

 

 

1Change at actual foreign exchange rates.  Revenue change at constant foreign exchange rates is (12.1%) and EBITDA is (32.2%).

2EBITDA is earnings before net financing interest costs, income tax, depreciation of property, plant and equipment, amortisation of software and amortisation of acquired intangible assets. Prior period comparators throughout this announcement exclude non-operating charges of £5.5m relating to the acquisition of EQ US.  See page 15 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 £8.0m (H1 2019: £10.2m) was utilised at the end of the period.  Details of the facility can be found on page 13. 

*The Group uses alternative performance measures to provide additional information on the underlying performance of the business.  See pages 15 to 16 for further detail.

 

Analyst and Investor presentation

A virtual meeting for analysts and investors will be held today at 9:15am. The presentation will be broadcast live on EQ's website, www.equiniti.com and an archive version of the presentation will be available on the website later today. 

 

Conference call details:

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

 

 

 

For further information please contact: 

Analyst/Investor enquiries:

EQ                                  Guy Wakeley, Chief Executive                           +44 (0) 7484 072 471 

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 EQ. 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 EQ'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. EQ 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. 
 

 

COVID-19 AND IMPACT ON RESULTS

On 15 April 2020, the Group provided an update on trading performance since 31 December 2019 and explained the impact of COVID-19 on the Group's operations.

 

At that time, the Group had already made significant progress in supporting and protecting the safety and welfare of its employees whilst continuing to support its clients and customers. The Group Chief Executive continues to broadcast regular update briefings for all employees to discuss the impact on the business and to keep colleagues informed and updated.

 

There has been uncertainty in the market in recent years as the UK's Brexit agenda was debated and the change in the UK Government following the 2019 general election. The outlook for 2020 had been positive as the Directors anticipated that many projects deferred by clients might be resumed. However, when the World Health Organisation classified COVID-19 as a pandemic in March 2020, many clients subsequently cancelled or suspended dividends, and changed the timing of other corporate events, often at the last minute.  The impact of COVID-19 on Group EBITDA is estimated to be c£25m in the period, but management has also taken action to reduce the cost base in the period by a further c£7m.

 

Whilst the Group has responded to these operational issues without difficulty, it is inevitable that some revenues will be deferred until later in the year or beyond when normal conditions return. The Group is in the fortunate position that c70% of its revenues are underpinned by long-term contracts and many of its core services continue as normal. Strong client retention in the period has emphasised the fidelity of the Group's relationships with its clients. 

 

In light of the evolving COVID-19 situation, the Group moved quickly to protect profitability, liquidity and cash flow while seeking to ensure it is well placed to benefit when the recovery takes place. The Group has proactively managed its cost base, with all non-essential capex and discretionary costs suspended.  Salary reviews for senior employees have been deferred, recruitment has been frozen and interim resources removed. Share awards for the executive leadership team were reduced by 50% and headcount has also been reduced.

 

Meanwhile the EQ leadership team anticipated the impact COVID-19 was likely to have the on its employees and, in order to insulate them from the impact of the pandemic, a pay rise of £400 was given to UK employees who earned under £30,000 per year.

 

The Group also aimed to retain as many jobs as possible during the crisis and utilised Government support packages where appropriate. A small number of the Group's employees were furloughed between April and June 2020. During this period the Group received £0.5m from the Government's job retention scheme. However, the Group ensured that all employees continued to receive their full pay throughout this period.  All furloughed colleagues had returned to work by the end of June 2020.

 

The Group sought to identify the impacts of COVID-19 as early as possible, with work commencing shortly before the 2019 full year results were announced. Actions included quantifying the impact to staff taking abnormally low levels of annual leave in 2020; assessing the potential for material movements in the defined benefit pension schemes; assessing the impact that social distancing could have on the return to the Group's smaller premises; recognising any Government grants or assistance received to project jobs; and confirming that the expected trading does not reduce the headroom between the value of intangible assets and the value in use requiring an impairment charge to be taken.

 

The Group has seen an impact on working capital during 2020 as clients are taking longer to pay outstanding invoices. In H1 2019 it took the Group, on average, 56 days to collect payment for outstanding invoices. This increased to 65 days in H1 2020.  The Group also incurred less third party spend in the business as it focused on costs and saw an increase in prepayments.  Some of this is cyclical but we have also seen a change in the pattern of prepayments linked to certain software licences from critical IT suppliers impacting cash flow. This has resulted in a cash outflow of £14.9m in the period. 

 

The Group has benefitted from other support initiatives announced by the Government which have helped to maintain liquidity during the pandemic.  During 2020, the Group has deferred £8.7m of VAT payments to HMRC until March 2021. The Group also deferred $0.6m of social security taxes in the US and will repay 50% of this amount in 2021 and 50% in 2022.

 

 

 

In order to preserve cash and liquidity, the Group has paused all acquisition activity. The Group has also reviewed all capital projects and stopped those that will not generate revenue in the current year or are deemed non-critical. This should lead to substantially less capital expenditure being incurred in the second half of the year.

 

Despite the above, the Group's cash position remains strong at 30 June 2020. The Group had undrawn funds of £160.0m available through its revolving credit facility and cash of £48.0m at 30 June 2020 to support its operations. Group forecasts anticipate sufficient levels of liquidity and compliance with our covenants for the foreseeable future.

 

The Board anticipates that trading conditions will continue to be challenging during the short term, although the market outlook is less uncertain than it was at the beginning of the pandemic.

 

 

COST REDUCTION MEASURES

The Group is currently reviewing its ongoing property needs and also intends to accelerate digital channels to market to ensure the Group comes out of the COVID-19 crisis fitter and leaner to support further market share gains.  This involves exploring the potential to vacate a number of properties, allowing the Group to build centres of excellence in larger premises to provide flexible working and appropriate social distancing space for our employees. The assessment work will complete in H2 2020.

 

In total, cost actions are expected to deliver c£16m savings in FY 2020, of which £7m were delivered in H1 2020.  Costs to deliver savings in H1 2020 were c£1.5m.  We expect an incremental c£16m of savings in FY 2021 as the full year effect of our actions flows to trading and we look at further initiatives to manage the cost base.  

 

 

 

H1 2020

£m

FY 2020

£m

Consultancy and contractors

1

3

Pay reviews

1

2

Hiring avoided

Incentives

Third party spend

2

2

1

4

5

2

Gross Savings

7

16

       

 

 

 

 

 

GROUP RESULTS

 

 

 

 

 

H1 2020

 

 

 

H1 2019

 

 

Reported

Change %

 

 

Organic

Change %

Revenue £m

 

 

 

 

 

  EQ Boardroom

 

64.8

73.1

(11.4)

(14.5)

  EQ Digital

 

71.1

83.9

(15.3)

(15.3)

  EQ Paymaster

 

57.5

62.7

(8.3)

(8.3)

  Interest Income

 

5.7

6.6

(13.6)

(13.6)

  Total UK & Europe

  EQ US

 

199.1

43.9

226.3

48.8

(12.0)

(10.0)

(13.1)

(14.3)

EQ

 

243.0

275.1

(11.7)

(13.3)

 

EBITDA (£m)

  EQ Boardroom

 

18.9

23.4

(19.2)

 

  EQ Digital

 

13.5

19.8

(31.8)

 

  EQ Paymaster

 

5.7

9.0

(36.7)

 

  Interest Income

 

5.7

6.6

(13.6)

 

 Total UK & Europe

  EQ US

 

43.8

7.2

58.8

10.6

(25.5)

(32.1)

 

Divisional Total

 

51.0

69.4

(26.5)

 

Central Costs

 

(9.5)

(8.5)

11.8%

 

EQ

 

41.5

60.9

(31.9)

 

 

EBITDA margin (%)

  EQ Boardroom

 

29.2

32.0

(2.8)

 

  EQ Digital

 

19.0

23.6

(4.6)

 

  EQ Paymaster

 

9.9

14.4

(4.5)

 

Total UK & Europe

EQ US

 

22.0

16.4

26.0

21.7

(4.0)

(5.3)

 

EQ

 

17.1

22.1

(5.0)

 

             

Change in divisional names to EQ Boardroom (previously Investment Solutions); EQ Digital (previously Intelligent Solutions);

and EQ Paymaster (previously Pension Solutions).

Reported change is at actual foreign exchange rates. Organic change (13.3%) is at constant foreign exchange rates.  

Reported revenue change at constant foreign exchange rates is (12.1%) and EBITDA is (32.2%). 

EQ US reported revenue change at constant foreign exchange rates is (12.4%) and EBITDA is (33.9%).

 

Overview

EQ continued to make progress in a challenging environment.  The Group's business model is underpinned by a high degree of recurring revenue and enduring relationships with large listed corporates and Government, and those characteristics remain unchanged.  Client retention remained strong and we have extended a number of key relationships in the period.  New client wins were also encouraging with new business won across all divisions.  In the UK, we maintained our market leading positions, and, in the US, we continued to prove out the investment case by further expanding our product offering and increasing market share with a significant number of new client wins in the period. 

