Equiniti Group Plc
Annual Report 2014

Plain-text annual report

ANNUAL REPORT 2014 HIGHLIGHTS Adjusted revenue £292.3m (2013: £264.4m) Adjusted pre-exceptional EBITDA £70.0m (2013: £67.5m) Free cash flow* £72.5m (2013: £71.0m) * EBITDA less working capital movement (both excluding exceptional items) Free cash flow conversion* 104% (2013: 93%) *Free cash flow pre-exceptional EBITDA 2 CONTINUED PROGRESS AGAINST STRATEGY IMPROVED OPERATIONAL EFFECTIVENESS • Invested £16.9m in our technology platforms and £3.8m in enhancing our infrastructure capacity • Acquired Pancredit Systems and Invigia, the assets of Selftrade, J.P. Morgan’s Corporate Dealing Services business and an additional 11% of MyCSP, taking our holding to 51% • Retained 100% of our FTSE 100 clients, demonstrating the strength of our customer relationships • Launchedsignificantnew technology products; including Compendia mobile for pensions; the PeopleSpace portal, providing anintegratedviewofemployee benefits;andmycustomerfeedback.com, asolutiontoallowbusinessesto improve customer satisfaction and manage their reputations on social media Making complex things simple • Established Equiniti India in Chennai, to strengthen in-house IT development, testing and support, and deliver costsavingswhilebuildingscaleable operations capability • Establishedfivecentresofexcellenceat Group level for operations, technology, project management, HR and marketing, to standardise delivery and achieve greaterefficiencies • Invested in acquired businesses, to build on the Equiniti operating platform and generatenewrevenueopportunities 2014 has been a transformative yearforEquiniti,inwhichwe have successfully enhanced the capabilitiesandscaleoftheexisting businesswhilecontinuingto improveouroperatingefficiency. This has been achieved through a combination of direct investment in the business and strategic acquisitions,thebenefitsofwhich have already started to feed through into revenue. We are very pleasedwiththeprogresswehave made over the course of the year, andwebelievethatourenhanced offeringcombinedwithastrong salespipelineleavesuswellplaced to sustain this momentum.” GuyWakeley,ChiefExecutiveOfficer i M a k n g c o m p e x l ENCOURAGING OUTLOOK Equinitiremainsfocusedongrowing relationshipswithexistingclients,winning newbusinessandusingtechnologyto help organisations respond to challenges inhigh-riskandcomplexenvironments. Wewillcontinuetodomoreforour loyalcustomerbase,whichincludeshalf of the FTSE 100, by investing in talent and technology to diversify the services weofferandstrengthenourpositionin coreandemergingmarkets.Ourdriveto integrateoperationseffectivelywillensure wemaximisethebenefitsforourclients and for the business. We anticipate increased market opportunities for our specialist business processing services, in both the public and private sectors. Legislative changes continue to increase the administrative burden and complexityfororganisations,particularly inthepensions,bankingandfinancial services sectors. Increased sales activity and targeted acquisitions are delivering our strategy of consolidation in our core markets whileunlockingnewopportunities. OuracquisitionofSelftradewillallow us to deliver direct-to-consumer services, including share trading to the 27 million peoplewehavecontactwithonbehalf of our clients. Looking ahead, the sales pipeline, client retention and levels of recurring contracted income remain robust. Themomentumwithinthebusiness continuestoincreaseandweareexcited abouttheopportunitieswesee. Adjusted performance Revenue Pre-exceptional EBITDA Investment Solutions Intelligent Solutions Pensions Solutions Interest Central Total Group 2014 2013 Change% 2014 2013 Change% 94.9 89.6 101.3 6.5 – 100.5 -5.6% 81.5 76.9 5.5 – 9.9% 31.7% 18.2% – 292.3 264.4 10.6% 29.3 16.3 21.7 6.5 (3.8) 70.0 35.1 16.4 12.2 -16.5% -0.6% 77.9% 5.5 18.2% (1.7) 123.5% 67.5 3.7% Reported performance Revenue Pre-exceptional EBITDA Investment Solutions Intelligent Solutions Pensions Solutions Interest Central Total Group 2014 2013† Change% 2014 2013† Change% 94.9 89.6 101.3 6.5 – 107.2 -11.5% 81.5 76.9 9.9% 31.7% 9.1 -28.6% – – 292.3 274.7 6.4% 29.3 16.3 21.7 6.5 (3.8) 70.0 40.3 16.4 12.2 -27.3% -0.6% 77.9% 9.1 -28.6% (1.7) 123.5% 76.3 -8.3% †AdjustedrevenueandEBITDAexcludetheLloydsTSBStockbrokingcontract,whichwasdiscontinuedin 2013,andnormalises2013interestincomefortheimpactofinterestrateswaps.Theadjustmentreduces revenueandpre-exceptionalEBITDAby£10.3millionand£8.8millionrespectivelyfortheyearended31 December 2013. i t h n g s s i m p e l E q u n i t i i A n n u a l R e p o r t 2 0 1 4 3 The Hazell Carr Academy launched in 2012, to partner withclientstohelpmanageremediationinfinancialservices by mobilising more than 1,000 graduates. 4 On20November2007,SirDavidWalker published his “Guidelines for Disclosure and Transparency in Private Equity” (the “Walker Report”). Funds advised by Advent International have a controlling interest in the Company and Equiniti Group Limited is considered a portfolio companyasdefinedbytheWalkerReport.This annual report and accounts has been prepared inthecontextofthoserecommendations. ADVENT INTERNATIONAL Equiniti Group Limited is a company owned by funds managed by Advent International Corporation. Founded in 1984, Advent International is one ofthelargestandmostexperiencedglobal privateequityinvestors.Thefirmhasinvested in 300 private equity transactions in 40 countries and as of September 30, 2014, had €25 billion inassetsundermanagement.Withoffices on four continents, Advent has established a globally integrated team of over 180 investment professionals across North America, Europe,LatinAmericaandAsia.Thefirmfocuses oninvestmentsacrossfivecoresectors,including businessandfinancialservices;healthcare; industrial; retail, consumer and leisure; and technology, media and telecom. After 30 years dedicated to international investing, Adventremainscommittedtopartneringwith management teams to deliver sustained revenue andearningsgrowthforitsportfoliocompanies. James Brocklebank and Haris Kyriakopoulos aretheAdventexecutiveswithoversightof the Equiniti Group and serve as Board Directors. CONTENTS Strategic report Governance 01 BUSINESS OVERVIEW BUSINESS MODEL OUR MARKETS STRATEGY AND OBJECTIVES KEY PERFORMANCE INDICATORS CHAIRMAN’S INTRODUCTION CHIEF EXECUTIVE’S STATEMENT CASE STUDIES OPERATIONAL REVIEW FINANCIAL REVIEW RISKS AND UNCERTAINTIES CORPORATE SOCIAL RESPONSIBILITY 08 10 12 14 18 20 22 24 30 36 41 42 02 BOARD OF DIRECTORS CORPORATE GOVERNANCE STATEMENT DIRECTORS’ REPORT AUDITOR’S REPORT 54 58 66 68 Financial statements 03 FINANCIAL STATEMENTS 71 i M a k n g c o m p e x l i t h n g s s i m p e l E q u n i t i i A n n u a l R e p o r t 2 0 1 4 5 6 i M a k n g c o m p e x l 01 STRATEGIC REPORT BUSINESS OVERVIEW BUSINESS MODEL OUR MARKETS STRATEGY AND OBJECTIVES KEY PERFORMANCE INDICATORS CHAIRMAN’S STATEMENT CHIEF EXECUTIVE’S STATEMENT CASE STUDIES OPERATIONAL REVIEW FINANCIAL REVIEW RISKS AND UNCERTAINTIES CORPORATE RESPONSIBILITY 08 10 12 14 18 20 22 24 30 36 41 42 i t h n g s s i m p e l I S E C T O N 0 1 I S T R A T E G C R E P O R T E q u n i t i i A n n u a l R e p o r t 2 0 1 4 7 BUSINESS OVERVIEW Equiniti keeps things running smoothly for some of the UK’s best-known brands and public sector organisations. We specialise in providing finely-tuned finance and administration services, as well as smart technology solutions, that leave our clients free to get on with growing their businesses. Our services are delivered by over 3,500 employees across 29 locations, enabling us to offer solutions that are flexible, adaptable and scalable. We are acknowledged leaders in the pension, loan administration software, share registration and investment services markets, where our clients across the Group include around 70% of the FTSE 100. OPERATING SEGMENTS Investment Solutions Share registration, payment services, retail investing, dealing and custody technology solutions, employee share plans. Pension Solutions Pension administration, insurance and payment technology and services for 8 million scheme members. Intelligent Solutions Specialist technology and service solutions, targeting complex or regulated processes such as loan servicing and complaints management. 8 i M a k n g c o m p e x l REVENUE £292.3m WE PERFORM 52m LOAN CALCULATIONS PER MONTH WE PAY 20% OF UK PENSIONERS WE PROCESS £90 billion OF PAYMENTS PER YEAR WE INTERACT WITH 27 million CUSTOMERS ON BEHALF OF OUR 1,700 CLIENTS WE HAVE 1,200+ SPECIALIST CONTRACTORS ON ASSIGNMENT WE WORK WITH OVER 50% OF THE FTSE 100 EXPERIENCED TEAM, AVERAGE SERVICE 10 YEARS ACROSS THE EQUINITI GROUP WE SUPPORT 20% OF WORK BASED PENSION SCHEME MEMBERS i t h n g s s i m p e l I S E C T O N 0 1 I B U S N E S S O V E R V E W I E q u n i t i i A n n u a l R e p o r t 2 0 1 4 9 Business model WHAT WE DO Equiniti makes complex things simple We provide sophisticated administration, processing and payments services to clients in sectors ranging from financial services to government. THE VALUE WE ADD Ouractivitiesareoftenmission- critical to our clients but not core to their business models, encouraging them to outsource. They rely on us for highly accurate,flexibleandeffective services, helping them to manage increasing regulation and complexity,andtomeettheir stakeholders’ evolving needs. By combining market-leading technologywithexperienced andspecialistpeople,weassure excellentdeliverytoourclients, and in turn to their customers, whoaretypicallytheiremployees, pensioners, shareholders and consumers. We also have significantexperienceofoperating in regulated environments, helping our clients to meet their regulatory obligations and protect their stakeholders’ interests. The quality of our delivery creates long-termrelationshipswithour clients’ senior decision makers. Wecanthenworkwiththemto identify other issues or non-core activities,wherewecanbenefit their businesses by providing an improved solution. The scale of ouroperationsmeanswecan make investments in technology and people that our clients could not make themselves. Thisallowsustodeliverservices moreefficientlythantheycould in-house, saving them money andgivingthemtheflexibilityto adjust the resources deployed throughout the year. Wehavesignificant experienceofoperatingin regulated environments 10 TECHNOLOGY PEOPLE SUSTAINING OUR ADVANTAGE Uniquely,weownallofthe technology,softwareand infrastructure required to run ourcoreoperations.Our technology platforms give us a distinct competitive advantage. They underpin our service delivery and form a barrier to entry, giventhesubstantialexperience, time and money required to build them. We continually invest in our platforms to add functionality andensuretheykeeppacewith changingregulatoryandfiscal requirements, thus satisfying client needs. to develop our people and offer clear career paths and interesting work,helpingusachievehigh retention rates. Toensureweareasefficientas possible,wehavesignificantly expandedouroffshorecapability in India, strengthening our technology development capabilitiesandprovidinglow- costprocessing.Wewilldevelop this further in 2015. The acquisition of innovative technology platforms remains an important strategic priority. Ourpeoplearealsovital.Their expertiseandexperienceenable us to provide sophisticated, high- margin services that are protected from commoditisation. We look ACQUISITIONS DELIVERING RETURNS Extendingtherangeofservices weprovidetoexistingclientsisa keydriverofourtoplinegrowth. Ourmarketleadershippositions also make us a natural choice for newclients.Multi-yearcontracts and long-term relationships give us very high visibility of future revenues. Ourtechnologyplatforms providesignificantoperational leverage,thatwillallowusto increaseprofitsaswegrow revenue.The business also has attractivecashflowcharacteristics, withhighfreecashflow conversion providing funds to investingrowthandtoreduce our leverage. Ourpeoplearevital.Their expertiseandexperience enable us to provide sophisticated, high-margin services i M a k n g c o m p e x l i t h n g s s i m p e l I S E C T O N 0 1 I B U S N E S S M O D E L E q u n i t i i A n n u a l R e p o r t 2 0 1 4 11 OUR MARKETS Long-term drivers of demand Demand for our products and services is underpinned by a number of powerful trends, which we expect to continue into the long term. These include: GROWING COMPLEXITY INCREASING REGULATION Astheworldbecomes increasinglycomplex, companies and public sector organisations are looking to simplify their operating models by outsourcing functions that are important to them but not core to their businesses. Thiscomplexityis often the result of newregulationand legislation, particularly in sectors such as pensions, banking andfinancialservices. In the drive to improve services for end customers, Governmental bodies are increasing regulation and expandingthenumber of investigations they conduct. This provides uswithopportunities to support remediation activities. Clients are also looking to outsource regulatory aspects of their back officesystems,given thegrowingcostof regulation and the need to upgrade their technology. INCREASING DEMANDS FOR GOOD SERVICE GREATER FINANCIAL PRESSURE Ourclients’end customers–whether they are pensioners, shareholders, employees or consumers – are increasingly demanding about the quality of service theyreceiveandhow our clients handle complaints. They alsowantnewways tointeractwithour clients, such as apps and mobile optimised websites,requiring investment our clients finddifficulttomake themselves. Ourclientsneedto findefficienciesand waystodomorewith less. They can save money by outsourcing toapartnerwith market-leading technology,aflexible resourcing model and the scale to continue investing in it. Structural changes in the pensions sector,alongwith alowinterestrate environment, has created demand forflexibleon-line investment products, as investors take advantage of digital and mobile technology to manage their financialfutures. 1212 Equiniti Data Services carried out 39.7million data searches, tracing 2.28 million people and reuniting them with£600million. OUR MARKETS IN 2014 Equiniti’s markets continued to evolve during 2014. The key developments are summarised below. Investment Solutions Themarketforinitialpublicofferings(“IPOs”) wasveryactive,withmanycompaniestakingthe opportunitytolist.SupportforIPOs,togetherwith ongoing changes to regulation and legislation, continued to create demand for company secretarial services.However,thecorporateactionsmarket wasquieterthanin2013,andwithnolargescale activities, this impacted on our revenues. The doubling of the amount employees can put into HMRC approved sharesave schemes, to £500 per month,willencouragemorepeopletoparticipate andwillgrowthefundswemanageonourclients’ behalf.Themarketinseniorexecutiveshare schemeswaslessbusythanin2013,whenmany executivescashed-inawardstheyhadreceived atlowpricesduringtherecession. TheintroductionoftheRetailDistributionReview hadasignificantimpactontheinvestmentservices market.Withfinancialadvisorsincreasinglyfocused onhigh-net-worthindividuals,manyconsumersare looking to manage their investments themselves, creatingdemandforexecution-onlybrokerage. Changes in pension legislation are also likely to haveanimpact,asindividualswithdrawlumpsums from their funds and look to invest them to provide an income. Intelligent Solutions NewregulationofpaydaylendersbytheFinancial ConductAuthority(“FCA”)wasapositive developmentforus,givenourexperienceof operating in FCA-regulated environments and our growingcustomerbaseofregulatedbusinesses. Supporting remediation activities continues to absorbresources,withthehighlevelofPayment ProtectionInsuranceworkcontinuingforlonger thanwehadexpected.Otherremediationactivity continuestoemerge,wherewearewellplacedto provideourclientswiththesupportandflexibility they need. Organisationshavealsobecomemoreawareof thebenefitsofcomplaintsmanagement,seeingit asapowerfultoolforobtainingconstantfeedback on their products and services. This helps them to continuallyimprovethewaytheywork. More generally, both the public and private sectors arecollectingvastamountsofdata,whichtheyneed help to unlock. This is creating demand for our data and analytical services. Pension Solutions Regulationwasakeyfeatureofthepensionsmarket in2014,withmorereformthaneverbefore.This isrequiringorganisationstochangetheirworking practices and upgrade their systems, particularly in thepublicsectorwherethePensionReformchanges are due to come into force in April 2015. Many are findingitdifficulttofundinvestmentintheirsystems or to get the specialist people they need to manage pensions effectively in-house. This is pushing them to outsource or to bolster their in-house functions withexternalsupport.Financialconstraintsinthe public sector are also important in the drive to outsource pension administration. Manycompanieshavealreadyclosedtheirdefined benefitschemesandarelookingtocontainthecost andminimisetheriskassociatedwiththeseclosed books. This is leading them to sell the books to insurance companies, creating opportunities for us to administer them on the insurers’ behalf. Anotherdevelopmentduringtheyearwasthe increasingacceptanceofoffshoringback-office functionsinpensionadministration.Thisreflects agrowingneedamongclientstodriveefficiencies. i M a k n g c o m p e x l i t h n g s s i m p e l I S E C T O N 0 1 O U R M A R K E T S E q u n i t i i A n n u a l R e p o r t 2 0 1 4 13 STRATEGY AND OBJECTIVES Our objectives Get closer to our clients through strong account management, increasing digital access via mobile apps, minimising complaints and tracking satisfaction CUSTOMER GROWTH We have a defined set of objectives for the next three years. We aim to: Deliver organic growth from newandexistingchannels, further developing our product offering and making selective acquisitionswhichadd to our capabilities 14 i M a k n g c o m p e x l Deliver organic revenue growth, attractive margins and strong cash conversion, to enable investment and strengthen the balance sheet Achieving these objectives will, in turn, enable us to meet our financial goals: FINANCIAL OPERATIONS Enhance our operating platform by investing in technology led solutions, driving efficiencies, strengthening compliance and managing talent i t h n g s s i m p e l I S E C T O N 0 1 S T R A T E G Y A N D O B J E C T V E S I E q u n i t i i A n n u a l R e p o r t 2 0 1 4 15 Our strategy Our strategy for achieving our objectives is summarised below, along with our progress over the last year STRATEGY Strengthen client focus Thismeans:helpingourexistingclientstoimprovetheir operations, by enhancing our account management and identifyingwaysourproductsandservicescansolvemore of their issues. PROGRESS IN 2014 We enhanced our account management and developed a key account plan for each of our major clients. We also strengthenedourrelationshipteam,toensurewehave therightpeopleengagingwiththerightclients. Theseinitiativeshelpedustodriveorganicgrowthinour key accounts, particularly in the second half of the year. Develop new products Thismeans:creatingnewproductsinexistingandadjacent markets,whichwillallowustoleverageourtechnology platformsandspecialistcapabilitiesincomplexoutsourcing. We continued to invest in our technology platforms, to add functionality for our clients, and launched a number ofnewproductsacrossthebusiness. More details of our technology and product developments canbefoundintheoperationalreview,onpages30to35. Target new channels This means: build on our strengths in the business-to- business-to-consumer channel to offer a set of retail investment products of relevance directly to the 18.7m shareholders and more than 8m pension scheme memberswithwhomwedeal. Enhance operational effectiveness This means: having a single operating platform for all service lines, consolidating operations and leveraging our offshore capabilitytoimproveefficiency,simplifyingandautomating processes to improve quality, and strengthening our compliance. See pages 44 to 46 for more on our people strategy. Make complementary acquisitions Thismeans:acquiringbusinessesthatbringnewand complementary capabilities, including technology platforms, whichwecangrowbyofferingtoourclients. InJune2014,weannouncedthatwewereacquiringthe assetsofSelftrade,anonlineexecution-onlystockbroker. ThisgivesusSelftrade’s104,000clients,whohold£3.9 billion in assets, and provides a capability in D2C broking. TheacquisitioncompletedinJanuary2015andwehave developedanewinvestmentandproductplatformto support it. OuroffshorefacilityinChennai,India,isnowfullyoperational and housed over 300 staff at the year end. It strengthens ourin-houseITcapabilitiesandprovideslow-costbusiness processing,helpingtoimprovequalityforclientswhile offering cost savings for us. We also brought in-house a number of processes that had been provided by third-party Indian outsourcers, improving our control over and delivery of the services to our clients. Otherinitiativesintheyearincludedenhancingour compliance, centralising complaint handling and developing our talent and performance management of our people. InadditiontoSelftrade,during2014weacquired: •PancreditSystems,whichextendsourabilitytoprovide unsecured loan administration • Invigia,whichprovidescomplaints,caseandfeedback managementacrossfinancialservicesandthepublicsector • JP Morgan’s Corporate Dealing Services (“JPM CDS”), whichstrengthensourexistingpositioninthissector,and • A further 11% stake in MyCSP, our mutual joint venture withtheUKgovernment,givingusa51%interest. The remaining shares are held by the government (24%) and employees (25%). 16 Throughourloancomparisonbusiness,Pancredit,weconduct over 52 million calculations a month. These include: 227,000 quote calculations, 1.7 million active agreements and 114,000 settlement calculations. i M a k n g c o m p e x l i t h n g s s i m p e l I S E C T O N 0 1 S T R A T E G Y A N D O B J E C T V E S I E q u n i t i i A n n u a l R e p o r t 2 0 1 4 17 KEY PERFORMANCE INDICATORS We use the following key performance indicators to track our strategic progress: KPI DATA DEFINITION RELEVANCE TO STRATEGY PERFORMANCE ADJUSTED REVENUE ADJUSTED PRE- EXCEPTIONAL EBITDA 2014 2013 2014 2013 £292.3m £264.4m Theinvoicedvalueofservicesandsoftwareprovided toclientsduringtheyear,excludingtheLloydsTSB Stockbrokingcontract,whichwasdiscontinuedin 2013, and normalising interest income for the impact ofinterestrateswaps. Adjustedrevenueshowsourabilitytogrow the business organically and through making complementary acquisitions. Adjustedrevenuewasup10.6%in2014,despitelowercorporate action activity, through a combination of strong client retention, additionalprojectworkwithexistingcustomers,theacquisitionof Killik’s Employee Services business in 2013, the 2014 acquisitions of Pancredit, JPM CDS and Invigia, and our increased holding in MyCSP. Together, these acquisitions contributed £18.4m to adjusted revenue in 2014. £70.0m £67.5m Earningsbeforeinterest,tax,depreciation, amortisationandexceptionalitems,adjustedfor the items described above under adjusted revenue. Adjustedpre-exceptionalEBITDAshowsoursuccessin Adjustedpre-exceptionalEBITDAgrewby3.7%to£70.0m,with sellingcomplex,high-marginserviceswhileenhancing growthfrommajorpensionprojectswithexistingcustomersplus ouroperationalefficiency. astrongcontributionfromacquisitions,offsetbylowercorporate action activity and increased costs for service level improvements and sales resource. OPERATING PROFIT 2014 2013 £21.6m £14.8m Profitbeforeinterest,taxandcontributionfrom associates. Operatingprofitshowsourabilitytogrowprofitafter Operatingprofitgrewby45.9%to£21.6m,primarilydueto taking account of the costs of capital investment and lowerexceptionalcostsin2014followingtherefinancingof acquisitions,whicharereflectedinourdepreciation the Group in 2013. FREECASHFLOW FREE CASH CONVERSION 2014 2013 2014 2013 £72.5m £71.0m 104% 93% Pre-exceptionalEBITDAlesschangeinworking capitaladjustedfortheimpactofexceptionalitems. ThecalculationisshownintheFinanceReview section. Adjustedoperatingcashflowshowsourabilityto Freecashflowimprovedasaresultofacontinuedfocus generate cash for investment in the business and to onworkingcapitalmanagement. Freecashflowasapercentageofpre-exceptional EBITDA. Freecashconversionshowsourabilitytoturnprofits Theincreaseinfreecashconversionto104%reflects into cash and is a good indicator of the quality of the ourcommitmenttoworkingcapitalmanagement. and amortisation. paydowndebt. profitswegenerate. CAPEXRATIO Capitalexpenditureasapercentageofrevenue. 