Equiniti/media/Files/E/Equiniti... · 2018-07-31 · the Wells Fargo Shareowner Services...

Equiniti

Half Year Results Presentation

27th July 2018

......

Equiniti

Guy Wakeley, Chief Executive Officer

John Stier, Chief Financial Officer

Questions From

Robert Chantry, Berenberg Ed Steele, Citi Rahim Karim, Liberum Paul Sullivan, Barclays Christopher Bamberry, Peel Hunt

Introduction & Key Highlights


Ladies and gentlemen, a very good morning to you all and welcome to the Equiniti Group

2018 interim results. Now we're one minute early but I think we're probably okay to

start if that's alright. My name's Guy Wakeley, Equiniti's Chief Executive and I am joined

here by John Stier, Equiniti's Chief Financial Officer.

The presentation we will give you today will be an overview of the results for the six

month period ending June 30th 2018 that we published to the market at seven o'clock

this morning.

In terms of our agenda, firstly I'll summarise the key highlights of the results of course,

John will talk to the financials in a little more detail. And we have included here some

helpful disclosure around revenue mix and around cash generation. I will then present a

review of our divisional business performance, again with some more disclosure on

revenue mix and performance and then some words on guidance and outlook. As usual

we'll be very happy to take your comments and questions, both in the room and on the

telephone, but at the end of the presentation please if that's okay?

So allow me to say some words in summary before we get into the detail. And in

summary we're very, very pleased to show you a credible set of interim results. We've

been very satisfied to see accelerating performance during the first half of 2018, building

on the momentum we had in the second half of the prior reporting period.

So the three highlights that I'd like to draw out before talking to the numbers. Firstly,

organic growth - and organic growth accelerated out of '17 into '18 and we are reporting

here like for like 7.7% of organic growth; a testament to the momentum that's coming

through.

Secondly, we've completed now our landmark entry into the US market, with the

acquisition of Wells Fargo Shareowner Services. I'll tell you some more about that in a

moment. But what I can say now is that multiple new opportunities present themselves

from that business.

And finally, we're happy to upgrade our guidance for this year based upon the

momentum that we've built through the first half of this year and the visibility we have

of the revenues for the full year.

So turning to these financials in slightly more detail, revenues increased to £254m,

that's a reported increase of 30.4% and as I say underpinned by 7.7% organic growth.

That is our strongest period of organic growth ever since our public market debut.

EBITDA reported at £55m, a 31.6% increase and I'd highlight here that we're continuing

to stretch our EBITDA margins as we build scale and take operating leverage from our

platform characteristics. It's really pleasing to be growing organic sales, growing our

margins in a period where we've also increased our capabilities, ingested an acquisition

and at the same time maintaining leverage and accelerating our earnings.

And to earnings, earnings per share have increased by more than 13% to 7.7 pence and

we are pleased to propose an interim dividend of 1.83 pence. That's an increase of

11.6% and it's in line with the progressive dividend policy that we described when we

floated the company in 2015.

A note here for clarity of course, that earnings and dividend are presented on an

underlying basis and that is to normalise for the effect of the 3 for 14 rights issue that

we took to the market in October of last year.

Our operating cash flow conversion remains a particularly strength of the Group and we

are pleased to report here operating cash flow conversion of 102%. And we say that

that demonstrates the disciplined working capital management of the business and

moreover is ahead of our average cash conversion since the time of our float, which was

around 98%.

To pre-empt a question, at the time of our 2017 results we talked about our receivables

financing facility with Lloyds Banking Group that at that time was drawn to over £19m.

Over the course of this first half we have reduced the draw on that facility by around

30% to £14m and obviously absent that - that reduction in that facility the underlying

operating cash flow conversion of the Group would have been significantly stronger in

the period.

To leverage, our ratio of net debt to EBITDA remains in line with guidance at 2.8 times,

this leverage figure is quoted a net basis of course and it includes the full cash cost of

the Wells Fargo Shareowner Services acquisition, but of course only five months of the

trading of that business. So the reported form here is actually as we contract for the

debt with the bank.

On a pro forma basis, had we included a full year of the Wells Fargo ownership the

underlying leverage would be lower at around 2.5 times.

The first half of '18 has been a strong period. We think the distinguishing strengths of

Equiniti have undoubtedly shone through here. Our services are non-discretionary, our

services are technology led. We're a business of specialists; we're not a BPO outsourcer.

And despite the prevailing challenges of the operating environment we continue to see

very many good opportunities to continue to grow the company.

So let me hand to John Stier, our CFO to talk in a little bit more detail about the

financials and I'll come back with some comments on strategy and divisional

performance. John.

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Financial Review


Thank you Guy. Morning everybody. So just a few things just to start with, I'm going to

take you through the first half trading performance this morning. You will see as we go

through the slides we're giving you some additional disclosure today. That is there to

help everybody understand the characteristics of the Group in a little bit more detail.

As Guy touched on there has been a very strong period of growth in the first six months

of this year that we're very pleased to report today.

You'll see within that revenue grew by 30.4%, £254m, and our EBITDA also grew by

over 30% to £55m. That growth is a mixture of consolidating our EQ USA business for

the first time, which we've done from the 1st of February this year and also seeing over

7% organic growth across the Group. You'll see that translates down into our EBIT, also

growing strongly to £24.7m.

Our non-operating charges are £14.1m in the period, these all relate to transaction costs

and integration costs of Wells Fargo.

As that transpires through you'll see that has caused our profit before tax to decline to

£3.7m, but our underlying EPS as we see as a core measure really of sustainable

performance grew strongly by 13.2% to 7.7 pence. And just to remind you that

underlying EPS is adjusted for two things, it's adjusted for non-operating charges where

they've been non-recurring in nature and it's also adjusted for acquired intangible assets

which get amortised through the profit and loss account. And that is because the latter

have no economic outflow to the Group.

When we start to look at division performance you'll see again very strong performance

across a number of divisions.

