Final Results

Equiniti Group plc

Incorporated in England and Wales

Registration number: 07090427

LEI: 213800TS721HGE2JIV94

ISIN: GB00BYWWHR75

Click on, or paste the following link into your web browser, to view the associated PDF document.http://www.rns-pdf.londonstockexchange.com/rns/8487F_1-2020-3-11.pdf12 March 2020

EQUINITI GROUP PLC RESULTS FOR THE YEAR ENDED 31 DECEMBER 2019

Equiniti Group plc ("Equiniti" or "the Group"), an international technology-led services and payments specialist, today publishes its full year results for the twelve months to 31 December 2019.

CONTINUING STRATEGIC PROGRESS IN A CHALLENGING MARKET ENVIRONMENT

Financial Progress:

· Revenue growth of 4.7% including a full year of North American4 operations, with organic revenue* growth of 1.4%, underlying EBITDA growth of 5.0% and an increase in underlying EBITDA margin of 0.1% to 24.5%

· Solid financial progress despite:

o A global slowdown in corporate activity impacting both Investment Solutions and EQ US

o US interest rate cuts

o A reduction in trading volumes in our execution-only brokerage service as a result of the uncertain equity market trading conditions

o An expected price reduction relating to the MyCSP contract in Pension Solutions

o Intelligent Solutions performing below its recent trend suppressed by the delay in commissioning of new projects over the UK election period

· Cessation of non-operating charges following the separation of Wells Fargo Shareowner Services (WFSS) in May 2019

· Statutory profit after tax growth of 58.8% driven by underlying business growth, margin advancement and completion of WFSS acquisition

· Operating cash flow conversion of 91% with strong cash flow in H2 offset by the end of the beneficial US TSA arrangements and a further reduction in the use of the receivables financing facility from £10.3m in 2018 to £8.0m in 2019

· Reduction in net debt to £343.6m (31 December 2018: £352.0m) with leverage of 2.5x on a post-IFRS 16 basis (31 December 2018: 2.7x) and 2.3x pre-IFRS 16 (31 December 2018: 2.5x)

Strategic Progress:

· Separation of North American operations from Wells Fargo completed in May 2019:

o Successful new product launches generated wins in private company M&A and equity compensation plans with strong pipeline for 2020

o Retention of all clients with key renewals including Comcast, Hewlett Packard and Proctor & Gamble, with strong service underpinning recurring revenues

o New client wins including Cincinnati Financial, Change Healthcare and Listo Solutions with a number of material competitive bids underway for 2020

o New operating capacity launched with additional facilities in Milwaukee, Wisconsin, creating scale for further growth

o Delivery of synergies in line with plan, with $5m achieved in 2019 and on track to deliver $10m in 2020

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

o Share registration renewals including Associated British Foods, Centrica and RSA Group

o More new share registrations commenced than in any prior period including AFI Development, Deltex Medical, Marshalls, National Grid, Petrofac, Vitec Group and WM Morrison

o New IPO mandates including DWF, Trainline and Watches of Switzerland with several mandates for early 2020

o New client wins in Intelligent Solutions for both software and services including Bamboo Finance, Roland Berger and J Sainsbury

o Pleasing progress in Pension Solutions with revenue stabilised and renewed or extended relationships including Aviva, Fidelity and HP, and new clients wins including a 10 year contract to provide outsourced administration to an international reinsurance company, a software licence sale to The Sovereign Group and a large calculation automation project with Diligenta

· A nearshore technology centre established in Krakow, Poland, accelerating development of web and mobile applications

· A second offshore operations and technology centre launched in Bangalore, India, increasing operational resilience and scale

· Continued selective acquisition of new capabilities including:

o Richard Davies Investor Relations (RD:IR), an independent investor relations business based in London, providing the UK's most advanced mobile enabled investor relations platform for issuers, banks and IR professionals

o Corporate Stock Transfer Inc. (CST), a transfer agent in Denver, Colorado, providing capability for the small and micro-cap space

Use of Capital:

· £48.5m of capital investment relating to the separation of our North American business, new office openings (Bangalore, Milwaukee and Krakow), a high level of IT projects and investing in new portals and asset tracing services in the US

· Recommended final dividend of 3.54 pence per share, to give a total dividend for the year of 5.49 pence per share, representing growth of 3.2% in line with progressive dividend policy

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

"2019 has been a year of solid progress where we have surmounted the challenges of separating and integrating our North American business whilst sustaining progress in the uncertain operating environment in the United Kingdom. Equiniti continues to be distinguished by our commitment to client relationships and technology investment, with the singular purpose of improving service for the 30 million people who use our platforms.

"This progress was despite a global slowdown in corporate activity in the second half of the year, affecting both Investment Solutions and EQ US, and a reduction in US interest rates. Trading volumes in our execution-only brokerage service were supressed by the uncertain equity market trading conditions. Elsewhere Intelligent Solutions performed below its recent trend suppressed in the main by the delay in the commissioning of new projects over the UK election period, and Pension Solutions was impacted by expected price reduction relating to the MyCSP contract.

 "During 2019 strong foundations have been built to support the growth of our UK and US franchises with increased market share and new product sales along with the significant opportunity to increase the digitisation and automation of our core services. Investment has been maintained to strengthen our competitive position. Continuing regulatory pressure ensures that our products and services have never been more relevant, and our intent remains to deliver organic revenue progression along with increasing margins and strong operating cash flow conversion."

OUTLOOK

The long-term growth drivers of our markets remain unchanged which, combined with our strong position with our major clients, underpin the resilience of our principal businesses in the UK. We remain enthusiastic about the level of opportunities in the US and look forward to reporting further progress in the coming years.