 

Whilst trading up to and during March was in line with management expectations, demand levels were negatively impacted through April and May as the COVID-19 pandemic crisis forced some clients to defer, suspend or cancel projects.  Trading in June was ahead of April and May as the impact of the COVID-19 pandemic passed its peak and client activities started to return to a level of normality.  The order pipeline is solid and building and orders secured in the first half of the year were 21% ahead of the same period in 2019, giving the Group confidence trading will improve as we move through the second half of the year.

 

 

 

 

Revenue decreased by 11.7% to £243.0m (H1 2019: £275.1m) during the period whilst revenue adjusted for acquisitions and foreign exchange rates declined organically by 13.3%.  EBITDA decreased by 31.9% to £41.5m (H1 2019: £60.9m) reflecting reduced interest rates and a reduction in higher margin projects due to the impact of COVID-19 as follows: 

 

 

 

 

H1 2020

£m

FY 2020

£m

 

Interest rate reductions in the UK and the US

3

8

Withdrawal and suspension of dividend and dealing programmes

4

9

Cancelled software sales

Reduced corporate actions

Deferred software projects

Deferred remediation projects

Provision for untaken staff holiday

2

5

6

3

2

4

8

6

3

3

Gross Impact

25

41

               

 

Whilst all divisions retained their client base and contracted revenue continued as normal, there has been some impact to trading in the short term.  EQ Boardroom was impacted by lower corporate activity, fewer share dealing programmes and reduced dividend commissions.  EQ Digital was impacted by a lower level of software sales and reduced remediation volumes as some clients closed sites and deferred projects.  In EQ Paymaster, there was some impact with projects being delayed along with the £1.2m price reduction relating to the MyCSP contract as agreed when the contract was extended in September 2018.   EQ US was impacted by uncertainties in equity capital markets resulting in a lower level of corporate actions and project work. 

 

In the UK, interest income was 13.6% lower than the prior period, on average UK client balances of £1.7bn
(H1 2019: £1.7bn) and reflects the declining interest rates in the UK.  UK 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).  The Group also earns interest income in the US with $700m of balances fixed to March 2021.  In the US, revenue from interest income decreased by 3.4% to £5.7m (H1 2019: £5.9m) on lower average interest-bearing client balances of £484.7m (H1 2019: £514.5m).

 

As a result of declining interest rates in both the UK and the US and the unwinding of some hedging arrangements, the impact on Group revenue and EBITDA is estimated to be £8m in FY 2020 and a further £17m in FY 2021.

 

Central costs in the period increased by 11.8% to £9.5m (H1 2019: £8.5m) and were driven by a £2m non-cash holiday provision in the period as colleagues took materially less holiday in the first half of the year. This has no bearing on cash flow and is expected to unwind over time.

 

Operating cash flow conversion was lower at 68% (H1 2019: 83%) reflecting clients taking longer to pay and less trade credit in the business offset by the UK Government's VAT deferral scheme.  Net debt of £355.3m represents a ratio of 3.0x net debt/EBITDA (30 June 2019: 2.8x) reflecting a lower level of EBITDA.

 

On 15 April 2020, in light of the unprecedented uncertainty due to the COVID-19 pandemic, we announced the decision to no longer propose a final dividend for the year ended 31 December 2019. The Board has since considered the overall dividend payment for this financial year and concluded that the outlook remains too uncertain to commit to a resumption of dividend payments in the short term.  Recognising the importance of dividends to shareholders, the Board will actively consider the resumption of a dividend payment once increases in the order book translate to profit growth, leverage reduces and there is an adequate generation of free cash flow to equity holders.

 

 

 

OPERATIONAL REVIEW 

We serve our clients through four divisions: EQ Boardroom (previously Investment Solutions), EQ Digital (previously Intelligent Solutions), EQ Paymaster (previously 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.

 

 

EQ Boardroom

EQ Boardroom 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 2020

H1 2019

Change %

Revenue (£m)

64.8

73.1

(11.4)

EBITDA (£m)

18.9

23.4

(19.2)

EBITDA margin (%)

29.2

32.0

(2.8)

 

Revenue in EQ Boardroom decreased by 11.4% to £64.8m (H1 2019: £73.1m) with a decline in corporate action revenue of 60.5% to £3.2m (H1 2019: £8.1m).  Strong client retention, new client wins and increased share dealing activity was offset by lower corporate activity, fewer share dealing programmes and reduced dividend commissions. 

 

EBITDA decreased by 19.2% to £18.9m (H1 2019: £23.4m) driven by a lower level of higher margin activity.

 

Our share registration business performed well with strong client retention.  There was a significant number of renewals in the period which included Hays, JD Sports, J.P. Morgan, Serco and Smiths Group.  New clients transferred in the period included Hurricane Energy and Paypoint.  The division also supported Shell with its first fully digitised dividend payment.

 

Our share plans business had a good performance with new client wins in the period including Euromoney, Hurricane Energy and Just Eat Takeaway.  The business has also seen a number of corporates launch COVID-specific share plans as a means to incentivise employees. 

 

In February 2020, we completed the acquisition of Monidee B.V ("Monidee"), a highly complementary share plans business servicing more than 200,000 employees across 210 corporate clients in 50 countries.  The acquisition allows us to answer current client demand and provides us with a leading proprietary platform to attract new international clients.  The implementation work following the acquisition is progressing well and the business has secured its first global share plan client.  Monidee has also gone live with a significant new client, utilising its system to provide a live order book and investors website for the NPEX stock exchange. 

 

The division's execution-only brokerage service delivered solid growth with trading volumes significantly ahead of last year.  The business has been investing in its proprietary platform and in Q1 2020 launched its new consumer brand, EQi.  A refreshed web presence has improved functionality and a smoother customer journey, with 3,000 new accounts opened since launch. 

 

 

 

EQ Digital

EQ Digital 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 2020

H1 2019

Change %

Revenue (£m)

71.1

83.9

(15.3)

EBITDA (£m)

13.5

19.8

(31.8)

EBITDA margin (%)

19.0

23.6

(4.6)

 

 

 

           

Revenue in EQ Digital decreased by 15.3% to £71.1m (H1 2019: £83.9m) whilst EBITDA decreased by 31.8% to £13.5m (H1 2019: £19.8m) primarily as a result of reduced remediation volumes as some clients closed sites and deferred projects in the short term and a delay in software license sales.

 

Remediation services are driven by regulation and are often non-discretionary in nature.  During the pandemic, there was a reduction in remediation volumes as some clients closed sites and deferred projects.  The division is now seeing a return to business as usual with projects such as PPI, which decreased in volume during the second quarter, returning in earnest during the second half. 

 

Credit services secured a number of software license sales in the period, including wins with Morses Club, and Hodge Bank, marking its entry into the mortgage market.  There was further traction with our risk analytics platform as the division won new business with ABN AMRO and Lloyds Banking Group.  All major high street banks in the UK now use the division's risk analytics platform. 

 

Our KYC business had continued success in expansion into Northern Europe and signed a technology deal with Dutch bank, FMO.  KYC also launched a partnership with Encompass to accelerate speed to market and international growth. 

 

The EQ Insider platform launched as part of the division's data services offering continued to gain traction and is now supporting 22 J.P. Morgan Investment Trusts.  Other wins in the period included a contract with Centrica and the Civil Aviation Authority.

 

 

EQ Paymaster

EQ Paymaster 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 2020

H1 2019

Change %

Revenue (£m)

57.5

62.7

(8.3)

EBITDA (£m)

5.7

9.0

(36.7)

EBITDA margin (%)

9.9

14.4

(4.5)

 

 

 

           

EQ Paymaster revenue declined by 8.3% to £57.5m (H1 2019: £62.7m), with a decrease in EBITDA of 36.7% to £5.7m (H1 2019: £9.0m) reflecting the expected £1.2m price reduction relating to the MyCSP contract and a delay in some project work.

 

The division successfully renewed or extended relationships with clients including Bank of England, British Airways, BAE Systems, Shell and QinetiQ.  The division also secured new client wins in the period.

 

MyCSP delivered in line with expectations.  The MyCSP contract was due to run until the end of 2021. As a result of the McCloud judgement, the re-procurement process was put on hold.  The division is working closely and actively with the Cabinet Office in a number of areas including the short-term and long-term options for the administration of the pension scheme.  These discussions also include how we can support the imminent 2015 Remedy (McLoud) programme delivery. 

 

The division is seeing some projects come back on stream and the Remedy programme in particular is slowly gaining pace.

 

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 2020

H1 2019

Change %

Revenue (£m)

43.9

48.8

(10.0)

EBITDA (£m)

7.2

10.6

(32.1)

EBITDA margin (%)

16.4

21.7

(5.3)

 

 

 

           

Revenue in the period decreased by 10.0% to £43.9m (H1 2019: £48.8m) with a decrease in revenue from corporate actions of 61.8% to £2.1m (H1 2019: £5.5m).  Market share growth and strong traction with new products were offset by a lower level of corporate activity in the period.  Revenue from interest income decreased by 3.4% to £5.7m (H1 2019: £5.9m) on lower average interest-bearing client balances of £484.7m (H1 2019: £514.5m).  All of the US hedges mature in March 2021.

