EQN.L Regulatory News (EQN)

30 July 2020

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

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

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

Summary

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

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

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

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

Financial highlights

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

o Interest rate reductions in the UK and US

o Withdrawal and suspension of dividend and dealing programmes

o Reduced corporate actions

o Deferred software projects

o Deferred remediation projects

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

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

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

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

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

Strategic progress

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

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

· Liquidity of £208.0m at period end

· Encouraging market share gains in North America :

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

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

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

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

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

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

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

o Share registration wins with Hurricane Energy and Paypoint

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

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

Outlook

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

o Our commitment to the reduction of net debt and leverage continues

o Expectation of more normal market conditions for dividends and corporate actions

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

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

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

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

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

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

Analyst and Investor presentation

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

Conference call details:

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

For further information please contact: 

Analyst/Investor enquiries:

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

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

Media enquiries:

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

Forward-looking statements

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

COVID-19 AND IMPACT ON RESULTS

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

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

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

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

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

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

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

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

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

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

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

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

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

COST REDUCTION MEASURES

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

GROUP RESULTS

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

and EQ Paymaster (previously Pension Solutions).

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

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

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

Overview

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

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

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

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

In the UK, interest income was 13.6% lower than the prior period, on average UK client balances of £1.7bn(H1 2019: £1.7bn) and reflects the declining interest rates in the UK. UK interest receivable is partially fixed with instruments secured to July 2020 (£380.0m), September 2021 (£215.0m), September 2022 (£215.0m) and September 2023 (£215.0m). The Group also earns interest income in the US with $700m of balances fixed to March 2021. In the US, revenue from interest income decreased by 3.4% to £5.7m (H1 2019: £5.9m) on lower average interest-bearing client balances of £484.7m (H1 2019: £514.5m).

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

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

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

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

OPERATIONAL REVIEW

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

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

EQ Boardroom

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

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

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

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

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

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

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

EQ Digital

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

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

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

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

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

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

EQ Paymaster

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

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

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

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

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

EQ US

EQ US offers a range of transfer agent services that enable our clients to manage share registers, communicate with shareowners and undertake significant corporate actions - simply and effectively.

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

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

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

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

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

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

FINANCIAL REVIEW

Group Income Statement

Revenue

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

1Acquisition of Boudicca Proxy and Richard Davies Investor Relations.

2Acquisition of Corporate Stock Transfer.

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

EBITDA

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

EBIT

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

Net finance costs

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

Taxation

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

The Group has recognised deferred tax on £725.5m of gross tax attributes representing future tax deductions which will reduce the cash effective tax rate as compared to the underlying effective tax rate over time. Net future deductions are expected to be in the region of £106.3m, on which a net deferred tax asset of £20.1m has been recognised at the relevant local statutory rate.

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

Future tax deductions on tax losses carried forward £205.5m

Future tax deductions on intangible assets £442.5m

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

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

The tax impact of these attributes is recognised as deferred tax in the statement of financial position. Included within the intangible assets tax attribute is the customer relationship and goodwill intangibles related to the acquisition of the trade and assets of EQ US from 1 February 2018.

A cash effective tax rate of c10% applies for 2020 and 2021, rising to c13% thereafter. The rate has been revised downwards to reflect the impact of COVID-19 on the profitability and expected cash tax outflows for the Group for this and subsequent years. The cash tax rate is determined through a detailed calculation of the future expected cash tax liabilities of the group against our profit forecasts, adjusting for known variables such as changes in tax rates, changes in tax legislation (loss restriction rules) and the group transfer pricing policy.

We consider the underlying cash effective tax rate to be an appropriate measure, as it best reflects the anticipated economic outflows from the business, taking into account our assessment of how our deferred tax attributes will unwind and reduce our cash tax liabilities over time.

(Loss)/profit attributable to ordinary shareholders

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

EPS

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

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

Capital structure

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

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

Cash flow

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

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

Capital expenditure

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

Net interest costs

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

Investment in current and prior year acquisitions

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

Free cash flow attributable to equity holders

Free cash flow attributable to equity holders represents our cash flow prior to any acquisition, refinancing or share capital cash flows. It is a key measure of cash earned for the shareholders of the Group. The Group generated a free cash outflow attributable to equity holders of £2.5m (H1 2019: cash inflow of £3.5m).

Bank borrowings and financial covenants

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

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

Acquisitions

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

ALTERNATIVE PERFORMANCE MEASURES

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

The APMs used to manage the Group are as follows.

Organic revenue growth

Organic revenue growth is reported revenue growth adjusted for acquisitions and changes to foreign exchange rates, to compare growth on a like-for-like basis. Part of the Group's strategy is to deliver growth and develop and acquire new capabilities. As such, a measure of like-for-like growth is a key performance indicator. See page 11 for calculation.

EBITDA and underlying EBITDA

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

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

EBITDA and underlying EBITDA margin

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

Operating cash flow conversion

Operating cash flow conversion represents EBITDA plus change in working capital as a percentage of EBITDA. This measures the Group's cash generative characteristics from its underlying operations and is used to evaluate the Group's management of working capital. See page 13 for calculation.

Free cash flow attributable to equity holders

Free cash flow attributable to equity holders represents our cash flow prior to any acquisition, refinancing or share capital cash flows. It is a key measure of cash earned for the shareholders of the Group. See page 13 for calculation.