Our interest income will be affected by reductions in central bank rates partially offset by hedging and a reduction in interest payables, therefore weighing on organic growth. Additionally, the unpredictable spread of the Covid-19 virus introduces further uncertainty to the current year, particularly from delays in corporate decision-making and financial market volatility affecting corporate activity. However the recurring nature of much of our revenue and the diversity of our client base provide valuable stability as the wider economy reacts to its inevitable effects.

Our medium-term guidance remains as follows:

· Organic revenue growth of 3 - 7% per annum supplemented by capability-enhancing acquisitions, with 2020 organic growth comparable to 2019 held back by interest rates.

· Gradual margin improvement of c25 bps per annum.

· Progressive dividend policy which targets distributing c30% of underlying profit attributable to ordinary shareholders.

· Cash tax rate of c15% for 2020 and c17% thereafter.

· Operating cash flow conversion of c95%.

· Capital expenditure of 6 - 7% of revenue.

· Net debt/underlying EBITDA ratio of 2.0 - 2.5x post-IFRS 16.

Analyst and Investor presentation

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

Conference call details:

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

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

For further information please contact: 

Analyst/Investor enquiries:

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

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

Media enquiries:

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

Forward-looking statements

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

CHAIRMAN'S STATEMENT

This was another year of progress for Equiniti. We completed the separation of the US business and delivered growth in that market, while continuing to expand in the UK as the non-discretionary nature of our products and services helped to insulate us to a degree from an undoubtedly tougher external environment, particularly in the second half.

Revenue increased by 4.7% in the year with organic revenue growth of 1.4%, and underlying EBITDA growth of 5.0%. Progress was held back by a number of factors, notably a slowdown in corporate activity impacting both Investment Solutions and EQ US, and a reduction in US interest rates. Trading volumes in our execution-only brokerage service were supressed by the uncertain equity market trading conditions. Elsewhere Intelligent Solutions grew below its recent trend, suppressed by the delay in commissioning new projects over the UK election period, and Pension Solutions was impacted by the expected price reduction relating to the MyCSP contract. Profit after tax increased by 58.8% driven by underlying business growth, margin advancement and a significant fall in non-recurring items as we completed the integration of our US acquisition. The ratio of our net debt to underlying EBITDA improved from 2.7x in 2018 to 2.5x at year end, both figures reflecting the new accounting standard IFRS 16.

The US is the world's largest capital market and the progress EQ US has made this year has confirmed we are well on our way to proving the investment case we set out when we acquired the business. We are making further progress with cross-selling our UK capabilities to US clients and have plans to continue expanding the range of services we provide. We have also bolstered our position in the US with the acquisition of CST in November 2019. CST provides transfer agent services to micro-cap companies, complementing our existing US operations.

Our strategy of acquiring small bolt-on technologies to add new capabilities to the Group was also reflected in the acquisition of RD:IR in the UK. This business offers a wide range of investor relations related analysis, research and advisory services and will provide our share registration business with a proprietary technology platform for investor analytics, which is relevant across our client base.

The Board remains fully engaged in evaluating our strategic opportunities both organic and inorganic. Capital expenditure has been maintained above its long-term trend to support our US integration and further offshoring. Small bolt-on acquisitions are delivering both value and options for further growth and are part of the investment thesis for our core shareholder services businesses. Given shareholder caution concerning debt ratios we aim to demonstrate continued progress in debt reduction without foregoing the most value accretive opportunities which can be delivered.

DIVIDEND

The Board continues to adopt a progressive dividend policy, which targets distributing c30% of the Group's underlying profit attributable to shareholders each year. Having paid an interim dividend of 1.95 pence per share, we are proposing a final dividend of 3.54 pence per share. This will give a total dividend for the year of 5.49 pence, up 3.2% on the 5.32 pence paid in respect of 2018.

Subject to shareholder approval at the Annual General Meeting on 7 May 2020, the final dividend will be paid on 26 May 2020, to shareholders on the register at close of business on 17 April 2020. We continue to offer a dividend reinvestment plan and any shareholders wishing to participate should submit their election to do so by 1 May 2020.

BOARD AND GOVERNANCE

The composition of the Board was unchanged in 2019, after the appointment of a number of non-executive Directors in the previous year. Our Audit and Risk Committees are populated with experienced directors who are actively involved in monitoring key activities during a period of continued change and heightened scrutiny of business and data security.

Towards the end of the year, we relaunched our employee engagement forum. This has been combined with our communications forum, to make it more communication focused and more responsive to employee feedback. Dr Tim Miller, our Board-appointed non-executive Director for Employee Voice, attends the forum, ensuring the Board hears directly from our people about their experience of working for Equiniti.

The Board recognises the crucial importance of culture to sustainable business success and we continue to focus on the Group's culture and supporting the Chief Executive's initiatives in that regard.

MANAGEMENT ORGANISATION

During the year, our Chief Executive, Guy Wakeley, made some important changes to the organisation of our senior leadership. The Executive Committee has been expanded with the addition of a Chief Customer Officer and Chief Commercial Officer and its remit has been adjusted so its primary focus is on strategy rather than business performance. These changes give broader collective ownership of the strategy and have the added benefit of improving gender diversity on the Committee. We have also introduced a Business Committee, made up of Guy, John Stier, our Chief Financial Officer, and our divisional CEOs. Its purpose is to oversee our business planning and performance, and to direct resources so we achieve our business goals.

One of the more important changes in our organisation has seen the re-orientation of our Intelligent Solutions business to being market-led rather than product-led and the integration of technology and support functions into the wider group functions. This allows the leadership to focus better on the cross-selling opportunities that our wider geographic footprint now offers.

On behalf of shareholders and the Board I want to thank the executive team and all of our people for their dedication and their contribution to the Group's success this year.

