Equiniti Group Plc
Annual Report 2012

Plain-text annual report

GROUP ANNUAL REPORT 2012 Equiniti Group Limited Registered Number: 07090427 equiniti.com Contents Foreword Welcome to Equiniti 2012 highlights Key Performance Indicators Chief Executive’s Statement A clear direction Acquisitions and developments A business model for growth Overview of the market Operational focus Our people Corporate responsibility Outlook for 2013 Board of directors Advent International Directors’ report Auditors’ report Page 3 4 6 7 8 10 12 14 15 16 20 22 26 28 30 31 38 Financial statements 39-88 We strive for excellence in everything we do Kevin Beeston Chairman CHAIRMAN’S FOREWORD The Equiniti Group Limited (Equiniti) produced an excellent performance in 2012, delivering profitable growth and extending its capabilities. Equiniti, led by Chief Executive Wayne Story, grew its turnover by 10.1% to £266.5m and increased EBITDA before exceptionals by 7.7% to £81.1m. The Group is a leading Business Process Services (BPS) provider, focused on delivering complex administration, payment solutions and service excellence to its strong and diverse client base. Three strategic investments were made during the year that extend Equiniti’s core capabilities and leadership position in key markets. Selected as the private sector partner to pensions administrator MyCSP, Equiniti has taken a 40% stake in the first Mutual Joint Venture to be launched by the Government. It will work with MyCSP to develop innovative new ways of working with the public sector, deliver efficiencies and seek access to wider commercial opportunities. The Group also acquired Prism Cosec, extending its company secretarial offering, and peterevans, the leading technology provider for financial services businesses. As part of its strategy to develop a compelling BPS offering, the Group agreed to sell the Xafinity pensions consulting business and move to a single integrated brand in 2013. Equiniti continues to drive synergies across its businesses, supporting service innovation and cost effectiveness. The average number of service lines taken up by its clients has increased strongly and the business has delivered £97.2m total contract value in new sales and renewals during the year. Its contracts are now typically for five or more years, resulting in a high level of recurring revenue. During the year Equiniti restructured the sales teams to increase the focus given to key accounts ensuring they can benefit from the full suite of products and services the group can provide. Equiniti has also established a team focused on the increasing number of BPS opportunities coming to the market from both the private and public sectors. This is a significant change in emphasis with a resulting investment to support the strategy which is expected to yield results in the latter part of 2013. This is a business which is fully committed to delivering exceptional services to its clients and their customers. I would like to thank all our people for the great job they continue to do and the exceptional service they deliver to and on behalf of our clients. As we look ahead the Group remains well positioned to continue to deliver profitable growth in 2013 and beyond. Kevin Beeston Chairman 2 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 3 FOREWORDWELCOME TO EQUINITI 23 locations 2,737 colleagues £266 m .5 turnover Each year we manage 2.6m enquiries 10.1% YoY revenue growth £400m contracted revenue 88m documents £72bn payments Every superhero needs a great sidekick Equiniti is a business services partner to the best known brands and public services in the UK. We are chosen by around 1,600 organisations Our mission is simple – we’re here to help our clients be extraordinary. As trusted sidekick to the UK’s leading companies and public sector institutions, we know what it takes to be the best support team in the world. We excel at providing specialist support where administration complexity, payments processing or market regulation mean assured delivery is critical to our clients, to their employees and to their customers. That is why we put effectiveness, quality assurance and customer service excellence at the heart of everything we do. Top 30 clients 81% PRIVATE SECTOR 19% PUBLIC SECTOR We support 27% UK work-based pension schemes members We pay around 20% pensioners in the UK We are the registrar for We provide shareplans for 46% FTSE100 companies 27% FTSE100 companies We’re selected by 10% NHS trusts for revalidations 4 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 5 WELCOME HIGHLIGHTS KEY PERFORMANCE INDICATORS 10.1% YoY revenue growth We have delivered an excellent performance with 10.1% revenue growth to £266.5m. We continue to deliver high (98%) client renewal rates and new business wins across our core markets. By effectively using capabilities from across the Group, we have successfully grown our cross-sales. We have increased the average number of service lines delivered to our larger clients*, rising to 12.5 (from 9.7 in 2011), resulting in 10% CAGR for this segment. We have a healthy sales pipeline at Group and operational level and continue to strengthen our Big Ticket team. With substantial levels (up to 75%) of contracted income, we start 2013 with £139m revenue already contracted. * Clients spending £1m+ per year We were selected as the private sector partner to pension administrator MyCSP - the first Mutual Joint Venture to be launched by the Government. As a result, we will be able develop innovative new ways of working with the public sector, delivering efficiencies through scale and access to wider commercial opportunities. BPS focus As part of our strategy to build a focused BPS offering, we agreed to sell the Xafinity Consulting business. This enables us to concentrate on our core capabilities in complex administration and payment processing. It also allows us the move to a single integrated Equiniti brand from 2013, further enhancing our cross-selling opportunity and leading market position. +47.3% cashflow We increased operating cashflow to £92.6m thanks to enhancements in the sales invoicing cycle and process improvements. As a highly cash generative company, this has meant that we have been able to fund acquisitions during the year from our existing operations. Revenue +10.1% EBITDA Pre exceptional items +7.7% £266.5m £81.1m Operating Profit +10.8% £31.4m Operating Cashflow +47.3% £92.6m +4% Capex Ratio 4.7% Cash Conversion +37% 114% Client Satisfaction + 91%+ Excellent or good service quality rating Staff Retention +2% 87% † 3 new acquisitions We invested in three acquisitions during the year. We acquired the leading financial services technology provider peterevans. We expanded Equiniti’s current company secretarial offering with the acquisition of Prism Cosec. We took a 40% share in MyCSP, the the first Mutual Joint Venture to be launched by the Government. † Excludes acquisitions by the Xafinity Consulting business, which was disposed of during the year The Group made a loss for the year from continuing operations of £28.1m compared to £37.6m in 2011. The year on year reduction is mainly down to improved profit from operating activities as well as a significant decrease in finance costs. All figures exclude Xafinity Consulting, disposed of during the year 6 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 7 2012 CHIEF EXECUTIVE’S STATEMENT The Equiniti Group achieved strong growth in 2012 with total revenue up 10.1% to £266.5m and EBITDA before exceptionals up 7.7% to £81.1m. “The outlook for Equiniti is very positive” We have had a very positive year, resulting in strong sustainable revenue growth and the business coming together behind a common ambition to deliver a differentiated Business Process Services (BPS) proposition. It is a credit to all our colleagues across Equiniti who have together driven synergies, championed product innovation and responded to customer needs. As part of our strategy to develop a focused BPS offering, we agreed to sell the Xafinity Consulting business in November 2012 subject to FSA approval. The transaction completed on 21st February 2013. Having considered the strategic alternatives, we believe that separating the Xafinity Consulting business now was the right course of action for both Xafinity Consulting and the wider Equiniti Group. We fully expect both businesses to continue to work in close partnership in key areas of mutual interest in the pensions market. The sale of Xafinity Consulting enables us to move to a single integrated Equiniti brand from 2013, further enhancing our cross- selling opportunity and leading market position. Therefore the figures quoted are for the continuing business. We have delivered an excellent performance with 10.1% revenue growth to £266.5m (£242.1m in 2011) and 7.7% EBITDA improvement to £81.1m before exceptionals (£75.3m in 2011). The success of our strategy means that this robust growth has been achieved against a background of continued low interest rates and subdued conditions in some of our core markets, such as Corporate Actions. New sales and renewals in the year came to £97.2m total contract value, with major highlights such as wins with Fresnillo, Imagination Technologies, Segro, Lloyds Banking Group, Citigroup, Prudential and the Armed Forces. Contract periods are now typically five or more years and contracted income accounts for around 75% of revenue in our main business lines. Our clients have also sought to benefit from broader Group propositions, with the average number of service lines delivered to our larger clients rising to 12.5 (from 9.7 in 2011), resulting in 10% CAGR for this segment. We have a healthy sales pipeline at Group and operational level. We continue to strengthen our Big Ticket, bid and sales teams as we seek further growth opportunities from our BPS activities. At operational level, Pension Solutions delivered 31% EBITDA growth to £24.6m before exceptionals and 17% revenue increase to £130m. The Hazell Carr operation performed particularly strongly in response to increased market demand in specialist complaints handling. Our Shareholders Solutions operation maintained a strong overall performance with notable business wins in the FTSE100 and FTSE250 markets, despite subdued market conditions. This resulted in a 4% increase in revenue to £115.8m and 4% increase in EBITDA to £54.6m before exceptionals. The Commercial Solutions operation, which achieved a 6% revenue growth to £20.7m and an EBITDA decrease before exceptional items to £4.7m, integrated our IT services operation to create a scale IT and BPS platform with leading on-shore, near- shore and far-shore capabilities. We delivered a further £4m of cost improvements across the Group from operational integration and achieved increased cash conversion to 114% (2011: 83%) largely from enhancements in the sales invoicing cycle. We made three strategic acquisitions and investments during the period that fit our core growth strategy and extend our capabilities. As the private sector partner to pension administrator MyCSP - the first Mutual Joint Venture to be launched by the Government - we will be able to develop innovative ways of working with the public sector, delivering efficiencies through scale and access to wider commercial opportunities. We acquired peterevans, the leading technology provider for financial services firms. We had worked with peterevans for a number of years and had always been impressed by their cutting-edge technology offering. The acquisition will allow us to collaboratively enhance the existing offering and create an extended range of services in this important market. We also expanded Equiniti’s current company secretarial offering with the acquisition of Prism Cosec, who work with UK and international companies to establish and maintain excellent standards of corporate governance. Building on a strong heritage of supporting the UK’s best known brands and public services, we have laid down the foundations to accelerate growth and develop our business as a leading Business Process Services provider. Equiniti is a highly cash generative business with a high proportion of recurring income and long term contracts. We have an expanding pipeline of opportunities and a broadening service offer targeting growth markets. The outlook for 2013 is positive. We anticipate increased market opportunities for our specialist business processing services in both the public and private sectors. We continue to invest both in our business and our people to drive sales growth and service improvements. Wayne Story Chief Executive Officer 8 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 9 A CLEAR DIRECTION Equiniti specialises in providing complex administration and payments processing solutions, with expertise in delivering the service quality demanded by regulated markets. With continued market pressure to find efficiencies, companies are increasingly looking for more effective solutions to non-core-processes. Legislative changes are further increasing the administrative burdens and complexity of most organisations, particularly in the pensions, banking and financial services sectors. The Government continues to drive reform in many areas of public spending, with an increasing emphasis on more flexible delivery models. Outsourcing, joint ventures and shared service delivery provide opportunities to drive increased value for UK citizens and improve service levels. Our established expertise in these critical areas and the scale of our capabilities put us in a strong position to respond to these market opportunities during 2013. We will move towards a single integrated brand and continue to invest in our Big Ticket sales team, targeting key outsourcing markets where we have a strong heritage including banking and financial services, the health sector and central government. We continue to extend the range of services we provide to our substantial client base and have successfully increased the the average number of service lines delivered to top tier clients* to 12.5 (from 9.7 in 2011), resulting in 10% CAGR for this segment. We also have a tight focus on cash conversion and on maintaining the quality of our recurring contract revenues. Every champion needs a great pit crew Empowering our partners through business process outsourcing solutions As every champion knows, having the right pit strategy can mean the difference between first and second place. That’s where we come in. With our world-class support team in tow, our clients are free to focus on the finishing line while we take care of the details. It’s what we do for around 1,600 of the UK’s leading businesses and public sector institutions. Whether it’s refining an existing service infrastructure or designing bespoke technology solutions, our business process outsourcing services help keep our clients on track and front of the pack. * Clients spending £1m+ per year 10 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 11 DIRECTIONWe continuously enhance our capabilities through acquisitions and product development. ACQUISITIONS AND DEVELOPMENTS MyCSP mutual joint venture Prism Cosec MyCSP, the first mutual joint venture business created from a central government service, was launched by Francis Maude, Minister for the Cabinet Office. Equiniti Group’s Paymaster business was selected as the private sector partner taking a 40% stake. Former Cabinet Minister, Lord Hutton of Furness, was appointed as the first Chairman of MyCSP Ltd. The innovative Mutual Joint Venture model gives employees a 25% ownership stake, representation at board level and a share in profits. The new enterprise administers pensions for the 1.5million members of the Civil Service scheme. The Government retains a 35% stake so taxpayers benefit as the business grows in value. Working in partnership with MyCSP, we will be able develop innovative new ways of working with the public sector, delivering efficiencies through scale and access to wider commercial opportunities. Since its launch in April 2012, MyCSP has secured 12 new contract wins. peterevans The Equiniti Group acquired the leading technology provider for financial services firms, peterevans. As part of the Group, the business will be able to further develop its cutting-edge technology offering in order to create an extended range of services to both current and prospective clients looking to outsource their services. Clearly focused on the securities and investment market, peterevans extends Equiniti’s platform and offering in the financial services market. The acquisition of Prism Cosec – a respected corporate governance and company secretarial services provider - will expand Equiniti’s current company secretarial offering complementing that provided by Equiniti David Venus. Prism Cosec works with UK and international companies to establish and maintain excellent standards of corporate governance and have significant expertise and experience working with international companies, particularly those looking to list in the UK. Auto-enrolment October 2012 saw the introduction of major pension reforms in the UK. To enable employers to overcome the processing and communication challenges of Auto Enrolment, fully comply with legislation and do so in an efficient and cost effective way, we introduced CompendiaAE. Based on the award-winning Compendia pensions administration platform and utilising its system independent web self service tools, CompendiaAE simplifies the administration and reduces the costs involved with auto-enrolment. This robust and intelligent platform can interface with an employer’s HR and payroll systems to interrogate the databases for the whole workforce and automatically enrol, at outset and ongoing, all eligible jobholders into the employer’s Qualifying Scheme(s) or NEST. Paymaster International Payments Paymaster International Payments is an alliance between Equiniti, one of the largest global banks and TransGlobal Payment Solutions for the provision of the online payment platform PayFac. It is a best in class international payments service and a high quality foreign exchange service that has smarter work processes, delivers in the local currency and guarantees accurate payments. Consolidated technology platform In 2012, we consolidated the strength of our Belfast-based ICS business with Equiniti’s IT services unit, a leading provider of large scale complex systems. The enlarged offering provides our clients with innovative first class on-shore, near-shore and off-shore technology solutions. . Acquisitions by the Xafinity Consulting business are not included as this business was disposed of during the year We have a strong pipeline of potential acquisitions 12 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 13 Our recurring revenues allow us to invest in further service improvements, acquisitions and new products. We maintain a leading share in our core markets and look to further grow our BPS services. A BUSINESS MODEL FOR GROWTH OVERVIEW OF THE MARKET Market drivers and opportunities Effective management of costs remains a strong focus for most organisations across the public and private sectors. technologies to meet the increased challenges they face. Our capabilities in the pensions market span software and administration services, establishing the Group in a unique position to continue to succeed and innovate in this sector. As the private sector partner to the first Mutual Joint Venture to be launched by the Government - MyCSP - we are well placed to develop innovative new ways of working with the public sector, delivering efficiencies through scale and access to wider commercial opportunities. The market’s appetite for corporate actions has remained relatively subdued. While the low level of activity in this market is expected to continue, our recurring contracted revenues underpin our Shareholder Solutions operations and have allowed us to invest in further service improvements, acquisitions and new products. We maintain a leading share in the FTSE100 and look to grow our service range within the small cap sector. In order to deliver both cost savings and continued service improvements, organisations are focusing ever more on the longer term commercial fit of outsourcing partners, where market knowledge and operational synergies can play to a more successful outcome. Equiniti has an unrivalled heritage in the large corporate, banking, financial services and public services sectors, delivering complex financial administration and business services in regulated markets. We have seen increased activity in our broader outsourcing activities and are well placed to respond to the needs of organisations in these key markets. Developments in the financial services sector, such as the widely publicised PPI issues, have driven demand for our specialist complaints management solutions. Legislative changes and reforms in the pensions market, including auto-enrolment, continue to place additional pressures on organisations. Being able to adapt quickly and cost effectively to these changes is critical to our clients. As a result of this increased complexity, demand for outsourced services in this field is anticipated to grow over the coming years. We have worked closely with our clients to develop existing approaches and implement a range of innovative new services and We have a robust business model focused on unlocking growth potential for the Group. Big Ticket Our Big Ticket function leads major contract bids, Group wide sales initiatives and taking new services to market. By drawing on our broad capabilities, we have the flexibility and scope to spearhead growth from cross sales, new markets and new services. Market facing teams The business is structured into three market-focused sales teams each with in-depth expertise in their sectors, ensuring we maintain the leadership in our core markets: Shareholder Solutions, Pension Solutions and Commercial Solutions. Client framework Our 1,600 clients are held within the Group’s Key Account framework. This provides a comprehensive platform to cultivate deeper commercial relationships across our clients’ large and often complex organisations, facilitating opportunity identification and closer partnership working. Shared centres of excellence For maximum effectiveness and efficiency, all our critical platforms and support functions are delivered through Shared Service Centres. This ensures each function has the scale and depth of expertise to deliver market-leading service excellence to our clients across the sectors in which we operate. 