Investment Solutions grew its revenue organically 6.7%, while Intelligent Solutions

reported a 34.8% growth in the period. Pensions declined as we expected, but when

you look across the UK, reported over 10% organic growth and 12.2% reported growth.

And then we've started to consolidate EQ USA for the first time and we'll give you more

colour in a moment on the underlying drivers in each of these divisions.

You'll also see pleasingly that our margins have continued to accrete and they increased

by a further 20 basis points in the period to 21.7%. And that is caused through a

number of things, it's partly we have some platform characteristics in the Group, as

we've talked about in the past. So as revenue grows we would naturally expect to grow

profit quicker.

It is also because we have a lot of efficiency opportunities in the Group, that's things like

looking at robotics, how we automate in things that we do for clients. And also we have

a growing software business that again is margin rich for us.

So turning to a little bit more detail by division, firstly with Investment Solutions we

enjoyed a strong period of growth in our corporate action activity. And you will see

there that grew to £8.1m against £4.7m in the prior period. We saw double digit growth

in our international payments business and also strong trading volumes. Clients that we

worked with in the period for corporate action income included Old Mutual, Fidessa, and

Shire Pharmaceutical.

With Intelligent Solutions, again, you know a very, very good performance that we're

pleased with, predominantly driven by remediation services, where we were able to not

only win a lot of work in the market, but displace a competitor at one of our leading

clients. And signing new name clients in our KYC business and in our Credit Services

Operations.

We do need to bear in mind with Intelligent Solutions that we did have a weaker

comparator in that business last year. You'll recall in the first half of 2017 revenue was

flat in the division, whilst profit grew by over 12% and that is because we had a number

of remediation projects that finished and we were in between those projects finishing

and new ones coming onboard. That then took traction in the second half of last year

where we saw revenue accelerate to 10% growth in the division and that trend has

continued and accelerated further as we have gone into the first half of this year. It is

not sustainable at that level, to be absolutely clear to everybody, but obviously it gives

us a lot of comfort on a lower risk execution year this year and we don't see anything

that changes our mid term outlook for the division.

With Pension Solutions that's declined as anticipated and the decline is really driven by

two things, it's driven by the NHS insourcing some of the work, as we did a new three

year extension with them. And secondly we had a contract with the UK Mineworkers

Scheme that went to a competitor.

What we have been busy doing is looking very carefully at how we deliver service to

clients, looking to automate, look at where we get work done very carefully and that has

allowed us to drive efficiency out of the business. We have also taken a £0.8m

restructuring charge into EBITDA in the period as part of driving those activities. And we

continue to work towards seeing profits stabilise in the division as we go into 2019.

Our interest line grew strongly, you'll see, and that was caused by the Bank of England

raising base rates by 25 basis points in November 2017.

With EQ USA we have seen top line decline 6%, but also profit growth broadly by 6%.

Now what's been happening in that division is firstly we have seen a period of strong

competitor activity that we've needed to respond to. That has meant, as you'll see in

the announcement we have had some smaller clients that have chosen to go to

competitors. But most importantly we have not lost any of our major clients and a

number of them, as I say, we'll touch on and we can go through more detail in Q&A have

extended for between three and five years that we're very pleased with.

We've also seen some - just seasonality really between the first half and second half of

the year on corporate action activity. For our USA business we have had the opposite to

the UK where we have seen a softer period of corporate action activity in the first half of

the year, but we have won a number of mandates in the second half of the year that

makes us very confident about that reversing as we go through the full year period.

We have also seen in the business good opportunities to drive efficiency. And a mixture

of those efficiency initiatives and rising interest rates, offset by investments we're

making in the business, have allowed margins to grow. And those investments include,

as an example, things like getting ready to launch private registration share services in

North America, which we're actively now taking to market.

Finally on that slide you'll see our central costs growing just over £1m. That is driven by

our LTIP costs where we have done some true-up in the period for our 2015 issuance

with it nearing its fruition point.

When we look at our cash flow as a business, as Guy touched on, firstly you'll see very

pleasing cash flow through from EBITDA through to operating cash. As I say to people

consistently really, these metrics will move around our medium term target. We target

95% and we are really pleased to have done better than that in the period. But you only

need a few clients one way or another to pay a few million pounds that can swing those

percentages. Nothing that we see changes our medium term outlook and cash flow

remains very strong in the Group.

You'll see our non-operating charges associated with the £14.1m P&L charge were

£11.4m of cash and as is common there is some timing difference between some

invoices coming in and the cash going out. And then our capital expenditure has been

running at about 7% in the period. In all that's allowed our free cash flow to

shareholders to grow by 10% in the period to £22.1m. And then you'll see a cash going

out as we completed our acquisition of EQ USA and £13.6m being paid for dividends in

the period.

What we wanted to do on this next slide is just really give you a little bit more colour

about cash flow in the Group which we think is important. And so what we have done

here is we have stepped through from the beginning of 2016 through to today to look at

what cash is being generated across the Group.

Now what you will see here is as we step through that chart, if we take away working

capital movements we've had £240m in that five or six month reporting period. We

have then spent £30m on non-operating charges; they are principally associated with EQ

USA through transaction costs and integration costs that have been recorded in the P&L.

We have then invested £77m in capital expenditure, predominantly in our products to

take those forward, paid £6m of tax, and paid our MyCSP minority shareholders £10m in

dividend. That then leaves £117m available to providers of capital to the Group. You'll

see £23m of that then went into interest, which left us with £94m available to our equity

shareholders. And how we've allocated those funds is £55m net of rights issue that has

gone into acquisitions, £32m has been paid in dividends, and that's left us with £8m on

the balance sheet. And as we've touched on, of that £94m generated £22m of that has

been in the six month period we're reporting today.

When we look at our working capital in a little bit more detail just a few other points to

call out. You'll see there as Guy touched on, our invoice receivable facility has declined

to £14m in the period. And that was really driven by the mixture of projects that we

undertook in the period. You'll also see our DSO when we took at total debtors with

accrued revenue in our debtor book it tends to be between 55 and 60 days and we'll

obviously keep that reporting going for you going forwards.