LOOKING FORWARD

The Board remains positive about future prospects. The long-term growth drivers of our markets remain unchanged which, combined with our strong position with our major clients, underpin the resilience of our principal businesses in the UK. We remain enthusiastic about the level of opportunities in the US and look forward to reporting further progress in the coming years.

Our interest income will be affected by reductions in central bank rates partially offset by hedging and a reduction in interest payables, therefore weighing on organic growth. Additionally, the unpredictable spread of the Covid-19 virus introduces further uncertainty to the current year, particularly from delays in corporate decision-making and financial market volatility affecting corporate activity. However the recurring nature of much of our revenue and the diversity of our client base provide valuable stability as the wider economy reacts to its inevitable effects.

Philip Yea

Chairman

12 March 2020

GROUP RESULTS

Overview

2019 was another year of progress for Equiniti. We successfully completed the carve-out of EQ US in the first half of the year. We are well on our way to proving our investment thesis for North America, with EQ US delivering organic growth supported by client wins and the launch of new products into the US market, particularly in respect of equity compensation and proxy services. We are also realising the material synergies we set out in our acquisition case, with $5m delivered in 2019 and remain on track to deliver $10m in 2020. This is contributing to significant profit growth in the US business.

At the same time, the UK business remains solid and resilient, demonstrating that it is largely insulated from the cycle by generating organic growth despite the undoubtedly tougher external environment, particularly in the second half of the year. We have continued to retain all our major clients, win new clients across all of our divisions and we have mobilised some very substantial names in the core share registration business including National Grid and WM Morrison.

Revenue grew by 4.7% to £555.7m (2018: £530.9m) during the year, with revenue adjusted for acquisitions and foreign exchange rates growth of 1.4%. We were pleased with this level of growth as the operating environment presented us with a number of significant challenges, particularly in the second half of the year. Those challenges and impact on revenue can be summarised as follows:-

· a global slowdown in corporate activity impacting both Investment Solutions and EQ US (£8m);

· US interest rate cuts (£3m);

· a reduction in trading volumes in our execution-only brokerage service as a result of the uncertain equity market trading conditions (£3m); and

· an expected price reduction relating to the MyCSP contract in Pension Solutions (£2m).

Underlying EBITDA, which excluded the final non-operating charges of £5.5m relating to the integration of EQ US, increased by 5.0% to £136.0m (2018: £129.5m).

Investment Solutions delivered solid growth driven by our high fidelity client base and increasing market share in registration and share plan services offset by a lower level of corporate activity in the second half of the year. Intelligent Solutions delivered modest growth despite a delay in the commissioning of new projects over the UK election period with remediation services and software sales in credit services particular drivers of growth. As expected, Pension Solutions contracted due to restructuring costs, change in scope of the NHS contract and the expected price reduction relating to the MyCSP contract. Pleasingly, Pension Solutions revenue stabilised in the second half of the year. EQ US delivered a good performance notwithstanding a lower level of corporate activity and interest rate cuts in the second half of the year, with interest income and new product launches contributing to growth.

Interest income was 16.5% higher than the prior year on average UK client balances of £1.7bn(2018: £1.7bn) and benefitted from the increased yield across the accounts which included the full year effect of the 25bps interest rate rise in August 2018. Interest receivable is partially fixed with instruments secured to July 2020 (£380.0m), September 2021 (£215.0m), September 2022 (£215.0m) and September 2023 (£215.0m).

Central costs in the period declined by 2.7% to £14.4m (2018: £14.8m) as the Group aims to keep these costs broadly flat over time.

Operating cash flow conversion of 91% (2018: 102%) reflected strong cash flow in H2 offset by the end of the beneficial US TSA arrangements and a further reduction in the use of the receivables financing facility from £10.3m in 2018 to £8.0m in 2019. Net debt of £343.6m (2018: £352.0m) represents a ratio of 2.5x net debt/underlying EBITDA (2018: 2.7x). Pre-IFRS 16, net debt/underlying EBITDA was 2.3x (2018: 2.5x). As the separation of our North American operations is now complete, we expect the Group to continue its deleveraging profile and guidance on leverage remains at 2.0 - 2.5x post-IFRS 16.

The Board has proposed a final dividend of 3.54 pence per share which, subject to shareholder approval at the Annual General Meeting on 7 May 2020, will result in a total dividend for the year of 5.49 pence per share (including the interim dividend of 1.95 pence per share). The final dividend will be paid on 26 May 2020 to shareholders on the register of members at close of business on 17 April 2020. This represents growth of 3.2% when compared to the total dividend for 2018 (5.32 pence per share). Any shareholder wishing to participate in the Equiniti Dividend Reinvestment Plan should submit their election to do so by 1 May 2020. We maintain our progressive dividend policy which targets distributing c30% of our underlying profit attributable to ordinary shareholders each year.

OPERATIONAL REVIEW

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

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

Investment Solutions

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

Revenue in Investment Solutions increased by 5.1% to £149.7m (2018: £142.5m) with organic revenue growth of 3.7%. The acquisition of RD:IR in September 2019 contributed to reported growth. Revenue growth was primarily driven by a strong performance in registration and share plan services. Corporate action revenue was lower at £11.6m (2018: £18.8m), reflecting the uncertain economic environment in the second half of the year.

Underlying EBITDA increased by 3.5% to £50.2m (2018: £48.5m) driven by strong growth in share plans with a margin decline of 0.5% due to weaker higher margin corporate activity.

