EQN.L Regulatory News (EQN)

Equiniti Group plc

Incorporated in England and Wales

Registration number: 07090427

LEI: 213800TS721HGE2JIV94

ISIN: GB00BYWWHR75

http://www.rns-pdf.londonstockexchange.com/rns/5210S_1-2019-3-11.pdf

12 March 2019

EQUINITI GROUP PLC RESULTS FOR THE YEAR ENDED 31 DECEMBER 2018

Equiniti Group plc ("Equiniti" or "the Group"), an international technology-led services and payments specialist, today publishes its full year results for the twelve months to 31 December 2018.

STRONG GROWTH AND SUCCESSFUL US ENTRY

· Revenue growth of 30.7% reflecting acquisition of EQ US and strong organic* revenue growth of 7.3%:

o 100% retention of FTSE clients, with new wins across all divisions

§ New share registration clients including Bodycote, Dunelm, Wm Morrisons and National Grid

§ New client wins including Combined Nuclear Pension Plan, Mastercard and Ofcom

§ New IPO mandates including Aston Martin, Avast and Funding Circle

o Renewal or extension of relationships with clients including:

§ Abbey Life, BAE Systems, Carnival, Lloyds Banking Group and Metropolitan Police

o New products launched in the US with the business returning to growth in H2 2018

· New capabilities and strategic developments:

o EQ US acquisition successfully completed on 1 February 2018 with integration progressing well

§ Final separation from Wells Fargo now expected to complete by June 2019 for a total programme cost of no more than £45m with expected synergies in line with previous guidance

o Integration of Boudicca Proxy delivered, cross-sold to 21 registration clients

o Acquisition of Aquila completed on 31 October, enhancing our technology and services for insurance and the life sector

o Purchase of the Cabinet Office's 24% stake in MyCSP, increasing our stake from 51% to 75% and demonstrating our ongoing commitment to this joint venture

· Underlying EBITDA growth of 24.5% reflecting strong organic growth and contribution from EQ US, with margin decline of 1.2pts driven by a change in business mix due to an increase in lower margin remediation projects

· Underlying EBIT growth of 7.8% after the impact of £20.8m of non-operating charges arising from the acquisition of EQ US with profit after tax growth of 35.3%, benefitting from a reduced tax charge

· Strong operating cash flow conversion of 102%, including a reduction in the receivables financing facility to £10.3m from £19.9m at 31 December 2017, and driven by strong working capital management

· Leverage of 2.5x (31 December 2017: 2.5x) reflecting the acquisition of the EQ US business and associated costs

· Recommended final dividend of 3.49 pence per share, giving a total dividend for the year of 5.32 pence per share with growth of 21.7%, in line with progressive dividend policy

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

"2018 was a year of pleasing progress against our strategic objectives, with record organic growth, and a successful entry into the attractive United States market.

"Despite the uncertain operating environment, we have continued to grow our revenues ahead of expectations, with more clients than ever before choosing Equiniti to deliver their registration and shareplan services.

"Our acquisition of Wells Fargo Shareowner Services has created a truly international opportunity both for our core share registration products as well as our broader suite of technology and shareplan solutions, and has shown pleasing revenue and profit momentum during the second half, whilst continuing to make good progress with the separation and integration of the business. 

"Equiniti operates in an environment characterised by significant change, driven by regulation, digitisation and cost reduction. The relevance of our services and automated technology capabilities has never been greater, and throughout 2019 our intent remains to deliver organic revenue growth, operating leverage and strong cash generation from our international platform assets."

OUTLOOK

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

Our business model gives us excellent visibility of our revenues. Combined with the highly scalable platform nature of our operations, progressive deleveraging and further operational improvements, this will allow us to continue to grow underlying profits and earnings ahead of revenue.

Our medium term guidance remains unchanged and excludes the impact of IFRS 16 to be consistent with current reported results:

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

· Gradual margin improvement of c25 bps per annum.

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

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

· Average cash conversion of c95%.

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

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

Analyst and Investor presentation

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

Conference call details:

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

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

For further information please contact: 

Analyst/Investor enquiries:

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

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

Media enquiries:

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

Forward-looking statements

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

GROUP RESULTS

The USD is converted into GBP using the average daily rate, 1.3304 USD to GBP for 2018 (average is based on period from 1 February 2018 to 31 December 2018 - period of US business ownership).