14 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 15 OPERATIONAL FOCUS PENSION SOLUTIONS SHAREHOLDER SOLUTIONS 1,009* colleagues Our Pension Solutions operation is one of the UK’s leading specialist providers of pension administration and payments expertise. Our Shareholder Solutions operation is a strategic partner to leading businesses, delivering complete commercial solutions in share registration, employee benefits and investment services. 1,318* colleagues £130m revenue +17% £24.6m EBITDA +31% 27% work-based schemes members supported £13bn payments We have extended our capabilities with the acquisition of peterevans, the leading technology provider for financial services firms. This will enable us to collaboratively enhance the existing offering and create an extended range of services in this important market. We also expanded our company secretarial offering with the acquisition of Prism Cosec, who work with UK and international companies to establish and maintain excellent standards of corporate governance. Committed to service excellence, we achieved CCA accreditation for the third year running and improved scores in all categories of the Capital Analytics Registrars benchmarking survey. We also won the Best Shareholder Services category at the Shares Awards and Most Innovative Technology for our ESP Portal at the Financial Services Awards. Our Pension Solutions operation delivered an excellent 31% EBITDA pre exceptional items growth to £24.6m (2011: £18.8m), with the Hazell Carr operation performing exceptionally strongly as a result of their ability to respond to market requirements for specialist complaints handling, reaching a milestone of 1,000 contractor placements. Sales revenue rose 17% to £130.0m (2011: £111.2m). As part of our strategy to develop a focused BPS offering, we agreed to sell the Xafinity Consulting business. We believe that separating the business now is the right course of action for both Xafinity Consulting and the wider Equiniti Group. We fully expect both businesses to continue to work in close partnership in key areas of mutual interest in the pensions market. We have also integrated our pension software operation, Equiniti Claybrook, into the Pension Solutions business to enable greater operational synergies to be achieved. We will now move to a single integrated Equiniti brand from 2013, further enhancing our cross-selling opportunity and leading market position. We pay around 20% pensioners in the UK Equiniti Paymaster won the first mutual joint venture out of UK Central Government - MyCSP, and we have already helped them make a difference to their business in terms of operations, infrastructure, brand and IT. Together we provide pensions software, outsourced administration and payment services to 7.3 million scheme members. This represents 27% of occupational pension scheme members in the UK. We pay over £13 billion to 2.3m pensioners and annuitants in over 180 countries each year. By effectively using capabilities from across the Group, we have successfully grown our Key Accounts including Lloyds Banking Group, Citigroup and Prudential. We have also ensured our relationship with the Armed Forces has been secured for at least a further seven years as well as maintaining our record of winning Pension Awards over the last decade, with two awards for our Compendia software in 2012. The Shareholder Solutions operation maintained a strong overall sales performance with £115.8m revenue (2011: £111.4m) with a 4% EBITDA pre exceptional items increase to £54.6m in 2012 (2011:£52.3m) despite continued depressed conditions, low levels of Corporate Actions and prolonged low interest rates. The Investment Services business performed exceptionally well during the period, achieving 46% EBITDA growth to £12.7m (2011: £8.7m) from increased share dealing activity. Our Employee Benefits and Shareplan business also delivered 5% EBITDA growth to £17.7m. It has seen a high take up of our Employee Benefits Portal by over 100 major corporate clients. This unique portal allows employees to manage their shareholdings and benefits through one online solution. The business, which is the leading provider to FTSE100 and FTSE250 companies, is highly cash generative with substantial levels (73%) of contracted income. We continue to deliver high (95%) client renewal rates and new business wins including Fresnillo, Imagination Technologies and Segro. Our contract periods are typically for five or more years. 8,000 daily trades * number of colleagues as at December 2012. * number of colleagues as at December 2012. £115.8m revenue +4% £54.6m EBITDA +4% 46% FTSE100 18m accounts £23bn dividends 16 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 17 OPERATIONALOPERATIONAL FOCUS (CONTINUED) 410* colleagues £20.7m revenue +6% £4.7m EBITDA -4% COMMERCIAL SOLUTIONS Our Commercial Solutions operation is focused on developing the wider BPS market and is underpinned by a range of IT services and software solutions. We handle 2.6 million calls each year In the Commercial Solutions operation, the core areas of IT services and payroll achieved 6% growth over last year. Overall the business delivered £20.7m revenue (2011: £19.5m) and 4% EBITDA pre exceptional items decrease to £4.7m (2011: £4.9m). Amongst the successes were Barnett Enfield and Haringey and North Middlesex Hospital NHS Trusts for payroll services and a major IT development contract for Central Bank of Ireland. Equiniti 360 Clinical recorded an impressive 35 new contract wins for its recently launched doctor revalidation software system. The second half of 2012 also saw the merging of Group IT with the IT services business of Equiniti ICS to form a new £35m IT business. Providing services to the Group as well as the public and private sectors, the new entity is now well positioned to take advantage of the rapidly growing market for outsourced IT services. We have been selected by 10% NHS trusts to provide doctor revalidations on-shore near-shore off-shore 33m documents processed * number of colleagues as at December 2012. 18 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 19 OUR PEOPLE Our people are at the heart of the quality of service and market innovations we deliver. Our people are central to our success. We share a common ambition and values across the Group and we continue to invest in training and personal development at all levels, underpinning our focus on delivering excellent customer service and driving growth. Through our acquisition programme, we were joined by new colleagues in centres across the UK. These teams have been welcomed into our existing operations, enhancing our expertise in key areas like software development and executive share programmes. With market leading skill sets in HR software, employee benefits and pensions, we ensure that the reward proposition available to our people is best in class. We offer an engaging flexible benefits programme and have aligned our reward mechanism to our business goals. 2,737 colleagues 23 locations 87% staff retention Trust Excellence Client focus Belief People We act with integrity and openness in our dealings with others OUR VALUES We work hard to get it right first time and keep our promises and commitments to others We add value and build We have passion and belief true partnerships in what we do and who we are We are positive, enthusiastic and supportive of one another 20 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 21 CORPORATE RESPONSIBILITY The Equiniti Group is committed to being a responsible company and supportive of the communities in which it operates. Corporate Responsibility is about how we align our behaviour with the expectations and needs of our stakeholders - not just customers and investors, but also employees, suppliers, communities, regulators, special interest groups and society as a whole. We are committed to continual improvement Environment Equiniti Group recognises the importance of protecting the environment and the impact of commerce on environmental issues. It is an area which requires a sustainable and proactive strategy to ensure we protect the environment for future generations and we are committed to continual improvement in energy efficiency and avoidance of waste. Equiniti Group continually assesses its premises needs and these have been optimised by a series of measures, including space planning, upgrading to more efficient plant where required, continual review of run-times as part of our drive to reduce energy consumption, installation of energy saving control systems and a comprehensive planned maintenance programme on all of our plant and machinery. Space planning has enabled us to maximise the use of buildings across the portfolio and has led to significantly reduced square footage and co-location of operations, where possible and appropriate. We are registered as a Group with the Carbon Reduction Commitment and have featured strongly in the published league tables for the first two years of that initiative. In 2012 we attained the Carbon Trust Standard across our entire Group portfolio, a significant endorsement of our carbon management programme. A considerable amount of capital has been allocated to projects in our Property and IT teams to enable carbon reduction measures to be implemented. Examples of this include the installation of voltage optimization equipment and smart metering in key buildings, helping to both reduce consumption and increase visibility of data, to enable us to make further in- roads to reducing our carbon footprint. Ongoing and continual reviews - and subsequent implementation programmes - of our IT hardware have led to a significant reduction in power consumption across the Group. Equiniti Group uses state of the art printers which duplex print and use environmentally friendly paper and toner. This has halved the quantity of paper used and further reduced our environmental impact. We recycle all toner cartridges. We also run a recycling programme and have implemented a policy of removing waste bins at each desk and installing recycling bins in our premises, helping to ensure that our people sort and recycle right across the business. Through the use of modern video conferencing technology, we have reduced the number of business miles travelled and thereby also reduced our carbon footprint. 22 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 23 CORPORATE RESPONSIBILITY (CONTINUED) Training and Development Charity and Communities Training and development is an ongoing part of daily life in many of our offices and operations. There is significant commitment to people learning with access online to a range of training modules designed to support our values and behaviours across the Group. Allied to this are our own Training Academies across the business, which focus on enhancing technical skills, competencies and knowledge, which are specific to our business. Over the last year we have also invested in a variety of development programmes that have enabled people to grow, learn new skills and improve business performance. For example, more than 600 people have participated in external courses, covering topics from Project Management to how to build their personal confidence, credibility and charisma. A new initiative introduced in 2012 was Whole-Brain Thinking profiling. This tool helps understand how individuals prefer to think and work, and has been significant in helping support Organisational Development and Change initatives across the organisation in 2012. To date over 200 people have participated in this assessment programme including our Leadership Team and 50 top managers. This has enabled our people to gain a better understanding of their own and other’s thinking styles and to use this knowledge to enhance the impact and value of their interactions and communication with others across the Group. We have a history of fundraising for good causes. Our people care passionately about helping others and throughout the year raise money both individually and through the efforts of our Charity Committees. During 2012 we continued to work with our national charity partner, ABF The Soldiers’ Charity. This was the second year of our partnership with The Soldiers’ Charity and throughout the year we raised both funds and awareness for the charity through charity days, events such as quiz nights and car boot sales, and providing teams of people to support with events such as the London Marathon and The Ideal Home Exhibition. ABF The Soldiers’ Charity supports service men and women who are in need with individual grants and support packages. They have more demand than ever for their services with continued military action overseas. They also provide support to other associated charities who provide different levels of support than that available through The Soldiers’ Charity. With our history of working with the MoD this is a great choice of charity for the business and one which is well supported in many of our offices. Over the course of our partnership we have raised over £25,000 for the charity and have committed to continuing our support through 2013. We also support Red Nose Day in March each year, and the Children in Need appeal day in November. Most of our offices and locations are involved for these two great causes and in 2012 we raised over £25,000 between the two days alone. As well as supporting national charity partnerships, we have a local approach to charity support with most of our local offices nominating a local charity partner each year. These charities are often personal to our people and fund raising for these is a regular part of local office life. Efforts from staff including internal events including cake sales, raffles, competitions, sponsored sporting events and dress down days saw our UK-based offices raise over £20,000 for Our people raised £45,000 for local and national good causes their local charities in 2012, in addition to the support for our National Charity Partner and the two Charity days outlined above. We are active in supporting local community projects and initiatives, including supporting a number of local schools. We are committed to working with young people to engage in business principles and functional expertise, with a focus of developing and investing in young talent, such as Young Enterprise. In 2012 we strengthened our links with a local High School by providing one day insight sessions for GCSE business students, as well as a week long work experience for one business student. Our people visit careers fairs and events at a local college to raise awareness of future career options as well as of the Equiniti Group. In 2012 we ran our first formal Apprenticeship programme with apprentices joining the Group mainly in IT roles. We will continue this programme in 2013. 24 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 25 OUTLOOK FOR 2013 The Equiniti Group is highly cash generative and is in a strong position to deliver continued profitable growth into 2013 and beyond. The outlook for 2013 is very positive. Our core businesses have robust levels of recurring contracted income, allowing us to invest in new service developments and growing our capability. £139m revenue is already contracted for 2013. We anticipate increased market opportunities for our specialist business processing services in both the public and private sectors. We continue to invest both in our business and in our people to support a strong focus on sales growth. In particular, our growing business process services and IT capability allows us to focus on selective opportunities in the growing private and public sector outsourcing markets. Our successes in this area include being selected as the private sector partner to MyCSP, the first mutual joint venture launched in May 2012. This puts us in an ideal position to support further opportunities in the public sector and the broader BPS market. With 1,600 clients and a high retention rate, we pride ourselves on the relationship we have with our existing customers. We will continue to work closely with our client base to enhance our offering and service excellence. We will move to a single integrated Equiniti brand from 2013, further enhancing our cross- selling opportunity and leading market position. Tight control on costs remains a priority for the Group. Our drive to integrate our operations effectively will ensure we maximise the benefits for our clients and for the business. 26 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 27 BOARD OF DIRECTORS The board comprises two executive and five non-executive directors NON-EXECUTIVE DIRECTORS EXECUTIVE DIRECTORS Wayne Story Martyn Hindley Chief Executive Officer Chief Financial Officer Wayne joined the Equiniti Enterprises Group in 2008 as the UK Managing Director responsible for all operations and for overseeing the business entering the BPO market. Wayne was appointed the CEO of the Equiniti Group in January 2010. Wayne has a track record of growing businesses and significant experience in the BPO market including a successful spell as Managing Director of the HR business at Capita, growing revenue and achieving triple digit growth. Wayne has also held senior roles at TSB Group, PPP Healthcare, PA Consulting Group and CSG. Wayne is also an Associate of the Chartered Institute of Banking. Martyn Hindley is the Chief Financial Officer of the Equiniti Group, a role he was appointed to in December 2012. He joined the Equiniti Group from Emap where he held the position of CFO. Emap is a private equity owned international business to business media group. His sector experience also includes publishing, marketing, business support services, supply chain and logistics. Prior to this Martyn held senior positions with PwC, Blenheim Group PLC, and Northcliffe Media In his previous roles, Martyn was involved in driving transformational change and leading complex transactions including M&A activity. Kevin Beeston Chairman Kevin joined the Equiniti Board as Chairman in September 2011. He was the Chairman of Serco Group plc from 2002 to 2010, having previously served as Serco Group’s Chief Executive and Finance Director. An accountant by training, Kevin joined Serco in 1985 and contributed to the company developing from a small UK technical services business to a leading FTSE100 international outsourcer. Kevin holds a number of non-executive roles and is Chairman of UK developer and homebuilder Taylor Wimpey plc, Chairman of warranty services provider Domestic and General, Chairman of the independent provider of secure mental health services Partnerships in Care Limited. From 2006-2009 Kevin chaired the CBI’s Public Services Strategy Board, which promotes the role of business in transforming UK public services, and he was also a Commissioner for the TUC’s Commission on Vulnerable Employment. Kevin is Chairman of the Nomination Committee, a member of the Remuneration and Audit Committees. Sir Rodney Aldridge, OBE Non-Executive Director Sir Rod was the founder and Chairman of the Capita Group until his retirement in 2006. During his tenure he led the group from its formation in 1984 within the Chartered Institute of Public Finance and Accountancy (CIPFA) to being a FTSE 100 Company. Sir Rod was Chairman of the CBI’s Public Services Strategy Board from its inception in 2003 until 2006. Prior to Capita, Sir Rod worked in local government for ten years, where he qualified as a chartered public accountant. He joined CIPFA in 1974, ultimately becoming its Technical Director. In 2006, Sir Rod established the Aldridge Foundation to continue with his work on public service reform and to focus on his charitable activities involving educational underachievement and social exclusion. Sir Rod is a Patron of the Prince’s Trust and Chair of ‘v’, a charity launched in May 2006 which aims to inspire and engage over one million new youth volunteers. He is also Chairman of The Lowry, a theatre and arts venue in Salford and a member of the Lab Board at NESTA. Sir Rod is a member of the Audit Committee. Oliver Niedermaier, PhD Non-Executive Director Oliver is currently President and Chief Executive Officer of King Worldwide. Most recently, Oliver was Chief Executive Officer of Georgeson, a subsidiary of Computershare, a world-leading provider of strategic solutions to corporations and shareholder groups. Oliver joined the Computershare group executive committee following its 2004 acquisition of Pepper Technologies AG, an international CRM software and consultancy business which he founded in 1998. He was responsible for corporate strategic development during an active period in Computershare’s international expansion. In 2007, Oliver co-founded with The Riverside Company, Sage Holdings – now DF King Worldwide. Oliver is also a non- executive board member of the LMU Entrepreneurship Center at the University of Munich. Oliver graduated from Ludwig Maxmilians University, Munich, with a Master’s in Business Administration. While teaching Strategic Management at the University of Munich, Oliver completed his coursework for a PhD and graduated Magna Cum Laude. Oliver was recently honoured by the World Economic Forum as a 2010 Young Global Leader. Oliver is a member of the Nomination and Remuneration Committees. Nick Rose Non-Executive Director (Investor Representative) Nick joined Advent in 2005 from Bain and Company where he worked in their private equity practice on both pre and post acquisition work. Nick’s sector focus at Advent is on business and financial services, with a particular emphasis on specialty finance, insurance, and outsourcing companies. During his time at Advent he has been involved in the sale of Financial Dynamics and, in addition to Equiniti, investments in Domestic and General, WorldPay and the Towergate Partnership plc. Nick is also an NED of the Towergate Partnership plc. He has an MA in philosophy, politics and economics from Oxford University. Nick is Chairman of the Audit Committee. James Brocklebank Non-Executive Director (Investor Representative) James joined Advent in 1997, moving from the London office of investment bank Baring Brothers where he advised clients on various international mergers and acquisitions. James led or has participated in a number of Advent’s investments including Equiniti, WorldPay, Monext, Tertio Limited and MACH, and is head of Advent’s European business and financial services sector team. James has an MA in geography, specialising in economic and political geography, from Cambridge University. James is Chairman of the Remuneration Committee and is a member of the Nomination Committee. James is also NED of WorldPay. 