Our share registration business performed well. Key renewals in the year included Associated British Foods, Centrica, Draper Esprit, Ferguson, Fresnillo, Iberdrola, Melrose and RSA Group. There was strong progress with competitor wins with more new share registrations commenced than in any prior period as the division was either appointed or transferred registers for clients including AFI Development, Deltex Medical, Marshall of Cambridge, Morgan Advanced Materials, National Grid, Petrofac, Vitec Group and WM Morrison. It was also successful in winning IPOs with new mandates including Cameron Investors Trust, Distribution Finance Capital, DWF, Essensys, Induction Healthcare, Trainline and Watches of Switzerland.

Our share plans services had an excellent year and cemented its position as the leading provider in the UK market. Wins or transfers in 2019 included AstraZeneca, Cobham, Compass, DWF, Morgan Advanced Materials, National Grid, Next, Rentokil Initial, Santander, TheWorks.co.uk, Trainline and WM Morrison, and the launch of a global share plan for Dixons Carphone. Renewals of existing mandates included BT, Centrica and Scottish Power.

In September 2019, we completed the acquisition of RD:IR, which offers a range of investor relations services and has a proprietary investor analytics platform. Boudicca and RD:IR, together with our Prism company secretariat offering, gives us a broad offering in the governance market, supporting clients with shareholder identification and proxy solicitation, and provides scope for expansion in European markets as well as in the UK.

Our International Payments business had a strong year, winning a notable contract with Lloyds Bank, demonstrating its potential to win work with larger organisations. The division also entered into a partnership with SWIFT which will deliver clients a suite of products and services that include the widest and most cost-effective range of payment methods.

EQi, the division's execution-only brokerage service, delivered solid growth despite the reduction in trading volumes as a result of the uncertain equity market trading conditions.

Our bereavement service continues to gain momentum, with the majority of the UK's largest banks now signed up to the 'tell us once' service. The offering has received positive media coverage and will continue to grow, with new value-added services being developed.

Intelligent Solutions

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

Intelligent Solutions delivered modest growth despite a delay in the commissioning of new projects over the UK election period. Revenue increased by 3.0% to £170.9m (2018: £165.9m) whilst underlying EBITDA increased by 5.8% to £43.5m (2018: £41.1m) with growth driven by remediation services and software sales in credit services.

Remediation services remained a primary driver of the division's growth, with numerous large-scale remediation and fulfilment projects with major UK banks. Other wins included a review of store card fees and charges on behalf of a large retailer and a re-review of closed complaints on behalf of a large automotive services provider. The division also deployed its complaints management system internationally for the first time, on behalf of HSBC. This creates further opportunity for more business in other english-speaking countries, particularly the US.

Credit services had a very good year with significant software license sales. This included contracts with Bamboo Finance Credit Servicing, DXC, Lloyds Banking Group, MBNA, MYJAR Loans and Yorkshire Building Society. There was further traction with our risk analytics platform as we continued to cross-sell this technology into our US client base.

KYC continued to provide services to existing clients and won its first client in Germany, Roland Berger. Although growth in this service line was impacted by the completion of a large project in the period, Intelligent Solutions sees further opportunities for Northern European expansion in the KYC market.

During the year, Intelligent Solutions launched the EQ Insider platform as part of its data services offering. This technology enables clients to administer Persons Discharging Managerial Responsibilities dealing and has been cross-sold to J Sainsbury and a number of other share registration clients.

In the final quarter of the year, the division was restructured to be market-led rather than product-led and the technology and other support functions were integrated into the wider Group functions. This allows the leadership to focus better on cross-selling opportunities that our wider geographic footprint now offers.

Pension Solutions

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

As expected, Pension Solutions revenue declined by 1.6% to £127.0m (2018: £129.0m), with a decrease in underlying EBITDA of 12.6% to £19.5m (2018: £22.3m), representing a margin of 15.4% (2018: 17.3%). The decline was due to restructuring costs, the full-year impact of the change in scope of the NHS contract, which took effect in 2018, the expected price reduction relating to the MyCSP contract, and a reduction in and delays to project work.

Action taken during the year has stabilised the division's revenue performance and, together with new client wins, position it for modest recovery during 2020. The division actively managed its cost base in 2019 with initiatives including the further integration of MyCSP and Aquila into the wider Pension Solutions business. Pension Solutions has also continued to rationalise its property footprint, consolidating Aquila's team into Equiniti's Crawley office and downsizing its Bristol operation.

During the year, Pension Solutions successfully renewed or extended relationships with clients including Aon Hewitt, Aviva, Bank of England, Fidelity, HP, Leeds Building Society, Lloyds Banking Group, MetLife, North West Anglia NHS Foundation Trust, Royal Papworth Hospital, Sensata, TSB and UNUM.

The division also secured a number of new clients, in particular as a result of the 2018 acquisition of Aquila, a UK-based life and pensions' technology provider. The business has generated multiple sales of its Administrator platform, contributing to market share gains. Significant Administrator wins included a 10 year contract to provide outsourced administration to an international reinsurance company, a software licence sale to The Sovereign Group and a large calculation automation project with Diligenta. In addition, the division secured an outsourced administration contract and a significant license sale on its EQ Compendia platform. The division also secured several new contracts to provide flexible benefits and payroll services through its HR Solutions business.

During 2019, the division introduced the latest automation technology for two clients won in 2018, giving it a benchmark to provide similar automation for other clients. It has also invested to deploy existing technology to more clients. In particular, Pension Solutions has deployed its market-leading self-service capability to several pension schemes, as part of its commitment to evolve its service. It has also strengthened its technology development and testing capabilities in Chennai and in the new Krakow centre opened in November 2019.

The MyCSP contract was due to run until the end of 2021. As a result of the McCloud judgement, the re-procurement process has been put on hold and Pension Solutions is in discussions on a multi-year contract extension. Any remedy to the discrimination identified in the McCloud judgement is likely to require significant rectification work, which Pension Solutions is well placed to support.