Overview

2018 was a year of further progress for Equiniti, with the Group delivering a strong financial performance reflecting the continued successful execution of our strategy. The resilience of our UK client base is a key strength of the business and we retained all of our FTSE 100 clients in the period. We have also grown the client base with new wins including 11 registration transfers and 21 mandates from newly listed companies. Completion of the EQ US acquisition was the most significant development in 2018 and we are pleased with its progress. Group revenue, profit and cash generation were ahead of market expectations.

Revenue increased by 30.7% to £530.9m (2017: £406.3m) during the year whilst proforma revenue adjusted for acquisitions grew organically by 7.3%. Acquisitions made in the period have progressed well, contributing to growth.

Investment Solutions delivered strong revenue growth, primarily driven by a rise in corporate action revenue together with outstanding client retention and increased market share. Intelligent Solutions delivered exceptional growth, with remediation services a particular driver as the division won multiple large-scale remediation and fulfilment projects with major UK Banks. As expected, the Pension Solutions division contracted as a result of the competitive environment, a contract loss and change in scope of the NHS contract at the end of 2017.

Interest income was 19.8% higher than the prior year, with growth in average UK cash balances of 4.1% to £1,744m (2017: £1,675m) and income benefitting from a 25bps rise in UK rates in August 2017. Interest receivable is partially fixed with instruments secured to July 2020 (£380m), September 2021 (£215m), September 2022 (£215m) and September 2023 (£215m).

EQ US revenue decreased by 2.0% to £81.4m. Whilst revenue declined by 6.3% in the first half, the business returned to growth in H2 with 1.5% organic growth. The attrition of clients we saw in the first half stabilised and the division won a number of new clients in the second half of the year.

Underlying EBITDA, which excluded non-operating charges of £20.8m relating to the acquisition and integration of EQ US, increased by 24.5% to £122.3m (2017: £98.2m) reflecting Equiniti's platform characteristics and a continuing focus on operational improvement.

Central costs in the period increased to £15.8m (2017: £12.7m) and were driven by an increased share-based payments charge.

Operating cash flow conversion was 102% (2017: 93%) and includes a reduction in the receivables financing facility from £19.9m at 31 December 2017 to £10.3m at 31 December 2018. This facility is forecast to reduce further subject to commercial requirements. Free cash flow attributable to equity holders was £38.6m (2017: £39.7m) and includes the cash component of the non-operating charges (£17.6m) and Employee Benefit Trust share purchase (£13.9m). Net debt of £309.5m reflects the impact of the acquisition of EQ US and associated costs (31 December 2017: £242.9m) and represents a ratio of 2.5x net debt/underlying EBITDA (31 December 2017: 2.5x).

The Board has proposed a final dividend of 3.49 pence per share which, subject to shareholder approval at the Annual General Meeting on 2 May 2019, will result in a full year dividend of 5.32 pence per share (including the interim dividend of 1.83 pence per share). The final dividend will be paid on 16 May 2019 to shareholders on the register of members at close of business on 12 April 2019. This represents growth of 18.7% when compared to the total dividend for 2017 (4.48p per share), or 21.7% on a restated basis (see appendix 1 on page 15 for restatement). Any shareholder wishing to participate in the Equiniti Dividend Reinvestment Plan should submit their election to do so by 24 April 2019. We maintain our progressive dividend policy which will see us distribute around 30% of our underlying profit attributable to ordinary shareholders each year.

Board changes

There were several changes to the Board in 2018.

On 1 April 2018, Alison Burns joined the Board as an independent non-executive Director. Alison brings extensive experience of the financial services industry, including executive and non-executive roles at numerous blue-chip organisations.

Vicky Jarman stood down as a non-executive Director at the AGM on 3 May 2018, with Darren Pope succeeding Vicky as our Senior Independent Director.

Mark Brooker and Cheryl Millington were appointed as non-executive Directors from 1 November 2018. Mark brings strong management and operations experience from technology-centric businesses and his time in investment banking is highly relevant to our marketplace. Cheryl has deep technology and leadership experience from a diverse range of relevant sectors. Their appointments add further significant digital and systems expertise to the Board, supporting our ambitious growth agenda.

OPERATIONAL REVIEW

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

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

Investment Solutions

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

Revenue in Investment Solutions increased by 7.7% to £142.5m (2017: £132.3m). Organic growth was 6.9%, primarily driven by a rise in corporate action revenue to £18.8m (2017: £9.4m), along with outstanding client retention and increased market share.