28 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 29 ADVENT INTERNATIONAL DIRECTORS’ REPORT Advent International is one of the world’s largest and longest established private equity groups, with over US$26 billion in cumulative capital raised. Since their founding in 1984, Advent International has made over 600 investments in 41 countries, achieved over 140 IPOs on major stock exchanges worldwide and established a network of advisory offices and affiliates, operating in over 20 countries. James Brocklebank and Nick Rose are the Advent executives with oversight of the Equiniti Group and both serve as board directors. The directors present their directors’ report and financial statements for the year ended 31 December 2012. Principal activities The Equiniti Group is a business services partner to leading businesses, delivering complete commercial solutions in share registration, employee benefits, investment services, pension and employee benefit consulting, pension administration, pension software systems, business software systems and business process outsourcing. The Equiniti Group manages the spectrum of business processes that are critical to organisations, from administrating share registers and corporate actions to managing employee payrolls, providing flexible benefit schemes, providing pension software systems and the related administration of the underlying process or running outsource functions. The scale of specialist capability across the Equiniti Group’s brands and our focus on quality mean that, when it really matters, the UK’s leading companies trust the Equiniti Group to deliver. The Equiniti Group is split into three operating solutions: Shareholder Solutions, Pension Solutions and Commercial Solutions. These business lines all provide a unique and bespoke service to clients and are aligned to the financial reporting and management structure of the Equiniti Group. In November 2012 the Group agreed to sell the Xafinity Consulting business which delivers consultancy support across the complex spectrum of pension, actuarial, trustee and investment activities. The sale completed in February 2013. Following the sale of Xafinity Consulting a number of group subsidiaries changed their names as set out in note 15 of the consolidated financial statements. At the core of the Equiniti Group’s business is an absolute focus on outstanding service; we put our clients at the centre of everything we do and our values are the driving force behind our commitment to providing a service which is world class, professional and adds value to our clients’ businesses through a range of commercial outsourcing solutions. Equiniti Group Limited acts as a holding company. 30 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 31 DIRECTORS’ REPORT (CONT’D) Business review The audited results for the year are set out from page 39 onward. The detailed overview of the market and operational focus is set out in pages 15 to 19. Disclosures of principal risks and uncertainties affecting the business are set out in note 1. Subsequent to the balance sheet date, the Group disposed of the Xafinity Consulting business after a strategic review. Key Performance Indicators Our key performance indicators (KPIs) are the core measures used by the group to assess its own performance and allow shareholders and other internal and external stakeholders to see how the group is performing. Our KPIs are regularly reviewed by the Executive Directors and Equiniti’s Board of Directors. Financial Total revenue EBITDA (before exceptional items) Operating profit Operating cash flow Cash conversion Capital expenditure ratio Non-Financial Staff retention Client satisfaction £m £m £m £m % % % % 2012 2011 266.5 242.1 81.1 75.3 31.4 28.4 92.6 62.9 114.2% 83.5% 4.7% 4.5% 87.2% 85.4% 91.0% 91.0% Financial KPIs The Directors regard the financial KPIs of the business to be total revenue, EBITDA pre exceptional items, operating profit, operating cash flow, cash conversion and the capital expenditure ratio. Total revenue Total revenue for the year was £266.5m. This has a high recurring component and less reliance on project based revenue. Earnings before interest, tax, depreciation, and amortisation (EBITDA) pre exceptional items EBITDA pre exceptional items is a key earnings indicator due to its impact on financial covenants. It reflects profit before finance costs, taxation, depreciation and amortisation and exceptional items. In 2012 EBITDA pre exceptional items was £81.1m, an increase of £5.8m (7.7%) compared with the prior year (£75.3m). This represents a margin of 30% which is consistent with the prior year’s margin. The directors are satisfied with this result due to the reasons mentioned in the business review. Operating profit Operating profit remains a key earnings indicator, reflecting profit before finance costs and taxation. In 2012 operating profit was £31.4m, an increase of £3.0m (11%) compared with the prior year (£28.4m). This represents a margin of 12%, comparable with the prior year’s margin. The directors consider this to be a positive result. Operating cash flow Operating cash flow is a key earnings indicator, reflecting the cash generated from trading activities. In 2012 operating cash flow was £92.6m, an increase of £29.7m (47%) compared with the prior year (£62.9m). The directors consider that this highlights the Group’s ability to generate cash from each of its operating solutions. Cash conversion Cash conversion relates to the amount of operating cash flow generated as a percentage of EBITDA pre exceptional items. The result for this year continues to demonstrate the strength of the Group to generate cash. Capital expenditure ratio As part of the Group’s ongoing efforts to improve cash flow, capital expenditure is managed effectively. Capital expenditure ratio consists of expenditure on tangible and intangible assets, as a percentage of revenue. Non-financial KPIs Performance against non-financial KPIs is reflected in the following: Staff retention Staff retention measures the number of staff who remained employed in the Group throughout the year as a percentage of total staff at the year end. The Directors believe this continues to reflect the high level of commitment from the Group’s employees. Client satisfaction The KPIs reported for client satisfaction cover excellent or good service quality ratings from our clients. This KPI is consistent with 2011. Exceptional items Exceptional items of £11.8m (2011: £11.4m) include costs incurred in respect of the integration of the businesses to form the Equiniti Group, other restructuring and corporate development costs and a provision against exceptional irrecoverable costs incurred on a complex long term contract. Capital expenditure Capital additions for the year amounted to £12.5m (2011: £12.7m), of which £12.5m was paid in cash (2011: £10.9m). This comprised £3.1m (2011: £4.3m) of property, plant and equipment and £9.4m (2011: £8.4m) of software and other intangible assets. Finance costs Group net finance costs were £66.9m (2011: £74.8m); of this a net interest cost of £31.9m (2011: £37.8m) was payable in cash. The remaining £35.0m (2011: £37.0m) is all non-cash charges and includes £18.4m (2011: £17.5m) of accrued bank and shareholder loan interest, £12.9m (2011: £12.0m) dividends accrued on preference shares and £3.7m (2011: £7.5m) amortisation of finance costs. Loss for the year The Group made a loss for the year from continuing operations of £28.1m compared to £37.6m in 2011. The year on year reduction is mainly down to improved profit from operating activities as well as a significant decrease in finance costs. Cashflow The Equiniti Group remains highly cash-generative. During the year to 31 December 2012 net cash inflow from operating activities was £92.6m (2011: £62.9m). Of this cash inflow from operating activities, £12.5m (2011: £10.9m) was reinvested into capital expenditure, £31.9m (2011: £37.8m) was utilised to meet the net cash interest and other financing costs of the Equiniti Group’s borrowings, business acquisitions of £10.6m (2011: £8.2m) and debt repayment of £15.0m (2011: £13.0m). Xafinity Consulting cash balances were reclassified as assets held for sale as at 31 December. This and the items mentioned above resulted in a net increase in cash and cash equivalents of £22.6m (2011: decrease of £7.6m) over the year. Bank borrowings and financial covenants At the end of December 2012, net bank debt was £643.1m (2011: £641.1m) and shares classified as debt was £174.9m (2011: £162.0m). The Equiniti Group’s bank borrowings are available under senior interest paying and payment in kind (“PIK”) facilities and reside in Equiniti X2 Inv Limited and Equiniti Enterprises Limited (which mirror the two banking groups). The Equiniti Enterprises senior loans mature between 2015 and 2017 whilst the PIK facility matures at the end of 2017, and the Equiniti X2 Inv Group senior loans mature in 2017. Both of these lending facilities require the Equiniti Group to comply with certain financial covenants, which are applied to each banking group independently. The covenants include annual controls on capital expenditure and the maintenance of certain minimum ratios of earnings before interest, taxes, depreciation and amortisation on both net interest payable and net debt. In addition, there is a requirement that the net operating cash flows generated are not less than the Equiniti Group’s cash cost of funding the bank debt. The facilities are secured by fixed and floating charges over Group assets. Further detail on the Equiniti Group’s borrowing is set out in note 22 of the consolidated financial statements. The Group complied with its covenants in respect of both banking group’s facilities at the year ended 31 December 2012. The Equiniti Group has a revolving credit facility of £12.6m, which was not used in the year, it is available to finance working capital and for general corporate purposes. Liquidity risk and going concern The principal uncertainties which the Equiniti Group faces relate to certain revenue activities that are more difficult to predict, such as corporate action income. These are dependent on the specific activities of corporate clients which may in turn be influenced by underlying market conditions. Liquidity risk is the risk that the Equiniti Group will not be able to meet its financial obligations as they fall due. The Equiniti Group’s approach to managing liquidity is to ensure, as far as possible, that the Equiniti Group will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions. We have used the Equiniti Group’s three year business plan as the basis for projecting cash flows, and measured resulting outcomes on cash availability and bank covenant test points. The Equiniti Group has a very high level of client retention giving a high degree of comfort on certainty of revenue income. 32 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 33 DIRECTORS’ REPORT (CONT’D) rates on debt. The Equiniti Group has established a risk management programme that seeks to limit the adverse effects on the financial performance of the business by monitoring levels of debt finance and the related finance costs. The Equiniti Group’s principal financial instruments comprise sterling cash and bank deposits, bank loan and overdrafts, other loans together with trade debtors and trade creditors that arise directly from its operations. Cash flow interest rate risk The Equiniti Group is exposed to interest rate risk in three main respects. Firstly, income relating to client balances is generally at floating rates. This risk is currently largely mitigated by an interest rate derivative which runs to October 2016. Secondly, expense relating to the UK Sharesave (SAYE) product and ultimately payable to savers at fixed rates is protected by fixed rate income agreements. Thirdly, interest expense arising on floating rate loans is mitigated via interest rate derivatives (swaps); these run to October 2016 and March 2013 for the Equiniti Enterprises Limited and Equiniti X2 Inv Limited Groups respectively. Credit risk The Equiniti Group’s principal financial assets are bank balances, cash and trade debtors, which represent the maximum exposure to credit risk in relation to financial assets. The Equiniti Group has strict controls around and regularly monitors the credit ratings of institutions with which it enters into transactions on its own behalf and for its clients. The Equiniti Group is not exposed to significant customer credit risk due to the risk being spread across a large and diverse client base. Credit risk is the risk of financial loss to the Equiniti Group if a customer or counterparty, including brokers, to a financial instrument fails to meet its contractual obligations, and arises principally from the Equiniti Group’s receivables from customers. Losses have occurred infrequently over previous years. Due to the nature of the business the majority of the trade receivables are with FTSE 350 companies. The amounts presented in the consolidated statement of financial position are net of allowances for doubtful debts, estimated by management based on prior experience and an assessment of the current economic environment. During this period the Equiniti Group is not forecast to require drawing down the revolving credit facility and we expect to remain compliant with all financial covenants. As such, the Directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the going concern basis has been adopted in the preparation of these accounts. Risk management Various aspects of the Equiniti Group’s activities are regulated directly or indirectly. As such, the Equiniti Group’s risk management systems are longstanding and robust. The Equiniti Group has a strong risk management framework where it utilises a “three lines of defence” model, namely: operational management’s application of systems and controls, the development and deployment of business conduct rules and regulatory policies, and the independent assessment of these two defences by the Equiniti Group’s independent internal audit function. The business assesses its risk and risk profile using the enterprise wide risk management model which covers strategy, change, customer treatment, financial soundness, market and credit exposure, legal and regulatory compliance, internal and external fraud exposure, change and operations. It is a combination of these risk assessments that derive the formulation of the Equiniti Group’s risk appetite. In addition, the Equiniti Group has a well established business continuity management (BCM) framework which determines how business critical each activity is to clients, customers, other external stakeholders and the Equiniti Group. Once assessed and independently challenged, each business unit is required to apply a range of business continuity tests which increase in line with the level of critical activity undertaken. The Equiniti Group actively tracks its compliance with its BCM testing programme. Financial risk management The Equiniti Group has established risk management policies and the Equiniti Group Audit Committee oversees how management monitors compliance. With these policies and procedures we review the adequacy of the risk management framework in relation to the risks faced by the Equiniti Group. The Equiniti Group Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Group Audit Committee. The Equiniti Group’s operations expose it to a variety of financial risks, including credit risk, liquidity risk and the effects of changes in interest 34 » Equiniti Group annual report 2012 Foreign currency risk The Equiniti Group is exposed to foreign currency risk, primarily arising from its IT business partnering arrangement. It is our policy to hedge against material currency fluctuations where this is felt to be advantageous. Price risk Price risks are the changes in market prices such as interest rates, foreign exchange rates and equity prices which impact the Equiniti Group’s income or the value of its financial instruments. The Equiniti Group’s financial instruments are mainly in sterling; hence foreign exchange movements do not have a material effect on the Equiniti Group’s performance. The Equiniti Group does not hold its own position in traded securities, being involved in receiving and transmitting transactions on behalf of its clients. The Equiniti Group earns fee income in relation to client and shareholder deposits as well as interest on its own deposits. The Equiniti Group’s senior debt and PIK loan rates are linked to Libor. The Equiniti Group is exposed to movements in the interest rate in both its intermediary fee revenue and net finance costs. Intermediary fee revenue is linked to bank base rate, whilst both the senior debt and the PIK loan rates of the Group are linked to Libor. In 2011 the company hedged at existing market rates the monthly intermediary fee income by receiving a fixed rate against base rate that continues until 2016. This was against an underlying level of £400m of assets reducing by £80m over the term. Also in 2011, a swap, fixing monthly interest payable rates against LIBOR on Enterprises Group’s levels of external borrowings was taken out that also continues until 2016. This was against an initial liability level of £425m reducing by £125m over the term. This effectively hedges the Group’s exposure to the difference between Bank Base Rate and LIBOR over the five years from October 2011. In addition, the Equiniti X2 Inv Limited Group has taken out a derivative to fix the variable (LIBOR) element of its borrowings (for £74m reducing to £63m for three years through to March 2013, fixing 3 month LIBOR to 2.29%). The Equiniti Group continually reviews these risks and will identify suitable instruments where applicable. Capital risk management The Equiniti Group’s objectives when managing capital is to maximise shareholder value while safeguarding the Equiniti Group’s ability to continue as a going concern. We will continue to proactively manage our capital structure whilst maintaining flexibility to take advantage of opportunities which arise to grow our business. One element of our strategy is to make targeted, value-enhancing acquisitions. The availability of suitable acquisitions, at acceptable prices is, however, unpredictable. In common with other private equity portfolio companies, the Equiniti Group carries a high level of net debt compared to equity. Total capital is calculated as total equity as shown in the consolidated statement of financial position, plus net debt. Net debt is calculated as the total of “other interest bearing loans and borrowings” as shown in the consolidated statement of financial position, less cash and cash equivalents. Principal risks and uncertainties Legislative risks The Equiniti Group trades within regulated sectors of the UK economy and is required to comply with all relevant regulations, which it manages through ongoing regulatory assessment, robust systems and controls, qualified staff and independent compliance personnel. Operational risks Operational risk is the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems, or from external events arising from day-to-day operating activities. The Equiniti Group has put in place and tested mitigation plans to minimise the impact of these risks crystallising. It has invested in training and implemented processes and procedures to reduce the likelihood of occurrence. Coupled with this, the Equiniti Group maintains a comprehensive insurance programme tailored to the demands of the business. Contractual arrangements The Equiniti Group has contractual arrangements with all of its clients. These contracts range between one and five years, and are essential to the business. However, the details of these contracts are also commercially confidential, and consequently have not been reported in this review. The Equiniti Group continues to develop key supplier partnerships to support the long term aims of its customers and the Equiniti Group annual report 2012 « 35 DIRECTORS’ REPORT (CONT’D) business. The Equiniti Group’s policy is to establish trading arrangements which are made following an open non-discriminatory competitive bidding process. Other risks and uncertainties The nature of the company’s services means that occasionally a claim for professional service shortcomings can arise which could result in compensation payable. To mitigate this risk the company maintains professional indemnity insurance, which is in place across the Equiniti Group. Proposed dividend The directors do not recommend the payment of a dividend on ordinary shares but there are amounts accruing on preference shares included in finance expenses. Supplier payment policy The Equiniti Group’s policy is to settle terms of payment with suppliers by agreeing the terms of each transaction, ensuring the suppliers are made aware of the terms of payment and abiding by the terms of payment. Trade creditor days of the Equiniti Group for December 2012 were 35 days (2011: 35). Directors The Directors of the Company who were in office during the year and up to the date of signing the financial statements were as follows: Sir Rodney Aldridge Kevin Beeston James Brocklebank Martyn Hindley Alasdair Marnoch Oliver Niedermaier Nick Rose Wayne Story Appointed 3 December 2012 Resigned 31 May 2012 The Directors have the benefit of an indemnity which is a qualifying third party indemnity provision as defined by Section 234 of the Companies Act 2006. The indemnity was in force throughout the last financial year and is currently in force. The Group also purchased and maintained throughout the financial year Directors and Officers’ liability insurance in respect of itself and its Directors and Officers. 