 

EBITDA decreased by 32.1% to £7.2m (H1 2019: £10.6m) reflecting a lower level of corporate activity, dividends suspended and projects such as share dealing programmes being cancelled or delayed.  

 

Key client renewals in the period included Allete, Honeywell, J.P. Morgan and Wells Fargo. The division also gained significant market share with new client wins including American Midstream Partners, Arcutis, FS Bancorp and NuSkin Enterprises Inc. and new IPO mandates including The Azek Company, Treeon Insurance, Vertex and ZoomInfo.

 

New products launched in 2019 continue to gain traction.  The equity compensation plans launched in May 2019 have seen strong momentum with a number of sales to new and existing clients.  The business was also awarded channel partnerships with Vanguard and Wells Fargo.  In response to COVID-19, the division's virtual annual meeting service has seen strong growth with more than 50 meetings in the period, including eight with competitors' clients. The division has also worked on asset reunification projects with a number of clients and has a good pipeline for the remainder of the year.

 

In November 2019, EQ US acquired Computer Stock Transfer Inc. ("CST"), a US transfer agent based in Denver, Colorado. The acquisition expands the division's addressable market by opening up a new growth area in the micro-cap client space.

 

The synergies outlined in EQ's acquisition case for EQ US are on track for delivery in their entirety. EQ US achieved its planned synergies of $5m in 2019 and is on track to deliver $10m in 2020.

 

 

 

FINANCIAL REVIEW

 

Group Income Statement                                            

 

 

 

 

H1 2020

£m

H1 2019

£m

Revenue

 

 

243.0

275.1

 

 

 

 

 

EBITDA

 

 

41.5

60.9

Depreciation

 

 

(6.9)

(6.3)

Amortisation - software

 

 

(14.7)

(13.2)

Amortisation - acquired intangibles

 

 

(13.4)

(15.8)

EBIT prior to non-operating charges

 

 

6.5

25.6

Non-operating charges

 

 

-

(5.5)

EBIT

 

 

6.5

20.1

Net finance costs

 

 

(7.2)

(8.5)

(Loss)/profit before income tax

 

 

(0.7)

11.6

Taxation

 

 

0.9

(2.3)

Profit after tax

 

 

0.2

9.3

Non-controlling interests

 

 

(0.3)

(0.8)

(Loss)/profit attributable to ordinary shareholders

 

 

(0.1)

8.5

 

Earnings per share (pence)

Basic

Diluted

Underlying diluted

 

 

 

 

-

-

3.0

 

 

2.3

2.3

7.7

           

 

Revenue

Revenue decreased by 11.7% to £243.0m (H1 2019: £275.1m) during the period with an organic revenue decline of 13.3%. Organic revenue growth is reported revenue growth adjusted for acquisitions and changes to foreign exchange rates, to compare growth on a like-for like basis.  Here we restate 2019 for the prior period acquisitions had they been owned in 2019 to create a like-for-like comparison of year-on-year progress.  This is calculated as follows:

 

 

Revenue

H1 2019

Reported

£m

H1 2019

Adjustment

£m

H1 2019

Organic

£m

EQ Boardroom

73.1

2.71

75.8

EQ Digital

83.9

-

83.9

EQ Paymaster

62.7

-

62.7

Interest Income

6.6

-

6.6

Total UK & Europe

226.3

2.7

229.0

EQ US*

48.8

2.42

51.2

EQ

275.1

5.1

280.2

1Acquisition of Boudicca Proxy and Richard Davies Investor Relations.

2Acquisition of Corporate Stock Transfer.

*EQ US is translated at 2020 constant exchange rates to provide like-for-like comparison.

 

EBITDA

EBITDA decreased by 31.9% to £41.5m (H1 2019: £60.9m) reflecting a lower level of high margin project activity.

 

EBIT

EBIT remains an important measure of the Group's performance, reflecting profit before net finance costs and income tax. In H1 2020, EBIT was £6.5m (H1 2019: £20.1m). 

 

 

 

 

Net finance costs

Group net finance costs decreased by £1.3m to £7.2 (H1 2019: £8.5m) reflecting lower interest rates. The Group has fixed the interest on its borrowing facilities through the use of interest rate swaps.

 

Taxation

There was a net tax receipt in the period of £0.3m after a repayment of £1.3m relating to overpaid 2018 corporation tax.  Taxes paid in the period of £1.0m relate to payments on account for MyCSP Limited as well as overseas taxes relating to the Group's operations in Poland, India, US and the Netherlands.

 

The Group has recognised deferred tax on £725.5m 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 £106.3m, on which a net deferred tax asset of £20.1m has been recognised at the relevant local statutory rate.

 

The gross tax attributes totalling £725.5m are represented by:

Future tax deductions on tax losses carried forward                                            £205.5m

Future tax deductions on intangible assets                                                          £442.5m

Future tax deductions on property, plant and equipment                                     £18.3m

Future tax deductions on employee benefits and other timing differences          £59.2m

 

The tax impact of these attributes is recognised as deferred tax in the statement of financial position.   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.

 

A cash effective tax rate of c10% applies for 2020 and 2021, rising to c13% thereafter.  The rate has been revised downwards to reflect the impact of COVID-19 on the profitability and expected cash tax outflows for the Group for this and subsequent years.  The cash tax rate is determined through a detailed 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 the group transfer pricing policy.

 

We consider the underlying cash effective 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.

 

(Loss)/profit attributable to ordinary shareholders

The Group made a loss attributable to ordinary shareholders of £0.1m; (H1 2019: Profit of £8.5m).

 

EPS

Basic EPS of 0.0 pence (H1 2019: 2.3 pence) is based on the weighted average number of shares totalling 368.9m (H1 2019: 368.4m).  Diluted EPS of 0.0 pence (H1 2019: 2.3 pence) is based on the weighted average number of shares totalling 368.9m (H1 2019: 368.5m).

 

Underlying EPS decreased by 61.0% to 3.0 pence compared to the prior period of 7.7 pence. 

 

Capital structure

The Group's consolidated statement of financial position at 30 June 2020 is summarised as follows:

 

 

 

30 June 2020

£m

 

30 June 2019

£m

Assets

 

 

  Non-current assets

919.1

919.3

  Current assets

204.8

195.1

Total assets

1,123.9

1,114.4

Liabilities

 

 

  Non-current liabilities

432.9

450.6

  Current liabilities

150.9

144.3

Total liabilities

583.8

594.9

Total equity

540.1

519.5

 

 

 

Current assets include £86.3m of trade receivables and accrued income at 30 June 2020
(30 June 2019: £87.9m).  Accrued income represents amounts recognised as revenue but not yet billed and is driven by mix in business including corporate actions, software sales and remediation services.  No income is accrued without a contract in place.  The blue-chip nature of our client base results in minimal bad debts of £0.1m at 30 June 2020 (30 June 2019: £0.1m). 

 

Cash flow

The Group generated a free cash outflow attributable to equity holders of £2.5m (H1 2019: cash inflow of £3.5m) and delivered an operating cash flow conversion of 68% (H1 2019: 83%). The reduction in operating cash conversion is caused by a lengthening of debtor days with payment practices being elongated through the COVID-19 crisis and fewer creditors supporting the business as third party spend has been reduced. This was partially offset by the business benefitting from the UK Government's VAT deferral scheme which will unwind by March 2021. The main movements in cash flow are:

 

 

H1 2020

£m

H1 2019

£m

EBITDA

41.5

60.9

Working capital movement

(13.2)

(10.2)

Operating cash flow prior to non-operating charges

28.3

50.7

Operating cash flow conversion (%)

68

83

Cash outflow on non-operating charges

-

(11.0)

Capital expenditure

(22.4)

(25.7)

Net interest costs

(5.4)

(7.0)

Tax receipts

0.3

0.4

Employee benefit trust (EBT) - share purchase

-

(0.2)

Finance lease payments

(3.3)

(3.7)

Free cash flow attributable to equity holders

(2.5)

3.5

Payment for current and prior year acquisitions

(5.6)

(7.5)

 

 

 

Dividends paid (including payment to non-controlling interest)

(1.4)

(14.8)

Net cash flow

(9.5)

(18.8)

Reconciling items to movements in cash:

 

 

Net reduction in borrowings

(15.0)

(13.4)

Net cash movement

(24.5)

(32.2)

 

The Group has access to a £20.0m receivables financing facility, of which £8.0m (H1 2019: £10.2m) was utilised at the end of the period and included within cash balances.  The facility allows the Group to manage its credit exposure and to help match receipts against costs, especially where clients require extended payment terms. The facility is with Lloyds Banking Group at a rate of 1.75% over LIBOR. 