Underlying EBITDA grew by 8.7% to £47.3m, driven by organic growth, an increase in higher margin project work and strong growth in employee share plans. The acquisition of Boudicca Proxy on 26 April 2018 has been fully integrated and already cross-sold into the Group's registration client base.

Share registration had a strong year. It retained all of its clients in the period, with notable renewals including BAE Systems, Carnival, EasyJet, GSK, IHG, JustEat and QinetiQ. The division made excellent progress with competitor wins and was appointed as registrar to clients including Bodycote, Countryside, Deltex, Hiscox, Wm Morrisons and National Grid. It was also highly successful at winning IPO mandates, securing 21 of those coming to market including Aston Martin, Avast and Funding Circle.

Our International Payments business had a good year as it strengthened its relationships with financial institutions, signing a new partnership with Barclays to add to the existing arrangement with Citigroup. Selftrade, the division's execution-only brokerage service, had a good year despite the slowing in trading conditions as a result of the uncertain market environment.

Our shareplan services had a strong year with key wins including Astra Zeneca, Cobham, Countryside, Dunelm, Hiscox, Wm Morrisons and National Grid. The majority of these were competitor wins, with IPOs also an important contributor.

There has been good traction with our estate management and bereavement services offering, with the "tell-us-once" pilot with six major UK banks now live. The division also extended its outsourced estate processing work with Lloyds from the bank's wealth customers to its retail customers.

Intelligent Solutions 

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

Revenue in Intelligent Solutions increased by 33.4% to £165.9m (2017: £124.4m), underpinned by exceptional organic growth of 30.2%. Underlying EBITDA increased by 21.7% to £39.8m as a result of strong organic growth with the contraction in margin to 24.0% (2017: 26.3%), reflecting the change in business mix driven by an increase in lower margin remediation projects.

Remediation services was a particular driver of revenue growth as Intelligent Solutions won multiple large-scale remediation and fulfilment projects with major UK Banks. PPI is becoming a smaller proportion of the remediation business as evidenced by the two largest projects in 2018 being non-PPI. Intelligent Solutions is evolving its business model in remediation as it moves away from providing resource to clients in the form of people and adopts a managed service approach. This allows the division to use technology to reduce the cost to the client, while driving efficiencies to increase margin.

The 2017 acquisitions of Gateway2Finance and Nostrum supported strong growth in credit services, with new wins including contracts with Vodafone and MotoNovo Finance.

Intelligent Solutions also won contracts to provide data analytics to Neilson, IT solutions to the Information Commissioner's Office, an asset reunification project with Lloyds Bank and a project with Ofcom, the UK's communications regulator, to run their claims management system.

Other major wins during the year included cross-selling its customer on-boarding services to Ulster Bank, its case management platform to Hiscox and Lloyds Bank, and its EQ Amplify data analytics product to Royal Mail. A global deal to roll out Equiniti's complaints management platform for HSBC demonstrated the division's ability to cross-sell into the US.

Pension Solutions

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

As expected, Pension Solutions saw revenue decline by 7.5% to £129.0m (2017: £139.5m), with a decrease in underlying EBITDA of 19.9% to £19.7m (2017: £24.6m), representing a margin of 15.3% (2017: 17.6%). The decline was the result of the ongoing competitive market together with a contract loss and scope changes at the end of 2017. The previously announced £2.0m of restructuring and transformation costs in respect of the division is reflected in underlying EBITDA. We continue to actively manage the cost base with initiatives in place throughout the course of 2018 and continuing into 2019 to stabilise trading. Initiatives to manage the cost base include driving closer working relationships with Pension Solutions and MyCSP, utilising further automation and offshoring work, and rationalising the property footprint.

Despite the challenging market environment, the division successfully retained all of its relationships in the year. Significant renewals and contract extensions in the year included Abbey Life, GSK, Lloyds Banking Group, Metal Box and Metropolitan Police. Pension Solutions continued to pick up ongoing project work with existing clients and signed new clients, including Highland Council Pension Fund, South Warwickshire NHS Trust, the UK Atomic Energy Authority and a ten-year contract to administer the Combined Nuclear Pension Plan.