36 » Equiniti Group annual report 2012 The directors are responsible for the maintenance and integrity of the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. By order of the Board M Hindley Director 29 April 2013 Registered Number: 07090427 Employees The Equiniti Group is committed to providing an environment which fosters involvement by all our employees. Regular briefings through meetings and publications keep all employees up to date with employment practices, health and safety as well as the business objectives of the Equiniti Group. The Equiniti Group gives full and fair consideration to employment applications from disabled persons, having regard to their particular aptitude and abilities. Where existing employees become disabled, it is the Equiniti Group’s policy to provide continuing employment under normal terms and conditions wherever practicable, providing training, career development and promotion to disabled employees where appropriate. Going concern The directors are satisfied that the Equiniti Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the going concern basis has been adopted in preparing the accounts. Political and charitable donations The Equiniti Group did not make any political donations or incur any political expenditure during the year. Charitable donations of £45,000 (2011: £50,000) were made during the year to a mixture of local and national charities. Disclosure of information to auditors The directors who held office at the date of approval of this directors’ report confirm that, so far as they are each aware, there is no relevant audit information of which the Equiniti Group’s auditors are unaware; and each director has taken all the steps that he ought to have taken as a director to make himself aware of any relevant audit information and to establish that the Equiniti Group’s auditors are aware of that information. Directors’ Responsibilities The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the group and parent financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the company and of the profit or loss of the Group for that period. In preparing these financial statements, the directors are required to: ■ select suitable accounting policies and then apply them consistently; ■ make judgements and accounting estimates that are reasonable and prudent; ■ ■ state whether applicable IFRSs as adopted by the European Union and IFRSs as issued by the International Accounting Standards Board (IASB), have been followed, subject to any material departures disclosed and explained in the financial statements; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group or company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and the Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Equiniti Group annual report 2012 « 37 independent auditors’ report to the memBers of equiniti Group limited Consolidated statement of Comprehensive inCome for the year ended 31 december 2012 We have audited the group financial statements of Equiniti Group Limited for the year ended 31 December 2012 which comprise the Group statement of Comprehensive income, the Consolidated statement of financial position, the Consolidated statement of Changes in equity, the Consolidated Cash Flow Statement and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. Respective responsibilities of directors and auditors as explained more fully in the directors’ responsibilities statement set out on page 37, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. this report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, 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. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the group financial statements: • give a true and fair view of the state of the group’s affairs as at 31 December 2012 and of its loss and cash flows for the year then ended; have been properly prepared in accordance with ifrss as adopted by the european union; and have been prepared in accordance with the requirements of the Companies Act 2006. • • Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the group financial statements are prepared is consistent with the group financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or the financial statements are not in agreement with the accounting records and returns; or • • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Other matter We have reported separately on the parent company financial statements of Equiniti Group Limited for the year ended 31 December 2012. Keith Evans (Senior Statutory Auditor) for and on behalf of pricewaterhouseCoopers llp Chartered accountants and statutory auditors, reading 8 may 2013 Continuing operations revenue operating costs before exceptional costs, depreciation and amortisation earnings before interest, tax, depreciation and amortisation (eBitda) prior to exceptional items operating costs - exceptional items earnings before interest, tax, depreciation and amortisation (eBitda) depreciation of property, plant and equipment amortisation of intangible assets total operating costs Profit from operating activities finance income finance costs Net finance costs Share of profit of associates loss before income tax income tax credit note 2012 £’000 2011 £’000 5 7 7 6 13 14 7 10 10 11 266,544 242,139 (185,434) 81,110 (11,776) 69,334 (3,518) (34,376) (166,803) 75,336 (11,363) 63,973 (4,003) (31,596) (235,104) (213,765) 31,440 28,374 973 (67,882) (66,909) 1,180 (75,982) (74,802) 288 - (35,181) (46,428) 12 7,048 8,813 loss for the year from continuing operations (28,133) (37,615) discontinued operations Profit for the year from discontinued operation (attributable to owners of the parent) 21 9,712 8,807 loss for the year attributable to owners of the parent (18,421) (28,808) other comprehensive income fair value movement through hedging reserve Defined benefit plan actuarial loss deferred tax credit on other comprehensive income total comprehensive loss for the year attributable to owners of the parent The notes on pages 43 to 78 form part of these financial statements. 24 (2,742) (2,541) 584 (23,120) 419 (3,856) 964 (31,281) 38 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 39 Consolidated statement of finanCial position as at 31 december 2012 Consolidated statement of ChanGes in equity for the year ended 31 december 2012 assets non-current assets property, plant and equipment intangible assets investments in associates Other financial assets Current assets tax receivable trade and other receivables Cash and cash equivalents Assets of disposal group classified as held for sale total assets equity and liabilities equity attributable to owners of the parent share capital share premium hedging reserve Accumulated deficit total equity liabilities non-current liabilities interest-bearing loans and borrowings Employee benefits provisions for other liabilities and charges Other financial liabilities deferred income tax liabilities Current liabilities interest-bearing loans and borrowings trade and other payables Employee benefits income tax payable provisions for other liabilities and charges Other financial liabilities Liabilities of disposal group classified as held for sale total liabilities total equity and liabilities note 2012 £’000 2011 £’000 13 14 11 16 19 20 21 26 26 22 24 25 17 18 22 23 24 25 17 21 10,753 611,741 9,370 6,122 637,986 1,835 55,844 57,818 115,497 85,605 11,577 698,076 - 6,122 715,775 - 70,919 46,845 117,764 - 839,088 833,539 5,000 3,495 (3,402) (134,025) (128,932) 5,000 3,495 (660) (113,647) (105,812) 853,510 6,268 8,787 886 8,587 878,038 29,446 38,966 428 - 3,381 4,053 76,274 13,708 842,335 3,978 11,390 1,353 18,469 877,525 20,842 38,795 451 9 - 1,729 61,826 - 968,020 939,351 839,088 833,539 Balance at 1 January 2011 Comprehensive income share capital £’000 share premium £’000 hedging accumulated deficit reserve £’000 £’000 total equity £’000 5,000 3,495 (1,079) (81,947) (74,531) loss for the year per the statement of comprehensive income other comprehensive income Changes in fair value of cash flow hedges Actuarial losses on defined benefit pension plans Deferred tax on defined benefit pension plans total comprehensive income - - - - - - - - - - - (28,808) (28,808) 419 - - - (3,856) 964 419 (3,856) 964 419 (31,700) (31,281) Balance at 31 december 2011 5,000 3,495 (660) (113,647) (105,812) Balance at 1 January 2012 Comprehensive income 5,000 3,495 (660) (113,647) (105,812) loss for the year per the statement of comprehensive income other comprehensive income Changes in fair value of cash flow hedges Actuarial losses on defined benefit pension plans Deferred tax on defined benefit pension plans total comprehensive income - - - - - - - - - - - (18,421) (18,421) (2,742) - - - (2,541) 584 (2,742) (2,541) 584 (2,742) (20,378) (23,120) Balance at 31 december 2012 5,000 3,495 (3,402) (134,025) (128,932) The notes on pages 43 to 78 form part of these financial statements. These financial statements were approved by the Board of directors on 29 April 2013 and were signed on its behalf by m hindley director 40 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 41 Consolidated statement of Cash floWs for the year ended 31 december 2012 notes to the Consolidated finanCial statements for the year ended 31 december 2012 note 2012 £’000 2011 £’000 1 Accounting policies Cash flows from operating activities Cash generated from operations Net cash inflow from operating activities Cash flows from investing activities proceeds from sale of property, plant and equipment interest received Business acquisitions net of cash acquired Business acquisitions net of cash acquired and held for sale acquisition of an associate payment relating to prior year acquisition acquisition of property, plant and equipment acquisition of software Net cash outflow from investing activities Cash flows from financing activities repayment of loans interest paid loan fees paid Net cash outflow from financing activities net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 december Represented by: 32 92,603 62,876 92,603 62,876 4 21 11 21 468 (899) (575) (9,082) (100) (3,047) (9,437) 18 357 (8,191) - - (500) (2,566) (8,353) (22,651) (19,235) (15,013) (31,733) (597) (13,016) (37,913) (287) (47,343) (51,216) 22,609 46,845 (7,575) 54,420 69,454 46,845 Included in cash and cash equivalents per the statement of financial position included in the assets of the disposal group 20 21 57,818 11,636 46,845 - Cash and cash equivalents at 31 december 69,454 46,845 Equiniti Group Limited (the “Company”) is a limited company incorporated and domiciled in the UK. The principal activity of the Company is that of a holding company. The registered office is Sutherland House, Russell Way, Crawley, West Sussex, RH10 1UH. The group financial statements consolidate those of the Company and its subsidiaries (together referred to as the “Group”). These financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU), IFRS - IC Interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the going concern basis. The preparation of financial statements in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed at the end of this section. Accounting policies have been consistently applied, except where new policies have been adopted and disclosed in the financial statements. Measurement convention The financial statements are prepared on the historical cost basis except that liabilities for cash-settled share based payment arrangements and hedging agreements are stated at their fair value. Basis of consolidation Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Going Concern Whilst a total comprehensive loss of £23.1m arose increasing net liabilities to £128.9m during the course of the year, the Group traded strongly, generating £104.4m of cash inflow from operating activities before net exceptional items of £11.8m leading to a net increase of £92.6m in the year. This current level of cash generation, combined with the three year business plan assessment provides the Directors with the comfort and expectation that the Group will be able to meet all of its commitments as they fall due and attain the covenant thresholds required under the term of the banking arrangements both during the year and in the three year business plan and, as such, allow the financial statements to be presented on a going concern basis. The Directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the going concern basis has been adopted in preparing the financial statements. Classification of financial instruments issued by the Group Under IAS 32, financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions: (a) they include no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Group; and (b) where the instrument will or may be settled in the Group’s own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Group’s own equity instruments or is a derivative that will be settled by the Group’s exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Finance payments associated with financial liabilities are dealt with as part of finance expenses. Finance payments associated with financial instruments that are classified in equity are treated as distributions and are recorded directly in equity. 42 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 43 notes to the Consolidated finanCial statements for the year ended 31 december 2012 1 Accounting policies (continued) Derivative financial instruments and hedging Derivative financial instruments Derivative financial instruments are recognised at fair value. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged (see below). the fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the instruments at the statement of financial position date, taking into account current interest rates and the current creditworthiness of the swap counterparties. Third party valuations are used to fair value the Group derivatives. The valuation techniques use inputs such as interest rate yield curves and currency prices/yields, volatilities of underlying instruments and correlations between inputs. Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the statement of comprehensive income within finance costs. Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss (for example, when the forecast sale that is hedged takes place). The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognised in the statement of comprehensive income within finance costs. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity until the hedged item occurs. Investments in subsidiaries Investments in subsidiaries are carried at cost less any provisions for impairment. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. For items acquired as part of a business combination, cost comprises the deemed fair value of those items at the date of acquisition. Depreciation on those items is charged over their estimated remaining useful lives from that date. 3 – 10 years 2 – 50 years depreciation is charged to the statement of comprehensive income on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Land is not depreciated. The estimated useful lives are as follows: ■ leasehold improvements ■ Office equipment ■ Fixtures and fittings Intangible assets and goodwill ifrs 3 (revised), ‘Business combinations’ is effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. The revised standard continues to apply the acquisition method to business combinations but with some significant changes compared with IFRS 3. For example, all payments to purchase a business are recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the statement of comprehensive income. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition-related costs are expensed. 3 – 20 years Goodwill represents amounts arising on acquisition, being the difference between the cost of the acquisition and the net fair value of the identifiable assets and liabilities acquired. Identifiable intangibles are those which can be sold separately or which arise from legal rights regardless of whether those rights are separable. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units for the purposes of impairment testing and is not amortised. It is tested annually for impairment. Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses. notes to the Consolidated finanCial statements for the year ended 31 december 2012 1 Accounting policies (continued) Software is valued based on replacement costs valuations where identifiable or where this has not been ascertainable, using relief from royalty valuation over the estimated useful life. Customer relationships are valued based on the net present value of the excess earnings generated by the revenue streams over their estimated useful lives. Order books are valued based on expected revenue generation and Brand valuation is based on net present value of estimated royalty returns. Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the group are recognised as intangible assets when the following criteria are met: ■ it is technically feasible to complete the software product so that it will be available for use; ■ management intends to complete the software product and use or sell it; ■ there is an ability to use or sell the software product; ■ it can be demonstrated how the software product will generate probable future economic benefits; ■ adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and ■ the expenditure attributable to the software product during its development can be reliably measured. directly attributable costs that are capitalised as part of the software product include the software development employee costs and an appropriate portion of relevant overheads. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. 15 years 3 – 10 years 4 – 20 years amortisation is charged to the statement of comprehensive income on a straight-line basis over the estimated useful lives of intangible assets. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows: ■ shareholder registration system ■ other software ■ Customer relationships ■ Order book ■ Brands Impairment of non-financial assets Assets that have an indefinite useful life, for example goodwill or intangible assets not ready for use, are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. 5 - 10 years 1 year Other financial assets Other financial assets include loans and receivables, derivatives and investment in shares. Derivatives are explained above. Loans and receivables are non-derivative financial assets with fixed or determinable payments, that are not quoted in an active market. They are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment and are included in non-current assets as their maturity is greater than 12 months after the end of the reporting period. Investment in shares are non-derivative available for sale financial assets recognised initially at fair value with any subsequent changes in fair value being recognised through other comprehensive income. They are included in non-current assets as management do not intend to dispose of them within 12 months of the end of the reporting date. 44 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 45 notes to the Consolidated finanCial statements for the year ended 31 december 2012 notes to the Consolidated finanCial statements for the year ended 31 december 2012 1 Accounting policies (continued) 1 Accounting policies (continued) Trade receivables Trade receivables are stated initially at fair value then measured at amortised cost less provisions for impairment. Provisions for impairment are recognised when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The impairment recorded is the difference between the carrying value of the receivables and the estimated future cash flows discounted where appropriate. Any impairment required is recorded in the statement of comprehensive income within operating costs. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose only of the statement of financial position and the statement of cash flows. Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest- bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the statement of comprehensive income over the period of the borrowings on an effective interest basis. On borrowings extinguished, any difference between the cash paid and the carrying value is recognised in the statement of comprehensive income. Trade payables Trade payables represent liabilities for goods and services received by the Group prior to the end of financial year which are unpaid. The amounts within trade payables are unsecured. Employee benefits Defined contribution plans Obligations for contributions to defined contribution pension plans are recognised as an expense in the statement of comprehensive income as incurred. Defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group’s net obligation in respect of defined benefit pension plans is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any plan assets (at bid price) are deducted. The liability discount rate is the yield at the statement of financial position date on AA credit rated bonds denominated in the currency of, and having maturity dates approximating to the terms of the Group’s obligations. The calculation is performed by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Group, the recognised asset is limited to the present value of benefits available in the form of any future refunds from the plan, reductions in future contributions to the plan or on settlement of the plan and takes into account the adverse effect of any minimum funding requirements. Short-term benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A provision is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. Share-based payment transactions the fair value of the amount payable to employees in respect of share appreciation rights, which are settled in cash, is recognised as an expense, with a corresponding increase in liabilities, over the period in which the employees become unconditionally entitled to payment. The liability is remeasured at each reporting date and at settlement date. Any changes in the fair value of the liability are recognised as personnel expense in the statement of comprehensive income. Provisions A provision is recognised in the statement of financial position when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected, risk adjusted, future cash flows at a pre-tax risk-free rate. Dilapidations provisions relate to estimated cost to put leased premises back to required condition expected under the terms of the lease. these include provisions for wear and tear along with provisions where leasehold improvements have been made that would require reinstatement back to original status on exit. These are uncertain in timing as leases may be terminated early or extended. To the extent that exits of premises are expected within 12 months of the end of the year they are shown as current. Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Revenue revenue, which excludes value added tax, represents the invoiced value of services and software supplied and is almost entirely attributable to the United Kingdom. The Group is one of the largest providers of outsourced financial services in the UK, covering pension administration, pensions payroll, annuity services, complaints handling and resourcing services. Professional services revenue is recognised when earned. Hardware sales and software licences are recognised when goods and licences are delivered. Technical support revenues are recognised rateably over the term of the maintenance agreement. Amounts recognised as revenue but not yet billed are reflected in the statement of financial position as accrued income. Amounts billed in advance of work performed are deferred in the statement of financial position as deferred income. In the case of long term contracts, revenue is recognised proportionately as the contract is performed. Total costs incurred under contracts in progress net of amounts transferred to the statement of comprehensive income, are stated less foreseeable losses and payments on account. The statement of comprehensive income reflects the proportion of the work carried out at the accounting date. Revenues also comprise fixed periodic administration fees, transaction processing fees, fees for managing corporate actions, fees for professional and IT services and fees earned on the administration of client funds and are stated net of value added tax. Periodic administration fees are recognised evenly over the contract period. Transaction based fees are recognised at the time of processing the related transactions. Revenues from corporate actions are recognised in line with the stage of completion and fees in relation to administration of client funds are recognised as they accrue. Revenues includes variable margin fee income earned on funds under administration of the Group. Out of pocket expenses recharged to clients are recognised in revenue when they are recoverable from the client, net of the related expense. Government grants Grants that compensate the Group for expenses incurred are recognised in profit or loss in the statement of comprehensive income in the same periods in which the expenses are recognised. Grants relating to employment are recognised in profit and loss in the statement of comprehensive income as they are earned. Grants relating to intangible assets are netted against the related expenditure prior to capitalisation and amortisation over the useful life of the asset. Expenses Operating lease payments payments made under operating leases are recognised in the statement of comprehensive income on a straight-line basis over the term of the lease. Lease incentives received are recognised in the statement of comprehensive income as an integral part of the total lease expense. Exceptional items Exceptional items are items which due to their size, incidence and non-recurring nature have been classified separately in order to draw them to the attention of the reader of the financial statements and, in management’s judgement, to show more accurately the underlying profits of the group. Such items are included within the statement of comprehensive income caption to which they relate, and are separately disclosed either in the notes to the consolidated financial statements or on the face of the consolidated statement of comprehensive income. This includes costs in relation to business integration / reorganisation as well as potential and aborted acquisitions and includes all costs incurred against investigated and completed acquisitions. 46 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 47 notes to the Consolidated finanCial statements for the year ended 31 december 2012 notes to the Consolidated finanCial statements for the year ended 31 december 2012 1 Accounting policies (continued) 1 Accounting policies (continued) Net finance costs Net finance costs comprise interest payable, interest receivable on own funds, dividend income and foreign exchange gains and losses that are recognised in the statement of comprehensive income and the interest cost of defined pension scheme liabilities net of the expected return on plan assets. interest income and interest payable is recognised in the statement of comprehensive income as it accrues, using the effective interest method. Dividend income is recognised in the statement of comprehensive income on the date the entity’s right to receive payment is established. Taxation Tax on the loss for the year comprises current and deferred tax. Tax is recognised in the statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the statement of financial position date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the statement of financial position date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. New standards and interpretations not yet adopted a) new and amended standards adopted by the Group There are no IFRSs or IFRS - IC interpretations that are effective for the first time for the financial year beginning on or after 1 January 2012 that would be expected to have a material impact on the Group. b) new standards and interpretations not yet adopted Fair values of intangible assets fair values of intangibles have been calculated by estimating the net present value of future revenues generated by the assets over their estimated useful lives. Third party valuations are used to fair value the Group’s derivatives. The valuation techniques use inputs such as interest rate yield curves and currency prices / yields, volatilities of underlying instruments and correlations between inputs. Deferred tax Under IAS 12 “Income taxes” deferred tax assets are recognised to the extent that taxable profits will be available against which the deductible temporary differences can be utilised. As at the year end the directors consider that the IAS 12 recognition criteria are satisfied. Pension assumptions Assumptions used in calculating the net defined benefit pension obligation are set out in note 24, Employee benefits. The calculation of the defined benefit obligation is sensitive to the mortality assumptions set out in that note. As the actuarial estimates of mortality continue to be refined, an increase of one year in the lives shown in note 24 is considered possible in the next financial year. The effect of this change would be to increase the employee benefit liability by £1,018,000 (2011: £885,000). A 0.5% decrease in the discount rate used would increase the employee benefit liability by £4,060,000 (2011: £3,892,000). Provisions Dilapidations provisions have been made for properties which the Group currently lease based upon the cost to make good the property in accordance with lease terms where applicable, if we were to vacate at 31 december 2012 as assessed by a chartered surveyor with reference to current market rates. Provision has also been made in respect of commercial claims in the Xafinity Consulting business for which the Group maintains professional indemnity insurance which includes an annual insurance excess. Each claim is assessed on a case by case basis giving consideration to the probable outcome and to the amounts involved including consultation with legal counsel where appropriate. the constructive compliance provision is managements best estimate of the cost of meeting the change in requirement of payment systems of which the Group is contractually required. The exact requirements are being finalised and so could require additional or less cost. Provisions for deferred consideration has been made in relation to acquisitions the Group has made. There are various criteria that need to be satisfied in order for a payment to be made, the Group have made provisions as appropriate based on the relevant accounting standards and management’s best estimate of the criteria for settlement being fulfilled. a number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2012, and have not been applied in preparing these financial statements. Other than IAS19 (revised), as described below, none of these is expected to have a significant effect on the financial statements of the Group. Exceptional items Exceptional items are recognised to the extent that they meet the definition outlined in the accounting policy above. This requires a certain amount of judgement that is applied consistently by management. IAS 19, ‘Employee benefits’, was amended in June 2011. The impact on the Group will be as follows: to immediately recognise all past service costs; and to replace interest cost and expected return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit liability (asset). The Group has assessed the full impact of the amendments and concluded that the effect will be limited to a £54,000 increase in finance income and a corresponding increase in actuarial losses of £54,000. IFRS 10, ‘Consolidated financial statements’, builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. The Group does not expect IFRS 10 to have a material impact and intends to adopt IFRS 10 no later than the accounting period beginning on or after 1 January 2013. there are no other ifrss or ifrs - iC interpretations that are not yet effective that would be expected to have a material impact on the Group. Accounting estimates and judgements Cash-settled share based payments measured as the higher of amount subscribed plus the attributable share or the fair value of the business on an exit event, over the expected vesting period. The valuation at the date of grant and the probability of an exit event are therefore key judgements. The value is based on an estimate of a multiple of adjusted EBITDA, based on an equivalent market value for a “debt free” private company. 2 Financial risk management The Group has exposure to the following risks from its use of financial instruments: - credit risk - liquidity risk - market risk Risk management policies are established for the Equiniti Group Limited group of companies (the “Group”) and the Group Audit Committee oversees how management monitors compliance with these policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Group Audit Committee is assisted in its oversight role by Internal Audit and Compliance Monitoring. Internal Audit and Compliance Monitoring undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Group Audit Committee. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty, including brokers, to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers. 48 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 49 notes to the Consolidated finanCial statements for the year ended 31 december 2012 notes to the Consolidated finanCial statements for the year ended 31 december 2012 2 Financial risk management (continued) 4 Acquisitions of businesses due to the nature of the business the majority of the trade receivables are with large institutions, including many ftse 350 companies and losses have occurred infrequently over previous years. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that the Group will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions. Market risk Market risk is the risk that changes in market prices such as interest rates, foreign exchange rates and equity prices will effect the Group’s income or the value of its financial instruments. The Group’s financial instruments are currently in sterling, hence foreign exchange movements do not have a material effect on the Group’s performance. The Group does not hold its own position in trading securities, being involved only in arranging transactions on behalf of its clients. The Group is exposed to movements in interest rate in both its intermediary fee revenue and its net finance costs. Intermediary fee revenue is linked to Bank Base Rate, whilst both the senior debt and the PIK loan rates are linked to Libor. The Group also earns fee income in relation to client and shareholder deposits as well as interest income on its own deposits. Exposure to interest rate fluctuations are partly managed through the use of interest rate swaps. Objectives are established by the board so as to seek to reduce the impact of variations in interest rates on the group’s profit and cash flow. A movement in interest rates which negatively affects the net finance costs, would have a positive effect on revenue, and vice versa. During the year a significant proportion of the group’s bank debt was covered by fixed interest rates for varying periods up to three years, achieved by way of a financial instrument (interest rate swap). The balance of bank debt interest is at current market rates. The group does not engage in holding speculative financial instruments or derivatives. Further quantitative disclosures are included throughout these consolidated financial statements. 3 Capital risk management The Group is focused on delivering value for its shareholders whilst ensuring the Group is able to continue effectively as a going concern. Value adding opportunities to grow the business are continually assessed, although strict and careful criteria are applied. as is common with many other private equity portfolio companies, the Group carries a high level of net debt to total equity; total capital comprises total equity plus net debt, as shown in the consolidated statement of financial positions. Net debt equates to the total of other interest bearing loans, less cash and cash equivalents, as shown in the consolidated statement of financial position. The policies for managing capital are to increase shareholder value by maximising profits and cash. The policy is to set budgets and forecasts in to the short and medium term that the Group ensures are achievable. The process for managing capital are regular reviews of financial data to ensure that the Group is tracking the targets set and to reforecast as necessary based on the most up to date information whilst checking that future covenant test points are met. the borrowing facilities require the Group to comply with certain covenants, which place limits on annual capital expenditure, the maintenance of certain minimum ratios of earnings before interest, taxes, depreciation and amortisation on both net interest payable and net debt and a requirement for net operating cash flows to be no less than the Group’s cash cost of funding the bank debt. These continue to be met and have been achieved over the last 12 months. On 31 July 2012, the Group acquired the share capital of Peter Evans Limited and its subsidiary Peter Evans & Associates Limited. Recognised amounts of identifiable assets acquired and liabilities assumed property, plant and equipment intangible assets Cash trade and other receivables trade and other payables tax payable deferred tax liability relating to intangible assets Net identifiable assets and liabilities Goodwill on acquisition total consideration Cash acquired Contingent consideration Net cash outflow in the year £’000 174 875 756 799 (817) (78) (216) 1,493 1,092 2,585 (756) (1,072) 757 provisionally, on acquisition further intangible assets have been recognised relating to customer contracts and related relationships as well as software with a combined attributable value of £875,000. Due to the timing of the transaction the value relating to the other intangible assets is provisional and subject to further review. The value of goodwill reflects amounts in relation to the benefit of the expectation of the ability to generate new streams of revenue, expected synergies, future market development and the assembled workforce of Peter Evans Limited. The revenue included in the consolidated statement of comprehensive income since the acquisition date was £1,158,000. The associated profit was £281,000. The external transaction costs for the year was approximately £130,000. On 30 November 2012, the Group acquired the share capital of Prism Communications & Management Limited (known as Prism Cosec). Recognised amounts of identifiable assets acquired and liabilities assumed property, plant and equipment intangible assets Cash trade and other receivables trade and other payables deferred tax liability relating to intangible assets Net identifiable assets and liabilities Goodwill on acquisition total consideration Cash acquired Contingent consideration Net cash outflow in the year £’000 5 350 358 153 (134) (86) 646 433 1,079 (358) (579) 142 provisionally, on acquisition further intangible assets have been recognised relating to customer contracts and related relationships with a combined attributable value of £350,000. Due to the timing of the transaction the value relating to the other intangible assets is provisional and subject to further review. The value of goodwill reflects amounts in relation to the benefit of the expectation of the ability to generate new streams of revenue, expected synergies, future market development and the assembled workforce of Prism Cosec. The revenue included in the consolidated statement of comprehensive income since the acquisition date was £70,000. The associated profit was £11,000. The external transaction costs for the year was approximately £70,000. 50 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 51 notes to the Consolidated finanCial statements for the year ended 31 december 2012 notes to the Consolidated finanCial statements for the year ended 31 december 2012 5 Revenue Included in the loss for the year are the following: revenue from continuing operations discontinued operations total revenue 6 Exceptional items Included in the loss for year are the following: integration project Contract costs Costs relating to transferring services off-shore other exceptional costs total exceptional costs 2012 £’000 266,544 43,007 309,551 2012 £’000 4,792 4,225 - 2,759 11,776 2011 £’000 242,139 39,990 282,129 2011 £’000 9,742 - 901 720 11,363 exceptional costs include costs incurred by the Group relating to resources applied in a major programme of Group integration activities between Equiniti and Xafinity businesses. These principally comprise consulting, property and IT rationalisation and severance costs, together with rationalisation of off-shore activities. Provision has been made against exceptional irrecoverable costs incurred on a complex long term contract. other exceptional costs represent fees paid to third party advisors and transaction fees in respect of acquisitions completed in the year, as well as costs incurred of further potential acquisitions and disposals not completed. other exceptional costs also contain a provision relating to deferred consideration which was transferred to a subsidiary, equiniti services Limited, prior to the year end. This is classified as an exceptional expense in the year for the Group. 