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2019 Report18ANNUAL REPORT 2018 Equiniti is a leading global provider of technology and solutions for complex and regulated data and payments, serving blue-chip enterprises and public sector organisations Our mission is to combine our technology and specialists to help businesses prosper We are a Superbrand! 22 Inside this year's Annual Report 01 02 STRATEGIC REPORT GOVERNANCE HIGHLIGHTS OUR BUSINESS MODEL OUR MARKETS STRATEGY KEY PERFORMANCE INDICATORS CHAIRMAN’S STATEMENT CHIEF EXECUTIVE’S STATEMENT OPERATIONAL REVIEW FINANCIAL REVIEW SUSTAINABILITY PRINCIPAL RISKS AND UNCERTAINTIES VIABILITY STATEMENT 6 8 12 14 16 18 20 22 30 38 48 52 GOVERNANCE REPORT BOARD OF DIRECTORS EXECUTIVE COMMITTEE BOARD AND EXECUTIVE COMMITTEE STRUCTURE 56 58 60 66 AUDIT COMMITTEE REPORT 72 RISK COMMITTEE REPORT 80 NOMINATION COMMITTEE REPORT 86 DIRECTORS' REMUNERATION REPORT 92 DIRECTORS' REPORT 118 03 04 FINANCIAL STATEMENTS ADDITIONAL INFORMATION SHAREHOLDER INFORMATION 200 INDEPENDENT AUDITORS' REPORT CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS COMPANY FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS 124 132 139 190 192 E q u n i t i i G r o u p p c A n n u a l l R e p o r t 2 0 1 8 3 33 Equiniti Group plc Annual Report 2018 Best Investor Education Voted for by investors and shareholders 4 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 G r o u p p c A n n u a l l R e p o r t 2 0 1 8 5 01 Strategic Report HIGHLIGHTS OUR BUSINESS MODEL OUR MARKETS STRATEGY KEY PERFORMANCE INDICATORS CHAIRMAN’S STATEMENT CHIEF EXECUTIVE’S STATEMENT OPERATIONAL REVIEW FINANCIAL REVIEW SUSTAINABILITY PRINCIPAL RISKS AND UNCERTAINTIES VIABILITY STATEMENT 6 8 12 14 16 18 20 22 30 38 48 52 Highlights Revenue Underlying EBITDA* Underlying EBITDA margin* Underlying earnings before interest and tax (EBIT)* £530.9m 2017 £406.3m CHANGE 30.7% Profit after tax £20.7m £122.3m 2017 £98.2m CHANGE 24.5% 23.0% £39.9m 2017 24.2% CHANGE (1.2pts) 2017 £37.0m CHANGE 7.8% Diluted earnings per share (EPS) Underlying EPS* Full year dividend per share 4.7p 17.9p 5.32p 2017 £15.3m CHANGE 35.3% 2017 3.5p CHANGE 34.3% 2017 16.8p CHANGE 6.5% 2017 4.37p CHANGE 21.7% Operating cash flow conversion* Net debt 102% 2017 93% CHANGE 9pts £309.5m 2017 £242.9m CHANGE 27.4% Leverage 2.5x 2017 2.5x CHANGE – FINANCIAL HIGHLIGHTS • Revenuegrowthof30.7%reflectingacquisitionofEQUSand OPERATIONAL HIGHLIGHTS • 100%retentionofFTSEclientsincludingrelationshipswith strongorganicgrowthof7.3% BAESystems,Carnival,EasyJet,GSK,IHGandQinetiQ • UnderlyingEBITDAgrowthof24.5%reflectingstrongorganic growthandcontributionfromEQUS;UnderlyingEBITDA growthof10.6%excludingthecontributionofEQUS • Margindeclineof1.2ptsto23.0%,drivenbyachangein businessmixduetoanincreaseinlowermarginremediation projects • Operatingcashflowconversionof102%,includingareduction inthereceivablesfinancingfacilityto£10.3mfrom£19.9m at31December2017,anddrivenbystrongworkingcapital management • UnderlyingEBITgrowthof7.8%aftertheimpactof£20.8m ofnon-operatingchargesarisingfromtheacquisitionofEQ US,withprofitaftertaxgrowthof35.3%,benefittingfroma reducedtaxcharge • Recommendedfinaldividendof3.49pencepershare, givingatotaldividendfortheyearof5.32pencepershare, representinggrowthof21.7%,inlinewithprogressive dividendpolicy • Netdebtof£309.5m,resultinginleverageof2.5x,reflecting theacquisitionoftheEQUSbusinessandassociatedcosts 2017numbersarerestatedforchangesinaccountingstandards(IFRS9and IFRS15)–seenote2.1fordetails. *TheGroupusesalternativeperformancemeasurestoprovideadditional informationontheunderlyingperformanceofthebusiness.Keypointsforeaseof referenceareprovidedbelow.FurtherexplanationisprovidedintheAPMsection oftheStrategicReport. OperatingcashflowconversioniscalculatedasunderlyingEBITDAplusthechange inworkingcapitalasa%ofunderlyingEBITDA. 2017EPSanddividendhavebeenrestatedtoreflectthebonuselementofthe rightsissueassociatedwiththeEQUSacquisition. Netdebtat31December2017excludesthenetproceedsof£114.2mfromthe rightsissueon17October2017,whichwasusedtofundtheacquisitionofEQUS. Operatingcashflowconversion,underlyingnetdebtandunderlyingleverageare calculatedafterallowingforuseofareceivablesfinancingfacilitytheGrouphasin place,ofwhich£10.3m(2017:£19.9m)wasutilisedattheendoftheperiod,details ofwhichcanbefoundonpage33. 6 • MajorrenewalsintheUSincluding3M,CVS,Honeywell andJPMorgan • Newclientwinsacrossalldivisions • NewshareregistrationclientsincludingBodycote,Hiscox, WmMorrisonsandNationalGrid • NewcompanylistingsincludingAstonMartin,Avastand FundingCircle • OthernewclientwinsincludingCombinedNuclearPension Plan,Mastercard,NationalBankHoldingsandOfcom • Newcapabilitiesandstrategicdisciplinesestablished, including: • WellsFargoShareownerServices(EQUS)acquisition successfullycompletedon1February2018,withmultiple growthopportunitiesinNorthAmerica • IntegrationontrackwithfullseparationfromWellsFargo progressingwell • Thedivisionreturnedtogrowthinthesecondhalfwith newclientwinsincludingAbbVie,BeyondMeatand Mastercard • NewproductsnowlaunchedintheUSforprivatecompany M&A,Riskfactorandproxysolicitationservices • IntegrationofBoudiccaProxydeliveredandsuccessfully cross-soldto21registrationclients • AcquisitionofAquilacompletedon31October,enhancing ourtechnologyandservicesforinsuranceandthelifesector • ExtensionoftheMyCSPcontractfortheCivilService PensionSchemeuntilDecember2021,andthepurchaseof theCabinetOffice's24%shareholding,increasingourstake from51%to75%anddemonstratingourcommitmenttothis jointventure About Equiniti Equiniti is a leading global provider of technology and solutions for complex and regulated data and payments, serving blue-chip enterprises and public sector organisations. Wedeliverourservicesthroughfourdivisions,eachunderpinnedbyproprietary technologyplatformsandpositionsofscaleinourchosenmarkets: I S T R A T E G C R E P O R T INVESTMENT SOLUTIONS 27% OF 2018 REVENUES INTELLIGENT SOLUTIONS 31% OF 2018 REVENUES InvestmentSolutionsoffersabroadrange ofservices,includingshareregistration foraroundhalftheFTSE100,andthe administrationofSAYEschemesand shareincentiveplansfor1.2million employees.Thedivisionalsoprovides sharedealing,wealthmanagementand internationalpaymentstocorporate clientsandtheiremployees,aswellas directlytoretailcustomers. IntelligentSolutionstargetscomplexor regulatedactivitiestohelporganisations managetheirinteractionswithcustomers, citizensandemployees.Thedivision offersenterpriseworkflowforcaseand complaintsmanagement,creditservices, on-boardingfornewclients,specialist resourceforrectificationandremediation anddataanalyticsservices. PENSION SOLUTIONS 24% OF 2018 REVENUES EQ US 16% OF 2018 REVENUES PensionSolutionsoffersadministrationand paymentservicestopensionschemes,as wellaspensionsoftware,datasolutions, andlifeandpensionsadministration.The divisionisascaleproviderofpension technologyandoperatessomeofthe largestpensionschemesintheUK.These includetheNationalHealthServicescheme, whichhasmorethan2.6millionmembers, andtheArmedForcesVeterans,whichwe haveservedcontinuouslysince1836. EQUSprovidescreativesolutionsfor shareholdermanagement.Thedivision offersarangeoftransferagentservices thatenableourclientstomanageshare registers,communicatewithshareowners andundertakesignificantcorporateactions –simplyandeffectively. INTEREST INCOME 2% OF 2018 REVENUES Inadditiontoourfourdivisions,weearninterestincomeasafee fortheadministrationofcertainclientandcustomerbalances. I H G H L I G H T S / A B O U T E Q U N T I I I 7 Equiniti Group plc Annual Report 2018SECTION 01 Our business model The inputs to our business model We rely on the following assets to create value for our stakeholders: PROPRIETARY TECHNOLOGY SPECIALIST PEOPLE RELATIONSHIPS KNOWLEDGE Wehavewell-invested andscalableproprietary technologyplatforms, whichgiveusa competitiveadvantage andformabarrier toentry,giventhe substantialexperience, timeandmoney requiredtobuildthem. Weemploypeople whoareexpertsin theirfields.Attheyear end,wehadover5,100 employees,including c900atouroffshore facilitiesinChennai. Webuildexcellent long-termandmutually beneficialrelationships withourclients,which includec70oftheFTSE 100andc120ofthe FTSE250.Ouraverage relationshipwithFTSE 100shareregistration clientsisc29years. Wehavemanyyears’ experienceofproviding complexservicesin regulatedmarkets.We alsohaveastrongtrack recordofidentifyingand acquiringnewplatforms andcapabilities tocross-selltothe existingclientbase. FINANCIAL RESOURCES Wecarefullymanage ourbalancesheetand cashflows,givingus thefinancialresources weneedtoinvest inourtechnology platformsandto continueourgrowth. OUR VALUE CREATION MODEL The outputs from our business model FOR OUR CLIENTS FOR OUR SHAREHOLDERS FOR OUR PEOPLE FOR OUR SUPPLIERS FOR SOCIETY Ourclientsreceive high-qualityservices andtechnologythatfree themtofocusonwhat mattersmosttothem. Ourshareholdersgain fromrisingprofits andcashflows,which supportaprogressive dividendpolicy. Ourpeoplebenefit frominterestingwork inagrowingbusiness, wheretheycandevelop theircareersandfulfil theirpotential. Oursuppliersareable togrowtheirbusinesses alongsideours,aswe workinpartnership withthem. Themajorityofour activitieshaveadirect socialbenefit,whether thatisensuringpeople receivetheirpensions ontimeorhelping clientstogrowand createjobsthrough ourdataanalytics.We alsoworkinanethical andsustainableway, andseektocreate sustainablevalue forthelong-term. 8 Our value creation model THE VALUE WE ADD Wecombineproprietarytechnologywithexperiencedand specialistpeople,toprovideaccurate,flexibleandefficient services.Theseservicesareoftennon-corebutbusiness-critical toourclients.Ourexperienceofoperatinginregulated environmentshelpsourclientstomeettheirregulatory obligationsandprotecttheirstakeholders’interests. Ourscaleandbroadclientbasemeanswecanmake investmentsintechnologyandpeoplethatourclientswould noteconomicallychoosetomakethemselves.Thisallowsus toprovideservicesmoreefficientlythanclientscouldin-house, deliveringcostefficienciesandgivingthemtheflexibilityto adjusttheresourcesdeployedthroughouttheyear. Ourtechnologyplatformsprovidesignificantoperational leverage,whichincreasesprofitsasourrevenuegrows.To optimiseourefficiency,wecontinuetoexpandourtechnology development,testingandsupportcapabilityintheUKandIndia. Strongoperatingcashflowconversionprovidesfundstoinvestin growthandtofurtherreduceourdebt. SUSTAINING OUR ADVANTAGE Weownthecoretechnology,softwareandinfrastructure requiredtorunouroperations.Wecontinuallyinvestinour platformstoaddfunctionalityandkeeppacewithchanging lawsandregulations.Wealsobringonboardinnovativenew platformsthroughacquisitionsalongwithnewcapabilitiesthat arerelevanttoourexistingclients. Ourpeoplearevital.Theirexpertiseenablesustoprovide sophisticated,high-marginservicesthatareprotectedfrom commoditisation.Wedeveloptheirskillsandoffercareerpaths andinterestingwork. DELIVERING RETURNS High-qualitydeliverysupportslong-termrelationshipswithour clients’seniordecisionmakers.Ourstrategicaccountdirectors thenworkwiththemtoidentifyotherareaswherewecandeliver valueandinnovation.Asaresult,ourkeyaccountstypicallytake morethantenservicesfromusandsometakemorethan20. Thiscross-sellingandup-sellingdrivesourtoplinegrowth.Our marketleadershippositionsalsomakeusanaturalchoicefor newclients.Inaddition,welooktoturnmajorclientsintotrue partners,whereweareeachother’ssupplierandcustomerand jointlydelivernewopportunities,makingtheserelationships even stronger. Differentservicesgeneraterevenuesindifferentways.The proportiongeneratedbymulti-yearcontractsandpredictable projectandtradingactivity,combinedwithourlong-term relationships,givesushighvisibilityoffuturerevenues.Forthe Groupasawhole,atthestartofeachyear,wetypicallyhave visibilityofc90%ofrevenueforthatyearandc80%forthe followingyear. OUR REVENUE VISIBILITY COMES FROM THE FOLLOWING SOURCES: c50%fromlong-term contractedincome c30%fromdependableproject income,whichrelatesto tasksandchangework undertakenforlong- standingclientsonour coreplatforms c10%fromtransactionalincome, whichhappenseverymonth butisnotcontracted,such asforeignexchangefromthe paymentofoverseaspensions andinterestincome I O U R B U S N E S S M O D E L 9 Equiniti Group plc Annual Report 2018SECTION 01STRATEGIC REPORT Our technology platforms We deliver our services and solutions through a suite of proprietary platforms, which provide cutting edge technology and functionality to our clients and give us a significant competitive advantage. Ourtechnologyunderpinsourstrategyofexpandingourservice offering,whileadaptingtochangingclientandregulatory requirements.Becausetheyareproprietary,wecanusethem toprovidewhitelabelservicestoclients.Ourinfrastructureis onshoreandconfiguredtobesecureandresilient. Theplatforms’scalabilitysupportsourbusinessgrowth,with significantcapacitytoprocessincreasinglylargevolumesofdata andtransactions,makingpaymentsof£93bnin2018.Wealso haveatrackrecordofmakingtargetedacquisitionsofcompanies withexcitingtechnology,whichopennewgrowthareasforus. Charterisourcaseandcomplaintsmanagementplatform. ItsupportsIntelligentSolutions’offering,processingmore than4.5millioncomplaintsonbehalfofclients.Itisahighly customisablesolution,whichsupportsautomatedFCAreporting, rootcauseanalysisandsecuredatamanagement.Itgivesour clientsawidevarietyofbusiness-criticaldatainasingleview, enablingswiftandefficientprocesses. Compendiaisouraward-winningpensionadministrationand payrollplatform.Itisusedtomanagerecordsandpaymentsfor around9millionUKpensionschememembers.Aswellasusing Compendiainourownbusiness,weprovidetheplatformasa softwaresolutiontoin-housepensionteams,eitheron-premise orasamanagedservicesolution. Compendiaoffersself-servicefunctionalitytoschememembers, throughourmobileappandresponsivewebdesign.This improvesmembers’experience,helpsthemtoplantheir retirements,increasestheirengagementwiththeschemeand improvesefficiencyfortheschemesthemselves. Siriusisourcoreshareregistermanagementplatform, supportingourregistration,dividendpaymentandshareplan administrationservices.Itcanhandlevastprocessingvolumes, managingover70milliondatarecordsonbehalfof19million shareholdersandmakingpaymentsof£44bnin2018.Sirius receivesapproximatelyonemillioninternalwebsitehitseachday anddeliversanaverageresponsetimeoflessthanonesecond. Xaniteisourcustodyandsettlementwealthmanagement platform.ThroughitsinterfacewithSWIFTandCREST,it supportssharedealingforbothretailinvestorsandcorporate clients,aswellasouroutsourcingservicesforwealthmanagers. Theplatformalsoenablesustoprovideassetcustodyservices andsupportsourgrowingD2Cbusiness,whichwedeliver throughourSelftradewebandmobileoffering. 10 I S E C T O N 0 1 I S T R A T E G C R E P O R T O U R T E C H N O L O G Y P L A T F O R M S E q u n i t i i G r o u p p c A n n u a l l R e p o r t 2 0 1 8 11 Our technology underpins our strategy of expanding our service offering, while adapting to changing client and regulatory requirements” OUR FOUR PRIMARY PLATFORMS ARE CHARTER, COMPENDIA, SIRIUS AND XANITE. OUR OTHER IMPORTANT PLATFORMS INCLUDE: Our executive share plans platform The proprietary technology platform operated for loan administration services Our client on-boarding and anti-money-laundering platform Our fraud detection platform Our markets INCREASING REGULATION Thereisongoingpressuretoprotect consumers’intereststhroughgreater regulation,particularlyinthepensions, bankingandfinancialservices,and healthcareindustries.Thereisalsoever- increasingfocusonissuessuchasmoney laundering,whichisaglobalproblem. Newregulationsarethereforeafeature ofourclients’markets.IntheUK,for example,morethan80newregulations havebeenintroducedinfinancialservices sincethe2008crash.Moreregulation resultsinbothpublicandprivatesector organisationsfacingrisingcompliance costsandtheneedtoupgradetechnology tocope.Manymayalsobecontending withpastregulatoryissuesatthesame time.Organisationswhofailtomeet theirregulatoryobligationsfacemore investigations,increasingdemandfor remediationservices. WhileEquinitiisalsoaffectedby compliancecoststhistrendispositive forus,creatingnewopportunitiesto serveourclients. Equinitihaslargeaddressablemarkets intheUKandUS.Intheshortterm, activityinourmarketsisdrivenby macro-economicconditions,including confidencelevelsamongbusinesses andinstitutionalinvestors,andthelevel ofinterestrates.Thesefactorsimpact demandforinvestment-linkedproducts andthenumberofflotations,mergers, acquisitions,shareissuesandbuybacks. Wealsoincreaseouraddressablemarket overtime,byaddingcapabilitiestothe Group,expandingourclientbaseviaIPO wins,andcross-sellingintothatexpanded clientbase.Thiswillbeparticularly importantintheUS,aswetransfer capabilitiesdevelopedintheUKtoserve EQUS’sclients. Thelonger-termgrowthofourmarketsis theresultofpowerfulstructuraltrends: • increasingregulation; • continueddigitisation;and • increasingcostconsciousness. Thesechallengeourclients,who facegreatercomplexityand risingcosts,encouragingthem to turn to us for support. CONTINUING DIGITISATION Consumersexpecttoreceivehigh-quality servicesandtobeabletomanagetheir affairsonline.Shorterproductlifecycles arealsorequiringorganisationstobuild customerjourneysmorequickly.These pressuresrequireorganisationstoinvest extensivelyinwebsites,portalsand mobileapps,whichcanbedifficultto doin-house.Atthesametime,theyare oftenstrugglingwithlegacytechnology, particularlyinthebankingsector,making itmoredifficulttorespond. Thegrowthofdigitisationisalsocreating vastquantitiesofproprietaryandthird- partydataforourclients.Theyoften needspecialisthelptoanalysethisdata andextractcustomerinsights,sothey canimprovetheircustomeroffer.Thisis particularlycriticalforclientswithlarge customerbases. INCREASING COST-CONSCIOUSNESS Companiesareunderrealpressureto cutcosts,toenablethemtocompete effectivelyandtogrowprofits.Intense pressureonpublicfinancesalsoforces governmentsandtheiragencies todomorewithless.Thisrequires companiesandthepublicsectorto focusontheircoreoperationsand bemoreefficient.Technology-led solutionshelpthemtotransformtheir operationsanddeliverefficiencies. 12 THE IMPLICATIONS FOR EQUINITI Thetrendsoutlinedonpage12haveseveralimplicationsforus.Ourstrategyisdesignedtorespondtothesedynamics. IMPLICATIONS FOR EQUINITI OUR STRATEGIC RESPONSE The changing environment means existing clients need more of our services, so they can manage change effectively. We grow sales to existing clients by cross-selling and up-selling, so they take a greater number of our solutions over time. Prospective clients have an ever-increasing range of needs, opening up new ways of winning their business. We win new B2B clients requiring core services such as share registration services and through new routes such as software sales. As the world becomes more complex, both new and existing clients require us to offer new capabilities. We stay ahead by understanding our clients’ evolving needs and either developing or acquiring new capabilities to meet them. Complexity tends to increase costs, so we must focus rigorously on our own efficiency. We continue to grow our offshore presence, find other opportunities to increase efficiency, and benefit from the operational leverage of our platforms. Our technology is a key enabler of change for our clients. We need to ensure it remains best in class. We use the attractive cash flow characteristics of our business to invest in our technology platforms, while continuing to strengthen our balance sheet. Formoreinformationonourstrategy,seepages14to15. OUR COMPETITIVE ENVIRONMENT Wehavebothmarket-leadingandchallengerpositionsacross ourportfolioofservices.MostofourUKmarketsarefragmented andwetypicallyfacedifferentcompetitorsineach. InInvestmentSolutions,wehavenumberonepositionsinshare registrationandemployeeshareplans.Thedivisionalsohas challengerpositionsincustodynomineeandflexiblebenefits services. PensionSolutionsisnumberoneinpublicsectoradministration andnumbertwointhird-partyadministration,serving approximatelysevenmillionpensionschememembers. InIntelligentSolutions,wehaveanumberoneposition inremediationservicesandstrongpositionsinregulatory services,loantechnology,know-your-customer(KYC)customer on-boarding,riskassessment,dataanalyticsandconsumercredit. Inmarketswherewehavechallengerpositions,weare differentiatedbyourprovenabilitytoprocessdataandpayments securelyandaccurately.Manyclientsareriskaverseand giventhecriticalnatureoftheserviceswesupply,operational excellenceiscriticalforwinningandretainingtheirbusiness. IntheUSshareholderservicesmarket,weranksecondbythe numberofshareholdersserved,withc22%marketshare.By numberofissuersservedwerankthird,with10%marketshare. UK #2 #1 #4 #2 SHARE REGISTRATION THIRD-PARTY PENSION ADMINISTRATION EXECUTION-ONLY RETAIL SHARE DEALING BY SHAREHOLDERS SERVED US #3 BY ISSUERS SERVED EMPLOYEE SHARE PLANS PUBLIC SECTOR PENSION ADMINISTRATION REMEDIATION SERVICES I S T R A T E G C R E P O R T O U R M A R K E T S 13 Equiniti Group plc Annual Report 2018SECTION 01 Strategy Equiniti has a five-part strategy, designed to drive organic growth by leveraging our technology platforms. The key components of our strategy are set out below. GROW SALES TO EXISTING CLIENTS WIN NEW B2B CLIENTS DEVELOP AND ACQUIRE NEW CAPABILITIES Themajorityofourorganicgrowth comesfromcross-sellingandup-selling toexistingclients.Toachievethis,we needto: • Employgreatpeopleanddevelop them,sotheydeliverconsistently excellentservice,helpingtoensure weretainourexistingclientbase. • Investtimetounderstandclients’ needsandcontinuetodevelopour keyaccountsmanagement. PROGRESS IN 2018 TowinnewB2Bclients,weneedto: • Targetclientsrequiringcoreservices, inparticularshareregistration. • Attractclientsthroughnewroutes, suchassoftwaresales. • Maintainourreputationfor serviceexcellence. Asourenvironmentchangesandopens upnewopportunitiesforus,weneedto keepaheadbybroadeningouroffering. Thismeans: • Ensuringweunderstandourclients’ needs,sotheycanleadourproduct development. • Developingnewcapabilities thatmeetthoseneeds,through organicinvestment. • Makingcarefullytargetedacquisitions thatgiveusnewtechnologytomeet thoseneeds. LONG-TERM CLIENT RELATIONSHIPS ARE THE FOUNDATION OF OUR BUSINESS. WE CONTINUED TO RETAIN 100% OF OUR UK LISTED SHARE REGISTRATION CLIENTS. Notableexamplesofcross-sellingand up-sellingthisyearincluded: • CreditservicestoVodafoneand MotoNovoFinance. • Largescaleremediationandfulfilment projectswithmajorUKbanks. • SuccessfullyintroducingourUKcredit servicescapabilitytotheUS,with Riskfactorbeinglaunchedandnowbeing usedby11organisationsintheUS. Ourkeyaccountsnowtakeanaverage ofmorethantenproductsfromus. KEY NEW ACCOUNT WINS IN THE YEAR INCLUDED: • Shareregistrationmandatesfor Bodycote,Deltex,Hiscox,Wm MorrisonsandNationalGrid. • ShareplanmandatesincludingAstra Zeneca,Dunelm,WmMorrisons, NationalGridandSantander. • 21UKmainmarketlistings,including AstonMartin,AvastandFundingCircle. • TechnologysalesincludingAdmiral, NeilsonandUlsterBank. • WinsintheUSincludingAbbVie, BeyondMeat,Honeywell, Mastercard,NationalBankHoldings, InmarsatandPerspecta. WE CONTINUED TO BROADEN OUR CAPABILITIES DURING THE YEAR. IN PARTICULAR: • UStransferagencycapabilityinplace following1February2018completion oftheEQUSacquisition. • BoudiccaProxyServicesacquiredin April2018andsincecross-soldto21 registrationclients. • AquilaGroupHoldingsacquired inOctober2018,enhancingour technologyandservicesforinsurance andthelifesector. • Estatemanagementandbereavement servicesmodelgrowing,including "tell-us-once"pilotforsixmajor UKbanks. 14 OPERATING LEVERAGE REINVEST STRONG CASH FLOWS Ourscalableplatformsgiveusoperational leverageaswegrow.Inaddition,we continueto: • Increasethescaleofouroperation inChennai. Equiniti’sbusinesshasattractivecashflow characteristics.Thisenablesustocontinue investinginourtechnologyplatforms, ensuringtheyremainbest-in-class,while reducingleverage. • Lookforotheropportunitiesto improveourefficiency,including premisesconsolidationand supplierrationalisation. DURING THE YEAR WE: • Furtherexpandedouroffshore centreinChennai,whichnowhas c900ITandoperationsstaff,and beganmobilisinganew400seat technologycentreinBangalore. • Developedanadditionaloperations siteinMilwaukeeaspartofourNorth Americaninfrastructure. • Tookadvantageofmultipleautomation anddigitisationopportunitiesarising fromMiFIDII. IN 2018 WE: • Deliveredfreecashflowattributableto equityholdersof£38.6m.Seepage33 forcalculation. • Invested£39.8mincapitalexpenditure todevelopourcoreplatformsand FinTechproducts,andonintegration ofourUSbusiness. • Attheyearend,wehadnetdebtof £309.5mandnetdebttounderlying EBITDAof2.5times. WE DELIVERED 30.7% Revenue growth 7.3% Organicrevenuegrowth 24.5% Underlying*EBITDAgrowth 102% Operatingcash flowconversion *Includescontributionsfromacquisitions I S T R A T E G C R E P O R T S T R A T E G Y 15 Equiniti Group plc Annual Report 2018SECTION 01 Key Performance Indicators We use the following key performance indicators (KPIs) to track our strategic progress. Each KPI links to one or more elements of our strategy, as described on pages 14 to 15. We have also set medium-term targets for our key financial metrics, which are described below: KPI RELEVANCE TO STRATEGY PERFORMANCE TREND REVENUE GROWTH1 Thevalueofservicesandsoftwareprovidedtoclients intheyear,plusinterestincome. Deliveringorganicrevenuegrowthisattheheartofourstrategy. Wesupplementthiswithgrowthfromacquisitions. Linkstothefollowingstrategyelements: 1 2 3 TARGET: ORGANIC REVENUE GROWTH SUPPLEMENTED BY GROWTH FROM ACQUISITIONS Totalrevenuegrewby30.7%in2018,withorganicgrowthof7.3%. UNDERLYING EBITDA1 MARGIN Earningsbeforeinterest,tax,depreciation, amortisationandnon-operatingcharges2,asa percentageofrevenue UnderlyingEBITDAmarginisakeymeasureofourprofitabilityand demonstratesourabilitytoimproveourefficiency,aswellasthequality ofworkwewin. Linkstothefollowingstrategyelement: 4 OPERATING CASH FLOW CONVERSION UnderlyingEBITDAplusthechangeinworking capital,asapercentageofunderlyingEBITDA Ourstrategyrequiresustogeneratecashtofundinvestment. Linkstothefollowingstrategyelement: 5 LEVERAGE TheratioofnetdebttounderlyingEBITDA. Astrongbalancesheetgivesusthecapacitytoinvestorganically andinacquisitions. Linkstothefollowingstrategyelement: 5 CLIENT SATISFACTION Weusethefollowingindustryrecognisedmeasures tomonitorclientsatisfaction: 1.NetPromoterScore(NPS),measuredhalfyearly viaonlineandpapersurveys. 2.CustomerEffortScore(CES),measuredviaonline, paperandinteractivevoiceresponsesurveys. 3.Contactcentrecustomersatisfactionscore(CCCS). Clientsatisfactionshowshowwellwearemeetingourclients’needs,which isessentialforretainingourexistingbusinessandourabilitytogrow,both throughsellingmoretoexistingclientsandthroughattractingnewclients. Linkstothefollowingstrategyelements: 1 2 TARGET: GRADUAL MARGIN IMPROVEMENT OurunderlyingEBITDAmarginwas23.0%,adeclineof 1.2pts,reflectinganincreasedleveloflowermargin remediationservices. TARGET: OPERATING CASH FLOW CONVERSION OF MORE THAN C95% In2018,wedeliveredanotherstrongcashflowperformance, withcashconversionof102%. TARGET: LEVERAGE OF 2.0 – 2.5X IN THE MEDIUM TERM Netdebtwas£309.5mat31December2018,resultingin leverageof2.5x. TARGETS: NPS OF 40 IN THE MEDIUM TERM, CES OF 95%, CCCS OF 97% In2018,wefurtherimprovedcustomersatisfaction. OurNPSwas39,upfrom33in2017. TheCESwasmaintainedat96%againstanindustrybenchmark TheCCCSwasmaintainedat97%,againstanindustrybenchmark of 70%. of 77%. EMPLOYEE TURNOVER Thenumberofemployeeswhovoluntarilyleave Equinitiduringtheyear,asapercentageof employeesatthestartoftheyear. Employeeturnoverisanindicatorofourabilitytoretainthetalented peoplewhoarecrucialtooursuccess. Linkstothefollowingstrategyelements: 1 2 3 TARGET: 16% EMPLOYEE TURNOVER IN THE UK EmployeeturnoverintheUKwas15.1%. 1RevenueandunderlyingEBITDAwereadjusted for2014toreflecttheimpactoffundamental changestothebusiness,asoutlinedinthe Group’sprospectusissuedinOctober2015. 2Non-operatingchargesaredefinedasexpense 3Underlying,excludingthebenefitofthe items,whichifincluded,wouldotherwiseobscure theunderstandingoftheunderlyingperformance oftheGroup. 114.2mofnetproceedsfromtherightsissue on17October2017. 16 KPI RELEVANCE TO STRATEGY PERFORMANCE TREND REVENUE GROWTH1 Deliveringorganicrevenuegrowthisattheheartofourstrategy. Wesupplementthiswithgrowthfromacquisitions. Thevalueofservicesandsoftwareprovidedtoclients intheyear,plusinterestincome. Linkstothefollowingstrategyelements: TARGET: ORGANIC REVENUE GROWTH SUPPLEMENTED BY GROWTH FROM ACQUISITIONS Totalrevenuegrewby30.7%in2018,withorganicgrowthof7.3%. UNDERLYING EBITDA1 MARGIN Earningsbeforeinterest,tax,depreciation, amortisationandnon-operatingcharges2,asa percentageofrevenue OPERATING CASH FLOW CONVERSION UnderlyingEBITDAplusthechangeinworking capital,asapercentageofunderlyingEBITDA UnderlyingEBITDAmarginisakeymeasureofourprofitabilityand demonstratesourabilitytoimproveourefficiency,aswellasthequality ofworkwewin. Linkstothefollowingstrategyelement: Ourstrategyrequiresustogeneratecashtofundinvestment. Linkstothefollowingstrategyelement: LEVERAGE TheratioofnetdebttounderlyingEBITDA. Astrongbalancesheetgivesusthecapacitytoinvestorganically andinacquisitions. Linkstothefollowingstrategyelement: CLIENT SATISFACTION Weusethefollowingindustryrecognisedmeasures tomonitorclientsatisfaction: 1.NetPromoterScore(NPS),measuredhalfyearly viaonlineandpapersurveys. 2.CustomerEffortScore(CES),measuredviaonline, paperandinteractivevoiceresponsesurveys. 3.Contactcentrecustomersatisfactionscore(CCCS). Clientsatisfactionshowshowwellwearemeetingourclients’needs,which isessentialforretainingourexistingbusinessandourabilitytogrow,both throughsellingmoretoexistingclientsandthroughattractingnewclients. Linkstothefollowingstrategyelements: TARGET: GRADUAL MARGIN IMPROVEMENT OurunderlyingEBITDAmarginwas23.0%,adeclineof 1.2pts,reflectinganincreasedleveloflowermargin remediationservices. TARGET: OPERATING CASH FLOW CONVERSION OF MORE THAN C95% In2018,wedeliveredanotherstrongcashflowperformance, withcashconversionof102%. TARGET: LEVERAGE OF 2.0 – 2.5X IN THE MEDIUM TERM Netdebtwas£309.5mat31December2018,resultingin leverageof2.5x. TARGETS: NPS OF 40 IN THE MEDIUM TERM, CES OF 95%, CCCS OF 97% In2018,wefurtherimprovedcustomersatisfaction. OurNPSwas39,upfrom33in2017. TheCESwasmaintainedat96%againstanindustrybenchmark of 70%. TheCCCSwasmaintainedat97%,againstanindustrybenchmark of 77%. EMPLOYEE TURNOVER Thenumberofemployeeswhovoluntarilyleave Equinitiduringtheyear,asapercentageof employeesatthestartoftheyear. Employeeturnoverisanindicatorofourabilitytoretainthetalented peoplewhoarecrucialtooursuccess. Linkstothefollowingstrategyelements: TARGET: 16% EMPLOYEE TURNOVER IN THE UK EmployeeturnoverintheUKwas15.1%. 2018 2017 2016 2015 2014 2018 2017 2016 2015 2014 2018 2017 2016 2015 2014 2018 2017 2016 2015 2014 NPS 2018 2017 2016 2015 CEC 2018 2017 2016 2015 CCCS 2018 2017 2016 2015 2018 2017 2016 2015 £530.9m £406.3m £382.6m £369.0m £291.4m 2.5x 2.5x3 2.7x 3.0x 23.0% 24.2% 24.2% 23.4% 23.1% 102% 93% 100% 113% 104% 6.5x 39 33 31 35 96 96 90 89 97 97 94 93 15.1 15.6 17.8 18.5 K E Y P E R F O R M A N C E I I N D C A T O R S 17 Equiniti Group plc Annual Report 2018SECTION 01STRATEGIC REPORT Chairman's statement PhilipYea This was another year of progress for Equiniti, with the Group delivering a strong financial performance reflecting the continued successful execution of our strategy. Revenueincreasedby30.7%,drivenby strongorganicgrowthandtheacquisition ofWellsFargoShareownerServices(EQ US),whichcompletedon1February2018. Combinedwithourongoingoperational improvements,thisledtounderlying EBITDArisingby24.5%andunderlying earningspershareincreasingby6.5%. Themargindeclineof1.2ptsto23.0% reflectsanincreaseinlowermargin remediationwork.Profitaftertaxwasup by35.3%,andincludesthenon-operating chargesarisingfromtheUSacquisition. Operatingcashflowconversionwas 102%,demonstratingagaintheGroup’s cash–generativecharacteristics. TheacquisitionofEQUSwasthe mostsignificantdevelopmentin2018 andwearepleasedwithitsprogress. TheseparationfromWellsFargoand integrationintoEquinitiisprogressingwell andthebusinessiswinningimportantnew clients.TheUSistheworld’slargestcapital marketandweseerealopportunitiesto benefitourclientstherebyapplyingthe technologywehavedevelopedinthe UK,whichwillsignificantlyexpandthe marketwecanaddress.Wehavealready introducedourRiskfactorproducttothe US,withencouragingresults.Asreported inmoredetailintheoperatingreview, wehaverevisedourdetailedplansfor thebusinesstoprioritisethedeployment ofnewcustomerfacingfeaturesandto transitionclientstotheGroup’sSirius platformoveralongerperiodthan originallyenvisaged.Overall,weare confidentthatEQUSwilldeliverinline withourexpectations. DIVIDENDS Wehaveaprogressivedividendpolicy, whichseesuspayoutaround30%of theunderlyingprofitattributableto shareholderseachyear.TheBoardis proposingafinaldividendof3.49pence pershare,togiveatotaldividendforthe yearof5.32pence,up18.7%onthe4.48 pencepaidinrespectof2017.Subject toshareholderapprovalattheAnnual GeneralMeeting(AGM)on2May2019,the finaldividendwillbepaidon16May2019, toshareholdersontheregisteratcloseof businesson12April2019.Wecontinue toofferadividendreinvestmentplanand anyshareholderswishingtoparticipate shouldsubmittheirelectiontodosoby 24April2019. COMMUNICATING WITH SHAREHOLDERS TheBoardprioritisesopen communicationwithshareholdersand, aspartofthis,welooktopresentthe Group’sfinancialperformanceclearly andappropriately.TheBoardlooksto continuallyenhancethepresentationof itsfinancialresults,listeningcarefullyto bothspecificandgenericmarketand regulatoryfeedback.Moreinformation canbefoundintheAuditCommittee reportonpages72to79. BOARD AND GOVERNANCE TherewereseveralchangestotheBoard in2018.AsInotedinmystatementlast year,VickyJarmanstooddownasanon- executiveDirectorattheAGMon3May 2018,withDarrenPopesucceedingheras ourSeniorIndependentDirector.Iagain thankVickyforhercontributionduringher fouryearsontheBoard. AlisonBurnsjoinedtheBoardasa non-executiveDirectoron1April2018. Shebringsextensiveexperienceofthe financialservicesindustry,including executiveandnon-executiverolesat numerousblue-chiporganisations.Her understandingofourfinancialservices customersisprovingavaluablevoiceat theBoard. MarkBrookerandCherylMillingtonwere appointedasnon-executiveDirectorsfrom 1November2018.Markbringsstrong managementandoperationsexperience fromtechnology-centricbusinessesand 18 Having the right culture is fundamental to achieving sustainable success. The Board is fully engaged with this important topic and the Group has launched a culture change programme and a refreshed set of values” LOOKING FORWARD Theconvergenceofregulation andtechnology,combinedwiththeneed toreducecost,arepowerfullong-term driversofgrowthacrossourmarkets. Wehaveastrongleadershipteamwitha clearstrategyformakingthemostofthe opportunitiesahead.Notwithstanding theuncertainoperatingenvironment, includingthepossibilityofahardBrexit, theBoardcontinuestolooktothefuture withconfidence. Philip Yea Chairman 12March2019 histimeininvestmentbankingishighly relevanttoourmarketplace.Cheryl hasdeeptechnologyandleadership experiencefromadiverserangeof relevantsectors.Theirappointmentsadd furthersignificantdigitalandsystems expertisetotheBoard,supportingour ambitiousgrowthagenda. Inanticipationoftheseappointments, wetooktheopportunitytoreviewthe compositionoftheBoard’scommittees. Detailsofthenewcommittee membershipscanbefoundinthe CorporateGovernanceReport. We have a strong leadership team with a clear strategy for making the most of the opportunities ahead” MANAGEMENT AND PEOPLE TheGrouphascontinuedtobuildits seniorleadershipcapabilitiesbelowBoard level,withanumberofchangestoroles andresponsibilitiesamongthesenior team.WealsoappointedaChiefPeople &TransformationOfficer,whowillbekey todrivingforwardourworkstreamson cultureandpeopledevelopment.Forthe firsttime,thisroleispartoftheExecutive Committee.Iwanttothanktheexecutive teamandallofourpeoplefortheir dedicationandtheircontributiontothe Group’ssuccessthisyear. Havingtherightcultureisfundamentalto achievingsustainablesuccess.TheBoard isfullyengagedwiththisimportanttopic andtheGrouphaslaunchedaculture changeprogrammeandarefreshedsetof values,asdescribedonpage39. DrTimMiller,Chairmanofour RemunerationCommitteeandaformer HRleaderwithglobalexperience,has kindlyagreedtobecomeournominated directortoensurethattheBoard hasaccesstoouremployee’sviews independentlyfrommanagementand wearewelladvancedinsettlingonthe structuresandprocessesthatwillallow himtodothiseffectively,inmostcases throughaccesstoexistingcolleague engagementforums. I C H A R M A N ' S S T A T E M E N T 1919 Equiniti Group plc Annual Report 2018SECTION 01STRATEGIC REPORT Chief Executive's statement GuyWakeley A CONSISTENT VALUE-CREATING STRATEGY Since our IPO in 2015, we have followed a consistent strategy which continues to deliver results. Organic growth is the starting point of that strategy and 2018 was the strongest period of organic growth we have reported as a listed company. Themajorityoftheservicesweprovide arenon-discretionaryandwecontinue toincreasetherangeofissueswecan addressforourclients.Combinedwith veryhighservicequality,thisenablesus tobuildlong-termandmutuallybeneficial relationshipswithourclients’senior decisionmakers,encouragingthemto takemoreofourservicesovertime. WeretainedallofourUKregistration clientsthisyear,withkeyrenewals includingBAESystems,GSK,IHG,Just EatandQinetiQ.Ouraveragerelationship withFTSE100registrationclientsisnow 29yearsandourkeyaccountstypically takemorethantenservicesfromus,with sometakingmorethan20.Theresultin 2018wasourbesteverorganicrevenue growth of 7.3%. FURTHER GROWTH IN OUR CLIENT BASE Anotherkeyfeatureoftheyearwas thecontinuedstrengtheningofourUK franchise,showingbothitsresilience anditscapacityforfurthergrowth.We haveapproximately50%oftheUKFTSE 100shareregistrationmarketandhave won21UKmain-marketIPOmandates, includingthelargestnewissuessuch asAstonMartinandAvast.Wealso wonadditionalregistrationmandates fromourcompetitors,includingfor Bodycote,Deltex,Hiscox,WmMorrisons andNationalGrid,andnewshareplan mandatessuchasAstraZenecaand Santander. Whileourregistrationandshareplan businessisakeysourceofnewclients forus,weweresuccessfulingaining namesacrossalldivisions.Intelligent Solutionshadaparticularlystrongyear, withnewwinsincludingcustomeron- boardingservicestoUlsterBankanddata analyticstoNeilson.PensionSolutions contractedduringtheyear,inlinewithour expectations,asaresultofacompetitive market,butgainednewclientsincluding theCombinedNuclearPensionPlan, SussexPoliceandtheUKAtomicEnergy Authority. ADDING TO OUR CAPABILITIES OurlaunchintotheUSisproving successful,withtheEQUSacquisition givingusacapabilityintheworld’slargest marketforourservices.Whilerevenue declinedinthefirsthalfasaresultofsome attritionintheclientbaseandslower corporateactionactivity,thebusiness returnedtogrowthinthesecondhalf andachievedasubstantialincreaseinits profitability.EQUScontinuestodeliver excellentservice,helpingittowinnew clientsintheyear,includingNationalBank Holdings,MastercardandInmarsat.We seerealopportunityintheUSmarket,as wegainmarketshareandintroducenew services.IntelligentSolutions’richsetof regulatorytechnologieswillbeimportant toourgrowthintheUS,asweexpandEQ US’srelativelynarrowcurrentproductset. WehavelaunchedRiskfactor,privateshare registrationworkandproxysolicitation servicesintheUSandplantolaunchasset remediationservicesandemployeeshare plansin2019,tobuildonthemomentum wehaveseeninH22018. TheseparationofthebusinessfromWells FargoanditsintegrationintoEquinitiis proceedingwell.Wehavenowestablished ourdatacentresanddeployedour applicationswithinthosedatacentres, inauguratedoursecondsiteinMilwaukee andintroducednewfinance,HRand billingsystems.Thefinalphaseofour workisthebusinessacceptancetesting ofcoretransactionalsystemswhichiswell underway,andwearenowprogressing anextendedperiodofparallelrunning, anticipatedtoconcludebyJune2019. Thisadditionalperiodofprudentdual runningrequiresanadditionalinvestment intransitionalresource,increasingour estimatedtotalcosttocompleteto nomorethan£45.0m.Thesynergies committedintheacquisitioncaseof$10m inthesecondyearofownership(2020)are ontrackandwilldeliverintheirentirety. IntheUK,weacquiredBoudiccaProxy LimitedinApril2018.Boudiccaisthe fastest-growingproxysolicitationcompany inthemarketandhasincreasedourrange ofboardroomservices.Wehavealready cross-solditscapabilitiesto21ofour clients.Wealsoaddedtoourtechnology andservicesofferingforinsurance companiesandthebroaderfinancial servicesmarket,throughtheacquisitionof AquilaGroupHoldingsinOctober2018. 20 OurlaunchintotheUSis provingsuccessful,withthe EQ US acquisitiongivingusa capabilityintheworld’s largestmarketfor ourservices. Wehaveapproximately 50%oftheUKFTSE100 shareregistrationmarket andhavewonaround 70% ofIPOmandates,including thelargestnewissuessuch asAstonMartinandAvast. WeacquiredBoudicca ProxyLimitedinApril2018 Boudicca isthefastest-growingproxy solicitationcompanyinthe marketandhasincreasedour rangeofboardroomservices. Wecontinuetodevelopournew capabilitiesinternally,suchasourestate managementandbereavementservices model.Thisisgainingtraction,withan ongoingpilotwithsixmajorUKbanks. Othernotableprojectsincludeblockchain registrationandproxysolicitation,which arenowintest. ENHANCING THE QUALITY OF OUR EARNINGS Equinitiaimstodeliverhigh-quality, sustainableearningsgrowth,yearafter year.Therewerenonon-operating chargesin2018,withtheexceptionof integrationandtransactioncostsofthe 21USbusiness. Thereareongoingopportunitiesto enhanceourmargins,boththroughselling moretechnology,whichisinherently moreprofitable,andthroughleveraging ouroffshorecapabilitiesinIndia.We nowhavec900ITandoperationsstaffin Chennaiandwehaverecentlyopened atechnologycentreinBangalorewith capacityforupto400.Thereisalong waytogowiththeoffshoringprocess andourintentionistokeepgrowingour offshoreheadcount,whilekeepingourUK headcountsteady. INVESTING FOR GROWTH Thequalityofourearningsisreflected inourabilitytoturnthemintocash. Wecontinuetogeneratehighlevelsof operatingcashflowconversion,which stoodat102%fortheyearagainstour targetofc95%,andreflectsstrong workingcapitalmanagement.Thisallows ustofundourongoinginvestmentin developmentcapitalexpenditure,bothin ourcoreoperatingplatformsandinnew financialtechnologyproducts. OUTLOOK Whilstweexpecttheuncertaintyinthe operatingenvironmenttocontinue,the outlookforEquinitiremainsstrong.We expectfurtherorganicgrowthintheUK, aswebuildonourrelationshipswithour exceptionalclientbase.TheUSoffersa platformforacceleratedgrowthbased onthepotentialmarketopportunity,the potentialtotakemarketshareandthe opportunitytocross-selldigitisedservices intoourblue-chipclientbase.Where appropriate,wewillsupplementour organicgrowthwithcapability-enhancing acquisitions. Ourbusinessmodelgivesusexcellent visibilityofourrevenues.Combinedwith thehighlyscalableplatformnatureofour operations,progressivedeleveragingand furtheroperationalimprovements,thiswill allowustocontinuetogrowunderlying profitsandearningsaheadofrevenue. Ourmediumtermguidanceremains unchangedandexcludestheimpact ofIRFS16tobeconsistentwithcurrent reportedresults:organicrevenuegrowth of3–7%perannumsupplementedby capability-enhancingacquisitions,gradual marginimprovementofc25bpsper annum,aprogressivedividendpolicy withdistributionbasedona30%payout ratioofunderlyingprofitattributableto ordinaryshareholders,cashtaxrateof c13%for2019andc17%for2020onwards, averagecashconversionofc95%,capital expenditureof6–7%ofrevenuepost integrationoftheUSbusinessandanet debt/underlyingEBITDAratioof2.0–2.5x. Guy Wakeley Chief Executive 12March2019 We expect further organic growth in the UK, as we build on our relationships with an exceptional client base” I S T R A T E G C R E P O R T I C H E F E X E C U T V E ' S I S T A T E M E N T 2121 Equiniti Group plc Annual Report 2018SECTION 01 Share registration had a strong year. It retained all of its clients in the year, with notable renewals including BAE Systems, Carnival, GSK, IHG, Just Eat, EasyJet and QinetiQ” Operational review InvestmentSolutions MARKET Thenumberofcompaniesjoiningorleavingthestock marketareimportantdriversofnetmarketgrowthfor registrationandshareplanservices.TheIPOmarket wasstrongformuchoftheyear,withawiderangeof companiesjoiningthemainmarket.Theleveloftakeover activitywasalsostrongduringtheyear,particularlyamong FTSE250companies,andcontributedtosubstantial corporateactionactivity. Companiesservedbycompetitorscontinuedtolookfor newregistrationandshareplanprovidersduring2018, creatinganumberofopportunitiesforEquiniti.Thedesire tomovetoasinglesupplierfortheseserviceswasoften afactor,withcompaniesalsolookingfortechnology-led solutions.Consolidationwasafeatureoftheshareplan marketin2018,whichmayhavecontributedtothenumber ofcompanieslookingtoswitch. Employeeshareownershipisincreasinglyonthepolitical agenda,asawayofincreasingemployeeengagementand toenhancingproductivity.Companiesarealsorecognising thepotentialbenefitsofemployeeshavingagreaterstake inthebusiness,encouragingthemtolookatgivingthem freeshares,particularlyonIPO. Retailsharedealingvolumesweremodestduring2018, whiledealingactivityintheshareplanmarketwassteady. TheUKbaserateinfluencesthemarginsweearnonfunds weholdonclients’behalf.TheBankofEnglandraised interestratesinAugust2018from0.5%to0.75%. PERFORMANCE InvestmentSolutionshadagoodyear,withrevenue increasingby7.7%to£142.5m(2017:£132.3m).Organic growthwas6.9%,primarilydrivenbyariseincorporate actionrevenueto£18.8m(2017:£9.4m),alongwith outstandingclientretentionandincreasedmarketshare. UnderlyingEBITDAincreasedby8.7%to£47.3m(2017: £43.5m),representingamarginof33.2%(2017:32.9%). Organicrevenuegrowth,anincreaseinhighermargin projectworkandstronggrowthinemployeeshareplans werethemainfactorsofthisperformance. Shareregistrationhadastrongyear.Itretainedallof itsclientsintheyear,withnotablerenewalsincluding BAESystems,Carnival,EasyJet,GSK,IHG,JustEat andQinetiQ.Thedivisionmadeexcellentprogress withcompetitorwinsandwasappointedasregistrar toclientsincludingBodycote,Countryside,Deltex, Hiscox,WmMorrisonsandNationalGrid.Itwas alsohighlysuccessfulatwinningIPOmandates, securing21ofthosecomingtomarketincluding AstonMartin,AvastandFundingCircle,aswellasa rangeofsmallerissuers.Significantcorporateactions intheyearincludedOldMutual’sspinoffofQuilter, Melrose'sacquisitionofGKN,Tesco'sacquisition ofBookerandShire'sacquisitionofTakeda. InApril2018,Equiniticompletedtheacquisitionof BoudiccaProxyLimited.BoudiccahelpsEquiniti’sclients tomaximisetheirshareholderrelationships,gainunique insightintotheirshareholderbaseandsecuresupportat keyeventsandinunforeseensituations.Theacquisition hasbeenfullyintegratedandcross-soldintotheGroup’s registrationclientbase. 22 Toachievecostsavingsandenvironmentalbenefitsfor clientsandimproveservicefortheirshareholders,thedivision developedanewdigitalsolutionforprovidingstatementsto shareholdersinnomineevehicles.ThiswasinresponsetoMiFID II,whichnowrequiressuchshareholderstobesentstatements quarterlyratherthanannually.Thestatementsgiveinvestors onlineaccesstoabreakdownoftradeactivityduringthequarter, aswellasthevalueofassets,sharesandoutstandingpayments. Equinitiwillcontinuetoaddtotheservicesshareholderscan accessthroughtheportal,tofurtherreducecostsforclients. InvestmentSolutionshadastrongyearforwinsintheshare plansmarketwithkeywinsincludingAstraZeneca,Cobham, Countryside,Deltex,Hiscox,WmMorrisonsandNationalGrid. Themajorityofthesewinscamefromcompetitors,withIPOs alsoanimportantcontributor.Thesenewshareplanswillbe importantcontributorstorevenueoverthecomingyears,as thebalancesinvestedbyemployeesbuildup.Manyofthenew clientsaresizeableemployers,withWmMorrisons,forexample, employingaround105,000people. TheshareplansbusinesshasworkedcloselywithEQUS duringtheyear,todevelopanewserviceforUK-listed companiesthatallowsthemtoemulateaUKshareplanfor USemployees.Anumberofclientsarealreadyindiscussions aboutthisproduct.OtherUKclientswhowanttooffermore traditionalUSemployeestockpurchaseplansarealsobenefiting fromEQUS’scapabilitiesinthisarea.Anotherimportant developmentintheyearwasthelaunchofanewexecutive shareplanmodule,basedontheGroup’sretailshareholder webportal.Thisoffersusersmorefunctionalityacrossall devicesandwillberolledoutduring2019. Selftrade,thedivision’sexecution-onlybrokerageservicehad agoodyeardespiteareductionintradingvolumesasaresult oftheuncertainUKequitymarket.Therehasbeenatrend forcustomerstosavemoreintoself-investedpensionplans (SIPPs).Selftradeiswellplacedtobenefitfromfurthergrowthin SIPPs,asitsplatformoffersaccesstomoreSIPPprovidersthan manycompetitors.Thebusinesshasanongoingeducational programmearoundtheseproducts,whichwillcontinueinto 2019.Thisopensupasizeablenewmarketplaceforthebusiness. Selftradealsorevieweditspricingstructureduring2018,to enhancetransparencyandrewardcustomerloyalty.Other importantdevelopmentsincludedenhancingitscapabilityfor certificatedtrading.Thebusinesscannowtradeanycertificated shares,notjustthoseforwhichEquinitiistheregistrar. Theinternationalpaymentsbusinesshadagoodyear,with steadyorganicgrowth.Inparticular,demandhascomefromthe SMEandmid-sizedcorporatemarkets,wherecompaniesdonot havein-housetreasuryfunctions.Thebusinesshascontinuedto developitsproductrange,creatingasoftwarelicenceoffering forcompanieswhowanttocarryouttheirownglobalpayment processing,andinvestinginvirtualbankaccountsande-wallet services.Italsostrengtheneditspartnershipswithfinancial institutions,signinganewpartnershipwithBarclaystoaddto theexistingarrangementwithCitigroup.Thisbothincreases resilienceandallowsthebusinesstorouteflowsthroughthe mostappropriatebank. Therewasgoodtractionwiththeestatemanagementand bereavementservicesofferingduringtheyear,withthe“tell-us- once”pilotwithsixmajorUKbanksgoinglive.Thedivisionalso extendeditsoutsourcedestateprocessingworkwithLloydsfrom thebank’swealthcustomerstoitsretailcustomers,whichwill resultinasignificantincreaseinvolumes. InvestmentSolutionshadagoodyear, withrevenueincreasingby 7.7% to £142.5m (2017:£132.3m) SHARES AWARDS 2018 WINNER Best Investor Education Picturedabove(lefttoright):GemmaMcCluskey,DanielWhite I O P E R A T O N A L R E V E W I | I N V E S T M E N T S O L U T O N S I 23 Equiniti Group plc Annual Report 2018SECTION 01STRATEGIC REPORT Intelligent Solutions had an excellent year, with a 33.4% increase in revenue to £165.9m (2017: £124.4m), underpinned by exceptional organic growth of 30.2%” Operational review IntelligentSolutions MARKET Therearestrongunderlyingtrendsdrivinggrowthacross IntelligentSolutions’fourareasofoperation–regulatory remediation,creditservices,knowyourcustomer(KYC)and dataanalytics. Intheregulatoryremediationmarket,growthisbeing drivenbytwomainfactors.First,clientsneedtoreduce costsbyautomatingtheirprocesses,withEquinitibeing aleadingproviderinthisarea.Second,thereisanever- growingrangeofissuesrequiringremediation.Someof thesearespecifictoindividualfirms,whileothersapply acrosstheindustry.Examplesincludepensionsmis-selling, interest-onlymortgagesandconsumerlendingaffordability checks,whichcouldalldrivesignificantvolumesof remediationwork.Thismeansthatwhilepayment protectioninsurance(PPI)claimswillcometoanendin August2019,asaresultoftheFinancialConductAuthority’s deadline,weexpectcontinuedgrowthinthisareaofour business. Thecreditservicesmarketisdrivenbytheongoing expansionofconsumerdebt,whichisrisingataround 8.5%perannum,accordingtotheBankofEngland.Akey opportunityhereisforEquinititoprovidetechnologyto newfirmsofferingdifferentformsoflending,suchaspeer topeerandguarantorloans.Lendersofalltypesalsoneed toincreaseautomationandefficiency,tomaintaintheir profitabilityinthefaceofanongoingsqueezeontheirnet interestmargins. TheKYCmarketisdrivenbyregulation,whichrequires numerousorganisations,frombanksandfinancialservices tosolicitorsandaccountingfirms,tounderstandwhothey aredoingbusinesswithandpreventmoneylaundering. Globally,moneylaunderingisestimatedtobebetween2% and5%ofGDPandlessthan1%ofmoneylaunderingis currentlycaught.Regulatorshaverespondedwithawave ofnewrules,whicharebecomingevermorestringent.This ispushingorganisationstoadopttechnologysolutionsto helpthemmanageKYCissueseffectivelyandefficiently. Togrowtheirtopline,companiesincreasinglyneed specialistsupporttoextractinsightsonexistingand potentialcustomersfromvastquantitiesoftheirown andthird-partydata.Otherimportantdriversofthe dataanalyticsmarketincludecybersecurityandasset reunification,throughwhichindividualsarereconnected withlostassetssuchaspensionsorsavingsaccounts. TheUKdataanalyticsmarketisexpectedtomore thandoubleinsizebetween2018and2023(source: ResearchandMarkets). PERFORMANCE IntelligentSolutionshadanexcellentyear,witha 33.4%increaseinrevenueto£165.9m(2017:£124.4m), underpinnedbyexceptionalorganicgrowthof30.2%. UnderlyingEBITDAroseby21.7%to£39.8m(2017:£32.7m) asaresultofstrongorganicgrowthwiththecontractionin 24 marginto24.0%(2017:26.3%),reflectingthechangeinbusiness mixdrivenbyanincreaseinlowermarginremediationprojects. Thedivisionproducedastrongperformance,withremediation servicesaparticulardriverofrevenuegrowth,asIntelligent Solutionswonmultiplelarge-scaleremediationandfulfilment projectswithmajorUKBanks.PPIisbecomingasmaller proportionoftheremediationbusinessasevidencedbythe twolargestprojectsin2018beingnon-PPI.IntelligentSolutions isevolvingitsbusinessmodelinremediationasitmovesaway fromprovidingresourcetoclientsintheformofpeopleand adoptsamanagedserviceapproach.Thisallowsthedivisionto usetechnologytoreducethecosttotheclient,whiledriving efficienciesthatincreaseEquiniti’smargin. The2017acquisitionsofGateway2FinanceandNostrum supportedstronggrowthincreditservices,withnewwins includingcontractswithVodafoneandMotoNovoFinance. Othermajorwinsduringtheyearincludedcross-selling itscustomeron-boardingservicestoUlsterBank,itscase managementplatformtoHiscoxandLloydsBank,anditsEQ AmplifydataanalyticsproducttoRoyalMail.Aglobaldealto rolloutEquiniti’scomplaintsmanagementplatformforHSBC demonstratedthedivision’sabilitytocross-sellintotheUS. IntelligentSolutionsalsowoncontractstoprovidedataanalytics toNeilson,ITsolutionstotheInformationCommissioner’sOffice, anassetreunificationprojectwithLloydsBankandaprojectwith Ofcom,theUK’scommunicationsregulator,toruntheirclaims managementsystem. IntelligentSolutionslaunchedtwonewdataanalyticsproducts intheyear.EQAmplifyisdesignedtohelpbusinessesbetter understandtheircustomers,sotheycanbetterservetheirneeds anddevelopmutuallyrewardingrelationships.EQFirstSightis acybersecurityproduct,whichcombinescomprehensiveand scalabledataanalyticswithhumandatasecurityexperts,to protectorganisationsfromdigitalrisks. Thedivisioncontinuestofocusonefficienciesandnewways ofworkingwithourpeopleinChennaisupportingIntelligent Solutions’technology,withfurtherscopetoincreasecapacity offshore.Thedivisionisalsostartingtoworkwithclientstooffer themroboticsandartificialintelligencecapabilities,whichcan generatesubstantialreductionsinprocessingtimes. IntelligentSolutionsfurtherstrengtheneditsseniorteam duringtheyear,recruitingastrategydirectorandaheadof propositionsales.Boththeseappointmentswillsupportthe division’sabilitytoofferclientscompletesolutions,ratherthan individualproductsales. Equiniti Credit Services wins the Technology Award at the Yorkshire Post Excellence in Business Awards 2018 Equiniti Credit Services wins Best Technology Partner – Loan management/payments at the Lending Awards Pictured:PamelaBeasley Amplify Equiniti KYC Solutions was named amongst Europe’s Top 25 Fintech solution providers by CIOApplications FINTECH SOLUT ION PROVI DEr C OMPANI ES - 201 8 TOP 25 I S T R A T E G C R E P O R T I O P E R A T O N A L R E V E W I | I N T E L L I G E N T S O L U T O N S I E q u n i t i i G r o u p p c A n n u a l l R e p o r t 2 0 1 8 25 SECTION 01 The acquisition of Aquila enhances our technology and services offering for insurance and the life sector” Operational review PensionSolutions MARKET PensionSolutionscontinuedtofaceachallenging marketplacein2018.Inthefirsthalfoftheyear, relativelyfewclientssoughttoprocureeitherpensions administrationorsoftwareprovision.Whilemore administrationopportunitiesaroseinthesecondhalf, manyofthoseprocurementprocesseswerestillongoing attheyearend.Thereisalsocontinuingconsolidation inthemarketplace,whichispartofalong-termtrendof increasingconcentration. Despitetheseshort-termchallenges,thelonger-term driversofmarketgrowthremaininplace.Theshifttofull outsourcingofpensionfundadministrationcontinues, ascompaniesandpensionfundtrusteeslooktocope withtheburdensofregulation,costandtheeffective managementofschemeliabilities. Thereisagrowingvolumeofbuy-inandbuy-out transactionsinthebulk-purchaseannuitymarket,as companieslooktode-risktheirpensionfundliabilities. TheopportunityforEquinitiistosupporttheinsurance companieswhoinitiatethosetransactions,bothduring thetransferandwithongoingadministration. Technologicalsolutionshaveanimportantroleindelivering improvedoutcomesforschememembers,forexampleby introducingself-servicefunctionality.Whilecompanieshave historicallybeenheavilyfocusedonthecostofintroducing improvements,Equiniti’smarketresearchhasidentified thatthereisincreasingwillingnesstoinvesttodrivebetter outcomes. Innovationintheretirementproductsmarketisanother ongoingtrend.Lifeinsurancecompaniesandotherfund providersaimtoattractsaverswithnewproducts,creating opportunitiesforserviceproviderstoadministertheirolder, legacyproducts. Athemeunderlyingmanyofthedriversofthepensions marketistheneedforreliabledata.Forexample,companies needhigh-qualitydatabeforetheycancompleteabuy-inor buy-outtransaction,ortheywillfaceariskpremiumfromthe insurerwhichwilltypicallyfaroutweighthecostofenhancing theirdataquality.Thiscreatesdemandforservicessuch asbulkanalytics,bulkrectification,remediationanddata cleansing. 26 TheGrouppurchasedtheCabinetOffice’s 24%stakeinMyCSPfor£8m,increasing Equiniti’sownershipfrom 51% to 75% PERFORMANCE Asexpected,PensionSolutionssawrevenuedeclineby7.5%to £129.0m(2017:£139.5m),withadecreaseinunderlyingEBITDA of19.9%to£19.7m(2017:£24.6m),representingamarginof 15.3%(2017:17.6%).Thedeclinewastheresultoftheongoing competitivemarkettogetherwithacontractlossandchangein scopeoftheNHScontractattheendof2017.Thepreviously announced£2.0mofrestructuringandtransformationcostsin respectofthedivisionisreflectedinunderlyingEBITDA.We continuetoactivelymanagethecostbasewithinitiativesinplace throughoutthecourseof2018andinto2019tostabilisetrading. Initiativestomanagethecostbaseincludedrivingcloserworking relationshipswithPensionSolutionsandMyCSP,utilisingfurther automationandoffshoringworkandrationalisingtheproperty footprint. Thedivision’sunderlyingEBITDAin2018included£2.0m ofrestructuringandtransformationcosts.Thisprogramme isdesignedtoimprovePensionSolutions’operationsina numberofareas.Theseincludeenhancingthequalityofitsbid submissions,clientengagementandmanagementinformation, andsimplifyingandstandardisingitsoperatingprocesses.The intentionistosupportthedivision’sabilitytowinnewworkand todeliverthatworkaseffectivelyaspossible.Inadditiontothis programme,thedivisionisexploringopportunitiestointegrate someofEquiniti’sdigitalcapabilitiesintothesolutionsitprovides toclients. Despitethechallengingmarketenvironment,thedivision successfullyretainedallofitsrelationshipsintheyear.Significant renewalsandcontractextensionsincludedAbbeyLife,GSK, LloydsBankingGroup,MetalBoxandMetropolitanPolice. Picturedabove:RachelRoberts PensionSolutionscontinuedtopickupongoingprojectwork withexistingclientsandsignednewclients,includingHighland CouncilPensionFund,SouthWarwickshireNHSTrust,theUK AtomicEnergyAuthorityandaten-yearcontracttoadminister theCombinedNuclearPensionPlan. MyCSPcontinuedtodeliverinlinewithexpectationsduring theyear.InSeptember,theGroupannouncedthatthecontract withtheCabinetOfficetoprovidepensionadministrationand relatedserviceshadbeenextendeduntiltheendof2021.Atthe sametime,theGrouppurchasedtheCabinetOffice’s24%stake inMyCSPfor£8m,increasingEquiniti’sownershipfrom51%to 75%.Theremaining25%ofMyCSPcontinuestobeownedby MyCSPTrusteeCompany,whichisanemployeebenefittrust. MyCSPhasmadeasignificantinvestmentintechnologyand servicesforpublicsectorpensions'administration,andhasthe experienceandscaletooperatethelargestandmostcomplex ofschemes.Withthiscontractextension,wearecommittedto furtherinvestmentintheservicesandenhancingtheemployer andmemberexperience. InOctober2018,theGroupacquiredAquila,aUK-basedlifeand pensions'technologyproviderforpensionschemesandlarge insurancecompanies.ItsproprietaryAdministratorplatform supportspropositionsinworkplacesavings,bulk-purchase annuitiesandheritagetransformation.Theacquisitionenhances Equiniti’stechnologyandservicesforinsuranceandthelife sector.Theacquisitionbringswithitanumberofkeyclients includingAonHewitt,Aviva,theBBC,BritishAirways,Fidelity andIrishLife. I S T R A T E G C R E P O R T I O P E R A T O N A L R E V E W I | I P E N S O N S O L U T O N S I E q u n i t i i G r o u p p c A n n u a l l R e p o r t 2 0 1 8 27 SECTION 01 The division also retained all of its major clients, reflecting its strong relationships. This included signing a five-year extension with General Electric and renewing its foundation contract with MDU, a client since 1929” Operational review EQUS MARKET TheUSshareholderservicesindustryismatureandhighly concentrated.Thetopthreeplayershavearound90%of themarketbetweenthem,basedonboththenumberof shareholdersandthenumberofissuersserved.Clients arefocusedonachievingvalue,whichmeanstheylook tocontroltheircostswhileensuringtheyreceiveagood qualityofservice.Theyarealsolookingfortheirservice providerstosolvemoreoftheirissues,byofferingan expandedrangeofproductsandcapabilities.However, theindustryhasunderinvestedinbothtechnologyand serviceinrecentyears,creatingopportunitiesforEQUS totakemarketshare. ThemarketEQUScanaddressisalsoincreasing. TheseparationfromWellsFargomeansEQUScannow competeforbankingandfinancialservicesclients,which wereclosedtoitwhenitwasownedbyabank.The businesshadalsohistoricallyfocusedonclientswiththe largestshareholderbasesandnowhastheopportunity toworkforclientsofallsizes. Inaddition,atthetimeofacquisition,EQUShada narrowproductset,providingtransferagentservices andcorporateactionstoitsclientbase.Thiscreatesa significantopportunitytoopenupnewareasofthemarket toEQUS,bycross-sellingtheGroup’sexistingcapabilities developedintheUKandbydevelopingnewcapabilities intheUS. TheUSIPOmarketwasrelativelyslowinthefirsthalfof theyear,withgreateractivityinthesecondhalf.Thelevel ofcorporateactionsintheUSmarketwasalsostrongerin thesecondhalf. UnderlyingEBITDAincreasedby 15.0% to £19.2m 28 PERFORMANCE TheacquisitionofEQUScompletedon1February2018 anditsresultswereconsolidatedintotheGroupfromthisdate. Priorperiodperformanceshownbelowisfortheperiodfrom 1Februaryto31December2017andisprovidedtodemonstrate thedivision’sunderlyingperformance. Revenueintheperioddecreasedby2.0%to£81.4m(2017: £83.1m)withrevenuefromcorporateactionsof£12.3m (2017:£11.3m).Whilstrevenuedeclinedby6.3%inthefirsthalf, thebusinessdeliveredgrowthof1.5%inthesecondhalfand achievedasubstantialincreaseinitsprofitability.Revenuefrom interestincomeincreasedto£9.0m(2017:£4.7m)asthedivision benefittedfromtherisinginterestrateenvironment. UnderlyingEBITDAincreasedby15.0%to£19.2m(2017:£16.7m), representingamarginof23.6%(2017:20.0%),reflectingtherising interestrateenvironment,reflectinggrowthincorporateactions, stabilityoftheclientbaseandgoodcostdisciplineoffsetby investmenttodrivefuturegrowth. Followingtheannouncementoftheacquisition,EQUS experiencedsomeattritionamongsmallerclientsfollowing theannouncementoftheacquisition.Thishasnowstabilised withthedivisionwinningadditionalnewclientsthroughthe secondhalfoftheyear.Thedivisionalsoretainedallofitsmajor clients,reflectingitsstrongrelationships.Thisincludedsigning afive-yearextensionwithGeneralElectricandrenewingits foundationcontractwithMDU,aclientsince1929.Othermajor renewalsincluded3M,GarretMotion,Honeywell,CVSandJP Morgan.Newclientwinsintheperiodwerealsoencouraging andincludedAbbVie,Inmarsat,Mastercard,NationalBank Holdings,PerspectaandResidio.EQUSservesastransferagent toJPMorgan’sdepositoryreceiptsbusiness.JPMorgannowhas greateraccesstoEquiniti’sUKclientsandduringtheyearwe togetherwonRoyalDutchShellasadepositoryreceiptclient. RoyalDutchShellisEquiniti’sfirstshareregistrationclient,with 60yearsofcontinuousservice,andthiscooperationforLondon andNewYorklistingsdemonstratesthestrengthofourservice model.Significantcorporateactionsintheyearincludedbeing appointedasexchangeagentbyConagraBrands,Inc.forits $11bnacquisitionofPinnacleFoodsIncandCVSHealth’s$69bn acquisitionofAetna. TherewasearlysuccesswithsellingtheGroup’sUKcredit servicesintotheUSA,followingtheintroductionofRiskfactorto theUSinJuly2018.Thereissignificantpotentialforthisproduct amongasset-intensivelendersintheUS,withthetargetmarket rangingfromsmallercompaniestolargefinancialinstitutions. Intotal,EQUSadded11clientsforthisservice,includingwins withAdvancedPartners,BaronFinance,CapitalBusinessCredit andHSBC. TheseparationofthebusinessfromWellsFargoandits integrationintoEquinitiisproceedingwell.Wehavenow establishedourdatacentresanddeployedourapplications withinthosedatacentres,inauguratedoursecondsitein Milwaukeeandintroducednewfinance,HRandbillingsystems. Thefinalphaseofourworkisthebusinessacceptancetesting ofcoretransactionalsystemswhichiswellunderway,andwe arenowprogressinganextendedperiodofparallelrunning, anticipatedtoconcludebyJune2019.Thisadditionalperiod ofprudentdualrunningrequiresanadditionalinvestmentin transitionalresource,increasingourestimatedtotalcostto completetonomorethan£45.0m.Thesynergiescommittedin theacquisitioncaseof$10minthesecondyearofownership (2020)areontrackandwilldeliverintheirentirety. Goodprogressisbeingmadetowardsdeliveringourannual synergytargetof$10mwithcostsavingsbeingdeliveredfrom insurance,ITandbackofficeservices.Aswegothrough2019, furthersavingsareexpectedfromanumberofprocurement exercises,ITlicences,digitisationofservicesandwideningour servicedeliverycapabilitiestostartandusetheGroup’soffshore capability. Followingfeedbackfromclients,EQUShasprioritisedthe introductionofweb-basedcapabilitieswhichwillimproveservice forbothclientsandtheirshareholders.Tofacilitatethis,EQUS hasreneweditsrelationshipwithitsexistingsystemprovider,FIS, andwilltransitionclientstotheGroup’sSiriusplatformovera longerperiodthanoriginallyenvisaged. InadditiontothesuccessfulintroductionofRiskfactor,EQUS developedandlaunchedacapabilitytoadministerprivateM&A transactionstowardstheendof2018.Thiswillsupportnewand existingclientsandisalreadygainingtractionwithsixclients securedin2018.Thedivisionalsohasaroadmapforintroducing furthercapabilitiesin2019,includingdataanalytics,proxy solicitationservicesandemployeeplans.Proxysolicitationhas nowbeenlaunchedandisalreadygeneratingcommitments for2019.Aswellaspresentingscopeforfasterrevenuegrowth, theintroductionofnewcapabilitieswilldeepenEQUSclient relationshipsandfurtherenhanceretention.KeyUSclients currentlytaketwoservices,comparedwithmorethanten servicesforkeyclientsintheUK. Toachieveitsgrowthpotential,EQUShasrecruitednewtalent insales,marketing,humanresources,financeandarangeof otherfunctions.Thiswillenablethedivisiontobothcapturethe opportunitiespresentedanddeliverthequalityofserviceclients expect.ThedivisionhasalsocreatedaChiefCustomerOfficer role,whichisuniqueinthemarketandwillensureEQUSstays closetoitsclientstobestmeettheirneeds.EQUShasalso successfullyretaineditscoreteam,ensuringcontinuityforclients. Pictured:AndyEdlerandAmyMadden I O P E R A T O N A L R E V E W I | E Q U S 29 Equiniti Group plc Annual Report 2018SECTION 01STRATEGIC REPORT Financial review JOHN STIER CHIEF FINANCIAL OFFICER OVERVIEW Revenuegrewby30.7%to£530.9m(2017:£406.3m)duringthe year,withorganicrevenuegrowthof7.3%.UnderlyingEBITDA increasedby24.5%to£122.3m(2017:£98.2m).Profitaftertax increasedto£20.7m(2017:£15.3m)afternon-operatingcharges of£20.8m.TheacquisitionofourEQUSbusinesscompletedon 1February2018andhadapositiveimpactonearnings. TheGroupgeneratedafreecashflowattributabletoequity holdersof£38.6m,andastrongoperatingcashflowconversion of102%,withtotalcashgeneratedfromoperationsof£91.7m. Netdebtwas£309.5mat31December2018,representingaratio of2.5timesnetdebttounderlyingEBITDA(31December2017: underlyingnetdebttounderlyingEBITDAof2.5timesexcluding theproceedsrelatingtotheEQUSacquisition). RESULTS ANALYSIS AND USE OF ALTERNATIVE PERFORMANCE MEASURES Keyitemsreportedintheincomestatementsuchasrevenue andprofitbeforetaxareshownintheanalysisofresultsbelow. Inadditiontothis,alternativeperformancemeasuressuchas underlyingEBITDA(whichexcludesnon-operatingcharges)are alsopresentedtoallowabetterunderstandingoftheresultsfor theyear.Thesemeasuresaredescribedfurtheronpages 36 to 37. £m Revenue Underlying EBITDA Depreciation Amortisation–software Amortisation–acquiredintangibles EBIT Non-operatingcharges Underlying EBIT Netfinancecosts Profit before income tax Taxation Profit after tax Non-controllinginterests Profit attributable to ordinary shareholders 30 2018 2017 530.9 406.3 122.3 (6.0) (23.9) (31.7) 60.7 (20.8) 39.9 (15.3) 24.6 (3.9) 20.7 (3.2) 17.5 98.2 (5.7) (18.3) (26.7) 47.5 (10.5) 37.0 (11.7) 25.3 (10.0) 15.3 (3.7) 11.6 REVENUE Revenueincreasedby30.7%to£530.9m(2017:£406.3m)during theyearwhilstorganicrevenuegrowthwas7.3%.Acquisitions madeintheperiodhaveprogressedwell,contributingtogrowth. UNDERLYING EBITDA UnderlyingEBITDAisakeymeasureoftheGroup’sperformance. Itreflectsprofitbeforefinancecosts,taxation,depreciationand amortisation,andnon-operatingcharges.UnderlyingEBITDA increasedby24.5%to£122.3m(2017:£98.2m)reflectingthe strongperformanceinInvestmentSolutionsandIntelligent SolutionsandthecontributionfromtheacquisitionofEQUS. REPORTABLE SEGMENTS TheGroupreportsitsresultsinfivesegments:Investment Solutions,IntelligentSolutions,PensionSolutions,EQUSand InterestIncome,supportedbycentralfunctions.TheBoard monitorstheperformanceofthefivesegmentsthroughrevenue andunderlyingEBITDA.Theresultsofthesesegmentswereas follows: Reportable segments 2018 2017 Change % Organic Change % Revenue (£m) InvestmentSolutions 142.5 132.3 IntelligentSolutions 165.9 124.4 PensionSolutions 129.0 139.5 InterestIncome 12.1 10.1 Total UK & Europe 449.5 406.3 EQ US 81.4 – Equiniti Group 530.9 406.3 7.7 33.4 (7.5) 19.8 10.6 – 30.7 6.9 30.2 (8.3) 19.8 9.2 (2.0) 7.3 TheUSDisconvertedintoGBPusingtheaveragedailyrate,1.3304USDtoGBP for2018(averageisbasedonperiodfrom1February2018to31December2018– periodofUSbusinessownership). ORGANIC REVENUE GROWTH Organicrevenuegrowthisreportedrevenuegrowthadjusted foracquisitionsonalike-for-likebasis.Herewerestate2017for thepriorperiodacquisitionshadtheybeenownedin2017to createalike-for-likecomparisonofyear-on-yearprogress.Thisis calculatedasfollows: Revenue (£m) Reported 2017 Adjustment 2017 Proforma 2017 InvestmentSolutions IntelligentSolutions PensionSolutions InterestIncome Total UK & Europe EQUS Equiniti Group 132.3 124.4 139.5 10.1 406.3 – 406.3 1.01 3.02 1.23 – 5.2 83.14 88.3 133.3 127.4 140.7 10.1 411.5 83.1 494.6 Underlying EBITDA (£m) 2018 2017 Change % 47.3 39.8 19.7 12.1 118.9 19.2 138.1 (15.8) 122.3 43.5 32.7 24.6 10.1 110.9 – 110.9 (12.7) 98.2 8.7 21.7 (19.9) 19.8 7.2 – 24.5 24.4 24.5 InvestmentSolutions IntelligentSolutions PensionSolutions InterestIncome TotalUK&Europe EQUS Divisional Total CentralCosts Group Underlying EBITDA 1AcquisitionofBoudiccaProxy 2AcquisitionofNostrumGroupLtd 3AcquisitionofAquila 4AcquisitionofEQUS I I F N A N C A L R E V E W I 31 Equiniti Group plc Annual Report 2018SECTION 01STRATEGIC REPORT Investment Solutions Revenueincreasedby7.7%to£142.5m,with6.9%organicgrowth supportedbycorporateactionactivityof£18.8m(2017:£9.4m), alongwithoutstandingclientretentionandincreasedmarket share. UnderlyingEBITDAgrewby8.7%,drivenbyorganicrevenue growth,anincreaseinhighermarginprojectworkandstrong growthinemployeeshareplans. Intelligent Solutions EARNINGS BEFORE INTEREST AND TAX (EBIT) £m Underlying EBITDA Depreciation 2018 122.3 (6.0) 2017 98.2 (5.7) Amortisation–software (23.9) (18.3) Amortisation–acquiredintangibles (31.7) (26.7) Revenueincreasedby33.4%to£165.9m,drivenbyexceptional organicgrowthof30.2%,reflectingstrongdemandin remediationservices. UnderlyingEBITDAincreasedby21.7%reflectingstrongorganic growth. EBIT Non-operatingcharges Underlying EBIT 60.7 47.5 (20.8) (10.5) 39.9 37.0 Pension Solutions Revenuedecreasedby7.5%to£129.0mwithadecreasein UnderlyingEBITDAof19.9%to£19.7masaresultoftheongoing competitivemarket,acontractlossandchangeinscopeofthe NHScontractattheendof2017.Thepreviouslyannounced £2.0mofrestructuringandtransformationcostsinrespectofthe divisionisreflectedinunderlyingEBITDA. Interest Income Interestincomewas19.8%higherthantheprioryear,with averageUKcashbalances4.1%higherat£1,744m(2017: £1,675m),andincomebenefittingfroma25bpsriseinUKrates inAugust2017.Theinterestreceivableispartiallyfixedwith instrumentssecuredtoJuly2020(£380m),September2021 (£215m),September2022(£215m)andSeptember2023(£215m). EQ US Revenuedecreasedby2.0%to£81.4m.Whilstrevenuedeclined by6.3%inthefirsthalf,thebusinessdelivered1.5%organic growthinthesecondhalfoftheyear.Theattritionofclientswe sawinthefirsthalfstabilisedandthedivisionwonanumberof newclientsinthesecondhalfoftheyear. UnderlyingEBITDAincreasedby15.0%,reflectinggrowthin corporateactions,stabilityoftheclientbase,therisinginterest rateenvironmentandgoodcostdiscipline. Central Costs Centralcostsintheperiodincreasedto£15.8m(2017:£12.7m) andweredrivenbyanincreasedshare-basedpaymentscharge. EBITremainsanimportantmeasureoftheGroup’sperformance, reflectingprofitbeforefinancecostsandtaxation.In2018, underlyingEBITwas£39.9m,anincreaseof£2.9m(7.8%) comparedwiththeprioryearof£37.0m. AMORTISATION OF SOFTWARE AND ACQUIRED INTANGIBLES Amortisationofsoftwareintheperiodincreasedto£23.9m (2017:£18.3m)duetothecompletionofthedevelopmentofa numberofsignificantprojects,suchasMiFIDII,wherethework completedinearly2018andtheassetsbecameavailabletouse withamortisationoftheassetscommencing. Amortisationofacquiredintangiblesintheperiodincreasedto £31.7m(2017:£26.7m)andismainlyrelatedtotheamortisation ofcustomerrelatedintangibleassetsthatwererecognisedon thepurchaseofEQUSinFebruary2018. NON-OPERATING CHARGES Non-operatingchargesaredefinedasexpenseitems,whichif included,wouldotherwiseobscuretheunderstandingofthe underlyingperformanceoftheGroup. Non-operatingchargesof£20.8m(2017:£10.5m)relatetothe transactionandintegrationcostsassociatedwiththeacquisition oftheUSbusiness. NET FINANCE COSTS Netfinancecostsincreasedby£3.6mto£15.3m(2017:£11.7m)as thelevelofdebtincreasedinthebusinessduetotheacquisition oftheEQUSbusiness. TAXATION Profitbeforeincometaxof£24.6mattheUKcorporationtaxrate of19%givesanexpectedtotaltaxchargeof£4.7m.Theactual taxchargewas£3.9mandthedifferenceislargelyexplaineddue totwomaterialfactorsincluding;(i)non-deductibletransaction costs(taxeffect£1.1m)and(ii)atax-deductibleamountrelating tothelossontheforwardexchangecontracttakenouttohedge theacquisitionofEQUS(taxeffect(£1.9m)),andwhichwas allocatedtothecostoftheacquisition.Ofthetotaltaxchargeof £3.9m,approximately£2.8mrelatestotheUKand£1.1mrelates totheGroup’soverseasoperations. Taxespaidintheperiodof£4.5mwereprimarilyduetopayments onaccountforthewiderEquinitiUKGroupcompanies.During theyear,amountstotalling£2.0mwerereceivedrelating torepaymentsofoverpaid2016taxesandpayableR&D expenditurecredits.Theremainderofthetaxespaidwere overseastaxesrelatingtotheGroup’soperationsinIndia,USand theNetherlands. 