MyCSP continued to deliver in line with expectations during the year. On 28 September 2018, the Group announced that the contract with the Cabinet Office to provide pension administration and related services had been extended until the end of 2021. At the same time, the Group purchased the Cabinet Office's 24% stake in MyCSP for £8.0m, increasing Equiniti's ownership from 51% to 75%. The remaining 25% of MyCSP continues to be owned by MyCSP Trustee Company, which is an employee benefit trust. MyCSP has made a significant investment in technology and services for public sector pensions' administration, and has the experience and scale to operate the largest and most complex of schemes. With this contract extension, we are committed to further investment in the services and enhancing the employer and member experience.

On 31 October 2018, the Group acquired Aquila, a UK-based life and pensions' technology provider for pension schemes and large insurance companies. Its proprietary Administrator platform supports propositions in workplace savings, bulk purchase annuities and heritage transformation. The acquisition enhances our technology and services offering for insurance and the life sector.

EQ US

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

* 1 February 2017 to 31 December 2017

The USD is converted into GBP using the average daily rate, 1.3304 USD to GBP for 2018 (Average is based on period from 1 February 2018 to 31 December 2018 - period of US business ownership). 2017 converted at constant currency exchange rates.

The acquisition of EQ US successfully completed on 1 February 2018 and results were consolidated into the Group from that date. Prior period performance is for the period from 1 February to 31 December 2017 and is provided to demonstrate the division's underlying performance.

Revenue in the period decreased by 2.0% to £81.4m (2017: £83.1m) with revenue from corporate actions of £12.3m (2017: £11.3m) and revenue from interest income of £9.0m (2017: £4.7m). Whilst revenue declined by 6.3% in the first half, the business delivered growth of 1.5% in the second half and achieved a substantial increase in its profitability. Underlying EBITDA increased by 15.0% to £19.2m (2017: £16.7m), representing a margin of 23.6% (2017: 20.1%), reflecting the rising interest rate environment, growth in corporate actions, stability of the client base and good cost discipline, offset by investment to drive future growth.

Following the announcement of the acquisition, EQ US experienced some attrition among smaller clients. This stabilised through the second half of the year and the division won additional new clients. The division also retained all of its major clients, reflecting its strong relationships. This included signing a five year extension with General Electric and renewing its foundation contract with MDU, a client since 1929. Other major renewals included 3M, Garret Motion, Honeywell, CVS and JP Morgan. New client wins in the period were also encouraging and included AbbVie, Inmarsat, Mastercard, National Bank Holdings, Perspecta and Residio.

There was early success with selling the Group's UK credit services in to the USA with sales to 11 US corporates including Advanced Partners, Baron Finance, Capital Business Credit and HSBC. In addition to the successful introduction of Riskfactor, EQ US developed and launched a capability to administer private M&A transactions towards the end of 2018. The division also has a roadmap for introducing further capabilities in 2019, including data analytics, proxy solicitation services and employee plans. Proxy solicitation has now been launched and is already generating commitments for 2019.

The separation of the business from Wells Fargo and its integration into Equiniti is proceeding well. We have now established our data centres and deployed our applications within those data centres, inaugurated our second site in Milwaukee and introduced new finance, HR and billing systems. The final phase of our work is the business acceptance testing of core transactional systems which is well underway, and we are now progressing an extended period of parallel running, anticipated to conclude by June 2019. This additional period of prudent dual running requires an additional investment in transitional resource, increasing our estimated total cost to complete to no more than £45.0m.

The synergies committed in the acquisition case of $10m in the second year of ownership (2020) are on track and will deliver in their entirety, with cost savings being delivered from insurance, IT and back office services. As we go through 2019, further savings are expected from a number of procurement exercises, IT licences, digitisation of services, widening our service delivery capabilities and use of the Group's offshore capability.

FINANCIAL REVIEW

Group Income Statement

Revenue

Revenue increased by 30.7% to £530.9m (2017: £406.3m) during the year with organic revenue growth of 7.3%. Organic revenue growth is reported revenue growth adjusted for acquisitions on a like-for like basis. Here we restate 2017 for the prior period acquisitions had they been owned in 2017 to create a like-for-like comparison of year-on-year progress. This is calculated as follows:

1Acquisition of Boudicca Proxy

2Acquisition of Nostrum Group Ltd

3Acquisition of Aquila

4Acquisition of EQ US

Underlying EBITDA

Underlying EBITDA prior to non-operating charges of £20.8m (2017: £10.5m) increased by 24.5% to £122.3m (2017: £98.2m) reflecting the strong performance in Investment Solutions and Intelligent Solutions and the contribution from the acquisition of EQ US.