EQ US

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

* 1 February 2018 to 31 December 2018.

EQ US Reported revenue change at constant foreign exchange rates is 11.0% and underlying EBITDA is 10.5%.

The acquisition of EQ US completed on 1 February 2018 and results were consolidated into the Group from that date. Prior period performance is from 1 February 2018 to 31 December 2018.

Revenue in the period increased by 15.5% to £94.0m (2018: £81.4m) and includes £11.0m from a full year of earnings and foreign exchange impact. Organic growth at constant foreign exchange rates was 2.7%, driven by strong growth in interest income and new product launches. Corporate action revenue declined by 11.4% to £10.9m, (2018: £12.3m). Notwithstanding the interest rate cuts in the second half of the year, revenue from interest income increased by 37.8% to £12.4m (2018: £9.0m) on average client balances of £534m (2018: £453m).

Underlying EBITDA increased by 13.8% to £23.1m (2018: £20.3m), representing a margin of 24.6% (2018: 24.9%). This reflected strong revenue growth, an increase in interest income, the stable client base and good cost discipline, offset by continued investment for growth, interest rate cuts in the second half of the year and a lower level of corporate activity.

The division retained all of its major clients in 2019, with key renewals including Apollo, Comcast, CTS, Hewlett Packard, Otelco, Procter & Gamble, Wabtec and Zinpro. New client wins included Change Healthcare, Cincinnati Financial, Listo Solutions and Sprout Social. The division also supported clients including Occidental Petroleum, Smith & Nephew, Bristol Myers and CBS Corporation in large corporate actions.

The separation of the business from Wells Fargo completed in May 2019 for a total cost of £45.1m and the division is now focused on innovation and launching Equiniti's technology capabilities. For example, the new shareholder and issuer portals offer a much-enhanced digital customer experience, with simplified journeys and improved functionality, and are designed to be mobile first. The division has also launched EQ Unified, an asset reunification and tracing platform, and will follow it with an enhanced asset location service. In 2020, EQ US will introduce a new portal, designed and built by our Intelligent Solutions division, to service private M&A transactions.

Along with the cross-selling of UK developed products and services to the US, EQ US launched four new products in 2019, equity compensation, proxy, asset reunification and private M&A services, and those products have been sold into 70 clients, 29 of which were new client wins. The business has also recruited industry experts to support its proxy, asset reunification and equity compensation businesses. The equity compensation business launched in the year has sold to clients including Dorman Products and Johnson Outdoors. As well as offering equity compensation services for US corporates, the business has won work with UK-listed companies who want to offer a sharesave-style plan to their US employees. Notable wins here included BT.

In November 2019, EQ US acquired CST, a US transfer agent based in Denver, Colorado. CST was founded in 1985 and acts primarily for domestic and international micro-cap companies, which are those with market capitalisations between $50m and $300m. The acquisition offers important benefits for EQ US. It expands the division's addressable market by opening up a new growth area in the micro -cap client space.

The synergies outlined in Equiniti's acquisition case for EQ US are on track for delivery in their entirety. EQ US achieved its planned synergies of $5m in 2019 and on track to deliver $10m in 2020. Cost savings are being delivered from depositary insurance, IT, operations and back office services, including the use of the Group's second offshore captive in Bangalore, its nearshore centre in Krakow and the mobilisation of EQ US's second centre in Milwaukee.

FINANCIAL REVIEW

Group Income Statement

Revenue

Revenue increased by 4.7% to £555.7m (2018: £530.9m) during the year whilst organic revenue growth was 1.4%. Organic revenue growth is reported revenue growth adjusted for acquisitions and changes to foreign exchange rates to compare growth on a like-for-like basis. Here we adjust 2018 for the prior period acquisitions had they been owned in 2018 to create a like-for-like comparison of year-on-year progress. This is calculated as follows:

1Acquisition of Boudicca Proxy and RD:IR.

2Acquisition of Aquila.

3Acquisition of Wells Fargo Shareowner Services and Corporate Stock Transfer.

*EQ US is translated at 2019 constant exchange rates to provide like-for-like comparison.

Underlying EBITDA

Underlying EBITDA prior to non-operating charges of £5.5m increased by 5.0% to £136.0m (2018: £129.5m) reflecting solid progress despite a global slowdown in corporate activity impacting both Investment Solutions and EQ US, interest rate cuts in the US, Intelligent Solutions performing below its recent trend suppressed by the delay in the commissioning of new projects over the UK election period, and the price reduction relating to the MyCSP contract in Pension Solutions.

Amortisation of software and acquired intangibles

Amortisation of software in the period increased to £29.9m (2018: £23.9m) due to the completion of the development of a number of significant projects, such as investment in the US, and MiFID II, where the work completed in 2018 and the assets became available to use with amortisation of the assets commencing.

Amortisation of acquired intangibles in the period was stable at £31.8m (2018: £31.7m).

EBIT prior to non-operating charges

EBIT prior to non-operating charges was £61.4m (2018: £61.9m), reflecting a higher level of amortisation of software in the period.

Non-operating charges

Non-operating charges are defined as expense items, which if included in EBIT, would otherwise obscure the understanding of the underlying performance of the Group. Non-operating charges of £5.5m incurred in the period (2018: £20.8m) comprise £0.3m of transaction costs and £5.2m of integration costs, and relate entirely to the acquisition of the EQ US business. Included within this were £1.9m of costs in relation to permanent project staff, which on completion of the integration project have been absorbed into vacant positions, replaced contractors in the business or otherwise left the Group. As the separation of the US business completed in May 2019, there will be no further non-operating charges absent any transformational transactions.