2014 7.1% 2013 7.0% CLIENT SATISFACTION COMPLAINTS 2014 2013 90% 91% 2014 0.019% 2013 0.023% 18 The average percentage of returned client surveys, based on a client satisfaction scoring of one to ten. Clientsatisfactionshowshowwellwearemeetingtheir Ourperformanceremainedsteady,demonstratingthatweare needs,whichisessentialforprotectingourexisting meeting the needs of our clients. businessandourabilitytogrow. The number of upheld complaints as a percentage of transactions processed. Thelevelofcomplaintsshowshowwellwearemeeting Numberofcomplaintsremainsextremelylowandhasimproved theneedsofourclients,customers,whichinturn year-on-year.Thisdemonstratesthatwearemeetingtheneeds results in a greater level of client satisfaction. of our clients, customers. Thecapexratioshowshowmuchweareinvestingin Thecapexratioremainsinlinewiththeprioryear,showingour the platforms that underpin our client service and our commitment to enhancing our customer service and offering abilitytogrow. market-leading technology. KPI DATA DEFINITION RELEVANCE TO STRATEGY PERFORMANCE Theinvoicedvalueofservicesandsoftwareprovided toclientsduringtheyear,excludingtheLloydsTSB Stockbrokingcontract,whichwasdiscontinuedin 2013, and normalising interest income for the impact ofinterestrateswaps. Adjustedrevenueshowsourabilitytogrow the business organically and through making complementary acquisitions. Earningsbeforeinterest,tax,depreciation, amortisationandexceptionalitems,adjustedfor the items described above under adjusted revenue. Adjustedpre-exceptionalEBITDAshowsoursuccessin sellingcomplex,high-marginserviceswhileenhancing ouroperationalefficiency. Adjustedrevenuewasup10.6%in2014,despitelowercorporate action activity, through a combination of strong client retention, additionalprojectworkwithexistingcustomers,theacquisitionof Killik’s Employee Services business in 2013, the 2014 acquisitions of Pancredit, JPM CDS and Invigia, and our increased holding in MyCSP. Together, these acquisitions contributed £18.4m to adjusted revenue in 2014. Adjustedpre-exceptionalEBITDAgrewby3.7%to£70.0m,with growthfrommajorpensionprojectswithexistingcustomersplus astrongcontributionfromacquisitions,offsetbylowercorporate action activity and increased costs for service level improvements and sales resource. Profitbeforeinterest,taxandcontributionfrom associates. Operatingprofitshowsourabilitytogrowprofitafter taking account of the costs of capital investment and acquisitions,whicharereflectedinourdepreciation and amortisation. Operatingprofitgrewby45.9%to£21.6m,primarilydueto lowerexceptionalcostsin2014followingtherefinancingof the Group in 2013. Pre-exceptionalEBITDAlesschangeinworking capitaladjustedfortheimpactofexceptionalitems. ThecalculationisshownintheFinanceReview Adjustedoperatingcashflowshowsourabilityto generate cash for investment in the business and to paydowndebt. Freecashflowimprovedasaresultofacontinuedfocus onworkingcapitalmanagement. section. EBITDA. Freecashflowasapercentageofpre-exceptional Freecashconversionshowsourabilitytoturnprofits into cash and is a good indicator of the quality of the profitswegenerate. Theincreaseinfreecashconversionto104%reflects ourcommitmenttoworkingcapitalmanagement. CAPEXRATIO Capitalexpenditureasapercentageofrevenue. Thecapexratioshowshowmuchweareinvestingin the platforms that underpin our client service and our abilitytogrow. Thecapexratioremainsinlinewiththeprioryear,showingour commitment to enhancing our customer service and offering market-leading technology. The average percentage of returned client surveys, based on a client satisfaction scoring of one to ten. Clientsatisfactionshowshowwellwearemeetingtheir needs,whichisessentialforprotectingourexisting businessandourabilitytogrow. Ourperformanceremainedsteady,demonstratingthatweare meeting the needs of our clients. The number of upheld complaints as a percentage of transactions processed. Thelevelofcomplaintsshowshowwellwearemeeting theneedsofourclients,customers,whichinturn results in a greater level of client satisfaction. Numberofcomplaintsremainsextremelylowandhasimproved year-on-year.Thisdemonstratesthatwearemeetingtheneeds of our clients, customers. ADJUSTED REVENUE ADJUSTED PRE- EXCEPTIONAL EBITDA OPERATING PROFIT FREECASHFLOW FREE CASH CONVERSION CLIENT SATISFACTION COMPLAINTS K E Y P E R F O R M A N C E I I N D C A T O R S 19 Making complex things simpleSECTION 01Equiniti Annual Report 2014 CHAIRMAN’S STATEMENT This was a good year for Equiniti, with robust financial performance that gives us momentum going into 2015. We grew adjusted revenue by 10.6% and adjusted pre-exceptional EBITDA by 3.7%, and continued to convert a large proportion of our profits into operating cash providing funds to invest in future growth. The business is soundly financed, giving us the financial flexibility to execute our strategy. Equiniti International Payments makes more than 30,000 payments,withatotalvalueofover£285millionacross 130 countries and in 90 different currencies. Equinitihasexcellentpositionsingrowingmarkets andattractiveopportunitiestomoveintonew areas.Ourstrengthenedexecutiveteamhasput the building blocks in place for further success, withaclearstrategyandasimpleroperatingmodel thatwillfocusoureffortsandhelpusdeliverfor our clients. To support our sharpened strategy and operationalfocus,wehaveputconsiderableeffort into enhancing our governance and compliance, both at a Board level and in our day-to-day business. More information on our performance can be foundintheChiefExecutive’sstatementon pages 22 and 23. 20 InJanuary2014,weweredelightedtoappoint GuyWakeleyasEquiniti’sChiefExecutive.Guyhas brought strong leadership to the business and has inturnrefinedourstrategyandstrengthenedthe executivemanagementteam. Also at the start of the year, John Parker joined theBoardasanon-executiveDirector.Johnwas Managing Director of our share registration business untilhisretirementattheendof2013andwewere pleasedtoretainhisknowledgewithintheGroup. We further increased the number of independent directors on the Board. Vicky Jarman joined us in Mayasanon-executiveDirectorandchairofthe AuditCommittee.Shehassubstantialexperiencein thefinancialservicesindustry,gainedthroughsenior roles at Lazard. She also chairs the Audit Committee ofHaysplcandisanon-executiveDirectorof The Investment & Projects Committeemakessurethatwe effectively deploy our limited capitalresources,sowecan maximisereturns…’ De La Rue plc. InFebruary2015,werecruited Tim Miller as an independent non-executiveDirectorand chair of the Remuneration Committee. Tim brings extensiveBoardexperienceacrossarangeofsectors and during his 14 years at Standard Chartered Bank heldanumberofDirectorlevelpositionswithglobal responsibility for areas including human resources, compliance,audit,assurance,financialcrime,and legal functions. AlsoinFebruary2015,weappointedLucyDimes totheBoardasanexecutiveDirector.Sincejoining usasChiefOperatingOfficerinMarch2014,Lucy has brought additional focus on IT, operational excellenceanddrivingtheGroup’scapital investment programme, to deepen our technology servicesandfintechmarketleadership. InFebruary2015MartynHindleyresignedfollowing twoyearsasCFO,Iwouldliketoplaceonrecordour thankstoMartynforhissignificantcontributionto Equiniti.RichardGuest,ahighlyexperiencedfinance professional, has been appointed interim Chief FinancialOfficeraheadoftheappointmentofJohn StieraspermanentCFO.JohnStierwilljoinusfrom Northgate on 1 June 2015. Enhancing our governance structures During2014,wesplittheresponsibilitiesofthe Audit and Risk Committee, creating a separate Risk Committee under John Parker’s chairmanship. Thenewcommitteereflectstheimportancewe placeonmanagingriskandisinlinewithregulatory best practice. The Board has also had training from our advisors on regulatory and compliance issues. Inaddition,toallowhimtofocusonhisroleas GroupComplianceandRiskDirector,GavinDowns hassteppeddownasCompanySecretary.Doug Armour, a director of Equiniti David Venus, has taken up this position. Meeting our regulatory requirements is a vital part of protecting our clients’ interests, particularly as wegrowinthedirect-to-consumermarket.Wehave thereforeidentifiedtwoindependentnon-executive appointees,MarkLundandTimMiller,who,subject toFCAapproval,willjointheboardofourregulated entity, Equiniti Financial Services Limited. Guy Wakeleywillalsojointhisboard,againsubject to regulatory approval. Itisalsoessentialthatwehaveeffectiveoversight and controls embedded in our operations. In 2014, wethereforecreatedtwonewexecutivecommittees. The Sales & Bids Committee enables us to drive organicrevenuegrowth,whileensuringthatwe fully understand the opportunities and risks each opportunity presents. The Investment & Projects Committeemakessurethatweeffectivelydeploy ourlimitedcapitalresources,sowecanmaximise returns.Wealsoreconstitutedourotherexecutive committees and refreshed their terms of reference. These committees have vital functions, overseeing compliance and risk, strategy and M&A, and monthly performanceandquarterlybusinessreviews. Since the end of the year, our advisors completed areviewoftheeffectivenessofourrisk,internal auditandcomplianceprocesses.Thishasshown uswhereweperformwellandalsohighlightedareas forfurtherimprovement,whichwewillimplementin the coming months. Looking forward Equiniti is well positioned as we enter 2015. Our work to strengthen our governance and compliance will enhance our oversight and control of the business and ensure we continue to put clients first, which in turn will help our business performance. We are confident of significant further progress in 2015. I C H A R M A N ’ S I N T R O D U C T O N I 21 Making complex things simpleSECTION 01Equiniti Annual Report 2014 CHIEF EXECUTIVE’S STATEMENT Revenue was £292.3mthis year A YEAR OF BUILDING MOMENTUM The actions we took and investments we made during 2014 saw Equiniti build momentum throughout the year, as we increasingly benefited from our capability enhancing acquisitions and our sharpened focus on our clients, which helped us to drive organic growth. Asaresult,weincreasedrevenueby6.4%to£292.3m(2013:£274.7m) despite a fall in the level of corporate actions. Adjusting for the discontinued Lloyds TSB Stockbroking contract and the impact of interestrateswaps,toplinegrowthwas£27.9m(10.6%).Intotal, acquisitions contributed £18.4m to revenue this year. EBITDApre-exceptionalitemswas£70.0m(2013:£76.3m).Adjusted EBITDAwasalso£70.0m,anincreaseof3.7%(2013:£67.5m),withthe benefitofpensionprojectsandacquisitionsbeingoffsetbylower corporate action activity and increased costs to improve service and resourceoursalesefforts.Theadjustedpre-exceptionalEBITDA marginwas23.9%,comparedwith25.5%in2013. MEETING OUR CLIENTS’ NEEDS Lookingafterourclientswasakeythemein2014.Weinvested significantlyinourtechnologyplatforms,addingcapabilitiesto address our clients’ problems in the digital age, such as increased member self-service and the development of smartphone applications for sharedealing and pension statements. We also invested in improvingouroperationsandservice,creatingaGroup-wideaccount managementplatformtogiveusasingleviewofeachclientand their needs. Theresulthasbeenhighlevelsofclientsatisfaction,whichstandsat 90%, and 100%FTSE100clientretention.Wesecured£201mofnew salesandrenewals,withanaveragerelationshiplengthof27years for our FTSE 100 clients. Thisprovidesexcellentforwardvisibility of revenues, in addition to our project and transactional income. Lookingafterourclientswasa key theme in 2014. We invested significantlyinourtechnology platforms…” 22 Delivering adjusted top line growth of We purchased another 10.6% 100% 11% FTSE 100 client retention of MyCSP ENHANCING OUR CAPABILITIES AND GROWTH POTENTIAL Duringtheyear,wecompletedtheacquisitionsof Pancredit, a credit origination and management platform, and Invigia, an integrated complaints, customer service and remediation product set. ThesebringnewcapabilitiestotheGroup,which wecanoffertoourexistingclientsanduseasthe basisofnewproductsandservices,buildingout technology sales into a broader suite of end-to- endmanagementsolutionsforcomplexregulated problems. We also acquired the JPM CDS business during2014,whichaddstoourexistingstrengths in dealing services for share-based remuneration schemes and makes us number one in that market. The purchase of Selftrade from Societe Generale, whichcompletedshortlyaftertheyearend,opens up the direct-to-consumer retail share-dealing channelforus.Thisallowsustoleverageour proprietarycustodyplatformtobuildanexecution- only stockbroker of scale, and offer a set of retail investment products of relevance to the nearly 19m shareholders and more than 8m pension scheme memberswithwhomwedeal. Inaddition,wepurchasedafurther11%ofMyCSP, ourground-breakingmutualventurewiththeUK government.Wenowown51%ofthisventure,which continuestogrowwell,achievingrevenuesof£38.3m for the nine months ended 31 December 2014 and continuingtogrowemployeedividends. A SIMPLER OPERATING MODEL We continued to simplify our operating model, organising the Group into three segments that betterreflectthewaywemanageouractivities: Investment Solutions, Intelligent Solutions and Pension Solutions, each supplemented by interest income interest. Wesupportedthiswiththerecruitmentof senior leaders. These included Lucy Dimes as ChiefOperatingOfficer,RodAldertonasChief InformationOfficer,MattPorterasManaging Director of Intelligent Solutions, and David Beresford as Director of Strategy and Business Development.WealsopromotedPaulMatthews totheexecutiveleadershipteam,intheroleof Managing Director, Corporate Markets. Atthesametime,wehavecontinuedtoaddtoour operationsinChennai,India,wherewenowemploy morethan300staff.OffshoringenhancesourIT capabilitiesandincreasestheefficiencyandquality ofourback-officeprocessing,resultinginbetter client service and reduced costs for us. A POSITIVE OUTLOOK FOR 2015 Weexpectourmomentumfrom2014tocontinue into2015,aswemaintainourfocusonorganic growthsupportedbynewproductswehave launched this year, as described in the operational review.Thisyear’sacquisitionswillalsoaddtogrowth in2015,makingusconfidentofdeliveringsizeable upliftsinrevenueandcashflow. Ourabilitytosustainexcellentmarginswhile deliveringorganicgrowthdependsonasimple strategy: understanding our clients’ needs and developingnewmodelsandtechnologiestoadd valueincomplexandregulatedareas.Continuing todifferentiateEquinitithroughexcellentservice, great people and the application of technology willcreategrowthfor2015andbeyond. i M a k n g c o m p e x l i t h n g s s i m p e l I S E C T O N 0 1 I C H E F E X E C U T V E ’ S I S T A T E M E N T E q u n i t i i A n n u a l R e p o r t 2 0 1 4 23 CASE STUDIES Using technology to build smart solutions Equiniti is a leading provider of technology-enabled payment services and software platforms. That puts technology at the heart of our business. We use up-to-the-minute technology to build smart solutions for our clients and their customers, based on proprietary platforms that can process large and growing volumes of transactions and payments. 24 These platforms are a key competitive advantage for us. They represent a substantial investment of time, money andexpertise,makingithardfor others to replicate them. Through our in-house development and testcapabilities,wecontinually enhance their functionality, for examplebyaddingmobile apps and online services that improvetheuser’sexperience and engagement. Technology is critical for efficiency.Asweprocessever- largervolumes,webenefitfrom significantoperationalleverage. Atthesametime,weoffergreater efficiencytoourclientsthanthey couldachievebyusingtheirown systems. Ourplatformsarealsoakey enablerofourgrowth.Theyallow ustoscaleupourexistingservices andtooffernewservices,which wedevelopourselvesorbring in through acquisitions. We also seeexcitingpotentialinusingour analytical capabilities to derive freshinsightsfromthedatawe hold,allowingustocreatenew services and add even more value for our clients. OUR KEY PLATFORMS We have 25 platforms across the Group, supporting our wide-ranging product offering. Three of these – Sirius, Xanite and Compendia – underpin some of our most important services. Sirius is our share registration platform. It supports all our registration, dividend payment and share plan administration. The platform is able to handle vast processing volumes. We use it to manage the records of 18.7 million shareholders and tomakepaymentsinexcessof £39 billion each year, on behalf of nearly 50% of FTSE 100 companies and numerous others. Sirius also receives 1 million internal websitehitseachday,delivering an average response time of less than 0.5 seconds. Xanite is our custody, investment andwealthmanagementplatform, whichsupportssharedealingfor retail investors and corporate clients,andourBPOservices forwealthmanagers. Compendia is our pension administration and payroll platform.Throughit,wemanage records and payments for millions of UK pension scheme members on behalf of our clients. The platform enables us to deliver custody services for £18.7 billion of assets. It also plays a key role in ourgrowingdirect-to-consumer business.Asexplainedonpage 30,wehavelaunchedanewweb and mobile offering to service EquinitiSelftrade,whichwe acquired in January 2015. This gives consumers greater choice and control over their investments, to suit demands for services that fittheirlifestyle. See page 30 for more information The system supports services for our clients,whocanuseitattheir premises or as a managed service. Compendia also enables access toself-service,throughournew mobile app and our responsive webdesign,whichintuitively adapts to the user’s desktop or mobile device. This offers a better experienceforschememembers, helping them to plan their retirements and increasing their engagementwiththescheme. Italsooffersgreaterefficiency and a streamlined service for the schemes themselves. Ourrecentinvestmenttoenhance Compendia has led to it being shortlistedforsixtechnology awardsduring2014. i M a k n g c o m p e x l i t h n g s s i m p e l I S E C T O N 0 1 C A S E S T U D E S I E q u n i t i i A n n u a l R e p o r t 2 0 1 4 25 23,000 PARTICIPANTS ANDAVALUEOF MORETHAN £1.1BILLION EQUINITI AND BT Simplifying complexity for BT’s employees Most people selected more than one option, putting our team under huge pressure to quickly and accurately turn around their choices. SupportedbyourSiriusplatform,wedelivered on time and to our service level agreements, resultinginasatisfiedclient. AsFrancisO’Mahony,HeadofEmployeeShare PlansatBTsaid:“TheEquinititeamwasmost responsivetoourneeds.Weworkedinpartnership to build the choices, map each user journey and communicateeffectivelywiththeparticipants. Thefactthateverythingwentsosmoothly,and that the BT share price remained stable, istestamenttoterrificteamwork.” Equiniti has provided employee shareplan services to BT since 2004. This year, we supported BT through one of its biggest challenges yet – the most recent maturity of its “saveshare” plan. Thematuritywasoneofthelargestandmost complexeverseen,witharound23,000participants and a value of more than £1.1 billion. The average participant stood to gain almost £42,000, rising toalmost£76,000forthosewhohadsavedthe maximumeachmonth.Participants’optionsranged from holding or selling shares to transferring them to their spouse, ISA or pension. This meant they neededtounderstandfinancialissuestheymight notbefamiliarwith,suchasthepotentialtax implications of their choices. WeworkedwithBTonayear-longcommunications strategy,sopeoplecouldmakewell-informed choices.Weresearchedwhen,howandinwhatform peoplewouldbestabsorbtheinformation,resulting in a monthly series of personalised emails on key topics,withlinkstofurtherinformation.Highlighting each individual’s potential gain encouraged them tounderstandtheiroptions.Theemailswere combinedwithaseriesofeducationaltools,from booklets and Q&As to a live question session. 26 The Equiniti team was most responsive to our needs. We worked in partnership to build the choices, map each user journey and communicate effectively with the participants.” i M a k n g c o m p e x l i t h n g s s i m p e l I S E C T O N 0 1 C A S E S T U D E S I E q u n i t i i A n n u a l R e p o r t 2 0 1 4 27 We have always prided ourselves on innovation, and see outsourcing as one of the primary ways in which we’ll retain our market-leading position… Charlie Nicholls, founder of Money on Toast EQUINITI AND MONEY ON TOAST Supporting clients through new product development A fundamental part of our strategy is to develop new products that leverage our technology and our specialist capabilities. In 2014, we announced that Money on Toast was the first customer for our Wealth Solutions service, which is built on our Xanite platform. We see this service as a ‘game changer’ for wealth managers, helping them to succeed in a highly competitive market. Money on Toast is a leading provider of online investment advice and discretionary management, withthousandsofsatisfiedcustomers.Itistheonline distribution arm of CPN Investment Management, whichwasfoundedin1986toofferdiscretionary investmentmanagementservicestohigh-net-worth individualsintheUK.Outsourcingitsinvestment administrationandtechnologyservicestouswill allowMoneyonToasttofocusonitscorebusiness objectivesofcustomerservice,businessgrowth and innovation. MoneyonToast’sclientswillalsobenefit,through accesstoawiderrangeofinvestmentoptions andlowerfees.Theseresultfromtheelimination of platform costs, reduced administration and theabilitytoscaleupthebusinesswithouta corresponding increase in overheads. As Charlie Nicholls, founder of Money on Toast, said: “As the leading algorithm-based advice and discretionarymanagementsystem,wehavealways prided ourselves on innovation, and see outsourcing asoneoftheprimarywaysinwhichwe’llretainour market-leading position. Using Equiniti Wealth Solutionswilldelivermeaningfulbenefits.Itwill notonlyallowustokeeppacewithtechnological change,butwillalsointroducecostefficiencies whichwecanthenpassontoourclients.” 28 MyCSP’s success demonstrates what can be achieved by working together MYCSP Transforming MyCSP into a trusted partner to Government MyCSP is the first mutual joint venture to come out of central Government. It provides pension services to 1.5 million members of the Civil Service pension scheme, on behalf of more than 250 employers ranging from the Department for Work and Pensions to the Scottish Government. In2014,weincreasedourholdinginMyCSPto51%, withemployeesholding25%andtheGovernment retaininga24%stake.Employeeownershipis avitalpartofthemodel.Researchshowsthat employee-ownedcompaniesoutperform,with betterproductivityandengagementandlower staffturnover.In2014,employeesbenefittedfroma dividend of £2,600 each, as they shared in the value of the business improvements they had created. FollowingMyCSP’screationin2012,weembarked onatwo-yeartransformationprogramme,investing in its technology, operations, service and culture. This has vastly improved processing accuracy, employee engagement and customer satisfaction. The transformation included consolidating from 11 sites to four and completely upgrading the IT infrastructure.InSeptember2014,wecompleted the transfer of MyCSP’s administration to our Compendia platform, a substantial project that required thousands of training days and long hours from more than 100 developers and testers. AswellastransformingthewayMyCSPworks, themutualmodelallowsittobidforcontractsto administer other pension schemes. Its enhanced offeringisenablingittoshowcaseitscapabilities, generating interest from employers across the public sector.Thisgrowthbenefitsus,providesgreater rewardsforemployeesandaddsvaluefortaxpayers. MyCSP’ssuccessdemonstrateswhatcanbe achievedbyworkingtogetherandusingthe bestofpublicandprivatesectorexpertiseto transformpublicservices.Itisnowthemodel for mutualisations of other public services. C A S E S T U D E S I 29 Making complex things simpleSECTION 01Equiniti Annual Report 2014 OPERATIONAL REVIEW Investment Solutions Registration Services, Retail Investment Services, International Payments and Employee Services, including executive share dealing and execution-only stockbroking. Although revenue in the year declined by £12.3m (11.5%) to £94.9m (2013: £107.2m), mainly driven by ahighlevelofcorporateactionsin2013,significant progress has been made in building the foundations forfuturegrowth.Adjustedrevenue,whichexcludes the Lloyds TSB Stockbroking contract that ended in2013,was5.6%lower.TheacquisitionsofKillik EmployeeServiceson1October2013andJPMCDS on 1 September 2014 added an incremental £3.3m to 2014 revenue. EBITDA fell by 27.3% to £29.3m (2013: £40.3m). Adjustedpre-exceptionalEBITDAwas16.5%lower. Thisrepresentedanadjustedpre-exceptional EBITDA margin of 30.9% (2013: 34.9%). Registration Services,whichsupportsaroundhalf of FTSE 100 companies, had a good year across most of its operations. It retained all its registration contractsthatcameupforrenewal,gained26newly listed clients, including TSB, Just Eat, Zoopla, Jimmy ChooandVirginMoney,andwonfivecontractsfrom establishedcompanies,includingOldMutualand SABMiller.However,thelackofcorporateactionsby clientswithsizeableshareholderbasesresultedina decline in revenue against a strong comparative for 2013,whichincludedtheflotationofRoyalMailand a major rights issue by Barclays. Thebusinessbeganpilotinganewservicein partnershipwithKingsCourtTrust,whichwill help bereaved families to obtain probate on their relatives’ estates. We see opportunities to provide thisdirectlytoconsumersandasawhite-label service to large corporates, such as banks and financialservicescompanies. meettheneedsofwealthmanagersandannounced itsfirstwealthmanagementcustomer,Moneyon Toast,inNovember.Wewillprovideallinvestment administration and technology services to Money onToast,reducingitscostswhileallowingittoscale up its business. Investment Services also signed a contracttoprovidewhite-labelservicestoSaga, whichwillcommencein2015. In the International Payments market, Investment ServicessignedasignificantcontractwithMarTrust Corporation, to provide payment services for ships arrivingatportsaroundtheworld.Wealsowona number of other international payments contracts, reflectingourabilitytoservicemedium-sized companies in this area. Investment Services completed a major upgrade toXaniteandlaunchedanewwebandmobile platform to service Equiniti Selftrade – www.selftrade.co.uk.TheacquisitionofSelftrade wascompletedon26January2015andbrings withit104,000newcustomers,addingtothe existing320,000retailcustomersthatInvestment Solutions supports. Employee Services had a solid year. Highlights includedrenewingimportantcontractswithBTand Diageo,andwinningacontractwithTSBtoprovide employeeshareplansandflexiblebenefits.The business completed the integration of the Killik operationsweacquiredin2013,whichcontinuedto meetourexpectations.JPMCDS,whichprovides dealingservicesforexecutivesinallformsofshare- based remuneration schemes, further increases our UK market presence. ThequalityofRegistrationServices’workwasagain reflectedintheprestigiousindustryawardsitwon. Equinitiwonallthree“BestRegistrar”awardsin 2014, at the Investors Chronicle and FT Wealth ManagementAwards,theSharesAwardsandat theUKStockMarketAwards. During2014,welaunchedPeopleSpace,aunique portalthatallowsemployeestoreviewandmanage theirflexiblebenefitsonline,andwhichwillimprove employers’ understanding of their employees’ benefituse.Otherdevelopmentsincludedaglobal nomineeproduct,whichwewillrolloutin2015. Retail Investment Services delivered underlying revenuegrowth,afteradjustingfortheimpactof the Lloyds TSB Stockbroking contract. The business has invested in developing its Xanite platform to Asinpreviousyears,EmployeeServices’clientswon anumberofprizesattheifsProshareannualawards. Thisyear’swinnersincludedBT,TSB,LandSecurities, DS Smith and TalkTalk. 