Non-operating charges

Non-operating charges are defined as expense items, which if included, would otherwise obscure the understanding of the underlying performance of the Group. Non-operating charges of £20.8m incurred in the period (2017: £10.5m) comprise £6.1m of transaction costs and £14.7m of integration costs, and relate entirely to the acquisition of the EQ US business. Included within this are £4.7m of costs in relation to permanent project staff, which on completion of the integration project will be absorbed into vacant positions, replace contractors in the business or otherwise leave the Group. Post completion of the US integration programme, there will be no further non-operational charges absent transformational transactions.

Underlying EBIT

Underlying EBIT remains an important measure of the Group's performance, reflecting profit before finance costs and taxation. In 2018, reported EBIT was £39.9m (2017: £37.0m).

Net finance costs

Group net finance costs increased by £3.6m to £15.3m (2017: £11.7m) on a higher level of net debt.

Taxation

Profit before income tax of £24.6m at the UK corporation tax rate of 19% gives an expected total tax charge of £4.7m. The actual tax charge is £3.9m and the difference is largely explained due to two material factors including; (i) non-deductible transaction costs (tax effect £1.1m) and (ii) a tax deductible amount relating to the loss on the forward exchange contract taken out to hedge the acquisition of EQ US (tax effect (£1.9m)) and which was allocated to the cost of acquisition. Of the total tax charge of £3.9m, approximately £2.8m relates to the UK and £1.1m relates to the Group's overseas operations.

Taxes paid in the period of £4.5m are primarily due to payments on account for both MyCSP Limited and the wider Equiniti UK Group companies. During the year, amounts totalling £2.0m were received relating to repayments of overpaid 2016 taxes and payable R&D expenditure credits. The remainder of the taxes paid are overseas taxes relating to the Group's operations in India, the US and the Netherlands.

The Group has recognised deferred tax on £795.8m of gross tax attributes representing future tax deductions which will reduce the cash effective tax rate as compared to the underlying effective tax rate over time. Net future deductions are expected to be in the region of £136.0m, on which a net deferred tax asset of £23.6m has been recognised at the relevant local statutory rate.

The gross tax attributes totalling £795.8m are represented by:

Future tax deductions on tax losses carried forward £210.7m

Future tax deductions on intangible assets £509.9m

Future tax deductions on property, plant and equipment £23.8m

Future tax deduction on employee benefits and other timing differences £51.4m

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.

A cash tax rate of 12% applies for 2018 and is estimated to be in the region of c13% for 2019 rising to c17% thereafter, reflecting the completion of the integration, and forecast growth, of EQ US. 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 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.

Profit attributable to ordinary shareholders

The Group made a profit attributable to ordinary shareholders of £17.5m (2017: £11.6m).

Earnings per share 

Diluted earnings per share of 4.7 pence (2017: 3.5 pence) is based on the weighted average number of shares in issue plus the dilutive effect of share options totalling 371.8m (2017: 333.1m).

Underlying earnings per share grew 6.5% to 17.9 pence per share compared to the prior period of 16.8 pence per share, based on the diluted weighted number of shares in issue, adjusted for the timing of the rights issue.

Capital structure

The Group's consolidated statement of financial position at 31 December 2018 is summarised as follows:

Current assets include £88.0m of trade receivables and accrued income at 31 December 2018 (31 December 2017: £61.4m). Accrued income represents amounts recognised as revenue but not yet billed and is driven by mix in business including corporate actions, software sales and remediation services, and growth in the business. No income is accrued without a contract in place and, combined with the blue-chip nature of our client base, results in minimal bad debts being recorded and traded income reversing out of the accounts. Trade receivables and accrued income increased in 2018 following our expansion into the US market and an increase in large BPO projects which are invoiced a month in arrears.