The biggest thing that happened in the period is we consolidated EQ USA, EQ USA DSO

is just north of 60 days, that's running at 61 days todays, so there is some mix issue in

there.

We thought as well it would be helpful just to lay out some of the traits around our

accrued revenues so people understand that. The first thing to say is that we do not

book any accrued revenue in the Group at all unless we have a firm contract signed by a

client, making sure our revenues are completely underpinned.

The second thing is with the blue chip nature of the customers that we're working with

we get very, very minimum bad debts in the business, which again should hopefully give

investors confidence on the quality of our reporting. You'll see in the period that we're

reporting today that's less than £100,000 in the same period last year it was £300,000.

Accrued revenue has grown in the period and that is a mixture of factors that are driving

that. The first things is we've consolidated EQ USA, so in North America we will typically

do work for clients and we would bill it the following month as we have gone through

those services and that's what you see reflected there.

We have also seen a lot of growth in remediation services there and again what would

happen there is we would typically provide services to a client in month, we would record

the revenue to match with the costs which is appropriate and then we would go through

in the following month with the customer what cases were remediated, how we

performance with our SLAs, we would ultimately then agree and invoice in that month,

bill it, and then it would get paid in turn. So you get a lag in these things.

We have also seen a growth in software, and what would be pretty common with

software implementation is clients would agree billing and payment milestones to us,

obviously under IFRS 15 we need to report revenue as we do that work, but you can get

some deferment there. And you'll see we've put an example there of what would be

quite common with clients that we would agree.

And finally we've seen really strong growth in corporate action income. And again what

would happen with that revenue stream is we would agree billing milestones with the

clients as we do that work, so you get some deferment.

As we turn to look at our operating charges in more detail, the £14.1m is broken down

with £5.2m of transaction costs and £8.9m of integration costs. The transaction costs

have arisen in this period because they were all contingent on completion taking place at

EQ USA which we're now pleased to report has taken place.

The integration costs have been incurred through things like programme delivery, setting

up standalone function and spending money on systems and process to make sure we

can run our EQ USA asset on a standalone basis.

The other points to pull out there is firstly with our Pensions business we have incurred

£0.8m of restructuring costs in the period. They have been absorbed into EBITDA

because we've said we think it's right and proper that we really keep non-recurring

charges into costs which are truly transformational at a Group level.

So that is the policy we will be applying as we go forwards. It also means that as we

complete the integration of EQ USA there will be no non-recurring charges in the Group,

save for any other transformational transactions.

When we look at capital expenditure you'll see it's run at, as I say, 7% of revenue in the

half. The more notable things to call out there is our software development costs

reduced because we completed our work on MiFID II in 2017, that system has now gone

live and so we need to invest less than that. And secondly you'll see money being

invested into EQ USA, predominantly in the period actually driven on infrastructure

where we're setting up datacentres to host our applications.

When we look at our tax assets they remain very substantial, just under £780m. You'll

note if you go back and look in our accounts they have grown quite a lot on the period

as well. And that is because EQ USA is an asset transaction. And what happens in North

America is if you do an asset transaction the acquired intangibles and goodwill all get tax

relief, regardless of whether they go through your P&L or not. So that's a substantial tax

asset for us. We will take benefit of that in the cash tax that we pay over the next 15

years.

We have repeated our guidance on cash tax rates as well, so we're expecting a 13% for

the current year and the following year and it will then rise to 17%, is the best guidance

that we have. And that growth is driven by a mixture of completing the work and costs

of integrating EQ USA, but also the growth that we expect to come through in EQ USA as

we complete our integration programme, drive through the synergies we've talked about

and enjoy growth in the asset.

Leverage is reported at 2.8 times, being our measure of net debt to EBITDA and as Guy

touched on if we look at that on a pro forma basis, i.e. looking at the previous 12

months trading with EQ USA it's running at 2.5 times, so flat to what we reported at the

year end. It will remain flat for this year as we continue and complete the work on EQ

USA and then it will continue its downward trajectory as we go into 2019.

You'll also see that we have substantial undrawn RCF facilities and cash in the Group, at

the end of June these are £212m giving us lots of optionality to fund the business and

support growth as we go forwards.

And then just finally with IFRS 15, obviously we gave some disclosure about this at the

year end, no change obviously to what we reported, the accounts, as you'd expect, are

now fully IFRS 15 compliant. There are a couple of small differences on how we account

for things that we have been clear about in the statement and in the slide here that

you'll see and you'll see the impact on the accounts is minimal.

Thank you, I'm now going to hand back to Guy and then we'll go through any questions

as normal at the end. Thank you.

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Business and Strategic Update


Thanks John. So I'm now going to share some comments on the performance of our

trading divisions through the first half of 2018, a short update on strategy, performance

by division and then in particular progress with our US integration, finally of course

comments on guidance and on outlook.

In terms of strategy we continue to make good credible progress against the strategy we

set out at the time of the IPO. As I have mentioned before we are a business of

specialists not a business of generalists. We're not outsourcers in the conventional

sense. And that proprietary technology, deep treasured relationships and dedicated

teams of professionals allows the business to grow, irrespective of the moves in the

broader economic environment.

Since the time of the IPO we have grown revenues that are cumulative growth rate a

CAGR of 12% and of that 12%, 4.5% is organic and about 7% through M&A. Although

there are inevitable cyclical moves that push our organic growth up and down the

demand for non-discretionary services remains high. So that progress now has been

sustained over six reporting periods.

One of the real strengths of the Group and the strengths of the model is both the

ownership of technology and the ownership and stewardship of the data that resides on

that technology. This allows us to operate true platform characteristics, stretch our

EBITDA margins and turn importantly regulatory change to our advantage and we'll talk

a little bit about that in a moment.

So important proof points to start if I may. Our most important revenue channel is the

growth of sales to our existing clients and that's important because those revenue

channels are generally uncontested. And over the first half we've renewed all of our UK

share registers, just as we did in 2017. Key renewals there in Carnival, EasyJet, GSK

and Prudential.