7 Summary results and operating costs Included in the loss for year are the following: summary results of continuing operations by operating solutions 31 December 2012 revenue pre-exceptional costs pre-exceptional eBitda exceptional items eBitda 31 December 2011 revenue pre-exceptional costs pre-exceptional eBitda exceptional items eBitda expenses by nature Employee benefit expense (note 8) depreciation and amortisation direct costs Bought in services premises costs exceptional items (see note 6) other general business costs total operating costs for continuing operations auditors’ remuneration Audit of these financial statements audit of Company’s subsidiaries tax services audit related assurance services all other services £’000 £’000 £’000 pensions shareholder Commercial solutions solutions 115,807 130,024 (61,216) (105,427) 54,591 24,597 20,713 (15,986) 4,727 solutions £’000 Central £’000 total - (2,805) (2,805) 266,544 (185,434) 81,110 (4,225) 20,372 (682) 53,909 - 4,727 (6,869) (9,674) (11,776) 69,334 £’000 Pensions Solutions 111,225 (92,427) 18,798 £’000 Shareholder Solutions 111,383 (59,104) 52,279 £’000 Commercial Solutions 19,531 (14,578) 4,953 £’000 Central £’000 Total - (694) (694) 242,139 (166,803) 75,336 - 18,798 (720) 51,559 - 4,953 (10,643) (11,337) (11,363) 63,973 2012 £’000 96,623 37,894 37,752 16,598 11,762 11,776 22,699 2011 £’000 88,714 35,599 35,326 13,554 10,317 11,363 18,892 235,104 213,765 2012 £’000 10 204 110 28 237 589 2011 £’000 9 166 167 44 124 510 52 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 53 Included in audit fees is £30,000 (2011: £25,000) relating to Xafinity Consulting, the business that the Group sold in February 2013. Other services include work undertaken in relation to acquisitions and disposals of £237,000 (2011: £26,000), work undertaken as part of the Group’s integration programme of £nil (2011: £69,000) which has been included in exceptional costs and £nil (2011: £29,000) relates to services in respect of debt finance. notes to the Consolidated finanCial statements for the year ended 31 december 2012 notes to the Consolidated finanCial statements for the year ended 31 december 2012 8 Staff numbers and costs 10 Finance income and costs The average monthly number of persons employed by the Group (including directors) during the year was 2,665 (2011: 2,620). By function *: operations administration Sales and marketing By business type *: shareholder solutions pensions solutions Commercial solutions Group number of employees 2011 2,296 268 56 2012 2,351 258 56 2,665 2,620 Group number of employees 1,322 957 386 2,665 1,293 951 376 2,620 interest income foreign exchange gain Income from interest rate swap against financial liabilities finance income relating to pension scheme finance income amortised fees other fees and interest interest cost on loans from related parties Interest cost on bank loans* Interest on preference shares classified as liabilities foreign exchange loss finance cost relating to pension scheme Cost of interest rate swap against financial liabilities finance costs * The number of colleagues quoted in the Operational Focus section of the annual report are the number of employees as at 31 December 2012, as stated, the figures above are the monthly average. * Includes £14,609,000 (2011: £13,315,000) interest accrued on the PIK facility. The aggregate payroll costs of these persons were as follows: 11 Investments in associates Wages and salaries social security costs other pension costs 2012 £’000 83,269 8,290 5,064 96,623 2011 £’000 76,137 7,783 4,794 88,714 at 1 January additions Share of profit at 31 december 2012 £’000 468 33 472 - 973 3,754 1,045 4,837 38,787 12,956 - 163 6,340 67,882 2011 £’000 297 - 662 221 1,180 7,518 308 4,437 38,190 11,996 152 - 13,381 75,982 2012 £’000 - 9,082 288 9,370 2011 £’000 - - - - Payroll costs includes severance costs of £883,000 (2011: £2,181,000) in relation to the integration project further explained in note 6. In addition to the above there are 372 employees (2011: 360) employed by Xafinity Consulting, the business that the Group sold in February 2013. The associated costs for the year, not included above, were £21,181,000 (2011: £20,168,000). Associate investments are initially recorded at cost which is the fair value of the consideration paid. The Group’s share of the results of its principal associates and its aggregated assets and liabilities, are as follows: 9 Directors’ remuneration the following costs are either paid by the subsidiary equiniti limited or equiniti services limited; Directors’ emoluments (including compensation for loss of office) Company contributions to money purchase pension plans Name 31 december 2012 MyCSP Limited 2012 £’000 1,358 35 2011 £’000 1,661 40 % interest held Assets £’000 Liabilities £’000 Revenues £’000 Profit £’000 40% 7,806 7,806 1,334 1,334 9,209 9,209 288 288 Retirement benefits are accrued under money purchase schemes to 2 of the directors (2011: 2 of the directors). The emoluments of the highest paid director was £739,000 (2011: £440,000). Company contributions to defined contribution pension schemes for the highest paid director amounted to £28,000 (2011: £28,000). MyCSP Limited is incorporated in England & Wales. The Group acquired its interest in MyCSP Limited in May 2012. The Group holds more than 20% of the equity shares of MyCSP Limited and exercises significant influence by virtue of its contractual right to appoint directors to the board of Directors and has the power to participate in the financial and operating policy decisions of MyCSP Limited. 54 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 55 notes to the Consolidated finanCial statements for the year ended 31 december 2012 notes to the Consolidated finanCial statements for the year ended 31 december 2012 12 Income tax credit recognised in the statement of comprehensive income Current tax charge / (credit) for the Group Current year adjustment for prior years deferred tax credit origination and reversal of temporary differences adjustment for prior years total income tax credit represented by; Continuing operations per the statement of comprehensive income non current assets held for sale and discontinued operations note 21 reconciliation of effective tax rate loss for the year total tax credit loss excluding taxation Tax using the UK corporation tax rate of 24.5% (2011: 26.5%) non-deductible expenses unrecognised tax assets adjustment for prior years difference in overseas tax rates effect of tax rate change total income tax credit 2012 £’000 95 10 (3,558) (273) (3,726) 2011 £’000 - (398) (5,225) (784) (6,407) (7,048) 3,322 (3,726) (8,813) 2,406 (6,407) 2012 £’000 (18,421) (3,726) (22,147) 2011 £’000 (28,808) (6,407) (35,215) (5,426) 4,161 (905) (263) (51) (1,242) (3,726) (9,332) 4,237 1,532 (1,182) (25) (1,637) (6,407) 13 Property, plant and equipment Group Cost Balance at 1 January 2011 additions disposals Balance at 31 december 2011 Balance at 1 January 2012 acquisition of business additions disposals Assets of disposal group classified as held for sale Balance at 31 december 2012 accumulated depreciation Balance at 1 January 2011 depreciation charge for the year disposals Balance at 31 december 2011 Balance at 1 January 2012 depreciation charge for the year disposals Assets of disposal group classified as held for sale Balance at 31 december 2012 Net book value Balance at 31 december 2011 Balance at 31 december 2012 Leasehold improvements £’000 Office equipment £’000 Fixtures & fittings £’000 5,445 287 (912) 4,820 4,820 - 329 (38) - 5,111 1,842 914 (911) 1,845 1,845 489 (38) - 2,296 13,056 3,529 (324) 16,261 16,261 174 2,132 (139) (453) 17,975 8,268 2,359 (324) 10,303 10,303 2,595 (139) (332) 12,427 4,538 516 (232) 4,822 4,822 5 586 (653) (540) 4,220 1,511 882 (215) 2,178 2,178 610 (632) (326) 1,830 Total £’000 23,039 4,332 (1,468) 25,903 25,903 179 3,047 (830) (993) 27,306 11,621 4,155 (1,450) 14,326 14,326 3,694 (809) (658) 16,553 2,975 5,958 2,644 11,577 2,815 5,548 2,390 10,753 The standard rate of corporation tax in the UK changed from 26% to 24% with effect from 1 April 2012. Accordingly the Group’s profits for this accounting year are taxed at an effective rate of 24.5%. Factors affecting future tax charges During the year, as a result of the changes in the UK corporation tax rate to 24%, which was substantively enacted on 26 March 2012 and was effective from 1 April 2012; and to 23%, which was substantively enacted on 3 July 2012 and will be effective from 1 April 2013, the relevant deferred tax balances have been remeasured. A further reduction to the UK corporation tax rate has been announced. The change proposes to reduce the rate to 22% from 1 April 2014. The change had not been substantively enacted at the balance sheet date and, therefore, is not recognised in these financial statements. Included within office equipment are assets held under finance lease with a cost of £1,798,000 (2011: £1,798,000). As at the year end these assets had a net book value of £982,000 (2011: £1,404,000). 56 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 57 notes to the Consolidated finanCial statements for the year ended 31 december 2012 notes to the Consolidated finanCial statements for the year ended 31 december 2012 14 Intangible assets (continued) The recoverable amounts of the cash generating units (“CGUs”) are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding discount rates and growth rates. The Group derives cash flows from its most recent business plans over a three year period. The projected cash flows are discounted using a weighted average cost of capital, reflecting current market assessments on debt/equity ratios of similar businesses and risks specific in the CGUs. In the past, there have been two main business combinations (Equiniti and Xafinity) that have been used as CGUs. Operations of these two business combinations have been increasingly consolidated and in the future the Directors will run the business as one CGU. the outcome of the impairment assessment has been that the directors do not consider that the goodwill has been impaired, given that the fair value less costs to sell is greater than the carrying value of goodwill. period on which management approved forecasts are based Growth rate applied beyond approved forecast period Discount rate pre tax 2012 3 years 3% 9.0% 2011 3 years 3% 9-11% In the opinion of the Directors there are no reasonably possible changes to key assumptions which would cause the carrying value to exceed the recoverable amounts. 14 Intangible assets Group Cost Balance at 1 January 2011 acquisition of business additions disposals Balance at 31 december 2011 Balance at 1 January 2012 acquisition of business additions disposals Assets of disposal group classified as held for sale Balance at 31 december 2012 accumulated amortisation Balance at 1 January 2011 amortisation for the year Balance at 31 december 2011 Balance at 1 January 2012 amortisation for the year disposals Assets of disposal group classified as held for sale Balance at 31 december 2012 Net book value Balance at 31 december 2011 Balance at 31 december 2012 Goodwill software development £’000 £’000 390,308 7,345 743 (2,175) 396,221 396,221 1,525 - - (42,907) 354,839 - - - - - - - - 110,188 64 8,353 - 118,605 118,605 - 9,437 (20) (459) 127,563 25,632 11,124 36,756 36,756 13,387 (19) (395) 49,729 other intangible assets £’000 278,097 5,954 - - total £’000 778,593 13,363 9,096 (2,175) 284,051 798,877 284,051 1,225 - - (32,071) 798,877 2,750 9,437 (20) (75,437) 253,205 735,607 42,450 21,595 64,045 64,045 22,170 - (12,078) 68,082 32,719 100,801 100,801 35,557 (19) (12,473) 74,137 123,866 396,221 81,849 220,006 698,076 354,839 77,834 179,068 611,741 Other intangible assets relates to the fair value of assets acquired including customer relationships and order books as well as brands. The amortisation charge is shown as a separate line item in the statement of comprehensive income. Impairment testing Goodwill arose on the acquisitions of the lloyds tsB registrars business from lloyds tsB Group plc, prosearch asset solutions limited, David Venus & Company Limited, ICS Computing Limited, 360 Clinical Limited, NatWest Stockbrokers and the Xafinity Group (Equiniti X2 Group) in prior years. For goodwill on acquisitions in Peter Evans Limited, Peter Evans & Associates Limited and Prism Communication & Management Limited, see note 4. Goodwill is tested annually for impairment, the recoverable amount of cash-generating units for the above periods has been determined in accordance with IAS 36 “Intangible assets”. This is determined by assessing the present value of net cash flows generated by the business over the period over which the management expects to benefit from the acquired business. 58 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 59 notes to the Consolidated finanCial statements for the year ended 31 december 2012 notes to the Consolidated finanCial statements for the year ended 31 december 2012 15 Investments in subsidiaries 15 Investments in subsidiaries (continued) The directors consider the value of the investments to be supported by their underlying assets. The Group has the following investments in subsidiaries: name of controlled entity Country of incorporation Class of shares held principal ownership 2012 activities % 2011 % name of controlled entity Country of incorporation Class of shares held principal ownership 2012 activities % 2011 % direct investments Equiniti Enterprises Limited * Equiniti X2 Enterprises Limited indirect investments * Equiniti X2 Mezz Cleanco Limited * Equiniti X2 Mezzco Limited * Equiniti X2 Cleanco Limited * Equiniti X2 Inv Limited * Equiniti X2 Holdings Limited Equiniti PIK Cleanco Limited Equiniti PIKco Limited Equiniti Cleanco Limited Equiniti Debtco Limited Equiniti Holdings Limited Equiniti Limited Equiniti Financial Services Limited equiniti Jersey limited Prosearch Asset Solutions Limited Equiniti Share Plan Trustees Limited Equiniti David Venus Limited Equiniti ICS Limited equiniti iCs india (private) limited Equiniti 360 Clinical Limited CES 2011 Limited Equiniti Registrars Nominees Limited Trust Research Services Limited Equiniti ISA Nominees Limited Equiniti Nominees Limited Equiniti Savings Nominees Limited Equiniti Corporate Nominees Limited Wealth Nominees Limited LR Nominees Limited Equiniti Shareview Limited SLC Registrars Limited SLC Corporate Services Limited Connaught Secretaries Limited Peter Evans Limited Peter Evans & Associates Limited Prism Communications & Management Limited Prism Cosec Limited David Venus (Health & Safety) Limited * Equiniti X2 Limited * Equiniti X2 Solutions Limited * Equiniti X2 Cap Limited UK UK Ordinary Ordinary Holding company Holding company 100 100 100 100 UK UK UK UK UK UK UK UK UK UK UK UK Channel islands UK UK UK UK india UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK Holding company Ordinary Holding company Ordinary Holding company Ordinary Holding company Ordinary Holding company Ordinary Holding company Ordinary Holding company Ordinary Holding company Ordinary Holding company Ordinary Holding company Ordinary Registrars Ordinary Financial services Ordinary registrars ordinary Asset recovery Ordinary Trustee company Ordinary Ordinary Company secretarial Ordinary Business process outsourcing information technology ordinary enabled services Ordinary Business process outsourcing Non trading Ordinary Non trading Ordinary Non trading Ordinary Non trading Ordinary Non trading Ordinary Non trading Ordinary Non trading Ordinary Non trading Ordinary Non trading Ordinary Non trading Ordinary Non trading Ordinary Non trading Ordinary Non trading Ordinary Ordinary Holding company Ordinary Business process outsourcing Company secretarial Ordinary Non trading Ordinary Non trading Ordinary Holding company Ordinary Holding company Ordinary Holding company Ordinary 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - - - - 100 100 100 100 indirect investments * Equiniti X2 Services Limited * Equiniti Services Limited Paymaster (1836) Limited > Xafinity Consulting Limited > HR Trustees Limited > XPT Limited > Entegria Limited Claybrook Computing (Holdings) Limited Claybrook Computing Limited * Equiniti Software Limited * Equiniti Solutions Limited > Xafinity Pensions Consulting Limited > Xafinity Trustees Limited Hazell Carr Software Services Limited InformationLog.com Limited > Xafinity SIPP Services Limited > Hazell Carr (PN) Services Limited > Xafinity Pension Trustees Limited > Hazell Carr (ES) Services Limited > hazell Carr (sa) services limited > Hazell Carr (SG) Services Limited > hazell Carr (at) services limited UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK Scotland UK UK UK scotland UK scotland Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary ordinary Ordinary ordinary Holding company Holding company Pensions administration Employee benefit consultancy Corporate trustee Corporate trustee Dormant Holding company Computer software consultancy Dormant Pensions administration Pensions consulting Dormant Dormant Dormant Pensions administration Dormant Dormant Dormant dormant Dormant pensions administration 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - > In February 2013 these companies were disposed of as part of the sale of the Xafinity Consulting group. * These companies changed their name in February 2013 when the Xafinity Consulting group was sold. 16 Other financial assets non-current shares held in euroclear plc 2012 £’000 6,122 6,122 2011 £’000 6,122 6,122 The investment in Euroclear plc is recorded at cost as Euroclear plc is unquoted and a fair value cannot be reliably determined. 60 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 61 notes to the Consolidated finanCial statements for the year ended 31 december 2012 notes to the Consolidated finanCial statements for the year ended 31 december 2012 17 Other financial liabilities 18 Deferred income tax assets and liabilities (continued) non-current derivatives finance lease liabilities Current derivatives finance lease liabilities 18 Deferred income tax assets and liabilities recognised liabilities Deferred income tax liabilities are attributable to the following: intangible assets rollover relief in respect of a gain tax liabilities net of tax assets net tax liabilities recognised assets Deferred income tax assets are attributable to the following: property, plant and equipment Employee benefits provisions tax value of loss carry-forwards tax assets net of tax liabilities net tax assets 2012 £’000 - 886 886 3,672 381 4,053 2011 £’000 64 1,289 1,353 1,337 392 1,729 liabilities 2012 £’000 25,811 - 25,811 (17,224) Liabilities 2011 £’000 30,623 3,125 33,748 (15,279) 8,587 18,469 assets 2012 £’000 6,271 1,455 - 9,498 17,224 (17,224) - Assets 2011 £’000 7,283 1,258 77 6,661 15,279 (15,279) - 31 december 2011 property, plant and equipment intangible assets rollover relief in respect of a gain Employee benefits provisions tax value of loss carry-forwards 31 december 2012 property, plant and equipment intangible assets rollover relief in respect of a gain Employee benefits provisions tax value of loss carry-forwards 19 Trade and other receivables trade receivables receivables due from related parties other receivables and prepayments 1 January 2011 £’000 5,069 (30,340) (3,375) 878 157 1,572 (26,039) On acquisitions £’000 - 597 - - - - Recognised in income £’000 2,214 (880) 250 (584) (80) 5,089 Recognised 31 December 2011 £’000 7,283 (30,623) (3,125) 1,258 77 6,661 in equity £’000 - - - 964 - - 597 6,009 964 (18,469) 1 January acquisitions / disposals £’000 (131) 2,723 2,875 - - - 2012 £’000 7,283 (30,623) (3,125) 1,258 77 6,661 recognised in income £’000 (881) 2,089 250 (387) (77) 2,837 recognised 31 december 2012 £’000 6,271 (25,811) - 1,455 - 9,498 in equity £’000 - - - 584 - - (18,469) 5,467 3,831 584 (8,587) 2012 £’000 24,341 390 31,113 55,844 2011 £’000 28,847 446 41,626 70,919 At 31 December 2012 trade receivables are shown net of an allowance for doubtful debts of £647,000 (2011: £621,000). The impairment loss recognised in the year was £469,000 (2011: £169,000) Trade and other receivables of £9,954,000 have been transferred as held for sale (see note 21). Deferred income tax assets amounting to £11,714,000 (2011: £13,761,000) arising on temporary timing differences of £50,929,000 (2011: £55,044,000) in respect of unrecognised deferred tax assets have not been recognised as their future economic benefit is uncertain. 20 Cash and cash equivalents Cash and cash equivalents per statement of financial position Cash and cash equivalents per statement of cash flows 2012 £’000 57,818 57,818 2011 £’000 46,845 46,845 The Group holds certain balances with banks in a number of segregated accounts. These balances are appropriately not included in the Group’s consolidated balance sheet. The number of accounts and balances held vary significantly throughout the year. Cash and cash equivalents of £11,636,000 have been transferred as held for sale (see note 21) 62 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 63 notes to the Consolidated finanCial statements for the year ended 31 december 2012 notes to the Consolidated finanCial statements for the year ended 31 december 2012 21 Non current assets held for sale and discontinued operations 22 Interest-bearing loans and borrowings The assets and liabilities related to Xafinity Consulting group of businesses have been presented as held for sale following approval of the Group’s management and shareholders in November 2012 to sell Xafinity Consulting in the UK. The sale completed in February 2013 following regulatory approval. Group Operating cash flows Investing cash flows Financing cash flows Total cash flows a) Assets of disposal group classified as held for sale property, plant and equipment Goodwill intangible assets other current assets Cash and cash equivalents total 2012 £’000 8,955 (631) (13) 8,311 2012 £’000 335 43,048 20,632 9,954 11,636 85,605 2011 £’000 8,799 (358) (410) 8,031 2011 £’000 - - - - - - Included in the figures above is £141,000 in goodwill and £575,000 in intangible assets relating Xafinity SIPP Services Limited’s acquisition of Hazell Carr (AT) Services Limited during 2012. b) Liabilities of disposal group classified as held for sale provisions deferred income tax liabilities Current income tax liabilities trade and other payables total 2012 £’000 484 5,908 1,889 5,427 13,708 2011 £’000 - - - - - Analysis of the result of discontinued operations, and the result recognised on the re-measurement of assets or disposal group is as follows: revenue expenses Profit before tax of discontinued operations tax Profit after tax of discontinued operations Profit for the year from discontinued operations 2012 £’000 43,007 (29,965) 13,034 (3,322) 9,712 2011 £’000 39,990 (28,393) 11,213 (2,406) 8,807 9,712 8,807 non-current liabilities Secured bank loans Unamortised cost of raising finance Shares classified as debt non secured loan from related party non secured loan 2012 £’000 2011 £’000 619,586 (5,976) 174,909 63,238 1,753 646,791 (12,806) 161,952 44,777 1,621 853,510 842,335 Costs of raising finance are being amortised over a period between 2 and 8 years. In the year £3,757,000 (2011: £7,518,000) has been recognised in finance expenses - amortised fees, in note 10. Current liabilities Secured bank loans Unamortised cost of raising finance non secured loan from related party terms and debt repayment schedule Equiniti Enterprises bank loan Xafinity Investments bank loan Equiniti Enterprises payment in kind (“PIK”) facility Shares classified as debt Non secured loan from related party Non secured loan 23 Trade and other payables trade payables accruals and deferred income other payables 2012 £’000 32,861 (3,415) - 29,446 2011 £’000 7,431 (342) 13,753 20,842 amount £’000 Currency year of nominal maturity interest rate 2015-2017 Sterling Libor + 3.2% 2013-2017 Sterling 5.25% - 8.5% 2017 Sterling Libor + 9.5% 8.0% Sterling - 8.0% 2018 - 2020 Sterling 2020 8.0% Sterling 416,480 113,688 122,279 174,909 63,238 1,753 892,347 2012 £’000 3,620 30,365 4,981 38,966 2011 £’000 5,500 22,372 10,923 38,795 Other current liabilities of £5,427,000 have been transferred as held for sale (see note 21). 