32 TheGrouphasrecogniseddeferredtaxon£795.8mofgrosstax attributesrepresentingfuturetaxdeductionswhichwillreduce thecasheffectivetaxrateascomparedtotheunderlyingeffective taxrateovertime.Netfuturedeductionsareexpectedtobe intheregionof£136.0m,onwhichanetdeferredtaxassetof £23.6mhasbeenrecognisedattherelevantlocalstatutoryrate. PROFIT ATTRIBUTABLE TO ORDINARY SHAREHOLDERS TheGroupmadeaprofitattributabletoordinaryshareholdersof £17.5m(2017:£11.6m). DILUTED EARNINGS PER SHARE Thegrosstaxattributestotalling£795.8marerepresentedby: Diluted earnings per share • Futuretaxdeductionsontaxlossescarriedforwardof£210.7m Profitattributabletoordinaryshareholders(£m) • Futuretaxdeductionsonintangibleassetsof£509.9m Weightedaverageshares(m) • Futuretaxdeductionsonproperty,plantandequipmentof £23.8m Dilutedearningspershare(pence) 2018 17.5 2017 11.6 371.8 333.1 4.7 3.5 • Futuretaxdeductiononemployeebenefitsandothertiming differencesof£51.4m Thetaximpactoftheseattributesisrecognisedasdeferredtax onthebalancesheet.Includedwithintheintangibleassetstax attributearethecustomerrelationshipandgoodwillintangibles relatedtotheacquisitionofthetradeandassetsoftheEQUS from1February2018. Acashtaxrateof12%appliesfor2018andisestimatedtobein theregionofc13%for2019risingtoc17%thereafter,reflecting thecompletionoftheintegration,andforecastgrowth,ofEQUS. Thecashtaxrateisdeterminedthroughadetailedcalculationof thefutureexpectedcashtaxliabilitiesoftheGroupagainstour profitforecasts,adjustingforknownvariablessuchaschanges intaxrates,changesintaxlegislation(lossrestrictionrules)and implementationoftheGroup'stransferpricingpolicy. Weconsiderthecashtaxratetobeanappropriatemeasure, asitbestreflectstheanticipatedeconomicoutflowsfrom thebusiness,takingintoaccountourassessmentofhowour deferredtaxattributeswillunwindandreduceourcashtax liabilitiesovertime. Dilutedearningspershareof4.7pence(2017:3.5pence) isbasedontheweightedaveragenumberofsharesinissue plusthedilutiveeffectofshareoptionstotalling371.8m (2017:333.1m). DIVIDEND Therecommendedfinaldividendpayableinrespectofthe yearended31December2018is3.49pencepershare,givinga totaldividendfortheyearof5.32pencepersharerepresenting fullyeardividendgrowthof21.7%,inlinewithourprogressive dividendpolicy. CASH FLOW TheGroupgeneratedafreecashflowattributabletoequity holdersof£38.6m(2017:£39.7m)anddeliveredanoperating cashflowconversionof102%(2017:93%).Themainmovements incashflowaresummarisedbelow: I I F N A N C A L R E V E W I £m UnderlyingEBITDA Workingcapitalmovement Operatingcashflowpriortonon-operating charges Operating cash flow conversion Cashoutflowonnon-operatingcharges Capitalexpenditure Netfinancecosts Taxespaid 2018 122.3 2.4 2017 98.2 (6.5) 124.7 91.7 102% (17.6) 93% (8.3) (39.8) (31.0) (10.3) (4.5) (9.0) (3.7) – Employeebenefittrust(EBT)–sharepurchase (13.9) Free cash flow attributable to equity holders 38.6 39.7 Netincrease/(reduction)inborrowings 139.3 (56.7) Netproceeds/(costs)arisingfromRightsIssue (0.8) 114.2 Investmentincurrentandprioryear acquisitions (177.6) (19.1) Paymentofdeferredconsideration (4.0) (1.9) Dividendspaid Net cash movement (20.2) (17.7) (24.7) 58.5 33 Equiniti Group plc Annual Report 2018SECTION 01STRATEGIC REPORT TheGrouphasaccesstoa£20.0mreceivablesfinancingfacility ofwhich£10.3m(2017:£19.9m)wasutilisedattheendoftheyear andincludedwithincashbalances.Thisisusedtomatchreceipts againstcosts,especiallywhereclientsrequireextendedpayment termsandisdrivenbyprojectflowinIntelligentSolutions.The facilityiswithLloydsBankingGroupatarateof1.75%over LIBOR.Thefacilitydrawdownhasreducedbyhalfsince31 December2017andisforecasttoreducefurthersubjectto commercialrequirements.Excludingchargesrelatedtothe EQUSintegrationandtheEBTsharepurchase,theGroup deliveredfreecashflowattributabletoequityholdersof£80.9m (2017:£48.0m). Operating cash flow conversion OperatingcashflowisunderlyingEBITDAplusthechange inworkingcapital,bothpriortonon-operatingcharges,asa percentageofunderlyingEBITDA,andisakeyperformance indicator. Capital expenditure Netexpenditureontangibleandintangibleassetswas£39.8m (2017:£31.0m).Thisrepresents7.5%ofrevenue(2017:7.6%). Includedwithincapitalexpenditureis£10.7massociatedwiththe establishmentandintegrationofEQUSrelatingtoITserversand softwaredevelopmenttoenablethebusinesstooperateona standalonebasis. Employee benefit trust share purchase ThetrusteesoftheEquinitiGroupEmployeeBenefitTrust purchased6.0mordinaryshares(£13.9m)tosatisfyshare entitlementsandawardsundertheGroup'ssharescheme arrangements. Net finance costs Netfinancecostsincreasedby£3.6mto£15.3m(2017:£11.7m). Totalinterestbearingloansincreasedfrom£250.0mto£322.6m. Investment in current and prior year acquisitions Netcashoutflowoncurrentandprioryearacquisitionswas £177.6m(2017:£19.1m)andmainlyrelatestotheacquisitionof EQUSandtheadditionalinvestmentinMyCSPLimited.Afurther £4.0m(2017:£1.9m)wasspentondeferredconsiderationfor prioryearacquisitions.Detailsofacquisitionsaregivenin note4.1onpages152to153. BANK BORROWING AND FINANCIAL COVENANTS AttheendofDecember2018,netdebtwashigherat£309.5m (2017:£136.5m),reflectingtheacquisitionandintegrationofour USbusiness. Net debt Reported 2018 £m Underlying* 2017 £m Reported 2017 £m Cashandcashequivalents Termloan Revolvingcreditfacility Other Net debt Net debt/EBITDA prior to non-operating charges (times) (90.9) 322.6 (76.7) 1.1 (78.8) 250.0 70.0 1.7 309.5 242.9 2.5 2.5 (115.2) 250.0 – 1.7 136.5 1.4 *Underlyingnetdebtat31December2017excludesthenetproceedsof£114.2mfromtherights issueon17October2017,whichwasusedtofundtheacquisitionofEQUS Thetermdebtfacilitydoesnotrequirescheduleddebt repaymentsandtogetherwiththerevolvingcreditfacilityis availableforafive-yeartermtoOctober2020.Weexpectto refinancethetermloanandrevolvingcreditfacilitywellinadvance ofthematuritydate.TheGrouphassubstantialliquidityto supportitsgrowthambitionsandongoingworkingcapitalneeds. ACQUISITIONS DuringtheyeartheGroupcompletedthreeacquisitions. On1February2018,theGroupcompletedontheacquisition ofthetradeandassetsoftheWellsFargoShareownerServices business(EQUS)foratotalcashconsiderationof$227.0m (£159.6m),deferredconsiderationsettledinJuneof$0.1m (£0.1m),plus£9.8minsettlementofadealcontingentforward usedtohedgetheposition.EQUSisashareregistration businessbasedintheUnitedStates. On26April2018,theGrouppurchasedtheentireissuedshare capitalofBoudiccaProxyLimited(Boudicca)for£1.1mplus contingentconsiderationofupto£0.8mpayablein2019and £1.5mpayablein2021.Boudiccaisaspecialistshareholder engagementcompanyprovidingexpertiseintheareasof progressiveproxysolicitation,shareholdercommunications, corporategovernanceadvisory,shareownershipanalysisand globalequityintelligence. On31October2018,theGrouppurchasedtheentireissued sharecapitalofAquilaGroupHoldingsLimitedandits subsidiaries(Aquila)fromAquilaHeywoodLimitedforatotalcash considerationof£5.5m.AquilaisaUK-basedlifeandpensions technologyproviderforpensionschemesandlargeinsurance companies.TheAquilaproprietaryplatform‘Administrator’, supportspropositionsinworkplacesavings,bulkpurchase annuitiesandheritagetransformation. 34 TheimpactofIFRS15onthe2017resultswasimmaterial, andamountedtoanincreaseinrestatedrevenueof£0.2m (from£406.1mreportedto£406.3mrestated)andincreased administrativecostsof£0.5m(from£318.1mreportedto £318.6mrestated). Adjustmentswerealsomadetotheamountsrecognisedin thestatementoffinancialpositionatthedateofadoption,to reflectthereclassificationstocontractfulfilmentassetsand contractfulfilmentliabilities.Re-measurementchangeswere madetocontractfulfilmentassetsthroughrecognitionof additionalaccruedincomeandcontractdeliverycosts,andto contractfulfilmentliabilitiesthroughrecognitionofadditional deferredincome. Fulldetailsoftheimpactonthe2017resultsareprovidedin note2.1tothefinancialstatements. IFRS 16 IFRS16wasissuedinJanuary2016andiseffectiveforannual reportingperiodsbeginningonorafter1January2019.The GroupwillapplyIFRS16on1January2019anditisexpectedto haveamaterialimpactonthefinancialstatementsfortheyear ended31December2019.Fulldetailsareprovidedinnote2.3to thefinancialstatements. John Stier Chief Financial Officer 12March2019 RETIREMENT BENEFITS TheGroupoperatesthreedefinedbenefitpensionschemes, whichareallclosedtonewmembers.ThesearethePaymaster PensionScheme,theEquinitiICSLimitedPensionSchemeandthe PrudentialPlatinumPension–MyCSPLimitedPensionScheme. Theaggregatedeficitacrossallthreeschemesis£22.9m(2017: £22.7m)withafundingplaninplacetoclearthesedeficitsover thenextnineyears.TheGrouphasclosedallschemestofuture accrual,aswellasconsolidatingitsdefinedcontributionpension plansintoasingleprovider. TheGroupcontributed£1.2mtotheschemesduring2018. During2019thecontributionstothePaymasterandICSschemes arelikelytoincreasefollowingtheconclusionofthetriennial valuationsofbothschemes.Changesarenotexpectedtobe materialtotheGrouphowever.Thesecontributionsrepresent deficitrepairpaymentsaslaidoutbytheschemes’Scheduleof Contributions.TheGroup'sexposuretofutureservicecostsis notconsideredtobesignificantsincetheschemesareclosed tofutureaccrual.Thecurrentservicecostforthethreeschemes was£0.1min2018.Thepastservicecost,relatingtoguaranteed minimumpensionsequalisation,wasanadditional£0.4mand wasrecognisedinfull. CHANGES IN ACCOUNTING STANDARDS IFRS 9 IFRS9addressestherecognition,classificationand measurementoffinancialassetsandfinancialliabilitiesandwas adoptedon1January2018.Managementhasassessedthenew classificationsforfinancialassetsandtherewerenochangesto theGroup’sassetsclassifiedasheldatamortisedcostunderIAS 39.TheGroup’sderivativeswhicharedesignatedascashflow hedgescontinuetoberecognisedatfairvaluethroughother comprehensiveincomeunderIFRS9.Fulldetailsareprovidedin note2.1tothefinancialstatements. IFRS 15 IFRS15becameeffectivefromperiodscommencing1January 2018andwehaveadopteditonafullyretrospectivebasis. IFRS15givesrisetochangesinthetimingofrevenueandcost recognitionbutwillnotimpactuponthelifetimerevenueand profitabilityofcontracts,thecashflowsofcontractsanddoes notaffectthemajorityoftheGroup’srevenuestreams.The mainchangesfromtheadoptionofIFRS15areonitsfixed periodsoftwarecontractsandtransitionperiodsofmulti-period contracts,inparticular: • Revenuerecognisedfromsalesoffixedtermrightstouse softwarelicenceswillberecognisedatapointintime,rather thanoverthelicencetermwhenthereisnothingelsetodeliver. • Insomemulti-periodpensionsadministrationcontracts,there isatransitionphasewheresignificantcostsareincurredin transitioningcustomersfromaprevioussuppliertoEquiniti. Underpreviousaccounting,revenuewouldberecognised inlinewiththecostandefforttoprovidethesetransitional services.UnderIFRS15,transitionactivitiesarenotaseparate performanceobligation,andthereforethesecostsand associatedrevenuearespreadoverthelifeofthecontract. I I F N A N C A L R E V E W I 35 Equiniti Group plc Annual Report 2018SECTION 01STRATEGIC REPORT ALTERNATIVE PERFORMANCE MEASURES TheGroupusesalternativeperformancemeasures(APMs)to provideadditionalinformationontheunderlyingperformance ofthebusiness.Managementusethesemeasurestomonitor performanceonamonthlybasisandtheadjustedperformance enablesbettercomparabilitybetweenreportingperiods. are£4.7mofcostsinrelationtopermanentprojectstaff,which oncompletionoftheintegrationprojectwillbeabsorbedinto vacantpositions,replacecontractorsinthebusinessorotherwise leavetheGroup.PostcompletionoftheUSintegration programme,therewillbenofurthernon-operatingcharges absentanytransformationaltransactions. TheAPMsusedtomanagetheGroupareasfollows. UNDERLYING EBITDA MARGIN ORGANIC REVENUE GROWTH Organicrevenuegrowthisreportedrevenuegrowthadjusted foracquisitionsonalike-for-likebasis.PartoftheGroup's strategyistodelivergrowthanddevelopandacquirenew capabilities.Assuch,ameasureoflike-for-likegrowthisakey performanceindicator.Seepage31forcalculation. EBITDA AND UNDERLYING EBITDA EBITDAisconsideredtobethemostsuitableindicatorto explaintheoperatingperformanceoftheGroup.Thedefinition ofEBITDAisearningsbeforenetfinancinginterestcosts,income tax,depreciationofproperty,plantandequipment,amortisation ofsoftwareandamortisationofacquiredintangibleassets. UnderlyingEBITDAisusedtoexplainthesustainableoperating performanceoftheGroupanditsrespectivedivisions,where EBITDAisadjustedfornon-operatingchargeswhicharedefined asexpenseitems,whichifincluded,wouldotherwiseobscure theunderstandingoftheunderlyingperformanceoftheGroup. Theseitemsrepresentmaterialrestructuring,integrationand coststhataretransformationalinnature. RECONCILIATION OF PROFIT AFTER TAX TO UNDERLYING EBITDA Profit before tax Plus:Depreciationofproperty,plantand equipment Plus:Amortisationofsoftware Plus:Amortisationofacquisition-related intangibleassets Less:Financeincome Plus:Financecosts EBITDA Adjustmentsfornon-operatingcharges Plus:Transactioncosts Plus:Integrationcosts Plus:Restructuringandtransformationcosts 2018 £m 24.6 6.0 23.9 31.7 (0.2) 15.5 101.5 6.1 14.7 – 2017 £m 25.3 5.7 18.3 26.7 (0.8) 12.5 87.7 6.3 3.6 0.6 Underlying EBITDA 122.3 98.2 Transactioncostsof£6.1mrelatetodealadvisoryandlegalfees whichwerecontingentonsuccessfulcompletionofEQUSwhich completedinFebruary2018.Integrationcostsof£14.7mrelate entirelytotheUSbusinessandrepresentprogrammedelivery, thedevelopmentofstandalonefunctionsanddeliveryof systemsandprocessestorunthebusiness.Includedwithinthis UnderlyingEBITDAmarginisearningsbeforeinterest,tax, depreciation,amortisationandnon-operatingchargesas apercentageofrevenue.ThisisakeymeasureofGroup profitabilityanddemonstratesabilitytoimproveefficiency,as wellasthequalityofworkwon. OPERATING CASH FLOW CONVERSION Operatingcashflowconversionrepresentsunderlying EBITDApluschangeinworkingcapitalasapercentageof underlyingEBITDA.ThismeasurestheGroup'scash-generative characteristicsfromitsunderlyingoperationandisusedto evaluatetheGroup'smanagementofworkingcapital. FREE CASH FLOW ATTRIBUTABLE TO EQUITY HOLDERS Freecashflowattributabletoequityholdersrepresentsourcash flowpriortoanyacquisition,refinancingorsharecapitalcash flows.Itisakeymeasureofcashearnedfortheshareholdersof theGroup.Seepage33forcalculation. EARNINGS BEFORE INTEREST AND TAX (EBIT) EBITisusedtomeasurefinancialperformanceoftheGroup excludingexpensesthataredeterminedbycapitalstructure andtaxregulations,insteadoftheunderlyingtrading.In additiontothis,netinterestcostsareimpactedbyfair valuationre-measurementsofcertainfinancialliabilitiesthat aredependentonexternalmarketfactorsratherthanthe Group'scoreoperations.Seepage32 forcalculation. CASH TAX RATE Thecashtaxrateisdeterminedthroughacalculationofthe futureexpectedcashtaxliabilitiesoftheGroupagainstour profitforecasts,adjustingforknownvariablessuchaschanges intaxrates,changesintaxlegislation(lossrestrictionrules)and implementationoftheGrouptransferpricingpolicy. Weconsiderthecashtaxratetobeanappropriatemeasure, asitbestreflectstheanticipatedeconomicoutflowsfrom thebusiness,takingintoaccountourassessmentofhowour deferredtaxattributeswillunwindandreduceourcashtax liabilitiesovertime. LEVERAGE AND NET DEBT LeveragerepresentstheratioofnetdebttounderlyingEBITDA. ThisisakeymeasurethatevaluatestheGroup'scapitalstructure anditsabilitytomeetfinancialcovenants.Seepage34for calculationofnetdebt. UNDERLYING PROFIT ATTRIBUTABLE TO ORDINARY SHAREHOLDERS TheGrouphasaprogressivedividendpolicywhichwillsee itdistributearound30%ofunderlyingprofitattributableto ordinaryshareholderseachyear.Seepage37forcalculation. 36 UNDERLYING EARNINGS PER SHARE UnderlyingearningspersharerepresentsunderlyingEBITDA, lessdepreciationofproperty,plantandequipment,amortisation ofsoftware,amortisationofacquisitionsrelatedintangibles,net interestcosts,cashtaxandminorityinterests.Giventhetimingof theEQUSacquisitionandtherelatedrightsoffering,thenumber ofissuedsharesusedinthe2017calculationexcludedboththe bonussharesandnewshareissuancefromtherightsissue. Underlying EBITDA Less:Depreciationofproperty,plantand equipment Less:Amortisationofsoftware Plus:Financeincome Less:Financecosts Cashtaxat12%/13% Minorityinterest Underlying profit attributable to ordinary shareholders Dilutedweightedaveragenumberofshares inissue,adjustedforthetimingoftherights issue(m) 2018 £m 122.3 (6.0) 2017 £m 98.2 (5.7) (23.9) (18.3) – 0.8 (15.3) (12.5) (9.2) (3.2) 64.7 (8.1) (3.7) 50.7 360.8 301.6 Underlying earnings per share (pence) 17.9 16.8 I I F N A N C A L R E V E W I 37 Equiniti Group plc Annual Report 2018SECTION 01STRATEGIC REPORT Sustainability Equiniti is committed to being a responsible business. Our behaviour is aligned with the expectations of our people, clients, investors, communities and society as a whole. Sustainabilityissuesarefundamentaltoourcontinuityandthis sectionincludesakeyoverviewofourpeople,ourvalues,ourkey stakeholders;howweundertakeourcorporateresponsibilityand activitiestosafeguardtheenvironment.TheBoardtakesoverall responsibilityforthesefundamentalareas. IMPROVEMENTS DURING THE YEAR INCLUDE: • AnupdatedEnvironmentalPolicyStatement • Reducedcarbonemissionsperunitofturnover • Aswitchtoagreenenergyprovider REBECCA GRATTAN CHIEF PEOPLE AND TRANSFORMATION OFFICER Transformingourpeople(HR)function In the same way that Equiniti strives for excellence in client service and operations, we want to achieve excellence in our people management. During2018,webegantotransformour People(HR)function,soitcanbetter supportourpeoplegoals. Onesignificant changeisourmovefromacountry modeltoaglobaloperatingmodelfor HR.Thisimprovesefficiency,byavoiding duplicationatacountrylevel,andensures consistencyinourprocessesaroundthe world,helpingtomakeEquinitiatruly globalgroup.Italsoassistswithmoving peoplebetweencountries,sowecan transferourcapabilitiesworldwide.The programmewillcompleteinthefirsthalf of 2019. Anothermajorchangeisourdecision tosplitthePeopleTeamintothree functions,toimprovethewaywe deliver.Wenowhavepeopledirectors inourdivisions,whoworkcloselywith thedivisionalleadershiptohelpthem meettheirpeopleneeds.Wehavealso createdacentreofexcellencecovering keyareassuchasreward,learningand resourcing.Theglobaloperatingmodel supportsthis,byenablingustocreate worldwidecommunitiesofpracticein theseareas,sowecansharethebest waysofworking.Thethirdfunctionisthe PeopleOperationsteam,whichcombines thetransactionalservicesprovidedin Chennaiandourgeographicallybased PeopleExperienceManagers,whohelp toenhanceouremployees’experienceof workingatEquinitisoweretainourtalent. IMPLEMENTING OUR PEOPLE STRATEGY In2018,wedevelopedandbeganto implementanupdatedpeoplestrategy. Thiscoversfivekeytopics:cultureand leadership;engagementandexperience; learningandtalent;diversityandinclusion; andperformanceandreward. CULTURE AND LEADERSHIP Strengthanddepthofleadershipiscrucial foranybusinesstosucceed.TheGroup usestheGallupleadershipmodel,which isbasedonleadersunderstandingtheir ownstrengthsandthecomplementary strengthstheyneedintheirteam.To supportthis,wecarriedoutasignificant successionplanningexerciseforour leadersthisyear,soweknowhowtofill anygapsthatmightarise.Forthefirst timein2018,wehaveimplementeda globalapproachtoleadershipandhave rolledoutaLeadershipandManagement ProgrammeinitiallyintheUKandtheUS, withIndiatofollowin2019. Anotherimportantinitiativeisourculture programme,whichwelaunchedtowards theendoftheyear.Theprogrammewill runduring2019,withaseriesofinitiatives toengendercommoncustomer-focused behavioursacrossEquiniti.Welaunched theprogrammeinconjunctionwitha refreshedsetofvalues.Wedeveloped thesebyrunningfocusgroupsintheUK, USandIndia,thenusedourColleague Briefingstotestthedraftvalueswith ourpeople.Thevaluestherefore genuinelyreflectthebusinessasour peopleexperienceit,witheachvalue underpinnedbyasetofbehaviourswe expecttosee. 38 Our values PERFORMANCE We're meticulous GROWTH We're inventive CUSTOMERS We keep things real COLLEAGUES We're together Listen, take time and really care about getting things right Be accountable, make amends, learn and move on Deliver; on time, every time Use your sharp eye for detail to create great service and solutions for customers Test and develop new ideas Protect time to be creative Always explore fresh ways to do things and embrace change Put common purpose first; we move quicker together Communicate openly and behave with integrity Challenge the complicated and promote simplicity Support and connect with communities around us What you do matters – show pride Think as one global team, empowered and stronger together We all have a unique voice and it is listened to Know your role and how you contribute Lead by example and create ways for everyone to grow Picturedlefttoright:NathanLongandThomasKent I I I S S S T T T R R R A A A T T T E E E G G G C C C R R R E E E P P P O O O R R R T T T I S U S T A N A B I L I T Y E q u n i t i i G r o u p p c A n n u a l l R e p o r t 2 0 1 8 39 3939 Equiniti Group plc Annual Report 2018SECTION 01 Wehavealsobeguntoreviewourperformancemanagement process.Theintentionistosimplifyanddigitiseperformance management,allowingourpeopletogetfasterandmoreregular feedback.Thiswillbeimplementedthroughtheutilisationof WorkDayasournewHRdatasystemin2019. DIVERSITY AND INCLUSION Equinitihasanumberofdiversitynetworks,whicharealigned toparticularinterestareas,suchasgender,diversityand inclusionandourLGBTQnetwork.Wehavedevolvedbudgets tothosenetworkssotheycancreatelocallyrelevantinitiatives, resultinginarangeofeventsacrossEquinitiduringtheyear. Forexample,thegendernetworkorganisednumerousactivities aroundInternationalWomen’sDayandEquinitihaspartnered withStonewall,Europe’slargestLGBTcharity,includingjoining itsDiversityChampionsProgramme.Wearesponsorsofboth the30%club(focusedonincreasingfemalerepresentationat executiveandBoardlevel)andtheEverywomanCampaign. ENGAGEMENT AND EXPERIENCE TheGrouprunsanannualemployeeengagementsurvey,which hashelpedustounderstandwherewearedoingwellandwhat weneedtoimprovetoenhanceouremployees’experience.For 2019,wewillbemovingtoamuchmoretargetedengagement modelprovidedbyGallup,whichcomplementsourleadership model.Thisisastrategicshiftinthewaywesurveyourpeople, withanapproachthatalignsmuchmoreclearlytotheGroup’s culture.ThiswillrunalongsideournewapproachtoPeople OperationswherewewillhavePeopleExperiencemanagers monitoringandenhancingtheemployeeexperienceonthe groundlocally. Wehaveengagementchampionsineverylocation,who ensurethatourcommunicationsreachallourpeople.The ChiefExecutive’sColleagueBriefingsarealsoanimportant communicationtool,withGuyWakeleyvisitingeveryEquiniti locationaroundtheworldafterthereleaseofthehalfyear results.Thisallowsourpeopletotalktohimdirectlyabout ourstrategyandprogress.Inaddition,thisyearwehave refinedouremployeeforumtoassistinusdeliveringupon ourresponsibilitiesforemployeevoice.Thishasinvolvedusin extendingtheUKforumtoaglobalforumandinvolvingthe Board-appointednon-executiveDirectorforEmployeeVoicein thosesessions. LEARNING AND TALENT Wehaveinvestedsignificantlyinlearningthisyear.Leadership developmentwasakeyareaoffocus,toensureweareready tocapitaliseonthegrowthopportunitieswesee.Wehavealso enhancedoursalescapabilities,particularlyintheUSandin IntelligentSolutions,sotheseteamsarebetterabletosellnew conceptstocustomers.Thiswillbeincreasinglyimportantaswe developnewcapabilitiesandasweintroducemoreofourUK capabilitiesintotheUSmarket. OurRisingStarsprogrammeacceleratestheprogressoftalented employees,throughdevelopment,mentoringandstretch projects.Wemadetheprogrammemorepracticallyrelevantthis year,bylinkingittowork-basedprojectsratherthantheprevious workshopapproach. TheGrouphasasuccessfulapprenticeshipprogramme.In2018, webroadenedthenumberofbusinessareastakingapprentices andnowhavearound30peopleintheprogramme.Wealso continuedtorunMovementtoWorkwiththePrince’sTrust, whichhelpsunemployedyoungpeopleintoworkthrough training,developmentandworkexperience. AnewinitiativethisyearwasourintroductionofaLeadership SupperClub.Thisisaninformalnetworkingevent,withaspeaker runningamasterclassontopicsrelevanttoourstrategy. TheGrouphascontinuedtobesuccessfulatfillingvacancies internallyratherthanthroughexternalrecruitment.Forthefirst timethisyear,thishasincludedmovingtalentinternationally.In total,wefilled43%ofvacanciesinternallyduring2018. PERFORMANCE AND REWARD During2018,webegantoreviewtwokeyareasofperformance andreward.Weneedtomakesureourrewardpackagesareboth attractiveinthemarketandconsistentacrossthebusiness,so wearecarryingoutanexternalbenchmarkingexercise.Thiswas completedfortheHRfunctionin2018andwillcarryoninother areasoftheGroupduring2019.Weanticipateafully-refreshed rewardstrategytobeimplementedbytheendofH12019. 40 Picturedtoptobottom:SyraKhanandChrisTicehurst OUR PEOPLE POLICIES Equinitihasawiderangeofpeoplepolicies,coveringevery aspectoftheemployeelifecycle.In2018weundertooka comprehensivereviewofthesepolicies,bothtoensure continuedcomplianceandtoensuretheyarefitforpurposefora globalbusiness. Ourpoliciesincluderesourcingandrecruiting,howcandidates arevetted,throughtoon-boardingandinduction.Anumberof policiescoverissuessuchasholidayentitlement,sicknessand maternityandpaternityarrangements,whileaseriesofother policesrelatetothefacilitiesourpeoplemakeuseofatwork, suchasdata,equipmentandsystems.Finally,wehavepolicies outliningourapproachtoinformalcomplaints,grievances, whistleblowinganddisciplinarymatters,aswellasredundancy andtermination. Toensurewehavestrongpeoplegovernance,in2018we establishedthePeopleComplianceTeam.Theyarethe guardiansofourpolicies,makingsuretheyarelegallycompliant andreflectbestpractice,soweremainanattractiveemployer. OurPeoplePolicyManagerisresponsibleforworkingthrough policychangesrequired,forexampleduetonewregulations, andforproactivelyrecommendingchangeswherewebelieveour policiesneedtoadvance. Allofourpeoplehaveaccesstothefullrangeofpoliciesthrough ourintranet.Wealsoruntrainingandupdatesessionsforkey policies,toensuretheyarewidelyunderstoodandupheld. Ourlinemanagersareresponsibleforensuringourpoliciesare compliedwith.TheyaresupportedbyourPeopleServicesteam inChennai,whoadviseonpolicy,andbyourEmployeeRelations Team.ThisteamispartofthePeopleComplianceTeamand helpswhenmoredetailedadviceorcoachingisrequired. AllcontactswiththePeopleServicesteamareloggedandthe EmployeeRelationsTeamusesacasemanagementsystem totrackreportedissues.Thisenablesustoidentifyissuesina particularlocationortospottrendsinparticularenquiries,which mayindicatethatweneedtoupdatepoliciestomatchchanging expectationsamongourpeople.During2018,wedidnotidentify anymaterialnon-complianceissueswithourpeoplepolicies. We have trained our first cohort of mental health first aiders” WehavemadechangestoaddressourGenderPayGap.This includesrequiringbalancedshortlistsforvacancies,toprovide moreopportunitiesforfemalecandidates.Wehavealsoadjusted ourfamilyfriendlypolicies,includingenhancedmaternitybenefit andprovidingincentivesandmentoringformotherscomingback totheworkplace.MoreinformationaboutourGenderPayGap canbefoundonourwebsiteathttps://equiniti.com/uk/about-us/ corporate-responsibility/policies/equiniti-gender-pay-report/. TheGrouphasinplaceaDisability&MentalHealthTaskforce. InitiativesthisyearincludedsigningtheTimetoChange EmployerPledge,tocoincidewithWorldMentalHealthDay, demonstratingourcommitmenttochanginghowwethink andactaboutmentalhealthintheworkplace.Wehavealso trainedourfirstcohortofmentalhealthfirstaiders.Weintendto reviewourpoliciesinthisareaandprovideincreasedsupportto managers. Thetablebelowshowsourgenderdiversityattheyearend. Equinitihasagoodgenderbalanceoverall,withabroadly equalsplitbetweenmenandwomen.Therehasbeena notableincreaseinthelevelofBoardandseniormanagement representationof28%to33%fortheBoard,and28%to38% oftheseniormanagementteam.However,werecognisewe havemoretodotoincreasethenumberofwomeninour seniormanagementandwehaveworkedhardonanumberof initiativestoaddressthenumberofwomenmovingthroughthe hierarchy.Theseincludeincreasedmaternitybenefits,sponsored femalenetworkinganddevelopmentaimedatSTEM(science, technology,engineeringandmathematics)femaledevelopment andinitiatedamiddlemanagerfemaletalentprogramme. GROUP TOTAL 8 1 0 2 7 1 0 2 BOARD 6 BOARD 3 BOARD 9 SENIOR MANAGEMENT 71 SENIOR MANAGEMENT 44 SENIOR MANAGEMENT 115 OTHER EMPLOYEES 2,613 TOTAL 2,690 OTHER EMPLOYEES 2,442 TOTAL 2,489 OTHER EMPLOYEES 5,055 TOTAL 5,179 BOARD 5 BOARD 2 BOARD 7 SENIOR MANAGEMENT 61 SENIOR MANAGEMENT 24 SENIOR MANAGEMENT 85 OTHER EMPLOYEES 2,352 TOTAL 2,418 OTHER EMPLOYEES 2,067 TOTAL 2,093 OTHER EMPLOYEES 4,419 TOTAL 4,511 I S T R A T E G C R E P O R T I S U S T A N A B I L I T Y 41 Equiniti Group plc Annual Report 2018SECTION 01 OurKeyStakeholders N a t i o n a l G r i d S H N n o ars e P Prudential RBS L B G H S B C G S K e a sy J et Domino’s CitiGroup BT B G G r o u p s y c l a r B a k o f A n a B a e ric m B A E Syste m s Aston Martin ore erm Ald A A 70 60 50 40 30 20 10 0 – 1 f o h t g n e L ) s r a e y ( i p h s n o i t a e r l R e nto kil y o R p u a l M a il G r o R S A Saga Sainsbury’s Santander S h ell S k y T e s c o U n i t e d U t i l i t i e s W m M o r r i s o n s Averageclient relationships >20 years CLIENTS Ourstrategyprioritisesorganicgrowth,drivenbycross-selling andup-sellingservicestoexistingclientsandbringingnew clientsintotheGroup.Todothis,weneedtodevelopand maintainstrongclientrelationships.Wecontinuetobenefitfrom strongkeyaccountcoverage,whichgrowsrevenuefromourtop clientsbyidentifyingopportunitiestoup-sellandcross-sellother solutions. Beyondourkeyaccountsprogramme,eachofourdivisionshave specialistsalesteamswhoworkwithourclientsandpotential clientstowinnewbusiness.Wealsohaveabidsupportteam, whichhelpsustopreparetendersandtopriceourcontracts. Ultimately,ourclientsstaywithusbecausewehave outstandingtechnologyanddeliverexcellentservice.The averagelengthofourUKshareregistrationrelationshipsis around29yearsbutwealsohaveagoodbalanceoflonger relationshipsandclientswhoarenewertotheGroup.We enjoyasimilarqualityofclientrelationshipsintheUS. Financial Healthcare Aerospace & Defence Publishing Travel & Leisure Pharmaceuticals Telecomms Energy Postal Retail Oil & Gas Equiniti clients 1 year or less 42 SUPPLIERS Oursuppliersarefundamentaltoourbusinesssuccess.Wevalue allofourrelationshipsandhavemulti-yearcontractswithourkey suppliers. Toensurewemanageoursupplierseffectively,weusethe followingapproach: • Strategicsuppliers:wemaydevelopajointbusinessstrategy withthesupplier,shareinnovationandproductdevelopment, jointlyoptimisetotalsupplychaincostsandreducelifecycle costs. • Criticalsuppliers:welooktoreduceandmitigaterisk,optimise specificationandsupplychaincosts,andmaydevelopthe relationshiptowardsastrategicone. • Operationalsuppliers:weconsolidatespend,reduce transactionsandconsumption,andaimtohavecompeting supplierstomaximiseefficiency. Weexpectallofoursupplierstocomplywithourstandards,such asthoserelatingtoenvironmentalresponsibility,modernslavery, dataprotection,humanrightsandethics. REGULATORS TheGroupoperatesinregulatedmarketsandlookstomaintain positiveandopenrelationshipswiththerelevantregulators. TheFinancialConductAuthority(FCA)regulatestheUK financialservicesindustry.ItauthorisesseveralGroupentities andoverseestheirconductandprudentialmanagement, whenprovidingfinancialservicessuchassharedealing,safe custodyofinvestmentassets,consumercreditinformationand administration,andelectronicmoneyandpaymentservices linkedtoforeigncurrencyexchange.TheFCAsupervisesand engageswiththeseGroupfirmsthroughperiodicandad-hoc reportingonconductandfinancialresilience,thematicindustry reviewson‘hot’regulatorytopics,responsestospecificevents, anddesk-basedandon-sitereviews. ThePrudentialRegulationAuthority(PRA)supervises‘high impact’firmsintheUK,suchasbanks,buildingsocietiesand largeinsurers.WhilethePRAdoesnotdirectlyregulateany Groupentity,manyofourcorporatebankingandinsurance clientsarePRAregulatedandwearecontractuallyboundby themtomeetcertaingovernancestandardsrequiredbyPRA regulatedfirms,whenoutsourcingregulatedactivities. HerMajesty’sRevenueandCustoms(HMRC)isoneof28 supervisorsforpeopleandbusinessescoveredbytheMoney LaunderingRegulations.SeveralGroupentitiesareregistered withHMRC,includingourinternationalpaymentsandcompany serviceproviders.Weprovidead-hocupdatestoHMRC,which mayalsocarryoutdesk-topreviews. ThePensionsRegulator(TPR)hasanumberofstatutory objectivestoprotectUKworkplacepensionsandimprovehow theyareadministered,byworkingwithemployers,trustees, pensionspecialistsandthird-partyadministratorssuchas Equiniti.TPRprovidesguidanceandpublishescodesofpractice fortheindustry. TheInformationCommissioner’sOffice(ICO)istheUK’s independentbodyforensuringthatdataprotectionrightsare upheld.Itprovidescodesofpracticeandguidanceforalldata protection,privacyandelectroniccommunications,aswellas freedomofinformationandenvironmentalinformationrequests. TheICOisresponsibleforensuringUKentitiescomplywiththelaw viadataauditsandtakesenforcementactionagainstanybreaches. TheSecuritiesandExchangeCommission(SEC)istheFederal regulatorfortheUStransferagentindustry.Itsfocusisonsafety andsoundness,ensuringthatassetsareprotectedandsecure. TheSECrequirescertainreportingbytransferagentsand performsexaminationsofregulatedentities.TheSECcarries outariskanalysisofallregistrantsandexaminesregistrantsona schedulebasedonthatriskassessment. TheNewYorkStateDepartmentofFinancialServices(DFS) overseesthetrustcompanyactivitiesofEquinitiTrustCompany. AlthoughEquinitiTrustCompanyisregisteredwiththeDFSasa banking-typeentity,operationsarelimitedtofiduciaryactivities. TheDFSrequiresreportingbyregulatedentitiesandperforms annualexaminationsofthem,focusingoninformationsecurity, moneylaundering,sanctionsandcontrolsoverthesafeguarding ofassets.TheDFSusestheworkdonebytheregulated business’sinternalauditfunctiontofocusitsexaminations. WeengageinregularinteractionwithboththeSECandDFS,to discussareasofinteresttothemandtous,toobtainguidance andassistance,andtoprovidethemwithourthoughtsand recommendationsonwhattheyaredoingandlookingat. AsatrustcompanywithoperationsinMinnesotaandWisconsin, EquinitiTrustCompanyisalsoregisteredasaforeign(out-of- state)trustcompanywiththosestates.ThestatesofMinnesota andWisconsindefertheoversightofforeigntrustcompaniesto thehomestateofthoseentities,whichinourcaseisNewYork. SHAREHOLDERS TheBoardiscommittedtoopenlyengagingwithour shareholders,aswerecognisetheimportanceofeffective dialogue,whetherwithmajorinstitutionalinvestors,privateor employeeshareholders.Itisimportanttousthatshareholders understandourstrategy,objectivesandperformance,sowelook toexplainthemclearly,listentofeedbackandproperlyconsider anyissuesorquestionsraised. Wehaveacomprehensiveinvestorrelationsprogramme,with theexecutiveDirectorsmeetinginvestorsandanalystsregularly, supportedwhereappropriatebytheChairmanandtheSenior IndependentDirector.Theprogrammesupportstheaimsof theUKCorporateGovernanceCodeandtheUKStewardship Codetopromoteengagementandinteractionbetweenlisted companiesandtheirmajorshareholders.Withthisinmind,we welcomeanyopportunitiesforinvestorsandshareholdersto engagedirectlywiththeChairmanandSeniorIndependent Director,inadditiontotheChiefExecutiveandCFO. TheGroup’sCapitalMarketsDayinSeptember2018wasakey eventintheinvestorrelationscalendar.Throughaseriesof presentationsandquestionandanswersessions,itexplainedthe Group’sstrategyandprogressandprovideddetailedinsightinto theIntelligentSolutionsandEQUSbusinesses. I S T R A T E G C R E P O R T I S U S T A N A B I L I T Y 43 Equiniti Group plc Annual Report 2018SECTION 01 Corporate Social Responsibility (CSR) Equiniti’smostsignificantimpacton societyisthroughtheday-to-dayservices weprovide.Thelargemajorityofour activitieshaveadirectsocialbenefit, whetherthatisensuringpeoplereceive theirpensionsontimeorhelpingclients togrowandcreatejobsthroughour dataanalytics.Ourintentionoverthe comingyearsistoinvestigatewayswecan measureandreportonthesocialimpact ofourwork. Wealsowanttoensurethatweapproach ouractivitiesinanethicalandresponsible way.Asthefirststeponthisjourney, towardstheendof2018theBoard approvedourCSRPolicyStatement. Thissetsoutwhatasociallyresponsible organisationlookslike,followingthe definitioninISO26000.Thepolicy statementcommitsusto: • Behaveethicallyandresponsibly atalltimes. • Beaccountableforourimpacton society,theeconomyand theenvironment. • Betransparentinourdecisionsand activitieswhichimpactonsocietyand theenvironment. • Respect,considerandrespondtothe interestsofourstakeholders. • Makeapositiveimpactoncolleagues, thecommunityandtheenvironment. Thepolicyalsooutlinesourcommitments inarangeofCSR-relatedareas,suchas volunteering,charitablegiving,charity partnershipsandsupportingyoungpeople. AtEquinitiwebelieveinthelinkbetween givingandemployeeengagement.In enablingcolleaguestogivebackto charitiesandthecausesthatreallymatter tothem,webelievewearecreatinga betterplacetowork.Whenemployeesare freetochoosethecausestheysupport, theyaremuchmorelikelytoparticipate thanwhentheCompanyrestricts donationstooneorasmallnumberof charities,whichiswhyatEquinitiwedo nothaveaspecifiedcorporatecharity.We haveanactiveemployerJustGivingpage, partnerannuallywiththecharityShareGift, andallemployeesareabletoenrol annuallyinaMyGivingscheme,tomake taxefficientdonationstocharity. AllEquiniticolleaguesmayusetwodays peryearoutoftheoffice,inadditionto theirannualleaveentitlement,tosupport acharityorcommunityprojectoftheir choice.In2018,colleagueshaveusedtheir VolunteerDaystogetinvolvedinawide varietyofactivities,helpingoutatcharity shops,creatingChristmasgrottos,beach cleaning,gardeningforlocalhospices anddaycentres,andrunningaChristmas marketstallforBrainTumourResearch. Ahugeeffortsawcolleaguespreparing anddistributing1,065Christmasfoodand toypackagestodisadvantagedfamilies nominatedbysocialsupportcentresfor theSalvationArmy. Weareincreasinglylookingtoworkwith charitiesalignedtoourbusiness.For example,wehaveworkedwithmental healthcharityMind,whichisdirectly relevanttothementalhealthnetwork wehaveintroduced,asdescribedon page41.Wearealsoexploringways ofworkingwithorganisationswho supportvulnerablecustomers.Wehave developedavulnerablecustomerpolicy andhaveintroducedtrainingandare exploringotherwaysofhelpingvulnerable customersinthecomingyear. HUMAN RIGHTS Protectinghumanrightsisimportantto ourbusiness.Weensureweprotectthe rightsofourpeople,includingthose withdisabilities,byadoptingsuitable employmentpracticesandwealsoaimto actethicallyinallourbusinessdealings. During2018,wedevelopedandapproved ourfirstformalhumanrightspolicy statement.Thispolicystatementis guidedbytheinternationalhumanrights principlesencompassedbytheUniversal DeclarationofHumanRights,including thosecontainedwithintheInternational BillofRightsandtheInternationalLabour Organisation’s1998Declarationon FundamentalPrinciplesandRightsat Work.Wewillrecordandreportinternally alllegitimateadversehumanrights impacts,inlinewiththispolicystatement. 44 SOME OF THE CHARITIES OUR EMPLOYEES SUPPORT MODERN SLAVERY Equinitioperatesazero-toleranceapproachtomodernslavery andiscommittedtoactingethicallyandwithintegrityinallits businessactivitiesandrelationships.Equinitiisalsocommitted toimplementingandenforcingeffectivesystemsandcontrolsto ensuremodernslaveryisnottakingplaceanywhereinourown businessandexercisingrobustduediligenceofallitspartner organisationsandsuppliers.Fulldetailsofourpolicycanbe foundonwww.equiniti.com. ETHICAL BUSINESS Equinitihasformalanti-briberyandcorruptionpolicies, supportedbyawhistleblowingprocessand,wherenecessary, proportionateandindependentinvestigationandfollowupof anymattersreported.Fulldetailsofourpolicycanbefoundon www.equiniti.com. TheAuditCommittee,inconjunctionwiththeRiskCommittee, isresponsibleforapprovingoursystemsandcontrolsfor preventingbriberyandcorruption,andforreceivinganyreports onnon-compliance.During2018,nomaterialinstancesofnon- compliancewerereported. JUSTGIVING TOTALRAISEDSOFAR c.£109k I S T R A T E G C R E P O R T I S U S T A N A B I L I T Y 45 Equiniti Group plc Annual Report 2018SECTION 01 ENVIRONMENT Policy Wetakeourenvironmentalresponsibilitiesseriouslyand positivelymanageourenergyconsumption.During2018,we developedandapprovedourfirstformalenvironmentalpolicy statement.Werecogniseourresponsibilityfortheenvironment andwillensurecompliancewithallrelevantcurrentandfuture legislation.Wearecommittedtominimisingtheenvironmental impactofouroperations.Webelievethathavingresponsibility fortheenvironmentisanintegralpartofdoingbusinessinthe rightway.Weintendtodevelopprocessesandcontrolstoensure thatthepolicystatementiscompliedwithinfull. Performance Whilerevenueintheyearincreasedby31%andnumberof employeesincreasedby15%,thetonnesofCO2 per £m revenue reducedby16%andthetonnesofCO2peremployeereduced by4%. Transport Vehiclebusinesstravelisbasedontheuseofamediumsized carofaveragevalue,fromthefinancialrecordseachyearending 31December.AsweexpandedtheGroupwithouracquisitionof EQUSoverallbusinesstravelbycarhasincreasedby3%in2018. Airtravelisbasedondatafromfinancialrecordseachyear ending31December.Airtraveldoubledin2018from2017and milestravelledwereupby66%to5,707kmiles.reflectingthe increasednumberofflightsinconnectionwiththeintegration ofourUSbusiness. Facilities Buildingsemissionsarebasedondatafortheyearsended 31March2017/18.Overalltheemissionsfromourbuildingusage haveshowna4%reductionyearonyear.Electricityemissionsare downby17%from4,408tonnesin2017to3,665tonnesin2018. Gasemissionshavedecreasedby19%,from603tonnesin2017 to487tonnesin2018. Thetablebelowshowsourgreenhousegasemissions. GHG EMISSION (TONNES OF CO2) VEHICLES (BUSINESS TRAVEL) 372 362 2018 2017 CHANGE % 3 AIR TRAVEL 1,478 683 116 RAIL TRAVEL 158 143 10 BUILDINGS TOTAL 4,813 6,821 5,011 6,199 (4) 10 CARBON INTENSITY TONNES OF CO2 PER £M REVENUE REVENUE £M TONNES OF CO2 PER EMPLOYEE EMPLOYEES 2018 2017 CHANGE% 12.8 15.3 (16) 531 406 31 1.31 1.37 (4) 5,179 4,511 15 We use a number of third party suppliers to supply and validate the data. 46 Wecontinuetolookforwaystoenhanceourenvironmental performance.Forexample,weswitchedtoagreenenergy supplierintheUKinOctober2018.Thismeansthat,wherever contractuallypossible,wearepurchasingelectricitygenerated fromfullyrenewablesourcessuchaswindpowerandsolar.Italso meansthatourgascomesfromgreenbiomethane. Wealsolookforopportunitiestoreduceenergyconsumption acrosstheestatewhilstprovidingcolleagueswiththeequivalent orbetterservicelevel.Recentchangesincludemodificationto airhandlingsystemsandtransitioningtoLEDlightingtoreduce energyconsumption. FTSE4GOOD EquinitiisamemberoftheFTSE4GoodIndexSeries,which measurestheperformanceofcompaniesdemonstratingstrong environmental,socialandgovernancepractices.Theindices areusedbymanymarketparticipantstocreateandassess responsibleinvestmentfunds. Every permanent Equiniti employee based in the UK is entitled to take two volunteer days out of the office each year, to support their chosen charity or community project” NON-FINANCIAL REPORTING INFORMATION STATEMENT TheCompaniesAct2006requires theCompanytodisclosecertainnon- financialreportinginformationwithinthe AnnualReportandAccounts.Accordingly, thedisclosuresrequiredintheCompany’s non-financialinformationstatementcan befoundonthefollowingpagesinthe strategicreport(orareincorporatedinto thestrategicreportbyreferenceforthese purposesfromthepagesnoted): • InformationonourAnti-briberyand CorruptionPolicy(page45) • Informationondiversity(page40) • Informationonouremployees (page38) • Informationonenvironmentalmatters (page46) • Informationonourapproachtohuman rights(page44) • Informationonsocialmatters(page44) • InformationonourWhistleblowing Policy(page45) • Informationonbusinessmodel (page8) • Informationonprincipalrisks(page48) • InformationonKeyPerformance Indicators(page16) I S E C T O N 0 1 I S T R A T E G C R E P O R T I S U S T A N A B I L I T Y E q u n i t i i G r o u p p c A n n u a l l R e p o r t 2 0 1 8 47 Principal risks and uncertainties We provide business-critical services to our clients, often in highly regulated and complex environments. As we grow, our business and our risk environment also become more complex. Itisthereforevitalthatweeffectivelyidentify,evaluate,manage andmitigatetherisksweface,andthatwecontinuetoevolve ourapproachtoriskmanagement.Werecognisethatanumber ofourprincipalrisks,suchasincreasingandchangingregulation, alsocreateopportunitiesforus,aswecandevelopproductsand servicesthathelpourclientstomanagetheirownregulatory burdens.Informationaboutourriskmanagementframework, includingthatforourregulatedentities,canbefoundintheRisk CommitteeReportonpages 80 to 85. framework,andwhereapplicablearecapturedwithintheGroup’s principalrisks(forexample,theresilienceofourITinfrastructure). IntegrationoftheUSbusinessisprogressingwellandistracked closelybyadedicatedExecutiveSteeringCommittee.Ourclient retentionremainsstrong,wearedevelopinganddelivering newproductsandservicestoourUSclientsandlaunchingnew supportingtechnologywhichwillenableustomoveawayfrom theexistingTransitionServicesAgreementinplacewithWells Fargoduring2019. OUR RISK PROFILE Managingriskeffectivelyisfundamentaltodeliveringour strategyandtousoperatingsuccessfully.Webelievethata robustriskmanagementcultureisvitalforsustainablegrowth andmustbeatthecentreofeverythingwedo.Ourapproachto riskissupportedbyaneffectivepolicyandcontrolframework, whichguidesandinformsourcolleagues’workbehaviours andthedecisionstheymake.Ourprudentriskcultureandrisk appetitessupporteffectivedecisionmakingandenablesusto deliveragainstourstrategicpriorities. Althoughwehavediversifiedgeographicallywiththeacquisition ofourUSbusiness,weremainpredominantlyalower-risk, UK-focussedbusiness.Despitethecontinuinguncertain economicandregulatoryenvironment,particularlyasaresultof Brexit,ouroverallriskprofilehasremainedstableduring2018. WhilstwedonotconsiderthatBrexithasamaterialdirect operationalimpactonourbusiness,theinfluencethatitwill potentiallyhaveontheUKeconomyandparticularlyonthecore marketsthroughwhichtheGrouptransactsforcustomersin2019 willrequireclosemonitoring.During2018wehaveundertaken detailedassessmentsofthepotentialBrexitscenariosandtheir impactontheGroup,andhavedevelopedoperationalplansto mitigateareasofpotentialdisruption.TheabilityoftheGroup tomanagearangeofBrexitmarketstresseshasbeenreviewed duringtheyear,andaspartofthe2018viabilitystatementon pages52to53. OpportunityandriskemanatingfromtheUSbusinessisnow assessedandreportedaspartofourintegratedGroupreporting. TheUSbusinesshasassessedrisksatalocallevelandthese havebeenreviewedthroughtheGroupsriskmanagement Informationandcybersecurityremainsakeyinherentriskwith theGroup’sbusinessmodel.Assuch,wecontinuetodedicate materialresourcetoreviewananalysisofinformationsecurityrisk andmitigation,withongoinginvestmentinpeople,technology andprocesses.Whilsttherehavebeenchangesintheinherent riskdrivenbyincreasesinenvironmentalrisk,theoverallresidual riskhasremainedstableasaresultofourongoingfocus. In2018,wehavealsoseenincreasingdemandsfromourmarkets andcustomerstomoreproactivelydemonstratehowweconduct ourbusinessappropriatelyandethically.Wearewellplacedto managethisthroughsettinganeffectiveconductculturebacked upwithconducttrainingofourstaffandsupportingpoliciesand controls. TherisktotheGroupoflowerrevenuesfromitscashbalancesas aresultoffallinginterestrates,asreportedin2017,hasreduced furtherandisnolongerconsideredaprincipalriskastheoutlook isforinterestratestoremainstableorincreaseduring2019. OUR RISK APPETITE TheBoardhasdefinedriskappetitestatementsforthemainrisks thatwefaceduringthenormalcourseofbusiness.Byassessing thelevelofeachriskagainstourappetiteforit,weensure thatwefocusappropriatelyontherisksthatneedadditional attention.Risksthatarewithinourappetiterequirenofurther mitigatingactions. Giventhenatureofourservicesandtheregulatoryenvironment weoperatein,wehavealowappetiteformanyoftheriskswe faceandnoappetiteforbreachesofpolicyorcontrolincertain criticalareas,suchasregulatoryreportingorbreachesofour anti-money-laundering. GROUP RISK CATEGORY IMPACT MITIGATION TREND* CHANGE & DEVELOPMENT Riskofdisruptivechangeleading tolowerbusinessagility,lower productivity,regulatorysanction, poorcustomerrelationships, increasedcostsandlowerrevenues. Acontinuinglevelofchange anddevelopmentmaylead tomaterialmanagementand resourcestretchwhichinturn couldimpacttheGroup’s abilitytoachieveitskey businessobjectives. 1 2 3 4 5 Anongoinglevelof changeisexpected during2019,drivenby theexternalenvironment, newclientengagements, andinternal improvementprojects. • TheGroupBoardandExecutive Committeeensuresthatallkey changeprojectsareeffectively prioritisedandresourced,including ring-fencingessentialresources. • Allkeychangeprojectsandinitiatives aresupportedbyrobustprogramme managementandmanagement reporting. • Weinvestinourstafftoensure theyhavethenecessaryresource andexpertisetodeliverchange programmeseffectively. *Trend indicates perception of how risk has moved year-on-year. 48 GROUP RISK CATEGORY IMPACT MITIGATION TREND* INFORMATION TECHNOLOGY Riskofpoor-qualityinfrastructure, softwareorbusinesstools,asaresult ofourfailuretoupgradeorinvestin oursystemsasnecessary. Linkstothefollowingstrategy elements: 1 2 3 4 5 MARKETS & COMPETITION Riskoflowercorporateperformance stemmingfrom: • afailuretoidentifyorunderstand strategicmarketopportunities; • theemergenceofalternative competingmarkets,suchas digitaltransformation; • achangeincustomeroutlook, forexamplebecauseofeconomic conditionsorgeo-politicalissues; • aninabilitytoidentifyandanalyse existingoremergingcompetitors; • longer-termincreasedcompetitive pressures,duetoafailureto delivertechnicalchangeor innovation;and • shorttomedium-termcompetitor tactics,suchaspricing. Linkstothefollowingstrategy elements: 1 2 3 4 5 DATA PROTECTION Riskofloss,corruptionor compromiseofpersonaldata(also knownaspersonallyidentifiable information)whichcanrelateto customers,stafforanyothernatural person. Linkstothefollowingstrategy elements: 1 2 3 4 5 Themajorityofourproducts andservicesareenabled byaresilienttechnical infrastructure. Disruptiontothissystems infrastructurecouldleadto afailureofclientservice, whichinturncouldresult inafailuretomeetour contractualobligations,cause detrimentforourcustomers, damageourreputationand productivity,increaseour costsandleadtofinancial penaltiesandpotential regulatorysanction. Equiniti’sprospectsand growthstrategydependonus retainingkeycustomersand takingopportunitiestogrow anddiversifyourbusiness.If wedonotrespondeffectively totrendsinourmarket,we couldlosekeyclientsorfail towinnewbusiness,which couldsignificantlyaffectour revenuesandprofits. Theloss,corruptionor compromiseofpersonaldata couldleadtoapoorcustomer experience,customer detriment,reputationalharm, regulatory,legalorfinancial sanction,lossofcustomers andincreasedcosts. *Trend indicates perception of how risk has moved year-on-year. • WehaveanextensiveITtransformation programmethatisbeingprogressed acrosskeysystemsin2019. • OurITarchitectureplanalsoensures thatkeysystemsthatneedtowork togetherdosoeffectively,enables morerapidchangestosystemsand supportseffectivebusinessprocess re-engineering. • Wecontinuallymonitorourinternal andexternalITenvironment,to ensureitisoperatingeffectively andtoidentifyopportunitiesfor enhancement. • TheGrouphasanoperational plan,includingprioritisationofIT development,ensuringweinvest appropriatelyinoursystemsona timelybasis. • Wehaveawell-diversifiedclientbase andportfolioofservices,whichhelps toinsulatetheGroupfromthelossof anyoneclientorchangeindemand forindividualservices. • Ourongoingclientrelationship managementhelpsustomonitor trendsindemand. • Wemonitorindustrytrends,to identifychangesindemand,our competitiveenvironmentand emergingtechnologies. • Wehaveastrongpipelineof opportunitieswhichweactively manage. • Wecontinuetodevelopnewproducts andservices. • Wemonitortrendsincorporate actionsandothermarketactivity. • WehaveadedicatedDataProtection Office,withexperiencedcompliance personnel. • Weoperateastafftrainingand awarenessprogramme,soourpeople understandthecriticalityofdata protection. • Ownershipofdataprotection riskinthebusinesshasbeen embeddedthroughourmaturingrisk managementandpolicyframework. • Wehaveaprogrammetodeploy up-to-datesecuritysoftwareonallkey systems. • TheGroupundertakesregularriskand vulnerabilityassessments,toreview andaddressanychangesornewrisks indataprotection. • Weemployappropriateencryption anddatabackup,toprotectourdata. • Third-partydatasecurityevaluations assureourdataprotectionandhelpus toimprovefurther. Wecontinuetoinvest inourtechnologyand processes,tosupport ourclients,ensurehigh- qualityservicesandto developnewproducts andpropositions. Marketdemandforcost- effectiveoutsourcing remainsstable.However, inherentriskhas increasedaspoliticaland economicfactorsmay haveanadverseimpact onthisintheshortto medium-term. I I I P R N C P A L R S K S A N D U N C E R T A N T E S I I Withtheadventofthe GeneralDataProtection Regulation(GDPR),which introducedstandardised dataprotectionlaws acrossallEUmember countries,andthe increasingimportanceof dataandcybersecurity, theriskenvironmenthas increased.Howeverwe continuetoinvestinthis keyareaandourresidual riskremainsstable. 49 Equiniti Group plc Annual Report 2018SECTION 01STRATEGIC REPORT GROUP RISK CATEGORY IMPACT MITIGATION TREND* REGULATORY Riskofregulatoryactionstemming fromweaknessesorfailurein: • analysisofregulations,lawsand codes; • developmentofappropriate policies,processesandcontrols; • trainingandeducationoffirst-line teams; • capacitytomonitorandrespond torateofchange; • effectivenessoffirst-line surveillanceinidentifyingand preventingbreaches; • projectmanagementand documentationofregulatory issues; • Boardandseniormanagement governanceandengagementon regulatorymatters; • regulatoryreportingand disclosure. Linkstothefollowingstrategy elements: 1 2 3 4 5 PRODUCT DEVELOPMENT, CHANNEL & PRICING Riskofpoorproductsthatfailto meetthedemandsofourclientsand prospectiveclientsorthatdonot complywithourregulatoryorlegal obligations.Thisriskalsoincludes thepotentialforpoorproduct distribution(soclientsorpotential clientsareunabletoaccessour products)andinappropriatepricing strategies. Linkstothefollowingstrategy elements: 1 2 3 4 5 CONDUCT Riskofthebusinessbeingunableto demonstrateanddocumentgood corporate,stafformarketconduct, forexample: • Board,executiveandsenior managementleadershipofthe corporateculture; • identifyingandmanagingconflicts ofinterest; • controllingstaffbehaviourwhich couldresultinpotentialmarket abuse;or • compliancewithlegaland regulatoryrequirements. Linkstothefollowingstrategy elements: 1 2 3 4 5 50 FailurebyEquinitito adheretoanyofitslegalor regulatoryrequirementscould leadtolegalandregulatory sanctions,redresscosts, reputationalrisk,contract breachand,ultimately,lossof operatinglicencesorinvalid contracts,resultinginreduced revenues. IfEquinitifailstoprovide appropriateproducts, propositionsandservicesto themarketatsuitableprices, itcouldsufferlowerrevenues ormargins,customer dissatisfactionorregulatoryor legalsanction. Poorconductcouldlead tosub-optimaldecision making,customerdetriment, poorstaffexperience,legal orregulatorysanction, increasedcounterparty risk-basedpricing,reduced availabilityofcounterparties andreputationalharmtous andourclients.Thisinturn couldresultinalossoftrust andconfidenceamongstour stakeholders. Wecontinuetoinvest significantlyinour compliancefunctionsand regulatoryinfrastructure, toenableustobe resilientandidentify cost-effectivesolutionsas newregulationsarise. Wecontinuetofocuson enhancingthevalueof ourproductsandservices tocustomersandnew marketopportunities. Thereisanincreasing expectationfromour marketsandcustomers todemonstratehowwe conductourbusiness appropriatelyand ethically.Wearewell placedtomanagethis andduring2019wewill berollingoutenhanced conducttraining,policies andassociatedcontrols acrosstheGroup • Wehavededicatedsecond-linerisk andcomplianceteamswhohave supportedthefirstlinebusiness inenhancingriskownershipand accountabilityin2018. • Ourcapitalinvestmentprogramme ensuresweappropriatelyfundthe actionsweneedtotaketomanage regulatoryrisk. • Wecanoffsetthecostsofregulation bydevelopingnewservicesand productsthathelpclientsmanage theirownregulatoryburden. • Wecontinuallymonitorforupcoming, new,oramendments,toregulation,to ensurewecomplyontime. • Wedeliverregulartrainingforall employeesworkinginregulatedareas, sotheyunderstandtherulesand requirementstheymustcomplywith. • Weoperateseparatelegalentities forregulatedactivitieswiththeirown Boards,toensurerigorousfocuson regulatoryrequirements. • TheExecutiveteamandBoard regularlydiscussstrategyinthe contextofpropositionaldesignand serviceenhancement. • Wehavededicatedresourcetowards customerpropositionandcustomer experiencetohelpusmeetour customers’expectationsandensure wealsounderstandtheirown regulatoryrequirements. • Werunclienttestingworkshops, togaincustomerinputonproduct development. • Wehaveimplementedanewproduct governancepolicyandassociated controlstoensureaconsistent approachtoproductmanagementis appliedacrosstheGroup. • Wecontinuetodevelopkeyconduct riskmeasures,toprovideagranular viewofhowourproductsandservices areperformingforcustomers. • Westrivetolearnfromanymistakes throughrootcauseanalysisand clearcustomeraccountabilitiesfor colleagues,withrewardsdrivenby customer-centricmetrics. • Wearefurtherenhancingand embeddingourframeworktosupport customers,particularlythosein vulnerablecircumstances. • Weproactivelyreviewandfollow changesingovernanceandregulatory requirements. • Wearepreparingfortheadvent oftheFCA’sSeniorManagersand CertificationRegimewhichapplies totheUKregulatedentitiesinthe Group. GROUP RISK CATEGORY IMPACT MITIGATION TREND* Aninformationorphysical securitybreachcouldreduce thequalityofourservices tocustomersorresultinus breachingthelaworour contracts,whichinturncould damageourreputation, increaseourcostsandreduce our revenues. SECURITY Cyberrisk,involvingthedisruption orcorruptionofsystemsand connectivity,orlossorleakageof datafromaccidentalormalicious actions. Therearealsorisksarisingfroma physicalsecuritybreachincluding propertydamage,staffinjury,theft orinappropriateaccesstopremises, systemsorinformation. Linkstothefollowingstrategy elements: 1 2 3 4 5 PURCHASING, SUPPLY & OUTSOURCING Riskofabusinesscriticalpartner, subcontractororsupplierfailing todeliverand/orperformtothe requiredstandards. Linkstothefollowingstrategy elements: 1 2 3 4 5 Partner,subcontractoror supplierfailurecouldresult inEquinitibeingunableto meetitscustomerobligations orperformcriticalbusiness operations.Thiscould resultinareputational impact,reducedbusiness agility,customerdetriment, increasedcostandlower revenue. BUSINESS CONTINUITY & RESILIENCE Riskofsloworflawedrecovery followingunexpectedevents,such aslossofakeybuildingoramajorIT systemfailure. Linkstothefollowingstrategy elements: Failuretoeffectivelyplan forandmanageunplanned eventscouldleadtoa poorcustomerexperience, customerdetriment, reputationalharm,regulatory sanction,lossofcustomers, lowerproductivity,reduced revenuesandincreasedcosts. 1 2 3 4 5 Failuretoattractorretain therightpeoplewouldlimit Equiniti’sabilitytodeliverits businessplancommitments andcontinuetogrow. PEOPLE Riskoflowoperatingefficiency stemmingfrompoorstaffmorale andexperience,higherstaffattrition, increasedsickness,higherretention andrecruitmentcosts,andunfilled positions. Linkstothefollowingstrategy elements: 1 2 3 4 5 Ourongoingprogramme ofinvestmentin improvedcontrols ensureswemaintain ourposition,inan environmentwherethe externalthreatremains challenging. Wehaveanongoing programmeof enhancementsto contracts,toensure theyallhaveclear performanceindicators linkedtodeliveryof services,withappropriate penaltiesforfailure. Ongoingreviewand testingofourplans ensurestheyremainup todateandappropriate. Webelieveinthe importanceofinvesting inourpeopleand utiliseavarietyof programmestailoredto helpthemenhancetheir performance,setand achieveobjectivesand developtheirleadership skills. • Wehaveanongoingprogrammeof investmentininternalandexternal cybersecurity. • TheGrouphasanISO27001aligned compliantcontrolframework. • Wecontinuouslyreviewourcyber securitycapabilityandemerging threats. • OurITinfrastructureissubjectedto regularpenetrationtests. • Wedeployextensivesecurity measurestodenyunauthorised accesstoourpremises,equipment andresourcesandtoprotect personnelandpropertyfromdamage orharm. • TheGrouphasadedicated procurementfunction,withdue diligencepolicies,standardsand procedures. • Werunsupplierfinancialhealth checksandmonitortheirfinancial positiononanongoingbasis. • Weregularlyreviewsupplier performanceandrisk. • Weauditourmaterialsuppliers’ businesscontinuityplans,toensure theyareappropriate. • Weconsiderpotentialsupplier failureaspartofouroverallbusiness continuityandresilienceplanning. • Wehavedetailedbusinesscontinuity anddisasterrecoveryplans,whichwe testregularly. • Weemploydualhostingofcritical servers,telecommunicationsand applications,tohelpensuretheir availability. • TheGrouphasseparatebusiness continuityordisasterrecoverysites availabletoit. • Weworkcloselywithhighlyregulated clientswhooutsourceservicestous toensuretheirownresilience. • Wearetakingfocusedactionto attract,retainanddevelophigh-calibre people. • Wehaveinitiativestoreinforce behavioursthatgeneratethe bestoutcomesforcustomersand colleagues. • Wecarefullymanageourorganisational capabilityandcapacity,toensurethere aretherightskillsandresourcesto meetourcustomers’needs. • Weuseeffectiveremuneration arrangementstopromoteappropriate colleaguebehavioursandmeet regulatoryexpectations. • Weencourageandsupportanumber ofemployeeengagementforumsand runDiversityandInclusiongroupsfor staff(seepage40). • Weareproactivelymanagingany genderpaygapswithintheGroup. I I I P R N C P A L R S K S A N D U N C E R T A N T E S I I 51 Equiniti Group plc Annual Report 2018SECTION 01STRATEGIC REPORT 2. THE ASSESSMENT PROCESS AND KEY ASSUMPTIONS TheGroup’sprospectsareassessedprimarilythroughits strategicandfinancialplanningprocess.Thisincludesadetailed annualreviewoftheongoingplan,ledbytheGroupChief ExecutiveandCFO,inconjunctionwithdivisionalandfunctional managementteams.TheBoardparticipatesfullyintheannual processbymeansofanextendedBoardmeeting. Theoutputoftheannualreviewprocessisasetofobjectives, detailedfinancialforecastsandaclearexplanationofthekey assumptionsandriskstobeconsideredwhenagreeingtheplan. ThelatestupdatestotheplanwerefinalisedinDecember2018. ThisconsideredtheGroup’scurrentpositionanditsprospects overtheforthcomingyears,andreaffirmedtheGroup’sstated strategy. Detailedfinancialforecastsareprepared,withthefirstyearof thefinancialforecastformingtheGroup’soperatingbudget andissubjecttoarollingforecastprocessthroughouttheyear. Subsequentyearsoftheforecastareextrapolatedfromthefirst year,basedontheoverallcontentofthestrategicplan.Progress againstfinancialbudgetsandkeyobjectivesarereviewedin detailonamonthlybasisbyboththeGroup’sexecutiveteam andBoard.Mitigatingactionsaretakenwhetheridentified throughactualtradingperformanceortherollingforecast process. ThekeyassumptionswithintheGroup’sfinancialforecasts include: • Lowsingle-digitperannumrevenuegrowth,supportedby markettrendsandincreasedcrosssellingintoourcustomer base. • Modestmarginimprovementdrivenbyoperatingleverage, offshoring,automation,propertyrationalisationandincreasing mixofsoftwarelicenses. • Nochangeinthestateddividendpolicy. • NochangeincapitalstructuregiventheGrouphassecured termdebtandanRCFfacilityouttoOctober2020.Preliminary discussionswithfundingprovidershavecommencedand Equinitiisconfidentofextendingthisagreementin2019,fora furtherfiveyears. • Theviabilitystatementandprojectionscarriedouttosupport itaremadeassumingthecurrentbusinessmodelandbalance sheetstructureremainasisandfuturefinancefacilities,that matureduringthethree-yearperiod,willberefinancedon similarterms. Viability Statement 1. ASSESSMENT OF PROSPECTS Equiniticonductsasignificantportionofitsbusinessthrough recurringrevenuesecuredvialong-termcontractsandhasa statedmodestgrowthstrategy,evidencedbothbyitspast performanceandresilienceandthepositionitoccupiesin themarket.Financialresiliencehasbeenstrengthenedbythe acquisitionofWellsFargoShareownerServicesin2018.Aperiod ofthreeyearshasbeenchosentobasetheViabilityStatement onbecause,althoughforecastsarepreparedforlongerperiods, thereisinevitablymoreuncertaintyassociatedwithalongertime frameandtheDirectorshaveareasonableconfidenceoverthis timehorizon.Theviabilityassessmentreflectsfinancialstress placedonthebusinessarisingfromthescenariosidentifiedin thePrincipalRisksandUncertaintiessectionoftheAnnualReport andAccounts. TheGroup’sstrategyremainsunchanged: • Growsalestoexistingclients • WinnewB2Bclients • Developandacquirenewcapabilities • Operatingleverage • Reinveststrongcashflows ThekeyfactorssupportingtheGroup’sprospectsare: • Long-term,loyal,blue-chipclients–Wehavealargeand diverseclientbase,includingc70oftheFTSE100and120 oftheFTSE250.OuraveragerelationshipwithFTSE100 shareregistrationclientsismorethan20yearsandourclients typicallytakeanaverageoftenservicesfromus. • Proprietarytechnology–Ourwell-investedandscalable proprietarytechnologyplatformsgiveusacompetitive advantageandformabarriertoentry,giventhesubstantial experience,timeandmoneyrequiredtobuildthem.Wehave morethan30platforms,allonUK-basedinfrastructure.Our primaryplatformsareSirius(shareregistration,dividendand shareplanmanagement);Xanite(custody,investmentand wealthmanagement);Compendia(pensionadministrationand payroll);andCharter(caseandcomplaintsmanagement). • Leadershippositions–Weareleadersinlargeandgrowing markets,givingussignificantgrowthopportunitiesandstrong momentum. • Scale–Thescaleofourbusinessmeanswecansuccessfully handlethebiggesttransactions.In2018,intheUKalone, wemadepaymentsof£93billion,interactedwithc28million shareholdersandpensioners,andheldc70mshareholder records. • Specialistpeople–Weemploypeoplewhoareexpertsin theirfields.Attheyearend,wehadover5,100employees, includingc900atouroffshorefacilityinChennai,India. • Strongacquisitionstrackrecord–Wehaveastrongtrack recordofacquiringnewplatformsandcapabilities,successfully integratingthemintotheGroupandgeneratinggrowthfrom them.Since2007,wehavecompleted23transactions. 