TIDMEQN
RNS Number : 2205U
Equiniti Group PLC
01 April 2021
1 April 2021
EQUINITI GROUP PLC RESULTS FOR THE YEARED 31 DECEMBER 2020
Equiniti Group plc ("EQ" or "the Group"), an international
technology-led services and payments specialist , today publishes
its full year results for the twelve months to 31 December
2020.
WELL POSITIONED FOR IMPROVING MARKET CONDITIONS
Change%
Financial Headlines 2020 2019 (1)
------------------------------------------- ------- ------- ----------
Revenue (2) (GBPm) 471.8 555.7 (15.1)
Underlying EBITDA* (GBPm) 91.7 136.0 (32.6)
Underlying EBITDA* margin (%) 19.4 24.5 (5.1)
Operating cash flow conversion* (3)
(%) 97 91 6
Earnings before interest and tax (EBIT)* 5.8 55.9 (89.6)
(Loss)/profit before tax (GBPm) (6.6) 39.8 N/A
(Loss)/profit after tax (GBPm) (1.1) 32.4 N/A
Diluted earnings per share (EPS)* (pence) (0.5) 8.4 N/A
Underlying EPS* (pence) 9.1 18.1 (49.7)
Dividend per share (pence) - 5.49 N/A
Net debt (GBPm) 307.9 343.6 (10.4)
Leverage (x) 3.4 2.5 0.9x
------------------------------------------- ------- ------- ----------
Summary
-- Sales
o Very challenging environment with disruption to capital
markets and the wider economy significantly impacting
performance
o Significant reduction in higher-margin market-paid and
discretionary projects as market activity paused
o Central banks action drove GBP16.9m reduction in interest
income earned across the Group
o Q4 slower than anticipated due to extended sales cycles and
economic pressures towards the year end
o Resilient underlying business performance with major new
client wins and 99% client retention
o Order book building with new order intake 10% ahead of last
year
-- Cash generation
o Free cash flow to equity holders of GBP44.5m, an increase of
19.9%, benefitting from GBP7.5m VAT deferral and disposal proceeds
of GBP14.8m
o Cash conversion of 97% benefitting from VAT deferral, good
cash collection in Q4 and payment terms reverting to medium-term
trend
o Net debt reduction of GBP35.7m resulting in leverage of
3.4x
o Proforma leverage (4) of 3.1x reflecting the divestment of the
EQi direct-to-consumer business
o Non-essential capital expenditure and discretionary projects
suspended; however customer facing and efficiency investment
continues
-- Cost management
o Swift action taken to reduce costs and preserve cash across
all areas of the business
o Cost efficiency programmes delivering savings of GBP15m in
2020
o A further GBP15m of cost savings identified for FY 2021 as
action taken in 2020 flows to trading with further initiatives
identified to manage the cost base
Outlook
-- Long-term structural growth drivers remain intact,
underpinned by strong customer relationships, digitisation and
continued cost focus
-- Continued revenue uncertainty regarding the timing of return
of market-paid activity, particularly EQ Digital
-- Further interest income impact as hedging unwinds, offset by cost reduction activity
-- Focus on business simplification, reduction of leverage and generation of free cash flow
-- Planning on return to profitable growth as market conditions normalise
Commenting on the Group's results, Cheryl Millington, Chief
Executive, said :
"Our financial results for 2020 have been significantly impacted
by the challenging macro environment. However, the fundamental
strengths of our business model remain and EQ is well positioned
for an improvement in market conditions and economic and capital
market recovery.
"While uncertainty continues, the outlook for capital market
activity in 2021 is encouraging and we have started the year well
with a number of important new business wins. Our focus is on
driving performance and market share, while reducing the Group's
debt and delivering on our cost initiatives to offset reduced
interest income in a low interest rate environment.
"We look forward to welcoming Paul Lynam as CEO from 1 April. I
would also like to thank all of my colleagues for their ongoing
commitment in continuing to deliver a seamless service to our
clients throughout the COVID-19 crisis. As CEO I have witnessed the
consistency and quality of the service that EQ delivers, which has
been so critical in these challenging times. The depth of our
client relationships provides me with confidence as we look to the
future."
(1) Change at actual foreign exchange rates. Revenue change at
constant foreign exchange rates is (15.1%) and underlying EBITDA is
(32.6%).
(2) Reported revenue declined by 15.1%. Organic revenue declined
by 15.9%. Calculation of organic revenue can be found on page
12.
(3) Operating cash flow conversion is calculated after allowing
for use of a GBP20.0m receivables financing facility the Group has
in place of which GBP 8.0m
(2019: GBP8.0m) was utilised at the end of the period. Details
of the facility can be found on page 14.
(4) Proforma leverage is calculated to include the divestment of
the EQi direct-to-consumer business had it completed in FY
2020.
*The Group uses alternative performance measures to provide
additional information on the underlying performance of the
business. See pages 17 to 18 for further detail.
Analyst and Investor presentation
EQ's management will host a virtual meeting for analysts and
investors at 9.15am UK time today. The meeting 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: UK: +44 (0) 33 0551 0200
US: +1 212 999 6659
Password: Equiniti
For further information please contact:
Analyst/Investor enquiries:
EQ
Cheryl Millington, Chief Executive
John Stier, Chief Financial Officer
Frances Gibbons, Head of Investor Relations +44 (0) 7484 072 471
Media enquiries:
Tulchan Communications LLP
Martin Robinson
Olivia Peters +44 (0) 20 7353 4200
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.
CHAIRMAN'S STATEMENT
2020 has been dominated by COVID-19 and despite the considerable
efforts of our colleagues and the continued loyalty of our
customers has proved to be a very disappointing year for EQ's
shareholders. The pandemic was starting to break in the UK just as
we were finalising our Annual Report for 2019, and even though we
were cautious at that stage, the way in which the effects of the
pandemic have played out, and in particular the nature and timing
of the measures taken by the regulators in response to the
pandemic, have left EQ's financial performance much more exposed
than expected.
Before the pandemic broke, the Board was confident that the
Group was well placed for a positive 2020, targeting further growth
in revenue and profit, a robust cash inflow and continued reduction
in leverage. However, the disruption to capital markets and the
wider economy has had an unprecedented and widespread impact on our
markets. Quite understandably, corporate clients have been
deferring projects, reducing or cancelling the level of their
dividends and in the UK those fundraisings which they have
undertaken have in many cases been structured directly through
placings rather than the more usual rights issue. Actions taken by
the authorities, such as the reduction in central bank interest
rates and the temporary disapplication of pre-emption rights for
certain share issues, were understandable from an economic and
regulatory standpoint but have had a marked effect on our revenue.
While our recurring business has proved resilient, around half of
the discretionary and market-paid element of our revenues has been
adversely impacted. Although there will inevitably be a recovery in
certain market-paid revenues as the financial markets and economies
recover, the reduction in central bank interest rates on which a
significant part of Group revenues has depended can no longer be
relied upon as a significant revenue source in the near term. Total
interest-related income earned across the Group decreased by
GBP16.9m in 2020 with a further reduction of GBP14m expected in
2021.
Total revenue fell by 15.1% to GBP471.8m, with an organic
revenue decline of 15.9%. Given the inherent profitability of the
revenue streams affected by the economic uncertainty, underlying
EBITDA was 32.6% lower at GBP91.7m. The Group reported a loss after
tax of GBP1.1m. Net debt continued to reduce during the year, but
the lower EBITDA resulted in an increase in leverage, from 2.5x at
31 December 2019 to 3.4x at 31 December 2020. The Board remains
committed to reducing leverage and we continue to target a range of
2.0x to 2.5x over the medium term to be delivered through a return
to growth, ongoing cash flow and selected disposals.
There were many positives to the year, not least the leadership
team's rapid response to the onset of the pandemic. We were able to
protect our people by switching quickly to home working, while
continuing to support our customers and clients. This in turn
helped to maintain the client loyalty which is the cornerstone of
our business. The cost reductions we have implemented also offset
some of the impact on profitability this year and will provide a
springboard for more rapid recovery in profits when market
conditions allow.
It was also pleasing to see a record order intake during the
year, with successes in renewals and new business across all parts
of the Group. In the UK, EQ Boardroom continued to demonstrate that
it is the provider of choice, winning business from both new
issuers and established companies transferring from competitors.
The trajectory in EQ Paymaster is positive, with key renewals
secured, including MyCSP, the Group's largest contract, and a
significant number of new client gains. EQ Digital faced continuing
delays in customers' approval of new projects, although it had
encouraging sales of certain new platforms as it continues to more
closely integrate with the rest of the Group. EQ US faced into a
difficult market where a lower level of corporate activity and
reduction in interest rates weighed heavily on both fees and
interest income. However, it also gained further market share and
signed important new channel partnerships, which will accelerate
growth in equity compensation plans.
Faced with the significant reduction in market-paid revenues and
acknowledging that those elements of our revenue which are linked
to central bank rates are unlikely to recover to pre-pandemic
levels for many years, our leadership took urgent steps to reduce
costs and prioritise capital expenditure whilst still supporting
our long-term investment programmes. We have also taken steps to
address concerns regarding the level of the Group's debt. The Group
ended the year with lower debt due to strong underlying free cash
flow, and this has been supported by disposals of non-core assets,
part of a programme which has continued through year end with the
disposal of EQi's direct-to-consumer business announced in March.
The UK Government's deferral of VAT payments also contributed
GBP7.5m of the GBP44.5m of free cash flow to equity holders.
DIVID
On 15 April 2020, in light of the economic uncertainty, we
announced our decision to withdraw our final dividend for the year
ended 31 December 2019.
With trading conditions continuing to be difficult and
uncertainty remaining high, the Board decided not to declare an
interim dividend with our half year results, nor are we proposing a
final dividend for 2020. We recognise the importance of dividends
to shareholders and intend to resume dividend payments once we are
confident that increases in the order book are translating into
profit growth, that leverage continues to track downwards and that
generation of free cash flow to equity holders continues.
BOARD AND GOVERNANCE
This was an active year for the Board, as we held more regular
meetings to ensure effective oversight of the Group's response to
the pandemic. This included thorough debates over key issues such
as the deferral of the dividend, our approach to furlough and
accepting Government support.
On 5 January 2021, the Board announced the appointment of Paul
Lynam as Chief Executive with effect from 1 April 2021, succeeding
Guy Wakeley who had been in the role since 2014. Paul is an
experienced business leader focused on customer satisfaction and
staff engagement as key levers of business success. The Board
thanks Guy for his committed and ambitious leadership, especially
through the unprecedented challenges of 2020, and we wish him every
success in the future. Cheryl Millington, an independent
non-executive Director at EQ, has assumed the role of interim Chief
Executive until Paul joins on 1 April 2021, and I should like to
record the Board's gratitude for the way she has stepped in at
short notice and the clear leadership she has provided during this
period.
Today, the Board announces that in line with our normal
succession timetable, Dr Tim Miller will not be seeking re-election
as an independent non-executive Director at our next AGM and that
Mark Brooker will be replacing Tim as Chair of the Remuneration
Committee. On behalf of the Board, I should like to thank Tim for
his valuable contribution over the six years he has served on the
Board.