64 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 65 notes to the Consolidated finanCial statements for the year ended 31 december 2012 notes to the Consolidated finanCial statements for the year ended 31 december 2012 24 Employee benefits 24 Employee benefits (continued) Employee co-investment plan Prior to October 2007 all employees in Equiniti Enterprises Limited had the opportunity to purchase units under the co-investment plan. A unit being a notional unit share equal in proportion to the ordinary share and preference shares held by Advent International Corporation. Defined contribution plans The Group operates a number of defined contribution pension plans. The total expense relating to these plans in the year was £5,128,000 (2011: £4,860,000). the units will only vest on the occurrence of a return of capital to the entire business and the value of each unit will be determined in relation to the value of the ordinary shares and preference shares at that time. The proportion of ordinary shares and preference shares is 5% and 95% respectively. Unpaid dividends on preference shares accrue at 8% per annum and compounded annually. a unit shall lapse on the earlier of the tenth anniversary of the scheme, an exit, the cessation of a persons employment, a participants bankruptcy or on notice of a voluntary winding up of the Company. Unless there has been an occurrence of a return of capital and the value of a unit has been determined to have increased, the repayment will be the grant price. Defined benefit plan - Summary of schemes equiniti iCs limited paymaster (1836) limited Total of defined benefit plans as at 31 December 2012 £’000 1,099 5,169 6,268 2011 £’000 1,648 2,330 3,978 as at 1 January repayments to participants at the grant price as at 31 december no of units 2012 in thousands 451 (23) 428 Carrying amount 2012 £’000 451 (23) 428 No of units 2011 In thousands 453 (2) Carrying amount 2011 £’000 453 (2) 451 451 at the balance sheet date the units have been valued at £1 which, in the opinion of the directors, is the higher of the subscription amount and the fair value of the units. management share scheme A number of the Group’s senior management are entitled to subscribe for a combination of B, C, D and E ordinary shares. Since the inception of the scheme a total of 250,910 B ordinary shares have been issued at a price of £1.43, 15,738 C ordinary shares at price of £3.33, 144,943 D ordinary shares at a price of £3.33 and £1.00 and 155,005 E ordinary shares at a price of £3.33. In total at 31 December 2012 566,596 shares had been issued for a consideration of £1,271,000. The terms of the investment define “Good” and “Bad” leavers. A Bad leaver is an employee leaving the Group by dismissal. A Good leaver receives the value of the market value or subscription price. During the year 58,070 E ordinary shares (2011: nil), 8,598 D ordinary shares (2011: 6,879), 926 C ordinary shares (2011: 689) and nil B ordinary shares (2011: 15,555) were disposed of by leavers at the subscription amount of £225,000 (2011: £47,000), and acquired by Appleby Trust Jersey Limited. This company holds shares temporarily pending their purchase by authorised senior management. At 31 december 2012 the appleby trust held approximately 56,000 d ordinary shares and 58,000 e ordinary shares at a consideration of £380,000. During the year no shares were acquired (2011: 59,500) by senior management, for a consideration of £nil (2011: £59,500), from shares held by the Appleby Trust. at the balance sheet date all shares were carried at an amount which, in the opinion of the directors, is the higher of the subscription amount and the fair value of the shares. the charge relating to the arrangement in the year and the prior year is not material and as such no charge has been recognised in the period, nor the prior year. Defined benefit plan - Equiniti ICS Limited The Group operates a defined benefit pension plan in the UK in its subsidiary Equiniti ICS Limited. A full actuarial valuation was carried out at 30 November 2009 and updated to 31 December 2012 by a qualified independent actuary. present value of obligations (funded) fair value of plan assets Recognised liability for defined benefit obligations plan assets The weighted average asset allocations at year end were as follows: Equities Corporate bonds Cash actual return on plan assets 2012 £’000 (8,684) 7,585 (1,099) 2011 £’000 (8,371) 6,723 (1,648) 2012 85% 8% 7% 100% 2012 £’000 746 2011 85% 9% 6% 100% 2011 £’000 (133) to develop the expected long term rate of return on assets assumption, the Company considered the current level of expected returns on risk free investments (primarily government bonds), the historical level of the risk premium associated with other asset classes in which the portfolio is invested and the expectations of future returns of each asset class. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long term rate of return on assets assumption for the portfolio. This resulted in the selection of a 5.87% assumption for the overall expected rate of return on assets. 66 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 67 notes to the Consolidated finanCial statements for the year ended 31 december 2012 24 Employee benefits (continued) Movement in present value of defined benefit obligation Defined benefit obligation at 1 January Current service cost interest cost plan participants’ contributions actuarial (gain) / loss Benefits paid Defined benefit obligation at 31 December movement in fair value of plan assets fair value of plan assets at 1 January expected return on plan assets actuarial gain / (loss) employer contribution member contributions Benefits paid fair value of plan assets at 31 december expense recognised in statement of comprehensive income Current service cost interest cost expected return on plan assets 2012 £’000 8,371 93 398 56 (98) (136) 8,684 2012 £’000 6,723 398 348 196 56 (136) 7,585 2012 £’000 93 398 (398) 93 2011 £’000 7,425 81 402 59 503 (99) 8,371 2011 £’000 6,700 473 (606) 196 59 (99) 6,723 2011 £’000 81 402 (473) 10 The current service cost is recognised in administrative expenses in the statement of comprehensive income. Interest costs and the expected return on plan assets are recognised in other finance charges in the statement of comprehensive income. actuarial gains and losses recognised in other comprehensive income Cumulative loss at beginning of the year actuarial gains / (losses) recognised in other comprehensive income Cumulative loss at end of the year 2012 £’000 (3,046) 446 (2,600) 2011 £’000 (1,937) (1,109) (3,046) notes to the Consolidated finanCial statements for the year ended 31 december 2012 24 Employee benefits (continued) Weighted average assumptions used to determine benefit obligations at: Discount rate Rate of compensation increase Rate of increase in payment of currently accruing pensions (Post 6.4.06) Rate of increase in payment of currently accruing pensions (Pre 6.4.06) Rate of increase in pensions in deferment Inflation Weighted average life expectancy for mortality tables used to determine benefit obligations at 31 December 2012: 2012 2011 4.60% 3.90% 2.10% 2.90% 2.20% 2.90% 4.75% 4.00% 2.50% 3.00% 3.00% 3.00% male 86.5 88.4 female 89.1 90.9 Member age 65 (current life expectancy) Member age 45 (life expectancy at 65) five year history period ended Benefit obligation at end of year fair value of plan assets at end of year Deficit Experience gains / (losses) on scheme assets: - amount (£’000) - % of scheme assets Experience (losses) / gains on scheme liabilities: - amount (£’000) - % of scheme liabilities Contributions december december 2011 £’000 8,371 6,723 2012 £’000 8,684 7,585 december 2010 £’000 7,425 6,700 december 2009 £’000 7,026 5,763 (1,099) (1,648) (725) (1,263) march 2009 £’000 5,545 4,174 (1,371) 348 5% (606) (9)% 353 5% 1,334 23% (1,753) (42)% - 0% (5) 0% 465 6% - 0% - 0% Equiniti ICS Limited expects to contribute £201,000 to its pension plan in 2013. Defined benefit plan - Paymaster (1836) Limited The Group operates a defined benefit pension plan in the UK in its subsidiary Paymaster (1836) Limited. A full actuarial valuation was carried out at 6 April 2010 and updated to 31 December 2012 by a qualified independent actuary. present value of obligations fair value of plan assets Recognised liability for defined benefit obligations 2012 £’000 (35,148) 29,979 2011 £’000 (30,541) 28,211 (5,169) (2,330) 68 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 69 notes to the Consolidated finanCial statements for the year ended 31 december 2012 notes to the Consolidated finanCial statements for the year ended 31 december 2012 24 Employee benefits (continued) plan assets The weighted average asset allocations at year end were as follows: Equities Corporate bonds Cash actual return on plan assets 2012 63% 26% 11% 100% 2012 £’000 1,693 2011 60% 29% 11% 100% 2011 £’000 176 24 Employee benefits (continued) expense recognised in statement of comprehensive income Current service cost interest cost expected return on plan assets 2012 £’000 783 1,521 (1,359) 945 2011 £’000 855 1,509 (1,661) 703 The current service cost is recognised within operating costs in the statement of comprehensive income. Interest costs and the expected return on plan assets are recognised in other finance charges in the statement of comprehensive income. actuarial gains and losses recognised in other comprehensive income to develop the expected long term rate of return on assets assumption, the Group considered the current level of expected returns on risk free investments (primarily government bonds), the historical level of the risk premium associated with other asset classes in which the portfolio is invested and the expectations of future returns of each asset class. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long term rate of return on assets assumption for the portfolio. At 31 December 2012 the equity out performance allowance has remained the same as the previous year at 3.25%. This reflects the fact that gilt yields are at record lows, partly due to the effects of quantitative easing inflating gilt prices. As the long term outlook for equities will not be so effected it is believed that an increased allowance for extra return is justified and 3.25% is such a reasonable allowance. This has resulted in the selection of a 4.69% (2011: 4.81%) assumption for the overall expected rate of return on assets. Movement in present value of defined benefit obligation Defined benefit obligation at 1 January Current service cost interest cost plan participants’ contributions actuarial loss Benefits paid Change in assumptions, actuarial loss Defined benefit obligation at 31 December movement in fair value of plan assets fair value of plan assets at 1 January expected return on plan assets actuarial gain / (loss) employer contribution members’ contributions Benefits paid fair value of plan assets at 31 december 2012 £’000 30,541 783 1,521 55 1,447 (1,073) 1,874 35,148 2012 £’000 28,211 1,359 334 1,093 55 (1,073) 29,979 2011 £’000 27,826 855 1,509 60 909 (972) 354 30,541 2011 £’000 27,784 1,661 (1,484) 1,162 60 (972) 28,211 Cumulative loss at the beginning of the year actuarial loss recognised in other comprehensive income Cumulative loss at the end of the year Weighted average assumptions used to determine benefit obligations at: Discount rate Rate of compensation increase Rate of increase in payment of currently accruing pensions Rate of increase in pensions in deferment (Pre 6.4.09 service) Rate of increase in pensions in deferment (Post 6.4.09 service) Inflation assumption 2012 £’000 (3,241) (2,987) (6,228) 2012 4.60% 1.75% 2.90% 2.50% 2.90% 2.90% 2011 £’000 (494) (2,747) (3,241) 2011 5.00% 1.75% 3.00% 2.30% 3.00% 3.00% Weighted average life expectancy for mortality tables (PMA92, PFA92, Medium Cohort) used to determine benefit obligations at 31 December 2012: Member age 60 (current life expectancy) Member age 45 (life expectancy at 65) year ended Benefit obligation at end of year fair value of plan assets at end of year Deficit Experience gains / (losses) on scheme assets: - amount (£’000) - % of scheme assets Experience (losses) / gains on scheme liabilities: - amount (£’000) - % of scheme liabilities Contributions Paymaster (1836) Limited expects to contribute £1,100,000 to its pension plan in 2013. male 88.7 90.8 female 89.8 91.9 2012 £’000 (35,148) 29,979 (5,169) 2011 £’000 (30,541) 28,211 (2,330) 2010 £’000 (27,826) 27,784 (42) 334 1% (1,484) (5)% (1,447) (4)% (909) (3)% 890 3% 63 0% 70 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 71 notes to the Consolidated finanCial statements for the year ended 31 december 2012 notes to the Consolidated finanCial statements for the year ended 31 december 2012 25 Provisions for other liabilities and charges Balance at 1 January 2012 provisions made during the year provisions used during the year provisions reversed during the year amounts arising from acquisitions unwinding of discounted amount Liabilities of disposal group classified as held for sale (see note 21) Balance at 31 december 2012 non-current Current Contingent consideration £’000 2,983 - (100) - 1,788 398 - other provisions £’000 8,407 1,581 (14) (2,391) - - (484) total provisions £’000 11,390 1,581 (114) (2,391) 1,788 398 (484) 5,069 7,099 12,168 2,559 2,510 5,069 6,228 871 7,099 8,787 3,381 12,168 A provision for contingent consideration of £5,069,000 (2011: £2,983,000) relates to various requirements to be met following the Group’s acquisitions. The minimum value of these provisions could be £nil up to a maximum of £5,069,000. These were discounted at an appropriate discount rate at the time of the acquisitions, 9%, and are provided within provisions due to their uncertainty. Management regularly reconsider the appropriateness of the discount rate used and update when appropriate. These are expected to be utilised over periods up to 2015. A provision of £871,000 has been made against exceptional irrecoverable costs incurred on a complex long term contract. This is expected to be utilised in 2013. other provisions relate to constructive compliance obligations in existence on the acquisition of the ltsB registrars business in 2007 for £2,500,000 (2011: £2,746,000), provisions for dilapidations on this and subsequent acquisitions of £3,059,000 (2011: £5,300,000). A provision of £669,000 relates to the remaining potential balances payable on an acquisition in 2010. This is expect to be finalised by 2014. 26 Share capital in thousands of shares on issue at 1 January – fully paid on issue at 31 december – fully paid allotted, called up and fully paid shares of £1 each ordinary shares 2012 5,000 Ordinary shares 2011 5,000 5,000 5,000 ordinary shares 2012 £’000 share premium 2012 £’000 5,000 5,000 3,495 3,495 total 2012 £’000 8,495 8,495 26 Share capital (continued) Share capital comprises A, B, C, D and E ordinary share of £1 each. The A ordinary shares are primarily held by the holding company. The B, C, D and E shares are primarily held by senior management. The B, C, D and E shares are entitled to share in the proceeds of a sale or a listing of the Group. All shares are entitled to receive dividends from profits available for distribution pro rata to the nominal value of each share. Each share has equal voting rights. 27 Financial instruments Credit risk The maximum exposure to credit risk at the reporting date was: trade and other receivables Cash and cash equivalents Credit risk mitigation note 19 20 2012 £’000 55,844 57,818 113,662 2011 £’000 70,919 46,845 117,764 Trade and other receivables are due from primarily FTSE listed companies and major UK public bodies both of which historically have few occurrences of defaults in the past. For cash, cash equivalents and derivative financial instruments, only banks and financial institutions with a minimum rating of A are accepted. The ageing of trade receivables at the reporting date was: not past due past due 0-30 days past due 31-90 days past due more than 90 days 2012 £’000 15,569 5,576 1,741 1,455 24,341 2011 £’000 20,997 5,259 1,834 1,378 29,468 Trade receivables not past due of £17,616,000 (2011: £20,997,000) are all existing customers with no defaults in the past. Based on historic performance of these contracts, the Group has made an impairment allowance of £647,000 (2011: £621,000) in respect of trade receivables. Where impairment allowances are made these are for the full value of the impaired debt. Group impairment losses Balance at 1 January new provisions made in year release against receivables written off provisions no longer required Transfer to disposal group classified as held for sale Balance at 31 december 2012 £’000 621 469 (159) - (284) 647 2011 £’000 741 169 (146) (143) - 621 72 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 73 notes to the Consolidated finanCial statements for the year ended 31 december 2012 27 Financial instruments (continued) Liquidity risk notes to the Consolidated finanCial statements for the year ended 31 december 2012 27 Financial instruments (continued) The Group’s policy is to maintain other borrowings at fixed rates to fix the amount of future interest cash flows. The maximum exposure to liquidity risk at the reporting date was: Carrying Amount Interest rate risk is managed across the Group’s companies by monitoring its interest linked revenues. trade and other payables Employee benefits Other financial liabilities derivatives Secured bank loans Unamortised cost of raising finance Shares classified as debt non secured loan from related party non secured loan note 23 24 17 17 22 22 22 22 22 2012 £’000 38,966 428 1,267 3,672 652,447 (9,391) 174,909 63,238 1,753 2011 £’000 38,795 451 1,681 1,401 654,222 (13,148) 161,952 58,530 1,621 927,289 905,505 All trade and other payables are expected to be paid in 6 months or less. Employee benefits become repayable when the units lapse, as described in note 24. The contractual cash flows including interest payments for the interest-bearing loans and borrowings and derivatives are shown in the table in this note 27, under interest rate risk below. Liquidity risk mitigation The Group regularly updates forecasts for cash flow and covenants to ensure it has sufficient funding available. The Group also has revolving credit facilities of £12.6m available. Capital risk the Group’s objectives when managing capital is to maximise shareholder value whilst safeguarding the Group’s ability to continue as a going concern. Total capital is calculated as total equity as shown in the balance sheet, plus net debt. Net debt is calculated as the total of interest bearing loans and borrowings as shown in the balance sheet, less cash and cash equivalents. management of capital equity interest-bearing loans and borrowings Cash and cash equivalents Interest rate risk 2012 £’000 (128,932) 882,956 2011 £’000 (105,812) 863,177 696,206 710,520 Interest bearing assets comprise cash and bank deposits, all of which earn interest at a variable rate. The interest rates on the bank loans are at market rates and the Group’s policy is to keep these loans within defined limits to help mitigate the risk that could arise from a significant change in interest rates. The Group maintains a policy of fixing bank interest rates for the medium term. During the year a minimum of two thirds of the Group’s bank debt was covered by fixed interest rates for varying periods up to three years. The balance of bank debt interest is at current market rates. The directors monitor the overall level of borrowings and interest costs to limit any adverse effects on financial performance of the group. Effective interest rates and repricing analysis The following are the contractual maturities of interest bearing financial liabilities including interest payments; 31 december 2011 Group Amount in £’000’s Effective interest rate % Carrying amount 0-1 years 1-2 years 2-5 years 5 years and over Total contracted cash flows 31 december 2012 Group Amount in £’000’s Effective interest rate % Carrying amount 0-1 years 1-2 years 2-5 years 5 years and over * Total contracted cash flows Equiniti Equiniti enterprises Enterprises PIK loan Xafinity investments secured bank loan 5.25% - 8.5% 120,014 (17,232) (35,018) (31,288) (94,032) secured bank loan 4.0% 423,724 (24,687) (37,604) (338,526) (80,835) 10.0% 110,484 - - - (199,269) Shares classified as debt 8.0% 161,952 - - - (249,873) Total 816,174 (41,919) (72,622) (369,814) (624,009) (177,570) (481,652) (199,269) (249,873) (1,108,364) Equiniti Equiniti enterprises Enterprises PIK loan Xafinity investments secured bank loan 5.25% - 8.5% 113,688 (15,474) (14,631) (130,198) - secured bank loan 4.0% 416,480 (39,396) (24,530) (392,038) - 10.0% 122,279 - - (196,091) - Shares classified as debt 8.0% 174,909 - - - (249,873) Total 827,356 (54,870) (39,161) (718,327) (249,873) (160,303) (455,964) (196,091) (249,873) (1,062,231) * The shares classified as debt are redeemable on a change of control of the business but do not confer any rights of redemption no any right to vote. They have the right to a fixed dividend of 8%. Unpaid dividends accrue and are compounded annually. The Equiniti Enterprises PIK loan is repayable in 2017 and has an interest rate of Libor plus 9.5%. Interest accrues and is compounded annually. In addition non current non secured loans with a carrying value of £50,134,000 (2011: £46,398,000) including a loan to related parties of £48,381,000 (2011: £44,777,000) with an interest rate of 8% are repayable on exit with a contracted cash flow of £77,922,000 (2011: £73,631,000). Current non secured loans due to related parties of £14,857,000 (2011: £13,753,000) with an interest rate of 8% are repayable on demand and have a contracted cash flow of £23,576,000 (2011: £13,753,000). The following tables indicates the periods in which the cash flows associated with derivatives that are cash flow hedges are expected to occur and are expected to impact the profit and loss; 74 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 75 notes to the Consolidated finanCial statements for the year ended 31 december 2012 notes to the Consolidated finanCial statements for the year ended 31 december 2012 27 Financial instruments (continued) 28 Operating leases (continued) 31 december 2011 amount in £’000’s Carrying amount Expected cash flows 6 months or less 6-12 months 1-2 years 2-5 years Total contracted cash flows 31 december 2012 amount in £’000’s Carrying amount Expected cash flows 6 months or less 6-12 months 1-2 years 2-5 years Total contracted cash flows interest rate swaps assets 1,107 1,107 353 468 286 - 1,107 liabilities (2,508) (2,577) (1,013) (664) (230) (670) (2,577) interest rate swaps assets 78 78 78 - - - 78 liabilities (3,750) (3,783) (947) (552) (996) (1,288) (3,783) total (1,401) (1,470) (660) (196) 56 (670) (1,470) total (3,672) (3,705) (869) (552) (996) (1,288) (3,705) Interest rate liabilities relate to two separate swaps. The first hedges monthly interest payable on secured bank loans based on Libor against a fixed rate, the second hedges monthly fee income earned on funds under the administration of the group on bank base rate against a fixed rate which runs through to October 2016. Interest rate assets and liabilities also relate to a swap in place that hedges monthly interest payable on secured bank loans based on Libor against a fixed rate, which runs through to March 2013. sensitivity analysis At the balance sheet date it is estimated that an increase of one percentage point in interest rates would increase the finance costs for the Group by an estimated £1.4m, £1.1m of which is payable in kind on the PIK facility per annum and give rise to an estimated increase in revenue across the Group of £0.5m, yielding a net reduction to equity of £0.7m after tax. The sensitivity analysis above is calculated after taking account of the effect of the interest rate swaps the Group holds. fair values There are no material differences between the carrying value of assets and liabilities and their fair value. The only financial instrument measured at fair value is the interest rate swap. 28 Operating leases Future aggregate minimum lease payments relate primarily to the Group’s premises and are payable as follows: less than one year Between one and five years More than five years 2012 £’000 5,411 13,923 10,001 29,335 2011 £’000 5,421 15,831 11,596 32,848 During the year £6,012,000 (2011: £5,314,000) was recognised as an expense in the statement of comprehensive income in respect of operating leases. Included in operating leases are £719,000 (2011: £234,000) due within one year and £546,000 (2011: £1,738,000) due between two and five years which relates to Xafinity Consulting, the business that the Group sold in February 2013. 