Similarly in the United States we've renewed all of our major share registers, including

General Electric, now extended for seven years, J.P. Morgan, our largest client, 3M and

MDU our anchor client going back to 1929.

We have sold our regulatory and our payment capabilities to Banco Santander, to Lloyds,

to Ulster Bank and our risk factor receivables platform has now been sold to three US

banks in the period.

We have undertaken some very large remediation and fulfilment projects for major UK

banks and to pre-empt a question the growth here isn't being driven by PPI, these are

other products that are being remediated and we'll talk about that in a moment too.

Now over the half we're delighted that nine new clients have moved to us for share

registration or share plans. And that is an unusual dynamic, this is a market that's quite

sticky, where contract churn is quite low, but we are delighted that we've taken nine

new clients in in the period. And during that same period we have been involved in the

listing of 70% of main market IPOs, including Avast and Anexo. And you know what

September looks like it's going to be pretty bust too in terms of new issuance. Put

simply more clients are choosing Equiniti than ever before in our listed history.

Our Pensions business has been winning new contracts with the UK Atomic Energy

Authority and with the Combined Nuclear Pension plans; although revenues have been

soft there there is a building momentum on new business wins that will come through in

due course. We continue to develop and to acquire new capabilities at the foundation for

our future growth. Boudicca Proxy we touched on before which will grow in the back of

renewed interest in shareholder activism has been mentioned. And we'll talk about the

US Transfer Agency in just a few minutes.

We have also during the period launched a Tell Us Once platform for UK retail banking.

This is a service that helps UK banks integrate inbound customer contact over end of life

and bereavement. We are now providing that to six UK banks. And we have also made

really good progress in building a functional blockchain registration solution, using the

IBM Hyper Ledger technology; we'll talk about that too.

Operating leverage continues to drive benefits in EBITDA and in service excellence.

We're relatively low in terms of our offshoring as you know, at the moment we're about

16% offshored. So there is lots to go at in terms of building the costs there. And our

ability to exercise the platform is a real defence against cost inflation and against price

compression.

We see many opportunities to stretch the margins over time and we'll continue to do

that. We've now got 800 people operating in our centre in Chennai and we're pleased to

announce the opening of a new technology centre in Bangalore which we will launch in

the third quarter of this year.

Cash generation is still strong and John has talked about that in some detail. That gives

us the capacity both to invest in our own software, invest in the infrastructure and also

to acquire new differentiating capabilities and to continue to move the dividend of

course.

So for the near term the UK remains our mainstay, the strategy remains whole, remains

intact, but we really see the US as an exciting place to diversify our revenues.

If we talk for a moment about some common themes, as I have said before Equiniti is a

tech company, this is technology services; this is the combination of proprietary

platforms, data, analytics and skill to create solutions that react to regulatory problems,

to solve problems that clients can't solve economically by themselves. And this model of

regulated specialism as opposed to BPO you know it has never been more relevant as

our clients work hard to comply with new regulations.

Since the financial crisis ten years ago there have been 100 new regulations introduced

in the UK just in financial services and these create a drag on all of our clients. They

create a drag on as well of course, we have to invest, but they create an opportunity to

launch new product, to digitise customer experience and to find ways of reducing costs.

So these themes of regulation, digitisation that's what unifies our operating divisions,

that's what justifies our tech spend and that defines the space where we operate.

We'll talk for a few minutes about our divisional mix and about our revenues and how

they play through the divisions. Our portfolio is balanced, balanced across geographies,

balanced across service lines and balanced across revenue types. Firstly, our revenues

for the period are 86% from the UK, 14% from the US. Now that is a balance that we

think will shift over time and we think of this as becoming more 70/30, 70 to the UK, 30

to the US as the American business starts to grow.

As we read across the page the mix to product lines, Investment Solutions, that is share

reg and share plans, that's characterised by high margins, high client fidelity, strong

cash generation. That's around 40% of our revenues, around 30% from Intelligent

Solutions, slightly lower margin but very, very high growth, lots of differentiating

capability and then Pension Solutions is about 26%.

Revenue visibility continues to remain strong and if anything our revenue visibility builds

over time rather than diminishes. We've got very good visibility of the upper end of

revenue consensus for this year and the graphic we show here illustrates the revenue

mix that we have at the beginning of any trading year. Broadly 50% of our revenues

come from existing clients and contracted, recurring non-discretionary fee income. So

firm fee income.

About 30% of our revenues come from projects and most of those projects are with our

existing clients asking us to deal with corporate events, or deal with new regulatory

issues. Around 10% of our revenue is transactional, but I'd say that that transactional

revenue is also very, very dependable, this is foreign exchange on pension payments

made each month and every month. This is proceeds and dealing fees made on shares

that vest from share plans that deal each month and every month. So our transactional

revenues have a very high defensive characteristic also.

And then as we enter each year we've got about 10% to do, 10% of our revenues to

find. That's our revenue mix and it's solidifying as we look forward.

Let me talk a little bit about each of our businesses as we go through and give you some

of the highlights and the lowlights, the headwinds and the tailwinds. Our Boardroom

products sold in Investment Solutions, I mean this business division is going from

strength to strength, we're the largest provider of these services by a very considerable

margin now, very high levels of accuracy, very high levels of client retention. This is the

cornerstone of our franchise with the listed market.

Revenues are almost entirely from within those established relationships and the model

is relatively resistant to the economic cycle. 70% of revenue is contracted and almost

all of it comes from those existing relationships, that's the key point.

Since the float this business has delivered a revenue CAGR, that's really an organic

CAGR of 4.5% consistently year on year and is also driven by a number of structural

drivers. Share plans are becoming more popular and better populated and here we've

been able to harness the effects of MiFID II. So MiFID II has forced us, has required us

to create digital relationships with our customers, we've got 5.4 million retail customers

in the Group and we now need to digitise those relationships.

So MiFID, although it has cost us circa £10m to adapt our systems, will put between

£1.5m and £2m of additional revenue into the Group through that digitisation into the

Group, through that digitisation in this period, in this year - forgive me.