52 3. ASSESSMENT OF VIABILITY AlthoughtheoutputoftheGroup’sstrategicandfinancial planningprocessreflectstheDirectors’bestestimateofthe futureprospectsofthebusiness,theGrouphasalsoassessed theimpactofsevereyetplausiblescenarios.Therescenarios wereconsideredtoappropriatelyreflectanyissuesarisingasa consequenceofBrexit.Theserepresentstresseswhichinclude thefollowingpotentialfourscenarios: 1. Depressedmarketactivityleadingtoareductionincorporate actionrevenue. 2. Reductioninrevenuegrowthforaprolongedperiodoftime, withalagincostreductionaction. 3. Significantchangeprogrammes(offshoring/automation/ propertyrationalisation)donotdeliveranticipatedbenefits. 4. Anunspecifiedshocktothebusinessleadingtoa40% reductioninplannedunderlyingEBITDAacrossathree yearperiod. VIABILITY SCENARIOS PRINCIPAL RISKS AND UNCERTAINTIES REDUCTION IN CORPORATE ACTION REVENUE REDUCTION IN REVENUE GROWTH COST PROGRAMMES DO NOT DELIVER ANTICIPATED BENEFITS UNSPECIFIED SHOCK TO BUSINESS CHANGE & DEVELOPMENT INFORMATION TECHNOLOGY MARKETS & COMPETITION DATA PROTECTION REGULATORY PRODUCT DEVELOPMENT, CHANNEL & PRICING CONDUCT SECURITY PURCHASING, SUPPLY & OUTSOURCING BUSINESS CONTINUITY & RESILIENCE ViabilityscenariosaffectedbyEquiniti’sPrincipalRisks Theresultsofthestresstesting(includingcombiningscenarios 1-3)demonstratethat,duetotheGroup’shighcashgeneration andaccesstoadditionalfunds,Equinitiwouldbeableto withstandtheimpactineachcase.Mitigantsconsideredas partofthisstresstestingincludedcostefficiencyprogrammes, dividendreductions,cancellationofEBTsharepurchasesanda rationalisationofcapitalexpenditure. 4. VIABILITY STATEMENT Basedontheresultsoftheanalysis,theDirectorshavea reasonableexpectationthattheGroupwillbeabletocontinue inoperationandmeetitsliabilitiesastheyfalldueoverthethree yearperiodoftheirassessment. 5. GOING CONCERN TheGroupisalsorequiredtoconfirmithasadoptedthegoing concernprincipleinpreparingtheaccounts,whichunderpins IFRS1.TheCoderequirementhasnarrowedthisdowntothe accountingpurposeofgoingconcern(CodeC.1.3).Assuch, thereisnorequirementtomakereferencetothegoingconcern inthefrontpartoftheAnnualReportandAccounts,although goodpracticeistakingtheformofasimplereferenceconfirming theDirectorsconsideritappropriatetopreparethefinancial statementsonthebasisofagoingconcern,assetoutinthe basisofpreparationinthebackpartofthereport. ThekeypointstoconsiderinrelationtoassertingEquiniti’sgoing concernstatusare: • TheGrouphaspositivenetassets. • TheGrouphasathreeyearbusinessplan,whichdemonstrates itisabletogeneratesignificantcashflowsinthenext12 monthstoserviceitsliabilitiesastheyfalldueandpaydown debt,basedonmodestgrowthandcostreductionambitions. • At31December2018,theGrouphadtotalcashof£90.9m togetherwithavailableheadroomof£122munderits committedbankfacilities.NetdebttounderlyingEBITDA mustbelessthan4.0:1;itiscurrently2.5:1. • During2019theGroupintendstore-financeitsSenior FacilitiesAgreementwithexistingbanks,toprovideongoing committedfundingbeyondthecurrentOctober2020maturity. Assuchweconsiderthegoingconcernbasisofpreparingthe accountstobeapplicable.Withtheanalysisconcludingthe Grouphassufficientcashflowandundrawndebtfacilitiesfor thenextthreeyearsonanumberofdown-sidescenarios,the Directorsalsohaveareasonableexpectationthebusinesswill continueasagoingconcernforthenext12months. Thestrategicreportwasapprovedonbehalf oftheBoard Guy Wakeley Chief Executive 12March2019 I S T R A T E G C R E P O R T I V A B I L I T Y S T A T E M E N T 53 Equiniti Group plc Annual Report 2018SECTION 01 UK Stock Market Awards 2018 Main Market Company of the Year 54 HIGHLIGHTS 0CHAIRMAN'S STATEMENTS 0BUSINESS MODEL 0OUR MARKETS 00STRATEGY 00KEY PERFORMANCE INDICATORS 00CHIEF EXECUTIVE’S STATEMENT 00OPERATIONAL REVIEW 00FINANCIAL REVIEW 00PRINCIPAL RISKS AND UNCERTAINTIES 00RESOURCES AND RELATIONSHIPS 00 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 G r o u p p c A n n u a l l R e p o r t 2 0 1 8 55 02 Governance GOVERNANCE REPORT BOARD OF DIRECTORS EXECUTIVE COMMITTEE BOARD AND EXECUTIVE COMMITTEE STRUCTURE AUDIT COMMITTEE REPORT RISK COMMITTEE REPORT NOMINATION COMMITTEE REPORT DIRECTORS’ REMUNERATION REPORT DIRECTORS' REPORT 56 58 60 66 72 80 86 92 118 HIGHLIGHTS 0CHAIRMAN'S STATEMENTS 0BUSINESS MODEL 0OUR MARKETS 00STRATEGY 00KEY PERFORMANCE INDICATORS 00CHIEF EXECUTIVE’S STATEMENT 00OPERATIONAL REVIEW 00FINANCIAL REVIEW 00PRINCIPAL RISKS AND UNCERTAINTIES 00RESOURCES AND RELATIONSHIPS 00 Corporate Governance Report DearShareholder Inmylettertoyoulastyear,InotedthattheBoardtakes corporategovernanceveryseriouslyandthatIwasdetermined toensurethatwemaintainhighstandardsthroughoutmytimeas Chairman. Iampleasedtoreportthatduringtheyear,theCompany continuedtocomplyinfullwiththe2016UKCorporate GovernanceCode(theCode).Webelievethatcompliancewith theCodeshouldbetheminimumstandardweaspireto,so duringtheyearwecontinuedtoenhancetheBoardandour corporategovernanceframeworktoensurethattheGrouphas thegovernanceproceduresandprocessesitrequirestomeet theneedsofitsclients,employees,shareholdersandother stakeholders.Additionally,welookforwardtoworkingtowards fullcompliancewiththenew2018UKCorporateGovernance Codeandcontinuingtofurtherprogressourgovernance standards. BOARD AND COMMITTEE CHANGES TherewereanumberofchangestotheBoardthisyear,with ourBoardrefreshmentseeingVickyJarmanstandingdown andAlisonBurns,MarkBrookerandCherylMillingtonallbeing appointedasindependentnon-executiveDirectors.More informationonthemandtheirappointmentscanbefoundinmy statementintheStrategicReportonpage18. TheappointmentshaveenhancedourBoarddiversity,with femaleDirectorsnowmakinguponethirdoftheBoard,inline withtherecommendationoftheHampton-AlexanderReview. Moreimportantly,ournewnon-executiveDirectorsbring additionalskillsandexperiencetotheBoard,whicharehighly relevanttotheGroup’sstrategicdirection. TheincreaseinBoardmembershipalsoallowedustoreviewthe compositionoftheBoardCommittees,increasingthenumberof membersofsomeCommitteeswhilestreamliningothers.These changesenhancetheoperationoftheCommitteesandensure theycontinuetoproviderobustoversightoftheirrespective areas. BOARD VISITS WebelievethattobeaneffectiveBoard,wemuststayabreast ofwhatishappeninginthebusinessanditsmarkets.Duringthe year,wevisitedthreepartsoftheorganisation:EQDatalocated inExeter(UK),EQUSlocatedinMinneapolis(US)andEQCredit ServiceslocatedinLeeds(UK). VisitingtheGroup’soperationshasanumberofbenefitsfor theBoard.Wecantalkdirectlytotheseniormanagement concernedandseedemonstrationsofcurrentproductsand thoseindevelopment.Thisgivesusinsightintohowthebusiness isperformingandwhatourclientsneedfromus,bothnowand inthefuture.ThisinturninformsourBoarddiscussionsabout strategyandhelpsustoreachconclusionsonthestrategic initiativesweareaskedtoapprove. CULTURE Anotheradvantageofspendingtimeinthebusinessisthat itgivesusafeelfortheGroup’sculture.TheGroup’sculture combinestheentrepreneurialdriveneededbyagrowth orientatedcompanywiththeclientfocusandoperationalrigour thatareessentialforfirst-classdeliveryofregulatedservices.The Group’scultureisneversetinstoneandneedstoadaptover time,soitremainsalignedtotheGroup’spurposeandstrategy. Wealsoneedtoensurethatwhenweacquirebusinessesthat havethrivedasindependents,wehaveaculturethatallowsthem tocontinuetothriveunderourownership. MoreinformationonourculturalinitiativesandtheGroup’s valuescanbefoundintheStrategicReportonpage38. DIVERSITY AND INCLUSION Tous,diversityandinclusionmeansunderstanding,appreciating andvaluingthevisibleandinvisibledifferencesinourcolleagues, andunderstandingthatthesedifferencesenrichourcultureand benefitthebusiness.Recognisingthisdiversityandinclusion isanintegralpartofourculturalagendaandwearekeento operationaliseourapproach,withworkalreadyinprogress. TheGrouphasarangeofinitiativesforenhancingdiversityand supportingourpeople,whicharedescribedonpage40. TRAINING AND DEVELOPMENT AkeypartofmyroleistoensurethatallDirectorshaveaccess toongoingtraininganddevelopmenttoprovidethemwith therelevantskillsandexpertisefortheirroleontheBoardand itsCommittees.Duringtheyear,trainingwasprovidedonthe following: •IFRS15RevenueRecognition; •IFRS16LeaseAccounting; •changestotheUKCorporateGovernanceCode; • theGeneralDataProtectionRegulation(GDPR)andhowit affectedtheGroup;and • cybersecurity. Wealsoprovidedextensiveinductionprogrammesforthenew non-executiveDirectors. BOARD EVALUATION Duringtheyear,weundertookanexternally-facilitatedevaluation oftheBoardanditsCommittees.Overall,theBoardandits Committeeswerefoundtobeoperatingeffectivelyandwere wellmanaged.AconsistentthemefromalloftheCommittee evaluationswasthattheallocationofmoretimeforeachof themeetingswouldfurtherdevelopthebreadthanddepth ofcoverageandenhancethewidercorporategovernance framework.Accordingly,wherepossible,theRiskCommittee meetingswillbeheldonaseparatedayfromthemainBoard meetingtoensuresufficienttimeisprovidedforallofthe meetings.Moredetailsabouttheevaluationcanbefoundon page69. 56 GOVERNANCE AND RISK Inanevolvingenvironment,theBoardrecognisesthatitiscritical thattheGrouphasarigorousfocusonidentifying,managing andmitigatingtherisksitfaces.ThroughtheRiskandAudit Committees,wehavecontinuedtoadvanceourapproachthis year,asdescribedintheirrespectivereports. CONCLUSION Thishasbeenaprogressiveyear,furtherstrengtheningthe Group’scorporategovernancestructure.Lookingforwardwewill continuetomaintainastrongandeffectivegovernancestructure, tohelpthebusinesstodeliveritsstrategy,createvalueand safeguardourstakeholders’long-terminterests. Philip Yea Chairman 12March2019 ThemostsignificantchangetotheGroupthisyearwasthe acquisitionofEQUS.Asaregulatedbusiness,EquinitiTrust Company(ETC)isrequiredtohaveitsownboardofindependent directorsanditsownboardcommittees.Werelyonthisboard tocarryoutanumberofgovernancefunctionsonourbehalfin theUSandtheBoardreceivesregularreportsfromETC.Tohelp ensurealignmentbetweentheGroupandEQUS,theBoardheld ajointsessionwiththeboardofETCatwhichwediscussedboth thestrategyfortheUSbusinessandourregulatoryandclient commitments.ETChasacompetentandcommittedboardthat isfullyequippedtodischargeallofourregulatoryandstatutory commitmentsintheUnitedStates,withappropriateoversight fromtheGroup. WORKFORCE ENGAGEMENT/EMPLOYEE VOICE In2016,anEmployeeForum(theForum)wasestablished withintheUKtoenableourUKcolleaguestomeetanddiscuss employeeconcernswithseniormanagementandtheexecutive Directors.Aspartofourworktocomplywiththenew2018UK CorporateGovernanceCode,weareextendingtheForumto includerepresentativesfromIndia,theUS,theNetherlandsand SouthAfrica.WehavedesignatedDrTimMiller,whochairsour RemunerationCommittee,asthenon-executiveDirectorwith responsibilityforconveyingEmployeeVoice. TheForumwillmeetquarterlyduringtheyear,intheUKand overseas.Forthosemembersunabletoattendinperson, arrangementswillbeinplaceforthemtoattendremotely.Dr TimMillerwillattendthosemeetingsandreportbacktothe Boardaftereachmeeting. WhereBoardmeetingsareheldoverseas,thesemeetingswill beusedasanopportunitytomeetwithcolleaguesinthose locationsfacetoface. InadditiontotheForum,wealsohaveothermethodsofallowing colleaguestocontacttheDirectors.Forexample,‘AskGuy’is anopenforum(viatheGroup’sintranetsystem)whichallows colleaguestoaskGuyWakeleyanyquestion.Thismethodis usedextensivelybyourcolleaguesacrosstheGroup. C O R P O R A T E G O V E R N A N C E R E P O R T 57 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE Board of Directors KEY BOARD COMMITTEES A D N Rm R Audit Committee Disclosure Committee Nomination Committee Remuneration Committee Risk Committee PHILIP YEA CHAIRMAN GUY WAKELEY CHIEF EXECUTIVE JOHN STIER CHIEF FINANCIAL OFFICER DARREN POPE SENIOR INDEPENDENT DIRECTOR ALISON BURNS INDEPENDENT NON-EXECUTIVE DIRECTOR Appointed:January2014 Appointed:June2015 Appointed:December2016 Appointed:April2018 Aqualifiedaccountant, priortojoiningthe CompanyJohnwasthe ChiefFinancialOfficerof NorthgateInformation SolutionsLtdforoverten years.Priortothat,he wastheChiefFinancial OfficerofSubterraLtd, asubsidiaryofThames WaterPlc,whichdelivered engineeringservicesto businessesacrossEurope. Skills and Experience Beneficial to the Company: John’sconsiderable financeexperience,and hisextensiveexecutive experience,hasbeen invaluableinhisroleas ChiefFinancialOfficer,in managingtheCompany’s balancesheetandensuring ithasthefirmfinancial foundationfromwhichit hasgrownfrombeinga private-equityrunbusiness toamainmarket,FTSE250 business. Other Appointments: None Darrenisaqualified accountantwithover30 yearsofexperienceinthe financialservicesindustry, themajorityofwhich hasbeenspentinretail financialservices.Most recentlyDarrenserved asCFOofTSBBankplc, havingledtheinitialstages ofitsseparationfrom LloydsBankingGroup. Hewasanon-executive directorofVirginMoney Holdings(UK)plcpriorto itsmergerwithCYBGplc. Skills and Experience Beneficial to the Company: Darren’sconsiderable accountingexperienceand hisin-depthknowledgeof theretailfinancialservices sector,akeybusinesssector fortheGroup,isbeneficial tohisroleasChairofthe AuditCommitteeandasa memberoftheBoard. Other Appointments: Non-executiveDirectorof CYBGplc Alisonhasheldexecutive andnon-executiveroles withinAvivaplc,including thepositionofCEOof AvivaIreland.Shehas extensivefinancialservices experience,gainedin seniorroleswithSantander, LloydsTSBandAXAUK. Skills and Experience Beneficial to the Company: Alisonhasin-depth knowledgeofthe insuranceandfinancial servicessectors(twokey marketsfortheGroup). Alison’sexperiencehas providedherwithan insightintothecustomer’s viewpointwhichisaskill requiredbytheBoard. Other Appointments: Non-executiveDirectorof Hastingsplc Priortojoiningthe Company,Guywaschief executiveofMorrison plcforfiveyearsand beforethathelddivisional leadershippositions withAmey,TheBerkeley Group,GeneralElectric andRolls-Royce.Guyhas anMAinEngineering SciencefromtheUniversity ofCambridgeandaPhD inapplicationsofartificial intelligencetoengineering design. Skills and Experience Beneficial to the Company: Guyisanexperienced chiefexecutive,with extensiveITexperience. Thishasenabledhimto forgeastrong,focused, managementteamforthe Company.Thisteam,led byGuy,hasenabledthe Companytogrowfroma privateequity-runbusiness toamainmarket,FTSE 250business,withaclear, focusedstrategyforits future growth. Other Appointments: Non-executiveDirectorof HgCapitalTrustplc MemberoftheCBI’sPublic ServicesStrategyBoard Appointed:July2017 (Independentupon Appointment) Philipwaschiefexecutive of3iGroupplcfrom 2004to2009.Aqualified accountant,heisalsoa formerfinancedirectorof Diageoplcand,asfinance directorofGuinnessPLC, wascloselyinvolvedinthe creationofDiageothrough Guinness'smergerwith GrandMetin1997. Skills and Experience Beneficial to the Company: Philipisanexperienced Chairmanwithin-depth knowledgeofboththe quotedandprivate equitysectors.Withhis considerableexecutive experience,hebrings valuableskillstothe Board.Hisknowledgeof theinternationalbusiness environmentwillbeof particularimportance totheCompanyasit continuesonthenext stageofitsgrowthand developmentasan internationalbusiness. Other Appointments: ChairmanofGreeneKingplc Non-executiveDirectorof AberdeenStandardAsia Focusplc Non-executiveDirector ofMarshallofCambridge (Holdings)Ltd CHAIR 58 N D CHAIR E O Sb CHAIR RC GC CHAIR D RC GC D E O Sb A R N A Rm EXECUTIVE COMMITTEES E RC Sb O GC Executive Committee Executive Risk and Compliance Committee Sales and Bid Committee Operating Committee Group Investment and Change Committee C O R P O R A T E G O V E R N A N C E R E P O R T MARK BROOKER INDEPENDENT NON-EXECUTIVE DIRECTOR SALLY-ANN HIBBERD INDEPENDENT NON-EXECUTIVE DIRECTOR DR TIM MILLER INDEPENDENT NON-EXECUTIVE DIRECTOR CHERYL MILLINGTON INDEPENDENT NON-EXECUTIVE DIRECTOR KATHY CONG COMPANY SECRETARY Appointed:November2018 Appointed:August2016 Appointed:February2015 Appointed:November2018 Appointed:July2016 Mark’sexecutivecareer hasinvolvedseniorroles intechnology-centric businesses,includingBetfair wherehewasCOOand Trainlinewhereheheld asimilarrole,providing strongmanagementand operationsexperience. Healsospent17years ininvestmentbanking, withRothschild,NatWest Markets,MerrillLynchand MorganStanley. Skills and Experience Beneficial to the Company: Markbringsstrong managementand operationalexperience fromtechnology-centric businessesandhistime ininvestmentbanking isveryrelevanttoour marketplace. Other Appointments: Non-executiveDirectorof AAplc Non-executiveDirectorof WilliamHillplc Sally-Annpreviouslyserved asCOOoftheinternational divisionandlatterlyas GroupOperationsand TechnologyDirectorof WillisGroup,andhelda numberofseniorexecutive rolesatLloydsTSB. Skills and Experience Beneficial to the Company: Sally-Ann’sextensive experienceofthefinancial servicessector,together withherexperienceof theinsurancesector,two keybusinesssectorsfor theGroup,hasbeen beneficialwhenconducting herroleasChairofthe RiskCommitteeandasa memberoftheBoard. Other Appointments: Non-executiveDirectorof IGGroupHoldingsplc Non-executiveBoard memberofLoughborough University Advisoryboardmemberof OEEConsulting Cheryl’sexperiencehas beengainedthroughher seniorleadershiproles intechnologyacrossa varietyofsectors,including financialservicesandretail, mostrecentlyasChief DigitalOfficeratboth TravisPerkinsandWaitrose. Herpriorrolesinclude CIOatAsdaandsenior linemanagementrolesin retailatHBOS.Cherylwas previouslyanindependent non-executiveDirector ofNationalSavingsand Investments. Skills and Experience Beneficial to the Company: Cherylbringsdeep technological,business leadership,andcustomer centricexperiencegained acrossavarietyofsectors, includingfinancialservices andretail,whichisvery relevanttoourmarketplace. Priortojoiningthe Company,Kathyworkedat FTSE250specialistbanking group,Investecplc,for over13years.Duringher timeatInvestec,Kathy workedcloselywithsenior managementandsubsidiary directorstoensure appropriategovernance systemswereestablished andmaintained,particularly inrelationtoDirectors’ duties,relevantregulatory requirementsandrelated partytransactions,including FCA-regulatedfirms. Kathyisanactiveindustry contributor,havingheldthe positionoftheSecretaryof theAssociationofWomen CharteredSecretariesand theLondonMoneyMarket Association. Other appointments: DirectorofEquinitiShare PlanTrusteesLimited Other appointments: Non-executiveDirectorof AtomBankplc CompanySecretarytothe EquinitiGroupUKsubsidiary companies Duringhis14yearsat StandardCharteredBank, Timheldanumberof directorlevelpositionswith globalresponsibilityforareas includinghumanresources, compliance,audit,assurance, financialcrimeandlegal.Tim wasalsoanon-executive DirectorofPageGroup,the recruitmentservicesprovider, fornineyears. Skills and Experience Beneficial to the Company: Tim’sextensiveexecutive experienceacrossarange ofareas,especiallyinhuman resources,hasassistedhim inhisroleasChairofthe RemunerationCommittee. Tim’sexperiencemade himtheidealchoicetobe appointedastheBoard’s designatednon-executive Directortoengagewiththe Group’swiderworkforce. Other Appointments: Non-executiveDirectorof EquinitiFinancialServices Limited(theGroup’smost significantFCAregulated entityintheUK) Non-executiveDirectorof Clarksonplcandchairofits remunerationcommittee Non-executiveDirectorof OtisGoldCorporation,a TorontoStockExchange listedcompany,Chairmanof theAcademyofStMartin-in- the-Fields CHAIR R CHAIR A Rm A Rm N Rm R N A R D 59 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE Executive Committee KEY EXECUTIVE COMMITTEES E RC Sb O GC Executive Committee Executive Risk and Compliance Committee Sales and Bid Committee Operating Committee Group Investment and Change Committee GUY WAKELEY CHIEF EXECUTIVE JOHN STIER CHIEF FINANCIAL OFFICER Seepage58fordetails Seepage58fordetails THERA PRINS CHIEF OPERATING OFFICER AND CEO, EQ INVEST (INVESTMENT SOLUTIONS DIVISION) REBECCA GRATTAN CHIEF PEOPLE AND TRANSFORMATION OFFICER ADAM GREEN CHIEF RISK OFFICER JoinedtheGroupinNovember2016 JoinedtheGroupinAugust2018 JoinedtheGroupinMarch2015 Theraisresponsibleforensuringthatthe Grouphastheresourcesandfunctions inplacetodelivertheBoard’sstrategy. Inaddition,shemanagesthedivision thatoperatesthevariousplatformsthat investorscanusetoaccessthemarket andbuy,sellandholdinvestmentsina costeffectiveway.Priortojoiningthe Group,Theraspent20yearsinretail financialservicesworkingforVisaEurope, BarclaysandLloydsGroup,whereshe specialisedincustomerservices,new productdevelopmentsolutionsand globalexpansioninitiatives. RebeccaisresponsibleforHuman Resources,TransformationandChange functionsglobally.Shehashadalengthy careerinconsultancyandhasworked withsomeofthelargestfinancialservices andpublicsectororganisations,leading significanttransformationprogrammes andspecialisingintheoperatingmodel andorganisationaldesign. Adamisresponsibleformanagingthe Group’sglobalriskprofile.Hehasawide rangeofexperienceinfinancialservices, riskmanagement,regulationandbusiness change.Adamwaspreviouslyinterim HeadofUKComplianceforBupaand priortothatmanagedacoretransition workstreamattheFinancialServices AuthorityasitestablishedtheFinancial ConductAuthorityandPrudential RegulatoryAuthority. E RC Sb O GC GC RC O E E Sb RC O 60 MARK CHURLEY CHIEF GROWTH OFFICER PAUL MATTHEWS CEO, EQ BOARDROOM (INVESTMENT SOLUTIONS DIVISION) TODD MAY CEO, EQ US (INVESTMENT SOLUTIONS DIVISION) JoinedtheGroupinAugust2017 JoinedtheGroupinFebruary2011 JoinedtheGroupinFebruary2018 Markisresponsibleforgrowthacross theGroup’scoremarkets,bothinthe UKandoverseas,throughnewbusiness originationandfromestablished strategicaccounts.Markhasover 20years’experienceinbusiness developmentwithNCRCorporation, Talaris,DeLaRueandLucent. Paulisresponsibleforworkingwith theUK’sleadingbusinessestodeliver successfultransactionsincludingIPOs andcorporateactionsforaclientbase coveringcirca50%oftheFTSE100and circa40%oftheFTSE250.Withover 30yearsofexperience,hisbackground andknowledgeofthesecuritiesindustry bringsanimportantskillsettothe Group’sseniorteam,helpingshapethe Group’sofferingtolistedcompanies bothintheUKandglobally. Toddisresponsibleforleadingthe Group'sUStransferagentbusiness. HejoinedWellsFargoShareowner Services,nowEQUS,in2007.Underhis leadership,thebusinessimplemented keyregulatorychanges,executed significantenhancementstoissuer andshareownerwebsitesinmeeting customerneeds,andincreasedproduct offeringswhileconsistentlybeingknown asaleadingserviceprovider.Toddhas over25years’experienceinfinancial servicesandcorporatedevelopment. Sb E O O E O E DUNCAN WATSON CEO, EQ PAYMASTER (PENSIONS SOLUTIONS DIVISION) KEVIN O’CONNOR CHIEF INFORMATION OFFICER JoinedtheGroupinMarch2015 JoinedtheGroupinJanuary2018 Duncanisresponsibleforthe EQPaymasterbusinesslinesand forensuringthatitsclientsandtheir members,policyholdersandemployees receiveoutcomesthatareofthehighest quality. DuncanjoinedtheGroupfromAon HewittwherehewasUKChiefOperating Officer.HeisaPensionsActuarywho hasworkedinFinancialServicesfor27 yearsandhassignificantexperiencein bothadvisingclientsandthedeliveryof changeandoperationalexcellence. Kevinisresponsibleforleadingthe Group’sdigitalandtechnologyagenda. Hehasextensiveglobalexperience inbuildingandleadingteamsthat deliverandsupporthighperformance andhighlysecuresystemsforboththe B2BandB2Cmarkets,inbothhighly regulatedandunregulatedmarkets, acrossarangeofindustriesincluding investmentbanking,gamingandtravel. O E E RC Sb O GC C O R P O R A T E G O V E R N A N C E R E P O R T 61 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE BOARD MEMBERSHIP AND ATTENDANCE TheBoardcomprisesanon-executiveChairman,theChief Executive,theChiefFinancialOfficerandsixindependentnon- executiveDirectors.ThemembersoftheBoardwhoserved duringtheyearandasatthedateofthisreportareshownin thetablebelow,togetherwiththeirattendanceatthe13Board meetingsheldduringtheyearorthoseheldduringtheirtenure: Name PhilipYea(Chairman) GuyWakeley(ChiefExecutive) JohnStier(ChiefFinancialOfficer) DarrenPope(SeniorIndependentDirector)4 AlisonBurns1 MarkBrooker2 Sally-AnnHibberd VickyJarman3,4 DrTimMiller5 CherylMillington2,4 Attended 13/13 13/13 13/13 12/13 11/11 2/2 13/13 3/4 11/13 1/2 1 AlisonBurnswasappointedtotheBoardeffectivefrom1April2018. 2 MarkBrookerandCherylMillingtonwereappointedtotheBoardeffective from1November2018. 3VickyJarmanstooddownfromtheBoardeffectivefrom3May2018. 4VickyJarmanandCherylMillingtonwereeachunabletoattendonemeeting duetoillness.DarrenPopewasunabletoattendonemeetingthatwas additionallyscheduledduringtheyearduetoapriorcommitment. 5DrTimMillerwasunabletoattendonemeetingduetoillnessandone meetingthatwasadditionallyscheduledduringtheyearduetoaprior commitment. DetailsoftheDirectors,includingtheskillsandexperiencethey bringtotheBoardcanbefoundonpages58to59. GOVERNANCE Duringtheyear,theCompanycompliedinfullwiththe2016 UKCorporateGovernanceCode(theCode).TheBoardis awareofthenew2018UKCorporateGovernanceCodeand theenhancedreportingfors172oftheCompaniesAct2006 whichcameintoeffecton1January2019.TheCompanyalready complieswiththemajorityofthenewCodeandistakingactions onotherprovisions.Wehavealreadyimplementedpoliciesand proceduresduringtheyeartoenhanceourengagementwith allstakeholders.WehavealsodevelopedaCodeCompliance dashboardthattrackstheprogressofactionsalready undertaken,andthosetobeundertakenduring2019,toensure fullcompliancewiththenewCode.Wewillreportfurtheronour compliancewiththenewCodeinour2019AnnualReportand Accounts.CopiesofbothCodescanbefoundontheFinancial ReportingCouncil’swebsiteatwww.frc.org.uk. TheBoard’sTermsofReferencestatethatatleasthalfofthe Boardshouldbemadeupofnon-executiveDirectors.This requirementwascompliedwiththroughouttheyear.TheBoard considersthatallofthenon-executiveDirectorsareindependent andthattheChairmanwasindependentuponappointment. TheTermsofReferencealsostatethatoneofthenon-executive DirectorsshouldalsobeappointedastheSeniorIndependent Director(SID).ThisrolewasundertakenbyVickyJarmanuntilshe stooddownfromtheBoardinMay2018andDarrenPopewas appointedSIDinherplace. TheTermsofReferencealsostatethattherolesoftheChairman andChiefExecutiveshouldbeexercisedindependentlyof eachotherandthattheChairmanshouldnotexercisetherole oftheChiefExecutive.TheChairmanisresponsibleforthe leadershipoftheBoardandtheChiefExecutiveisresponsible formanagingandleadingthebusiness.Theseroleswerecarried outindependentlyofeachotherthroughouttheyear. EachDirectorhasaccesstotheadviceandservicesofthe CompanySecretaryandcanarrangeforindependent, professionaladviceattheCompany’sexpensewheretheyjudge itisnecessaryinordertodischargetheirresponsibilitiesas Directors.Thereisanagreedprocedureenablingthemtodoso, whichismanagedbytheCompanySecretary.Nosuchadvice wassoughtduringtheyear. ROLE OF THE BOARD TheBoardiscollectivelyresponsibleforthelong-termsuccess ofthebusinessanddelegatestheday-to-daymanagementto theexecutivemanagementteam.However,thereisaschedule ofmattersreservedfortheBoard’sdecision,togetherwith adelegatedauthorityframework,toensurethatunusualor materialtransactionsarebroughttotheBoardforapproval. ThescheduleofmattersreservedfortheBoardincludes, amongstotherthings: •approvalofstrategicplans; •approvalofannualbudgets; •approvalofacquisitionsanddisposals; • overseeingtheGroup’soperationstoensurecompetentand prudentmanagement,soundplanningandanadequate systemofinternalcontrol; •approvalofhalf-yearandfull-yearresultsannouncements; •approvaloftheCompany’sAnnualReportandAccounts;and • theappointmentorresignationofdirectorsandthecompany secretary. Thedelegatedauthorityschedulesetsoutthefinancial parametersofauthority,coveringthedelegationofallareas oftheGroup’sactivitiesbelowBoardleveltotheexecutive Directors,divisionalCEOs,orbusinessunitmanagers.Certain authorities,suchasapprovalofcapitalexpenditure,have differentdelegatedauthoritylimitsdependingonwhetherthe particularexpenditurewasincludedintheannualbudgetor isanadditionalitemofexpenditurewhereahigherdegreeof oversightandapprovalmaybeappropriate. 62 CONFLICTS OF INTEREST TheBoardhasanestablishedframeworkforthe identification,approvalandrecordingofactual orpotentialconflictsofinterestofitsDirectors andsubsidiarycompanyDirectors.Allconflicts ofinterestmustbedeclaredtotheBoardand arerecordedinEquiniti’sregisterofDirectors’ interests.TheCompaniesAct2006(theAct)and theCompany’sArticlesofAssociationcontain detailedprovisionsforthepropermanagementof conflictsofinterest.Thecircumstancesinwhichthe Boardcanapprovetheongoingparticipationbya conflictedDirectorinanydiscussionsordecisions oftheBoard,wheretheDirectorisormayhavea conflict,areclearlydefined. Aspartoftheframeworkreferredtoabove, towardstheendoftheyear,eachDirectoris providedwithacopyoftheinformationheldabout them–personalinformation,declaredconflicts, shareholdingintheCompany,whotheirconnected personsare–requestingthattheyconfirmthat thedetailsheldarestillvalidanduptodate. Thisannualattestationprocessensuresthatthe Directorisawareofthedetailsheldonthemand thatthedetailsarecorrect. TheBoardmaintainsoversightofeachDirectors’ externalinterests,toensurethattheycontinue tobeabletodevotesufficienttimetodischarge theirdutiesandresponsibilitieseffectivelyand efficiently.Wherethereareexternalcommitments, theBoardmakessureitissatisfiedthatthesedo nothaveanyadverseeffectontheCompanyor theabilityofanyparticularDirectortodischarge theirdutiesfully. MoreinformationaboutmembersoftheBoard andtheExecutiveCommitteeisavailableon pages58to61. I S E C T O N 0 2 G O V E R N A N C E C O R P O R A T E G O V E R N A N C E R E P O R T E q u n i t i i G r o u p p c A n n u a l l R e p o r t 2 0 1 8 63 63 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE BOARD ACTIVITIES DURING 2018 TheBoardmet13timesduringtheyearandundertookthefollowingactivitiesduringthosemeetings: • receivedanddiscussedbusinessupdatesfromtheChiefExecutiveandChiefFinancialOfficer; • receivedaBoardpresentationontheWFSSacquisition; • receivedaBoardpresentationontheGroup’sMiFIDIIreadiness; • reviewedtheCompliance&Governancereport;and • reviewedtheCommitteeandSubsidiarycompanyupdatereports. • receivedanddiscussedbusinessupdatesfromtheChiefExecutiveandChiefFinancialOfficer; • receivedanddiscussedthegenderpaygapreport; • reviewedandapprovedthe2017AnnualReportandAccountsandancillarydocuments; • reviewedtheCompliance&Governancereport; • reviewedtheCommitteeandSubsidiarycompanyupdatereports; • approvedtheRemunerationCommitteeTermsofReference;and • approvedtheAuditCommitteeTermsofReference. • receivedanddiscussedbusinessupdatesfromtheChiefExecutiveandChiefFinancialOfficer; • reviewedtheCompliance&Governancereport;and • reviewedtheCommitteeandSubsidiarycompanyupdatereports. • offsiteBoardmeetingtodiscusstheGroup’sstrategy. • BoardmeetingheldoffsiteinExeter; • receivedanddiscussedbusinessupdatesfromtheChiefExecutiveandChiefFinancialOfficer; • receivedaBoardpresentationonEQDigital; • reviewedanupdateontheintegrationofEQUS; • reviewedtheCompliance&Governancereport; • reviewedtheCommitteeandSubsidiarycompanyupdatereports; • receivedproductdemonstrationandmetwithEQDatamanagementandstaff;and • discussedtheGroup’sCultureandValues. 64 MarchAprilMayJuneFebruary • receivedanddiscussedbusinessupdatesfromtheChiefExecutiveandChiefFinancialOfficer; • reviewedandapprovedthe2018half-yearresults; • recievedanupdateontheintegrationofEQUS; • reviewedtheCompliance&Governancereport; • reviewedtheCommitteeandSubsidiarycompanyupdatereports; • approvedtheNominationCommitteeTermsofReference;and • receivedanddiscussedtheITTransformationProgrammeupdate. • receivedanddiscussedbusinessupdatesfromtheChiefExecutiveandChiefFinancialOfficer; • approvedtheacquisitionoftheCabinetOffice’s24%stakeinMyCSP; • receivedanupdateontheintegrationofEQUS; • reviewedtheCompliance&Governancereport; • reviewedtheCommitteeandSubsidiarycompanyupdatereports;and • discussedtheCultureTransformationPlan. • jointoffsiteBoardmeetingwiththeboardofEquinitiTrustCompanyinMinneapolis; • metwithEQUSmanagementandcolleagues;and • participatedinatouroftheUScustomerexperiencecentre,Minneapolis. • BoardmeetingheldoffsiteinLeeds; • receivedanddiscussedbusinessupdatesfromtheChiefExecutiveandChiefFinancialOfficer; • receivedaBoardpresentationonEQPaymaster; • reviewedanupdateontheintegrationofEQUS; • reviewedtheCompliance&Governancereport; • reviewedtheCommitteeandSubsidiarycompanyupdatereports; • receivedaproductdemonstrationfromtheCreditServicesandDataSolutionsteams;and • receivedaBoardpresentationonRegulatedBPO. • receivedanddiscussedbusinessupdatesfromtheChiefExecutiveandChiefFinancialOfficer; • reviewedandapprovedthe2019Budget; • receivedaBoardpresentationonITtransformationandthetechnologyplatformroadmap; • receivedaBoardpresentationonCustomerExperienceandPermission; • receivedanupdateontheintegrationofEQUS; • reviewedtheCompliance&Governancereport;and • reviewedtheCommitteeandSubsidiarycompanyupdatereports. C O R P O R A T E G O V E R N A N C E R E P O R T 65 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCEJulySeptemberOctoberNovemberDecember BOARD AND EXECUTIVE COMMITTEE STRUCTURE BOARD Audit Committee Risk Committee Remuneration Committee Nomination Committee Reviews the integrity, adequacy and effectiveness of Equiniti’s system of internal control and risk management and the integrity of Equiniti’s financial reporting, whistleblowing and anti-bribery and corruption obligations. Reviews the effectiveness of Equiniti’s risk management and processes to ensure that key risks are adequately mitigated. Sets, reviews and recommends Equiniti’s overall remuneration policy and strategy and monitors their implementation. Evaluates and makes recommendations regarding Board and Committee composition, succession planning and Directors’ potential conflicts of interest. A R Rm N Executive Committee Disclosure Committee Conducts a weekly review of performance, allocates resources and directs activity to deliver the business plan. Oversees continuing obligations in respect of the disclosure and control of inside information directly concerning the Company. E D Sales and Bid Committee Group Investment and Change Committee Executive Risk and Compliance Committee Operating Committee Conducts a weekly review of all sales submissions, tenders and renewals. Conducts a monthly review of all capital expenditure and acquisitions. Assures performance of the business in accordance with policies, relevant legislation and risk appetite. Challenges and reviews P&L performance, business planning and resourcing, budgeting, central costs and overhead. Sb GC RC O KEY BOARD COMMITTEES A D N Rm R Audit Committee Disclosure Committee Nomination Committee Remuneration Committee Risk Committee EXECUTIVE COMMITTEES E RC Sb O GC Executive Committee Executive Risk and Compliance Committee Sales and Bid Committee Operating Committee Group Investment and Change Committee 66 TheExecutiveCommitteeisthemostseniorexecutive managementcommittee.Itsmembersarelistedon pages60to61. TheExecutiveCommitteemeetsweeklytoreviewperformance andtheallocationofresourcesanddirectsactivitytodeliverthe businessplan. TheExecutiveCommitteeissupportedbyfourmanagement sub-committees: • theSalesandBidCommittee,chairedbytheChiefExecutive, meetsweeklyandisresponsibleforreviewingsales submissions,tendersandcontractrenewals.ThisCommittee setsthecommercialandpricingstrategyfortheGroup, includingbrand,marketingandnewproductlaunches; • theOperatingCommitteechairedbytheChiefExecutive, meetsmonthlyandisresponsibleforreviewingperformance againstP&Lbudgets,forecastingandmonitoringcentralcosts andrunningthebudgetprocess; • theGroupInvestmentandChangeCommitteeischaired bytheChiefFinancialOfficer,andmeetsmonthly.Itreviews capitalexpenditurerequests,keypriorityprojectsand corporatedevelopmentactivity;and • theExecutiveRiskandComplianceCommitteeischaired bytheChiefFinancialOfficerandmeetsatleastquarterly, toensureperformanceofthebusinessisinaccordancewith policies,legislationandagreedriskappetite. BOARD COMMITTEES TheBoardhasfourmainCommitteescomprisingsolelynon- executiveDirectors:Audit;Nomination;Remuneration;andRisk. TheCommittees’reportsthatfollowonpages72to117setout theirmembers,attendance,responsibilitiesandactivities.These Committeestaketheleadwiththefollowing: • thedetailedoversightoftheCompany’sinternalandexternal auditwork; • oversightoftheCompany’sriskidentificationand management; • establishingtheremunerationpolicyandoverseeing implementationfortheGroupasawhole,specificallyforthe executiveDirectorsandleadershipteam;and • determiningappropriatesuccessionandcontingencyplans fortheDirectorsandseniormanagersandundertaking appropriatesearchesfornewDirectorsasrequired. Disclosure Committee InadditiontothefourmainBoardCommittees,theBoardhas delegatedresponsibilitiestotheDisclosureCommitteetooversee theCompany’scompliancewithitsobligations(aslaiddownby theFCA'sListingRules,DisclosureGuidanceandTransparency RulesandtheMarketAbuseRegulation)inrespectofthe disclosureandcontrolofinsideinformationdirectlyconcerning theCompany.TheCommitteemeetsasandwhenitisdeemed necessaryanditsmembersconsistoftheChairman,Chief Executive,ChiefFinancialOfficerandtheCompanySecretary. Executive Committees InadditiontotheoversightprovidedbytheBoardand Committeesnotedpreviously,theexecutiveDirectorsare supportedbyanumberofexecutivemanagementcommittees, whichhelpthemtodischargetheirduties.Theseincludemonthly reviewswiththesenioranddivisionalmanagementteams, coveringareassuchasbusinessperformanceanddevelopment, financialmanagement,riskmanagement,HR,ITandoperational performance. TheChiefExecutiveleadstheGroup’soperationalmanagement andissupportedbytheexecutivemanagementteam.The executivemanagementteamgivesstrategicfocusandis responsibleformanagingtheoperationalandfinancial performanceoftheGroup,bycoordinatingtheworkofthe specialistbusinessareas.Thisenablestheefficientandeffective day-to-dayoperationoftheGroup’sbusinesses. TheBoardiskeptuptodatewithdevelopmentsinthebusiness, includingtheworkoftheleadershipteams,throughtheChief ExecutiveandChiefFinancialOfficer’sregularreports,whichare discussedindetailateachBoardmeeting. C O R P O R A T E G O V E R N A N C E R E P O R T 67 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE BOARD SKILLS Itisacorefeatureofgoodcorporategovernancethatthe BoardanditsCommitteeshaveanappropriatebalanceofskills andexperience,independenceandknowledge,toenablethe effectivedischargeoftheirdutiesandresponsibilities,whether individuallyorcollectively.PartoftheroleoftheChairmanand theNominationCommitteeistokeepthebalanceofskills andexpertiseontheBoardanditsCommitteesunderreview andmakerecommendationstotheBoardwherechangesare appropriatetomaintainthatbalance. AspartoftheBoardevaluationthatwasundertakenduring theyear(detailsofwhichareprovidedonpage69),theskillsof theDirectors,asawhole,werecollatedtoillustratetheBoard’s in-depthknowledgeandexperienceofthesectorsinwhichthe Companyoperates. TheindividualexperienceandbackgroundofeachDirectorisset outintheirbiographiesonpages58to59.TheBoardconsiders thattherangeofskills,experienceandbackgroundofeachof theDirectorsissufficientlyrelevantandcomplementarytoallow appropriateoversight,challengeandreviewoftheCompany’s progressinachievingitscorporategoals. Thefollowingchartsillustratethebroadspectrumanddepthof experiencethattheninemembersoftheBoardhaveandhow, collectively,theycoverthesectorsandbusinessesinwhichthe Groupoperates. FINANCE SKILLS Equity markets Debt financing Audit 2015 Financial accounting 2014 Management accounting OTHER SKILLS Organisational Development HR & Reward Restructuring & divestment Risk Management M&A 2015 2014 KEY BOARD SKILLS TECHNICAL SKILLS NOT APPLICABLE Not so familiar Somewhat familiar Very familiar Extremely familiar DIVERSITY TheBoard,supportedbytheNominationCommittee,values diversityinitsbroadestsenseandwhenconsideringnewnon- executiveDirectorappointmentswill,inadditiontoconsidering gender,age,disability,ethnicity,geographyorexperience,lookto maintainwithintheboardroomtheappropriatebalanceofskills, experience,independenceandknowledgeoftheCompanyand theindustryasawhole. TheBoardnotestheaimsoftheHampton-AlexanderReviewand theaspirationtoachieveatleast33%representationofwomenon FTSE350boardsby2020.TheBoardiscurrentlycomprisedofnine Directors’,threeofwhomarewomen.Accordingly,theCompany itselfhasreachedthe33%representationlevel.TheBoard continuestostrengthenthepipelineofseniorfemaleexecutives withinthebusiness,andensurethattherearenobarrierstowomen succeedingatthehighestlevelswithintheGroup.Furtherdetails ontheCompany’sgenderdiversitystatisticsasat31December 2018aresetoutonpage41anddetailsoftheGroup’sdiversity andinclusionpolicycanbefoundonpage40. Online marketing Cyber security Software development 2015 IT Infrastructure 2014 SECTOR EXPERIENCE Life assurance Pensions Insurance 2015 Retail financial services 2014 Commercial banking SALES SKILLS Alliances Joint ventures Retail 2015 Brand & marketing 2014 Business development 68 BOARD AND COMMITTEE EVALUATIONS 2017 Key Recommendations – how did we address them? Asreportedinthe2017AnnualReportandAccounts,itwas notedthatmoretimeshouldbeallowedforBoarddiscussion byextendingtheaveragelengthofmeetingsandsimplifying andsummarisingkeyinformationpacks.Thiswasaddressed andthesummarieshavebeenfoundtobeveryhelpfulto theDirectors.Moretimehasalsobeenspentonconsidering medium-termissuesandascheduleoffuturetopicswasagreed 2018 Board and Committee Evaluations tohelpmanagemeetings.Anadverseimpactoflengtheningthe BoardmeetingsisthatonoccasionCommitteemeetingshave feltcompressed,anitemwhichhasbeenpickedupthroughthe 2018BoardandCommitteeEvaluationprocess.Asindicated inthe2017AnnualReportandAccounts,weusedanexternal consultanttoleadthe2018BoardandCommitteeEvaluation process,whichwediscussinthefollowingsection. Questions Analysis Interviews Evaluation & Report Discussion Action Points AformalevaluationoftheBoard,itsCommitteesandthe performanceofeachDirectorwasundertakenduring2018. Lintstock,anindependentthird-partyproviderofboard evaluationservices,wasengagedtoassistwiththeevaluation oftheBoardanditsCommittees.Lintstockdoesnotundertake anyotherservicesfortheCompany.Theevaluationfollowedthe processsummarisedaboveandexpandedonbelow: Interviews TheinitialanalysiswasprovidedtotheChairmanwhothen metwitheachDirectorandtheCompanySecretarytodiscuss theanalysisandgatherfurtherinformationandfeedback.The ChairmanalsodiscussedeachDirector’sindividualperformance. TheChairman’sreviewwasundertakenbytheSenior IndependentDirector. Questions FortheBoardevaluation,Lintstockcirculatedaquestionnaire toeachDirectorandtheCompanySecretarywhichlisted33 questionscoveringthefollowingmaintopics: • boardcomposition; • stakeholderoversight; • boarddynamics; • managementofmeetings; • boardsupport; • focusofmeetings; • acasestudyontheBoard’smeetingintheUS; • strategicoversight; • riskmanagementandinternalcontrol; • successionplanningandhumanresourcemanagement;and • prioritiesforchange. FortheCommitteeevaluations,Lintstockcirculatedasmaller questionnaireoftenquestionscoveringthefollowingmain topics: • timemanagementandcomposition; • committeeprocessesandsupport; • theworkoftheCommittee;and • prioritiesforchange. LintstockalsoevaluatedtheChairman’sperformance,asking: howconstructivetheChairman’srelationshipswerewitheach memberoftheBoard;howwellmeetingsweremanaged;and howwelltheinputsofthevariousmemberswerehandledduring meetings. Analysis TheresponsesreceivedfromeachDirectorandtheCompany SecretarywereanalysedbytheteamatLintstockandgrouped bycommonthemes. Evaluation and Report Alloftheresponses,fromboththequestionnairesand interviews,werefurtheranalysedandreportsfortheBoard andeachofitsfourCommitteeswereproducedbyLintstock. TheskillsoftheBoardwerealsomappedandchartsproduced showingtheBoard’sfamiliaritywiththem. Discussion ThereportswerediscussedbytheBoardandeachofits Committees.Overall,theBoardanditsCommitteeswere foundtobeoperatingeffectivelyandwerewellmanaged.The relationshipsbetweenindividualDirectors’andbetweenthe Boardandmanagementwereratedhighly.Theoverallvalueof theBoard’svisittotheUSwasratedveryhighlyandwasagreat opportunitytointeractwithUSmanagementandvisittheUS operationalsites.AconsistentthemefromalloftheCommittee evaluationswasthatmoretimecouldbeallocatedtothe meetings. Key Recommendations from the 2018 Evaluation: • wherepossible,certainCommitteemeetingsshouldbeheld thedaybeforeorseparatetotheBoardmeetingtoensure thatsufficienttimeisprovidedtoallofthemeetings; • attentionshouldbepaidtomanagingtheintegrationofthe newnon-executiveDirectorsandthenewcompositionofthe Committees; • theBoardshouldmonitorcloselytheenhancementofthe auditandriskfunctionsforEQUS; • furtherstepsshouldbetakentoallowtheDirectorstomeet withagreaternumberoftalentedemployeesbelowthesenior managementlevel; • theCompanyshouldensurethattheproposednew RemunerationPolicyiseffectivelycommunicatedto,and supportedby,shareholders; C O R P O R A T E G O V E R N A N C E R E P O R T 69 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE • ensurethattheproposednewRemunerationPolicyisapplied, matchingrewardtobothperformanceandbehaviour; • astrategicviewoftheriskprofileoverthenextfourtofive yearsshouldbedeveloped; • reviewedchangesincorporategovernancetoensurethatthe BoardanditsCommitteesarecompliant;and • theBoardshouldcontinueitssupportandinvolvementin theprogrammeregardingthecultureandbehavioursofthe Group. BUSINESS MANAGEMENT TheChiefExecutiveisresponsiblefordeliveringtheCompany’s agreedstrategyand,withtheChiefFinancialOfficer,prepares theannualbudget,whichissubjecttoformalscrutinyand approvalbytheBoard.Progressindeliveringthisannualbudget isreportedonateachBoardmeeting. Monthlybusinessforecastsarepreparedbytheoperating divisionstoidentifyvariancesagainsttheannualbudgetatthe earliestopportunity,reflectingchangesinexpectationsand marketconditions.Negativevariancestobudgetaresubjectto rigorouschallengeatOperatingCommitteemeetingspriorto progressupdatesbeingreportedtotheBoard. Thereareclearpoliciesoutliningdelegatedauthoritylimitsfor alltypesofbusinesstransactionsandassociatedauthorised signatories.Theauthoritylimitsandprocessesareverifiedby reviewsundertakenbycomplianceandGroupinternalaudit. Additionaldetailontheworkofthecomplianceandinternal auditfunctionsissetoutonpage77. Allemployeesarerequiredtoundergoanobjective-based personalappraisalprocess,withindividualobjectivesderived fromthecorporatestrategyandtheobjectivesoftheirline managersandsetwithinthecontextoftheCompany’scorporate goalsandannualbudget. THE BOARD’S REVIEW OF THE SYSTEM OF INTERNAL CONTROL TheBoardhasresponsibilityfortheCompany’soverallapproach toriskmanagementandinternalcontrolsandconsiderstheir effectivenessfundamentaltotheachievementoftheCompany’s strategicobjectives.During2018,theBoard,throughitsAudit andRiskCommittees,builtuponits2017reviewoftheprocess foridentifying,evaluatingandmanagingtheprincipalrisksfaced bytheGroup. TheGroupinternalauditfunctionadvisestheexecutive managementteamontheextenttowhichsystemsofinternal controlareadequateandeffectiveformanagingbusinessrisk, safeguardingtheCompany’sresources,andensuringcompliance withGrouppoliciesandlegalandregulatoryrequirements,as wellasadvisingonwaysinwhichareasofriskcanbeaddressed. Itprovidesobjectiveassuranceonriskandcontrolstosenior management,theAuditCommitteeandtheBoard.TheGroup internalaudit’sworkisfocusedontheGroup’sprincipalrisks. ThemandateandprogrammeofworkoftheGroupinternal auditteamisconsideredandapprovedbytheAuditCommittee. Basedontheapprovedinternalauditplan,anumberofinternal auditstookplaceacrosstheGroup’sdivisionstofacilitate improvementoftheGroup’sinternalcontrols.Findingswere reportedtotherelevantoperationalmanagementandthe AuditCommittee.TheGroupinternalauditfollowsuponthe implementationofrecommendationsandreportsonprogressto seniormanagementandtotheAuditCommittee. TheGroupChiefAuditExecutive,GroupInternalAudit, reportsregularlytotheChairoftheAuditCommitteeand attendseachAuditCommitteemeetingtopresenttheinternal controlfindingsfromtheinternalauditsperformed.TheAudit Committeereviewsanddiscussestheeffectivenessofinternal auditsonanannualbasiswiththeGroupChiefAuditExecutive. Thisisdonebythereviewoftheinternalauditplanofworkfor theyearandmonitoringprogressagainsttheplanandactions identifiedbyinternalaudit.TheGroupChiefAuditExecutive meetswiththeAuditCommitteeatleasttwiceayear,without executiveDirectorspresent,andisaregularattendeeattheRisk Committeemeetings. REGULATED ACTIVITIES AnumberoftheGroup’sbusinessesincluderegulatedactivities, withseveraloftheCompany’ssubsidiariesbeingregulated.Two ofthesearemajorbusinesseswithintheGroup. ThefirstsuchbusinessisEquinitiFinancialServicesLimited (EFSL),whichhasaBoardconsistingoftwoindependentnon- executiveDirectors,twonon-executiveDirectorsandthree executiveDirectors.TheBoardissupportiveoftheEFSLBoard, toensurethatappropriategovernanceisfollowedinrespect ofallFCAregulatedactivities.TheBoardmaintainsoversight oftheseregulatedactivitiesbyreceivingregularreports,and specificallythroughtheICAAPprocessandriskappetiteand frameworkwithinEFSL,fromtheChiefExecutiveandtheChief RiskOfficer.CopiesoftheEFSLboardandcommitteeminutes aremadeavailabletotheBoard. ThesecondsuchbusinessisEquinitiTrustCompanyintheUS. Thisisgovernedbyitsownindependentboard.TheBoardand theUSboardworkcloselytogetherandheldaverysuccessful jointboardmeetingduringtheyear.TheBoardmaintains oversightoftheUSbusinessbyreceivingregularreportsand presentationsfromtheChiefExecutiveandChiefFinancial Officer,whoarenon-executiveDirectorsofEquinitiTrust Company,andalsodirectlyfromtheUSseniormanagement team. STATEMENT OF DIRECTORS’ RESPONSIBILITIES TheDirectorsareresponsibleforpreparingtheAnnualReport andthefinancialstatementsinaccordancewithapplicablelaw andregulation. CompanylawrequirestheDirectorstopreparefinancial statementsforeachfinancialyear.UnderthatlawtheDirectors havepreparedtheGroupfinancialstatementsinaccordancewith InternationalFinancialReportingStandards(IFRSs)asadopted bytheEuropeanUnionandCompanyfinancialstatementsin accordancewithInternationalFinancialReportingStandards (IFRSs)asadoptedbytheEuropeanUnion.Undercompanylaw theDirectorsmustnotapprovethefinancialstatementsunless theyaresatisfiedthattheygiveatrueandfairviewofthestateof affairsoftheGroupandCompanyandoftheprofitorlossofthe GroupandCompanyforthatperiod.Inpreparingthefinancial statements,theDirectorsarerequiredto: • selectsuitableaccountingpoliciesandthenapplythem consistently; • statewhetherapplicableIFRSsasadoptedbytheEuropean UnionhavebeenfollowedfortheGroupfinancialstatements andIFRSsasadoptedbytheEuropeanUnionhavebeen followedfortheCompanyfinancialstatements,subjecttoany materialdeparturesdisclosedandexplainedinthefinancial statements; 70 GOING CONCERN TheCompany’sbusinessactivities,togetherwithfactorslikely toaffectitsfuturedevelopment,performanceandposition,are setoutintheStrategicReportonpages20to29.Thefinancial positionoftheCompany,itscashflows,liquiditypositionand borrowingfacilities,aswellastheCompany’sobjectives,policies andprocessesformanagingcapital,aredescribedonpages30 to37.Financialriskmanagementobjectives,detailsoffinancial instrumentsandhedgingactivities,andexposurestocreditrisk andliquidityriskaredescribedinnotes5and6.10–6.13tothe Accountsonpages161and169to174. Duringtheyear,theDirectorsassessedtheviabilityofthe Companyoverathree-yearperiod,takingintoaccountthe Group’scurrentfinancialpositionandtheprincipalrisks, particularlythosethatcouldthreatenthebusinessmodeland theabilityoftheGrouptorenewitsreceivablefinance.The DirectorsconsiderthattheCompany’sbusinessactivitiesand financialresourcesensurethatitiswellplacedtomanageits businessriskssuccessfully.TheGroupviabilitystatementcanbe foundonpage52. TheDirectorsaresatisfiedthat: • theCompany’sandtheGroup'sactivitiesaresustainable fortheforeseeablefuture,andthatthebusinessisagoing concern;and • itisappropriatetocontinuetoadoptagoingconcernbasisin thepreparationofthefinancialstatements. Philip Yea Chairman 12March2019 • makejudgementsandaccountingestimatesthatare reasonableandprudent;and • preparethefinancialstatementsonthegoingconcernbasis unlessitisinappropriatetopresumethattheGroupand Companywillcontinueinbusiness.Acopyofthefinancial statementsisavailableonEquiniti'swebsite:http://investors. equiniti.com/investors TheDirectorsarealsoresponsibleforsafeguardingtheassetsof theGroupandCompanyandhencefortakingreasonablesteps forthepreventionanddetectionoffraudandotherirregularities. TheDirectorsareresponsibleforkeepingadequateaccounting recordsthataresufficienttoshowandexplaintheGroupand Company'stransactionsanddisclosewithreasonableaccuracy atanytimethefinancialpositionoftheGroupandCompany andenablethemtoensurethatthefinancialstatementsandthe Directors’RemunerationReportcomplywiththeCompaniesAct 2006and,asregardstheGroupfinancialstatements,Article4of theIASRegulation. TheDirectorsareresponsibleforthemaintenanceandintegrity oftheCompany’swebsite.LegislationintheUnitedKingdom governingthepreparationanddisseminationoffinancial statementsmaydifferfromlegislationinotherjurisdictions. Directors' Confirmations TheDirectorsconsiderthattheAnnualReportandAccounts, takenasawhole,isfair,balancedandunderstandableand providestheinformationnecessaryforshareholderstoassess theGroupandCompany’spositionandperformance,business modelandstrategy. EachoftheDirectors,whosenamesandfunctionsarelistedin pages58to59confirmthat,tothebestoftheirknowledge: • theCompanyfinancialstatements,whichhavebeenprepared inaccordancewithIFRSsasadoptedbytheEuropeanUnion, giveatrueandfairviewoftheassets,liabilities,financial positionandprofitoftheCompany; • theGroupfinancialstatements,whichhavebeenpreparedin accordancewithIFRSsasadoptedbytheEuropeanUnion, giveatrueandfairviewoftheassets,liabilities,financial positionandprofitoftheGroup;and • theStrategicReportincludesafairreviewofthedevelopment andperformanceofthebusinessandthepositionofthe GroupandCompany,togetherwithadescriptionofthe principalrisksanduncertaintiesthatitfaces. STATEMENT OF DISCLOSURE OF INFORMATION TO AUDITORS Asrequiredbysection418oftheAct,eachDirectorhas approvedthisreportandconfirmedthat,sofarastheyare aware,thereisnorelevantauditinformation(beinginformation neededbytheauditorinconnectionwithpreparingitsaudit report)ofwhichtheCompany’sauditorisunaware.Theyhave alsoconfirmedthattheyhavetakenallthestepstheyoughtto asaDirectortomakethemselvesawareofanyrelevantaudit informationandtoestablishthattheCompany’sauditorisaware ofthatinformation. C O R P O R A T E G O V E R N A N C E R E P O R T 71 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE Audit Committee Report DearShareholder IampleasedtopresenttheAuditCommittee(theCommittee) Reportfortheyearended31December2018. Duringtheyear,VickyJarmanstooddownfromtheCommittee whensheretiredfromtheBoardinMay2018andwewelcomed AlisonBurnswhowasappointedtotheBoardandbecamea CommitteememberinApril2018.Followingareviewofthe compositionofallBoardCommitteesinNovember,thisresulted inDrTimMillerstandingdownfromtheCommitteeandCheryl MillingtonandMarkBrookerbeingappointed.Ilookforward toworkingwithAlison,CherylandMarkandwouldliketothank VickyandTimfortheirinvaluablecontributionstotheCommittee overtheyears. DuringtheyearwealsohadachangeinourPwCauditpartner withDarrenMeekbeingappointed.TheCommitteeundertook arigorousselectionprocessandarepleasedtohaveDarren asauditpartner.Hebringsawealthofexperienceandwelook forwardtoworkingwithhim. CHANGES IN FINANCIAL REPORTING Throughouttheyeartherehavebeensomesignificantchanges infinancialreportinginrespectoftheimplementationofnew InternationalFinancialReportingStandards(IFRS)onRevenue fromcontractswithcustomers(IFRS15)andFinancialInstruments (IFRS9).TheCommitteehasreviewedtheimpactofthenew standardsonthe2018financialstatementsanddisclosures. Inaddition,theCommitteehasreceivedtrainingonkeyareasof revenuerecognitionthataffecttheGroupandontheexpected impactofIFRS16Leaseswhichiseffectivefrom1January2019. TheCommitteehasreviewedthefindingsoftheFinancial ReportingCouncil’sthematicreviewfor2018whichwasissuedin November2018andfocusedondisclosuresaroundIFRS15,IFRS 9andonreportingbysmallerlistedandAIMquotedcompanies. AnumberofimprovementsintheGroup’sfinancialreporting disclosureswereidentifiedwhichhavebeenimplementedin thisAnnualReportandAccountsincludingareconciliation ofcashfromoperationstoworkingcapitalmovements andanexplanationofthechangesmadeasaresultofthe implementationofIFRS15. EFFECTIVENESS OF THE AUDIT COMMITTEE AnexternalevaluationoftheCommitteewasundertakenduring theyearbyLintstock.Detailsoftheevaluationanditsresultscan befoundonpage69. PRIORITIES FOR 2018 Inadditiontoitsnormalbusinessundertakenthroughoutthe year,theCommitteespenttimefocusingonthefollowing keyareas: • ensuringthattheGroupInternalAuditfunctionisfully resourcedandhasaclearmandateandmethodologyto follow; • focusingontheintegrationofEQUSintotheworkofthe CommitteewithaparticularfocusonthebuildingofaUS internalauditteam; • understandingandpreparingfortheintroductionofIFRS15 andIFRS16; • reviewingtheGroup’saccountingpoliciesandpublic announcementswiththeintentiontocontinuouslyimprovethe clarityanddepthofdisclosurewhereappropriate;and • reducingthenumberofoverduehigh-riskauditissues. Theseareimportanttothebusinessandgoodprogresshasbeen madeonthem. PRIORITIES FOR 2019 Inadditiontocontinuingtofocusontheareasstatedinthe paragraphabove,wewillfocusontheimplementationof IFRS16toensurethattheseareimplementedsmoothly.We willalsofocusonensuringthattheCommitteecomplieswithits obligationsunderthenew2018UKCorporateGovernancecode. IwouldliketothankmyfellowCommitteemembers,thefinance andinternalauditteamswithintheGroup,andtheteamatPwC fortheirworkduringtheyear. Darren Pope Chair of the Audit Committee 12March2019 COMMITTEE MEMBERSHIP AND ATTENDANCE TheCommitteeismadeupexclusivelyofindependentnon- executiveDirectors.ThemembersoftheCommitteewhoserved duringtheyearandasatthedateofthisreportareshowninthe tablebelow,togetherwiththeirattendanceatthesixcommittee meetingsheldduringtheyearorthoseheldduringtheirtenure: Name Attended Committee Chair:DarrenPope AlisonBurns1 MarkBrooker2 Sally-AnnHibberd VickyJarman3,4 DrTimMiller2,4 CherylMillington2 6/6 4/4 1/1 6/6 1/2 4/5 1/1 1AlisonBurnswasappointedtotheCommitteeeffectivefrom1April2018. 2 MarkBrookerandCherylMillingtonwereappointedto,andDrTimMiller stooddownfrom,theCommitteeeffectivefrom1November2018. 3VickyJarmanstooddownfromtheCommitteeeffectivefrom3May2018. 4VickyJarmanandDrTimMillerwereeachunabletoattendonemeeting duetoillness. 72 GOVERNANCE TheCommitteeactsindependentlyofmanagementandreports andmakesrecommendationsdirectlytotheBoard. TheCommitteestructurerequirestheinclusionofatleastone memberwithsignificant,recentandrelevantfinancialexperience andcompetenceinaccountingorauditing(orboth).The CommitteeChairfulfilledthisrequirementduringtheyear. TheCommitteestructurealsorequiresatleastonemember oftheCommitteetoalsobeamemberoftheCompany’sRisk Committee.Sally-AnnHibberdistheRiskCommitteeChairand DarrenPopeandCherylMillingtonarealsomembersofthe RiskCommittee.Thisfacilitatesefficientcross-communication betweenthetwocommittees,whichensuresthatallauditand riskissuesareaddressedeffectively. Allcommitteemembersareexpectedtobefinanciallyliterate andtohaveanunderstandingofthefollowingareas: • keyaspectsoftheCompany’soperationsincludingcorporate policiesandtheGroup’sinternalcontrolenvironment; • theprinciplesof,anddevelopmentsin,financialreporting includingtheapplicablefinancialreportingstandardsand statementsofrecommendedpractice; • matterswhichmayinfluencethepresentationofthefigures anddisclosuresintheAnnualReportandAccounts; • theroleofinternalandexternalauditors;and • theregulatoryframeworkfortheCompany’sbusiness. TheCommitteeasawholehascompetencerelevanttothe sectorsinwhichtheCompanyoperates. TheCompanySecretaryactsassecretarytotheCommitteeand attendsallmeetings.TheCommitteeinvitestheChiefFinancial Officer,theChiefExecutive,GroupChiefAuditExecutiveand seniorrepresentativesoftheexternalauditortoattendits meetingsinfull,althoughitreservesitsrightstorequestanyof thoseindividualstowithdraw.Otherseniormanagersareinvited topresentsuchreportsasarerequiredfortheCommitteeto dischargeitsduties. TheCommitteehasunrestrictedaccesstoCompanydocuments andinformation,aswellastoemployeesoftheCompanyand theexternalauditor. Duringtheyear,theCommitteemetwiththesenior representativesoftheexternalauditor,andalsowiththe GroupChiefAuditExecutive,withoutmanagementand/orany executivememberoftheBoardbeingpresent. Althoughitchosenottodosoduring2018,theCommittee maytakeindependentprofessionaladviceonanymatters coveredbyitsTermsofReference,acopyofwhichcanbe foundintheinvestorsectionoftheCompany’swebsite:http:// investors.equiniti.com/investors/shareholder-services/corporate- governance ROLE OF THE AUDIT COMMITTEE InaccordancewithitsTermsofReference,theCommittee providesanindependentoverviewoftheeffectivenessof theinternalfinancialcontrolsystemsandfinancialreporting processes.Itsresponsibilitiesinclude: Financial Reporting • monitoringtheintegrityofthefinancialstatementsof theCompany,includingtheannualandhalf-yearresults announcementsandotherformalannouncementsrelatingto itsfinancialperformanceandpositions; • reviewingtheaccountingprinciples,policiesandpractices adoptedthroughouttheperiod; • reportingtotheBoardonanysignificantfinancialissuesand judgements; External Auditor • monitoringandoverseeingtherelationshipwiththeexternal auditor; • recommendingtheexternalauditor'sappointment, re-appointmentandremovaltotheBoardforapprovalby shareholders; • ensuringthatatleasteverytenyears,incompliancewithall relevantlegislation,theexternalauditisputouttotender; • reviewingandapprovingtheannualauditandhalf-yearreview plans; • recommendingtheexternalauditor’sremuneration; • reviewingandapprovingthenon-auditservicespolicyand fees; • reviewingtheeffectivenessandobjectivityoftheaudit processonanannualbasis,includingthequalitycontrol proceduresandconsideringtheexpertiseandresourcesof theexternalauditor; Internal Control • inconjunctionwiththeRiskCommitteereviewingthe adequacyandeffectivenessoftheGroup’sinternalfinancial controls,andthewhistleblowingpolicy; • reviewingthemannerinwhichmanagementensureand monitortheadequacyofthenature,extentandeffectiveness ofinternalcontrols; • ensuringthatthereviewcoversallmaterialcontrolsincluding financial,operational,andcompliance; Internal Audit • monitoringandreviewingtheeffectivenessoftheGroup’s internalaudit(GIA)function; • reviewingandapprovingtheinternalauditprogrammeat leastannuallyandwhensignificantchangesoccur; • reviewingtheGIAreportsandprocedurestoensuretimely implementationbymanagementofauditrecommendations; • approvingthecharteroftheGIAfunctionandensuring thefunctionhasthenecessaryresourcesandaccessto informationtoenableittofulfilitsmandate,andisequipped toperformtoappropriateprofessionalstandardsforinternal auditors;and • monitoringtheworkingrelationship,co-ordinationand exchangeofinformationbetweentheexternalandinternal auditteamsensuringtherearenoinappropriaterestrictions. I A U D T C O M M T T E E R E P O R T I 73 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE COMMITTEE ACTIVITIES DURING 2018 TheCommitteemetonsixoccasionsduringtheyear.Atthosemeetings,theCommitteecarriedoutitsremit whichprimarilyincludedthefollowing: February March June • reviewedtheGIAquarterlyreport; • approvedtheannualupdateto theinternalauditcharter; • reviewedarrangementsforclient disbursementaccounts; • reviewedtheexternalauditor’s half-yearreviewplan;and • reviewedthereportonthe effectivenessoftheexternal auditor. • reviewedtheGIAassurance reportontheinternalcontrol environment,coveringinternal audit,riskandcompliance,and financialoperations; • reviewedandapprovedthe draftviabilityandgoingconcern statementsforinclusionwithin the2017AnnualReportand Accounts; • approvedthesignificant judgementsstatementinthe2017 AnnualReportandAccounts; • reviewedtheexternalauditor’s reportforthe2017financialyear; • reviewedthe2017AnnualReport andAccounts,includingthe financialstatements,disclosures andnotesandrecommended theirapprovaltotheBoard;and • reviewedtheCommittee’sTerms ofReference. • reviewedtheGIAquarterlyreport; • approvedtheinternalauditplan for2019; • reviewedandapprovedthenew GIAmethodologyandquality assuranceprogramme; • approvedtheinternalaudit resourceplan,including developingtheteam; • reviewedthewhistleblowing policyandreport; • reviewedtheindependenceand objectivityoftheexternalauditor; • approvedtheexemptionofaudits forcertainsubsidiarycompanies unders479oftheCompanyAct 2006andUKGAAPFRS101; • reviewedthekeyjudgements forthe2017AnnualReportand Accounts; • reviewedtheprogressmade inproducingthe2017Annual ReportandAccounts;and • reviewedainitialreportfromthe externalauditorontheprogress ofthe2017audit. 