 

Reconciliation of EBITDA to total cash generated from operations

H1 2020

£m

H1 2019

£m

EBITDA

41.5

60.9

  Change in receivables and accrued income

(1.7)

(2.6)

  Change in operating payables and prepayments

(14.9)

(1.3)

  Share-based payment expense

1.2

1.2

  VAT deferral

8.7

-

  Incentives

(6.0)

(6.5)

  Other

(0.5)

(1.0)

Operating cash flow prior to non-operating charges

28.3

50.7

Non-operating charges:

 

 

  Non-operating P&L expense

-

(5.5)

  Net change in non-operating payables

-

(5.5)

Total cash generated from operations

28.3

39.7

Interest paid

(5.5)

(7.0)

Income tax received

0.3

0.4

Net cash inflow from operating activities

23.1

33.1

 

 

 

 

Capital expenditure

Net expenditure on tangible and intangible assets was £22.4m (H1 2019: £25.7m). This represents 9.2% of revenue (H1 2019: 9.3%). This has reduced as work to integrate EQ US has completed and will decline further in H2 2020 as capital expenditure is very much focused on critical items whilst the COVID-19 crisis settles.

 

Net interest costs

Net interest costs paid in the period were £5.4m (H1 2019: £7.0m) as a result of declining interest rates. 

 

Investment in current and prior year acquisitions

Net cash outflow on current and prior year acquisitions was £5.6m (H1 2019: £7.5m).

 

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.  The Group generated a free cash outflow attributable to equity holders of £2.5m (H1 2019: cash inflow of £3.5m).

 

Bank borrowings and financial covenants

 

 

 

 

 

 

 

H1 2020

£m

 

H1 2019

£m

Term loan

 

 

 

264.6

322.5

Revolving credit facility

 

 

 

100.0

63.0

Finance lease liabilities

 

 

 

38.7

42.9

Cash and cash equivalents

 

 

 

(48.0)

(58.2)

Net debt

 

 

 

355.3

370.2

Net debt/EBITDA (times)

 

 

 

3.0x

2.8x

 

At 30 June 2020, net debt was lower at £355.3m (30 June 2019: £370.2m) representing a ratio of 3.0x net debt/EBITDA (30 June 2019: 2.8x).  The ratio has increased due to declining profitability in the period.

 

The Group continues to maintain a strong financial position and balance sheet with Senior Debt Facilities of £520.0m term loan and revolving credit facility running to July 2024. At 30 June 2020 the Group had cash and undrawn RCF facilities of £208.0m to support the business. The financial covenant attached to the committed facility is net debt/underlying EBITDA excluding the finance lease liability should be no more than 4.0x in 2020, 3.75x in 2021 and 3.50x in 2022.  This covenant ratio at 30 June 2020 was 2.9x and excludes IFRS 16 lease liabilities from the calculation. 

 

Acquisitions

On 19 February 2020, the Group purchased the entire issued share capital of Monidee B.V. ("Monidee"). Initial consideration of £3.3m (€4.0m) was paid in February 2020 and deferred consideration of £3.4m (€4.0m) is payable in February 2021. Monidee is a highly complementary share plans business that currently services more than 200,000 employees across 210 corporate clients in 50 countries.  This acquisition will allow the Group to answer current client demand and provides a leading proprietary platform to attract new international clients.

 

 

 

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 and changes to foreign exchange rates, to compare growth 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 11 for calculation.

 

EBITDA and underlying EBITDA

EBITDA is 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

 

 

H1 2020

£m

 

H1 2019

£m

(Loss)/profit before tax

Plus: Depreciation

Plus: Amortisation of software

Plus: Amortisation of acquisition-related intangible assets

Less: Finance income

Plus: Finance costs

 

                   (0.7)

6.9

14.7

13.4

(0.1)

7.3

11.6

6.3

13.2

15.8

-

8.5

EBITDA

 

41.5

55.4

Adjustment for non-operating charges:

Plus: Transaction costs

Plus: Integration costs

 

 

-

-

 

0.3

5.2

Underlying EBITDA

 

41.5

60.9

 

EBITDA and underlying EBITDA margin

EBITDA margin is earnings before interest costs, tax, depreciation and amortisation as a percentage of revenue. Underlying EBITDA margin is earnings before interest, tax, depreciation, amortisation and non-operating charges as a percentage of revenue.  Margin 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 EBITDA plus change in working capital as a percentage of 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 13 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 13 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 11 for calculation.

 

Cash tax rate

The cash tax rate is determined through a detailed calculation, estimating 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 EBITDA.  This is a key measure that evaluates the Group's capital structure and its ability to meet financial covenants. See page 14 for calculation of net debt.

 

Underlying profit attributable to ordinary shareholders

Whilst dividend payments have been suspended in the short term due to the unprecedented uncertainty due to the COVID-19 pandemic, the Group has a progressive dividend policy which will see it distribute around 30% of underlying profit attributable to ordinary shareholders each year. See below for calculation of underlying profit attributable to ordinary shareholders.

 

Underlying earnings per share

Underlying earnings per share represents EBITDA, less depreciation of property, amortisation of software, net interest costs, cash tax and minority interest. 

 

Reconciliation to underlying earnings per share

 

 

H1 2020

£m

 

H1 2019

£m

EBITDA

Less: Depreciation

Less: Amortisation of software

Less: Net finance costs

 

41.5

(6.9)

(14.7)

(7.2)

60.9

(6.3)

(13.2)

(8.5)

Cash tax at 10% / 12%

 

(1.3)

(3.9)

Minority interest

 

(0.3)

(0.8)

Underlying profit attributable to ordinary shareholders

 

11.1

28.2

Diluted weighted average number of ordinary shares in issue (m)

 

368.9

368.5

Underlying earnings per share (pence)

 

3.0

7.7

 

 

 

 

PRINCIPAL RISKS AND UNCERTAINTIES

The Directors have considered the principal risks and uncertainties affecting the Group's financial position and prospects in 2020.  As described on pages 52 to 55 of the Group's 2019 Annual Report, 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: data protection; security; information technology; organistional resilience, product development, channel and pricing; regulatory requirements; purchasing, supply and outsourcing; people; change and development; conduct; and markets and competition. 

 

In response to the COVID-19 pandemic we initiated our Group-wide response programme in early March 2020. Our Group Chief Operating Officer has taken the operational lead, and the Group has moved to a stable distributed operating model.   A number of core offices have re-opened with full COVID-control measures.  Detailed risk and process reviews have been undertaken and the Group has worked closely with its clients and stakeholders to ensure effective operations and continued SLA management.   The Group has focused on ensuring its clients, counterparties and suppliers are operating effectively and has worked on ways to ensure it maintains service provision.  

 

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

 

30 July 2020
 

Independent review report to Equiniti Group plc

Report on the Interim 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 for the six months ended 30 June 2020. 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 2020;

●     the  condensed consolidated income statement and condensed 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 for the six months ended 30 June 2020 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 for the six months ended 30 June 2020, including the interim financial statements, are the responsibility of, and have been approved by, the directors. The directors are responsible for preparing the interim condensed consolidated financial statements 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 for the six months ended 30 June 2020 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 Unaudited results for the six months ended 30 June 2020 and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

 

 

 

PricewaterhouseCoopers LLP

Chartered Accountants

Gatwick

30 July 2020

 

 

 

 

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATED INCOME STATEMENT - UNAUDITED

FOR THE SIX MONTHS ENDED 30 JUNE 2020

 

 

 

6 months ended     June 2020

6 months ended     June 2019

Year ended
December 2019 

 

Note

£m

£m

£m

Revenue

4

243.0

275.1

555.7

Administrative costs

5

(201.5)

(219.7)

(425.2)

Depreciation of property, plant and equipment

 

(3.7)

(3.3)

(6.8)

Depreciation of right-of-use assets

 

(3.2)

(3.0)

(6.1)

Amortisation of software

8

(14.7)

(13.2)

(29.9)

Amortisation of acquisition-related intangible assets

8

(13.4)

(15.8)

(31.8)

Finance income

14

0.1

-

-

Finance costs

14

(7.3)

(8.5)

(16.1)

(Loss)/profit before income tax

 

(0.7)

11.6

39.8

Income tax credit/(charge)

18

0.9

(2.3)

(7.4)

Profit for the period/year

 

0.2

9.3

32.4

 

 

 

 

 

(Loss)/profit for the period attributable to:

 

 

 

 

 - Owners of the parent

 

(0.1)

8.5

30.8

 - Non-controlling interests

 

0.3

0.8

1.6

Profit for the period/year

 

0.2

9.3

32.4

 

 

 

 

 

 

 

 

 

 

Earnings per share attributable to owners of the parent:

 

 

Basic earnings per share (pence)

6

-

2.3

8.4

Diluted earnings per share (pence)

6

-

2.3

8.4

 

 

 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - UNAUDITED

FOR THE SIX MONTHS ENDED 30 JUNE 2020

 

 

 

6 months ended    June 2020

6 months ended    June 2019

Year ended
December 2019

 

 

£m

£m

£m

Profit for the period/year

 

0.2

9.3

32.4

 

 

 

 

 

Other comprehensive income/(expense)

 

 

 

 