PEOPLE AND CULTURE
The pandemic has meant considerable uncertainty and upheaval for
our people this year and I want to thank them for the way they have
responded and their commitment to ensuring we continue to deliver
for customers and clients. EQ is becoming an increasingly
purpose-led organisation and our operational performance this year
has shown we are translating that purpose into action. The
appointment of Andrew Stephenson as our new Chief People Officer
will help us to make further progress in 2021, given his deep
understanding of how to help frontline teams succeed.
The Board engages directly with our people through our
designated non-Executive Director, Dr Tim Miller. He has led an
active programme of engagement, which continues to be beneficial.
We were pleased to see a good improvement in engagement scores in
this year's survey, which in part reflects the significant increase
in the frequency and intensity of communications between management
and colleagues during the pandemic. On Tim's retirement at the AGM,
this role will be taken on by Cheryl Millington once she returns to
being non-executive.
LOOKING FORWARD
EQ enters the new year with a leaner and more digitally focused
business, which will support a recovery in profitability once
revenues recover. The core strengths of our business remain intact.
The actions taken over the last twelve months have set us up to
return to growth once market conditions allow. The Group has strong
liquidity and improving leverage ratios. I have every confidence
that once our new management team has settled, we will be able to
further simplify the Group both presentationally and operationally
as key steps in restoring shareholder value.
Philip Yea
Chairman
1 April 2021
OUR RESPONSE TO COVID-19
Employees
Employee wellbeing was the top priority as the Group moved
rapidly to home working. This successful transition was supported
by the roll out in the first half of a desktop computing
environment (GlobalOne) which provides a single working environment
across the Group and helps employees to collaborate and share work
seamlessly.
A key aim was to retain as many skills as possible during the
pandemic. EQ has a long-tenured workforce, with colleagues who have
been with the Group for many years. As a business of specialists,
not generalists, it is important those skills are retained within
the Group, benefitting clients, customers and shareholders. The
Group therefore redeployed people where necessary and utilised
Government support packages where appropriate. During this period
the Group received GBP0.5m from the Government's job retention
scheme. However, the Group ensured that all employees continued to
receive their full pay. All furloughed colleagues had returned to
work by the end of June 2020.
Anticipating the impact COVID-19 was likely to have on
colleagues, and in order to help to insulate them from the impact
of the pandemic, a pay rise of GBP400 was awarded to UK employees
who earned under GBP30,000 per year. In addition, all colleagues
who had been with the business since the start of the pandemic were
offered GBP300 of free shares in EQ.
Clients
The seamless transition to home working, underpinned by
GlobalOne, ensured an exemplary operational response, with all
lines of business sustained without interruption. The quality of
the service delivered since the start of the pandemic has resulted
in strong client and customer satisfaction levels.
Accelerating programmes of service automation and digitisation
will have important operational and efficiency benefits for EQ but
will also support further improvements in client and customer
experience, for example by ensuring services are simple and
accurate and enabling self-service where possible.
Financial strength
The Group has a robust financial position and balance sheet,
with a term loan and revolving credit facility (RCF) totalling
GBP520.0m in place until July 2024. At 31 December 2020, we had
undrawn funds of GBP202.0m available through the RCF and cash of
GBP42.4m to support our operations.
Nonetheless, given the duration and impact of the pandemic were
uncertain, the Group considered it prudent to preserve cash and
liquidity during the crisis. In addition to suspending the
dividend, the Group paused all acquisition activity and
reprioritised capital expenditure to match market conditions,
without affecting investment in core customer-facing technology and
planned efficiency improvements.
Cost measures
The Group proactively managed its cost base, including
cancelling salary reviews for senior employees, freezing
recruitment and removing interim resources. Performance share plan
awards for the executive leadership team were also reduced by 50%.
In addition, the Group anticipated future working patterns and
undertook an extensive review of its property portfolio. With more
than 70% of colleagues identified as flexible workers, 17 out of 38
properties will be fully or partially closed. The total cost
savings implemented are as follows:
2020
GBPm
------------------------------ ------
Cost Savings
Consultancy and contractors 4.6
Third-party spend 5.0
Incentives 5.0
Cost avoidance
Hiring avoided 4.0
Pay reviews 2.4
Gross savings 21.0
------------------------------- ------
Total operating expenditure reduced by 9.4% to GBP380.1m (2019:
GBP419.7m). In addition a further GBP15m of cost savings is
expected to flow into 2021 from initiatives the Group has
commenced.
The Group has recorded non-operating items of GBP15.9m
reflecting costs of GBP19.7m associated with COVID-19 and the
Group's response, offset by a GBP3.8m gain on business disposals.
Charges associated with COVID-19 and the restructuring activities
performed as a result are as follows:
2020
GBPm
------------------------ ------
Office consolidation 11.7
People severance costs 5.0
Untaken annual leave 3.0
Total charges 19.7
------------------------- ------
GROUP RESULTS
Reported Organic
2020 2019 Change % Change %
------------------------------- -------- -------- ---------- -----------------
Revenue (GBPm)
EQ Boardroom 127.7 149.7 (14.7) (17.1)
EQ Digital 137.9 170.9 (19.3) (19.3)
EQ Paymaster 115.6 127.0 (9.0) (8.7)
Interest Income 10.0 14.1 (29.1) (29.1)
---------------------------- -------- -------- ---------- -----------------
Total UK & Europe 391.2 461.7 (15.3) (16.0)
EQ US 80.6 94.0 (14.3) (15.5)
---------------------------- -------- -------- ---------- -----------------
EQ 471.8 555.7 (15.1) (15.9)
---------------------------- -------- -------- ---------- -----------------
Underlying EBITDA (GBPm)
EQ Boardroom 36.4 50.2 (27.5)
EQ Digital 29.6 43.5 (32.0)
EQ Paymaster 15.1 19.5 (22.6)
Interest Income 10.0 14.1 (29.1)
Total UK & Europe 91.1 127.3 (28.4)
EQ US 14.2 23.1 (38.5)
---------------------------- -------- -------- ----------
Divisional Total 105.3 150.4 (30.0)
Central Costs (13.6) (14.4) (5.6)
---------------------------- -------- -------- ----------
EQ 91.7 136.0 (32.6)
---------------------------- -------- -------- ----------
Underlying EBITDA margin (%)
EQ Boardroom 28.5 33.5 (5.0)
EQ Digital 21.5 25.5 (4.0)
EQ Paymaster 13.1 15.4 (2.3)
---------------------------- ------------ -------- ----------
Total UK & Europe 23.3 27.6 (4.3)
EQ US 17.6 24.6 (7.0)
---------------------------- ------------ -------- ----------
EQ 19.4 24.5 (5.1)
---------------------------- ------------ -------- ----------
Reported change is at actual foreign exchange rates. Organic change
% is at constant foreign exchange rates.
Reported revenue change at constant foreign exchange rates is
(15.1%) and underlying EBITDA is (32.6%).
EQ US reported revenue change at constant foreign exchange rates
is (14.0%) and underlying EBITDA is (38.3%).
Organic revenue growth is reported revenue growth adjusted for
acquisitions and disposals, and changes to FX rates to compare
growth on a like-for-like basis. Here we adjust 2019 for 2020
acquisitions and disposals had they been in place in 2019 to create
a like-for-like comparison of year-on-year progress.
Overview
2020 was a very challenging year with disruption to capital
markets and the wider economy significantly impacting EQ's
financial performance. Revenue declined by 15.1% to GBP471.8m
(2019: GBP555.7m) during the year, whilst revenue adjusted for
acquisitions, disposals and foreign exchange rates declined by
15.9%. Underlying EBITDA declined by 32.6% to GBP91.7m (2019:
GBP136.0m) reflecting a reduction in higher margin market-paid and
discretionary projects, and reduced interest rates. Q4 was slower
than expected as the ongoing economic disruption resulted in
extended sales cycles for a number of business opportunities.
Whilst the core business has proved resilient with strong client
retention and new business wins in all divisions, the ongoing
disruption to capital markets and the wider economy continued to
hold back any material recovery in market-paid and discretionary
revenues. These revenues arise mainly from commission and fee-based
income from capital market activity, interest-related income and
discretionary projects, and are higher margin in nature. 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 in
addition to the GBP2.2m price reduction relating to the MyCSP
contract which was agreed as part of the September 2018 contract
extension. There are no further price step downs as part of the
latest contract extension from 2021 to the end of 2023. EQ US was
impacted by uncertainty in capital markets resulting in a lower
level of corporate actions and project work plus a lower interest
rate environment.
Interest income in the UK, including interest rate hedges, was
29.1% lower at GBP10.0m (2019 (GBP14.1m) on average client balances
of GBP1.6bn (2019: GBP1.7bn) reflecting the declining interest
rates in the UK. At 31 December 2020, the Group held interest rate
swaps totalling GBP645m (2019: GBP1,025m) to hedge the exposure of
UK interest rates. In the US, revenue from interest income,
including interest rate hedges, was 0.8% lower at GBP12.3m (2019:
GBP12.4m) on average interest-bearing client balances of GBP445m
(2019: GBP534m). At 31 December 2020, the Group held interest rate
swaps totalling $700m (2019: $700m) to hedge the exposure of US
interest rates. These expired in March 2021. Total interest-related
income earned across the Group reduced by GBP16.9m to GBP24.8m
(2019: GBP41.7m) reflecting the GBP10.1m decline in interest income
and the GBP6.8m decline in corporate actions in the US, where the
Group earns interest as fee income. Looking forward, total
interest-related income earned across the Group is expected to
reduce by a further GBP14m in 2021 as the hedges expire. However,
trading is largely insulated from the potential detriment of
negative interest rates through protections within the terms of our
contracts.
Central costs in the period decreased by 5.6% to GBP13.6m (2019:
GBP14.4m) and are in line with the Group's medium-term goal.
Operating cash flow conversion of 97% (2019: 91%) reflected
stronger cash collection in Q4 as client payment terms returned to
normal and the deferral of GBP7.5m of VAT of which GBP5.7m is
deferred to 2021 and GBP1.8m is deferred to Q1 2022. Net debt
reduced by GBP35.7m to GBP307.9m (2019: GBP343.6m) with leverage of
3.4x (2019: 2.5x), reflecting a lower level of underlying
EBITDA.
OPERATIONAL REVIEW
The Group serves its 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 the client base and
strong client relationships result in shared clients across the
Group. This provides the opportunity to continually enhance
performance through cross-selling and up-selling. The entry point
is often the provision of share registration services, with clients
taking further services over time.
In addition to its four divisions, the Group earns interest
income on balances we administer on its 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 1.3 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.
2020 2019 Change %
---------------------------- ------ ------ ---------
Revenue (GBPm) 127.7 149.7 (14.7)
Underlying EBITDA (GBPm) 36.4 50.2 (27.5)
Underlying EBITDA margin (
%) 28.5 33.5 (5.0)
---------------------------- ------ ------ ---------
Revenue in EQ Boardroom decreased by 14.7% to GBP127.7m (2019:
GBP149.7m) with a decline in corporate action revenue of 29.3% to
GBP8.2m (2019: GBP11.6m). Strong client retention and increased
market share were offset by lower corporate activity, fewer share
dealing programmes and reduced dividend commissions.