30 We launched PeopleSpace, a uniqueportalthatallowsemployees toreviewandmanagetheirflexible benefitsonline I O P E R A T O N A L R E V E W I WE GAINED 26 newlylistedclients 31 Making complex things simpleSECTION 01Equiniti Annual Report 2014 Intelligent Solutions Specialist technology and service solutions targeting complex or regulated processes, such as loan servicing and complaints management. IntelligentSolutionsgrewrevenueby9.9%to £89.6m(2013:£81.5m).Thispartlyreflectedthe acquisitionsofPancreditSystems,whichwe boughton18March2014,andInvigia,whichwas consolidated from 1 September 2014. Together, they contributed revenue of £6.5m during the year. Revenuealsobenefitedfromhighercomplaints management activity, although a change in the mixofthisworkmeantitwasatalowermargin. Thisrevenuegrowthwaspartiallyoffsetbya reductioninprojectincome,with2013having included a large, one-off assignment. Pre-exceptionalEBITDAdeclinedby0.6%to £16.3m(2013:£16.4m).Thiswastheresultofthe lowermarginoncomplaintsmanagementwork. IntelligentSolutions’pre-exceptionalEBITDA marginwas18.2%(2013:20.1%). Pancredit provides innovative loan administration andoriginationsoftwaretobanks,intermediaries andpricecomparisonwebsites.Wehavealready beguntoleveragethistechnologytooffernew services.Duringtheyear,welaunchedstandby servicing,providingclientswithawaytomitigate the risk of failure of their loan servicing arrangements. We also rolled out loan administration services, to collect repayments and resolve issues on behalf of our clients. In addition,Pancreditsignedanewcontractwith a major telecoms provider, to deliver interest-free creditservicesforhandsetsandhardware. Invigia offers complaints, case and feedback managementsoftwareandservicestoawiderange offinancialservicesandpublicsectororganisations. It broadens our range of solutions to help clients dealwithregulationandchange.Italsoopensup opportunitiesinnewconsumer-facingsectors,such as utilities and telecoms. Invigia’s services include mycustomerfeedback.com,whichallowsusto provide customer feedback services to SMEs, in additiontoourexistingenterprise-scaleplatform. Invigia’s other division is responsible for gathering, storingandsharinghighlysensitiveinformationwith authorisedpoliceforceusers.Weworkwithcirca 50% of the UK’s police forces on this. Duringtheyear,welaunchedPeopleAX, an HR and payroll solution based on the Microsoft Dynamics AXplatform.ItallowsfullintegrationofHRand payroll functions in one system, so organisations canworkwithcomplexdatasetssuchascross- departmentalinformationonbenefitspackages, pensions and employee engagement. This is currently being implemented for the Royal National LifeboatInstitute,togetherwithanumberofsmall clients.Othernewproductsincludedadataanalysis platform,whichcaningestlargevolumesofdata from multiple sources, cleanse it and turn it into a singleviewofthecustomer,andanew360-degree feedback tool for the healthcare industry. Hazell Carr provides high-calibre resourcing and outsourcingexpertisetoregulatedindustries.It endedtheyearwith1,200consultantsdeployed for clients, a record number for the company. ItalsowoncontractswithBarclaysandHSBC,the onlytwomajorbanksthatwerenotalreadyclients. WebelievethatthecombinationofHazellCarrwith several other Intelligent Solutions business units creates a disruptive and compelling proposition across people/process/technology/data, making it the ‘one stop shop’ solution for several different customer requirements. Asthebusinessmodelevolves,withmoreclients lookingforatotaloutsourcedsolution,wehave investedinnewpremisesinCardiff.Thesehave come on stream in February 2015, to ensure the capabilities are immediately available to support our clients’ requirements. 32 I O P E R A T O N A L R E V E W I WEWORKWITHAROUND 50%of the UK’s Police Forces 33 Making complex things simpleSECTION 01Equiniti Annual Report 2014 Pension Solutions Pension administration, insurance and payment technology and services for 8 million scheme members. Aswellasinvestinginourtechnology,wehave investedinourpeople.Werecruitedexperienced pensions people into our business development and client management teams, and appointed a newPensionsStrategyDirector.Thisinvestment hasstartedtodeliverasignificantnumberof opportunitiestobidfornewwork,whichwe expecttocontinueinto2015. MyCSP,withtheongoingsupportofthewider Equiniti Group, has continued to transform the administration of the Civil Service Pension Scheme. During2014,wecompletedtheimplementation of Compendia and migrated the scheme’s payroll administration from the previous provider. Work is wellprogressedtomeettherequirementsofthe 2015 Pension Scheme reforms. PensionSolutionshadastrongyear,growing revenue by 31.7% to £101.3m (2013: £76.9m). Organicrevenuegrowthcamelargelyfrommajor projectswithexistingclients.Ouracquisitionofan additional 11% holding in MyCSP also meant that weconsolidatedthisbusinessasasubsidiaryfrom 30 September 2014. This added £11.1m to Pension Solutions’revenuebetweenthatdateandthe year end. Pre-exceptionalEBITDAroseby77.9%to£21.7m (2013:£12.2m),withrevenuegrowthpartiallyoffset byhighercostsassociatedwithimprovingservice levelsinexistingpensionadministrationcontracts. Thisrepresentedanpre-exceptionalEBITDAmargin of 21.4% (2013: 15.9%). WewererecognisedasPensionsTechnology FirmoftheYearintherecentPensionsAgeawards. Thisresultedfromoursignificantinvestmentin our pension administration platform, Compendia, to make it more user friendly, intuitive and visually appealing. This included a smartphone app to help pension scheme members manage their retirementplanning,reflectingthefactthatmember engagement is an increasingly important part of ourservice.Compendiawasalsothetopranked Pensions Administration Platform in the 2014 Professional Pensions survey. 34 i M a k n g c o m p e x l i t h n g s s i m p e l I S E C T O N 0 1 I O P E R A T O N A L R E V E W I SINCEWEUPGRADEDCOMPENDIAITHASBEEN SHORTLISTED FOR SIX TECHNOLOGY AWARDS E q u n i t i i A n n u a l R e p o r t 2 0 1 4 35 FINANCIAL REVIEW Adjusted revenue grew by 10.6%, through a combination of organic growth and earnings enhancing acquisitions in 2014. OVERVIEW Revenuegrewby6.4%to£292.3m(2013: £274.7m)andoperatingprofitafterexceptional items increased by 45.9% to £21.6m (2013: £14.8m).Adjustedrevenueandpre-exceptional EBITDA increased by 10.6% and 3.7% respectively. The adjustments have been madeto2013onlyandexcludetheLloydsTSB Stockbrokingcontract,whichwasdiscontinued in 2013, and adjusts for the impact of a step downintheinterestratehedgeinthesecond halfof2013,resultinginalowerinterestrate being earned. These adjustments reduce 2013 revenue and EBITDA by £10.3m and £8.8m respectively.TheGroup’sfreecashflowwas £72.5m,resultinginacashflowconversion of 104% as the Group has continued to focusonworkingcapitalmanagement. INCOME STATEMENT EBITDA (PRE-EXCEPTIONAL) The key lines of Equiniti’s income statement fortheyeararesummarisedbelowandinclude analysisofrevenue,pre-exceptionalEBITDA, exceptionalitems,operatingprofit,netfinance costsandprofitbeforetax. REVENUE £m 2014 2013 Change Adjusted revenue 292.3 264.4 10.6% Adjustments – 10.3 Reported revenue 292.3 274.7 6.4% Revenue increased by 6.4% to £292.3m. Onanadjustedbasis,revenuegrewby10.6%, principally attributable to the performance of the Pensions Solutions and Intelligent Solutions divisions(seebelowforfurtherdiscussionof growthdriversbydivision). £m 2014 2013 Change Adjusted EBITDA (pre-exceptional) Adjustments Reported EBITDA (pre-exceptional) 70.0 – 70.0 67.5 3.7% 8.8 76.3 (8.3%) EBITDApre-exceptionalitemsisakey performanceindicator.Itreflectsprofitbefore financecosts,taxation,depreciationand amortisationandexceptionalitems.Adjusted pre-exceptionalEBITDAof£70.0mrepresents a3.7%increasecomparedto2013,reflecting the impact of acquisitions made in the year andanincreaseinprojectworkwithinPensions Solutions. This represents a margin of 23.9%, whichisadecreaseof1.6percentagepoints comparedtotheprioryear,as2013benefitted fromsignificantcorporateactionactivity. 3636 REPORTABLE SEGMENTS Pension Solutions As a result of the management changes made during the year, the operating segments have beenrefinedtobetterreflectthewaythat Group’s activities are managed. The Group has identifiedfoursegments:InvestmentSolutions, Intelligent Solutions, Pension Solutions and Interest Income, supported by central functions. The comparative information has been restated toreflecttherevisedsegments. £m 2014 2013 Change Adjusted revenue Investment Solutions Intelligent Solutions Pensions Solutions Interest 94.9 89.6 101.3 6.5 100.5 (5.6%) 81.5 76.9 9.9% 31.7% 5.5 18.2% Total adjusted revenue 292.3 264.4 10.6% Adjusted revenue increased by £24.4 million to £101.3m, primarily attributable to long-term project income and discontinuance remediation workplustheimpactoftheincreased shareholdinginMyCSP,whichcontributed £11.1m since 30 September 2014. Adjusted pre- exceptionalEBITDAincreasedby£9.5m to£21.7m,asaresultofthisrevenuegrowth. Interest Interest income represents interest earned on clientbalances.Revenueandpre-exceptional EBITDA have fallen to £6.5m in 2014 from £9.1m in2013,duetoastepdowninourinterestrate hedge in 2013. Adjusting for the interest rate hedge,adjustedrevenueandpre-exceptional EBITDA increased by £1.0m (2013: £5.5m). Central Central costs are general overheads incurred by the Group. Costs have increased by £2.1m to £3.8m, representing additional investment in developing the Group’s sales force. Adjusted EBITDA (pre-exceptional) OPERATING PROFIT I I F N A N C A L R E V E W I Investment Solutions Intelligent Solutions Pensions Solutions Interest Central costs Total adjusted EBITDA (pre-exceptional) Investment Solutions 29.3 16.3 21.7 6.5 (3.8) 70.0 35.1 (16.5%) 16.4 (0.6%) £m 12.2 77.9% 5.5 18.2% (1.7) 123.5% 67.5 3.7% Reported EBITDA (pre-exceptional) Exceptionalitems Depreciation & amortisation 2014 2013 Change 70.0 76.3 (8.3%) (7.7) (40.7) (25.0) (69.2%) (36.5) 11.5% Adjusted revenue fell by 5.6% to £94.9m, comparedto2013,withsignificantlylower corporate action activity more than offsetting thecontributionfromacquisitions.Operating costsremainedinlinewiththeprioryear, resultinginadjustedpre-exceptionalEBITDA being£5.8mdown. Intelligent Solutions Adjusted revenue increased by £8.1m to £89.6m, driven by the contribution from the Pancredit and Invigia acquisitions and increased complaints management placement contracts withfinancialserviceclients,offsetbylower project income. Adjustedpre-exceptionalEBITDAfortheyear was£16.3m,broadlyinlinewith2013(£16.4m), asthebenefitsfromtheInvigiaandPancredit acquisitionswereoffsetbylowerproject incomeandachangeinthemixofcomplaint managementwork. Operatingprofit 21.6 14.8 45.9% Operatingprofitremainsakeyperformance indicator,reflectingprofitbeforefinancecosts andtaxation.Fortheyearended31December 2014,operatingprofitwasup£6.8mcompared to the prior year, primarily attributable to a £17.3mdecreaseinexceptionalitems. Exceptional items £m Set up costs Restructuring costs Acquisitionrelatedexpenses Property costs Gain on investment Refinancingcosts Integration project Contract costs 2014 2013 3.0 5.1 2.6 1.9 (4.9) – – – 1.2 6.0 0.3 – – 10.2 2.9 4.4 7.7 25.0 37 Equiniti Annual Report 2014Making complex things simpleSECTION 01 70.0 2.5 72.5 104% (20.8) (31.0) 20.7 45.2 – (18.7) (2.5) 0.4 1.7 76.3 (5.3) 71.0 93% (19.3) (29.9) 21.8 (90.6) (16.9) (17.2) (4.0) 0.4 0.5 (0.7) (1.6) (2.6) 1.5 14.7 1.8 74.3 (42.4) CASH FLOW Onapre-exceptionalbasis,theGroup generatedfreecashflowof£72.5m(2013: £71.0m) representing a conversion of pre- exceptionalEBITDAtofreecashflowof104% (2013:93%).Themainmovementsincashflow aresummarisedbelow: £m 2014 2013 Exceptionalitemsof£7.7m(2013:£25.0m) include costs incurred in respect of establishing the Indian off-shore facility, costs of restructuring the management team, onerous leasesonpropertiesandcostsinvolvedwith the acquisitions recognised in the year. An exceptionalgainof£4.9mwasrecognisedon the Group’s investment in Euroclear PLC. The significantexceptionalitemsin2013related totheGroup’srefinancingexercise(£10.2m), costs incurred to integrate the Equiniti and Xafinitybusinesses(£2.9m),therestructureof the management team (£6.0m) and contract costs (£4.4m). NET FINANCE COSTS Netfinancecostswere£71.8m(2013:£78.1m). Ofthis,anetinterestcostof£31.0m(2013: £29.9mexcludingexceptionalitems)waspaid in cash. LOSS BEFORE TAX £m 2014 2013 Change EBITDA(pre-exceptional) Working capital movement Freecashflow Cash flow conversion Capitalexpenditure Net interest costs Freecashflowafterinterest Netfinancingcashflows Exceptionalitems-refinancing Exceptionalitems Investment in MyCSP Operatingprofit 21.6 14.8 45.9% Dividend from investment Netfinancecosts (71.8) (78.1) (8.1%) MyCSP dividend Gain on disposal of associate Shareofprofitin associate 9.8 1.7 – Investment in current year acquisitions (30.3) (10.9) 1.6 6.3% Payment for prior year acquisitions Lossbeforetax (38.7) (61.7) (37.3%) Taxespaid/received The Group made a loss for the year from continuing operations of £38.7m, compared to £61.7m in 2013. Acquiring a further 11% of MyCSP on 29 September 2014 resulted in an accounting, non-cash gain of £9.8m. Prior to thistransaction,MyCSPwasaccountedforas anassociateandtheGroup’sshareofprofits up to 29 September totalled £1.7m. Since this date, the results of MyCSP have been fully consolidatedintotheGroup’sresultswiththe recognition of a minority interest, being £1.4m for the three months to 31 December 2014. 3838 DisposalofXafinitiyConsulting Net cash movement Free cash flow Themovementinworkingcapitalof£2.5m excludescashflowsrelatingtoexceptionalitems and is indicative of the Group’s commitment to improveworkingcapitalmanagementthrough, forexample,automatinginvoicegenerationand improving payment terms. Capital expenditure Netexpenditureontangibleandintangible assetswas£20.8m(2013:£19.3m).This represents 7.1% of revenue (2013: 7.0%) demonstrating the Group’s continued commitment to developing our industry leading technology platforms. Net interest costs Net interest paid increased by £1.1m to £31.0m (2013:£29.9m)asaresultofdrawingdownon theRevolvingCreditFacility(“RCF”)tofinance our strategic acquisitions. Interest on the PIK loan and preference shares is accrued and is a non-cash item. Net financing cash flows Duringtheyear,£45.5mwasdrawnontheRCF tofundtheacquisitionsmade.£0.3mwasrepaid onfinanceleases. Investment in MyCSP Up until the Group took control of MyCSP in September2014,£2.5m(2013:£4.0m)waspaid in respect of the original investment in the associate. Investment in current year acquisitions Duringtheyear,£30.3mwaspaidas considerationtoexecutestrategicand capabilityenhancingacquisitions(seebelow for a summary of these acquisitions). Tax paid TaxespaidrelatetotaxpayablebyMyCSP Limited and our business in India. BANK BORROWINGS At the end of December 2014, net bank borrowingswere£458.2m(2013:£427.1m). £m Cash and cash equivalents Senior debt Revolving credit facility Finance lease Accrued interest 2014 30.1 2013 15.4 (440.0) (440.0) (45.5 ) (0.7) (2.1) – (1.0) (1.5) (458.2) (427.1) Net debt has increased by £31.1m, primarily due toanetcashoutflowonacquisitionsof£30.3m. ACQUISITIONS During the year, the Group made a number of strategic capability enhancing acquisitions: • On18March2014,PancreditSystems Limitedwasacquired.Pancreditsupports softwaretomanageunsecuredloan administration.Thiscompanysitswithin the Investment Solutions segment. • On1September2014,J.P.Morgan’s CorporateDealingServicesbusinesswas acquired.Thisbusinesssitswithinthe Intelligent Solutions segment. • On1September2014,InvigiaGroupLimited, a customer feedback and complaints managementserviceproviderwasacquired. ThiscompanysitswithintheIntelligent Solutions segment. • On29September2014,anadditional11% ofMyCSPLimitedwasacquiredbringingthe total shareholding to 51%. MyCSP is reported under the Pensions Solutions segment. A summary of assets purchased during 2014, andassociatedcashflows,isshownbelow: Acquisitions Goodwill Intangible assets Othernetassets Total consideration Deferred consideration Non-controlling interests Total payable Proceeds from disposal of associate Cash acquired Cashoutflow 2014 38.9 51.3 15.4 105.6 (9.2) (16.3) 80.1 (26.6) (23.2) 30.3 • On23January2015,theGroupcompleted the acquisition of the trade and assets of Selftrade, an online trading platform provider. RETIREMENT BENEFITS TheGroup’sdefinedbenefitschemesarethe Paymaster Pension Scheme, the ICS Pension Schemeand,witheffectfrom29September 2014, the MyCSP Limited Pension Scheme. The movements in the pension scheme liabilityisshownbelow: Defined benefit liability 2014 2013 At 1 January Net DB assets acquired Current service cost Contributions received Interest Change in actuarial assumptions 10.0 (0.2) 1.2 (1.8) 0.5 5.8 6.3 – 0.8 (1.1) 0.3 3.6 At 31 December 15.5 10.0 Thenetdefinedbenefitliabilityhasincreased by £5.5m during 2014. This is due to a change in actuarial assumptions, primarily as a result of a lowerdiscountratebeingused. i M a k n g c o m p e x l i t h n g s s i m p e l I S E C T O N 0 1 I I F N A N C A L R E V E W I E q u n i t i i A n n u a l R e p o r t 2 0 1 4 39 39 40 RISKS AND UNCERTAINTIES Details of our approach to risk management can be found in the Corporate Governance Statement page 62 to 65. We have a robust and well-embedded approach to identifying, managing and mitigating the risks facing our business. OUR PRINCIPAL RISKS AND OUR MITIGATIONS FOR THEM ARE AS FOLLOWS: RISK Regulatory We trade in regulated sectors. In particular, key parts of our business are regulated by the FCA. This means wemustcomplywithalltheregulationsthatapplyto ouroperationsandensureweanticipateandadapt to any changes to regulation. Operational We may suffer direct or indirect losses resulting from inadequate or failed internal processes, people and systems,orfromexternaleventsarisingfromour day-to-day operating activities. Contractual Wehavecontractualarrangementswithallofour clients.Theselastbetweenoneandfiveyearsandare essential to our business. We also develop key supplier partnerships, to support our long-term aims and those ofourclients.Itisthereforecriticalthatwenegotiate prices for these long-term contractual relationships appropriately,todeliverearningsgrowth. MITIGATION The regulated business undertakes regular assessments involving acomprehensivereviewofrisks,inordertoassessthelevel of capital required to support all relevant current and future risks under an internal capital adequacy assessment process (“ICAAP”). In addition, under the Client Asset Sourcebook (“CASS”) regime, supervised by the FCA, the regulated businesseshascomprehensivepoliciesandprocedurestoallow theidentification,assessmentandmitigationofrelevantrisks,to ensureclientscanbeconfidentthattheirassetsareheldsubject to client asset controls and a strong risk management culture. We have invested in training and put in place processes and procedures to reduce the likelihood of these risks occurring. We also have tested mitigation plans, to minimise the impact iftheserisksoccur.Inaddition,wemaintainacomprehensive insurance programme, tailored to the demands of our business. WehaveestablishedaSales&BidCommittee,sowefullyassess the opportunities and risks each contract presents. We establish tradingarrangementswithsuppliersfollowingopen,non- discriminatory and competitive bidding processes. Information technology infrastructure Ouroperationsdependuponthecontinuedavailability andintegrityofourITsystems,includingourwebsites. We have full back-up and business continuity procedures, comprisingbothinternalandthird-partyresources,which weregularlyreview,testandupdate. People Attracting and retaining the right people is key to delivering our objectives. Wehavebuilttalentpipelines,havingundertakenaformalreview of our talent pool in 2014, put in place competitive remuneration plansandexpandedourdevelopmentprogrammestodefine career paths. Other risks Thenatureofourservicesmeansthatwecan occasionally receive claims for professional service shortcomings,whichcouldresultinushavingtopay compensation. We maintain professional indemnity insurance across the Group. I R S K S A N D U N C E R T A N T E S I I 41 Making complex things simpleSECTION 01Equiniti Annual Report 2014 CORPORATE RESPONSIBILITY Equiniti is committed to being a responsible business. Our behaviour is based on sound business ethics and aligned with the expectations of our clients, investors, employees, suppliers, communities, regulators and society as a whole. We recognise that being responsible protects our brand and reputation and helps us to win work. It also encourages staff loyalty and engagement. Managing our impact on the world and the people around us is therefore a core part of our business. We define our responsibilities around four pillars, each supported by our business policies. THE FOUR PILLARS ARE: People Environment 4242 i M a k n g c o m p e x l In managing our corporate responsibilities, we aim to ensure that we: • comply with, and where practicable exceed, all applicable legislation, regulations and codes of practice; • integrate corporate responsibility considerations into every business decision, where possible; • make all staff fully aware of our corporate responsibility approach and our commitment to implementing and improving it; • minimise the impact of our office activities and transport use; • make clients and suppliers aware of our policies and encourage them to adopt sound and sustainable management practices; and • review our performance, so we can continually improve. Charity Communities i t h n g s s i m p e l I S E C T O N 0 1 C O R P O R A T E R E S P O N S B I L I T Y I E E q q u u n n i i t t i i i i A A n n n n u u a a l l R R e e p p o o r r t t 2 2 0 0 1 1 4 4 43 43 People People are at the heart of the sophisticated services we offer to clients. This means that our business success depends on attracting the best people and enabling them to reach their potential within Equiniti. We therefore need to effectively manage talent, succession and performance, drive engagement and ensure we share common values that inform our behaviour. OUR PEOPLE STRATEGY Assuring excellence During2014,wedevelopedapeoplestrategythat supports our overall business strategy. This people strategyhasthefollowingelements: • becoming a high-performance organisation; • assuringexcellence; • building capability; and • leveraging talent. Becoming a high-performance organisation We are embedding a robust performance management approach throughout the Group, usingaframeworkthatassesseswhatpeopledo andhowtheydoit.Thismeansmeasuringtheir performance against business objectives and assessinghowtheirbehavioursaligntoourvalues. We do this through observation by line managers, feedbackfromcolleaguesanddiscussionwiththe individual. Akeypartofourapproachistoensurethatwe addressissuesidentifiedduringperformance management and link them to the individual’s developmentneeds.Ourapproachwillalsoallow us to strengthen the link betweenperformance andreward,toensurewe appropriately recognise good performance. Ourapproachwillalsoallowus tostrengthenthelinkbetween performanceandreward… During2014,wemoderatedtheperformanceof the top three levels of management using this framework,aswellasotherpeopleeligibleforthe management bonus or sales incentive schemes. In 2015,weintendtorollthisouttootherlevelsofthe organisation. Assuringexcellencemeanseffectivelymanaging costsandreward,andensuringstronggovernance aroundHR.In2015,wewillmoveourHRfunction onto our PeopleAX platform (see page 32) for more details).Combinedwithmanagerandemployee self-service,thiswillgiveusmorevisibleand accurate people management information. Animportantbenefitwillbetoincreasevisibility ofpayandgradingacrosstheGroup,sowecan ensurethatpeopleatsimilarlevelsarerewarded consistently and appropriately. Todriveoperationalefficiencies,wearemoving moreofourHRadministrationtoChennai.Thiswill allowustoreinvestthecostsavingsinbuildingour specialistHRcapabilityintheUK.Itwillalsogiveus a reference site for providing HR shared services to clients. Building capability We aim to enhance our capability through effective resourcing, learning and development. This means buildingourtalentpipelines,forexamplethrough graduate recruitment, and providing the training and development opportunities our people need, forexamplethroughe-learningprogrammes.We are also considering graduate, sales and leadership academies.Allofthiswillhelpustoarticulatecareer pathswithinEquiniti,whichisvitaltoemployee engagementandretention,andwillenableusto develop our people through the organisation. Another important element is to recruit more people directly, rather than through agencies. By using social media, LinkedIn, job boards and otherchannels,wecanfindbetterpeoplewhile substantially reducing our costs. We are currently buildingourrecruitmentteamandwillfullylaunch direct recruitment in 2015. 