Cash flow

The Group generated a free cash flow attributable to equity holders of £38.6m (2017: £39.7m) and delivered an operating cash flow conversion of 102% (2017: 93%). The main movements in cash flow are summarised below:

The Group has access to a £20.0m receivables financing facility of which £10.3m (2017: £19.9m) was utilised at the end of the period and included within cash balances. This is used to match receipts against costs, especially where clients require extended payment terms and is driven by project flow in Intelligent Solutions. The facility is with Lloyds Banking Group at a rate of 1.75% over LIBOR. The facility is forecast to reduce further subject to commercial requirements. Absent charges related to the EQ US integration and the EBT share purchase, the Group delivered free cash flow attributable to equity holders as follows and is an assessment of progress on underlying cash flow attributable to equity holders:

*Interest paid of £10.5m and interest received of £0.2m

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

Capital expenditure

Net expenditure on tangible and intangible assets was £39.8m (2017: £31.0m). This represents 7.5% of revenue (2017: 7.6%). Included within capital expenditure is £10.7m associated with the establishment and integration of EQ US relating to IT servers and software development to enable the business to operate on a standalone business.

Net interest costs

Net interest costs in the period was £10.3m (2017: £9.0m). Total interest bearing loans increased from £250.0m to £322.6m, reflecting the acquisition of EQ US and associated costs.

Investment in current and prior year acquisitions

Net cash outflow on acquisitions was £177.6m (2017: £19.1m) and mainly relates to the acquisition of EQ US and the additional investment in MyCSP Limited. A further £4.0m (2017: £1.9m) was spent on deferred consideration for prior year acquisitions.

Free cash flow attributable to equity holders

Free cash flow attributable to equity holders represents our cash flow prior to any acquisition, refinancing or share capital cash flows. It is a key measure of cash earned for the shareholders of the Group. Free cash flow attributable to equity holders decreased by 2.8% to £38.6m (2017: £39.7m) mainly as a result of the EBT's share purchase of £13.9m and higher capital expenditure costs related to the US business. The EBT holds shares for the benefit of the Group's employees, and in particular for satisfying the vesting of awards made under the Group's various employee share incentive plans.

Bank borrowings and financial covenants

At 31 December 2018, net debt was higher at £309.5m (31 December 2017: £136.5m), reflecting the acquisition of the EQ US business and associated costs.

The term debt facility does not require scheduled debt repayments and, together with the revolving credit facility, is available for a five-year term to October 2020. The Group has substantial liquidity to support its growth ambitions and ongoing working capital requirements.

Acquisitions 

During the year the Group completed three acquisitions.

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

On 26 April 2018, the Group purchased the entire issued share capital of Boudicca Proxy Limited (Boudicca Proxy) for £1.1m plus contingent consideration of up to £0.8m payable in 2019 and £1.5m payable in 2021. Boudicca Proxy is a specialist shareholder engagement company providing expertise in the areas of progressive proxy solicitation, shareholder communications, corporate governance advisory, share ownership analysis and global equity intelligence.

On 31 October 2018, the Group purchased the entire issued share capital of Aquila Group Holdings Limited and its subsidiaries (Aquila) from AquilaHeywood Limited for a total cash consideration of £5.5m. Aquila is a UK-based life and pensions technology provider for pension schemes and large insurance companies. The Aquila proprietary platform 'Administrator', supports propositions in workplace savings, bulk purchase annuities and heritage transformation.

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 enables better comparability between reporting periods.

The APMs used to manage the Group are as follows.

Organic revenue growth

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

EBITDA and underlying EBITDA

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

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

Transaction costs of £6.1m relate to deal advisory and legal fees which were contingent on successful completion of EQ US which completed in February 2018. Integration costs of £14.7m relate entirely to the US business and represent programme delivery, the development of standalone functions and delivery of systems and processes to run the business. Included within this are £4.7m of costs in relation to permanent project staff, which on completion of the integration project will be absorbed into vacant positions, replace contractors in the business or otherwise leave the Group. Post completion of the US integration programme, there will be no further non-operating charges absent any transformational transactions.

Underlying EBITDA margin

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

Operating cash flow conversion

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

Free cash flow attributable to equity holders

Free cash flow attributable to equity holders represents our cash flow prior to any acquisition, refinancing or share capital cash flows. It is a key measure of cash earned for the shareholders of the Group. See page 10 for calculation.

Earnings before interest and tax (EBIT)

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

Cash tax rate

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

Leverage and net debt

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

Underlying profit attributable to ordinary shareholders

The Group has a progressive dividend policy which will see it distribute around 30% of underlying profit attributable to ordinary shareholders each year. See page 14 for calculation. 