EBIT

EBIT remains an important measure of the Group's performance, reflecting profit before net finance costs and taxation. In 2019, EBIT was £55.9m (2018: £41.1m).

Net finance costs

Group net finance costs decreased by £0.7m to £16.1m (2018: £16.8m).

Taxation

Profit before tax of £39.8m at the UK corporation tax rate of 19% gives an expected total tax charge of £7.6m. The actual tax charge is £7.4m and the difference is largely explained by a current tax benefit in respect of 2018, following claims to accelerate tax relief on capitalised development costs.

Taxes paid in the period were £2.7m. Of this, £2.4m was primarily due to UK payments on account. The remainder of the taxes paid are overseas taxes relating to the Group's operations in India, the Netherlands and the US.

The Group also received £1.5m from HM Revenue & Customs which represents a working capital benefit of the Group's claim to R&D expenditure credits.

The Group has recognised deferred tax on £767.1m of gross tax attributes representing future tax deductions which will reduce the cash effective tax rate as compared to the underlying effective tax rate over time. Net future deductions are expected to be in the region of £128.5m, on which a net deferred tax asset of £20.3m has been recognised at the relevant local statutory rate.

The gross tax attributes totalling £767.1m are represented by:

Future tax deductions on tax losses carried forward £200.7m

Future tax deductions on intangible assets £479.7m

Future tax deductions on property, plant and equipment £28.3m

Future tax deductions on employee benefits and other timing differences £58.4m

The tax impact of these attributes is recognised as deferred tax on the statement of financial position. Included within the intangible assets tax attribute is the customer relationship and goodwill intangibles related to the acquisition of the trade and assets of the EQ US from 1 February 2018. The future tax deductions on employee benefits and other timing differences have increased in the period due to the adoption of IFRS 16, effective from 1 January 2019.

A cash effective tax rate of 12% applies for 2019 and is estimated to be in the region of c15% for 2020 rising to c17% thereafter, reflecting the completion of the integration, and forecast growth, of EQ US. The cash tax rate is determined through a detailed calculation, estimating the future expected cash tax liabilities of the Group against our profit forecasts, adjusting for known variables such as changes in tax rates, changes in tax legislation and full implementation of the Group transfer pricing policy.

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

Profit attributable to ordinary shareholders

The Group made a profit attributable to ordinary shareholders of £30.8m (2018: £17.2m).

EPS

Basic EPS of 8.4 pence (2018: 4.7 pence) is based on the weighted average number of shares totalling 368.3m (2018: 358.4m). Diluted EPS of 8.4 pence (2018: 4.6 pence) is based on the weighted average number of shares totalling 368.3m (2018: 371.8m).

Underlying EPS increased by 1.7% to 18.1 pence compared to the prior period of 17.8 pence, suppressed by higher amortisation of software costs and higher share count versus the prior period.

Capital structure

The Group's consolidated statement of financial position at 31 December 2019 is summarised as follows:

Current assets include £85.6m of trade receivables and accrued income at 31 December 2019(31 December 2018: £88.0m). Accrued income represents amounts recognised as revenue but not yet billed and is driven by mix in business including corporate actions, software sales and remediation services, and growth in the business. No income is accrued without a contract in place. The blue chip nature of our client base results in minimal bad debts being recorded and the expense incurred in 2019 was £0.3m (2018: £0.2m).

Cash flow

The Group generated a free cash flow attributable to equity holders of £37.1m (2018: £38.6m) and delivered an operating cash flow conversion of 91% (2018: 102%), reflecting strong cash flow in H2 offset by the end of the beneficial US TSA arrangements and a further reduction in the use of the receivables financing facility from £10.3m in 2018 to £8.0m in 2019. The main movements in cash flow are summarised below:

The Group has access to a £20.0m receivables financing facility of which £8.0m (2018: £10.3m) was utilised at the end of the period and included within cash balances. This is used to match receipts against costs, especially where clients require extended payment terms and is driven by project flow in Intelligent Solutions. The facility, which affords the Group credit protection, is with Lloyds Banking Group at a rate of 1.75% over LIBOR. The facility is forecast to reduce further subject to commercial requirements.

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

Payables

The decrease in operating payables in the period reflects the unwinding of the WFSS TSA arrangements in the US, a reduction in performance related employee bonus accruals and timing of sales affecting VAT payments.

Capital expenditure

Net expenditure on tangible and intangible assets was £48.5m (2018: £39.8m). This represents 8.7% of revenue (2018: 7.5%). Included within capital expenditure is £7.0m associated with the establishment and integration of EQ US relating to IT servers and software development to enable the business to operate on a standalone basis. Excluding costs relating to the US integration, capital expenditure was 7.5% of revenue, slightly higher than our 6 - 7% guidance as a result of new office openings (Bangalore, Milwaukee and Krakow) and a high level of IT projects being progressed such as introducing Workday to the Group for all HR and finance reporting and investing in new portals and asset tracing services in the US. Going forward, we expect capex to revert to our mid-term guidance.

Net interest costs

Net interest costs paid in the period were higher at £16.9m (2018: £10.3m) mainly due to fees paid relating to refinancing of the Group's Senior Debt Facilities.

Investment in current and prior year acquisitions

Net cash outflow on current and prior year acquisitions was £3.3m (2018: £177.6m). A further £8.2m (2018: £4.0m) was spent on deferred consideration for prior year acquisitions.

Free cash flow attributable to equity holders

Free cash flow attributable to equity holders represents our cash flow prior to any acquisition, refinancing or share capital cash flows. It is a key measure of cash earned for the shareholders of the Group. The Group delivered free cash flow to equity holders of £37.1m (2018: £38.6m). This was impacted by £18.0m of costs associated with the separation of EQ US which completed in May 2019. In H2 2019, the Group generated £33.6m of free cash flow to equity holders.