Our market wins and the growth of share here doesn't really make much difference for

2018. But new clients underpin our growth for the future. I'm very proud to welcome

nine new clients into the Group and we're particularly pleased to be operating now all of

the share plans for National Grid, one of the largest and most complex issuers of equity

in the UK, a very complex assignment. And we have got a few more of these

opportunities that we hope to be able to tell you about as the year unfolds.

There has been lots of M&A activity in the market and M&A for us means corporate

actions. So in the first half there has been the spinoff of Old Mutual and Quilter, the

takeover of Shire has been announced by Takeda, GKN and Melrose of course, Virgin

Money and Clydesdale, the delisting of Fidessa - the takeover of Fidessa and the

delisting of Zoopla. These mandates are typical of the kind of work we do week in week

out. And importantly this work is originated from within those relationships. And as I

mentioned we're very pleased to have 70% of main market companies coming into us

through IPO, they are our clients of the future.

Our Intelligent Solutions business is really making some new markets here. We've had a

fantastic period of organic growth, no doubt about that, 34% organic growth. I mean

that is not a sustainable level that we expect to maintain. But this will always be our

fastest growing division and we guide you to low double digit growth as being the right

kind of balance here. And you see that we've grown in excess of 10% year on year

CAGR since the time of the IPO.

To tell you a little bit more about what we do here, we've got four core services lines in

Intelligent Solutions. Firstly, regulatory remediation with end to end processing of

complaints, remediation and redress on our core technology, our Charter platform and

that platform is used by very many UK banks, including Banco Santander and Lloyds

Banking Group.

We operate loan origination and servicing, we provide that on our core and Ice Net

platforms we do this for UK banks, the largest UK bank. We service loans and provide

technology for motor dealers, for retailers, for Admiral, for Motonovo, for Ikea.

A recent thematic is the new focus on the anti-money laundering regulations, AML 4 and

we have proprietary technology here, Passport, that allows institutions to improve their

on boarding of clients, but also to remediate the KYC of clients. And we have sold the

technology now to Bank of Ireland, for the UK and for Ireland and to Ulster Bank for the

UK and Ireland. We are also providing data and analytics, you know, driven clearly by

GDPR.

Each of these capabilities is driven by regulatory change, MiFID, GDPR and whilst of

course regulations require us to invest our model gives us revenue opportunities from

those investments.

To share a topical example with GDPR we have created a breach reporting system and

we're pleased to say that we've now sold that data breach reporting system to the

Information Commissioners Office, who themselves are responsible for the regulations

around breach reporting. So the tech is really, really useful. And it's that that drives the

margin, drives the incremental margin.

Revenues here are a little bit more project based and you know what we need to do with

this business is make that revenue mix much, much more - around managed service,

make it more defensive and get that growth rate smoothed out and that's what we're

working to do. But the great news is there is opportunity here.

The Pension Solutions business also enjoys a strong market position. The number one

provider of public sector pensions, number two in the private market, continue to

operate the schemes - or much of the schemes for the National Health Service and for

the armed forces. We serve nine million pensioners and annuitants and there is a real

heritage of service here. The majority of these revenues are contracted, that's the good

news.

The challenge of course is that this space is contested. In registration we're the largest

of three, in pensions we're one of five. So here we've had competitive pressure. The

decision we've taken, and we've always been clear about this, is we're not a price

competitor. So we want to protect our margins because we've got a quality business.

So that means we've had revenue erosion, we've had contract losses. So at the same

time we've got wins of course which I mentioned with the Atomic Energy schemes.

So at the macro level pensions is a good place to be, there is no question about that.

The demographic of the United Kingdom I'm afraid is that we're all getting older, that

means more pensioners and that must mean more pensions. So you know the mid term

view of the pensions market is good, but for now it's a bit congested. So revenues have

shrunk, not quite as much as we feared they could, but nonetheless there has been a

decline this year which will trough out through '18 and then the business will return to

growth.

Let me say a few words if I may about the acquisition of Wells Fargo Shareowner

Services, the transaction to acquire Wells Fargo Shareowner Services was executed -

was signed in July of '17 and we completed on the 1st of February this year. This is a

terrific business, no question about that. We have got an industry leading team of

professionals running it, the very best standards of service and loads of innovation and

fresh thinking.

To diversify our revenues into the US and to do it with clients like Berkshire Hathaway,

with J.P. Morgan, with General Electric, that's a really exciting opportunity to build a

proper multinational growth opportunity. We're very, very pleased with what we've

bought and we're very pleased with how the integration is progressing.

To talk about the revenue mix this is also very, very contracted. So very high levels of

visibility, lots of recurring monthly fee income that comes from very, very high fidelity

relationships. Now, as you can see on the slide there has been a decline in revenues in

the first six months of about 6% that's rather a decline in our first five months of owning

the business.

Let me tell you why that is, there are two things here. Firstly, there is a strong comp in

2017, with more corporate actions in the first half of '17 than we've seen in '18 and that

comp will reverse during the course of this year. Also, we've seen some price

compression and we've seen some client attrition. Smaller clients in the main, but we're

through that. So the revenues are stabilised and the business is now in a position to

return to both organic growth and to accelerating margin performance.

You can see though that the margins have progressed well in the second half and that is

an important point for us. We've got good cost management here and we've got a very

well-executed carve out and that has allowed us to grow our margins organically by

5.6%, despite the compression in the top line.

So let me talk for a minute about the integration. And as I say this integration is

proceeding well. Firstly, most importantly, we're on track to deliver the integration of

the business and to deliver the synergies that we committed at the time of

announcement of £10m of recurring run rate synergy in our second full year of

ownership, that's 2020. Those synergies will be delivered and we've confidence in that

and that will be done within the £42m cost of change that we told you at the time of the

deal. So we are absolutely within the envelope. And as you can see from the margin

acceleration in 2018, those synergies are starting to come through as we get the

business under good cost management.