44 We are also considering graduate, sales and leadership academies. All ofthiswillhelpustoarticulatecareer pathswithinEquiniti,whichisvitalto employee engagement and retention. Leveraging talent Toreachourgrowthtargets,weneedtomake the most of our talent. This means moving talent through the business, having the right leadership development and learning culture, and putting in place mentoring and coaching programmes. During2014,wecarriedoutatalentreviewto identifyourcurrenttalent.Thereviewalsoinformed our plan to build three talent pipelines over the next12to18months:exceptionaltalent,withthe potentialtobecomeanexecutiveteammember; highpotentials,whocouldrunanEquinitibusiness; andtalentfurtherdowntheorganisation,whocan reach senior management positions. We also put succession planning in place for the executiveteamanditsdirectreports.Thisidentified emergencycoverforthoseroles,peoplewhocould fitthoseroleswithin12months,andpeoplewho needtwoormoreyearstodevelop.Weprovide specialisedkeyskillsdevelopment,whichisspecific to the regulated environment and technology. Thisincludesworkingwithemployeestoengage them in a self-discovery process, to identify their unique skills and competencies. We help employees prepare for success by providing training and development opportunities, including e-enabled skills development and self-managed learning. Thenextstageistocreateanactionplan,whichlinks to development programmes for these talent groups and helps us to address gaps in our talent pipelines. Details of our PeopleAX platform can be found on page 32. i M a k n g c o m p e x l i t h n g s s i m p e l I S E C T O N 0 1 C O R P O R A T E R E S P O N S B I L I T Y I E q u n i t i i A n n u a l R e p o r t 2 0 1 4 45 Engagement Diversity Employeeengagementwillbeanimportantpart ofour2015agenda.Expandeddevelopment programmesanddefinedcareerpathswillhelpus toengageandretainourpeople.Wewillworkhard tocommunicateourbusinessplan,soweenthuse our people about the Group’s prospects and their part in achieving our goals. Wealsoknowthatengagementrequireseffective leadership,sowewillprovideourleaderswiththe tools and support they need to engage their teams. OurintentionistoconductaGroup-wideemployee surveyduring2015,sowecanunderstandwhatour employeesvalueaboutworkingforEquinitiand wherewecanimprove. Weareproudtohaveintroducedthelivingwage during the year. Werecognisethevalueofadiverseworkforce and look to offer equal opportunities to everyone. Equiniti has a good gender balance across the Group,with51%ofourpeoplebeingfemale and49%male.However,womenremainunder- represented at senior levels and in certain parts of the business, notably Intelligent Solutions and our IT function. Weexpectthatourtalent,developmentand recruitmentprogrammeswillhelptoaddress this,aswellasourcoachingandmentoring initiatives.Equinitihasalsojoinedeverywoman, anorganisationthatworkswithmanyblue-chip companies and provides development programmes andforumstohelpwomenprogressintheircareers. The table below shows our current gender diversity. A living wage EMPLOYER Human rights Equiniti recognises the importance of protecting humanrightsbutwedonotbelieveitisa significantissueforourbusiness.Weensurewe protect the rights of our people by adopting suitable employment practices, as described in the Employees section of the Directors’ report. We also aim to act ethically in all our business dealings. Board Senior management Other employees Total Men Women 2013 (%) Men Women 2014 (%) Men Women 100 66 47 49 0 34 53 51 82 69 50 52 18 31 50 48 2013 2014 46 OUR VALUES Trust We act with integrity and openness in our dealings with others Excellence We work hard to get it right first time and keep our promises and commitments to others Client focus Belief We add value and build true partnerships We have passion and belief in what we do and who we are People We are positive, enthusiastic and supportive of one another C O R P O R A T E R E S P O N S B I L I T Y I 47 Making complex things simpleSECTION 01Equiniti Annual Report 2014 Environment We recognise the importance of protecting the environment and the impact of commerce on environmental issues. This means we are committed to continual improvement in energy efficiency and preventing waste. IN PARTICULAR, WE LOOK TO Avoidtravellingwhere practical alternatives are available, such as using teleconferencing or video conferencing Reduce our energy consumption by purchasing energyefficientequipment, using motion-activated lighting, thermostatically controlling heating and hot water,andthroughgood housekeeping Minimise the use of paperandotheroffice consumables,forexample by introducing multi- functionaldeviceswhich can print double-sided to save paper Reducewaterconsumption, byfittingpneumatictapsin washrooms Arrange for the reuse or recyclingofofficewaste, including paper, computer supplies and redundant equipment Equiniti has Carbon Trust accreditation 48 Charity In 2013, we asked our people to select a national charity partner for us to support from 1 January 2014. They chose Winston’s Wish, the UK’s largest charity providing services to bereaved children, young people and their families. It helps young people re-adjust to life after the death of a parent or sibling. During the year, we raised in excess of £4,000 for Winston’s Wish. Tosupportourcultureofteamworking,wesigned up to the UK Challenge. This is one of the UK’s leadingcorporateteambuildingevents,forwhich ourteamof18volunteerswenttoSnowdoniato compete against 67 other teams. The Challenge combinedphysicaladventurewithstrategicdecision making and problem solving, helping our people to develop their skills and relationships. Aswellassupportingournationalcharitypartner, our people raise money for organisations that have personal relevance to them or their communities. Whilewedonotalwayscentrallyrecordtheselocal initiatives,weestimatethatourofficesaroundthe country raised over £20,000 for causes ranging from primary schools to Children in Need. We raised in excess of £4,000 FOR WINSTON’S WISH Our offices raised over £20,000 FOR OTHER CHARITABLE CAUSES C O R P O R A T E R E S P O N S B I L I T Y I 49 Making complex things simpleSECTION 01Equiniti Annual Report 2014 Communities We support local community projects and initiatives, including a number of schools. Weaimtopromoteeconomicandsocialwellbeingaroundallof our locations. This includes our commitment to providing equal and fair opportunity for all third-party suppliers. Where practicable, wethereforeseektoworkwithsmalltomediumenterprises(SMEs) that are local to our establishments. SMEs currently make up 30% of our top 50 suppliers by value. IN ADDITION, WE BENEFIT OUR COMMUNITIES BY: • Supporting community projects • Providingworkexperience and initiatives, including a numberofschoolswhereour staff introduce students to professional and career choices and support their aspirations. andworkshadowingtoyoung peoplethroughourlinkswith schoolsandcolleges,with agrowingapprenticeship programme across Equiniti. • Workingwithyoungpeople to engage them in business principles and functional expertise,withafocuson developing and investing in young talent, such as Young Enterprise. • Providing practical support to local charities and support groups. As our approach to corporate responsibilityevolves,wewillalso explorehowwecansupportlocal communities in India. STAFF INTRODUCE STUDENTS TO PROFESSIONAL AND CAREER CHOICES AND SUPPORT THEIR ASPIRATIONS 50 Thestrategicreportwasapproved by order of the Board Guy Wakeley Chief Executive 25 March 2015 Registered Number: 07090427 i M a k n g c o m p e x l i t h n g s s i m p e l I S E C T O N 0 1 C O R P O R A T E R E S P O N S B I L I T Y I E q u n i t i i A n n u a l R e p o r t 2 0 1 4 51 52 i M a k n g c o m p e x l 02 GOVERNANCE BOARD OF DIRECTORS 54 CORPORATE GOVERNANCE STATEMENT DIRECTORS’ REPORT AUDITORS’ REPORT 58 66 68 i t h n g s s i m p e l I S E C T O N 0 2 G O V E R N A N C E E q u n i t i i A n n u a l R e p o r t 2 0 1 4 53 Board of Directors GUY WAKELEY CHIEF EXECUTIVE OFFICER KEVIN BEESTON CHAIRMAN GuyjoinedtheEquinitiBoardasChiefExecutive OfficerinJanuary2014. Kevin joined the Equiniti Board as Chairman in September 2011. Career Guy joined from Morrison plc, the property services provider to the public and private sector, wherehewasCEOforfiveyears.Duringhistenure, he transformed the level of client service and innovation,grewthebusinessrapidlyand delivered consistently strong cash generation. Priortothis,GuywasManagingDirectorofthe Built Environment division at Amey, the infrastructure services provider to the public and private sector. GuypreviouslyworkedforTheBerkeleyGroup, General Electric and Rolls-Royce. He holds an MA in Engineering Science from the University ofCambridge,aPhDinapplicationsofartificial intelligence, and is a Chartered Engineer. Guy sits on theCBI’sPublicServicesStrategyBoard,isaFellow of the Royal Institution of Chartered Surveyors, and isacommercialpilotandflightinstructor. Committees GuyisamemberoftheOperationsCommittee. Career Kevin is also Chairman of FTSE 100 developer and homebuilder Taylor Wimpey plc and of Domestic andGeneral,theinternationalproviderofextended warrantyservices.Inaddition,KevinisanOperating PartnerofEquiniti’sowner,AdventInternational. From2002to2010,KevinwasChairmanofSerco Groupplc,havingpreviouslybeenChiefExecutive and Finance Director during a 25-year career withSerco.Hewasanon-executiveDirectorof engineering group IMI plc from 2005 to 2012, Chairman of Partnerships in Care, a specialist provider of secure mental health services from 2007to2014,andaDirectorofIpswichTown Football Club from 2003 to 2008. Kevin’s other previous roles include Chairman of the CBI’s Public Services Strategy Board, promoting the role of business in transforming the UK’s public services.HewasalsoaCommissionerfortheTUC’s Commission on Vulnerable Employment. Kevin is an accountant by background. Committees KevinisChairmanoftheOperationsandNomination & Governance Committees, and a member of the Remuneration and Audit Committees. 54 i M a k n g c o m p e x l i t h n g s s i m p e l I S E C T O N 0 2 B O A R D O F D R E C T O R S I E q u n i t i i A n n u a l R e p o r t 2 0 1 4 55 JAMES BROCKLEBANK NON-EXECUTIVE DIRECTOR (INVESTOR REPRESENTATIVE) JamesjoinedtheEquinitiBoardasanon-executive Director on 8 December 2009. Career James joined Advent in 1997, moving from the LondonofficeofinvestmentbankBaringBrothers, whereheadvisedclientsonvariousinternational mergers and acquisitions. James led or has participated in a number of Advent’s investments includingEquiniti,Worldpay,NetsMonext,Tertio Limited and MACH. James co-heads Advent’s European activities and is head of Advent’s Europeanbusinessandfinancialservices sector team. James has an MA in geography, specialising in economic and political geography, from Cambridge University.Heisannon-executiveDirectorof Worldpay and Nets. Committees JamesisamemberoftheOperationsand Nomination & Governance Committees. SIR RODNEY ALDRIDGE, OBE NON-EXECUTIVE DIRECTOR SirRodjoinedtheEquinitiBoardasanon-executive Director on 25 March 2010. Career SirRodwasthefounderofCapitaGroupandits Chairman until his retirement in 2006. During his tenure, he led the Group from its formation in 1984 withintheCharteredInstituteofPublicFinanceand Accountancy (CIPFA) to being a FTSE 100 company. SirRodwasChairmanoftheCBI’sPublicServices Strategy Board from its inception in 2003 until 2006. PriortoCapita,SirRodworkedinlocalgovernment fortenyears,wherehequalifiedasachartered public accountant. He joined CIPFA in 1974, ultimately becoming its Technical Director. In 2006, Sir Rod established theAldridgeFoundationtocontinuehisworkon public service reform and to focus on his charitable activities involving educational underachievement andsocialexclusion. SirRodisaPatronofthePrince’sTrustandwasthe inaugural chair of Vinspired, a charity launched by Government in May 2006 to encourage volunteering intheyoungandwhichnowengageswithover onemillionnewyouthvolunteers.HeisalsoChair ofTheLowry,theartsandentertainmentvenuein Salford and is a Director of Cornerstone, a company delivering property solutions to public bodies. Committees Sir Rod is a member of the Audit Committee. LUCY DIMES CHIEF OPERATING OFFICER Lucy joined Equiniti as Chief OperatingOfficerin2014. VICKY JARMAN NON-EXECUTIVE DIRECTOR AND CHAIR OF THE AUDIT COMMITTEE TIM MILLER NON-EXECUTIVE DIRECTOR AND CHAIRMAN OF THE REMUNERATION COMMITTEE Career Lucy joined Equiniti from Alcatel- Lucent,whereshewasChief ExecutiveUK&Ireland.Prior to that she had a 19 year career atBT,whichculminatedintherole of Managing Director Group &OpenreachOperations. ShewasawardedtheCorporate Leader of the Year at the 2013 FDMEverywomaninTechnology Awardsandthe‘FirstWoman’ AwardinScience&Technology atthe2013CBIAwards. Lucyisanon-executiveDirector of Berendsen PLC and a member of its Audit, Remuneration and Nomination Committees. She is also a Trustee for the Garden Bridge Trust. Committees Lucy is a member of the OperationsCommittee. Vicky joined the Equiniti Board asanon-executiveDirectoron 1 May 2014. Tim joined the Equiniti Board asanon-executiveDirector on 1 February 2015. Career Vickyisaqualifiedchartered accountant,withanearlycareer at KPMG and latterly 11 years in corporatefinanceatLazard,where shewasChiefOperatingOfficer. During her time at Lazard, she successfully led the restructuring of its UK operations. She sat on the Lazard London Board and European Management Committee, and opened Lazard’s Dubaioffice. Sheholdsnon-executive directorships at De La Rue plc andHaysplc,whereshechairs the audit committee, and holds a Mechanical Engineering degree from Leicester University. Committees Vicky is the Chairman of the Audit Committee and a member of the Risk and Nomination & Governance Committees. Career Timhasextensiveexperience asaBoard-levelexecutiveacross a range of sectors. During his 14 years at Standard Chartered Bank, he held a number of Director- levelpositions,withglobal responsibility for areas including human resources, compliance, audit,assurance,financialcrime, and legal functions. Hisnon-executiveDirectorroles include Chairman of the Girls Day School Trust, Chairman of the Governing Body of the School of OrientalandAfricanStudiesand ChairmanofOptituneplc, a cleantech company. Hewaspreviouslyanon-executive Director of recruitment services provider Michael Page Group plc. Tim is also visiting Professor of Business Management and Strategy at the Nottingham Business School and is the general secretary responsible for the London Society of Rugby Football Union Referees. Committees Tim is the Chairman of the Remuneration Committee and a member of the Risk Committee. 56 HARIS KYRIAKOPOULOS NON-EXECUTIVE DIRECTOR (INVESTOR REPRESENTATIVE) Haris joined the Equiniti Board asanon-executiveDirectoron 1 August 2013. Career Haris joined Advent International in August 2008. Prior to Advent, heworkedininvestmentbanking inLondonwithGoldmanSachs’ UK Mergers and Acquisition team, instrategyconsultinginNewYork withFirstManhattanConsulting Group,andinAthenswithTellas, thefixedlinetelecomstartupthat wassubsequentlyacquiredby Wind Hellas. HarisholdsaBScwithhonours in Electrical Engineering from the University of Pennsylvania, and an MBA. Committees Haris is a member of the Operations,Remuneration and Risk Committees. JOHN PARKER NON-EXECUTIVE DIRECTOR John joined the Equiniti Board asanon-executiveDirector on 1 January 2014. Career JohnwasManagingDirector of Equiniti Shareholder Solutions, withresponsibilityforour share registration, employee benefitsandinvestmentservices businesses. He joined the companyin1999whenitwas Lloyds TSB Registrars and has held a number of senior positions during that period. HewaswithLloydsTSBGroup for 30 years, holding a range of management roles in retail banking. He held senior positions asHeadofOffshoreTreasury and as National Sales Manager, Wealth Management before joining Lloyds TSB Registrars (nowEquiniti).Heisafellowof the Chartered Institute of Bankers Committees John is Chairman of the Risk Committee. OLIVER NIEDERMAIER, PHD NON-EXECUTIVE DIRECTOR OliverjoinedtheEquinitiBoardas anon-executiveDirector on 25 March 2010. Career OliveriscurrentlyChairman andCEOofTauInvestment Management,aninvestmentfirm he founded in 2012 focusing on turnaroundandgrowthequity investments in the transformation of global supply chains. Prior to that,hewasamemberofthe ComputershareGlobalExecutive BoardandafounderandCEOof KingWorldwideandearlierinhis career of Pepper Technologies (acquired by Computershare). OlivergraduatedfromLudwig- MaximiliansUniversity,Munich, Germany,withaPhDinStrategic Management (magna cum laude).In2010hewashonoured by the World Economic Forum as Young Global Leader and heservesonseveralnon-profit boards, including the World Policy Institute and the National Museum of the American Indian in NewYork. Committees Oliverisamemberofthe Nomination & Governance and Remuneration Committees. JohnStierwillbejoiningthe boardasChiefFinancialOfficer on 1 June 2015. B O A R D O F D R E C T O R S I 57 Making complex things simpleSECTION 02Equiniti Annual Report 2014 CORPORATE GOVERNANCE STATEMENT THE BOARD’S ROLE The Board provides leadership to the Group. It is responsible for strategy and oversees implementation, risk management, financial performance and corporate governance. It ensures that the right people and resources are in place to deliver long-term value to shareholders and benefits to our wider stakeholders. Thediagrambelowshowourcorporategovernance structure,includingourBoardandExecutive Committees. EQUINITI’S CORPORATE GOVERNANCE STRUCTURE EGL Board COMMITTEESOFTHEBOARD Remuneration Nomination & Governance Risk Audit Operating EXECUTIVECOMMITTEES Executive Committee Sales and Bids Investment and Projects Compliance and Risk Strategy and Mergers and Acquisitions Quarterly Business Reviews Monthly Performance Review 58 BOARD COMMITTEES ToallowtheBoardtooperateeffectively,wehave established a number of Board Committees. During theyear,wereplacedtheAudit&Riskcommittee withtheAuditCommittee,whichischairedbyVicky Jarman, and the Risk Committee, chaired by John Parker. Summaries of each Board Committee’s terms ofreferencearesetoutbelow. Remuneration TheCommitteereviewstheGroup’sremuneration policy and makes recommendations to the Board, includingtheremunerationoftheexecutive Directors and the Chairman. It also sets and monitors performance criteria for all incentive schemes.Thenon-executiveDirectors’remuneration isreservedtotheBoardasawhole.Inadditionto remuneration, the Committee oversees any major changesinemployeebenefitsstructuresthroughout the Group. Nomination & Governance TheCommitteereviewsthestructure,sizeand composition of the Board, Board Committees and subsidiary boards, including their balance of skills, knowledge,experienceanddiversity,andmakes recommendationstotheBoardwithregardto any changes. The Committee is also responsible forestablishingandreviewingplansandpolicies covering succession plans for Directors and other seniorexecutives,ourBoarddiversitypolicyand our staff vetting policy. Risk TheCommitteeexercisescompetentand independentjudgementwhenmaking recommendations to the Board, to ensure that the Group establishes, implements and maintains effective, comprehensive and proportionate policies and processes to identify, manage, monitor and reporttheriskstowhichtheGroupisormight beexposed. Audit The Committee monitors the integrity of the Company’sfinancialstatements,includingits annual reports, interim management statements and any other formal announcement relating to its financialperformance.Italsoreviewsandreports totheBoardonsignificantfinancialreporting issues and judgements, having regard to matters communicatedtoitbytheexternalauditor. The Committee recommends to the Board the appointment, re-appointment and removal of the externalauditor.Iftheexternalauditorwereto resign,theCommitteewouldinvestigatetheissues leadingtothisandtakeactionwhererequired. TheCommitteereviewstheadequacyand effectivenessoftheGroup’sinternalfinancial controls and internal control and risk management systems,includingthemannerinwhich management ensures and monitors the adequacy ofthenature,extentandeffectivenessofour internal controls. TheCommitteereviewstheGroup’swhistleblowing policyandtheadequacyofarrangementstoallow proportionate and independent investigation and followupofanymattersreported. Operating The Committee is the main day-to-day decision making forum, subordinate to the Board. Its principal duty is to create shareholder value, by overseeing implementation of our strategy. It has responsibility for the Group and for ensuring that theCompanycomplieswithallapplicablestatutory, regulatory and governance requirements. Members promotetheCompany’ssuccessbyexercising prudentindependentjudgementwithskill,care anddiligence,whilekeepinginviewthelong-term consequences of their decisions. C O R P O R A T E G O V E R N A N C E S T A T E M E N T 59 Making complex things simpleSECTION 02Equiniti Annual Report 2014 BOARD COMPOSITION AND ROLES At the date of this report, the Board comprised the Chairman, two executive Directors, four independent non-executive Directors and three other non-executive Directors, two of whom are investor representatives. Their key responsibilities are summarised below: ROLE Chairman INDIVIDUAL(S) Kevin Beeston ChiefExecutive Officer Guy Wakeley ChiefOperating Officer Lucy Dimes Non-executive Directors Sir Rodney Aldridge, Olivier Niedermaier, Vicky Jarman, Tim Miller, James Brocklebank, Haris Kyriakopoulos and John Parker RESPONSIBILITIES Responsible for leading the Board, its effectiveness and governance, setting the tone for the Company, and ensuring effective linksbetweentheshareholders,theBoardand management Responsible for the day-to-day management of the Group’s operations, for recommending the Group’s strategy to the Board and for implementing the strategy agreed by the Board SupportstheChiefExecutiveindevisingand implementing strategy and in relation to the operations of the business ConstructivelychallengetheexecutiveDirectors andmonitorthedeliveryofthestrategywithin theriskandcontrolframeworksetbytheBoard ATTENDANCE AT BOARD AND COMMITTEE MEETINGS The table below shows the number of Board and committee meetings each director attended during the year. The number of meetings they were eligible to attend is shown in brackets. Director Kevin Beeston Guy Wakeley Martyn Hindley† Sir Rodney Aldridge Oliver Niedermaier James Brocklebank Haris Kyriakopoulos Nick Rose John Parker Vicky Jarman COMMITTEE MEETINGS Board meetings Remuneration Nomination Risk Audit Operating & Governance 6 (6) 6 (6) 6 (6) 6 (6) 6 (6) 5 (6) 6 (6) 2 (2) 6 (6) 4 (4) 2 (2) 2 (2) 4 (4) 2 (2) 2 (2) 2 (2) 2 (2) 2 (2) 2 (2) 4 (4) 1 (1) 3 (3) 2 (2) 2 (2) 2 (2) 3 (3) 3 (3) 3 (3) 3 (3) 3 (3) In addition to scheduled meetings, the Board met on a quorate basis four times, approving formal completion minutes and internal share transfers. †MartynHindleyresignedasChiefFinanceOfficeronthe20February2015. 