Underlying earnings per share

Underlying earnings per share represents underlying EBITDA, less depreciation of property, plant and equipment, amortisation of software, amortisation of acquisition related intangibles, net interest costs, cash tax and minority interests. Given the timing of the EQ US acquisition and the related rights offering, the number of issued shares used in the 2017 calculation excluded both the bonus shares and new share issuance from the rights issue.

PRINCIPAL RISKS AND UNCERTAINTIES

The Directors have considered the principal risks and uncertainties affecting the Group's financial position and prospects in 2018. As described on pages 44 to 47 of the Group's Annual Report for 2017, the Group continues to be exposed to a number of risks and has well established systems and procedures in place to identify, assess and mitigate those risks. The principal risks include those arising from cyber security; information technology; markets and competition, data protection; regulatory risk; business continuity; and attracting and retaining high calibre employees.

DIRECTORS' RESPONSIBILITY STATEMENT

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

By order of the Board

Guy Wakeley John Stier

Chief Executive Chief Financial Officer

12 March 2019

APPENDIX 1 - H1 2017 RESTATED DIVIDEND PER SHARE

CONDENSED CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2018

1Restated for the adoption of IFRS 15

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2018

1Restated for the adoption of IFRS 15

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2018

1Restated for the adoption of IFRS 15 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2018

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2018

1Restated for the adoption of IFRS 15

2Re-presented to include the share-based payments reserve within retained earnings

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2018

1Restated for the adoption of IFRS 15

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

1) General information

Equiniti Group plc (the Company) is a public limited company 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 2017 have been delivered to the Registrar of Companies and those for the 2018 year end will be delivered following the Group's Annual General Meeting to be held on 2 May 2019. The external auditor has reported on the 2017 accounts and its reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

2) Basis of preparation

These condensed financial statements have been prepared on the basis of the accounting policies as set out in the previous statutory financial statements, except for changes in accounting policies as a result of adopting IFRS 9 Financial Instruments (IFRS 9), and IFRS 15 Revenue from Contracts with Customers (IFRS 15).

IFRS 9

IFRS 9 addresses the recognition, classification and measurement of financial assets and financial liabilities and was adopted on 1 January 2018. Management has assessed the new requirements for financial assets and there were no changes to the Group's assets classified as held at amortised cost under IAS 39. The Group's derivatives designated as cash flow hedges continue to be recognised at fair value through other comprehensive income under IFRS 9.

A new expected credit loss model for the Group's impairment of trade receivables and contract fulfilment assets, has been applied from 1 January 2018. This model applies a credit risk percentage based on historical risk of default against receivables that are grouped into certain age brackets. We have assessed the payment profile and level of bad debts experienced in the 12 months from this date and have established the credit risk percentages as follows:

The Group's trade receivables and contract fulfilment assets share similar risk characteristics by nature. Therefore we have chosen to apply the same default percentage on all outstanding receivables. The Group has a low credit risk on its trade receivables and contract assets as a high proportion of revenue is derived from large customers listed on the major international stock exchanges and historical defaults have been infrequent and small. As a result, the impact of applying IFRS 9 on the 2017 results was not material.

IFRS 15

IFRS 15 became effective from 1 January 2018 and the Group has adopted the standard on a fully retrospective basis. The year ended 31 December 2018 is the first year reported under IFRS 15 and the 2017 comparatives have been restated to reflect the changes in the timing of revenue and cost recognition.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2018

2) Basis of preparation (continued)

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

· Revenue recognised from fixed term right to use software licences will be recognised at a point in time, rather than over the licence term, when there are no further performance obligations required to be delivered.

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

The Group's statement of financial position now includes:

· Contract fulfilment assets - representing the fair value of services and licences provided but not yet invoiced, and costs capitalised from obtaining, and fulfilling, the contract

· Contract fulfilment liabilities - representing deferred income which is higher as a result of delayed revenue recognition.

The adoption of IFRS 15 did not have a material impact on the Group's reported results.