Items that may be subsequently reclassified to profit or loss

 

 

 

Fair value movement through hedging reserve

 

13.7

14.7

13.6

Tax on movement in hedging reserve

 

(2.6)

(2.5)

(2.1)

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

9.2

0.1

(5.5)

 

 

20.3

12.3

6.0

Items that will not be reclassified to profit or loss

 

 

 

Defined benefit plan actuarial losses

 

(3.1)

-

(9.8)

Deferred tax adjustment on actuarial losses

 

1.3

-

1.7

 

 

(1.8)

-

(8.1)

Other comprehensive income/(expense) for the period/year

18.5

12.3

(2.1)

Total comprehensive income for the period/year

 

18.7

21.6

30.3

 

 

 

 

 

Total comprehensive income attributable to:

 

 

 

 

 - Owners of the parent

 

18.6

20.8

28.9

 - Non-controlling interests

 

0.1

0.8

1.4

Total comprehensive income for the period/year

 

18.7

21.6

30.3

 

 

 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION - UNAUDITED

AS AT 30 JUNE 2020

 

 

 

 

As at      June 2020

As at      June 2019

As at December 2019

 

Note

£m

£m

£m

Assets

 

 

 

 

Non-current assets

 

 

 

 

Goodwill

8

538.4

524.9

529.9

Intangible assets

8

291.6

302.1

293.8

Property, plant and equipment

 

20.9

21.4

20.1

Right-of-use assets

 

32.5

37.2

35.2

Other financial assets

21

15.6

12.1

10.9

Deferred income tax assets

18

20.1

21.6

20.3

 

 

919.1

919.3

910.2

Current assets

 

 

 

 

Trade and other receivables

10

52.8

63.0

50.6

Contract fulfilment assets

11

60.0

49.9

54.0

Agency broker receivables

 

32.3

23.6

21.1

Income tax receivable

 

1.3

-

-

Other financial assets

21

10.4

0.4

-

Cash and cash equivalents

 

48.0

58.2

72.6

 

 

204.8

195.1

198.3

Total assets

1,123.9

1,114.4

1,108.5

 

 

 

 

 

Liabilities

 

 

 

 

Non-current liabilities

 

 

 

 

External loans and borrowings

15

359.3

382.6

369.1

Post-employment benefits

19

34.3

22.9

31.7

Provisions

13

5.8

9.3

5.7

Lease liabilities

 

31.7

35.2

33.1

Other financial liabilities

21

1.8

0.6

-

 

 

432.9

450.6

439.6

Current liabilities

 

 

 

 

Trade and other payables

12

78.2

88.6

90.6

Contract fulfilment liabilities

11

15.5

15.0

16.3

Agency broker payables

 

32.3

23.6

21.1

Income tax payable

 

7.5

1.8

2.1

Provisions

13

10.4

7.6

10.4

Lease liabilities

 

7.0

7.7

8.0

Other financial liabilities

21

-

-

0.4

 

 

150.9

144.3

148.9

Total liabilities

583.8

594.9

588.5

Net assets

 

540.1

519.5

520.0

 

 

 

 

 

Equity

 

 

 

 

Share capital

17

0.4

0.4

0.4

Share premium

 

115.9

115.9

115.9

Other reserves

 

215.9

199.1

194.4

Retained earnings

 

198.2

194.0

199.7

Equity attributable to owners of the parent

 

530.4

509.4

510.4

Non-controlling interest

 

9.7

10.1

9.6

Total equity

 

540.1

519.5

520.0

 

 

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - UNAUDITED

FOR THE SIX MONTHS ENDED 30 JUNE 2020

 

Year ended 31 December 2019

 

Share capital

Share premium

Other reserves

Retained earnings

Non-con
-trolling
interest

Total
equity

 

£m

£m

£m

£m

£m

£m

Balance at 1 January 2019

0.4

115.9

182.4

201.6

9.3

509.6

Comprehensive income

 

 

 

 

 

 

Profit for the year per the income statement

-

-

-

30.8

1.6

32.4

Other comprehensive income/(expense)

 

 

 

 

 

 

Changes in fair value through hedging reserve

-

-

13.6

-

-

13.6

Tax on movement through hedging reserve

-

-

(2.1)

-

-

(2.1)

Net exchange gain on translation of foreign operations

-

-

(5.5)

-

-

(5.5)

Actuarial losses on defined benefit pension plans

-

-

-

(9.5)

(0.3)

(9.8)

Deferred tax on defined benefit pension plans

-

-

-

1.6

0.1

1.7

Total other comprehensive income/(expense)

-

-

6.0

(7.9)

(0.2)

(2.1)

Total comprehensive income

-

-

6.0

22.9

1.4

30.3

Purchase of own shares

-

-

(3.8)

-

-

(3.8)

Share option awards to employees

-

-

9.8

(6.0)

-

             3.8

Dividends

-

-

-

(19.7)

-

(19.7)

Transactions with non-controlling interests

-

-

-

-

(1.1)

(1.1)

Share-based payment transactions

-

-

-

1.6

-

1.6

Deferred tax relating to share option schemes

-

-

-

(0.7)

-

(0.7)

Transactions with owners recognised directly in equity

-

-

6.0

(24.8)

(1.1)

(19.9)

Balance at 31 December 2019

0.4

115.9

194.4

199.7

9.6

520.0

 

 

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 1 January 2019

0.4

115.9

182.4

201.6

9.3

509.6

 

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)

 

Share option awards to employees

-

-

8.2

(4.7)

-

3.5

 

Dividends

-

-

-

(12.6)

-

(12.6)

 

Share-based payment transactions

-

-

-

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

194.0

10.1

519.5

 

 

 

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - UNAUDITED

FOR THE SIX MONTHS ENDED 30 JUNE 2020

 

Six months ended 30 June 2020

 

Share capital

Share premium

Other reserves

Retained earnings

Non-con
-trolling
interest

Total
equity

 

 

£m

£m

£m

£m

£m

£m

 

Balance at 31 December 2019

0.4

115.9

194.4

199.7

9.6

520.0

 

Comprehensive income

 

 

 

 

 

 

 

(Loss)/profit for the period per the income statement

-

-

-

(0.1)

0.3

0.2

 

Other comprehensive income/(expense)

 

 

 

 

 

 

 

Changes in fair value through hedging reserve

-

-

13.7

-

-

13.7

 

Deferred tax on movement through hedging reserve

-

-

(2.6)

-

-

(2.6)

 

Net exchange gain on translation of foreign operations

-

-

9.2

-

-

9.2

 

Actuarial losses on defined benefit pension plans

-

-

-

(2.9)

(0.2)

(3.1)

 

Deferred tax on defined benefit pensions plans

-

-

-

1.3

-

1.3

 

Total other comprehensive income/(expense)

-

-

20.3

(1.6)

(0.2)

18.5

 

Total comprehensive income/(expense)

-

-

20.3

(1.7)

0.1

18.7

 

Share options and share awards to employees

-

-

1.2

(1.2)

-

-

 

Share-based payment transactions

-

-

-

1.2

-

1.2

 

Deferred tax relating to share option schemes

-

-

-

0.2

-

0.2

 

Transactions with owners recognised directly in equity

-

-

1.2

0.2

-

1.4

 

Balance at 30 June 2020

0.4

115.9

215.9

198.2

9.7

540.1

 

 

 

 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - UNAUDITED

FOR THE SIX MONTHS ENDED 30 JUNE 2020

 

 

 

 

 

 

 6 months ended    June 2020

6 months ended    June 2019

Year ended December 2019

 

 

£m

£m

£m

(Loss)/profit before income tax

 

(0.7)

11.6

39.8

 

 

 

 

 

Adjustments for:

 

 

 

 

Depreciation of property, plant and equipment

 

3.7

3.3

6.8

Depreciation of right-of-use assets

 

3.2

3.0

6.1

Amortisation of software

 

14.7

13.2

29.9

Amortisation of acquisition-related intangibles assets

 

13.4

15.8

31.8

Finance income

 

(0.1)

-

-

Finance costs

 

7.3

8.5

16.1

Loss on disposal

 

0.1

-

-

Share-based payments expense

 

1.2

1.2

1.6

Changes in working capital:

 

 

 

 

Net (increase)/decrease in receivables

 

(0.1)

(0.3)

12.7

Net increase in contract assets

 

(5.6)

(3.2)

(7.8)

Net decrease in payables

 

(6.6)

(11.0)

(24.0)

Net (decrease)/increase in contract liabilities

 

(1.6)

(1.4)

2.0

Net decrease in provisions

 

(0.6)

(1.0)

(2.9)

Cash flows from operating activities

 

28.3

39.7

112.1

Interest paid

 

(5.5)

(7.0)

(13.2)

Income tax received/(paid)

 

0.3

0.4

(2.7)

Net cash inflow from operating activities

 

23.1

33.1

96.2

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Interest received

 

0.1

-

-

Business acquisitions net of cash acquired

 

(2.3)

-

(3.3)

Payment relating to prior year acquisitions

 

(3.3)

(7.5)