60 Board activities Board training and induction During the year, the Board considered and approved the acquisitions of: • Pancredit Systems Limited – an innovative and fast growingsoftwarebusiness,whichsupportsbanks, intermediariesandpricecomparisonsiteswith intelligent loan administration and origination services. ToensuretheBoardkeepsuptodatewith developments in the Group’s business, its markets and corporate governance, the Directors received thefollowingupdatesduringtheyear: • Sessions on directors’ duties and responsibilities, under legislation and corporate governance best practice; and • Selftrade’s customer portfolio – the migration of itscustomersandtheirassetsontoanewtrading platform completed successfully in January 2015, involving the transfer of 104,000 customer records andapproximately£3.9bnofclientassets. • J.P. Morgan’s corporate dealing services business – the acquisition provides dealing services for participants in all forms of share based remuneration schemes and increased Equiniti’s presence in the UK market. • Invigia Ltd – a provider of complaints, case and feedbackmanagementsoftwareandservicesfor awiderangeofentities.Theacquisitionadds to the services offered through Hazell Carr, as wellasexistingtechnologysolutionsincase management, data analysis and reporting. • A further 11% stake in MyCSP, increasing our holdingto51%.Theacquisitionwillstrengthen the partnership and help accelerate MyCSP’s growth,intheinterestsofitsclients,shareholders and employees. • A site visit to our Belfast businesses. WhennewDirectorsjointheBoard,weensure they receive a full induction so that they have a thorough understanding of the business and their responsibilities as Directors. Board process The agenda for each Board meeting is prepared bytheCEO,inconjunctionwiththeChairmanand company secretary. Papers are collated centrally and accessible online using a Board portal. A typical Boardpackcomprisesofexecutivesummaries relating to business performance, risk and compliance,internalaudit,HRandfinance,together withappropriatesupportingpapersandotherkey information, such as details of any standalone special projects or proposed acquisitions. All directors have access to the company secretary. The Board is kept up to date on legal, regulatory and governance matters by regular papers and presentations from bothinternalsubjectmatterexpertsandexternal advisers. The Board’s activities also included: Conflicts of interest • Approving appointments to the Board to strengthentheexecutiveteamandoverall governance structure, through the appointments ofGuyWakeleyasCEO,LucyDimesasCOOand PaulMatthewstotheexecutiveteam,together withJohnParker,VickyJarmanandTimMilleras non-executiveDirectors. • Overseeingasignificantinvestmentin IT infrastructure, by the insourcing of IT development and support services and creation androlloutofaGroup-wideITnetworkto support all the Group’s businesses. • Introducing a key account programme, to underpintheGroup’sgrowthplansandprovide an improved service offering to clients and their customers and investors. TheBoardoperatesapolicytoidentifyand,where appropriate,manageconflictsorpotentialconflicts ofinterest.Whereanyconflictsarenotifiedor disclosed, these are considered by the remaining Directors on a case by case basis. Relations with investors TheCompanyactivelyengageswithitsinstitutional debt investors and analysts. During the year: • OurChiefFinancialOfficerheldmeetingswith debt investors and analysts, to discuss our performance; and • OurChiefExecutiveOfficerandChiefFinancial Officermadequarterly,half-yearandfull-year results presentations. C O R P O R A T E G O V E R N A N C E S T A T E M E N T 61 Making complex things simpleSECTION 02Equiniti Annual Report 2014 AUDIT COMMITTEE REPORT Whistleblowing Committee membership Chair: Vicky Jarman Members: Sir Rod Aldridge, Kevin Beeston, and Nick Rose (part of year only) Meetings and agenda The Audit Committee met four times during the year. The committee meetings are routinely attendedbytheCEO,CFO,COOandGroup Directorofcomplianceandrisk,togetherwith representativesoftheexternalauditorandinternal audit team by invitation. The key agenda items that the Committee considered in 2014 included: • Reviewingandapprovingtheinterimandfullyear results announcements and the annual report; • Reviewingandapprovinginternalandexternal audit plans for 2015; • ReviewingtheGroup’sEnterpriseWideRisk Management (“EWRM”) risk assessment and risk appetite; • Reviewinginternalauditreportsintoanumberof internalandexternalprocesses,includingoutof pocketexpenses,securityofthird-partysupplier bank details, pension administration payment processes, payroll administration and third-party print and mail processes; and • Commissioninganexternalreviewintothe structure and operation of the internal audit, compliance and risk function. Significant judgements, assumptions and estimates The Audit Committee’s responsibilities include reviewingandapprovingsignificantjudgements, assumptions and estimates made in preparing the financialstatements.In2014,theseincluded: • Treatmentofexceptionalitems,includingproject costs, costs relating to the restructuring and refinancingin2013. • Impairmentreviewofgoodwill,usingnetpresent valueofdebtfreecashflowprojections. • Reviewoftheassessmentofthegoingconcern statement and the underlying assumptions consideredinthatreview. TheAuditCommitteeoverseesawhistleblowing facility to enable employees to raise issues on a confidentialbasis.Allconcernsaboutmalpractice are treated seriously. The Group is committed to ensure that all reports are thoroughly investigated and appropriate action taken. Any investigations are conducted by an appropriate person or department not involved in the alleged malpractice. Investigations may be independently overseen by Compliance, to ensure a consistent approach. Where an employee feels unable to report any concerns internally, they are recommended to report their concerns to the independent charity Public ConcernatWork,whichisarecognisedauthority onwhistleblowing. RISK COMMITTEE REPORT Committee membership Chair: John Parker Members: Vicky Jarman and Haris Kyriakopoulos Meetings and agenda TheRiskCommittee,whichwasestablishedduring theyear,mettwice.Thecommitteemeetingsare routinelyattendedbytheCEO,CFO,COOand Group Director of compliance and risk by invitation. The key agenda items that the Committee considered in 2014 included: • Reviewingroutineupdatesofgrouppolicies relatingtoanti-briberyandgifts,whistleblowing and competition; • Reviewingthe2015internalauditandcompliance testing plans; • Reviewingandreviewingreportsandfollowup actions on the effectiveness of fraud mitigation controlsandtheriskcontrolframeworkand EWRM structure; • Reviewofreportsfrominternalauditandfollow up actions into complaint handling processes, dataprotectionawareness,internalHRandpayroll disciplines,andinternalstaffexpenses;and • Receivingreportsrelatingtocyberriskexposure and future changes to EU data protection legislationwhicharelikelytoimpacttheGroup’s activities and in particular its big data initiative. 62 Risk management and internal control Duringtheyear,weseparatedtheAudit&Risk Committeeintotwocommittees.WiththeGroup’s growthgenerally,andinparticularthegrowthof theregulatedbusiness,wefeltitwasimportant to separate the oversight of the risk function, the assessment of risk and the development of operational procedures from the internal audit andcompliancefunctions,whichmonitorthe effectiveness of those risk mitigation and operational processes. Having restructured audit and risk oversight in this way,ourexternalauditorperformedaformalreview of our internal audit, risk and compliance functions. Thishasshownuswhereweperformwellandalso highlightedareasforfurtherimprovement,which wewillimplementinthecomingmonths. The Group has established risk management policies andtheAuditandRiskCommitteesoverseehow management monitors our compliance. With these policiesandprocedures,wereviewtheadequacy ofourriskmanagementframeworkinrelationto the risks the Group faces. TheCEOandCFOformpartoftheGroup’sfirstline of defence and attend Audit and Risk Committee meetings, to respond to any matters that arise. They areresponsiblefortakingforwardactionsthatthe Committees delegate to them. The Compliance & Risk Director oversees the closure of these actions. The Audit Committee is assisted in its oversight role by Internal Audit and Compliance Monitoring functions. Internal Audit undertakes both regular andadhocreviewsofriskmanagementcontrols andprocedures,whileComplianceMonitoring undertakesthemedregulatoryreviewsandreports the results to the Audit and Risk Committees. Various aspects of our activities are regulated, either directly or indirectly. As such, the Group’s risk management systems are longstanding, standardised and robust. We have a strong risk managementframework,whichusesa“threelines of defence” model, namely: • operational management’s application of systems and controls; • the development and deployment of business conduct rules and regulatory policies; and • theindependentassessmentofthesetwo defences by the Group’s independent Internal Audit and Compliance Monitoring functions. TheGroupassessesitsriskandriskprofileusing anEWRMmodel,whichcoversstrategy,change, customertreatment,financialsoundness,market andcreditexposure,legalandregulatory compliance,internalandexternalfraudexposure, change and operations.The combination of these risk assessments supports our formulation of our risk assessment. Inaddition,wehaveawell-establishedbusiness continuitymanagement(“BCM”)framework,which determineshowbusinesscriticaleachactivityisto clients,theircustomers,otherexternalstakeholders andtheGroup.Onceassessedandindependently challenged,werequireeachbusinessunittoapply arangeofbusinesscontinuitytests,whichincrease inlinewiththelevelofcriticalactivityundertaken. WeactivelytrackourcompliancewiththisBCM testing programme. Ourprincipalrisksandourmitigationsforthem are discussed in the Strategic Report on page 41. TheGroup’sapproachtofinancialriskmanagement isdiscussedbelow. Financial risk management OuroperationsexposetheGrouptoavarietyof financialrisks,includingcreditrisk,liquidityrisk and the effects of changes in interest rates on debt. We have a risk management programme that seekstolimittheadverseeffectsonourfinancial performance,bymonitoringlevelsofdebtfinance andtherelatedfinancecosts. TheGroup’sprincipalfinancialinstrumentscomprise sterling cash and bank deposits, bank loan and overdraftsandotherloans,togetherwithtrade debtors and trade creditors that arise directly from our operations. Cash flow interest rate risk TheGroupisexposedtointerestrateriskinthree mainrespects.First,floatingratesaregenerally earnedonclientandcorporatebalances,whichare mitigatedbyaninterestratederivativewhichruns toOctober2016.Commencinginearly2015,wewill enhance this interest rate derivative and ultimately replaceitwitharollinginterestratehedgingstrategy. Second,expenserelatingtotheUKSharesave(SAYE) productandultimatelypayabletosaversatfixed ratesisprotectedbyfixedrateincomeagreements. Third,wemitigateinterestexpensearisingonthe floatingratenotesviaaninterestratederivative, whichrunstoOctober2018. C O R P O R A T E G O V E R N A N C E S T A T E M E N T 63 Making complex things simpleSECTION 02Equiniti Annual Report 2014 Credit risk Capital risk management Creditriskistheriskoffinanciallossifacustomeror counterpartytoafinancialinstrumentfailstomeetits contractualobligationstous.Ourprincipalfinancial assets are bank balances, cash and trade debtors. Theserepresentourmaximumexposuretocredit riskinrelationtofinancialassets. We have strict controls around, and regularly monitor,thecreditratingsofinstitutionswithwhich weentertransactions,eitheronourownbehalfor for clients. Although our credit risk arises mainly from our receivables from clients, this risk is not significantbecauseitisspreadacrossalargeand diverse client base and the majority of our trade receivablesarewithFTSE350companiesandpublic sector organisations. The amounts presented in theconsolidatedstatementoffinancialposition arenetofallowancesfordoubtfuldebts,which are estimated by management based on prior experienceandanassessmentofthecurrent economic environment. Losses have only occurred infrequently in previous years. Foreign currency risk TheGroupisexposedtoforeigncurrencyrisk. Ourpolicyistohedgeagainstmaterialcurrency fluctuations,wherewefeelthisisadvantageous. Price risk Price risks result from changes in market prices such asinterestrates,foreignexchangeratesandequity dealingprices,whichimpacttheGroup’sincomeor thevalueofitsfinancialinstruments. Ourfinancialinstrumentsaremainlyinsterling,which meansthatforeignexchangemovementsdonot have a material effect on the Group’s performance. We do not hold positions in traded securities and are only involved in receiving and transmitting transactions on behalf of clients. The Group earns income in relation to client andinvestordeposits,aswellasinterestonits owndeposits.TheGroupisthereforeexposed to movements in the interest rate in both its intermediaryfeerevenueandnetfinancecosts. Intermediary fee revenue is linked to bank base rate, whileboththeGroup’sseniordebtandthePIKloan rates of the Group are linked to Libor. In 2011, the Company hedged the monthly intermediaryfeeincomeatexistingmarketrates byreceivingafixedrateagainstbaseratethat continuesuntil2016.Thiswasagainstanunderlying level of £400m of assets, reducing by £80m over the term. Asaresultofthe2013re-financing,aswapwastaken out,matchingthetermsofthenew£190mfloating rate notes. Wecontinuallyreviewtheserisksandidentify suitableinstrumentswhereapplicable. Incommonwithotherprivateequityportfolio companies, the Group carries a high level of net debt compared to equity. Total capital is calculated astotalequity,asshownintheconsolidated statementoffinancialposition,plusnetdebt. Net debt is calculated as the total of “other interestbearingloansandborrowings”,asshown intheconsolidatedstatementoffinancialposition, less cash and cash equivalents. Ourobjectiveswhenmanagingcapitalareto maximiseshareholdervaluewhilesafeguarding the Group’s ability to continue as a going concern. Wewillcontinuetoproactivelymanageourcapital structure,whilemaintainingflexibilitytotake advantageofopportunitiestogrowourbusiness. Oneelementofourstrategyistomaketargeted, value-enhancing acquisitions. The availability of suitable acquisitions, at acceptable prices is, however,unpredictable. Prudential Capital Risk TwoGroupentitiesaresubjecttoFCAregulatory capitalrequirementswhereeachisrequired,as set against its regulated trading permissions, to maintain minimum levels of capital in order to manage its affairs. Equiniti Financial Services Limited (EFSL)iscategorisedasaP2prudentiallysignificant firm,whichmeansthatitsdisorderlyfailurewould haveasignificantimpactonthefunctioning ofthemarketinwhichitoperates.Paymaster (1836) Limited (“P(1836)L”)is categorised as a P3 prudentiallynon-significantfirm,whichmeansthat itsfailure,evenifdisorderly,wouldbeunlikelyto haveasignificantimpact. AsanIFPRUMiFIDqualifyingfirm,(“EFSL”)must complywiththeCapitalRequirementsDirective anddoessoundertheFCAframeworkconsisting ofitsthree“Pillars”approach,whereEFSL assesses its minimum capital requirement for its credit,marketandoperationalriskandwhetherits minimum capital is adequate to meet its risks, and disclosesspecificinformationrelatingtounderlying risk management controls, capital position and remuneration at equiniti.com. AsaMiFIDexemptfirm,P(1836)Lmustcomply withtheCapitalRequirementsDirective.Thefirm does,however,assessitscapitalrequirementsand is subject to the Group’s EWRM and three lines of defence risk management model. Liquidity risk and going concern LiquidityriskistheriskthattheGroupwillbeunable tomeetitsfinancialobligationsastheyfalldue.Our approach to managing liquidity is to ensure, as far asispossible,thattheGroupwillhavesufficient liquiditytomeetitsliabilitieswhendue,underboth normal and stressed conditions. 64 Wehaveusedourfive-yearbusinessplanasthe basisforprojectingcashflowsandmeasured the resulting outcomes on cash availability and bank covenant test points. The Group has a very highlevelofclientretention,whichgivesusa high degree of comfort about the certainty of our revenue income. The Group’s principal uncertainties about its income relatetoactivitiesthataremoredifficulttopredict, such as corporate action income. These depend onthespecificactivitiesofcorporateclients,which mayinturnbeinfluencedbyunderlyingmarket conditions. Duringtheplannedperiod,theGroupexpectto remaincompliantwithallcovenants.Assuch,the DirectorsaresatisfiedthattheGrouphasadequate resourcestocontinueinoperationalexistencefor the foreseeable future. For this reason, the going concern basis has been adopted in the preparation of these accounts. NOMINATIONS & GOVERNANCE COMMITTEE REPORT Committee membership Chair: Kevin Beeston • LucyDimes,whojoinedusinMarch2014asChief OperatingOfficer,wasappointedtotheBoardin February 2015; and • Tim Miller joined the Board as an independent non-executiveDirectorandchairofthe Remuneration Committee in February 2015. The appointments of Guy Wakeley and John Parker weresetoutinourannualreportfor2013. Vicky Jarman and Tim Miller bring additional independent oversight to the Board and have significantexperienceinarangeofcriticalareas, suchasfinance,humanresourcesandcompliance, whichwillbevaluabletoEquinitiasthebusiness continuestogrow. LucyDimesbringsawealthofdirector-level experienceacrossarangeofoperationalandcontrol functions, adding to the Board’s strength in depth Resignations NickRose,whowasaninvestorrepresentative, resignedasanon-executiveDirectorinMay2014. Martyn Hindley resigned from the Board and his role asChiefFinancialOfficerinFebruary2015. Board diversity Members: James Brocklebank, Haris Kyriakopolous, and Oliver Neidermaeir Meetings and agenda The Committee meets as required. During the year, itmettwice.TheCEOattendedboththemeetings at the request of the Committee. The key agenda items that the Committee considered in 2014 included: We believe that diversity among Directors contributestowardsahighperforming,effective Board.TheBoardthereforeworkshardtoensure that it is able to recruit Directors from different backgrounds,withdiverseexperience,perspectives, personalities,skillsandknowledge. REMUNERATION COMMITTEE REPORT Committee membership • The Board’s composition and its balance of skills Chair: James Brocklebank andexperience;and • Therequirementsfornewindependentnon- executiveDirectors,andthesubsequent identificationandrecommendationofsuitable candidates. Board appointments and resignations Appointments Therewereanumberofappointmentstothe Board during the year and since the year end: • GuyWakeleyjoinedtheBoardasChiefExecutive OfficerinJanuary2014; • JohnParkerjoinedtheBoardasanon-executive Director in January 2014; • Vicky Jarman joined the Board as an independent non-executiveDirectorandchairoftheAudit Committee in May 2014; Members: Kevin Beeston, Oliver Neidermaeir and Haris Kyriakopolous. Meetings and agenda TheRemunerationCommitteemettwiceduringthe year.TheCEOattendedboththemeetingsatthe request of the Committee. ThekeymattersreviewedbytheCommitteewere • The scheme parameters and performance criteria for bonus and incentive programmes and the individual remuneration, including bonus payments,toseniorexecutivesandthetop earnerswithinthebusiness;and • The general pay policy across the Group and the general pay increase. C O R P O R A T E G O V E R N A N C E S T A T E M E N T 65 Making complex things simpleSECTION 02Equiniti Annual Report 2014 Directors’ report The Directors present their Directors’ report and financial statements for the year ended 31 December 2014. The Group’s performance for the year is discussed in the Strategic Report on pages 7 to 50. PRINCIPAL ACTIVITIES OF THE GROUP DIRECTORS The principal activities of Equiniti Group Limited and its subsidiaries (“the Group”) comprise the provision ofcomplexadministration,processingandpayment services, supported by leading technology to assure delivery to the Group’s clients, their employees, pensioners and consumers. The Company acts as a holding company for the Group. TheDirectorsoftheCompanywhowereinoffice during the year and up to the date of signing the financialstatementswereasfollows: Sir Rodney Aldridge Kevin Beeston James Brocklebank Lucy Dimes Appointed 1 February 2015 Martyn Hindley Resigned 20 February 2015 Victoria Jarman Appointed 1 May 2014 Tim Miller Appointed 1 February 2015 OliverNiedermaier Nick Rose Resigned 6 May 2014 Haris Kyriakopoulos John Parker Guy Wakeley Appointed 20 January 2014 66 TheDirectorshavethebenefitofanindemnity, whichisaqualifyingthird-partyindemnityprovision asdefinedbySection234oftheCompaniesAct 2006.Theindemnitywasinforcethroughoutthe lastfinancialyearandiscurrentlyinforce.The Group also purchased and maintained throughout thefinancialyearDirectorsandOfficers’liability insurance in respect of itself and its Directors and Officers. PROPOSED DIVIDEND The Directors do not recommend the payment of a dividend on ordinary shares but there are amounts accruingonpreferencesharesincludedinfinance expenses. EMPLOYEES The Equiniti Group is committed to providing an environmentwhichfostersinvolvementbyallour employees.Regularbriefingsthroughmeetingsand publicationskeepallemployeesuptodatewith employmentpractices,healthandsafetyaswellas 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.Whereexistingemployeesbecome disabled, it is the Equiniti Group’s policy to provide continuing employment under normal terms and conditionswhereverpracticable,providingtraining, career development and promotion to disabled employeeswhereappropriate. GOING CONCERN ThedirectorsaresatisfiedthattheEquinitiGroup has adequate resources to continue in operational existencefortheforeseeablefuture.Forthisreason, the going concern basis has been adopted in preparing the accounts. POLITICAL DONATIONS The Equiniti Group did not make any political donationsorincuranypoliticalexpenditureduring the year. FUTURE DEVELOPMENTS TheGroup’sexpectedfuturedevelopmentsare discussedintheChiefExecutive’sstatementinthe Strategic Report, on page 22. DISCLOSURE OF INFORMATION TO AUDITORS TheDirectorswhoheldofficeatthedateof approvalofthisDirectors’reportconfirmthat,so farastheyareeachaware,thereisnorelevantaudit informationofwhichtheEquinitiGroup’sauditors areunaware;andeachDirectorhastakenallthe steps that he ought to have taken as a Director to makehimselfawareofanyrelevantauditinformation and to establish that the Equiniti Group’s auditors areawareofthatinformation. DIRECTORS’ RESPONSIBILITIES The Directors are responsible for preparing the annualreportandthefinancialstatementsin accordancewithapplicablelawandregulations. CompanylawrequirestheDirectorstoprepare financialstatementsforeachfinancialyear.Under thatlawtheDirectorshavepreparedtheGroupand parentcompanyfinancialstatementsinaccordance withInternationalFinancialReportingStandards (“IFRSs”) as adopted by the European Union. Undercompanylawthedirectorsmustnotapprove thefinancialstatementsunlesstheyaresatisfiedthat theygiveatrueandfairviewofthestateofaffairs oftheGroupandthecompanyandoftheprofitor loss of the Group for that period. In preparing these financialstatements,theDirectorsarerequiredto: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • statewhetherapplicableIFRSsasadoptedby the European Union and IFRSs as issued by the International Accounting Standards Board (“IASB”),havebeenfollowed,subjecttoany materialdeparturesdisclosedandexplainedin thefinancialstatements; • preparethefinancialstatementsonthegoing concern basis unless it is inappropriate to presumethatthecompanywillcontinuein business. The Directors are responsible for keeping adequate accountingrecordsthataresufficienttoshowand explainthecompany’stransactionsanddisclose withreasonableaccuracyatanytimethefinancial position of the company and the Group and enablethemtoensurethatthefinancialstatements complywiththeCompaniesAct2006and,as regardstheGroupfinancialstatements,Article4 of IAS Regulation. 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. The Directors are responsible for the maintenance andintegrityofthecompany’swebsite.Legislation in the United Kingdom governing the preparation anddisseminationoffinancialstatementsmaydiffer from legislation in other jurisdictions. By order of the Board Guy Wakeley Chief Executive 25 March 2015 Registered Number: 07090427 Future developments are discussed in the Strategic Report on page 22. i M a k n g c o m p e x l i t h n g s s i m p e l I S E C T O N 0 2 I D R E C T O R S ’ R E P O R T E q u n i t i i A n n u a l R e p o r t 2 0 1 4 67 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF EQUINITI GROUP LIMITED REPORT ON THE GROUP FINANCIAL STATEMENTS Our opinion OPINION ON OTHER MATTER PRESCRIBED BY THE COMPANIES ACT 2006 In our opinion, Equiniti Group Limited’s group financialstatements(the“financialstatements”): • giveatrueandfairviewofthestateofthegroup’s affairs as at 31 December 2014 and of its loss and cashflowsfortheyearthenended; • have been properly prepared in accordance withInternationalFinancialReportingStandards (“IFRSs”) as adopted by the European Union; and • havebeenpreparedinaccordancewiththe requirements of the Companies Act 2006. What we have audited Equiniti Group Limited’s financial statements comprise: • theconsolidatedstatementoffinancialposition as at 31 December 2014; • the consolidated statement of comprehensive income for the year then ended; • theconsolidatedstatementofcashflows for the year then ended; • the consolidated statement of changes in equity for the year then ended; and • thenotestothefinancialstatements,which includeasummaryofsignificantaccounting policiesandotherexplanatoryinformation. Thefinancialreportingframeworkthathas beenappliedinthepreparationofthefinancial statementsisapplicablelawandIFRSsasadopted by the European Union. Inapplyingthefinancialreportingframework, the directors have made a number of subjective judgements,forexampleinrespectofsignificant accounting estimates. In making such estimates, they have made assumptions and considered future events. In our opinion, the information given in the Strategic ReportandtheDirectors’Reportforthefinancial yearforwhichthefinancialstatementsareprepared isconsistentwiththefinancialstatements. OTHER MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION Adequacy of information and explanations received UndertheCompaniesAct2006wearerequiredto reporttoyouif,inouropinion,wehavenotreceived alltheinformationandexplanationswerequirefor ouraudit.Wehavenoexceptionstoreportarising from this responsibility. Directors’ remuneration UndertheCompaniesAct2006wearerequiredto report to you if, in our opinion, certain disclosures ofdirectors’remunerationspecifiedbylawarenot made.Wehavenoexceptionstoreportarisingfrom this responsibility. RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT Our responsibilities and those of the directors AsexplainedmorefullyintheDirectors’ Responsibilities set out on page 67, the directors areresponsibleforthepreparationofthefinancial statementsandforbeingsatisfiedthattheygivea trueandfairview. Ourresponsibilityistoauditandexpressanopinion onthefinancialstatementsinaccordancewith applicablelawandInternationalStandardson Auditing (UK and Ireland) (“ISAs (UK & Ireland)”). Thosestandardsrequireustocomplywiththe Auditing Practices Board’s Ethical Standards for Auditors. 