Underlying EBITDA decreased by 27.5% to GBP36.4m (2019:
GBP50.2m) driven by the reduction in revenue which significantly
impacted higher margin activity.
Whilst the underlying business proved resilient with strong
client retention and new client wins, the discretionary revenues,
which are mainly market-paid and significantly higher margin
business, were severely impacted by the uncertain market
environment. Market-paid revenues include commissions from share
dealing, dividend reinvestment, and corporate actions. During the
period, clients deferred or withdrew dividend payments and
cancelled their share dealing programmes, and there was less
corporate activity in the market as the large number of
non-pre-emptive placings eliminated corporate actions in the
period. The reduction in interest rates also impacted the
divisional performance.
Our share registration business performed well with strong
client retention and increased market share. There were a
significant number of renewals in the period including Imperial
Brands, Premier Foods and Spectris. The business also continued to
win clients from other providers, with a further nine transferring
from competitors, including Hastings, Paypoint and Vodafone.
The business was successful at securing mandates for IPOs, with
eight won during the year. These included The Hut Group, Calisen
and SourceBio International.
The share plans business also had a good year with new client
wins including BAE Systems, Rentokil and Wincanton. The business
has also seen a number of corporates launch COVID-specific share
plans as a means to incentivise employees.
In February 2020, the division 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 EQ to meet current client
demand and provides a leading proprietary platform to attract new
international clients. The business has secured four new global
share plan clients. In addition, it has also gone live with a
significant new client, utilising its system to provide a live
order book and investor website for the listing of stocks and bonds
for small and medium-sized enterprises in Europe.
The division's execution-only brokerage service delivered a
solid performance. Whilst revenue from trading in certificated
shares and postal dealing was lower in the period, the business
earned higher revenue through its proprietary platform, as both new
and experienced investors took advantage of lower share prices and
switched away from cash following the reduction in interest
rates.
EQPay, EQ's global payments business, had a slow year as a
result of the reduction in transaction volumes during the
pandemic.
Whilst the headwind from reduced interest rates in the UK
remains, EQ Boardroom enters 2021 with its strongest pipeline of
potential new business in several years. The division continues to
gain market share with five share register transfers, 14 IPOs and
15 share plans secured year to date. With a significant pipeline in
new business and fundraisings, and as corporates return to dividend
payments, the division is well positioned for future growth.
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.
2020 2019 Change %
---------------------------- ------ ------ ---------
Revenue (GBPm) 137.9 170.9 (19.3)
Underlying EBITDA ( GBPm) 29.6 43.5 (32.0)
Underlying EBITDA margin (
%) 21.5 25.5 (4.0)
---------------------------- ------ ------ ---------
Revenue in EQ Digital decreased by 19.3% to GBP137.9m (2019:
GBP170.9m) whilst underlying EBITDA decreased by 32.0% to GBP29.6m
(2019: GBP43.5m). The decline was driven by reduction in
remediation volumes and delayed and cancelled software sales and
project work.
Remediation services are driven by regulation and are often
non-discretionary in nature. As clients reacted to the challenging
environment, many remediation projects were delayed and this
impacted both the sale of software and the provision of remediation
as a service.
Elsewhere, a number of clients cancelled or deferred software
purchases as their operational response to the lockdown delayed
their own internal projects.
Credit services secured a number of software license sales in
the year, including Development Bank of Wales and the launch of a
flexible digital servicing solution for Hodge Bank, marking its
entry into the mortgage market. This cost-effective loan servicing
platform will allow mortgage lenders to quickly launch competitive
new services, while ensuring they remain compliant with
regulation.
Our risk analytics platform gained further traction, with all
major UK high street banks now using the platform. During the year,
the division won new business with ABN AMRO, Lloyds Banking Group
and Austrian bank Raiffeisen. In addition, EQ Digital is now able
to offer the platform as software as a service, enabling it to
provide individual modules rather than the entire system. This has
given the business more agility and increased interest from
clients.
Our KYC business continued to successfully expand into Northern
Europe and signed a technology deal with Dutch bank, FMO. In
addition, the business launched a partnership with Encompass, to
automate and use artificial intelligence to analyse data that helps
build a dynamic picture of a company or individual in just
minutes.
The EQ Insider platform, which was 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 to provide web forms
for processing applications for delayed and cancelled services, and
an ATOL claims platform for the Civil Aviation Authority.
EQ Digital continued to develop new propositions during the
year. In addition to the launch of EQ Insider, the division
introduced EQ Complaints Professional, a software as a service
complaints management tool. EQ Digital has begun to offer standby
facilities for major banks, under which EQ Digital would step in if
one of the client's counterparties failed, to run essential
services for that counterparty such as payments, administration and
system continuity. The product has already gained good traction in
the market.
The external environment remains challenging with many client
offices remaining closed, impacting remediation project work, and
PPI coming to an end in 2021. Whilst the division has a strong
pipeline and is seeing an increased requirement for debt
administration and credit services in particular, there has not
been any step up in clients committing to deals. Corporates are
waiting for economic market conditions to improve and a return to
offices before making commitments to projects.
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.
2020 2019 Change %
---------------------------- ------ ------ ---------
Revenue (GBPm) 115.6 127.0 (9.0)
Underlying EBITDA ( GBPm) 15.1 19.5 (22.6)
Underlying EBITDA margin (
%) 13.1 15.4 (2.3)
---------------------------- ------ ------ ---------
Revenue in EQ Paymaster declined by 9.0% to GBP115.6m (2019:
GBP127.0m) whilst underlying EBITDA declined by 22.6% to GBP15.1m
(2019: GBP19.5m). The decline was due to contract losses in
previous years, the GBP2.2m price reduction in the MyCSP contract,
which was agreed as part of the September 2018 contract extension,
and a delay in some project work, particularly for Government.
The division had an extremely pleasing performance in respect of
client retention and new business wins. It successfully renewed or
extended relationships with clients including AXA, Bank of England,
British Airways, Canada Life, HP, Hays, Irish Life, Prudential,
Shell, SLOC and QinetiQ.
EQ Paymaster also agreed an extension to the MyCSP contract for
the Principal Civil Service Pension Scheme with no further price
reductions. This is the Group's largest single contract and the
extension will see it run until at least the end of December 2023.
In addition, MyCSP will partner with the Cabinet Office for its
'2015 Remedy Programme', which will address the changes required in
response to the McCloud Judgment. Completing this cycle of
successful renewals, the majority of which have signed for the long
term, will provide a stable underpin for revenue going forward.
EQ Paymaster secured a significant number of new wins in the
year, including contracts with HSBC, Link and Royal London. The
HSBC scheme is the largest workplace pension scheme to come to
market for several years. This unprecedented intake of new business
provides momentum for an expected return to growth for EQ Paymaster
during 2021. EQ Paymaster also won a place on a framework to
provide software to local authorities and on another to provide
flexible benefits to public sector bodies, both of which should
start to provide opportunities to win further new business in
2021.
The 2015 Remedy (McCloud) programme is starting to generate
opportunities. However, progress has been slower than originally
expected, in part as the relevant Government departments have
prioritised their response to the COVID-19 pandemic.
Strong client retention and the significant new business wins in
2020 provide further momentum for an expected return to growth in
2021.
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.
2020 2019 Change %
---------------------------- ------- ------- -----------
Revenue (GBPm) 80.6 94.0 (14.3)
Underlying EBITDA (GBPm) 14.2 23.1 (38.5)
Underlying EBITDA margin (
%) 17.6 24.6 (7.0)
---------------------------- ------- ------- -----------
EQ US Reported revenue change at constant foreign exchange rates
is (14.0%) and underlying EBITDA is (38.3)%.
Revenue in EQ US declined by 14.3% to GBP80.6m (2019: GBP94.0m)
whilst underlying EBITDA declined by 38.5% to GBP14.2m (2019:
GBP23.1m), with market share gain and strong traction with new
products offset by a lower level of corporate activity. Revenue
from corporate actions declined by 64.2% to GBP3.9m (2019:
GBP10.9m) as a result of lower corporate activity and reduced
interest rates. Revenue from interest income declined by 0.8% to
GBP12.3m (2019: GBP12.4m) on average client balances of GBP445m
(2019: GBP534m). This was supported by interest rate swaps that
expired in March 2021.
Whilst the underlying business performed well, with new client
wins and strong client retention, the challenges of the reduction
in interest rates, the suspension of dividend payments and plans,
and the reduction in corporate activity significantly impacted the
divisional performance.
Key client renewals in the period included Allete, Honeywell,
J.P. Morgan and Wells Fargo. The division also gained significant
market share, securing 21 transfer agency client wins in the
period. New wins included American Midstream Partners, Arcutis,
Diamond Hill Investments, Fulton Financial, NuSkin Enterprises Inc.
and Richardson Electronics for transfer agency and 21 equity
compensation clients including FS Bancorp, Vertex, and Sportsman's
Warehouse. New IPO mandates included The Azek Company, Treeon
Insurance, Vertex and ZoomInfo. EQ US's ability to offer clients
attractive packages of services have supported its ability to win
new business this year.
The division continued to benefit from the launch of new
products. The equity compensation plans launched in 2019 have seen
strong momentum and sales of share plan services are expected to
accelerate through new partnerships signed with Vanguard and
Principal Financial, two of America's largest financial services
companies. These partnerships enable EQ US to leverage the
significant sales resources of Vanguard and Principal Financial and
have the potential to introduce other EQ US products over time.
In response to COVID-19, the division's virtual annual meeting
service has seen strong growth with more than 50 shareholder
meetings in the year, including 9 with competitors' clients. EQ US
has invested to enhance the functionality of its virtual meetings
product, which will help it to further increase its market share in
2021.
Sales of EQ US's asset reunification service are proceeding to
plan and the division has worked on projects with a number of
clients this year. EQ US has also launched a new platform to
administer private M&A transactions, which was developed with
the support of the EQ technology team in Krakow, Poland.
Cross-selling of capabilities developed in the UK continues, with
the division actively selling EQ Riskfactor into the client
base.
In November 2019, EQ US acquired Corporate Stock Transfer, a US
transfer agent based in Denver, Colorado. The acquisition offers
important benefits for EQ US. It expands the division's addressable
market by opening up a new growth area in the micro-cap client
space.
Whilst the division will be impacted by the expiration of
interest rate swaps in March 2021, continued traction with new
product launches and market share gains in 2020 provide further
momentum going forward. The division continues to gain market share
with 16 transfer agent clients, 6 IPOs and 9 equity compensation
plans secured year to date.