74 July September November • reviewedanupdatetotheGIA • reviewedtheGIAquarterlyreport; • reviewedtheGIAquarterlyreport; • receivedanupdateonthe integrationofEQUS;and • receivedtrainingon: – IFRS15RevenueRecognition; – IFRS16LeaseAccounting;and – atechnicalupdatefromPwC oncorporategovernance,the Committee’sresponsibilities, andAuditCommitteebest practice. quarterlyreport; • reviewedanupdateontheGIA qualityassuranceprogramme; • undertookamid-yearreviewof the2018internalauditplan; • approvedthepaymentpractices report; • reviewedthekeymanagement judgementsontheinterim financialreporting; • reviewedtheGroup’saccounting policiesanddisclosuresfor interimfinancialreport; • reviewedtheexternalauditor’s interimreviewreport;and • reviewedthehalf-year resultsannouncementand recommendeditsapprovaltothe Board. • receivedanupdatefromthe GIAandmanagementonthe complianceoftechnology infrastructure; • approvedthe2019internalaudit plan; • receivedanupdateonthe integrationofEQUS; • reviewedtheexternalauditor’s year-endauditplanincluding theaccelerationofcertainareas ofworksotheywerecompleted inadvanceofthebalancesheet date; • reviewedtheCompany’syear-end auditreadinessplan; • receivedanaccountingpolicy updateonnon-operatingcosts andcontractrenewal;and • reviewedtheCompany’s approachtoIFRS15andthe controlsinplacetomanage compliancewiththisstandard. I A U D T C O M M T T E E R E P O R T I 75 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE SIGNIFICANT JUDGEMENTS AND ESTIMATES RELATING TO THE FINANCIAL STATEMENTS Inconsideringthefinancialresultscontainedinthe2018AnnualReportandAccounts,theCommitteereviewedthesignificant judgementsandestimatesmadebymanagementtodeterminethoseresults.Thesearesetoutinthefollowingtable: AREA OF FOCUS WHY WAS THIS SIGNIFICANT? HOW DID THE COMMITTEE ADDRESS THIS? Capitalisation ofsoftware development costsandrelated assessmentof carryingvalue Revenue recognitionon softwarecontracts Corporate actionrevenue recognition TheGrouphasinvestedinsoftwaredevelopment relatingtoitsacquisitionofEQUS.Sirius,theUK in-housesoftwareshareregistrationplatform,is beingdevelopedforuseintheUS.Thetimeline overwhichthisisbeingdevelopedhasbeen extendedinordertofocusonwideningthe productofferingtoUScustomersfirst.Judgement hasbeenappliedinassessingwhetherthecostsof softwaredevelopmentmeetthecriteriaofIAS38 whichallowsforcoststobecapitalised. TheGrouphasenteredintoanumberofsoftware contracts.Thesearrangementscaninclude multipleperformanceobligations,including licencedelivery.Asaresultrevenuerecognition inconnectionwiththesecontractscaninvolvea significantdegreeofmanagementjudgement aroundtheallocationofrevenuetoperformance obligationsandthetimingoftherevenuein accordancewithIFRS15andtheGroup’sstated accountingpolicyforsuchitems. TheGroupactsasregistrarforclientswhocan beinvolvedinmajorcorporateactions.These corporateactionscanbecomplexandcross accountingyear-enddates.Revenueisrecognised inlinewiththeagreedcontractualterms,typically onastageofcompletionmethod,byreferencing costsincurredtodateagainstthetotalanticipated projectcosts.Managementjudgementisrequired inassessingthecoststocompletetheactionsas thisimpactsthepercentageofthecontractvalue thathasbeenrecognisedasrevenue. Managementpresentedtheaccounting judgementsrelatingtothecapitalisationofthe developmentcoststotheCommittee.Evidence wasprovidedanddiscussedtoshowthatthe judgementssatisfiedcriteriaunderaccounting standardIAS38.Managementalsoconsideredthe scopeoftheprojecttoreviewwhetheranycosts capitalisedtodaterequireimpairment. Managementpresentedtheaccounting judgementrelatingtomaterialtransactionsthat includedmultipleperformanceobligationsand significantlicencestotheCommittee.Evidence wasprovidedanddiscussedtosupporthowthese transactionsalignedtotheGroup’saccounting policyandIFRS15. Managementpresentedtheirjudgementtothe Committeeonhowmuchtimehadbeenspent onasignificantprojectandhowmuchtimewas forecastfortheprojecttocompleteandwere satisfiedthatrevenueswererecognisedinstep withthecoststhatwereincurred. Employeebenefit expenses Employeebenefitexpenses,relatingtothe Group’sLTIPs,requiredjudgementinassessing howmanyoptionsareexpectedtovestbased onthepotentialsatisfactionofperformance conditionsandattritionofeligibleemployees. TheCommitteediscussed,andagreedwith,the assumptionsusedbymanagementincalculating theexpensesfigurerelatingtotheLTIP. USCorporate ActionIncome Themethodsclientsusetopayforcorporate actionsintheUKandUSaredifferent.IntheUS, contractsareoftenstructuredsothatthefeefor performingtheworkisreceivedfrominterest earnedonholdingtheclient’sfunds.Thisinterest incomeisspecificforperformingataskandis notincidentalinterest.Thereforesuchincome receivedfromcorporateactionsisrecognisedas feeincome. Managementpresentedtheirproposalonthe classificationofinterestearnedintheUSfrom holdingclientsfundsaspartofacorporateactivity. ThiswascomparedtotheGroup’streatmentof interestreceivedintheUKfromactivitiessuchas administeringSAYEschemes.Itwasagreedthat suchincomeshouldberecognisedasfeeincome. Afterduediscussion,itwasagreedthatother USinterestincome,whichwasnotreceivedas compensationforservicesperformed,wouldbe treatedinthesamemannerasinterestearnedin theUKfromclientmoneyheld. 76 AREA OF FOCUS WHY WAS THIS SIGNIFICANT? HOW DID THE COMMITTEE ADDRESS THIS? Accountingfor theacquisitionof EQUSincluding thedetermination ofgoodwilland otheracquisition related intangibles Afairvaluehadtobeassignedtothenet assetsacquiredaswellasdeterminingthefair valueofacquisitionrelatedintangiblessuchas customerrelatedcontracts.Thefairvalueof customerrelatedcontractsisdeterminedusinga discountedcashflowmodelwhichhasanumber ofassumptionsaroundforecastdata,growthrates anddiscountrates. Consideration ofthecarrying valueofgoodwill andrelated impairment assessments Goodwillisgeneratedonbusinesscombinations wherethepricepaidforthebusinessexceeds thefairvalueofthenetassetsacquired. Goodwillisnotamortisedandthereforeneeds tobetestedforimpairmentatleastannually. Thebookvalueofgoodwillandothernet assetsrelatedtoeachcashgeneratingunit, wascomparedtothepresentvalueofits futureexpectedcashflowstodetermine whetherthereisanyindicationofimpairment. Thisrequiresestimationsofthelong-term growthratesandthesuitablediscountrate. TheCommitteediscussedtheassumptionsused bymanagementincalculatingthefairvalueofthe netassetsacquiredintheUS. Managementhasproduceddiscountedcash flowmodelsforeachcashgeneratingunitand comparedthistothebookvalueofgoodwill andothernetassets.TheCommitteediscussed, andagreedwith,theassumptionsusedby managementinproducingthediscountedcash flowmodelanddiscussedthesensitivityofthe resultstoreasonablechangesintheseestimates. INTERNAL AUDIT TheGrouphasadedicatedin-houseInternalAuditteam(GIA). During2018,GIAimplementedanenhancedandformalised qualityassuranceprogrammedesignedtoevidenceongoing compliancewithinternationalinternalauditprofessional standards,andtopromoteacultureofcontinuousimprovement. Thisincludedanongoinginternalself-assessmentwhichis reportedtotheCommitteeeverysixmonthsandshowedGIAto bemateriallyinconformancewithrelevantstandardsthroughout 2018,withimprovementsevidentduringtheyearasthe programmematured. Inaddition,during2018,GIAleveragedthespecialistexpertise ofKPMGLLP,asco-sourceinternalauditpartner,for11audits whichrepresented16%ofthetotalnumberofauditscompleted. Inaddition,GIAcontinuedtopartnerwithKPMGonfurther developingthefunctionasawhole,includingthrough incorporatingKPMG'sinputintoinitiativestoenhancethe internalauditriskassessmentandannualplanningapproachand throughprovisionoftrainingtoallmembersoftheGIA. TheGroupChiefAuditExecutivereportsdirectlytothe CommitteeChairandinadditionreportsonanadministrative basistotheChiefFinancialOfficer. GIAprincipallyreviewthedesignandeffectivenessof governance,riskmanagementandcontrolsoperatingwithinthe businessbyundertakinganagreedscheduleofindependent auditseachyear. TheCommitteedeterminesthenatureandscopeofthe annualinternalauditprogramme(whichisderivedfroman audituniverseincludingfinancialandcommercialprocesses, governanceconsiderationsandkeycorporaterisks)and revisesitfromtimetotime,inresponsetochangestobusiness circumstancesandriskprofiles. Thefindingsoftheinternalauditsarereportedtoexecutive management,andanynecessarycorrectiveactionsareagreed andtracked.Summariesofthesereportsarepresentedto, anddiscussedwith,theCommitteeonaquarterlybasis,along withdetailsofprogressagainstmanagementactionplansas appropriate. TheCommitteeagreestheannualInternalAuditplanfortheyear andensuresthatGIAhasappropriateresourcesavailabletoitto completethatplan.TheCommitteeapprovedthestrengthening oftheteamthroughaddingaDeputyChiefAuditExecutiverole andadditionalManagementInformationcapability.Inaddition, aDirectorofInternalAuditandITAuditorhavebeenaddedto coverthebusinessacquiredintheUS. During2018,theinternalauditteamcompletedfieldworkfor 96%oftheapprovedauditplan,inlinewiththeagreedKey PerformanceIndicator.Alloverdueactionsrelatingtohighrisk internalauditobservationsarereportedtotheCommittee.The Committeeremainsveryfocusedontimelycompletionof agreedmanagementactionplanstoaddressauditfindings. I A U D T C O M M T T E E R E P O R T I 77 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE RISK MANAGEMENT & INTERNAL CONTROLS TheAuditCommitteeandtheRiskCommitteebothsupportthe BoardwhenconsideringthenatureoftheGroup’srisks,itsrisk managementframeworkanditsriskappetite.Detailsofthese areincludedwithintheRiskCommitteereportwhichcanbe foundonpages80to85.DetailsoftheGroup’sprincipalrisks anduncertaintiescanbefoundintheStrategicReportonpages 48 to 51. TheCommitteehasoveralloversightoftheGroup’ssystemsof financialcontrols,includingtheirdesign,implementationand effectivenessanddetailsofthesecontrolscanbefoundon page84. HavingconsideredreportsfromRisk,FinanceandGIA,the Committeeissatisfiedthattheinternalcontrolsoverfinancial reportingandriskmanagementsystemswereappropriately designedandwereoperatingeffectivelyinallmaterialrespects. WHISTLEBLOWING AND ANTI-BRIBERY TheGroupiscommittedtothehigheststandardsofquality, honesty,opennessandaccountability. Accordingly,theGrouphaswhistleblowing,anti-briberyand corruptionriskpoliciesinplace.TheCommitteereviewedthe whistleblowingpolicyduringtheyear. FurtherdetailsonthesepoliciescanbefoundintheStrategic Reportonpage45. EXTERNAL AUDITOR TheCommitteeisresponsibleforoverseeingtheGroup’s relationshipwithitsexternalauditor,PricewaterhouseCoopers LLP(PwC).Duringtheyear,theCommitteeundertookarigorous selectionprocesstoappointanewPwCauditpartnerwhich resultedinDarrenMeekbeingappointed. TheCommitteeconsidersthenature,scopeandresultsofPwC’s workandreviews,developsandimplementsthepolicyonthe supplyofanynon-auditservicesthataretobeprovidedbyPwC. TheCommitteereceivesandreviewsreportsfromPwCrelating totheCompany’sAnnualReportandAccountsandtheexternal auditprocessincludingtheauditor’sworkatthehalf-yearreview. Effectiveness and Independence Duringtheyear,anassessmentofthequalityandeffectiveness oftheexternalauditprocesswasundertakenbyGIA.Theteam soughttheviewsofthedivisionalfinancedirectors,theGroup financeteam,theChiefFinancialOfficer,theChairoftheAudit Committee,andmembersoftheExecutiveCommitteewho hadinteractedwithPwCtoassesswhethertheaudithadbeen conductedinacomprehensive,appropriateandeffectivemanner. ThereportwasthendiscussedbytheCommitteeatitsmeeting inJune2018,withtheCommitteeconcludingthattheaudithad beenconductedinachallengingandrobustmannerandthat theauditplanagreedbytheCommitteehadbeenfollowed. TheCommitteealsoreviewedPwC’sobjectivityand independenceandconfirmedthatsufficientproceduresarein placetosafeguardthose. Tenure TheCommitteeundertookafulltenderoftheCompany’s externalauditservicesin2016,followingwhichthe recommendationtoapprovethereappointmentofPwCas externalauditorwasapprovedbytheBoardandsubsequentlyby shareholdersatthe2017AGM.TheCommitteeisnotlookingto re-tendertheexternalauditserviceswithintheneartermandwill berecommendingPwCbere-appointedtheCompany’sexternal auditorforafurtheryearatthe2019AGM. Non-audit Services Policy and Fees WhiletheinsightgainedastheGroup’sauditormaysometimes makeitlogicalforPwCtoundertakeworkoutsideofthe annualaudit,theCommitteerecognisesthatengagingPwCto providenon-auditservicestotheGrouprisksaffectingPwC’s independence. Accordingly,theGrouphasestablishedapolicywhichgoverns theprovisionofanynon-auditservices.Thepolicyspecifies serviceswhichcannotbecarriedoutbyPwCasexternal auditor(primarilyactivitieswhichwouldinvolvePwCtakingup managementresponsibilities)andsetstheframeworkwithin whichnon-auditworkmaybeprovided.Thepolicystatesthat PwCwillonlybeabletoperformnon-auditworkinlimited circumstancesandwhereapprovedbytheCommittee. TheGrouppaid£523,000(2017:£235,000)inauditandaudit relatedfees,and£264,000(2017:£278,000)innon-auditrelated fees,forthefinancialyearended31December2018.Thiswork wasprimarilyservicesperformedinrelationtotheCASSauditof EquinitiFinancialServicesLimited(EFSL). TheCASSauditofEFSLisrequiredbytheFinancialConduct Authority(FCA)toprovideitwithassuranceonclientassets. UndertheguidanceissuedbytheFCA,theauditorundertaking aCASSauditshouldobtainanunderstandingofthefirm’s businessmodelthatissufficienttoenabletheCASSauditorto establishexpectationsabouttheexistenceorotherwiseofclient assets,including: • thenatureoftheservicesitprovidestoclients; • howitisremuneratedforthoseservicesandotherancillary services; • thenatureofanytransactionswhichitundertakeswithoron behalfof,orfacilitatesoradviseson,forclientsandhowthose transactionsareexecutedorsettled; • thenatureofrelationshipswithinagroupandwithother relatedparties; • thesourcesanddestinationsofcashandotherassetinflows andoutflowsinitsownaccountsandanyaccountsitholdsor controlsonbehalfofclientsandotherparties;and • theroleofsub-custodiansandthirdpartyadministrators. GiventhatPwCisEFSL’sauditorandhadtheknowledge requiredbytheFCAtoundertaketheCASSaudit,itwas logicalforittoundertakethiswork.Thenatureoftheworkis independentassuranceandthereforewhollyconsistentwith PwC’sroleasourauditor. TheGrouphascommittedtoseekingtotheratioofauditto non-auditfeesto70%oftheaveragestatutoryauditfee.For furtherinformationonhowthenon-auditfeesarebrokendown, andtheratioofaudittonon-auditfees,pleaseseenote7.4on page178. 78 adetailedbriefingnoteasanintegralpartoftheAnnual ReportandAccountssign-offprocess,whichsetouthowthis hadbeenachievedbytheinternalteamswhopreparedthe report.FurthermoretheCommitteereceivedbriefingsand updatesduringthecourseoftheyear,appraisingthemofthe Coderequirementsandbusinessperformance,andspent timediscussingtheAnnualReportandAccountswithsenior management. TheCommitteewaspresentedwithadraftofthe2018Annual ReportandAccountswithsufficienttimetoreview,challengeand providefeedback. Thebriefingnote: • explainedhowtheprocessofpreparingandcompilingthe reportwascollaboratedacrossthebusiness’sinternalteams (InvestorRelations,Finance,HRandCompanySecretariat) andalsoinvolvedspecialistadvisorswiththerequisiteskillsto structureandreviewthe2018AnnualReportandAccounts; • explainedhowthe2018AnnualReportandAccountswas designedtobeunderstandable,withconsistentpresentation ofkeymessagesthroughoutthereport.Inarrivingatits conclusiontheCommitteealsonotedthatinternalreporting alignedtotheKPIs,keyfinancialmeasuresandnarrative themesaspresentedinthe2018AnnualReportandAccounts; and • demonstratedthatthe2018AnnualReportandAccountswas puttogetherinabalancedmanner,withthenarrativealigning tothebusinessmodel,strategyandfinancialperformance. Thiswasachievedthroughourbusinessleadersreviewingand signingoffonthecontent. Whentakenwiththeassessmentofthesignificantjudgements onpages76to77, theCommitteeconcludedthatthe2018 AnnualReportandAccountsarepresentedinafair,balanced andunderstandablemanner,allowingshareholderstoassessthe Group’sperformance,strategy,riskandbusinessasawhole. Darren Pope Chair of the Audit Committee 12March2019 VIABILITY STATEMENT Theviabilitystatementcanbefoundonpage52.TheCommittee reviewedmanagement’sworkinconductingarobustassessment ofthebusinessmodel,therisksthatcouldthreatenthemodel, andthefutureviabilityoftheCompany.Thisassessment includedassessingareasonabletimeperiodforthereview, reviewingfinancialforecastsforthatperiod,identifyingplausible downsidescenariosconsistentwithourprincipalrisks,aswell asconsideringtheirinterdependenciesandscenariosinvolving multiplerisks. Theseassessmentsalsoincludedconsiderationofpotential BrexitscenariosandtheirimpactontheGroup. Tosupportthefinalconclusiononviability,theassessmentalso tookintoaccountthemitigationsavailabletotheCompanyto protectagainstthesedownsidescenariosandalsotheadequacy oftheinternalcontrolenvironment.Basedonthisanalysis,the CommitteerecommendedtotheBoardthatitcouldapprove andmaketheviabilitystatement. STATEMENT OF COMPLIANCE Havingtenderedtheauditin2016,theCompanyconfirms thatithascompliedwiththetermsofTheStatutoryAudit ServicesforLargeCompaniesMarketInvestigation(Mandatory UseofCompetitiveTenderProcessesandAuditCommittee Responsibilities)Order2014(theOrder)throughouttheyear. Inadditiontorequiringmandatoryauditre-tenderingatleast everytenyearsforFTSE350companies,theOrderprovides thatonlytheAuditCommittee,actingcollectivelyorthroughits Chair,andforandonbehalfoftheBoardispermitted: • totheextentpermissibleinlawandregulation,tonegotiate andagreethestatutoryauditfeeandthescopeofthe statutoryaudit; • toinitiateandsuperviseacompetitivetenderprocess; • tomakerecommendationstotheDirectorsastotheauditor appointmentpursuanttoacompetitivetenderprocess; • toinfluencetheappointmentoftheauditengagement partner;and • toauthoriseanauditortoprovideanynon-auditservicesto theGroup,priortothecommencementofthosenon-audit services. FAIR, BALANCED AND UNDERSTANDABLE TheBoardiscommittedtoensuringthatallexternalfinancial reportingpresentsafair,balancedandunderstandable assessmentoftheGroup’sperformance,positionandprospects. InlinewithprovisionC.3.4oftheCode,theCommitteehasbeen requestedbytheBoardtoconsiderwhetheritsupportstheview thattheCompany’sAnnualReportandAccounts,whentakenas awhole,isfair,balancedandunderstandableand,further,thatit providesshareholderswiththeinformationnecessarytoassess theCompany’spositionandperformance,businessmodeland strategy. Informingitsview,theCommitteehasconsideredtheprocesses undertakentopreparefor,andproduce,theAnnualReport andAccountsandhowconsiderationwasgivenforeachofthe fair,balancedandunderstandablecriteriainthecompilation ofthenarrativeandpresentationofthenumbers,themes andhighlights.Tosupportthis,theCommitteereceived I A U D T C O M M T T E E R E P O R T I 79 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE Risk Committee Report DearShareholder IampleasedtopresenttheRiskCommitteeReportfor2018, whichprovidesanupdateontheCommittee’sworkduring theyear.Inour2017report,wesetoutfiveobjectivesforthe Committeein2018.Thesewereto: • continuetooverseetheimplementationandembeddingof theEnterprise-wideRiskManagementFrameworkwithinthe Group; • reviewtheriskskillsandexperiencewithintheriskand compliancefunctionsandthebusinessdivisions; • continuetomonitorprogresswithimplementingchanges broughtinbyMiFIDII,GDPRandtheEUDataProtection Regulation,aswellasotherrelevantregulatoryandlegislative changes; • reviewthetimeallocatedtoCommitteemeetings,toensure sufficienttimetocoverallmattersunderreview;and • reviewtheembeddingoftheEQUSbusinessintotheGroup andconsideranyrisksthatmayariseasaresult. TheCommitteemetallofitsobjectivesduringtheyear.The worktoembedtheriskmanagementtoolwithinthebusinesshas gonewelland,havingreviewedtheriskskillsandexperiencein theGroup,wehaveputadditionalresourcesintoouroperations, whichprovidethefirstlineofourthreelinesofdefencerisk managementmodel.Thesuccessofthisworkisreflectedin ourexternalbenchmarking,whichshowsthatEquiniti’srisk managementmaturityhassteadilyimprovedduringtheyear.The processofembeddingourriskmanagementtoolwillcontinue in2019. TheGroupsuccessfullymetthechallengesofMiFIDII,GDPR andEUDPRduring2018.Themajorregulatoryandlegislative changesaheadofusarenowposedbyBrexit,whichcontinuesto evolve.WehaveaBrexitplanningcommitteewhichcontinually reviewstherisks.WhilstwedonotconsiderthatBrexithasa materialdirectoperationalimpactonourbusiness,theinfluence thatitwillpotentiallyhaveontheUKeconomyandparticularly onthecoremarketsthroughwhichtheGrouptransactsfor customersin2019willrequireclosemonitoring.During2018we haveundertakendetailedassessmentsofthepotentialBrexit scenariosandtheirimpactontheGroup,andhavedeveloped operationalplanstomitigateareasofpotentialdisruption.The abilityoftheGrouptomanagearangeofBrexitmarketstresses hasbeenreviewedduringtheyear,andaspartofthe2018 viabilitystatementonpages52to53. TheacquisitionofEQUScompletedinFebruary2018.Since then,wehavebeguntoimplementourriskmanagement frameworkintheUS,withthisprogrammecontinuinginto2019. EQUSalreadyhadastrongriskmanagementculture,reflecting 80 itshistoryaspartofamajorbank.TheBoardandtheCommittee alsospenttimeduringtheyearreviewingtheplantointegrate thebusinessandimplementourSiriusplatformintheUS.We aresatisfiedthatthedecisiontoimplementSiriusfollowingthe separationfromWellsFargohasreducedtheriskprofileofthe integrationprocess. Inadditiontotheobjectiveslisted,cybersecuritywasan importantfocusfortheCommitteeduringtheyear.Theriskhere isconstantlyevolving,sotheGroupmuststayaheadofthethreat whilecontinuingtobringthebusinessesitacquireswithinits cybersecuritydefences.Wehaveconfidenceinourinformation securityteamandhadseveralpresentationsduringtheyearto updatetheCommitteeonprogressinthisarea. EFFECTIVENESS OF THE RISK COMMITTEE AnexternalevaluationoftheCommitteewasundertakenduring theyearbyLintstockbymeansofaquestionnaire.Detailsofthe evaluationanditsresultscanbefoundonpage69. 2019 PRIORITIES For2019,ourareasoffocuswillbe: • continuingtoembedourEnterprise-wideRiskManagement FrameworkandriskmanagementtoolwithintheGroup; • continuingtoenhancethecorporategovernanceprocesses withinEQUS;and • todevelopalong-termstrategicviewoftheriskprofileforthe nextfourtofiveyears. MoreinformationontheCommittee’sactivitiesandtheGroup’s riskstructuresareprovidedinthisreportandinthePrincipal RisksandUncertaintiessectiononpages48to51. Sally-Ann Hibberd Chair of the Risk Committee 12March2019 COMMITTEE MEMBERSHIP AND ATTENDANCE TheCommitteeismadeupexclusivelyofindependentnon- executiveDirectors.ThemembersoftheCommitteewhoserved duringtheyearandasatthedateofthisreportareshown inthetablebelow,togetherwiththeirattendanceatthefive committeemeetingsheldduringtheyearorthoseheldduring theirtenure: TheCommitteehasunrestrictedaccesstoCompanydocuments andinformation,aswellastoemployeesoftheCompany. TheCommitteemaytakeindependentprofessionaladviceon anymatterscoveredbyitsTermsofReference,acopyofwhich canbefoundintheinvestorsectionoftheCompany’swebsite: http://investors.equiniti.com/investors/shareholder-services/ corporate-governance Name Attended Committee Chair:Sally-AnnHibberd AlisonBurns1 VickyJarman2,4 TimMiller CherylMillington3,4 DarrenPope4 5/5 2/2 1/2 5/5 1/2 3/5 1 AlisonBurnswasappointedtotheCommitteeeffectivefrom1Apriland thenstooddownon1November2018aspartofthereorganisationofall committeememberships. 2 VickyJarmanstooddownfromtheCommitteeeffectivefrom3May2018. 3 CherylMillingtonwasappointedtotheCommitteeeffectivefrom 1November2018. 4 VickyJarmanwasunabletoattendonemeetingduetoillness.DarrenPope wasunabletoattendonemeetingduetoillnessandonemeeting(added duringtheyear)duetopriorcommitments.CherylMillingtonwasunableto attendherfirstmeetingduetopriorcommitments. ForthoseDirectors’unabletoattendameeting,theyareabletofeedbackany commentstheymayhaveonthepaperstotheChairandareadvisedofany decisionstakenduringthemeeting. GOVERNANCE TheCommitteeactsindependentlyofmanagementandreports andmakesrecommendationsdirectlytotheBoard. TheCommittee’sTermsofReferencerequirestheparticipation bytheChairoftheAuditCommitteeandDarrenPopeisa memberoftheCommittee.Sally-AnnHibberdandCheryl MillingtonarealsomembersoftheAuditCommittee.This facilitatesefficientcross-communicationbetweenthetwo committees,whichensuresthatallauditandriskissuesare addressedeffectively. TheCompanySecretaryactsassecretarytotheCommitteeand attendsallmeetings.TheCommitteeinvitestheChairman,Chief Executive,ChiefFinancialOfficer,ChiefRiskOfficerandGroup ChiefAuditExecutivetoattenditsmeetingsinfull,althoughit reservesitsrightstorequestanyofthoseindividualstowithdraw. Otherseniormanagersareinvitedtopresentsuchreportsasare requiredfortheCommitteetodischargeitsduties. Duringtheyear,theCommitteeregularlymetwiththeChiefRisk Officer,withoutmanagementand/oranyexecutivememberof theBoardbeingpresent. ROLE OF THE RISK COMMITTEE InaccordancewithitsTermsofReference,theCommittee providesanindependentoverviewoftheeffectivenessof theinternaloperationalandfinancialcontrolsystems.Its responsibilitiesinclude: Risk Strategy • advisingtheBoardondevelopmentoftheCompany’soverall currentandfutureriskappetite,toleranceandstrategy; • overseeingandadvisingtheBoardonthecurrentand emergingriskexposures; Risk Assessment • inconjunctionwiththeAuditCommittee,keepingunder reviewtheCompany’soverallriskassessmentprocessesthat informtheBoard’sdecisionmaking; • regularlyreviewingandapprovingtheparametersusedin thesemeasuresandthemethodologyadopted; • settingstandardsfortheaccurateandtimelymonitoringof largeexposuresandcertainrisktypesofcriticalimportance; • reviewingtheCompany’sabilitytoidentifyandmanagenew risktypes; Internal Control • inconjunctionwiththeAuditCommittee,reviewingthe adequacyandeffectivenessoftheGroup’sinternalcontrols; • overseeingtheEnterprise-WideRiskManagementFramework; • reviewingreportsonanymaterialbreachesofrisklimitsand theadequacyofproposedaction; • reviewingthemannerinwhichmanagementensuresand monitorstheadequacyofthenature,extentandeffectiveness ofinternalcontrols; • reviewingtheadequacyandsecurityoftheCompany’s arrangementsforitsemployeesandcontractorstoraise concerns,inconfidence,aboutpossiblewrongdoingin financialreportingorothermatters; • reviewingtheCompany’sproceduresformanagingmaterial compliancerequirements,includingfraud,briberyand corruption,financialcrime,dataprotection,healthandsafety, andfinancialservicesregulatorycompliance;and • consideringandapprovingtheremitoftheriskmanagement functionandensuringithasadequateresourcesand appropriateaccesstoinformationtoenableittoperformits functioneffectively. I I R S K C O M M T T E E R E P O R T 81 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE COMMITTEE ACTIVITIES DURING 2018 TheCommitteemetonfiveoccasionsduringtheyear.Atthosemeetings,theCommitteecarriedoutits remitwhichprimarilyincludedthefollowing: February April July • reviewedthequarterlyreporton riskandcompliance; • reviewedandapprovedproposed amendmentstoriskcategories; • reviewedtheriskacceptance • reviewedthe2018riskplan approvalprocess; update; • reviewedthecompliance monitoringreport; • receivedtrainingontheGeneral DataProtectionRegulation (GDPR)andhowitaffectedthe Group;and • reviewedriskcommitteeupdates fromtheExecutiveRiskand ComplianceCommittee(ERCC) andtheEFSLRiskCommittee. • reviewedandapprovedthe EQUSriskmodelandthe implementationofitsriskmatrix andstructure; • receivedaprogressupdateon theimplementationofGDPR; • receivedanddiscussedanin- depthpresentationonGroup- wideITrisk; • reviewedtheCommittee’sTerms ofReference;and • reviewedriskcommitteeupdates fromtheERCCandtheEFSLRisk Committee. • reviewedtheGroup’sself- assessmentattestationreport, notingtheuseofinternal measures,andexternal benchmarking,tomeasure theGroup’sriskmaturityand capability; • reviewedthedevelopmentsinthe riskmanagementapproach; • reviewedandapprovedupdated riskacceptances; • recommendedtheapproval ofthefollowingpolicies: Whistleblowing,Conflictsof Interests,BusinessContinuity ManagementandVulnerable Customer; • receivedtrainingoncyber security; • receivedanupdateonGroup- wideITrisks;and • reviewedriskcommitteeupdates fromtheERCCandtheEFSLRisk Committee. 82 Early November Late November • reviewedtheChiefRiskOfficer's report,includingtheriskand controlframeworkschematic; • assessedthetoptenGrouprisks; • reviewedandapprovedthe2019 SecondLineAssuranceplan; • reviewedthemanagement summariesandongoingaction pointsforcompliancemonitoring andbusinesscontinuity;and • reviewedriskcommitteeupdates fromtheERCCandtheEFSLRisk Committee. • reviewedtheRiskTemplating updatewhichisusedtoassistin theestablishmentoftheinherent riskswithinthebusiness; • receivedanupdateonGDPR; • recommendedtheapprovalofa suiteoffinancialcrimepolicies, suchasAnti-Bribery&Corruption, Anti-MoneyLaundering; • recommendedtheapproval ofasuiteofDataProtection policies,suchasDataProtection, Documents&DataRetention, CCTV; • recommendedtheapprovalof theupdatedCompliance&Risk Charter; • recommendedtheapprovalof theHumanRights,Corporate SocialResponsibility,Ethical BusinessandEnvironmentaland ModernSlaverystatements; • receivedtrainingonEquiniti's riskidentificationprogramme, preventingdataleakageandhow Brexitmayaffectthebusiness; • receivedtheannualMoney LaunderingReportingOfficer's report;and • reviewedriskcommitteeupdates fromtheERCCandtheEFSLRisk Committee. I I R S K C O M M T T E E R E P O R T 83 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE RISK MANAGEMENT AND INTERNAL CONTROLS Our Approach to Risk Management TheGrouphasacomplexrisklandscapeandtomanagethis, theGrouphasitsEnterprise-WideRiskManagement(EWRM) Frameworkinplace.Thisisastableplatformfromwhichthe Groupcanassess,prioritiseandmitigatethisrisklandscape TheEWRMFrameworkisbasedonthefollowingmodel: Third Line of Defence – Risk Committee Acommitteereportiscreated providingastatusofriskmanagement. Second Line of Defence - Risk & Compliance Oversight and Challenge Everyquarter,theERCCreviewsand challengesthetoptenrisksforeachbusiness. First Line of Defence - Operational Management ThebusinessesCEOs(ourriskleaders)are responsibleforproactiveriskidentificationand applicationofsystemsandcontrolsinlinewithpolicy. 1. Ourriskleadersareresponsibleforproactiverisk identificationandapplicationofsystemsandcontrols inlinewiththeEWRMFramework.Usingouronlinerisk managementtool,risksareinputtedandactionstakento mitigatethoserisksmonitoredtoensuretheyareontrack. Theriskmanagementtoolalsoenablesoversightofthose “accepted”riskswhichareoutsidetheGroup’sriskappetite butwherenomitigationistakingplace. 2. OurriskleadersattendquarterlyERCCmeetingschaired bytheChiefFinancialOfficerandattendedbytheChief Executive,theChiefRiskOfficerandtheGroupChiefAudit Executive.Atthesemeetings,theEWRMFrameworkis reviewedtoensurethatitremainseffective,risksforeach businessareraised,discussed,andactionstomitigate theserisksapproved.Wherenewrisksareidentified,these arerankedfromlowtohighinprobabilityandimpactso thattheycanbeincludedwithintheEWRMFrameworkfor ongoingtracking. 3. WhiletheBoardhasultimateresponsibilityforthesystem ofriskmanagementandinternalcontrol,ithasdelegated authorityforoverseeinganddirectingtheEWRM Framework’sdevelopmenttotheRiskCommittee.TheChief RiskOfficeroverseestheriskmanagementsystemasawhole and,togetherwiththeGroupChiefAuditExecutive,ensures thatallpartsofthebusiness,withregardstocompliance monitoringandinternalauditreviews,arecoveredand regularlyreviewed.MembersoftheERCCattendtheRisk CommitteemeetingsandtheChiefRiskOfficerpresentshis reporttotheRiskCommitteeforitsreview. Principal Risks and Uncertainties Fordetailsofourprincipalrisksanduncertainties,pleasesee pages48to51.Theseprincipalrisksanduncertaintiesarelinked toKPIsandtheRemunerationCommitteereviewsthoseKPIswith theChiefRiskOfficerwhenconsideringtheremunerationand 84 bonusesoftheexecutiveDirectorsandmembersoftheExecutive Committee. Governance of UK Regulated Entities and Prudential Capital Risk IntheUKwehavesubsidiarycompanieswhicharesubjectto FCAregulatorycapitalrequirementswheretheymustmaintain minimumlevelsofcapitalinordertomanagetheiraffairs. TheGroup’smostsignificantFCAregulatedentityisEquiniti FinancialServicesLimited(EFSL).EFSLiscategorisedasaP2 prudentiallysignificantfirm,whichmeansthatitsdisorderly failurewouldhaveasignificantimpactonthefunctioningofthe marketinwhichitoperates.Itmustensurethatitcanmeetits regulatorycapitalrequirementsandhassufficientliquidityto meetitsliabilitiesastheyfalldue,includingunderpotentially highly-stressedcircumstances.Itmustalsocomplywitharangeof otherregulatoryobligations,suchastheFCA’sconductofbusiness rulesandtheneedforperiodicregulatorysupervisoryvisits. Tohelpitmeettheserequirements,EFSLhasitsowngovernance structure.ThisincludesaBoardwithanindependentchair, whoalsochairsEFSL’sAuditCommittee.OneoftheGroup’s independentnon-executiveDirectors,DrTimMiller,isalsoanon- executiveDirectorofEFSLandchairstheEFSLRiskCommittee. EFSLhasmonthlyBoardmeetingsandquarterlyRiskandAudit Committeemeetings,withitsRemunerationandNomination Committeesmeetingbiannually.EFSL’sRiskCommitteereviews andchallengesEFSL'sriskassessmentandlog,whichflow upfromitsexecutivemanagementandriskprocesses.Thisis reviewedbytheChiefRiskOfficer,toensureriskmanagementis consolidatedacrossallofEquiniti. AdetaileddescriptionofEFSL’sriskmanagementapproach, riskgovernanceandriskappetitecanbefoundinitsCapital RequirementDirective“Pillar3disclosures”,whichareavailable onourwebsiteathttps://equiniti.com/uk/about-us/statutory-and- regulatory-reports/capital-requirements-directive-2018/ ThesecondsuchsubsidiarycompanyisPaymaster(1836)Limited (Paymaster).PaymasteriscategorisedasaP3prudentiallynon- significantfirm,whichmeansthatitsfailure,evenifdisorderly, wouldbeunlikelytohaveasignificantimpactonthemarket inwhichitoperates.AsaMiFIDexemptfirm,Paymasterisnot boundtocomplywiththeCapitalRequirementsDirective. Paymasterdoes,however,assessitscapitalrequirementsand issubjecttoEquiniti’sEWRMandthreelinesofdefencerisk managementmodel. InJuly2018,theFCAgrantedPaymasterane-moneylicence.The licenceenablesthecompanytoprovidepaymentservicesand issuedigitalcashalternatives,whichcanthenbeusedtomake card,internetorphonepaymentsglobally.Postyear-end,Equiniti GlobalPaymentsLimitedalsoobtainedane-moneylicence. Governance of US Regulated Entities IntheUSwehaveasubsidiarycompany,EquinitiTrustCompany (ETC),thatisregulatedbytheNewYorkStateDepartmentof FinancialServices(DFS).ETCisapprovedbytheDFSasafully- licencedlimitedpurposetrustcompanybankundertheNewYork StateBankingLawsandhasitscapitalrequirementssetbytheDFS. Tohelpmeetitsregulatoryrequirements,ETChasitsown governancestructurewhichincludeaBoardwithindependent non-executiveDirectors;anExaminationCommittee;anAudit Committee;andaRemunerationandNominationsCommittee. ETChasmonthlyBoardandquarterlyExaminationCommittee meetingswhichreviewrisk,complianceandauditmatters. TheExaminationCommitteeischairedbyaseniorindependent non-executiveDirectorofETC.TheseETCcommitteesandthe Boardchallengethecompany’sriskassessmentsandoperational frameworkacrossETCandescalateandinformtheEquiniti Group-levelconsolidatedviews. FINANCIAL RISK MANAGEMENT TheGroup’soperationsexposeittoavarietyoffinancialrisks, includingcreditrisk,liquidityriskandtheeffectsofchangesin interestratesondebtandcashbalances.TheEWRMFramework seekstolimittheadverseeffectsontheGroup’sfinancial performance,bymonitoringlevelsofcashanddebtfinanceand therelatedfinancialimpact. TheGroup’sprincipalfinancialinstrumentscomprisesterling andUSdollarcashandbankdeposits,banktermloansanda revolvingcreditfacility,andaportfolioofinterestrateswaps, togetherwithtradedebtorsandtradecreditorsthatarisedirectly fromitsoperations. Cash Flow Interest Rate Risk TheGroupisexposedtointerestrateriskinthreemainrespects andprotectedagainstthisasoutlinedbelow: • floatingratesaregenerallyearnedonclientandcorporate cashbalances,whicharepartiallyfixedbyinterestrate derivativeswithmaturitiestoSeptember2023; • themid-termriskofchangeinlong-terminterestrateswaps, throughwhichincomeisearnedonourSAYEshare-plan products,isprotectedbynotionalfixedrateinterestrateswap agreements;and • expensesrelatingtoourbanktermloanswhichincurinterest atavariablerateandincludesthe£250mand$92mterm facilitiesareoffsetbyinterestincomeearnedonunhedged cashbalances.TheGroupdoesnothedgetherevolvingcredit facilityasthisisaflexibleinstrumentandthedrawnproportion ofthefacilityisoffsetbycashweholdforday-to-daytrading matters. Credit Risk Creditriskistheriskoffinanciallossifacustomeror counterpartytoafinancialinstrumentfailstomeetitscontractual obligationstotheGroup.TheGroup’sprincipalfinancialassets arebankdeposits,cashandtradedebtors.Theserepresentour maximumexposuretocreditriskinrelationtofinancialassets. Wehavestrictcontrolsaround,andregularlymonitor,thecredit ratingsofinstitutionswithwhichweentertransactions,either onourownbehalforforclients.Althoughourcreditriskarises mainlyfromourreceivablesfromclients,thisriskisnotsignificant asitisspreadacrossalargeanddiverseclientbaseandthe majorityofourtradereceivablesarewithFTSE350companies andpublicsectororganisations.TheGroupdoeshaveTrade CreditInsuranceagainstsomekeycustomers.Theamounts presentedintheconsolidatedstatementoffinancialposition arenetofallowancesfordoubtfuldebts,whichareestimatedby managementbasedonpriorexperienceandanassessmentof thecurrenteconomicenvironment.Losseshaveonlyoccurred infrequentlyinpreviousyearsandhaveneverbeenmaterial. Foreign Currency Risk Thereissomeexposuretoforeigncurrencyrisk,particularlyin relationtotheGroup’soperationsintheUSandIndia.Thisrisk ishedgedonarollingbasis.TheGroupwillcontinuetomonitor bothitsexposureto,andmanagementof,thisrisk. Price Risk Priceriskresultsfromchangesinmarketpricessuchasinterest rates,foreignexchangeratesandequitydealingprices,which influenceourincomeorthevalueofourfinancialinstruments. TheGroupearnsincomeinrelationtoclientmoniesaswell asinterestonitsowndeposits.Wearethereforeexposedto movementsintheinterestrateinbothourintermediaryfee revenueandnetfinancecosts.Intermediaryfeerevenueis primarilylinkedtothebankbaserate,whilebothourtermand revolvingcreditfacilitiesarelinkedtoLIBOR. Asnotedpreviously,interestrateswapsareusedtomanage medium-termexposuretomovementsininterestrates. In2017and2018Equinitienteredintointerestrateswapsfor atotalof$700mand£1,025m,agreeingtoreceivefixedrate incomeinexchangeforvariableratesforarangeofmaturitiesto September2023. Wecontinuallyreviewtheserisksandidentifysuitable instrumentswhereapplicable. CAPITAL RISK MANAGEMENT DuringtheIPOin2015,fundswereraisedtoreducetheoverall levelofdebt.Ourobjectiveswhenmanagingcapitalareto maximiseshareholdervaluewhilesafeguardingourabilityto continueasagoingconcern.Wecontinuetoproactivelymanage ourcapitalstructure(forexamplethroughdebtrepayment,share issuanceandrepurchaseormanagementofdividendpayments), whilemaintainingflexibilitytotakeadvantageofopportunities togrowourbusiness.Oneelementofourstrategyisto maketargeted,value-enhancingacquisitions.Theavailability ofsuitableacquisitions,atacceptablepricesis,however, unpredictable. LIQUIDITY RISK AND GOING CONCERN LiquidityriskistheriskthattheGroupwillbeunabletomeetits financialobligationsastheyfalldue.Ourapproachtomanaging liquidityistoensure,asfarasispossible,thatwewillhave sufficientliquidityatalltimestomeettheGroup’sliabilitieswhen due,underbothnormalandstressedconditions. Wehaveusedourbusinessplanasthebasisforprojectingcash flowsandmeasuredtheresultingoutcomesoncashavailability andbankcovenanttestpointsforthenextthreeyears.The Grouphasaveryhighlevelofclientretention,whichgivesusa highdegreeofcomfortaboutthecertaintyofourrevenue. Ourprincipaluncertaintiesaboutourincomerelatetoactivities thataremoredifficulttopredict,suchascorporateaction income.Thesedependonthespecificactivitiesofcorporate clients,thetimingofwhichmaybeinfluencedbyunderlying marketconditions. Duringthethree-yearperiodcoveredbythebusinessplanwe expecttoremaincompliantwithallcovenants.Assuch,the BoardissatisfiedthattheGrouphasadequateresourcesto continueinoperationalexistencefortheforeseeablefuture.For thisreason,thegoingconcernbasishasbeenadoptedinthe preparationoftheseaccounts. Sally-Ann Hibberd Chair of the Risk Committee 12 March2019 I I R S K C O M M T T E E R E P O R T 85 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE Nomination Committee Report COMMITTEE MEMBERSHIP AND ATTENDANCE TheCommitteecomprisesonlynon-executiveDirectorsandis chairedbytheChairmanoftheBoard,PhilipYea. ThemembersoftheCommitteewhoservedduringtheyear andasatthedateofthisreportareshowninthetablebelow, togetherwiththeirattendanceatthefourcommitteemeetings heldduringtheyearorthoseheldduringtheirtenure: Name Attended Committee Chair:PhilipYea AlisonBurns1 Sally-AnnHibberd VickyJarman2 DrTimMiller3 DarrenPope4 4/4 2/2 4/4 1/2 3/4 2/4 1 AlisonBurnswasappointedtotheCommitteeeffectivefrom1Apriland thenstooddownon1November2018aspartofthereorganisationofall committeememberships. 2 VickyJarmanstooddownfromtheCommitteeeffectivefrom3May2018. Shewasunabletoattendonemeetingduetoillness. 3 DrTimMillerwasunabletoattendonemeetingduetoillness. 4 DarrenPopewasunabletoattendtwomeetingsthatwereadditionally scheduledduringtheyearduetopriorcommitments. DearShareholder IampleasedtopresenttheNominationCommitteeReportfor 2018.Inmylastreport,Isetoutfourmainareasoffocusforthe Committeethisyear.Thesewereto: • successfullyrecruitandinductanewnon-executiveDirector; • growourtalentpool; • continuemonitoringandrefreshingthesuccessionplansfor boththeBoardandseniorleadershipteam;and • monitorprogresswithimplementingtheDiversityand InclusionPolicyandthefeedbackreceivedonthisfrom employees. Asexplainedfurtherwithinthisreport,weexceededthefirst objectivebyrecruitingtwonewnon-executiveDirectorsduring theyear.Wealsoenhancedourtalentpool,linkingthistoour successionplanning,andprogressedtheimplementationofour DiversityandInclusionPolicythroughouttheGroup. EFFECTIVENESS OF THE NOMINATION COMMITTEE AnexternalevaluationoftheCommitteewasundertakenduring theyearbyLintstock.Detailsoftheevaluationanditsresultscan befoundonpage69. For2019,ourfocusareaswillbe: • tocontinuedevelopingandgrowingourtalentpool; • tocontinuetoassess,benchmarkanddevelopoursenior executiveteam; • tomonitortheprogressoftheCultureTransformationPlan; • toassistmanagementinmanagingtheGenderPayGapwithin theGroup;and • tocontinuetomonitortheprogressbeingmadeinthe implementationoftheDiversityandInclusionPolicywithinthe Group. Ilookforwardtoreportingonourprogressinournextreport. Philip Yea Chair of the Nomination Committee 12 March2019 86 • ensuringthenecessaryduediligenceandconflictsofinterest checkshavebeenundertakenbeforeanappointmentismade; • ensuringthatanannualevaluationisundertakenofthe effectivenessoftheBoard,eachcommitteeoftheBoard, andthecontributionofeachDirector,suchevaluationtobe externallyfacilitatedatleastonceeverythreeyears; Group Policies and Best Practices • havingregardtoestablishedandevolvingbestpractice corporategovernancestandards,includingwhererelevant, standardssetbyvotingagenciesandvoluntarycodes; • monitoringwhethersatisfactoryinductionisprovidedfor newDirectors,withrespecttotheirBoardandCommittee responsibilities; • ensuringanappropriateongoingtrainingprogrammeisin placeforexistingDirectors; • inconjunctionwiththeRemunerationCommittee,monitoring theprogresswithaddressingtheGroup’sGenderPayGap issues;and • conductinganannualreviewoftheGroup’sconflictsregister. GOVERNANCE TheCommitteeactsindependentlyofmanagementandreports andmakesrecommendationsdirectlytotheBoard. TheCommittee’sTermsofReferencestatethattheCommittee shallbecomprisedofatleastthreeindependentnon-executive Directorsandthiswascompliedthroughouttheyear. TheCompanySecretaryactsasSecretarytotheCommitteeand attendsallmeetings.TheCommitteeinvitestheChiefExecutive andtheChiefPeople&TransformationOfficertoattendits meetingsinfull,althoughitreservesitsrightstorequesteither ofthoseindividualstowithdraw.Duringtheyear,theCommittee metwiththeChiefPeople&TransformationOfficerwithout managementand/oranyexecutivememberoftheBoardbeing present. TheCommitteehasunrestrictedaccesstoCompanydocuments andinformation,aswellastoemployeesoftheGroup.It canobtainassurancesand,whenappropriate,reportsfrom thedirectorsofsubsidiarycompanieswhichhaveappointed separatenominationcommittees. TheCommitteemaytakeindependentprofessionaladviceon anymatterscoveredbyitsTermsofReference,acopyofwhich canbefoundintheinvestorsectionofEquiniti’swebsite:http:// investors.equiniti.com/investors/shareholder-services/corporate- governance. ROLE OF THE NOMINATION COMMITTEE InaccordancewithitsTermsofReference,theCommittee developsandmaintainsaformal,rigorousandtransparent procedureforrecommendingappointmentsandreappointments totheBoard. Itsresponsibilitiesinclude: Board and Senior Leadership Team Structure and Composition • regularlyreviewingthestructure,sizeandcompositionof theBoardtoensureithasanappropriatebalanceofskills, independence,knowledge,experienceanddiversity; • regularlyreviewingtheknowledge,skillsandexperienceof individualmembersoftheBoard; • regularlyconsideringthesuccessionplansforDirectorsand seniorexecutives; • identifyingandnominatingforapprovaloftheBoard, candidatestofillBoardandseniorexecutivevacancies,asand whentheyarise; I I N O M N A T O N C O M M T T E E R E P O R T I 87 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE COMMITTEE ACTIVITIES DURING 2018 TheCommitteemetfourtimesduringtheyear.Atthosemeetings,theCommitteecarriedoutitsremit,whichprimarilyincluded thefollowing: February April July November • reviewedthedraft NominationCommittee report for the 2017 AnnualReportand Accounts; • consideredand recommendedthe appointmentofAlison Burnsasanewnon- executiveDirector; • notedthatVickyJarman wouldbestandingdown asanon-executive DirectoroftheCompany; • approvedtherole specificationforanew non-executiveDirector; and • approvedthe appointmentofLygon Group(Lygon)asthe Company’sexecutive searchfirm,torecruit anewnon-executive Director. • reviewedtheleadership teamsuccessionand contingencyplanwithin theGroup; • reviewedtheresourcing requirementsforeach division; • focusedontheUS managementstructure, toensurethatitmetits requirements; • reviewedthesenior executives’performance; • reviewedand approvedtheupdated DiversityandInclusion programme; • reviewedanddiscussed theCommittee’s evaluationreport;and • reviewedthe Committee’sTermsof Reference. • reviewedtheongoing recruitmentprocessfor anewnon-executive Director; • discussedtheshortlist ofcandidates(witheach Directorhavingmetthe preferredcandidates); • gaveauthoritytothe Chairmantoenter intodiscussionswith twoproposedfinal candidates;and • subjecttosatisfactory resultsfromthedue diligenceprocess, recommendedto theBoardtheir appointmentsasnon- executiveDirectors. • notedanddiscussed theproposedexternal assessmenttobe undertakenonthesenior managementteamas partofthetalentand successionplanningfor 2019; • reviewedtheresultsof theannualtalentand successionplanningfor 2018foreach‘enabling Function’and‘Division’; • approvedtheemployee screeningandsecurity vettingpolicy,tobe rolledoutGroup-wide; • receivedupdateson DiversityandInclusion; • receivedanupdate ontheCulture TransformationPlan; • reviewedthe2018 BoardandCommittee evaluation;and • receivedanupdateon GenderPayGap. 88 RECRUITMENT OF NON-EXECUTIVE DIRECTORS Appointment Process Executive Search Firm Selected Specifications Agreed Shortlist Prepared Interviews Conducted Due Diligence and Recommendation TheCommittee selectedLygon*as theexecutivesearch firm.Lygonknowsthe Companywell,having previouslyassisted withtherecruitment ofPhilipYea,Sally- AnnHibberdand DarrenPope. TheCommittee agreedspecifications fortheroles,based onthecriteriafor newnon-executive Directors. Lygonprovideda longlistofcandidates totheChairmanfor feedback.Thiswas whittleddowntoa shortlistofcandidates tointerview. TheChairmanand theChiefExecutive conductedinterviews withtheselected candidates.The preferredcandidates then met the remainderofthe Board. Followinga satisfactory conclusionto the thorough duediligence andreferencing process,together withCRBchecks, theCommittee recommendedthe appointmentofthe preferredcandidates totheBoardfor approval. *Lygonisasignatorytothevoluntarycodeofconductforexecutivesearchfirms,toaddressgenderdiversityoncorporateboardsandbestpracticeforthe relatedsearchprocesses.IthasactedfortheCompanybeforeinrecruitmenttotheBoardbuthasnootherconnectionwiththeCompany. IntherecruitmentprocessthatledtoAlisonBurns’appointment, theCommitteewasseekingsomeonewhohadheldanexecutive roleorhadrelatedbusinessexperienceandcapabilities, particularlyinrelationtofinancialservicesand/orcustomer focus,andwhocouldprovideinputonstrategic,operational orcustomerservicematters.AlisonBurnswastheoutstanding candidateinthatregardandtheCommitteerecommendedher appointmenttotheBoard. IntherecruitmentprocessthatledtotheappointmentofMark BrookerandCherylMillington,theCommitteewasseeking candidateswithknowledgeandskillsfromtheITsector,with strongfinancialservicesandcommercialexperiencealsobeing valuable.CherylMillingtonhadastrongITbackground,while MarkBrooker’scommercialandfinancialservicesexperience alsostoodout.Asaresult,theCommitteerecommendedtothe Boardthatbothshouldbeappointedasnon-executiveDirectors. Duringtheyear,AlisonBurns,MarkBrookerandCheryl MillingtonjoinedtheBoardasindependentnon-executive Directors.Detailsoftheirbackgroundsandthedatesoftheir appointmentsaresetoutintheChairman’sStatementon page18. TheChairmanledtheprocesstoappointthenewnon-executive Directors.Theappointmentprocessisdescribedinthediagram above. Inassessingpotentialcandidates,theCommitteelookedfor peoplewho: • hadadiversemixofexperience,recognisingtheimportance ofdiversityinitswidestsenseinBoardeffectiveness; • couldmakeagenuinecontributiontotheBoardandallits Committeesandaddvaluebyofferingwisecounseland advice,basedontheirexperienceandtrackrecord; • couldsupporttheChairmaninensuringthattheBoard provideseffectivedirectionforandoversightofmanagement anditscompliancewithitsstatutoryandregulatory responsibilities;and • couldhelpsettheGroup’svaluesandstandardsandensure thatitsobligationstoitsclients,shareholders,finance providers,regulatorsandothersareunderstoodandmet. I I N O M N A T O N C O M M T T E E R E P O R T I 89 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE Directors’ Induction and Training TheChairmanandCompanySecretarydesignedatailored inductionprogrammeforeachnewDirector,priortotheir appointmenttotheBoard. InductionstakeaccountoftheDirector’sexistingknowledgeof theindustry,specificareasofexpertiseandproposedCommittee appointments.ThenewDirectoristypicallyprovidedwith informationondirectorduties,theUKCorporateGovernance Code,BoardandCommitteecomposition,operationaland managementstructure,keypoliciesandprocedures,strategy andfinancials,mattersreservedfortheBoard,CommitteeTerms ofReference,forwardagendas,previousBoardandCommittee meetingminutes,andtheBoardandCommitteemeetings schedule. Theinductionprocessalsoincludesdetailedbriefingswith theChairman,ChiefExecutive,theCompanySecretaryand CommitteeChairsandmeetingswiththerestoftheBoardand keyindividualsfromtheseniorleadershipteam.Thisenablesnew DirectorstofullyunderstandtheissuesbeingdiscussedatBoard andExecutiveCommitteelevels. TheprocessalsoincludesmeetingswiththeCompany’sexternal auditor,PwC,andoneoftheCompany’sexternalcorporate advisers.ThisenablesnewDirectorstobegivenanoverview ofcurrentauditaffairs,marketandsectorcomparativesandto beadvisedofanyobservationsandkeychallengesfacingthe Company. ThesemeetingstakeplacenotonlyintheCompany’sLondon office,butalsoatotherUKsitessuchasLancingandBirmingham. InJuneandNovember,theBoardheldmeetingsattheExeter andLeedsofficestobetterunderstandthebusinessoperations withintheselocations.InOctober,theBoardmeetingwasheldin MinneapolisintheUS. Throughouttheyear,theChairmandiscussestraining requirementswiththeBoardandtheCompanySecretary,and arrangesmeetings,sitevisitsorinformationtobeprovided.As partoftheirongoingdevelopment,Directorsaresuppliedwith appropriateinformationinasuitableformat.AllDirectorshave accesstotheadviceandservicesoftheCompanySecretaryand independentprofessionaladvice. Talent Management TheCommitteerecognisesthatthepeoplestrategyis fundamentaltoachievingtheGroup’sstrategicgoals.Thenew ChiefPeople&TransformationOfficer,whoisleadingourpeople agenda,hasrefreshedtheGroup’speoplestrategy,includingthe approachtomanaginglearningandtalent. NewtalentisbroughtintotheGroupatapprenticelevel,as wellasthroughtherecruitmentofexperiencedpeople.The RisingStarsprogrammeisdesignedtoacceleratetheprogress oftalentedemployees.Thisiscombinedwithinvestmentin learning,whichfocusedondevelopingleadershipandsales capabilitiesin2018.TheCommitteeissatisfiedthatthelearning andtalentprogrammesareworkingwellandcontributingtothe strengthanddepthoftheGroup’stalentpool.Thiswillremainan areaoffocusin2019. Moreinformationoneachoftheseareascanbefoundonpages 38to41oftheStrategicReport. Succession Planning OneoftheCommittee’skeyrolesistoensurethattheGroup hasappropriateplansforprogressivelyrefreshingtheBoardand identifyinganddevelopingpeoplewiththepotentialtotakeon BoardandExecutiveCommitteepositionsinthefuture. TheGroup’ssuccessionplansetsoutshort-tolong-term leadershipsuccessionandcontingencyplanning,overthe followingperiods: Shortterm–emergencycover Mediumterm–withinthenext12months Longterm–withinthenexttwotothreeyears Thesuccessionplanislinkedtothetalentdevelopmentand learningprogrammesdescribedpreviously.TheCommittee continuedtoreviewthesuccessionplanduringtheyear,ensuring thatboththeBoardandtheCommitteehavevisibilityofawide rangeofindividualswithleadershippotential,togetherwiththeir individualdevelopmentplans.Thiswillremainafocusareafor2019. Diversity and Inclusion TheBoardandCommitteerecognisethebenefitsthatadiverse workforcebrings.Specifically,itenablestheGroupto: • makeobjectivedecisionsabouthowweorganiseandoptimise resourcesandwork,byeliminatingstructuralandcultural barriersandbias,sowecanworktogethereffectively; • protectandenhanceourreputationbyrecognising, respectingandharnessingtheneedsandinterestsofdiverse stakeholders; • deliverstrongperformanceandgrowthbyattracting,engaging andretainingdiversetalent; • innovatebydrawingonthediversityofperspectives,skills, stylesandexperienceofouremployeesandstakeholders;and • adaptandrespondeffectivelytosocietalchanges. TheGroupiscommittedtoensuringthatittreatsitsemployees fairlyandwithdignity.Thisincludesbeingfreefromanydirect orindirectdiscrimination,harassment,bullyingorotherformof victimisation.TheWhistleblowingPolicyandassociatedpolicies encourageemployeestospeakupaboutanyinappropriate practicesorbehaviour,includingthroughanindependent whistleblowingcontactfacility. TheBoardapprovedaDiversityandInclusion(D&I)policyin February2017.During2018,theGroupcontinuedtoimplement thepolicy,witharangeofinitiativesacrosstheGroup.Therehas beengoodengagementandawarenessofthepolicythroughout theGroupandtherehasbeenanumberofpositiveoutcomes withthecreationoffouremployeenetworkgroups,includinga disabilitytaskforce,bystaffwhoareinterestedinsupportingD&I. AsD&IbecomesmoreembeddedwithintheGroup,itevolves andthebusinesshastoadapt.Accordingly,theCommittee approvedanupdatedpolicyinApril2018.Moreinformationcan befoundintheStrategicReportonpage40. 90 Board Diversity TheCompanyhasnineDirectors,threeofwhomarewomen, representing33%oftheBoard.TheBoardthereforemeetsthe 25%targetestablishedbytheDaviesReportandtheincreased targetof33%by2020establishedbytheHampton-Alexander Review. Inadditiontoconsideringgender,age,disability,ethnicity, geographyandexperience,theCommitteeseekstoensure thattheBoardhasanappropriatebalanceofskills,experience, independenceandknowledgeofEquinitiandtheindustryasa whole.Asimilarapproachisusedfortheseniorleadershipteam. Our Culture Programme Towardstheendoftheyear,theBoardlaunchedourculture programmewhichwillbeimplementedduring2019.Further detailsontheplancanbefoundintheStrategicReporton page38.TheCommitteewillmonitortheplan'sprogress andthefeedbackreceivedfromemployees. I I N O M N A T O N C O M M T T E E R E P O R T I 91 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE Directors’ Remuneration Report DearShareholder IampleasedtopresenttheDirectors’RemunerationReportfortheyearended31December2018(theReport). TheReportincludesthefollowing: • thisintroductoryletter; • theproposednewRemunerationPolicythat,subjecttoshareholderapproval,willapplytoexecutiveandnon-executiveDirectors; • howtheRemunerationPolicyapprovedin2016wasimplementedduringtheyear;and • theamountsearnedbyourexecutiveandnon-executiveDirectors. TheproposednewRemunerationPolicy,onpages95to103issubjecttoashareholderapprovalvoteattheAnnualGeneralMeeting inMay2019.TheremainderoftheReportissubjecttoashareholderadvisoryvoteatthesamemeeting. IthasbeenabusyyearfortheRemunerationCommitteewhichhasfocusedonthefollowingkeyprioritiesduringtheyear: RENEWAL OF REMUNERATION POLICY (POLICY) InordertopreparefortherenewalofourPolicy,theCommitteeundertookacomprehensivereviewoftheapproachtoremuneration forourexecutiveDirectorsandseniorleadershipteam.ThereviewincludedanassessmentofourPolicyinthecontextofthe Company’scultureandstrategicpriorities,practiceintheUKlistedenvironment,thecontinueddevelopmentofexternalexpectations togetherwiththenew2018UKCorporateGovernanceCodewhichisapplicablefrom1January2019(2018Code).Duringthereview, theCommitteewasalsomindfuloftheremunerationpoliciesandpracticesthatwillapplytothebroaderworkforcepopulation. Theoutcomeofthisreviewconfirmedthatourexistingremunerationframeworkcontinuedtobeappropriateandalignedwiththe Company’scultureandstrategicpriorities,whichhassupportedourperformancetodate.Asaresult,wearenotproposingtomake anysubstantialchangestotheoverallopportunityorstructureofremuneration,exceptforsomeminoramendmentstoalignwith bestpracticedevelopments,includingthe2018Code. ThefullPolicycanbefoundonpages95to103.Insummary,ourPolicyisalignedwithbestpracticeandcomprises: • Basesalaries,withincreasesnormallyalignedwiththegeneralincreaseforthebroaderworkforcepopulation. • Pension,currentlysetat15%ofsalaryforexecutiveDirectors,whichwillreduceto10%ofsalaryfornewhires. • Annualbonusofupto150%ofsalarybasedonfinancialperformanceaswellasindividualobjectivesincorporatingrisk,customer andstrategicmeasures(includingconductandbehaviours).30%ofbonusawardsaredeferredintosharesforthreeyears. • PerformanceSharePlan(PSP)award(normalawardlevelof150%ofsalary).Awardsbasedonafinancialmeasure(currently earningspershare(EPS))andtotalshareholderreturn(TSR),withaholdingperiodoftwoyearsfollowingvesting. TheapproachtakenforexecutiveDirectorpayiscascadedbelowtheBoard,asappropriate.Thishasbeenanimportantfeatureof theCompany’sPolicyandensuresthattheseniorleadershipteamisfocusedonthedeliveryofthesameobjectivesandsuccessis sharedappropriately. Lookingatourwiderworkforcepopulation,theCommitteecontinuestobelievethatemployeeshareholdingiscentraltothe Company’sworkingculture.Wearethereforepleasedthatduringtheyearwehavelaunchedanewcycleofoursharesaveplanfor ourUKemployeestoparticipatein,andhaveextendedparticipationtoallofouremployeesbasedinIndia,theNetherlands,South AfricaandtheUS.Thisfollowsthesuccessfulvestingofthepreviousplanthatwasintroducedin2015shortlyaftertheCompany’s IPO. Inrecognitionoftheprovisionsofthenew2018UKCorporateGovernanceCodeandinvestorsentiment,theCommitteeis proposinganumberofminoramendmentstoourPolicyfrom2019,whichwebelieveshareholderswillfindpositive: • Reduction in pension –Thelevelofpensionbenefitsofferedtonewappointmentswillbecappedat10%ofsalaryinlinewiththe contributionratesforotheremployees.Thisisareductionfromthecurrentpensionallowanceof15%ofsalary. • Discretion –WehavebuiltintoournewPolicyandourPSPdocumentationtheabilityfortheCommitteetoapplydiscretionto adjusttheformulaicoutcomeforPSPawardsbutalwayswithinplanlimitsasdeterminedbytheapprovedPolicy.Thiswasalready partoftheannualbonusplanandtheCommitteehasuseddiscretioninpreviousyearstoreduceoutcomes.Anyuseofdiscretion wouldbeclearlyexplainedintheRemunerationReport. • Post-employment shareholding –Wehaveintroducedapost-employmentshareholdingpolicywhichwillapplyfrom2019onwards underwhichexecutiveDirectorswillnormallyberequiredtoretainashareholdingintheCompanyforaperiodoftwoyearsafter leavingattheloweroftheshareholdingrequirementinplacepriortodepartureortheactualshareholdingondeparture.Further detailsaresetoutinthisreportonpage114. ThePolicyisbeingproposedforshareholderapprovalattheAGMtobeheldon2May2019andwerecommendshareholdersto voteinfavourofit. 92 CHANGE IN REMUNERATION ADVISER AspartoftheprocessforreviewingthePolicy,theCommitteealsoundertookatenderoftheremunerationadviser.Thisresultedin DeloittebeingappointedastheCompany’snewremunerationadviserandithasassistedinthereviewofthePolicy.Iwouldliketo thankNewBridgeStreetforitsadvicetotheCommitteeoverthelastthreeyears.Furtherdetailsofthetenderprocesscanbefound onpage105. EFFECTIVENESS OF THE REMUNERATION COMMITTEE AnexternalevaluationoftheCommitteewasundertakenduringtheyearbyLintstock.Detailsofthe2018evaluationanditsresults canbefoundonpage69.Ashighlightedasanareatoaddressinthe2017evaluation,theCommitteehasbenefitedfromimproved Committeepapers,bothintermsofthequalityoftheinformationprovidedandinthetimingofbeingdeliveredtotheCommittee. REMUNERATION FOR 2018 2018wasayearofpleasingprogressagainsttheCompany’sstrategicobjectives,withrecordorganicgrowthof7.3%andasuccessful entryintotheattractiveUSmarket.Despitetheuncertainoperatingenvironment,theCompanycontinuedtogrowitsrevenues aheadofexpectations. ThelaunchintotheUSisprovingsuccessful,withtheEQUSacquisitiongivingtheCompanyacapabilityintheworld’slargestmarket forourservices.MarketsharehasbeengainedandnewservicesarebeingintroducedasEQUS’srelativelynarrowclientproductset isbeingexpanded. IntheUK,theCompanyhascontinuedtostrengthenitsshareregistrationbusinessandhaswonaround70%ofUKmain-marketIPO mandates,includingthelargestnewissuessuchasAstonMartinandAvast.TheCompanyhasalsowonadditionalmandatesfromits competitors.Alldivisionshavebeensuccessfulinwinningnewclients. TheCommitteereviewedperformanceagainstthetargetssetfortheannualbonusin2018.Asinpreviousyears,thesetargetswere profitbeforetax,revenueandoperatingcashflowconversion,togetherwithpersonalobjectivesagreedatthestartoftheyear. Takingintoaccountthestrongperformanceachievedinrevenue,profit,andcashterms,theChiefExecutiveandChiefFinancial Officerwereawarded69%oftheirtotalpotentialbonusfortheyear.Inlinewithourpolicy,30%oftheawardwillbedeferredforthree years. OfthePSPawardgrantedinMarch2016,88.75%oftheawardwillvestinMarch2019,reflectingtheaverageannualgrowthin earningspersharegrowthof10.2%overtheperformanceperiod,togetherwithourtotalshareholderreturnperformancerelativeto theFTSE250. Inaddition,thePSPawardgrantedtoDirectorsonIPOoftheCompanyin2015vestedduringtheyearinOctober.Inlinewith reportingrequirements,halfofthisawardwasincludedinthesinglefiguretablelastyear,withthebalanceshownthisyear.Basedon ourearningspershareandTSRperformance,thisawardvestedinfull. BothsetsofPSPawardsaresubjecttoafurthertwoyearholdingperiod. REMUNERATION FOR 2019 TheCommitteehasapprovedanincreaseinbasesalariesfortheexecutiveDirectorsof2.5%inlinewiththeincreaseawardedto employeesthroughouttheGroup. TherewillbenochangeinthemaximumawardlevelsundertheannualbonusorPSPfor2019.Forthebonus,theweightingof measureshasbeenreviewed,togetherwiththespecifictargetswhichwillapplyunderthePSP.Furtherdetailsaresetoutinthe‘Ata Glance’tableonthefollowingpage. RESPONSE TO 2018 UK CORPORATE GOVERNANCE CODE Duringtheyear,theCommitteediscussedthe2018Code.Wehavemadegoodprogressinimplementingtheremunerationrelated provisionsofthe2018Code,includingthechangestoourPolicytoreducethepensionprovisionfornewhireofexecutiveDirectors, toprovidetheopportunityforadditionaldiscretionoverremunerationoutcomesandtheintroductionofapost-employment shareholdingrequirement.TheCommittee’sremitisalreadyconsistentwiththe2018Code,butweareexploringwaysinwhichthe Committeemayhavegreatervisibilityofpayandpoliciesforthewiderworkforcepopulation.Wewillkeepthisunderreviewandwill reportfullyonthisnextyear. SHAREHOLDER ENGAGEMENT TheCommitteeconsidersinvestorfeedbackandtheAGMvotingresultseachyearandwewerepleasedtoreceiveahighlevelof supportforthe2017RemunerationReportwithover99%ofvotescastinfavour. WeundertookaconsultationwithourmajorinstitutionalshareholdersandproxyadvisorsconcerningtheproposedPolicy,soliciting theirfeedbackontheproposals.Iwouldliketothankthoseshareholdersfortheirhelpfulinput,whichplaysanimportantpartin developingresponsiblepaypractices. IwouldliketothankmyfellowCommitteemembers,andthosewhosupporttheCommittee,fortheircommitmentandguidance duringtheyear. IlookforwardtoreceivingyourcontinuedsupportattheAGMtobeheldinMay. Dr Tim Miller Chair of the Remuneration Committee 12 March2019 I D R E C T O R S ' R E M U N E R A T O N R E P O R T I 93 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE AT A GLANCE: IMPLEMENTATION OF REMUNERATION POLICY FOR 2019 AND KEY DECISIONS FOR 2018 ThetablebelowsummariseshowkeyelementsoftheRemunerationPolicywillbeimplementedin2019andkeydecisionstakenby theCommitteeinrelationtobasepayandincentivesforexecutiveDirectorsinrespectoftheyearended31December2018. Element Base salary from 1 April 2019 Chief Executive Guy Wakeley £471,500 Chief Financial Officer John Stier £328,000 Pension Annual bonus 15%cashinlieuofpension 15%cashinlieuofpension Maximum:150% Maximum:150% Annual bonus measures • Financial:Reportedprofitbeforetax(40%);Totalreportedrevenues(40%);andOperatingCash FlowConversion(20%). • Non-financial:Performanceagainsttheindividualnon-financialmetricsactasamultiplier rangingfrom0to150%,determinedthroughtheRemunerationCommittee’sreviewof performanceagainstpersonalobjectives,withamultiplierof100%forgoodperformance. • Acapontheoverallbonuspooltoensureabovetargetbonuspaymentsdonotexceed40%of incrementalprofitinexcessofbudget. Deferred Annual Bonus Plan 30%ofearnedbonusiscompulsorilydeferredintoanawardovershares,whichnormallyvestafter threeyears. Performance Share Plan (PSP) Maximum150% Maximum150% PSP measures • Threeyearvestingperiod. • EPS(50%ofaward)–averagenormalisedEPSgrowthoverthreefinancialyears.AnEPSgrowth rangeof6%to12%willapplytothe2019awards. • TSR(50%ofaward)–relativetotheFTSE250index(excludinginvestmenttrusts). Holding requirement VestedsharesfromthePSPtobeheldfortwoyearspostvesting(afterpaymentoftax). Shareholding requirement • 200%ofsalarywithinfiveyearsofappointmenttotheBoard. • Apost-employmentshareholdingrequirementwillalsoapply. Malus and clawback • Recoveryandwithholdingmechanismsapplyforaperiodofthreeyearsfromthedateof paymentfortheannualbonus. • Recoveryandwithholdingmechanismsapplyforaperiodofatleastthreeyearsfromthedate onwhichanawardvestsunderthePSP. • AttheRemunerationCommittee’sdiscretion. Changes for 2019 • Changeinbonusweightings,asdetailedabove. • ThethresholdEPStargetforthe2019PSPawardswillrevertto6%p.ainlinewiththe2015,2016 and2017awards. Year-end decisions made: 1 April salary review 2018 Bonus outcome: • Value • % of salary • % of maximum Non-executive directors 94 2.5% £476,404 104% 69% Nochange 2.5% £329,494 103% 69% DIRECTORS’ REMUNERATION POLICY OurfirstRemunerationPolicywasapprovedbyourshareholdersatourAGMon26April2016.Shareholdersarenowbeingaskedto approveanewRemunerationPolicy(2019RemunerationPolicy)atourAGMon2May2019whichitisintendedwillapplyforthenext threefinancialyears.During2018,theCommitteereviewedthe2016RemunerationPolicytoensurethatthepolicycontinuestobe alignedwithbestpractice. TheCommitteeconsultedwithourlargestshareholdersinrespectoftheproposedchangesandtookshareholders’feedbackinto accountwhenfinalisingtherevised2019RemunerationPolicy.Theparagraphbelowprovidesanoverviewofthemainchangesthat areproposedinrespectofthe2019RemunerationPolicy. Thefull2019RemunerationPolicythatshareholdersareaskedtoapproveissetoutonpages95to103. DIFFERENCES BETWEEN THE 2019 AND 2016 POLICIES Thedifferencesbetweenthe2019RemunerationPolicyandtheDirectors’RemunerationPolicyapprovedattheCompany’sAnnual GeneralMeetingheldon26April2016are: • thereductionofpensionbenefitsfornewlyappointedexecutiveDirectorsfrom15%to10%ofsalary,inlinewiththelevelof benefitforthewiderworkforce; • theintroductionofthediscretiontooverrideformulaicoutcomesundertheCompany’sPerformanceSharePlan,inlinewiththe 2018UKCorporateGovernanceCode; • theintroductionofapost-employmentshareholdingrequirement;and • minorchangestothedraftingofthe2019RemunerationPolicyinaccordancewithmarketpracticeandbestpracticeguidance. FUTURE POLICY TABLE ThefollowingtablesetsouteachelementofrewardandhowitsupportstheCompany’sshortandlong-termstrategicobjectives. Element Purpose and link to policy Operation (including framework used to assess performance) Opportunity Base Salary Providesacompetitiveand appropriatelevelofbasic fixedpay,tohelpattract andretainDirectorswith theskillsandexperience requiredtodeliverEquiniti’s strategicgoalsandbusiness objectives. Reflectsanindividual’s experience,performance andresponsibilitieswithin theGroup. Setatalevelwhichprovidesafairrewardfortherole andwhichiscompetitiveamongstrelevantpeers. Normallyreviewed(butnotnecessarilyincreased) annuallywithanychangestakingeffectfrom1April eachyear. SettakingintoconsiderationindividualandGroup performance,theresponsibilitiesandaccountabilities ofeachrole,theexperienceofeachindividual,hisor hermarketabilityandEquiniti’skeydependencieson theindividual. Referenceisalsomadetosalarylevelsamongst relevantpeersandothercompaniesofequivalent sizeandcomplexity. TheCommitteeconsiderstheimpactofanybasic salaryincreaseonthetotalremunerationpackage. Thereisnoformal maximum.However, increaseswillnormallybe inlinewiththegeneral increaseforthebroader employeepopulation.More significantincreasesmaybe awardedfromtimetotime, torecognise,forexample, developmentinan individual’sroleandchange inpositionorresponsibility. Currentsalarylevelsare disclosedintheAnnual ReportonRemuneration. Benefits Providesacompetitive, appropriateandcost effectivebenefitspackage. Themainbenefitsprovidedcurrentlyincludea companycarallowance,privatemedicalinsurance andlifeassurance. Thebenefitsprovidedmaybesubjecttominor amendmentfromtimetotimebytheCommittee withinthispolicy. Inaddition,executiveDirectorsareeligibleforother benefitswhichareintroducedforthewiderworkforce onbroadlysimilarterms.Equinitimayalsoreimburse anyreasonablebusinessrelatedexpenses(including taxthereon)incurredinconnectionwiththeirrole,if thesearedeterminedtobetaxablebenefits. Acarallowanceof£15,000 isprovided. Thecostoftheprovisionof otherbenefitsvariesfrom yeartoyeardepending onthecosttoEquiniti andthereisnoprescribed maximumlimit.However, theCommitteemonitors annuallytheoverallcost ofthebenefitsprovided, toensurethatitremains appropriate. I D R E C T O R S ' R E M U N E R A T O N R E P O R T I 95 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE Element Purpose and link to policy Operation (including framework used to assess performance) Opportunity Pensioncontributionsand/ orcashallowancesinlieuof pensioncontributionsare cappedat15%ofsalaryfor currentexecutiveDirectors. Pensionbenefitsfornew appointmentswillbe cappedat10%ofsalaryin linewiththelevelofbenefit forthewiderworkforce. Themaximumbonus payabletoexecutive Directorsis150%ofbase salary. Thebonuspayableat theminimumlevelof performancevaries fromyear-to-yearandis dependentonthedegree ofstretchinthetargetsset. Themaximumopportunity forexecutiveDirectors is150%ofbasesalary.In exceptionalcircumstances, thismaybeincreasedto 300%ofsalary. Pension Providesacompetitive, appropriateandcost effectivepensionpackage. EachexecutiveDirectorhastherighttoparticipatein oneofEquiniti’sdefinedcontributionpensionplans orelecttobepaidsomeoralloftheircontributions incash. Annual Bonus Incentivisestheexecutionof keyannualgoals,bydriving andrewardingperformance againstindividualand corporatetargets. Paidannually,thebonusissubjecttoachievement ofacombinationofstretchingcorporatefinancial andpersonalperformancemeasures.Financial measuresdeterminethemajorityoftheannualbonus opportunity. Compulsorydeferralofa proportionintoEquiniti sharesprovidesalignment withshareholders. Performance Share Plan (PSP) Rewardstheachievement ofsustainedlong-term financialperformanceand shareholderreturnsand isthereforealignedwith thedeliveryofvalueto shareholders.Facilitates shareownershiptoprovide furtheralignmentwith shareholders. Grantingofannualawards aidsretention. TheCommitteehasoveralldiscretiontoadjustthe extenttowhichbonusesarepaid(inlinewiththe 2018UKCorporateGovernanceCode). 