To share a little bit more colour around what's going on on the ground, a bit more detail

about the actual change programme, firstly our regulatory change programme has been

delivered, that's the first bar here on the chart. So we have created a trust company

bank in New York State, we have permissioned it also the state of Minnesota, we are in

the process now of permissioning it in the state of Wisconsin. Those structures are fully

operating and that establishment has been entirely seamless.

Day one transition, that was Thursday 1st of February was delivered seamlessly, so

that's a full transfer of the staff into our business, a full re-plumping of the payment

flows, the operating flows, everything that you need to run the business. So I can tell

you and my clients have told me that there was no disruption to service on that first day.

The business is in and the business is operating.

Over this first five months of ownership we have worked hard to deploy new systems,

we've deployed new HR systems to pay, to train, to develop, to manage our team of

professionals, new finance systems to run our accounts of course and to manage the

business with great control. And also new CRM systems to track our market

opportunities, to track how we manage our pipeline. So the integration of those

American businesses is now very closely aligned with the UK business, we run the

businesses in the same way.

We have commissioned a second site, or selected a second site in Milwaukee in the state

of Wisconsin that will be a 250 to 300 seat site. That give us disaster recovery, but it

also gives us the ability to grow out our new service lines. And that site will be

operating at the end of the third quarter.

Our US data centres are built, one in Minneapolis the other in Chicago, so all our IT

resilience is in there and working. The initial release of our core Sirius platform is now

deployed in the US and that code base as a foundation for future development is in,

tested, and working.

Our attention now of course is to do that two things that matter and the two things that

matter are improving the service that we deliver to our clients, but also delivering the

synergy case that we commited to that market and both of those will be delivered.

Our primary attention is to now complete our separation from Wells Fargo and that is the

primary means to drive those synergies. We intend to get that work completed in the

first quarter of 2019. And that will be parallel with the launch of new services both for

share issuers and for share owners. The clear feedback that we've got from the client

base and the issuer base is that people want new web services. So those are what we're

building and those will be done in the first quarter.

The migration of clients from the legacy system of record to Equiniti's platforms will

commence once those new services are out and once that separation is complete. We'll

start that work in 2019 and we'll do it through 2020 and we'll do it aligned with our

client calendars, that's the key thing. We can do this when it suits our clients; we've got

the time and the space to do this integration in a thoughtful, careful way, but delivering

the synergies that we've committed.

Now this process, this large business process isn't just about integration, isn't just about

separation, critically it's about growth, it's about returning the business to growth and

driving our range of products that we have here in the UK out into the US. We have

already got organic plans underway to grow share plan products, proxy solicitation

products and assets reunification products. And those new service lines will be

delivering revenues in the first quarter of '19.

So let me say a few words about outlook if I may before we turn to questions from the

room and the telephone. 2018 has started very well for Equiniti and we're very pleased

both with strong organic growth, with cash generation, with margin progression.

Accordingly the full year performance is expected to be at or above the upper end of the

consensus range that's in the market right now.

We are pleased to have built our market share, we are pleased to be maintaining the

very highest levels of client fidelity, we're delighted to have the opportunity to serve new

clients, both transferring from our competitors and we expect more to come in the

second half.

The entry to the US is a really solid one, it's a fantastic business sold to us by a solid

long term partner. In the mid term of course our core priority is to complete that

integration, but as we do so there are many, many opportunities to grow out the new

products. We really will deliver these commitments.

Equiniti, it's a business that's differentiated, it's technology led, and we've got continuing

programmes to grow our margin, so EBITDA margins will expand. The core drivers of

growth remain intact. This business is driven by regulation and our markets are the

most regulated in the world, we invested in regulation here in the United Kingdom, there

are lots of opportunities for us to go at here. We remain focused on these complicated

spaces, on technology and on data and the skill of our specialist colleagues will drive that

growth forward.

For the foreseeable future we see the resilient characteristics of the business continuing,

modest, yet sustainable mid single digit organic growth, supplemented by a favourable

interest rate environment both here and in the United States. There are very strong

prospects of value creation and the Board and Management look forward to the year

ahead with confidence.

So thank you for your attention during this slightly longer presentation this morning. Of

course John and I remain very grateful for your support and we're very pleased to take

questions here in the room and on the telephone. Thank you, please the first question.

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Questions and Answers

Robert Chantry, Berenberg Hi, just a couple of questions. Firstly, on the US market, could you just give a broader

update on the wider market environment, specifically growth rates in certain areas, you

mentioned pricing pressure, which competitors that's from, why that's coming in, etc?

And secondly you talked about the stabilisation of revenues in Wells Fargo, clearly they

declined 6.7 pro forma in the first half, could you give a kind of exit rate from the first

half, in terms of was most of the decline seen in the February/March period and has

since stabilised and just the dynamics around that? Thank you.

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Sure, so I mean I think the thing to say about the services business - businesses - is

there is always a period of uncertainty when the doors are open. So we had quite a long

period from the announcement of the transaction in July 2017 and actually getting it

completed in February 2018 because we had to secure all of our permissions.

So when the doors are open like that, you're always vulnerable to your competitors

targeting your client base. And that is exactly what we've seen in reverse when Capita

told their registration business; you know we had a significant inflow kind of the other

way. So the two key competitors are Broadridge, US listed and Computershare

Australian listed. And of course their teams have been out in our client base.

I think it's right to say that the US market is a little bit more price sensitive than the UK

market. So when I think about that 6% decline that we've had it has principally

happened in the first quarter of this year rather than the second quarter. About half of it

has been driven by comp, i.e. corporate actions in the prior period and say 3% organic

decline has been broadly half price compression and half client loss.

Now we've lost some clients, no question about that, of the 650 odd clients we have

we've lost about 20, but very, very small price sensitive clients. That trend is now

finished; we don't feel that pressure nearly so much as we have done. So our

expectation is our exit rate into the second half is much more comfortable and the

business will be back on a stable footing in the second half. Does that hit the question?

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Robert Chantry, Berenberg That's a good answer.

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Great, thanks. Ed?