FINANCIAL REVIEW
Group Income Statement
GBPm 2020 2019
------------------------------------------ --- --- ------- -------
Revenue 471.8 555.7
---------------------------------------------------- ------- -------
Underlying EBITDA 91.7 136.0
Depreciation (12.9) (12.9)
Amortisation - software (30.4) (29.9)
Amortisation - acquired intangibles (26.7) (31.8)
---------------------------------------------------- ------- -------
EBIT prior to non-operating items 21.7 61.4
Non-operating items (net) (15.9) (5.5)
---------------------------------------------------- ------- -------
EBIT 5.8 55.9
Net finance costs (12.4) (16.1)
(Loss)/profit before income tax (6.6) 39.8
Tax 5.5 (7.4)
---------------------------------------------------- ------- -------
(Loss)/profit from continuing operations (1.1) 32.4
Non-controlling interests (0.6) (1.6)
---------------------------------------------------- ------- -------
(Loss)/profit attributable to ordinary
shareholders (1.7) 30.8
---------------------------------------------------- ------- -------
EPS (pence)
Diluted (0.5) 8.4
Underlying diluted 9.1 18.1
---------------------------------------------------- ------- -------
Revenue
Revenue decreased by 15.1% to GBP471.8m (2019: GBP555.7m) during
the year whilst organic revenue declined by 15.9%. Organic revenue
growth is reported revenue growth adjusted for acquisitions and
disposals, and changes to foreign exchange rates, to compare growth
on a like-for-like basis. Here we adjust 2019 for 2020 acquisitions
and disposals had they been in place in 2019 to create a
like-for-like comparison of year-on-year progress. This is
calculated as follows:
2019 2019 2019
Revenue (GBPm) Reported Adjustment Organic
------------------- ---------- ------------ ---------
EQ Boardroom 149.7 4.4 (1) 154.1
EQ Digital 170.9 - 170.9
EQ Paymaster 127.0 (0.4) (2) 126.6
Interest Income 14.1 - 14.1
------------------- ---------- ------------ ---------
Total UK & Europe 461.7 4.0 465.7
EQ US 94.0 1.4 (3) 95.4
------------------- ---------- ------------ ---------
EQ 555.7 5.4 561.1
------------------- ---------- ------------ ---------
(1) Acquisition of Monidee
(2) Disposal of HR Solutions
(3) Acquisition of Corporate Stock Transfer
*EQ US is translated at 2020 constant exchange rates to provide
like-for-like comparison.
Underlying EBITDA
Underlying EBITDA prior to non-operating items of GBP15.9m
decreased by 32.6% to GBP91.7m (2019: GBP136.0m) reflecting a lower
level of higher-margin activity.
EBIT prior to non-operating items
EBIT prior to non-operating items was GBP21.7m (2019: GBP61.4m),
reflecting a lower level of underlying EBITDA in the period.
Non-operating items
Non-operating items are defined as income and expense items,
which if included in EBIT, would otherwise obscure the
understanding of the underlying performance of the Group.
Non-operating items of GBP15.9m incurred in the period (2019:
GBP5.5m) comprise GBP19.7m associated with COVID-19 and the Group's
response, offset by a GBP3.8m gain on business disposals.
Non-operating items associated with COVID-19 and the restructuring
activities performed as a result relate to office consolidation
(GBP11.7m), people severance costs (GBP5.0m) and non-cash costs
related to annual leave accrued by employees (GBP3.0m). Annual
leave accrual is expected to unwind in 2021 as holiday patterns
normalise.
EBIT
EBIT remains an important measure of the Group's performance,
reflecting profit before net finance costs and taxation. In 2020,
EBIT was GBP5.8m (2019: GBP55.9m).
Net finance costs
Group net finance costs decreased by GBP3.7m to GBP12.4m (2019:
GBP16.1m) reflecting a lower level of debt and lower interest
rates.
Taxation
A loss before tax of GBP6.6m at the UK corporation tax rate of
19% gives an expected total tax credit of GBP1.3m. The actual tax
credit for the period was GBP5.5m and the difference is largely
explained by the impact of prior year adjustments, non-taxable
gains on business disposals in the period and the impact of a
change of tax rates on the opening deferred tax balances.
Net taxes paid in the period were GBP0.3m which is net of a
repayment of GBP1.3m relating to overpaid 2018 corporation tax.
Taxes paid of GBP1.6m relate to payments on account of taxation in
the UK, Poland and India.
The Group received GBP1.3m from HM Revenue & Customs which
represents the Group's claim to R&D expenditure credits. The
tax credits are recognised in receivables and the movement is
reflected within changes in working capital.
The Group has recognised deferred tax on GBP743.0m of gross tax
attributes representing future tax deductions which are available
to 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 GBP123.8m, on which a net deferred tax asset of
GBP23.3m has been recognised at the relevant local statutory
rate.
The gross tax attributes totalling GBP743.0m are represented
by:
Future tax deductions on tax losses carried forward
GBP229.6m
Future tax deductions on intangible assets GBP438.6m
Future tax deductions on property, plant and equipment
GBP19.0m
Future tax deductions on employee benefits and other timing
differences GBP55.8m
The tax impact of these attributes is recognised as deferred tax
on the balance sheet. Included within the intangible assets tax
attribute is the customer relationship and goodwill intangibles
related to the acquisition of the trade and assets of EQ US from 1
February 2018. The future tax deductions on employee benefits and
other timing differences has increased in the period due to the
adoption of IFRS 16, effective from 1 January 2019.
A cash effective tax rate of 5% applies for 2020, rising to c15%
thereafter. The rate has been revised downwards in the short-term
to reflect the impact of the difficult recent market 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
GBP1.7m (2019: Profit attributable to ordinary shareholders of
GBP30.8m).
EPS
Basic EPS of (0.5) pence (2019: 8.4 pence) is based on the
weighted average number of shares totalling 368.6m (2019: 368.3m).
Diluted EPS of (0.5) pence (2019: 8.4 pence) is based on the
weighted average number of shares totalling 369.4m (2019:
368.3m).
Underlying EPS decreased by 49.7% to 9.1 pence compared to the
prior period of 18.1 pence.
Capital structure
The Group's consolidated statement of financial position at 31
December 2020 is summarised as follows:
GBPm 31 December 31 December
2020 2019
-------------------------- ------------ ------------
Assets
Non-current assets 884.7 924.4
Current assets 149.8 184.1
-------------------------- ------------ ------------
Total assets 1,034.5 1,108.5
-------------------------- ------------ ------------
Liabilities
Non-current liabilities 375.8 439.6
Current liabilities 141.2 148.9
-------------------------- ------------ ------------
Total liabilities 517.0 588.5
-------------------------- ------------ ------------
Total equity 517.5 520.0
-------------------------- ------------ ------------
Current assets include GBP75.6m of trade receivables and accrued
income at 31 December 2020
(31 December 2019: GBP85.6m). Accrued income represents revenue
earned 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
being recorded and the expense incurred in 2020 was GBP0.7m (2019:
GBP0.3m).
Cash flow
The Group generated a free cash flow attributable to equity
holders of GBP44.5m (2019: GBP37.1m), benefitting from VAT deferral
of GBP7.5m, disposal proceeds of GBP14.8m, and delivered an
operating cash flow conversion of 97% (2019: 91%), which also
benefitted from the VAT deferral, and reflects good cash collection
in Q4 and payment terms reverting to medium-term trend. The main
movements in cash flow are summarised below:
GBPm 2020 2019
-------------------------------------------- ------- -------
Underlying EBITDA 91.7 136.0
Working capital movement (3.2) (12.9)
-------------------------------------------- ------- -------
Operating cash flow prior to non-operating
items 88.5 123.1
Operating cash flow conversion 97% 91%
Cash inflow/(outflow) on non-operating
items 9.2 (11.0)
Capital expenditure (37.3) (48.5)
Net interest costs (9.4) (16.9)
Taxes paid (0.3) (2.7)
Finance lease liabilities (6.2) (6.9)
-------------------------------------------- ------- -------
Free cash flow attributable to equity
holders 44.5 37.1
Net reduction in borrowings (57.0) (21.4)
Investment in current and prior year
acquisitions (15.2) (11.5)
Dividends paid (including payment to
non-controlling interest) (1.4) (21.9)
Net cash movement (29.1) (17.7)
-------------------------------------------- ------- -------
The Group has access to a GBP20.0m receivables financing
facility of which GBP8.0m (2019: GBP8.0m) 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, which affords the Group credit
protection, is with Lloyds Banking Group at a rate of 1.75% over
LIBOR.
Reconciliation of u nderlying EBITDA to total cash generated
from operations (statutory cash flow statement)
GBPm 2020 2019
Underlying EBITDA 91.7 136.0
Change in receivables and accrued income 11.6 4.9
Change in operating payables and prepayments (18.3) (10.0)
Share-based payments expense 2.5 1.6
VAT deferral 7.5 -
Management incentives (6.0) (6.5)
Other (0.5) (2.9)
Operating cash flow prior to non-operating
items 88.5 123.1
Non-operating items:
Non-operating P&L expense (15.7) (5.5)
Net change in non-operating payables 11.7 (5.5)
Total cash generated from operations 84.5 112.1
Interest paid (9.4) (13.2)
Income tax paid (0.3) (2.7)
---------------------------------------------- ------- -------
Net cash inflow from operating activities 74.8 96.2
---------------------------------------------- ------- -------
Capital expenditure
Net expenditure on tangible and intangible assets was GBP37.3m
(2019: GBP48.5m). This represents 7.9% of revenue (2019: 8.7%). The
level of capital expenditure declined following completion of the
US integration in H2 2019 and was 6.5% of revenue in H2 2020.
Non-essential capital expenditure and discretionary projects were
suspended in light of the uncertain market environment, however
customer facing and efficiency investment continues. Going forward,
we expect capex in 2021 to be broadly similar in absolute terms to
2020 before reverting in the mid-term to our guidance of c7% of
revenue.
Net interest costs
Net interest costs in the period were GBP9.4m (2019: GBP16.9m)
reflecting lower interest rates as well as the effect of lower
balances. The 2019 figure also included the acceleration of certain
fees in connection with the refinancing of the Group's
facilities.
Investment in current and prior year acquisitions
Net cash outflow on current and prior year acquisitions was
GBP15.2m (2019: GBP11.5m).
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 earned free cash flow to equity holders of
GBP44.5m (2019: GBP37.1m) which benefitted from GBP7.5m VAT
deferral and disposal proceeds of GBP14.8m.
Bank borrowings and financial covenants
GBPm 2020 2019
--------------------------------------- ------- -------
Term loan 257.8 260.1
Revolving credit facility 58.0 115.0
Lease liabilities 34.5 41.1
Cash and cash equivalents (42.4) (72.6)
Net debt 307.9 343.6
--------------------------------------- ------- -------
Net debt/underlying EBITDA (times) 3.4 2.5
--------------------------------------- ------- -------
At 31 December 2020, net debt was lower at GBP307.9m (31
December 2019: GBP343.6m), representing a ratio of 3.4x net
debt/underlying EBITDA (31 December 2019: 2.5x), reflecting the
lower level of underlying EBITDA in the period.