30%ofbonusearnedwillbedeferredintoawards oversharesundertheDeferredAnnualBonusPlan (theDABP),withawardsnormallyvestingaftera three-yearperiod.TheCommitteehasthediscretion toincreasethedeferralpercentageifrequired. Awardsaresubjecttomalusandclawbackprovisions assetoutinthenotestothistable. Annualawardsofperformanceshareswhichnormally vestafterthreeyears,subjecttoperformance conditionsandcontinuedservice.Performance isnormallytestedoveraperiodofatleastthree financialyears.Awardsaresubjecttoafinancial growthmeasureandtotalshareholderreturn(TSR) relativetotheconstituentsofarelevantcomparator indexorpeergroup. 25%oftheawardvestsatthreshold,withstraight- linevestingforperformancebetweenthresholdand maximum. From2019awardsonwards,theCommitteehas theoveralldiscretiontoadjusttheextenttowhich awardswillvest(inlinewiththe2018UKCorporate GovernanceCode). Followingvesting,afurtherholdingperiod(normally twoyears)willapplytotheawardswherebyexecutive Directorswillberestrictedfromsellingthenetoftax shareswhichvest. Awardsaresubjecttomalusandclawbackprovisions, assetoutinthenotestothistable. 96 Element Purpose and link to policy Operation (including framework used to assess performance) Opportunity All-employee share plans Encouragesemployeeshare ownershipandtherefore increasesalignmentwith shareholders. Equinitimayfromtimetotimeoperateall-employee shareplans(suchastheHMRCapprovedSaveAsYou EarnOptionPlanandShareIncentivePlan)forwhich executiveDirectorsareeligibletoparticipateonthe sametermsasotheremployees. Theschemesaresubjectto thelimitssetbyHMRCfrom timetotime. Shareholding guideline Encouragesexecutive Directorstobuilda meaningfulshareholding inEquiniti,soasto furtheraligninterestswith shareholders. EachexecutiveDirectormustbuildupandmaintain ashareholdinginEquinitiequivalentto200%ofbase salarywithinfiveyearsoftheirappointmenttothe Board. Notapplicable. MALUS AND CLAWBACK MalusandclawbackprovisionsapplytotheannualbonusandPSPawardsinthecaseof:grossmisconduct;materialmisstatement ofEquiniti’sresultsoraccounts;anerrormadeinassessingthesatisfactionofanyperformanceconditionsapplicabletotheaward; orothersuchadversecircumstancesdeterminedbytheCommittee(whichmightincludefraud,materialreputationaldamageand/ orcorporatefailure).Theseprovisionsapplyinrespectofannualbonusawardswithinthreeyearsofthedateofpayment(cashand DABP),andinrespectofPSPawardsforaperioduptothreeyearsofvesting. PERFORMANCE MEASURES AND TARGETS ThetablebelowsetsouttherationalefortheperformanceconditionschosenforannualbonusandPSPandhowthetargetsareset. Element Performance measures and rationale How targets are set Annual bonus Financialandpersonalperformancemeasures. FinancialmeasuresaresettakingaccountofEquiniti’skey operationalobjectivesbutwilltypicallyincludemeasures ofrevenue,profitabilityandacashflowmetricastheseare KPIsalignedwithEquiniti'sstrategy. Personalperformanceobjectivesareagreedbythe Committeeatthebeginningoftheyearandwill typicallyincludemeasuresrelatingtorisk,clientand/ orkeystrategicgoals,aswellasindividualconductand behaviours. TheCommitteereviewsthefocuseachyearandvaries themasappropriatetoreflecttheprioritiesforthe businessintheyearahead. Atargetrangeissetforeachperformancemeasure toencouragecontinuousimprovementandchallenge thedeliveryofstretchperformanceandbudgeted performanceagainstthefinancialmetrics. Performance Share Plan FinancialgrowthmeasureandTSRperformance. RelativeTSRhasbeenselectedasitreflects comparativeperformanceagainstabroadindexof companies.Italsoalignstherewardsreceivedby executiveswiththereturnsreceivedbyshareholders. AveragegrowthinnormalisedEPShasbeenusedas aperformancemeasureasitrewardsimprovement inEquiniti’sunderlyingfinancialperformanceandisa measureofEquiniti’soverallfinancialsuccess. TheCommitteewillreviewthechoiceofperformance measuresandtheappropriatenessoftheperformance targetsandTSRpeergrouppriortoeachPSPgrant. Differentperformancemeasuresand/orweightingsmay beappliedforfutureawardsasappropriate.However, theCommitteewillconsultinadvancewithmajor shareholderspriortoanysignificantchangesbeingmade. I D R E C T O R S ' R E M U N E R A T O N R E P O R T I 97 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE USE OF DISCRETION TheCommitteeoperatesvariousincentiveplansaccordingtotheirrespectiverules.Toensuretheefficientoperationand administrationoftheseplans,theCommitteeretainsdiscretioninrelationtoanumberofareas.Consistentwithmarketpractice, theseinclude(butarenotlimitedto)thefollowing: • selectingtheparticipants; • thetimingofgrantand/orpayment; • thesizeofgrantsand/orpayments(withinthelimitssetoutinthePolicyTable); • theformofawards(grantingawardsasconditionalawards,nil-costoptions(exercisableuptothetenthanniversaryofthegrant date),orequivalentinstruments); • theextentofvestingbasedontheassessmentofperformanceandanyotherfactorstheCommitteeconsidersrelevant; • determinationofagoodleaverandwhererelevanttheextentofvestinginthecaseoftheshare-basedplans; • treatmentinexceptionalcircumstancessuchasachangeofcontrol,inwhichtheCommitteewouldactinthebestinterestsof Equinitianditsshareholders; • makingtheappropriateadjustmentstoawardsrequiredincertaincircumstances(suchasrightsissues,corporaterestructuring events,variationofcapitalandspecialdividends); • cashsettlingawardsinexceptionalcircumstanceswhereitisnotcommerciallyfeasibletosettleawardsinshares;and • theannualreviewofperformancemeasures,weightingsandsettingtargetsforthediscretionaryincentiveplans,fromyeartoyear. AnyperformanceconditionsmaybeamendedorsubstitutedifoneormoreeventsoccurwhichcausetheCommitteetoreasonably considerthattheperformanceconditionswouldnot,withoutalteration,achievetheiroriginalpurpose.Anyvariedperformance conditionwouldnotbemateriallylessdifficulttosatisfyinthecircumstances. AwardsgrantedundertheCompany’sshareplansmayincorporatetherighttoreceivethevalueofdividends,whichwouldhave beenpaidonthesharesthatvestinrespectofdividenddatesoccurringduringthevestingperiodand(whereawardsaresubjectto aholdingperiodtheholdingperiod).Thisamountwillnormallybedeliveredinsharesbutmaybedeliveredincashinexceptional circumstanceswhereitisnotcommerciallyfeasibletodeliverinshares.Theamountmaybecalculatedassumingthedividendshad beenreinvestedintheCompany’sshares. LEGACY AWARDS TheCommitteereservestherighttomakeanyremunerationpaymentsand/orpaymentsforlossofoffice(includingexercisingany discretionsavailabletoitinconnectionwithsuchpayments),notwithstandingthattheyarenotinlinewiththe2019Remuneration Policy,wherethetermsofthepaymentwereagreed: i. before26April2016(thedateonwhichtheCompany’sfirstshareholder-approvedDirectors’RemunerationPolicycameinto effect); ii. beforethe2019RemunerationPolicysetoutabovecameintoeffect,providedthatthetermsofthepaymentwereconsistentwith theshareholder-approvedDirectors’RemunerationPolicyinforceatthetimetheywereagreed;or iii. atatimewhentherelevantindividualwasnotaDirectoroftheCompanyand,intheopinionoftheCommittee,thepaymentwas notinconsiderationfortheindividualbecomingaDirectoroftheCompany. Forthesepurposes‘payments’includestheCommitteesatisfyingawardsofvariableremunerationand,inrelationtoanawardover shares,thetermsofthepaymentare‘agreed’atthetimetheawardisgranted. REMUNERATION POLICY FOR OTHER EMPLOYEES ThepolicydescribedintheprevioustableappliesspecificallytotheexecutiveDirectorsofEquiniti.Inpractice,theCommitteealso hasresponsibilityforsettingthepolicyfor,anddeterminingtheremunerationofseniormanagementrolesatEquiniti,beingthose rolesontheExecutiveCommitteeandtheOperatingCommittee,includingtheCompanySecretary.Inallcases,theCommitteeis mindfuloftheremunerationpolicywhichappliesforthebroaderworkforceandseekstoensurethattheunderlyingprincipleswhich formthebasisfordecisionsonexecutiveDirectorandseniormanagementpayareconsistentwiththoseonwhichpaydecisions fortherestoftheworkforcearetaken.Forexample,theCommitteetakesintoaccountthegeneralsalaryincreaseforthebroader employeepopulationwhenconductingthesalaryreviewfortheexecutiveDirectors.Therangeofinformationreviewedbythe Committeeonbroaderworkforceremunerationandrelatedpolicieswillbeextendedduring2019inlinewiththe2018UKCorporate GovernanceCode. TheCommitteebelievesthatthestructureofseniormanagementrewardatEquinitishouldbelinkedtoGroupstrategyand performance.Agreaterproportionofthepackageforseniorleadershiprolesisthereforebasedonperformance-basedpaythrough thequantumandparticipationlevelsinincentiveschemes.ThisensurestheremunerationoftheexecutiveDirectorsandthesenior leadershipteamisalignedwiththeperformanceofEquinitiandthereforetheinterestsofshareholders. 98 Forthebroaderworkforce,wehaveacommitmenttoresponsiblelevelsofpayinallofourgeographiesincludingalong-term commitmenttopayingtheRealLivingWageintheUK.All-employeeshareownershipisencouragedthroughtheuseof all-employeeshareplans.During2018,anewcycleoftheSharesavePlanlaunchedwithparticipationextendedtoallofourkey internationallocations.Circa66%oftheGroup'semployeesarecurrentlyparticipatingintheseall-employeeshareplans Thetablebelowexplainshowthe2019RemunerationPolicyhasbeencascadedbelowexecutiveDirectors,toachievealignmentof policyacrosstheCompany. Element Difference in remuneration policy for other employees Base salary ThesameprinciplesandconsiderationsthatareappliedtotheexecutiveDirectorsare,asfaraspossible, appliedtoallemployees. Benefits Pension Equinitihasprovisionsformarket-alignedbenefitsforallemployees. TheGroupoperatesanumberofdefinedbenefitanddefinedcontributionschemes.Themaximumcompany contributionunderthedefinedcontributionschemesis10%ofsalary. Annual bonus Approximately500membersofthemanagementteamareeligibleforabonusawardunderTheLeadership IncentiveScheme. Deferred Annual Bonus Plan (DABP) Performance Share Plan (PSP) Sharesave Share Incentive Plan MembersoftheExecutiveCommitteenormallyhave30%oftheirearnedbonusdeferredintoanawardover sharesonthesametermsastheexecutiveDirectors. ThePSPistypicallyawardedtomembersoftheExecutiveCommitteeandkeyindividualsintheSenior ManagementTeam. Anall-employeeplan.Optionsarenormallygrantedatadiscounttothemarketvalue. Anall-employeeplan.Employeescantypicallypurchaseupto£1,800ofpartnershipshareseachyearfromgross salary.Foreverythreepartnershipsharesparticipantspurchasetheynormallyreceivetwofreematchingshares, onthefirst£180thattheyinvestannually. CONSIDERATIONS OF CONDITIONS ELSEWHERE IN THE GROUP InlinewithEquiniti’sbroaderremunerationframework,whichisintendedtoensureconsistencyandcommonpracticeacrossEquiniti, andindeterminingtheoveralllevelsofremunerationoftheexecutiveDirectors,theCommitteealsopaysdueregardtopayand conditionselsewhereintheorganisation. TheCommitteedidnotconsultdirectlywiththebroaderworkforceonthe2019RemunerationPolicy.Followingthechangestothe UKCorporateGovernanceCode,during2019theBoardwillbeputtinginplacearrangementstofacilitateengagementwiththe broaderworkforceonarangeofmattersincludingremuneration. TheCommitteereviewsthedesignofallshareincentiveplansoperatedbyEquinitiforapprovalbytheBoardandshareholders whereappropriate.Forsuchplans,theCommitteedetermineseachyearwhetherawardswillbemadeand,ifso,theoverallamount ofsuchawards,theindividualawardstoexecutiveDirectorsandotherseniormanagement,andtheperformancetargetstobeused. TheCommitteeisresponsiblefordeterminingtheproportionofsharebasedawardswhichvestfollowingtheendoftherelevant performanceperiod.TheCommitteealsoreviewstherecommendationsoftheEquinitiFinancialServicesLimitedRemuneration Committeeandapproves,whereappropriate,certainCodeStaffbonusandsalaryrecommendations. CONSIDERATIONS OF SHAREHOLDER VIEWS Equinitivaluesandiscommittedtodialoguewithitsshareholders.TheCommitteeregularlyconsidersinvestorfeedbackandthe votingresultsreceivedinrelationtorelevantAGMresolutionseachyear.Aspartofthedevelopmentofthe2019RemunerationPolicy theCommitteeengagedwithanumberofEquiniti’slargestshareholdersbeforefinalisingtheproposedchangesandtheviewsof thoseshareholdersinformedthefinal2019RemunerationPolicy. I D R E C T O R S ' R E M U N E R A T O N R E P O R T I 99 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE APPROACH TO RECRUITMENT REMUNERATION IntheeventofhiringanewexecutiveDirector,theongoingremunerationpackagewouldbesetinaccordancewiththetermsofthe approvedDirectors’RemunerationPolicyatthetimeofappointmentandthemaximumlimitssetouttherein. Salariesmaybesetbelowmarketlevelinitiallywithaviewtoincreasingthemtothemarketratesubjecttoindividualperformance anddevelopingintotherolebymakingphasedabove-inflationincreases. BenefitswillbeprovidedinlinewiththoseofferedtootherexecutiveDirectors,althoughthesemaybevariedforanoverseas appointmenttakingaccountoflocalmarketpractice. Annualbonuspaymentswillnotexceed150%ofbasesalaryandPSPpaymentswillnotnormallyexceed150%ofbasesalary(not includinganyarrangementstoreplaceforfeitedentitlements).Inallcases,PSPawardswillbewithintheoverall300%ofbasesalary exceptionallimitintheplan. Wherenecessary,specificannualbonusandPSPtargetsanddifferentvestingand/orholdingperiodsmaybeusedforanindividual forthefirstyearofappointment,ifitisappropriatetodosotoreflecttheindividual’sresponsibilitiesandthepointintheyearin whichtheyjoinedtheBoard.APSPawardcanbemadeshortlyafteranappointment(assumingEquinitiisnotinacloseperiod). TheCommitteeretainsflexibilitytoofferadditionalcashand/orsharebasedawardsonappointment,totakeaccountof remunerationorbenefitarrangementsforfeitedbytheindividualonleavingapreviousemployer.Ifsharesareused,suchawardsmay bemadeunderthetermsofthePSPoraspermittedundertheListingRules. Suchpaymentswouldtakeintoaccountthenatureofawardsforfeitedandwouldreflect(asfaraspossible)performanceconditions, theexpectedvalueforegoneandthetimeoverwhichtheywouldhavevestedorbeenpaid.AwardsmaybemadeincashifEquiniti isinacloseperiodatthetimeanexecutivejoins. TheCommitteemayagreethatEquinitiwillmeetcertainrelocation,legal,taxequalisationandanyotherincidentalexpensesas appropriatesoastoenabletherecruitmentofthebestpeopleincludingthosewhoneedtorelocate. WhereanewexecutiveDirectorisaninternalpromotion,anyvariablepayelementawardedinrespectofthepriorrolemaybe allowedtopayoutaccordingtoitsterms,andadjustedasrelevanttotakeintoaccounttheappointment.Inaddition,anyother ongoingremunerationobligationsexistingpriortoappointmentmaycontinue. Element of remuneration Maximum percentage of salary Maximum variable pay comprising: 300%(450%inexceptionalcircumstances) • Annual bonus 150% • Performance Share Plan (PSP) 150%(300%inexceptionalcircumstances) Pension 10%pensioncontributions/cashinlieuofpension Note:MaximumpercentageofsalaryforannualbonusandPSPexcludescompensationforawardsforfeited. SERVICE CONTRACTS AND LOSS OF OFFICE PAYMENTS ThepolicyforservicecontractsforexecutiveDirectorsisshowninthetablebelow.CopiesoftheexecutiveDirectors’service contractsareavailableforinspectionatEquiniti’sregisteredofficeduringnormalbusinesshoursandwillbeavailableforinspectionat theAGM. Provision Notice period Detailed terms • 12months'noticefromtheCompany • 12months'noticefromtheDirector 100 Provision Detailed terms Termination payment • AnexecutiveDirector’semploymentmaybeterminatedbyapaymentinlieuofnotice comprising: • Basesalary • Benefits • Pensionallowance • Anypaymentinlieuofnoticemaybepaidininstalmentsandbesubjecttomitigationshouldthe executiveDirectorfindalternativeemploymentduringanyunexpirednoticeperiod. • AnexecutiveDirector’sservicecontractmaybeterminatedsummarilywithoutnoticeandwithout anyfurtherpaymentorcompensation,exceptforsumsaccrueduptothedateoftermination, iftheyaredeemedtobeguiltyofgrossmisconductorforanyothermaterialbreachofthe obligationsundertheiremploymentcontract. • IftheemploymentofanexecutiveDirectoristerminatedinothercircumstances,compensation mayincludebasesalarydueforanyunexpirednoticeperiod,pro-ratabonus(subjecttothe performanceconditionshavingbeenachieved)inrespectoftheproportionofthefinancialyear uptothedateofterminationandanyamountassessedbytheCommitteeasrepresentingthe valueofothercontractualbenefitsandpensionwhichwouldhavebeenreceivedduringthe period. • Equinitimaychoosetocontinueprovidingsomebenefitsinsteadofpayingacashsum representingtheircost. • Anystatutoryentitlementsorsumstosettleorcompromiseclaimsinconnectionwitha termination(including,atthediscretionoftheCommittee,reimbursementforlegaladviceand provisionofoutplacementservices)wouldbepaidasnecessary. Treatment of annual bonus on termination under plan rules • Anybonuspaidtoadepartingexecutivewouldnormallybepaidincash,atthenormalpayment date,andreducedpro-ratatoreflecttheactualperiodworked. Treatment of unvested share-based entitlements • Anyshare-basedentitlementsgrantedtoanexecutiveDirectorunderEquiniti’sshareplanswill betreatedinaccordancewiththerelevantplanrules. • Usually,anyoutstandingawardslapsewhentheindividualceasestobeadirectororemployee oftheGroup.However,incertainprescribedcircumstances,suchasdeath,injury,disability, retirementwiththeconsentoftheCommittee,thesaleoftheentitythatemployshimorherby EquinitioranyothercircumstancesatthediscretionoftheCommittee,‘goodleaver’statusmay beapplied. • WheregoodleavertreatmentappliesunderthePSP,outstandingunvestedawardswillnormally vestattheoriginalvestingdatetotheextentthattheperformanceconditionhasbeensatisfied, andwouldnormallybereducedonapro-ratabasistoreflecttheperiodoftimewhichhas elapsedbetweenthegrantdateandthedateonwhichtheparticipantceasestobeemployed byEquinitiasaproportionofthevestingperiod. • TheCommitteeretainsthediscretiontovestawards(andmeasureperformanceaccordingly)on cessationand/ortodis-applytimepro-rating. • IfanexecutiveDirectorleavesholdingvestedawardssubjecttoaholdingperiod,theholding periodwillnormallycontinuetoapplytotheseawards,unlesstheCommitteedecidestobring theholdingperiodtoaclose. • UndertheDABP,unvestedawardswillvestattheoriginalvestingdateunlesstheCommittee exercisesitsdiscretionandallowstheawardtovestinfullonorshortlyfollowingthedateof cessation. • IndeterminingwhetheradepartingexecutiveDirectorshouldbetreatedasa‘goodleaver’,the Committeewilltakeintoaccounttheperformanceoftheindividualandthereasonsfortheir departure. • OutstandingPSPawardsonatakeover,windingup,or,iftheCommitteeconsidersit appropriate,anyothercorporateeventwhichwillmateriallyaffecttheCompany’sshare price,willvestandbereleasedfromanyrelevantholdingperiodearlytotheextentthatthe performancecondition,asdeterminedbytheCommitteeinitsdiscretion,hasbeensatisfied, andcouldbereducedonapro-ratabasistoreflecttheperiodoftimewhichhaselapsed betweenthegrantdateandthedateoftherelevantcorporateevent,asaproportionofthe vestingperiod. • TheCommitteewouldretaindiscretiontowaivetimepro-rating,ifitfeltitwasappropriatetodo so. • DABPawardswillvestinfullatthetimeofthecorporateevent. • Intheeventofaninternalcorporatereorganisation,awardswillbereplacedbyequivalentnew awardsoversharesinanewholdingcompany,unlesstheCommitteedecidesthatawardsshould vestonabasiswhichwouldapplyinthecaseofatakeover. • IndeterminingwhetheradepartingexecutiveDirectorshouldbetreatedasa‘goodleaver’,the Committeewilltakeintoaccounttheperformanceoftheindividualandthereasonsfortheir departure. Change of control Exercise of discretion I D R E C T O R S ' R E M U N E R A T O N R E P O R T I 101 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE POST-EMPLOYMENT SHARE INTERESTS TheCommitteehasapolicytopromoteinterestsinshareawardsfollowingcessationofemploymenttoenableformerexecutive DirectorstoremainalignedwiththeinterestofshareholdersforanextendedperiodafterleavingtheCompany.Furtherdetailsofthis policyaresetoutintheAnnualReportonRemunerationonpage114. THE CHAIRMAN AND NON-EXECUTIVE DIRECTORS’ FEES Thetablebelowsetsoutthe2019RemunerationPolicyfortheChairmanandnon-executiveDirectors.ForanewChairmanornon- executiveDirector,thefeearrangementwouldbesetinaccordancewiththeapprovedremunerationpolicyinforceatthattime. Element Purpose and link to policy Operation (including framework used to assess performance) Opportunity Non-executive Director fees Toattractandretaina high-calibreChairmanand non-executiveDirectorsby offeringmarketcompetitive feelevels. Thefeesaresubjectto maximumaggregatelimits, assetoutinEquiniti’s ArticlesofAssociation (£2m). TheCommitteeisguided bythegeneralincrease forthebroaderemployee population,buton occasionsmayneedto recognise,forexample, changesinresponsibility, and/ortimecommitments. Currentfeelevelsare disclosedintheAnnual ReportonRemuneration. TheChairmanispaidasingleconsolidatedfee. Thenon-executiveDirectorsarepaidabasicfeewith additionalfeespaidtoreflectextraresponsibilities and/ortimecommitments,forexampletheChairs ofthemainBoardcommitteesandtheSenior IndependentDirector. Ifthereisatemporaryyetmaterialincreaseinthe timecommitmentsfornon-executiveDirectors,the Boardmaypayextrafeesonapro-ratabasisto recognisetheadditionalworkload. Theleveloffeesisreviewedperiodicallybythe CommitteeandChiefExecutivefortheChairmanand bytheChairmanandexecutiveDirectorsforthenon- executiveDirectorsandsettakingintoconsideration marketlevelsincomparablysizedFTSEcompanies, thetimecommitmentandresponsibilitiesoftherole andtoreflecttheexperienceandexpertiserequired. TheChairmanandthenon-executiveDirectorsare noteligibletoparticipateinincentivearrangements ortoreceivebenefits,savethattheyareentitledto reimbursementofreasonablebusinessexpensesand taxthereon. Theymayalsoreceivelimitedtravelor accommodationrelatedbenefitsinconnectionwith theirroleasaDirector(includingtaxthereonifthese aredeterminedtobetaxablebenefits). CHAIRMAN AND NON-EXECUTIVE DIRECTOR TERMS OF APPOINTMENT TheChairmanandnon-executiveDirectorshavelettersofappointmentwithEquinitiforaninitialperiodofthreeyearssubjectto annualre-electionattheCompany’sAGM. Theappointmentofeachnon-executiveDirectormaybeterminatedatanytimewithimmediateeffectifheorsheisremovedasa DirectorbyresolutionatageneralmeetingorpursuanttotheArticles.Atothertimes,threemonths'noticeisrequiredfromeither party.Thenon-executiveDirectorsarenotentitledtoreceiveanycompensationonterminationoftheirappointment. Directors’lettersofappointmentareavailableforinspectionatEquiniti’sregisteredofficeduringnormalbusinesshoursandwillbe availableforinspectionattheAGM. 102 ILLUSTRATIVE OUTCOMES FOR EXECUTIVE DIRECTORS UNDER THE REMUNERATION POLICY UndertheDirectors’RemunerationPolicy,asignificantproportionoftotalremunerationislinkedtoEquiniti’sperformance.The followingchartsillustratehowtheexecutiveDirectors’totalpaypackagevariesunderfourdifferentperformancescenarios: 1. Fixedpayonly 2. On-targetperformance 3. Maximumperformance 4. Maximumperformancewith50%sharepricegrowth Underscenarios1,2and3nosharepricegrowthisapplied.Dividendsareexcludedunderallscenarios. Allassumptionsmadeunderthesescenariosarenotedbelow: Fixed pay only On-target Salary 2019salary 2019salary Maximum 2019salary Maximum plus 50% share price growth 2019salary Benefits Estimated value of ongoing benefits Estimated value of ongoing benefits Estimated value of going benefits Estimated value of ongoing benefits Pension 15% of salary 15% of salary 15% of salary 15% of salary – – – Annual bonus PSP Share price growth applied to PSP award 75% of salary (budget performance and 100% multiplier) 100% payout of maximum opportunity (150% of base salary) 100% payout of maximum opportunity (150% of base salary) 25% of maximum award (37.5% of salary) 100% of maximum award (150% of salary) 100% of maximum award (150% of salary) 0% 0% 50% TheexecutiveDirectorscanparticipateinall-employeeshareschemesonthesamebasisasotheremployees.Thevaluethatmaybe receivedundertheseschemesissubjecttotaxapprovedlimits.Forsimplicity,thevaluethatmaybereceivedfromparticipatingin theseschemeshasbeenexcludedfromthebelowcharts. CHIEF EXECUTIVE CHIEF FINANCIAL OFFICER £2,328,350 £1,974,725 35.8% 45.6% £1,090,663 16.2% 32.4% £560,225 35.8% 30.4% 100% 51.4% 28.4% 24.1% Fixedpay only On-target Maximum Maximumplus 50%shareprice growth £2,500,000 £2,000,000 £1,500,000 £1,000,000 £500,000 £395,200 £1,625,200 £1,379,200 35.7% 45.4% 35.7% 30.3% £764,200 16.1% 32.2% 100% 51.7% 28.7% 24.3% 0 Fixedpay only On-target Maximum Maximumplus 50%shareprice growth Annual variable Multi period variable £2,500,000 £2,000,000 £1,500,000 £1,000,000 £500,000 0 KEY Fixed pay I D R E C T O R S ' R E M U N E R A T O N R E P O R T I 103 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE ANNUAL REPORT ON REMUNERATION ThispartoftheDirectors’RemunerationReportsetsoutonpages104to117asummaryofhowthe2016Directors’Remuneration Policywasimplementedduringthefinancialyearended31December2018.ThispartissubjecttoanadvisoryvoteattheAGMtobe heldon2May2019.Detailsofhowweintendtooperateourproposed2019RemunerationPolicyandtheremunerationearnedby executiveandnon-executiveDirectors,theoutcomeoftheincentiveschemes,togetherwiththelinktotheCompany’sperformance, areprovidedinthispart. Wherestated,disclosuresregardingtheDirectors’remunerationhavebeenauditedbytheCompany’sindependentexternalauditor,PwC. COMMITTEE MEMBERSHIP AND ATTENDANCE TheCommitteecomprisesonlyindependentnon-executiveDirectorsandischairedbyDrTimMiller. ThemembersoftheCommitteewhoservedduringtheyearandasatthedateofthisreportareshowninthetablebelow,together withtheirattendanceatthetencommitteemeetingsheldduringtheyearorthoseheldduringtheirtenure: Name Committee Chair:DrTimMiller MarkBrooker1 AlisonBurns1 Sally-AnnHibberd VickyJarman2 Attended 10/10 2/2 8/8 10/10 1/3 1 MarkBrookerandAlisonBurnswereappointedtotheCommitteeeffectivefrom1Novemberand1Aprilrespectively. 2 VickyJarmanstooddownfromtheCommitteeeffectivefrom3May2018.Shewasunabletoattendonemeetingduetoillnessandanotherduetoaprior commitment. GOVERNANCE TheCommitteeactsindependentlyofmanagementandreportsandmakesrecommendationsdirectlytotheBoard. TheCommittee’sTermsofReferencestatethattheCommitteeshallbecomprisedofatleastthreeindependentnon-executive Directors,oneofwhomshouldbeChairmanoftheCommittee,andthiswascompliedwithinfullduringtheyear. TheCompanySecretary,ortheirnominee,actsasSecretarytotheCommitteeandattendsallmeetings.TheCommitteeinvites theChiefExecutive,theChiefPeople&TransformationOfficerandtheexternalremunerationadvisertoattenditsmeetingsinfull, althoughitreservesitsrightstorequestanyofthoseindividualstowithdraw.Duringtheyear,theCommitteemetwiththeChief People&TransformationOfficerwithoutmanagementand/oranyexecutivememberoftheBoardbeingpresent. TheCommitteehasunrestrictedaccesstoCompanydocumentsandinformation,aswellastoemployeesoftheGroup.Itcanobtain assurancesand,whenappropriate,reportsfromthedirectorsofsubsidiarycompanieswhichhaveappointedseparateremuneration committees. TheCommitteemaytakeindependentprofessionaladviceonanymatterscoveredbyitsTermsofReference,acopyofwhichcanbe foundintheinvestorsectionofEquiniti’swebsite:http://investors.equiniti.com/investors/shareholder-services/corporate-governance. 104 ROLE OF THE REMUNERATION COMMITTEE InaccordancewithitsTermsofReference,theCommitteeconsiders,agreesandrecommendstotheBoardanoverallremuneration policyandgovernanceframeworkforexecutiveDirectorsthatisalignedtotheCompany’slong-termbusinessstrategyandinterests, businessobjectiveandvalues. Itsetstheover-archingprinciplesandparametersofthepolicyanddeterminestheremunerationoftheChairman,theBoardand seniorexecutives.TheCommitteealsodeterminesandrecommendstotheBoardtheremunerationstrategyoftheCompanyas itappliestothebroaderworkforce.TheCommitteecurrentlyreceivesinformationonwiderpaypracticesandpoliciesacrossthe Group,butworkwillbeundertakenduring2019tobroadenanddeepentheCommittee’sunderstandinginthisarea. Itsresponsibilitiesinclude: Remuneration Policy • workingwiththeBoard,seniormanagementandinternalteams(includinghumanresources,riskandaudit)toset,approve andimplementaremunerationpolicyfortheGroup’sseniorexecutives(executiveDirectorsandmembersoftheExecutive Committee); • ensuringthatitadoptsacoherentapproachtoremunerationinrespecttothebroaderworkforce; • determiningthecontractsofemployment,termsofserviceandremunerationoftheBoardchairmanandexecutiveDirectors; • determiningthepensionspolicyforthebroaderworkforce; • approvingthedesignof,anddeterminingtargetsfor,allperformancerelatedpayschemesoperatedbyEquinitiandapprovingthe totalannualpaymentsmadeundersuchschemes; • reviewingthedesignofallshareincentiveplansforapprovalbytheBoardandshareholders.Foranysuchplans,theCommittee determineseachyearwhetherawardswillbemadeand,ifso,theoverallamountofsuchawards,theindividualawardsto executiveDirectorsandotherseniormanagement,andtheperformancetargetstobeused; • ensuringperformanceobjectivesforexecutiveDirectorsaretransparent,stretchingandrigorouslyappliedandtakedueaccount ofrisk; • reviewingandapprovingdecisionsmadebytheRemunerationCommitteeofEquinitiFinancialServicesLimited(EFSL); Remuneration Policy Monitoring • periodicallyreviewing,atleasteverythreeyears,theoverallappropriatenessandeffectivenessofallremunerationpoliciesforthe Companyanditssubsidiaries;and • havingregardtoapplicablegoodpracticessuchastheInvestmentAssociationandPensionsandLifetimeSavingsAssociation guidelinesonexecutivecontractsandseveranceandtakingintoaccounttheGroup’sstatutorydutiesinrelationtoequalpayand non-discrimination. EXTERNAL REMUNERATION ADVISER TheCommitteehasaccesstoexternaladviceasrequired.Duringtheyear,Deloittewasappointedfollowingacompetitivetender process,replacingNewBridgeStreet,partofAonplc.BothDeloitteandNewBridgeStreetaresignatoriestotheRemuneration Consultants’CodeofConductwhichrequiresthatitssignatoriesprovideobjectiveandimpartialadvice.TheCodeofConductcanbe foundatwww.remunerationconsultantsgroup.com. Deloittehasprovidedadviceandsupportaroundthefollowingkeyareas: • reviewingtheproposednewRemunerationPolicy; • advisingontheperformanceshareplananddeferredannualbonusplan; • informingtheCommitteeonmarketpracticeandgovernanceissues;and • respondingtogeneralandtechnicalqueries. Bothremunerationadviserswerepaidduringtheirrespectiveperiodsofappointmentonatimeworkedbasis.Thetotalfeespaidto NewBridgeStreetwere£19,345andtoDeloittewere£91,700. Duringitsperiodofappointment,NewBridgeStreetwasalsotheappointedremunerationadvisertotheremunerationcommitteeof EFSL,anFCAregulatedcompanywithintheGroup.NewBridgeStreetdidnotprovideanyotherservicestotheGroupduringtheir periodofappointment.DeloittehasprovidedothershareschemerelatedadvicetotheGroupduringtheyear. I D R E C T O R S ' R E M U N E R A T O N R E P O R T I 105 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE COMMITTEE ACTIVITIES DURING 2018 TheCommitteemetontenoccasionsduringtheyear.Atthosemeetings,someofwhichweretelephonemeetings,theCommittee carriedoutitsremitwhichprimarilyincludedthefollowing: • reviewedandapprovedthe2017performancereviewreport,includingfeedbackfromtheChiefRiskOfficer, GroupChiefAuditExecutiveandGroupHRDirector; • reviewedandapprovedtheleadershipincentiveschemeout-turn; • reviewedandapprovedthe2018remunerationrecommendations,includingobjectives; • reviewedandapprovedthe2018PerformanceSharePlangrant; • approvedthe2018DeferredAnnualBonusPlanawards; • reviewedandapprovedtheDirectors’Remunerationreportforinclusionwithinthe2017AnnualReportandAccounts; • reviewedtheRemunerationPolicy; • reviewedandapprovedtheCommittee’sTermsofReference;and • receivedanupdatereportfromEFSL'sremunerationcommittee. • reviewedthe2018leadershipincentiveschemestructureandweightings;and • reviewedthetenderprocessfortheremunerationadviserrole. • followingtheremunerationadvisertender,determinedandrecommended,totheBoard,theappointment ofDeloitteastheCommittee’sremunerationadviser;and • reviewedthecurrentRemunerationPolicyanddiscusseditsrenewal. • reviewedtheproposedRemunerationPolicy,takingintoaccountthenew2018UKCorporateGovernance Codeanditsreportingrequirements. • reviewedandapprovedagrantofoptionsundertheSave-As-You-Earnscheme;and • approvedthevestingofthe2015grantofoptionsunderthePerformanceSharePlan. • reviewedanddiscussedadraftoftheproposed2019RemunerationPolicy; • reviewedandapprovedamendmentstotheincentiveschemedocuments;and • approvedandratifiedcertainseniorexecutivesremuneration. • reviewedperformanceupdatesagainstobjectivesfortheshareplansandleadershipincentiveschemes duringtheyear; • reviewed2019payproposalsfortheworkforceandseniorleaders;and • receivedanupdateonthe2019RemunerationPolicyconsultation. 106 AprilJulySeptemberOctoberNovemberMarchDecember SINGLE TOTAL FIGURE OF REMUNERATION (AUDITED INFORMATION) Fixed Pay £'000s Variable Pay £'000s Salary or Fees Benefits1 Pension Contributions2 Annual Bonus3 PSP4 SAYE5 Total Executive Directors Guy Wakeley John Stier Non-executive Directors Philip Yea Mark Brooker6 Alison Burns7 Sally-Ann Hibberd Vicky Jarman8 Dr Tim Miller9 Cheryl Millington6 Darren Pope10 Kevin Beeston11 John Parker12 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 460 460 320 308 200 100 9 – 41 – 65 65 22 73 115 115 9 – 72 57 – 158 – 56 18 47 18 18 – – – – – – – – – – – – – – – – – 1 – – 69 69 48 46 – – – – – – – – – – – – – – – – – – – – 476 545 329 367 – – – – – – – – – – – – – – – – – – – – 2,503 1,557 1,660 1,033 – – – – – – – – – – – – – – – – – – – 4 1 4 1 – – – – – – – – – – – – – – – – – – – – 1Benefits-executiveDirectorsareentitledtotaxablebenefitsasdescribedbelow: £’000 Car Allowance Private Medical Insurance Life Assurance Guy Wakeley John Stier 15 15 2 2 1 1 I D R E C T O R S ' R E M U N E R A T O N R E P O R T I 3,530 2,679 2,379 1,773 200 100 9 – 41 – 65 65 22 73 115 115 9 – 72 57 – 159 – 56 Total 18 18 2Acashallowanceof15%ofbasesalaryisreceivedinlieuofpensioncontributions.NoexecutiveDirectorparticipatesin,orisadeferredmemberof,anEquinitipensionplan. 330%ofthebonusshownabovewillbedeferredintoshares.FurtherdetailsoftheDABPcanbefoundonpage111. 4ThePSPvaluefor2017includestheEPSelementof2015PSPawards.Theperformanceofthiselementwasmeasuredto31December2017.Fordetailsoftheperformance conditionsseepage112.Thevalueshownisbasedonthesharepriceonvestingon27October2018of£2.213.ThePSPvaluefor2018includestheTSRelementof2015PSP awardsandthefullvalueof2016PSPawards.TheperformanceoftheTSRelementof2015PSPawardswasmeasuredto27October2018.Fordetailsoftheperformance conditionsseepage112.Thevalueshownisbasedonthesharepriceonvestingon27October2018of£2.213.Theperformanceofthe2016PSPawardswasmeasuredto 31December2018.Fordetailsoftheperformanceconditionsseepage113.Thevalueshownisbasedonanestimatedsharepriceof£2.184,thethreemonthaverageshare priceto31December2018.Thevaluesfor2018includetheimpactofsharepricemovementsanddividendspaidbetweengrantandvesting,£660,994forGuyWakeleyand £438,133forJohnStier. 5BothexecutiveDirectorsparticipateintheSharesaveSchemeandthefirstinvitationmaturedon1January2019.Thevalueshownisthatattheendofthethree-yearsavings period.TherearenoperformanceconditionsforthisSchemesavebeinganemployeeoftheGroupatthematuritydate. 6MarkBrookerandCherylMillingtonbothjoinedtheBoardeffectivefrom1November2018. 7AlisonBurnsjoinedtheBoardeffectivefrom1April2018. 8VickyJarmanstooddownfromtheBoardeffectivefrom3May2018. 9ThefeesforDrTimMillerincludethe£50,000thathereceivesforservingontheboardofEFSL. 10DarrenPopewasappointedAuditChairinNovember2017andSeniorIndependantDirectorinMay2018 11KevinBeestonstooddownfromtheBoardeffectivefrom29September2017. 12JohnParkerstooddownfromtheBoardeffectivefrom30September2017. 107 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE ANNUAL NON-EXECUTIVE DIRECTOR FEES 2019 2018 % Change Year Ending 31 December Board Chairman Basic Fee Additional fee for Senior Independent Director Additional fee for Committee Chair £200,000 £200,000 £55,000 £10,000 £10,000 £55,000 £10,000 £10,000 0 0 0 0 VARIABLE PAY OUTCOMES (AUDITED INFORMATION) Annual Bonus Forthefinancialyearended31December2018,annualbonusesfortheexecutiveDirectorswerebasedoncorporatefinancialand personalobjectives.Abonusofupto150%ofsalarycouldbeearned.TheCommitteereviewedtheachievementsagainstthetargets fortheyearthroughtheannualperformancereviewprocess.Thetablesonpages109and110showtheachievementagainstthe financialandpersonalperformancemeasuresandtheresultingbonuspayments. Corporate Financial Objectives Thecorporatefinancialmetricswerebasedonprofitbeforetax(50%),revenue(30%)andoperatingcashflowconversion(20%). Individual Personal Objectives and Individual Multiplier Theindividualpersonalobjectivesweresetfollowing consultationbetweentheCommitteeandeachexecutive Director,andaredetailedinthetableonpage110.The individualmultiplierrangesfrom0to150%,determined throughtheCommittee'sreviewofperformanceagainst personalobjectives,withamultiplierof100%forgood performance.Theperformancebreakdownandresulting multiplierisshowninthetableopposite: Performance Rating Maximum multiplier Outstanding High Good Offtrack Low 150% 125% 100% 50% 0 Acapontheoverallbonuspoolwillapplytoensurethatbonuspaymentswhichareabovetargetdonotexceed40%ofincremental profitinexcessofbudget. OUTCOMEOFPERFORMANCEAGAINSTINDIVIDUALPERSONALOBJECTIVESACTSAS AMULTIPLIERWITHANNUALBONUSCALCULATEDUSINGTHEFOLLOWINGFORMULA: Salary Target bonus opportunity Corporate financial outcome Individual multiplier Annual bonus TheexecutiveDirectorshaveatargetbonusopportunityof100%ofsalary.Ifbudgetperformanceisachievedagainstthecorporate financialmeasurestogetherwithanindividualmultiplierof100%forgoodperformance,thiswouldresultinabonusof75%ofsalary. 108 Corporate Financial Outcome Performance measures Weighting (%) Threshold target (£000s) Budget target (£000s) Maximum target (£000s) Actual performance (£000s) % of target bonus payable Profit before tax Revenue Operating cash flow conversion Total 0% 23,157 475,741 90.0% 75% 25,730 500,780 95.0% 125% 30,876 525,819 100.0% 50 30 20 24,643 530,920 101.8% 21.7 37.5 25.0 84.2 TheperformanceofeachoftheexecutiveDirectorswasassessedthroughtheannualperformancereviewprocess. BasedontheirachievementstheCommitteehasdeterminedthateachDirector’sperformancewashighforthepersonalelement relatingtotheir2018objectives,resultinginmultipliersof123%forGuyWakeleyand122%forJohnStier.Furtherdetailsofthe objectivessetandprogressintheyeararesetoutonpage110. Individual multiplier Multiplier awarded 2018 Bonus Bonus amount achieved as % of salary Bonus amount achieved Paid in cash (70%) Deferred in shares (30%) Guy Wakeley John Stier 123% 122% Guy Wakeley John Stier 104% £476,404 £333,483 £142,921 103% £329,494 £230,646 £98,848 I D R E C T O R S ' R E M U N E R A T O N R E P O R T I 109 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE Individual non-financial objectives Guy Wakeley's objectives focused on: Evidenced by: DeliveringasuccessfulentrytotheUSmarketthrough thetransitionoftheWellsFargoShareownerServices business(nowcalledEQUS) SuccessfulentryintotheUSmarket,withnomaterialclientsbeing lostandnewbusinessbeingwon.ThetransitiontoSiriushasnotyet beenachieved,buttherehasbeenaflawlessdeliveryofservicesince dayone.TechnicalseparationfromWellsFargoalmostcompleted.US colleagues’energyandengagementishigh. Maintainingsustainableearningsanddividend progression Sustainableearningshavebeenincreasedbysingledigitgrowthand thedividendhasincreasedbydoubledigits. Increasingsalesprogressionthroughthecross-saleof productsandservices Divisionalorganicgrowthhasincreasedbyover5%.Goodprogress hasbeenmadewiththecross-saleofproducts.Therehasbeenan increaseinsalesoftheGroup’sregulation,dataandcyberproducts. DrivingthesimplificationofGroupstrategyandstructure toimprovedeliveryofcustomerrequirementsand shareholdervalue TheGroupstrategywascommunicatedtoinvestorsandanalystsin September2018.Thestrategyiswellunderstoodwithinthebusiness andamongsttheinvestorbase. Materiallyimprovingthedeliveryoftechnologyand change AnITtransformationprogrammehasbeencreatedandresourced andhasdelivered£3mofgrosssavingsin2018.Fulldigitisationofour CorporateShareholderNomineeproducthasbeendelivered.Anew shareplanportalandclientportalsfortheUSarenowintest. ImprovingcustomersatisfactionandadvocacyforB2B andD2Ccustomers Corporatesatisfactionof94%andcustomersatisfactionof98%. Superbrandstatusnowawardedfor‘Equiniti’and‘EQ’. ThedeliveryofthenextstagesofimprovementinRisk, AuditandComplianceeffectiveness Demonstratingtheabilitytoconnect,inspireanddeliver leadershipinsupportoftheEQLeadershipmodel TheGroupriskframeworksignificantlyadvancedin2018,with divisionalriskleadersbeingappointedandtheXactiumriskframework deployed.Thereisincreasedownershipandvisibilityofauditactions. GDPRcompliancehasbeendelivered. Groupleadershiptrainingprogrammelaunchedanddeliveredfor twocohorts.Quarterlyleadershipeveningsarenowrunningandclear objectiveshavebeensetfor2019.43%ofvacanciesarenowfilledby internalcandidates. John Stier's objectives focused on: Evidenced by: ConcludingtheimplementationoftheHRandfinance systemsforEquinitiTrustCompany,andbuildinga platformroadmapfortheUK TheWorkdayfinanceandHRsystemshadbeenrolledoutwithinthe USaccordingtoplan.ThenewUSbillingsystemwasonscheduleto golivebytheendofthefirstquarterin2019. Improvingfreecashflowyieldthroughimprovement inworkingcapital,tax,interestpayableandreturnon investment Budgetedcashflowwasoutperformedandcashconversionof102% wasdelivered. Supportingthenegotiationandstructuringoffurther materialcombinationopportunities ThefocusduringtheyearwastheintegrationofEQUS,whichwasdue tocompletebyJune2019. Deliveringaclosingyearendnetleveragepositionofless than2.6xinclusiveoftheUStransformationcosts Thiswasout-performed,withverystrongcashmanagement.Leverage was2.5xagainstthebudgetof2.6x. DrivingfurtherbenefitfromGroupprocurementand propertyfunctions,withparticularfocusonoffshore operationsandtheITestate Ensuringthatcomplianceandaudititemswereclosedon adefinitiveandtimelybasis Demonstratingtheabilitytoconnect,inspireanddeliver leadershipinsupportoftheEQLeadershipmodel Annualisedsavingsofover£5mweredelivered.Anewproperty strategyhasbeenimplementedforthebusinesstodrivesavings. Allitemshadbeenclosedinatimelymannerduringtheyear. Duringtheyear,afinanceconferencewaslaunched,togetherwith quarterlywebbriefingsforthefinanceteam.Asuccessionplanhas beenputinplaceforthefinanceteam. 110 DEFERRED ANNUAL BONUS PLAN (AUDITED INFORMATION) 30%ofthebonusawardedinrespectofthe2017financialyearwasdeferredintosharesforthreeyears(subjecttocontinuedservice andmalusandclawback)andissummarisedalongwithpreviousawardsinthetablebelow. Award and Vesting date 1 January 2018 Granted (number)1 Lapsed (number) 31 December 2018 Market price at date of grant (pence)2 Guy Wakeley John Stier 21/03/18 – 21/03/21 – 52,329 21/03/17 – 21/03/20 34,429 – 21/03/18 – 21/03/21 – 35,220 21/03/17 – 21/03/20 25,782 – – – – – 52,329 34,429 35,220 25,782 1Atthetimeofgrant,thevalueofthenumberofsharesawardedisequaltothegrossvalueofthebonusdeferred. 2Themarketpriceatdateofgrantwascalculatedusingthepriorday’sclosingprice 312.5 194 312.5 194 PERFORMANCE SHARE PLAN (PSP) (AUDITED INFORMATION) ThetablebelowdetailsthePSPawardsgrantedtotheexecutiveDirectorsduringtheyeartogetherwiththosewhichwereunvested at31December2018.TheawardsmadewereinlinewiththeexistingRemunerationPolicy. Maximum Award Shares Vesting Award and Vesting date Number of options awarded1 % of salary Face value at grant £’000 Market price at grant (pence)2 Threshold Maximum End of Performance Period Guy Wakeley John Stier 21/03/18 – 21/03/21 21/03/17 – 21/03/20 24/03/16 – 24/03/19 21/03/18 – 21/03/21 21/03/17 – 21/03/20 24/03/16 – 24/03/19 220,800 379,833 464,407 148,608 251,845 307,922 150 150 150 150 150 150 £690 £737 £737 £464 £489 £489 312.5 25% 100% 31/12/20 194 25% 100% 31/12/19 158.67 25% 100% 31/12/18 312.5 25% 100% 31/12/20 194 25% 100% 31/12/19 158.67 25% 100% 31/12/18 1 DuetotherightsissueinOctober2017,thenumberofoptionsawardedin2016and2017wereadjustedandincreasedinlinewithmarketpractice. 2WhenPSPoptionsaregranted,themarketpriceatdateofgrantiscalculatedusingthepriorday’sclosingshareprice.Thisisusedtocalculatethenumber ofoptionstobegrantedtotheparticipantandisnotthepricetheparticipanthastopaytoreceivetheoptionsoncetheyhavevested.Theoptionsare‘nil- cost’optionswhichmeansthatthereisnopricetobepaidtoreceivethemoncetheyhavevested.However,theparticipantwillhavetopayincometaxand nationalinsuranceattheirrespectivetaxrateontheoverallmarketvalueofthevestedaward,pricedatthetimeofexercise. 3Followingvesting,afurthertwoyearholdingperiodappliestothePSPawards,detailsofwhichareprovidedinthisreport. I D R E C T O R S ' R E M U N E R A T O N R E P O R T I 111 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE AwardsgrantedunderthePSParenil-costoptionsandaresubjecttothefollowingperformancemeasures: Performance Measure Weighting of Measure Performance Target EPSgrowth 50% RelativeTSR 50% AverageannualgrowthintheCompany’sfullydilutednormalisedearningspershare(EPS)over threefinancialyears.For2015,2016and2017awards,ifaveragegrowthinEPSoverthreefinancial yearsis6%ormore,25%oftheawardwillvest.Theawardwillvestinfullforaveragegrowthof 12%,withpaymentonaslidingscaleinbetweenthesepoints.Noawardwillvestifgrowthis below6%.For2018awardsonly,thethresholdEPStargetoverthreefinancialyearswasincreased to8%toreflecttheimpactoftheWFSSacquisitioninthefirstyearoftheperformanceperiod. Totalshareholderreturn(TSR)performanceoverthreefinancialyearsrelativetotheconstituent companiesoftheFTSE250Index(excludinginvestmenttrusts)ondateofgrant.Vestingof25% oftheawardwilloccurformedianrankingandtheawardwillvestinfullforupperquartileor aboveranking,withstraightlinevestinginbetweenthesepointsbasedonranking.Noawardwill vestifTSRranksbelowthemedian. Vesting of 2015 PSP Award ThefirstsetofPSPawardsgrantedinNovember2015vestedinOctober2018.TheCommitteereviewedtheperformanceconditions fortheawardanddeterminedthat100%oftheawardvestedintotal.Performanceagainstbothconditionsissummarisedbelow.The EPSperformanceconditionwasbasedontheaverageannualgrowthintheCompany’sfullydilutednormalisedearningspershare overthe2016and2017financialyears,measuredfromaproformaEPSforthefinancialyearending31December2015of13.5p. TheTSRperformanceconditionwasmeasuredoverthreeyearsfromNovember2015toOctober2018. Measure Weighting Vesting scale Base EPS Fully diluted normalised EPS for year ended 31 December 2017 Average annual growth % of this element of the award vesting 50% Averageannual growthinthe Company’s fullydiluted normalisedEPS NovestingifaverageEPS growthisbelow6%,25% vestsifaverageEPSgrowth isequalto6%,100%vestsif averageEPSgrowthis12% ormore.Straightlineprorata vestingfrom25%to100%for averageEPSgrowthbetween 6%and12% 13.5p 16.9p 12.03% 100% Measure Weighting Vesting scale Performance achieved % of this element of the award vesting RelativeTSR 50% NovestingifTSRranksbelow themedian.25%vestsifTSR ismedianranking,100%vests ifTSRisupperquartileor above.Straightlineprorata vestingfrom25%to100%for TSRrankingbetweenmedian andupperquartile Above upper quartile 100% ThenumberofsharesthatvestedinOctober2018foreachoftheexecutiveDirectorsasaresultofthisperformanceisshowninthe 112 tablebelow: Measure Number of shares subject to award % that vested based on EPS and TSR performance Number of shares that vested* Value of shares at vesting Guy Wakeley 1,339,775 John Stier 888,329 100% 100% 1,407,537 933,258 £3,114,870 £2,065,300 *Thisnumberincludesdividendequivalentsharesaccruedduringthethreeyearvestingperiodasfollows:67,762forGuyWakeleyand44,929forJohnStier. InaccordancewiththeRegulations,theportionoftheawardbasedonEPS,being50%ofthevaluesabove,wasincludedinthe singlefiguretableinthe2017AnnualReport. Vesting of 2016 PSP Award ThePSPawardsgrantedinMarch2016willvestinMarch2019.TheCommitteereviewedtheperformanceconditionsfortheaward anddeterminedthat88.75%oftheawardvestedintotal.Performanceagainstbothconditionsissummarisedbelow.TheEPS performanceconditionwasbasedontheaverageannualgrowthintheCompany’sfullydilutednormalisedearningspershare overthe2016,2017and2018financialyears.TheTSRperformanceconditionwasmeasuredoverthreeyearsfromJanuary2016to December2018. Base EPS Fully diluted normalised EPS for year ended 31 December 2018 Average annual growth % of this element of the award vesting 13.5p 17.9p 10.2% 77.5% Measure Weighting Vesting scale 50% Average annual growthinthe Company’s fullydiluted normalised EPS Novestingifaverage EPSgrowthisbelow6%, 25%vestsifaverageEPS growthisequalto6%, 100%vestsifaverage EPSgrowthis12%or more.Straightlinepro ratavestingfrom25%to 100%foraverageEPS growthbetween6%and 12% Measure Weighting Vesting scale TSR performance Relative performance achieved % of this element of the award vesting 42.5% Aboveupperquartile 100% RelativeTSR 50% NovestingifTSRranks belowthemedian.25% vestsifTSRismedian ranking,100%vestsif TSRisupperquartileor above.Straightlinepro ratavestingfrom25% to100%forTSRranking betweenmedianand upperquartile ThenumberofsharesthatwillvestinMarch2019foreachoftheexecutiveDirectorsasaresultofthisperformanceisshowninthe tablebelow: Measure Number of shares subject to award % that vested based on EPS and TSR performance Number of shares that will vest* Estimated value of shares at vesting** Guy Wakeley 464,407 John Stier 307,922 88.75% 88.75% 433,005 287,100 £945,683 £627,026 *Thisnumberincludesdividendequivalentsharesaccruedduringthethreeyearvestingperiodasfollows:23,486forGuyWakeleyand15,572forJohnStier. **Thevalueofthemarketpriceofthesharesatvestinghasbeenestimatedbasedontheaveragemarketvalueoverthelastthreemonthsof2018. I D R E C T O R S ' R E M U N E R A T O N R E P O R T I 113 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE Post-vesting holding period Followingvesting,afurthertwo-yearholdingperiodwillapplytothePSPawards,wherebyexecutiveDirectorswillberestrictedfrom sellingtheirinterestinthenetoftaxshareswhichvest.ThesevestedshareswillbeheldinanEquinitiinvestmentproductforthe durationoftheholdingperiod. SAVE-AS-YOU-EARN SCHEME (SHARESAVE) TheCompanyoffersaSharesaveschemetoallemployees,includingexecutiveDirectors.Participantscansaveasumofmoneyeach monthforaperiodofthreeyears.Underthetax-approvedlimits,themaximumthateachparticipantcansaveeachmonthis£500, howeverthiscanbereducedandcappediftheSharesaveisoversubscribed.Attheendofthethree-yearperiod,themoneysaved caneitherbereturnedtotheparticipantorusedtoacquiresharesintheCompanyatapricesetata20%discounttoamarketprice beinganamountequaltotheaverageofthedailymiddle-marketquotationofashareoverthethreedealingdayspriortothegrant date. 2015 Grant ThefirstgrantundertheSharesavewaswhentheCompanylistedin2015.TheSharesavewasoversubscribedandthemonthlylimit wascappedat£100permonth.Thegrantpriceis£1.19pershare.Theoriginalprice,withthe20%discountwas£1.27,howeverthis wasreducedto£1.19followingtherightsissueon17October2017. Thefirstgrantmaturedon1January2019.DetailsofthenumberofsharesareincludedintheDirectors’shareholdingtableon page115. 2018 Grant ThesecondgrantundertheSharesavewasmadeon27September2018.Again,theSharesavewasoversubscribedandthemonthly limitwascappedat£100permonth.Thegrantpriceis£1.77.TheSharesavewillmaturein2021. The2018Grantwasofferedtoallofouremployees,includingthoseinIndia,theNetherlands,SouthAfricaandtheUS.Thetermsof theSharesavewerethesameforallparticipants,exceptforthoseintheUS.IntheUS,thesavingsperiodisonlyforaperiodoftwo years.Attheendofthetwo-yearsavingsperiod,USemployeesareabletoexercisetheiroptions,butarerestrictedfromdealing inthesharesforafurther12monthperiod.ThediscounttothemarketpriceisalsolessforUSparticipants(15%)andthereforethe grantpriceforUSparticipantsis£2.23. SHARE INCENTIVE PLAN ExecutiveDirectorsmayparticipateintheCompany’sShareIncentiveplanonthesamebasisasallothereligibleemployees. Employeescanpurchaseupto£1,800ofpartnershipshareseachyearfromgrosssalary.Foreverythreepartnershipshares participantspurchase,theyreceivetwofreematchingsharesonthefirst£180thattheyinvestannually. DIRECTORS’ SHAREHOLDING REQUIREMENTS AND SHARE INTERESTS (AUDITED INFORMATION) ToaligntheinterestsoftheexecutiveDirectorswithshareholders,eachexecutiveDirectormustbuildupandmaintainabeneficial shareholding,excludingshareoptions,intheCompanyequivalentto200%ofbasesalary.ExecutiveDirectorsmustmeetthe shareholdingguidelinewithinfiveyearsofappointmenttotheBoard. From2019onwards,executiveDirectorswillnormallyberequiredtoretainashareholdingintheCompanyforaperiodoftwoyears afterleavingattheloweroftheshareholdingrequirementinplacepriortodepartureortheactualshareholdingondeparture. ThisappliestosharesacquiredfromincentiveplansandmayincludethenetvalueofoutstandingDABPawardsandPSPawards subjectonlytoaholdingperiod.TheCommitteewillhavediscretiontooperatethepolicyflexiblyandmaywaivepartorallof therequirementwhereconsideredappropriate,forexampleincompassionatecircumstances.Itisintendedthatthepolicywillbe supportedbytheuseofnomineeaccounts. Asat31December2018,theChiefExecutivebeneficiallyheldshareswithanequivalentvalueof1,213%ofhisbasesalaryandthe ChiefFinancialOfficerbeneficiallyheldshareswithanequivalentvalueof864%ofhisbasesalary.AccordinglyallexecutiveDirectors havemettheshareholdingrequirements. 114 Director Beneficial Share Interest Unvested share options Total Interest Guy Wakeley1 John Stier1 Philip Yea Mark Brooker Alison Burns Sally-Ann Hibberd Vicky Jarman2 Dr Tim Miller Cheryl Millington Darren Pope At 31 Dec 18 / Leaving date Vested PSP subject to holding period PSP with conditions DABP with conditions SAYE without conditions 1,170,574 1,407,537 1,065,040 333,852 160,000 – – – 34,175 150,783 – – 933,258 708,375 – – – – – – – – – – – – – – – – 86,758 61,002 5,059 5,059 – – – – – – – – – – – – – – – – 3,734,968 2,041,546 160,000 – – – 34,175 150,783 – – 1 ThePartnership,MatchingandFreesharesthatGuyWakeleyandJohnStierholdintheShareIncentivePlanareincludedinthefigureforbeneficiallyownedshares 2VickyJarmanstooddownfromtheBoardeffectivefrom3May2018. On2January2019,GuyWakeleyandJohnStierbothexercised3,026shareseachfromthe2015Sharesavewhichmaturedon 1January2019.ThesesharesareincludedintheSAYEwithoutconditionsfiguresabove.Therehavebeennofurtherchanges between3January2019andthedateofthisreport. PERFORMANCE GRAPH AND TABLE ThefollowinggraphshowstheCompany’sTSRperformancefromlistinginOctober2015totheendofthe2018financialyear,against theFTSE250index.TheFTSE250(excludinginvestmenttrusts)hasbeenselectedasitcomprisescompaniesofacomparablesize andcomplexityandprovidesagoodindicationoftheCompany’srelativeperformance. 119% 108% 97% 86% 75% 64% 53% 42% 31% 20% 9% (2%) (13%) (24%) (35%) Oct 2015 Apr 2016 Sep 2016 Mar 2017 Aug 2017 Feb 2018 Jul 2018 Dec 2018 EQUINITI FTSE 250 Excluding Investment Trusts I D R E C T O R S ' R E M U N E R A T O N R E P O R T I 115 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE CHIEF EXECUTIVE’S PAY IN THE LAST FIVE FINANCIAL YEARS ThetotalremunerationoftheChiefExecutiveoverthelastfiveyearsinshowninthetablebelow: Total Remuneration (£000) Annual Bonus (as % of maximum opportunity) PSP vesting (as % of maximum opportunity) 2018 3,529 69% 95%1 2017 3,106 70% 100%2 Year Ended 31 December 2016 965 57% N/A 2015 2,743 65% N/A 2014 528 37% N/A 1 2018PSPvestingincludestheweightedaverageofvestingoutcomesfortheTSRelementofthe2015PSPawards(100%ofmaximum)and2016PSPawards (88.75%ofmaximum). 22017PSPvestingincludestheEPSelementofthe2015PSPawards. PERCENTAGE CHANGE IN CHIEF EXECUTIVE’S REMUNERATION ThetablebelowshowsthepercentagechangeineachoftheChiefExecutive’ssalary,taxablebenefitsandannualbonusearnedin 2018and2017,comparedtothatfortheaverageemployeeoftheGroup(onapercapitabasis): Salary Benefits Annual Bonus Guy Wakeley, Chief Executive Average Employee % change % change 0 (62) (12.6) 2.89 0 10.33 TheChiefExecutivedeclinedasalaryincreasefor2018,whereastheaverageincreaseforemployeeswas2.89%.TheChief Executive’sbenefitsleveldeclined62%duetotherepaymentbyhimduring2018oftheloanmadebytheCompany.Therewereno changesinthelevelofbenefitsofferedtoemployees. RELATIVE IMPORTANCE OF SPEND ON PAY Thetablebelowdetailsthepercentagechangeindividendsandoverallexpenditureonpaycomparedwiththepreviousfinancialyear: Total dividend paid Total employee remuneration PAYMENTS FOR LOSS OF OFFICE (AUDITED INFORMATION) Therewerenopaymentsforlossofofficemadein2018. PAYMENTS TO PAST DIRECTORS (AUDITED INFORMATION) TherewerenopaymentsmadetoanypastDirectorsduringtheyear. 2018 vs 2017 +17% +26% 2018 5.32p 2017 4.55p £219.8m £174.6m EXECUTIVE DIRECTORS SERVING AS NON-EXECUTIVE DIRECTORS SinceMarch2018,GuyWakeleyhasservedasanon-executivedirectorofHgCapitalTrustplc,forwhichhereceivedafeeof£29,967 duringthe2018financialyear.Heretainedthisfeeinfull. OTHER SHAREHOLDING INFORMATION (AUDITED INFORMATION) Share Price TheclosingsharepriceoftheCompany’sordinarysharesat31December2018,was216.5pandthepricerangeforfinancialyearwas 196.8p to 326.5p. Shareholder Dilution AwardsgrantedundertheCompany’sshareplansmaybesatisfiedbysharespurchasedinthemarketorbytheissueofnewshares whenawardsvest.TheBoardmonitorsthenumberofsharesissuedunderthevariousshareplansandtheimpactondilutionlimits. TherelevantdilutionlimitsestablishedbytheInvestmentAssociationinrespectofshareplansis10%inanyrollingten-yearperiodand inrespectofdiscretionaryshareplansis5%inanyten-yearrollingperiod. BasedontheCompany’sissuedsharecapitalasat31December2018,andassumingthatallcurrentawardsmadeunderthe Company’sshareplansasatthatdatevestinfull,thedilutionlevelwas4.59%againstallshareplansand2.72%againstdiscretionary schemes. 116 Director Loans AsdisclosedinpreviousAnnualReports,AdventtransferredsharestocertainDirectorsoftheGrouponIPOin2015,inrecognition oftheircontributionandmanagementoftheIPOprocess.Thesharesweresubjecttolockuparrangements,asdisclosedinthe pricerangeprospectus.Asthesharesvestedimmediately,andwerethereforetaxableatthepointofgrant.TheCompanylentthree ofthoseDirectorswhoreceivedthesharesmoniestocovertheirincometaxandnationalinsuranceliabilities.Theseloanswereall subjecttorelevantapprovalsthroughtheIPOprocessandweretreatedasabenefitinkindtothereceivingindividuals.Allbenefiting individualshadenteredintoaloanagreementwiththeCompanywiththeseloanshavingtoberepaidnolaterthanApril2018.All loanswererepaidbythisdateandnoamountremainsoutstanding. DIRECTORS’ SERVICE CONTRACTS Date of appointment Date of current contract/ letter of appointment Notice from Company Notice from Director Unexpired period of service contract Executive Directors* Guy Wakeley John Stier Non-executive Directors** 27October2015 7September2015 12 months 12 months Rollingcontract 27October2015 11September2015 12 months 12 months Rollingcontract Philip Yea Mark Brooker Alison Burns Sally-Ann Hibberd Dr Tim Miller Cheryl Millington Darren Pope 3July2017 30June2017 3 months 3 months 1November2018 16October2018 3 months 3 months 1April2018 22February2018 3 months 3 months 27June2016 27June2016 3 months 3 months 9October2015 23April2018 3 months 3 months 1November2018 16October2018 3 months 3 months 6October2016 6October2016 3 months 3 months 19 months 34 months 27 months 6 months 34 months 34 months 9 months I D R E C T O R S ' R E M U N E R A T O N R E P O R T I *GuyWakeleyjoinedtheGroupinJanuary2014andJohnStierjoinedtheGroupinJune2015.WhentheCompanylistedinOctober2015,theyenteredintonew servicecontractsandtheirdateofappointmenttothelistedcompanywas27October2015. **Non-executiveDirectorsareappointedforaninitialtermofthreeyears,renewableforasubsequenttermofthreeyears. STATEMENT OF VOTING Thevotingoutcomeatthe2018AnnualGeneralMeetinginrespectofthe2017AnnualReportonRemunerationreflectedverystrong shareholdersupport. Shares voted In Favour Against Withheld 293,910,020 80.64%ofsharesinissue 292,353,295 99.47%ofsharesvoted 1,556,725 0.53%ofsharesvoted 152,141 – TheCompany’scurrentRemunerationPolicywasapprovedbyshareholdersattheCompany’sAGMheldon26April2016withavery strongmajorityvoteinfavour. Shares voted In Favour Against Withheld Dr Tim Miller Chair of the Remuneration Committee 12March2019 227,611,057 75.87%ofsharesinissue 227,483,414 99.94%ofsharesvoted 127,643 0.06%ofsharesvoted Nil – 117 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE Directors’ Report INTRODUCTION EquinitiGroupplc(theCompany)isincorporatedasapublic limitedcompany,limitedbyshares,andisregisteredinEngland withtheregisterednumber07090427.TheCompanyisthe holdingcompanyfortheEquinitiGroupofcompanies(the Group).TheCompany’sregisteredofficeisSutherlandHouse, RussellWay,Crawley,WestSussex,RH101UHanditsregistrar isEquinitiLimitedwhichissituatedatAspectHouse,Spencer Road,Lancing,WestSussex,BN996DA. TheDirectors'presenttheirreportandauditedfinancial statementsoftheGroupfortheyearended31December2018, inaccordancewithsection415oftheCompaniesAct2006.The FCA’sDisclosureGuidanceandTransparencyRulesandListing RulesalsorequiretheCompanytomakecertaindisclosures, someofwhichhavebeenincludedinotherappropriatesections oftheAnnualReportandAccounts. TheDirectors’Reportcomprisespages118to121,andthe followingcross-referencedmaterialisincorporatedintothis Directors’Report: Future Developments of the Business Viability Statement Employees Greenhouse Gas Emissions Governance Report Statement of Directors' Responsibilities 21 52 38 46 56 70 Going Concern Statement Statement of Disclosure of Information to Auditors Financial Instruments and Financial Risk Management 71 71 The2018AnnualReportandAccountshavebeendrawnupand presentedinaccordancewithUKCompanylawandtheliabilities oftheDirectors’inconnectionwiththereportshallbesubjectto thelimitationsandrestrictionsprovidedbysuchlaw. DIRECTORS TheDirectors’whohaveheldofficeduringtheyearended 31December2018andtodateareasfollows: Philip Yea Guy Wakeley John Stier Mark Brooker –appointed1November2018 Alison Burns –appointed1April2018 Vicky Jarman –resigned3May2018 Sally-Ann Hibberd Dr Tim Miller Cheryl Millington –appointed1November2018 Darren Pope BiographicaldetailsoftheDirectorsaresetoutonpages58 to 59. 118 DIRECTORS’ RETIREMENT AND REAPPOINTMENT AllofthecurrentDirectorswillretireandofferthemselvesfor re-appointmentatthe2019AGM. TheCompany’sArticlesofAssociationregulatetheappointment andremovalofDirectors,asdoestheCompaniesAct2006and relatedlegislation.Ingeneral,theDirectorsmayfillanycasual vacancyinthenumberofDirectors,subjecttoreappointmentby shareholdersatthenextAnnualGeneralMeeting.TheArticles ofAssociationalsocontainauthorityforshareholdersbyordinary resolutiontoremoveanyDirectorfromofficeregardlessofthe termsoftheirappointment.TheArticlesofAssociationmay onlybeamendedbyspecialresolutionoftheshareholders.The powersoftheDirectorsaredescribedintheGovernanceReport onpages62to63. DIRECTORS’ DUTIES TheDirectorsoftheCompany,asthoseofallUKcompanies, mustactinaccordancewithasetofgeneralduties.Theseduties aredetailedinsection172oftheUKCompaniesAct2006which issummarisedasfollows: ‘Adirectorofacompanymustactinthewaytheyconsider,in goodfaith,wouldbemostlikelytopromotethesuccessofthe companyforthebenefitofitsshareholdersasawholeand,in doingsohaveregard(amongstothermatters)to: • thelikelyconsequencesofanydecisionsinthelong-term; • theinterestsofthecompany’semployees; • theneedtofosterthecompany’sbusinessrelationshipswith 85 suppliers,customersandothers; • theimpactofthecompany’soperationsonthecommunity andenvironment; • thedesirabilityofthecompanymaintainingareputationfor highstandardsofbusinessconduct;and • theneedtoactfairlyasbetweenshareholdersofthe Company.’ Aspartoftheirinduction,aDirectorisbriefedontheirduties andtheycanaccessprofessionaladviceonthese,eitherfrom theCompanySecretaryor,iftheyjudgeitnecessary,froman independentadviser.Itisimportanttorecognisethatinalarge organisationsuchasours,theDirectorsfulfiltheirdutiespartly throughagovernanceframeworkthatdelegatesday-to-day decision-makingtoemployeesoftheCompanyanddetailsof thiscanbefoundinourGovernanceReportonpages66to67. ThefollowingparagraphssummarisehowtheDirectors’fulfil theirduties: Risk Management Weprovidebusiness-criticalservicestoourclients,oftenin highlyregulatedenvironments.Aswegrow,ourbusinessand ourriskenvironmentalsobecomemorecomplex.Itistherefore vitalthatweeffectivelyidentify,evaluate,manageandmitigate therisksweface,andthatwecontinuetoevolveourapproach toriskmanagement. Fordetailsofourprincipalrisksanduncertainties,andhowwe manageourriskenvironment,pleaseseepages48to51andour RiskCommitteereportonpages80to85. Our People TheCompanyiscommittedtobeingaresponsiblebusiness.Our behaviourisalignedwiththeexpectationsofourpeople,clients, investors,communitiesandsocietyasawhole.Peopleareatthe heartofourspecialistservices.Forourbusinesstosucceedwe needtomanageourpeople’sperformanceanddevelopand bringthroughtalentwhileensuringweoperateasefficientlyas possible.Wemustalsoensurewesharecommonvaluesthat informandguideourbehavioursoweachieveourgoalsinthe rightway. Forfurtherdetailsonourpeople,pleaseseepages38to41. Business Relationships Ourstrategyprioritisesorganicgrowth,drivenbycross-selling andup-sellingservicestoexistingclientsandbringingnew clientsintotheGroup.Todothis,weneedtodevelopand maintainstrongclientrelationships.Wevalueallofoursuppliers andhavemulti-yearcontractswithourkeysuppliers. Forfurtherdetailsonhowweworkwithourclientsandsuppliers, pleaseseepages42to43. Community and Environment TheCompany’sapproachistouseourpositionofstrengthto createpositivechangeforthepeopleandcommunitieswith whichweinteract.Wewanttoleverageourexpertiseandenable colleaguestosupportthecommunitiesaroundus. Forfurtherdetailsonhowwithinteractwithcommunitiesandthe environment,pleaseseepages44to46. Culture and Values TheBoardrecognisestheimportanceofhavingtheright corporateculture.Ourlong-termsuccessdependsonachieving ourstrategicgoalsintherightway,sowelookafterthebest interestsofourclients,peopleandotherstakeholders.Through theuseofemployeeandmanagementworkshops,weidentified fourcorevaluesthatgovernhowweactasabusiness.Detailsof these,plusfurtherdetailsonourcorporateculture,canbefound onpages38to39. Shareholders TheBoardiscommittedtoopenlyengagingwithour shareholders,aswerecognisetheimportanceofacontinuing effectivedialogue,whetherwithmajorinstitutionalinvestors, privateoremployeeshareholders.Itisimportanttousthat shareholdersunderstandourstrategyandobjectives,sothese mustbeexplainedclearly,feedbackheardandanyissuesor questionsraisedproperlyconsidered. Forfurtherdetailsonhowweengagewithourshareholders, pleaseseepage43. DIRECTORS' INTERESTS DetailsoftheDirectors'shareinterestsintheCompanycanbe foundonpage115. DIRECTORS’ INSURANCE ADirectors’andOfficers’LiabilityInsurancepolicyismaintained forallofourDirectorsandeachDirectorhasthebenefitofa DeedofIndemnitygivenbytheCompany. THIRD PARTY INDEMNITY TheGrouphasmadequalifyingthird-partyindemnityprovisions foritsDirectors,inrelationtocertainlossesandliabilitiesthat mayincurinthecourseofactingasDirectorsoftheCompany, itssubsidiariesorassociates,whichwereinforceduringtheyear andremaininforceatthedateofthisreport. DIVIDEND TheBoardhasadoptedaprogressivedividendpolicy,reflecting theCompany’slong-termearningsandcashflowpotential.We targetapay-outratioof30%ofunderlyingprofitattributable toordinaryshareholderswhichissplitone-thirdandtwo-thirds betweeninterimandfinaldividendsrespectively. TheBoardisrecommendingafinaldividendof3.49pence persharewhich,subjecttoshareholderapprovalatthe2019 AGM,willresultinafullyeardividendof5.32pencepershare (includingtheinterimdividendof1.83pencepershare).The finaldividendwillbepaidon16May2019toshareholdersonthe registerofmembersatcloseofbusinesson12April2019.Any shareholderwishingtoparticipateintheCompany’sDividend ReinvestmentPlanneedstohavesubmittedtheirelectiontodo soby24April2019. CHARITABLE DONATIONS Wearecommittedtobeingaresponsiblecorporate citizenthroughsupportforappropriatecharitableprojects, organisationsandcharities.TherearenoGroupsponsored charities.Howevertherearenumerouscharitableeffortscarried outwithintheregionsinwhichwearelocated.TheGroupalso aimstopromoteeconomicandsocialwellbeingaroundallofour locationsandisactiveinsupportinglocalcommunityprojects andinitiatives,includingsupportinganumberoflocalschools andinvestinginyoungtalent. POLITICAL DONATIONS During2018,theEquinitiGroupdidnotmakeanydonationsto politicalpartiesororganisations,howeveritdoessupportcertain industry-widebodiesandallowsemployeestimetoundertake tradeunionactivities.Accordinglyasaprecautionarymeasure, authorityistobesoughtatthe2019AGMtomakelimited politicaldonationsorincurpoliticalexpenditureandthereisa fullexplanationintheexplanatorynoteofResolution19tothe 2019AGMNotice. RESEARCH AND DEVELOPMENT Inordertoderivenewsolutionsandtoenhanceourclient andcustomerexperiences,improveourservicesandproducts andmeettheeverchangingregulatoryrequirementsforthe servicesweprovide,theGroupcontinuestocommitresources tothedevelopmentofnewandimprovedtechnologiesand capabilities.Expensesincurredarerequiredtobecapitalised whenitisprobablethatfutureeconomicbenefitswillbe attributabletotheassetandthatcostscanbemeasuredreliably, inaccordancewiththerelevantaccountingstandardsandour accountingpolicies. I D R E C T O R S ’ R E P O R T 119 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE SHARE CAPITAL STRUCTURE TheCompanyhasoneclassofsharecapital:ordinarysharesof £0.001each(shares),whichrankequallyinallrespects.Therights attachingtothesharesaresetoutintheCompany’sArticlesof Associationanddetailsoftheissuedsharecapitalasat 31December2018andofthemovementsduringtheyearare setoutinnote6.2tothefinancialstatementsonpage164. Therearenorestrictionsonthetransferofsharesoronthe exerciseofvotingrights,exceptincircumstanceswhere: i. theCompanyhasexerciseditsrighttosuspendthevoting rightsortoprohibitthetransferofshares,asaresultofthe failurebytheshareholdertoprovideuswithinformation requestedbyusinaccordancewithpart22oftheCompanies Act2006;or ii. theshareholderisprohibitedfromexercisingvotingrightsby theListingRulesortheCityCodeonTakeoversandMergers. TheCompanyoperatesashareincentiveschemeopentoall employees.TheTrusteesoftheEmployeeBenefitTrustabstain fromvotingthesharesheldintheTrust.Exceptasnotedabove anysharesacquiredthroughashareincentiveschemerank equallywithexistingsharesandhavenoadditionalorspecial rights. AMENDMENT TO THE COMPANY’S ARTICLES OF ASSOCIATION AnyamendmentstotheArticlesofAssociationmaybemadein accordancewiththeprovisionsoftheCompaniesAct2006by wayofashareholders’specialresolution. POST BALANCE SHEET EVENTS Therehavebeennomaterialeventsbetween31December2018 andthedateofsigningthisAnnualReportandAccountsthat wouldrequiredisclosure. EXTERNAL AUDITOR Havingconductedaneffectivenessandindependence assessmentduringtheyear,asdescribedintheAuditCommittee Reportonpage78,theAuditCommitteehasrecommendedto theBoardthereappointmentofPwCastheGroup'sexternal auditor.PwChasindicateditswillingnesstocontinueinoffice. FollowingtherecommendationoftheAuditCommitteeand inaccordancewithsection489oftheCompaniesAct2006, aresolutiontoreappointPwCwillbeputtoshareholdersat the2019AGM.TheAuditCommitteewillberesponsiblefor determiningtheauditfeeonbehalfoftheBoard. EMPLOYEES WITH DISABILITIES TheCompanybelievesthatpeoplewithhealthconditionsshould havefullandfairconsiderationforallvacanciesandwillinterview thosepeoplewithdisabilitieswhofulfiltheminimumcriteria.For thoseemployeesintheworkforcewhobecomedisabledduring employment,theCompanywillarrangeappropriateretraining andadjustemployees’environmentswherepossibletoallow themtomaximisetheirpotentialandcontinuetoworkwiththe Company. TheGrouphasinplaceaDisabilityandMentalHealthTaskforce, furtherdetailsofwhichcanbefoundonpage41. CHANGE OF CONTROL/SIGNIFICANT AGREEMENTS Intheeventofatakeover,aschemeofarrangement(other thanaschemeofarrangementforthepurposesofcreating anewholdingcompany)orcertainotherevents,unvested executiveDirectorandemployeeshareawardsmayincertain circumstancesbecomeexercisable.Suchcircumstancesmay,but donotnecessarily,dependontheachievementofperformance conditionsorthediscretionoftheRemunerationCommittee. TheCompanydoesnothaveanyagreementswithanyDirector orofficerthatprovideforcompensationforlossofofficeor employmentresultingfromatakeover.TheCompanyhasfacility arrangementswithitsbanklenderswhichcontainprovisions givingthoselenderscertainrightsonachangeofcontrol. Saveasotherwisedisclosedabove,therearenoothersignificant agreementstowhichtheCompanyisapartythattakeeffect, alterorterminateuponachangeofcontrolfollowingatakeover bid. SUBSTANTIAL SHAREHOLDINGS Asat28February2019,thelatestpracticabledatebeforethe publicationofthisAnnualReportandAccounts,theCompany wasawarethatthefollowingshareholdersheld,orwere beneficiallyinterestedin,3%ormoreoftheCompany’sordinary sharesatthatdate: Shareholder Mondrian Investment Partners Paradice Investment Management Invesco GVQ Investment Management Woodford Investment Management Rathbone plc Standard Life Aberdeen Lazard Blackrock Inc BNP Paribas Group CRUX Asset Management Number of ordinary shares 32,872,362 27,125,630 25,696,533 22,352,704 18,204,925 17,128,430 15,443,445 15,201,719 13,332,931 12,368,641 12,007,114 120 AUTHORITY TO ALLOT AND PURCHASE SHARES TheCompanywasgrantedauthorityatour2018AnnualGeneral Meetingtoallotequitysecuritiesuptoanominalamountof £121,489.67,subjecttocertainrestrictions,andallotequity securitiesuptoanominalamountof£18,223.45onanon-pre- emptivebasis,subjecttocertainrestrictions.Duringtheyear ended31December2018atotalof102,383ordinaryshares wereallottedatanaveragepriceof119pencepershare,to satisfytheshareoptionsexercisedundertheEquinitiGroupUK SharesavePlanduringthatperiod.Atthe2018AnnualGeneral Meeting,theCompanywasalsograntedauthoritytomake marketpurchasesofupto36,446,900ofitsownordinaryshares, aspermittedbytheCompaniesAct2006. ResolutionstorenewtheseauthoritiesandpermitDirectorsto allotequitysecuritiesuptoanominalamountof£121,512.22, representingonethirdoftheCompany’ssharecapitalasat28 February2019(thelatestpracticabledate),ofwhich£18,226.83, representing5%oftheCompany’sissuedsharecapitalasatthe latestpracticabledate,couldbeallottedonanon-pre-emptive basis,subjecttocertainrestrictions,andmakemarketpurchases ofupto36,453,666ofourownordinaryshares,representing10% oftheCompany’sissuedsharecapitalasatthelatestpracticable date,willbeputtoshareholdersatthe2019AnnualGeneral Meeting.Afurtherexplanationoftheresolutionsissetoutinthe 2019NoticeofAnnualGeneralMeeting. TheDirectors’arenotawareofanyagreementsorrights betweenshareholdersthatplacerestrictionsonthetransferof sharesorexerciseofvotingrights. ANNUAL GENERAL MEETING TheCompany’s2019AnnualGeneralMeeting(2019AGM)will beheldattheofficesofWeil,Gotshal&MangesLLP,110Fetter Lane,London,EC4A1AYat11.00a.m.on2May2019.The NoticeofMeetingofthe2019AGM(2019AGMNotice)willbe availableonourwebsite:http://investors.equiniti.com/investors. Anexplanationoftheresolutionstobeputtoshareholdersat the2019AGM,andtherecommendationoftheDirectorsin relationtothem,issetoutinthe2019AGMNotice. TheDirectors'ReportwasapprovedbytheBoardofDirectorson 12March2019. ByOrderoftheBoard Kathy Cong Company Secretary 12March2019 I D R E C T O R S ’ R E P O R T 121 SECTION 02Equiniti Group plc Annual Report 2018GOVERNANCE Credit Services wins Lending Awards 2018 Best Technology Partner – Loan management / payments 122 I S E C T O N 0 3 I F N A N C A L I 03 Financial Statements INDEPENDENT AUDITORS’ REPORT CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS COMPANY FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS 124 132 139 190 192 S T A T E M E N T S E q u i n i t i G r o u p p c A n n u a l l R e p o r t 2 0 1 8 123 Independent auditors’ report to the members of Equiniti Group plc Report on the audit of the financial statements OPINION Inouropinion,EquinitiGroupplc’sGroupfinancialstatements andCompanyfinancialstatements(the“financialstatements”): • giveatrueandfairviewofthestateoftheGroup’sandofthe Company’saffairsasat31December2018andoftheGroup’s profitandtheGroup’scashflowsfortheyearthenended; • havebeenproperlypreparedinaccordancewithInternational FinancialReportingStandards(IFRSs)asadoptedbythe EuropeanUnionand,asregardstheCompany’sfinancial statements,asappliedinaccordancewiththeprovisions oftheCompaniesAct2006;and • havebeenpreparedinaccordancewiththerequirementsof theCompaniesAct2006and,asregardstheGroupfinancial statements,Article4oftheIASRegulation. Wehaveauditedthefinancialstatements,includedwithinthe AnnualReport,whichcomprise:theconsolidatedandCompany statementsoffinancialpositionasat31December2018;the consolidatedincomestatementandconsolidatedstatement ofcomprehensiveincome,theconsolidatedstatementofcash flows,andtheconsolidatedandCompanystatementsofchanges inequityfortheyearthenended;theaccountingpolicies;and thenotestothefinancialstatements. OuropinionisconsistentwithourreportingtotheAuditCommittee. BASIS FOR OPINION WeconductedourauditinaccordancewithInternational StandardsonAuditing(UK)(“ISAs(UK)”)andapplicablelaw. OurresponsibilitiesunderISAs(UK)arefurtherdescribedinthe Auditors’responsibilitiesfortheauditofthefinancialstatements sectionofourreport.Webelievethattheauditevidencewe haveobtainedissufficientandappropriatetoprovideabasis forouropinion. INDEPENDENCE WeremainedindependentoftheGroupinaccordancewiththe ethicalrequirementsthatarerelevanttoourauditofthefinancial statementsintheUK,whichincludestheFRC’sEthicalStandard, asapplicabletolistedpublicinterestentities,andwehave fulfilledourotherethicalresponsibilitiesinaccordancewith theserequirements. Tothebestofourknowledgeandbelief,wedeclarethatnon- auditservicesprohibitedbytheFRC’sEthicalStandardwere notprovidedtotheGrouportheCompany. OtherthanthosedisclosedintheAuditCommitteeReport, wehaveprovidednonon-auditservicestotheGroupor theCompanyintheperiodfrom1January2018to 31December2018. OUR AUDIT APPROACH Overview • OverallGroupmateriality:£2.5million(2017:£3.1million),basedon2.5%ofEarnings BeforeInterestTaxDepreciationandAmortisation(“EBITDA”). • OverallCompanymateriality:£1.5million(2017:£2.0million),basedon1% MATERIALITY oftotalassets. AUDIT SCOPE • Fullscopeauditswereperformedinrespectoffivetradingentitiesandalsoona furthertwoholdingcompanies. • Additionalspecificauditprocedureswereperformedonrevenueandcashina numberoffinanciallyinsignificantentitiestoachieverequiredlevelsofauditcoverage. • Overall,theseauditproceduresprovidedcoverageof71%ofconsolidatedrevenue and68%ofconsolidatedEBITDA. KEY AUDIT MATTERS • Revenuerecognition. • Determinationofgoodwillandrecognitionofacquisitionrelatedintangibleassets • Considerationofthecarryingvalueofgoodwillandrelatedimpairmentassessments. • Capitalisationofsoftwaredevelopmentcostsandrelatedassessmentsof carryingvalue. 124 Independent auditors’ report to the members of Equiniti Group plc THE SCOPE OF OUR AUDIT Aspartofdesigningouraudit,wedeterminedmaterialityand assessedtherisksofmaterialmisstatementinthefinancial statements.Inparticular,welookedatwherethedirectorsmade subjectivejudgements,forexampleinrespectofsignificant accountingestimatesthatinvolvedmakingassumptionsand consideringfutureeventsthatareinherentlyuncertain. Wegainedanunderstandingofthelegalandregulatory frameworkapplicabletotheGroupandtheindustryinwhichit operates,andconsideredtheriskofactsbytheGroupwhich werecontrarytoapplicablelawsandregulations,including fraud.WedesignedauditproceduresatGroupandsignificant componentleveltorespondtotherisk,recognisingthatthe riskofnotdetectingamaterialmisstatementduetofraudis higherthantheriskofnotdetectingoneresultingfromerror, asfraudmayinvolvedeliberateconcealmentby,forexample, forgeryorintentionalmisrepresentations,orthroughcollusion. Wefocusedonlawsandregulationsthatcouldgiverisetoa materialmisstatementintheGroupandCompanyfinancial statements,including,butnotlimitedto,theCompaniesAct 2006,theListingRules,pensionslegislation,taxlegislation,the FinancialConductAuthority’sClientAssetSourcebookandthe USSecuritiesandExchangeCommission’sregulationsrelating toregisteredtransferagents.Ourtestsincluded,butwerenot limitedto,reviewofcorrespondencewiththeregulatorsinthe UKandUSinrespectoftheGroup’sregulatedbusiness,review ofcorrespondencewiththeGroup’sinternal,andwhererelevant, externallegaladvisers,enquiriesofmanagement,reviewof internalauditreportsinsofarastheyrelatedtothefinancial statements,assessingtheimpactofwhistleblowingincidents andmanagement’sinvestigationofsuchmatters,andtestinga sampleofjournalentries.Thereareinherentlimitationsinthe auditproceduresdescribedaboveandthefurtherremoved non-compliancewithlawsandregulationsisfromtheeventsand transactionsreflectedinthefinancialstatements,thelesslikely wewouldbecomeawareofit. Wedidnotidentifyanykeyauditmattersrelatingto irregularities,includingfraud.Asinallofourauditswealso addressedtheriskofmanagementoverrideofinternalcontrols, includingtestingjournalsandevaluatingwhethertherewas evidenceofbiasbythedirectorsthatrepresentedariskof materialmisstatementduetofraud. KEY AUDIT MATTERS Keyauditmattersarethosemattersthat,intheauditors’ professionaljudgement,wereofmostsignificanceintheaudit ofthefinancialstatementsofthecurrentperiodandincludethe mostsignificantassessedrisksofmaterialmisstatement(whether ornotduetofraud)identifiedbytheauditors,includingthose whichhadthegreatesteffecton:theoverallauditstrategy;the allocationofresourcesintheaudit;anddirectingtheeffortsof theengagementteam.Thesematters,andanycommentswe makeontheresultsofourproceduresthereon,wereaddressed inthecontextofourauditofthefinancialstatementsasawhole, andinformingouropinionthereon,andwedonotprovidea separateopiniononthesematters.Thisisnotacompletelist ofallrisksidentifiedbyouraudit. Key audit matter How our audit addressed the key audit matter Revenue recognition TheGroupentersintoanumberofcontracts whichincludemultipleelements(forexample thesaleoflicences,hostingandsupport services),andwhichcanstraddleaccounting periods. TheGrouphasadoptedIFRS15thisyear.IFRS 15“Revenuefromcontractswithcustomers” specifiesafivestepapproachtodeterminethe amountandtimingofrevenuerecognitionand requiresthatanappropriateamountofrevenue (i.e.thefairvalue)shouldberecognisedforeach separateperformanceobligation. Ourmainfocusonrevenuerecognition relatedtocorporateactionsthathadnotfully completedattheyearendandmultipleelement contractswhichinvolveanelementofsoftware sales.Theseinvolvemanagementjudgement relatingtoamountandthetimingofrevenue recognition.Seenote2.4tothefinancial statements. Weevaluatedmanagement’sassessmentofthenewrequirementsunderIFRS15,andweassessed whethertherevenuerecognisedisinlinewiththeGroup’saccountingpolicyandIFRS15.We performedsubstantivetests,validatingrevenuerecognisedbytheGroup,onasamplebasis,to underlyingevidence,includingcontracts,correspondencewithcustomers,andcashpayments. Corporate action revenue Weselectedasampleofrevenuesrelatingtocorporateactionsthathadnotcompletedatthe yearendandperformedthefollowing: –Obtainedthesignedcontractswiththecustomertounderstandthetotalrevenuereceivable bytheGroupandtheperformanceobligationscontainedtherein; –Obtainedandreperformedmanagement’scalculationsofthepercentageofcompletionfor eachsuchprojectattheyearend; –Agreedthehoursincurredbytheyearendtotimesheets;and –Consideredthereasonablenessofthetimerequiredtocompleteanyremainingperformance obligationsaftertheyearend,aswellastheactualoutturn. Noexceptionswerenoted. Contracts with multiple elements including software licence sales Forasampleofmultipleelementcontracts,weassessedwhethertheseparateperformance obligationshadbeenappropriatelyidentified.Weperformedtestingoverthefairvalue attributedtoeachperformanceobligationbycomparingthemarginsorsellingpricesusedin management’scalculationstothoseachievedonsimilarcontractswhensoldseparately. Whenreviewingthesignedcontractsweassessedwhetherthecustomerhadanenforceable righttousethelicenceattheyearendandifEquinitihadanenforceablerighttopayment and,wherenecessary,challengedmanagementtoprovideadditionalevidenceofdeliveryand acceptanceoftherelateddeliverable.Whereappropriatewesoughtandreceivedadditional confirmatoryevidencedirectlyfromthecustomer. Noexceptionswerenoted. I F N A N C A L I S T A T E M E N T S I N D E P E N D E N T A U D T O R S ’ I R E P O R T 125 SECTION 03Equiniti Group plc Annual Report 2018 Independent auditors’ report to the members of Equiniti Group plc Key audit matter How our audit addressed the key audit matter Determination of goodwill and recognition of acquisition related intangible assets DuringtheyeartheGroupmadethree acquisitions,themostsignificantofwhichwas thepurchaseofthetradeandassetsofWells FargoShareholdersServicesbusiness(“EQ US”).EQUSwasacquiredon1February2018 foratotalconsiderationof£169.5million.See note4.1tothefinancialstatements. Accountingfortheacquisitionrequireda fairvalueexercisetoassesstheassetsand liabilitiesacquired,includingvaluingany separatelyidentifiableintangibleassets,and theresultingresidualgoodwill.Themost significantintangibleassetrelatedtocustomer relationships.Thevaluationofintangibleassets involvesjudgementincludingmanagement’s useofassumptionssuchasforecastrevenues, customerattritionratesandtheapplicationof anappropriatediscountrate. Whilstweauditedtheaccountingforthethree acquisitionsmadeduringtheyear,wefocussed specificallyontheEQUStransactionbecause ofitsrelativesignificancetotheGroupand thequantumoftheamountsrecordedinthe financialstatements. Inordertoassesstheappropriatenessoftheresidualgoodwillfiguredeterminedby management’sacquisitionaccountingexerciseweperformedauditworkontheconsideration payable,thenetassetsacquired(excludingacquiredintangibleassets)andtheidentification andvaluationofacquisitionrelatedintangibleassets. Consideration and net assets (excluding intangible assets) Weobtainedtheacquisitionagreementsandreadthemtounderstandthesubstanceofthe transactions,includingtheelementsthatcomprisedthetotalconsiderationpayableandthe assetsandliabilitiesacquired. Weagreedthecashelementoftheconsiderationtobankstatements,andtestedother elements,suchashedgingtransactioncosts,tounderlyingevidence. Weobtainedmanagement’sassessmentofthefairvalueoftheassetsandliabilitiesandaudited theunderlyingamountsrecordedincludingadjustmentsthatweremadeasaresultofthis assessmenttorecordassetsandliabilitiesatfairvalue. Noexceptionswerenoted,andweconcludedthatappropriateadjustmentshadbeenmade toreflecttheacquiredassetsandliabilitiesatfairvalueasrequiredbyIFRS3“Business combinations”. Recognition and measurement of intangible assets Weassessedthecompletenessofintangibleassetsidentifiedbymanagementwithreference toourownexpectationsformedfromourknowledgeandexperienceofcommonacquisition relatedintangibleassetsrecordedinbusinesscombinations. Withthesupportofourvaluationexperts,weassessedthefairvaluesattributedtothe intangibles,performingthefollowing: –Weevaluatedandtestedthemethodology,underlyingassumptionsandmechanical accuracyofthemodelusedtofairvaluethecustomerrelationshipintangibleasset; –Indoingsoweassessedtheappropriatenessofthecashflowprojectionsthatunderpinned thevaluationmodelbyvalidatingthemtotheProspectusissuedinconnectionwiththe2017 rightsissuetofundtheacquisition(includingadjustmentstothosecashflowprojections), budgetsandalsoconsideredtheappropriatenessofthegrowthratesappliedinthemodel; –Weassessedotherkeyassumptionsusedinthemodelsuchasthecustomerattritionand discountrates,includingwhererelevantconsideringtheminlightofhistoricexperienceand post-acquisitionperformance. Wethenconsideredtheamountofresidualgoodwillinproportiontothetotalconsideration andthefairvalueofotherassetsacquired. Basedontheauditproceduresperformedweconcludedthattheamountsrecordedinthe financialstatementsareappropriate. Ourworkalsoconsideredthedisclosuresmadeinrespectofacquisitionsinthefinancial statementsandweconcludedthatthesewerecompliantwiththerequirementsofIFRS3. 126 Independent auditors’ report to the members of Equiniti Group plc Key audit matter How our audit addressed the key audit matter Consideration of the carrying value of goodwill and related impairment assessments Weobtainedmanagement’simpairmentassessmentcalculationsandtestedtheforecastcash flowsusedthereintothelatestBoardapprovedplansfortheGroup. Weevaluatedtheassumptionsintheseforecastsandplansandconsideredtheevidence providedforthese,principallyfocussingonhistoricaltrendsandactualperformanceduring theyearended31December2018.Aspartofthisworkweconsideredrevenueprojections includinganygrowthratesapplied,thebasisforanysignificantshortandlongtermgrowth assumptions,cashoutflowsforcosts,andthediscountrateappliedtotheforecastcashflows. Inconsideringmanagement’simpairmentexercisewealsochallengedtheidentificationof individualcashgeneratingunitsbymanagement,andwhetherthesewereappropriatein relationtothewayinwhichtheGroup’sbusinessisrun,andbasedontheevidenceprovided, concludedthatmanagement’sapproachwasconsistentwiththerequirementsofIAS36. Basedontheauditproceduresperformedwedidnotidentifyanymaterialmisstatements. WealsoconsideredthedisclosurerequirementsofIAS36andconcludedthattheinformation givenbymanagementinrespectoftheirannualgoodwillimpairmentreviewwascompliantwith thoserequirements. IAS36“Impairmentofassets”requiresthat managementperformanannualimpairment exerciseforindefinitelivedintangibleassets suchasgoodwilltodeterminewhetherthere hasbeenanyimpairmenttothecarryingvalue. WhentheGrouppurchasesbusinesses,any goodwillarisingisattributedtooneofthe Group’soperatingdivisions.Thisdivisionisthen identifiedasthecashgeneratingunitforfuture impairmentmonitoringunlessanalysisatamore granularlevelisappropriate. Management’sannualimpairmentreviewof goodwilldidnotidentifytheneedtoimpairthe valuerecordedinthefinancialstatementsasat 31December2018. Wefocusedonthisareagiven: –thequantumofthegoodwillrecordedinthe financialstatements;and –thesignificanceoftheassumptions,suchas cashflows,growthratesandthediscountrate usedinmanagement’simpairmentassessment models. Refertonote4.3whichprovidesfurtherdetail onthe£524.1milliongoodwillbalanceasat 31December2018andtherelatedimpairment testingdisclosuresmadebymanagement. Capitalisation of software development costs and related assessments of carrying value WeevaluatedtheGroup’saccountingpolicyforcapitalisationofsoftwarerelatedcosts,andthe controlsimplementedbymanagementtohelpensurethisisappliedconsistently. TheGroupinvestssignificantamountsin purchasinganddevelopingsoftwarethatis used,orsoldorlicensedtocustomers,byeach ofitsoperatingdivisions.Seenote4.3tothe financialstatements. DuringtheyeartheGroupinvested£38.1million insoftwaredevelopmentofwhich£16.2million relatedtointernaldevelopmentcosts.Asat31 December2018thenetbookvalueofsoftware developmentcapitalisedamountedto£89.1 million. Wefocusedonthisareagiven: –managementexerciseofjudgementin assessingwhethertherequisitecapitalisation; andcriteriasetoutinIAS38“Intangible assets”havebeenmetpriortothe commencementofcapitalisation. –theriskthatthecarryingvalueofpreviously capitalisedamountsmaybeimpairedifthey aresupersededbynewdevelopmentactivity orthatcircumstanceschangesuchthat, forexample,management’sassessmentof originalbusinesscase,ortheestimateduseful lifewhichisusedtocalculatetherelated amortisationrates,arenolongerappropriate. Weselectedasampleofsoftwaredevelopmentcostscapitalisedduringtheyearand: –AssessedtheevidencetodeterminewhethertheIAS38criteriahadbeenmet.Thisincluded obtainingandassessingtherevenueandprofitabilityforecastspreparedbymanagementto supportthecapitalisationofsuchcosts,andevaluatingtheassumptionsmadetherein. –Consideredwhethersuchcostsrelatedtoneworenhancedsoftwarefunctionalityorwere incurredtoreplacesupersededfunctionality. –Testedtheamountscapitalisedtounderlyingevidence,suchascontractswiththirdparty contractorsor,inthecaseofinternalstaffcostscapitalised,recordsandotherevidence corroboratingthetimespentbyrelevantemployeesondevelopmentactivity,andreviewed thereasonablenessofthecapitalisationratesusedbymanagement. Ourworkalsoincludedanalyticalprocedurestoidentifyanyunusualpatternsinthetimingof amountscapitalisedinordertoassesswhetherweneededtoperformadditionalenquirieswith managementorobtainfurtherauditevidence. Weassessedtheusefuleconomiclivesbeingusedtoamortisecapitalisedcostsbyconsidering whethertherewasevidencetosuggesttheseshouldberevised,andcomparedthemtothe Group’sstatedaccountingpolicyandourownexperienceofratesusedelsewhere. Wealsoconsideredmanagement’sassessmentofanyindicatorsofimpairmentinrespectof capitalisedsoftwarecoststoidentifywhetheranymaterialimpairmentchargesshouldhave beenrecordedinthefinancialstatements. Noexceptionswerenoted. WedeterminedthattherewerenokeyauditmattersapplicabletotheCompanytocommunicateinourreport. I N D E P E N D E N T A U D T O R S ’ I R E P O R T 127 SECTION 03Equiniti Group plc Annual Report 2018FINANCIAL STATEMENTS Independent auditors’ report to the members of Equiniti Group plc HOW WE TAILORED THE AUDIT SCOPE Wetailoredthescopeofouraudittoensurethatweperformedsufficientworktobeabletogiveanopiniononthefinancial statementsasawhole,takingintoaccountthegeographicanddivisionalstructureoftheGroup,theaccountingprocessesand controls,andtheindustryinwhichtheGroupoperates. TheGroupisorganisedintofourmainoperatingdivisions(InvestmentSolutions,IntelligentSolutions,PensionSolutionsandEQUS) andoperatesprimarilyintheUKandUSwithbackofficefunctionsperformedbyasharedservicecentreinIndia.Itoperatesthrough anumberoflegalentitiesintheselocations. Weperformedfullscopeauditproceduresonfivetradingentities(eacheitheraseparatereportingunitorasub-groupofreporting units)andafurthertwoholdingcompanies.Wethenextendedourtestinginrelationtorevenueandcashtoensurethatweachieved requiredlevelsofauditcoverage.Overall,theseauditproceduresprovidedcoverageof71%ofconsolidatedrevenueand68%of consolidatedEBITDA. Ofthesevenfullscopeaudits,sixauditswereperformedbytheGroupengagementteambasedintheUK.Foroneentity,Equiniti US,aseparatePwCcomponentauditteambasedintheUSAperformedtheauditunderinstructionfromtheGroupteam.Therisks andproposedauditresponseforEquinitiUSwereagreedwiththecomponentteampriortothecommencementofthataudit.The GroupengagementteamreviewedtheworkofthePwCcomponentauditteamintheUSandattendedtheclearancemeetingto discusstheauditworkandfindings.AspartofthereviewandsupervisionoftheUScomponentauditteam,seniormembersofthe GroupteamvisitedtheUStoevaluatetheworkperformedbothbeforeandaftertheyearenddate,includingreviewingrelevant auditworkingpapers. AspartofourworkwealsoconsideredtheactivitiesperformedbytheGroup’sdedicatedsharedservicecentreinIndiato understandthefinance-relatedprocessesthatarerelevanttothepreparationofthefinancialstatements.Asampleoftransactions processedbythesharedservicecentreweresubjecttoauditproceduresperformedbytheGroupengagementteam. Additionally,theGroupengagementteamperformedadditionalauditworkovertaxbalances,sharebasedpayments,andbusiness combinationsincludingconsiderationofmanagement’sgoodwillimpairmentreviewandthefinancialreportingconsolidationas theseitemsarecontrolledcentrally. MATERIALITY Thescopeofourauditwasinfluencedbyourapplicationofmateriality.Wesetcertainquantitativethresholdsformateriality.These, togetherwithqualitativeconsiderations,helpedustodeterminethescopeofourauditandthenature,timingandextentofour auditproceduresontheindividualfinancialstatementlineitemsanddisclosuresandinevaluatingtheeffectofmisstatements,both individuallyandinaggregateonthefinancialstatementsasawhole. Basedonourprofessionaljudgement,wedeterminedmaterialityforthefinancialstatementsasawholeasfollows: Overall materiality How we determined it Rationale for benchmark applied Group financial statements Company financial statements £2.5million(2017:£3.1million). £1.5million(2017:£2.0million). 2.5%ofEarningsBeforeInterest TaxDepreciationandAmortisation (“EBITDA”). ConsolidatedEBITDAisanimportant measureusedbytheshareholdersto assesstheperformanceoftheGroupand thisisconsideredagenerallyaccepted auditingbenchmarkforthecalculationof materiality. Basedon1%oftotalassets. Totalassetsistheprimarymeasure usedbyshareholdersinassessingthe performanceoftheCompanyandisa generallyacceptedauditingbenchmark. MaterialityfortheCompanywascapped toalevelbelowoverallmaterialityusedin theGroupfinancialstatements. 128 Independent auditors’ report to the members of Equiniti Group plc ForeachcomponentinthescopeofourGroupaudit,weallocatedamaterialitythatislessthanouroverallGroupmateriality.The rangeofmaterialityallocatedacrosscomponentswasbetween£1.0millionand£1.5million. WeagreedwiththeAuditCommitteethatwewouldreporttothemmisstatementsidentifiedduringourauditabove£125,000 (Groupaudit)(2017:£150,000)and£125,000(Companyaudit)(2017:£150,000)aswellasmisstatementsbelowthoseamountsthat,in ourview,warrantedreportingforqualitativereasons. I S E C T O N 0 3 GOING CONCERN InaccordancewithISAs(UK)wereportasfollows: Reporting obligation Wearerequiredtoreportifwehaveanythingmaterialtoaddordrawattentionto inrespectofthedirectors’statementinthefinancialstatementsaboutwhetherthe directorsconsidereditappropriatetoadoptthegoingconcernbasisofaccounting inpreparingthefinancialstatementsandthedirectors’identificationofanymaterial uncertaintiestotheGroup’sandtheCompany’sabilitytocontinueasagoingconcern overaperiodofatleasttwelvemonthsfromthedateofapprovalofthefinancial statements. Outcome Wehavenothingmaterialtoaddorto drawattentionto.However,because notallfutureeventsorconditionscan bepredicted,thisstatementisnot aguaranteeastotheGroup’sand Company’sabilitytocontinueasagoing concern.Forexample,thetermsonwhich theUnitedKingdommaywithdrawfrom theEuropeanUnion,whichiscurrently duetooccuron29March2019,are notclear,anditisdifficulttoevaluate allofthepotentialimplicationsonthe GroupandCompany’strade,customers, suppliersandthewidereconomy. Wearerequiredtoreportifthedirectors’statementrelatingtogoingconcernin accordancewithListingRule9.8.6R(3)ismateriallyinconsistentwithourknowledge obtainedintheaudit. Wehavenothingtoreport. REPORTING ON OTHER INFORMATION TheotherinformationcomprisesalloftheinformationintheAnnualReportotherthanthefinancialstatementsandourauditors’ reportthereon.Thedirectorsareresponsiblefortheotherinformation.Ouropiniononthefinancialstatementsdoesnotcoverthe otherinformationand,accordingly,wedonotexpressanauditopinionor,excepttotheextentotherwiseexplicitlystatedinthis report,anyformofassurancethereon. Inconnectionwithourauditofthefinancialstatements,ourresponsibilityistoreadtheotherinformationand,indoingso,consider whethertheotherinformationismateriallyinconsistentwiththefinancialstatementsorourknowledgeobtainedintheaudit,or otherwiseappearstobemateriallymisstated.Ifweidentifyanapparentmaterialinconsistencyormaterialmisstatement,weare requiredtoperformprocedurestoconcludewhetherthereisamaterialmisstatementofthefinancialstatementsoramaterial misstatementoftheotherinformation.If,basedontheworkwehaveperformed,weconcludethatthereisamaterialmisstatement ofthisotherinformation,wearerequiredtoreportthatfact.Wehavenothingtoreportbasedontheseresponsibilities. WithrespecttotheStrategicReportandDirectors’Report,wealsoconsideredwhetherthedisclosuresrequiredbytheUK CompaniesAct2006havebeenincluded. Basedontheresponsibilitiesdescribedaboveandourworkundertakeninthecourseoftheaudit,theCompaniesAct2006(CA06), ISAs(UK)andtheListingRulesoftheFinancialConductAuthority(FCA)requireusalsotoreportcertainopinionsandmattersas describedbelow(requiredbyISAs(UK)unlessotherwisestated). I F N A N C A L I S T A T E M E N T S I N D E P E N D E N T A U D T O R S ’ I R E P O R T 129 Equiniti Group plc Annual Report 2018 Independent auditors’ report to the members of Equiniti Group plc STRATEGIC REPORT AND DIRECTORS’ REPORT Inouropinion,basedontheworkundertakeninthecourseoftheaudit,theinformationgivenintheStrategicReportand Directors’Reportfortheyearended31December2018isconsistentwiththefinancialstatementsandhasbeenpreparedin accordancewithapplicablelegalrequirements.(CA06) InlightoftheknowledgeandunderstandingoftheGroupandCompanyandtheirenvironmentobtainedinthecourseofthe audit,wedidnotidentifyanymaterialmisstatementsintheStrategicReportandDirectors’Report.(CA06) THE DIRECTORS’ ASSESSMENT OF THE PROSPECTS OF THE GROUP AND OF THE PRINCIPAL RISKS THAT WOULD THREATEN THE SOLVENCY OR LIQUIDITY OF THE GROUP Wehavenothingmaterialtoaddordrawattentiontoregarding: • • • Thedirectors’confirmationonpage71oftheAnnualReportthattheyhavecarriedoutarobustassessmentofthe principalrisksfacingtheGroup,includingthosethatwouldthreatenitsbusinessmodel,futureperformance, solvencyorliquidity. ThedisclosuresintheAnnualReportthatdescribethoserisksandexplainhowtheyarebeingmanagedormitigated. Thedirectors’explanationonpage71oftheAnnualReportastohowtheyhaveassessedtheprospectsoftheGroup, overwhatperiodtheyhavedonesoandwhytheyconsiderthatperiodtobeappropriate,andtheirstatementasto whethertheyhaveareasonableexpectationthattheGroupwillbeabletocontinueinoperationandmeetitsliabilities astheyfalldueovertheperiodoftheirassessment,includinganyrelateddisclosuresdrawingattentiontoanynecessary qualificationsorassumptions. Wehavenothingtoreporthavingperformedareviewofthedirectors’statementthattheyhavecarriedoutarobustassessment oftheprincipalrisksfacingtheGroupandthestatementinrelationtothelonger-termviabilityoftheGroup.Ourreviewwas substantiallylessinscopethananauditandonlyconsistedofmakinginquiriesandconsideringthedirectors’processsupporting theirstatements;checkingthatthestatementsareinalignmentwiththerelevantprovisionsoftheUKCorporateGovernance Code(the“Code”);andconsideringwhetherthestatementsareconsistentwiththeknowledgeandunderstandingoftheGroup andCompanyandtheirenvironmentobtainedinthecourseoftheaudit.(ListingRules) OTHER CODE PROVISIONS Wehavenothingtoreportinrespectofourresponsibilitytoreportwhen: • • • Thestatementgivenbythedirectors,onpage71,thattheyconsidertheAnnualReporttakenasawholetobefair, balancedandunderstandable,andprovidestheinformationnecessaryforthememberstoassesstheGroup’sand Company’spositionandperformance,businessmodelandstrategyismateriallyinconsistentwithourknowledgeof theGroupandCompanyobtainedinthecourseofperformingouraudit. ThesectionoftheAnnualReportonpage72describingtheworkoftheAuditCommitteedoesnotappropriately addressmatterscommunicatedbyustotheAuditCommittee. Thedirectors’statementrelatingtotheCompany’scompliancewiththeCodedoesnotproperlydiscloseadeparture fromarelevantprovisionoftheCodespecified,undertheListingRules,forreviewbytheauditors. DIRECTORS’ REMUNERATION Inouropinion,thepartoftheDirectors’RemunerationReporttobeauditedhasbeenproperlypreparedinaccordancewiththe CompaniesAct2006.(CA06) 130 Independent auditors’ report to the members of Equiniti Group plc RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT Responsibilities of the directors for the financial statements AsexplainedmorefullyintheStatementofDirectors’Responsibilitiessetoutonpage70,thedirectorsareresponsibleforthe preparationofthefinancialstatementsinaccordancewiththeapplicableframeworkandforbeingsatisfiedthattheygiveatrue andfairview.Thedirectorsarealsoresponsibleforsuchinternalcontrolastheydetermineisnecessarytoenablethepreparation offinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror. Inpreparingthefinancialstatements,thedirectorsareresponsibleforassessingtheGroup’sandtheCompany’sabilitytocontinueas agoingconcern,disclosingasapplicable,mattersrelatedtogoingconcernandusingthegoingconcernbasisofaccountingunless thedirectorseitherintendtoliquidatetheGrouportheCompanyortoceaseoperations,orhavenorealisticalternativebuttodoso. Auditors’ responsibilities for the audit of the financial statements Ourobjectivesaretoobtainreasonableassuranceaboutwhetherthefinancialstatementsasawholearefreefrommaterial misstatement,whetherduetofraudorerror,andtoissueanauditors’reportthatincludesouropinion.Reasonableassuranceisa highlevelofassurance,butisnotaguaranteethatanauditconductedinaccordancewithISAs(UK)willalwaysdetectamaterial misstatementwhenitexists.Misstatementscanarisefromfraudorerrorandareconsideredmaterialif,individuallyorinthe aggregate,theycouldreasonablybeexpectedtoinfluencetheeconomicdecisionsofuserstakenonthebasisofthesefinancial statements. AfurtherdescriptionofourresponsibilitiesfortheauditofthefinancialstatementsislocatedontheFRC’swebsiteat: www.frc.org.uk/auditorsresponsibilities.Thisdescriptionformspartofourauditors’report. Use of this report Thisreport,includingtheopinions,hasbeenpreparedforandonlyfortheCompany’smembersasabodyinaccordancewith Chapter3ofPart16oftheCompaniesAct2006andfornootherpurpose.Wedonot,ingivingtheseopinions,acceptorassume responsibilityforanyotherpurposeortoanyotherpersontowhomthisreportisshownorintowhosehandsitmaycomesave whereexpresslyagreedbyourpriorconsentinwriting. OTHER REQUIRED REPORTING COMPANIES ACT 2006 EXCEPTION REPORTING UndertheCompaniesAct2006wearerequiredtoreporttoyouif,inouropinion: • • • • wehavenotreceivedalltheinformationandexplanationswerequireforouraudit;or adequateaccountingrecordshavenotbeenkeptbytheCompany,orreturnsadequateforouraudithavenotbeen receivedfrombranchesnotvisitedbyus;or certaindisclosuresofdirectors’remunerationspecifiedbylawarenotmade;or theCompanyfinancialstatementsandthepartoftheDirectors’RemunerationReporttobeauditedarenotin agreementwiththeaccountingrecordsandreturns. Wehavenoexceptionstoreportarisingfromthisresponsibility. APPOINTMENT FollowingtherecommendationoftheAuditCommittee,wewereappointedbythedirectorson11February2011toauditthe financialstatementsfortheyearended31December2010andsubsequentfinancialperiods.Theperiodoftotaluninterrupted engagementisnineyears,coveringtheyearsended31December2010to31December2018. Darren L Meek (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Gatwick 12 March 2019 I N D E P E N D E N T A U D T O R S ’ I R E P O R T 131 SECTION 03Equiniti Group plc Annual Report 2018FINANCIAL STATEMENTS Consolidated income statement FOR THE YEAR ENDED 31 DECEMBER 2018 Revenue Administrative costs Depreciation of property, plant and equipment Amortisation of software Amortisation of acquisition-related intangible assets Finance income Finance costs Profit before income tax Income tax charge Profit for the year Profit for the year attributable to: – Owners of the parent – Non-controlling interests Profit for the year Earnings per share attributable to owners of the parent: Basic earnings per share (pence) Diluted earnings per share (pence) 1Restated for the adoption of IFRS 15 – see note 1 for details The notes on pages 139 to 189 form part of these financial statements. Note 3.1, 3.3 3.2 4.2 4.3 4.3 6.1 6.1 8.1 6.5 6.5 2018 2017 £m 530.9 (429.4) (6.0) (23.9) (31.7) 0.2 (15.5) 24.6 (3.9) 20.7 17.5 3.2 20.7 4.8 4.7 (Restated1) £m 406.3 (318.6) (5.7) (18.3) (26.7) 0.8 (12.5) 25.3 (10.0) 15.3 11.6 3.7 15.3 3.5 3.5 132 Consolidated statement of comprehensive income FOR THE YEAR ENDED 31 DECEMBER 2018 Profit for the year Other comprehensive income/(expense) Items that may be subsequently reclassified to profit or loss Fair value movement through hedging reserve Deferred tax movement in hedging reserve Net exchange gain/(loss) on translation of foreign operations Items that will not be reclassified to profit or loss Defined benefit plan actuarial (loss)/gain Deferred tax charge on actuarial (loss)/gain Other comprehensive income/(expense) for the year Total comprehensive income for the year Total comprehensive income attributable to: – Owners of the parent – Non-controlling interests Total comprehensive income for the year 1Restated for the adoption of IFRS 15 – see note 1 for details The notes on pages 139 to 189 form part of these financial statements. Note 9.3 2018 2017 £m 20.7 4.4 (0.9) 10.9 14.4 (0.2) – (0.2) 14.2 34.9 31.7 3.2 34.9 (Restated1) £m 15.3 (12.2) 0.8 (0.1) (11.5) 0.8 (0.1) 0.7 (10.8) 4.5 0.7 3.8 4.5 C O N S O L I D A T E D F N A N C A L I I S T A T E M E N T S 133 SECTION 03Equiniti Group plc Annual Report 2018FINANCIAL STATEMENTS Consolidated statement of financial position AS AT 31 DECEMBER 2018 2018 2017 1 January 2017 (Restated1) (Restated1) Note £m £m £m Assets Non-current assets Intangible assets Property, plant and equipment Other financial assets Deferred income tax assets Current assets Trade and other receivables Contract fulfilment assets Agency broker receivables Income tax receivable Other financial assets Cash and cash equivalents Total assets Liabilities Non-current liabilities External loans and borrowings Post-employment benefits Provisions Other financial liabilities Current liabilities Trade and other payables Contract fulfilment liabilities Agency broker payables Income tax payable Provisions Other financial liabilities Total liabilities Net assets 134 4.3 4.2 9.1 8.2 5.1 5.2 8.1 9.1 6.9 6.7 9.3 5.5 9.2 5.3 5.4 8.1 5.5 9.2 836.4 21.9 0.2 23.6 882.1 64.1 46.2 12.4 0.7 0.5 90.9 214.8 667.0 18.0 1.9 26.8 713.7 44.5 37.9 18.4 – – 115.2 216.0 670.1 17.1 7.8 29.1 724.1 44.5 33.7 15.9 – 0.2 56.7 151.0 1,096.9 929.7 875.1 395.2 22.9 12.8 4.2 435.1 112.2 16.4 12.4 – 9.1 0.5 244.0 22.7 18.8 4.5 290.0 80.8 16.2 18.4 2.3 3.9 6.4 301.5 23.9 16.2 4.5 346.1 92.0 14.8 15.9 2.2 – 0.5 150.6 128.0 125.4 585.7 418.0 471.5 511.2 511.7 403.6 Consolidated statement of financial position AS AT 31 DECEMBER 2018 Equity Equity attributable to owners of the parent Share capital Share premium Other reserves Retained earnings Non-controlling interest Total equity 1Restated for the adoption of IFRS 15 – see note 1 for details Thenotesonpages139 to 189formpartofthesefinancialstatements. 2018 2017 1 January 2017 (Restated1) (Restated1) Note £m £m £m 6.2 6.2 6.3 6.4 0.4 115.9 182.4 203.2 501.9 9.3 511.2 0.4 115.8 178.0 197.9 492.1 19.6 511.7 0.3 – 189.5 195.0 384.8 18.8 403.6 Thefinancialstatementsonpages132 to 189wereapprovedbytheBoardofDirectorson12March2019andweresignedonitsbehalfby: John Stier Chief Financial Officer C O N S O L I D A T E D F N A N C A L I I S T A T E M E N T S 135 SECTION 03Equiniti Group plc Annual Report 2018FINANCIAL STATEMENTS Consolidated statement of changes in equity FOR THE YEAR ENDED 31 DECEMBER 2018 Share capital £m 0.3 – 0.3 – – – – – – – – – – – – – – – – _ _ _ 0.1 115.8 – – – _ 0.1 0.4 – – – _ 115.8 115.8 Share premium £m Other reserves £m Retained earnings2 £m 189.5 – 189.5 193.6 1.4 195.0 Non- controlling interest £m 18.8 – 18.8 Total equity £m 402.2 1.4 403.6 – 11.6 3.7 15.3 (12.2) 0.8 (0.1) – – (11.5) (11.5) _ _ _ _ _ – – – – 0.7 (0.1) 0.6 12.2 _ (14.6) _ 3.5 1.8 (9.3) 178.0 197.9 – – – 0.1 – 0.1 3.8 _ (1.5) (1.5) – _ (3.0) 19.6 (12.2) 0.8 (0.1) 0.8 (0.1) (10.8) 4.5 115.9 (16.1) (1.5) 3.5 1.8 103.6 511.7 Balance at 1 January 2017 as originally presented Changes in accounting standards Restated1 balance at 1 January 2017 Comprehensive income Profit for the year per the income statement (restated) Other comprehensive (expense)/income Changes in fair value through hedging reserve (note 6.3) Deferred tax on movement through hedging reserve (note 8.2) Net exchange loss on translation of foreign operations (note 6.3) Actuarial gains on defined benefit pension plans (note 9.3) Deferred tax on defined benefit pension plans (note 8.2) Total other comprehensive (expense) /income Total comprehensive (expense)/income Issue of share capital, net of transaction costs (note 6.2) Dividends (note 6.6) Transactions with non-controlling interests (note 6.4) Share-based payments expense (note 7.2) Deferred tax relating to share option schemes (note 8.2) Transactions with owners recognised directly in equity Balance at 31 December 2017 136 Consolidated statement of changes in equity FOR THE YEAR ENDED 31 DECEMBER 2018 Share capital Share premium Other reserves Retained earnings2 £m 0.4 – 0.4 £m 115.8 – 115.8 £m 178.0 – 178.0 £m 196.8 1.1 197.9 Non- controlling interest £m 19.6 – 19.6 Total equity £m 510.6 1.1 511.7 Balance at 1 January 2018 Changes in accounting standards Restated1 balance at 1 January 2018 Comprehensive income Profit for the year per the income statement Other comprehensive income/(expense) Changes in fair value through hedging reserve (note 6.3) Deferred tax on movement through hedging reserve (note 8.2) Net exchange gain on translation of foreign operations (note 6.3) Actuarial losses on defined benefit pension plans (note 9.3) Total comprehensive income/ (expense) Total comprehensive income Issue of share capital, net of transaction costs (note 6.2) Purchase of own shares (note 6.3) Own shares awarded to employees (note 6.3) Dividends (note 6.6) Transactions with non-controlling interests (note 6.4) Further acquisition of non-controlling interest in MyCSP Ltd (note 6.4) Share-based payments expense (note 7.2) Transactions with owners recognised directly in equity – – – – – – – – – – – – – – – – – – – – – – 0.1 – – – – – – 0.1 Balance at 31 December 2018 0.4 115.9 1Restated for the adoption of IFRS 15 – see note 1 for details 2Re-presented to include the share-based payments reserve within retained earnings The notes on pages 139 to 189 form part of these financial statements. – 17.5 3.2 20.7 4.4 (0.9) 10.9 – 14.4 14.4 – (13.9) 3.9 – – – – – – – (0.2) (0.2) 17.3 – – (3.9) (16.5) – 2.0 6.4 (10.0) 182.4 (12.0) 203.2 – – – – – 3.2 – – – (1.8) (1.7) (10.0) – (13.5) 9.3 4.4 (0.9) 10.9 (0.2) 14.2 34.9 0.1 (13.9) – (18.3) (1.7) (8.0) 6.4 (35.4) 511.2 C O N S O L I D A T E D F N A N C A L I I S T A T E M E N T S 137 SECTION 03Equiniti Group plc Annual Report 2018FINANCIAL STATEMENTS Consolidated statement of cash flows FOR THE YEAR ENDED 31 DECEMBER 2018 Profit before income tax Adjustments for: Depreciation of property, plant and equipment Amortisation of software Amortisation of acquisition-related intangibles Finance income Finance costs Share-based payments expense Changes in working capital: Net increase in receivables Net increase in contract assets Net increase/(decrease) in payables Net (decrease)/increase in contract liabilities Net decrease in provisions Cash flows from operating activities Interest paid Income tax paid Net cash inflow from operating activities Cash flows from investing activities Interest received Business acquisitions net of cash acquired Payments relating to prior year acquisitions Acquisition of property, plant and equipment Payments relating to developing and acquiring software Net cash outflow from investing activities Cash flows from financing activities Proceeds from issue of share capital, less transaction costs Purchase of own shares Proceeds from new bank loans Proceeds/(repayment) of revolving credit facility balance Payment of loan set-up fees Payment of finance lease liabilities Dividends paid Dividends paid to non-controlling interests Transactions with non-controlling interests Net cash inflow from financing activities Net (decrease)/increase in cash and cash equivalents Foreign exchange gains and losses Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December 1Restated for the adoption of IFRS 15 – see note 1 for details The notes on pages 139 to 189 form part of these financial statements. 138 Note 6.1 4.1 6.3 6.7 6.7 6.6 2018 £m 24.6 6.0 23.9 31.7 (0.2) 15.5 6.4 (12.0) (3.1) 18.0 (2.4) (1.3) 107.1 (10.5) (4.5) 92.1 0.2 (173.6) (4.0) (9.5) (30.3) (217.2) (0.8) (13.9) 64.9 76.1 (0.8) (0.9) (16.5) (1.8) (5.9) 100.4 (24.7) 0.4 115.2 90.9 2017 (Restated1) £m 25.3 5.7 18.3 26.7 (0.8) 12.5 3.5 (2.0) (4.2) (1.7) 1.4 (1.3) 83.4 (9.8) (3.7) 69.9 0.8 (3.5) (17.5) (6.2) (24.8) (51.2) 116.8 – – (56.0) (2.6) (0.7) (14.6) (1.5) (1.6) 39.8 58.5 – 56.7 115.2 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 1 GENERAL INFORMATION Goodwill and intangible assets EquinitiGroupplc(theCompany)isapubliclimitedcompanywhichis listedontheLondonStockExchangeandisincorporatedanddomiciled intheUnitedKingdom.TheCompanyanditssubsidiaries(collectively, theGroup)providecomplexadministrationandpaymentservices, supportedbytechnologyplatforms,toawiderangeoforganisations. TheregisteredofficeofthecompanyisSutherlandHouse,Russell Way,Crawley,WestSussex,RH101UH.TheGroupfinancialstatements consolidatethoseoftheCompanyanditssubsidiaries. 2 BASIS OF PREPARATION 2.1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of preparation Theprincipalaccountingpoliciesappliedinthepreparationofthe consolidatedfinancialstatementsaresetoutbelow.Thesepolicies havebeenconsistentlyappliedtoalltheperiodspresented,unless otherwisestatedinnote2.2. Thesefinancialstatementshavebeenpreparedinaccordancewith InternationalFinancialReportingStandards(IFRS)asadoptedby theEuropeanUnion(EU),IFRSInterpretationCommittee(IFRSIC) interpretationsasadoptedbytheEUandtheCompaniesAct2006 applicabletocompaniesreportingunderIFRS.Theconsolidatedfinancial statementshavebeenpreparedonthegoingconcernbasisandunder thehistoricalcostconvention,asmodifiedbytherevaluationoffinancial assetsandfinancialliabilities(includingderivativeinstruments)atfair valuethroughprofitorloss.TheGroup’spresentationalcurrencyisthe BritishPound(£). PreviouslytheGroupdisclosedashare-basedpaymentreserveasa separatecomponentofequity.Howeverthishasnowbeencombined withretainedearnings.Thecombinationhasnoimpacton distributablereserves. Basis of consolidation Subsidiariesareallentities(includingstructuredentities)overwhich theGrouphascontrol.TheGroupcontrolsanentitywhentheGroupis exposedto,orhasrightsto,variablereturnsfromitsinvolvementwith theentityandhastheabilitytoaffectthosereturnsthroughitspower overtheentity.Subsidiariesarefullyconsolidatedfromthedateonwhich controlistransferredtotheGroup.Theyaredeconsolidatedfromthe datethatcontrolceases. Theacquisitionmethodofaccountingisusedtoaccountforthe acquisitionofsubsidiariesbytheGroup.Thecostofanacquisitionis measuredasthefairvalueoftheassetsgiven,equityinstrumentsissued andliabilitiesincurredorassumedatthedateofexchange.Identifiable assetsacquiredandliabilitiesandcontingentliabilitiesassumedina businesscombinationaremeasuredinitiallyattheirfairvaluesatthe acquisitiondate.TheGrouprecognisesanynon-controllinginterestin theacquireeonanacquisition-by-acquisitionbasis,eitheratfairvalueor atthenon-controllinginterest’sproportionateshareoftherecognised amountsoftheacquiree’sidentifiablenetassets. Going concern TheGroupmeetsitsday-to-dayworkingcapitalandfinancing requirementsthroughitscashgeneratedfromoperationsanditsbank facilities.TheDirectors,aftermakingenquiriesandonthebasisofcurrent financialprojectionsandthefacilitiesavailableatthereportingdate, believethattheGrouphasadequatefinancialresourcestocontinue inoperationfortheforeseeablefuture.Forthisreason,theycontinue toadoptthegoingconcernbasisinpreparingthehistoricalfinancial information. Goodwill Goodwillarisesontheacquisitionofsubsidiariesandrepresents theexcessoftheconsiderationtransferred,theamountofanynon- controllinginterestintheacquireeandtheacquisition-datefairvalue ofanypreviousequityinterestintheacquireeoverthefairvalueofthe identifiablenetassetsacquired.Ifthetotalofconsiderationtransferred, non-controllinginterestrecognisedandpreviouslyheldinterest measuredatfairvalueislessthanthefairvalueofthenetassetsofthe subsidiaryacquired,inthecaseofabargainpurchase,thedifferenceis recogniseddirectlyintheincomestatement. Forthepurposeofimpairmenttesting,goodwillacquiredinabusiness combinationisallocatedtoeachofthecashgeneratingunits(CGU) thatisexpectedtobenefitfromthesynergiesofthecombination.Each unittowhichthegoodwillisallocatedrepresentsthelowestlevelwithin theentityatwhichthegoodwillismonitoredforinternalmanagement purposes. Goodwillimpairmentreviewsareundertakenannuallyormorefrequently ifeventsorchangesincircumstancesindicateapotentialimpairment. ThecarryingvalueoftheCGUcontainingthegoodwilliscomparedto therecoverableamount,whichisthehigherofvalueinuseandthefair valuelesscostsofdisposal.Anyimpairmentisrecognisedimmediately asanexpenseandisnotsubsequentlyreversed. Software Costsassociatedwithmaintainingcomputersoftwareprogrammes arerecognisedasanexpenseasincurred.Developmentcostsdirectly attributabletothedesign,developmentandtestingofidentifiableand uniquesoftwareproductscontrolledbytheGrouparerecognisedas intangibleassetswhenthefollowingcriteriaaremet: • itistechnicallyfeasibletocompletethesoftwareproductsothatitwill beavailableforuse; • managementintendstocompletethesoftwareproductanduseor sellit; • thereisanabilitytouseorsellthesoftwareproduct; • itcanbedemonstratedhowthesoftwareproductwillgenerate probablefutureeconomicbenefits; • adequatetechnical,financialandotherresourcestocompletethe developmentandtouseorsellthesoftwareproductareavailable;and • theexpenditureattributabletothesoftwareproductduringits developmentcanbereliablymeasured. TheGroupcapitalisescertaincostsassoftwaredevelopmentifit candemonstratethatthecostsaredirectlyattributabletosoftware development.Thesecostsincludeemployeebenefitexpenses,along withanappropriateportionofrelevantoverheads,andexternal consultancycosts.Otherdevelopmentrelatedcoststhatarenotdirectly attributableordonotmeetthecapitalisationcriteriaarerecognisedas anexpenseasincurred.Developmentcostspreviouslyrecognisedasan expensearenotrecognisedasanassetinasubsequentperiod. Capitalisedsoftwarealsoincludespurchasedlicences,whenthe expendituresatisfiestherecognitioncriteriainIAS38IntangibleAssets (IAS38).Theseitemsarecapitalisedatcostandamortisedonastraight linebasisovertheirusefuleconomiclifeorthetermofthecontract. Amortisationischargedtotheincomestatementonastraight-linebasis overtheestimatedusefullivesofthesoftware,fromthedatetheyare availableforuse.Theestimatedusefullivesareasfollows: • Software 3–5years. N O T E S T O T H E C O N S O L I D A T E D F N A N C A L I I S T A T E M E N T S 139 Equiniti Group plc Annual Report 2018SECTION 03FINANCIAL STATEMENTS Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 2.1 SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES (CONTINUED) Other intangible assets Otherintangibleassetsconsistofintangibleassetsidentifiedaspart ofabusinesscombination.Theyarestatedatfairvalueatthedateof acquisitionlesssubsequentaccumulatedamortisationandimpairment losses. Customerrelationshipsarevaluedbasedonthenetpresentvalueofthe excessearningsgeneratedbytherevenuestreamsovertheirestimated usefullives.Orderbooksarevaluedbasedonexpectedrevenue generation.Brandvaluationisbasedonnetpresentvalueofestimated royaltyreturns. Amortisationischargedtothestatementofcomprehensiveincomeon astraight-linebasisovertheestimatedusefullivesofintangibleassets. Otherintangibleassetsareamortisedfromthedatetheyareavailablefor use.Theestimatedusefullivesareasfollows: • Otherintangibleassets 1–20years Property, plant and equipment Property,plantandequipmentarestatedatcostlessaccumulated depreciationandimpairmentlosses.Foritemsacquiredaspartofa businesscombination,costcomprisesthedeemedfairvalueofthose itemsatthedateofacquisition.Depreciationonthoseitemsischarged overtheirestimatedremainingusefullivesfromthatdate. LeasesinwhichtheGroupassumessubstantiallyalltherisksandrewards ofownershipoftheleasedassetareclassifiedasfinanceleases.Where landandbuildingsareheldunderleases,theaccountingtreatmentof thelandisconsideredseparatelyfromthatofthebuildings.Leased assetsacquiredbywayoffinanceleasearestatedatanamountequal totheloweroftheirfairvalueandthepresentvalueoftheminimum leasepaymentsatinceptionofthelease,lessaccumulateddepreciation andimpairmentlosses.Leasepaymentsareaccountedforasdescribed below. Depreciationischargedtotheincomestatementonastraight-linebasis overtheestimatedusefullivesofeachpartofanitemofproperty,plant andequipment.Theestimatedusefullivesareasfollows: • Freeholdimprovements • Leaseholdimprovements • Officeequipment • Fixturesandfittings 50years 2–50years 2–10years 3–20years Impairment of non-financial assets Assetsthathaveanindefiniteusefullife,forexamplegoodwillor intangibleassetsnotreadyforuse,arenotsubjecttoamortisation andaretestedannuallyforimpairment.Assetsthataresubjectto amortisationarereviewedforimpairmentwhenevereventsorchangesin circumstancesindicatethatthecarryingamountmaynotberecoverable. Animpairmentlossisrecognisedfortheamountbywhichtheasset’s carryingamountexceedsitsrecoverableamount.Therecoverable amountisthehigherofanasset’sfairvaluelesscoststosellandvalue inuse.Forthepurposesofassessingimpairment,assetsaregroupedat thelowestlevelsforwhichthereareseparatelyidentifiablecashflows (CGU).Non-financialassetsotherthangoodwill,thathavesuffered animpairmentarereviewedforpossibleimpairmentreversalateach reportingdate. Financial instruments Afinancialassetorfinancialliabilityisonlyrecognisedinthestatement offinancialpositionwhentheGroupbecomespartytothecontractual provisionsoftheinstrument. Classification and measurement TheGroupclassifiesitsfinancialassetsinthefollowingmeasurement categories: • Atfairvaluethroughprofitorloss • Atfairvaluethroughothercomprehensiveincome • Atamortisedcost Theclassificationdependsonthebusinessmodelformanaging thefinancialassetsandthecontractualtermsofthecashflowsand managementwilldeterminetheclassificationoninitialrecognition. Atinitialrecognition,theGroupmeasuresafinancialassetatitsfairvalue plus,inthecaseofafinancialassetnotatfairvaluethroughprofitor loss,transactionscoststhataredirectlyattributabletotheacquisitionof thefinancialasset.Transactioncostsoffinancialassetsheldatfairvalue throughprofitorlossarerecognisedwithintheincomestatement. Tradeandotherreceivables(excludingprepayments)andcontract fulfilmentassetsthatareheldforcollectionofcontractualcashflows, wherethosecashflowsrepresentsolelypaymentsofprincipaland interest,aremeasuredatamortisedcost,lessprovisionsforimpairment. Otherfinancialassetsincludesderivativeswhicharerecognisedatfair valuethroughprofitorloss,unlessthederivativesqualifyforhedge accounting,inwhichcasetherecognitionofanygainorloss isrecognisedinothercomprehensiveincome. TheGroupclassifiesitsfinancialliabilitiesinthefollowing measurementcategories: • Atfairvaluethroughprofitorloss • Atamortisedcost TheGroupclassifiesdebtandequityinstrumentsaseitherfinancial liabilitiesorasequity,inaccordancewiththesubstanceofthecontractual arrangement.Anequityinstrumentisanycontractthatevidencesa residualinterestintheassetsoftheGroup,afterdeductingallofits liabilities.EquityinstrumentsissuedbytheGrouparerecognisedat theproceedsreceived,netofdirectissuecosts. UnderIAS32FinancialInstruments:Presentation(IAS32),financial instrumentsissuedbytheGrouparetreatedasequityonlytotheextent thattheymeetthefollowingtwoconditions: (a)theyincludenocontractualobligationsupontheGrouptodeliver cashorotherfinancialassetsortoexchangefinancialassetsor financialliabilitieswithanotherparty,underconditionsthatare potentiallyunfavourabletotheGroup;and (b)wheretheinstrumentwillormaybesettledintheGroup’sown equityinstruments,itiseitheranon-derivativethatincludesno obligationtodeliveravariablenumberoftheGroup’sownequity instrumentsorisaderivativethatwillbesettledbytheGroup’s exchangingafixedamountofcashorotherfinancialassetsfora fixednumberofitsownequityinstruments. Totheextentthatthisdefinitionisnotmet,theproceedsofissueare classifiedasafinancialliability.Financialliabilitiesnotclassifiedas fairvaluethroughprofitorloss,suchasderivatives,areclassifiedand measuredatamortisedcostusingtheeffectiveinterestmethod. 140 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 2.1SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES (CONTINUED) Derecognition TheGroupderecognisesafinancialassetwhentherightstoreceivecash flowsfromthefinancialassetexpireorhavebeentransferred,andthe Grouphastransferredsubstantiallyalltherisksandrewardsofownership. TheGroupderecognisesafinancialliabilitywhenitscontractual obligationsaredischarged,cancelledorexpire. Derivative financial instruments and hedging activities Derivative financial instruments TheGroup’sderivatives,whichincludeinterestrateswapsandforward currencycontracts,aremeasuredatfairvalue,beingtheestimated amountthattheGroupwouldreceiveorpaytoterminatetheinstrument atthereportingdate.Thirdpartyvaluationsareusedtofairvaluethe Group’sderivatives.Thevaluationtechniquesuseinputssuchasinterest rateyieldcurvesandcurrencyprices/yields,volatilitiesofunderlying instrumentsandcorrelationsbetweeninputs. Thefullfairvalueofahedgingderivativeisclassifiedasanon-current assetorliabilitywhentheremainingmaturityofthehedgeditemis morethan12months,andacurrentassetorliabilitywhenthe remainingmaturityislessthan12months. Cash flow hedges Theeffectiveportionofchangesinthefairvalueofderivativesthat aredesignatedandqualifyascashflowhedgesisrecognisedinother comprehensiveincome.Thegainorlossrelatingtotheineffective portionisrecognisedimmediatelyintheincomestatement. Amountsaccumulatedinequityarereclassifiedtoprofitorlossinthe periodswhenthehedgeditemaffectsprofitorloss(forexample,when theforecasttransactionthatishedgedtakesplace).Thegainorloss relatingtotheeffectiveportionofinterestrateswapshedgingvariable rateborrowingsisrecognisedintheincomestatement.Whenahedging instrumentexpiresorissold,orwhenahedgenolongermeetsthe criteriaforhedgeaccounting,anycumulativegainorlossexistingin equityatthattimeremainsinequityuntilthehedgeditemoccurs. Net investment hedges Gainsorlossesonahedginginstrumentrelatingtotheeffectiveportion ofahedgeofaforeignoperationarerecognisedinothercomprehensive income.Anyineffectiveportionisrecognisedintheincomestatement withinfinancecosts.Gainsorlossesaccumulatedinequityarereclassified totheincomestatementiftheforeignoperationissold. Trade receivables Tradereceivablesarestatedinitiallyatfairvalueandsubsequently measuredatamortisedcostusingtheeffectiveinterestmethod,less provisionsforimpairment.Provisionsforimpairmentarerecognised usingthesimplifiedapproachassetoutinIFRS9FinancialInstruments (IFRS9)andconsequentlylossallowancesaremeasuredatanamount equaltothelifetimeexpectedcreditloss.Theexpectedcreditloss modelappliesapercentage,basedonanassessmentofhistoricaldefault ratesandcertainforward-lookinginformation,againstreceivablesthat aregroupedintocertainagebrackets.Wherethereisobjectiveevidence thattheGroupwillnotbeabletocollectanyamountsdueaccordingto theoriginaltermsoftheagreementwiththecustomer,thereceivableis fullyimpairedandthelossisrecognisedwithinadministrativecostsin theincomestatement. Contract fulfilment assets Whenservicesorsoftwarearesuppliedtoacustomerbeforepaymentis due,acontractfulfilmentassetisrecognisedinthestatementoffinancial position,andrepresentstherighttoreceiveconsiderationfromthe customerforgoodsorservicesdelivered.Theassetismeasuredas thefairvalueofthegoodsorservicessupplied.TheGroup’scontracts withcustomersoftenincludeapaymentschedulewhichdetermine wheninvoicesareraised,andsettlementisreceived,duringthe contractualterm. Theincrementalcostsofobtainingorfulfillingacontractwithacustomer arerecognisedasanassetonlyiftheGroupexpectstorecoverthem. Coststoobtainorfulfilacontractareincludedinthestatementof financialpositionwithincontractfulfilmentassets.Theseassetsare subsequentlychargedtoadministrativecostswithintheincome statementovertheexpectedcontractperiodusingasystematic basisthatmirrorsthepatterninwhichtheGrouptransferscontrol oftheproductsorservicetothecustomer. Contractfulfilmentassetsalsoincludecostsincurredtodateand anticipatedcoststocompleteandarecontinuallymonitoredthrough amonthlyreviewprocess.Ifitbecomesapparentthatcontractualcosts willexceedcontractrevenue,thenthelossisrecognisedimmediately asanexpenseintheincomestatement. Agency broker balances WheretheGroupactsasanagencybrokerforretailinvestors,balances owedbyortotheretailinvestorandthemarketmakerarerecognised withinotherreceivablesandotherpayableswhenthetransactionoccurs. Whentheamountsaresettled,thesebalancesareeliminated. Cash and cash equivalents I S E C T O N 0 3 I F N A N C A L I S T A T E M E N T S N O T E S T O T H E C O N S O L I D A T E D F N A N C A L I I Cashandcashequivalentscomprisecashbalancesandcalldeposits. Bankoverdraftsthatarerepayableondemandandformanintegral partoftheGroup’scashmanagementareincludedasacomponentof cashandcashequivalentsinthestatementoffinancialpositionandthe statementofcashflows,wheretheGrouphasalegallyenforceableright tooffsetandthereisanintentiontosettleonanetbasis. S T A T E M E N T S External loans and borrowings Interest-bearingborrowingsarerecognisedinitiallyatfairvalueless attributabletransactioncosts.Subsequenttoinitialrecognition,interest- bearingborrowingsarestatedatamortisedcost,withanydifference betweencostandredemptionvaluebeingrecognisedintheincome statementovertheperiodoftheborrowingsonaneffectiveinterest basis.Onborrowingsextinguished,anydifferencebetweenthecashpaid andthecarryingvalueisrecognisedintheincomestatement. 141 Equiniti Group plc Annual Report 2018 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 Equity settled share-based payment transactions TheGroupoperatesanumberofequity-settled,sharebased compensationplans,underwhichtheGroupreceivesservicesfrom employeesinreturnforequityinstruments(options)oftheGroup.The fairvalueoftheemployeeservicesreceivedinexchangeforthegrantof theoptionsisrecognisedasanexpenseintheincomestatement. Theinitialamounttobeexpensedisdeterminedbyreferencetothe fairvalueoftheoptionsgranted: –includinganymarketperformanceconditions(forexample,total shareholderreturn); –excludingtheimpactofanyserviceandnon-marketperformance vestingconditions(forexample,profitability,salesgrowthtargets andremaininganemployeeoveraspecifiedperiodoftime);and –includingtheimpactofanynon-vestingconditions(forexample,the requirementforemployeestosaveorholdsharesforaspecificperiod oftime). Attheendofeachreportingdate,theGrouprevisesitsestimateofthe numberofoptionsthatareexpectedtovest,basedontheserviceand non-marketvestingconditions.Theimpactofrevisionstotheoriginal estimates,ifany,arerecognisedintheincomestatementwith acorrespondingadjustmenttoequity. Provisions Aprovisionisrecognisedinthestatementoffinancialpositionwhenthe Grouphasapresentlegalorconstructiveobligationasaresultofapast event,anditisprobablethatanoutflowofeconomicbenefitswillbe requiredtosettletheobligation.Iftheeffectismaterial,provisionsare determinedbydiscountingtheexpected,riskadjusted,futurecashflows atapre-taxrisk-freerate. Dilapidationsprovisionsrelatetotheestimatedcosttorevertleased premisesbacktoarequiredconditionexpectedunderthetermsofthe lease.Theseincludeprovisionsforwearandtear,alongwithprovisions forleaseholdimprovementsmadethatwouldrequirereinstatementback totheoriginalstatusonexit.Theseareuncertainintiming,asleasesmay beterminatedearlyorextended.Totheextentthatexitsofpremisesare expectedwithin12monthsofthereportingperiod,thedivisionshown ascurrent. Contingentconsiderationisprovidedforontheacquisitionofabusiness, wherethemonetaryamountisdependentonthefutureperformance oftheacquiredbusiness.Aprovisionisinitiallyrecognisedasthe discountedexpectedliabilityandunwoundovertheperiodtothelegal dateofsettlement.Theliabilityisreviewedregularly.Thesubsequentfair valueisdeterminedbyreviewingthepost-acquisitionperformanceofthe acquiredcompany,alongwithavailablebudgetsandforecasts,against theearn-outarrangementinthesharepurchaseagreementtodetermine themostlikelyoutcome. Changestothefairvalueofthecontingentconsiderationresulting fromadditionalinformationobtainedpostacquisitionaboutfactsand circumstancesthatexistedattheacquisitiondatearerecognisedasan adjustmentagainstgoodwillduringthefirsttwelvemonthsfollowingthe acquisition.Anyotherchangesarerecognisedintheincomestatement. 2.1SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES (CONTINUED) Trade payables Tradepayablesrepresentliabilitiesforgoodsandservicesreceived bytheGroupbeforetheendofthereportingperiodwhichhave beeninvoicedbutareunpaid.Theamountswithintradepayablesare unsecured.Tradepayablesarerecognisedinitiallyatfairvalueand subsequentlymeasuredatamortisedcostusingtheeffectiveinterest method. Contract fulfilment liabilities ContractfulfilmentliabilitiesarerecordedwhentheGrouphasreceived considerationfromcustomers,butstillhasanobligationtodeliver servicesorlicencestothecustomerandmeetperformanceobligations forthatconsideration.Theliabilityismeasuredasthefairvalueofthe considerationreceived. Employee benefits Defined contribution plans AdefinedcontributionplanisapensionplanunderwhichtheGroup paysfixedcontributionstoaseparatelyadministeredfund.TheGroup hasnofurtherpaymentobligationsoncethecontributionshavebeen paid.Thecontributionsarerecognisedasemployeebenefitexpensein theincomestatementasincurred.Prepaidcontributionsarerecognised asanasset,totheextentthatacashrefundorreductioninfuture paymentsisavailable. Defined benefit plans Adefinedbenefitplanisapost-employmentbenefitplanotherthan adefinedcontributionplan.TheGroup’snetobligationinrespectof definedbenefitpensionplansiscalculatedbyestimatingtheamountof futurebenefitthatemployeeshaveearnedinreturnfortheirservicein thecurrentandpriorperiods.Thatbenefitisdiscountedtodetermine itspresentvalue,andthefairvalueofanyplanassets(atbidprice)are deducted.Theliabilitydiscountrateistheyieldatthestatementof financialpositiondateonAAcredit-ratedbondsdenominatedinthe currencyof,andhavingmaturitydatesapproximatingtothetermsofthe Group’sobligations.Thecalculationisperformedbyaqualifiedactuary usingtheprojectedunitcreditmethod. WhenthecalculationresultsinabenefittotheGroup,therecognised assetislimitedtothepresentvalueofbenefitsavailableintheformof anyfuturerefundsfromtheplan,reductionsinfuturecontributionsto theplanoronsettlementoftheplanandtakesintoaccounttheadverse effectofanyminimumfundingrequirements. Actuarialgainsandlossesarisingfromexperienceadjustmentsand changesinactuarialassumptionsarechargedorcreditedtoequityin othercomprehensiveincome,intheperiodinwhichtheyarise. Currentservicecostsreflecttheincreaseinthedefinedbenefitobligation resultingfromemployeeservicesinthecurrentyear,benefitcurtailments andsettlements.Paymentsarerecognisedasemployeebenefitexpense intheincomestatement. Past-servicecosts,whichariseasaresultofcurrentchangestoplan arrangementsaffectingtheobligationforpriorperiods,arerecognised immediatelyasanemployeebenefitexpense,withinadministrativecosts, intheincomestatement. Thenetinterestcostiscalculatedbyapplyingthediscountratetothe netbalanceofthedefinedbenefitobligationandthefairvalueofthe planassets.Thenetcostisincludedwithinfinancecostsintheincome statement. 