3) Operating segments

The Group's operating segments have been identified as Investment Solutions, Intelligent Solutions, Pension Solutions, EQ US and Interest, in line with how the Group runs and structures its business. Revenue, EBITDA and underlying EBITDA are key measures of the Group's performance. EBITDA represents earnings before interest, tax, depreciation and amortisation. The EBITDA of each segment is reported after charging relevant corporate costs based on the business segments' usage of corporate facilities and services. Central costs principally include corporate overheads.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2018

3) Operating segments (continued)

1Restated for the adoption of IFRS 15

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2018

4) Administrative costs

1Restated for the adoption of IFRS 15

5) Earnings per share

1Restated for the adoption of IFRS 15

6) Dividends

The Board recommends a final dividend payable in respect of the year ended 31 December 2018 of £12.7m (2017: £9.9m) or 3.49p per share (2017: 2.73p per share). As this is subject to shareholder approval at the Annual General Meeting on 2 May 2019, no liability has been included in these financial statements. The final dividend will be paid on 16 May 2019, to shareholders on the register at close of business on 12 April 2019.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2018

7) Acquisitions of businesses

EQ US

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

The Group took control of WFSS on 1 February 2018. On this date the business had net assets of £111.6m. The results of the business have been consolidated since the date of control and EQ US contributed £81.4m of revenue and £2.1m net profit to the Group results in 2018. If the business had been acquired on 1 January 2018 it would have contributed an additional £6.1m of revenue to the Group's results in 2018. The acquisition-related costs of acquiring and integrating EQ US into the Group amounted to £20.8m in the year. The costs consisted of transaction costs of £6.1m, mainly relating to deal advisory and legal fees, and integration costs of £14.7m relating to programme delivery, the development of standalone functions and delivery of systems processes to run the business. These costs have been included in administrative costs in the income statement.

On acquisition, intangible assets relating to customer contracts and related relationships were identified, with a fair value of £102.0m. These costs are being amortised over 20 years. The value of goodwill reflects amounts in relation to the expected benefit of the ability to generate new streams of revenue and expected synergies of combining the operations of EQ US 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.

Boudicca Proxy

On 26 April 2018, the Group purchased the entire issued share capital of Boudicca Proxy Ltd (Boudicca Proxy) for £1.1m, plus contingent consideration of up to £0.8m payable in 2019 and up to £1.5m payable in 2021. Boudicca Proxy is a specialist shareholder engagement company providing expertise in the areas of progressive proxy solicitation, shareholder communications, corporate governance advisory, share ownership analysis and global equity intelligence.

The Group took control of Boudicca Proxy on 26 April 2018. On this date the business had net assets of £1.1m. The results of the business have been consolidated since the date of control and Boudicca Proxy contributed £1.4m of revenue and £0.2m net profit to the Group results in 2018. If the business had been acquired on 1 January 2018 it would have contributed an additional £0.8m of revenue and £0.1m net profit to the Group's results in 2018. The additional costs to the Group of acquiring Boudicca Proxy in the year, such as legal fees and stamp duty, amounted to £0.1m. These costs have been included in administrative costs in the income statement.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2018

7) Acquisitions of businesses (continued)

On acquisition, intangible assets relating to customer contracts and related relationships were re-evaluated, resulting in a combined upward adjustment of £1.0m to the book value. The value of goodwill reflects amounts in relation to the expected benefit of the ability to generate new streams of revenue and expected synergies of combining the operations of Boudicca Proxy and the Group. The amounts relating to the intangible assets and goodwill are provisional and subject to further evaluation and adjustment, in accordance with accounting standards.

As at 31 December 2018, the minimum amount of contingent consideration payable was £nil and the maximum amount was £2.3m. The final amount to be paid will be determined based on the acquiree's financial performance over the qualifying period and is only payable if the business grows in line with its business plan.

Aquila Group

On 31 October 2018, the Group purchased the entire issued share capital of Aquila Group Holdings Limited and its subsidiaries (Aquila Group) for consideration of £5.5m. Aquila Group provide software solutions for both the life assurance and the pensions markets.

The Group took control of Aquila Group on 31 October 2018. On this date the business had net assets of £1.3m. The results of the business have been consolidated since the date of control and Aquila Group contributed £1.2m of revenue and £0.1m net loss to the Group results in 2018. If the business had been acquired on 1 January 2018 it would have contributed an additional £5.4m of revenue and £0.7m net loss to the Group's results in 2018. The additional costs to the Group of acquiring Aquila Group in the year, such as legal fees and stamp duty, amounted to £0.3m. These costs have been included in administrative costs in the income statement.

On acquisition, the fair value of intangible assets relating to customer contracts and related relationships were re-evaluated, resulting in a combined upward adjustment of £1.3m to the book value. 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 Aquila Group 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.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2018

7) Acquisitions of businesses (continued)

8) Finance income and costs