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Ed Steele, Citi Morning, a couple of questions on the same issue please. So you've been taking price

cuts on large re-bids to keep your clients, why will you not see more price cuts as other

re-bids come up for tender? So why are you so sure that you've reached the bottom?

First question, thanks.

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Okay, do you want to give me all of them and I'll do them?

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Ed Steele, Citi Second question, in your May update you said that the migration of clients was starting

in the third quarter. Two months later you are saying that it's not going to start this

year it's more like '19 or '20, so what's changed in the last two months please?

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Okay, so let me take both of those. The characteristic of the market is that there is very

high client fidelity, so there is relatively low contract churn. So you know when we talk

about contract churn and clients moving this is always in the margin, this is always small

percentage points.

As I said to Rob, I think the US market is a little bit more price sensitive, but the

opportunity for the churn to happen comes in the sort of interregnum between

announcing the transaction and concluding it. So we have now been able to be much

more front footed about our plans there with our client base now that we own the

business. I have been out to see most, if not all of the senior clients, the major clients,

and many of the mid tier clients and they are very satisfied with the plan that they have

for us.

Now through that process they have given us a clear message. The clear message they

have given us is look take your time with moving our data around, but give us some new

product, so give us some new digital interfaces so that our shareholders can access their

accounts and process their transactions in a more digital and connected way and also

that we can see as share issuers MI and data on platform, rather than needing to use

the telephone.

So we have shifted our gaze a little bit, that’s quite right and we have shifted our gaze

from the core system of record, you know where the data is kept, to how we build out

the service. Now the platform is there in the US, we have built it and we've actually got

clients on it. But we are running the business currently on the old system of record and

we don't see any rush to drive that migration forward because the synergies come from

the costs that we displaced from improving operational processes, from disconnecting

ourselves from Wells Fargo, where there's lots of friction and inefficiency in the

transitional service arrangements that exist. And most importantly we can give our

clients what they want a little bit quicker.

So this isn't a change of plan, it's more a change of emphasis, what we want to do is

give our client what they want a bit quicker. Does that hit the question?

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Ed Steele, Citi I still don't quite understand - I mean it's two months since you last talked and it's

changed quite dramatically and clearly you've gone and renegotiated with SunGard to

get a lower price for the ongoing delivery. So you've obviously had a process to go

through to change your mind, I'm just trying to work out exactly what has catalysed that

change of view please?

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So all development programmes, all business programmes, all major projects are

operated through a continual review of extant risk within a project. And we review the

risks in this programme week on week. And look I mean straightforwardly we've got

two jobs we've got to do here, well three jobs, build out some new services, separate

from Wells Fargo and also migrate data onto our new system of record.

As we look at that dynamically, we think, you know what nobody benefits from

accelerating the migration of that data, nobody at all, it's just data sitting on a platform.

All our clients want is new product quicker, what we want is to separate from our vendor

quicker, so as we've dynamically assessed the risks as we've worked forward, we

deprioritised one activity and accelerated another.

And I think that's good project discipline and I think I feel much more confident saying

that I can review and assess plans in real time and do the right thing for customers than

slavishly do something that might turn out to be wrong.

Can I take further questions?

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Rahim Karim, Liberum

A couple of questions if I may, we've talked a lot about platforms in the US, if you could

help us understand what you're doing in terms of people and building our management

team to ensure that the eye is kept on the ball there that would be great?

Changing tact a little bit and moving back to the UK, obviously Intelligent Solutions had

a great first half, if you could help us understand exactly what areas of remediation work

you're winning, perhaps maybe break out what the growth has been in terms of PPI and

non-PPI that would be quite helpful?

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Definitely, okay good. So I think what I'll say first is we're going to do a capital markets

day later in the year where we'll introduce you to some of our US management team and

I think that will be an important engagement. We have retained all of the leadership of

our US business and they are very, very high quality.

The gentleman who runs our business, Todd May is the President of the US's Stock

Transfer Agent Society; you know an industry authority, very, very high integrity, very

high energy, very motivated. But around him we've built new folk and we've hired as

example a new General Counsel who has got a lot of detailed experience in the US

equity market. We have hired a very senior professional from the New York Stock

Exchange who is the de facto expert in America on corporate action processing. We

have hired professionals in the asset unification space who understand tracing and asset

allocation. We've hired very experienced professionals in the proxy space. So what

we're doing is building our bench up here so that as we talk to our clients and engage

we've got more conversations to have and more things to sell to them.

So - and that's why I say that the excitement of this opportunity is to have those

franchises with these very, very good long term relationships with US names and have

more things to talk to them about. Previously this is a business that could only talk

about one service, about share registration and they could only talk about it to Wells

Fargo banking clients. That's the diversification we have here.

Taking your second question Rahim about Intelligent Solutions, what's driving growth

here - I mean I think there are two things. Last year the business ran a little bit slower

than we thought it would and we've talked about that. There were some projects that

were delayed; we've got those projects into service now.

What tends to happen is - talking about remediation in particular, a regulator will place a

deadline upon bank and as that deadline looms closer so they want to get stuff done.

The kind of things we're doing - I'll give you some examples, we're doing PePs and

sanctions processing for a major UK bank. We're remediating mortgages for a major UK

bank. We're remediating bundled bank accounts for a major UK bank. All different

banks by the way.

Now, it's right to talk about PPI because everybody asks us about it, PPI is not a large

part of the business, it's about £2.5m to £3.5m of profit, it's that kind of level. But what

I can say is this, our PPI revenues are relatively stable, they have grown a little bit, a

little bit but not much, a couple of million quid or thereabouts.

Now, many of you will know if you follow the sector there was a Supreme Court ruling

last year Plevin, Plevin versus Paragon Financial Services and that has extended the

deadline for PPI claims to the 29th of August 2019. So I mean I can't foretell the future

but I think PPI claims will grow for a bit through 2019 and then certainly will be

processed through 2020.

So there is more in the PPI market to come, no question about that, but where we're

seeing growth in Intelligent Solutions is from other product lines, the remediation of

other products.