142 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 2.1SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES (CONTINUED) Share capital Ordinarysharesareclassifiedasequity.Incrementalcostsdirectly attributabletotheissueofnewsharesoroptionsareshowninequity asadeduction,netoftax,fromtheproceeds. WheretheGroupacquiresitsownordinaryshares,theconsideration paidisrecordedasadeductionfromequitywithinthereserveforown shares. Foreign currency translation Foreigncurrencytransactionsaretranslatedintothefunctionalcurrency usingtheexchangeratesprevailingatthedatesofthetransactions. Foreignexchangegainsandlossesresultingfromthesettlementof suchtransactionsandthetranslationofmonetaryassetsandliabilities denominatedinforeigncurrenciesusingexchangeratesattheendofthe reportingperiodarerecognisedintheincomestatement. TheresultsandfinancialpositionofallGroupentitieshavingadifferent functionalcurrencyfromtheGroup’spresentationalcurrencyare translatedintothepresentationalcurrencyasfollows: • assetsandliabilitiesaretranslatedattheclosingrateonthedateof thestatementoffinancialposition; • incomeandexpensesforeachincomestatementaretranslated ataverageexchangerates;and • allresultingexchangedifferencesarerecognisedinother comprehensiveincomeandrecordedwithinthetranslationreserve. Goodwillandfairvalueadjustmentsarisingontheacquisitionofa foreignentityaretreatedasassetsandliabilitiesoftheforeignentity andtranslatedattheclosingexchangerate.Exchangedifferences arisingfromretranslationattheclosingratearerecognisedinother comprehensiveincomewithinthetranslationreserve. Revenue Revenue,whichexcludessalestaxes,representsthevalueofservices providedandsoftwaresuppliedtocustomersintheUK,Europeandthe US,andalsoincludesinterestreceivedonfundsunderadministrationof theGroup. Revenueclassifiedasrenderingofgoodsandservicesrepresents amountsduetotheGroupascompensationforservicesperformedor goodsdeliveredundercontract.Revenueincludedwithinrenderingof servicesincludesrevenuegeneratedfromthemajorityoftheprofessional serviceswhichtheGroupofferstoitscustomers.Itdoesnotinclude anyadditionalrevenuegeneratedfrom,forexample,clientfundsunder administration,whicharedisclosedseparatelytoreflecttheincidental natureofthisrevenue. Thearrangementsusedtopayforgoodsandservicesrenderedcan varybetweendifferentclients.Manycontractsarestructuredsothatany feesareinvoicedtotheclienteitherbefore,duringorafterperforming thecontractualobligations.Howeversomecontractsarestructuredto allowtheGrouptoretainanyinterestincomereceivedfromprocessing theclient’sfunds,insteadofaninvoicedfee.Suchinterestincomeis specificallymentionedasthefeeforperformingcontractualtasksand obligations.Giventhatitisnotincidentaltotheunderlyinggoods andservicesdelivered,suchrevenuereceivedisclassifiedasrevenue generatedfromtherenderingofgoodsandservices. TheGroupdistinguishesbetweenrevenuegeneratedfromtherendering ofgoodsandservicesandrevenuerepresentinginterestreceivedon clientmoniesheldandadministeredbytheGroupthatareincidental toservicesdelivered.Thisincomeisconsideredtobeancillarytothe underlyingfeepaidservicesdeliveredtotheGroup’scustomers.Interest incomereceivedisanimportantsourceoftheGroup’srevenueandthe Groupseekstomaximisethesereturnsbyholdingfundsinhigh interest-bearingaccounts,wherepossible.Howeverthisrevenue isnotgeneratedfromtheGroup’sprincipalactivitieswhichiswhy thisisdisclosedseparately. Out-of-pocketexpensesrechargedtocustomersarerecognisedin revenuewhentheyarerecoverablefromtheclient,netoftherelated expense. Revenue recognition Revenueisrecognisedwhen,oras,theGroupsatisfiescontractual performanceobligationsbytransferringpromisedgoodsorservicesto itscustomers.Goodsandservicesareconsideredtobetransferredwhen thecustomerobtainscontrolofthegoodorservice. Revenueisrecognisedeitheratapointintimewhentheperformance obligationinthecontracthasbeenperformedorovertimeascontrolof theperformanceobligationistransferredtothecustomer. TheGroup’sprincipalrevenuerecognitionpoliciesareasfollows: Professional services TheGroupisoneofthelargestprovidersofoutsourcedprofessional servicesintheUK,coveringpensionsadministration,pensionspayroll, annuityservices,complaintshandling,resourcingservices,employee shareplanadministrationandshareregistrationservices. Revenuefromfixed-pricecontracts,whichmayspananumberofyears, isrecognisedrateablyovertheexpectedlifeofthecontract,wherethe Groupsatisfiestheovertimerevenuerecognitioncriteria.Whentheover timecriteriaarenotsatisfied,theGrouprecognisesrevenueatapointin timewhenthecontractualperformanceobligationsaredelivered.Where theGroupprovidesstafftocustomersathourlyordailyrates,revenueis recognisedonthebasisoftimeworked. ManyoftheGroup’scontractscontainmultipledeliverablestothe customer.Managementevaluatewhetherthosepromisedgoodsand servicesaredistinct,whichrequirethemtobeaccountedforasseparate performanceobligations.Ifthegoodsandservicesarenotdistinct, theyarecombinedwithothergoodsorservicesuntilaperformance obligationcanbeidentifiedinthecontractthatisdistinct.Ifaseriesof distinctgoodsandservicesaresubstantiallythesameandhavethesame patternoftransfertothecustomer,thedeliverablesmaybecombined andaccountedforasasingleperformanceobligation. Software sales, hosting and support services Softwaresales,hostingandsupportservicesisprovidedbythePensions SolutionsandIntelligentSolutionsbusinessesforsoftwaresuchas Compendia,CharterandKYC.Revenueforhardwareandsoftware licencesisrecognisedatapointintimewhenthegoodsandlicencesare deliveredtothecustomer,asthisresultsinthecustomerhavingtheright tousethelicenceandtheperformanceobligationisdeliveredinfull. Revenueforhostingandsupportservicesarerecognisedrateablyover thetermoftheagreement. Whenproductsarebundledtogetherforthepurposeofsale,the associatedrevenue,netofallapplicablediscounts,isallocatedbetween theconstituentperformanceobligationsonarelativefairvaluebasis.The Grouphasasystematicbasisforallocatingrelativefairvaluesinthese situations,baseduponpublishedlistprices. I S E C T O N 0 3 I F N A N C A L I S T A T E M E N T S N O T E S T O T H E C O N S O L I D A T E D F N A N C A L I I S T A T E M E N T S 143 Equiniti Group plc Annual Report 2018 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 2.1SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES (CONTINUED) Transactional revenue TransactionalrevenueisearnedintheInvestmentSolutionsandEQUS businessesrepresentingcommissionearnedonthepurchaseandsaleof sharesandonforeignexchangetransactions. Revenueisrecognisedatapointintimewhentheperformanceor processingoftherelatedtransactionstakesplace. Further considerations in relation to long-term contracts Wheredeliveryoftheservicesdescribedabovespansmorethanone accountingperiod,revenueiseitherrecognisedovertimeoratapoint intime.WheretheovertimecriteriainIFRS15RevenuefromContracts withCustomers(IFRS15)aresatisfied,theGrouprecognisesrevenue usingthe‘percentageofcompletion’method.Thisgenerallyoccurs withintheInvestmentSolutionsdivisionforthesupplyofcorporate actionsandwithintheIntelligentSolutionsdivisionforsoftwaresolutions. Theseservicestypicallytakelessthanoneyeartoperformbut,whenthe servicefallsintotwoormoreaccountingperiods,thereismanagement judgementaroundhowmuchrevenuetorecogniseineachperiod. Whereprovidedforunderthetermsofthecontract,thestageof completionismeasuredbyreferencetothecontractcostsincurredupto theendofthereportingperiod,asapercentageofthetotalestimated costforthecontract.Totalcostsincurredundercontractsinprogress, netofamountstransferredtotheincomestatement,arestatedless foreseeablelossesandpaymentsonaccount.Wheretheovertime criteriaarenotsatisfied,andthecontractallows,revenueisrecognised whentheperformanceobligationsaredeliveredtothecustomer,which maynotbeuntiltheendofthecontractualperiod. Indetermininghowmuchrevenuetorecognise,managementis requiredtomakeanassessmentoftheexpectedcoststocompletethe contract.Forecastingcontractcostsinvolvesjudgementsaroundthe numberofhourstocompleteatask,costsavingstobeachievedover time,anticipatedprofitabilityofthecontract,aswellascontract-specific performanceKPIs.Whereacontractisanticipatedtomakealoss,these judgementsarealsorelevantindeterminingwhetherornotanonerous contractprovisionisrequiredandhowthisistobemeasured. Contractrevenueismeasuredasthefairvalueoftheconsideration receivable.Thefairvalueofconsiderationmightvaryduetovariationsin acontract.Avariationisonlyincludedrevenuewhenitisprobablethat thecustomerwillapprovethevariationandthattheamountofrevenue canbereliablymeasured.Anincreaseinscopeofacontractwillincrease boththetotalanticipatedrevenueandcoststocompletethecontract. Coststodateandcoststocompleteforeachprojectarecontinually monitoredforeachprojectthroughamonthlyreviewprocess.Ifit becomesapparentthatcontractcostswillexceedcontractrevenue, thenthelossisrecognisedimmediatelyasanexpenseintheincome statement. Thefollowingtableillustratesrevenuerecognitionpoliciespredominantly usedineachreportingsegment: Segment Investment solutions Intelligent solutions Pensions solutions EQUS Interest Professional services Out-of-pocket- expenses Softwareand support Transactional fees Intermediary income • • • • • • • • • • • • CostsarisingpriortotheGroupbeingawardedacontract,orachieving preferredbidderstatus,andmobilisationcostsareexpensedtothe incomestatementasincurred. OncetheGroupisawardedacontract,theincrementalcostsofobtaining orfulfillingthecontractarerecognisedasanassetonlyiftheGroup expectstorecoverthem.Theseassetsaresubsequentlychargedtothe incomestatementovertheexpectedcontractperiodusingasystematic basisthatmirrorsthepatterninwhichtheGrouprecognisesthe contractedrevenue. Revenuerecognisedforgoodsandservices,butnotyetbilled,is reflectedinthestatementoffinancialpositionwithincontractfulfilment assets.Therecanbeasignificantperiodoftimebetweenrevenue recognitionandinvoicingwhererevenueisrecognisedatapointin timebutinvoicesareraisedovertime.Thisisevidentwhenwedeliver termlicenceswheretheperformanceobligationisfulfilledondelivery ofthelicencebutbillingoccursthroughoutthecontractterm.Revenue isonlyrecognisedwhensupportedbyawrittenclientcontractand recoverabilityisexpectedinlinewiththesupportingcontract.Amounts billedinadvanceofworkbeingperformedaredeferredinthestatement offinancialpositionasdeferredincome. Operating segments Operatingsegmentsarereportedinamannerconsistentwiththe internalreportingprovidedtothechiefoperatingdecisionmaker. Thechiefoperatingdecisionmaker,whoisresponsibleforallocating resourcesandassessingperformanceoftheoperatingsegments,has beenidentifiedastheBoardofDirectors. Government grants GrantsthatcompensatetheGroupforexpensesincurredarerecognised intheincomestatementinthesameperiodsinwhichtheexpensesare recognised.Grantsrelatingtooperatingexpenditurearerecognisedin theincomestatementastheyareearned.Grantsrelatingtointangible assetsarenettedagainsttherelatedexpenditure,priortocapitalisation, andamortisedovertheusefullifeoftheasset. Operating lease payments Leasesinwhichasignificantportionoftherisksandrewardsofownership areretainedbythelessorareclassifiedasoperatingleases.Payments madeunderoperatingleasesarerecognisedintheincomestatementon astraight-linebasisoverthetermofthelease.Leaseincentivesreceived arerecognisedintheincomestatementasanintegralpartofthetotal leaseexpense. 144 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 2.1SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES (CONTINUED) Net finance costs Netfinancecostscompriseinterestpayable,interestreceivableonown funds,foreignexchangegainsandlossesandtheinterestcostofdefined pensionschemeliabilities,netoftheexpectedreturnonplanassets. Interestincomeandinterestpayableisrecognisedintheincome statementasitaccrues,usingtheeffectiveinterestmethod. Taxation Taxontheprofitfortheyearcomprisescurrentanddeferredtax.Taxis recognisedintheincomestatement,excepttotheextentthatitrelatesto itemsrecogniseddirectlyinequity,inwhichcaseitisrecognisedinequity. Currenttaxistheexpectedtaxpayableonthetaxableincomeforthe year,usingtaxratesenactedorsubstantivelyenactedatthestatementof financialpositiondate,andanyadjustmenttotaxpayableinrespectof previousyears. Deferredtaxisprovidedontemporarydifferencesbetweenthecarrying amountsofassetsandliabilitiesforfinancialreportingpurposesand theamountsusedfortaxationpurposes.Thefollowingtemporary differencesarenotprovidedfor:theinitialrecognitionofgoodwill,the initialrecognitionofassetsorliabilitiesthataffectneitheraccounting nortaxableprofitotherthaninabusinesscombination,anddifferences relatingtoinvestmentsinsubsidiariestotheextentthattheywill probablynotreverseintheforeseeablefuture.Theamountofdeferred taxprovidedisbasedontheexpectedmannerofrealisationor settlementofthecarryingamountofassetsandliabilities,usingtax ratesenactedorsubstantivelyenactedatthestatementoffinancial positiondate. 2.2 NEW STANDARDS AND AMENDMENTS ADOPTED TheGrouphasappliedthefollowingstandardsforthefirsttimefor reportingperiodscommencing1January2018: • IFRS9FinancialInstruments(IFRS9) • IFRS15RevenuefromContractswithCustomers(IFRS15) TheGrouphaschangedcertainaccountingpoliciesinadoptingofIFRS 9;norestatementswererequired.TheadoptionofIFRS15hasrequired changesinaccountingpolicies,aswellasrestatementofprioryear resultsandfinancialposition.Anumberofotheramendmentsadopted from1January2018didnotmateriallyimpacttheamountsrecognised inthecurrentorprioryearandarenotexpectedtosignificantlyaffect futureperiods. Impact of adoption – IFRS 9 IFRS9addressestherecognition,classificationandmeasurementof financialassetsandfinancialliabilitiesandwasadoptedon1January 2018.Managementhasassessedthenewrequirementsforfinancial assetsandtherewerenochangestotheGroup’sassetspreviously classifiedasheldatamortisedcostunderIAS39.TheGroup’sderivatives designatedascashflowhedgescontinuetoberecognisedatfairvalue throughothercomprehensiveincomeunderIFRS9. Anewexpectedcreditlossmodelwhichpermitsasimplifiedapproach fortheGroup’simpairmentoftradereceivablesandcontractfulfilment assets,hasbeenappliedfrom1January2018.Thismodelappliesacredit riskpercentagebasedonhistoricalriskofdefaultagainstreceivablesthat aregroupedintocertainagebrackets.Usingthereceivablesbalanceas at31December2017,wehaveassessedthepaymentprofileandlevel ofbaddebtsexperiencedinthe12monthsfromthisdateandhave establishedthecreditriskpercentagesasfollows: • Notpastdue–0.2% • Pastdue1–30days–0.1% • Pastdue31–60days–0.1% • Pastdue61–90days–0.6% • Pastdue90+days–4.7% TheGroup’stradereceivablesandcontractfulfilmentassetssharesimilar riskcharacteristicsbynature.Thereforewehavechosentoapplythe samedefaultpercentageonalloutstandingreceivables.TheGrouphas alowcreditriskonitstradereceivablesandcontractassetsasahigh proportionofrevenueisderivedfromlargecustomerslistedonthe majorinternationalstockexchangesandhistoricaldefaultshavebeen infrequentandsmall.Asaresult,theimpactofapplyingIFRS9onthe 2017resultswasnotmaterial. Impact of adoption – IFRS 15 IFRS15becameeffectivefrom1January2018andtheGrouphas adoptedthestandardonafullyretrospectivebasis.Theyearended 31December2018isthefirstyearreportedunderIFRS15andthe2017 comparativeshavebeenrestatedtoreflectthechangesinthetimingof revenueandcostrecognition. IFRS15willnotimpactthelifetimerevenues,profitabilityorthecash flowsofcontractsanddoesnotaffectthemajorityoftheGroup’s revenuestreams.ThemainchangesfromtheadoptionofIFRS15areon thetimingofrevenuerecognitiononthesaleofsoftwarelicencesand transitionworkonmulti-periodcontracts,inparticular: –Revenuerecognisedfromfixed-termrighttousesoftwarelicenceswill berecognisedatapointintime,ratherthanoverthelicenceterm, whentherearenofurtherperformanceobligationsrequiredtobe delivered.Thisleadstoearlierrecognitionofincomeonthesesales. –Insomemulti-periodpensionadministrationcontracts,thereisa transitionphasewheresignificantcostsareincurredintransitioning customersfromaprevioussuppliertotheGroup.Underprevious accounting,revenuewouldberecognisedinlinewiththecostand efforttoprovidethesetransitionalservices.UnderIFRS15,transition activitiesarenotaseparateperformanceobligation,andthereforeany associatedrevenuesarerecognisedoverthelifeofthecontract.This leadstolaterrecognitionofrevenuefortransitionworkcompleted. TheGroup’sstatementoffinancialpositionnowincludes: • Contractfulfilmentassets–representingthefairvalueofservices andlicencesprovidedbutnotyetinvoiced,andcostscapitalised fromobtaining,andfulfilling,thecontract • Contractfulfilmentliabilities–representingdeferredincomewhich ishigherasaresultofdelayedrevenuerecognition. Detailsoftherestatementstothecomparativeyearended 31December2017aresetoutinnote9.7.TheadoptionofIFRS15 didnothaveamaterialimpactontheGroup’sreportedresults. I S E C T O N 0 3 I F N A N C A L I S T A T E M E N T S N O T E S T O T H E C O N S O L I D A T E D F N A N C A L I I S T A T E M E N T S 145 Equiniti Group plc Annual Report 2018 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 2.3 NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED Thefollowingnewstandardsiseffectiveforannualperiodsbeginning after1January2019andhasnotyetbeenadoptedbytheGroup. IFRS 16 Leases IFRS16wasissuedinJanuary2016andiseffectiveforannualreporting periodsbeginningonorafter1January2019.TheGroupwillapplyIFRS 16on1January2019anditisexpectedtohaveamaterialimpactonthe financialstatementsfortheyearended31December2019. IFRS16replacesthecurrentleasingstandard,IAS17Leases,anddetails therequirementsfortheclassification,measurementandrecognitionof leasearrangements.IFRS16endsthedistinctionbetweenfinanceleases andoperatingleasesthatwascharacteristicofIAS17.Instead,IFRS16 requiresthemajorityofleasestoberecognisedonthestatementof financialposition. AssetsthataredeemedtobeoflowvalueareoutsidethescopeofIFRS 16.TheGroupdefineslowvalueassetsasitemsthatwouldhaveavalue of£5,000orlesswhennew.Similarly,leaseswithatermof12monthsor lessarealsooutsidethescopeofIFRS16.Therewillbenochangesto theGroup’saccountingforlowvalueorshorttermleases. TheGroupwilltransitiontoIFRS16usingthemodifiedretrospective approach.Underthisapproachtheleaseliabilitywillbemeasuredas thepresentvalueoftheminimumleasepaymentsthatareunpaidon 1January2019.Howevertherightofuseassetwillbemeasuredat depreciatedcost,asthoughIFRS16hadbeenappliedfromthelease commencementdate. ThecumulativeeffectofadoptingIFRS16willberecognisedasan adjustmenttotheopeningbalanceofretainedearningson1January 2019.TheGroupisnotpermittedtorestateitscomparativefinancial statementsunderthemodifiedretrospectiveapproach. SinceIFRS16wasissued,theGrouphasbeenworkingtoidentify theleasesthatwillbeimpactedbythenewstandard.TheGrouphas identifieditsleasedpropertiesasthemainleasesthatwillbeimpacted. TheGroupalsohasleasesforITequipment.Theseleaseswere designatedasfinanceleasesunderIAS17and,usingthepractical expedientinIFRS16,thevalueoftheright-of-useassetandleaseliability ontransitionwillbeequaltothecarryingamountoftheleasedassetand leaseliabilityunderIAS17.Asat31December2018,thecarryingvalue offinancedleasedassetswas£1.1mandthecarryingvalueoffinance leaseliabilitieswas£1.1m. On1January2019,theGroupwillrecogniseright-of-useassetsin property,plantandequipmentinthestatementoffinancialpositionof £36.2mrelatingtoleasedproperties.Leaseliabilitiesforfuturelease paymentsof£42.7mwillalsoberecognisedinthestatementoffinancial positioninotherfinancialliabilities.ThereforetheGroupestimatesa £6.5mreductioninnetassetswhenthenewstandardisadoptedon1 January2019. Theoperatingleaserentalexpensefor2018is£8.7mandhasbeen chargedtoadministrativecostsintheincomestatement.Howeverin 2019themajorityoftheseexpenseswillbereplacedbyadepreciation expenseof£5.6m,whichisrecognisedseparatelyfromadministrative costsintheincomestatement.Therewillalsobeinterestchargedon theleaseliabilitiesof£1.3mthatisrecognisedwithinfinancecosts.The GroupexpectsthatIFRS16willhaveamarginalimpactonprofitbefore incometaxin2019. ThetotalcashoutflowforleasepaymentswillnotchangeunderIFRS16, butcertainleasepaymentscurrentlytreatedascashflowsfromoperating activitieswillbepresentedascashflowsfromfinancingactivities.Thiswill decreasecashoutflowsfromoperatingactivitiesandanincreasecash outflowsfromfinancingactivities. TheGroupalsoanticipatesthatcertainkeyperformanceindicators willbeimpacted,suchasunderlyingEBITDAmargin,operatingcash flowconversionandleverage.EBITDAisakeyinputtoeachofthese measuresandwillincreaseasaresultofIFRS16,astheGroupnolonger recognisesarentalexpenseandthedepreciationandinterestexpenses areoutsideofthismeasure. TherearenoothernewIFRSsorIFRSICinterpretationsnotyetadopted whichwouldbeexpectedtohaveamaterialimpactonthefinancial statementsoftheGroup. 2.4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS TheGroupmakesestimatesandjudgementsconcerningthefuture,the resultsofwhichmayaffectthecarryingvaluesofassetsandliabilitiesat theyearend,aswellastherevenueandcostsreportedfortheperiod. Estimatesandassumptionsarecontinuallyevaluatedandarebasedon historicalexperienceandotherfactors,includingexpectationsoffuture eventsthatarebelievedtobereasonableunderthecircumstances. Theaccountingestimatesthathaveasignificantriskofcausingamaterial adjustmenttothecarryingvaluesofassetsandliabilitieswithinthenext financialyeararedescribedbelow. Accounting estimates Pension assumptions Thepresentvalueofthenetdefinedbenefitpensionobligationis dependantonanumberoffactorsthataredeterminedonanactuarial basis,usinganumberofassumptions.Theseassumptions,whichareset outinnote9.3,includesalaryrateincreases,interestrates,inflationrates, discountratesandmortalityrates.Anychangesintheseassumptions willimpactthecarryingvalueofthepensionobligationandasensitivity analysishasbeendisclosedinnote9.3. Thediscountrateusedforcalculatingthepresentvalueoffuturepension liabilitycashflowsisbasedoninterestratesofhigh-qualitycorporate bondsthathavetermstomaturityapproximatingtothetermsofthe relatedpensionobligation. Contingent consideration WhentheGroupmakesanacquisition,considerationforthebusiness cantaketheformofcash,deferredconsiderationandcontingent consideration.Thecontingentconsiderationpayableisbasedonpost- acquisitiontargetsoftheacquiredbusiness.Deferredconsiderationis notbasedonpost-acquisitiontargetsandisgenerallyonlydependant onthepassageoftimebeforepaymentismadetotheseller. Thecriteriathatmustbemetinorderforapaymentofcontingent considerationtobemadecanvaryamongsttheGroup’sacquisitions. ThesecanincluderevenueandEBITDAtargetsfortheacquiredbusiness orofthebusinessunitthattheacquiredbusinessisjoining.Provisions forcontingentconsiderationareinitiallyrecognisedatfairvalue.These estimatesareupdatedateachreportingdatebycomparingthelatest performance,budgetsandforecastsoftheacquiredbusinesstothe earn-outarrangementinthesharepurchaseagreement. 146 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 2.4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED) Judgements in applying the Group’s accounting policies Revenue on multiple element contracts Budgetsandforecastsrequiremanagement’sbestestimateofthefuture performanceoftheacquiredbusinessandonotherkeyinputs,suchas growthratesandprofitability.Thefairvalueofcontingentconsideration at31December2018was£19.7m(2017:£21.2m).Ifforecastprofitsfor eachacquiredbusinessduringtheearnoutperiodwas10%lowerthan forecastthiswouldleadtoa£2.5mreductionintheprovisionrequired. Ifforecastprofitsforeachacquiredbusinessduringtheearnoutperiod was10%higherthanforecastthiswouldleadtoanimmaterialincreasein theprovisionrequired. Valuation of acquired intangible assets Whenabusinesscombinationoccurs,inaccordancewithIFRS3, managementneedstodeterminethefairvalueofnetassetsacquired. Thisincludesassets,suchascustomer-relatedintangibles,thatare notrecognisedinthebooksoftheacquiredbusiness.Therefore managementneedstocalculatethefairvalueofintangibleassetsarising onacquisition.Thisisbasedontwokeyassumptions;thediscountrate andthelong-termgrowthrate. Thefairvalueofcustomer-relatedintangiblesrelatedtotheacquisition ofEQUSwas£102.0m.Ifthediscountrateusedwasonepercentage pointhigher,thevalueoftheassetwouldbe£5.3mlower.Ifthediscount rateusedwasonepercentagepointlower,thevalueoftheassetwould be£5.8mhigher.Aonepercentagepointincreaseintheforecastlong- termgrowthratewouldincreasethevalueoftheassetby£3.2manda onepercentagepointdecreasewouldreducethevalueby£3.0m. Wherecontractshavemultiplecomponents,suchasthedeliveryof softwareandimplementationandsupportservicestobeundertaken overthecourseofthecontract,thereisjudgementindetermining whetherthevariouscomponentsareseparableperformanceobligations. Iftheperformanceobligationsareseparable,thecontractualrevenues needtobeappliedtothefairvalueoftheindividualcomponents. Thisimpactstherevenueprofileofcontacts.Revenuefromthedelivery ofaperpetuallicence,asaseparateperformanceobligation,is recognisedatapointintime.Whereasrevenueforimplementationand supportservicesisrecognisedovertime,rateably,inlinewiththeGroup’s performancethroughoutthetermoftheagreement. Software development TheGroupcapitalisescertainstaffcostsasaninternallygenerated intangibleasset,where,inmanagement’sjudgement,itcanbe determinedthattheGrouphastheabilitytodeveloptheassetsandthe projectistechnicallyfeasible.Managementalsoexercisesjudgementto determinewhethertheprojectwillbecompletedandthattheassetwill generatefutureeconomicbenefitsthatoutweighsitscost. Duringtheyearended31December2018theGroupcapitalised£16.2m ofstaffcosts(2017:£15.5m).If,inmanagement’sjudgement,itcannotbe determinedthattherecognitioncriteriawillbesatisfied,thecostsofthe projectareexpensedtotheincomestatement. I S E C T O N 0 3 I F N A N C A L I S T A T E M E N T S N O T E S T O T H E C O N S O L I D A T E D F N A N C A L I I S T A T E M E N T S 147 Equiniti Group plc Annual Report 2018 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 3. OPERATING PROFIT 3.1 REVENUE Revenue from continuing operations: Rendering of goods and services Interest income Total revenue 1Restated for the adoption of IFRS 15 – see note 1 for details See note 3.3 for further analysis of the Group’s revenue. 3.2 ADMINISTRATIVE COSTS Expenses by nature: Employee benefit expense (note 3.4) Employee costs capitalised in respect of software development Direct costs Bought-in services Premises costs Operating lease costs Government grants for research and development Other general business costs Total administrative costs 1Restated for the adoption of IFRS 15 – see note 1 for details 3.3 OPERATING SEGMENTS 2018 £m 509.7 21.2 530.9 2017 (Restated1) £m 396.2 10.1 406.3 2018 £m 219.8 (16.2) 101.2 38.6 7.9 8.7 (0.5) 69.9 2017 (Restated1) £m 174.6 (15.5) 75.8 18.1 7.2 6.6 (1.6) 53.4 429.4 318.6 In accordance with IFRS 8 Operating Segments (IFRS 8), 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, EQ US and Interest, in line with how the Group runs and structures its business. Revenue, EBITDA and underlying EBITDA are key measures of the Group’s performance. EBITDA represents earnings before interest, tax, depreciation and amortisation. The EBITDA of each segment is reported after charging relevant corporate costs based on the business segments’ usage of corporate facilities and services. Underlying EBITDA is adjusted for one-off items which obscure the understanding of the underlying performance of the Group and its respective divisions. These items primarily represent material restructuring, integration and transformational acquisition related expenses. Year ended 31 December 2018 Investment Solutions Intelligent Solutions Pension Solutions Interest UK and Europe EQ US* USA Total revenue *Included within USA is £9.1m of interest revenue which is reported and managed within the EQ US results. 148 Total revenue Intersegment Reported revenue £m 145.0 180.8 138.5 12.1 476.4 81.4 81.4 557.8 £m (2.5) (14.9) (9.5) – (26.9) – – £m 142.5 165.9 129.0 12.1 449.5 81.4 81.4 (26.9) 530.9 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 3.3 OPERATING SEGMENTS (CONTINUED) Year ended 31 December 2017 – restated1 Investment Solutions Intelligent Solutions Pension Solutions Interest Total revenue 1Restated for the adoption of IFRS 15 – see note 1 for details Reported revenue by geographical market UK and Europe USA Total revenue Timing of revenue recognition Point in time Over time Total revenue Total revenue Intersegment Reported revenue £m 135.1 139.4 150.0 10.1 434.6 £m (2.8) (15.0) (10.5) – (28.3) 2018 £m 449.5 81.4 530.9 2018 £m 114.2 416.7 530.9 £m 132.3 124.4 139.5 10.1 406.3 2017 £m 406.3 – 406.3 2017 £m 72.6 333.7 406.3 I S E C T O N 0 3 I F N A N C A L I S T A T E M E N T S N O T E S T O T H E C O N S O L I D A T E D F N A N C A L I I Point in time revenue primarily relates to our share and foreign exchange dealing revenue streams where the performance obligation is fulfilled when the transaction completes, plus corporate action fees where these can be dependent on transactions closing. It also includes revenue from right to use licences where revenue is recognised once client delivery and acceptance conditions are met. Over time revenue primarily relates to our share registration businesses, including corporate actions, where the Group has a legal right to revenue for work performed, our pensions administration business, our customer remediation business and software support services. Unfulfilled performance obligations The table below shows the aggregate amount of the Group’s contracted revenue as at 31 December 2018 allocated to the contractual performance obligations that are unsatisfied or partially satisfied. The Group anticipates recognising this revenue as, or when, the contractual performance obligations are satisfied is as follows: Less than one year Between one and five years More than five years Investment Solutions Intelligent Solutions Pension Solutions £m 37.0 123.9 19.2 180.1 £m 12.7 25.2 – 37.9 £m 27.0 54.3 10.0 91.3 EQ US £m 14.7 4.6 – 19.3 Total £m 91.4 208.0 29.2 328.6 The table above represents the contractual consideration which the Group will be entitled to receive from customers. The total revenue that will be earned by the Group will also include transactional revenue, new wins, scope changes and contract extensions. However these elements have been excluded from the figures above as they are not contracted and the revenue will be earned as the work is performed. Many of the Group’s contracts renew automatically until cancelled by the either party. At 31 December 2018, these contracts represented a significant proportion of the Group’s contractual revenues. However these contracts have not been included in the analysis above as the Group typically has a contractual right to revenue for a period of 12 months or less. In addition, the Group has taken the practical expedients under IFRS 15 and has excluded the following revenue: – contracts with a life of less than one year, – revenue that is earned and invoiced as the work is performed. S T A T E M E N T S 149 Equiniti Group plc Annual Report 2018 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 3.3 OPERATING SEGMENTS (CONTINUED) Underlying EBITDA Investment Solutions Intelligent Solutions Pension Solutions Interest UK and Europe EQ US USA Total segments Central costs Total underlying EBITDA 1Restated for the adoption of IFRS 15 - see note 1 for details Central costs principally include corporate overheads which cannot be allocated to a specific segment or segments. Depreciation and amortisation Investment Solutions Intelligent Solutions Pension Solutions EQ US Total segments Central costs Total Reconciliation of underlying EBITDA to profit before tax Underlying EBITDA Non-operating charges Depreciation and amortisation Net finance costs Profit before tax 1Restated for the adoption of IFRS 15 - see note 1 for details 2018 2017 (Restated1) £m 47.3 39.8 19.7 12.1 118.9 19.2 19.2 138.1 (15.8) 122.3 2018 £m (23.6) (12.0) (9.1) (5.7) (50.4) (11.2) (61.6) 2018 £m 122.3 (20.8) (61.6) (15.3) 24.6 £m 43.5 32.7 24.6 10.1 110.9 – – 110.9 (12.7) 98.2 2017 £m (21.5) (10.8) (8.5) – (40.8) (9.9) (50.7) 2017 (Restated1) £m 98.2 (10.5) (50.7) (11.7) 25.3 Assets and liabilities per segment are not items which are reviewed by the Board of Directors and is therefore not disclosed within the segmental reporting. However, capital expenditure is a key measure and is disclosed below. Capital expenditure consists of additions to property, plant, equipment and software. Capital expenditure Investment Solutions Intelligent Solutions Pension Solutions EQ US Total segments Central Total 150 2018 £m (6.9) (6.4) (4.1) (21.0) (38.4) (7.6) (46.0) 2017 £m (12.3) (6.8) (8.3) – (27.4) (5.1) (32.5) Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 3.4 STAFF NUMBERS AND COSTS The average monthly number of persons employed by the Group (including Directors) during the year was as follows: Number of employees – by function: Operations Support functions Sales and marketing Total employees Number of employees – by operating segment: Investment Solutions Intelligent Solutions Pensions Solutions EQ US Central Total employees Number of employees – by geography: UK Rest of Europe Asia North America Total employees The aggregate payroll costs of these persons were as follows: Wages and salaries Social security costs Other pension costs Share-based payment expense (note 7.2) Total employee benefit expense 2018 2017 Number Number 4,371 4,036 567 197 429 113 5,135 4,578 2018 2017 Number Number 1,234 716 1,446 416 1,323 5,135 1,150 631 1,553 – 1,244 4,578 2018 2017 Number Number 3,799 3,754 83 837 416 50 774 – 5,135 4,578 2018 £m 186.8 17.6 9.0 6.4 2017 £m 147.5 16.0 7.6 3.5 219.8 174.6 I S E C T O N 0 3 I F N A N C A L I S T A T E M E N T S N O T E S T O T H E C O N S O L I D A T E D F N A N C A L I I S T A T E M E N T S 151 Equiniti Group plc Annual Report 2018 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 4 INVESTMENTS 4.1 ACQUISITIONS OF BUSINESSES EQ US On 1 February 2018, the Group completed on the acquisition of the Wells Fargo Shareowner Services (EQ US) business for a total cash consideration of $227.0m (£159.6m), deferred consideration of $0.1m (£0.1m) settled in June, plus £9.8m in settlement of a deal contingent forward used to hedge the transaction consideration. EQ US is a share registration business based in the United States. The Group took control of the business on 1 February 2018. On this date the business had net assets with a fair value of £111.6m. The results of the business have been consolidated since the date of control and EQ US contributed £81.4m of revenue and £2.1m profit before income tax to the Group’s results in 2018. If the business had been acquired on 1 January 2018 it would have contributed an additional £6.1m of revenue to the Group’s results in 2018. The acquisition-related costs of acquiring and integrating EQ US into the Group amounted to £20.8m in the year and these have been reflected within the income statement. The costs consisted of transaction costs of £6.1m, mainly relating to deal advisory and legal fees, and integration costs of £14.7m relating to programme delivery, the development of standalone functions and delivery of systems and processes to run the business. These have been included in administrative costs in the income statement. On acquisition, intangible assets relating to customer contracts and related relationships were identified, with a fair value of £102.0m. These are being amortised over 20 years. The value of goodwill reflects amounts in relation to the expected benefit of the ability to generate new streams of revenue and expected synergies of combining the operations of EQ US and the Group. The amounts relating to the intangible assets and goodwill are provisional and subject to further evaluation and adjustment, in accordance with accounting standards. Fair value of identifiable assets acquired and liabilities assumed Intangible assets Deferred tax asset Property, plant and equipment Trade and other receivables Contract fulfilment assets Trade and other payables Contract fulfilment liabilities Provisions Net identifiable assets and liabilities Goodwill on acquisition Total consideration and cash outflow in the period Boudicca Proxy £m 102.0 0.2 1.4 4.8 4.6 (0.5) (0.8) (0.1) 111.6 57.9 169.5 On 26 April 2018, the Group purchased the entire issued share capital of Boudicca Proxy Ltd (Boudicca Proxy) for £1.1m plus contingent consideration of up to £0.8m payable in 2019 and up to £1.5m payable in 2021. Boudicca Proxy is a specialist shareholder engagement company providing expertise in the areas of progressive proxy solicitation, shareholder communications, corporate governance advisory, share ownership analysis and global equity intelligence. The Group took control of Boudicca Proxy on 26 April 2018. On this date the business had net assets of £1.1m. The results of the business have been consolidated since the date of control and Boudicca Proxy contributed £1.4m of revenue and £0.2m profit before income tax to the Group’s results in 2018. If the business had been acquired on 1 January 2018 it would have contributed an additional £0.8m of revenue and £0.1m net profit to the Group’s results in 2018. The additional costs to the Group of acquiring Boudicca Proxy in the year, such as legal fees and stamp duty, amounted to £0.1m. These have been included in administrative costs in the income statement. On acquisition, the fair value of the intangible assets relating to customer contracts and related relationships were re-evaluated, resulting in an upward adjustment of £1.0m to the fair value of the net assets acquired. The value of goodwill reflects amounts in relation to the expected benefit of the ability to generate new streams of revenue and expected synergies of combining the operations of Boudicca Proxy and the Group. The amounts relating to the intangible assets and goodwill are provisional and subject to further evaluation and adjustment, in accordance with accounting standards. 152 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 4.1 ACQUISITIONS OF BUSINESSES (CONTINUED) Fair value of identifiable assets acquired and liabilities assumed Intangible assets Property, plant and equipment Trade and other receivables Cash and cash equivalents Trade and other payables Deferred income tax liabilities Net identifiable assets and liabilities Goodwill on acquisition Total consideration Cash acquired Contingent consideration (discounted) Net cash outflow in the period £m 1.0 0.1 0.4 0.2 (0.4) (0.2) 1.1 2.2 3.3 (0.2) (2.2) 0.9 As at 31 December 2018, the minimum amount of contingent consideration payable was £nil and the maximum amount was £2.3m. The final amount to be paid will be determined based on the acquiree’s financial performance over the qualifying period and is only payable if the business grows in line with its business plan. Aquila Group On 31 October 2018, the Group purchased the entire issued share capital of Aquila Group Holdings Limited and its subsidiaries (Aquila Group) for consideration of £5.5m. Aquila Group provide software solutions for both the life assurance and the pensions markets. The Group took control of Aquila Group on 31 October 2018. On this date the business had net assets of £1.3m. The results of the business have been consolidated since the date of control and Aquila Group contributed £1.2m of revenue and £0.1m loss before income tax to the Group’s results in 2018. If the business had been acquired on 1 January 2018 it would have contributed an additional £5.4m of revenue and £0.7m net loss to the Group’s results in 2018. The additional costs to the Group of acquiring Aquila Group in the year, such as legal fees and stamp duty, amounted to £0.3m. These have been included in administrative costs in the income statement. On acquisition, the fair values of intangible assets relating to customer contracts and related relationships and software were re-evaluated, resulting in a combined upward adjustment of £1.3m to the fair value of the net assets acquired. The value of goodwill reflects amounts in relation to the expected benefit of the ability to generate new streams of revenue and expected synergies of combining the operations of Aquila Group and the Group. The amounts relating to the intangible assets and goodwill are provisional and subject to further evaluation and adjustment, in accordance with accounting standards. Fair value of identifiable assets acquired and liabilities assumed Intangible assets Property, plant and equipment Trade and other receivables Cash and cash equivalents Trade and other payables Contract fulfilment liabilities Provisions Deferred income tax liabilities Net identifiable assets and liabilities Goodwill on acquisition Total consideration Cash acquired Net cash outflow in the period £m 1.4 0.1 0.8 2.3 (1.2) (1.7) (0.2) (0.2) 1.3 4.2 5.5 (2.3) 3.2 I S E C T O N 0 3 I F N A N C A L I S T A T E M E N T S N O T E S T O T H E C O N S O L I D A T E D F N A N C A L I I S T A T E M E N T S 153 Equiniti Group plc Annual Report 2018 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 4.2 PROPERTY, PLANT AND EQUIPMENT Leasehold improvements Freehold improvements Office equipment Fixtures & fittings Cost Balance at 1 January 2017 Additions Disposals Reclassification Balance at 31 December 2017 Balance at 1 January 2018 Acquisition of business Additions Disposals Translation adjustment Balance at 31 December 2018 Accumulated depreciation Balance at 1 January 2017 Depreciation charge for the year Disposals Balance at 31 December 2017 Balance at 1 January 2018 Depreciation charge for the year Disposals Balance at 31 December 2018 Net book value Balance at 31 December 2017 Balance at 31 December 2018 £m 10.8 1.1 (0.8) (0.8) 10.3 10.3 1.1 1.9 (0.3) 0.2 13.2 5.5 1.1 (0.8) 5.8 5.8 1.3 (0.3) 6.8 4.5 6.4 £m – – – 0.8 0.8 0.8 – – – – 0.8 – – – – – – – – 0.8 0.8 £m 29.4 5.4 (1.0) – 33.8 33.8 0.1 5.8 (1.4) 0.2 38.5 18.9 4.0 (1.0) 21.9 21.9 4.1 (1.4) 24.6 11.9 13.9 £m 5.2 0.1 (0.7) – 4.6 4.6 0.4 0.2 (0.3) – 4.9 3.9 0.6 (0.7) 3.8 3.8 0.6 (0.3) 4.1 0.8 0.8 Total £m 45.4 6.6 (2.5) – 49.5 49.5 1.6 7.9 (2.0) 0.4 57.4 28.3 5.7 (2.5) 31.5 31.5 6.0 (2.0) 35.5 18.0 21.9 Included within office equipment are assets held under finance leases with a cost of £2.8m as of 31 December 2018 (2017: £2.6m). These assets had a net book value as at 31 December 2018 of £1.1m (2017: £1.6m). 154 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 4.3 INTANGIBLE ASSETS Cost Balance at 1 January 2017 Acquisition of business Additions Translation adjustment Balance at 31 December 2017 Balance at 1 January 2018 Acquisition of business Additions Translation adjustment Balance at 31 December 2018 Accumulated amortisation Balance at 1 January 2017 Amortisation for the year Translation adjustment Balance at 31 December 2017 Balance at 1 January 2018 Amortisation for the year Translation adjustment Balance at 31 December 2018 Net book value Balance at 31 December 2017 Goodwill Software Acquisition- related intangible assets £m £m £m 443.1 11.0 – (0.3) 453.8 453.8 64.3 – 6.0 524.1 – – – – – – – – 219.6 2.1 25.9 0.2 247.8 247.8 0.4 38.1 0.1 286.4 155.1 18.3 – 173.4 173.4 23.9 – 197.3 Total £m 986.4 16.0 25.9 0.1 323.7 2.9 – 0.2 326.8 1,028.4 326.8 104.0 – 12.4 443.2 161.2 26.7 0.1 188.0 188.0 31.7 0.3 220.0 1,028.4 168.7 38.1 18.5 1,253.7 316.3 45.0 0.1 361.4 361.4 55.6 0.3 417.3 I S E C T O N 0 3 I F N A N C A L I S T A T E M E N T S N O T E S T O T H E C O N S O L I D A T E D F N A N C A L I I S T A T E M E N T S 155 453.8 74.4 138.8 667.0 Balance at 31 December 2018 524.1 89.1 223.2 836.4 Software predominately relates to investment in the functionality of the Group’s main operating platforms. Included within additions in the year is £16.2m (2017: £15.5m) of employee staff costs that have been capitalised in respect of internal software development. Acquisition-related intangible assets consist primarily of customer lists arising from business combinations. Goodwill is the only intangible asset with an indefinite life. Equiniti Group plc Annual Report 2018 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 4.3 INTANGIBLE ASSETS (CONTINUED) Goodwill Goodwill arose initially on the acquisition of the Lloyds TSB Registrars business and subsequently through equity and trade and asset acquisitions. For goodwill on current year acquisitions see note 4.1. Goodwill is monitored by management in line with the Group’s operating segments: Investment Solutions, Intelligent Solutions, Pensions Solutions, EQ US and Interest. Year ended 31 December 2018 Investment Solutions Intelligent Solutions Pensions Solutions EQ US Total goodwill Year ended 31 December 2017 Investment Solutions Intelligent Solutions Pensions Solutions EQ US Total goodwill Opening balance £m 289.4 77.2 87.2 – 453.8 Opening balance £m 289.4 66.5 87.2 – 443.1 Acquisitions Disposals Translation adjustment Closing balance £m 2.2 – 4.2 57.9 64.3 £m – – – – – £m – 0.1 – 5.9 6.0 £m 291.6 77.3 91.4 63.8 524.1 Acquisitions Disposals Translation adjustment Closing balance £m – 11.0 – – 11.0 £m – – – – – £m – (0.3) – – (0.3) £m 289.4 77.2 87.2 – 453.8 Impairment testing Goodwill is tested annually for impairment. The recoverable amount of cash-generating units (CGUs) has been determined in accordance with IAS 36 Impairment of Assets. This is determined from value-in-use calculations, being the present value of net cash flows generated by the business over the period for which management expects to benefit from the acquired business. The key assumptions for the value-in-use calculations are those regarding discount rates and revenue growth rates. The CGU 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 to 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 value in use is greater than the carrying value of goodwill. The revenue growth rate applied beyond the approved forecast period is in line with underlying UK and US macro-economic forecasts. Year ended 31 December 2018 Period on which management approved forecasts are based Revenue growth rate applied beyond approved forecast period Discount rate pre-tax Year ended 31 December 2017 Period on which management approved forecasts are based Revenue growth rate applied beyond approved forecast period Discount rate pre-tax UK & Europe 3 years 2.1% 8.1% USA 3 years 1.8% 9.8% UK & Europe USA 3 years 2.4% 10.2% – – – Sensitivity analysis A sensitivity analysis was carried out on the key estimates made within the value-in-use model, applying a 1% increase in the pre-tax discount rate and a 1% reduction in the growth rate. In the opinion of the Directors, there are no reasonably possible changes to these key assumptions which would cause the carrying value of any CGU to exceed its recoverable amount. 156 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 4.4 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: Name of controlled entity Registered office address Principal activities Ownership % on 31 December 2018 Direct Investments Equiniti Holdings Limited Equiniti Finance (Holdings) Ltd Equiniti (UK) Finance Ltd Indirect Investments Aquila International Limited Aquila Services UK Limited Aquila Software Limited Boudicca Proxy Ltd Charter.Net Limited Charter Systems Limited Charter UK Limited Circle of Insight Limited Claybrook Computing Limited Connaught Secretaries Limited Custodian Nominees Limited David Venus & Company LLP Equiniti Benefactor Limited Equiniti 360 Clinical Limited Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Holding company Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Holding company Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Non-trading Sutherland House, Russell Way, Crawley, West Sussex, RH10 1UH, United Kingdom Sutherland House, Russell Way, Crawley, West Sussex, RH10 1UH, United Kingdom Sutherland House, Russell Way, Crawley, West Sussex, RH10 1UH, United Kingdom Dormant Dormant Dormant Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Proxy solicitation Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Dormant Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Software service provider Software service provider Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Dormant Sutherland House, Russell Way, Crawley, West Sussex, RH10 1UH, United Kingdom Computer software consultancy Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom Dormant Dormant Elder House, St Georges Business Park, 207 Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Dormant Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Dormant Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom Business process outsourcing Equiniti Corporate Nominees Limited Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Dormant Equiniti Data Limited Equiniti David Venus Limited Equiniti Delivery Services Limited Equiniti Employee Services (PTY) Limited Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Software service provider Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Company secretarial Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom 102B Newlands Plaza, CNR Lois & Dely, Newlands, 00181, South Africa Software service provider Computer software development Equiniti Financial Services Limited Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom Financial services Equiniti Gateway Limited Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Technology enabled services 100 100 100 100 100 100 100 100 100 100 100 100 100 100 50 100 100 100 100 100 100 100 100 100 I S E C T O N 0 3 I F N A N C A L I S T A T E M E N T S N O T E S T O T H E C O N S O L I D A T E D F N A N C A L I I S T A T E M E N T S 157 Equiniti Group plc Annual Report 2018 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 4.4 INVESTMENTS IN SUBSIDIARIES (CONTINUED) Name of controlled entity Registered office address Equiniti Global Payments Limited Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Principal activities International payment services Equiniti HR Solutions Limited Equiniti India (Private) Limited Equiniti ICS Limited Equiniti (Ireland) Finance Ltd Equiniti ISA Nominees Limited Sutherland House, Russell Way, Crawley, West Sussex, RH10 1UH, United Kingdom Non-trading DLF IT Park, 1/124, Mt Poonamalle High Road, Ramapuram, Chennai, Tamil Nadu 600 089, India 205 Airport Road West, Belfast, BT3 9ED, United Kingdom Technology enabled services Business process outsourcing 52–55 Sir John Rogerson’s Quay, Dublin 2, D02 NA07, Republic of Ireland Non-trading Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Dormant Equiniti Jersey Limited 26 New Street, St Helier, JE2 3RA, Jersey Registrars Equiniti KYC Solutions B.V. Equiniti KYC Systems B.V. Equiniti Limited Equiniti Nominees Limited Equiniti Pension Trustee Limited Equiniti PMS Limited Equiniti Registrars Nominees Limited Equiniti Savings Nominees Limited Equiniti Services Limited Equiniti Share Plan Trustees Limited Equiniti Shareview Limited Equiniti Solutions Limited Equiniti Trust Company Equiniti (US) Holdings Limited Equiniti (US) LLC Equiniti (US) Services LLC Donker Curtiusstraat 7, Unit 117-118, 1051 JL Amsterdam, The Netherlands Donker Curtiusstraat 7, Unit 117-118, 1051 JL Amsterdam, The Netherlands Software service provider Software service provider Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom Registrars Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Sutherland House, Russell Way, Crawley, West Sussex, RH10 1UH, United Kingdom Sutherland House, Russell Way, Crawley, West Sussex, RH10 1UH, United Kingdom Dormant Dormant Software service provider Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Dormant Dormant Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Holding company Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom Trustee company Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Dormant Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Non-trading 25th Floor, 90 Park Avenue, New York, NY 10016, United States Limited purpose trust company 1209 Orange Street, Wilmington, Delaware, County of New Castle 19801, United States Holding company 1209 Orange Street, Wilmington, Delaware, County of New Castle 19801, United States Non-trading 1209 Orange Street, Wilmington, Delaware, County of New Castle 19801, United States Non-trading Information Software Solutions Limited Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Holding company icenet Limited Invigia International Limited Invigia Limited 158 Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Dormant Dormant Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Software service provider Ownership % on 31 December 2018 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 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 4.4 INVESTMENTS IN SUBSIDIARIES (CONTINUED) Name of controlled entity Registered office address KYCnet BV L R Nominees Limited MyCSP Limited MyCSP Trustee Company Limited MyCustomerfeedback.com Limited Pancredit Systems Ltd Paymaster (1836) Limited Peter Evans & Associates Limited Principal activities Holding company Donker Curtiusstraat 7, Unit 117–118, 1051 JL Amsterdam, The Netherlands Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom Dormant Park Square, Bird Hall Lane, Stockport, SK3 0XN, United Kingdom Pensions administration Park Square, Bird Hall Lane, Stockport, SK3 0XN, United Kingdom Non-trading Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Software service provider Business process outsourcing Sutherland House, Russell Way, Crawley, West Sussex, RH10 1UH, United Kingdom Pensions administration Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom Business process outsourcing Prism Communications & Management Limited Elder House, St Georges Business Park, 207 Brooklands Company secretarial Prism Cosec Limited Prosearch Asset Solutions Limited Refresh Personal Finance Ltd Riskfactor Solutions Limited Riskfactor Software Limited SLC Corporate Services Limited SLC Registrars Limited The Nostrum Group Limited Toplevel Computing Limited Toplevel Development Limited Toplevel Holdings Limited Toplevel Software Limited Trust Research Services Limited Wealth Nominees Limited Road, Weybridge, Surrey, KT13 0TS, United Kingdom Elder House, St Georges Business Park, 207 Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Dormant Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom Asset recovery Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Software service provider Software service provider Software service provider Dormant Dormant Software service provider Software service provider Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Dormant Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Holding company Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom Dormant Dormant Dormant *The shareholding in MyCSP Limited increased from 51% to 75% in September 2018. All the above investments are held in the Ordinary share capital of the company. Ownership % on 31 December 2018 I S E C T O N 0 3 100 100 75* 75* 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 I F N A N C A L I S T A T E M E N T S N O T E S T O T H E C O N S O L I D A T E D F N A N C A L I I S T A T E M E N T S 159 Equiniti Group plc Annual Report 2018 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 4.4 INVESTMENTS IN SUBSIDIARIES (CONTINUED) Audit exemption guarantee The following subsidiaries will take advantage of the exemption from audit of their individual financial statements, under Section 479A of the Companies Act 2006, for the year ended 31 December 2018: Company name Boudicca Proxy Ltd Charter Systems Limited Charter UK Limited Claybrook Computing Limited Equiniti 360 Clinical Limited Equiniti Data Limited Equiniti David Venus Limited Equiniti Delivery Services Limited Equiniti Finance (Holdings) Ltd Equiniti ICS Limited Equiniti PMS Limited Equiniti Services Limited Registration number Company name Registration number 07847924 Information Software Solutions Limited 06147539 Invigia Limited 02453655 MyCSP Limited 01287205 Mycustomerfeedback.com Limited 04957851 Pancredit Systems Ltd 05350329 Peter Evans & Associates Limited 06351754 Prism Communications & Management Limited 08855189 Prosearch Asset Solutions Limited 11092909 Refresh Personal Finance Ltd NI036763 Riskfactor Software Limited 03613039 Riskfactor Solutions Limited 00756582 The Nostrum Group Limited 03915585 03318315 07640786 06829521 02215760 01870532 04352585 02158381 07369895 03923431 02767525 04274181 02341302 03270082 Equiniti Share Plan Trustees Limited 03925002 Toplevel Computing Limited Equiniti Solutions Limited Equiniti (UK) Finance Ltd 03335560 Toplevel Holdings Limited 11092548 As a condition of the above exemption, the Group has guaranteed the year end liabilities of the relevant subsidiaries until they are settled in full. The liabilities of the above subsidiaries at the year end date were £116.2m (2017: £128.5m). 160 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 5 WORKING CAPITAL 5.1 TRADE AND OTHER RECEIVABLES Trade receivables Other receivables Prepayments Total trade and other receivables 2018 2017 £m 46.4 7.1 10.6 64.1 £m 28.7 6.9 8.9 44.5 Excluding trade receivables, none of these financial assets are either past due or impaired. At the year end, trade receivables are shown net of an allowance for doubtful debts of £0.2m (2017: £0.4m). The impairment loss recognised in the year was £0.2m (2017: £0.3m). Credit risk The ageing of trade receivables at the reporting date was: Not past due Past due 1–30 days Past due 31–90 days Past due more than 90 days Total trade receivables 2018 £m 29.0 12.6 3.0 1.8 46.4 2017 £m 16.7 7.5 3.0 1.5 28.7 I S E C T O N 0 3 I F N A N C A L I S T A T E M E N T S N O T E S T O T H E C O N S O L I D A T E D F N A N C A L I I Trade receivables not past due of £29.0m (2017: £16.7m) 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 £0.2m (2017: £0.4m) in respect of trade receivables and accrued income. Where impairment allowances are made, these are for the full value of the impaired debt. Movement in the year in the Group’s provision for impairment of trade receivables is as follows: Balance at 1 January Balances acquired from business acquisitions New provisions made in year Balances reversed in year Balance at 31 December 2018 2017 £m 0.4 0.2 0.1 (0.5) 0.2 £m 0.2 – 0.3 (0.1) 0.4 Trade receivables past due but not impaired of £17.4m (2017: £12.0m) relate to a number of independent customers for whom there is no recent history of default or expectation of such going forwards. 5.2 CONTRACT FULFILMENT ASSETS Accrued income Contract set up costs Contract fulfilment assets 2018 £m 41.6 4.6 46.2 2017 £m 32.7 5.2 37.9 As a result of adopting IFRS 15, accrued income and contract set up costs have been reclassified as contract fulfilment assets within the statement of financial position. Accrued income represents the fair value of goods and services supplied to customers, for which the Group is entitled to recognise revenue, and is not yet invoiced or paid. All such assets are supported by client contracts. This allows accrued income to be underpinned and recovered from clients even on the rare occasions that clients cease projects with us permanently. S T A T E M E N T S 161 Equiniti Group plc Annual Report 2018 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 5.3 TRADE AND OTHER PAYABLES Trade payables Accruals Deferred consideration Other payables Total trade and other payables 5.4 CONTRACT FULFILMENT LIABILITIES Deferred income Contract fulfilment liabilities 2018 2017 £m 26.8 64.8 7.3 13.3 112.2 2018 £m 16.4 16.4 £m 20.2 44.2 5.4 11.0 80.8 2017 £m 16.2 16.2 As a result of adopting IFRS 15, deferred income has been reclassified as contract fulfilment liabilities within the statement of financial position. This was previously classified within trade and other payables. Deferred income represents amounts invoiced in advance of the related services or goods being provided to the customer. Revenue recognised in relation to contract fulfilment liabilities Revenue recognised that was included in the contract liability balance as at 1 January 5.5 PROVISIONS Balance at 1 January 2018 Balances acquired from business acquisitions Additional provisions made during the year Amounts utilised during the year Amounts released during the year Unwinding of discounted amount Balance at 31 December 2018 Non-current Current Total provisions Contingent consideration 2018 £m 14.9 14.9 2017 £m 13.8 13.8 Contingent consideration Property provisions Total provisions £m 21.2 2.2 – (2.1) (2.4) 0.8 19.7 10.6 9.1 19.7 £m 1.5 0.3 0.5 (0.1) – – 2.2 2.2 – 2.2 £m 22.7 2.5 0.5 (2.2) (2.4) 0.8 21.9 12.8 9.1 21.9 A provision for contingent consideration as at 31 December 2018 of £19.7m (2017: £21.2m) relates to various requirements to be met following the Group’s acquisitions. This is recognised at fair value through profit or loss and is derived from management’s best estimate of the amounts likely to be paid. The minimum value of these provisions could be £nil up to a maximum of £28.9m. These were discounted at an appropriate post-tax discount rate at the time of the acquisitions and are provided within provisions due to their uncertainty. Management regularly reconsiders the appropriateness of the discount rate used and updates when appropriate. The remaining balance is expected to be utilised over periods between 2019 and 2021. 162 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 5.5 PROVISIONS (CONTINUED) Property provisions Property provisions relate to management’s best estimate of dilapidations in respect of leasehold properties. The balance will be utilised on vacation of premises. I S E C T O N 0 3 5.6 CASH FLOWS FROM MOVEMENTS IN WORKING CAPITAL Trade and other receivables Contract fulfilment assets Trade and other payables Contract fulfilment liabilities Provisions for other liabilities and charges Post-employment benefits Net working capital per the consolidated statement of financial position Working capital acquired in business combinations Movement in interest accrual Movement in tax accrual Movement in capital expenditure accrual Movement in accruals relating to prior year acquisitions Movement in accruals relating to non-controlling interests Movement in accruals relating to share issue costs Movement in accruals relating to loan set-up fees Foreign exchange movement on translation of overseas subsidiaries Defined benefit plan actuarial loss Changes in working capital per the consolidated statement of cash flows 2018 £m 64.1 46.2 (112.1) (16.4) (21.9) (22.9) (63.0) 2017 Movement £m 44.5 37.9 (80.8) (16.2) (22.7) (22.7) (60.0) £m 19.6 8.3 (31.3) (0.2) 0.8 (0.2) (3.0) (3.2) 2.8 (0.4) 5.5 (4.0) 4.2 (0.9) (0.5) 0.1 0.2 0.8 I F N A N C A L I S T A T E M E N T S N O T E S T O T H E C O N S O L I D A T E D F N A N C A L I I S T A T E M E N T S 163 Equiniti Group plc Annual Report 2018 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 6 CAPITAL STRUCTURE 6.1 FINANCE INCOME AND COSTS Finance income Interest income Net foreign exchange gains from forward contracts Total finance income Finance costs Interest cost on senior secured borrowings Interest cost on revolving credit facility Amortisation of finance arrangement fees Net finance cost relating to pension schemes Unwinding of discounted amount in provisions Cost of interest rate swap against financial liabilities Foreign exchange loss Other fees and interest Total finance costs 6.2 SHARE CAPITAL AND SHARE PREMIUM Allotted, called up and fully paid Balance at 1 January Employee share options exercised Rights issue Balance at 31 December Ordinary shares of £0.001 each Balance at 1 January Employee share options exercised Rights issue Balance at 31 December 2018 2017 £m 0.2 – 0.2 2018 £m 8.1 2.4 2.2 0.6 0.8 1.2 – 0.2 £m 0.4 0.4 0.8 2017 £m 5.8 1.7 1.6 0.6 0.7 1.8 0.1 0.2 15.5 12.5 Share capital Share premium 2018 2017 £m 0.4 – – 0.4 £m 0.3 – 0.1 0.4 2018 £m 115.8 0.1 – 115.9 2017 £m – 0.1 115.7 115.8 2018 2017 Number Number 364,434,283 300,012,911 102,383 112,138 – 64,309,234 364,536,666 364,434,283 The Group issued 102,383 ordinary shares on exercise of employee share options during the year (2017: 112,138). The shares were issued at a weighted average exercise price of £1.19 per share. Proceeds of £0.1m were received. 164 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 6.3 OTHER RESERVES Balance at 1 January 2017 Changes in fair value through hedging reserve Deferred tax on movement through hedging reserve Net exchange loss on translation of foreign operations Balance at 31 December 2017 Balance at 1 January 2018 Changes in fair value through hedging reserve Deferred tax on movement through hedging reserve Net exchange gain on translation of foreign operations Purchase of own shares Own shares awarded to employees Balance at 31 December 2018 Capital contribution reserve Capital contribution reserve £m 181.5 – – – 181.5 181.5 – – – – – 181.5 Reserve for own shares £m Hedging reserve £m Translation reserve £m Total other reserves £m – – – – – – – – – (13.9) 3.9 (10.0) 4.9 (12.2) 0.8 – (6.5) (6.5) 4.4 (0.9) – – – 3.1 – – (0.1) 3.0 3.0 – – 10.9 – – 189.5 (12.2) 0.8 (0.1) 178.0 178.0 4.4 (0.9) 10.9 (13.9) 3.9 (3.0) 13.9 182.4 The capital contribution reserve arose on the Initial Public Offering in 2015, when the Group issued equity instruments to settle non-current financial liabilities with shareholders. Reserve for own shares During the year, the Group purchased 6,000,000 (2017: nil) of its own ordinary shares for consideration of £13.9m. The shares are held in an employee benefit trust, which is controlled by the Group, and will be used to satisfy the vesting of awards under the Group’s share option plans. During the year 1,697,093 (2017: nil) shares were used to satisfy the vesting of awards. Shares held by the trust are deducted from equity and the trust has waived its right to receive dividends. Hedging reserve The hedging reserve comprises the effective portion of changes in the fair value of cash flow swaps and forward foreign exchange contracts where the hedged transactions have not yet occurred. Translation reserve The translation reserve represents the foreign exchange movements arising from the translation of financial statements in foreign currencies to the presentational currency of the Group. I S E C T O N 0 3 I F N A N C A L I S T A T E M E N T S N O T E S T O T H E C O N S O L I D A T E D F N A N C A L I I S T A T E M E N T S 165 Equiniti Group plc Annual Report 2018 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 6.4 NON-CONTROLLING INTEREST The Group controls one non-wholly owned trading subsidiary, MyCSP Limited. In September 2018, the Group purchased an additional 24% of the issued share capital of MyCSP Limited increasing its shareholding from 51% to 75%, for consideration of £8.0m, including £4.0m payable immediately and £4.0m deferred until October 2020. Prior to the additional purchase, the carrying value of the existing 49% non-controlling interest was £20.3m. The Group recognised a decrease in non-controlling interests of £10.0m and an increase in equity attributable to owners of the parent of £2.0m. Carrying amount of non-controlling interest acquired Consideration paid to non-controlling interests Deferred consideration Excess of consideration paid recognised in equity attributable to owners of the parent The summarised financial information for MyCSP Limited, set out below, is prior to intercompany eliminations. Summarised statement of financial position Non-current assets Current assets Non-current liabilities Current liabilities Net assets Summarised statement of comprehensive income Revenue Profit for the year Other comprehensive income Total comprehensive income Transactions with non-controlling interests £m 10.0 (4.0) (4.0) 2.0 2017 £m 1.4 33.9 (1.4) (12.1) 21.8 2017 £m 40.6 6.0 0.2 6.2 2018 £m 1.3 33.6 (1.3) (11.4) 22.2 2018 £m 40.1 5.9 0.1 6.0 25% of MyCSP Limited is owned by employees of MyCSP via an employee benefit trust and shares rank pari passu with the remaining share capital, including receiving annual dividends when declared. In the current and prior year, dividends have been waived by the trust in lieu of a bonus payment through payroll. This is reflected within transactions with non-controlling interests in the statement of changes in equity. 