68 OTHER MATTER We have reported separately on the company financialstatementsofEquinitiGroupLimited’s for the year ended 31 December 2014. Graham Lambert (Senior Statutory Auditor) for andonbehalfofPricewaterhouseCoopersLLP Chartered Accountants and Statutory Auditors Gatwick March 2015 This report, including the opinions, has been prepared for and only for the company’s members asabodyinaccordancewithChapter3ofPart16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purposeortoanyotherpersontowhomthisreport isshownorintowhosehandsitmaycomesave whereexpresslyagreedbyourpriorconsentin writing. What an audit of financial statements involves WeconductedourauditinaccordancewithISAs (UK & Ireland). An audit involves obtaining evidence abouttheamountsanddisclosuresinthefinancial statementssufficienttogivereasonableassurance thatthefinancialstatementsarefreefrommaterial misstatement,whethercausedbyfraudorerror. This includes an assessment of: • whethertheaccountingpoliciesareappropriate to the group’s circumstances and have been consistently applied and adequately disclosed; • thereasonablenessofsignificantaccounting estimates made by the directors; and • theoverallpresentationofthefinancial statements. Weprimarilyfocusourworkintheseareasby assessing the directors’ judgements against availableevidence,formingourownjudgements, andevaluatingthedisclosuresinthefinancial statements. Wetestandexamineinformation,usingsampling andotherauditingtechniques,totheextentwe consider necessary to provide a reasonable basis forustodrawconclusions.Weobtainauditevidence through testing the effectiveness of controls, substantive procedures or a combination of both. Inaddition,wereadallthefinancialandnon- financialinformationintheAnnualReportto identifymaterialinconsistencieswiththeaudited financialstatementsandtoidentifyanyinformation that is apparently materially incorrect based on, ormateriallyinconsistentwith,theknowledge acquired by us in the course of performing the audit.Ifwebecomeawareofanyapparentmaterial misstatementsorinconsistenciesweconsiderthe implications for our report. I A U D T O R S ’ R E P O R T 69 Making complex things simpleSECTION 02Equiniti Annual Report 2014 70 i M a k n g c o m p e x l i t h n g s s i m p e l I S E C T O N 0 3 I F N A N C A L I 03 FINANCIAL STATEMENTS S T A T E M E N T S E q u n i t i i A n n u a l R e p o r t 2 0 1 4 71 EQUINITI GROUP LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2014 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 before exceptional items Finance costs – exceptional items Net finance costs Gain on disposal of associates Share of profit of associates Loss before income tax Income tax credit Loss for the year from continuing operations DISCONTINUED OPERATIONS Profit for the year from discontinued operations (attributable to owners of the parent) Loss for the year Loss attributable to: – Owners of the parent – Non-controlling interests The notes on pages 78 to 123 form part of these financial statements. 7272 Note 5,7 7 6 7 14 15 8 11 11 11 12 12 13 22 2014 £m 292.3 (222.3) 70.0 (7.7) 62.3 (3.8) (36.9) 2013 £m 274.7 (198.4) 76.3 (25.0) 51.3 (4.0) (32.5) (270.7) (259.9) 21.6 0.6 (72.4) – (71.8) 9.8 1.7 (38.7) 1.7 (37.0) – (37.0) (39.1) 2.1 (37.0) 14.8 1.0 (66.7) (12.4) (78.1) – 1.6 (61.7) 4.3 (57.4) 3.7 (53.7) (53.7) – (53.7) CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2014 Note Loss for the year Other comprehensive income Items that may be subsequently reclassified to profit or loss Fair value movement through hedging reserve Share of other comprehensive income of associates Items that will not be reclassified to profit or loss Defined benefit plan actuarial loss 25 Deferred tax credit on other comprehensive income Other comprehensive loss for the year Total comprehensive loss for the year Loss attributable to: – Owners of the parent – Non-controlling interests The notes on pages 78 to 123 form part of these financial statements. 2014 £m (37.0) 1.5 – 1.5 (5.8) 1.0 (4.8) (3.3) (40.3) (42.4) 2.1 (40.3) 2013 £m (53.7) 1.7 (0.2) 1.5 (3.8) 0.8 (3.0) (1.5) (55.2) (29.5) – (29.5) 73 Equiniti Annual Report 2014Making complex things simpleSECTION 03FINANCIAL STATEMENTSCONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2014 ASSETS Non-current assets Property, plant and equipment Intangible assets Investments in associates Other financial assets CURRENT ASSETS Trade and other receivables Agency broker Other financial assets Cash and cash equivalents Total assets EQUITY AND LIABILITIES Equity attributable to owners of the parent Share capital Share premium Hedging reserve Accumulated deficit Non-controlling interest Total equity LIABILITIES Non-current liabilities Interest-bearing loans and borrowings Deferred consideration Employee benefits Provisions for other liabilities and charges Other financial liabilities Deferred income tax liabilities 7474 Note 14 15 12 17 20 17 21 27 27 23 25 26 18 19 2014 £m 12.6 681.4 – 11.0 705.0 64.7 19.5 0.2 30.1 114.5 819.5 5.0 3.5 (0.2) (234.7) (226.4) 17.7 (208.7) 901.5 4.0 15.5 5.8 0.3 7.7 934.8 2013 £m 10.7 605.7 14.3 6.1 636.8 56.7 8.2 1.6 15.4 81.9 718.7 5.0 3.5 (1.7) (190.8) (184.0) – (184.0) 816.3 – 10.1 7.0 0.6 3.5 837.5 CURRENT LIABILITIES Trade and other payables Agency broker Employee benefits Income tax payable Provisions for other liabilities and charges Other financial liabilities Total liabilities Total equity and liabilities Note 24 25 26 18 2014 £m 68.5 19.5 0.4 0.8 3.4 0.8 93.4 1,028.2 819.5 2013 £m 49.0 8.2 0.4 – 3.9 3.7 65.2 902.7 718.7 The notes on pages 78 to 123 form part of these financial statements. The financial statements on pages 72 to 123 were approved by the Board of directors on and were signed on its behalf by: G Wakeley Chief Executive 75 Equiniti Annual Report 2014Making complex things simpleSECTION 03FINANCIAL STATEMENTSCONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2014 Share capital £m Share premium £m Hedging reserve £m Accumulated deficit £m Non- controlling interest £m Balance at 1 January 2013 5.0 3.5 (3.4) (133.9) Comprehensive income Loss for the year per the statement of comprehensive income Other comprehensive income Changes in fair value of cash flow hedges Share of other commprehensive income of associates Actuarial losses on defined benefit pension plans Deferred tax on defined benefit pension plans Total comprehensive income Balance at 31 December 2013 Balance at 1 January 2014 Comprehensive income (Loss) / profit 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 Non-controlling interest arising on business combination Transactions with non-controlling interests Transaction with owners – – – – – 5.0 5.0 – – – – – – – – – – – – – 3.5 3.5 – – – – – – – – – (53.7) 1.7 – – 1.7 (1.7) (1.7) – 1.5 – – 1.5 – – – – (0.2) (3.8) 0.8 (56.9) (190.8) 190.8 (39.1) – (5.8) 1.0 (43.9) – – – Total equity £m (128.8) (53.7) 1.7 (0.2) (3.8) 0.8 (55.2) (184.0) (184.0) – – – – – – – – 2.1 (37.0) – – – 2.1 16.3 (0.7) 15.6 1.5 (5.8) 1.0 (40.3) 16.3 (0.7) 15.6 Balance at 31 December 2014 5.0 3.5 (0.2) (234.7) 17.7 (208.7) The notes on pages 78 to 123 form part of these financial statements. 7676 Note 33 4 12 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2014 CASH FLOWS FROM OPERATING ACTIVITIES Cash generated from operations Net cash inflow from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Interest received Dividends from investment Dividends from associate Business acquisitions net of cash acquired Proceeds from disposal of a business Acquisition of an associate Payment relating to prior year acquisition Acquisition of property, plant and equipment Acquisition of software Net cash (outflow)/inflow from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Repayment of loans Increase in borrowings Payment of finance lease liabilities Interest paid Loan fees paid and other finance costs Refinancing fees paid Net cash inflow/(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 The notes on pages 78 to 123 form part of these financial statements. 2014 £m 51.2 51.2 0.2 0.4 1.7 (30.3) 1.5 (2.5) (0.7) (3.8) (17.0) (50.5) – 45.5 (0.3) (29.3) (1.9) – 14.0 14.7 15.4 30.1 2013 £m 59.6 59.6 0.6 0.4 0.5 (10.9) 74.3 (4.0) (1.6) (3.9) (15.4) 40.0 (530.7) 440.0 – (30.5) (5.8) (15.0) (142.0) (42.4) 57.8 15.4 77 Equiniti Annual Report 2014Making complex things simpleSECTION 03FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 1. ACCOUNTING POLICIES 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”). Basis of preparation 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 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 deconsolidated from the date that control ceases. Going Concern The Group refinanced its bank facilities in June 2013 following the sale of Xafinity Consulting Limited for £74.3m, issuing £440m of fixed and floating rate notes repayable in 2018. This removed all maintenance covenants and extended the repayment date on the Group’s debt. The Group also raised a £75m revolving credit facility of which £45.5m has been drawn at the year end date. Whilst a total comprehensive loss of £40.3m arose increasing net liabilities to £208.7m during the course of the year, the Group traded strongly, generating £51.2m of cash inflow from operating activities 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 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. 78 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 Derivative financial instruments and hedging Property, plant and equipment 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 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. 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 2 – 50 years • Office equipment • Fixtures and fittings 3 – 10 years 3 – 20 years 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. 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. When there is a step acquisition, moving an investment in an associate to a subsidiary, the cost of investment is made up of the fair value of the investment of associate plus the price paid for any additional shareholding. 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. 79 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 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. 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 15 years • Other software • Customer relationships • Brands 3 – 10 years 4 – 20 years 5 – 10 years 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. 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. 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. 80 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 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. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Past-service costs are recognised immediately in income. 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 statement of comprehensive income. 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 the financial year which are unpaid. The amounts within trade payables are unsecured. Agency broker deposits Where the Company acts as an agency broker for retail investors, balances owed by or to the retail investor and the market maker are recognised within other receivables and other payables until the settlement date when these balances are eliminated. 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 81 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 1. ACCOUNTING POLICIES (CONTINUED) 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. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Group’s chief executive officer. 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. 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. Sales of 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 82 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 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. 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 The following standards have been adopted by the Group for the first time for the financial year beginning 1 January 2014 and have a material impact on the Group: Amendment to IAS 32, ‘Financial instruments: Presentation’ on offsetting financial assets and financial liabilities. This amendment clarifies that the right of set-off must not be contingent on a future event. It must also be legally enforceable for all counterparties in the normal course of business, as well as in the event of default, insolvency or bankruptcy. The amendment also considers settlement mechanisms. The amendment did not have a significant effect on the group financial statements. Amendments to IAS 36, ‘Impairment of assets’, on the recoverable amount disclosures for non-financial assets. This amendment removed certain disclosures of the recoverable amount of CGUs which had been included in IAS 36 by the issue of IFRS 13. Amendment to IAS 39, ‘Financial instruments: Recognition and measurement’ on the novation of derivatives and the continuation of hedge accounting. This amendment considers legislative changes to ‘over-the-counter’ derivatives and the establishment of central counterparties. Under IAS 39 novation of derivatives to central counterparties would result in discontinuance of hedge accounting. 83 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 1. ACCOUNTING POLICIES (CONTINUED) The amendment provides relief from discontinuing hedge accounting when novation of a hedging instrument meets specified criteria. The group has applied the amendment and there has been no significant impact on the group financial statements as a result. Other standards, amendments and interpretations which are effective for the financial year beginning on 1 January 2014 are not material to the group. 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 2014, 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 Group, except the following set out below: IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through OCI and fair value through P&L. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the ‘hedged ratio’ to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted subject to EU endorsement. The Group is yet to assess IFRS 9’s full impact. IFRS 15, ‘Revenue from contracts with customers’ deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 ‘Revenue’ and IAS 11 ‘Construction contracts’ and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2017 and earlier application is permitted subject to EU endorsement. The Group is assessing the impact of IFRS 15. 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 Equity-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. 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. 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. 84 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 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 2014 as assessed by a chartered surveyor with reference to current market rates. The constructive compliance provision is management’s 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 uncertain as to the timing 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. Provisions for contract costs have been made for the exceptional irrecoverable costs associated with a complex long-term contract that has been terminated by mutual agreement. 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 25, 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 25 is considered possible in the next financial year. The effect of this change would be to increase the employee benefit liability by £1.8m (2013: £1.5m). A 0.5% decrease in the discount rate used would increase the employee benefit liability by £5.4m (2013: £4.1m). 85 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 2. FINANCIAL RISK MANAGEMENT finance costs. Intermediary fee revenue is linked to Bank Base Rate, whilst both the senior variable loan notes 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. 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. 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 affect 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 86 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 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 revolving credit facility requires the Group to comply with one covenant; the maintenance of a minimum level of earnings before interest, taxes, depreciation and amortisation. The loan notes issued do not contain any maintenance covenants. 87 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 4. ACQUISITIONS OF BUSINESSES Pancredit On 18 March 2014, the Group purchased the entire issued share capital of Pancredit Systems Limited for £14.7m, with £12.0m payable in cash on completion and the balance one year later. The company had net assets of £2.6m on that date with a cash balance of £2.9m. Since the date of acquisition the company has contributed revenue of £4.1m and net profit of £1.3m. If the company had been acquired on 1 January 2014 it would have contributed an additional £1.1m of revenue and £nil net profit to the Group’s reported results. The company sells and supports software to manage unsecured loan administration. The acquisition has been funded by drawing on the revolving credit facility. On acquisition intangible assets have been recognised relating to customer contracts and related relationships as well as software with a combined attributable value of £9.0m with a corresponding deferred tax liability of £1.8m. The amounts relating to the intangible assets and goodwill are provisional and subject to further evaluation and adjustment, in accordance with accounting standards. 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 Net identifiable assets and liabilities Goodwill on acquisition Total consideration Cash acquired Deferred consideration Net cash outflow in the period £m 0.1 9.0 2.9 1.5 (2.0) (1.7) 9.8 4.9 14.7 (2.9) (2.7) 9.1 J.P. Morgan’s Corporate Dealing Services On 1 July 2014, the Group announced the acquisition of the assets of J.P. Morgan’s Corporate Dealing Services business. The acquisition completed on 1 September 2014. Consideration of £13.0m was paid on completion with £3.0m (discounted to £2.5m at Group’s WACC) payable two years later. Since the date of acquisition the business has contributed revenue of £0.8m and net profit of £0.3m. If the business had been acquired on 1 January 2014 it would have contributed an additional £3.0m of revenue to the Group results. As this was a trade and asset acquisition, it is impracticable to calculate the impact on net profit from this acquisition. On acquisition intangible assets have been recognised relating to customer contracts and related relationships with a combined attributable value of £9.8m. The amounts relating to the intangible assets and goodwill are provisional and subject to further evaluation and adjustment, in accordance with accounting standards. Recognised amounts of identifiable assets acquired and liabilities assumed Intangible assets Net identifiable assets and liabilities Goodwill on acquisition Total consideration Contingent consideration Net cash outflow in the period 88 £m 9.8 9.8 5.7 15.5 (2.5) 13.0 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 4. ACQUISITIONS OF BUSINESSES (CONTINUED) MyCSP Limited On 29 September 2014, the Group acquired an additional 11% of the share capital of MyCSP Limited for £8.0m, £4.0m of which has been deferred until June 2016, increasing the shareholding from 40% to 51%. The additional shareholding and resulting control of the business has meant that the investment is consolidated in the Group’s results as a subsidiary from 30 September 2014, in accordance with IFRS10. On the date of acquisition, the business had net assets of £16.9m with a cash balance of £13.5m. Since the date of acquisition the business has contributed revenue of £11.1m and net profit of £3.8m. If the company had been acquired on 1 January 2014 it would have contributed an additional £30.6m of revenue and £4.9m net profit to the Group’s reported results. On acquisition intangible assets have been recognised relating to customer contracts and related relationships as well as software with a combined attributable value of £20.2m. The amounts relating to the intangible assets and goodwill are provisional and subject to further evaluation and adjustment, in accordance with accounting standards. Recognised amounts of identifiable assets acquired and liabilities assumed Property, plant and equipment Software Intangible assets Cash Trade and other receivables Provisions Employee benefits asset Trade and other payables Deferred tax Net identifiable assets and liabilities Non-controlling interest Goodwill on acquisition Total consideration Proceeds from disposal of associate Net consideration* Cash acquired Deferred consideration Net cash outflow in the period * Net consideration is the amount payable to acquire an additional 11% in MyCSP Limited £m 0.5 5.2 20.2 13.5 15.7 (0.4) 0.2 (17.8) 4.0 33.1 (16.3) 17.8 34.6 (26.6) 8.0 (13.5) 4.0 (9.5) 89 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 4. ACQUISITIONS OF BUSINESSES (CONTINUED) Invigia Group Limited On 16 October 2014, the Group purchased the entire issued share capital of Invigia Group Limited and its subsidiaries for £24.5m. However, the Group effectively took control of the Invigia Group on 1 September 2014 and therefore the results have been consolidated from this date. The business had net assets of £4.2m on that date with a cash balance of £6.8m. Since the date of acquisition the company and its subsidiaries have contributed £2.3m of revenue and £0.7m of net profit. If it had been acquired on 1 January 2014 it would have contributed an additional £6.4m of revenue and £1.2m net profit to the Group’s reported results. The business provides customer complaints and feedback management services. The acquisition has been funded by drawing on the revolving credit facility. On acquisition intangible assets have been recognised relating to customer contracts and related relationships as well as software with a combined attributable value of £12.3m with a corresponding deferred tax liability of £2.6m. The amounts relating to the intangible assets and goodwill are provisional and subject to further evaluation and adjustment, in accordance with accounting standards. 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 Net identifiable assets and liabilities Goodwill on acquisition Total consideration Cash acquired Net cash inflow in the period Selftrade £m 0.3 12.3 6.8 1.6 (4.6) (2.4) 14.0 10.5 24.5 (6.8) 17.7 On 3 June 2014, the Group announced the intention to acquire the trade and assets of Selftrade, an online execution-only stockbroker. The acquisition completed on 23 January 2015. See note 32 for further details. The value of goodwill on each acquisition reflects the expectation of the ability to generate new streams of revenue, expected synergies, future market development and the assembled workforces of the companies and businesses acquired. 5. REVENUE Included in the loss for the year are the following: Revenue from continuing operations: Rendering of services Revenue from discontinued operations Total revenue 90 2014 £m 292.3 – 292.3 2013 £m 274.7 3.2 277.9 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 6. EXCEPTIONAL ITEMS Included in the loss for year are the following: Set up costs Restructuring costs Acquisition related expenses Property costs Gain on investment Integration project costs Refinancing costs Contract costs Total exceptional costs 2014 £m 3.0 5.1 2.6 1.9 (4.9) – – – 7.7 2013 £m 1.2 6.0 0.3 – – 2.9 10.2 4.4 25.0 Set up costs relate to the establishment of the Indian offshore facility. Restructuring costs relate to the restructuring of the management team. Acquisition related expenses represent fees paid to third party advisors and transaction fees in respect of acquisitions completed in the period, as well as costs incurred on further potential acquisitions and disposals not completed. Property costs relate to the provision for rent and related expenses on onerous leases. A gain on investment has been recognised on the revaluation of the Group’s investment in Euroclear plc. The shares have been revalued based on the trade price of recent market transactions. Integration project costs included costs incurred by the Group relating to resources applied in a major Group programme of integration activities between Equiniti and Xafinity businesses. These principally comprised consulting, property and IT rationalisation and severance costs, together with rationalisation of off shore activities. Refinancing costs were expenses incurred in connection with the Group’s refinancing which completed in June 2013. These included incremental staff costs and advisor fees that were not capitalised or treated as finance costs. Contract costs were in relation to a complex long-term contract to provide new services in the UK pensions market that was terminated by mutual agreement. A provision had been made for the exceptional irrecoverable costs associated with that contract. 