The Group has committed Senior Debt Facilities of GBP520.0m term
loan and revolving credit facility running to July 2024. At 31
December 2020, the Group had undrawn funds of GBP202.0m available
through the revolving credit facility and cash of GBP42.4m. The
financial covenant attached to the committed facility is net
debt/underlying EBITDA excluding lease liabilities should be no
more than 4.0x in 2020, 3.75x in 2021 and 3.50x in 2022.
Acquisitions
In February 2020, the Group purchased the entire issued share
capital of Monidee B.V. (Monidee). Initial consideration of GBP3.4m
(EUR4.0m) was paid in February 2020 and deferred consideration of
GBP3.4m (EUR4.0m) is payable in 2021. Monidee is a highly
complementary share plans business that currently services more
than 200,000 employees across 210 corporate clients in 50
countries.
Divestments
During the year, the Group completed three divestments.
On 15 April 2020, the Group disposed of its Equiniti 360
business. Until its sale Equiniti 360 was part of EQ Digital. The
consideration for the transaction was GBP0.1m. For FY 2020,
Equiniti 360 would have generated revenue of GBP0.2m and underlying
EBITDA of GBP0.2m.
On 2 December 2020, the Group disposed of its HR and payroll
business, HR Solutions. Until its sale, HR Solutions was part of EQ
Paymaster. The consideration for the transaction was GBP13.2m and
the Group recognised an accounting profit of GBP3.4m on disposal,
versus the previously estimated GBP9.3m, primarily driven by a
further allocation of goodwill. For FY 2020, HR Solutions generated
revenue of GBP5.9m and underlying EBITDA of GBP1.7m.
On 31 December 2020, the Group disposed of its Charter Systems
business. Until its sale, Charter Systems was part of EQ Digital.
The consideration for the transaction was GBP1.95m and the Group
recognised an accounting profit of GBP0.3m on disposal. In 2020,
Charter Systems generated revenue of GBP1.4m and underlying EBITDA
of (GBP0.1m).
Post balance sheet item
On 8 March 2021, the Group announced that it had reached an
agreement to sell its EQi direct-to-consumer business (D2C). Until
its sale the D2C business was part of EQ Boardroom. The sale to
interactive investor (ii) is anticipated to complete during the
summer of 2021, following a customer migration exercise. The total
consideration payable is up to GBP48.5m comprising GBP47.5m payable
in cash at completion, and up to a further GBP1.0m payable
contingent on the timing of migrating all customers to the ii
platform. For full year 2020, the business generated revenue of
GBP14.5m and EBITDA of GBP3.3m. EQ expects to report an accounting
profit on the transaction of GBP13.0m and pay GBP2.1m of
corporation tax in the year of disposal, after utilising available
brought forward tax losses in the Group. Group interest costs will
reduce by GBP0.4m following completion of the transaction as debt
is reduced.
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 disposals, and changes to FX 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 12 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 items. These are defined as 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 people
costs including untaken annual leave as colleagues took materially
less holiday in the year, and costs that are transformational in
nature.
Reconciliation of (loss)/profit before income 2020 2019
tax to underlying EBITDA (GBPm)
------------------------------------------------------- ------- ------
(Loss)/Profit before income tax (6.6) 39.8
Plus: Depreciation of property, plant and equipment 16.9 12.9
Plus: Amortisation of software 30.4 29.9
Plus: Amortisation of acquisition-related intangible 26.7 31.8
assets
Less: Finance income (0.1) -
Plus: Finance costs 12.5 16.1
Less: Net gain on business disposals (3.8) -
------------------------------------------------------- ------- ------
EBITDA 76.0 130.5
Adjustment for non-operating items impacting
EBITDA
Plus: Charges and restructuring activities
associated with COVID-19
Office consolidation 7.7 -
People severance costs 5.0 -
Untaken annual leave 3.0 -
Plus: Transaction costs - 0.3
Plus: Integration costs - 5.2
------------------------------------------------------- ------- ------
Underlying EBITDA 91.7 136.0
------------------------------------------------------- ------- ------
Underlying EBITDA margin
Underlying EBITDA margin is earnings before interest, tax,
depreciation, amortisation and non-operating items as a percentage
of revenue. This is a key measure of Group profitability and
demonstrates ability to improve efficiency, as well as the quality
of work won.
Operating cash flow conversion
Operating cash flow conversion represents underlying EBITDA plus
change in working capital as a percentage of underlying EBITDA.
This measures the Group's cash generative characteristics from its
underlying operations and is used to evaluate the Group's
management of working capital. See page 14 for calculation.
Free cash flow attributable to equity holders
Free cash flow attributable to equity holders represents 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 14 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 value re-measurements
of certain financial liabilities that are dependent on external
market factors rather than the Group's core operations. See page 12
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 underlying EBITDA.
This is a key measure that evaluates the Group's capital structure
and its ability to meet financial covenants. See page 15 for
calculation of net debt.
Underlying profit attributable to ordinary shareholders
See below for calculation of underlying profit attributable to
ordinary shareholders.
Underlying EPS
Underlying EPS represents underlying EBITDA, less depreciation
of property, plant and equipment, amortisation of software, net
interest costs, cash tax and minority interests.
Reconciliation to underlying EPS (GBPm) 2020 2019
-------------------------------------------- --- -------- --------
Underlying EBITDA 91.7 136.0
Less: Depreciation (12.9) (12.9)
Less: Amortisation of software (30.4) (29.9)
Plus: Finance income 0.1 -
Less: Finance costs (12.5) (16.1)
Cash tax at 5%/12% (1.8) (8.9)
Non-controlling interest (0.6) (1.6)
------------------------------------------------- -------- --------
Underlying profit attributable to ordinary
shareholders 33.6 66.6
------------------------------------------------- -------- --------
Weighted average number of ordinary shares 369.4 368.3
------------------------------------------------- -------- --------
Underlying EPS (pence) 9.1 18.1
------------------------------------------------- -------- --------
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
Annual Report for 2019, the Group continues to be exposed to a
number of risks and has well established systems and procedures in
place to identify, assess and mitigate those risks. The principal
risks include those arising from: change and development;
information technology; markets and competition; data protection;
regulatory requirements; product development, channel and pricing;
conduct; security; purchasing, supply and outsourcing; business
continuity and resilience; and people.
By order of the Board
Cheryl Millington John Stier
Chief Executive Chief Financial Officer
1 April 2021
CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE YEARED 31 DECEMBER 2020
2020 2019
Note GBPm GBPm
================================================ ===== ======== ========
Revenue 3 471.8 555.7
Administrative costs 4 (395.8) (425.2)
Depreciation and impairment of property,
plant and equipment (7.3) (6.8)
Depreciation and impairment of right-of-use
assets (9.6) (6.1)
Amortisation of software (30.4) (29.9)
Amortisation of acquisition-related intangible
assets (26.7) (31.8)
Net gain on business disposals 3.8 -
Finance income 14 0.1 -
Finance costs 14 (12.5) (16.1)
------------------------------------------------ ----- -------- --------
(Loss)/profit before income tax 3 (6.6) 39.8
Income tax credit/(charge) 18 5.5 (7.4)
================================================ ===== ======== ========
(Loss)/profit for the year (1.1) 32.4
================================================ ===== ======== ========
(Loss)/profit for the year attributable
to:
- Owners of the parent (1.7) 30.8
- Non-controlling interests 0.6 1.6
================================================ ===== ======== ========
(Loss)/profit for the year (1.1) 32.4
================================================ ===== ======== ========
Earnings per share attributable to owners of the parent:
----------------------------------------------------------------- --------
Basic earnings per share (pence) 5 (0.5) 8.4
Diluted earnings per share (pence) 5 (0.5) 8.4
------------------------------------------------ ----- -------- --------
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2020
2020 2019
GBPm GBPm
============================================= ====== ======
(Loss)/profit for the year (1.1) 32.4
Other comprehensive (expense)/income
Items that may be subsequently reclassified
to profit or loss
Fair value movement through hedging
reserve 1.0 13.6
Tax on movement in hedging reserve - (2.1)
Net exchange losses on translation of
foreign operations (3.1) (5.5)
(2.1) 6.0
Items that will not be reclassified
to profit or loss
Defined benefit plan actuarial losses (0.7) (9.8)
Deferred tax charge on actuarial losses 0.8 1.7
---------------------------------------------- ------ ------
0.1 (8.1)
--------------------------------------------- ------ ------
Other comprehensive expense for the
year (2.0) (2.1)
============================================== ====== ======
Total comprehensive (expense)/income
for the year (3.1) 30.3
============================================== ====== ======
Total comprehensive (expense)/income
attributable to:
- Owners of the parent (3.4) 28.9
- Non-controlling interests 0.3 1.4
============================================== ====== ======
Total comprehensive (expense)/income
for the year (3.1) 30.3
============================================== ====== ======
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2020
2020 2019
Note GBPm GBPm
====================================== ===== ======== ========
Assets
Non-current assets
Property, plant and equipment 20.0 20.1
Right-of-use assets 25.9 35.2
Goodwill 9 527.6 529.9
Intangible assets 9 261.1 293.8
Contract fulfilment assets 11 16.9 14.2
Other financial assets 9.9 10.9
Deferred income tax assets 18 23.3 20.3
884.7 924.4
Current assets
Trade and other receivables 10 40.7 50.6
Contract fulfilment assets 11 35.8 39.8
Agency broker receivables 26.5 21.1
Other financial assets 4.4 -
Cash and cash equivalents 42.4 72.6
149.8 184.1
Total assets 1,034.5 1,108.5
-------------------------------------- ----- -------- --------
Liabilities
Non-current liabilities
External loans and borrowings 15 311.1 369.1
Post-employment benefits 19 31.5 31.7
Provisions 13 4.7 5.7
Lease liabilities 28.3 33.1
Other financial liabilities 0.2 -
375.8 439.6
Current liabilities
Trade and other payables 12 77.9 90.6
Contract fulfilment liabilities 11 17.0 16.3
Agency broker payables 26.5 21.1
Income tax payable 0.5 2.1
Provisions 13 10.7 10.4
Lease liabilities 6.2 8.0
Other financial liabilities 2.4 0.4
141.2 148.9
Total liabilities 517.0 588.5
====================================== ===== ======== ========
Net assets 517.5 520.0
====================================== ===== ======== ========
Equity
Equity attributable to owners of the
parent
Share capital 17 0.4 0.4
Share premium 115.9 115.9
Other reserves 193.6 194.4
Retained earnings 198.5 199.7
-------------------------------------- ----- -------- --------
508.4 510.4
Non-controlling interest 9.1 9.6
====================================== ===== ======== ========
Total equity 517.5 520.0
====================================== ===== ======== ========
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2020
Share Share Other Retained Non-controlling Total
capital premium reserves earnings interest equity
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- -------- -------- --------- --------- --------------- -------
Balance at 1 January
2019 0.4 115.9 182.4 203.2 9.3 511.2
Changes in accounting
standards - IFRS 16 - - - (1.6) - (1.6)
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
Deferred tax on movement
through hedging reserve - - (2.1) - - (2.1)
Net exchange loss 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 (note 6) - - - (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
---------------------------------- -------- -------- --------- --------- --------------- -------
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(CONTINUED)
FOR THE YEARED 31 DECEMBER 2020
Share Share Other Retained Non-controlling Total
capital premium reserves earnings interest equity
GBPm GBPm GBPm GBPm GBPm GBPm
================================== ======== ======== ========= ========= =============== =======
Balance at 1 January
2020 0.4 115.9 194.4 199.7 9.6 520.0
Comprehensive income
