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Equiniti Group PLC

Equiniti Group PLC Continuing strategic progress; confidence reaffirmed

Equiniti Group PLC (LON:EQN), an international technology-led services and payments specialist, today published its unaudited interim results for the six months to 30 June 2019.

Financial Highlights  H1 2019 H1 20181Proforma  Change%2
Revenue (£m)275.1254.08.3
Underlying EBITDA* (£m)60.958.63.9
Underlying EBITDA* margin (%)22.123.1(1.0pts)
Operating cash flow conversion*3 (%)83101(18pts)
Earnings before interest and tax (EBIT)*20.111.279.5
Profit before tax (£m)11.63.6222.2
Profit after tax (£m)9.32.6257.7
Diluted EPS* (pence)2.30.21,050.0
Underlying EPS* (pence)7.77.61.3
Dividend per share (pence)1.951.827.1
Net debt (£m)370.2352.94.1
Leverage (x)2.83.0(0.2x)

Financial Progress:

·      Revenue growth of 8.3%, with organic revenue growth* of 3.2%

o  Strong organic revenue growth of 10.7% in EQ US, 7.2% in Intelligent Solutions and 5.0% in Investment Solutions offset by 8.6% decline in Pension Solutions

·      Underlying EBITDA growth of 3.9% reflecting strong divisional growth offset by the expected decline in Pension Solutions with a margin decline of 1.0pts

·      Strong EBIT and profit after tax growth reflecting underlying EBITDA growth and a reduction in non-operating charges related to the acquisition of EQ US

·      Operating cash flow conversion of 83% reflecting higher level of seasonal payments

·      Leverage of 2.8x on a post-IFRS 16 basis (30 June 2018: 3.0x), 2.6x on a pre-IFRS 16 basis
(30 June 2018 2.8x); further deleveraging expected in H2 2019

Strategic Progress:

·      Separation of US4 business from Wells Fargo completed in May 2019

o  New product launches gaining traction with wins in proxy services and employee plans

o  New offshore centre in Bangalore launched with second US servicing site in Milwaukee

o  90% of the $5m of 2019 synergies secured

o  Major renewals/client wins in the US including Change Healthcare, Comcast and OneOK

·      Strong client retention with new wins across all divisions

o  New share registration clients including Deltex Medical, Morgan Advanced Materials and Petrofac

o  New IPO mandates including DWF, Trainline and Watches of Switzerland

o  New client wins across all divisions including Bamboo Finance, MYJAR and The Sovereign Group

·      Nearshore technology centre established in Poland

·      Agreement to acquire RD:IR, an independent investor relations business

Use of Capital:

·      Interim dividend growth of 7.1% to 1.95 pence per share, in line with progressive dividend policy which targets distribution of c30% of underlying profit attributable to ordinary shareholders each year 

·      US transition delivered for £45.1m with no further non-recurring costs

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

“During the first half of the year we have made pleasing progress in three important areas.  We have completed the technical separation of our North American business from Wells Fargo and are delivering our investment thesis for the US market with strong organic growth, new product launches, client wins and the realisation of material operating synergies.  Our market-leading UK franchises in share registration and share plans continue to grow organically, where the differentiated quality and breadth of our offerings are delivering increasing market share.  Whilst the pensions software and administration market remains challenging, we are making good progress in stabilising the performance of our Pension Solutions division.

“We are continuing to deliver our long-term strategy of sustainable organic growth, focus on our core specialisms and accelerating progress in North America.  We are pleased with the performance in the first half and despite the current uncertainty of the UK economy, the strength of our franchise and the non-discretionary nature of our services underpin our confidence in delivering market expectations for the full year.  Prudent allocation of capital remains a key priority and we are pleased to have reduced leverage year-on-year and the completion of the integration costs in North America pave the way for accelerating deleverage in the future.”

1The 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, therefore comparatives in the condensed consolidated financial statements have not been restated.  In order to provide like-for-like comparators for the prior period, comparatives on pages 1 to 13 have been presented as if IFRS 16 had applied throughout 2018 – see Appendix A on pages 15 to 17 for details.    

2Change at actual foreign exchange rates.  Revenue change at constant foreign exchange rates is 7.4% and underlying EBITDA is 3.0%.

*The Group uses alternative performance measures to provide additional information on the underlying performance of the business.  See pages 12 to 13 for further detail. 

3Operating cash flow conversion is calculated after allowing for use of a £20.0m receivables financing facility the Group has in place of which £10.2m
(H1 2018: £14.0m) was utilised at the end of the period.  Details of the facility can be found on page 10.
 

4The 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 30 June 2018.

MEDIUM-TERM OUTLOOK

Whilst we expect the uncertainty in the operating environment to continue, the outlook for Equiniti remains strong. We expect further organic growth in the UK, as we build on our relationships with our exceptional client base. The US offers a platform for accelerated growth based on market opportunity, the potential to take market share and the opportunity to cross-sell digitised services into our blue-chip client base.  Where appropriate, we will supplement our organic growth with capability-enhancing acquisitions.

Our business model gives us excellent visibility of our revenues. Our operations are highly scalable with platform characteristics and actions undertaken in the first half will serve to increase efficiency and reduce marginal costs.  This, along with progressive deleveraging and further operational improvements, will allow us to grow underlying profits and earnings ahead of revenue and underpins our confidence in the delivery of market expectations for the full year.

Our medium-term guidance is as follows:

·      Organic revenue growth of 3 – 7% per annum supplemented by capability-enhancing acquisitions.

·      Gradual margin improvement of c25 bps per annum.

·      Progressive dividend policy with distribution based on a 30% payout ratio of underlying profit attributable to ordinary shareholders.

·      Cash tax rate of c13% for 2019 and c17% for 2020 onwards.

·      Average cash conversion of c95%.

·      Capital expenditure of 6 – 7% of revenue post integration of the US business.

·      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