(8.2)

Acquisition of property, plant and equipment

 

(5.3)

(2.6)

(1.8)

Payments relating to developing and acquiring software

(17.1)

(23.1)

(46.7)

Net cash outflow from investing activities

 

(27.9)

(33.2)

(60.0)

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Purchase of own shares

 

-

(3.8)

(3.8)

Cash received on exercise of options

 

-

3.6

3.8

Repayment of bank loans

 

-

-

(60.0)

(Repayment of)/proceeds from revolving credit facility

(15.0)

(13.4)

38.6

Payment of loan set up fees

 

-

-

(3.7)

Payment in respect of leases (including interest)

 

(3.3)

(3.7)

(6.9)

Dividends paid

 

-

(12.6)

(19.7)

Transactions with non-controlling interests

 

(1.4)

(2.2)

(2.2)

Net cash outflow from financing activities

(19.7)

(32.1)

(53.9)

 

 

 

 

 

Net decrease in cash and cash equivalents

(24.5)

(32.2)

(17.7)

Foreign exchange losses

(0.1)

(0.5)

(0.6)

Cash and cash equivalents at 1 January

 

72.6

90.9

90.9

Cash and cash equivalents at 30 June/31 December 

48.0

58.2

72.6

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2020

 

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 2019 have been delivered to the Registrar of Companies. The external auditor has reported on the 2019 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 2020 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 Equiniti Annual Report 2019 which is 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.

New standards adopted by the Group

There were no new standards or amendments adopted by the Group in the period.

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 2019.

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 2019.

Going concern

The Group conducts a significant portion of its business through recurring revenues which are secured via long-term contracts. The Group also has a modest growth strategy, evidenced both by its past performance and resilience and the position it occupies in the market. Although the output of the Group's strategic and financial planning process reflects the Directors' best estimate of the future prospects of the business, the Directors have continued to assess the possible impacts that COVID-19 could have on the business. The Directors have also continually updated the Group's detailed financial forecasts to ensure that the Group's response to identified risks is appropriate.

The interim financial statements have been prepared on a going concern basis. In adopting the going concern basis the Directors have given consideration to all of the relevant factors, including potential scenarios arising from the COVID-19 pandemic and from significant risks as set out in the Principal Risks and Uncertainties on pages 52 to 55 in the 2019 Annual Report. The potential scenarios planned by the Group show the Group remaining within its debt facilities and complying with the related financial covenants for the foreseeable future. The key assumptions considered are summarised below.

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020

 

2)   Basis of preparation (continued)

The Group continues to operate from a strong financial position with £53.9m of net current assets at 30 June 2020, which includes £48.0m of cash and cash equivalents. The Group also has committed facilities totalling £520.0m, which includes a £260.0m revolving credit facility (RCF). The facility matures in July 2024 and £160.0m remains undrawn at 30 June 2020. The Group's facilities contain one financial covenant, namely a maximum ratio of Net Debt to EBITDA (as defined in the loan agreement) which is tested half yearly and at the year end. Net Debt to EBITDA must be no more than 4.00:1 for the years to 31 December 2020, no more than 3.75:1 between 30 June 2021 and 31 December 2021, and 3.50:1 thereafter. The margin payable on both the term loan and RCF is determined based on the ratio of Net Debt to EBITDA, where the margin payable ranges from a maximum of 2.00% to a minimum of 0.60%. No debt is repayable before the end of the current funding agreement in 2024. The scenarios considered by the Directors did not result in the Group passing the leverage threshold. 

Our base scenario has been prepared using forecasts from each of our four divisions, with each considering both the challenges and opportunities they are facing as a consequence of COVID-19. Whilst these are varied, we have made assumptions in the following key areas:

·      The majority of our revenues continue to arise from non-discretionary services delivered under long-term contracts and strong client retention remains with additional new client wins

·      As UK and US interest swaps expire during 2020 to 2023, they are replaced at yields in line with central banking rates. The base scenario assumes a reduction in interest income in 2021, with modest growth thereafter

·      Corporate action revenue in the UK broadly remains at levels reported in 2019.  US corporate actions grow modestly over the medium term

·      No further acquisitions or disposals are assumed.

 Mitigating actions assumed in the base case: 

·      Cost actions already implemented deliver £16.1m of cost savings in 2020 including the deferral of pay reviews and a reduction in incentives and discretionary spend. Further savings of £16.1m will be delivered in 2021 through automation and digitisation programmes as well as cost overhead rationalisation

·      Capital expenditure being limited to only essential projects in 2020 and materially reducing spend with third parties.

Further severe but plausible downside sensitivities modelled include:

·      A number of further financial shocks to the business leading to a material reduction in planned EBITDA across a three-year period including; the loss of project work in EQ Digital and EQ Paymaster and lower trading in EQ Boardroom

·      EQ reporting lower revenues and higher costs resulting from a change in economic outlook that leads to a) a higher cost to service debt and b) a reduction in corporate actions due to depressed market activity.

None of these scenarios result in a breach of the Group's available debt facilities or the financial covenant. The more severe scenarios do require reasonable and relatively modest management actions to ensure there is no breach of the financial covenant. Based on their consideration of the above, the Directors believe the use of the going concern assumption remains appropriate.

 

 

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.

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020

 

4)   Operating segments

 

 

 

 

 

6 months

ended

June 2020

6 months

ended

June 2019

Year ended

December

2019

Revenue from continuing operations

 

 

£m

£m

£m

Rendering of goods and services

 

 

 

231.0

262.6

529.2

Interest income

 

 

 

 

12.0

12.5

26.5

Total revenue

 

 

 

 

243.0

275.1

555.7

 

The Group's operating segments have been identified as EQ Boardroom (previously Investment Solutions), EQ Digital (previously Intelligent Solutions), EQ Paymaster (previously Pension Solutions), EQ US and Interest, in line with how the Group runs and structures its business.

Revenue and 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 2020

6 months

ended

June 2019

Year ended

December

2019

Reported revenue

 

 

£m

£m

£m

EQ Boardroom

 

 

 

64.8

73.1

149.7

EQ Digital

 

 

 

 

71.1

83.9

170.9

EQ Paymaster

 

 

 

 

57.5

62.7

127.0

Interest

 

 

 

 

5.7

6.6

14.1

UK and Europe

 

 

 

 

199.1

226.3

461.7

EQ US

 

 

 

 

43.9

48.8

94.0

USA

 

 

 

43.9

48.8

94.0

Total revenue

 

 

 

 

243.0

275.1

555.7

 

Included within the EQ US division, is £6.3m (June 2019: £5.9m, December 2019: £12.4m) of interest revenue which is reported and managed within the EQ US results.

 

 

 

 

6 months

ended

June 2020

6 months ended

June 2019

Year ended December 2019

Timing of revenue recognition

 

£m

£m

£m

Point in time

 

 

 

 

 

EQ Boardroom

 

 

25.9

28.9

58.5

EQ Digital

 

 

11.6

8.8

19.5

EQ Paymaster

 

 

3.9

4.5

12.2

EQ US

 

 

15.0

12.6

38.1

Total point in time

 

 

56.4

54.8

128.3

Over time

 

 

 

 

 

EQ Boardroom

 

 

38.9

44.2

91.2

EQ Digital

 

 

59.5

75.1

151.4

EQ Paymaster

 

 

53.6

58.2

114.8

Interest

 

 

5.7

6.6

14.1

EQ US

 

 

28.9

36.2

55.9

Total over time

 

 

186.6

220.3

427.4

Total revenue

 

 

 

243.0

275.1

555.7

 

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; corporate action fees, where these are dependent on transactions closing; and revenue from licences sold by the Group, where revenue is recognised once licences have been delivered, accepted by the client and the Group's performance obligations satisfied in full.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020

 

4)   Operating segments (continued)

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.

EBITDA is used to explain the sustainable operating performance of the Group and its respective divisions. The EBITDA shown below for June 2019 and December 2019 reflects underlying EBITDA. This represents EBITDA after adjusting 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. No non-operating charges were recognised in the 6 months ended June 2020.