(Loss)/profit for the
year per the income
statement - - - (1.7) 0.6 (1.1)
Other comprehensive income/(expense)
Changes in fair value
through hedging reserve - - 1.0 - - 1.0
Net exchange loss on
translation of foreign
operations - - (3.1) - - (3.1)
Actuarial losses on
defined benefit pension
plans - - - (0.3) (0.4) (0.7)
Deferred tax on defined
benefit pension plans - - - 0.7 0.1 0.8
Total other comprehensive
(expense)/income - - (2.1) 0.4 (0.3) (2.0)
---------------------------------- -------- -------- --------- --------- --------------- -------
Total comprehensive
(expense)/income - - (2.1) (1.3) 0.3 (3.1)
Share option and share
awards to employees - - 1.3 (1.0) - 0.3
Transactions with non-controlling
interests - - - - (0.8) (0.8)
Share-based payment
transactions - - - 2.5 - 2.5
Deferred tax relating
to share option schemes - - - (1.4) - (1.4)
Transactions with owners
recognised directly
in equity - - 1.3 0.1 (0.8) 0.6
================================== ======== ======== ========= ========= =============== =======
Balance at 31 December
2020 0.4 115.9 193.6 198.5 9.1 517.5
================================== ======== ======== ========= ========= =============== =======
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2020
2020 2019
Note GBPm GBPm
-------------------------------------------------------------- ----- ------- -------
(Loss)/profit before income tax (6.6) 39.8
Adjustments for:
Depreciation and impairment of property, plant and equipment 7.3 6.8
Depreciation and impairment of right-to-use assets 9.6 6.1
Amortisation of software 30.4 29.9
Amortisation of acquisition-related intangibles 26.7 31.8
Finance income (0.1) -
Finance costs 12.5 16.1
Net gain on business disposals (3.8) -
Share-based payment transactions 2.5 1.6
Changes in working capital:
Net decrease in receivables 11.0 12.7
Net decrease/(increase) in contract assets 0.6 (7.8)
Net decrease in payables (6.6) (24.0)
Net increase in contract liabilities 1.5 2.0
Net decrease in provisions (0.5) (2.9)
-------------------------------------------------------------- ----- ------- -------
Cash flows from operating activities 84.5 112.1
Interest paid (9.4) (13.2)
Income tax paid (0.3) (2.7)
============================================================== ===== ======= =======
Net cash inflow from operating activities 74.8 96.2
============================================================== ===== ======= =======
Cash flows from investing activities
Business acquisitions net of cash acquired 7 (2.9) (3.3)
Payments relating to prior year acquisitions (12.3) (8.2)
Acquisition of property, plant and equipment (6.5) (1.8)
Payments relating to developing and acquiring software (30.8) (46.7)
Disposal of businesses 8 14.8 -
Net cash outflow from investing activities (37.7) (60.0)
============================================================== ===== ======= =======
Cash flows from financing activities
Purchase of own shares - (3.8)
Cash received on exercise of options - 3.8
Repayment of bank loans - (60.0)
(Repayment of)/proceeds from revolving credit facility (57.0) 38.6
Payment of loan set up fees - (3.7)
Payments in respect of leases (including interest) (7.8) (6.9)
Dividends paid 6 - (19.7)
Transactions with non-controlling interests (1.4) (2.2)
Net cash outflow from financing activities (66.2) (53.9)
============================================================== ===== ======= =======
Net decrease in cash and cash equivalents (29.1) (17.7)
Net foreign exchange losses (1.1) (0.6)
Cash and cash equivalents at 1 January 72.6 90.9
============================================================== ===== ======= =======
Cash and cash equivalents at 31 December 42.4 72.6
============================================================== ===== ======= =======
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2020
1) General information
Equiniti Group plc (the Company) is a public limited company,
limited by shares, which is listed on the London Stock Exchange and
is incorporated and domiciled in the United Kingdom. The Company
and its subsidiaries (collectively, the Group) provide complex
administration and payments services, supported by technology
platforms, to a wide range of organisations. The registered office
address is Sutherland House, Russell Way, Crawley, West Sussex,
RH10 1UH.
The condensed 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 and those for the 2020 year-end will be delivered
following the Group's Annual General Meeting to be held on 26 May
2021. The external auditor has reported on the 2020 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 financial statements have been prepared on the
basis of the accounting policies as set out in the previous
statutory financial statements.
New standards adopted by the Group
-- Amendments to IAS 1 and IAS 8 - changes to definition of 'material'
-- Amendments to IFRS 3 - changes to definition of a business
-- Amendments to IFRS 9, IAS 39 and IFRS 7 in respect of the Interest Rate Benchmark Reform
The above standards came into effect in the reporting period and
did not have any impact on the financial statements of the
Group.
Going concern
The financial statements are prepared on a going concern basis
as the Directors are satisfied that the Group has the resources to
continue in business for the foreseeable future (which has been
taken as at least 12 months from the date of approval of the
financial statements).
The Group has a large and diverse client base, including c70 of
the FTSE 100 and c120 of the FTSE 250 and average relationships
with FTSE 100 share registration clients of more than 29 years. The
Group meets its day -- to -- day working capital and financing
requirements through the generation of cash flows from its
operating activities and the availability of long term committed
bank facilities. 2020 was an unprecedented year, with the COVID-19
pandemic impacting results. Despite this the Group has remained
resilient generating GBP74.8m of net cash inflows from operating
activities and reduced net debt from GBP343.6m to GBP307.9m at the
year end.
At 31 December 2020, the Group had GBP23.5m of unrestricted cash
together with additional borrowing capacity of GBP202.0m under its
committed bank facilities, which are available to the Group through
to July 2024. The facilities are subject to one bank covenant under
which adjusted net debt to consolidated EBITDA (as defined in the
loan agreement) must be less than 3.75:1 at both 30 June 21 and 31
December 21, and 3.5:1 at the relevant reporting dates thereafter
The Group is currently well within the covenant requirement.
The Directors have reviewed the financial forecasts for the
Group, prepared by management, which set out sufficient trading and
cash generation to allow the business to meet its obligations as
they fall due. The forecasts, which have been updated for the
expected continued impact of COVID-19 and related economic stress,
indicate a recovery in 2021 and assume:
-- Revenue growth starting to return, supported by recovery in
the IPO market, and other market trends and increased cross-selling
into our customer base;
-- Modest margin improvement versus 2020, driven by operating
leverage, offshoring, automation, property rationalisation and
increasing mix of software licences; and
-- Completing the sale of our EQi business, which is planned for June 2021.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARED 31 DECEMBER 2020
2) Basis of preparation (continued)
Consideration has been given to severe and plausible downside
scenarios, including one under which there is a continued reduction
in discretionary spend by our client base and one where the
completion of the sale of our EQi business to interactive investor
does not complete until H2 2021. In each scenario that we have
considered, sufficient cash is forecast to be available to meet
liabilities as they fall due without the requirement to take
significant mitigating actions. In addition, mitigating actions
within control of the Group have been identified that would
preserve cash and reduce operating costs, if needed. In the
downside scenarios considered, the risk of a covenant breach is
considered remote.
As such, the Directors remain confident that the Group will
continue to meet its obligations as they fall due, maintain
significant funding headroom and meet its covenant obligations. The
Directors have therefore adopted the going concern basis in
preparing these financial statements.
3) Operating segments
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, EBITDA and underlying EBITDA are key measures of the
Group's performance. EBITDA represents earnings before interest,
tax, depreciation and amortisation. The EBITDA of each segment is
reported after charging relevant corporate costs based on the
business segment's usage of corporate facilities and services.
Underlying EBITDA is adjusted for one-off items which obscure the
understanding of the underlying performance of the Group and its
respective divisions. Central costs principally include corporate
overheads which are not allocated to a specific segment or
segments.
4) 2020 2019
Reported revenue GBPm GBPm
------------------ ------ ------
EQ Boardroom 127.7 149.7
EQ Digital 137.9 170.9
EQ Paymaster 115.6 127.0
Interest 10.0 14.1
---------------------- ------ ------
UK and Europe 391.2 461.7
EQ US 80.6 94.0
USA 80.6 94.0
---------------------- ------ ------
Total revenue 471.8 555.7
---------------------- ------ ------
2020 2019
Timing of revenue recognition GBPm GBPm
--------------------------------- ------ ------
Point in time 106.5 128.3
Over time 365.3 427.4
----------------------------------- ------ ------
Total revenue 471.8 555.7
----------------------------------- ------ ------
2020 2019
Underlying EBITDA GBPm GBPm
--------------------------- ------- -------
EQ Boardroom 36.4 50.2
EQ Digital 29.6 43.5
EQ Paymaster 15.1 19.5
Interest 10.0 14.1
----------------------------- ------- -------
UK and Europe 91.1 127.3
EQ US 14.2 23.1
----------------------------- ------- -------
USA 14.2 23.1
----------------------------- ------- -------
Total segments 105.3 150.4
Central costs (13.6) (14.4)
----------------------------- ------- -------
Total underlying EBITDA 91.7 136.0
--------------------------- ------- -------
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARED 31 DECEMBER 2020
3) Operating segments (continued)
2020 2019
Reconciliation of underlying EBITDA to (loss)/profit
before income tax GBPm GBPm
---------------------------------------------------------- ------- -------
Underlying EBITDA 91.7 136.0
Non-operating items:
* Office consolidation (11.7) -
* People severance costs (5.0) -
* Untaken annual leave (3.0) -
* Net gain on business disposals 3.8 -
* Transaction costs - (0.3)
* Integration costs - (5.2)
Depreciation, impairment and amortisation (less
impairments within non-operating items) (70.0) (74.6)
Net finance costs (12.4) (16.1)
-------------------------------------------------------- ------- -------
(Loss)/profit before income tax (6.6) 39.8
-------------------------------------------------------- ------- -------
4) Administrative costs
2020 2019
Expenses by nature: GBPm GBPm
Employee benefit expense 229.6 222.5
Employee costs capitalised in respect of software development (19.6) (21.9)
Direct costs 82.9 106.5
Printing and postage 16.5 18.6
IT licences and maintenance 35.3 30.2
Bought-in services 6.2 29.7
Premises costs 16.1 9.3
Short-term lease costs 0.5 0.5
Government grants (2.1) (0.8)
Other general business costs 30.4 30.6
---------------------------------------------------------------- ------- -------
Total administrative costs 395.8 425.2
---------------------------------------------------------------- ------- -------
5) Earnings per share
2020 2019
Basic and diluted earnings per
share GBPm GBPm
------------------------------------------------------- ------ ------
(Loss)/profit attributable to owners of the parent (1.7) 30.8
Basic weighted average number of ordinary shares
in issue (millions) 368.6 368.3
Dilutive performance share plan options (millions) 0.8 -
Diluted weighted average number of ordinary shares
in issue (millions) 369.4 368.3
--------------------------------------------------------- ------ ------
Basic earnings per share (pence) (0.5) 8.4
Diluted earnings per share (pence) (0.5) 8.4
--------------------------------------------------------- ------ ------
6) Dividends
Amounts recognised as distributions to equity 2020 2019
holders of the parent in the year
-----------------------------------------------------------------
GBPm GBPm
----------------- ---- ---- ------ ------ ------------------ -------- -------
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
- 19.7
--------------------------------------------------------------------- -------
The Board has not recommended a final dividend payable in
respect of the year ended 31 December 2020 (2019: GBP12.9m). The
dividend recommended in the prior year of GBP12.9m was withdrawn
due to uncertainties caused by the COVID-19 pandemic.