166 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 6.5 EARNINGS PER SHARE Basic and diluted earnings per share Basic earnings per share is calculated by dividing the profit or loss attributable to equity holders of the Company by the weighted average number of shares in issue during the year. Shares held by the Equiniti Group Employee Benefit Trust are treated as treasury shares and deducted from equity. These shares are excluded from the weighted average number of ordinary shares in issue until the shares are transferred to the option holder. The diluted earnings per share calculation includes vested share options outstanding and other potential shares where the impact of these is dilutive. Profit from continuing operations attributable to owners of the parent Basic weighted average number of ordinary shares in issue (millions) Dilutive performance share plan options (millions) Dilutive employee SAYE options (millions) 2018 2017 (Restated1) £m 17.5 363.0 7.1 1.7 £m 11.6 331.6 – 1.5 Diluted weighted average number of ordinary shares in issue (millions) 371.8 333.1 Basic earnings per share (pence) Diluted earnings per share (pence) 1Restated for the adoption of IFRS 15 - see note 1 for details 6.6 DIVIDENDS Amounts recognised as distributions to equity holders of the parent in the year Interim dividend for year ended 31 December 2018 (1.83p per share) Final dividend for year ended 31 December 2017 (2.73p per share) Interim dividend for year ended 31 December 2017 (1.64p per share) Final dividend for year ended 31 December 2016 (2.91p per share) I S E C T O N 0 3 I F N A N C A L I S T A T E M E N T S N O T E S T O T H E C O N S O L I D A T E D F N A N C A L I I 4.8 4.7 3.5 3.5 S T A T E M E N T S 2017 £m – – 5.3 9.3 2018 £m 6.6 9.9 – – 16.5 14.6 The Board recommends a final dividend payable in respect of the year ended 31 December 2018 of £12.7m (2017: £9.9m) or 3.49p per share (2017: 2.73p per share). As this is subject to shareholder approval at the Annual General Meeting on 2 May 2019, no liability has been included in these financial statements. The final dividend will be paid on 16 May 2019, to shareholders on the register at close of business on 12 April 2019. The Equiniti Group Employee Benefit Trust has waived its right to receive dividends on shares held. 6.7 EXTERNAL LOANS AND BORROWINGS Non-current liabilities Term loan Revolving credit facility Unamortised cost of raising finance Total external loans and borrowings 2018 £m 322.6 76.7 (4.1) 395.2 2017 £m 250.0 – (6.0) 244.0 167 Equiniti Group plc Annual Report 2018 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 6.7 EXTERNAL LOANS AND BORROWINGS (CONTINUED) Terms and debt repayment schedule Term loan Term loan Revolving credit facility Revolving credit facility Currency Closing interest rate Sterling GBP Libor + 1.75% US dollar USD Libor + 1.75% Sterling GBP Libor + 1.75% US dollar USD Libor + 1.75% Year of maturity 2020 2020 2020 2020 The Group’s debt facilities, which mature in full in 2020, contain one financial covenant only, namely a maximum ratio of Net Debt to EBITDA (as defined in the loan agreement) which is tested half yearly and at the year end. Net Debt to EBITDA must be no more than 4.50:1 for the years to 31 December 2017 and 4.00:1 thereafter. The Group was in compliance with this covenant at the year end. The margin payable on both the term loan and revolving credit facility (RCF) is determined based on the ratio of Net Debt to EBITDA, where the margin payable ranges from a maximum of 2.25% to a minimum of 1.25%. No debt is repayable before the end of our current funding agreement in 2020. In 2017, the Group entered into an agreement with existing and new banks to increase existing loan facilities, comprising of a $92.0m term loan and £49.0m of revolving credit facilities, increasing total facilities to a term loan of £250.0m and $92.0m and £199.0m of revolving credit facilities. The increased facilities became effective on the completion of the Wells Fargo Shareowner Services acquisition in February 2018 and have the same maturity as the existing facilities, October 2020. 6.8 FINANCIAL LIABILITIES ARISING FROM FINANCING ACTIVITIES The movements during the year in financial liabilities relating to financing activities and a reconciliation to net debt are as follows: 2018 £m 322.6 76.7 1.1 (90.9) 309.5 Liabilities from financing activities Other assets Term loan Revolving credit facility Finance lease liabilities Cash and cash equivalents £m 250.0 – – – 250.0 250.0 64.9 – – 7.7 322.6 £m 56.0 – – (56.0) – – 76.1 – – 0.6 76.7 £m 1.9 0.4 0.1 (0.7) 1.7 1.7 (0.9) 0.2 0.1 – 1.1 £m (56.7) – – (58.5) (115.2) (115.2) 24.7 – – (0.4) (90.9) 2017 £m 250.0 – 1.7 (115.2) 136.5 Total £m 251.2 0.4 0.1 (115.2) 136.5 136.5 164.8 0.2 0.1 7.9 309.5 Term loan Revolving credit facility Finance lease liabilities Cash and cash equivalents Net debt Net debt at 1 January 2017 New finance leases acquired Interest on finance lease liabilities Cash flows Net debt at 31 December 2017 Net debt at 1 January 2018 Cash flows New finance leases acquired Interest on finance lease liabilities Foreign exchange movements Net debt at 31 December 2018 168 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 6.9 CASH AND CASH EQUIVALENTS Cash and cash equivalents per statement of financial position Cash and cash equivalents per statement of cash flows 2018 £m 90.9 90.9 2017 £m 115.2 115.2 I S E C T O N 0 3 In addition to the above, the Group holds certain cash balances with banks in a number of segregated accounts. These balances represent client money under management for third parties, and hence are not included in the Group’s consolidated balance sheet. The number of accounts and balances held vary significantly throughout the year. The Group has the ability to sell certain trade receivables in a receivables purchase agreement on a non-recourse basis. These balances are therefore derecognised when sold under this arrangement. The Group has access to a £20.0m arrangement of which £10.3m (2017: £19.9m) was utilised at the end of the year and included within the cash balances above. Invoices sold are all covered by trade credit insurance. The trade receivables shown in note 5.1 are reflected net of cash received at the year end. 6.10 FINANCIAL RISK MANAGEMENT The Group has exposure to the following risks from its use of financial instruments: – credit risk – liquidity risk – market risk Risk management policies are established for the Group and the 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 Audit Committee is assisted in its oversight role by Internal Audit which 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 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 and contract fulfilment assets are with large institutions, including many FTSE 350 companies and public sector organisations. Losses have only occurred infrequently in previous years and have never been material. Credit risk mitigation The Group has a low credit risk on its trade receivables and contract assets as a high proportion of revenue is derived from large customers listed on the major international stock exchanges and historical defaults have been infrequent and small. For cash, cash equivalents and derivative financial instruments, only banks and financial institutions with credit ratings assigned by international credit-rating agencies are accepted, with 100% of cash balances at the year end being held in banks and financial institutions with a short-term credit rating of A or higher. I F N A N C A L I S T A T E M E N T S N O T E S T O T H E C O N S O L I D A T E D F N A N C A L I I S T A T E M E N T S 169 Equiniti Group plc Annual Report 2018 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 6.10 FINANCIAL RISK MANAGEMENT (CONTINUED) 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. The maximum exposure to liquidity risk at the reporting dates was as follows: 31 December 2018 Trade and other payables Term loan Revolving credit facility Other financial liabilities Derivatives used for hedging Total 31 December 2017 Trade and other payables Term loan Other financial liabilities Derivatives used for hedging Total Carrying Amount Total contractual cash flows £m 112.2 322.6 76.7 1.1 3.6 £m 112.2 342.9 76.7 1.3 4.7 Within 1 year £m 112.2 10.0 – 0.5 2.5 1–2 years £m – 332.9 76.7 0.5 1.5 516.2 537.8 125.2 411.6 Carrying Amount Total contractual cash flows Within 1 year 1–2 years £m 80.8 250.0 1.7 9.2 £m 80.8 267.4 1.9 9.3 341.7 359.4 £m 80.8 5.8 0.7 7.5 94.8 £m – 5.8 0.5 1.0 7.3 2–5 years £m – – – 0.3 0.7 1.0 2–5 years £m – 255.8 0.7 0.8 257.3 Note 5.3 6.7 6.7 9.2 9.2 Note 5.3 6.7 9.2 9.2 All trade and other payables are expected to be paid in six months or less. Liquidity risk mitigation The Group regularly updates forecasts for cash flow and covenants, to ensure it has sufficient funding available. It maintains significant cash balances to meet future cash funding requirements and had £90.9m of cash at 31 December 2018. The Group also has revolving credit facilities of £199.0m available, of which £122.3m was undrawn at 31 December 2018. 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. a) Interest rate risk The Group is exposed to movements in interest rates on both interest earned on segregated funds administered for third parties and its net finance costs. Net finance costs include interest costs on the term loan and the RCF and interest income on the Group’s own deposits. Interest costs payable are mostly linked to changes in Libor. Interest income receivable is largely driven by changes in the Bank of England base rate and the US Federal Reserve benchmark rate. A movement in interest rates which negatively affects net finance costs would have a positive effect on revenue, and vice versa. 170 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 6.10 FINANCIAL RISK MANAGEMENT (CONTINUED) Interest rate risk mitigation Exposure to interest rate fluctuations is partly managed through the use of interest rate swaps. Interest rate swaps, which are designated as hedges under IAS 39 Financial Instruments: Recognition and Measurement, are agreed by the Board and have the objective of reducing the impact of variations in interest rates on the Group’s profit and cash flow. The Group does not enter into speculative transactions in financial instruments or derivatives. Further quantitative disclosures are included throughout these consolidated financial statements. The Group has entered into sterling denominated interest rate swaps totalling £1,025.0m to July 2020 (£380.0m), to September 2021 (£215.0m), to September 2022 (£215.0m) and to September 2023 (£215.0m) and $700.0m interest rate swaps to March 2021, exchanging the variable rate derived interest income on segregated funds into fixed rates. The £250.0m term loan accrues interest based on a margin over Libor. The Group entered into an interest rate swap exchanging variable based interest charges for fixed rate for a period of three years. This swap expired in 2018 and has not been replaced. The Group has not entered into a hedge of its outstanding RCF commitments. The Directors monitor the overall level of borrowings, leverage ratio and interest costs to limit any adverse effects on financial performance of the Group. Sensitivity analysis In managing interest rate risks, the Group aim to reduce the impact of short-term fluctuations on the Group’s earnings. Over the longer-term, however, permanent changes in interest rates would have an impact on consolidated earnings. An increase of one percentage point in interest rates effective from the start of 2018 would have increased finance costs for the Group by £1.4m, and increased interest revenue by £10.1m, yielding a net increase in profit after tax of £6.8m. This includes the impact of interest rate swaps, which reduce the fluctuations resulting from interest rate movements. Had no hedging been in place for this example of a one percentage point increase in interest rates, the net increase to profit after tax would be £16.0m. b) Foreign exchange rate risk The Group has exposure to foreign exchange rate risk on cash flows in overseas operations which are affected by foreign currency movements. The Group's main risk is from the EQ US business which exposes the Group to foreign exchange rate movements between sterling and the US dollar. The Group also has foreign exchange rate risk arising from costs incurred in operating its service centre in Chennai and this exposes the Group to movements between sterling and Indian rupee. The Group has implemented a hedging policy to reduce the risks associated with movements in this exchange rate by entering into a series of forward contracts based on expected cash flows to purchase Indian Rupee. These forward contracts are designated as hedges under IAS 39 Financial Instruments: Recognition and Measurement. The Group has net investments in foreign operations in US dollar, Indian rupee and Euro, the re-translation of which on consolidation gives rise to exposure to the carrying values of non-Sterling assets and liabilities. The group has designated US$103.0m of term debt and RCF borrowings as a hedge of a net investment in its EQ US business. c) Equity price risk The Group does not hold its own position in trading securities and is involved only in arranging share dealing transactions on behalf of its clients. I S E C T O N 0 3 I F N A N C A L I S T A T E M E N T S N O T E S T O T H E C O N S O L I D A T E D F N A N C A L I I S T A T E M E N T S 171 Equiniti Group plc Annual Report 2018 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 6.11 CAPITAL RISK MANAGEMENT The Group is focused on delivering value for its shareholders whilst ensuring it 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. Total capital comprises total equity plus net debt, as shown in the consolidated statement of financial position. Net debt equates to the total of external interest bearing loans plus other finance lease liabilities, less cash and cash equivalents, as shown in the consolidated statement of financial position and note 6.8. The policies for managing capital are to increase shareholder value by maximising profits and cash. The policy is to set budgets and forecasts in the short and medium term that the Group ensures are achievable. The process for managing capital is 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 Group may also consider repayment of debt, issuance of new and repurchase of existing shares and adjusting dividend payments to shareholders, to maintain an optimum capital structure. The Board regularly reviews the Group’s capital structure and no changes have been made to these objectives and processes since the Group listed in October 2015. The Board considers it has sufficient funds to pay dividends in line with the stated policies for the foreseeable future. Under the terms of the current loan agreement signed in October 2015, the Group has one covenant, a maximum ratio of net debt to EBITDA. The Group was in compliance with this covenant at the year end. Regulated entities In the UK, the Group has one significant Financial Conduct Authority (FCA) regulated entity, Equiniti Financial Services Limited (EFSL), which must maintain minimum levels of capital in order to manage its affairs. It must ensure that it can meet its regulatory capital requirements and has sufficient liquidity to meet its liabilities as they fall due, including under potentially highly stressed conditions. EFSL has its own governance structure and holds monthly Board meetings and quarterly Risk and Audit Committee meetings, to ensure its regulatory objectives are met. In the US, the Group has an entity regulated by the New York State Department of Financial Services (DFS), Equiniti Trust Company (ETC). ETC is approved by the DFS as a limited licensed bank under the New York State Banking Laws and has minimum capital requirements set by the DFS. To help meet its regulatory requirements, ETC has its own governance structure which includes a Board with independent non-executive Directors; an Examination Committee; an Audit Committee; and a Remuneration and Nominations Committee. Management of capital Equity Term loan Revolving credit facility Finance lease liabilities Cash and cash equivalents Total equity plus net debt 1Restated for the adoption of IFRS 15 - see note 1 for details 6.12 FINANCIAL INSTRUMENTS Note 6.7 6.7 9.2 6.9 2018 £m 511.2 322.6 76.7 1.1 (90.9) 820.7 2017 (Restated1) £m 511.7 250.0 – 1.7 (115.2) 648.2 The carrying amounts of financial assets and liabilities are classified as per IFRS 7 Financial Instruments: Disclosures according to the following categories: Financial assets At amortised cost Trade and other receivables Contract fulfilment assets Cash and cash equivalents At fair value through profit or loss Derivatives used for hedging Total financial assets 172 Note 5.1 5.2 6.9 6.13 2018 £m 53.5 46.2 90.9 0.7 191.3 2017 £m 35.6 37.9 115.2 1.9 190.6 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 6.12 FINANCIAL INSTRUMENTS (CONTINUED) Financial liabilities At amortised cost Trade and other payables Contract fulfilment liabilities Secured bank loans Revolving credit facility Other financial liabilities At fair value through profit or loss Derivative used for hedging Total financial liabilities Fair value hierarchy Note 5.3 5.4 6.7 6.7 9.2 6.13 2018 £m 112.2 16.4 322.6 76.7 1.1 3.6 532.6 The following table presents the Group’s financial assets and liabilities that are measured at fair value. Assets Derivatives used for hedging: Interest rate swaps Forward foreign exchange contracts Total assets Liabilities Derivatives used for hedging: Interest rate swaps Total liabilities There were no transfers between levels during the year. Valuation techniques used to derive level 2 fair values Level 1 Level 2 Level 3 £m – – – £m 0.3 0.4 0.7 £m – – – Level 1 Level 2 Level 3 £m – – £m (3.6) (3.6) £m – – 2017 £m 80.8 16.2 250.0 – 1.7 9.2 357.9 Total £m 0.3 0.4 0.7 Total £m (3.6) (3.6) Level 2 hedging derivatives comprise interest rate swaps, deal contingency forwards and forward foreign exchange contracts. The interest rate swaps are fair valued using forward interest rates extracted from observable yield curves and the deal contingency forwards and forward foreign exchange contracts are fair valued using the future contracted exchange rates. 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. The valuation technique used is a discounted cash flow model. There were no changes in valuation techniques during the year. Group’s valuation processes The Group’s finance department includes a team that monitors the values 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 six months, in line with the Group’s 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 instruments measured at fair value are the derivatives. I S E C T O N 0 3 I F N A N C A L I S T A T E M E N T S N O T E S T O T H E C O N S O L I D A T E D F N A N C A L I I S T A T E M E N T S 173 Equiniti Group plc Annual Report 2018 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 6.13 DERIVATIVES In October 2015, the Group entered into an interest rate swap of its £250.0m term loan, exchanging variable based interest charges for fixed rate for a period of three years. This agreement expired in October 2018 and has not been replaced. The Group has entered into sterling denominated interest rate swaps totalling £1,025.0m to August 2020 (£380.0m), to September 2021 (£215.0m), to September 2022 (£215.0m) and to September 2023 (£215.0m) and $700.0m interest rate swaps to March 2021, exchanging the variable rate derived interest rate income to fixed rates. The Group enters into forward foreign exchange contracts to hedge its exposure to adverse variations in the GBP/INR exchange rate. All the above derivatives, which are effective at a Group level, have been designated as cash flow hedges and qualify for hedge accounting. They are measured at fair value, with changes recognised within other comprehensive income. 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 2018 Assets Interest rate swaps Forward foreign exchange contracts Total Liabilities Interest rate swaps Total 31 December 2017 Assets Interest rate swaps Total Liabilities Interest rate swaps Deal contingency forward Total Carrying amount Total contractual cash flows Within 6 months £m 0.3 0.4 0.7 (3.6) (3.6) £m 1.3 0.4 1.7 (4.7) (4.7) £m 0.6 0.4 1.0 (1.1) (1.1) 6–12 months £m 0.6 – 0.6 (1.4) (1.4) Carrying amount Total contractual cash flows Within 6 months 6–12 months £m 1.9 1.9 (3.4) (5.8) (9.2) £m 1.9 1.9 (3.5) (5.8) (9.3) £m 1.6 1.6 (0.8) (5.8) (6.6) £m 0.3 0.3 (0.9) – (0.9) 1–2 years £m 0.1 – 0.1 (1.5) (1.5) 1–2 years £m – – (1.0) – (1.0) 2–5 years £m – – – (0.7) (0.7) 2–5 years £m – – (0.8) – (0.8) 174 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 7 GOVERNANCE 7.1 DIRECTORS’ REMUNERATION Directors’ emoluments Share-based payment expense Total directors’ remuneration 2018 2017 £m 2.3 1.9 4.2 £m 2.5 1.0 3.5 The Executive Directors receive a cash payment in lieu of retirement benefits and therefore no benefits were accruing under money purchase pension schemes at the year end. Full details of the Directors’ remuneration are set out in the Directors’ Remuneration Report on pages 92-117. 7.2 SHARE-BASED PAYMENTS The Group operates several share-based award and option plans, the terms of which are summarised below, along with the movements in the number of share options during the year. Performance Share Plan (PSP) Share options are granted to Executive Directors and selected employees with nil exercise price. Share options granted under the PSP scheme are conditional on a minimum 6% earnings per share growth (except for the share options granted in 2018 which are conditional on a minimum of 8% earnings per share growth) and median total shareholder return over a three-year vesting period. Vested options can be exercised over a period of up to ten years from the grant date. Movements in the number of share options outstanding and their related weighted average exercise prices were as follows: Outstanding at 1 January Granted Forfeited Exercised Outstanding at 31 December 2018 2017 Number of options Weighted average exercise price Number of options Weighted average exercise price 10,473,276 1,987,167 (83,920) (1,697,093) 10,679,430 £ £0.00 £0.00 £0.00 £0.00 £0.00 8,236,516 2,954,361 (717,601) – 10,473,276 £ £0.00 £0.00 £0.00 £0.00 £0.00 Out of the 10,679,430 (2017: 10,473,276) outstanding options at the end of the year, 4,620,723 (2017: none) were exercisable. Share options outstanding at the end of the year had the following expiry dates and exercise prices: Grant date / Vest date 2015 – 2018 2016 – 2019 2017 – 2018 2017 – 2019 2017 – 2020 2018 – 2021 Expiry date Exercise price Year 2025 2026 2027 2027 2027 2028 £ £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 2018 Number 4,231,452 2,108,573 389,271 147,223 2,144,649 1,658,262 2017 Number 5,646,013 2,123,106 389,271 147,223 2,167,663 – 10,679,430 10,473,276 I S E C T O N 0 3 I F N A N C A L I S T A T E M E N T S N O T E S T O T H E C O N S O L I D A T E D F N A N C A L I I S T A T E M E N T S 175 Equiniti Group plc Annual Report 2018 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 7.2 SHARE-BASED PAYMENTS (CONTINUED) The fair value of options granted during the year, which was determined using the Monte Carlo valuation model, was £2.48 per option. The significant inputs into the model were the share price of £3.13 at the grant date, the exercise price shown above, volatility of 32.1% (based on the historical share price volatility of Equiniti Group plc since listing in October 2015), a dividend yield of 1.4%, an expected option life of three years and an annual risk-free interest rate of 1.0%. The total charge for the year relating to this scheme was £5.6m (2017: £3.1m). Sharesave Plan 2015 Share options are granted to full time Directors and employees who enter into Her Majesty’s Revenue & Customs (HMRC) approved share savings scheme. Participants can save a maximum of £500 per month over three to five years. The number of shares over which an option is granted is such that the total option price payable for those shares corresponds to the proceeds on maturity of the related savings contract. The exercise price is calculated as 80% of the average share price over the three preceding days or, in relation to new issue shares, the nominal value of a share. Granted options vest over the maturity of the savings contract and can be exercised over a period of up to six months after vesting. Movements in the number of share options outstanding and their related weighted average exercise prices were as follows: Outstanding at 1 January Granted Forfeited Exercised Outstanding at 31 December 2018 2017 Number of options Weighted average exercise price Number of options Weighted average exercise price 3,507,110 – (217,646) (102,383) 3,187,081 £ £1.19 £1.19 £1.19 £1.19 £1.19 3,912,896 227,825 (521,473) (112,138) 3,507,110 £ £1.27 – £1.27 £1.27 £1.19 Out of the 3,187,081 (2017: 3,507,110) outstanding options at the end of the year, 22,542 (2017: 60,973) were exercisable at a weighted average exercise price of £1.19. Share options outstanding at the end of the year had the following expiry dates and exercise prices: Grant date / Vest date 2015 – 2019 2015 – 2017 2015 – 2018 2017 – 2019 Expiry date Exercise price Year 2019 2018 2019 2019 £ £1.19 £1.19 £1.19 £1.19 2018 Number 2,962,854 – 22,542 201,685 2017 Number 3,223,970 60,973 – 222,167 3,187,081 3,507,110 The total charge for the year relating to this scheme was £0.8m (2017: £0.4m). 176 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 7.2 SHARE-BASED PAYMENTS (CONTINUED) Deferred Annual Bonus Plan 30% of the annual bonus for Directors and selected employees is delivered in shares which are deferred for three years from the date of the award. Shares awarded under the deferred annual bonus plan are not subject to any performance conditions but can be forfeited, either in part or in full, subject to continued employment, unless deemed a good leaver by the Remuneration Committee. The number of shares awarded is calculated using the market value of shares on grant date. Movements in the number of shares outstanding were as follows: I S E C T O N 0 3 I F N A N C A L I Outstanding at 1 January Granted Forfeited Outstanding at 31 December 2018 Number 142,626 206,591 – 349,217 2017 Number – 143,820 (1,194) 142,626 S T A T E M E N T S N O T E S Out of the 349,217 (2017: 142,626) shares outstanding at the end of the year, none (2017: none) were exercisable. Shares outstanding at the end of the year had the following expiry dates: Grant date / Vest date 2017 – 2020 2018 – 2021 Expiry date Year 2027 2028 2018 Number 142,626 206,591 349,217 2017 Number 142,626 – 142,626 The total cash value of the deferred shares awarded during the year was £0.6m (2017: £0.3m). 7.3 RELATED PARTY TRANSACTIONS Transactions with key management personnel The compensation of key management personnel (including the Directors) is as follows: Key management emoluments Company contributions to money purchase pension plans Share-based payment expense Total 2018 2017 £m 5.8 0.1 3.5 9.4 £m 4.5 0.1 1.7 6.3 Key management are the Directors of the Group and the Executive Committee, who have authority and responsibility to control, direct or plan the major activities within the Group. T O T H E C O N S O L I D A T E D F N A N C A L I I S T A T E M E N T S 177 Equiniti Group plc Annual Report 2018 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 7.4 AUDITORS’ REMUNERATION Fees payable to Group’s external auditors, PricewaterhouseCoopers LLP, and its associates were as follows: – Audit of the parent company and consolidated financial statements – Audit of the Company’s subsidiaries Audit fees Fees payable to Group’s auditors and its associates for non-audit services were as follows: – Other assurance services – Other services Non-audit fees Total 2018 £m 2017 £m 0.3 0.2 0.5 0.2 0.1 0.3 0.8 0.2 0.1 0.3 0.2 0.1 0.3 0.6 Other assurance services includes £0.2m (2017: £0.2m) for services performed in relation to the CASS audit of Equiniti Financial Services Limited. Fees for other services relate to the audit of controls and acquired balances of EQ US. CASS audit fees are excluded from the ratio of audit to non-audit fees, and therefore the ratio for 2018 was 1:0.2 (2017: 1:0.3). The Audit Committee is committed to maintaining this ratio to a maximum of 70% of the average statutory audit fee. 178 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 8 TAXATION 8.1 INCOME TAX CHARGE Recognised in the income statement in the year: Current tax: Current period Adjustment in respect of prior periods Total current tax Deferred tax: Origination and reversal of temporary differences Impact of rate changes on opening deferred tax balances Adjustment in respect of prior periods Total deferred tax Total income tax charge Reconciliation of effective tax rate: Profit for the year Total tax charge Profit before tax Tax using the UK corporation tax rate of 19.00% (2017: 19.25%): Non-deductible expenses Recognised loss on derivative contract Previously unrecognised tax assets Effect of tax rate change Effect of claims for research and development Share scheme deductions Adjustment in respect of prior periods Total income tax charge 2018 £m 3.5 (1.4) 2.1 0.2 – 1.6 1.8 3.9 2018 £m 20.7 3.9 24.6 4.7 0.9 (1.9) 0.1 (0.2) 0.1 – 0.2 3.9 2017 £m 5.7 0.2 5.9 1.0 2.3 0.8 4.1 10.0 2017 £m 15.3 10.0 25.3 4.9 2.4 – 0.2 2.1 – (0.6) 1.0 10.0 The UK corporation tax rate of 19%, effective from 1 April 2017, was substantively enacted on 26 October 2015. A reduction to this rate to 17%, effective from 1 April 2020, was substantively enacted on 6 September 2016. This will reduce the Group’s future current tax charge accordingly. The deferred tax assets and liabilities at 31 December 2018 have been calculated based on these rates. Non-deductible expenses in the prior year are higher due to the tax effect of non-deductible expenses incurred on the acquisition of the EQ US business. The current year tax charge has been reduced by a derivative loss on a deal contingent forward used to hedge the consideration in US dollars for EQ US. The prior year tax charge was also higher due to the tax effect of the change in tax rates applied to deferred tax from 18% to 17%. I S E C T O N 0 3 I F N A N C A L I S T A T E M E N T S N O T E S T O T H E C O N S O L I D A T E D F N A N C A L I I S T A T E M E N T S 179 Equiniti Group plc Annual Report 2018 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 8.2 DEFERRED INCOME TAX ASSETS AND LIABILITIES Recognised assets Deferred income tax assets are attributable to the following: Property, plant and equipment Employee benefits and other timing differences Tax value of losses carried forward Tax assets Net of tax liabilities Net tax assets Recognised liabilities Deferred income tax liabilities are attributable to the following: Intangible assets Tax liabilities Net of tax assets Net tax liabilities 2018 £m 1.6 9.4 36.0 47.0 (23.4) 23.6 2018 £m 23.4 23.4 (23.4) – No deferred tax asset has been recognised in respect of £4.8m (2017: £3.8m) of gross tax losses due to uncertainty in terms of future recoverability. The Group has no other unrecognised deferred tax assets. Movements in deferred tax during the year: Year ended 31 December 2018 Property, plant and equipment Intangible assets Employee benefits and other timing differences Tax value of losses carried forward Year ended 31 December 2017 Property, plant and equipment Intangible assets Employee benefits and other timing differences Tax value of losses carried forward Opening Recognised Recognised balance Acquisitions in income in equity £m 2.8 (22.2) 8.2 38.0 26.8 £m – (0.2) – – (0.2) £m (1.2) (1.0) 2.4 (2.0) (1.8) £m – – (1.2) – (1.2) Opening Recognised Recognised balance Acquisitions in income in equity £m 3.4 (21.7) 4.8 42.6 29.1 £m – (0.7) – – (0.7) £m (0.6) 0.2 0.9 (4.6) (4.1) £m – – 2.5 – 2.5 180 2017 £m 2.8 8.2 38.0 49.0 (22.2) 26.8 2017 £m 22.2 22.2 (22.2) – Closing balance £m 1.6 (23.4) 9.4 36.0 23.6 Closing balance £m 2.8 (22.2) 8.2 38.0 26.8 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 9 OTHER DISCLOSURES 9.1 OTHER FINANCIAL ASSETS Non-current Derivatives used for hedging (note 6.13) Total Current Derivatives used for hedging (note 6.13) Total 2018 £m 0.2 0.2 0.5 0.5 2017 £m 1.9 1.9 – – Derivatives used for hedging the term loan and variable rate derived interest rate income are classified as a non-current asset, as the remaining maturity of the hedged item is more than 12 months. Derivatives used for hedging the exposure to variations in exchange rates are recognised as a current asset, as the forecast transactions denominated in a foreign currency are expected to occur within six months of the year end. 9.2 OTHER FINANCIAL LIABILITIES Non-current Derivatives used for hedging (note 6.13) Finance lease liabilities Total Current Derivatives used for hedging (note 6.13) Finance lease liabilities Total 2018 2017 £m 3.6 0.6 4.2 – 0.5 0.5 £m 3.4 1.1 4.5 5.8 0.6 6.4 Derivatives used for hedging the term loan and variable rate derived interest rate income are classified as a non-current liability, as the remaining maturity of the hedged item is more than 12 months. Derivatives used for hedging the exposure to variations in exchange rates are recognised as a current liability, as the forecast transactions denominated in a foreign currency are expected to occur within six months of the year end. 9.3 POST-EMPLOYMENT BENEFITS Defined contribution pension plans The Group operates a number of defined contribution pension plans. The total expense relating to these plans in the year was £8.5m (2017: £7.3m). Defined benefit pension plans The Group operates three funded defined benefit pension plans in the UK. All of the plans are final salary pension plans and provide benefits to members in the form of a guaranteed level of pension, payable for life. The liability under all schemes is based on final salary and length of service to the employer. The assets of the schemes are held independently of the Group’s assets, in separate trustee-administered funds. The Trustees of the pension funds are required by law to act in the interest of the fund and of all relevant stakeholders. The net liability of the three schemes is set out below: ICS Pension Scheme Paymaster Pension Scheme Prudential Platinum Pension – MyCSP Limited Total defined benefit pension plan net liability 2018 £m 1.7 20.2 1.0 22.9 2017 £m 1.5 20.1 1.1 22.7 I S E C T O N 0 3 I F N A N C A L I S T A T E M E N T S N O T E S T O T H E C O N S O L I D A T E D F N A N C A L I I S T A T E M E N T S 181 Equiniti Group plc Annual Report 2018 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 9.3 POST-EMPLOYMENT BENEFITS (CONTINUED) Full actuarial valuations are performed every three years which determines the funding required to eliminate the net pension plan liabilities. The latest full valuations took place in 2018 and will conclude in 2019. All pension schemes have been closed to new members for a number of years and all schemes are now closed to future accrual, apart from a small sub-section of the Paymaster Pension Scheme. The present value of the defined benefit obligation consists of approximately £3.4m (2017: £3.7m) relating to active employees, £41.1m (2017: £54.2m) relating to deferred members and £32.5m (2017: £22.8m) relating to members in retirement. The investment strategy of the plans are set taking into account a number of factors including the profile and value of plan liabilities, the strength of the employer covenant and the long-term funding objectives agreed with the employer. The schemes have a broad allocation of investments in return-seeking assets with the remaining allocated to liability matching assets, designed to partially offset the movements in the scheme liabilities caused by movements in interest rates and inflation. The asset split reflects the Trustees’ view of the most appropriate investments balancing risk/ reward characteristics of the funds the Scheme is invested in. Pension plan assets are valued at fair value. Quoted equities and debt instruments on a recognised stock exchange are valued at the closing market price as at the valuation date. Exchange traded and over-the-counter derivative instruments are valued at the settlement price or at the latest valuation for such instruments on the valuation date. Cash and other illiquid assets will be valued at their face value plus accrued interest at the valuation date. The Group is exposed to a number of risks through its defined benefit pension plans, the most significant of which are described below: • Investment risk – Scheme growth assets are invested in a diversified portfolio of debt securities, equities and other return-seeking assets such as pooled private markets fund. If the assets underperform the discount rate used to calculate the defined benefit obligation, it will increase the net pension plan liabilities. • Interest rate risk – A decrease in corporate bond yields will increase plan liabilities, although this is likely to be partially offset by an increase in the value of the plans’ bond/liability driven investment holdings. • Inflation risk – The majority of the liabilities are linked to inflation, although in most cases, caps on the level of inflation increases are in place to protect the scheme against extreme inflation. An increase in inflation rates will lead to higher liabilities, although this is likely to be partially offset by an increase in the value of some of the plans’ liability-driven investments. • Longevity risk – The pension plans’ provide benefits for the life of the members, therefore increases in life expectancy will result in an increase in the plans’ liabilities. The Group and Trustees are aware of these risks and manage them through appropriate investment and funding strategies. The Trustees manage governance and operational risks through a number of internal control policies, including a risk register. Defined benefit plan - ICS Pension Scheme A full actuarial valuation was carried out at 5 April 2015 and has since been updated each year end to 31 December 2018 by a qualified independent actuary. Present value of obligations Fair value of plan assets Recognised liability for defined benefit obligations 2018 £m (12.3) 10.6 (1.7) 2017 £m (13.1) 11.6 (1.5) 182 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 9.3 POST-EMPLOYMENT BENEFITS (CONTINUED) Movement in present value of defined benefit obligation Defined benefit obligation at 1 January Past service cost Interest cost Actuarial (gains)/losses – changes in financial assumptions Actuarial (gains)/losses – changes in demographic assumptions Actuarial gains – other experience items Benefits paid Defined benefit obligation at 31 December Movement in fair value of plan assets Fair value of plan assets at 1 January Interest income (Loss)/return on plan assets Employer contributions Benefits paid Fair value of plan assets at 31 December Expense recognised in the income statement Past service cost Interest cost Interest income Total expense Actuarial gains and losses recognised in other comprehensive income Cumulative loss at 1 January Actuarial losses recognised in other comprehensive income Cumulative loss at 31 December Plan assets are comprised of the following: Equities Corporate bonds Diversified growth funds Liability-driven investment funds Illiquid assets Cash 2018 £m 13.1 0.2 0.3 (0.2) (0.1) (0.1) (0.9) 12.3 2018 £m 11.6 0.3 (0.5) 0.1 (0.9) 10.6 2017 £m 12.6 – 0.3 0.6 0.1 – (0.5) 13.1 2017 £m 11.0 0.3 0.7 0.1 (0.5) 11.6 2018 2017 £m 0.2 0.3 (0.3) 0.2 2018 £m (3.4) (0.1) (3.5) £m – 0.3 (0.3) – 2017 £m (3.4) – (3.4) 2018 2017 £m 2.4 1.0 – 2.9 2.4 1.9 £m 3.3 1.0 2.2 2.9 2.2 – Fair value of plan assets at 31 December 10.6 11.6 I S E C T O N 0 3 I F N A N C A L I S T A T E M E N T S N O T E S T O T H E C O N S O L I D A T E D F N A N C A L I I S T A T E M E N T S 183 Equiniti Group plc Annual Report 2018 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 9.3 POST-EMPLOYMENT BENEFITS (CONTINUED) Weighted average assumptions used to determine benefit obligations: Discount rate Rate of increase for pensions in payment: – CPI subject to a max of 3.0% pa. – RPI subject to a max of 5.0% pa. – RPI subject to a max of 2.5% pa. Rate of increase for pensions in deferment Inflation assumption 2018 2.75% 1.93% 3.07% 2.17% 2.15% 3.15% 2017 2.62% 1.89% 3.02% 2.15% 2.09% 3.09% Weighted average life expectancy for mortality tables (100% SAPS S2PMA, 100% SAPS S2FA, 100% SAPS S2PA CMI 2017, 1% long-term trend) used to determine benefit obligations at 31 December 2018: 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 2019. Male 86.8 87.9 Female 88.7 89.9 Defined benefit plan – Paymaster Pension Scheme A full actuarial valuation was carried out at 5 April 2015 and has since been updated each year end to 31 December 2018 by a qualified independent actuary. 2018 £m (57.5) 37.3 (20.2) 2018 £m 59.6 0.1 0.2 1.6 (3.8) 1.6 (1.8) 57.5 2017 £m (59.6) 39.5 (20.1) 2017 £m 57.9 0.2 – 1.6 0.8 0.7 (1.6) 59.6 Present value of obligations Fair value of plan assets Recognised liability for defined benefit obligations Movement in present value of defined benefit obligation Defined benefit obligation at 1 January Current service cost Past service cost Interest cost Actuarial (gains)/losses – change in financial assumptions Actuarial losses – other experience items Benefits paid Defined benefit obligation at 31 December 184 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 9.3 POST-EMPLOYMENT BENEFITS (CONTINUED) Movement in fair value of plan assets Fair value of plan assets at 1 January Interest income (Loss)/return on plan assets Employer contributions Benefits paid Fair value of plan assets at 31 December Expense recognised in the income statement Current service cost Past service cost Interest cost Interest income Total expense Actuarial gains and losses recognised in other comprehensive income Cumulative loss at 1 January Actuarial (losses)/gains recognised in other comprehensive income Cumulative loss at 31 December Plan assets are comprised of the following: Private equity and diversified growth funds Liability-driven investment funds Illiquid assets Cash and other Fair value of plan assets at 31 December 2018 £m 39.5 1.0 (2.4) 1.0 (1.8) 37.3 2018 £m 0.1 0.2 1.6 (1.0) 0.9 2018 £m (21.4) (0.2) (21.6) 2018 £m 12.0 9.3 8.8 7.2 37.3 2017 £m 37.0 1.0 2.1 1.0 (1.6) 39.5 2017 £m 0.2 – 1.6 (1.0) 0.8 2017 £m (22.0) 0.6 (21.4) 2017 £m 21.0 9.6 8.2 0.7 39.5 I S E C T O N 0 3 I F N A N C A L I S T A T E M E N T S N O T E S T O T H E C O N S O L I D A T E D F N A N C A L I I S T A T E M E N T S 185 Equiniti Group plc Annual Report 2018 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 9.3 POST-EMPLOYMENT BENEFITS (CONTINUED) Weighted average assumptions used to determine benefit obligations: Discount rate Rate of compensation increase Rate of increase for pensions in payment Rate of increase for pensions in deferment (Pre 6 April 2009 service): – Pre 6 April 2009 – Post 6 April 2009 Rate of increase for pensions in deferment (Post 6 April 2009 service) Inflation assumption 2018 3.00% 1.50% 3.10% 3.10% 2.10% 2.50% 3.10% 2017 2.66% 1.50% 3.08% 3.08% 2.08% 2.50% 3.08% Weighted average life expectancy for mortality tables (96% SAPS S2PMA, 84% SAPS S2PFA CMI 2017, 1% long-term trend) used to determine benefit obligations at 31 December 2018 Member age 65 (current life expectancy) Member age 45 (life expectancy at 65) Contributions Paymaster (1836) Limited expects to contribute £0.9m to its pension plan in 2019. Male 86.7 87.9 Female 89.8 91.1 Defined benefit plan – Prudential Platinum Pension – MyCSP Limited The latest full actuarial valuation was carried out at 31 December 2015 and has since been updated to 31 December 2018 by a qualified independent actuary. Present value of obligations Fair value of plan assets Recognised liability for defined benefit obligations Movement in present value of defined benefit obligation Defined benefit obligation at 1 January Interest cost Actuarial (gains)/losses – changes in financial assumptions Actuarial gains – changes in demographic assumptions Liabilities extinguished on settlements Benefits paid Defined benefit obligation at 31 December Movement in fair value of plan assets Fair value of plan assets at 1 January Interest income (Loss)/return on plan assets Employer contributions Assets distributed on settlements Benefits paid Administration expenses 186 Fair value of plan assets at 31 December 2018 £m (7.2) 6.2 (1.0) 2018 £m 8.0 0.2 (0.8) – – (0.2) 7.2 2018 £m 6.9 0.2 (0.7) 0.1 – (0.2) (0.1) 6.2 2017 £m (8.0) 6.9 (1.1) 2017 £m 13.8 0.3 0.1 (0.1) (5.9) (0.2) 8.0 2017 £m 12.4 0.3 0.2 0.1 (5.8) (0.2) (0.1) 6.9 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 9.3 POST-EMPLOYMENT BENEFITS (CONTINUED) Expense recognised in the income statement Administration expenses Interest cost Interest income Total expense Actuarial gains and losses recognised in other comprehensive income Cumulative loss at 1 January Actuarial gain recognised in other comprehensive income Cumulative loss at 31 December Plan assets are comprised of the following: Overseas equities Corporate bonds Diversified growth fund Cash Fair value of plan assets at 31 December Weighted average assumptions used to determine benefit obligations: Discount rate Rate of increase for pensions in payment Rate of increase for pensions in deferment Inflation assumption 2018 2017 £m 0.1 0.2 (0.2) 0.1 2018 £m (1.4) 0.1 (1.3) £m 0.1 0.3 (0.3) 0.1 2017 £m (1.6) 0.2 (1.4) 2018 2017 £m 1.5 2.8 1.8 0.1 6.2 2018 3.10% 2.07% 2.07% 3.07% £m 0.6 4.0 2.3 – 6.9 2017 2.68% 2.06% 2.06% 3.06% Weighted average life expectancy for mortality tables (100% SAPS S2PMA, 100% SAPS S2PFA, 100% SAPS S2PxA CMI 2017, 1% long-term trend) used to determine benefit obligations at 31 December 2018: Member age 65 (current life expectancy) Member age 45 (life expectancy at 65) Contributions Male 86.8 87.9 Female 88.7 89.9 MyCSP Limited does not expect to make contributions to the scheme in 2019 except to cover the administration expenses of maintaining the scheme. Sensitivity analysis Estimates of the discount rate, inflation rate and life expectancy are used in calculating the pension obligation. The total effect on the employee benefit liability on all schemes as at 31 December 2018 of an increase in life expectancy by one year would be an increase of £2.6m (2017: £2.9m), a 0.5% decrease in the discount rate used would be an increase of £6.0m (2017: £8.6m), and a 0.5% increase in the inflation assumption would be an increase of £6.0m (2017: £7.6m). These individual sensitivity analyses are based on a change in one assumption whilst holding all other assumptions constant. I S E C T O N 0 3 I F N A N C A L I S T A T E M E N T S N O T E S T O T H E C O N S O L I D A T E D F N A N C A L I I S T A T E M E N T S 187 Equiniti Group plc Annual Report 2018 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 9.4 OPERATING LEASES Future aggregate minimum lease payments, relating primarily to the Group’s premises, are payable as follows: Less than one year Between one and five years More than five years Total 9.5 CONTINGENT LIABILITIES 2018 £m 7.0 26.1 21.3 54.4 2017 £m 5.8 17.6 21.1 44.5 The Company, along with other companies in the Group, has provided a guarantee in relation to a Senior Facilities Agreement comprising a term loan and revolving credit facility made available to Equiniti Holdings Limited. The facilities comprise term loan facilities of £250.0m and US$92.0m, and a multicurrency revolving credit facility of £199.0m, of which the drawn balance was £76.7m at 31 December 2018 (2017: £nil). Both facilities are repayable in 2020. 9.6 EVENTS AFTER THE REPORTING DATE There have been no material events between 31 December 2018 and the date of authorisation of the consolidated financial statements that would require adjustments of the consolidated financial statements or disclosure. 188 Notes to the consolidated financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 9.7 RESTATEMENT OF FINANCIAL STATEMENTS UNDER IFRS 15 The impact from adopting IFRS 15 on the Group’s income statement was as follows: As reported Re-measure- ments Year ended 31 December 2017 Revenue Administrative costs Depreciation of property, plant and equipment Amortisation of software Amortisation of acquisition-related intangible assets Finance income Finance costs Profit before income tax Income tax charge Profit for the year Profit for the year attributable to: – Owners of the parent – Non-controlling interests Profit for the year Earnings per share attributable to owners of the parent: Basic earnings per share (pence) Diluted earnings per share (pence) £m 406.1 (318.1) (5.7) (18.3) (26.7) 0.8 (12.5) 25.6 (10.0) 15.6 11.9 3.7 15.6 3.6 3.6 £m 0.2 (0.5) – – – – – (0.3) – (0.3) (0.3) – (0.3) (0.1) (0.1) Restated £m 406.3 (318.6) (5.7) (18.3) (26.7) 0.8 (12.5) 25.3 (10.0) 15.3 11.6 3.7 15.3 3.5 3.5 Adjustments were made to the amounts recognised in the statement of financial position at the date of adoption (1 January 2018), to reflect the reclassifications to contract fulfilment assets and contract fulfilment liabilities. Re-measurement changes were made to contract fulfilment assets through recognition of additional accrued income and contract delivery costs, and to contract fulfilment liabilities through recognition of additional deferred income. In accordance with the transition provisions of IFRS 15, the Group has restated comparatives for the 2017 financial year and below is a summary of the changes: Balance sheet extract as at 31 December 2017 Trade and other receivables Contract fulfilment assets Trade and other payables Contract fulfilment liabilities IAS 18 carrying value Reclassi- fications Re-measure- ments IFRS 15 carrying value £m 80.3 – 96.0 – £m (35.8) 35.8 (15.2) 15.2 £m – 2.1 – 1.0 £m 44.5 37.9 80.8 16.2 The impact on the Group’s retained earnings as at 1 January 2018 and 1 January 2017 was as follows: Retained earnings – as reported Change in timing of revenue recognition Recognition of asset for costs to fulfil a contract Opening retained earnings – IFRS 15 As at 1 January 2018 As at 1 January 2017 £m 196.8 (1.0) 2.1 197.9 £m 193.6 (1.2) 2.6 195.0 I S E C T O N 0 3 I F N A N C A L I S T A T E M E N T S N O T E S T O T H E C O N S O L I D A T E D F N A N C A L I I S T A T E M E N T S 189 Equiniti Group plc Annual Report 2018 Company statement of financial position AS AT 31 DECEMBER 2018 Assets Non-current assets Investments in subsidiaries Current assets Amounts due from Group undertakings Total assets Liabilities Current liabilities Amounts due to Group undertakings Total liabilities Net assets Equity Equity attributable to owners of the parent Share capital Share premium Capital redemption reserve Reserve for own shares Retained earnings Total equity Note 9 10 11 12 12 13 2018 £m 276.9 276.9 520.8 520.8 2017 £m 174.6 174.6 585.8 585.8 797.7 760.4 64.0 64.0 64.0 2.6 2.6 2.6 733.7 757.8 0.4 115.9 0.2 (10.0) 627.2 733.7 0.4 115.8 0.2 – 641.4 757.8 The Company’s loss for the financial year was £96,000 (2017: profit of £48,000). The notes on pages 192 to 197 form part of these financial statements. The financial statements of Equiniti Group plc (registered number: 07090427) on pages 190 to 197 were approved by the Board of Directors on 12 March 2019 and were signed on its behalf by: John Stier Chief Financial Officer 190 Company statement of changes in equity FOR THE YEAR ENDED 31 DECEMBER 2018 Share capital Share premium Capital redemption reserve Reserve for own shares Retained earnings1 £m 0.2 £m – £m 652.5 Balance at 1 January 2017 Comprehensive income Result for the year Total comprehensive income Issue of share capital, net of transaction costs (note 12) Dividends (note 17) Capital contribution in respect of share-based compensation plans (note 14) Transactions with owners recognised directly in equity Balance at 31 December 2017 £m 0.3 – – £m – – – 0.1 115.8 – – 0.1 0.4 – – 115.8 115.8 – – – – – – 0.2 Balance at 1 January 2018 0.4 115.8 0.2 Comprehensive expense Loss for the year Total comprehensive expense Issue of share capital, net of transaction costs (note 12) Purchase of own shares (note 13) Own shares awarded to employees (note 13) Dividends (note 17) Capital contribution in respect of share-based compensation plans (note 14) Transactions with owners recognised directly in equity – – – – – – – – – – 0.1 – – – – 0.1 – – – – – – – – Balance at 31 December 2018 0.4 115.9 0.2 1Re-presented to include the share-based payments reserve within retained earnings The notes on pages 192-197 form part of these financial statements. – – – – – – – – – – – (13.9) 3.9 – – (10.0) (10.0) Total equity £m 653.0 – – 115.9 (14.6) 3.5 104.8 757.8 C O M P A N Y F N A N C A L I I – – – (14.6) 3.5 (11.1) 641.4 641.4 757.8 S T A T E M E N T S (0.1) (0.1) – – (3.9) (16.5) 6.3 (0.1) (0.1) 0.1 (13.9) – (16.5) 6.3 (14.1) (24.0) 627.2 733.7 191 SECTION 03Equiniti Group plc Annual Report 2018FINANCIAL STATEMENTS Notes to the Company financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 1 GENERAL INFORMATION – including any market performance conditions (for example, total Equiniti Group plc (the Company) is a public limited company which is listed on the London Stock Exchange, incorporated and domiciled in the United Kingdom. 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. 2 BASIS OF PREPARATION 2.1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Statement of compliance These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU), IFRS Interpretation Committee (IFRS IC) interpretations as adopted by the EU and the Companies Act 2006 applicable to companies reporting under IFRS. Basis of preparation The principal accounting policies applied in the preparation of the Company financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. These financial statements have been prepared on the going concern basis and under the historical cost convention. The Company’s functional and presentational currency is the British Pound (£). The Company has taken advantage of the exemption provided under section 408 of the Companies Act 2006 not to publish its individual statement of comprehensive income and related notes. The loss for the year was £96,000 (2017: profit of £48,000). A statement of cash flows has not been presented as the Company did not have any cash flows during the current or prior period, nor did it have any cash and cash equivalents at any time during the period. Therefore the presentation of a statement of cash flows would not provide any additional information. Dividends payable by the Company are paid by another entity within the Group. Investments in subsidiaries Investments in subsidiaries are carried at historical cost less any provisions for impairment. 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. shareholder return); – excluding the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth targets and remaining an employee over a specified period of time); and – including the impact of any non-vesting conditions (for example, the requirement for employees to save or hold shares for a specific period of time). At the end of each reporting period, the Company revises its estimates of the number of awards that are expected to vest based on the non- market vesting conditions and service conditions. It recognises the impact of the revisions to original estimates, if any, reflecting employee services provided to the Group, in the cost of subsidiary investments, with a corresponding adjustment to equity. Taxation Tax on the profit for the year comprises current and deferred tax. Tax is recognised in the statement of comprehensive income, except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the statement of financial position date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the statement of financial position date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. 2.2 NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED There are no other new IFRSs or IFRS IC interpretations not yet adopted which would be expected to have a material impact on the financial statements of the Company. Where the Company acquires its own ordinary shares, the consideration paid is recorded as a deduction from equity. 2.3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Equity share-based payment transactions The Company operates a number of equity-settled, share-based compensation plans, under which companies within the Group receive services from employees as consideration for equity instruments (options). The fair value of the employee services received in exchange for the grant of the options is recognised as an increase in the cost of subsidiary investments. The total amount recognised is determined by reference to the fair value of the options granted: There are no accounting policies where the use of judgements and estimates is determined to be significant to the financial statements. 192 Notes to the Company financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 3 FINANCIAL RISK MANAGEMENT The Company has exposure to the following risks from its use of financial instruments: – credit risk – liquidity risk Risk management policies are established for the Equiniti Group plc group of companies (the Group), including Equiniti Group plc. The 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 Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee. Further information regarding the Group’s financial risks and risk management policies can be found in note 6.10 of the consolidated financial statements. 4 CAPITAL RISK MANAGEMENT The Company’s objectives when managing capital are to maximise shareholder value whilst safeguarding the Company’s ability to continue as a going concern. Total capital is calculated as total equity in the balance sheet. Management of capital: Equity Total equity 5 AUDITORS’ REMUNERATION 2018 £m 733.7 733.7 2017 £m 757.8 757.8 The audit fees for these financial statements of £1,250 (2017: £1,250) were borne by a fellow Group company. 6 STAFF NUMBERS AND COSTS There were no persons employed directly by the Company, other than the Directors, and therefore no staff costs were incurred. 7 DIRECTORS’ REMUNERATION Full details of the Directors’ remuneration are set out in the Directors’ Remuneration Report on pages 92-117. The costs of the Directors were borne by fellow Group companies, without recharge to the Company. 8 INCOME TAX CHARGE The Company made a loss in the year of £0.1m (2017: £nil). The expenses borne by the Company in the year were not tax deductible and no tax credit has been incurred. The UK corporation tax rate of 19%, effective from 1 April 2017, was substantively enacted on 26 October 2015. A reduction to this rate to 17%, effective 1 April 2020, was substantively enacted on 6 September 2016. N O T E S T O T H E C O M P A N Y F N A N C A L I I S T A T E M E N T S 193 SECTION 03Equiniti Group plc Annual Report 2018FINANCIAL STATEMENTS Notes to the Company financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 9 INVESTMENTS IN SUBSIDIARIES The Company has the following investments in subsidiaries: Cost and net book value At beginning of the year Additions Investment related to share based award costs Total investment in subsidiaries 2018 £m 174.6 96.0 6.3 276.9 2017 £m 171.1 – 3.5 174.6 During the year the Company subscribed to £1 of share capital in newly created entities Equiniti Finance (Holdings) Limited and Equiniti (UK) Finance Limited. It subsequently invested the equivalent of a further $45.0m (£32.0m) in Equiniti Holdings Limited and the equivalent of $90.0m (£64.0m) in Equiniti Finance (Holdings) Limited to provide funding for the acquisition of Wells Fargo Shareowner Services. This transaction was funded by way of intercompany transfer. The Directors consider the value of the investment to be supported by its underlying assets. The Company has the following direct investments in subsidiaries: Name of controlled entity Registered office address Equiniti Holdings Limited Equiniti Finance (Holdings) Ltd Equiniti (UK) Finance Ltd Principal activities Holding company Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Holding company Elder House, St Georges Business Park, Brooklands Road, Weybridge, Surrey, KT13 0TS, United Kingdom Non trading Ownership % on 31 December 2018 100 100 100 The above investments are held in the Ordinary share capital of the companies. A full list of the Company’s indirect investments is included in note 4.4 to the consolidated financial statements. 10 AMOUNTS DUE FROM GROUP UNDERTAKINGS Current Non-interest bearing receivables due from related parties Total amounts due from Group undertakings Balances due from related parties can be called upon on demand. 11 AMOUNTS DUE TO GROUP UNDERTAKINGS Current Non-interest bearing payables due to related parties Total amounts due to Group undertakings Balances due to related parties are repayable on demand. 194 2018 £m 520.8 520.8 2018 £m 64.0 64.0 2017 £m 585.8 585.8 2017 £m 2.6 2.6 Notes to the Company financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 12 SHARE CAPITAL Allotted, called up and fully paid Balance at 1 January Employee share options exercised Rights issue Balance at 31 December Ordinary shares of £0.001 each Balance at 1 January Employee share options exercised Rights issue Balance at 31 December Share capital Share premium 2018 2017 £m 0.4 – – 0.4 £m 0.3 – 0.1 0.4 2018 £m 115.8 0.1 – 115.9 2017 £m – 0.1 115.7 115.8 2018 Number 2017 Number 364,434,283 300,012,911 102,383 112,138 – 64,309,234 N O T E S 364,536,666 364,434,283 The Company issued 102,383 ordinary shares on exercise of employee share options during the year (2017: 112,138). The shares were issued at a weighted average exercise price of £1.19 per share. Proceeds of £0.1m were received by a fellow Group company, Equiniti Holdings Limited, and the balance is reflected within receivables due from related parties. In October 2017, the Company offered a rights issue to existing shareholders on the basis of 3 shares for every 14 fully paid ordinary shares held. The issue was fully subscribed and resulted in the issue of 64,309,234 ordinary shares at £1.90 per share. Gross proceeds of £122.2m were received on the Company’s behalf by a fellow Group company, Equiniti Holdings Limited, and the balance was reflected within receivables due from related parties. The share premium account increased by £115.7m as a result, which was net of direct transaction costs of £6.5m. 13 RESERVE FOR OWN SHARES During the year, the Group purchased 6,000,000 of its own ordinary shares for consideration of £13.9m. The shares are held in an employee benefit trust and will be used to satisfy the vesting of awards under the Group’s share option plans. During the year 1,697,093 (2017: nil) shares were used to satisfy the vesting of awards. Shares held by the trust are deducted from equity and do not receive dividends. 14 SHARE-BASED PAYMENTS The Group has equity-settled share-based award plans in place, being the conditional allocations of Equiniti Group plc shares. Share-based payments disclosures relevant to the Company are presented within note 7.2 to the consolidated financial statements. T O T H E C O M P A N Y F N A N C A L I I S T A T E M E N T S 195 SECTION 03Equiniti Group plc Annual Report 2018FINANCIAL STATEMENTS Notes to the Company financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 15 FINANCIAL INSTRUMENTS The carrying amounts of financial assets and liabilities are classified as per IFRS 7 Financial Instruments: Disclosures according to the following categories: Financial assets Amortised cost Loans and receivables due from related parties Total financial assets Financial liabilities Amortised cost Loans and receivables due to related parties Total financial liabilities Note 10 Note 11 The fair values and the carrying values of financial assets and liabilities are not materially different. 16 RELATED PARTY TRANSACTIONS Receivable at the year end From fellow Group companies Total Payable at the year end To fellow Group companies Total 2018 £m 520.8 520.8 2018 £m 64.0 64.0 2018 £m 520.8 520.8 2018 £m 64.0 64.0 2017 £m 585.8 585.8 2017 £m 2.6 2.6 2017 £m 585.8 585.8 2017 £m 2.6 2.6 196 Notes to the Company financial statements FOR THE YEAR ENDED 31 DECEMBER 2018 17 DIVIDENDS Amounts recognised as distributions to equity holders in the year Interim dividend for year ended 31 December 2018 (1.83p per share) Final dividend for year ended 31 December 2017 (2.73p per share) Interim dividend for year ended 31 December 2017 (1.64p per share) Final dividend for year ended 31 December 2016 (2.91p per share) Total dividend paid during the year 2018 £m 6.6 9.9 – – 16.5 2017 £m – – 5.3 9.3 14.6 The Board recommends a final dividend payable in respect of the year ended 31 December 2018 of £12.7m (2017: £9.9m) or 3.49p per share (2017: 2.73p per share). As this is subject to shareholder approval at the Annual General Meeting on 2 May 2019, no liability has been included in these financial statements. The final dividend will be paid on 16 May 2019, to shareholders on the register at close of business on 12 April 2019. The Equiniti Group Employee Benefit Trust has waived its right to receive dividends on shares held. N O T E S 18 CONTINGENT LIABILITIES The Company, along with other companies in the Group, has provided a guarantee in relation to a Senior Facilities Agreement comprising a term loan and revolving credit facility made available to Equiniti Holdings Limited. The facilities comprise term loan facilities of £250.0m and US$92.0m, and a multicurrency revolving credit facility of £199.0m, of which the drawn balance was £76.7m at 31 December 2018 (2017: £nil). Both facilities are repayable in 2020. T O T H E C O M P A N Y F N A N C A L I I S T A T E M E N T S 197 SECTION 03Equiniti Group plc Annual Report 2018FINANCIAL STATEMENTS Superbrand 2018 Chosen by an expert council of B2B marketing experts and 2,500 individual business professionals 198 I S E C T O N 0 4 I A D D T O N A L I I N F O R M A T O N I E q u n i t i i G r o u p p c A n n u a l l R e p o r t 2 0 1 8 199 04 Additional information SHAREHOLDER INFORMATION 200 Equiniti Group plc Annual Report 2018SECTION 01STRATEGIC REPORTPAGE TITLE Shareholder information Registered Office EquinitiGroupplc SutherlandHouse RussellWay Crawley WestSussex RH101UH Companynumber07090427 Forenquiriesregarding ordinaryshares,pleasecontact EquinitiLimited AspectHouse SpencerRoad Lancing WestSussex BN996DA Telephone UKonly 03713842335 NonUK +441214157047 whotargetUKshareholdersofferingto sellwhatoftenturnouttobeworthlessor high-risksharesinUSorUKinvestments. Theycanbeverypersistentandextremely persuasive.Shareholdersareadvisedto beverywaryofanyunsolicitedadvice, offerstobuysharesatadiscountoroffers offreecompanyreports. Ifyoureceiveanyunsolicitedinvestment advice: • Ensurethatyouobtainthecorrectname ofthepersonandorganisation; • Checkthattheyareproperlyauthorised bytheFCAbeforebecominginvolved. Youcancheckatwww.fca.org.uk;and • ReportthemattertotheFCAat www.fca.org.uk. Shareholderscanalsoaccesstheir holdingsonlinebyvisitingthewebsite atwww.shareview.co.uk purchase,isinsufficienttobuyasingle share,nochargeismadeandthedividend iscarriedforward. Forcorporategovernanceenquiries, pleasecontacttheCompanySecretary: KathyCong kathy.cong@equiniti.com Forinvestorrelationsenquiries,please contacttheHeadofInvestorRelations: FrancesGibbons frances.gibbons@equiniti.com Financialcalendar* 12March2019Annualresultsforyear ended31December2018 AnnualGeneralMeeting 2May2019 2August2019 Interimresultsfor sixmonthsended 30June2019 *Thefinancialcalendarmaybeupdatedfromtimeto timethroughouttheyear.Pleaserefertoourwebsite www.equiniti.comforup-to-dateinformation. Dividend Reinvestment Plan Shareholdersareabletotaketheir dividendascash,orinsharesthrough theDRIP(DividendReinvestmentPlan). Furtherdetailsareavailableat www.shareview.co.uk. TheDRIPallowsshareholderstouse theircashdividendstobuymoreshares intheCompany.Ratherthanreceiving adividendchequethroughthepostor havingtheirbankaccountcreditedwith thedividendpayment,shareholderscan choosetousetheircashdividendtobuy additionalshares. E-communications UsingtheGroup’swebsiteasthemain methodofdistributionformanystatutory documentsispartofourcommitment toreducingourenvironmentalimpact. Shareholderscanchoosetoreceive communications,includingtheAnnual ReportandAccountsandNoticeof Meetings,inelectronicformratherthan bypost. Shareholderscanregisterthroughthe onlineserviceatwww.shareview.co.uk. Theregistrationprocessrequiresthe inputofashareholderreferencenumber (SRN),whichcanbefoundontheshare certificate. Toensurethatshareholdercommunications arereceivedinelectronicform,“email” shouldbeselectedasthemailing preference. Onceregistered,shareholderswillbe sentanemailnotifyingthemeachtime ashareholdercommunicationhasbeen publishedontheCompanywebsite,and providingthemwithalinktothepageon thewebsitewhereitmaybefound. Warning to shareholders EquinitiGroupplcislegallyobligedto makeitsshareregisteravailabletothe generalpublic.Consequentlysome shareholdersmayreceiveunsolicited mail,includingcorrespondencefrom unauthorisedinvestmentcompanies. Wholesharesarepurchasedwithany residualmoneybeingcarriedforwardand addedtothenextdividend.However, iftheamountofthedividend,lessany dealingcostsincurredincompletingthe Companieshavebecomeincreasingly awarethattheirshareholdershave receivedunsolicitedphonecalls concerningtheirshareholding.Thesecalls aretypicallyfromoverseas-basedbrokers 200 ANALYSIS OF ORDINARY SHAREHOLDERS AS AT 31 DECEMBER 2018 Range 1–1,000 1,001–50,000 50,001–500,000 500,001+ Total ADVISERS AUDITOR CORPORATE BROKERS FINANCIAL ADVISER FINANCIAL PR ADVISER LEGAL ADVISER REGISTRAR No. of Holders % of Holders No. of Shares 456 331 132 90 45.19 32.80 13.08 91,412 3,082,268 23,134,381 8.93 338,228,605 1,009 100 364,536,666 % of Share Register 0.03 0.85 6.35 92.77 100 PricewaterhouseCoopers LLP ThePortlandBuilding 25HighStreet Crawley,WestSussex RH101BG Barclays 5TheNorthColonnade London E144BB Citigroup Global Markets Ltd CitigroupCentre 33CanadaSquare London E145LB Liberum RopemakerPlace 25RopemakerStreet London EC2Y9LY Rothschild NewCourt StSwithin’sLane London EC4N8AL Temple Bar Advisory Limited 60CannonStreet London EC4N6NP Weil, Gotshal & Manges 110FetterLane London EC4A1AY Equiniti Limited AspectHouse SpencerRoad Lancing,WestSussex BN996DA I S E C T O N 0 4 I A D D T O N A L I I N F O R M A T O N I S H A R E H O L D E R I N F O R M A T O N I E q u n i t i i G r o u p p c A n n u a l l R e p o r t 2 0 1 8 201
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