If one were to look forward a little bit more I think there will be bulk remediation in the

pension sector where pension freedoms have perhaps been exposed to regulatory

challenge as an example and similarly in the travel sector, in the utility sector, so those

core capabilities and this isn't about resourcing, it's about platform to be able to solve

regulatory problems. I think there's lots to go at. Does that get the question?

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Rahim Karim, Liberum

It does, can I maybe just ask one more in terms of accrued income, you talk about the

mismatch between booking revenues and costs versus invoicing. Are there any

examples of where you've booked revenues or cost and then had a dispute with the

client over the level of invoicing?

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No, which is why the level of bad debts is just miniscule.

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And our day sales outstanding, our relative debtors if you like are very, very stable

through the history of the company. Thanks Rahim.

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Paul Sullivan, Barclays

Hi, so just to be clear when does the relationship with SunGard terminate?

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The relationship with SunGard is extensible for five years. So that will be until - we'll

ask John for the precise data.

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What we've got Paul is optionality, so if we want to full it through to its full course we

can run that through to March 2020 - I beg your pardon, March '22, so we've got that

optionality. But I think what we've tried to do as Guy has touched on is have optionality

so that we can do things that suit ourselves and our clients at a timescale that's best for

us.

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Paul Sullivan, Barclays So the likelihood of that being exercised has gone up?

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Oh for sure, yeah for sure. Because we're resequencing if you like, reprioritising how

we're approaching the problem.

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But there's no implications on the delivery of savings?

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No, gosh no.

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So what happens Paul to give you a bit more colour, is that there will be a lower

proportion of the savings through SunGard but there is still substantial savings through

SunGard because we've been able to negotiate that far better than what the business

has paid in the past. But then what we've also found in the business is lots of other

opportunities, some of that through things like third party procurement, some of it is

looking at far more automation with the people, with the core system of record that we

can drive through.

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So when we think about the system SunGard and Sirius is a bit in the middle but how

the business work is an end to end continuum of processing. So to colour it with an

example the UK, where we get tens or scores of thousands of letters every day we have

big industrial scanning machines, you know the width of this room that ingest post and

scan it and digitise it and workflow it at great scale.

Our colleagues in the United States scan documents like you would do them at home on

your kitchen table. So we've purchased all the scanning equipment and automation to

automate all that workflow into the business. And that is one example, there are many

other examples. So it's the automation of those business processes that give us the

acceleration of the synergies. And you see some of that coming into the results.

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And it certainly does impact your ability to launch new services; I thought some of those

were dependent on the transition or the migration?

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No not really. So I mean if we think about proxy for instance, proxy is driven by - you

need a list and you've got a list in either system. Asset reunification is driven by a list.

So could we make those services go a little bit quicker at a slightly higher margin on a

different platform? We could, but the quickest way to business value is to get the

services built and launched. And we can do that with the plan that we've got.

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Paul Sullivan, Barclays And then secondly, with interest rates going up in the US is there a greater sense that

you'll have to share some of the upside with your customers?

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No I don't think so, no we don't sense that.

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Paul Sullivan, Barclays And that's not exacerbating the pricing pressure, so what you're gaining on one hand

through higher interest rates you're giving back on the pricing?

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No, not the case.

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Paul Sullivan, Barclays And then just finally in the UK, corporate actions very strong in the first half, what does

that imply for the - what's going on in terms of the growth in the core registration and

the share plan's businesses; it feels like that growth is quite low at the moment?

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Well that growth is always going to be low because there's relatively little liquidity as

we've always said. Both core reg and share plans are growing but low single digit, the

single digit-ness is driven by corporate actions. But what I would say is that the

corporate actions that we all know about that are in the market in the first half will

obviously complete in the second half, or maybe even in the beginning of '19, so there's

a kind of sold pipeline if you like of value that will come through, Shire and Takeda being

an example.

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Paul Sullivan, Barclays Just finally, in terms of the growth guidance for the second half are you willing to sort of

share any sort of divisional thoughts in terms of organic performance?

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I think it's not appropriate to give organic guidance by division for the second half, but

what we will say is we're going to come at or above the consensus that's in the market.

All of the division - sorry the divisions that are growing will continue to grow, Intelligent

Solutions will turn down a little bit. Investment Solutions should be kind of where it is at

the moment. And Pensions, as I said, is troughing out. So a comparable mix but with a

lesser overall organic growth I think is the expectation.

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And we've got a higher compare Paul, particularly in Intelligent Solutions in the second

half of the year.

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Yeah exactly, so the momentum is there but the comp is different.

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Christopher Bamberry, Peel Hunt

Just going back to the resequencing, you're still going to hit the 10 million, does that

mean when you actually have the migration there's potential synergies in 2020 through

the migration of platform or not? Or similarly are there extra costs if you're launching

new products I guess on the existing system and then having to migrate, does that

cancel that out - just to understand the kind of - ?

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There's a mix Chris, look I think what we're not going to do is get ahead of ourselves on

talking expectations up, you know what we've said and been clear, we're very

comfortable with the $10m of synergy opportunity. Could the business - look it could

but we're not going to talk it up at this point. What we want to do is get to that point,

make sure we're delivering and really drive on meeting customer needs and get the top

line kicked on. I think that's the right way to think about it today.

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But it would also be right to say that we're very comfortable with the numbers that are

in the market and you would be right to conclude that there are many opportunities

there.

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Secondly you mentioned blockchain works, could you expand a little more on that?

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Yeah, so we've - there's a lot of talk in the market about blockchain and the challenge

for us as a business is to say look is there real business value here or it is just kind of

aspirins looking for headaches? So we've built one.

So we have a replica of our share register, our registration platform running in

blockchain right here right now, I can show it to you after the presentation. And what

we're now doing is saying look is that technology actually viable for deployment in any of

our core businesses? And we don't know yet frankly, but we're trying to find out and it's

really interesting.

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Thank you.

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Thanks Chris, any more questions in the room or on the telephone?

Okay, then thank you very much for your attention during this presentation. John and I

are very grateful for your support. Have a great day, thank you very much.

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END

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