The Equiniti Group Employee Benefit Trust has waived its right
to receive dividends on shares held.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARED 31 DECEMBER 2020
7) Business acquisitions
Monidee
On 19 February 2020, the Group purchased the entire issued share
capital of Monidee B.V. (Monidee) for cash consideration of EUR4.0m
(GBP3.4m), plus deferred consideration of EUR4.0m (GBP3.4m) 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 GBP3.0m.
The results of the business have been consolidated since the date
of control and Monidee contributed GBP3.1m of revenue and GBP0.6m
of 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 GBP0.2m of revenue and GBPnil net profit
before tax to the Group's results in 2020. The acquisition-related
costs of acquiring Monidee in the year, such as legal fees and
stamp duty, amounted to GBP0.1m. These costs have been included in
administrative costs in the income statement.
On acquisition, intangible assets with a fair value of GBP3.3m
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. The amounts relating to the intangible
assets and goodwill are provisional and subject to further
evaluation and adjustment, in accordance with accounting
standards.
Fair value of identifiable assets acquired and liabilities GBPm
assumed
----------------------------------------------------------------- ------
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 year 2.3
--------------------------------------------------------------- ------
SAGA Personal Finance Limited
On 31 May 2020, the Group purchased the rights to SAGA's
telephone and internet share dealing and nominee service, trading
under the name 'Saga Share Direct', for consideration of GBP0.6m.
On this date, intangible assets with a fair value of GBP0.6m
relating to customer contracts and related relationships were
identified.
Fair value of identifiable assets acquired GBPm
------------------------------------------------ -----
Intangible assets 0.6
Total consideration and net cash outflow
in the year 0.6
----------------------------------------------- -----
During the year ended 31 December 2019, the Group acquired
Richard Davies Investor Relations Limited, an investor relations
business based in the United Kingdom, and Corporate Stock Transfer,
Inc., a share registrar business based in the United States. There
were no changes to the fair value of identifiable assets acquired
and liabilities assumed on acquisition during the year end 31
December 2020.
8) Business disposals
Business disposals are businesses that have been exited during
the year or are in the process of being disposed of. None of the
Group's business exits in 2020 meet the definition of 'discontinued
operations' as stipulated by IFRS 5, which requires disclosure and
comparatives to be restated where the relative size of a disposal
or business closure is significant, which is normally understood to
mean a reported segment. Accordingly, the separate presentation
described below does not fall within the requirements of IFRS 5
concerning discontinued operations.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARED 31 DECEMBER 2020
8) Business disposals (continued)
Equiniti 360
On 15 April 2020, the Group sold its Equiniti 360 business to
Premier IT Partnership Limited, for consideration of GBP0.1m. Up
until its sale, Equiniti 360 was part of the Group's EQ Digital
division.
Gain on business disposal GBPm
------------------------------------------- ------
Intangible assets 0.1
Deferred income tax assets 0.1
Contract fulfilment liabilities (0.2)
Total net assets disposed -
of
Cash purchase consideration received 0.1
Gain on business disposal 0.1
----------------------------------------- ------
HR Solutions
On 30 November 2020, the Group sold its HR and payroll business
(HR Solutions) to Civica UK Limited, for consideration of GBP13.2m.
Up until its sale, HR Solutions was part of the Group's EQ
Paymaster division.
Gain on business disposal GBPm
---------------------------------------------------------------- ------
Intangible assets 5.3
Trade and other receivables 0.8
Contract fulfilment assets 0.2
Trade and other payables (0.2)
Contract fulfilment liabilities (0.1)
Total net assets disposed
of 6.0
Cash purchase consideration
received 13.2
Costs of disposal:
* Transaction costs - paid (0.5)
* Transaction costs - accrued (0.6)
* Impairment of right-of-use and property, plant and
equipment assets (0.5)
* Liabilities created by transaction (2.2)
Gain on business disposal 3.4
-------------------------------------------------------------- ------
Charter Systems
On 31 December 2020, the Group sold its Charter Systems business
to Northgate Public Services (UK) Limited, for consideration of
GBP1.9m. Up until its sale, Charter Systems was part of the Group's
EQ Digital division.
Gain on business disposal GBPm
----------------------------------------- ------
Intangible assets 1.1
Trade and other receivables 0.1
Contract fulfilment assets 1.0
Trade and other payables (0.1)
Contract fulfilment liabilities (0.6)
Deferred income tax liabilities (0.1)
Total net assets disposed
of 1.4
Cash purchase consideration
received 1.9
Costs of disposal:
* Transaction costs - accrued (0.2)
Gain on business disposal 0.3
--------------------------------------- ------
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARED 31 DECEMBER 2020
9) Intangible assets
Acquisition-related
Intangible
Goodwill Software assets Total
GBPm GBPm GBPm GBPm
----------------------------- --------- --------- -------------------- --------
Cost
Balance at 1 January 2020 529.9 329.2 442.9 1,302.0
Acquisition of business 3.7 0.7 3.3 7.7
Additions - 25.0 0.6 25.6
Business disposals (5.2) (4.2) (0.9) (10.3)
Disposals - (4.1) - (4.1)
Translation adjustment (0.8) (0.3) (3.4) (4.5)
Reclassification - (1.5) - (1.5)
----------------------------- --------- --------- -------------------- --------
Balance at 31 December 2020 527.6 344.8 442.5 1314.9
----------------------------- --------- --------- -------------------- --------
Accumulated amortisation
Balance at 1 January 2020 - 227.0 251.3 478.3
Amortisation for the year - 30.4 26.7 57.1
Business disposals - (2.9) (0.9) (3.8)
Disposals - (4.0) - (4.0)
Translation adjustment - - (0.6) (0.6)
Reclassification - (0.8) - (0.8)
----------------------------- --------- --------- -------------------- --------
Balance at 31 December 2020 - 249.7 276.5 526.2
----------------------------- --------- --------- -------------------- --------
Net book value
Balance at 31 December 2019 529.9 102.2 191.6 823.7
----------------------------- --------- --------- -------------------- --------
Balance at 31 December 2020 527.6 95.1 166.0 788.7
----------------------------- --------- --------- -------------------- --------
Software predominately relates to investment in enhancing the
functionality of the Group's main operating platforms. Included
within additions in the year is GBP19.6m (2019: GBP21.9m) of
directly attributable employee staff costs that have been
capitalised in respect of internal software development.
Acquisition-related intangible assets consist primarily of
customer lists arising from business combinations.
Goodwill is the only intangible asset with an indefinite
life.
10) Trade and other receivables
2020 2019
GBPm GBPm
=================================== ===== =====
Trade receivables 26.6 35.1
Other receivables 5.8 6.6
Prepayments 8.3 8.9
------------------------------------ ----- -----
Total trade and other receivables 40.7 50.6
------------------------------------ ----- -----
The Group holds trade receivables with the objective of
collecting contractual cash flows. Settlement terms are generally
30 days from the date of invoice. Excluding trade receivables, none
of these financial assets are either past due or impaired. At the
year end, trade receivables are shown net of an expected credit
loss allowance of GBP0.7m (2019: GBP0.3m).
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARED 31 DECEMBER 2020
10) Trade and other receivables (continued)
Credit risk
The ageing of trade receivables at the reporting date was:
2020 2019
GBPm GBPm
============================ ===== =====
Not past due 17.7 23.4
Past due 1-30 days 3.7 7.1
Past due 31-90 days 1.6 2.0
Past due more than 90 days 3.6 2.6
----------------------------- ----- -----
Total trade receivables 26.6 35.1
----------------------------- ----- -----
The movements in the year on the Group's estimated credit loss
allowance on trade receivables is as follows:
2020 2019
GBPm GBPm
============================================== ====== ======
Balance at 1 January 0.3 0.2
Balances acquired from business acquisitions - 0.4
New provisions made in the year 0.7 0.1
Balances reversed in the year (0.3) (0.4)
Balance at 31 December 0.7 0.3
----------------------------------------------- ------ ------
Trade receivables past due but not impaired of GBP8.9m (2019:
GBP11.7m) relate to a number of independent customers for whom
there is no recent history of default or expectation of such going
forwards.
11) Contract fulfilment assets and liabilities
2020 2019
GBPm GBPm
================================== ===== =====
Accrued income 49.0 50.5
Contract set up costs 3.7 3.5
----------------------------------- ----- -----
Total contract fulfilment assets 52.7 54.0
----------------------------------- ----- -----
Non-current asset 16.9 14.2
Current asset 35.8 39.8
----------------------------------- ----- -----
Total contract fulfilment assets 52.7 54.0
----------------------------------- ----- -----
Accrued income is invoiced over time in line with agreed
contractual billing schedules. This may be over a period of greater
than 12 months.
2020 2019
GBPm GBPm
======================================= ===== =====
Deferred income 17.0 16.3
---------------------------------------- ----- -----
Total contract fulfilment liabilities 17.0 16.3
---------------------------------------- ----- -----
12) Trade and other payables
2020 2019
GBPm GBPm
================================ ===== =====
Trade payables 13.6 22.7
Accruals 38.0 47.0
Deferred consideration 3.6 7.2
Other payables 22.7 13.7
--------------------------------- ----- -----
Total trade and other payables 77.9 90.6
--------------------------------- ----- -----
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARED 31 DECEMBER 2020
13) Provisions for other liabilities and charges
Contingent Property Total
consideration provision provisions
GBPm GBPm GBPm
============================================ =============== =========== ============
Balance at 1 January 2020 14.8 1.3 16.1
Additional provisions made during the year - 6.8 6.8
Amounts utilised during the year (5.1) (0.5) (5.6)
Amounts released during the year (1.3) (1.1) (2.4)
Unwinding of discounted amount 0.2 - 0.2
Translation adjustment 0.3 - 0.3
-------------------------------------------- --------------- ----------- ------------
Balance at 31 December 2020 8.9 6.5 15.4
-------------------------------------------- --------------- ----------- ------------
Non-current liability 0.8 3.9 4.7
Current liability 8.1 2.6 10.7
----------------------- ---- ---- -----
Total provisions 8.9 6.5 15.4
----------------------- ---- ---- -----
The minimum value of the contingent consideration provision
could be GBP0.5m up to a maximum of GBP14.3m. The remaining balance
is expected to be utilised over the periods between 2021 and
2023.