91 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 7. OPERATING SEGMENTS In accordance with IFRS 8 ‘Operating Segments’, an operating segment is defined as a business activity whose operating results are reviewed by the chief operating decision maker (‘CODM’) and for which discrete information is available. The Group’s CODM is the Board of Directors. The Group’s operating segments have been identified as Investment Solutions, Intelligent Solutions, Pension Solutions, Interest and Central. Central costs principally includes corporate overheads. The EBITDA of each segment is reported after charging relevant corporate costs based on the business segments’ usage of corporate facilities and services. 2014 £m 94.9 89.6 101.3 6.5 292.3 2014 £m 29.3 16.3 21.7 6.5 (3.8) 70.0 2014 £m 70.0 (7.7) 62.3 (3.8) (36.9) (71.8) 9.8 1.7 (38.7) 2013 £m 107.2 81.5 76.9 9.1 274.7 2013 £m 40.3 16.4 12.2 9.1 (1.7) 76.3 2013 £m 76.3 (25.0) 51.3 (4.0) (32.5) (78.1) – 1.6 (61.7) Revenue Investment Solutions Intelligent Solutions Pensions Solutions Interest Pre-Exceptional EBITDA Investment Solutions Intelligent Solutions Pensions Solutions Interest Central Pre-Exceptional EBITDA Reconciliation to loss before tax and discontinued operations Pre-Exceptional EBITDA Exceptional items EBITDA Depreciation Amortisation Finance costs – net Gain on disposal of associates Share of profits from associates Loss before tax and discontinued operations 92 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 7. OPERATING SEGMENTS (CONTINUED) Segmental assets and liabilities Investment Solutions Intelligent Solutions Pensions Solutions Central Total Other profit and loss disclosures 31 December 2014 Investment Solutions Intelligent Solutions Pensions Solutions Central Total 31 December 2014 31 December 2013 Assets £m 496.0 33.6 79.4 210.5 819.5 Liabilities £m (76.9) (21.1) (47.8) (882.4) (1,028.2) Assets £m 497.5 14.8 57.1 149.3 718.7 Liabilities £m (33.4) (6.8) (32.5) (830.0) (902.7) Depreciation and amortisation Exceptional items Share of profit on associates Capital expenditure £m 3.6 1.6 5.6 29.9 40.7 £m (8.6) (0.1) (2.5) 3.5 (7.7) £m – – 1.7 – 1.7 £m 3.2 2.5 6.9 9.4 22.0 31 December 2013 Depreciation and amortisation Exceptional items Share of profit on associates Capital expenditure Investment Solutions Intelligent Solutions Pensions Solutions Central Total £m 1.6 1.2 4.5 29.2 36.5 £m (4.5) (0.6) (5.9) (14.0) (25.0) £m – – 1.6 – 1.6 £m 10.6 2.1 6.5 0.4 19.6 93 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 8. SUMMARY RESULTS AND OPERATING COSTS Included in the loss for year are the following: Expenses by nature Employee benefit expense (note 9) Depreciation and amortisation (notes 14 and 15) Direct costs Bought in services Premises costs Other general business costs Exceptional items (note 6) Total operating costs for continuing operations Auditors’ remuneration Audit of the Company and its subsidiaries Tax services All other services 2014 £m 113.4 40.7 54.6 7.7 14.2 32.4 7.7 270.7 2014 £m 0.4 0.2 0.3 0.9 2013 £m 98.7 36.5 46.9 12.7 12.3 27.8 25.0 259.9 2013 £m 0.3 0.3 0.7 1.3 94 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 9. STAFF NUMBERS AND COSTS The average monthly number of persons employed by the Group (including directors) during the year was 3,289 (2013: 2,736). By function* Operations Administration Sales and marketing By business type* Shareholder Solutions Intelligent Solutions Pensions Solutions Central Number of employees 2014 2,799 408 82 3,289 Number of employees 2014 1,186 388 1.163 552 3,289 2013 2,396 281 59 2,736 2013 1,141 367 1,043 185 2,736 Within the central segment 314 employees (2013: 90 employees) are employed in India. 550 employees have joined the Group by way of acqusitions. * The number of colleagues quoted in the Strategic Report section of the annual report are the number of employees as at 31 December 2014, as stated, the figures above are the monthly average. The aggregate payroll costs of these persons were as follows: Wages and salaries Social security costs Other pension costs 2014 £m 98.9 9.1 5.4 113.4 2013 £m 85.2 8.8 4.7 98.7 10. DIRECTORS’ REMUNERATION The following costs are either paid by the subsidiary Equiniti Limited, Equiniti Holdings Limited or Equiniti Services Limited; Directors’ emoluments (including compensation for loss of office) Company contributions to money purchase pension plans 2014 £m 1.6 – 2013 £m 4.0 0.1 Retirement benefits are accrued under money purchase schemes to 1 of the directors (2013: 2 of the directors). The emoluments of the highest paid director was £0.6m (2013: £2.2m). Company contributions to defined contribution pension schemes for the highest paid director amounted to £nil (2013: £0.1m). 95 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 11. FINANCE INCOME AND COSTS Interest income Dividend income Finance income Amortised fees Other fees and interest Interest cost on loans from related parties Interest cost on senior secured loan notes Interest cost on revolving credit facility Interest cost on senior secured borrowings Interest cost on payment in kind (“PIK”) loan Interest on preference shares classified as liabilities Finance cost relating to pension scheme Unwinding of discounted amount in provisions Cost of interest rate swap against financial liabilities Finance costs – ordinary Exceptional finance costs Write off of unamortised fees of previous finance arrangement Other fees and interest Interest cost on senior secured borrowings Finance costs – exceptional Finance costs – total 2014 £m 2013 £m 0.2 0.4 0.6 2.9 1.1 5.6 29.9 0.8 – 15.4 15.1 0.5 0.4 0.7 72.4 – – – – 72.4 0.6 0.4 1.0 3.1 0.8 5.2 16.4 – 10.3 13.3 14.0 0.2 0.4 3.0 66.7 6.6 5.3 0.5 12.4 79.1 Exceptional finance costs were expenses incurred in connection with the Group’s refinancing exercise that completed in June 2013. The charge for the prior year included the write off of unamortised fees under the previous finance arrangement plus noncapitalised fees and interest associated with the set up of the new finance arrangement. 96 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 12. INVESTMENTS IN ASSOCIATES At 1 January Additions Share of profit Other comprehensive income Dividend received Deemed disposal of associate At 31 December 2014 £m 14.3 2.5 1.7 – (17.7) (16.8) – 2013 £m 9.4 4.0 1.6 1.6 (0.5) – 14.3 Associate investments are initially recorded at cost which is the fair value of the consideration paid. On 29 September 2014, the Group increased its investment in MyCSP Limited from 40% to 51%. In accordance with IFRS10 MyCSP Limited is now consolidated as a subsidary and the investment in associate has been treated as a disposal, creating a non-cash accounting gain of £9.8m. 97 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 13. INCOME TAX CREDIT Recognised in the statement of comprehensive income Current tax charge for the Group Current year Prior year 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 Reconciliation of effective tax rate Loss for the year Total tax credit Loss excluding taxation Tax using the UK corporation tax rate of 21.5% (2013: 23.25%) Non-deductible expenses Non taxable income Unrecognised tax assets Adjustment for prior years Effect of tax rate change Total income tax credit 2014 £m 1.0 0.1 (0.3) (2.5) (1.7) (1.7) (1.7) 2014 £m (37.0) (1.7) (38.7) (8.3) 4.8 (3.8) 8.1 (2.5) – (1.7) 2013 £m – – (0.4) (0.3) (4.3) (4.3) (4.3) 2013 £m (53.7) (4.3) (58.0) (13.5) 2.0 – 8.1 (0.3) (0.6) (4.3) The standard rate of corporation tax in the UK changed from 23% to 21% with effect from 1 April 2014. Accordingly the Group’s profits for this accounting year are taxed at an effective rate of 21.5%. 98 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 14. PROPERTY, PLANT AND EQUIPMENT Leasehold improvements £m Office equipment £m Fixtures & fittings £m Cost Balance at 1 January 2013 Acquisition of business Additions Balance at 31 December 2013 Balance at 1 January 2014 Acquisition of business Additions Disposals Balance at 31 December 2014 Accumulated depreciation Balance at 1 January 2013 Depreciation charge for the year Balance at 31 December 2013 Balance at 1 January 2014 Depreciation charge for the year Disposals Balance at 31 December 2014 Net book value Balance at 31 December 2013 Balance at 31 December 2014 5.1 – 0.3 5.4 5.4 0.2 0.5 – 6.1 2.3 0.6 2.9 2.9 0.8 – 3.7 2.5 2.4 18.0 – 3.4 21.4 21.4 0.2 4.1 (3.6) 22.1 12.5 2.8 15.3 15.3 2.6 (3.6) 14.3 6.2 7.8 4.2 0.1 0.2 4.5 4.5 0.5 0.2 (0.4) 4.8 1.8 0.6 2.4 2.4 0.4 (0.4) 2.4 2.1 2.4 Total £m 27.3 0.1 3.9 31.3 31.3 0.9 4.8 (4.0) 33.0 16.6 4.0 20.6 20.6 3.8 (4.0) 20.4 10.8 12.6 Included within office equipment are assets held under finance lease with a cost of £1.8m (2013: £1.8m). As at the year end these assets had a net book value of £0.7m (2013: £1.0m). 99 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 15. INTANGIBLE ASSETS Goodwill Software development Cost Balance at 1 January 2013 Acquisition of business Additions Balance at 31 December 2013 Balance at 1 January 2014 Acquisition of business Additions Balance at 31 December 2014 Accumulated depreciation Balance at 1 January 2013 Amortisation for the year Balance at 31 December 2013 Balance at 1 January 2014 Amortisation for the year Balance at 31 December 2014 Net book value Balance at 31 December 2013 Balance at 31 December 2014 £m 354.8 8.2 – 363.0 363.0 38.9 – 401.9 – – – – – – 363.0 401.9 £m 127.6 – 15.7 143.3 143.3 16.1 17.2 176.6 49.7 14.7 64.4 64.4 16.0 80.4 78.9 96.2 Other intangible assets £m 253.2 2.6 – 255.8 255.8 40.4 – 296.2 74.2 17.8 92.0 92.0 20.9 112.9 163.8 183.3 Total £m 735.6 10.8 15.7 762.1 762.1 95.4 17.2 874.7 123.9 32.5 156.4 156.4 36.9 193.3 605.7 681.4 Other intangible assets relates to the fair value of assets acquired including customer relationships and brands. The amortisation charge is shown as a separate line item in the statement of comprehensive income. Impairment testing Goodwill initially arose on the acquisition of the Lloyds TSB Registrars business and subsequent equity and trade and asset acquisitions in prior years. For goodwill on current year acquisitions, 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. 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. 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 3 years Growth rate applied beyond approved forecast period Discount rate pre tax 3.0% 9.0% 2014 2013 3 years 3.0% 9.0% 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. 100 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 16. INVESTMENTS IN SUBSIDIARIES The directors consider the value of the investments to be supported by their underlying assets. The Group has the following investments in subsidiaries: Country of Incorporation Class of shares held Principal activities Ownership 2014 % Ownership 2013 % Name of controlled entity Direct Investments Equiniti Enterprises Limited Equiniti X2 Enterprises Limited Indirect Investments Equiniti X2 Mezz Cleanco 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 UK UK UK UK UK UK UK UK UK UK UK 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 Equiniti Jersey Limited Channel Islands Ordinary Registrars Prosearch Asset Solutions Limited Equiniti Share Plan Trustees Limited Equiniti David Venus Limited Equiniti ICS Limited UK UK UK UK Ordinary Ordinary Ordinary Asset recovery Ordinary Trustee company Equiniti ICS India (Private) Limited India Ordinary 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 UK UK UK UK UK UK UK UK UK UK UK Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Company secretarial Business process outsourcing Technology enabled services Business process outsourcing Non trading Non trading Non trading Non trading Non trading Non trading Non trading Non trading Non trading Non trading 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 101 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 16. INVESTMENTS IN SUBSIDIARIES (CONTINUED) Name of controlled entity Indirect Investments 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 Services Limited Paymaster (1836) Limited Claybrook Computing Limited Equiniti Software Limited Equiniti Solutions Limited Hazell Carr Software Services Limited InformationLog.com Limited Equiniti Global Incentive Solutions Limited Killik Employee Services (PTY) Limited Custodian Nominees Limited Equiniti NewCo 2 Plc Pancredit Systems Limited Invigia Limited Charter Systems Limited Charter UK Limited MyCustomerFeedback.com Limited MyCSP Limited * Country of Incorporation Class of shares held Principal activities Ownership 2014 % Ownership 2013 % UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK South Africa UK UK UK UK UK UK UK UK Ordinary Ordinary Ordinary Non trading Non trading Non trading Ordinary Holding company Ordinary Ordinary Ordinary Ordinary Business process outsourcing Company secretarial Non trading Non trading Ordinary Holding company Ordinary Pensions administration Ordinary Computer software consultancy Ordinary Ordinary Ordinary Ordinary Ordinary Dormant Pensions administration Dormant Dormant Non trading Ordinary Computer software development Ordinary Holding company Ordinary Holding company Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Business process outsourcing Software service provider Software service provider Software service provider Software service provider 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 51 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 0 0 0 0 0 40 * MyCSP Limited was an associate at the end of the prior year. 102 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 17. OTHER FINANCIAL ASSETS Non-current Shares held in Euroclear plc 2014 £m 11.0 11.0 2013 £m 6.1 6.1 The investment in Euroclear plc has been revalued at the year end date. Shares in Euroclear plc are unquoted and therefore the valuation has been based on the trade price of recent transactions. Current Derivatives used for hedging (note 28) 18. OTHER FINANCIAL LIABILITIES Non-current Finance lease liabilities Current Derivatives used for hedging (note 28) Finance lease liabilities 2014 £m 0.2 0.2 2014 £m 0.3 0.3 2014 £m 0.4 0.4 0.8 2013 £m 1.6 1.6 2013 £m 0.6 0.6 2013 £m 3.3 0.4 3.7 103 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 19. DEFERRED INCOME TAX ASSETS AND LIABILITIES Recognised liabilities Deferred income tax liabilities are attributable to the following: Non-current Intangible assets Tax liabilities Net of tax assets Net tax liabilities Recognised assets Deferred income tax assets are attributable to the following: Non-current Property, plant and equipment Employee benefits Tax value of loss carry-forwards Tax assets Net of tax liabilities Net tax assets Liabilities 2014 £m 24.0 24.0 (16.3) 7.7 Assets 2014 £m 2.9 2.9 10.5 16.3 (16.3) – Liabilities 2013 £m 21.8 21.8 (18.3) 3.5 Assets 2013 £m 8.1 2.0 8.2 18.3 (18.3) – Deferred income tax assets amounting to £21.6m (2013: £18.8m) arising on temporary timing differences of £107.8m (2013: £93.9m) in respect of unrecognised deferred tax assets have not been recognised as their future economic benefit is uncertain. 31 December 2013 Property, plant and equipment Intangible assets Employee benefits Tax value of loss carry-forwards 1 January 2013 £m Acquisitions / disposals £m Recognised in income £m Recognised in equity £m 31 December 2013 £m 6.3 (25.8) 1.4 9.5 (8.6) – – – – – 1.9 4.0 (0.3) (1.3) 4.3 – – 0.8 – 0.8 8.2 (21.8) 1.9 8.2 (3.5) 31 December 2014 Property, plant and equipment Intangible assets Employee benefits Tax value of loss carry-forwards 1 January 2014 £m Acquisitions / disposals £m Recognised in income £m Recognised in equity £m 31 December 2014 £m 8.2 (21.8) 1.9 8.2 (3.5) – (8.1) – – (8.1) (5.3) 5.9 – 2.3 2.9 – – 1.0 – 1.0 2.9 (24.0) 2.9 10.5 (7.7) 104 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 20. TRADE AND OTHER RECEIVABLES Trade receivables Other receivables and prepayments 2014 £m 36.1 28.6 64.7 At 31 December 2014 trade receivables are shown net of an allowance for doubtful debts of £0.1m (2013: £0.3m). The impairment loss recognised in the year was £nil (2013: £0.2m). 21. CASH AND CASH EQUIVALENTS Cash and cash equivalents per statement of financial position Cash and cash equivalents per statement of cash flows 2014 £m 30.1 30.1 2013 £m 24.3 32.4 56.7 2013 £m 15.4 15.4 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. 22. DISPOSALS AND DISCONTINUED OPERATIONS Discontinued operations relates to the disposal of the Xafinity Consulting business in February 2013. 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 on disposal of Group companies Profit for the year from discontinued operations 2014 £m – – – – – – – 2013 £m 3.2 (2.8) 0.4 – 0.4 3.3 3.7 105 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 23. INTEREST-BEARING LOANS AND BORROWINGS Non-current liabilities Senior secured notes Revolving credit facility Equiniti Enterprises payment in kind (“PIK”) facility Unamortised cost of raising finance Shares classified as debt Non secured loan from related party Non secured loan 2014 £m 440.0 45.5 151.1 (14.9) 204.0 73.8 2.0 901.5 2013 £m 440.0 – 135.0 (17.8) 188.9 68.3 1.9 816.3 Costs of raising finance are being amortised over a period between 5 and 6 years. In the year £2.9m (2013: £9.7m) has been recognised in finance expenses – amortised fees. Terms and debt repayment schedule Senior Secured Notes Senior Secured Floating Rate Notes Revolving credit facility Equiniti Enterprises payment in kind (“PIK”) facility Shares classified as debt Non secured loan from related party Non secured loan Amount £m 250.0 190.0 45.5 151.1 204.0 73.8 2.0 916.4 Currency Sterling Sterling Sterling Sterling Sterling Sterling Sterling Nominal interest rate 7.125% Libor + 5.75% Libor + 3.5% Libor + 10.4% 8.0% 8.0% 8.0% 24. TRADE AND OTHER PAYABLES Trade payables Accruals and deferred income Other payables 2014 £m 9.1 50.9 8.5 68.5 Year of maturity 2018 2018 2018 2019 – 2020 2020 2013 £m 2.8 38.1 8.1 49.0 The Group is subject to regulatory supervision by the Financial Conduct Authority, and in the ordinary course of business is subject to regulatory reviews with its regulator. All matters arising from these discussions are evaluated on a regular basis. At the date of these accounts the Directors do not believe there are any matters in progress which would have a material impact on the Group’s financial position or operations. 106 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 25. EMPLOYEE BENEFITS Management equity plan A number of the Group’s senior management team have been granted ‘B’ shares in the Group’s intermediary holding company, Knight Cayman Limited. On 1 July 2014, 9,500 shares were issued and none have been forfeited by the year end. These shares are recognised as equity-settled share options under IFRS2. The fair value of the scheme has been estimated using the Monte Carlo model. The charge relating to the arrangement in the year is not material and as such no charge has been recognised. 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 was defined as a notional unit share equal in proportion to the ordinary share and preference shares held by Advent International Corporation. 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. As at 1 January As at 31 December No of units 2014 In millions 0.4 0.4 Carrying amount 2014 £m 0.4 0.4 Nominal interest rate 2013 In millions 0.4 0.4 Carrying amount 2013 £m 0.4 0.4 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 2014 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 34,395 E ordinary shares (2013: 45,040), 62,500 D ordinary shares (2013: 22,537), nil C ordinary shares (2013: 5,348) and 17,500 B ordinary shares (2013: 52,500) were disposed of by leavers at the subscription amount of £0.2m (2013: £0.3), and acquired by Appleby Trust Jersey Limited. This company holds shares temporarily pending their purchase by authorised senior management. At 31 December 2014 the Appleby Trust held approximately 70,000 B ordinary shares, 6,000 C ordinary shares, 129,000 D ordinary shares and 137,000 E Ordinary shares at a consideration of £0.9m. During the year no shares were acquired (2013: 12,000) by senior management, for a consideration of £nil (2013: £nil), from shares held by the Appleby Trust. 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. 107 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 25. EMPLOYEE BENEFITS (CONTINUED) Defined contribution plans The Group operates a number of defined contribution pension plans. The total expense relating to these plans in the year was £4.5m (2013: £4.7m). Defined benefit plan – Summary of schemes Equiniti ICS Limited Paymaster (1836) Limited MyCSP Limited Total of defined benefit plans liability as at 31 December 2014 £m 2.0 13.4 0.1 15.5 2013 £m 0.9 9.2 – 10.1 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 2012 and updated to 31 December 2014 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 Movement in present value of defined benefit obligation Defined benefit obligation at 1 January Current service cost Interest expense Plan participants’ contributions Actuarial loss Benefits paid Defined benefit obligation at 31 December 108 2014 £m (11.1) 9.1 (2.0) 2014 87% 9% 4% 100% 2014 £m 0.4 2014 £m 9.9 0.1 0.4 – 1.2 (0.5) 11.1 2013 £m (9.9) 9.0 (0.9) 2013 85% 8% 7% 100% 2013 £m 1.3 2013 £m 8.7 0.1 0.4 0.1 0.8 (0.2) 9.9 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 25. EMPLOYEE BENEFITS (CONTINUED) Movement in fair value of plan assets Fair value of plan assets at 1 January Interest income Actuarial gain 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 Interest income 2014 £m 9.0 0.4 – 0.2 – (0.5) 9.1 2014 £m 0.1 0.4 (0.4) 0.1 2013 £m 7.6 0.3 1.0 0.2 0.1 (0.2) 9.0 2013 £m 0.1 0.4 (0.3) 0.2 The current service cost is recognised in administrative expenses in the statement of comprehensive income. Interest costs and interest income 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 recognised in other comprehensive income Cumulative loss at 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 (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 2014: Member age 65 (current life expectancy) Member age 45 (life expectancy at 65) Contributions Equiniti ICS Limited expects to contribute £0.2m to its pension plan in 2015. 2014 £m (2.3) (1.2) (3.5) 2014 3.60% 3.90% 2.10% 2.90% 2.20% 2.90% Male 87.1 88.3 2013 £m (2.5) 0.2 (2.3) 2013 4.55% 4.30% 2.20% 3.20% 2.50% 3.30% Female 89.5 90.8 109 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 25. EMPLOYEE BENEFITS (CONTINUED) 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 2012 and updated to 31 December 2014 by a qualified independent actuary. Present value of obligations 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 Movement in present value of defined benefit obligation Defined benefit obligation at 1 January Current service cost Interest expense Benefits paid Actuarial loss – experience losses Actuarial loss – change in financial assumptions Defined benefit obligation at 31 December Movement in fair value of plan assets Fair value of plan assets at 1 January Interest income Actuarial gain – return on plan assets Employer contribution Benefits paid Fair value of plan assets at 31 December 110 2014 £m (47.9) 34.5 (13.4) 2014 67% 21% 12% 100% 2014 £m 2.9 2014 £m 40.6 0.7 1.9 (1.1) 0.2 5.6 47.9 2014 £m 31.4 1.4 1.5 1.3 (1.1) 34.5 2013 £m (40.6) 31.4 (9.2) 2013 63% 26% 11% 100% 2013 £m 1.5 2013 £m 35.2 0.7 1.6 (1.0) 0.1 4.0 40.6 2013 £m 30.0 1.4 0.1 0.9 (1.0) 31.4 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 25. EMPLOYEE BENEFITS (CONTINUED) Expense recognised in statement of comprehensive income Current service cost Interest cost Interest income 2014 £m 0.7 1.9 (1.4) 1.2 2013 £m 0.7 1.6 (1.4) 0.9 The current service cost is recognised within operating costs in the statement of comprehensive income. Interest costs and interest income 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 loss recognised in other comprehensive income Cumulative loss at 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 2014 £m (10.2) (4.3) (14.5) 2014 3.60% 1.75% 3.05% 3.05% 2.50% 3.05% 2013 £m (6.2) (4.0) (10.2) 2013 4.60% 1.75% 3.40% 3.40% 3.40% 3.40% Weighted average life expectancy for mortality tables (101% SAPS S1PMA, 88% SAPS S1PFA, 1% long term trend) used to determine benefit obligations at 31 December 2014 and 31 December 2013: Member age 65 (current life expectancy) Member age 45 (life expectancy at 65) Contributions Paymaster (1836) Limited expects to contribute £1.2m to its pension plan in 2015. Male 86.5 88.0 Female 90.1 91.7 111 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 25. EMPLOYEE BENEFITS (CONTINUED) Defined benefit plan – MyCSP Limited The Group operates a defined benefit pension plan in the UK in its subsidiary MyCSP Limited. A full actuarial valuation was carried out at 31 December 2012 and updated to 31 December 2014 by a qualified independent actuary. Present value of obligations Fair value of plan assets Recognised liability for defined benefit obligations Plan assets The weighted average asset allocations at year end were as follows: UK Equities Overseas Equities Bonds Diversified Growth Fund Cash Actual return on plan assets Movement in present value of defined benefit obligation Defined benefit obligation at 1 January Defined benefit obligation acquired Current service cost Interest expense Actuarial loss – change in financial assumptions Defined benefit obligation at 31 December Movement in fair value of plan assets Fair value of plan assets at 1 January Assets acquired Interest income Actuarial gain – return on plan assets Employer contribution Fair value of plan assets at 31 December 112 2014 £m (8.5) 8.4 (0.1) 2014 17% 17% 40% 24% 2% 100% 2014 £m 0.4 2014 £m – 7.4 0.4 0.1 0.6 8.5 2014 £m – 7.6 0.1 0.3 0.4 8.4 2013 £m – – – 2013 – – – – – 100% 2013 £m – 2013 £m – – – – – – 2013 £m – – – – – – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 25. EMPLOYEE BENEFITS (CONTINUED) Expense recognised in statement of comprehensive income Current service cost Interest cost Interest income 2014 £m 0.4 0.1 (1.1) 0.4 2013 £m – – – – The current service cost is recognised within operating costs in the statement of comprehensive income. Interest costs and interest income 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 loss recognised in other comprehensive income Cumulative loss at 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 Inflation assumption 2014 £m – (0.3) (0.3) 2014 3.60% 3.60% 2.40% 2.40% 2.40% 2013 £m – – – 2013 – – – – – Weighted average life expectancy for mortality tables (101% SAPS S1PMA, 88% SAPS S1PFA, 1% long term trend) used to determine benefit obligations at 31 December 2014: Member age 65 (current life expectancy) Member age 45 (life expectancy at 65) Contributions MyCSP Limited expects to contribute £1.6m to its pension plan in 2015. Male 87.3 88.6 Female 89.6 91.1 113 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 26. PROVISIONS FOR OTHER LIABILITIES AND CHARGES Balance at 1 January 2014 Provisions made during the year Amounts arising from acquisitions Provisions used during the year Provisions reversed during the year Unwinding of discounted amount Balance at 31 December 2014 Non-current Current Contingent consideration £m Property provisions £m Other provisions £m Total provisions £m 2.6 2.8 – (0.7) – 0.3 5.0 3.1 1.9 5.0 3.0 1.9 0.4 (0.5) (1.0) 0.1 3.9 2.7 1.2 3.9 5.3 – – (1.9) (3.1) – 0.3 – 0.3 0.3 10.9 4.7 0.4 (3.1) (4.1) 0.4 9.2 5.8 3.4 9.2 Contingent consideration of £5.0m (2013: £2.6m) 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 £5.0m. 