Earnings before interest and tax (EBIT)

EBIT is used to measure the financial performance of the Group excluding expenses that are determined by capital structure and tax regulations, instead of the underlying trading. In addition to this, net interest costs are impacted by fair valuation re-measurements of certain financial liabilities that are dependent on external market factors rather than the Group's core operations. See page 11 for calculation.

Cash tax rate

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

Leverage and net debt

Leverage represents the ratio of net debt to EBITDA. This is a key measure that evaluates the Group's capital structure and its ability to meet financial covenants. See page 14 for calculation of net debt.

Underlying profit attributable to ordinary shareholders

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

Underlying earnings per share

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

PRINCIPAL RISKS AND UNCERTAINTIES

The Directors have considered the principal risks and uncertainties affecting the Group's financial position and prospects in 2020. As described on pages 52 to 55 of the Group's 2019 Annual Report, the Group continues to be exposed to a number of risks and has well established systems and procedures in place to identify, assess and mitigate those risks. The principal risks include those arising from: data protection; security; information technology; organistional resilience, product development, channel and pricing; regulatory requirements; purchasing, supply and outsourcing; people; change and development; conduct; and markets and competition.

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

DIRECTORS' RESPONSIBILITY STATEMENT

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

By order of the Board

Guy Wakeley John Stier

Chief Executive Chief Financial Officer

30 July 2020 

Our conclusion

What we have reviewed

The interim financial statements comprise:

● the condensed consolidated statement of financial position as at 30 June 2020;

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

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

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

● the explanatory notes to the interim financial statements.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The Unaudited results for the six months ended 30 June 2020, including the interim financial statements, are the responsibility of, and have been approved by, the directors. The directors are responsible for preparing the interim condensed consolidated financial statements in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the Unaudited results for the six months ended 30 June 2020 based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

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

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

We have read the other information contained in Unaudited results for the six months ended 30 June 2020 and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

Gatwick

30 July 2020

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED INCOME STATEMENT - UNAUDITED

FOR THE SIX MONTHS ENDED 30 JUNE 2020

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - UNAUDITED

FOR THE SIX MONTHS ENDED 30 JUNE 2020

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION - UNAUDITED

AS AT 30 JUNE 2020

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - UNAUDITED

FOR THE SIX MONTHS ENDED 30 JUNE 2020

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - UNAUDITED

FOR THE SIX MONTHS ENDED 30 JUNE 2020

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2020

1) General information

Equiniti Group plc (the Company) is a public limited company which is listed on the London Stock Exchange and incorporated and domiciled in the United Kingdom. The Company and its subsidiaries (collectively, the Group) provide complex administration and payments services, supported by technology platforms, to a wide range of organisations. The Company's registered office address is Sutherland House, Russell Way, Crawley, West Sussex, RH10 1UH.

The financial information in these condensed interim financial statements has been reviewed but not audited by the Company's auditor, PricewaterhouseCoopers LLP.

The condensed interim financial information set out herein does not constitute the Group's statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2019 have been delivered to the Registrar of Companies. The external auditor has reported on the 2019 statutory accounts and its reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

2) Basis of preparation

These condensed interim financial statements for the six months ended 30 June 2020 have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and with IAS 34 Interim Financial Reporting (IAS 34), as adopted by the European Union. These interim financial statements have been prepared on the basis of the accounting policies as set out in the previous Equiniti Annual Report 2019 which is available at www.equiniti.com, except for taxes on income in interim periods which are accrued using tax rates that are expected to be applicable for the full accounting year.

New standards adopted by the Group

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

Judgements and estimates

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that effect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

Estimates

In preparing these condensed interim financial statements, the significant estimates made by management in applying the Group's accounting policies were the same as those applied to the consolidated financial statements for the year ended 31 December 2019.

Judgements

In preparing these condensed interim financial statements, the significant judgements made by management in applying the Group's accounting policies were the same as those applied to the consolidated financial statements for the year ended 31 December 2019.

Going concern

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

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

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020

2) Basis of preparation (continued)

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

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

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

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

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

· No further acquisitions or disposals are assumed.

 Mitigating actions assumed in the base case: 

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

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

Further severe but plausible downside sensitivities modelled include:

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

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

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

3) Seasonality

Whilst the business is not highly seasonal, there is some margin bias towards the second half of the year. The business delivers more contracted, lower margin activities such as running of AGMs, administering dividend payments and issuing pension statements in the first six months and there tends to be more discretionary, higher margin project work in the second half of the year.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020

4) Operating segments

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

Revenue and EBITDA are key measures of the Group's performance. EBITDA represents earnings before interest, tax, depreciation and amortisation. The EBITDA of each segment is reported after charging relevant corporate costs based on the business segments' usage of corporate facilities and services. Central costs principally include corporate overheads.

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

Point in time revenue primarily relates to our share and foreign exchange dealing revenue streams where the performance obligation is fulfilled when the transaction completes; corporate action fees, where these are dependent on transactions closing; and revenue from licences sold by the Group, where revenue is recognised once licences have been delivered, accepted by the client and the Group's performance obligations satisfied in full.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020

4) Operating segments (continued)

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

EBITDA is used to explain the sustainable operating performance of the Group and its respective divisions. The EBITDA shown below for June 2019 and December 2019 reflects underlying EBITDA. This represents EBITDA after adjusting for non-operating charges which are defined as expense items, which if included, would otherwise obscure the understanding of the underlying performance of the Group. These items represent material restructuring, integration and costs that are transformational in nature. No non-operating charges were recognised in the 6 months ended June 2020.

5) Administrative costs