Certain entities in the Group are party to legal actions and
claims which may arise in the normal course of business. The
Directors apply judgement in determining the merit of litigation
against the Group and the chances of a claim successfully being
made. The Directors assess the likelihood of an outflow of economic
benefits occurring and whether there is a need to disclose a
contingent liability or whether a provision might be required. At
any time there are a number of claims or notifications that require
assessment across the Group. While there are inherent uncertainties
in the outcome of such matters, the Directors are satisfied that
they are not expected to have a material impact on the Group.
14) Finance income and costs
2020 2019
Finance income GBPm GBPm
--------------------------------------- ------ -----
Interest income 0.1 -
Total finance 0.1 -
income
--------------------------------------- ------ -----
2020 2019
Finance costs GBPm GBPm
--------------------------------------- ------ -----
Interest cost on term loan borrowings 5.9 8.5
Interest cost on revolving credit
facility 2.5 3.2
Amortisation of finance arrangement
fees 1.3 1.8
Net finance cost relating to pension
schemes 0.6 0.6
Interest cost on lease liabilities 1.3 1.5
Unwinding of discounted amount
in provisions 0.2 0.4
Foreign exchange loss 0.4 -
Net gain on derivatives not in (0.2) -
a hedging relationship
Other fees and interest 0.5 0.1
------------------------------------------ ------ -----
Total finance costs 12.5 16.1
------------------------------------------ ------ -----
15) External loans and borrowings
2020 2019
GBPm GBPm
===================================== ====== ======
Term loan 257.8 260.1
Revolving credit facility 58.0 115.0
Unamortised cost of raising finance (4.7) (6.0)
Total external loans and borrowings 311.1 369.1
-------------------------------------- ------ ------
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARED 31 DECEMBER 2020
16) Net debt
2020 2019
GBPm GBPm
--------------------------- ------- -------
Term loan 257.8 260.1
Revolving credit
facility 58.0 115.0
Finance lease liabilities 34.5 41.1
Cash and cash equivalents (42.4) (72.6)
---------------------------- ------- -------
Net debt 307.9 343.6
----------------------------- ------- -------
17) Share capital
2020 2019
Allotted, called up and fully paid GBPm GBPm
==================================== ===== =====
Ordinary shares of GBP0.001 each 0.4 0.4
===================================== ===== =====
Total share capital 0.4 0.4
------------------------------------- ----- -----
2020 2019
Ordinary shares of GBP0.001 each - in Number Number
thousands of shares
======================================= ======== ========
Balance at 1 January 364,537 364,537
======================================== ======== ========
Employee share scheme issues 846 -
--------------------------------------- -------- --------
Balance at 31 December 365,383 364,537
---------------------------------------- -------- --------
Reconciliation of shares held in the employee benefit Number
trust - in thousands of shares
------------------------------------------------------- -------
Balance at 1 January 2020 1,764
Shares transferred to scheme participants 566
------------------------------------------------------- -------
Balance at 31 December 2020 1,198
------------------------------------------------------- -------
18) Income tax (credit)/charge
2020 2019
Recognised in the income statement in the year: GBPm GBPm
------------------------------------------------------ ------ ------
Current tax:
Current period 1.0 4.4
Adjustment in respect of prior periods (2.4) (1.2)
----------------------------------------------------- ------ ------
Total current
tax (1.4) 3.2
------------------------------------------------------ ------ ------
Deferred tax:
Origination and reversal of temporary
differences (2.3) 4.3
Impact of rate changes on opening deferred (1.8) -
tax balances
Adjustment in respect of prior periods - (0.1)
----------------------------------------------------- ------ ------
Total deferred
tax (4.1) 4.2
------------------------------------------------------ ------ ------
Total income tax (credit)/charge (5.5) 7.4
----------------------------------------------------- ------ ------
2020 2019
Reconciliation of effective tax rate: GBPm GBPm
-------------------------------------------------------------------------------------- ------ ------
(Loss)/profit for the year (1.1) 32.4
Total tax (credit)/charge (5.5) 7.4
------------------------------------------------------------------------------------- ------ ------
(Loss)/profit before tax (6.6) 39.8
---------------------------------------------------------------------------------------- ------ ------
Tax using the UK corporation tax rate of 19% (2019: 19%): (1.3) 7.6
Non-deductible expenses 0.7 0.8
Non-taxable gains on business disposals (0.8) -
Effect of unrecognised temporary differences 1.1 0.2
Effect of tax rate change (1.8) -
Difference in overseas tax rates (0.3) (0.1)
Effect of claims for research and development and other tax incentives and reliefs (0.7) 0.2
Adjustment in respect of prior periods (2.4) (1.3)
---------------------------------------------------------------------------------------- ------ ------
Total income tax (credit)/charge (5.5) 7.4
---------------------------------------------------------------------------------------- ------ ------
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEARED 31 DECEMBER 2020
18) Income tax (credit)/charge (continued)
The UK corporation tax rate of 19%, effective from 1 April 2017,
was substantively enacted on 26 October 2015. The UK corporation
tax rate was expected to reduce from 19% to 17% on 1 April 2020,
and deferred tax balances were recognised at 31 December 2019 on
this basis. The cancellation of the planned reduction was
substantively enacted on 17 March 2020, and deferred tax balances
have been restated in the year accordingly. This gave rise to a
deferred tax credit of GBP1.8m in the year.
On 3 March 2021, the Government announced that, with effect from
1 April 2023, the main rate of UK corporation tax will increase to
25%. As the proposal to increase the UK corporation tax rate had
not been substantively enacted at the balance sheet date, its
effects have not been reflected in the preparation of the financial
statements. An estimate of the immediate financial impact cannot
readily be made due to uncertainty over the timing of the reversal
of temporary differences; it is however likely that the overall
effect of the change will be to increase the group's future tax
charge.
The current tax adjustment in respect of prior periods includes
GBP1.9m relating to differences between the provision for tax made
in the Group's consolidated 2019 financial statements and the
filing position taken in the 2019 submitted tax computations. The
adjustment primarily relates to the treatment of non-taxable
provisions reversing in the period and the effectiveness of
derivative financial instruments in the subsidiary statutory
accounts, which both gave rise to reduced taxable profits in the
final returns.
Movements in deferred tax during the year:
Opening Acquisitions Recognised Recognised Closing
balance /disposals in income in equity balance
Year ended 31 December 2020 GBPm GBPm GBPm GBPm GBPm
--------------------------------------------------------- -------- ------------ ---------- ---------- --------
Property, plant and equipment 1.9 - (1.9) - -
Intangible assets (26.8) (0.8) (5.8) - (33.4)
Employee benefits and other timing differences 10.7 - 1.2 (0.3) 11.6
Tax value of losses carried forward 34.5 - 10.6 - 45.1
--------------------------------------------------------- -------- ------------ ---------- ---------- --------
20.3 (0.8) 4.1 (0.3) 23.3
-------- ---------------------------------------------- -------- ------------ ---------- ---------- --------
Opening Acquisitions Recognised Recognised Closing
balance /disposals in income in equity balance
Year ended 31 December 2019 GBPm GBPm GBPm GBPm GBPm
--------------------------------------------------------- -------- ------------ ---------- ---------- ----------
Property, plant and equipment 1.6 - 0.3 - 1.9
Intangible assets (23.4) (0.7) (2.7) - (26.8)
Employee benefits and other timing differences 9.4 - (0.3) 1.6 10.7
Tax value of losses carried forward 36.0 - (1.5) - 34.5
--------------------------------------------------------- -------- ------------ ---------- ---------- ----------
23.6 (0.7) (4.2) 1.6 20.3
---------------------------------- --------------------- -------- ------------ ---------- ---------- ----------
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
19) Post-employment benefits
Defined benefit pension plans
The Group operates three funded defined benefit pension plans in
the UK. All of the plans are final salary pension plans and provide
benefits to members in the form of a guaranteed level of pension,
payable for life. The liability under all schemes is based on final
salary and length of service to the employer. The defined benefit
obligation as at 31 December 2020 is calculated on a year-to-date
basis using the latest actuarial valuation as at 31 December
2020.
2020 2019
GBPm GBPm
--------------------------------------------- ----- -----
ICS Pension Scheme 0.9 1.9
Paymaster Pension Scheme 26.6 27.7
Prudential Platinum Pension - MyCSP Limited 3.6 2.1
------------------------------------------------- ----- -----
Total defined benefit pension plan
net liability 31.1 31.7
------------------------------------------------ ----- -----
Other long-term employee benefits 0.4 -
------------------------------------------------ ----- -----
Post-employment benefits 31.5 31.7
------------------------------------------------ ----- -----
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 Annual Report and Accounts 2020. There have
been no changes in the risk management department or in any risk
management policies since the year end.
There are no material differences between the carrying value of
assets and liabilities and their fair value. The only financial
instrument measured at fair value is the interest rate swap.
The following table presents the Group's financial assets and
liabilities that are measured at fair value:
2020 2019
Level GBPm GBPm
---------------------------------- ------ ------ ------
Financial assets
Derivative financial instruments 2 14.3 10.9
Financial liabilities
Derivative financial instruments 2 (2.6) (0.4)
------------------------------------ ------ ------ ------
There were no transfers between levels during the year.
Valuation techniques used to value these financial instruments are
consistent with those used for the year ended 31 December 2020 as
disclosed in note 6.13 of the Annual Report and Accounts 2020.
21) Related party transactions
Transactions with key management personnel
The compensation of key management personnel (including the
Directors) is as follows:
2020 2019
GBPm GBPm
------------------------------ ----- -----
Short-term employee benefits 4.0 4.7
Post-employment benefits 0.1 0.1
Termination benefits 0.6 0.4
Share-based payment expense 0.9 0.5
--------------------------------- ----- -----
Total 5.6 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.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
22) Events after the reporting date
On 8 March 2021, the Group announced that it had reached an
agreement to sell its EQi direct-to-consumer (D2C) business to
interactive investor (ii), for a consideration of up to GBP48.5m.
The sale to ii is anticipated to complete during the summer of
2021, following a customer migration exercise. The total
consideration payable is up to GBP48.5m comprising GBP47.5m payable
in cash on completion, and up to a further GBP1.0m contingent on
the timing of migrating all customers to the ii platform.
At 31 December 2020, the D2C business had assets under
administration of GBP5.3bn, including cash balances of GBP0.6bn,
which did not form part of the Group's net assets. During the year
ended 31 December 2020, the business generated revenue of GBP14.5m
and profit before tax of approximately GBP3.3m. The results of this
business forms part of the EQ Boardroom division. The Group's
interest costs will reduce by GBP0.4m following completion of the
transaction as debt is reduced.
At 31 December 2020, discussions around the sale of the business
were not sufficiently advanced to be disclosed as assets held for
sale as required by IFRS 5, Non-current Assets Held for Sale and
Discontinued Operations, as the transaction was not considered
highly likely at that point.
There have been no other material events between 31 December
2020 and the date of authorisation of the consolidated financial
statements that would require adjustments to the consolidated
financial statements or disclosures.
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