Bank borrowings and financial covenants

At 31 December 2019, net debt was £352.0m (31 December 2018: £352.0m), representing a ratio of 2.5x net debt/underlying EBITDA (31 December 2018: 2.7x post-IFRS 16). As the separation of EQ US is now complete, we expect the business to continue its deleveraging profile and guidance on leverage is 2.0 - 2.5x post-IFRS 16.

In July 2019, the Group refinanced its Senior Debt Facilities to provide ongoing committed funding beyond the October 2020 maturity. The £520.0m term loan and revolving credit facility has been extended to July 2024 with an initial margin of 150pts and fees of £3.6m paid in July 2019. The Group has substantial liquidity to support its growth ambitions and ongoing working capital requirements.

Acquisitions

During the year, the Group completed two acquisitions.

On 5 September 2019, the Group purchased the entire issued share capital of Richard Davies Investor Relations Limited (RD:IR) for cash consideration of £4.0m, plus contingent consideration of up to £2.0m payable in 2021. RD:IR is an independent investor relations business, providing the UK's most advanced mobile enabled investor relations platform for issuers, banks and IR professionals.

On 31 October 2019, the Group purchased the entire issued share capital of Corporate Stock Transfer, Inc. (CST) for cash consideration of £0.2m ($0.2m), plus deferred consideration of £3.2m ($4.3m) payable in 2020 and contingent consideration of up to £1.6m ($1.8m) payable in 2022. CST is a transfer agent in Denver, Colorado, providing niche capability in the small and micro-cap space.

Post balance sheet item

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

ALTERNATIVE PERFORMANCE MEASURES

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

The APMs used to manage the Group are as follows.

Organic revenue growth

Organic revenue growth is reported revenue growth adjusted for acquisitions and changes to FX rates to compare growth on a like-for-like basis. Part of the Group's strategy is to deliver growth and develop and acquire new capabilities. As such, a measure of like-for-like growth is a key performance indicator. See page 12 for calculation.

EBITDA and underlying EBITDA

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

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

Transaction costs of £0.3m relate to deal advisory and legal fees which were contingent on successful completion of EQ US which completed in February 2018. Integration costs of £5.2m relate entirely to the US business and represent programme delivery, the development of standalone functions and delivery of systems and processes to run the business. Included within this were £1.9m of costs in relation to permanent project staff, which on completion of the integration project have been absorbed into vacant positions, replaced contractors in the business or otherwise left the Group. Post completion of the US integration programme, there will be no further non-operating charges absent any transformational transactions. 

Underlying EBITDA margin

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

Operating cash flow conversion

Operating cash flow conversion represents underlying EBITDA plus change in working capital as a percentage of underlying EBITDA. This measures the Group's cash generative characteristics from its underlying operations and is used to evaluate the Group's management of working capital. See page 14 for calculation.

Free cash flow attributable to equity holders

Free cash flow attributable to equity holders represents our cash flow prior to any acquisition, refinancing or share capital cash flows. It is a key measure of cash earned for the shareholders of the Group. See page 14 for calculation.

Earnings before interest and tax (EBIT)

EBIT is used to measure the financial performance of the Group excluding expenses that are determined by capital structure and tax regulations, instead of the underlying trading. In addition to this, net interest costs are impacted by fair valuation re-measurements of certain financial liabilities that are dependent on external market factors rather than the Group's core operations. See page 12 for calculation.

Cash tax rate

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

Leverage and net debt

Leverage represents the ratio of net debt to underlying EBITDA. This is a key measure that evaluates the Group's capital structure and its ability to meet financial covenants. See page 16 for calculation of net debt.

Underlying profit attributable to ordinary shareholders

The Group has a progressive dividend policy which targets distributing c30% of underlying profit attributable to ordinary shareholders each year. See below for calculation of underlying profit attributable to ordinary shareholders.

Underlying EPS

Underlying EPS represents underlying EBITDA, less depreciation of property, plant and equipment, amortisation of software, net interest costs, cash tax and minority interests.

PRINCIPAL RISKS AND UNCERTAINTIES

The Directors have considered the principal risks and uncertainties affecting the Group's financial position and prospects in 2019. As described on pages 48 to 51 of the Group's Annual Report for 2018, the Group continues to be exposed to a number of risks and has well established systems and procedures in place to identify, assess and mitigate those risks. The principal risks include those arising from: change and development; information technology; markets and competition; data protection; regulatory requirements; product development, channel and pricing; conduct; security; purchasing, supply and outsourcing; business continuity and resilience; and people.

By order of the Board

Guy Wakeley John Stier

Chief Executive Chief Financial Officer

12 March 2020

APPENDIX A - 2018 PROFORMA FINANCIAL STATEMENTS ON A POST-IFRS 16 BASIS

The Group has applied IFRS 16 for the first time to the period beginning 1 January 2019 and has transitioned by adopting the modified retrospective approach which does not require restatement of the comparatives. In order to provide like-for-like comparators for the prior period, comparatives on pages 1 to 16 have been presented as if IFRS 16 had applied throughout 2018. A reconciliation has been provided below. 

CONSOLIDATED INCOME STATEMENT

KEY MEASURES

CONSOLIDATED STATEMENT OF CASH FLOWS

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONDENSED CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2019

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2019

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2019

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2019

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2019

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2019

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2019

1) General information

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

The condensed financial information set out herein does not constitute the Group's statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2018 have been delivered to the Registrar of Companies and those for the 2019 year end will be delivered following the Group's Annual General Meeting to be held on 7 May 2020. The external auditor has reported on the 2019 accounts and its reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

2) Basis of preparation

These condensed financial statements have been prepared on the basis of the accounting policies as set out in the previous statutory financial statements, except for changes in accounting policies as a result of adopting IFRS 16 Leases (IFRS 16), which is explained in more detail below.