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 2016. Property provisions includes £2.0m (2013: £3.0m) in respect of dilapidations. £1.0m was reversed during the year. A provision for onerous leases for unused property space on operating leases of £1.9m was created during the year. £0.5m of this provision has subsequently been utilised. In addition, an onerous lease provision of £0.4m was aquired with the acquisition of MyCSP. Other provisions include: • A provision of £2.2m brought forward at 1 January 2014 for exceptional irrecoverable costs incurred on a complex long term contract. £1.9m has been utilised during the period. The remainder is expected to be utilised during the year. • A provision related to constructive compliance obligations in existence on the acquisition of the LTSB registrars business in 2007 for £2.5m was reversed during the year. • A provision of £0.6m relating to the remaining potential balances payable on an acquisition in 2010 was reversed during the year. 114 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 27. SHARE CAPITAL AND SHARE PREMIUM In millions 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 2014 5.0 5.0 Share premium 2014 £m 3.5 3.5 Ordinary shares 2013 5.0 5.0 Total 2014 £m 8.5 8.5 Share capital 2014 £m 5.0 5.0 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. Each share has equal voting rights. All shares are entitled to receive dividends from profits available for distribution pro rata to the nominal value of each share. 115 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 28. FINANCIAL INSTRUMENTS Credit risk The maximum exposure to credit risk at the reporting date was: Derivatives used for hedging Trade and other receivables Cash and cash equivalents Credit risk mitigation Note 17 20 21 2014 £m 0.2 64.7 30.1 95.0 2013 £m 1.6 56.7 15.4 73.7 Trade and other receivables are due from primarily FTSE listed companies, their pension funds 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 2014 £m 26.0 7.2 1.9 1.0 36.1 2013 £m 16.5 5.6 1.6 0.6 24.3 Trade receivables not past due of £26.0m (2013: £16.5m) 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 £0.1m (2013: £0.3m) 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 Balance at 31 December 2014 £m 0.3 0.1 (0.3) 0.1 2013 £m 0.6 0.2 (0.5) 0.3 116 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 28 FINANCIAL INSTRUMENTS (CONTINUED) Liquidity risk The maximum exposure to liquidity risk at the reporting date was: Trade and other payables Employee benefits Other financial liabilities Derivatives used for hedging Senior secured notes Revolving credit facility Equiniti Enterprises payment in kind (“PIK”) facility Unamortised cost of raising finance Shares classified as debt Non secured loan from related party Non secured loan Note 24 25 18 18 23 23 23 23 23 23 23 Carrying Amount 2014 £m 68.5 0.4 0.7 0.4 440.0 45.5 151.1 (14.9) 204.0 73.8 2.0 971.5 2013 £m 49.0 0.4 1.0 3.3 440.0 – 135.0 (17.8) 188.9 68.3 1.9 870.0 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 25. The contractual cash flows including interest payments for the interest-bearing loans and borrowings and derivatives are shown in the table in this note 28, 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 an additional £29.5m 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 2014 £m (208.7) 901.5 (30.1) 662.7 2013 £m (184.0) 816.3 (15.4) 616.9 Interest bearing assets comprise cash and bank deposits, all of which earn interest at a variable rate. £250m of the senior secured notes were issued at fixed interest rates. £190m are senior secured floating rate notes. Where the interest rate is variable at a margin over LIBOR, a swap has been taken out to fix this rate until October 2016. For the payment in kind facilities interest accrues at a variable rate at a margin over Libor and the Group policy is not to fix these as there is no cash flow in the immediate term. The Group’s policy is to maintain other borrowings at fixed rates to fix the amount of future interest cash flows. Interest rate risk is managed across the Group’s companies by monitoring its interest linked revenues. The directors monitor the overall level of borrowings, leverage ratio and interest costs to limit any adverse effects on financial performance of the Group. 117 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 28. FINANCIAL INSTRUMENTS (CONTINUED) Effective interest rates and repricing analysis The following are the contractual maturities of interest bearing financial liabilities including interest payments; 31 December 2013 Amount in £m’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 2014 Amount in £m’s Effective interest rate % Carrying amount 0–1 years 1–2 years 2–5 years 5 years and over* Total contracted cash flows Senior Secured Notes Senior Secured Floating Rate Notes Equiniti Enterprises PIK loan Shares classified as Debt * 7.125% 250.0 (17.0) (17.8) (303.5) – (338.3) 6.25% 190.0 (11.4) (11.9) (225.7) – (249.0) 10.9% 135.0 – – – (239.3) (239.3) 8.0% 188.9 – – – (249.9) (249.9) Senior Secured Notes Senior Secured Floating Rate Notes Equiniti Enterprises PIK loan Shares classified as Debt * 7.125% 250.0 (17.0) (17.9) (285.6) – (320.5) 6.25% 190.0 (11.4) (11.9) (213.8) – (237.1) 10.9% 151.1 – – (239.3) – (239.3) 8.0% 204.0 – – – (249.9) (249.9) Total 763.9 (28.4) (29.7) (529.2) (489.2) (1,076.5) Total 795.1 (28.4) (29.8) (738.7) (249.9) (1,046.8) * The shares classified as debt are redeemable on a change of control of the business but do not confer any rights of redemption nor any right to vote. They have the right to a fixed dividend of 8%. Unpaid dividends accrue and are compounded annually. 118 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 28. FINANCIAL INSTRUMENTS (CONTINUED) The Equiniti Enterprises PIK loan is repayable in 2019 and has an interest rate of Libor plus 10.4%. Interest accrues and is compounded annually. In addition, non current non secured loans with a carrying value of £58.5m (2013: £54.1m) including a loan to related parties of £56.4m (2013: £52.3m) with an interest rate of 8% are repayable on exit with a contracted cash flow of £85.9m (2013: £85.9m). Current non secured loans due to related parties of £17.3m (2013: £16.0m) with an interest rate of 8% are repayable on demand and have a contracted cash flow of £25.5m (2013: £25.5m). 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; 31 December 2013 Amount in £m’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 2014 Carrying Amount Expected cash flows 6 months or less 6–12 months 1–2 years Total contracted cash flows Interest rate swaps Assets Liabilities 1.6 1.5 (0.4) (0.2) 0.5 1.6 1.5 (3.3) (3.4) 0.3 0.2 (1.0) (2.9) (3.4) Interest rate swaps Assets Liabilities 0.3 0.2 0.3 0.2 (0.3) 0.2 (0.5) (0.5) (0.6) 0.1 – (0.5) Total (1.7) (1.9) (0.1) – (0.5) (1.3) (1.9) Total (0.2) (0.3) (0.3) 0.3 (0.3) (0.3) 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. 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 £1.7m, of which £1.4m is payable in kind on the PIK facility per annum and £0.2m is payable on the RCF, and give rise to an estimated increase in revenue across the Group of £0.8m, 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. 119 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 28. FINANCIAL INSTRUMENTS (CONTINUED) Fair value hierarchy The following table presents the Group’s financial assets and liabilities that are measured at fair value at 31 December 2014. Assets Derivatives used for hedging Total assets Liabilities Derivatives used for hedging Total liabilities Level 1 £m – – Level 2 £m 0.2 0.2 0.4 0.4 Level 3 £m – – – – Total £m 0.2 0.2 0.4 0.4 There were no transfers between Levels during the year. Valuation techniques used to derive Level 2 fair values Level 2 hedging derivatives comprise solely interest rate swaps. These interest rate swaps are fair valued using forward interest rates extracted from observable yield curves. The effects of discounting are generally insignificant for Level 2 derivatives. The Group’s policy is to recognise transfers into and transfers out of fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer. There were no changes in valuation techniques during the year. The valuation technique used is a discounted cash flow model. Group’s valuation processes The Group’s finance department includes a team that monitors and obtains the valuations of financial assets and liabilities required for financial reporting purposes. This team ultimately reports to the Chief Financial Officer and the Audit Committee. Valuations are reviewed at least once every quarter, in line with the Group’s quarterly reporting dates. Fair value of financial assets and liabilities 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. 120 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 29. 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 2014 £m 4.6 12.2 8.0 24.8 2013 £m 4.7 10.7 6.1 21.5 During the year £5.6m (2013: £5.4m) was recognised as an expense in the statement of comprehensive income in respect of operating leases. 30. RELATED PARTY TRANSACTIONS During the year interest of £5.5m (2013: £5.1m) accrued on a loan bearing interest at 8% from Equiniti (Luxembourg) Sarl, leaving a balance outstanding at the year end of £74.4m (2013: £68.9m). During the year interest of £0.1m (2013: £0.1m) accrued on a loan bearing interest at 8% from key management personnel, leaving a balance outstanding at the year end of £1.4m (2013: £1.3m). 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 2014 £m 2.8 0.1 – 2.9 2013 £m 5.6 0.1 2.0 7.7 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 25, 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 Sales by key management Closing balance Advent International plc 2014 £m 0.3 (0.2) 0.1 2013 £m 0.4 (0.1) 0.3 See page 5 for information about the ultimate controlling party, Advent International plc. £0.1m (2013: £0.1m) has been paid to various companies of the ultimate parent company for services received. 121 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 31. 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. 32. POST BALANCE SHEET EVENTS On 23 January 2015, the Group purchased the trade and assets of Selftrade for £17.7m in cash. The business provides an online share dealing platform for over 100,000 customers. The acquisition has been funded by drawing on the revolving credit facility. 122 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 33. RECONCILIATION OF (LOSS) / PROFIT TO CASH GENERATED FROM OPERATIONS Continuing operations Adjustments for: Loss before income tax Depreciation and amortisation Gain on disposal of associate Share of profit of associates Revaluation gain on investment Finance income Finance costs Changes in working capital Increase in trade and other receivables Increase in trade and other payables (Decrease) / increase in provisions Income tax (paid) / received Discontinued operations Adjustments for: Profit for the year Profit on disposal of subsidiaries 2014 £m 2013 £m (38.7) 40.7 (9.8) (1.7) (4.9) (0.6) 72.4 (1.2) 0.4 (2.8) (2.6) 51.2 2014 £m – – – 51.2 (61.7) 36.5 – (1.6) – (1.0) 79.1 (7.7) 13.9 0.3 1.8 59.6 2013 £m 3.7 (3.7) – 59.6 123 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTSINDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF EQUINITI GROUP LIMITED REPORT ON THE COMPANY FINANCIAL STATEMENTS Our opinion In our opinion, Equiniti Group Limited’s Company financial statements (the “financial statements”): • give a true and fair view of the state of the Company’s affairs as at 31 December 2014 and cash flows for the year then ended; • have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union; and • have been prepared in accordance with the requirements of the Companies Act 2006. What we have audited Equiniti Group Limited’s financial statements comprise: • the Company statement of financial position as at 31 December 2014; • the Company statement of cashflows for the year then ended; • the Company statement of changes in equity for the year then ended; and • the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information. The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and IFRSs as adopted by the European Union, and as applied in accordance with the provisions of the Companies Act 2006. In applying the financial reporting framework, the directors have made a number of subjective judgements, for example in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered future events. Opinion on other matter prescribed by the Companies Act 2006 In our opinion, the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Other matters on which we are required to report by exception Adequacy of accounting records and information and explanations received Under the Companies Act 2006 we are required to report to you if, in our opinion: • we have not received all the information and explanations we require for our audit; or • 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. We have no exceptions to report arising from this responsibility. Directors’ remuneration Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’ remuneration specified by law are not made. We have no exceptions to report arising from this responsibility. 124 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF EQUINITI GROUP LIMITED Responsibilities for the financial statements and the audit Our responsibilities and those of the directors As explained more fully in the directors’ responsibilities set out on page 67, 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) (“ISAs (UK & 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. What an audit of financial statements involves We conducted our audit in accordance with ISAs (UK & Ireland). 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 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. We primarily focus our work in these areas by assessing the directors’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements. We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both. In addition, we read all the financial and non-financial information in the Annual Report of the directors and Financial statements to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Other matter We have reported seperately on the group financial statements of Equiniti Group Limited for the year ended 31 December 2014 Graham Lambert (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Gatwick 25 March 2015 125 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTS COMPANY STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2014 Assets Non-current assets Investments in subsidiaries Investments Other financial assets Current assets Tax receivable Other financial assets Trade and other receivables Cash and cash equivalents Total assets Equity and liabilities Equity Share capital Share premium Retained earnings Total equity Liabilities Non-current liabilities Other financial liabilities Current liabilities Other financial liabilities Total liabilities Total equity and liabilities Note 2014 £m 2013 £m 8 9 10 10 12 13 14 14 11 11 8.5 11.0 2.8 22.3 0.3 – 0.5 2.6 3.4 25.7 5.0 3.5 3.3 11.8 13.7 13.7 0.2 0.2 13.9 25.7 8.5 6.1 1.0 15.6 – 7.8 0.5 3.0 11.3 26.9 5.0 3.5 (0.7) 7.8 19.0 19.0 0.1 0.1 19.1 26.9 The notes on pages 129 to 136 form part of these financial statements. These financial statements on pages 126 to 136 were approved by the board of directors on and were signed on its behalf by: G Wakeley Chief Executive 126 COMPANY STATEMENT OF CHANGES IN EQUITY AS AT 31 DECEMBER 2014 Share capital £m Share premium £m Retained earnings £m Balance at 1 January 2013 Loss after tax and total comprehensive income for the year Balance at 31 December 2013 Balance at 1 January 2014 Profit after tax and total comprehensive income for the year Balance at 31 December 2014 5.0 – 5.0 5.0 – 5.0 3.5 – 3.5 3.5 – 3.5 The notes on pages 129 to 136 form part of these financial statements. Total equity £m 8.5 (0.7) – (0.7) (0.7) (0.7) (0.7) 4.0 7.8 4.0 3.3 11.8 127 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTSCOMPANY STATEMENT OF CASH FLOWS AS AT 31 DECEMBER 2014 Note Cash flows from operating activities Loss before tax Adjustments for: Finance income Financial expense Increase in trade and other receivables Increase in other financial assets Group relief paid Net cash outflow from operating activities Cash flows from investing activities Dividends 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 Cash and cash equivalents at 31 December 13 The notes on pages 129 to 136 form part of these financial statements. 128 2014 £m 4.0 (5.5) 0.9 (0.6) – (0.2) (0.8) – (0.8) 0.4 0.4 – – – (0.4) 3.0 2.6 2013 £m (0.7) (0.4) 1.1 – (0.3) – (0.3 0.1 (0.2) – – (0.1) (0.9) (1.0) (1.2) 4.2 3.0 NOTES TO THE COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 1 Accounting policies 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 19. 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 profit for the year was £4.0m (2013: loss of £0.7m). 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. 129 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTSNOTES TO THE COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 1 Accounting policies (continued) Taxation (continued) 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 2014 that would be expected to have a material impact on the company. 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 2014, 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 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 15 to these financial statements. 130 NOTES TO THE COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 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 (2013: £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 Recognised in the statement of comprehensive income Current tax credit for the Company Current year Total tax in the statement of comprehensive income Reconciliation of effective tax rate Profit / (loss) for the year Total tax credit Profit / (loss) excluding taxation Tax using the UK corporation tax rate of 21.5% (2013: 23.25%) Non-deductible expenses Total tax credit 2014 £m (0.3) (0.3) 2014 £m 4.0 (0.3) 3.7 0.8 (1.1) (0.3) 2013 £m – – 2013 £m (0.7) – – (0.2) 0.2 – The standard rate of Corporation tax in the UK changed from 23% to 21% with effect from 1 April 2014. Accordingly the Company’s profits for this accounting year are taxed at an effective rate of 21.5%. 131 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTSNOTES TO THE COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 8 Investments in subsidiaries The Company has the following investments in subsidiaries: Cost and net book value At beginning of year At end of year 2014 £m 8.5 8.5 2013 £m 8.5 8.5 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 shares held Equiniti Enterprises Limited Equiniti X2 Enterprises Limited UK UK Ordinary Ordinary Principal activities Holding company Holding company Ownership 2014 % Ownership 2013 % 100 100 100 100 A more comprehensive listing of indirectly owned subsidiaries is provided in the consolidated financial statements of Equiniti Group Limited. 9 Investments The Company has the following investments Shares held in Euroclear plc 2014 £m 11.0 11.0 2013 £m 6.1 6.1 The shares were revaluaed at the end of 2014 to reflect the price paid by other shareholders of Euroclear plc in recent transactions. 132 NOTES TO THE COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 10 Other financial assets Non-current Intercompany loan due from related parties Accrued interest on loan due from related parties 2014 £m 2.6 0.2 2.8 Interest on intercompany loans is charged at a rate equivalent to the average rate charged on the underlying loans in Equiniti NewCo 2 plc. The intercompany interest rate is currently 7.125% (2013: 7.125%). Amounts owed from group undertakings are unsecured and have no fixed date of repayment but will not be called upon in the next twelve months. Current Receivables due from related parties 11 Other financial liabilities Non-current Intercompany loan due from related parties Accrued interest on loan due from related parties 2014 £m – – 2014 £m 12.2 1.5 13.7 2013 £m 1.0 – 1.0 2013 £m 7.8 7.8 2013 £m 18.3 0.7 19.0 Interest on intercompany loans is charged at a rate equivalent to the average rate charged on the underlying loans in Equiniti NewCo 2 plc. The intercompany interest rate is currently 7.125% (2013: 7.125%). Amounts owed to group undertakings are unsecured and have no fixed date of repayment but will not be called upon in the next twelve months. Current Amounts classified as other financial liabilities due to related parties 2014 £m 0.2 0.2 2013 £m 0.1 0.1 133 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTSNOTES TO THE COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 12 Trade and other receivables Other receivables and prepayments 13 Cash and cash equivalents Cash and cash equivalents per statement of financial position Cash and cash equivalents per statement of cash flows 14 Share capital and reserves In millions of shares On issue at beginning of year On issue at 31 December – fully paid Allotted, called up and fully paid Shares of £1 each 15 Financial instruments Credit risk Share capital 2014 £m 5.0 5.0 Share premium 2014 £m 3.5 3.5 The maximum exposure to credit risk at the reporting date was: In millions of shares Loans and receivables due from related parties Trade and other receivables Cash and cash equivalents Note 10 12 13 134 2014 £m 0.5 0.5 2014 £m 2.6 2.6 2013 £m 0.5 0.5 2013 £m 0.3 0.3 Ordinary shares 2014 Ordinary shares 2013 5.0 5.0 Total 2014 £m 8.5 8.5 5.0 5.0 Total 2014 £m 8.5 8.5 Carrying amount 2014 £m Carrying amount 2013 £m – 0.5 2.6 3.1 7.8 0.5 3.0 11.3 NOTES TO THE COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 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. Liquidity risk The maximum exposure to liquidity risk at the reporting date was: In millions of shares Payables to related parties Loans from related parties are repayable on demand. Capital risk Note 11 Carrying amount 2014 £m 0.2 0.2 Carrying amount 2013 £m 0.1 0.1 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 16 Related party transactions Interest receivable from related parties during the year Company’s subsidiaries Interest payable to related parties during the year Company’s subsidiaries Amounts receivable from related parties at the balance sheet date Company’s subsidiaries 2014 £m 11.8 11.8 2013 £m 7.8 7.8 2014 £m 2013 £m 0.2 0.9 2.8 0.3 1.1 8.8 Amounts payable to related parties at the balance sheet date Company’s subsidiaries 13.9 19.1 135 Making complex things simpleSECTION 03Equiniti Annual Report 2014FINANCIAL STATEMENTSNOTES TO THE COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 17 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. 18 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. 19 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. 136 Making complex things simple Equiniti Annual Report 2014Making complex things simpleequiniti.com 

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