29 Related party transactions During the year interest of £4,744,000 (2011: £4,243,000) accrued on a loan bearing interest at 8% from Equiniti (Luxembourg) Sarl, leaving a balance outstanding at the year end of £63,762,000 (2011: £59,018,000). During the year interest of £93,000 (2011: £84,000) accrued on a loan bearing interest at 8% from key management personnel, leaving a balance outstanding at the year end of £1,228,000 (2011: £1,135,000). Transactions with key management personnel The compensation of key management personnel (including the directors) is as follows: Key management emoluments including social security costs Company contributions to money purchase pension plans Compensation for loss of office share based payments 2012 £’000 2,599 99 293 - 2,991 2011 £’000 2,480 103 - - 2,583 Key management are the directors of the Group (includes non-executives), as well as the senior non-statutory director of each of the major subsidiaries, who have authority and responsibility to control, direct or plan the major activities within the Group. As detailed in note 24, key management are entitled to subscribe for a combination of B, C, D and E ordinary shares. The value of shares held is as follows; opening balance Purchases by key management Sales by key management Closing balance 2012 £’000 583 - (193) 390 2011 £’000 562 43 (22) 583 advent international plc See page 30 for information about the ultimate controlling party, Advent International plc. £90,000 (2011: £82,000) has been paid to various companies of the ultimate parent company for services received. 30 Ultimate parent company and controlling party The Company is a wholly owned subsidiary of Equiniti (Luxemburg) Sarl, a Company incorporated in Luxemburg. The ultimate controlling party relationship lies with the funds managed by Advent International Corporation, a group incorporated in the United States of America. 76 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 77 notes to the Consolidated finanCial statements for the year ended 31 december 2012 31 Post balance sheet events Subsequent to the balance sheet date, the Group disposed of the Xafinity Consulting division in February 2013 following regulatory approval. 32 Reconciliation of profit / (loss) to cash generated from operations Continuing operations Adjustments for: loss for the year depreciation and amortisation Share of profit of associates finance income finance costs income tax credit Changes in working capital decrease / (increase) in trade and other receivables increase in trade and other payables decrease in provisions Decrease in employee benefits Group relief received discontinued operations Adjustments for: Profit for the year depreciation and amortisation finance income finance costs income tax charge Changes in working capital increase in trade and other receivables increase in trade and other payables decrease in provisions tax paid Cash generated from operations 2012 £’000 2011 £’000 (28,133) 36,537 (288) (973) 67,882 (7,048) (37,615) 35,599 - (1,180) 75,982 (8,813) 6,073 4,647 (687) (274) (13,034) 5,805 (3,759) (647) 5,912 83,648 1,739 54,077 2012 £’000 2011 £’000 9,712 1,357 (5) 13 3,322 8,807 1,275 (1) 385 2,406 (191) 785 (222) (5,816) (192) 164 (1,494) (2,551) 8,955 8,799 92,603 62,876 independent auditors’ report to the memBers of equiniti Group limited We have audited the financial statements of Equiniti Group Limited for the period ended 31 December 2012 which comprise the Company statement of financial position, the Company statement of changes in equity, the Company statement of cash flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. Respective responsibilities of directors and auditors as explained more fully in the statement of directors’ responsibilities set out on page 37, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. this report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, 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. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: • • • give a true and fair view of the state of the Company’s affairs as at 31 December 2012 and of its result and cash flows for the year then ended; have been properly prepared in accordance with ifrss as adopted by the european union; and have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial period for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or the financial statements are not in agreement with the accounting records and returns; or • • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Keith Evans (Senior Statutory Auditor) for and on behalf of pricewaterhouseCoopers llp Chartered accountants and statutory auditors reading 8 may 2013 78 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 79 Company statement of finanCial position as at 31 december 2012 Company statement of ChanGes in equity for the year ended 31 december 2012 assets non-current assets investments in subsidiaries Other financial assets Current assets tax receivable trade and other receivables Cash and cash equivalents Total assets equity and liabilities equity share capital share premium Retained earnings Total equity liabilities Current liabilities Group relief payable Other financial liabilities Total liabilities Total equity and liabilities note 2012 £’000 2011 £’000 Balance at 1 January 2011 share capital £’000 5,000 share premium £’000 3,495 retained earnings £’000 121 total equity £’000 8,616 Profit after tax and total comprehensive income for the year - - 230 230 Balance at 31 december 2011 5,000 3,495 351 8,846 Balance at 1 January 2012 5,000 3,495 351 8,846 loss after tax and total comprehensive income for the year - - (351) (351) Balance at 31 december 2012 5,000 3,495 - 8,495 8 9 11 12 13 13 10 8,495 7,375 15,870 8,495 5,560 14,055 75 256 4,198 4,529 - - 5,920 5,920 20,399 19,975 5,000 3,495 - 8,495 5,000 3,495 351 8,846 - 11,904 11,904 95 11,034 11,129 11,904 11,129 20,399 19,975 The notes on pages 83 to 88 form part of these financial statements. These financial statements were approved by the board of directors on 29 April 2013 and were signed on its behalf by: m hindley director 80 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 81 Company statement of Cash floWs for the year ended 31 december 2012 notes to the Company finanCial statements for the year ended 31 december 2012 note 2012 £’000 2011 £’000 1 Accounting policies Cash flows from operating activities (Loss) / profit for the year Adjustments for: finance income financial expense income tax expense increase in trade and other receivables Group relief paid Net cash outflow from operating activities Cash flows from investing activities interest received Net cash inflow from investing activities Cash flows from financing activities loans from related parties loans to related parties Net cash outflow from financing activities net decrease in cash and cash equivalents Cash and cash equivalents at 1 January (351) 230 (465) 770 (75) (121) (256) (377) (95) (472) 71 71 (359) - 129 - - - - - 75 75 99 (1,420) - (2,451) (1,321) (2,451) (1,722) 5,920 (2,376) 8,296 Cash and cash equivalents at 31 december 12 4,198 5,920 Equiniti Group Limited (the “Company”) is a limited company incorporated and domiciled in the UK. The principal activity of the Company is that of a holding company. The registered office is Sutherland House, Russell Way, Crawley, West Sussex, RH10 1UH. These financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU), IFRIC Interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared under the going concern basis. The preparation of financial statements in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 18. The Company has taken advantage of the exemption provided under section 408 of the Companies Act 2006 not to publish its individual statement of comprehensive income and related notes. The loss for the year was £351,000 (2011: profit of £230,000). Measurement convention The financial statements are prepared on the historical cost basis. Investments in subsidiaries Investments in subsidiaries are carried at cost less any provisions for impairment. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Company’s cash management are included as a component of cash and cash equivalents for the purpose only of the statement of financial position and the statement of cash flows. Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Net finance costs Net finance costs comprise interest payable, interest receivable on own funds, dividend income and foreign exchange gains and losses that are recognised in the statement of comprehensive income. Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest method. Dividend income is recognised in the statement of comprehensive income on the date the entity’s right to receive payments is established. Taxation Tax on the profit for the year comprises current and deferred tax. Tax is recognised in the statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the statement of financial position date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the statement of financial position date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. new standards and interpretations not yet adopted a) new and amended standards adopted by the company There are no IFRSs or IFRIC interpretations that are effective for the first time for the financial year beginning on or after 1 January 2012 that would be expected to have a material impact on the company. 82 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 83 notes to the Company finanCial statements for the year ended 31 december 2012 notes to the Company finanCial statements for the year ended 31 december 2012 1 Accounting policies (continued) b) new standards and interpretations not yet adopted a number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2012, and have not been applied in preparing these financial statements. None of these is expected to have a significant effect on the financial statements of the company. There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the company. 2 Financial risk management Financial risk management The Company has exposure to the following risks from its use of financial instruments: - credit risk - liquidity risk - market risk Risk management policies are established for the Equiniti Group Limited group of companies (the “Group”) including Equiniti Group Limited and the Group audit Committee oversees how management monitors compliance with these policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. The Group Audit Committee is assisted in its oversight role by Internal Audit and Compliance Monitoring. Internal Audit and Compliance Monitoring undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee. Credit risk Credit risk is the risk of financial loss to the Company if a customer or counterparty, including brokers, to a financial instrument fails to meet its contractual obligations. Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity is to ensure, as far as possible, that the Company will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions. Market risk Market risk is the risk that changes in market prices such as interest rates, foreign exchange rates and equity prices will effect the Company’s income or the value of its financial instruments. The Company does not engage in holding speculative financial instruments or their derivatives. Further details in relation to financial risk management are contained in note 14 to these financial statements. 3 Capital risk management equiniti Group limited is focused on delivering value for its shareholders whilst ensuring the Company is able to continue effectively as a going concern. Value adding opportunities to grow the business are continually assessed, although strict and careful criteria are applied. 4 Auditors’ remuneration Auditors’ remuneration of £1,250 (2011: £1,250) was borne by a subsidiary company. 5 Staff numbers and costs The Company has no employees other than the directors. Services to the Company are provided by staff employed by other companies within the Group. 6 Directors’ remuneration The costs of the directors are borne by subsidiaries of the Company. There are no costs to the Company for their services. 7 Income tax (credit) / expense recognised in the statement of comprehensive income Current tax (credit) / expense for the Company Group relief (receivable) / payable adjustments for prior years total tax in the statement of comprehensive income reconciliation of effective tax rate (Loss) / profit for the year total tax (credit) / expense (Loss) / profit excluding taxation Tax using the UK corporation tax rate of 24.5% (2011: 26.5%) non-deductible expenses prior year adjustments total tax (credit) / expense 2012 £’000 (75) - (75) 2012 £’000 (351) (75) (426) (104) 29 - (75) 2011 £’000 95 34 129 2011 £’000 230 129 359 95 - 34 129 The standard rate of corporation tax in the UK changed from 26% to 24% with effect from 1 April 2012. Accordingly the Company’s profits for this accounting year are taxed at an effective rate of 24.5%. factors affecting future tax charges During the year, as a result of the changes in the UK corporation tax rate to 24%, which was substantively enacted on 26 March 2012 and was effective from 1 April 2012; and to 23%, which was substantively enacted on 3 July 2012 and will be effective from 1 April 2013, the relevant deferred tax balances have been remeasured. A further reduction to the UK corporation tax rate has been announced. The change proposes to reduce the rate to 22% from 1 April 2014. The change had not been substantively enacted at the balance sheet date and, therefore, is not recognised in these financial statements. 84 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 85 notes to the Company finanCial statements for the year ended 31 december 2012 notes to the Company finanCial statements for the year ended 31 december 2012 8 Investments in subsidiaries The Company has the following investments: Cost and net book value At beginning of year At end of year 2012 £’000 8,495 8,495 2011 £’000 8,495 8,495 The directors consider the value of the investments to be supported by their underlying assets. The Company has the following direct investments in subsidiaries: name of controlled entity Country of incorporation Class of shares held Equiniti Enterprises Limited *Equiniti X2 Enterprises Limited UK UK Ordinary Holding company Ordinary Holding company principal ownership 2012 activities % 100 100 Ownership 2011 % 100 100 12 Cash and cash equivalents Cash and cash equivalents per statement of financial position Cash and cash equivalents per statement of cash flows 13 Share capital and reserves in thousands of shares on issue at beginning of year on issue at 31 december – fully paid A more comprehensive listing of indirectly owned subsidiaries is provided in the consolidated financial statements of Equiniti Group Limited. * The company changed its name from Xafinity Enterprises Limited to Equiniti X2 Enterprises Limited following the sale of the Xafinity Consulting business in February 2013. allotted, called up and fully paid shares of £1 each 9 Other financial assets non-current intercompany loan due from related parties 10 Other financial liabilities Current Loans classified as other financial liabilities due to related parties 11 Trade and other receivables other receivables and prepayments 2012 £’000 7,375 7,375 2011 £’000 5,560 5,560 2012 £’000 11,904 11,904 2011 £’000 11,034 11,034 2012 £’000 2011 £’000 256 256 - - 14 Financial instruments Credit risk The maximum exposure to credit risk at the reporting date was: loans and receivables due from related parties trade and other receivables Cash and cash equivalents Credit risk mitigation No amounts were past due, the company holds no collateral as security. For cash and cash equivalents, only banks and financial institutions with a minimum rating of A are accepted. 2012 £’000 4,198 4,198 2011 £’000 5,920 5,920 ordinary shares 2012 ordinary shares 2011 5,000 5,000 5,000 5,000 ordinary shares 2012 £’000 share premium 2012 £’000 5,000 5,000 3,495 3,495 total total 2012 £’000 8,495 8,495 2011 £’000 8,495 8,495 note 9 11 12 Carrying amount 2012 £’000 Carrying amount 2011 £’000 7,375 256 4,198 11,829 5,560 - 5,920 11,480 86 » Equiniti Group annual report 2012 Equiniti Group annual report 2012 « 87 notes to the Company finanCial statements for the year ended 31 december 2012 14 Financial instruments (continued) Liquidity risk The maximum exposure to liquidity risk at the reporting date was: loans from related parties Loans from related parties are repayable on demand. Capital risk Carrying amount 2012 £’000 11,904 Carrying amount 2011 £’000 11,034 11,904 11,034 the Company’s objectives when managing capital is to maximise shareholder value whilst safeguarding the Company’s ability to continue as a going concern. Total capital is calculated as total equity as shown in the balance sheet. management of capital equity 15 Related party transactions Company 2012 £’000 8,495 8,495 2011 £’000 8,846 8,846 An interest bearing loan of £11,000,000 (2011: £11,000,000) accrued interest of £770,000 (2011: £nil) in the year. In the previous year the Company borrowed the funds from Equiniti PIKco Limited and £11,770,000 was outstanding at the year end. During the year group relief of £95,000 (2011: £34,000) was transferred from its subsidiary, Equiniti Limited, which was paid during the year. Further charges of £133,000 were incurred and are outstanding at the year end. During the year interest of £212,000 (2011: £198,000) accrued on a loan made to its subsidiary company, Equiniti Inv Limited (formerly Xafinity Investments Limited). £3,234,000 (2011: £3,022,000) was outstanding at the year end. During the year the Company loaned £1,420,000 (2011: £2,451,000) to its subsidiary company, Equiniti Services Limited (formerly Xafinity Limited). Interest of £182,000 (2011: £86,000) accrued on these loans. £4,139,000 (2011: £2,537,000) was outstanding at the year end. 16 Ultimate parent company and controlling party The Company is a wholly owned subsidiary of Equiniti (Luxemburg) Sarl, a company incorporated in Luxemburg. The ultimate controlling party relationship lies with the funds managed by Advent International Corporation, a group incorporated in the United States of America. 17 Post balance sheet event There have been no events subsequent to the balance sheet date which require disclosure in, or adjustment to, the financial statements. As referred to in the consolidated financial statements, the Equiniti Group disposed of Xafinity Consulting in February 2013. 18 Accounting estimates and judgements There are no accounting policies where the use of assumptions and estimates are determined to be significant to the financial statements. 88 » Equiniti Group annual report 2012 EQUINITI GROUP LIMITED Registered Number: 07090427 HEAD OFFICE 3 Minster Court, Mincing Lane, London EC3R 7DD REGISTERED ADDRESS Sutherland House Russell Way Crawley West Sussex RH10 1UH www.equiniti.com 

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