New standards adopted by the Group

The Group has applied IFRS 16 for the first time to the period beginning 1 January 2019 and has transitioned by applying the modified retrospective method. Therefore right of use assets have been calculated as if IFRS 16 had been applied since the lease commencement date, discounted at the incremental borrowing rate at the date of initial application. These amounts have been depreciated to a 'net book value' on 1 January 2019 which the Group has recognised within right of use assets. Comparative balances have not been restated and continue to be reported under IAS 17 Leases (IAS 17).

The Group identified its leased properties as the main leases that were impacted by this new standard. On 1 January 2019 the Group recognised £36.2m as right-of-use assets and £42.5m of finance lease liabilities for future lease payments in the statement of financial position. The Group also reversed £4.3m of lease incentives received from lessors included within trade and other payables. The net adjustment recognised within retained earnings in the statement of financial position was £1.6m, net of deferred tax. Dilapidation provisions for leases in existence at the transition date have been retained. Leases entered into after the transition date will include an allowance for dilapidations in the right of use asset, with the corresponding liability recognised in provisions.

Administrative costs have decreased as the Group no longer recognises a rental expense on the majority of its properties. However this has been offset by increased depreciation and interest expenses since adopting IFRS 16. The depreciation expense on the right of use assets for the year to 31 December 2019 was £6.1m and the interest expense £1.5m.

The total cash outflows in respect of lease payments has not changed under IFRS 16. However lease payments previously recognised within cash flows from operating activities are now classified as a cash flows from financing activities.

A reconciliation between the operating lease commitments as at 31 December 2018 and the finance lease liabilities as at 1 January 2019 is shown in the Appendix.

Lease policy applicable from 1 January 2019

At the inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract provides the right to use an asset for a period in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group assesses whether the contract involves the use of an identified asset, which may be specified explicitly or implicitly. The Group also assesses whether the contract provides the right to obtain, substantially, all of the economic benefits from use of the asset throughout the period of use. The Group must also determine whether the contract permits the right to direct the use of the asset, which flows from the ability to decide how and for what purpose the asset is used.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2019

2) Basis of preparation (continued)

New standards adopted by the Group (continued)

When a contract contains a lease, the Group recognises a right of use asset, and a corresponding lease liability, at the lease commencement date. The right of use asset is initially measured at the initial amount of the lease liability, including any dilapidation provisions, and adjusted for any lease payments made on or before the commencement date, any initial direct costs incurred and any lease incentives received.

Right of use assets are subsequently depreciated on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right of use asset, determined on the same basis as for property, plant and equipment, or the end of the lease term.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease. When the interest rate implicit in the lease cannot be readily determined, the lessee's incremental borrowing rate is used as the discount rate.

The lease liability is measured at amortised cost using the effective interest method. The liability is remeasured when a change in the future lease payments is recognised. A corresponding adjustment is also made to the carrying amount of the right-of-use asset, or if the right-of-use asset has been reduced to zero, recorded in the income statement.

Short-term leases and leases of low-value assets

The Group has elected not to recognise right of use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets, including IT equipment. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

Policy applicable before 1 January 2019

Contracts entered into before 1 January 2019 required the Group to determine whether a contract was, or contained, a lease based on the assessment of whether fulfilment of the arrangement was dependent on the use of a specific asset or assets and whether the arrangement conveyed a right to use the asset.

Leases in which the Group assumed substantially all of the risks and rewards of ownership of the leased asset were classified as finance leases. Where land and buildings were held under leases, the accounting treatment of the land was considered separately from that of the buildings. Leased assets acquired by way of finance lease were stated at an amount equal to the lower of their fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses.

Assets held under other leases were classified as operating leases and were not recognised in the Group's statement of financial position. Payments made under operating leases were recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received were recognised in the income statement as an integral part of the total lease expense.

Judgements and estimates

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

Estimates

In preparing these condensed interim financial statements, the significant estimates made by management in applying the Group's accounting policies were the same as those applied to the consolidated financial statements for the year ended 31 December 2018.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2019

2) Basis of preparation (continued)

Judgements

In preparing these condensed interim financial statements, the significant judgements made by management in applying the Group's accounting policies were the same as those applied to the consolidated financial statements for the year ended 31 December 2018, except for the new judgements required in applying IFRS 16.

Leases

In applying IFRS 16 management has exercised judgment that impacts the valuation of the finance lease liabilities and the valuation of right-of-use assets in the statement of financial position. These judgements include making a determination on whether contracts and leases are in the scope of IFRS 16, determining the contract term and determining the interest rate used for discounting of future cash flows.

The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.

The present value of lease payments is determined by discounting the lease cash flows by the lessee's incremental borrowing rate. The lessee's incremental borrowing rate is calculated by using an interest rate applicable to a government bond, commensurate with the lease term and the lease location, adjusted for the margin currently paid on the Group's debt facilities.

Going concern

The Directors, after making enquiries and on the basis of current financial projections and the facilities available at the reporting date, believe that the Group has adequate financial resources to continue in operation for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the condensed consolidated interim financial statements.

3) Operating segments

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

Revenue, EBITDA and underlying EBITDA are key measures of the Group's performance. EBITDA represents earnings before interest, tax, depreciation and amortisation. The EBITDA of each segment is reported after charging relevant corporate costs based on the business segments' usage of corporate facilities and services. Underlying EBITDA is adjusted for one-off items which obscure the understanding of the underlying performance of the Group and its respective divisions. Central costs principally include corporate overheads.