 

 

 

 

 

6 months

ended

June 2020

6 months

ended

June 2019

Year ended

December

2019

EBITDA

 

£m

£m

£m

EQ Boardroom

 

 

 

18.9

23.4

50.2

EQ Digital

 

 

 

 

13.5

19.8

43.5

EQ Paymaster

 

 

 

 

5.7

9.0

19.5

Interest

 

 

 

 

5.7

6.6

14.1

UK and Europe

 

 

 

 

43.8

58.8

127.3

EQ US

 

 

 

7.2

10.6

23.1

USA

 

 

 

 

7.2

10.6

23.1

Total segments

 

 

 

 

51.0

69.4

150.4

Central costs

 

 

 

 

(9.5)

(8.5)

(14.4)

Total EBITDA

 

 

41.5

60.9

136.0

 

 

6 months

ended

June 2020

6 months

ended

June 2019

Year ended

December

2019

Reconciliation of EBITDA to (loss)/profit before tax

£m

£m

£m

 

EBITDA

 

 

41.5

60.9

136.0

 

Non-operating charges

 

 

-

(5.5)

(5.5)

 

Depreciation and amortisation

 

(35.0)

(35.3)

(74.6)

 

Net finance costs

 

 

(7.2)

(8.5)

(16.1)

 

(Loss)/profit before tax

 

 

(0.7)

11.6

39.8

 

 

 

5)   Administrative costs

 

6 months

ended

June 2020

6 months

ended

June 2019

Year ended

December

2019

Expenses by nature

£m

£m

£m

Employee benefit expense

115.8

113.5

222.5

Employee costs capitalised in respect of software development

(9.8)

(8.4)

(21.9)

Direct costs

43.9

52.0

106.5

Bought-in services

4.2

17.5

29.7

Premises costs

5.4

5.1

9.3

Short-term lease costs

0.3

0.2

0.5

Government grants

(1.1)

(0.3)

(0.8)

Other general business costs 

42.8

40.1

79.4

Total administrative costs

201.5

219.7

425.2

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020

 

6)   Earnings per share

 

 6 months

ended

June 2020

6 months

ended

June 2019

Year ended

December

2019

Basic and diluted earnings per share 

£m

£m

£m

(Loss)/profit from continuing operations attributable to owners of the parent

(0.1)

8.5

30.8

 

 

 

 

Weighted average number of ordinary shares* (m)

368.4

368.4

368.3

Dilutive performance share plan options (m)

0.5

-

-

Dilutive sharesave plan options (m)

-

0.1

-

Diluted weighted average number of ordinary shares outstanding (m)

368.9

368.5

368.3

Basic earnings per share (pence)

-

2.3

8.4

Diluted earnings per share (pence)

-

2.3

8.4

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

 

7)   Dividends

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

 6 months

ended

June 2020

6 months

ended

June 2019

Year ended

December

2019

£m

£m

£m

Interim dividend for year ended 31 December 2019 (1.95p per share)

-

-

7.1

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

-

12.6

12.6

 

-

12.6

19.7

 

The Board has not recommended an interim dividend payable in respect of the period ended 30 June 2020 (30 June 2019: £7.1m or 1.95p per share).

The Group did not pay a final dividend in respect of the year ended 31 December 2019.

 

8)   Intangible assets

 

Goodwill

Software

Acquisition-related

intangibles

Total

 

£m

£m

£m

£m

Cost

 

 

 

 

Balance at 1 January 2020

329.2

442.9

1302.0

Acquisition of business

0.7

3.3

7.7

Additions

14.2

-

14.2

Disposals

(1.7)

(0.9)

(2.6)

Translation adjustment

4.8

1.6

7.7

14.1

Balance at 30 June 2020

538.4

344.0

453.0

1,335.4

 

 

 

 

 

Accumulated amortisation

 

 

 

Balance at 1 January 2020

227.0

251.3

478.3

Amortisation for the period

14.7

13.4

28.1

Disposals

(1.6)

(0.9)

(2.5)

Translation adjustment

-

0.7

0.8

1.5

Balance at 30 June 2020

-

240.8

264.6

505.4

 

 

 

 

 

Net book value

 

 

 

Balance at 31 December 2019

529.9

102.2

191.6

823.7

Balance at 30 June 2020

538.4

103.2

188.4

830.0

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020

 

8)   Intangible assets (continued)

Impairment testing

Goodwill is tested, at least, annually for impairment. The recoverable amount of each CGU has been determined in accordance with IAS 36 Impairment of Assets. This is determined from value-in-use calculations, being the present value of net cash flows generated by the business over the period for which management expects to benefit from the business.

The key assumptions for the value-in-use calculations are those regarding discount rates, the generation of free cash flows over the forecast period and revenue and EBITDA growth rates. Each CGU derives cash flows from its approved business plans over a five-year period. The projected cash flows are discounted using a weighted average cost of capital, reflecting current market assessments on debt/equity ratios of similar businesses and risks specific to the CGUs.

The outcome of the impairment assessment has been that the Directors do not consider that the goodwill has been impaired, given that the value in use is greater than the carrying value of the net assets of the CGUs.

The revenue growth rate applied beyond the approved forecast period is in line with long term UK and US macroeconomic forecasts, adjusted by the Directors, where appropriate, to reflect their expectations of long term growth for relevant CGU.

Period ended 30 June 2020

 

 

 

UK & Europe

USA

Period on which Board approved forecasts are based

5 years

5 years

EBITDA growth rate applied beyond approved forecast period

2.1%

2.9%

Discount rate pre-tax

6.3%

8.8%

 

Sensitivity analysis

The key inputs used in the value-in-use model are the assumed discount rates, the long term growth rates and the year 5 EBITDA, which is considered to be closely aligned to cash flow. The discount rate has been calculated using the capital asset pricing model informed by market observed data points (such as the beta and risk-free rate) where available. The long term growth rate is based on GDP predictions, which have been uplifted in the US for the specific market opportunities. As these are, in part, judgemental, and recognising that different users might arrive at different assumptions dependent on the use to which they are being put, we have demonstrated in the table below the sensitivity of each of these assumptions.

The table below shows the revised pre-tax discount rate needed before the headroom is reduced to £nil, the revised long term growth rate that would need to be applied to the perpetual cash flows before the headroom is reduced to £nil and the decline in forecast EBITDA for year 5 needed before the headroom is reduced to £nil.

Period ended 30 June 2020

 

 

Discount rate pre-tax

Long term growth rate

Year 5 EBITDA

EQ Boardroom

 

 

13.5%

-6.3%

-75.6%

EQ Digital

 

 

21.1%

-21.7%

-52.8%

EQ Paymaster

 

 

14.3%

-7.4%

-49.3%

EQ US

 

 

11.5%

0.5%

-38.2%

 

The Directors have considered whether any reasonably possible change to a combination of the key assumptions could result in an impairment. The pre-tax discount rate of each CGU has been modelled to increase by 100 basis points and the long term growth rate to decrease by 50 basis points. The year 5 EBITDA would have to decrease significantly from current forecast levels before an impairment would be recognised in EQ Boardroom, EQ Digital or EQ Paymaster. However these two changes would require year 5 EBITDA to fall by 12% before the headroom would reduce to £nil in EQ US.

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020

 

9)   Business acquisitions

Monidee

On 19 February 2020, the Group purchased the entire issued share capital of Monidee B.V. (Monidee) for cash consideration of €4.0m (£3.3m), plus deferred consideration of €4.0m (£3.4m) payable in 2021. Monidee is an employee share plans technology business based in Amsterdam, Netherlands.

The Group took control of the business on 19 February 2020.  On this date the business had net assets with a fair value of £3.0m. The results of the business have been consolidated since the date of control and Monidee contributed £1.7m of revenue and £0.5m profit before income tax to the Group's results in 2020. If the business had been acquired on 1 January 2020 it would have contributed an additional £0.2m of revenue and £nil profit before tax to the Group's results in 2020. The acquisition-related costs of acquiring Monidee in the year, such as legal fees, amounted to £0.1m. These costs have been included in administrative costs in the income statement.

On acquisition, additional intangible assets with a fair value of £3.3m relating to customer contracts and related relationships were identified. The value of goodwill reflects amounts in relation to the expected benefit of the ability to generate new streams of revenue and expected synergies of combining the operations of Monidee and the Group. None of the goodwill is expected to be deductible for tax purposes. The amounts included in the table below are provisional and subject to further evaluation and adjustment, in accordance with accounting standards.

Fair value of identifiable assets acquired and liabilities assumed

 

£m

Intangible assets

4.0

Trade and other receivables

0.5

Cash and cash equivalents

1.0

Trade and other payables

(1.6)

Contract fulfilment liabilities

(0.1)

Deferred income tax liabilities

(0.8)

Net identifiable assets and liabilities

3.0

Goodwill on acquisition

3.7

Total consideration

6.7

Cash acquired

(1.0)

Deferred consideration

(3.4)

Net cash outflow in the period

2.3

 

10)  Trade and other receivables

 

As at

June 2020

As at

June 2019

As at

December

2019

 

£m

£m

£m

Trade receivables

29.4

42.2

35.1

Other receivables

8.1

7.9

6.6

Prepayments

15.3

12.9

8.9

Total trade and other receivables

52.8

63.0

50.6

 

Trade receivables are shown net of an estimated credit loss allowance of £0.7m at the period end (June 2019: £0.2m, December 2019: £0.3m).

The ageing of trade receivables at the reporting date was:

 

As at

June 2020

As at

June 2019

As at

December

2019

 

£m

£m

£m

Not past due

17.4

33.1

23.4

Past due 1-30 days

6.2

4.1

7.1

Past due 31-90 days

2.9

2.4

2.0

Past due more than 90 days

2.9

2.6

2.6

Total trade receivables

29.4

42.2

35.1

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020

 

10)  Trade and other receivables (continued)

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

 

 6 months

ended

June 2020

6 months

ended

June 2019

Year ended

December

2019

 

£m

£m

£m

Balance at 1 January

0.3

0.2

0.2

Balances acquired from business acquisitions

-

-

0.4

New provisions made in the period/year

0.5

0.1

0.1

Balances reversed in the period/year

(0.1)

(0.1)

(0.4)

Balance at 30 June/31 December

0.7

0.2

0.3

 

 

11)  Contract fulfilment assets and liabilities

 

As at

June 2020

As at

June 2019

As at

December

2019

 

£m

£m

£m

Accrued income

56.9

45.7

50.5

Contract set up costs

3.1

4.2

3.5

Contract fulfilment assets

60.0

49.9

54.0

 

The Group has recognised £56.9m of accrued income as at 30 June 2020 and anticipates invoicing clients for £39.8m of this balance within 12 months. The Group intends to invoice the balance of £17.1m after 30 June 2021.

 

As at

June 2020

As at

June 2019

As at

December

2019

 

£m

£m

£m

Deferred income

15.5

15.0

16.3

Contract fulfilment liabilities

15.5

15.0

16.3

 

 

12)  Trade and other payables

 

As at

June 2020

As at

June 2019

As at

December

2019

 

£m

£m

£m

Trade payables

21.9

27.1

22.7

Accruals

31.8

47.8

47.0

Deferred consideration

7.6

4.0

7.2

Other payables

16.8

9.7

13.7

Total trade and other payables

78.1

88.6

90.6

 

During 2020, HMRC gave businesses the option to defer VAT payments due between 20 March and 30 June 2020. The Group has deferred £8.7m of VAT payments to HMRC until March 2021 and these amounts are included in other payables at 30 June 2020.

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020

 

13)  Provisions for other liabilities and charges

 

Contingent

consideration

Property

provision

Total

provisions

 

£m

£m

£m

Balance at 1 January 2020

14.8

1.3

16.1

Amounts released

(0.2)

-

(0.2)

Unwinding of discounted amount

0.2

-

0.2

Translation adjustment

0.1

-

0.1

Balance at 30 June 2020

14.9

1.3

16.2

 

 

As at

June 2020

As at

June 2019

As at

December

2019

 

£m

£m

£m

Non-current liability

5.8

9.3

5.7

Current liability

10.4

7.6

10.4

Total provisions

16.2

16.9

16.1

 

The minimum value of these provisions could be £0.1m up to a maximum of £19.6m. The remaining balance is expected to be utilised over the periods to 2022. These arrangements typically reflect point in time sales which have agreed deferred payment terms.

 

 

14)  Finance income and costs

 

 

 

 

 

 6 months

ended

June 2020

6 months

ended

June 2019

Year ended

December

2019

Finance income

 

 

 

 

£m

£m

£m

Interest income

0.1

-

-

Total finance income

 

0.1

-

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 6 months

ended

June 2020

6 months

ended

June 2019

Year ended

December

2019

Finance costs

 

 

 

 

£m

£m

£m

Interest cost on term loan borrowings

 

3.6

4.8

8.5

Interest cost on revolving credit facility

 

1.6

1.2

3.2

Amortisation of finance arrangement fees

 

0.7

1.2

1.8

Net finance cost relating to pension schemes

 

0.3

0.3

0.6

Interest cost on lease liabilities

 

0.7

0.8

1.5

Unwinding of discounted amount in provisions

 

0.2

0.2

0.4

Other fees and interest

 

0.2

-

0.1

Total finance costs

 

7.3

8.5

16.1

 

 

15)  External loans and borrowings

 

As at

June 2020

As at

June 2019

As at

December

2019

  

£m

£m

£m

Term loan

264.6

322.5

260.1

Revolving credit facility

100.0

63.0

115.0

Unamortised cost of raising finance

(5.3)

(2.9)

(6.0)

Total external loans and borrowings

359.3

382.6

369.1

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020

 

16)  Net debt

 

As at

June 2020

As at

June 2019

As at

December

2019

  

£m

£m

£m

Term loan

264.6

322.5

260.1

Revolving credit facility

100.0

63.0

115.0

Lease liabilities

38.7

42.9

41.1

Cash and cash equivalents

(48.0)

(58.2)

(72.6)

Total net debt

355.3

370.2

343.6

 

 

17)  Share capital

 

As at

June 2020

As at

June 2019

As at

December

2019

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 2020

As at

June 2019

As at

December

2019

Ordinary shares of £0.001 each - in thousands of shares

Number

Number

Number

On issue - fully paid

364,537

364,537

364,537

 

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

Number

Balance at 1 January 2019

4,303

Shares purchased

1,801

Shares transferred to scheme participants

(4,340)

Balance at 31 December 2019

1,764

Shares purchased

-

Shares transferred to scheme participants

(542)

Balance at 30 June 2020

1,222

 

 

18)  Income tax (credit)/charge

 

 6 months

ended

June 2020

6 months

ended

June 2019

Year ended

December

2019

Recognised in the income statement

£m

£m

£m

Current tax charge 

0.9

2.2

3.2

Deferred tax (credit)/charge

(1.8)

0.1

4.2

Total income tax (credit)/charge

(0.9)

2.3

7.4

 

The standard rate of corporation tax in the UK is 19% (June 2019: 19%, December 2019: 19%) and accordingly the UK profits for the six months ended 30 June 2020 are subject to UK taxation at 19%. Profits earned overseas are taxable at the respective local rate. The taxation charge for the six months ended 30 June 2020 is based on an estimated full year effective tax rate, excluding prior year adjustments and rate changes, of 27.1% (June 2019: 18.2%, December 2019: 21.8%), which combines UK and overseas operations. The forecast effective tax rate is higher than in 2019, on a like-for-like basis, predominantly due to the impact of RDEC and deductible tax amortisation relative to the significantly lower group profitability for the period.
 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020

 

18)  Income tax (credit)/charge (continued)

A UK corporation tax rate of 19% (effective 1 April 2020) was substantively enacted on 17 March 2020, reversing the previously enacted reduction in the rate from 19% to 17%. This will increase the Group's future current tax charge accordingly.  The deferred tax asset at 30 June 2020, to the extent that this relates to the UK, has been calculated at 19% (June 2019: 17%, December 2019: 17%). The impact of this rate change on the deferred tax asset recognised is £2.4m (£1.5m through the income statement and £0.9m directly to equity) which has been recognised in full in the six months ended 30 June 2020.

Movements in deferred tax during the six months ended

30 June 2020

Opening balance

Acquisit-ions & disposals

Recognised in income statement

Recognised in equity

Closing balance

£m

£m

£m

£m

£m

Property, plant and equipment 

1.9

(0.1)

0.5

-

2.3

Intangible assets

(26.8)

(0.8)

(2.6)

-

(30.2)

Employee benefits and other timing differences

10.7

-

-

(1.1)

9.6

Tax value of losses carried forward

34.5

-

3.9

-

38.4

 

20.3

(0.9)

1.8

(1.1)

20.1

 

 

19)  Post-employment benefits

 

 

As at

June 2020

As at

June 2019

As at

December

2019

 

 

£m

£m

£m

Present value of defined benefit obligations

 

(97.0)

(77.0)

(89.3)

Fair value of plan assets

 

63.0

54.1

57.6

Total defined benefit pension plan net liability

 

(34.0)

(22.9)

(31.7)

Other long-term employee benefits

 

(0.3)

-

-

Post-employment benefits

 

(34.3)

(22.9)

(31.7)

 

Defined benefit pension plans

The Group operates three funded defined benefit pension plans in the UK; Paymaster Pension Scheme, ICS Pension Scheme and Prudential Platinum Pension - MyCSP Limited. The defined benefit obligation is based on the latest actuarial valuation as at 30 June 2020. Whilst the value of the plan assets has increased since December 2019, the pension scheme liabilities have also increased. The increase in liabilities was primarily driven by an decrease in the discount rate, which fell by 52 basis points for the Paymaster and ICS pension schemes and 74 basis points for the MyCSP pension scheme. The June 2020 actuarial valuation also included a number of different assumptions from December 2019, however these changes did not have a material impact on the June 2020 valuation.

 

 

20)  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 Equiniti Annual Report 2019.

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020

 

21)  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 2020

As at

June 2019

As at

December

2019

  

Level

£m

£m

£m

Financial assets

 

 

 

 

Derivative financial instruments

2

26.0

12.5

10.9

Financial liabilities

 

 

 

 

Derivative financial instruments

2

(1.8)

(0.6)

(0.4)

 

There was 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 2019 as disclosed in note 6.13 of the Equiniti Annual Report 2019.

 

 

22)  Related party transactions

Transactions with key management personnel

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

 

 

 

 

 

 

 6 months

ended

June 2020

6 months

ended

June 2019

Year ended

December

2019

  

£m

£m

£m

Key management emoluments

 

1.9

2.0

4.7

Termination benefits

 

-

0.4

0.4

Company contributions to money purchase pension plans

0.1

-

0.1

Share-based payments expense

 

0.4

0.5

0.5

Total

 

2.4

2.9

5.7

 

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.


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
END
 
 
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